tv Bloomberg Markets Bloomberg February 17, 2016 12:00pm-2:01pm EST
mark: from bloomberg world headquarters in new york, welcome. alix: european bankshares are getting clobbered this year. where is an activist investor when you need one? explosive subscriber growth for t-mobile as they company harnesses video but will competitors catch up? and otheramerican commodity producers and may be at risk. let's go over to the markets desk. we have another rally day but it feels very calm. julie: it has been like that over the past three days. rally for three days which is the longest chain of increases so far this year. december was the last time stocks rose three sessions in a row. we are seeing it on relatively
low volume. seeing a similar theme throughout all of these three days, bounceback for many of the underperformers this year and many of the cyclical groups are doing well. the major averages are higher today. let's take a look at the sectors. we have energy and materials doing well and energy is the best performing group which is a switch. tech, consumer discretionary and industrials are leading the pack area oil is certainly helping support some of the gains we are seeing in stocks today. which isw rising by 6% incredible as i ran as expressing willingness to sign on to this production freeze plan. even a freeze of production is still oversupply. it seems that maybe oil was sold off enough that even that piece of news is good news. alix: the market is short and
long at the same time. that explains the volatility. some stocks are moving for old-fashioned reasons. you had earnings. exactly, we talk about this lack of news in a macro level. we actually still have some earnings reports. garmin is rising african out with numbers beating estimates. noble energy is rising. we were talking about them cutting its dividend and drilling budget last month and is posting a 1.2 alien dollar write-down for the fourth quarter because of the tumbling value of energy prices and the effect on its oil fields but the stock is up perhaps because it is getting this out of the way. post hotels is coming out with numbers that beat estimates. pepper/snapple is coming out with 2016 earnings forecast that
was below estimates and again at came out with -- an dgannett forecast a decline in earnings revenue and devon energy is similar to noble in that it is cutting its dividend and cutting jobs and cutting spending. these shares are lower unlike noble. this is the earnings snapshot and this looks and growth. 500 companiess&p that have reported are down 3.4%. this is nearly all of the companies in the s&p 500 that have reported. alix: almost out of the horrible woods. thanks so much. let's check in on bloomberg first word news. ramy: thanks very much. apple is top of the news. but first we will go to turkey were there has been a large explosion in the capital of
turkey. reports indicated it may have been caused by a bomb but several people have been injured. the turkish news agency says the explosion occurred near a military installation. we will continue to follow the developments. apple ceo tim cook is accusing the u.s. government of an overreach that will set at rangers president. he is rejecting the court order to help the fbi on lock iphone used by one of the shooters in the terrorist attack in california. in an open letter coming rights it would be wrong for the government to force apple to build a backdoor into the iphone. he says it would undermine the freedom the government was meant to protect. donald trump and ted cruz are locked in a battle for south carolina's evangelical voters. toald trump is reaching out new school evangelicals and ted cruz is going more traditional. donald trump maintains a dominant lead in the latest
poll. a michigan legislative committee has approved spending $30 million to help cover the water bill of flint, michigan residents living with a lead contaminated supply. the bill would cover about 2/3 of the water and sewer bills dating back two years. health and human services will meet tomorrow with flint residents. the holders of one of the three winning tickets from last month $1.6 billion powerball jackpot are set to collect their money. the winners are scheduled to attend a news conference this afternoon at the florida lottery headquarters in tallahassee in a tennessee couple catch in their ticket last month taking the lump sum of $327 million. global news 24 hours a day are 2400 journalists in 150 news bureaus around the world. alix: european financial firms
are getting crushed this year. . the stoxx 600 plunged almost 20%. capital requirements, cooling emerging-market growth and plunging commodity prices. e jumped on the news it would sell stakes in more than 300 regional banks in fourth-quarter profits climbed to 28%. what does this mean for the health of european banks question mark chris wheeler joins us now. you take a look at the rally we see this week. was the panic last week overdone? >> good question, it possibly was. how many concerns there are around the sector. we have to add the fact that the european banks are still running behind their u.s. counterparts in sorting out there capital and leverage and going through major restructuring as we have seen it deutsche bank and credit suisse. that debtend to hear
leaves equity. what we saw was equity leading debt. that was highlighted in the deutsche bank scenario. we have a chart that compares deutsche bank stock versus its debt of the stock was leading on the downside . what you make of some thing like that? >> we had a situation where there were comments in the market that these contingent capital instruments only converted to equity if you get down to a low level of capital. they say we are not going to pay the coupon and deutsche bank pushed that to the side. on the other side, you had investors writing the credit default swap as a play on the falling contingent capital so that was a technical situation not made easy by the terms of one of tank or regulator could stop the coupons being paid. alix: you said the banks would i
werebonds and the coco's not part of that and it's not based on fundamentals. >> the reason for that was they pointed out that these only have a small part of their funding base. they were perfectly capable of paying the coupons. buying back the bonds was saying that some of our senior bonds have fallen below par and that will boost our capital when we buy it back and we are not short of resources. alix: we saw that layout in the credit default swaps market. american financials subordinated debt and senior debt versus european. on the far right-hand side, there is a huge spike. that is european banks and we have come off a little bit but a lot more risk is priced into them than its u.s. counterpart. is that legitimate? the issue with the u.s.
