Transcripts For BLOOMBERG Bloomberg Markets Americas 2024071

Brands at morgan stanley. Plenty of good news stories in the market today. The 10 year yield is at 1. 84 . A couple of dynamics going on here, not least of which Stephen Mnuchin talking about issuing a 20 year bond to help with the deficit. Guy really interesting story. Here in europe, stocks are at record highs. , a couple of reasons for this, one of which is the china data we will talk about in just a moment. Your conversation with phil hogan, the eu trade commissioner, sounding reasonably positive overnight in the conversation you had with him. That has helped sentiment here as well. Really weak retail data out of the u. K. Today, confirming the idea we could see a bank of england rate cut shortly. The pound is trading lower on that. Weve also got key levels being tested and it comes to eurodollar as well. I am told you want to watch out 1. 1080, a really key line in the sand. 1. 1102 right now. Growth helped by industrial output, retail sales, and fixed investments, all beating estimates in china. Bank earnings have been solid this week, and we got the initial china deal and passage of the usmca. We are joined by jeremy siegel, atfessor of finance university of pennsylvanias Wharton School. Welcome. We know that you say the market is fully valued, not undervalued, not overvalued. At the same time, we did not quite get the pop you said we would post china deal. Is there still room for stocks . O run higher jeremy theres room, but i am worried about a little too much euphoria out there. In a way, this market is what was afterho a strong fourthquarter and a kind of straight up year where we have a lot of momentum jumping on this trend. We are not quite as euphoric as we are there because the vix is at 12, where back then it was at this incredibly low value of nine, which shows total complacency. Increase, the times lastre 21 years earnings, 20 times this years earnings. Theres no room for any miss over here, and theres a lot of in the deal, the usmca deal. Look at Housing Starts this morning, wow. Yet i would be happier if the market was going up at a much slower rate. Vonnie but given that we have had so much good news, doesnt that undermine the argument that there is froth out there . Where you see the pockets of froth . Jeremy you know, i see the theet i mean, i thought market would be up 10 this year, and it is almost there now in january already. We take a look at earnings, they are not surprising anymore on the upside than usual. Guidance isnt particularly encouraging. There are things that could actually spur earnings in 2020, there are uncertainties. Look at the political situation. We are going to have an election in november. Is the mideast totally stable now . We dont know. When you are at these heights and you are traveling this fast, any little stone on the road can tip you over. If you are going a little slower, you can manage these rocky shoals a little bit better. Guy jeremy, would you short the vix at 12 . We talked about that nine, but would you short it here at 12 . When people only see like the iranad, risk is solved, no more china tariffs, that is when people say lets pile into equities. That is when you see the vix continue. I dont know if it is going to reach the nine or 10 level we saw before, but in a way, people say is could run a lot longer before we get that much complacency. I say yes, it could run that much longer, but that was a really unusual situation. Before that, we almost never had the vix below 11, and now we are at the 12 level. Again, i think this rally has momentum to go a lot longer, but when i see the market going up this quickly, i know that when there does become a little bit of uncertainty, all of those momentum players pile off, and remember what happened in february 2018. It was like straight down. We may go up 10 before we get sudden drop. No one can be sure. Right now, im a little worried that that momentum disregards valuation altogether. Is that momentum driven by the feds ripple operation and the amount of funds being poured in . We are seeing that that process may have an asset inflation element to it. Feeling is that what the fed did was avoid any possibility, and very successfully, of the repo turmoil that we saw asked october. We see tremendous calm in the financial markets, the libor rate guy but is that liquidity driving equity markets higher . They have poured a lot of fuel onto the fire, and im just wondering whether the result is what we are seeing now in terms of this serious acceleration upwards when it comes to equity valuations. Jeremy i do hear that argument. I dont believe so. I think the fed went down too much on reserves, and they are now moving it back to the more normalized situation, which is a relief, but it is hard for me to see that liquidity. It is just piling up as excess reserves that the banks want to hold. Stabilityk it is the of the money market, the stability of the bond market that is encouraging investors now to reach for more risk. I think that that is the more important factor rather than these excess reserves from moving into equities. Vonnie jeremy, stay right there. We are going to be back with you in just a moment. That is jeremy siegel, Wharton School professor of finance. Lets check in on the first word news with ritika gupta. Ritika the u. S. Housing market took some momentum into the new year. Groundbreaking on new homes sword to a 13 year new homes soare to a 13 year highd. Demand is being driven by Mortgage Rates near a threeyear low. Led fridayhomeini prayer for the first time in three years and said iran had delivered a slap to the u. S. Image as a superpower. He was referring to this months military confrontation. Iran fired missiles at u. S. Bases in iraq after the u. S. Killed a top iranian general. The u. S. Is sending a message to china. An american warship has sailed through the Taiwan Strait just days after taiwan reelected a leader seeking greater u. S. Military support to counter a threat from beijing. The navy called the matter routine. In the past, china has criticized similar trips that appeared intended to send a geopolitical signal. There was nothing mary about christmas for british retailers. Sales fell 0. 6 in december. Retail sales have fallen or stagnated in the u. K. For the past five months. That will add to speculation that the bank of england may cut Interest Rates this month. