tv Whatd You Miss Bloomberg February 23, 2016 4:00pm-5:01pm EST
>> u.s. stocks closing lower. thatell on speculation opec members won't curb output. joe: the question is "what'd you miss?" >> a healthy housing market. how the recent stock selloff is affecting business. joe: goldman sachs sees again for the s&p 500. we ask whether we have seen the bottom in stocks. alix: the launch of a new the global lng market, and who should buy his former company. >> we begin with market minutes. s&p 500 retreating from a six-we tied. -- six-week type. tie.x-week
rally,sterday was a huge massive gains from last week, ever since the lows from two weeks ago. it was a selloff, but it did not feel dramatic. in february 8, but not a stomach-turning selloff. the losers who were the winners are now the losers again. oil and gas, these guys have been beaten up for so long, eventually turn the corner, nice rally, and these the ones most affected today. joe: treasury market, modest day, buton a risk off it was minimal, just 0.1 on the two-year and the 10-year. we haven't seen much of a decline today. scarlet: china week in --
weakening its yuan. to demand for safe havens like the japanese yen. of the risk off the scene has to come to the oil price, another big slide, saudi oil minister's saying there will not be a production cut for saudi arabia, iranian oil minister saying that trees they talked about last week is totally ridiculous, and both adding a lot of pressure on oil some were feeling better about the market. scarlet: let's take a deep dive. i'm looking at oil. alix: when at world supply versus world demand and what that tipping point will eventually be. supply,ge line is world
the blue line is world demand. not see the tipping point until 2017. lots of analysts were looking for that to happen around 2016. the gray bar is inventory. you don't see inventory draws and tell 2018. joe: hard to get to bullish on oil when you see charts like that. ,carlet: i'm looking at the vix there has been a pattern for the past four months. the vix peaks between the 11th and 20th of each month. strategist and tokyo says it could be linked to oil prices, soccer wealth funds from oil producer nations are selling stocks in the first half of each month to prepare for outflows from the coffers at the end of the month. potential up for a
vix of 30 in march. joe: i never noticed that pattern before. thent to dive into bloomberg, some fresh data on consumer sentiment. , maybe some sort delayed reaction to the rally. i got this chart from our colleague, and it is kind of ominous. the blue line is the number of consumers saying that business conditions are bad, and the gold is the u.s. unemployment rate. -- the gold line is the u.s. unemployment rate. correlation between these two numbers. on that a lot of noise blue line, but if this is the start of a trend, you would expect to see the unemployment rate take up. alix: ominous chart there.
joe: ominous chart for people excited about how good the labor market is. scarlet: you can see this ominous chart in more on twitter. douglas, you reported an 18% increase last order. is the impact of financial market volatility owned demand in the luxury home market. >> thank you for having me. our business is still good. what is going on in the larger market is not reflective of what is going on in housing. been a bit have hesitant as they watch what is going on in the global market, but over all business is good, traffic is up 13% in february, and we are optimistic about the spring selling season. there is a disconnect between the housing market and our particular business, which is the luxury housing market and the broader markets. what of the concerns that
homebuilders have raised, the difficulty in finding labor, labor tightness among people who know how to build homes. the latest jobs report clearly indicates an increasing number of construction workers are quitting their jobs, a sign that the labor market is tight and can work elsewhere. tell us how that is impacting your business and ability to get supply onto the market and the terms of your costs. >> the labor market has been tight. it is easing a bit, tighter a year or two ago. 2007-2 thousand 11 was the worst housing depression the country has ever seen in many construction workers left the industry, and it has taken time for them to come back of the market recover slowly. now we are further along in the recovery, which means there are more workers back in construction, but there are still labor shortages. it has added a couple of weeks to the construction cycle time of our homes.
