Transcripts For BLOOMBERG Whatd You Miss 20160513

Strong number but they did not hold on. We ended with red on the day. Still less than 1 but it felt like a selloff. Scarlet look no further than retail. I have a weekly chart of some of the names that got taken out to the woodshed. Jcpenneys reporting earnings, the rating was downgraded to junk and macys cutting forecasts. You had nordstroms falling the most in the s p today. Cutting its annual forecast and , thehat dragged on the xrt spider retail etf. You brought this question of earlier in the week. For retail spring the way summer was for media . At some point you realize media is up against a wall with the cord cutting and there is no hope and there was that huge selloff and stocks. Are we here for retail . Joe i want to look at the 210 spread. And 10 year. Ear those have been tumbling. Earlier in your year we talked about the flattening that was going on then it started steepening a little bit. The narrowest spread in eight years. There is that anxiety that if it that haso negative historically been a recession indicator but that is flattening so people are paying attention. Longterm rates dropping precipitously relative to shortterm rates. Dollar climbing to a threeweek high. Its early me it felt to lowest in a year but since then it has been strengthening at todays resale retail sales report raises the possibility the fed may end up raising rates this year. Not an u. S. As commodities. It was in commodities in china. Here you have them up on the day but in china you have the shanghai futures proper price over the last week just got hammered down almost 3 . A similar story when it comes to chinese steel prices. This is the most actively traded 14 ract at one point down which was the biggest weekly loss ever since these contracts started training. You have these oversupply issues but now you have some minds and productions coming back online because of that recent rally and china trying to shake the speculative and of the market. A lot of action happening with commodities. Can find all the charts using the function at the bottom of the screen. Fromis chart comes to us Morgan Stanley taking data from psr. R e are now at their most since august. Tons of money leaving emergingmarket equities. The most since august of 2015. Which is fascinating because emerging markets are outperforming developed markets so you have that moving average and that orange line that is moving lower in the cumulative equity outflows which is that white section moving lower. That is really ugly. A lot of money has moved out. It is interesting to think of that in context of the strengthening dollar in lower longterm yields so you go from the furthest and of the spectrum it makes senseo that is a dramatic selloff given what we saw in the beginning of the year. It shows that investors do not want to own stocks right now. That strong retail sales report. I want to look at the atlanta feds now to record. Is doing very well right now. Second quarter tracking 2. 8 much that are then q1. Was wasquestion for q2 q1 a slowdown or was it that residual seasonality we have seen. If the second looks like this maybe we can take quarter one as a flip. Congress contrast you have hong kong us economy shrinking in the first quarter. The weakening Property Market and falling retail sales which coincides with the drop in this is the gdp and this is the outbound and they generally move in the same direction. It also have the fact that the hong kong dollar is pegged to the u. S. Dollar so that is a drag on the economy as well. Andcan see all these charts more on twitter. The s p 500 closed with his and it issing streak at its lowest level in a month. Were approaching the oneyear anniversary of the record high which was last may 21 and we are 4 away from that date. The stock has gone sideways. Is it more likely that stocks will break out of this race to the upside or to the downside . Howard i do not quite on this. It looks heavy, the market feels heavy. Personally not looking at many new positions. I am about 30 long. 2 2 stocks that a lot of people are very interested in are going and very opposite directions. Apple which was recently the throne is the Largest Company by alphabet. It seems to be tumbling, no excitement for it like there was a couple of years ago and amazon despite all the retail anxiety, it has been owning the entire world. People are piling into it like crazy. Do you think people have the right call . Is apple yesterdays news and just boring commodity stuff and is amazon going to on the entire world the Way Investors seem to think . Amazon i think definitely, they show up at my house, they are in my house with the echo and my office love the. I think the next generation of families and kids and offices will grow up around voice. What is scaring large apple shareholders because there is always noise around apple at the fringe but what is scaring the larger holders is the money held over internationally. Amazon snuck in there with the winner. They were working on the watch and then you have over uber and cars. What you have to look at is the fact if google or someone makes a phone that is better apple does not have enough apps to keep you engaged on the phone. Is the best caps on googler on google there is a world in i cannot believe it is possible that there is a world where there will be a switching back to google. I own some apple stock so i am not is scared but it is a possibility. When you take a look at apple down 17 days out of the last 20, would you consider buying more here are what would prompt you to sell . Sell, prompting me to price would matter. Technically i do not try and think about things, i have owned the stock for so long and i have sold summit higher prices. I am looking to buy which is a good question and it is in an area where if there was 10 other great ideas may be time to switch into something where 10 better ideas, one of my favorite new ideas is paypal. This