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Guy thanks very much, indeed. Massive week next week at the World Economic forum in davos, switzerland. We are going to bring you the biggest names in banking. The ceos of goldman sachs, morgan stanley, bank of america, and citigroup, all right here on bloomberg television. This is bloomberg. Vonnie live from new york, on vonnie quinn. Guy from london, im guy johnson. Is is Bloomberg Markets lets check in on the market story right now. Heres abigail doolittle. Abigail we are seeing gains right around the world. 0. 2 . P 500 up about in europe, the gains are larger. The stoxx 600 up about 0. 9 . The Asian Session was relatively solid. The nikkei up about 0. 5 . Confirming it from a cross asset perspective, we have bonds trading lower with the 10 year yield climbing by about three basis points. The top sector in the u. S. Right now is the Communications Services sector. That includes telephone and communication companies, but along with some of the big internet names, you see up about 0. 4 , the faang index higher. Alphabet up 1 . Yesterday crossing that 1 trillion market cap mark, lets go into the bloomberg terminal and see the elite club that alphabet has joined. Here is in yellow and white, both amazon and apple in that 1 trillion market cap area. Alphabet climbing up there. A very elite club for the and interneth names. In the u. K. , we had some movers to the upside. Company,transportation up 5 as the eu overhang has been removed. It is all most like a thriller, but nmc health up. Theyve hired a former fbi director to look into allegations of financial wrongdoing. Shareholders liking it on the day. Abigail, thank you very much indeed. We are back with jeremy siegel, professor of finance at the university of pennsylvanias Wharton School of business, also the author of stocks for the long run. Youve talked about the fact that potentially we could hit dow 40,000 within for five years. What is it that gets there, and is it the Federal Reserve . Jeremy no, its basically the economy. Selling at 20 times earnings, and my calculations that is a 5 after inflation return. We have 2 inflation. That is a 7 total return. Total return is dividends, which is almost 2 , plus Capital Gains, so the Capital Gains portion is going to be about 5 a year. We are almost at 30,000. What do you need 5 a year to get to 40,000 . Thats the way i would do calculations as far as thats concerned, looking at todays market. So yes, stocks are not going to get as high as they are historical. They are value tired to begin with, but they are still mild ahead of bonds, which are priced for zero real returns. So for longterm investors, stocks are still certainly the place to be. Guy theres nothing us to buy at this point. It certainly seems that that is a story that comes out of the market regularly. But does it require bond yields to stay low . Jeremy yes. Guy a straightforward calculation at the moment. You get a move on the 10 year, then the equity market backs off. So by extension, what youre saying is that we still probably into have a look of lilo bond yields if this is where we are starting from. Have relatively low bond yields if this is where we are starting from. Jeremy and i still think we are in a low bond yield world. Let me emphasize the major reasons for low bond yield are not the central banks. It is demographic and economic forces. ,low growth, aging economy longer life expectancy, more risk aversion of aging investors investing in bonds, and particularly that Treasury Bonds have become the hedge asset, the thatercyclical asset Portfolio Managers love to hold. Those are the major forces, not the central bank. Those forces are going to be in place for many years. We might see the 10 year at up maybe even 5 come maybe even 2. 5 . But the days where we go to 4 and 5 , i cant see that anywhere in the near future. Vonnie if you are obviously buy and hold for the long run, is there a clever way to do it here . Or do you just continue holding the index . Jeremy i believe that for longterm investors, there are better opportunities abroad now. I do that on the basis of valuation. We are selling at 20 times earnings. Earnings,at 15 times and showing signs of recovery. Asia is also near 15 times earnings. Emerging markets, which are still the fasting growing segment of the World Economy, many of those are 12, 13, 14 times earnings. We all know theyve not performed as well as the s p, but when you look ahead three to five years, valuation becomes more and more important. Butes, i like indexation, dont give up on those International Investments just because theyve underperformed over the last several years. That would be the type of equity portfolio that i would recommend to investors. Vonnie jeremy, its always a pleasure. Thank you for joining us today. Jeremy siegel, professor of finance at the university of pennsylvanias Wharton School of finance, author of stocks for the long run. If you have a bloomberg terminal, check out tv. You can look at our charts and graphics, and even interact with us. Coming up later this hour, we will speak with jim rossman of lazard and speak about the latest review of shareholder activism. Always an interesting one. This is bloomberg. From london, im guy johnson. Vonnie from new york, im vonnie quinn. This is Bloomberg Markets. Large stakes in meredith and tanker outlet factory centers will likely have to be sold by sdy. This raises questions about the funds construction. Here we have james seyfert, bloomberg etf iq. Why these two particular, tanger in meredith . James it is unique in the fact that it weights by dividend yield rather than market cap. He fund has been in very high demand because of the low rate environment, so it has grown to over 20 billion. Falls belowt cap 1. 