Transcripts For BLOOMBERG Bloomberg Surveillance 20151231

2 for 2015. The story of the year, the story of the years last day as well. This is bloomberg surveillance. Im Michael Mckee in for tom keene who is on vacation. Almost happy new year to both of you. Good morning, december 31. Our last show of the year. We have to do some resolutions. Im going to hold you to them this entire 2016 year. Ill resolve not to make resolutions. I never live up to them. Ill work harder and lose weight and all of those things. Eric . I wanted to Start Playing the piano again. I committed to taking piano lessons and i didnt do it. I will however say i had an unofficial new years resolution, which is to do much more flyfishing and i succeeded brilliantly. Ill sign on to that one for 2016. Im going to pay no a. T. M. Fees. Whoa that is very hard in manhattan. Your fitbit is going to love you for that one. There is still a world out there that hasnt made all of its resolution. Lets get to first word news. Breaking news from brussels, a suspect in the paris terrorist attacks was arrested in brussels yesterday. Authorities say about 10 cell phones were seized during the search and are being examined. According to one newspaper, the telegraph, 2,000 Police Officers authorized to carry a gun will be on duty in london. The newspaper says an Intelligence Agency has warned islamic terrorists may be planning an attack in a european city. Angela merkel will urge germans in their ionals heart for refugees. It will take time, effort and money. Merkel signals she will use their economic powers to turn the crisis to their economic advantage. Russia has begun a modernizeation of its navy. They will expand the most sophisticated cruise missiles to be used on land and sea. That will profoundly change their ability to destroy targets. The u. S. Is about to announce economic sanctions against companies and people linked to irans Ballistic Missile program. No word wholl be targeted or what the sanctions involve. The u. N. Security council has barred iran from any activity barring weapons capable of delivering nuclear weapons. See where the markets are today as we get ready for this last day of trading. At the moment, were seeing some green on the screen in some markets. Again, it is an oil story. Well get to that in just a moment. S p futures up just a little bit. They are not trading in toronto today, but i threw in the futures for the t. S. X. Index in eriks honor. Canada down 25 this year. Like you said, michael. It has been a crazy unfortunate year for people north of the border. I urge everyone to travel to canada. We note that side stocks around the world down so far today. U. S. Twoyear yield is unchanged at 1. 07. The euro is a little bit lower but there is your oil price higher this morning on yesterdays close, but still in the 36s. 36. 66 for brent crude and that obviously having a major impact on the ruble. We have been watching that all week. Well talk about that a little bit longer, later in the program. Joining us today, as one of our guest hosts for the hour, john, he is in athens, a middle east economist and bloombergs terry geiger who covers banking and banking crime. She is here with us on the set. Hopefully there will be no crimes committed during this broadcast. Lets start with john in athens. We have been saying oil was and is the story of 2015. Does it remain so in 2016 . We thought we had plateaued in the low 40s and now were in the mid 36s. Does it keep going down . Does it keep driving the World Economy . John, as the new year gets underway. John absolutely. I think that oil is going to be the big question for 2016. Is it going to go further down . Is it going to go in the high 20s . 25 for w. T. I. Or maybe 28 for brent. It could be. Were having a lot of supply issues. There is a lot of supply and demand is not as great as we wanted it to be. It is quite anemic. Mike saudi arabia is budgeting 37 a barrel for oil in 2016 and making some dramatic spending cuts to keep the deficit from blowing out of control. What other governments what other countries in the region face similar, maybe not exactly the same but similar pressures to the ones saudi arabia is facing fow . Now . John youre absolutely right. Saudi arabia is doing the right thing. Trying to be fiscally prudent. It proved the i. M. F. To be wrong with their fiscal deficit forecast for 2015. They ended up having a 13 to g. D. P. Deficit instead of 22 that the i. M. F. Was claiming that they were going to have. Nigeria is another country that is similar to saudi arabia. They have ample reserves. More than 600 billion that the nigerians do not. A lot of the oilproducing countries are in a similar situation. Some are better and some are worse. Saudi arabia and kuwait are letter than russia in some ways and of course venezuela. Erik given their budget situation and what is going on with prices, when does steins law come into play, if is something cant continue, it will stop . John it could be in 2016, a lot of people have been waiting for do union really a cuts. They want to keep it unilateral cuts. They are the most powerful voice in opec. They did it in the 1980s and reduced output and oil price went from 40 to 50 to 10. Right now i dont think they will do anything similar to that. Erik there doesnt appear to be anything in the way of solidarity with the members of opec. It will be a go for broke race to the bottom strategy among gulf producers to pump as much as possible, prapts more than what were seeing now to make up for the budgetary shortfalls as long as oil is under 40 a arrel . John that is a very good question. That is excellent. I dont think they are going to do that. They will be fiscally prudent nd try to create alternative sources of revenue. They will avoid destroying etch other each other. The key point is to create alternative sources like taxation, tax, and put down some of the subsidies. Kuwait has done it. U. A. Did it. Saudi now. I think they are going to think wisely. His is a wise thing to do. Mike let me bring carrie into this discussion. The oligarches being affected by he price of oil. Deutsche bank is up to 12 billion now. It could be a case of capital flight out of russ y ya to get the money out. It is very difficult post sanctions and Different Things a the Russian Central Bank has done to keep cap nall the country. A lot of that has to do obvious with the ever declining economy of russia. Things have been havent been good there for a long time. Obviously the price of oil is the big kicker that is going to keep that economy down this year. Mike the ruble continues to go down. Well talk about that with john and kerri. Both of them staying with us. Coming up, in our next hour, the chairman of holland and company join us. Were going to take a look back at 2015 and a look ahead to 2016. Can you make money in the coming year . Mike the preparations are underway in time square for new york citys iconic new years celebration. That is coming later today. Complete with the ball drop. I have always found it kindor silly, but nevertheless it is a manhattan and new york city and perhaps even global tradition. Were getting ready for a great new years eve. You are watching surveillance. Im here with Michael Mckee and oni quinn. Bonnie there is a report that odafone is in talks. With malone. Only a fraction of the almost 1 wall in puerto rico owes investors at the start of the ear. Goldman sachs didnt exactly get it right this year on the. Easury yield goldman says the 10year will hit 3 in 2016 and it hasnt been that high in almost two years. 