we held big, expensive, complicated homes that take longer than the other public builders. overall we are managing labor appeared we are certainly managing costs better now. costs are only going up a little bit, labor tight, but easing of it. order to preserve your margins, which are higher than the industry, what kinds of costs are you likely to pass on to the buyers? well, we don't past costs on, we just hope the market is strong enough to absorb price increases, and so far nationwide are pricing power has certainly matched the construction cost increased, so we have guided this year with three quarters to go to maintain a very high margin. we have not in anyway brother margin down to it we are very comfortable in our backlog in costs. spots, wetant market have significant pricing power, but over all our pricing power
is meeting or slightly exceeding the cost increases. so we are in pretty good shape. the industry over all is trading around book value. in. that would indicate some kind of severe economic decline. are you anything in your business take issue concern about a possible recession? know, we are not at all. our business is strong, healthy, traffic is up, sales are good. we bought back $175 million of our stock between the first quarter and the last few weeks, the beginning or second quarter. is a think there disconnect between what is happening to housing stocks and what is happening in the housing market, which is still holding up nicely. for toll brothers, the proudest moment for me in my career is on thursday when fortune magazine not only named as the most admired homebuilder, but named as number six for the most
admired quality of product or services behind apple and nordstrom's and amazon and alphabet, and we were number six, which to us is amazing -- it is the greatest recognition that are seen and my 26 years and wanted talks about the quality of our great homes. joe: what are the concerns about the housing market in general? that there is not an of supply for starter homes, first-time homebuyers, single-family? what is it with the homebuilding industry where is this the that that section of the market has not been well served? why can't that be more well served? >> i think part of it has been that the millennials, a bigger group in the baby boomers, has been delaying the purchase of a home, getting married later, having families later, and therefore instead of buying their first home at 26 or 27, you may be buying your first home of 32 or 33, and so at the
entry level there has been a fundamental shift where the homes are being bought a little bit later and that has stalled at entry level a little bit, but those millennials are getting older, and when serving say they want to own a home, they are just a langa decision of little bit. alix: thank you for joining us. ceo of toll brothers. scarlet: why bank stocks may be a good bet for 2016. ♪
the bipartisan measure is gaining momentum in congress. the legislation is in response to the standoff between apple and the fbi over access to the iphone used by one of the san bernardino shooters. republican voters hold caucuses in nevada today. donald trump is hoping for a third consecutive win after prevailing in new hampshire and south carolina. the battle for second place could be close, between florida senator marco rubio, counting on mainstream republicans, and texas senator ted cruz, who won in iowa. a federal judge has ruled state department officials and top hillary clinton aides should be questioned under oath about the use of a private e-mail server. the washington post says the judge set an april deadline for the parties to lay out an investigative plan they would extend "well beyond the limited explanations offered so far by officials." top senate republican mitch mcconnell says his party will
permit a vote on any supreme court nominee submitted by president obama. instead, the senate will "revisit the matter after the presidential election in november." global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. alix: "what'd you miss?" rise 10%00 will according to our next guest at goldman sachs. earnings will grow 11% if you take out energy. what you say we all missed is the importance of buybacks. >> correct. the typical situation is a month or so before companies report earnings, a blackout restriction on repurchasing shares, and corporate backs of the soul demand for corporate equities in this market, and so that is why february has been generally a stronger month. look at the seasonality pattern across the year over a number of years you will find that the comes with money -- companies can repurchase shares
is a stronger month, and more importantly when there is macro negative news taking place during that month when there is an absence of share repurchases, in this case it was concerns about what was happening in china, all oil prices, during that time january was week. now when companies have been clearly repurchasing significant amounts of stock, were up at record high levels. when you say "what'd you miss?" that is a key dynamic in the market. macroou mention indicators being weak. and you're on research you talk about the economic surprise indices and gauging those. what are the key economic indicators you look at? almost 200,000, jobs a month on average for the last five years, unemployed and falling. consumer confidence has been ally adjusted
sales, housing markets, all these metrics we look at -- joe: none of the data has contributed to the run up in the last few weeks. that is all buybacks. >> the big issue that some managers are with is the risk of recession. we are not likely to have a recession this year or next year, so therefore if you have a view that the data would suggest the economy is growing, and 69% of the economy is the consumer, then you focus on job creation, wage growth, consumer confidence, housing. those are your key drivers of what is happening. if 69% as consumer base, that's what we want to be focused on. it clearly the industrial side of the economy is in a difficult position, the collapse in oil price leading to a declining capital spending by energy companies, reducing the amount of revenue for companies and industrial or material sectors