5 billion, every year on december 31, they decide to get those stocks out. Andhis case, tanger meredith are falling out as of the end of january, and they are pretty large positions. Guy funds do this all the time. You see etfs doing this on a regular basis. Why is this different . James this is extremely unique just in the sheer size. The stock isnt that big of a deal, not even for a 20 billion fund come about what is unique is the percentage of the company. Sharesis 22 of the outstanding they have to dump, and meredith is 18 . So this is a pretty unique situation because of how big the position is, largely because of how big the fund is. Also complicating things is tangers short position. What we have seen is the Short Interest, the cost to borrow in on decemberd 100 10. Have a lot sure they of problems going on, but at the same time, is there any effort to try and prevent this from happening . James there was an effort by s p. They issued what is called a consultation. Essentially, it is reaching out to the investment community, find out if they are contemplating making exchanges. Changes would have allowed them to drop funds more frequently than once a year, and also limit the size so they dont get to 22 of shares outstanding. Even if they did, it probably wouldnt have affected anything. It highlights the unique situation of this fund. Falls, ifce dividend stays the same, the fund is going to keep increasing its position in the underlying stock, but once that falls below a certain price, then its got to dump it. So basically, it is building very large positions in the fund and being forced to sell it. Guy interesting construction, i would say. You talk about it being unique. Has anything like this ever happened before . James something similar happened with the junior gold miners etf. It invests in really small goldmining etfs that have high beta to the price of gold. Small changes in the price of gold can turn these companies from unprofitable to profitable, but this fund was very popular in 2017. It basically got too big for its underlying index, forced them to , changehe whole makeup the max market cap from 1. 6 billion to 2. 9 billion. Vonnie all right. Are things to you, james se yffart of bloomberg intelligence. Lets get a quick Bloomberg Business flash. Kkr has taken a 6. 6 stake in dave and busters, the restaurant and game room chain. Kkr says its had discussions with the companys management about business strategy. Actions,ke certain including changes to the board. Schlumberger will continue to shrink in north america. The Worlds Largest provider of Oilfield Services says demand for shale producers is dropping off. That is your latest Bloomberg Business flash. Up next, we are going to be talking to lazards jim rossman, get his take on what is happening in activism. A lot of that is taking place in europe. This is bloomberg. Live from new york, im vonnie quinn. Guy from london, im guy johnson. This is Bloomberg Markets. Lets check in with the bloomberg first word news. Heres ritika gupta. Ritika President Trump has named constitutional lawyer Alan Dershowitz to represent him in his Senate Impeachment trial. Dershowitz confirmed he will be making oral arguments. Bloomberg has learned trump also added former prosecutors can star and robert ray prosecutors ken starr and robert ray to his team. U. S. Ry production in the unexpectedly increased last month. It was a bright spot in an otherwise weak year for manufacturing. For all of 2019, Factory Production fell 0. 2 , the first increase in three years. Factories are still dealing with a Business Investment slow down and weak demand from foreign customers. The pentagon now says americans were hurt and those Iranian Missile attacks on bases in iraq. That contradicts President Trumps statement. 11 u. S. Troops were treated for concussion. The attacks were in retaliation for the killing of a Senior Iranian general. Chinas economy displayed greater than expected strength in december. That has handed to government vindication of its newfound moderation in stimulus, ands adjusted the approach will continue this year. The worlds secondlargest economy grew 6 in the final quarter of the year. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Vonnie thank you. Interesting trends out of lazards annual activism report. In 2019, data shows Record Numbers of activists, particularly rookie activists, and a Record Number of new campaigns. It is a different story overall, though. Joining us to break down the year that was and the outlook for the year that is, head shareholder advisory at lazard jim rossman, and with us as well is bloombergs sonali basak. Give us the overall feeling you had from the year. Is activism getting a little more targeted . Is getting a little more effective . Sonali we finished the year with jim we finished of the year with 17 below the number we had in 2018, which represented a kind of leveling off of the overall activity. But if you look at the fiveyear motor year trend, it is right in line with that average. What was different this year is the number of activists. There were 140 seven activists engaging in campaigns, 43 new timers. We saw more activism outside of the Stephen Mnuchin<\/a> talking about issuing a 20 year bond to help with the deficit. Guy really interesting story. Here in europe, stocks are at record highs. , a couple of reasons for this, one of which is the china data we will talk about in just a moment. Your conversation with phil hogan, the eu trade commissioner, sounding reasonably positive overnight in the conversation you had with him. That has helped sentiment here as well. Really weak retail data out of the u. K. Today, confirming the idea we could see a bank of england rate cut shortly. The pound is trading lower on that. Weve also got key levels being tested and it comes to eurodollar as well. I am told you want to watch out 1. 1080, a really key line in the sand. 1. 1102 right now. Growth helped by industrial output, retail sales, and fixed investments, all beating estimates in china. Bank earnings have been solid this week, and we got the initial china deal and passage of the usmca. We are joined by jeremy siegel, atfessor of finance university of pennsylvanias Wharton School<\/a>. Welcome. We know that you say the market is fully valued, not undervalued, not overvalued. At the same time, we did not quite get the pop you said we would post china deal. Is there still room for stocks . O run higher jeremy theres room, but i am worried about a little too much euphoria out there. In a way, this market is what was afterho a strong fourthquarter and a kind of straight up year where we have a lot of momentum jumping on this trend. We are not quite as euphoric as we are there because the vix is at 12, where back then it was at this incredibly low value of nine, which shows total complacency. Increase, the times lastre 21 years earnings, 20 times this years earnings. Theres