Transcripts For BLOOMBERG Market Makers 20150901

I look to the stoxx 600. What are people saying . Jonathan the only good news is we are on session we open much lower, down as much as 3 at one point. It is classic risk aversion to equities. Yields go lower, the dollar yen goes below 120. For me, the big headline is china, china, china. Nonmanufacturing pmi. The story we have been told over the past 12 months is short their manufacturing will weaken but services will improve. Erik i want to bring mike into this as well. Is vicks is what everyone talking about. The volatility that comes as a result of the implied vote of futures. The best thing we have got going , this is the ball in european. Tocks it is up 10 right now but that index, again, this is our best proxy until the vicks starts trading at 9 30. Session lows. The caveat is european volatility has picked up at a time when actually u. S. Volatility, the vicks, has stayed pretty much muted throughout the year. Finally, the vicks woke up. European volatility is being heightened around the greek situation over the last couple of months anyway. Erik volatility at some point becomes a catalyst. The dow futures were down more than 400 points, now down to about the low 300s. You look at an open like this, it is reminiscent of last monday, where things get dislocated. Last week, the vicks stopped printing for the first hour of and we had etfs that were not showing proper trading. It appears to have been a computer problem from one of their data computer bet vendors. If this could be one of those opens where everything goes owng and it becomes its catalyst for people to be scared of the markets and get out. Up the want to bring chief Market Strategy strategist at jefferies. Although i think the debate could be one of the most the now erik David Service says it does whether it is because of china or the fed. Just sit this one out. Matt that is what a lot of people are trying to do. That is why they are selling equities. Notenk it is important to on surveillance this morning, obviously a governor at the bank of israel, he said, i dont read what, but read the text of they said there they will raise rates in september. Every Single Person we spoke to in jackson hole on the fed said it we do not care about the market volatility, we will do what we will do. What youre seeing is not only a reaction to slowing growth, but also when you sit back and look, you will see investors just want to get out before the rate increase they still expect to happen in september. Erik jonathan, in the midst of all volatility, do you still hear people invoking volatility . Thathan they talk about all the time to you shortly euro, go long dock. The best since 2009. We have already had a turnaround. Itng toward, they will say is all about qe. To me, mario draghi has got two things to look out for in the market. Around 112. Izing the second point is theyre looking at credit conditions. Credit conditions in europe are improving. Credit conditions are turning. In europe, the thing we should be talking about is what is not happening. Spreads are not blowing out in an aggressive way. We are not as tight as we were a couple of months ago, but the market has not really reacted in the equity market of months ago. Mario draghi and the ecb, they can relax for now. No big red flashing lights. What happens with china Going Forward, very important. It remains 60 billion every single month. I do not think that changes anytime soon. It has not worked for the last couple of months. When does it chart working again . Thank you for joining us this morning. Jonathan ferro. We will come back to that in a second. Meantime, i want to bring you some of the stories of the morning to president obama wants to boost americass presence in the arctic of alaska. Hell propose the coast guard build icebreakers that offer yearround obama wants to close the gap in russia. He said it will define the century more than any other. Activity obama human is disrupting the climate. This threat is very much in the present. Climate is changing. Temperatures in alaska are rising twice as fast as global averages. The latest batch of Hillary Clinton passes emails saying she and her staffers were wary of security issues. Concernedges protecting sensitive information. Heldf them were being because they are considered classified. She used a private server instead of the government system. For the first time, donald trump is sharing the top spot in an iowa poll. 23 in the Monmouth University poll. Carly fiorina is third at 10 . Meanwhile, fading fast and iowa. Those, for the moment, either top headlines. Matt miller is here and so is michael regan. Covering as we head to the opening bell can number two needs to be, in my opinion, gentlemen, what is happening at bank of america. Pension funds, including the Largest Employee retirement system, Brian Moynihan earlier this year was made eeo atn in addition tos bank of america. They are two of bank of americass largest shareholders that say, this is bad governance. Matt it is a better way from their perspective to run the bank. It will be an internal struggle. If you are jamie dimon and your bank is jpmorgan, it is more likely to happen. It has been a couple of years since that kerfuffle at j. P. Morgan, michael. What does that say to you that once again the focus is turning to corporate governance. Mike it is amazing these guys can hold the job so long with all the noise made about it. People have been talking about splitting up those rules for a long time. I do not know what their stake is in bank of america offhand . 1 . It is still obviously a big bully pulpit with a lot of money being managed in those funds. It will be interesting to watch. Get to number three, apple. Tois teaming up with cisco allow easier capability for its products to work with cisco. On the tv front, the company is in talks about producing exclusive shows for its service. Apple might be late for the game. Excitingittle more than amazon. Everyone is doing it. Even amazon in catastrophe inasmuch as they have been able to generate hits. We do not spend as much time talking about the flops and there have been a few of those as well. Erik netflix down 4 in premarket. Here is a story im eager to talk to you about. Month of august, five point 3 last month. Part of it had to do with volatility and oil and part of it has to do with chinese stocks. Gold, the only thing working for David Einhorn back in the month of august here so far this year, down 14 . Classes it looks like it will only be a second for your loss. You say 5. 3 percent. Down 6. 5 . There is a little bit at least for last month. Stat that popped out at me is that hedge funds in general are outperforming the market compared to about a 2 drop with dividends. This is maybe the time hedge funds prove their worth. A beary outperform Market Correction . They will tell you they can. The company just came out with auto sales up 1. 7 . The firstoking for down month for Fiat Chrysler in 65 months. Ford and gm are set to report later this morning as well and august. E did it again labor day is still late but it will be in september. That means serious from last year when it was obviously and august pair for all automakers, it will be a problem. Sergio somehow pulled it out. Jeep is the key. Jeep sales pulled up 18 . Of carries the day again for chrysler. We are looking for 0. 2 drop for ford. F1 50 production should finally be up to speed and maybe that will help them out this year versus last year when the old truck was going out and maybe people were waiting for the new one. A drop of 2. 