providing their services. that is hard, challenging economic environment, but that's 4% of the economy. 70% you look at close to and other areas, and that is pretty strong, and as a result of that we think about what drives earnings and profits for the companies, those are generally led by other sectors, and that's why earnings will rise this year. scarlet: let's talk financials. it's hard for u.s. stocks to give far without the participation of this sector, the second heaviest weighted after the technology group. you can see that financials have underperformed the s&p 500 relative to the broader market. the line down means financials have lagged behind. you do like wells fargo because of its domestic exposure, so is sector a value trap until the macro environment gets better? >> there are lots of questions about the yield curve and terms of what the interest rate
policies will be. it's difficult for the financial factor -- sector to perform well. we think about drivers, the idea of the importance of the consumer is critical, wells fargo, and my colleague follows the company and we have a recommendation on it, almost 20% upside based on the fact that is a focus market that is expected to be strong in the near term. you think about the other alsors, industrials, which have the challenges we talked about, information technology and area we saw for the first time hedge funds in terms of the latest holdings have limited, and that -- have pivoted, and is largest weighted net holding, so that's one area. margin expansion, one of the , particular ins the equities bays, asia, europe, united states, to find a company that is expanding margins, and
that -- some in the technology sector, some in the consumer, so the traditional way of thinking about sectors, which you presented looking at financials, a more nuanced way to be a fund manager is to think about one of the themes driving the show. you think about domestic revenue, housing, margin expansion, strong balance sheets, those are the drivers that are really expanding a lot of the return and will expand a lot of the returns looking for it into 2016. alix: price movement has recently been in oil. i charted the correlation for you. this is the historical spread function. it's not supposed to be like this. were not supposed to see a strong correlation between oil and stocks, now at .5. why are we seeing thi why are we seeing this? -- ow long does it last how long does it last?
>> think about the fact that the $10 swing and earnings, $10 swing and price per barrel of oil, about a dollar per share in s&p earnings. contribution of profits from the energy sector is extremely low this year, forecast at around three dollars out of $117 and earnings will come from energy companies. it's not that important from a profits perspective. yes, the correlation exists, but from a fundamental expected their driving off of coincidence as opposed to causality. real profitk at drivers, it's technology, consumer, more important drivers. scarlet: you are sticking with this good coming up, why hedge funds are still banking big on moment of names like amazon and google. a quick look at shares of dreamworks, fourth-quarter profits beat analysts estimates, $.55 a share when analysts looking for $.15 per share
scarlet: i am scarlet fu. "what'd you miss?" hedge funds the most risk in persons coup thousand 12. -- hedge funds are the most risk adverse since 2012. what is driving visit de-risking by hedge funds? a challenging market and's terms of macro rotation, china, oil, which has encouraged fund managers to reduce exposure. it's not as low as they were in
2000 nine, but has certainly come down a lot, looking for stabilization. there has been a nearing of their holdings positions, calculations suggest the top 10 comprise 68% of positions, the highest it has been in the last 50 years since studying the data, so pretty concentrated. those are attributes trying to manage in a very difficult choppy market. keep an index at goldman sachs of the hedge fund vip list, the stocks that a lot of hedge fund zones. index ofok at that hedge fund holdings, popular stocks, they been getting absolutely smashed lately relative to the market, that's why were hearing about these macro funds having a terrible time now. have we experienced times like this in the past, and do these past experiences tell us anything about what we might expect going forward? list and for very important positions, stocks that
are meaningful to the performance of hedge funds, so it is not so much the stocks that the hedge funds own 30%, 40%, 50% of, but the stocks that would define the performance of hedge funds. it has last 15 years, outperformed two thirds of the time, average asset return hundred 25 basis points, a smart idea to follow the proverbial smart money. there's no question about that. the data suggests it is a winning strategy. environments, two thousand eight, and more recently, a lot of dislocation in the market and that has not worked as well. this year has certainly been a -- market down 10%, so it is uncharacteristic, but broadly speaking it has been an indication of outperformance and relatively modest turnover in terms of the persistence and
some of the stocks that remain quarter after quarter. those are fundamentally driven decisions to own the shares. we think about over time that that is a successful strategy to follow. that's the reason we focus so much on it and why other funds are as well. scarlet: some other positions were , amazon, netflix, and google. and became crowded trades contributed to the underperformance this year, but hedge funds are actually doing ok now in 2016. >> the macro funds are doing well. there has been a rotation that has taken place between january and february as companies were .ow back buying shares we think about the individual companies the fund managers are looking at. there has been a rotation in the stocks and will likely continue to do well.