no room for any miss over here, and theres a lot of in the deal, the usmca deal. Look at Housing Starts<\/a> this morning, wow. Yet i would be happier if the market was going up at a much slower rate. Vonnie but given that we have had so much good news, doesnt that undermine the argument that there is froth out there . Where you see the pockets of froth . Jeremy you know, i see the theet i mean, i thought market would be up 10 this year, and it is almost there now in january already. We take a look at earnings, they are not surprising anymore on the upside than usual. Guidance isnt particularly encouraging. There are things that could actually spur earnings in 2020, there are uncertainties. Look at the political situation. We are going to have an election in november. Is the mideast totally stable now . We dont know. When you are at these heights and you are traveling this fast, any little stone on the road can tip you over. If you are going a little slower, you can manage these rocky shoals a little bit better. Guy jeremy, would you short the vix at 12 . We talked about that nine, but would you short it here at 12 . When people only see like the iranad, risk is solved, no more china tariffs, that is when people say lets pile into equities. That is when you see the vix continue. I dont know if it is going to reach the nine or 10 level we saw before, but in a way, people say is could run a lot longer before we get that much complacency. I say yes, it could run that much longer, but that was a really unusual situation. Before that, we almost never had the vix below 11, and now we are at the 12 level. Again, i think this rally has momentum to go a lot longer, but when i see the market going up this quickly, i know that when there does become a little bit of uncertainty, all of those momentum players pile off, and remember what happened in february 2018. It was like straight down. We may go up 10 before we get sudden drop. No one can be sure. Right now, im a little worried that that momentum disregards valuation altogether. Is that momentum driven by the feds ripple operation and the amount of funds being poured in . We are seeing that that process may have an asset inflation element to it. Feeling is that what the fed did was avoid any possibility, and very successfully, of the repo turmoil that we saw asked october. We see tremendous calm in the financial markets, the libor rate guy but is that liquidity driving equity markets higher . They have poured a lot of fuel onto the fire, and im just wondering whether the result is what we are seeing now in terms of this serious acceleration upwards when it comes to equity valuations. Jeremy i do hear that argument. I dont believe so. I think the fed went down too much on reserves, and they are now moving it back to the more normalized situation, which is a relief, but it is hard for me to see that liquidity. It is just piling up as excess reserves that the banks want to hold. Stabilityk it is the of the money market, the stability of the bond market that is encouraging investors now to reach for more risk. I think that that is the more important factor rather than these excess reserves from moving into equities. Vonnie jeremy, stay right there. We are going to be back with you in just a moment. That is jeremy siegel, Wharton School<\/a> professor of finance. Lets check in on the first word news with ritika gupta. Ritika the u. S. Housing market took some momentum into the new year. Groundbreaking on new homes sword to a 13 year new homes soare to a 13 year highd. Demand is being driven by Mortgage Rates<\/a> near a threeyear low. Led fridayhomeini prayer for the first time in three years and said iran had delivered a slap to the u. S. Image as a superpower. He was referring to this months military confrontation. Iran fired missiles at u. S. Bases in iraq after the u. S. Killed a top iranian general. The u. S. Is sending a message to china. An american warship has sailed through the Taiwan Strait<\/a> just days after taiwan reelected a leader seeking greater u. S. Military support to counter a threat from beijing. The navy called the matter routine. In the past, china has criticized similar trips that appeared intended to send a geopolitical signal. There was nothing mary about christmas for british retailers. Sales fell 0. 6 in december. Retail sales have fallen or stagnated in the u. K. For the past five months. That will add to speculation that the bank of england may cut Interest Rates<\/a> this month. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Guy thanks very much, indeed. Massive week next week at the World Economic<\/a> forum in davos, switzerland. We are going to bring you the biggest names in banking. The ceos of goldman sachs, morgan stanley, bank of america, and citigroup, all right here on bloomberg television. This is bloomberg. Vonnie live from new york, on vonnie quinn. Guy from london, im guy johnson. Is is Bloomberg Markets<\/a> lets check in on the market story right now. Heres abigail doolittle. Abigail we are seeing gains right around the world. 0. 2 . P 500 up about in europe, the gains are larger. The stoxx 600 up about 0. 9 . The Asian Session<\/a> was relatively solid. The nikkei up about 0. 5 . Confirming it from a cross asset perspective, we have bonds trading lower with the 10 year yield climbing by about three basis points. The top sector in the u. S. Right now is the Communications Services<\/a> sector. That includes telephone and communication companies, but along with some of the big internet names, you see up about 0. 