market is not allowing stocks to break out. Appeal. No rush just go and buy equities. Scarlet it is down for a fourth straight week. Another stock we have been paying attention to is lending club. It feels like we are in a critical point. Joe i follow you on twitter and sometimes you rage against the banks. You love to let them have it. But there is this new Generation Companies trying to disrupt the Banking System and it looks like they are engaged in a lot of what got the old banks in trouble. Air, the same hot old stuff packaged in a new way and ultimately not going to change much . Did it sured does look like that word is in a bubble. If the word is in a bubble where the mixed signals . Bitcoin seems to be breaking out again. If the coin was going to die it should have died over the last two or three years. And you look at lending club and thatee how is it possible lending club is in loading which is the poster boy for that. And just liketerm the banks there is a lot more been then there is tech. What i think is so interesting with the parabolic move and the absolute conclusion in lending club is this is a good time to look at the industry and go, wait a minute. Not gone away. Start is an incredible company. Companies are being founded left and right. The crowdfunding laws are changing last week next week. As bad as lending club is it is not as bad. As thinas a search term tech is it is not that good. There are not that many great founders that understand the risks and rewards of indie to 10 year slog as a starter. I have got the ones to prove it. I think we are in this next phase where some of these Better Companies are going to look at these mistakes and build some great financial tech companies. Scarlet is that why you like paypal . Of 8d i have this theory to 80. Paypal turn them into an eight to 80 brand. The millennials are swapping money. Is a generational brand. Scarlet thank you. Talking it has been a rough year for retail. Mark lets get to first word news. Donald trump has picked up what could turn into a very lucrative endorsement. , sheldonnion article adelson said he is backing trump. He writes the alternative to trump is frightening. He and his wife contributed 93 million to super pacs supporting republican candidates. In the three months since Justice Antonin Scalia died the u. S. Supreme court has managed to avoid controversy. That is about to change. In the last six weeks with termed the court is expected to rule on affirmative action, immigration, abortion, and ordering is debt. The rulings are likely to come out on monday. Under report warns that flint, michigans costly water bills may double in the next five years. So that is due to increased operating costs, pipe leakage, and decreasing population. The average bill of 54 a month say 2020to 110 i fiscal year. A senior revoke and lawmakers that he will unveil funding next week to battle the zika virus. Harold rogers said the measure will be financed by cuts elsewhere in the budget area the measure is expected to provide significantly less than i i the name bipartisan and . 1 billion Senate Measure that was released yesterday. Global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. I am mark crumpton. The convergence between the report and what Department Store executives are seeing on the ground. This is the biggest gain relative to estimates in more than three years. And weual Retail Stocks scanned what Retail Executives thought. Lets start with the macys cfo. She said we are scratching our heads. We see the same Economic Data you see. I said i would say that we are somewhat puzzled and we are seeing traffic in the stores and on the sites. The chief executive officer said we are really looking at our marketing vehicles to see where we can drive more business to the stores as well as ensuring our value message is strong. Were definitely not satisfied with the results and we will take action to remind that remain top of line for the families we serve. That is not a very clear plan. It is a lot of corporate speak. Scarlet we are seeing a transformation in our Business Model and the ecommerce owlet continues to grow. On the other hand we continue to see traffic falling off in malls and how we think about our store based as it will require some level of adjustment. When forced to identify one catalyst or another, everyone pointed the finger at someone something different. Jcpenneys blamed unseasonal weather and nordstrom said of trend inventory led to markdowns. It is every which way. Threat is not in good. Our next guest is saying they are just standing this inventory unwind. We see it when we go to the stores how theres racks of closer market down. That stuff has to get sold off tosome point and the hit profits is what we are seeing. What is the hit to the economy . There is the hit to the economy direct the as the numerical inventory adjustment to track from gdp growth. That is a mathematical phenomenon. But then there is the feedback of reduced production as the retailers wake up to the reality that spending is not going to wrap higher and they have to adjust production along with that which also requires fewer people to run that production so you have the knock on effect of reduction and employment. But the prophet feedback is the key because that has the potential to compound the downside for the production and it is said have highrisk that the market correct. Since this consumer spaces everywhere when to hide from the fallout of energy and the strong dollar. Everyone doubled down on consumer discretionary. Narrativet into this despite month after month. I have a lot to say about that. Should all be scratching our heads that it is that after the retailers said april was horrible the government report said it was the strongest trend and however long. That is after a series of horrible reports. What happened in april . And so looking at the numbers i went in and this is in the weeds. Important to cover and that is they