banks of you have not got the contingent capital instruments. s for a only allow different race. rates. in terms of what the concerns were around the stoxx -- alix: the former cso of lehman brothers did a survey. he said hanks are not expected to generate returns above their return on equity on a global basis over the next five years. what do you think about that? >> i was just talking to an investor who pointed that out. this is a big change from before the crisis. if we use 10% as of benchmark cost of capital, the two banks are learning about that. aboutanks are still just
10 or below. part of what we hear when european banks are at risk is that mario draghi has your back and the ecb will help you. in terms of profitability, mariota druggie cannot help them with that. week, lloyd blankfein was speaking and he said the european banks have access to ample amounts of funding. i think the european tank's in most cases have got a long way to go until they get to the kind of's daddy state the u.s. banks are in. banks are not.s. earning above their cost of capital at the moment. next wave of the drama for the european banks? difficult to say, i suppose
it's whether the ecb will peg lower and there is soul-searching about what negative interest rates goes % and what does that mean for profitability? is there any growth out there? alix: thanks very much. up, activist investors are silent when it comes to pushing eu banks into action. chinese debt reached a record high at the beginning of 2016 and unicredit chief economist will be with us on why the situation is worrisome. t-mobile is giving its competition a run for their money as they predict 3.4 million new subscribers this year. we will look at the state of the wireless industry. ♪
alix: welcome back. let's go over to the markets desk with julie hyman. i will start with the companies contribute in the most to the rally on an individual basis. they are technology firms. ,icrosoft is gaining today facebook as well and that's part of the rebound we have seen in large technology and then there is priceline, up 10.5% after they came up with earnings and revenue that beat estimates. it would have risen by 25% if you us glued currency values.
it is reliant on international revenue. that's why you see that big gap. those shares are gaining on a percentage basis. we also talked about the effect of energy on the s&p 500. these are some of the large cap energy stocks doing well, chevron, exxon mobil, conoco phillips, the energy indexes the best percentage gain in the s&p 500 in terms of groups. material stocks of the other big gainer. copper and gold are rising so that's benefiting freeport mac moran and others. u.s. steel is rebounding today and allegheny technology as well. again we see in the metals
companies is coming on the heels of gains we see in the underlying metals. copper, palladium, copper, you see them rebound today. we got industrial production early today rising for the first time since july since its highest level since november of 2014. that is helping fueled is again even though the mining portion of industrial production is actually down. alix: because it got cold. thank you so much. european banks trade for less in their book value, something that typically might be appealing to activist investors. they are nowhere to be found. joining me now is the columnist at bloomberg. you had an article about this out today. why are activist shunning european banks? seems like it would be an attractive trade for them given that you could maybe get involved in push management to take tough decisions they have
not taken yet. the problem is that we don't or activist investors are not sure who is in control of european banks. is it the regulator? is it the european central bank? even if you have directors on board, will you have regulators and other shareholders on board as well? there are so many complexities with pushing tank's in a particular direction that they are just staying away. trade forpean banks less than their book value and we have seen the same thing with u.s. banks. can you compare the activism in u.s. banks compared to european banks? >> there is more activism in the u.s. in general. the european issues are complex. we have many countries involved in different national regulators and a lot of strategic issues that have not been worked out with the same aggressiveness. we have balance sheet 50 to be cleaned up, business lines that need to be sorted out, and even
though you would think this would attract aggressive investors, there are so many unknowns in so many future losses that could hit these banks that activist in europe are staying away. alix: have there been any that have dabbled a little bit? >> eric knight is someone who tried to push around banks like hsbc and most recently ubc. s. andxited them last year tried to get the bank to spin out its investment bank. that did not go to plan and ubs opted for a kind of gradual wind down and a restructuring. eric knight is unlikely to see this is a well your because he made again on the shares. the fact that he is leaving is a message that says these banks are still too hot for even activist to handle now. alix: it's not like these banks have not done anything. ubs had better return on
tangible equity than its peers. maybe that's part of the reason. you tell me. >> that's absolutely right. you can't a they kind of met halfway. in terms of the future, the reason why a lot of these banks are trading below book value is because they have not taken drastic decisions. it has been piecemeal, it's tip telling. we up onto it calls for other banks to spin out their investment banks. it's not just the ubs problem but management so far is not making those decisions. clearly, activists don't think they have this way or him -- the influence. alix: what does that mean for the ordinary investor? >> it's really tough to get a signal. it's tough to get a catalyst on this kind of thing. you have to wait or the ceo to step up to the plate and waiting for the regulators to say
something and having to wait for a lot of rings, even a general market turn. all it means is more uncertainty and we could see more losses ahead before the pressure rises enough for real action. alix: thank you so much. for more fast commentary from bloomberg gadfly, search bloomberg gadfly on the web. still i had, chinese debt is surging and investors are worried if other global economies intervene. ♪
eric nelson told tom keene this morning why the situation is so concerning. >> it is worrisome that there are areas where the bubble already is and that's not the white way of going about it. it will give you some growth in the shorter term. you pray and hope for the best. up doublese pumping in china and they tend to burst. if they continue the policy of this is the way we go, how long before we have a major problem? the market is a little price for this but not completely. >> i think that's right. demographicst the , five yearslled from now, china is unlikely to grow by more than 3%. how do you get from here to there? economists always forecast a smooth path and reality is not
