Month of losses. Joe we have seen a big comeback from our dips a couple of weeks ago. A 5 loss. Sed we ended up being down a little bit. Today, obviously not as good as the last couple of weeks. Scarlet unless you are valeant. I one point the stock down over 20 , the most since 2011. Bloomberg has learned valeant is under investigation, but this is different from its investigation from pharmaceuticals. The stock continuing to get hit. Joe the hits keep coming with this. Alix in terms of stocks for the month, this is all about the rebound of commodity names. The losers became winners. Glencore, freeport, newport. Csuite 5 on the month. Freeport and alcoa have short high interests. Clearly you cant rule that out. Nonetheless, ferocious. Joe today in bonds, one of the big stories was the decline in yields. We saw the german fiveyear yield plummeting deep into negative territory. We got a mediocre and cool inflation report. You just see yields plunge with one of the key stories of the month. Scarlet the dollar gave up its gain and more in february. About 1. 4 , it was a flight to the yen, despite the bank of japan adopting Interest Rates. Euro yen off to another big mover. Now the strongest since april 2013. Alix talking about the commodity sector, that with february was actually about closing at 33 dollars. Copper no exception, getting a ferocious rally. Gold also found a bit. Nonetheless, it seems like a lot of money coming into the market. Scarlet lets take a look at our deep dive. We are going to start with al ix. Stick withoing to gold. If you look at the 50 day moving the 50 Day Moving Average goes higher than the 200 day. That is called a golden cross and could potentially be a alledge signal for stocks. If that happens, do we wind up seeing a rally, despite the fact that copper is rallying. Upgraded itsca first half of the your price forecast to 1500 per ounce. That would have been bananas in december. Some renewed optimism in the market. Joe definitely renewed optimism. They finally have some good news. At inflation, because one of the big stories we have been talking about in recent days is the comeback of u. S. Inflation. That is not a global phenomenon, this one looks at core cpi in the u. S. , which is that yellow line. And corsi pi in the eurozone, which is the white line area core cpi in the eurozone, which is the white line. Nonetheless, it really tells the story between the challenges facing the fed and the ecb. It looks like the ecb has way more to go. Last yearthe end of everybody was talking about divergence between the fed and ecb, we havent been talking about that this year. Maybe we should Start Talking about that word again. Be interesting if people come back on the show and Start Talking about the divergence again. So much of it depends on where oil prices go. Searchdy is clearly on a or yield. It has been described as a big rolling ball of money. Looking for sizable returns. The ball money became money again shifting away from stocks. The ball money began shifting away from stocks. It is just north of the border in hong kong. The red line, it is climbing the fastest pace in china as investors switch out of the most expensive stocks. The latest move to boost the housing economy. The past 12 months, up 52 . Joe so much for rebalancing the economy. That of the big question, where does it go next. You can see all these charts and more on twitter. Alix i want to bring in our guest, joining us from the manhattan office, bill, good to have you. You wrote the Global Growth is at a highly curious point highly precarious point. Highly atession is risk in 2016. Please elaborate on your call with us. Willem with china in the front row, but joined with other week ,merging markets like brazil also domestic weakness. This has been joined by weakness across the board in an advanced economies. Growth revised downwards. The same in the euro area, same in the u. K. , same in japan. Is acrosstheboard softness, not across the board immediate recession. This has cost has caused acrosstheboard worry. Especially in the u. S. , the late cycle session may threaten this recovery and not get us to 1. 8 but rather 2 of the year, but lower if there is weakness at some suspect in the corporate credit. And weaknesses manifested in the renewed issuance of more jim issuance of more mortgagebacked ceos. Joe you pointed out one of the issues and china is a high and rising that level. Chinawe saw the bank of cut the reserve requirement ratio again, seemingly an effort to keep that credit flowing. Is this ultimately exacerbating in balances that china needs to start correcting . Willem at best it is pushing a string. Ome of it will leak abroad of it will go either into idle balances held by the banks, or into speculative ventures. Fighting leverage is not a success. R it is classic that we have seen 70 times in the advanced economy. Alix if china is pushing on a string, what is the event that could take your call to a recession globally . Willem something would have to go wrong either in the u. S. Or china, relative to expectations. China, it could be a financial crunch in the corporate sector. The banks especially have large amounts of nonperforming loans. The government is supposed to deal with that, to handle it, to clean it up, and not let any system Important Institution fall by the wayside. That could be a problem. The corporate kerfuffle ended an indicator not just of local problems but acrosstheboard corporate leverage problems. I think a domestically generated slowdown could happen. Scarlet one thing here is the response from policymakers. Very little got done when the leading officials got together. Is there anything policymakers