tv Whatd You Miss BLOOMBERG February 2, 2016 4:00pm-5:01pm EST
u.s. stocks glowing closer today glowin closing lower today. >> the question is, what did you miss? chipotle's first earnings report since the e. coli scare. in justve those results moments. should not devalue its currency. our guest says the weaker renminbi will not fix the problems of china's economy. we begin of course with the markets. julie mentioned this earlier, hard to mention but this is the first back-to-back loss for the major indexes in about three weeks. it felt a lot worse. today we had a steady risk selloff. there's that correlation were
still trying to get our head around. only dupont rose, and i was just looking at the brand. alix: yields at the lowest level in almost 10 months on the 10 year. if we look at the two-year and the tenure spread, can we talk about the flattening yield curve? can not talk about an inverted curve yet, but it is flattening, and that is a concern. what does that end up meaning for the feds? were driven by some of the same concerns that have been churning their way through the market the last couple of weeks. chevron was taking 27 points off the dow.
, oil continues to permeate through the market when it comes to downgrades of the big guys. scarlet: they are leading the drop, with financials not far before -- not far behind. two bigo look at the things that happen in the market today. this is the 30 day volatility for some of the most volatile markets. by this measure, china is the most volatile. it started to increase in around june from the rest of the other markets. the stoxx 600 was the second most volatile. you start to see some of that volatility is off just before the devaluation in october but it is climbing once again. the stoxx 600, which is europe in orange, moving up. the s&p 500 in light blue also moving up. and of course with volatility comes bigger price swings, and there you go.
what about the high-yield markets? the worst two-day selloff since 2011. you can see this unbelievable correlation, the highest correlation we have seen since 2013. the closer you into getting 20, the more the assets end up moving in tandem. a two dollar decline or 5% decline in oil does have significant ramifications for other asset classes. scarlet: you can see all these charts and more on twitter. alix: are guest is it cheap investments -- a chief investment strategist terry oil and stocks used to move and opposite directions. now they move in lockstep.
what has changed to bring about this new correlation? fears aboutiously the global economy. the u.s. economy is more interconnected with the global economy than it has been in the past. theoretically, oil should have a negative correlation with the economy as a whole, but the financial interconnectivity is the problem right now. when you look at financials, that's one of the big issues. alix: this is an impressive chart you sent over here, we think of it as oil versus stocks but it's oil and every single asset class, a huge difference that makes no sense because it story, not a demand story. why the misinterpretation? apple, no correlation over the past 10 years. 80% over the last year. one of the theories is that sovereign wealth funds are not
selling what they can, which is oil -- not selling what they have, which is oil and not financial assets. i think there is credence to that. more liquid stocks seem to be most at risk. krugman wrote's the same thing about this. when you get to a 70% drop like we have seen, it has some drastic effects. it forces the by oil producers and sets in motion something that people did not anticipate, a significant drag potentially on global growth at a time when liquidity is not always there. fair: i think it is a point. it's worth bearing in mind the average price of oil in 2014 was $94 a barrel. last year it was $46 a barrel. this year it is in the low 30's. i think there is something to
that. it's the rapidity of the declined it's making it difficult for leveraged buyers to get out. it almost seems paradoxical, you almost need a ritual sacrifice to cleanse the system. i would argue we are not seeing real signs of recession. generally what marks the bottom is some sort of casualty or significant event. it usually prompts some sort of policy response. candidly, i think some of the comments by the fed i would argue are almost irresponsible. i don't think it makes a lot of do there about whether going to call all the trucks to put it out. upx: what does it lined telling you about the market relationships? valuations,ok at
common accounting measures. look at the s&p 500 in wti terms. it can resolve itself in one of two ways. prices can go up a lot, or stock prices can go up a lot, but generally speaking it should not happen. it's a two standard deviation event. resolve is it will itself in both ways, both oil and stocks will move higher over the next year. over the next couple of months you have to be very careful. you have to have a lot of respect for the markets, we are seeing the curve flattening. all those things are telling you there is stress in the system, we just are quite know where it is yet aside from the obvious suspects. don't see a recession coming, but are we pricing in a recession with oil at these levels? jason: i think so. we are also pricing in a policy
error. i don't mean to pick on the fed. it's hard to criticize people in the arena. labor markets, financial conditions, and inflationary expectations are what you look at. labor markets are ok but the other two are flashing red. the fed is in the mess and we can talk about whether it should try to normalize rates now or some other time, but it seems to me it's making a bad situation worse. a 300 pointn we see decline on the dow, what is the catalyst for that? is it a fed policy mistake? my own opinion is seeing the rapidity of decline since the start of the year, my own impression is that there is for
selling. there is liquidation weather on the part of an operating company or a sovereign wealth fund. people are forced to sell, because i don't think it is really as correlated to the economic news as one might think. we do have a chart that shows the growth we've seen over the last few years. almost $7ts were trillion. if they are not buying anymore but selling, it's some form of quantitative tightening in the market. activist investors have been falling behind the s&p 500. the orange line is activist interest index that trex company started by activists. the s&p 500 has held up relatively well over the past year whereas activists stocks have fallen by more than 25%.
