An International Childrens agency said that they are refugeewith squalid camps in bangladesh. One in five children in the area is acutely malnourished. Global news 24 hours a day, powered by more than 2700 journalists and sin more than 120 countries. I am mark crumpton. This is bloomberg. Julia live from bloomberg World Headquarters in new york, i am julia chatterley. Scarlet i am scarlet fu. Joe and i am joe weisenthal. Julia we are looking at six straight weeks of weekly gains. Joe but the question is Bloomberg Markets whatd you miss . Ourlet we will speak with guest talking about Big Data Analytics from wall street. Illinoiss governor will join us in an hour to discuss how he is developing an education to entrepreneurship project and how that could get amazons attention. Julia happy friday. Whatd you miss . Momentuma theory that investing can produce severe your returns, but does it work in practice . The chairman of research noneiates says that outperform the benchmarks, and he joins us to discuss his white paper. Thanks. Talk us through the study. This is i wore at her in this is i watering. Momentum is thought to be one of the most reliable factors in investing, and on paper, it is. Or if youre sampled if sample sizes large enough and you go back far enough. Stopped working in 1999. Since then it had a crash, a recovery, a crash, a recovery, and it is a little below where it was in 1999 and that is before trading costs. Talk specifically, what does Academic Research say about momentum and the returns it theoretically could be delivering, and what the funds are in gauging in this strategy, what they are actually delivering . That invest in u. S. Core stocks, there are six mutual funds in the last order century that have the word momentum in the name. The naming of a fad is a market exercise. If you put the word momentum in your name, presumably you are presenting yourself as an expert on momentum. There are alsos expedias with that name. The six mutual funds with the word momentum in the name, zero out of six have been able to beat their benchmark since inception. Six etfs withso that name. Momentum outperformed by three annum,er and him per while these funds were live. Momentum on paper was doing this. Momentum in live experience was doing this. Thats not good. The etfs there were two of them that did eke out a small gain and 4 underperformed. The average was 2 underperformance. Is there aab, standard definition everyone adheres to . A form of momentum called standard momentum, but its not the only form right, exactly. There is, to use a technical on terms. Azilli theres idiosyncratic momentum, there is still momentum, there is fresh momentum. The list goes on and on and on. The folks who use momentum say, we do not use standard momentum. It does not work. We do our own proprietary method. That invites the question, all right, why doesnt it work . It does not work, i think, for a variety of reasons. Mainly trading costs. If you are incurring 200 turnover per year, your trading costs will be huge. It better work. Discipline. E sell momentum most factors, most strategies work, if they work, work, then start to peter out over time. Momentum is unique. It works beautifully at first, rolls over and dies, and gives up all it gains, and then winds up in the doghouse at the end. Its the only strategy that does that. That means if you buy a high momentum stock, you must turn around and sell it, or you are going to lose all of the benefits of momentum. And i think many momentum managers do not know that nuance. The stocks and the take profit are essential more the stocks in the take profit. Rob yes. If you dont turn around and sell, if you wait until the momentum is negative, you just gave up all of the gains that you had. Questions. Ve two the world momentum index averaged gains of 7. 3 over the last two decades, more than double the etfs given the benchmarks. And back to the definition of momentum changes and people can have momentum in their name whether or not they are running a Momentum Fund of some sort to what extent do you think the results could be us. In that you are including the performance of results could because you are including the performance of funds rob right. Was six. He sample size we looked at all mutual funds. And we said, lets look at the 5 of funds with the highest correlation with momentum. Every month in the last decade, thats over 100 funds. You are looking at over 100 funds with high correlation with momentum. At so whether they call themselves momentum or not, they are Momentum Funds. On average, they underperformed by 1. 5 to 2 per year. The academic literature suggests that momentum is one of these factors that outperformed, and you said yourself, on paper the strategies work well. Its just the implementation is the problem. Is there a way to use this knowledge . Is there a way to use this research in a positive way, even if he straight momentum strategies are difficult to execute . Rob yeah, the whole purpose of my paper was not to come in and say, momentum is dead, lets bury it. The purpose was to say, can we save it . Yeah, you can. Trade it more carefully. Exit the momentum positions before they roll over and type, and figure out better ways to use momentum. What if you can use momentum without trading . How do you do that . Suppose you have a value strategy. The value strategy wants to buy a stock because it is cheap. Momentum can be used to block the trade. Dont buy it. Look at it again in the month. What is that month going to cost you . Not much, most likely. Once the file seems to be over, now buy it. Costs you nothing. For your time you on the nuances of momentum investing. And automation out machine algorithms encroaching on work performance by money majors, money managers, traders, and analysts. Earlier, we had a discussion about the robots sweeping across wall street. When you look at the speed of development of technology, it continues for another 20, to five years. Remember the iphone whatever, much power ass as the most