could do at this point . People are resigned to the fact that Monetary Policy is out of bullets. I do agree by itself expansion policy does very little good in the country that matter. Some agreement on managing the extreme trait the Exchange Rate jointly without an attempt to depreciate oneself to a disadvantage may have a little bit of an effect. Monetary policy in these highly leveraged economies with the official policy at or near the , it is the poor mans Monetary Policy. All the countries that could be doing it arent doing it. That means they are effectively fighting with both hands tied behind their back. Scrubbing coming up, how the citys recession call will impact the u. S. Economy and with the fed does next. Market at least 38 people were killed, dozens of others wounded in a suicide bombing in a field north of tag dad. Stateing by islamic killed 73 people. Deadliest ins the a wave of recent explosions that have targeted commercial areas in and outside of baghdad. 30 point 7 seeking billion through 2021 for cyber security. It is an effort to beef up military capabilities against isis. Earlier today defense secretary ash carter said American Forces are now successfully disrupting the terror group. In the counter campaign, particularly in syria, to and control, to lose confidence in their networks, to overload their networks so they cant unction interruptunction, and their ability to commandandcontrol forces. Getpace operations would 14. 3 billion dollars as part of the plan. By our 2400 journalists. I am mark crumpton. Scarlet whatd you miss . Federal inflation could drag down the u. S. Economy. He said recent Research Suggests that financial transmission is likely to be amplified and economies with near zero Interest Rates, such as anticipated monetary adjustments in one economy make a treaty to a shifting demand across border a boost to overall demand. Joe citigroup chief economist is still with us. What do you make of this . Basically he is saying when you get to the zero lower bound, all Monetary Policy does, the only channel for which it can work is weakening the currency, therefore all Monetary Policy is zero some, baker is thy neighbor recently, and the u. S. Is susceptible to a global downturn and you have all these countries trying to weaken their currencies, thus strengthening the dollar. Does that ring true to you . It is almost right. The way negative rates are being is often annow indication of you only have the negative rate at the margin, the last few billion of excessive reserves, whereas others are being viewed at zero or a positive rate. Domestic transmission through the borrowers is made unnecessary. The that isnt impotence of Monetary Policy to boost demand is largely a function of the excessive indebtedness of the economy. It would be true of the industry was at five or 4 . We really have to focus on the specific way in which negative rates are being implemented, which is aimed at sparing banks profits, because banks dont want to violate social taboo against the negative interest on household deposits and in addition, overly indebted. Conomies across the world Interest Rates dont stimulate either consumption or expenditure very much. It goes into additional saving. As we ponder the possibility of negative rates here in the u. S. , one thing i always wondered is if a recession is a selffulfilling prophecy. More talk of it causes companies and consumers to retrench. Stocks are falling. And if you compare it to a chart that shows indicators as Building Permits and capital goods, those have declined in previous recessions, leading up to previous recessions. Alix is there one thing you look at in the u. S. That will foreshadow him that lack of demand is really going to seep through to the rest of the economy . Willem you want to look at the forwardlooking indicators, not the payrolls, which are backward looking indicators. They have some leading properties, i looked at the fundamentals, not what the markets make of it. There is some element of the self fulfilling prophecy. And so they justify the pessimism that they foreshadow. But there are limits to that. I would look at that in the and low gradeor highyield corporate debt and entities that have trouble servicing it. Look at stress metrics. Joe given what you are seeing in the global economy, going back to what governor brainard says, does it make sense for the fed to stay on hold with regard if the data, the unemployment rate, the inflation data is showing they are getting closer to their targets . Willem the only recent for the fed to raise rates would be Financial Stability reasons. To do a mandate, inflation of price ability price stability is no reason for a recent for raising rates in the foreseeable future. I think financial excess is brewing again. Must obviously in the corporate sector, especially the highyield. Who knows where else excesses are brewing . It has no instrument other than but the onlyrgins, interest the only instrument is rates. They want to fire a warning shot. Excessive credit growth, the other way to do it is by raising rates. Scarlet thank you very much. What are the potential pitfalls of these policies . We discuss the misconceptions next. Joe negative rates are gaining traction, from the bank of japan to the ecb, Central Banks are adopting all of to spur growth. The founder of the financial blog the contrary and corner joins us now by phone. Us, what is everybody missing and getting wrong about negative rates . Thank you for having me back. I think the confusion comes from the idea that as soon as they started talking about the fed, people talking about whether they were entertaining it or if they would go