2. 3 now is the benchmark for verything. Erik if you make predictions, you can give a number or a time but never do both. Bonnie exactly. 2015 came and has basically gone now. Bankers got laid off at several banks. Keri geiger is with us for the entire hour. Keri there is a long list to of course. But the really big kind of wow settlement that we had this year of course was five banks leading guilty for deluggede raise Foreign Exchange markets. They are going to seek out enforcement on wall street going forward. It was unprecedented that you had that many banks pleading guilty to criminal charges. And of course the fines. They were not insignificant. Those banks pay close to 6 billion just here in the u. S. For that erik the crimes committed this year. Know, right . We know that regulators are punishing banks for crimes allegedly committed, now in the postcrisis period, but we dont know what they are doing today. I wont sea i cant wait to find out. I hope they are not doing bad things. We have not seen that there has been a cultural change on wall street because much of what went on with libor and Foreign Exchange and manipulation and rigging of other benchmarks took place only in the last few years. Keri history is an indicator of the future, then there are still crimes going on on wall street. As you look at each of these cases, we have been covering them very heavily for the last two years. There are new areas of investigation that continue to pop up. The department of justice said we need to really focus on individual prosecutions. Of course individual prosecution s have always been kind of one of the main criticisms that that you can fine a Bank Building s of dollars but youre not going to change behaviors unless you go after individuals. In 2016, you could see a culture change but it is really hard to see that shift happening. Bankers have short memories. We know this from a crisis. Seeing a lot of the same activity from the crisis. Erik john is in athens. You have spent at least a coumple decades in the middle east and many of the banks that keri covers closely have been sanctioned for Money Laundering and related activities in the middle east. I could name a couple. B. N. P. Paribas for example. And hsbc. To what degree do you believe this still goes on in that part of world . John that is a great question. I think they have done a lot to improve terrorist financing and Money Laundering. It is something that the saudis and the rest of the gulf countries are keenly looking at. Nobody wants to be accused by the federal agencies in the u. S. That they are laundering money. It is something that has been done over the the last few years and great improvement has been accomplished. Erik john is staying with us from athens. Keri geiger is with us in new york. Coming up in our next hour, well be joined by jonathan miller. Rising real estate. Not just prices. We are on new years watch. It is almost midnight in auckland. There is new york city. Dark now. It will be dark again when we see the next fireworks here. Mike that is time square, folks, when some 19 hours from now, a the celebration is going to be taking place. The ball will drop in the middle of manhattan to bring in the new year. Be safe and dont drive if youre getting out to celebrate new years in manhattan this evening. We are with middle eastern economist john. He is with us today from athens, greece. To ask you e want about greece, the subject you familiar with. You spent some time studying the greek situation. It was a lightning rod for those concerned about risk in 2015. What about 2016 . John it is going to surprise again. I think in the first half of 2016, you will see new elections, a new government. Probably a Coalition Government because the cumpt government cannot sustain the reformist drive. Come january 3, you will be hearing more about greece. Erik if we dont get the reforms, what happens to greece . They are still looking for that debt relief. John right now, the Biggest Issue is the pension reform system. I find it difficult politically for the current government to push through. So i think that come january, february, they are going to fall and they will ask for a new mandate and then again and again, well hear how the europeans are going to respond to that. But it is going to be a big issue again. Bonnie are people in the streets feeling a little bit of relief and is the migrant crisis adding in i pressure there . John i think the greek government thought it would be used as a lever so that they can the iate better terms with europeans. They are not negotiating much with the greeks. They are negotiateing with the turks. So they are in a bind. Erik has this turned into a question of what happens to greece . For the last three or four years, it was a question of what happens to europe. They seemed whether sanguine about whether greece drops out of the eurozone. John i think youre right. The first half of 2016, you will again the big issue of greece deciding whether they want to keep themselves in the eurozone or exiting and having another currency or going back to the draft. Basically the current reform mode is impossible to carry it through politically and there is reform fatigue and the europeans have to find a way unless the germans decide they write off 60 or 70 of the greek debt, which i find it hard to believe. Rik why would the greeks about wanting to stay in the euro . John i think the referendum was politically colored so that the current government can gain more Political Support from the public. I think the main issue here is how the citizens see a difference between themselves being in the eurozone and themselves being out. And i think they are just tired of all the political, you know, expectations. So i think there is a lot of fatigue from the political system. Mike thank you very much. John coming to us from athens today. Coming up on bloomberg surveillance, Michael Holland will be with us in new york. What worked in 2015 . You look at the various asset classes. Not a lot. How do you make money in 2016 . Join us at 6 00 a. M. In new york. 11 00 a. M. In london. On bloomberg surveillance. Youre watching us on bloomberg television. There is time square. Mike youre looking live at london. A sunny day. W unusual, to end 2015 it is 10 29 in the morning in london. Still a few hours before people start lining up for the new years festivities there. Youre watching bloomberg surveillance. Im Michael Mckee with Erik Schatzker and bonnie quinn. Bonnie it has been another day of hazardous air pollution in shanghai. The city ordered schools to keep children indoors. A 10th suspect in the paris terrorist attacks has been arrested. He is described as a Belgian National born in 1993. An air canada flight from shanghai to toronto ran into heavy turbulence. 