amazon,s is an example, google, alphabet, those companies have some common characteristics, that is to say they are expanding their margins , a key issue we look for. stronger balance sheets. those of the two attributes that as much ally not focus of fund managers as they should be, and those of the reasons we look at this group of stocks, what characteristics do we find a common among them and are likely to outperform in 2016. scarlet: thank you so much for joining us. alix: coming up my interview with cheniere energy, the new venture, bullish outlook on natural gas, and who might buy cheniere energy. ♪
mark: let's get the first word news. john kerry can't be sure the cease-fire agreement in syria will work and lead to a political resolution. testifying before a senate panel theay, secretary kerry said cease-fire is the best way to in the the civil war. senator corker says he has no confidence russia would abide by the agreement. he also says russia is using refugees as a weapon of war against europe. despite fierce opposition from congress, president obama sending lawmakers his plan for closing guantánamo bay. the president says the detention
facility undermines national security and american values. the plan calls for transferring dozens of terror said what tana bay- at sites in guantanamo to the nine states. john kasich raising a new challenge in his home state of ohio. a new poll says john kasich is trailing gop front runner donald trump in the buckeye state, 31% to 26%. ted cruz is in third place at 21%. ohio's primary is march 15, a win that is crucial to john kasich presidential bid. one person dead, five injured at a power station in southern england that collapsed today. that is a look at your first word news. i am mark crumpton. scarlet: a quick recap on markets, s&p 500 retreating, giving back yesterday's advanced , closing on our session low, the worst day since february 8.
it has now dropped in three of the last four days. out, oil helpoint to take stocks down. thee finished down 5%, worst-performing sectors in the s&p, chesapeake, capital oil and gas, the ones people hated the most a couple of weeks ago are now hated again. joe: people were talking about the saudi-russia headlines last week. oil is not going anywhere. alix: it is hard to say if it has found that bottom. "what'd you miss?" my exclusive interview with the former ceo of cheniere energy charif souki, transformed exporte energy into a hub years before others. i asked him how you as lng exports would change the global markets. charif: i don't think anybody expect the that they
oversupply of natural gas in the united states to let up anytime soon, so when you see the quantity of the wells that are being discovered today in ohio and pennsylvania and the ability to improve the technology and louisiana and texas, there is an , andance the natural gas 200-year supply at a low cost in the united states. factecond thing is the that cheniere energy was able to at $500 a ton compared to australia and other $2500 to $3000 per ton, so we have a cost advantage. you put that in position. that means we can deliver gas to europe somewhere between six dollars or seven dollars for a very long time. we can do the same thing in asia, somewhere between eight
dollars and nine dollars for a very long time. those are numbers the world is not used to. aty were talking about oil $100 and looking at natural gas delivered to asia at $15 and europe at $11 or $12, so what is happening in the u.s. is starting to have an impact on the global nature of the business itself. the new thing is that the long-term contracts will be significantly cheaper. we think we will be very 56fortable with two dollars , leaving the shores of the united states at five dollars and delivering to europe at six dollars, very competitive on a long-term basis. alix: where you have to sweeten the terms to do with the competition already in the united states?
charif: we have a lineup of customers already and we've only been in business a few days, so is not going to be an issue. alix: who are the people interested? charif: i can't tell you. nice try. alix: what kind of contracts are you going to have? how much of your business is going to be take or pay contracts? it be forch will yourself exporting your own liquefied natural gas? model: we have a business that works welker and you can count on 80% of the volume been contracted on a long-term basis, and 20% in the short-term basis. alix: you mentioned cheniere energy and picking up where you left off. what kind of relationship do you have with this in your energy considering you have 3 million shares? >> i am a very interested large
shareholder. alix: does that mean the board still listens to you? charif: this is an interesting concept. they fired me, remember? clearly they don't listen to me. alix: do you think this new energy winds up getting bought? charif: i don't really know. first, i would think it is extremely attractive at the current prices. the fundamentals have not delivered and we will delivered five dollars to six dollars a share of free cash flow. that is an extremely attractive proposition today. in addition in my mind, cheniere energy has the potential if they wanted to with the existing site to double the volume of business. if they choose to reinvest the money in the business as opposed to distributing dividends, so that is their choice.