it hasn't worked. because theof it is alpha classes grown too quickly and the names have gotten too crowded. when you see something like valiant, when something goes wrong, everything falls apart. a lot of companies are probably over capitalized. activists can act as a force for change. take money and turn it into capital. i think there's something to be said that activists are no longer the raiders that we saw in the past. there's something to that. not always, but a lot of times. think the problem now is that too much money is then placed in the hands of relatively few activist and it's very crowded. so when you have a problem, you have a real problem. alix: you mentioned earlier looking for one huge, negative
event that tips the market into something terrible. what is that? some huge company being downgraded from investment grade two jock -- to j. unk do you agree with -- downgraded from investment grade to junk. jason: you probably need to see a bankruptcy or liquidation. i am a macro person and we do have a list of potential candidates. i would rather not talk about them because it would just be speculating but you can look at andit default swap spreads it's easy to find the usual suspects of companies that are most in trouble. usually it elicits some sort of policy response. where the things that could help is a week payroll
employment number this friday would relieve a lot of pressure from the fed because then you're removing one of the three things that is keeping them in there with this idea of more rate hikes. so weaker employment news would be helpful as well. scarlet: and you have the bank of japan dodging negative interest rates. you talked about how that would take the market rate hike off the table. jason: if the fed tightened in the face of that, i think it would be a policy error on the part of the fed. it would increase the chances of calling for a recession this year and next your. again is the interconnectedness of the financial market is such that a tiny by the fed would increase the strength of the dollar which would turn into higher commodity prices and it would then unravel into high yield stocks. it would eventually hit the u.s. consumer which grew at its .astest pace in 10 years
it did not feel like it because the mix is different, but eventually it will have some sort of impact. it's hard not to see that affecting american consumers. we in a talking about how low oil prices are good for the consumer. my argument lines up being, would you say that drilling at shale well has a bigger economic benefit to the u.s. than me buying an iphone, which then goes back to apple which funds a buyback. jason: structurally i think the well is a much better thing. the u.s. becoming less service oriented and more manufacturing oriented, for variety of reasons would be a very good inc.. it gets into a real social science question. it is not a cave you are in the middle class or once were. that is part of what we're
seeing in the presidential election right now. , in a large is economy like this, can you have enough people working in the service sector to make up the middle class? industries,kestack heavy industries to get people to earn enough to be a vibrant part of the middle class. after world war ii, we were able to do that. now i agree with you, in a service oriented economy, it is much harder. the i will have caucuses and the new hampshire primaries coming up. the factny credence to that because were in the election cycle, stocks are going to have a hard time the matter what? then: it's hard to look at cast of characters and get happy about what the prospects are. having said that, i believe fully in the system. i think it will tend to work itself out over time.