20 passengers were injured but none life threatening. One of the shooters in san o has been indicted on fun San Bernadino has been arrested on gun charges. He bought the guns used in the attack. Bill cosby was released from jail after being charged with sexual assaulting a woman years ago. Dozens of women have said he drugged and sexually assaulted hem. Erik . Erik it is a holidayshortened trading day in europe. Stock indices are in the red capping the worst december since 2002. Caroline hyde is with us from london. The major markets already shut. Caroline youre right. The dax is shut. Germany, italy getting their champagne ready. Meanwhile for the markets that are open, not too ready to fire off the champagne corks just yet. If youre along this market, you down on the day. You know the reason. It is the same as in the united states. Oil below 37 a barrel. Mining stocks performed particularly badly. This is why were seeing this negative sentiment. The irony being one area of green down here prm greece spent a lot of 2015, i know you spent a lot of it in greece, in thens, erik. Maybe the only area of light on the last day of trading in 2015. Meanwhile there is a sea of red on the industry groups. Mining, the worst performing on the year as well. It lost 36 of its market value in 2015. Oil and gas also an underperformer on the year but today everything is an underperformer. Lets have a look at the stoxx 600, up by. 10 . Not bad. Year to date we are up some 7. We managed to make back some of the losses from august. It is going to be a fourth Straight Year of gains, it would seem across the board for the stoxx 600. That is longest winning streak since 2006. Erik caroline, you mentioned oil and gas. If were going to talk about oil, we have to talk about Commodity Currencies because they have been shattered by the lunge in oil price prices. None more so than the ruble. Caroline this is the dollar higher, the ruble lower. Is is a fact that the ruble, the russian ruble has lost 20 of its value so far this year. But if youre looking at it over the course of three years, it is down some 60 . No wonder this is such a painful area to have been in. Overall the issue is the pain doesnt stop, erik. Down 60 . That is worse than all the other exporters. You think of them, nigeria, venezuela, norway. All of them have not fared as badly it is a russian ruble. Why . Russia gets 50 of its revenue from oil and gas and the pain might be still to come. Money managers saying the ruble could fall further. Why . Because oil doesnt look like it is going to be picking up any time soon. Erik cable mogul john malone is back in news today with the news that he may have his eye on the u. K. Telephone company. Itsline it keeps on raring head. Will 2016 be the time when you see john malone come in and buy up vodafone. Vodafone reacting as one of the only Green Companies on the ftse 100. It opened significantly higher. Still up 1. 5 . This is all to do with the u. K. Report coming from the daily mail in the united kingdom. Remember it was back in september they decided to not go ahead with asset swapping, but it seems that speculation keeps on bubbling up because it would make a strong strategic fit for liberty global, the empire that john malone has built up and expanding it to south america, he is eyeing up vodafone once again and how they continue to expand. It is all about quadruple play. You need content and tv and land lines and you need cable. So it would seem to be a match made in hen for many. It is just whether or not the deal gets struck. Twirkt could be the year. Erik in case i dont see you later on this morning, have yourself a happy new year. Caroline you too, erik. Bonnie that is fascinating. Recently he bought cable and wireless. He is really expanding globally. Mike thing interesting thing is you hear the same script over and over again. He may be doing something. The dance goes on and then he end and in at the pays a lower price. Keri would apt deal like this come under antitrust scrutiny . If youre going to have consolidation in the market . Erik they are Telecom Assets but they are not Telecommunications Assets per se. Subscriptions. Keri it could get through. Time warner and comcast did not have that luxury. Bonnie so far it has been mainly the likes of spain that he has been involved with and latin america. He seems able to pinpoint. Im sure he would do a deal and get rid of some assets if that were necessary. Follow in ry to foul 2016. Another story to follow, what happens to emerging Market Countries . Well discuss all of that coming up on bloomberg surveillance radio this morning. Carl weinberg will join me and michael rheagan sitting in for tom keene. 11 30 a. M. Were now in washington, d. C. 99. 1 f. M. Bonnie welcome back to sur. Berg sur that is hong kong. It is 6 39 in the evening there. Not quite new years in hong kong yet either but im sure they are also preparing to celebrate. It is time for our morning must read or one of them anyway. Writing in the Financial Times out japan and Prime Minister abe, he can restore his country to prosperity. He seems to have listened to husband head and chose the latter. The thesis is he go making approaches but i think there are broader conclusions to be drawn that perhaps this would allow to turn towards china, make some towards china and not have japan be the isolated country and the unilateralist country that it has been for so long. That has been part of its problem, right, mike . Mike it is difficult to turn to abe given the history between the two countries and given the Chinese Foreign policy now is expansionry. They are still arguing over the islands there. Since were talking about surprises for 2016 and have been for the past several days, i would count that among the biggest surprises of 2016. Wishful thinking. Bonnie he is a shrewd Prime Minister at the moment and he is changing his outlook and the outside world. He needs to. Japan cant stay the isolated country that it is if it wants to prosper. It is very, very slowly inching its way out of its problem. We have to see where that gets them in the next year. One of the surprises of the year too. The yen only. 5 stronger vs. The u. S. Dollar. Erik some forecasts are going back down towards 100. Bonnie the other thing about japan that is so interesting. The central bank and the administration or the government are much more intertwined than the likes of d. U. S. Where there is complete separation. Ike their selfinterest was the same and when abe came the government came to power, they appointed kuroda as the Central Bank Governor because his policies seemed to be the same. The problem with the central bank that they face is they have taken on so much debt. Can they afford to continue that . Will they be able to do any more in 2016 if they need to. Erik if you look back keri will the japanese public that supports the abe government, are they also supporting a reconciliation on certain matters with china the same way that they were. Domestic pressures can be a huge death now for politicians with ambitious Foreign