6 for General Motors. Erik thank you matt miller and mike reagan. , we will talkack about another market, oil. Stocks are dropping. Oil has been on its best threeday rally since 1990. Oil is trading down a little bit still in the high 40s. It has been that way for a few weeks. We will look at that next up. Our topfew more of stories this morning. The chinese president is planning the biggest overhaul in the countrys military in three decades. She wants unified chinese army, navy, air force, and missile corps under single demand. Fewer officers, and the number would be Britney Spears samsung will come out with a challenge to the apple watch, the new smart watch will allow mobile payments, smart car keys, and home devices. Users will be able to send text messages. Mercer mayer is expecting twin girls. She wrote on the company blog that the twins are likely to arrive in september. She said just that she did with the birth of her son three years ago, she will take limited time off and be working the whole way. Those are a few of your top headlines at this hour. Lets talk about oils rally. Something of a halt this morning, trading down almost 2 . That is after the oils biggest twoday rally in 25 years. Crude is close to 48 per barrel. Peter, it is still way off the lows of last week. Lets talk about today for the moment. Do you get a sense of why it is pulling back . Peter cohen after a move of this magnitude, it is natural for the markets to recoup. Youre talking about a threeday move equivalent to the 1990 iraq invasion of kuwait. This is something that arrived without any geopolitical risk, a largely changed fundamentals. Perhaps no fundamental could change fast enough to justify a move and oil, but there are fundamental differences from where we were a couple of weeks ago. Lets walk through those. Peter cohen we did get good news last week from the u. S. Demand side. To pick up in the form of revised gdp numbers. Both of the saints together would imply higher demand for usbased active, nothing to justify the magnitude of the move. Now to the geopolitical perspective, saudi arabia has come out and said they are willing to quaff great with members to help create a fair price for oil. Erik what does that mean . A very wide range of interpretation. Peter right. The reason that information came into the marketplace, they publish monthly. There is no detail, no plan to create a court needed effort to corral other producers into a lot of this is hot air in my opinion. Erik the study of opec is not that different from the study of the kremlin. It is hard to find what is going on. Saudi arabia clearly holds the power. Who else wields influence . Peter it is the tell that way the dog. Who benefits, really, from a production, opec curtailing supply . It is actually u. S. Sales. Happened. At oil moved from 40 to 60 for the fourth half of the year. Immediately after, you see recounts. That shows the speed at which shale can move. It is like a light switch turning on and off here at Higher Oil Prices will not only invigorate u. S. Production but give breathing room to the banks from a Capital Markets perspective in the sense that these companies will be allowed to raise debt, hence more drilling. Here great to have you explaining what is going on and oil to the degree we can. It is not so easy. Up next, a mobile Payments Company with a guarantee it hopes will create new opportunities. Erik here are some of the agenda items youll want to put on your calendar. Motors reportal august sales. Fiat and chrysler beat the odds and rose and 9 45 this morning. Market u. S. Manufacturing pmi expect to be little change last month. Construction spending and i manufacturing data. Until about 20 minutes ago, client was one of the largest electronic Payment Companies in europe alone. It is officially opened for business here in the united states. With us from sweden this morning to talk about the launch is the ceo. It goes without saying most people here on this side of the atlantic have not heard about your company. They have heard of paypal and a little bit about bill me later and about apple pay. What makes this different . Thanks again for having us. In order to be talking to you from stockholm. Even with all the great Payments Companies in the u. S. Today, 80chants still see between on desktop, and it gets all the way to the card. Walk upf 100 people who to the register and were going to buy something walked away. The problem we want to solve it we focus so much on making the checkout so simple. 20, 40, 280 . Like a goodounds solution for a problem at least if you are a retailer. I am not sure that the people who are not spending money feel as though they should be spending money. What makes it different from the your of solutions that competitors, paypals, offering the very same merchants . Sure. If you think about the apple apple payxample, works great for people with an iphone 6. Aypal works great if you have password. In one cap solution, kind of like for the entire web. It really drives conversion and consumers love it. In theory, it could be the entire web, but you need to have partners. We have a fantastic launch partner. Dozens announcing over the next several weeks and months. Those, the demand where spirit we will make it very easy for merchants to sign up. Help me address skeptics to know i can tell you are happy and you are delighted to be doing business with overstock. I do not need to tell you is not exactly the highest profile retailer out there. No. One of the things overstock brings to us as they are willing to try things first. Billion in sales. It is nothing to brush away, but absolutely, there are conversations with several other retailers. Many household names are on the lists of consumers and you will see on more and more websites over the next coming months. How many are you hoping to have signed up by the end of the year . We should have 50 to 60 live by the end of the year and i would be disappointed if there were not hundreds if not thousands of merchants using this by 2016. Erik one of the appeals to the merchant is you guarantee payment and then you take the collecting from the purchaser over the next 14 days . That is correct. We take all the risks on the transaction, a big differentiator with all the other competitors he previously mentioned. Once the consumer hits the button, carnage takes full risk. That and we do not charge it back to the merchant. Erik thank you for spending time with us. Ceo of the electronic Payments Company, for north america, a company that competes with the likes of straight, apple pay, and paypal. Time now for more of our top stories. Pension funds will vote against it bank of america proposal to let the ceo keep the chairmans title. They say the two roles should be separate and independent. They talk about missteps and underwhelming shareholder engagement. Refusing to issue marriage license to samesex couples, she argued her Christian Faith should exempt her. Office pot smoking has become more of a habit and cigarette smoking. Under 6 said they had used marijuana at least 20 times they set that is assuming of course the students are answering the questions honestly. New Research Says weight gain that a person develops alzheimers but when. Being overweight or over these at age 50 may fetch may affect the age later when alzheimers strikes. Losing weight lowers the risk. Those are your top headlines for the moment. Downcoming the future is more than 360 points as we speak. Jeff solomon will be back when we