for certain industries, particularly armor sickles and health care, we could have a real hard time. financials, another not industry.ly popular i'm natural what you can do to financials that you have not done already. there could be some things coming down the line. a huge reversal there as well. jason, thank you for joining us, chief investment strategist. we are awaiting yahoo! earnings. we want to check in now with our bloomberg senior analyst, part of the team that provides research covering 130 industries in more than 1200 countries globally. we had some headlines earlier in is hour saying the company exploring strategic alternatives for its web business when it reports its fourth-quarter
earnings and will rebel and efficiency plan -- reveal and efficiency plan. what does that kind of comment mean to you? >> the options have been spin off andeen sales and headcount reduction, restructuring. none of this is talking about the actual sales growth for the core business or what the changes will be like. we will look for more clarity on exactly what the new plan is. marissa mayerld say that would give investors a sigh of relief today? >> apart from talking about assetutting, in terms of sales or is it going to be a strict down yahoo!, what the revenue growth expectations will
look like. scarlet: where is the value in yahoo! right now? say, onceeople would you get down to the search and advertising business, what part of that business is most valuable? programmatic advertising business, all the things that are sort of coming together. ,he rising interest in yahoo! and then there is the news and media arm. yahoo! sports, yahoo! finance. get a granddon't plan and it outlined, does marissa mayer have a job tomorrow? >> will have to wait and see. scarlet: what kind of pressure will she faced to resign or go
somewhere else if something is not really outlined today? >> it all depends on how she is able to direct investors to the growth story. is it going to be, we will try again, and this is a strategic plan that might work? if they are setting up for a sale, how exactly it's going to pan out. scarlet: how much support does she have on the board? >> it is mixed feelings. we've heard conflicting reports, but it seems like she has support on the board at the moment. alix: she's not the first ceo of , at least six ceos have not been able to turn this around. if she's able to outline of land, is it going to work, or is too big to big --
right? >> if you look at the amount of time spent on the top two or assets, even if you have a billion users, what will the longevity of the user base be and how much time they are spending so the ad dollars can be attractive to them? that raises concerns about the about the longevity of the advertisers. in secular trends are working against yahoo!. scarlet: we are still awaiting results from yahoo!, which should be crossing the wire any minute. 3m has boosted its dividend by 8% and authorized a $10 billion share buyback program. yahoo! increasing some of the cash returning to shareholders through a higher dividend and share buybacks. when you look at yahoo!
and twitter, they made headlines this morning pummeling twitter stock throughout the day, downgrading the stop to sell. saying that twitter has 320 million monthly users and yahoo! has one billion eyeballs and it's not valued in the same light as twitter. what do you think about that just -- justification for how much twitter could be worth? >> the time spent by these eyeballs is important. metrics of the revenue generated, it is much lower than other companies. scarlet: you're sticking with us as we wait for results from yahoo! to give us more details of the strategic land any minute now. we'll be right back. ♪
oracle ceo mark hurd will be joining cory johnson on bloomberg west. you do not want to miss this. our -- ajoining us is member of our analyst team that provides research to more than 1200 companies globally. he covers yahoo! as part of his scope of research. one thing we've been reporting is that yahoo! has seen more than one third of its workforce leave either voluntarily or involuntarily over the last year. what kind of draw is yahoo! within silicon valley? this is a key concern for the
yahoo! turnaround plans. the same thing with twitter. how they're going to strategize employee retention, those concerns continue. even if there is a turnaround plan, it's difficult to convince that this is the growth story and these are the stock options that might be more attractive than others and stuff like that. employee retention continues to be an issue. marissa mayer came over to yahoo! with great fanfare. what was she known for at google and how much did she bring over ?o yahoo! >> in 2012 they bought instagram for a billion dollars. 4 $1.1 billion.