4 , the faang index higher. Alphabet up 1 . Yesterday crossing that 1 trillion market cap mark, lets go into the bloomberg terminal and see the elite club that alphabet has joined. Here is in yellow and white, both amazon and apple in that 1 trillion market cap area. Alphabet climbing up there. A very elite club for the and interneth names. In the u. K. , we had some movers to the upside. Company,transportation up 5 as the eu overhang has been removed. It is all most like a thriller, but nmc health up. Theyve hired a former fbi director to look into allegations of financial wrongdoing. Shareholders liking it on the day. Abigail, thank you very much indeed. We are back with jeremy siegel, professor of finance at the university of pennsylvanias Wharton School<\/a> of business, also the author of stocks for the long run. Youve talked about the fact that potentially we could hit dow 40,000 within for five years. What is it that gets there, and is it the Federal Reserve<\/a> . Jeremy no, its basically the economy. Selling at 20 times earnings, and my calculations that is a 5 after inflation return. We have 2 inflation. That is a 7 total return. Total return is dividends, which is almost 2 , plus Capital Gains<\/a>, so the Capital Gains<\/a> portion is going to be about 5 a year. We are almost at 30,000. What do you need 5 a year to get to 40,000 . Thats the way i would do calculations as far as thats concerned, looking at todays market. So yes, stocks are not going to get as high as they are historical. They are value tired to begin with, but they are still mild ahead of bonds, which are priced for zero real returns. So for longterm investors, stocks are still certainly the place to be. Guy theres nothing us to buy at this point. It certainly seems that that is a story that comes out of the market regularly. But does it require bond yields to stay low . Jeremy yes. Guy a straightforward calculation at the moment. You get a move on the 10 year, then the equity market backs off. So by extension, what youre saying is that we still probably into have a look of lilo bond yields if this is where we are starting from. Have relatively low bond yields if this is where we are starting from. Jeremy and i still think we are in a low bond yield world. Let me emphasize the major reasons for low bond yield are not the central banks. It is demographic and economic forces. ,low growth, aging economy longer life expectancy, more risk aversion of aging investors investing in bonds, and particularly that Treasury Bonds<\/a> have become the hedge asset, the thatercyclical asset Portfolio Managers<\/a> love to hold. Those are the major forces, not the central bank. Those forces are going to be in place for many years. We might see the 10 year at up maybe even 5 come maybe even 2. 5 . But the days where we go to 4 and 5 , i cant see that anywhere in the near future. Vonnie if you are obviously buy and hold for the long run, is there a clever way to do it here . Or do you just continue holding the index . Jeremy i believe that for longterm investors, there are better opportunities abroad now. I do that on the basis of valuation. We are selling at 20 times earnings. Earnings,at 15 times and showing signs of recovery. Asia is also near 15 times earnings. Emerging markets, which are still the fasting growing segment of the World Economy<\/a>, many of those are 12, 13, 14 times earnings. We all know theyve not performed as well as the s p, but when you look ahead three to five years, valuation becomes more and more important. Butes, i like indexation, dont give up on those International Investments<\/a> just because theyve underperformed over the last several years. That would be the type of equity portfolio that i would recommend to investors. Vonnie jeremy, its always a pleasure. Thank you for joining us today. Jeremy siegel, professor of finance at the university of pennsylvanias Wharton School<\/a> of finance, author of stocks for the long run. If you have a bloomberg terminal, check out tv. You can look at our charts and graphics, and even interact with us. Coming up later this hour, we will speak with jim rossman of lazard and speak about the latest review of shareholder activism. Always an interesting one. This is bloomberg. From london, im guy johnson. Vonnie from new york, im vonnie quinn. This is Bloomberg Markets<\/a>. Large stakes in meredith and tanker outlet factory centers will likely have to be sold by sdy. This raises questions about the funds construction. Here we have james seyfert, bloomberg etf iq. Why these two particular, tanger in meredith . James it is unique in the fact that it weights by dividend yield rather than market cap. He fund has been in very high demand because of the low rate environment, so it has grown to over 20 billion. Falls belowt cap 1. 5 billion, every year on december 31, they decide to get those stocks out. Andhis case, tanger meredith are falling out as of the end of january, and they are pretty large positions. Guy funds do this all the time. You see etfs doing this on a regular basis. Why is this different . James this is extremely unique just in the sheer size. The stock isnt that big of a deal, not even for a 20 billion fund come about what is unique is the percentage of the company. Sharesis 22 of the outstanding they have to dump, and meredith is 18 . So this is a pretty unique situation because of how big the position is, largely because of how big the fund is. Also complicating things is tangers short position. What we have seen is the Short Interest<\/a>, the cost to borrow in on decemberd 100 10. Have a lot sure they of problems going on, but at the same time, is there any effort to try and prevent this from happening . James there was an effort by s p. They issued what is called a consultation. Essentially, it is reaching out to the investment community, find out if they are contemplating making exchanges. Changes would have allowed them to drop funds more frequently than once a year, and also limit the size so they dont get to 22 of shares outstanding. Even if they did, it probably wouldnt have affected anything. It highlights the unique situation of this fund. Falls, ifce dividend stays the same, the fund is going to keep increasing its position in the underlying stock, but once that falls below a certain price, then its got to dump it. So basically, it is building very large positions in the fund and being forced to sell it. Guy interesting construction, i would say. You talk about it being unique. Has anything like this ever happened before . James something similar happened with the junior gold miners etf. It invests in really small goldmining etfs that have high beta to the price of gold. Small changes in the price of gold can turn these companies from unprofitable to profitable, but this fund was very popular in 2017. It basically got too big for its underlying index, forced them to , changehe whole makeup the max market cap from 1. 6 billion to 2. 9 billion. Vonnie all right. Are things to you, james se yffart of bloomberg intelligence. Lets get a quick Bloomberg Business<\/a> flash. Kkr has taken a 6. 