used something called the seasonal adjustment for all the data and the idea is the adjust for things like whether easter fell in march or april or if it is fourth of july and people are eyeing hotdogs to put on the barbecue or downtimes day they are eyeing chocolate and the adjust for all those distortions. Usedis current april, they a very low bar relative to what they used in the prior april. Like one third. Normally they expect it will to be down for march but they expected it to be down three times as much as it is in a normal month of april. They did a little statistical shenanigans and boosted the number. Had they use the same factor they had used in the pile prior april . It is a huge story. Aople will push back and say student fallen march instead of april. Maybe march is where the number is so i went back and looked at that seasonal factor and they also will balk. It would be one thing if they raised the bar in margin lowered it in april. This is suspicious data. Will take a quick break. We will be right back. That is really amazing is a look at the inventory to sales ratio. It absolutely is searching so as you were talking about before there has been this at the inventory. The sales are going back to 1992, the highest ever. What happened . The how did we get this huge buildup . Without the quotes that you read were really telling. Macys was the first one. They had their head in the sand about what is going on here. They do not see any Major Development here. This is a temporary phenomenon and that has been the narrative month after month. Sales last year retail disappointed. They were flat or negative for the vast majority of months. And yet despite month after month in disappointing sales the view was next month is going to be better. The cap getting pushed out. At the same Time Companies continued to reduce on the assumption that spending is going to pick up next month and what happened is they added to this large inventory and now we are at the point where as you pointed out, we are at record highs and they are still scratching their heads as to why this happened. Is at because oil was lower and everyone thought they would keep the money and spend it. They saved it because rents are low. There is several things. Everyone had that idea that there would be the Energy Windfall bonanza. Theyre missing a much larger story. If you look at the Consumer Behavior post crisis, it is fundamentally different than it was free crisis. Just like we did during the great depression. I think we have created a secular shift in Consumer Behavior from the financial and emotional scars of the bubble bust and they are more inclined to save last save last. Such great insight, got to come back. And exclusive interview with the Prime Minister of ireland. That is next. Mark another busy week ahead for u. S. Secretary of state john kerry. He is heading off another round of world for manic mission with stops in the middle east and europe to focus on crises in libya, and yemen. He heads to asia where he will briefly join president obama in vietnam. Facing a growing backlash over extremely long Airport Security lines. The head of the department of Homeland Security said the Transportation Security Administration will speed up the hiring process to deal with the upcoming Summer Travel season. We have expedited the hiring sos. Re t ofhad expedited the hiring those to bring them on this summer. Projected by june 15. Mark fires across the country flyers have been facing growing lines with lines up to 90 minutes at some airports. The shift to higher 800 screeners is not good enough, they want 6000 workers hired. Funeral services were held for the u. S. Navy seal who was killed in iraq this month. Invited people to line the streets in coronado, california iv. Onor Charles Keating at fortbe laid to rest rosenkranz national cemetery. Canadas Prime Minister landed in Fort Mcmurray to assess the damage caused by that raging wildfire. Forced theand smoke evacuation of more than 88,000 people in the countrys oilsands capital. Justin trudeau arrived almost two weeks after the fire ignited terry through the town ands running areas causing several oilsands operations to shut down. Global news tweet for hours day powered by our 2400 journalists in more than 150 news bureaus around the world. I am mark crumpton. Alex lets get a recap of todays market action. Stocks slumping to a onemonth low. The dollar climbed on a betterthanexpected sales report. Financials were the biggest laggards but retailers continuing their highperformance of tumbling because of those different disappointing results. Were going out fairly close to the lows of the day. Alex you have to wonder how much more downside and surprises there in the retail sector. It is a queer understanding these guys have a serious problem. I did some calculations that media stocks fell 17 after disney had that bad summer, the Quarterly Report that can the summer. I would kind of echo that and investors rerate with the thing. It could be meaningfully impacted. We also have walmart and target with a report out so we have another glimpse of the consumer and how strong he or she is. Be up for an might upgrade from moodys. Take a look at the yield on the irish 10 year bond. You can see there it has con come down and picked up a little bit this month but certainly a huge improvement from june of 2015. The question is, how will a socalled brexit affect the closest neighbor . Cremaster we have a unique arrangement with britain. With only almost a million irish People Living in written they take an interest in informing those people who will have an opportunity to vote on june 23 just how important this is. In ireland over the last four years we have had a lot of experience on voting on european referendum. Country arein this very well acquainted with the issues that surround the the europeanect in process. From that point of view ireland has made its decision that irrespective of the decision of the british people and we hope it is a positive decision that ireland will continue to remain linked to the euro and the European Union. 