that way. the policyd or of issues in china increases significantly, the probability is that the ride will be rough. back tohin china, i go don't fighting the fed. we underestimate the power of beijing. aging and don't fight they will make sound decisions or is the power more diffuse within china? the last point is very good in the sense that i don't think very many people really know where the power in various areas of policymaking lie in beijing. you talk about the fed and we have a good sense of what that means. in china, it's not quite as clear where the decision-making is coming from. would you fight the chinese on policymaking? you don't fight a central bank
if it has a good foundation where it is going. at the same time, we in the market is we try to spot wrong policymaking and take ourselves out of the path. tom: if we say don't fight beijing, what is the hard landing theory? what do they get wrong? how youtough to say forecast a hard landing. a lot ofse have leverage on the system. you would want to see them start to do some fiscal easing for the consumption side. ultimately, one of the big challenges for china is to change from an investment economy to a consumer economy. therefore, what you would like loans,is instead of more you want to see them move to a
situation where you ease taxes on consumption. if that were the case, i think it would lower the probability of a hard landing. still i had, t-mobile is out with earnings today and it racked up a record number of customers and tripled profit so what is their secret? down with the ever ledger.n ceo, john the l ♪
and the outlook is now stable from negative. the country does not issue a lot of sovereign debt of the significance of the s&p downgrading their credit is big . ramy: we go to the latest on the terrorist attack in and cara, turkey. it was in exposing caused by a car bomb and the capital of turkey says 10 people were injured. the explosion occurred as a bus carrying military personnel was passing by. several cars caught fire and ambulances were rushing to the scene and we will follow developments and give you updates all this afternoon. apple will fight a judge's order to help unlike the iphone used by the shooter in december's terrorist attack in southern california. apple toal judge told give them reasonable technical
assistance to recover information from the phone. ceo tim cook right that the government wants the company to undermine decades of security advancements that protects its customers. this underscores one of ash carter priorities to create an effective relationship between federal authorities and silicon valley when it comes to encryption. to doon't expect them thats to help us compromise their business position. i do want to have enough of a ridge to protect a sector where we can work as possible for common solutions to common problems. ramy: you can see the complete interview tonight with charlie rose right here on bloomberg television. some 30,000 people are expected to gather today in the stadium in el paso, texas to watch pope
francis will hold a large outdoor mass. the pope'sp up five-day trip and he will visit the border where he is expected to stop at the fence and give up blessing and honor of refugees. 24 hours a day, powered by air 2400 journalists in more than 150 news bureaus around the world. alix: stocks are moving in today's session, t-mobile sales and earnings topped estimates after a year were the stock rose 45%. they use low class -- low-cost plans to laura way customers from the competition. let's look at the numbers. to give you an idea of the size difference, here are the top u.s. mobile companies broken down by retail subscribers. t-mobile comes in third. the gap between the rivals is shrinking. at&t keeps falling.
the pink color is t-mobile and that keeps rising. t-mobile has attracted more than one million new monthly customers in each of the past six quarters. it's a sign that their plan is working. the price that'll has been hurting margins. t-mobile was the weakest among its peers when it comes to margins. this quarter, the t-mobile margins move higher now surpassing sprint. you can see the price wars reflected in cash flow and capital expenditures. t-mobile launched the uncarrier plans and you saw a huge jump. that improved in 2015 when the company return to cash flow positive. the tea at mobile cfo did not give a cash flow forecast. springent will be in the and analyst expects t-mobile to
put forth about eight billion dollars for these airwaves in an effort to improve service quality. behind all these numbers lies a very colorful ceo who has been relentless in taking on rivals. john legere joined us earlier today. for could not be happier our employees, our customers, and their shareholders. you are right, we crushed it. we added 8.3 million customers in 2013. we had 108% of all the postpaid phone growth in the industry. added 3.5-mobile million postpaid phone subscribers. at&t and arise in an sprint to 0.ther were minus269,00 stephanie: but are you making money doing it? you started this price were a couple of years ago so it's
great for consumers but how about you? >> i am glad you are here today. behaving today is because it's important to get across the point that the model is working. that means that subscriber growth is leading to revenue growth. service revenue is up 11.7% year-over-year. tah.rew ebi the model is working. we are doing it by solving customer paying points. it sounds cliche but we stand for solving customer paying points and fixing what was a stupid, broken, eric and industry. stephanie: you are also doing things in an unconventional way. the video streaming service as many people talking about net neutrality issues. will you have to change the way your planning? >> no, we are pro-net
neutrality. let me give you where we are headed. all content is going to the internet and all internet is going mobile. the fastest growing use of data services on your device is video. the pain point is overages and over buying. n which hasvin jo been highly successful. it's pro-net neutrality because anybody can come. most importantly, it's completely customer choice. you can turn it on and turn it off very easily. we are content agnostic. it is clearly right in the suite spot of pro-net neutrality. alix: let's take a deeper look at the landscape of the wireless industry. we have a telecom analyst to joins us now. he has a $50 price target on t-mobile.
what was your take on what happened with the stock? >> it's an odd reaction because the quarter was very clean as far as the numbers and the outlook. they always provide a conservative outlook every quarter. it was below some of the estimates but that should have been expected so it's odd have been -- audit has been selling off. alix: what you subscribe the killer subscriber numbers to? >> the movement they started two years ago is not just an act. this was a calculated strategy andthem to be the uncarrier embrace everything that is against the industry. it has resonated with customers and they have come flocking to the service even to the point where the have been advertising service ahead of the improvements. they tell you the network is great and then they are still at building the network. they've done a good job at marketing as opposed to sprint who was apparently doing this secret network land but not telling people.