powerful supercomputer in the early 1990s. Its very hard to get your head around if you extrapolate that. Thats 25 years. Over the next few years, the answer is most of the automation is a way of making us smarter, more efficient. No one would imagine trading today without a bloomberg, without a computer. We all use Technology Every day. A bit of it is trying to get humans to focus on the bit where y havent edge and letting were they have an edge and letting Technology Take care of the rest. How do you know that technology will work . Onain, this is the gazilli dollar question. How do you pick the right one . Yeah, look, if its not going to work, you have to do a lot of trial and our. You have to be very careful before you make assumptions on things. You have to do a lot of trial and error. Have onethat you system that takes care of everything and if you have to change it, its incredibly complicated, that has all fallen away. Andre much more in a plug play world which means you can use technology if it doesnt work, or if another one comes along you unplug that and plug in a new one. When it comes to trading, you need to do an awful lot of processes around making sure the research is valid. What have your employees set about it . Was their uneasiness, or have they embraced it . Says onirst thing it her website is technology empowered. I dont think there is anything we do and the firm that is not driven by technology. So, i dont know everything is powered by technology today. Is, we havece thing people who are embracing it rather than fighting it. So, obviously, in the quantitative side, you have people who are naturally au fait and relaxed with Technology Interested in Creative Things you can do with technology to find better returns. But there are lots of dinosaurs out there who say, no, i dont want to use technology. The ones we have. Within our discretionary business, people like the tools that make them smarter. Today, humans are much better at doing an interview. You cant do this with a computer yet. Maybe it will change and 10, 20 years. We are keeping our jobs. Better to focus on you doing , and getting fed information through the machine, rather than you having to sit there and longterm look up charts and draw lines and so forth. That was the ceo of the man group speaking earlier today on bloomberg. Scarlet what will the impact on sunday be with the super majority lost due to an impending storm. A lot of things coming together all at once. This is bloomberg. Scarlet whatd you miss . Japan heads to the polls with a snap election on sunday with safeseeing the poll as a bet for Prime Minister shinzo abe. Showsr a poll from nikkei be a push toy change the constitution. Reporter japan braces for a monster of a storm this weekend which could impact the turnout on sunday. 310, that was the magic number we were looking at to see if one of the Coalition Parties could maintain the super majority. It seems that they are 10 seats shy of doing so, making it a shinzo abeharder for to push for his more divisive policies like revising the constitution, also less of a freer hand in starting the hike inion salestax 2019. But given the disarray of the opposition, the really was no alternative here. The continuity of abenomics may have been an issue, the continuity of the bojs monetary policy, and just have been the of momentum by the opposition, making this more attractive for shinzo abe, paving the way for him to be the longestserving Prime Minister in japanese history. Yvonne man, bloomberg news, tokyo. It is time for the Bloomberg Business flash, time for a look at some of the egg business stories in the news. Seeing opportunities in asia and Companies Based in the united states. They are seeing shares climbed 47 . Businesses00 u. S. Raised a combined 26 billion 26 billion dollars. These singaporebased gaming moreny c limited raised than 18 million from its u. S. Ipo today. It was above its initial price range of 12 to 14. A source familiar with the past 1ays it could billion if an adoption to sell additional shares his exercise. Goldman sachs is offering. Nvestors discount advice pay 200 per user a year. Goldman is also offering a 5,000 service for a 25user client. Ls fargo is that is according to the wall street journal. It is the latest problem to hit the bank, which is still struggling with the fallout from his bogus accounts scandal. And that is your Bloomberg Business flash. Wow. Cheap, cheap, cheap research. The beginningy be of cashless societys. Julie hyman is here with the story. They make atms . Julie they make atms, and that is where the company is seeing weakness in his business. They are down, worse than. Nalysts estimates the stock revenue has fallen the most in three years, at its lowest in about a year. In the statement today, the chairman and ceo, bill mooney, talked about this, saying atm orders are being impacted right and weakness in the middle east and africa, and the upcoming conversion to windows 10. This is a little bit like the situation with Phillip Morris we talked to buy yesterday. It has reference businesses and er businesses are not growing enough to make up for weakness in the legacy business. You have atm on one side and Software Service on the other. If you look at the bloomberg, we have the breakdown of the three business lines. This does not go back that far because they have not been breaking it down that way for that long. 15 ofe accounted for the companys sales. The ceo said the atm orders were delayed, but the problem is analysts do not necessarily believe them. Managementaid, assured that orders were delayed, not canceled. We cannot believe that anyone believes them. It is the biggest part of their business joe so the implication from analysts is this a shift or slow down, not a real change . Julie potentially so. I was speaking to david ridder of Bloomberg Intelligence. And he does not cover in co nco specifically. He says that there is then banknd closures. All right,arlet coming up, small caps jump to percent as expectations are