then all have to face that choice until 2018, 2019. it would be an extremely attractive proposition if anybody have the money. unfortunately all the companies i would think of today have their own challenges in terms of -- in terms of balance sheets and ability to execute it when i say that cheniere energy is an attractive proposition, i don't think there is anybody out there with the wherewithal to do it today. be goodth think would buyers of the financial situation would be different for those companies? who was to be an actor in the global energy business, any of the majors, kinder morgan, any of these people would tremendously benefit from the cash flow and the nature of the cash flow, that five dollars to six dollars able cashf distribut
flow is based on 20 year veryacts, so this is a strong, very long-term type of cash flow. ,ith not much variation to it it really is in the range of five dollars to six dollars, and it will not change much. if you're inclined to have -- if youu can take do the work early enough to be i think cheniere energy is an extreme the attractive proposition today. unfortunately, anybody who would have looked at it seriously two years ago has their own challenges with their balance sheets with very low oil prices, so i think that the time is not good to look at this. it will change. in a couple of years, the situation may be completely different. former cheniere energy ceo charif souki. ♪
you one want to update the oil price, moving much lower in after-hours trade him. the american petroleum institute said it rose by 7 million build., a huge we are waiting for the official at 10:30s tomorrow a.m. it is time for the bloomberg business flash. first solar reporting lower profit as the company kept investing in new projects while holding off on selling others. the largest developer of solar from said net income fell.
earnings-per-share doubled analyst estimates. first solar revenue also fell from a year earlier. etsy rising. shares of the company have full and percent since the beginning of the year. investor day at j.p. morgan chase, jamie dimon taking center stage, but another executive who made the news. mr. pinto said the investment bank has in revenue from sales so farding tumble 20% from year earlier in 2016. revenue slumping amidst a global market route. that is your bloomberg business flash. scarlet: "what'd you miss?" not walmart. walmart forecast net sales relatively flat for the year. according to bloomberg
intelligence, target is a different story. it's what the numbers show in today's the numbers don't lie. let's compare share price is good target in white, walmart and orange. target had trailed from 2008 to the middle of last year when it finally took the lead. that convergence almost came to as investorscame bid up walmart as a defensive play. when it comes to retail traffic, target is outperforming its peers. traffic has dropped off the last three and a half years. posted four straight quarters of growth of at least 1%. what exactly is target doing to buck the larger trend. target is increasing its capital spending on technology. it devoted more than half of its capital expenditure budget to its supply chain, spending on stores remains low as target focuses on smaller format locations.
is a formidable competitor. target and walmart have seen online sales decelerate. target grew 20%, but down from 30% previously and missing its own forecast as well. walmart site again of a percent in its recent quarter. and aers are returning focus on style and wellness for bringing back the cachet to target. up, australia pointed to the end of the last commodities super cycle. where is the nation's economy at it now. we will look at the data, next. ♪
melinda cates have released their annual letter on philanthropy. if you could have a superpower, what would it be? we interviewed the power couple and cochairs of the bill and melinda gates foundation. we have more on the latest initiative. >> we see the decline and childhood death around the world. when we travel to the developing getting better for people. we see a rising middle class, so much potential ingenuity, and the headlines here are negative, but you when you look at statistics, life is getting better for most people around the world, not everywhere all the time come up but in general it is getting better. >> better stuff in the letter that is rather depressing.