, it's look at tumblr still sort of unclear. growing, butis exactly what the tumblr contribution is is still sort of unknown. alix: this great chart comes to us from top live. it really charts what has happened to yahoo! over the last three years. 2013,n see in june or may yahoo! agrees to buy tumblr, the stocks keep moving higher. right around here yahoo! said it's planning and alibaba spinoff it not -- did not really go anywhere, it kind of tanked. then yahoo! suspended plans for alibaba and the stock continues to slide. it's like there's nothing
concrete that winds up supporting it. scarlet: alibaba is certainly the driver for yahoo! what are the company's options when it comes to the alibaba state? >> they could sell it like they had decided before, but right now it feels like they probably want to fix the company financials a little bit better so they can position it for a sale later on. scarlet: who would buy it? once they sell the company, that would bring in an influx of cash. what would they do with that cash? scenarios.e two one is where they piecemeal the company and try to get as much value as they can. if you look at the core business valuation right now, it is next to nothing.
or you could sell the whole thing together and then whoever buys it piecemeal the things they don't need to get more value out of it. that is the question. you can see yahoo! shares below their 50, 100, and 30 day averages. will be folly attractive for someone else to come in and buy it? criticaljust white is to wait for more deals from yahoo! on his plan to explore strategic alternatives. what would the alternatives be, how drastic is it? all these are questions we hope will be answered in the minutes to come. thanks to our guest joining us from san francisco. alix: we will be right back on the other side of this break. ♪
scarlet: it's go to mark crumpton. mark: president obama plans to ask congress for $1.1 billion to help fight the heroine and prescription drug abuse epidemic in the united states. the crisis is so severe its lead a handful of senators to block the president's nominee to head the fda. defense secretary ash carter says the pentagon will propose quadrupling what it spends on its troops and training in europe. that's first word news at this hour. back over to you. scarlet: we just got yahoo!
results. let's start with the headlines everyone cares about right now, pursue a! board will reverse spin all that is concurrent with other strategic options. it will plan to improve profitability and accelerate growth as well. it is exploring added options as well as asset divestitures. within those announcements is going to cut its workforce by about 15% and targets cutting operating expenses by more than $400 billion by the end of 2016. there are other headlines about how it will exit offices in cities such as dubai and mexico city. alix: yahoo! seeing modest and accelerating growth in 2017 as well as 2018. it will have about 9000 employees by the end of the year, so cutting the workforce by 15%. about 9000 employees by the end
of the year. the revenue numbers, that is where it gets interesting. search revenue was $381 million. higher than what analysts were looking for. the bottom line for the fourth quarter, a penny better than what was expected but the range from analyst that we surveyed was fairly wide, anywhere from four cents to $.18. -- yahoo!saying saying it could generate in excess of $1 billion. pursue aoking to reverse span, looking for asset divestitures that could generate $1 billion. scarlet: we want to give you the numbers for chipotle which has just reported as well.
the company had preannounced some of its results. for order earnings of $2.17. the company had previously reported preliminary earnings of $1.70-$1.90. -- they have added $300 million worth of buyback plans as well. earnings per share on a database is topping the preliminary by a large margin. also adding to the share buyback program. the 2016 forecast will be key because they have not been able to give a good projection because of the e. coli outbreak. will beotle saying 2016 a difficult year relative to past performance. they still see opening 235 restaurants this year, which is
key to growth. you live and die by how many restaurants you are able to open. scarlet: holy down 1.9% response to the result while yahoo! shares are up by .9%. move innot an outsized terms of the share price movement following the latest announcement from yahoo! about the plan to cut jobs and pursue a reserve spinoff. alix: yahoo! after hours is up by .5%. it does not seem like investors are super optimistic about these plans. the company is planning to cut about 15% of its jobs and is exiting some legacy products like games as well as smart tv. it sees return to modest accelerating growth next year as well as 2018.
however they are still looking at the divestiture that could generate in excess of $1 billion as well as pursuing a reverse .een -- reverse spin the price per click increased by about 3%. that's the opposite of google, making less per click but has more clicks to talk about. one thing we should mention is, everyone is waiting for the yahoo! conference call where marissa mayer will presumably give more details to the strategic plan have announced. right now it's being done in generic corporate language that doesn't tell you a lot beyond , aboutbers that given seeing 9000 voice by the in between 16 and fewer than 1000 contractors. share price is bouncing around but unchanged.