return. Erik futures are tanking with dow futures down more than 375 points as the big haired european stocks are lowered to the tune of almost 3 this morning. Overnight data showed the gauge of chinese Manufacturing Sector slipped to a threeyear low, spurring with concerns. Join me now, jeff, good morning. Jeff i think people need to start getting used to this. It is what volatility feels like. Why is volatility back and not just for a short time . Jeff we are in a transition. It has been china growth and developed country cutie. That has been key themes. Both of those are being called into question. Howhina, it is less obvious much their growing. Those factors are weighing in the markets. We are in between earnings. Macro, farearnings more impactful to daily volatility. Erik im not sure that i buy the argument that fundamentals alone explain the pace and mended to the moves in equity prices over the past 10 days. Dont the structural factors matter . The change in Market Structure, the Different Actors we have participating u. S. Equity markets since the passage back in 2007. There are the dark pools come the rise of algorithm trading. On the assetime management side, different strategies are being employees that were barely in vote before the financial crisis. Youre spot on. Markets always tend to overreact. I would say yes, the Market Structure is different. Dollars, that is a pretty significant change from the last time we have seen any kind of meaningful volatility in the markets we have investors reacting on a daily basis, sometimes selling their etf buses in the middle of the day. And then those need to rebalance at the end of the day. Swings. Eeing bigger no question the Market Structure has added to the volatility. Is thet know if it trigger, but it aids in asreased volatility Investors Fund footing. Erik was the behavior in a market like this . Smart investors are picking their favorites. If you are an asset manager, you know it likely which stocks you would like to buy when they come into your range. I feel like this year in particular if you look at equity prices, we may not be in a position where equities of a whole will have a positive year and yet there will be managers who outperform. I would say our generation is really critical this year and a need to be picking individual estimates as opposed to the market as a whole. I am thinking more about the volatility Risk Management driving, i guess they are computer enabled strategies, to make Investment Decisions on the what has transpired here there are some people and you are probably aware of these folks, strategists who are saying there are tens of billions of dollars because these funds have not rebalance allocations according to the fromls they are receiving historical ball in addition to other things. I think it is important to look at historical volatility. Every market is different. We are in a different market today than we were in 2008 or 1998. All of these pundits go on and they talk about analog years. This is like 98, like 2000. It is not. It is not at all like that. I look at quantitative modeling. It is helpful but we have to recognize the Market Structure is very different. Equities and every Asset Classes will behave differently. Once you have seen one crisis, you have seen one crisis. It is different every time. I always looking for longterm volatility strategies. All do better. We look for strategies that could perform well regardless of behavior. Erik something jacob told us in the last hour, he is the former governor of the bank of israel. Here he is. Interest rates are zero, what it means is investors and everyone is chasing after yield. If you are chasing after yield, youre looking at more risky. There are distortions and the system. People go to the Financial Markets for reinvestment. That is why it is so important that the fed finds its way. Is the chase for yields still on or do you detect a change in behavior with an Interest Rate hike imminent at some point before the end of the year . You saw this coming. Not a great month for you as the Credit Investors are trying to get their heads around what will happen with the fed. Slots of the economy is not doing well and is levered. Investors there have really been we saw credit volatility earlier this year. I think the equity market is always the last to find out. I am calling it the last guest at the party. Day, when youthe look at what the fed should be doing, u. S. Growth is ok. Awesome, going to be whatever the new to. 5 . Es down 2. 5 . Erik that is a look at treasuries this morning. Futures pointing way down. These wild swings in the stock market, volatility surging. The vicks jumps by a record 100 27 last month. What does that mean for ipos. Still with us, jeff solomon. Almost certainly previous friday, what does it all at up to four ipos . . A sharppersensitive to market downturn. A lot of companies will postpone the ipo. Do you think based on the work you have done that that is already happening . That ceos is an advisors, people like jeff, that question to him directly, are already reevaluating the timing and potentially even the size of the ipos . Yes. Erik jeff, have you had conversations like that already . Jeff everyone is hypersensitive to volatility. Will largely be because the sellers, the current investors and private investors, will wait for better market conditions. I have not seen anybody doing anything yet. August is a slow time and people will wait until labor day to decide what they will do it we have not seen anybody do anything proactive yet. Erik how long will it take before we know whether this trend is Gain Momentum . The first two weeks of september in general after a companies do not like to start their roadshow interrupted by holiday weekend. Showing up right after labor day, a lot of companies will postpone that. The sensitivity of ipos to the amount of volatility in the market or the degree to which stocks have dropped . The short run, there is definitely a very negative effect where i mention this hypersensitivity, a 10 and a biguity prices drop in ipo activity. A lot of the smart money i have been talking to has been waiting for a pullback. One thing ive heard earlier in the year from investors is coming my buying these stocks at higher prices . For a lot of the names in health care, where we spend a lot of time, investors are actually a little relieved market prices have come in a little bit. I think again, if there will be postponements, it will largely be because the sellers are waiting to see if there are better market conditions. I think the buyers are looking for opportunities to buy something at more of an attractive price. Here is the difference. When the ipo window closes, there is some of volatility that investors have to focus on their existing portfolio. A good thing about this happening at this time is there is no new issue offering right now the marketplace so investors are totally focused on their portfolios. If they could give get themselves positioned by the middle of september, it would just be about whether or not the sellers or the companies themselves are ok with the valuation. I think investors will be eager to look at those new issues Companies Just because there has been an evaluation of equities. You can buy them cheaper than you could at the beginning of the year. Erik whether it is the appetite of the investors or the confidence of the sellers, confidence is important. Establisheen able to whether iposs are more vulnerable to a loss of coffee thats than a merging of acquisitions, for example . Both are sensitive to Market Movement but iposs are specially sensitive. Roughly twice as sensitive as the market in general. That creates buying opportunities for the companies that do go public, with more reasonable valuations. They provide more upside potential for investors. Erik why is that . Why should i feels be more sensitive to fluctuations than m a . Lets look at the buyer universe. If your buyer universe is distracted by volatility in its existing portfolio, it does not have time to look for new names. That is the technical factor. M a follows that a little bit. It is human nature. If you see equity volatility or equity prices going down the Public Market and youre going, maybe i could get this cheaper, my advice is to do your work, and this is not a day trade. One companies go public, if you are buying a company, it is not a day trade for the next quarter. Day,nk at the end of the ,uyers have to do their work figure out where you want to be at the next couple of years, and see if you can generate the appropriate return. Want to remind everybody with some of these big upcoming ipos is, lake niemann markets, soul cycle, names everybody recognizes, and these are big companies. They raise hundreds of millions of dollars. Ipo, the more mobile it is to change in market conditions. Jay investors have mainly been looking at Companies Going public not as generic ipos, but specific companies, saying this company has got great Growth Potential and is willing to pay a higher multiple, and Companies Less compelling stories erik thank you very much, jay ritter and jeff solomon. All was good to see you. The sunset dragged the dow down to its worst month and more than five years is set to worsen. Matt miller is back. Matt . Matt take a look first off at where futures are trading. The s p and dow here, down 2. 5 . Looks worse than it did 10 or 15 minutes ago. The trajectories down for had badafter China Economic numbers. They failed to proper the numbers. European markets are down as well. It will come around to us it looks like a the open. A couple analyst notes, one of them is an upgrade in the market that may not do a lot to support shares. I want to tell you about it nonetheless. It is an airline upgrade, and industry i follow very closely. Andsche bank has come out said it thinks American Airlines and delta our goodbyes right now. Clear reasons is lower fuel costs, one of the airlines top two biggest cost depending on what they are and depending on where personnel is. Labor costs have come down. , 27 year to date. That is why Michael Lindenberg has upgraded those ears. Take a look at oil prices. Today, down 4 . If you look at them over the past five days, they look a lot better. Here, down 4 . The barrel is where you are seeing the price. Ast week, we saw it at 38 with the dropeven but not nearlyp, as high as they were a year ago when delta and american were up about 20 . Look at another analyst call today, this time a downgrade. Downgraded in the city, the analyst to it the analyst there, competitors will not cut cost production anytime soon. He does not like the shares no view can see the debts they are down in the premarket pin everything will be down the premarket. Over the past year, they are down 70 . The year today chart is 54 . They have had a big problem with the drop of copper as one of the biggest producers of that in the world. Back to you. Erik thanks for the update. A quick check on futures. S p 500 futures down 2. 7 , the dow futures down more than 430 points. All pointing to a big drop at the open this morning. We will be back in two. Good morning once again 30 are watching the second hour. About the, it is all markets. Volatility, kind of boring. Not that way any longer. Look what is happening with futures. Dow futures down or hundred 40 points two and three quarters percent. Sustain the biggest monthly declines last month since early 2000s. Concerns the worldss secondlargest economy is slowing. Pulldown stocks in china and europe, bring you more suspect that perspective. Mike regan is back here with me in new york city and in london, mark barton is covering the picture. What is important and what are people saying . Mark you said it. Same old china. Stocks over the last 12 months. His is the headline the biggest in four years. Since the china devaluation three weeks ago, the stoxx 600 shed 12 to you can see china, the big influence when it comes to european stock markets. I want to show you one stock industry. Mining mining stocks are getting hammered. 5 decline for the basic resources index, the big dollar on the mining index is glencore. Tradere, the commodities. That little red circle right there. Three weeks ago today, china devalues one. Glencore has sunk by 32 . Inost one third of its value three weeks. That is astonishing. Years,gest drop in two 26 doing euros of value. I want to show you something positive. Unemployment actually fell in the last month to a threeyear love to the data is not all do medical them here in europe. We ,ad mixed manufacturing data french manufacturing contracting in the last month. German manufacturing growing. This is an interesting figure. In 2013, a time unemployment in the eurozone was at 12. 1 . We have come down to 10. 9 . Cp the ecb a lot to think about. Verioall about inflation very low in europe. This is positive for the ecb when it meets later this week. I like the point and i like the way you phrased it. One manss loss is another mans profit. Decline in unemployment is unequivocably positive. Mike is in new york city. You are layering your letter s derivative upon derivative. This is important. Explain why. Mike when you have a violent, sudden burst of selling, you will have the vicks shoot up. What that signals is that people are nervous about the short term. You also have all sorts of vicks that go out. A lot of times what will happen, it will be an inverted curve. Note. Of people are taking about got not so nervous the long term. We can show this on my bloomberg terminal right now. Ist were talking about right here. February of 2016. March, april 2016, pricing the vicks. He people are not they believe volatility could be here to stay for a while. People are placing bets, expressing their view. Erik a little of both, probably. It is clear people are looking thise future and saying, low volatility. We were showing earlier the index showed european volatility in the euro stoxx 50. Mark a productivity to bring up the index, a gauge using options to protect against declines on the euro stoxx 50. I just brought it up quickly. Sorry i could not annotated. Last monday, we saw a massive lunch in the stock market across the world when the stoxx 600 fell by the most in seven years. The european fear index shot up to its highest level since november of 2011. Throughout the rest of the week, it came back down again. We are still close to the highs of four years ago. That leap was a 35 lead, something quite extraordinary. Keything you saw with the index there. Get data out of china. Volatility. Ably see stocks fell 5 monday. They slowly clawed back the. Osses, finishing the week china is dominating the trade today. Raise Interest Rates. We have been in a low volume regime for a long time. We have broken out of that trend. There are winners and that group. Trading firms. Market doeses, the msdos go the opposite way. Not a great thing but it is there. Youre talking about the gold iss of the world, once again rising this morning. Mark the correlation is its highest in eight years. Golduro and the yen, and seems to be back in favor. It has not been in favor all this year. It is on track for his third consecutive yearly decline. That is the largest streak of annual decline since the year 2000. It is not always invoke, but go gold among the assets rising today. European bonds continuing to gain. Yields going down on german, french, italian bonds. Money are not putting into equities, youre putting money into gold, into yen, into the euro as well. And youre putting your money into the safest haven, Government Bond market. Erik mark barton, thank you very much. Mike reagan here in new york city. We will keep our highs on the stock for you. Just about 20 minutes from now. Ets have a quick look chrysler kept its winning streak alive. If you chrysler said sales rose 1. 