Policy goals. Erik im not familiar with the latest Public Opinion polls to china and japan but we do know that the Prime Minister still feels compelled every year to visit the war memorial in tokyo that so upset the chinese and other people and until that sentiment changes, the political pressure on him to do so, it is hard to believe that there would be an overwhelming majority in favor of trying to get closer to china. Bonnie the stories for japan as well, so much with australia in terms of trade and that economy has been impacting japan. That trade deal will help. Mike it should help a little bit. Japans biggest problem is the population is shrinking and aging. It limits the amount of growth they can have and they do not like immigration there. They dont have the safety valve that the u. S. And other countries do. Volatility f that it hasnt gone very far. Mike coming up, his outlook for emerging markets in 2016. How does china and japan play into that. 9 00 a. M. In new york, 2 00 p. M. N london this is bloomberg surveillance. Were on your tablet and phone and bloomberg. Com as well. There is new york city. Were still 12, 18 hours away . Mike youre watching bloomberg surveillance from new york city. It is 5 47 in the morning. Celebration taking place halfway around the world. Lets gets to the Bloomberg Business flash. Bonnie were getting the first look into how british retailers did in the first weeks since christmas. The best materials, tablets, ras. Ones and cam online sales up 25 . It is the start of a new era for u. S. Oil industry. A dutch oil trader is buying it. Less than two weeks ago president obama signed a law lifting the export ban. A hacker has targeted microsoft. They believe the account has been compromised by a third party. Microsoft said there is evidence that state sponsors attacks can be more sophisticated than those of ordinary cybercriminals. Michael . Greece has eks, warned if being forced to choose between paying his creditors or his people, he would choose his people. He announced they would default on 37 million in Interest Payments due tomorrow. Not a lot of money but is it a significant turning point for the islands longrunning debt problems . Ura kell ar covers Corporate Bonds here at bloomberg news. How significant is this noum . It is significant. They have actually defaulted on a very small sliver of bonds first one this is the that is multimillion s of dollars. As you alluded to, the governor has decided a few weeks ago that he would Pay Christmas bonuses to his government employees. I think they think of them more as it must be paid. It is in the law. It has to be done. Obviously you have to pay bond holders back in their contracts as well and they are not going to get paid. Mike where are they in the negotiationses . Negotiations . Where are they in these debt talks with the creditors . There is actually two different sort of parallel negotiations going on. You have the authority that has been out there and in negotiations for more than a year and then you have separate need puerto rico trying to get all the other types of bondholders. That is happening as we are speaking now. Mike we spoke yesterday with Timothy Blake of moodys. Skid him whether the negotiations that you just referenced, the ones that could pave the way for other negotiations on the g. E. O. s and other classes of debt all the way down to the appropriations bonds. Preferable to make the near term payment but that negotiated deal which still isnt timized does result in losses for bond holders. Debt. S a haircut on the that pattern with bond horltsde and negotiating some form of haircut is what they are doing with all of the various classes of debt unless something changes. What could change . Washington is currently considering potential changes to the Legal Environment in puerto rico, specifically in bankruptcy laws. Mike i couldnt draw tim blake into guessing what odds there are the congress will intervene. He said if puerto rico negotiates with bond holders the way that detroit ultimately did, some bondholders will face recoveries of as little as cents on the dollar. If youre not pushed into into accepting that deal, there will be holdouts. That is the whole problem. We have seen they have gone through and they still dont have a deal. So you have the bond insurer rs who are dragging their feet on that side of things now. If you follow that parallel to the other negotiations, what are we looking at this another year . More cash. Could that be a solution . You almost have to have some kind of mechanism to force people into accepting a deal such as chapter 9. Keri if bankruptcy becomes possible and Congress Takes this seriously, which could happen, what kind overp feedback to you get from bond hold owners this . Is this something that they would welcome because it would clean off the process, obviously with argentina it was messy. Is this something they would welcome because it would ease the Legal Process of recovering some of their debt . There are some who say exactly that. We would welcome it. Because we want to be able to put forward a deal and we dont want these hold outs. A lot of the hedge funds are adept with how you work withholdouts. I think they see it as a tool. There are other creditors, especially as you have seen in these negotiations who say we dont want bankruptcy. We have a deal. We are ready to give haircuts. We will accept a moratorium on payments. We dont need a chapter 9 deal to get the deal done. Keri who is accepting it the most . Is it congress . Puerto rico . If you had to pick, who is saying no way, we do not want to do this bankruptcy. There are a lot of republicans who dont want chapter 9 for the precedent that it sets. Chapter 9 is ok but super chapter 9 would have puerto rico be like a state and file for bankruptcy. You have bondholder lobbyists out there in congress leaning on their lobbyists. Erik imagine what would happen if puerto rico were allowed a super chapter 9. Next in line would be illinois and then hawaii and then a long line of other states. Chicago is doing poorly. Illinois is having problems. Do you let them do it as well . Mike what is the revenue situation like in puerto rico now . Have theyen been able to step up their ability to pay . We dont actually have all of the financial statements. We havent since june 2014. We know certain taxes have been raised. To is getting more money certain places, but the overall picture, we just dont know. That is part of the other problem for the bondholders who would be negotiating for a deal. They are saying we dont have the numbers that we would need to agree to accept a moratorium on payments with the understanding that we get paid later since funds are there. Mike what are they doing to finance government now since they are cut off from the market . Not paying vendors. Moving cash around. Certain reserve accounts are being drawn down. They are pushing forward and doing what they call these extraordinary measures. Erik if i understand correctly, one of the most politically and pat athable issues of dealing with the bond hold sierras that puerto rico would lose much of what little sovereignity it has as an island commonwealth. Revenues collected by the Puerto Rican Electric Authority go directly to the holders of the newly structured debt. Completely and utterly by passing the administration. That is in theory what would have to happen. You hit on the head. You basically the rev high ins come directly to that control board. For that, bondholders may be willing to exchange at a lower price because they are so untrustful of puerto rico officials that they would be ok with that control board paying them out. Mike thank you very much. Well continue to follow the puerto rico story. They are expected to not make payments due tomorrow. 