6 stake in dave and busters, the restaurant and game room chain. Kkr says its had discussions with the companys management about business strategy. Actions,ke certain including changes to the board. Schlumberger will continue to shrink in north america. The Worlds Largest<\/a> provider of Oilfield Services<\/a> says demand for shale producers is dropping off. That is your latest Bloomberg Business<\/a> flash. Up next, we are going to be talking to lazards jim rossman, get his take on what is happening in activism. A lot of that is taking place in europe. This is bloomberg. Live from new york, im vonnie quinn. Guy from london, im guy johnson. This is Bloomberg Markets<\/a>. Lets check in with the bloomberg first word news. Heres ritika gupta. Ritika President Trump<\/a> has named constitutional lawyer Alan Dershowitz<\/a> to represent him in his Senate Impeachment<\/a> trial. Dershowitz confirmed he will be making oral arguments. Bloomberg has learned trump also added former prosecutors can star and robert ray prosecutors ken starr and robert ray to his team. U. S. Ry production in the unexpectedly increased last month. It was a bright spot in an otherwise weak year for manufacturing. For all of 2019, Factory Production<\/a> fell 0. 2 , the first increase in three years. Factories are still dealing with a Business Investment<\/a> slow down and weak demand from foreign customers. The pentagon now says americans were hurt and those Iranian Missile<\/a> attacks on bases in iraq. That contradicts President Trump<\/a>s statement. 11 u. S. Troops were treated for concussion. The attacks were in retaliation for the killing of a Senior Iranian<\/a> general. Chinas economy displayed greater than expected strength in december. That has handed to government vindication of its newfound moderation in stimulus, ands adjusted the approach will continue this year. The worlds secondlargest economy grew 6 in the final quarter of the year. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Vonnie thank you. Interesting trends out of lazards annual activism report. In 2019, data shows Record Number<\/a>s of activists, particularly rookie activists, and a Record Number<\/a> of new campaigns. It is a different story overall, though. Joining us to break down the year that was and the outlook for the year that is, head shareholder advisory at lazard jim rossman, and with us as well is bloombergs sonali basak. Give us the overall feeling you had from the year. Is activism getting a little more targeted . Is getting a little more effective . Sonali we finished the year with jim we finished of the year with 17 below the number we had in 2018, which represented a kind of leveling off of the overall activity. But if you look at the fiveyear motor year trend, it is right in line with that average. What was different this year is the number of activists. There were 140 seven activists engaging in campaigns, 43 new timers. We saw more activism outside of the United States<\/a> in other parts of the world, so for the first time, u. S. Activism was only 60 of the total, as opposed to 70 in other years. Also, the big topic among activists this year was event driven m a transactions, which i think points to your comment that activists are getting more sophisticated and more event oriented. Sonali with that many activist hedge funds in the world, but was the most Interesting Campaign<\/a> you saw in the last year . Jim i think the one that takes the crown for 2019 is at t. Company, bluearge chip in everyones portfolio. It was conducted via sort of a surprise attack on the night before, and within six weeks, which is a very quick time, it reached a resolution. Very quickly. And there was no settlement agreement, and at t made a host of promises about the future, which is fascinating. Sonali but is it really over, do you think . We had a chart just a little earlier on elliott putting the most money to work on activism. What happens next from here . Jim they now have to live up to a set of promises they made for the next two or three years, almost like a legal specific performance, but without the legal requirement. They now are on the hook for those promises. Think about the opportunity for elliott. Within six weeks, that stock moved 10 . They placed a multibilliondollar bet and had the stock move. They moved in and out of long only positions, options. It was a great opportunity for them to make money just based off their own campaign. We will see what they do in the future, but they certainly had a very profitable six weeks. Guy the Business Roundtable<\/a> says that making money is not everything, that other stakeholders need to be listened to. How is this going to change the nature, if it is followed through on, on the way activists work . Lifeit is going to make for Public Companies<\/a> even more complicated than it is right now. If you think about all of the agendas they are facing, activism, the pressure from passive funds like blackrock and vanguard, and now theyve got the Business Roundtable<\/a> promoting a whole new agenda for stakeholders, if you think about it, it is one of the most complex moments for Public Company<\/a> management boards we have seen in decades. The age of the board and Management Team<\/a> telling the market what they are going to do, and almost like imperial masters spiting that to happen, is over. Now you have multiple contest joints multiple constituents with potentially conflicting agendas. The gap between what the versusble is espousing mac summarizing shareholder value is significant. Guy theres another role like its her when as well, and that is esg. You saw what larry fink said earlier, in that he is going to use blackrock to that front and center. That is another tension when it comes to the activists. How does it work . Which way do i look . Jim exactly. I think the movement of esg from the periphery to the center stage over the last two years is probably as significant as the rise of activism. I thing it is also going to fundamentally disrupt Asset Management<\/a> in the way not only passive managers, but also active managers, thing about prioritizing esg in their investments. Youre absolutely right, it is yet another agenda rewards and Management Team<\/a>s have to take into account, or if they ignore it, they will do it at their peril. Vonnie there are definitely some tactics that are becoming more en vogue, but first, im curious as to who these rookie activists are. Do they have a Market Impact<\/a> . Thats