7 in august. Chrysler sales have risen for 65 consecutive months. The best august ever. Shares of dollar tree are declining. Retail forecast sales missed analyst estimates. A major competitor in the dollar business is dollar general. In greece, tensions are flaring over migrants about 1500 migrants waiting to enter macedonia and head north toward more prosperous countries in the european union. Fights broke out and hundreds of people mainly from afghanistan and Pakistan Flood to rush the border. Obama will call for an increase presence in the Nations Capital regions. He was to break up icebreaker that offer operate yearround in the arctic. Those are your top headlines for the moment. We will return our focus to the markets and oil in particular is down more than 3 this morning after staging the biggest threeday rally in 25 years. , toers interpreting science suggest reductions. Here with me on what he sees happening, thank you. What do you see happening . What you have seen in the last month is clearly positioning. Positioning has increased and as a result of some of these catalysts we saw over the last three days, we saw an outsized move back upwards. Outsizedt explains the nature of the move. Some of it was large to short covering. Some was based on the fundamentals that we do not think we should have stayed at the low levels for long. It did not make sense. Is as, what we need to see rebalancing of the market. It is not the case that necessarily we can to be at those kinds of price levels for that to happen. Overallt to see the tightening pair we think opec production is likely to come back a little bit as we move to the end of the year. We see problems emerging in iraq with their production and the ability to load at the levels we have seen. We also expect high levels of saudi arabia and output are mostly due to domestic needs. There are concerns that move the price level down over the course of july. We think those concerns have not been erased, namely in china and namely with the additional resilience. But just yesterday, we saw the u. S. Eia revised their estimates downward. We are truly now on this lower path, trajectory. How long it stays that way is very much dependent on what the price level will be, but it will take more in a higher price level for some of these. Is the market reading the Smoke Signals out of opec in the right way . I think frankly the market reacting to the bimonthly bulletin is a bit ludicrous in our view. Opec munich its his reaction to the current situation. The Opec Monthly Oil Market Report is where its usually talking about its view of the market. Publication that is not really a where they are likely to convey their views. Many of these are still out on vacation for the summer. It is not really the way i would expect them to erik saudi arabia will hold the line on quotas . We have seen a titfortat approach. What they need to see is, if there is some kind of agreement, when that happens, who knows, but if there is some kind of agreement, they need to see a credible path forward by some of their opec members. They need to show a cut in order for saudi arabia to cut as well. All of the conversation over the past six months, maybe even longer, has been about five. Mostly, the supply of shale oil in the united states. Opec is an important agreement. What about demand . Do the signals out suggest the chinese demand for oil is weakening that threatens the demand. I think it is an important thing to consider. Look at our oil market balances, we have to talk about it. The balance has to make sense. From our perspective, we have seen high levels of imports in china. Some of that has gone into strategic and commercial stockpiling. The thing you need to take into account is china represents more than the 10 Million Barrels per day that it demands in terms of oil. It is important for confidence. For many other companies around the world, into china, it is an important issue to take into account. Is China Growing at 7 . It certainly doesnt look like quickly, you talk about the need for the market to rebalance. Where will it rebalance at . The level of ms. 60s and 2016. View, we do not see this staying that way for that long. Here,great having you michael cohen, head of Commodities Research at barclays. Lets take you to matt miller, who will bring you an update on what is happening, particularly with futures, where does the market stand . Matt futures look bad but 40s numbers look good. Ord august sales were up 5. 6 we were expecting a drop of 0. 2 . Member i told you august would be a soft month. The last four or five years, it has been counted as part of august. Carmakers have huge sales in labor day and a move a lot of units off the lots on that holiday weekend. This year, we first saw Fiat Chrysler beating expectations by a little bit. Ford is just blowing them away. The reason is the f1 50 pickup here the new aluminum body f 150 the finally ramped up to full realction and finally has inventory for dealers to keep them on the lots and so one after the next. We had seen months of 10 drops in f1 50 sales because toduction had not gone up full capacity can we now see a 5 gain in f1 50 sales. That really turns around the lot. It means the lines share of its profit in the u. S. , and a globally makes the lions share of profits in the u. S. As well. Ford sales up 5. 6 . Were looking for a drop. Chrysler also beating with a gain rather than a drop. Next out is General Motors, which i will watch very closely. Drop, orpate a 2. 6 rather the analysts we survey on average are looking for a 2. 6 drop at General Motors. Ford and Fiat Chryslers have beaten by a long shot. An update on auto sales, market updates coming for you all through the course of the morning as we march toward the open first at 9 30 on the New York Stock Exchange and the nasdaq and of course as stocks trading continues. We will talk about Brian Moynihan, the ceo and for the time being, also the chairman of bankamerica. His company and most important we his board under pressure this morning for two of the u. S. Biggest Pension Plans. The activist analysts will be here. The i said, were watching markets. Here is a look at where futures stand right now, off their lows by not much. They have been down more than 400 points. The s p 500 futures, the market will open down in the order of 2. 