as a result, they are not seeing the same type of them if it. alix: you talk about the dichotomy in the wireless market. t-mobile and sprint go for the lower and. do you see that dichotomy continuing? >> at&t and verizon are so large and everyone is staying with their existing carriers now because of the share plans that they are saying we are willing to give t-mobile 4 million customers per year. they say is better to do that then cut prices to maintain our customer base. it's also true that if you look at these network scores, the difference between at&t and verizon where they are today which is better, the difference between them and sprint and t-mobile is more narrow. going forward, they bought this new spectrum that travels further distances. they are putting it in suburban locations. that should expand the market for t-mobile then rather just
the urban market. they can now expand that market by using some of this new spectrum to address a completely new market. alix: haute is that wind up sucking away customers from? >> at&t and verizon would do the best in those markets. sprint will be does better in market that don't require the type of coverage. at&t and verizon have had this low band spectrum for years. it was basically given to them by the government through a lottery process. they have had this advantage in coverage over the years. now that t-mobile has this low band spectrum, they will catch up in a coverage so if you live in the suburbs of new york, t-mobile is great in you might be more willing to switch to t-mobile this year or next year now that you know it will work in westchester or the suburbs of austan because of these network improvements. alix: switching gears to apple, the company's opposing in order to unlock an iphone used by the
san bernadino shooter. there were stern words by tim cook. what kind of precedence does that set question mark >> for apple in general, they have been clear about privacy. probably a lot of americans that would want apple to open up its phone in order to find out more information about the terrorist. alix: donald trump being one of them. >> there is a risk that taking this firm stand against -- for privacy against the government in this case will have a negative impact on apple but on the flipside, we all have a phone and we have privacy issues. i think apple is drawing a line and staying firm and the fact that they will protect our information. it's how they protect the network and use the cloud or not. he is remaining consistent. from their standpoint it's probably more of an ideological worrying tim cook about whether a group of americans will not want to buy
an iphone because he would not unlock one phone to get more information about terrorists. alix: can you see other tech companies coming on board with that idea? openher companies are more in the amount of information they provide. it is not fundamental to the core of other companies and how they deal with customer information. presumably, they would be less likely to draw the sperm line that tim cook and apple has in protecting their customers privacy in terms of the information available to others as what they provide their own government. this would require them to do something incremental to what they already did. want they do that incremental step in open that phone, presumably, that becomes open to not only organizations or companies in this country but throughout the world. there are a lot of americans that carry iphones. alix: thank you very much.
>> welcome back. we have u.s. stocks trading sharply. the major averages are up at least 1.5% so it's full rally mode at the nasdaq to the index is trying to put in its second three-day rally of 2016, something the dow and s&p 500 have yet to achieve. part of the strength is norman shares -- garmin shares. they offered an upbeat outlook for the year. that they are
positioned well for its 2016 and shares are outperforming the nasdaq today by a wide margin as the stock is above its 200 day moving average that may suggest that more upside is ahead. it draggingk at stock, cerner shares are down after the fourth-quarter bookings miss the forecast by about 10%. there is a mixed reaction on the street. some say it's a buying opportunity and another analyst downgraded it to a hold from a buy on continued volatility. alix: you are watching bloomberg. this is your global business report. the worlders around are considering a cap on record high output. we will hear from the qatar oil
minister. is the move for selling off assets a short-term tax? is the economic impact of a brexit for real? details are ahead. first let's start with the tuesday announcement to stabilize oil prices. iran supported in accord to study global oil markets by capping supply but did not commit to a freeze on its own production. they said the move will stabilize the market. >> we believe this step is meant to stabilize the market. and be beneficial not only to also toproducers but the total economy. agricole will sell shares in some french regional
banks and they posted fourth-quarter earnings that beat estimates. sticking with european banks, amro reported a drop in profits. they talk to us about the effect of negative rates. >> we have to keep a large pile of liquidity these days, more than in the past. ecb, we bring money to the banks take money from the ecb. they actually bring money to ecb so that's a negative effect. we are not happy with that. although this year we expect a further decline of the rates from the central banks. alix: the labor market is tightening in the u k but that's not doing a lot for paychecks. the unemployment rate in the fourth quarter held at 5.1% for earnings growth slowed to -- 1.9%. near zero inflation is keeping a lid on pay hikes.
it's time for our bloomberg quick take where we provide context and background on issues of interest. today's topic -- will great britain leave the european union? a british the parts are from the eu is the biggest threat to the u.k. economy. the eu leaders are meeting in brussels in hopes of securing a deal to keep the u.k. inside the 28 nation bloc. the u.k. is expected to hold and in our out referendum vote by june. many british want to follow a path close to norway and switzerland which are outside the eu. in order to stay, great britain wants changes, powers to with hold payments and exemption from some eu laws and the option to opt out of other laws. the u.k. has a long history of keeping its independence from continental europe. . it waited 16 years to join theeuropean economic community after was
formed in 1957 there have been episodes through the decades of great britain keeping its distance all the way to the european skepticism that kept it from adopting the euro in 1999. those in favor of the so-called say the campaign to leave says the flow of migrants to the u.k. is excessive. anyitizens can live in country they choose so the only way to stem the flow is to leave the block. they say the u.k. has an of global clout on its own and a permanent seat on the un security council. leaving the eve you could have disastrous that's leaving the eu could have disastrous effects on their economy. it makes hiring easier for companies. the referendum is likely to come down to which camp can battle -- better handle voter fears. alix: thank you. this has been your global business report. for more stories, visit bloomberg.com. coming up, another downgrade for
alix: welcome back. american, a london-based minor stung by sharp declines in metal prices and fighting to survive through restructuring, fits rating cut its rating to junk. this move follows a similar downgrade by moody's earlier this week. what other miners are now at risk? joining us now to inside is our senior basic materials analyst. what is the market results of a company that becomes a fallen angel? this move for anglo was ready
much telegraphed. back in december when they provided their business update, they were cut the following day. you saw a reaction in their bond prices trade off. americanent on, anglo started to redefine their plans and do restructuring. what you usually see is when a company gets cut to junk on the investor side, there is some selling because there is investment grade holders that cannot buy their charter hold a high-yield debt or have a basket that will not say how much they hold. many times, you will see the price reacted negatively. alix: there has been so much bad news already in their dad. which of bank had a great note that shows the debt has priced and so much bad news already.