37 million. If you live in auckland or wellington or mckee national park, the northern part of new zealand, it is almost time to put on the funny hats. There is auckland. It is just about new years in new zealand. We are still many hours away from it in new york. But well celebrate with the folks down there on surveillance. Michael good morning. Happy new year. 20 16 inuary 1, auckland, new zealand. They are getting ready to celebrate the new year. Hopefully the Portfolio Managers got their accounts squared. It looks like new zealand 2 10 of a percent on the year. For seconds. Three, 2, 1. Happy new year. A funny hat on vonnie quinn and Erik Schatzker. There are two hours to go in sydni. Ney. Ave in syd we have 2 hours to go. Oil is the story of the year. It is the last day of the year as well. This is bloomberg surveillance from our headquarters in new york. We are keeping an eye on the whole year as it begins to celebrate. I am Michael Mckee. Erik schatzker, and vonnie quinn. I said we were wearing funny hats, i lied. Have 18 hours to go. We can come up with something. We are going to go to vonnie quinn for bloomberg first word news. A 10th suspect in the paris attacks has been arrested. He is a Belgian National born in 1993. 10 cell phones were seized during the search and are being examined. Germans reject nationalists who have hate in their heart for refugees. In a new years speech, the chancellor said coping with the crisis will take time, effort, and money. Crisis toto turn the the nations advantage. Company and peoples link to the nonian Nuclear Program word on who we targeted or what the sanctions will involved. The Un Security Council has barred iran from any missile capable of delivering nuclear weapons. Of hazardous air pollution in shanghai. Schools were ordered to keep children indoors after one measure of pollution hit seven times the recommended level. Older people were urged to avoid outdoor activity. Record flooding affecting millions in the Mississippi River basin. Some of the highest flood stages in history are reported. Near st. Louis, the Merrimack River is 27 feet above flood level. The crest will make its way down mississippi well into next week. I vonnie quinn. Not exactly what you want to be seeing if you are trying to celebrate the new year and a few hours in st. Louis. Zealand, no more trading. There is trading in europe. Although several markets are closed, in general stocks are down 2 10 of a percent for the 600. S p futures suggest that maybe we can call the game for the year in the u. S. That is not a correct number for the canadian futures. They are not trading today. I put that in there and honor of Erik Schatzker. Canada is getting hammered by oil prices. Down 25 on the year in u. S. Dollar terms. World stocks are a little lower. Brent crude, higher today, because we broke below 37 yesterday. 36. 70. The ruvell was at 74 earlier today. The rubel was at 74 earlier today. Michael, lets start with you. Are down 2 of the year. You look at asset class out asset class after asset class. What went wrong this year, and how do you as a money manager change that in when he 16 . Ichael i cant change it happy new year, by the way. I think it was a better year if you think about where we were a year ago. The Federal Reserve said we are taking off the training wheels. Years ofiven you six uninterrupted low volatility canes and all asset classes. Now we will stop doing that. When the fed moved away a little, it did not cause the world to end. We had a flat year. That is a data. Note, ion michaels will throw up a quote. Times theirof 25 adjusted earnings. Bonds have unusually low interest rates. Toositing ceos next nothing. Property markets are richly valued. No doorbusters are available in world financial markets. Where do you do . How do you find the value when everything is richly valued . Michael h. a lot of things have moved up of the easiest bull market. We started in 2008. The commodities you did not mention commodities. Day, each of the these markets, you talk about being richly valued. There are some stocks and properties that are probably mispriced. That is what you do when you do active management. Erik i have 2 charts. The first is to underscore the point that you are making about what to expect in 2015. The question is if 2016 will look like this. Risk without reward is not the foundation of Capital Markets . Something will break down if for end upan two years we with flat returns on corporate and treasuries. Negligible returns on stocks. And that kind of return on highyield. Michael h. i think that you stepped on something. Coming year, for people that are listening, cash is it that you have. It is not that im concerned we will go into a bear market, but if we have another year like 2015, that is probably ok given described. Everything is expensive. If we dont go into a bear market in a cyclical kind of thing, the thing that would concern me is december 31, 22015 december 31, 2015, is terrorism. We have seen the markets react fine with what we have had so far. If i am the head of isis, i think i can do something about that. Jonathani want to ask miller. We did not bring real estate into that. You look at the rate for the u. S. , down 7 10 of a percent. Could you make money in real estate . Jonathan it will be a challenge. 2015 was about the de acceleration of pricing. We are seeing pending home sales sliding, they have been sliding for the better part of a year. That is because pricing has been robust over the last three years or four years. Credit about by tight and the contraction of supply. I dont see much relief in 2016 in terms of supply coming to the existingr property. As a result, i see price rusher, which will keep volumes at or below what we saw this year. Erik i want to bring up a second chart. At 2016. O look people putting money into the market today, stocks, bonds, or real estate it isnt ready. The point i was going to make if you are going to take stocks back to the beginning of the recession, the end of the Fourth Quarter in 2007, it is a 65 return. That is an annual equivalent of 6. 