5 . Stay with us. Erik a quick look at futures this morning. The dow futures are down almost 400 points. Bank of america down this morning. Two of the biggest public Pension Plans said they will oppose a proposal would allow ceo Brian Moynihan to retain the title of chairman. As well as a subpar shareholder engagement hit one person who shares a similar perspective, perhaps even more a more mike. Ken one, we have talked about this issue already. To what degree are they coming , inon your side effectively what way does that add momentum to deny moynahan to maintain both jobs . Mike i think it is the side of shareholders. The shareholders best interest 22 thaton september would recombine the chairman role. A reminder of what is taking place here. The ceo who got promoted to chairman last october 1 after a bad year with the 4 billion era. The ceo got promoted to chairman without the board talking to shareholders, even though the shareholders voted in a binding in 2009 to separate the post. On top of that, the directors gave himself a raise in the mists of all this happening. Erik small technical difficulties cut off our conversation. We are talking about bank of america we saw two of the theyst Pension Funds said would vote against a proposal that would allow the ceo Brian Moynihan to keep a job of chairman in addition to his role as chief executive. Mike, you were just explaining what you describe as a faustian bargain, the idea that that the board consolidates power with the september 22 vote at the expense of trading the industries reputation. A regulatory target on the back of the industry. The maze will have them take this to the Banking Association and say regulators, here we are, elizabeth warren, invalidates some of her worst concerns. Why validate concerns . Erik because people like warren will look at bank of america as an analog for the rest of the industry and say they are tone deaf to the criticisms we and the American Public have had since the crisis . Dudley say even the industry claims of this act, either they have better oversight, or you will have more constraints, you will have more regulation. The argument before the crisis, where are the markets and where were the regulators. Verybody was asleep since then, regulators have stepped in to fill the void. 22 could on september be historic. It could be a watershed event if the markets finally say we had enough regulation, we will govern on our own. It is a chance for shareholders to take over more power in lieu of the regulators. Erik we set the same thing three years ago in the wake of the scandal and lots of people thought jamie dimon should be denied the opportunity to remain chairman. Jpmorgan shareholders considered it for two years we talked about it, many times including at the Shareholder Meetings in tampa. Effortlders rejected the and this guy did not fall. There are big differences between j. P. Morgan then and bank of america now. And clement has had the worst Stock Performance for the last five years. Bank of america has failed to achieve a return on equity above 5 for the past five years. Bank of america is a low performer which, like citigroup, has the role of ceo separated from chairman. Jpmorgan, like wells fargo, have performed well. Erik this is a case where bank of america, similar to citigroup because of what it went to, leading up to the aftermath of the financial crisis, needs an adult in the boardroom and jpmorgan and wells fargo dont . And Goldman Sachs and morgan stanley, i should add. You know what i am getting at here. Is it a matter of principle that no bank should allow ceos also be chairman, or is it just a discrete case that bank of america shareholders need to consider. If you were to have an axiom coming would be that banks with low returns and pour over tight oversight should have the roles separated. Banks with good returns and good oversight can have the roles combined. Bank of america has some of the worst oversight and worst returns in the industry and therefore, bank of america board dont take actions to reduce the degree of oversight. Erik lets go back to the initial point i was making. How influential do you believe Pension Funds like those, which carry the flag, sometimes the torch, for corporate governance, have spoken out loudly on the issue. I think this is incredibly significant to we had a vote at bank of americas annual meeting. The four members of the Governance Committee had 30 no votes for their reelection. Do you know what the 30 no vote , that was the worst no vote inel of any Bank Director the s p 500. Shareholders are already upset. Part of the 70 , i believe, included callisters. It looks like they have done a slip he or. Theyre going against one of the two did a flip. That could be significant as a leading indicator. I think this vote could be perhaps closer than many expect. Know whetherl we this is going against moynahan and the board before the Shareholder Meeting . What do you need to see . Mike the problem here is not one large shareholder we spoke with disagreed with our view, and then the 70 still voted against. You see what happened in the state of california. Ask 100 firemen in california on the street, what do you think . You had a bad year, what do you think should be done . Ask 100 in california, i think ask 100l agree here it teachers, people erik thank you for coming. ,aising awareness, mike mayo managing director at clsa. Opened,et just everybody. You heard the opening bell. Matt miller will give us a read on the damage. Matt, im looking at the dow. Momentum is opening picking up like it always does. We are about we are down about 100 points. 2. 5 and futures are down percent. It is not as bad as futures are indicating. At 1948. Own about 1. 5 the dow jones down. The nasdaq taking the biggest hit down 2. 25 . Keep in mind i prefer to look forward rather than looking back. If you do look back, it was week. You have been going to the superlatives all morning. I want to highlight them. August was the worst month for the dow jones in five years since may 2010. The s p, and almost four years. In the nasdaq three years since may 2012. In august. D month the question is, will be tested the august lows as we enter into september because of concerns of slowing Global Growth . We had bad Economic News out of china and europe. Will we pass the august lows in september because of concerns hike . A fed rate everything we heard last week from jackson hole seems to indicate the fed will hike as needed. Points, 1. 5 in the s p 500. Erik a quick update from matt miller. Now lets bring you the three things you need to be paying attention to today. Tracy alloway is back. Great to see you. Also with us, david levitz david lebovitz. Nice to have you back with the dow and s p down. Tracy i want to start with china. A lot of the weakness in the u. S. Equity markets is being traded back to china. Lets take a deep dive into what is happening in chinese markets. This is the magic hour in chinese stock markets. Every day for the past four days, we have seen the market rally late in the afternoon. The word on the street is this is governmentbacked funds that are coming in to prop up the stock market ahead of a big National Parade on thursday. The question is how long does this support continue . Will it be enough to stem out. Will it be enough to step out outflows from Retail Investors . David a lot of this question stems from the fact that you have two entities supporting the market. They need to make a decision as to which one is more important. Given the weak Economic Data they have seen out of china, they would be well served by supporting the markets and doing the letting the equity markets do their thing. It will come down to how big the theyest is and how much can a, try propping up the various markets. Tracy that is a big a good point on the currency markets. We are to have analyst talking about capital controls and china. Erik dow has just gone into correction mode and is down 300 points. This is my opportunity to invoke the new yorkers. When i take a break from the daily volatility, i go to the new yorker because of the quality of journalism. As it happens, the new yorker has weighed in on Global Market volatility. Here is what james present. It is worth bringing into the conversations that total experts out of china amount to less than 1 of gdp. They are not about to disappear. 