they said it's already bad so it can't get that much worse. the on you see recently, severed bounded. you started having high yield investors sharpening their pencils and looking at the company. foreign investment great companies tend to be larger, and more substantial assets are usually in better competitive position. the high-yield market digests this and looks at that going forward but often we see a rebound which we have seen since adir in december. alix: they have almost $2 billion of mining bonds. how much of those get cut? >> moody's research put out that they usually end up with anything that gets a review for downgrade, that 2 out of 3 get downgraded. that's a lot but given the fact
of how they update the price for the commodities, they have a dated it three times since december. it looks like a foregone conclusion that most of these bonds will get downgraded. it does not really matter at the end of the day. american, the market has already spoken. their bonds traded spreads greater than 1000 basis points which is considered distressed. other companies on the list have bonds that are trading above 1000 basis points. already moved. alix: the market is leading the rating agencies. that if one company they become downgraded to junk and a fallen angel, truly wreaks havoc in the debt market? >> i don't think so because it has been been well
choreographed. investors are starting to see what is going on and they are positioning themselves before hand. there is a lot of debt in the high-yield market but there seems to be like in the last few days, there is demand. mac moran had debt that was treated well. alix: go to junk and then you will feel better. thank you very much. fedng up, minneapolis president says the banks are still too big to fail. ♪
from bloomberg world headquarters in new york, good afternoon. i am alix steel. laser focus. that is how minneapolis fed president neel kashkari described the attention to inflation and employment targets. oil prices climb after the output freeze sanctioned by saudi arabia and russia. iran is now weighing in. maker wins --lane white is not enough to prevent layoffs. let's head over to the markets desk where julie hyman has been looking at the latest. julie: the rally is continuing and we've seen a similar pattern over the past couple of days where stocks gain and then stay there. that is happening once again
here in today's session. take you look at the bloomberg get more granular here as to the daily move i'm talking about. stocks gained steadily throw the day. yesterday, a rocky morning and steady afternoon. we are now up 5.3% over that three day period. what has done the best? financials and materials getting the most. here's the individual movers. report back rent and gold doing the best during this three-day run a 51%. moran.eport mac ran only 20 companies in the s&p 500 that are down over this three day period. it has been a broad-based rally as well. one-stop that caught our eye was
kellogg's. the stock rallying after an earnings report a couple days ago. run we haveat this seen in kellogg's shares, making a new all-time high every session for the past five sessions. today, the company ceo saying serial growth will return this year. cereal growth will return this year. crude oil higher as iran now expressing its willingness to freeze production. gold is also higher, not by much, but also higher. copper also getting a boost here today. alix: where was the selling? julie: that is a good question. i wanted to look at the volume. that is one thing that is maybe a potential negative to all the buying we are seeing today. two sectors seeing a significant
-- everything else is down. not as good a sign when you see it. or selling, look at the utilities today. this is a group not holding up. down .3%. a little bit of selling. we've seen the bond yields keep going up. there are individual movers losing today as well. alix: let's check in on the first word news this afternoon. we headed to the latest in a terror attack in ankara. it was an explosion caused by a car bomb. the governor's has at least five people were killed, 10 others injured. -- the governor says at least by people were killed. caught fire and and
amulets is were seen rushing towards the scene. we will continue to monitor developments drop this afternoon. the stage is set for a battle between apple and the u.s. government predict apple refusing a federal magistrate order to help the fbi unlock the iphone of one of the shooters in the san bernardino terror attack. tim cook says building a backdoor would undermine security for all of apple's customers. donald trump continues to surge in national polls, he has more than doubled support in a new impact university poll -- quinnipiac university poll. things were a lot closer among the democrats. bernieinton leads sanders by 44% to 42%.
-- hillary clinton leads bernie sanders. alix: minneapolis fed president neel kashkari proposed breaking up big banks. he joined "bloomberg " earlier today saying his plan to cut down the size of big banks. neel: societies tend to forget the lessons they learned. in 1987 when the stock market , president reagan created a group to look out for financial stability risks. that committee had already been mothballed -- there were no risks anymore. bernanke you said we need to start this back up again. are seven years after the crisis, the economy is stronger than it was, we need to take this action now before we completely let it go by. >> should the government getting out of the lending business? neel: i agree.
the government should not be making lending decisions. we do want the private market to jobhat, but do a better than the government. we need to make sure there is not some which concentration that it becomes a systemic risk for the old economy. that's the whole economy. why is this your job at the minneapolis fed? neel: the minneapolis fed has a long history of thought on too big to fail. one of my colleagues and predecessors wrote the original book "too big to fail" in 2004 arguing that large banks were a problem. they were exactly right. the congress created federal reserve system, they created a central bank to have a diversity of opinions at the table. i'm speaking out on behalf of my colleagues in minneapolis. >> would goldman sachs benefit?
that would affect bank of america and jpmorgan. goldman is already streamlined. they are one of the institutions that has been designated as systemically important. >> what about the banks you regulate? have you talked to the banks about this in advance? stephanie: they don't like it. david: there's some response ability to talk to the people being regulated. we don't preview policy announcements. unity banks are frustrated that they are being caught up in the regulations try to stabilize the biggest banks. imagine if we take transformational action to make sure the biggest banks are safe. maybe we can relax the rules on the smaller banks so they can grow and allow this credit to flow. small banks may benefit from this.
matt: all the assets of systemically important financial institutions from the beginning of the recession to the end of 2015 up 21%. bigger banks have gotten the question is, what has. frank the to make these banks longer too big to fail -- dodd e?ank don neel: they have deeper liquidity, absolutely a good thing. you want to make them stronger but make them able to fail without causing devastation in the economy. that is the piece where we need to do more. david: isn't the stress test exactly that? part of that. it is hard to see these things coming. in 2006 my polson said we are due for a crisis. we never saw the housing bust coming and we were looking.