part of being an activist. Jim they are primarily hedge funds. Theres also a few active managers in that group. Newberger berman, fidelity international. Weve also seen, i wouldnt call it activism yet, but pretty vocal behavior. Wellington, t. Rowe price willing to write public letters asking companies to do things. You cannot ignore them. The issue today is that the in theassive managers traditional active managers are in a very challenging, competitive and for competitive situation. It is more about is the thesis right or not. Ishink the new proxy battle getting companies to enter into settlements without settlement agreements. Sonali youve talked a lot for years now about private equity getting more into activism. With others getting more into Public Market<\/a>s, what role are they supposed to play here . Jim weve been waiting for private equity to finally enter the activism stage. I think with dave and busters this morning, you saw some interesting moves by kkr, i think now of all the private equity funds that have public , blackstone,es whatee, kkr, arguably, they are seeing is value opportunities in the Public Market<\/a> which may not be right for a full take private, but they are thinking, we are the ones with expertise on how to fix a company operationally. We are the ones who can spot in sectional opportunities. Why are we letting the activist Community Take<\/a> that putty orcent or 25 that 20 25 value opportunity when we can do it, and we are probably better at it . Jim are you already meeting with those private equity firms as activists . Jim we are meeting with the private equity funds and trying to understand what sectors they are interested in, what size companies, and what are the longerrange objectives. Sonali by the way, we had this big story about blackrock, vanguard, state street, and their impact on the markets. Do you think regulators are going to take a look at this at some point . Jim it is a real risk. They now own together collectively 23 of every Major Company<\/a> in the United States<\/a>. That, given the pace of outflows from active and the inflows into passive, i see that reaching 26 , 27 in the next two or three years. Frankly, i dont think it is about antiCompetitive Pressures<\/a>. Morenk it is probably about what is happening to the rest of the active managers, what are the Competitive Pressures<\/a> on them. Theres 100 50 Fund Families<\/a> that own 92 of u. S. Equities. Them . S going to happen to how are they going to adjust their models that charge 60, 70 basis points, verses three to 10 basis points . Vonnie outside the u. S. , japan was the most targeted nonus jurisdiction. France and germany were also particularly rich targets. We have to leave it there, but our thanks to you as always, jim rossman of lazard, and our own sonali basak. Coming up, tensions have run hot between the United States<\/a> and the European Union<\/a>. I spoke exclusively with the new eu trade minister about where the relationship stands and where the sticking points are. Thats next. This is bloomberg. Vonnie live from new york, im vonnie quinn. Guy from london, im guy johnson. This is Bloomberg Markets<\/a>. Time now for our stock of the hour. Heres abigail doolittle. Abigail we are looking at the gap. Shares had been popping after the Company Announced<\/a> it was abandoning its plan to spin out the old navy chain, but the ,tock has now reversed now down 0. 6 . Lots of moves on this very short trading day so far. Lets dig a little bit deeper on the facts of what is causing all of these moves. First, again, the gap is scrapping its plan to spin out the old navy brand. This is the bulk of their revenue. Last year was a bad year for old navy, but still 40 of overall revenue. The spinouts idea is the brainchild of the former ceo. Also behind the pop, a Short Interest<\/a> of about 18 . Some of todays move earlier could have in a short squeeze. Now those bears in control. One reason investors initially were cheering their reasons to keep it is gap samestore sales. Weakness for the gap brand overall, which is a smaller portion of the revenue, you can see over the last four quarters going in the wrong direction. The last three quarters, samestore sales down 4 . Clearly, some sort of turnaround is needed for the flagship brand. Until that perhaps happens, investors may want the strength of that old navy brand. Analysts are pretty positive initially on this development around keeping the old navy, especially considering where analysts have been. Right now, we have just one buy on the street, 18 holds, and six sells. Even with this development, the gap shifts back to what one analyst is calling a show me story, not exactly a position of strength. Still, lets still lots of turnaround proved to be done. Thats your stock of the hour. Vonnie the European Unions<\/a> new trade commissioner phil hogan says the eu and the u. S. Do not work together, the damage to the World Economy<\/a> will be significant. Yesterday i spoke with him about where their relationship stands on his First Official<\/a> visit to the u. S. On the trade commission. Mr. Hogan this is the objective come to reset the relationship, try to understand each other in relation to a number of issues, and find Common Ground<\/a> with the United States<\/a> in relation to many issues. Issuest on a number of where we signed up to a statement that we wish to have an issue around industrial subsidies and force technology a level on the basis of Playing Field<\/a> for a the global the wto process and reforming the debbie dio. Vonnie you do have it reforming the wto. Vonnie you do have a bilateral with robert lighthizer. Did you receive any assurances that there will be new tariffs slapped on the eu . Mr. Hogan no we did not come about we did not expect any reassurances. He has had a big trade week, in terms of the statement with the European Union<\/a> and japan, the big deal done between the United States<\/a> and china yesterday, and the passing of usmca today in the senate. It was a very big week for him, and of course, we are going to continue in touch because we expect to be in davos together next week to continue our discussions. Vonnie in terms of this big tariffse threat of 25 on eu orders have been out there for a while. Did you get any sense that that is still alive threat . You said it barely came up. Where did it come up . Mr. Hogan