2 of the s p 500 revenue comes from china. 1 decline in the chinese growth rate is equivalent to a mere 0. 06 drop in u. S. Gdp. David if i were to describe the market this year, i would describe it as a big rubber band. We have been stretching it all year despite lackluster earnings in the u. S. , moderate growth in europe and issues in china. Finally, in august, something caused the rubber band to snap. I would agree that there is very little economic risk coming from china. What we are seeing is an aliment of contagion, an element of fear manifested itself in the markets. I think that is what is driving the volatility right now. Questions about china are questions about emerging markets. We were maybe the late 90s try to raise Interest Rates as emerging markets are struggling. I think there are a lot of dominoes lined up right now and we are seeing them crashing down. Tracy i have a good example of a domino for you. It fits right into the discussion of which market china should be focusing on right now. Lets take a look at glorious property, a shanghaibased real estate developer. Its headline is not so glorious property on this. Assetsll have to sell and renegotiate with lenders because they have been reporting massive losses. This is an economy type problem. It feeds into markets because, like another a lot of other em companies they have borrowed in dollars. Even china has tried to pop prop up portraits are providing Interest Rates and liquidity, they still have to deal with stronger dollar issues. Everything is interconnected right now. David if you look at it if urgent in the way corporates are finding themselves compared to the way governments find themselves, governments learned their lessons 15 years ago. They have issued significant a more economic debt. The issue is on the corporate side where you have dollardenominated debt. The dollar is depreciating a lot of what we are seeing in terms of the deep appreciation , the depreciation of the yuan this will be a problem for companies that dont have a robust economic backdrop which will support their earnings. Furthermore, it is getting more expensive. Erik to emphasize your point, this is not 1997 all over again. ,hese emerging markets particularly in asia, have reserves. It is a corporate problem. In some cases it is a consumer problem. David when i look at emerging markets, there is a bear market there. I will not pour sugar on it and tell you it is sweet. Eventually, these assets will look attractive. There are a number of headwinds. Erik i will return to matt miller. The decline has accelerated in u. S. Stocks. 2 . 500 down people will begin to wonder at what point the Circuit Breakers kick in. They do have rule 48 invoked. We have been flashing that as breaking news at the bottom of your screen. If we see extreme volatility or extreme drops, they can stop trading for wide and reopen each stock individually. They can stop trading for wide. There are certain limits that if each stock falls a certain percentage and a certain amount of time, they will do that. For example, 10 in five minutes. They can do it for the entire floor if they need to. We are not close to that with a 331 point drop from the dow, as we saw last week it can fall 1000 points. They watched each individual stocks, as well as the entire floor. Obviously, they have governors Walking Around the floor of the New York Stock Exchange to make sure things are going smoothly. This is when the humans and trading are important because the reopening is when the New York Stock Exchange does its best job. Closings, and ipos are when the traders are the most important. We will continue to watch and see if any Circuit Breakers are kicked off. They dont with just 2 drops on the major indexes though. Goingnot all stocks are down equally. It is worth showing people what is happening on a sector by sector basis. That a the imf function lot of people out there are familiar with. It shows us here that all 10 Industry Sectors in the s p 500 are declining. Oil down off of the 49 high is leading the way at 3 financials. Financials is was behind 2 . Health is the healthiest sector down just 1. 7 . Lebovitz ofdavid Jpmorgan Funds and markets executive editor tracy alloway. Our threethe midst of things. Ive a feeling i have just given you an appropriate segue. Tracy lets look at oil. Yesterday, it was up 10 , a phenomenal rally. Supposedly, it was up on iea data that was showing production was falling in the u. S. And speculation that opec would cut supply as well. Today, the feeling is different. That iea datace is unreliable and based on new sampling techniques that investors should not care about. They also say that opec would probably not cut. There is a big political problem there of first mover. Dyer words for oil holes at the moment. Words for oil polls. Can say is that there is too much supply and not enough demand. It is not just demand from china but from a emerging markets. And emerging, but if we look at the u. S. , and europe, Lower Oil Prices are a good thing. We have not seen those tax breaks spent yet. As long as oil prices dont spike through the roof or fall through the floor, i think this is a net benefit to the u. S. Economy. Thend makes it makes consumer much stronger and gives the fed that Economic Data they have been looking for. Erik why is it that so many people including you make the point that we have not seen evidence. Is it not possible that Lower Oil Prices are helping to support u. S. Economic growth and it is not easy to see . David i think we are seeing Consumer Behavior stemming from the financial crisis. Since 2008, we have not seen any wage growth. For the first time, consumers are finding themselves with additional capital. They are paying down debt, they are remembering 2008 and saying i will not run out and buy a new refrigerator right now. I will wait until my wages rise and then i will employ it that capital. Employment will respond with an uptick in wage growth. Erik which market do you pay closest attention to to determine for yourself whether there is something wrong in the u. S. Economy . What is the best leading industry indicator . Is a credit . Highyieldok at the bonds. If you look over the summer, you saw highyield bonds and multiples continuing to ask expand on the backs of no Earnings Growth. A continuous disconnect between u. S. Markets and equity markets. When that occurs, we things we see things snap. This time, on the equity side, we are catching peoples attention. I am not sure there was no Earnings Growth the s p was at 2100. What we are seeing is the u. S. Is recovering from all this and we are still buyers of u. S. Stocks. I said it was great to have you today on a day like this. I meant it. The dow and the s p down. Tracy alloway, as always, great to have you. Tracy ali, editor at bloomberg markets. Only come back, auto sales. Gm is the only when we have not heard from. Fiat chrysler 65 months of sales gains. We take a quick break as we show you the current rate of trading in u. S. Stocks. Erik it is a big day for Financial Markets once again. U. S. Stocks are down once again. There will off the lows, the s p 500 down 2. 5 , now down 1. 