5 . Not enough to hit the pension fund buggy, but still good. Instead of taking the punch all away now, could we expect a return like that over the next eight years . Likely, but you dont know. Companies have done a spectacular job with their earnings in a lousy Global Economic environment. What could change it . Leadership in the u. S. Continuing nonevents out of china. Meaning that china continues if those three engines do better over the next three years, that could cause it. The companies have tried to bring out as much try to of abilitys much as they could. It would have to be a probability events, not a market event. Michael and we need a push down on valuations, a bear market, to generate that return . Michael h. shut up, michael. [laughter] michael h. looking at history, there is no way that is why question, ins regards to cash, i have more cash than i have had in seven years or eight years in regards to what i do. Some fixed income in special cases. I think overall, having cash no one knows, but that is a probability. Erik how much cash . Michael h. how will you sleep. If you are a pension manager with a 7. 5 bogey, you cant have a huge amount. Individual investor, if you can sleep with 20 , 10 , 30 cash, when the market goes down you can say i have supplier power. Michael on the schedule that we are keeping, we are 100 cash. We arent sleeping at all. On Bloomberg Radio we will talk to carl weinberg. We will ask him about the. Ossibility of a recession you can listen to that on serious xm channel 119. In boston, 1200 a. M. 99. 1 fm. Gton dc erik that is times square as preparations get underway. You could mistake the flashing lights for fireworks, but they arent going off yet. They will be in 18 hours. Merger talks with liberty global. The discussions were initiated. Investors have been encouraging the companies to pursue a deal. Defaulting on 37 million in bond payments, a fraction of the 1 billion that puerto rico pose at the start of the year. Trying to restructure 70 billion. A new year for the u. S. Oil industry. Loading the first cargo for u. S. Crude and 4 decades. A dutch oil trader is buying it. Obamaeks ago president signed the law that lifted the export ban. Lets keep talking about oil. We areintelligence joined once again from our princeton bureau. The last story, the exports are going out today. It is symbolic, but how much will exports play into oil prices and the oil market in the coming year . Soin the coming year, not much. If you had asked that in 2014 when prices were higher and there was a sizable surplus in of, it would have made more a difference. Now, it is more of a function of economics. We cant export more crude because they lifted the band the ban. It is more of a function of price and cost. It suggests that the u. S. Is the marginal producer. You could say the u. S. Is the swing producer to an extent. I do not know if we are the marginal producer. There are other producing nations on the global Oil Cost Curve that are much higher than the u. S. And longer cycle investments to the market. In one case you can make that argument. In other cases, you could argue against it. Focus has been on oil for obvious reasons. Before oil. In the past 24hours we received a report from ing that should near has began liquefying natural gas at their facility, constituting the first natural gas exports from shale formations. What will that have with the energy supply, globally . Andrew whether you look at new lng products i may australia that took years to build chevron built a big client. Mozambique brought a huge project on. Obviously, russia is increasing supply. Supply. Tons of it is a race to supply europe from russia and iran. Do have the new lng supply from the u. S. You have projects on the docket, only three or four will get built. The world is awash in gas, as well. Michael thanks to andrew cosgrove. The oil industry and markets. Michael holland, one question about whether theres anything to look for in energy to invest in. That depends on your view on if prices will continue falling. Michael h. it is interesting at a point like this, in a commodity market, where investors and traders are different. Traders can get carried out every day in a bear market. Things go further than people expect. Canle like Warren Buffett look at this. A few weeks ago you had exxon mobil trading at a 4 yield. We have not seen that and our lifetime. The dividend is covered by earnings. You get opportunities. We have extreme sentiment that is negative. Erik to what degree do Energy Prices play in the Real Estate Market question Real Estate Market . My real my mortgage payment is the cost that i have as an owner. If energy is cheap, it is more money to spend. Michael h. one of the ways to think of following energy costs for the consumer and the rise in rates by the fed. I think the escalation of rates of the coming years, if that is indeed what happens, will be offset and probably not have as much of a Significant Impact to affordability. The larger problem, when it relates to housing, is really. Credit credit continues to be a challenge to homebuyers because part of the problem is the rates have been too low in terms of the spread. It removes any risktaking that banks are going to take. As a result, we need rates to go higher for the Housing Market to normalize. We arent there yet. We have to wean ourselves off of record low rates. Michael the fed is taking care that case by raising rates, but certainly having an impact in the Energy Markets credit hes. Coming up on Bloomberg Radio we will talk to the delta Investment Officer about his inlook on emerging markets 2016. Nine 00 a. M. In new york and 2 00 p. M. In london. Vonnie welcome back to bloomberg surveillance. With michaeluinn mckee and Erik Schatzker. An absolutely beautiful morning. It is 11 24 in london. It is time for your morning mustread. Michael there are things that john is quoted on that he didnt say. He did say go back to this quote at midnight. My only regret is that i have not drunk more champagne in my life. E has had a very full life we know him for his economic theories, but he was an extraordinarily successful investor. He made money and lost money. Erik i am determined not to have to say that on my deathbed. Michael you can work on that. What champagne are you going to drink . The per ago sparkling wine, pe perse co surpassed champagne. More. K. Is producing lovely. It is a function of global warming. As things get older in the theyagne region of france, are warming up in southern england. They are getting close to the same climate conditions you need to produce good champagne at least that is what the english are telling us. Vonnie that is convenient. Erik we need to pose a question to our panel of experts. What either of you drink british bubbly . Jonathan no. It depends on the champagne i drink beforehand, and how much. Vonnie what if he called lancaster . The french would be upset. Designation. Al co. Italians make prose coming up, Global Strategies will join david westin and erik. London. In we are long way from the midnight celebration. We will be with you all day. Bring your family and friends together to discover the best shows and movies with xfinitys winter watchlist. Later on, well conspire as we dream by the fire a beautiful sight, were happy tonight watching in a winter watchlist land, watching in a winter watchlist land xfinitys winter watchlist. Watch now with xfinity on demand your home for the best entertainment this holiday season. It is a dark new york city, but the sun is speaking