you use the, edison example, 150 years since he invented the light vault, but when you look at africa at night, you see nothing. you talk about the idea that that's the message to teenagers is that you have to come up with an answer to solve that problem. which particular energies do you put the most amount of hope into? we have 80% of the world using electricity and almost taking for granted the magic idea that you flip the switch and the light comes on and that works. we want to get that to everyone, by so getting the price down better science, better innovation, and now with this constraint that as we add to the energy system, we cannot emit greenhouse gases, so the old ways -- >> you talk about needing a miracle? like thed a miracle
personal computer, the internet, the mobile phone, so we need young people to think this is the science that will make a big difference and are in the money researchit forward -- and development money to drive it forward. just now beginning to talk about that, and we want them to follow three. >> you want to bring electricity to one billion people, kind of let's say the lights go on around the world, what does the world look like in developing countries. is there an education system, health system, jobs for these people to have? our biggest area of expertise. that is what the foundation puts the most money in. there we see improving nutrition, reduced childhood death rates. uplifting a country to become a middle income country,
infrastructure, good governance, those go together. we're trying to make sure that in africa the right things happen to help them get those elements right. >> ethiopia, if you travel there a decade ago, the second largest country in africa, you would not recognize it, rising middle class, people moving to the city, starting to use more tools. in places like tanzania and kenya you have digital money at scale. people are paying on their phone. they are leapfrogging to cell phones, and that has huge power if they can get digital money in their hands. >> the gospel of free trading capitalism, that works is the way. >> if you have good governance in these countries and consistently good governance, then you start to see that rising middle class because they make all the right economic and
infrastructure improvements in the country, and it builds from there. it is bad capitalism and bad governance that has so many people in the united states frustrated. you were inspired by writing this letter by speaking to students in kentucky. what is the message when they say, why not help us? why not improve our education system and help us get jobs? school we were interviewed in is a great example of a school that has reformed. it is called betsey lane and appellation, and we could not be -- appalachia, and we could not be more impressed with the way the teachers are learning from each other. that is a big focus for our foundation. money spent in the united states was entirely goes to improving the education system, and we are seeing some strong points of started fourntucky years ago with these reforms. >> does it not surprising that in the presidential race there
are these outliers who have gained so much popularity because we have a disenfranchise country? disenfranchisee with politics and capitol hill, but when you're out on the ground and talk to teachers, students, about what's going on in their school and is progress, they're feeling better about what's happening locally. >> we were surprised to discover that you not actually america's leading business person. it is a man called donald trump. news.is certainly in the he generates a lot of talk and interest. as ifdoes not look i he's going to get your vote. a good jobdone working with both republican and democratic presidents, president obama has been good on foreign aid and being supportive, george w. bush helped with our aids campaign.
obamaly mccain and contributed to foreign aid and making sure malaria got lots of resources. we have not gotten into the specifics with this one yet. >> one quick thing about the air you focus on, which is the area that has to do with unpaid work. do ande girls and women get paid for. i found that shocking that perhaps the biggest thing of all is, what is the solution? >> we do need a good policy nationwide. we do have paid family medical lead in three states. california led on this, new jersey, rhode island, the tech sector seeing it as a competitive edge. one thing i am encouraged about is that both sides of the aisle are talking about it. there are different ways of getting there we are behind. let's look at western europe. the they have paid family leave for men and women saying you can take time off to care for the
elderly or a childhood i think it makes a difference in the workforce. we want women to be able to balance time at home and work. one of the things i talk about in the annual letter is the fact that there are all these unpaid work that happens at home that we don't even call work around the world. it is. that is one policy thing that would really help in the united states. if we are really headed, at least in the u.s. come into a recession, the research and development spend that you say is so necessary, policy chastens -- changes, could that fall by the wayside when companies need to survive? more negative view of the u.s. economy then i got. sector amazingch innovation. i see in the health sector fantastic innovation, whether it is stem cells, genetic editing. i see in the energy and materials sector real opportunities for breakthroughs.
we are able to understand the basic physics of materials and catalysts. >> it's interesting you said that. view and i have argued about this good you look at energy and we keep on hoping for this thing to come through, and one reason why you called for a miracle is because actually all the things we keep on hoping a really going to change haven't yet come through on energy. energy seems to be an exception. ironically, for the climate challenge, action the been theon area has most innovative, and protecting now that you have slackening demand, cost reduction work they are doing about all the inputs they have here makes the bar tougher for the clean solution to come along. , and because ier paths to an energy solution, the chance we get a new break there in the next 10-15 years as high.