that direction. You are really looking at situations that are completely different here in the states to the countries that are adopting this. Joe what are the differences . Kevin the main difference is not just the traction the Monetary Policy has already taken, but also the potential of other tools being used on the fiscal side. The countries that are embracing negative rates are showing it is kind of the last tool in the toolbox. Forward look at the curves, inverting negative rates, inverted negative rates, that shows that policy is not getting traction over the medium term. Of 2016ave this chart 2017, going negative. What does this tell you . Kevin now we are talking about an inversion in the negative rate curve. You want to see a positive where people say a year from now negative rates would have created some kind of positive slope. That situation was closer to 60. Tohas gotten straight down 10. Why arent they having a positive effect on the curve . Theoretically neighbor that you radically negative rates theoretically negative rates discourage savings. Why arent we seeing a positive effect in the places where they have been adopted . The fact we are going this gives people also the intention that you are at the end of the line. You are running out of arrows. The matter how many people have thought that about the fed, it is not true. It shows it is going to take more time, but it is encouraging rates have been able to be pushed back down. The cynical answer is they just become cyclical. Central banks are creating reserves so they can tax them with negative rates. That is the situation. Joe final question, is there any merit to them . Should the ecb or bank of japan not have gone their . I think it is fine for them to go there. It buys them time to think about other things. It helps our rates down here in the states. We will watch the steepness of that curve. Alix coming, shares plunging 18 under investigation. Mark president obama ordered 01 president obama awarded the highest honor to a navy seal today. He is the first living active duty member of the navy to receive the award in 40 years. Im not sure how this will change my life. I just plan on taking it one step at a time. Im going to continue doing my job in the navy, continue being a seal, doing the thing i love ever since i was a child. Of a daring 2012 raid that rescued an american hostage in afghanistan. Hillary clinton scored an important endorsement on the eve of super tuesday, the Congressional Hispanic Caucus pack is backing the secretary of state. Proud to stamp of my colleagues today, giving our full support to hillary clinton. She has been a champion for the latino community, our community. Florida congressman alan grayson announced he is endorsing senator Bernie Sanders. A News Conference in pyongyang hes accused of taking down propaganda signs. All of this happening as the u. S. Is pressing for more economic sanctions against north korea. News 24 hours per day powered by our 20 400 journalists in more than 150 news bureaus around the world. I am mark crumpton, alex, joe, scarlet . U. S. Markets closed lower today, the first time that has happened since 2009. Lets look at the asian markets, opening in just a couple of hours. Pol allen is bright and early paul allen is in sydney where it is bright and early. The all the talk is around reserve ratio, cut by 50 basis points. It is seen as something as an assault to critics. It wasnt doing enough over concrete policy. That is unlikely to put a stop to that criticism. It locally had an immediate effect. The Australian Dollar climbing. That comes as the bank of australia is about to hold its meeting on the cash rate target. , but many think we will see a cut sometime down the track. Know china is reporting pmi manufacturing and nonmanufacturing. What are we expecting their . Paul it would indicate a deterioration. We are expecting unemployment numbers out of japan, 3. 3 expected. Policymakers hoping for a strong read. Miss . Hatd you valeant announcing it is under investigation. Joins us now. It has been a difficult 12 months. Put into perspective what this means for us. A point where valeant needs to set a date and have a call and speak to the public and clear up as much as they can. Even if it is more bad news it has to come out now. What is happening and the stock is reacting, there is so much uncertainty. We dont know about what their Earnings Guidance on. Now one month later they are pulling the guidance because hes coming back to the job after become after a couple of months of sick leave. It is fair he will be able to back those numbers up. Really they need to move quickly to communicate to the Investor Community what earnings are going to look like. Valeant not getting some good news just before this latest confirmation. Reviewing the downgrade. This story has been wild, but it has been started last night. Kind of break this down the last 24 hours and how all the stories fit together or are totally separate. Basically what happened was coming into the earnings, mason maybe there was some movement. They said last week his health was improving. There may have been the sense that he is coming back. And then when they decided to improve him to approve him back, i suspected something was going to happen at that point. Problem is they have 30 billion worth of debt and it is going to come down to whether or not they can pay that back. I think the bondHolder Community and the loan Holder Community are probably sitting there saying i need to verify you have the cash flow. They need to show it and have confidence in it. They need to come out in a confident tone about what they can deliver in the next six