5 . Kinds of names getting pummeled in todays markets. The decliners have to deal with bad news. Netflix, newport, lots of energy getting sold off in the midst of a drop in oil. 10 stocks rising in the s p 500 by my count. Here is what is happening to the vix. The vaulted we wanted to get a reading on volatility, back. Bove 30 despite the other day what doesnt seem to be happening is rotation into treasuries. Treasury yields are down but not by notch but not by notch. Much. This is not the big move into treasuries we saw last week when the dow was down more than 1000 points. Meantime, automakers have been reporting sales this mine. Monthly sales we have been all over the numbers. Matt has more. Can we get General Motors . Is down, but not as much as analysts estimated. We were looking for a drop of 2. 6 . That was the average in our survey. We got a drop of. 7 . Gm is joining the pack of automakers in beating analysts expectations. Fiat chryslerd posts sales gains when we are looking for jobs. Only a small drop we were looking for at fort, 0. 2 at ford, but it had a huge gain in comparison. Fiat chrysler posting again and we were looking for a drop of. 2 . Ending 45 months in a row of sales gains. We see he has beaten that. At Fiat Chrysler, mainly because of the jeep. At ford, the f150 was the catalyst there. At gm, lets ask Jeff Schuster. Jeff, i was surprised by these numbers because labor day does not come until next weekend. It will be counted as part of september. Day for the sales automakers. How did they do better than we anticipated in august . Jeff im glad we are talking about auto sales and not stocks. Into the close of august, that is what held our expectations back is the volatility in the stock market. Maybe consumers would sit on the sidelines, and that did not happen. We are back off to the races. The numbers we are reporting so far are exceeding expectations. Matt we see lower fuel prices, not huge drops. How much does that affect auto sales . Big trucks and suvs are being sold. How much do you expect this huge drop in stocks that we saw in august and today will affect consumers Going Forward . Jeff no doubt these Lower Oil Prices are having an impact on positive side. Maybe it is countering some of the Consumer Confidence hit by the stock market. It comes down to volatility when we look at consumer purchases. As we continue to see volatility in the market, i think in september there could be some pullback as a result of that. We have labor day in the september so the comparisons will be strong. All eyes are on the fed to see what they do with Interest Rates. Matt what is the catalyst for gm coming close to breaking even . We were looking for a 2 drop. Ford, with the f150, almost a 5 gain. Fiat chrysler, jeep is a big driver for them. What is going on at gm . And pickup suvs trucks that are helping to drive the numbers we are seeing in august. It is a continuation of that trend. Suv policy have an hot all year and we expect that to continue. Matt how helpful at least deals been, extending loans to seven how helpful have lease deals been . Has that been a big tailwind . Jeff it helps create stability on the transaction side of the deal. You have to get consumers into the showrooms. Once they are there, finding great lease deals as well as longterm financing helps with the monthly payments, which is what consumers are doing today. Matt Jeff Schuster from lmc automotive. I send it back to you with a not too stocks down 286 point. A big drop across the board. Erik not quite a 300 point day, it was, maybe yet again. If history repeats itself, it is we have not touched the projections for the s p 500 index after the big selloff in august. Here with me right now is our chief Market Strategist stephen would. Stephen, how do you feel about the s p 500 after what we saw last week and today . We have not moved our target. We think a midsingle digit year which is conservative coming into 2015 is rather aggressive after the last couple weeks. The u. S. Has been looking like a normal year in terms of equity valuations. Now the economy is maturing, doing well. More important, the earning cycle has returned and valuations ahead our headwind. Nominal gdp was about what we expected in equity space. As has been an interesting couple weeks. Erik what will be the catalyst for a rebound . 5 on s p 500 is down the year. Steve the Second Quarter will be more challenging. The third quarter, by the end of the year, you will see earnings improve and come in line with last year. We will start to see some of the benefits from Energy Prices having dropped. The biggest story we are not talking about today is once the taps a little bit, we think it will still be september, but by the end of the year, they will establish a positive funds rate. It has been seven years since the fed has not have their policy and limitation to a. Policy implementation to a. Ol. Erik your analysis has to suggest something about what investors care about more, china, or the fed . It comes back when you have these numbers come out, below 50 contraction is not good. At the same time, it is right in line with expectations. Even after the last couple of weeks erik you are referring to the chinese oliver of course. If you had a stronger economy in the yes, with the slow growth overseas be as negatively received here . We can point to robust economic growth, but it is not gangbusters. If you can point to grade corporate earnings instead of decent corporate earnings would we still have the same reaction . People are thinking maybe the fed will not derail in the next couple months. If you look at the history of the past seven years, from now until the end of the year we have done well, 14 . We are below the 14 strategist have been estimating, but it is not out of the realm of possibility. Erik stephen, why are we freaking out about chinese pmi . In the past week ago, people are inclined to measure the chinese economy using the same statistics we used in 2005. It is 2015. The chinese have very not quite fully transformed their economy, but it is a different economy than it was a decade ago. Steve you and i have been discussing this for years. 12 growth rate is a thing of the pace pass. Growth rates in china will look like a 5 handle them they will a 10 . That is an old story. Effect that it is happening is not terribly surprising. Be careful not to confuse chinese equity markets with chinese economy. From our perspective, to be clear, we look at globally diversified treasuries. It is not just u. S. Equities. We are underway with u. S. Equities and we have been into this year. We have a position on europe and are thinking that not only will the economy, off the bottom as the u. S. Is maturing, but price valuations being very strong and the European Central bank embarking on a longterm quantitative, as are the japanese. Erik stephen, think you very much. Oliver, gentlemen, that will end this show. Returnsmakers tomorrow, i will see you then. It is 10 00 in new york city, welcome to bloomberg market day. Olivia good morning everybody, i am olivia sterns. We want to get to a check of the markets. We had a selloff underway after the s p and the dow have their worst month of decline since may , 2012. The dow is down 2 . We want to show you what is after postingil its biggest threeday rally in 30 years. It is off by 4 . Thats get straight to matt miller for that. There, i am just sitting at the terminal logging into it, olivia. Cominglooking at i. Ssm out right now and i will bring it to you momentarily. I just have to run my fingerprint scan, and olivia matt miller is logging into the terminal. The ind