higher. The charts that you need to see. This is bloomberg. Scarlet in scarlet fu. Whatd you miss . A record run for smallcap stocks as well as big cap stocks. Look at this. Investors went back to tax reform and Inflation Expectations started to creep up as well. Shows howline broadbased it is. Its a percentage trading above the 200day moving average and right now it is at 70 . Two months ago it is below 40 when this latest like up again. Of course, after the election, you can see the percentage was actually about 85 . There is plenty of room for that to widen. Our analyst from Bloomberg Intelligence says that tax cuts would help because they have a versus the 28 of the big caps. That ut do we get dont even go there. Of his lee, we have had ge and focus today as a result obviously, we have had ge in focus today as a result of their painful earnings. Bsharess normalized of 2016 and just to give you a sense of the underperformance of ge stocks relative to the market in the s p 500, if you look on the right, you can see we are talking about quickly do the math 41 percentage point year to date. However, what we got from Ceo John Flannery today was a reality check, a massive drop in the earnings forecast, the etf forecast as well, and the acknowledgment they will sell a 15 over the next one to two years. We spoke to the scott davis earlier, and he says theyre actually need to be a lot more cuts. Lets listen in. He said 15 . I think moore. Julia you say more . How much more . 50 . Chop in assets, not 15 . Watch this space. Joe all right, here is something i really enjoy. This is when it investors just by a bunch of stocks because of something in their name. We have seen this recently with companies putting block chain in their names. The shanghai free trade area any stock with shanghai in the name surged automatically last night. Heres a couple examples. Just straight up. It does not matter what it is. If the stock had the word shanghai and the name, people were just buying it. Very fun behavior. Orrlet do we blame humans do we blame algorithms . Joe blaming humans. Scarlet less than four minutes before they close. Guess what, guys . Record highs for u. S. Stocks. This is bloomberg. Julia all three equity benchmarks posted a record. U. S. Stocks heading for their sixth weekly gain and the dollar touching a three month high. I am julia chatterley. Scarlet i am scarlet fu. Joe i am joe weisenthal. We want to welcome you to the plugin go coverage every weekday from 4 00 to 5 00 eastern. Scarlet we begin with the market minutes. U. S. Stocks rallying into the close. The dow is up 154 points, the dow adding 0. 7 . A sizable move these days. Joe this is huge. Yesterday it was 70 basis points as a huge selloff, now this is a huge rally. Scarlet we got a leg up at the close. The nasdaq up 0. 3 . We had Economic Data which did not do well because we are not focusing on that. All right, the individual banks. General electric, ugly day for ge, although they did close up. It one point get fell as much as 6. 3 . Quite the turnaround. This is after a big earnings miss and the company cut its guidance. The ceo called a result completely unacceptable and promised sweeping change. Brutal assessment, there are no sacred cows, and people we speak with say there is a lot to work on, falling by 50 . Julia talking the talk today. That is reflecting the today performance. Scarlet this was dropped the most there is the future disease drug, that analysts have been expecting to be a blockbuster. Futures up 42 , the most since the company went public 18 years ago. Wider profit margins, but lets face it, the estimates are coming down. And paypal is up 0. 5 5. 5 on the back of earnings. Joe bonds in the u. S. , sizable moves for the two and 10 year. 2. 38 . Year up to it has been rising the last couple of weeks. Lets look at the oneyear chart on 10year gilts to get some perspective yields to get some perspective. Through Early September has been a grind down, but a steady move. Remember job stable we were up 2. 4 . Now we have been going back. Upper moments thanks to the rally, a more hawkish ships coming in, but definitely eight thing to watch. Julia that was the theme in the dollar, the iron ore, both turning. And john taylor keeping that hawkish transition alive. I was feeding into the dollar. Up 0. 5 . Ee the Canadian Dollar was dropping to the lowest since it has been august 31. It got lower with api. Further seeing down the expectations. Time. Down for the third also watching the yen. I have talked about that every day, 0. 8 higher. The lowest against the dollar since july 14. We are seeing investors rebuilding their short yen positions ahead of the election and despite all the back and forth, expecting to return Prime Minister abe. A continuation of abenomics. Joe and a quick look at commodities today. Not a ton of action here today. Crude basically in the same range in has always been in for the last several weeks. 51 a barrel on west texas intermediate, and gold down a half percent. Those are the market minutes. Scarlet we are getting new excerpts of an interview that President Trump conducted with fox business news. In the conversation, he said he likes fed chair janet yellen a lot and he said, i really like her a lot. He said he has three people he is looking out for the fed chair and others. Joe that really narrows it down, three plus a couple of others. Scarlet it is a new way of framing it. Joe it is. Scarlet lets talk about u. S. Stocks with the market at record highs. They can continue a remarkable run. This is the Wealth Management director, and he writes for bloomberg profit. You had a long consistent gains for u. S. Equity index, whether it is monthly or quarterly, yet the average absolute daily price change year to date is fairly minimal. You have it at 31 basis points. For all the talk this is a late cycle rally, this could go on for a while yet. Promisedave been second half, but it has not happened yet. I think a lot of it has to do with good reasons, people say it could be quantit