months. Alix thisis is a stock problem is they have0 billion worth of debt and it is going to come down to whether or not they can pay that back. From hedge funds across the board. That was disclosed on february 5. There are more recent numbers. A lot of money riding on this. Funds have not had a great start. I know you have been talking head of the announcement today. What are they looking to get . Cindy they want this ad hoc investigation, the mail order pharmacy, they want to make sure the investigation is done. Its surrounded about 50 million of revenue. Once that is done, are we not going to hear about that anymore . Acknowledgment of it is probably ok. But they need to know that is out of the way. I think that is the first thing they need to clarify, how close are they to the finish line at finish line . There is nothing schedule in terms of their latest news to come out and reassure the bondholders, reassure equity holders, there is nothing on the horizon. Cindy i would anticipate something is coming soon. Out andhey need to come communicate, that is one of the major issues. The information is worse, then maybe a little bit of bad news. Be ableinvestors would to digest that and move on, but right now the uncertainty is creating a lot of volatility. Alix thank you so much for joining us. Cynthia reports for bloomberg news. A main part of Bernie Sanders tax plan is the transaction tax. X we dig into the pros and cons. Scarlet it is time for the andmberg business flash valeant is under investigation by the securities and exchange commission. The probe is separate from an existing probe into a Company Purchased by valeant. To a personrding familiar with the matter. Earlier on duty said it may cut valeant. The operating performance may be weaker than expected. This comes after valeant with true its financial forecast and said it will delay the race delay the release. Exxon this comes weeks after the oil giant was at risk of losing the topnotch credit rating. The company will use the money for acquisitions and other business opportunities. Billionaire scarlet a billionaire must go to court. Who is 92, is a Controlling Shareholder of viacom and cbs. That is your Bloomberg Business flash. Alix whatd you miss . Bloomberg intelligence releasing fresh analysis of the candidates and their tax plant. Over the coming weeks and months he will be digging into these types of reports that give a unique take on the Financial Impact of each candidate. Today we are focusing on Bernie Sanders. Bloomberg intelligence says his tax plan would raise 13. 6 trillion dollars in revenue over the next 10 years that would come from higher payroll taxes. A quarter of the revenue is lifting and income cap on Social Security tax. Sandersf all of that, plans to penalize investors further with a transaction tax on stocks, as well as derivative trade. Lets focus on that last part, the transaction tax. A fellow with the Roosevelt Institute comes to us from washington. Joe thanks for joining us. You have been a fan of the financial transaction tax on speculative activity and trading. It down to us. Explain to us what Bernie Sanders is proposing and why it is a good idea. Mike Bernie Sanders is proposing a financial transaction tax. Models that will be synced up with other plans going on in trying to modernize and bring about a financial transaction tax across many of the g20 countries. The numbers will vary. High. Mbers are pretty about three cents on every 100 of trade, a pretty small amount of money. Given the large base of financial transactions, you can race a significant amount of money. Alix when you look at where you have a transaction tax, it has been hit or miss. In sweden it hasnt raised that much money. In france it had a negative effect. It reduced trading volumes, but the u. K. Held up really well. What is the best practice . Mike i think as he crafts it out, you would see the international experience. It is pretty obvious sweden had a bad experience. France has had a mixed experience. Overall quite positive. More initiatives will go forward. I think there are some best practices. You would exempt shortterm bonds, maybe bonds that are 100 days in duration. Exempt initial public offerings. It wouldnt bite so hard on the cost of capital, it would prevent from being able to raise money in the Capital Markets. Even the even with those practices in mind you can look at raising 150 billion per year, but this is also important, it is not a Silver Bullet for a lot of the big issues in finance. But they helped contribute to a solution, i think they help financers as a big part of our economy. I think it would put us on a longterm horizon. Scoping out like how you summarized how it has or hasnt worked across the world. To what extent are you need worldwide adoption for this to actually be successful . Mike there is more room for error more people that are adopting it. It is expected for that to be delayed if there is progress to be made. The u. K. , which is a huge financial hub, it has been a wager part of the regulatory infrastructure. Has worked out really well. Meanwhile countries like sweden ,hat arent big financial hubs i think both sides have a tendency to overplay how big a deal the financial taxes. Speculation, or unnecessary rent seeking. The estimates that are starting that it would largely be from highfrequency trading on shortterm speculative things and raise a reasonable amount of money. Joe you talk about how there are teed up purposes, raising revenue and speculation that nking the amount of income that shanking the amount of income obviously it is an sound extraordinarily high, but what about other kinds of transactions, derivatives, currencies, other