how many experts last year predicted oil would go from $100 to $30? stephanie: fair point. i realize it is not your job to help banks make money, but there are bank ceos who make the argument they have to be this big in order to serve multinational clients. if they cannot, you will see chinese banks either lunch. neel: i don't buy this argument that global companies need global banks. they manage thousands of suppliers all around the world. you are telling me that they can't manage a few more banking relationships? if other countries want to take extreme risks, we cannot stop them from doing so. right fordo what is our country and our economy and hopefully encourage other countries to follow. alix: minneapolis fed president neel kashkari on bloomberg go this morning. takes a look at the
alix: welcome back to bloomberg markets. time for the bloomberg business flash. american express planning to management to in cut $1 billion in costs. the effort will involve consolidating some marketing activities and merging the company's two largest servici ng organizations. lexmark international has attracted first-round bids from vista equity partners for its software division. maker haser printer been working with goldman sachs on strategic alternatives. britta rico officials say they are considering new emergency measures to confront the island's economic crisis. -- puerto rico officials. they have $72 billion in public
debt. that is the bloomberg business flash. the bpp is a world leader in advertising and marketing services. wpp. martin: in a slow growth world, growing is somewhere around three this year, 3.5 nominal. no inflation. 50 basis points come half a percent inflation. markets slow growth howets, question marks over fast the u.s. is going to grow this year. things come atof one end of the spectrum, the disruptors like uber. the other end, zero basis -- what do companies do faced with
that trio of forces? short-term and focused on getting it done in the short term. i think it is wrong because those brands -- stephanie: they don't have a choice right now. feel theen companies need to cut costs, the first place they look as discretionary spending, which is marketing. arein: it is true that we -- even when people see good times coming they wait. we lead the downturn. in the old cyclical economy, in the slow growth world, the new normal is low growth. we might see some economies that technically have two quarters of negative gdp growth. what the markets are telling you is it is going to be lower longer.
low growth longer, low interest rates longer. david: are your clients cutting back on their media spending? martin: they are trying to find their -- refine their spending in an effective way. expanded.ry has it is a $1 trillion industry. billion in old stuff, $500 billion in new stuff. that has increased every year with the exception of 2009. stephanie: you reap the benefit of all these new media platforms. you have to be there. martin: i don't care where our clients spend as long as we have access to where they spend. " are not good for us. that's closed loops are not good for us. in 2000, fast growth markets were 10% of our business, today,
one third of our business. had i revenues did make this 15 years ago. -- half i revenues. -- half hour revenues. alix: that was wpp ceo martin sorrell. for stocks after being beaten down last week. last thursday, the s&p was at a 22 month low. within the indices, it was about the battered stocks coming back. big banks up by 10% over the past three trading sessions. big oil also up. you have individual names like freeport mac ran, copper and gold launching a big rally. it does have a big short interest. of totalerest up 22% shares outstanding.
you cannot rule out any kind of short covering when it comes to this rally. amazon also having its best streak since october, five straight days of growth. money rotated out of those momentum stocks, now coming back in. oil prices leading the way with a rally at 6%. goldman sachs and other banks have come out saying the freeze on oil output will not be enough to curtail the global glut. what is the next step in tackling those record low oil prices? ♪
smooth sailing from here. iran's oil minister announced his support for the deal but did not say if his country would join in on that freeze. for more, we want to head over to bloomberg radio where carol master and cory johnson has more . carol: we welcome everybody on bloomberg tv. you came on and talk to our folks and said oil could drop to $50 a barrel. are you still holding to that? >> absolutely. the freeze announced today by saudi arabia and russia had iran .imping on the back end it does nothing to decrease the current production levels. production exceeding consumption 1- to 2amount, million barrels a day. we have not seen the actual cuts
that will be needed globally in order to bring supply and demand back into balance. people talk about fundamentals. the fundamentals are clear. supply is exceeding demand. down. has shut any fields that will probably happen when the prices get even lower than they are now. cory: we have seen the rig count come down. john: the rig count is telling you what new wells are being drilled. they are down 70%. which means there's a still 30% of the rakes out there drilling new wells today. cory: good point. john: those are money-losing wells. in north dakota, the cost of production is way higher than russia. than $30.s more for every one of these countries except for saudi
arabia and iran and iraq, they are losing money on each barrel they left. -- lift. they know they can get the sales revenues right away. payingn maybe defer payrolls or vendors. it is clearly a pretty odd situation, but we still see drilling. we are seeing conversations going on, talk about doing something in terms of shoring up prices with russia or saudi arabia. when the yuan that there might be something more than maintaining production levels on their part? what we see a cut by them? john: we talk about the word strategic. that is normally associated with thinking. it involves thinking intelligently. people in the oil business are because theygic"
are thinking ahead to that point where oil prices get back up to normal levels of 50 or $60 a barrel. if everybody is thinking strategically at the same time, nobody is cutting production and we are not going to get there. lookingave to be more to chest moves ahead instead of one to know that some of the has to cut production now. moves ahead instead of one. once the well is drilled, your costs are limited. are so muchn rates higher for the horizontal wells. we don't really know what they are. pump these wells the pace they are pumping for the next five years. they may actually get to a point where the production cuts will hit them whether they like it or
not. cory and i are both excited about the innovation in silicon valley. the place where innovation is happening even faster is oil engineering. fracking up with three -- refracking. a lot of the wells 12 months ago were being cap. they had the wells drilled and they were going to wait for the prices to get higher. those wells, they eventually have to take the caps off. we still see a lot of blood in the streets. there will be more of it. i see today's move as a big head fake in terms of not really addressing any of the fundamentals. carol: what is your energy trade? john: we have a small short in oil. any of the oil exporting nations, especially the higher
headlines on the bloomberg first word news this afternoon. ramy: the governor of and cora says type people are dead after a terror attack in the turkish capital. the explosion was caused by a car bomb. the explosion occurred as a bus carrying military personnel was passing by. without borders and says 25 people were killed in this week's airstrikes on one of the hospitals in northern syria. the group has said the hospital appears to have been delivered the targeted. tim cook accusing the u.s. government of an overreach that will set a dangerous precedent. he's rejecting a court order to help the fbi unlock the iphone used by one of the shooters in the terror attack in california. cook writes that it would be wrong for the government to force apple to build a backdoor into the iphone. that would undermine the freedoms the government is meant
to protect. below theer samples federal standard for lead. 900 samples have been submitted by homeowners in sebring after an environmental officials said waitedrator of the plant months before notifying people of high levels of lead coming from the pipe. in africa.he decline it may have to do with the price of oil. attacks on maritime vessels ing oil filled by a third in 2015 compared to one year earlier. alix: s&p is downgrading the debt rating of saudi arabia and bahrain because of lower oil prices. global oversupply led iran to support the accord by saudi
arabia and russia to freeze production at near record levels. the country's not saying whether it will increase its own production. if a production freeze does lead to a production cut, will it even work? what happens when opec and non-opec numbers cut production back in 1998. >> in terms of what is different about this market today and why cut hasnot initiate a to do with the core of the new oil order. the short nature cycle of shale. has beento build strained considerably. in the old days, it would take exxon, bp and shell three years to get production up and running. today, 80 days. days of production in the permian basin is a little over 100. it is really quick.