over the horizon. Where getting ready for the new Year Celebrations in 18 hours in times square. For once, you will not freeze. I cannot recommend going, but i cannot recommend going from a historical perspective, but if you are, at least you will not have to bundle up. Thats get to the first word news. Vonnie a friend of one of the shooters in the San Bernardino massacre has been indicted on gun and terror charges. Is charged with lying when he bought the guns in the attack which left 14 people dead. Comedian bill cosby is out on 1 million theyll after being charged with sexually assaulting a woman more than a decade ago. He pleaded not guilty in a court in philadelphia. It is the first time he has faced a charge after years of complaints. An air canada flight from toronto to shanghai was forced to land in calgary. Were injured from heavy turbulence. None of the injuries are life threatening. Inis being designed entirely china. They launched their first Aircraft Carrier in 2012. Hull of that ship was blocked in ukraine. All 2000 Police Officers authorized to carry a gun will be on duty. Islamic terrorists may be planning to attack a european city. I am vonnie quinn. Erik one of the most in during nduringdurin e arguments in new york is real estate. Where to buy and the disparity between the poor and the rich. The price disparity and the height. The editor of the New York Times writes today, let the city impose a new tax called a user grandeur of the view. The new cloud scrapers clustered south of central park, whose by a expensiveed and expensive public amenities like the park. Jonathan . This is your wheelhouse. Jonathan you can do whatever you want, but they are essentially already paying that with property taxes. The reason why we are building buildings double the height of 20 years ago is because of the views. The values are much higher for higher views. Therefore, that translates into real estate taxes. Erik he argues that new yorkers are not being compensated for their own views, which are being compromised by the structure of the apartments. He does not only want to tax the people in the new towers, but the existing towers, like the brookshire, for example. All disclosure, max frankel lives half a block from central park. , mark frankelsure lives half a block from central park. Beingan his view is blocked. If it did not come from such a credible source, it would be almost humorous. One of the axioms of new York Real Estate is that no view is guaranteed unless you are located on central park. Of all ofconstruction the new towers. Jonathan that hasnt changed. A 100 story though thing is blocking the 50 story building, story0 years ago a 40 building was blocking a 20 story building. It is ridiculous. These are not really residences, they are safe deposit boxes. Interestingat is about the product being delivered to the market is that it is smaller, narrower, thinner. Michael we swung our camera around. This is around the corner from the bloomberg building. It is under construction. Is anybody buying into those . Jonathan absolutely. 432 park. What is happening in buildings like this, that particular building, reportedly, is somewhere in the neighborhood of 70 sold. Vonnie how many of these apartments are being sold from the blueprints . The prices weve read about, is it the prices that most of the residents paid . Jonathan there are a couple of answers. It varies building by building. One of the Biggest Developers in new york, the second of brothers brothers, theyrf began discounting from day one off of list price to keep Sales Activity going. What you are seeing now in 2015, we had in the neighborhood of 5500 new condos enter the market, largely skewed to the high end. We will have an equal amount or more in 2016. Erik if that is the case, will we see numbers like this repeated . With all of the supply, all of the powers we showed in the map these kinds of numbers jonathan what is interesting about the 200 million transaction, over the last couple of years there is a saying that the plural of antidotal isnt data. We have seen a slew of press or properties asking for over 100 million. With a few exceptions, they have not sold around the country. Many people misjudge the idea that this is a deep market. The 100 plus trophy market. It is and that there wont be sales, but they are anomalies, like the 300 plus Million Dollar sale in paris. Vonnie we should mention you were involved in some of the deals we showed on screen. Jonathan only from a valuation standpoint. I can only hope to live in one. Erik he provided the fairness opinion. How much of these new interests are being purchased by chinese . Jonathan my guess is that we are looking at 50 of the units being purchased by foreign buyers. One third of that is skewed toward chinese buyers. We saw capital outflows decelerate from china last year. With all of the volatility in the chinese stock market, shanghai, we are expecting another outflow of investment. We are already seeing some on a lesser scale than what we just went through. Putael if youre going to money in Something Like that as an safety deposit box you want to make sure it is liquid. Jonathan i dont think they are looking for the quiddity. Not initially looking for , at least not initially. It is not a return on investment. It is a safety mechanism to andt around volatility other investment around volatility in other investment options. There any ongoing cash flow from a business that is so from a building that is sold, but not occupied . Jonathan the early adopters, the buildings that came out of years or fouree years ago, they broke even at 40 . It isnt that they are waiting for the last couple of units this selloff. It is all gravy. It is hit or miss whether developers will negotiate. Hit the groundas in the last year or so has less flexibility. We are seeing record prices being paid for land. When you reverse engineer a andrd price for land, everyone is competing for construction and labor resources, you will pay a record price. The question is, how much can be much can be how absorbed . My guess is not as much as being put out into the market. Michael coming up on bloomberg , we will ask will the chinese continue to be able to afford these buildings . What is happening with the chinese economy . The chief economist with High Frequency economics is on with us. 9 60 a. M. In the San Francisco bay. Washington, d. C. 99. 1 fm vonnie this is bloomberg surveillance. Quinn, along with Michael Mckee and Erik Schatzker. The Worlds Largest banks are not finished with the job cuts. Since the crisis began in 2008, banks have eliminated jobs. 50,000 came in the Fourth Quarter of this year. Deutsche bank will get rid of 26,000 jobs by 2018. Goldman sachs getting it right on 10year treasury yields. It is sticking with the forecast for 2016. The 10year will hit 3 in 2016. It has not been that high in 2 years. Will have an annual advance for the first time in five years. They are up 4 . 