big markets. Three cents could be a lot. Is it to get the tax right on those nonequity transactions . Points, three cents on every 100. Obviously on a shortterm algorithmicbased training, that is what you are playing for. For their investing pensions, investing on the mediumterm, obviously less important to function. On hows a big question much shortterm price discovery would be impacted. You would seence an increase in volatility. It could push and raise volatility. We arelly at the margins talking about, there is a net positive. I think the Financial Markets are so focused on the short term. Push in the Capital Markets to think more in the medium and longterm is great for gdp and overall investments. Sculpting a reminder you can find full analysis on the and the teams full coverage of various sectors. Check it out. I keep thinking it is unlikely Bernie Sanders could get any of this past. Would he use an executive order . Joe i dont think he could raise taxes on an executive order. Even if it is unlikely to get past, and expression of how he would envision the tax. Coming up, u. S. Auto debt has topped 1 trillion. Our next guest is calling auto loans a big short. Scarlet whatd you miss . Maybe the next big short. Has mushroomed the last year. Lending terms have become looser and a link wednesdays are rising. Is us from chicago you sounded alarm bells before the collapse and making a similar call on subprime auto loans. Why are we at a Tipping Point . Things can go on for a number of years with the mortgage bond. Janet when i see the recent cohort of subprime loans, there are red flags and the analysts arent picking up on how to analyze these loans. Instead of looking at the individual loans and what is going on and the burden of subprime borrowers has notoriously high default rates in the past. They are pushed beyond their limits with many of the new lending practices. When you look at the link would, delinquency cannot be compared with mortgage delinquency. If you wanted to normalize them with new mortgage with mortgage to liquid see, you would have to make it a lot faster. Months before you resolved that the liquid see. The recent cohort of loans has had a much higher to liquid see. And the ftc has found a lot of auto loan fraud. People who are overextending themselves in the first place by buying a card to and a half card 2. 5 times a of their annual tax income joe you make an argument that the liquid seas are on the rise. When you think about subprime, you think about this aspect of the Financial System fundamental to the u. S. Economy. How big of a deal is subprime auto lending . Janet it is a good question. If you look at the size of the market, it is much smaller than a mortgage market, if you look at the 12 trillion in outstanding debt, of consumer debt, the auto loan market is a small percentage of that and 8 overall. Of the nonmortgage market, maybe 27 . If you are looking at the smart trade, which i like to do, in character it is like the short trade. Nowhere close to the market, but in character what you want to look for in a smart trade are and cancome products only go down in value. Fraud combined with overextended lenders, combined with larger loan balances, extending loan balances, larger payments per month, balloon payments, that is the kind of thing you look for and say this is a disaster for the borrowers. For those securities, it is likely to go down in value. There are a number of ways to do that. Debt ofthe equity and these financers and short those guys. And createa bank notes where you are paying the total greater return of these loans, especially into purpose entities, investors need to be aware and do their Due Diligence and avoid these products. Coming up, argentina and its creditors cutting a deal, while issuing bonds that will issuing bonds help the country get back on its feet will issuing bonds help the country get back on its feet . Alix argentina and a group of creditors finally cut a deal. Billion dollars in cash after a 15 year debt standoff. Joe thank you for joining us, they finally got a deal after 16 years. If you gois, we saw into the terminal, you can see that the argentine pace had weakened against the dollar. What was the significance to see deal and why did we not more good news out of this . We have been expecting this deal for months now, especially as the president became the front runner in the president ial race. The reason we didnt see the effect is that is more dependent on import and export outflows. And less related to the debt to the debt dispute itself. What investors are really looking ahead now is not the crisis we have seen today, but how this may open the door for argentina to return to global debt markets. Alix thank you. That was Carol Lina Malan that was carol lina that was carolina millan. Japans jobless rate is coming out tonight. That would hold steady from the saw 3. 3 7 3. 3 7 rate we december. I will be looking tomorrow isn manufacturing tomorrow comes out at 10 a. M. Eastern. This is the main measure of manufacturing surveys. A lot of weak regional fed surveys. Hopefully we will see some sign of a rebound there. Ouring do not miss exclusive interview with former fed chairman alan greenspan. That is tomorrow at 5 a. M. Eastern time. We will see you back here tomorrow. Due respect to cruise, argue really the right person to be attacking donald trump on the mafia . They keep pulling me back in. John happy leave day, sports fans. We are making the most of our bonus show on the use of super tuesday. Tomorrow i hope bunch of states will vote in the republican and democratic president ial
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