>> absolutely. think about making the production cut, prices rise. these producers can get oil online within 80 days. il aakes 60 days to shala ship from saudi arabia to the united states. >> as soon as there is any pricing power -- >> prices rallied in april. >> one of the bullish arguments people have made today, saudi arabia and russia freezing production on its own is not going to be changing the equation at all. , atorically speaking decision like this could set the for further action down the line, something more severe. based on this chart in your reasoning, does that logic still hold? >> in terms of thinking about today's announcement, from our
estimates, russia was already producing the highest it was going to produce this year. that still leads to substantial .ear-over-year growth for 2016 when you think about saudi arabia, they were at 10.2. you have a lot of producers already sitting on their highs when they made these announcements. the net impact of the balance going forward is minimal at best. the real wildcard is what happens with iran. the only time a real production cut would make sense is if we saw a large demand shock that was so large it took you off the supply curve and you could argue it make sense. we don't see that in the cards. just because they cut production in 1998 is not mean that all of a sudden prices rallied. the l a line and blue line are
the first to production cuts in 1998. -- the yellow line and blue line. it was not that huge relief rally. it did not drop at that point. it took many more months for us to hit the bottom and then have a sustained rally. analogy to 1998 is a good one because it gives you a net you of why it is so difficult to balance the market today. one thing saudi arabia did in --8 was kick of production the anticipated strong economic growth that than evil into the -- that then evolved into the financial crisis. rebalance relative to the demand loss. they had a similar situation -- increases in production driven by iraq and iran and the huge surplus generated by the shale players.
you have two sources of surplus like you did then that means the type of production cut needed would be very large. shalest cycle nature of makes any type of price rally self-defeating. alix: let's take a look at the players in this freeze agreement. what does russia get out of agreeing to freeze production? clement. alex good to see you. why would russia agree to this? the russians are currently producing 10 million barrels a day. them.is no cost to pump,et the kind of momentary bump in oil prices
from the response to this anointment. that announcement. -- the response to this announcement. alix: why is that not realistic for russia? alex: there are some technological implications. it is tough for russia to shut down production. once we get into spring and summer, it becomes more possible. there's a technological limitation on russia. there's also the broader negotiation with the other opec partners. iran is key to any kind of agreement. the iranians desperately want to increase their oil production. they want to regain the market share they lost. getting iran to agree to freeze or cut is very unlikely and without that, it is hard to see ia broader agreement going forward. alix: they do not agree to anything going on in syria. what role does the syrian
conflict and a playing? -- end up playing? alex: anything is possible behind closed doors. the three sites, iran, russia and saudi arabia are so diametrically opposed on their views of what the outcome in syria should be, it is difficult to see if bargain licking syria and oil production. linking syria and oil production. the russians have a clear strategic goal in syria. the saudis entirely opposed that goal. alix: the king might go to moscow in march. what does that wind up mea utin?if you meet with prud >> we could get more link what about possible coordination on oil production cuts. -- more language.
that doesn't mean we support a freeze but will not that we will not freeze our own production. >> the iranians said we are happy of others freeze. they support measures like this, but supporting image like that is difficult -- different from agreeing to be part of a measure like that. alix: are we close to any kind of tax increase for oil that will artificially lower oil production for russia? alex: russia's oil production is set to slowly decline regardless of what they do over the next several years because of underinvestment, they are pumping like crazy out of soviet era brownfields reaching their limit. the tax question is a good one. the russian government is proposing to heighten the mineral extraction to get more
revenue this year. which will have the effect over the longer-term of suppressing production. these are medium to longer term questions. alix: how long did russia have with oil at $30 before things had to get very extreme for them? >> russia can get through this year with $30 pretty well. the have the financial and economic buffers and political buffer. the flex will exchange rate helps. -- flexible exchange rate helps. i don't think we are near a crisis for russia. certainly not this year. $35 a barrel for the next several years, russia will have to make serious adjustments master the saudi's. -- as do the saudi's. the production model for shale
production is such that the old assumptions about how the oil market works are receding. they have to get used to a world in which oil is lower for longer than they've experienced for many years. in?: has putin weighed >> not directly. , with russia come if putin ways in and says something, that is what you take as the official line. alix: thank you very much. ent. klim we will be right back. ♪
time for the bloomberg business flash. fresh fruit,ing vegetables and meat to its google express deliveries. the move is seen as a response to the amazon fresh grocery service. google says it will add perishable groceries to select neighborhoods and 10 for cisco and los angeles. -- in san francisco and los angeles. it was a surprise drop in housing last month. level in three months. economists had forecast an increase. all four regions it showed decline in construction. standard & poor's downgrading junk.n's credit rating to the downgrade could make it difficult for bob rain -- bahrain to access that markets.