it did spike following the release of the results and the headline that it will pursue a reverse spin. alix: yahoo! saying it will engage on qualified strategic proposals. trying to work out what that actually means for yahoo! in what could mean for any kind of asset sale as well. not really getting anything in terms of guidance for the fourth quarter. this is something we will continue to monitor and we will bring you those details on the conference call. says theext guest fed's biggest mistake was talking about tightening to begin with. just how big is the damage? david beck work is an associate professor and former economist at the treasury department. you just talked about how the fed even talking about
tightening creates all the problems we've seen in the market. describe what we been seeing? talking upaw the fed interest rates and signaling it would raise interest rate going forward. you see on a number of , look at expected inflation and the risk premium measures, they all tended to decline after the rate hikes were talked up. the december meeting was really a culmination of the year of policy tightening. scarlet: it was all in an effort to be transparent, right? they wanted to communicate every twist and turn in his thought process. was that overkill? think it was. they looked at 2014 and saw the good gdp growth and numbers coming out of 2014 and thought
they could finally raise rates. what happened is, they did that before the recovery was fully complete. up again, they just got ahead of the recovery and that is what undermined the recovery. fourth-quarter gdp growth was slow last year and all the other indicators suggest some kind of slow down going on. alix: you had an op-ed recently that should -- turned a lot of heads. saying it was really the fed that turned the financial crisis that they tighten monetary policy while normal interest rates were falling and that was the issue. talk us through the logic of that. david: we argue that there was going to be a recession that was inevitable. no doubt about that. the recession started in 2007. what we argue is the intensity of it really did not come to bear until late 2008. the catalyst that turned an
ordinary recession into the great recession was the fed tightening. 2% betweent rates at april and october. it also signaled it wanted to raise interest rates. just when the economy is weak and fragile in 2008, the fed was signaling it wanted to tighten, and that undermined confidence. year, the of the market rate was falling and the fed sat on its hands. even ben bernanke admits they should have been more aggressive at that last meeting in september. scarlet: is looking at the breakeven rate of good way to gauge what is going on, or has it been distorted by years of zero interest rate policy? are some risk premium issues in there but it does provide a good gauge of what's going to happen going forward in terms of aggregate demand growth.
if it's due to the rising risk premium, it's the same story. however you look at the breakeven, i think they were telling the story beginning in june or july 2008 that something bad was about to happen. the fed just did not pay close enough at tension -- attention to it. david, thanks for joining us. some guidanceve now for the fiscal fourth quarter of yahoo!, right now. looking for adjusted operating loss anywhere from the million dollars to $30 million for the fiscal first quarter. analysts were looking for something in the neighborhood of $181 million. yahoo! shares have been somewhat higher but have since turned first --hese 2016 and
first quarter forecast. missing the consensus estimate of $907 million. alix: for the full-year yahoos looking at $3.4 billion in terms of revenue that it paid to its partners. missing on that guidance, really hurting all who. the processsaying is spinning off the company could be anywhere between nine and 12 months. return to modest and accelerated rose is looking little further out beyond than 2016. we will continue to monitor these headlines as they come out. --ing up, shiner should not china should not devalue its currency, according to our next guest. ♪
china should not devalue its currency. that's what our next guest says. he is the chief strategist. david argues china has no choice but to devalue. >> china wants to have a weaker currency, not to engage in a currency war, but because china needs to cut interest rates. that's enough massive increase in debt. the only way for china to cut , they have to let the
currency grow. china has no choice but to monitor policy. david woo people like get wrong? >> he's assuming that what china needs is more easing. china has been pumping money in for the past seven years. we are seeing in china is a function of too much , buildinghing around and more overcapacity which leads to inflation. so easing further is not going to help china in this integration. the other thing they get wrong is that they are looking at china as though it is a typical emerging-market debt or crisis. , whatt kind of situation you need is a weaker currency so that people consume less and they say that produce more.
china has exactly the opposite problem. china needs to save and produce less and consume more. it is more like japan in 1990, which had a soft -- stock market meltdown but did not have a currency crisis. rebalance, to theally make the shift in mixed signals being sent about the willingness to support a strong currency to effect that shift is causing capital to leave china. so it's a crisis of confidence, not a payment crisis. at the end of the day, it's only down by about 3%. the ideas that cannot get a break. it's high compared to the thai baht. it has been high, but it's not working.