2016 my to better. El nino has cut the content in sugarcane in brazil. It has hurt costs in india and thailand. That gets us to our single best chart. Michael what single best chart could we choose other than tom keenes chart of the year, the bloomberg commodity index. We will spend it to the future it toward the future. The orange line is the bloomberg commodity index. Tom has been following the commodity index. They track each other. Last couplein the of months. We have seen a big downturn in oil prices that has not then matched by a drop in the commodities index, which might the vast majority of commodities outside of oil might be putting in some kind of bottom. Vonnie im sure you did not make up that much of the commodity index. Sugar is going to be in short supply and prices are rising. Were waiting for the el nino impact erik on soft commodities, as well. If we were to expand that chart on soft commodities as well. Erik if we were to expand that chart, im not sure we could ask the same question. Of otherd the paths commodities for the past five years. Only recently has it caught up. The head of research i Goldman Sachs thinks we are in for another 10years of slumping commodity prices. I will go out on a limb and suggest that this chart argues, not necessarily in favor of that point, but wrongfully speaking, commodities and brent are now trading in line. Goodel that makes a point. Theael holland, prices at end of a super cycle are down. The bottom line issue is, in orher mine and toms chart is it the bottom . Will it continue to go lower . Michael h. i learned painfully i cannot call bottoms or tops. I hope to get the direction right. The time when we have such extreme motion in the commodity markets, particularly in oil, i think we are probably getting at or near the bottom. The reason i say that, it isnt just a guess, you can step back and look at the marginal producer in the super cycle for years was china. When they slowed down because of the overheating of their stimulus package in 2008, we had the crash coming in china. The hard landing. It is not in their interest to have a hard landing. They want to have full employment so they dont have revolutions. They want to do things to keep the economy going. Erik the problem is the world commodity toply of meet chinese demand that did not materialize. I guess the secondary problem is cash iscommodities king. If you are mining iron ore in brazil or he shall producer shale producer, with prices as low as they are, you have to pump the mine as much as possible just to make your interest payment. Because of the overproduction overbuilding the commodities sector because of the super cycle, you have ended up where we are now. It is crashing. Look at the junk bond market. Were looking at the natural course of events. When this happens, companies go out of business and supply of eventually stops. Is yielding close to 4 , they will pay that your they will increase it over time. You dont have to worry about when. The problem about trading is they can carry any time. Right here you could have an oversupply that lasts longer than anyone expects. Michael we will continue our discussion in a moment with Michael Holland and jonathan miller. Coming up, we will talk to deltec investment manager, atul his emergingmarket outlook for 2016. Happy new year to everyone. Coming up on bloomberg surveillance. Michael times square is where we were expecting to go, but we will go to the report. To the forex report the euro is trading lower and the pound higher. It is the last day of the year. A percentp to tens of in 2015. The brazilian real is down 33 . The dollar,ainst the worlds worst performer for 2016. Handyman new years baton to david westin for bloomberg. What do you have between now and then . Wont drop the baton. Puerto rico will not be paying a part of what they know, the 1 billion, tomorrow. Hat part they are not paying a look at the biggest winners the u. S. Economy. Another hedge fund bites the dust. We will talk with aaron heard about if it is a larger story about hedge funds. Erik i will see you at 9 00. 7 00into bloomberg at. Michael holland of Holland Company and jonathan miller, still with us. I want to bring up a chart that i referred to earlier. The s p 500 versus the s p total returns. Investors who used a long and strong did pretty well, earning a 55 total return. What this tells us is that the dark throwing theory dark throwing theory dart throwing theory, you could throw a dart at any stock, go passive, by the yandex, make money. They talk about this being a stoc pickers market. It is hard to generate excess return. Why . Michael h. the history of the business i am in, that is a cameo of the business. Most of the managers, most of the time, do not outperform huge bogeys you get capital reflecting that. 85 billion dollars going into the passive funds and 185 of and come out effectively managed mutual fund. I think that will continue. I think if you get a smart manager, key c will be able to find pockets of over he or she will be able to find pockets of overvaluation. We talked about john keynes who has made money trading. It is very difficult to do. An excellente point. Over the past several decades and in the history of investment, before the arrival of passive investing, you had to pay someone to underperform. Now that you have options, what will that mean for the Money Management industry . Michael h. continued pressure. People want someone they can trust. Theyre willing to pay to feel ok about their assets. It is more psychological. It is, i want to feel good about my assets and i want to be able to sleep at night. In the Housing Market we just underwent a Technology Boom with the automation of housing purchases. What will be found over and over is that homeowners need handholding. Especially in markets where there are questions. Rapidly overheated markets and weak markets. They need handholding if they are getting good advice or not. Michael h. that is why people pay fees for real estate and financial transactions. People you to be trust that do this. Mutualard to vanguard funds, index funds, they are wonderful place to be, but it is the other end of a computer terminal. Michael we promised people we would find out what they call the fizzy wine in britain. They cannot call it champagne. They spell it like champagne. It is britagne. Combining the 2. Another fellow wants to talk to name it after a scientist in england that looked about those that looked at those things. We would like to wish tom keene and Francine Lacqua a very happy new years from bloomberg surveillance. David running out of time and money. Default on 37 million in Interest Payments due tomorrow. Toasting 2015 with this stuff. We will tell you who came out on top in the economy in 2015. And what about the rest of the world . You wont believe whose economy has been growing faster than chinas. Welcome to bloomberg. Im david westin. Brendan here with us on new years eve, keri geiger, justin fox. We are going to look back at the year that was. First we talked to vonnie quinn about what is happening right now. There has been a 10th arrest in the paris terrorist attacks. The suspect arrested yesterday in a brussels neighborhood were some of the attackers lived. Is accused of terrorist and taking part in the activities of a terrorist group. 10,000