a crucial order for the new jet from air canada. they signed a letter of intent to buy 45 jets for $3.8 billion. it will not save the 7000 jobs announced they were cutting. for more, want to bring in pamela ritchie. give us perspective on how bad things are poor bufor bombardier. >> it is not a firm order at this point. it would represent the first north american order for the ardier from a bomb north american airliner. of the top 20 global airliners around the world, just lufthansa has a firm order for the c-series.
the other orders tend to be very small airline companies around the world. these are the bigger names. it is an important piece of the floor, putting it under the c-series. it is crucial to the company. they've had difficulty with delays come all kinds of and trying toes get this plane built. this is a big piece of news and the stock surging the most in five months. it has been bouncing around for 13 days so far below one dollar on the tsx. it is on a watched to be delisted. you cannot stay at those levels for too long. the company has done a reverse stock split. putting their shares to guard nest together to guard against the listing. -- putting their shares together to guard against delisting.
this company has a history of government bailout. most recently, we saw $1 billion from the quebec government in october. they went ahead and branded them -- granted in this money. the job cuts you mentioned a minute ago, i don't know how many will be from quebec. there might be a bit of an issue there. canada has gotten a bit of a break from the federal government. we wonder if these are pieces of the puzzle toward the federal government kicking in $1 billion. that is what the company is asking for next. alix: how about bombardier's margins? >> they've had a tough time with margins.
it's been the case across the industry, margins being pressured. bahrain bombardier has -- bombardier has done ok in certain areas. they might have to do better in charge lower prices for their jets to be competitive out there. boeing and airbus have better balance sheets to be aggressive on pricing. much.thank you so , will we get any hints of the fed's plans to rate hikes this year? they released their minutes in just 10 minutes time. ♪
from its january meeting and all eyes will be looking for any hints at a timeline for future rate hikes. learn that isl we different from what janet yellen said to congress last week? karl: and that will be the key focus point. we heard so much from her last week that the real insight will be to see if there's any drift in her sentiment, the sentiment of the committee versus her sentiment before congress. i suspect that cap will be very small. much remorse, be but i think it will be relatively benign in terms of the pressure for additional rate hikes anytime soon. alix: the fed did not assess the balance of risk to the u.s. economy in the last meeting after saying they were balanced in december. why is that significant?
carl: the fed almost always has the risk assessment in the fomc statement. there've only been a few instances in the last 20 years when they suspended that balance of risks and that's what we saw at the january meeting. if they were neutral and then suspended, that implies a downside risk to the outlook. , there's the staff projections and commentary in the minutes as well as the members of the committee and their discussion. the minutes have been consistently more pessimistic. we have be very careful to draw the distinction where they have been continually highlighting downside risks to the economy. that is just more of the same if they highlight that today. you have to watch the meeting participants's assessment of the economy. this is a thin slicing here but will be very relevant to the takeaway from the minutes. carl: what are the chances we
will see any regret? carl: if we saw it to any degree, i would be surprised. i would not be looking for that today. what was impressive from her testimony was this sense of confidence, we are tightening, we will continue to tighten. we are the direction moving. there was no sense of undoing that rate hike or going into a permanent scenario. as we start to see more evidence of the economy rebounding in the current quarter -- we were .5% in q4. once that confidence becomes more entrenched in the markets and more reflected in the economic data, we could see rate hikes starting to creep back into the 2016 horizon. alix: thank you for the
assessment. carl riccadonna. one last look on the markets before the fomc minutes come out. julie hyman is at the markets desk. julie: we are still up. alix: all right, take care. carl: just about the same we saw one hour ago. julie: the gains today have been steady just as they happen for the past several days. bounce has stretched into three days. will the fed minutes the real this in any fashion? it is a somewhat unlikely given this is backward looking. trajectory has been closing of the highs of the session for the past several days. that movement continues in the same direction today.
as we've seen volume of stocks, weep seen selling of treasuries -- we have seen selling of treasuries. yield going up for as fortraight sessions currencies, not a lot of movement day. there's been a bit of bouncing around. we are seeing little movement by the euro and the pound today. we will see if that changes with the minutes. gold pricing had interesting action today. one would think with this risk on assessment, gold would not be doing well. it is not doing great, but not down at all right now. it has not been down that much. are movingl prices significantly higher come up by talks of iranse
possibly increasing production. we will see if anything changes in the next few moments. volatility forof oil in particular, the markets really short. you cannot help but have a volatile asset class. julie: you see interest just surge on oil. alix: we will be getting the fed minutes right at the top of the hour. we will break down all the clues. stay with us. ♪
vonnie: from bloomberg headquarters in new york come good afternoon. i am vonnie quinn. we are moments away from looks at the federal reserve january meeting. global andtoring economic financial developments, and michael mckee is that the federal reserve and washington. he will take us in a time machine and tell us what we learned from the minutes, michael. michael: well, vonnie, struggling to understand the invitations of the world gone topsy-turvy since they raise rates in december. they debated the potential impacts of oil, china, the dollar, financial markets, all in the context of the still strong labor market. in general, many saw the development of december as increasing the downside risks to the economy. although they couldn't be sure how much. falling oil prices kept inflation in check