next china needs to draw down. there's is a lot of concern about china drawing down on its foreign current reserves. needs china to do is take those foreign-currency reserves and either invest or spend them much more productively to generate growth in the global economy. back when i was in beijing and government officials came from the united states, they didn't beg china to keep piling up currency reserves. they said please use those reserves more productively and drop them down. that's what the world economy needs right now. scarlet: what does it do for capital outflows? >> instead of going out in the form of demand, the currency reserves are being spent to finance capital flight. that is a reflection that they had engaged in reforms that they need.
i'm not saying it's a silver bullet for china. they need to engage in a whole the timereform to use it has bought by defending its currency productively. defending the currency, there is a risk of failure but allowing it to fail in peace failure because it moves in the opposite direction that it needs to go. arguing that it doesn't have of the that's one reasons people need to be it has on a impact strong dollar and the u.s. economy. patrick,at to have you from silver crest. scarlet: we'll have details on chipotle coming up. a quick look at yahoo! shares, currently down with the company coming out with first quarter and full-year estimates that
yum! brands will spend much of this you're getting ready for a split. since theseshakeup been off from pepsi almost two decades ago. where theyout china, have been losing shares to rivals. the prescription is to focus more on china. he says the move could boost value by $7 billion. the increased competition there same-store sales
and margins in the country. comparable sales rose just 1% in december. pizza hut saw a huge drop, with sales falling 11%. this is critical for yum! brands because it gets more than half its sales from china. the company has about 6900 restaurants there. kfc will contribute through orders of the operating profits. pizza hut will make up the balance. they expect the pure play china business to deliver 15% etf growth. the profits will feed into the other company called the new yum! brands. it will target 15% shareholder returns and a 2% dividend deal. the china unit and the new yum! brands generated $6.5 billion in sales in 2015. they will report earnings after the close of u.s. trading on wednesday. from we got some good news the food industry after the bell. chipotle received a subpoena expanding the scope of the
criminal probe into a norovirus outbreak in one of its restaurants in california. the actual results were pretty decent. the number is good but the subpoena is casting a shadow over chipotle right now. >> that's right, stocks went up after hours but then as people dug into the release, they saw another subpoena out of california, broadening the scope of the investigation into the norovirus outbreak. yesterday we got the cdc news that the all clear, the investigation was over. now it reminds people that there is an issue out in california, a really negative headline going forward for them. company is the restraint from being able to say very much to investors? >> no one has said much at all about what this is. documents date back to january
2013 about food safety measures. some students said they went there after chipotle new their manager was the and did not tell people or tell the county. that is some speculation the probe is about what they knew and when they knew it about that outbreak and maybe they should have closed the restaurant sooner. no one has really said anything. the u.s. attorney and the company had not said anything. alix: that's not what you want to see in your growth stock. you own chip only for the massive growth that has in the restaurant industry. this is not something you need in that kind of. criminalng linked to probes and subpoenas is just bad news. there was a side of relief yesterday that the cdc said this was over and they closed the investigation. chipotle still insisting they are in the recovery phase. but this subpoena is hanging out
restructuringor at yahoo!, the company confirming its cutting 15% of jobs as it pursues a reverse been. let's check in with him only chang. put this into context for us. is thathe headline yahoo! is proceeding with its original plan. there is not a lot different today than yesterday but there is a sick all that potentially the core business will be in
play at some point. it willy have said proceed with its reverse spin off, keeping the alibaba steak and spinning out the core business including the state in japan. is trying to get the core business ready for a potential sale down the line. displayevenue up, revenue up, beating estimates. they are saying they can get to accelerating growth 2017 or 2018. saying asyer has been far as the plan goes, they are proceeding with the original plan, which is to do the reverse spin. investors want them to sell now and what yahoo! and marissa mayer and the chairman of the board have said is they think it is undervalued right now. they will not get a fair price if they sell now. scarlet: thank you so much,