it didnt come up too often in part of questions i was , but of course, that doesnt mean it may not come up in the future. But if we have difficulties at the moment in relation to tariffs arising from airbus and boeing, and of course, discussions around the digital tax agenda was very important from the latest point of view, and we are trying to work around some solutions in the coming days. Post had ahington story about warning iran from deviating from the jcpoa, that the Trump Administration<\/a> has basically said you need to do this, or we will slap a 25 tariffs. Did that happen . Mr. Hogan it certainly was not raised with me at any meetings with the administration. Vonnie how concerned are you that because the president has winswo what is considered on trade in the last week alone, that perhaps the administration now has more leverage . Mr. Hogan we respect the fact that there has been Good Movement<\/a> on trade in relation to the United States<\/a> and many partners around the world, and of course, what we want to do now is build on some aspects of the deal that the u. S. Has done with china so we can move on a common area of alignment and cooperation that we share in relation to unfair trading practices. Hopefully, we can identify Common Ground<\/a> in relation to a number of these issues, and we can build our own relationship arising from the july 2018 agenda agreed between president juncker and President Trump<\/a> to advance those areas of cooperation standards. Vonnie part of my conversation there with you trade commissioner phil hogan. Guy i think it is moving markets today, jenny willie. I think hogan markets today, genuinely. I think hogans positive tone is lifting the markets. Definitely driving european equities, so nice interview. Still to come, more nice interviews next week. We are counting you down now to the World Economic<\/a> forum in davos. We are going to bring you some of the biggest names in tech. Do not miss our interview with the chief executive of microsoft. Looking forward to it. This is bloomberg. Vonnie live from new york, im vonnie quinn. Guy from london, im guy johnson. This is Bloomberg Markets<\/a>. Lets talk about the Precious Metals<\/a> market. Palladiums extraordinary rally setting off alarm bells after a series of records. Its biggest intraday gain since 2009. Renita young is here to tell us more. Renita stock prices have soared above 2100 announce for palladium. The silvery white precious metal is used in catalytic converters, and it has been on a run this year that shows no signs of slowing. Market watchers say there is little chance that tight supply conditions louise. South africa conditions will ease. A drop inca reported production at a major palladium miner. Record car sales are unlikely to be repeated. Bloomberg intelligence says palladium is way too overbought, and a correction is bound to happen sometime soon. Other analysts see palladium continuing to rise, but if it does continue to rally, automakers could use more of another metal in catalytic converters, platinum. That would be far less expensive since platinum prices are less than half of palladiums, but it would take a total overhaul of control emissions process. Vonnie no better time now than to get to the cme to talk more about this. It is time for futures in focus. Lets bring in dan deming of Kkm Financial<\/a> from the cme. Im curious as to what else you are seeing in terms of what markets might be getting distorted out there. Dan i think you are seeing distortion in several markets, but certainly in the latin thempalladium space in the platinumpalladium space. What also has to be considered is the Power Outages<\/a> in south africa. Display chain is really limiting the availability of palladium, and that is why i think you are seeing the constraint. When you look at the crude space right now, it is moderating, trying to hold its uptrend from october. It is having a tough time. If it breaks below 50, that puts below 58, that puts the be ti in jeopardy that puts wti in jeopardy. Vonnie it seems like we had that scared, and we have deflated the price a little more. What has it down to those levels . Dan certainly, geopolitical risk coming out of the markets, but the iea indicated today that you continue to see a big increase in nonopec production. Expectations are that that is going to outpace demand in 2020 as well, so i think that is another factor being considered here. Vonnie thank you for your cross asset perspective. Dan deming at the cme, much appreciated. Guy time now for a Bloomberg Business<\/a> flash. Off with astongs martin. Bloomberg has learned the canadian billionaire Lawrence Scholl<\/a> is the front runner to buy a stake in the luxury carmaker. He has been discussing the possibility of investing 261 Million Dollars<\/a> in the british carmaker. Aston martin spoke to several investors about a capital increase. Morgan stanley signaling its confidence in asia. The bank plans to add dozens of for wealth business in hong kong and china this year. Bayer is on the verge of settling more than 55,000 cancer claims over its roundup weed killer. Mediator ken feinberg says hes cautiously optimistic a deal will be reached in about a month. He says a number of cases may have doubled this quarter by the loss of three roundup trials in california, resulting in damages of 191 million. That is your Bloomberg Business<\/a> flash. Coming up, as we count you down to the european close this friday, commerce banks peter dixon this friday, commerzbanks peter dixon joins us. We are bid higher, partly on vonnies interview with mr. Hogan. What does it look like stateside . Vonnie we are just off our highs of the day. The dow up 0. 10 , the s p just more than 0. 1 . Several stocks pushing higher. State street the best performer in the s p 500. Qualcomm also up 3. 5 . The european close is coming right up. This is bloomberg. Guy weak retail sales in the 75 nextes the market fridays bmi looking critical. European stocks hit a record high as european trade commissioner phil hogan had a conversation with vonnie. Volatility is at a record low. Pushing lower. Is selloff on equity markets. Live from london, i am guy johnson with vonnie quinn in new york. This is Bloomberg Markets<\/a>. Vonnie up about. 2 for the s p 500. Plenty of stocks are doing well, including qualcomm. 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