6040e that decision in a referendum decision a number of years ago. Had somesome interesting referenda on a number of subject. Just to come back to the issue , have you been actively courting u. K. European banks, american banks trying to make it very clear that you your an opportunity from point of view, not a good outcome to come into reality, have you guys been out there trying to make the case for ireland . no. Minister we have not been actively courting the possibility of further investment here if britain were to leave. Those who wish to invest in a country like ireland know full well that for chinese we offer and in the last number of years we have had quite extensive investment from corporate industry and the Banking Financial Services and so on. Those who are in a addition to make investments know full well what ireland offers. Arehat sense, these implications but for us it is important in having very close arrangements and having signed memorandums of agreement with britain that we work with britain in europes interest, and britains interest and in irelands interest that they should stay. It is a matter entirely for the british electorate of which a small proportion with a significant number of irish people will have the opportunity to cast a vote on the 23rd of june. You talked about being linked to the euro area. There is a lot of conversations taking place as to whether or not we will see copycat referenda on eu membership. Would you expect that to happen, do you think that could happen in ireland and if it does not happen in ireland, where could it happen . Minister where linked with the euro and the eu for the future irrespective of the decision that britain makes. I would make this point. Because of the unique relationship that ireland has with britain, our closest neighbor with over a billion in trade across the irish sea every with 400,000 jobs in both countries dependent upon that extent of trade, we look to the future as europe having the opportunity to set down standards for the next 50 years and that europe will be stronger by having britain as a central part to play in that for the future. When we look very closely and continue to do so with britain, if the british electorate were to decide to leave the European Union ireland would still stand up for britain and well talk about that in a european level but i could not determine the outcome of what the response from the other 26 countries who had arrangements with britain would be at that stage. These are our all alternatives. These are all outcomes that one cannot predict but for us it is very important to continue to inform our people in the british electorate are fully informed as to the nature of the decision they must make, as to the consequences of the decision and they have to make up their own minds at the end of that process and it is intensifying in its range of debate taking place. Scarlet there was a lot of focus on the u. S. Retail report. Next up we will dig into the university of michigan Michigan Consumer Sentiment Report which also came out today. Scarlet time for the bloomberg xmas flash. Pfizer is in fomenting sweeping controls to ensure its products are not used in lethal injections. Last remaininghe open market for drugs used in execution. Many other companies have such restrictions. Alice gm told dealers to stop. Elling inventory replacing this replacement labels may start arriving tomorrow. Mark zuckerberg will investigate allegations of why is and how the social Network Highlights news. Plans to meet with conservative leaders. Facebook was accused of suppressing conservative viewpoints and its topic trend or. To the three charts that you might have missed in Todays University of Michigan Consumer Sentiment Report. One thing that you keyed in on is how many people have actually are in better situations because they have lower debt. Mad it is interesting because we had a great retail sales report today but over the last year or two it has been people have expected all those gas price savings to show for little stronger in the numbers so people are wondering where those savings went. It looks like according to the Michigan Survey that people may have in using those savings to pay down debt that is what this chart shows is the percentage of respondents who are saying we are doing better because we have less debt is the highest you can see in several years. You can see how it flatlined and in midlate twice 14 it started jumping when the gas price savings kicked in. Deleveraging still largely . Absolutely. That has been a huge story. The consumer got overleveraged so that has been a big drag on spending in this recovery. Maybe it is finally percolating and having an effect on Consumer Spending. Like according to the Michigan Survey we may be getting some that spending boost from low Interest Rate because people are saying that now is a good time to buy vehicles, now is a good time to buy large household durable goods like furniture and appliances because Interest Rates are low. We saw a big joke it is just that this month. If your Balance Sheet is repaired you might be able to appreciate generous borrowing. Matt i think that is right. The way they ask you in the survey, do you think it is a good time to buy a car in the ask you why do you say so . It is contingent upon people saying nows a good time to buy a car and the thing they are citing his low Interest Rates. Alex low Interest Rates have been here for some years for he does that they are clicking in, that that kind of thing can be sustainable . Looks that way. It has been going steadily up and were seeing that sold acceleration. Hopefully now that consumers are in a better place they can start to take advantage of that a little bit more. Joe what does the survey say about inflation and Consumer Expectations . At the news was little bit mixed. One year expectations when down but the five to 10 year went up. Interesting thing about that is there is a distribution of Inflation Expectations and with this chart shows you is there has been a surge of respondents who see inflation between one and 2 in the long run. All is happening here is the people in the survey who are saying we think inflation will be 10 or 15 , five or 10 years from now. They are no longer saying that. The wholeve causehat qe was going to hyperinflation has been around for a long time and that seems to be filtering out of the data. The fed. Ood news for consumers look at inflation and that is not a positive, necessarily. The more people who are saved inflation will the low and stable, that is supportive of the Consumer Spending environment. Scarlet this is not related to gas prices or oil prices. The expectations by the percent of people who see inflation rising is climbing. Matt some of their questions, they ask about the cost of health care, College Tuition and things like that. Your youart but are right also. That is a major driver. Scarlet thank you. Hit 60 oril will more next year. Alex global output will fall for the First Time Since 2013 this year and Oil Companies will need higher prices to sell the void and to balance the oil market by 2020 we will have to see a 50 increase in and that means prices anywhere between 55 and 70. Our guest joins us now. Talk more about your call. Quitesco we are constructive for next year. We think supply is coming down pretty quickly and demand is also very strong. In the u. S. We have seen 350,000demand go to 350,000 barrels a day. Have and if as well running pretty strong consumption growth. Turn, we willill go from a surplus to a deficit into the Fourth Quarter and prices will start moving higher. We are calling for 54 a barrel by yearend and 59 dollars a barrel average for next year, 61 for grip for brand. Once we get past the driving season price tapers off. We do see a pullback of 39 a barrel. That is a buying opportunity before we start to go into a deficit. Atx this chart is looking decline rates. Itsquickly the field loses oil and that has been moving up as you showed us. That is part of the issue. The more the faster you need to replace those reserves and that is the issue. Scarlet talk about the positioning here. How are investors position for oil given your call . Fernanda positioning has been stretched from the upside. Seen a rapid shift in position. Investors have gone from max short to max long. Concerned atle bit this juncture. We think demand, the market is happen two it will months in advance. We are trying to price in what the season will be in july. August and into the september that position will get lighter. Typically investors use their long positions in the summer months. Effect. Seasonal is another that factor we think will put some downward pressure on prices in the short run. That dip is going to cement the recovery in oil prices for next year. Investors shortterm have they priced in the upside and looking at the forward curve. This is 56 a barrel. Want [indiscernible] producers will try to sell oil forward. Most of the strengthen pricing will happen on the front end of the curve. We will go from the term structure we face for now to a term structure and the price will be above the forward as inventories decline. We will be sitting here week and the price will get higher. Companies are extremely under hedged. Yes producers have the advantage of using those tools internationally, different story. Venezuela, nigeria, no such luck. Joe nigeria is an area where the has been a significant disruption. How significant is that to the shorter and mediumterm outlook . It is important. I am worried about the outlook for a lot of the companies in emerging markets because the building and the crocs are opening. Think about the pressures in venezuela and nigeria. Camenexpected disruptions on the back of political problems and you will have either strikes ticking and pretty soon across many Different Countries or political turmoil. That is one more reason to be buying in. Next year we will start to see those crocs opening up quite a bit. Is why you see Higher Oil Prices because we need that. We will need the oil that is not , we have ashut down great chart of what your estimation of is in with the oil price will have to be. The orange bar is a strip price and that yellow bar is the base case for. We think for from mecca and a market we will have to see higher prices. Lower credit see spreads. We are still in the beginning of a recovery cycle for oil. The one big question everyone has is how is saudi arabia going to play its cards because the prince has been talking about maybe 20 Million Barrels a day. Double what it is today. That would be a big shocker to the markets. That is not something we are counting on but as we get closer to that we will start to learn more details of planes for the mediumterm. This depends on how the saudis and abusing their money and investing. Keep they could just pumping for all we know. Million euros 12 a day with the current structure. They will have to put money of to get to 15. We will they will see the contracts being laid out to the Oil Exploration companies and the service companies. We have very little visibility. That is where they want us to be. They want to keep the markets secondguessing. In february they will freeze production and then later nonproduction phrase. Alice great conversation. Thanks. Scarlet what you need to know to care of for next week. Scarlet i am scarlet fu. Whatd you miss . There will be a big data dump. Japans Consumer Price index is coming out. Dont miss it. Joe an donny im donny deutsch. Mark and i mark halperin. Respect,d with all due i got this. Episode this special tonight, the donalds dos and donts tonight with donny. It just these are reinforcing in some ways capabilities. Last night, the wall street journal reported that the clinton foun