>> live from bloomberg headquarters in new york, this is "market makers." with erik schatzker and tephanie ruhle. >> a global selloff. after chinese shares sink the most since 2009. divergence. according to black rock, that should be a must. we hear from larry think. m&a is big. new scrutiny by regulators

putting the brakes on investment bankers. makers."market and erik schatzker. stephanie ruhle is on assignment. the top stories at this time. stocks selling off around the world. .t started in china the shanghai composite suffered its biggest one-day drop since 2009. index lost 5% after chinese regulators took steps to limit access. loss in 27 years. in the u.s., stocks opened down. they are still down about .7%. a change at the top of abercrombie & fitch. the retailer's ceo and founder of mike jeffries is stepping down immediately. he's been under fire. abercrombie lost relevance with

teenage shoppers and profit has tumbled. the board is looking for a new ceo. investors like the move. abercrombie is trading up more than 6% in a down market. google is telling app developers to think bigger. according to an executive, developers should focus on apps that would be useful to one billion people. google is trying to make ontware work more like apps mobile devices. amazon is testing deliveries by unmanned aircraft. not in the u.s., in other countries. if the faa does not it let test drones in the u.s., the company says it will move more research overseas. amazon is urging regulators to in at fly drones barrel area and washington state. in does -- in a rural area washington state. how does president obama react when people say he is acting king?

he appeared on "the colbert report." he said there are checks on his humility. arehen you are in it, you not thinking about it in terms of titles. you think about how do i deliver in terms of the american people. sasha givealia,and me a hard time. [laughter] they tease me mercilessly for my big ears. >> there you have it. in the meantime, these are challenging times for investors. a change in collateral roles in the chinese repo market sparked a global selloff. next year is likely to be more challenging. that is my take away from the latest investment outlook from black rock. we will be talking about it over the course of today's show. you will hear from the ceo, .arry fink let me introduce my guest has, treasuryher, former

undersecretary and official at .he new york fed it is easy to connect the dots between china, greece with what you have outlined in the investment outlook. let's talk about that. what twice 15 is going to be like for investors. >> we got together our senior investors and tried to think about the year ahead. we realized the base case is challenging to sort out. it is different cases. we know there's going to be divergent growth. the u.s. is picking up speed. the rest of the world is pretty slow. maybe even slowing in japan. of diverging trend markets and diverging policies. we do not quite know the pace it is going to happen at the >> let's put divergence into a picture so everybody can see what you are talking about. it was published today.

you show how the u.s. is growing faster and monetary conditions are tightening. that is a pretty rare circumstance. tell us what we are looking at. >> we have a stylized way of thinking about looking at nominal growth on the vertical axis, real growth plus inflation. and financial conditions, are they tighter to the right or easier to the left. india has high nominal growth, they are easing conditions. china has high nominal growth. they are trying to ease conditions but not too much. a balance from rewinding from their growth. the u.s. is trying to lower real growth. the main point is to see how the arrows are going in different directions. >> why does that present a challenge for investors? >> we've been headed in the same

direction for a long time. the consensus view and all the monetary authorities were easing policy out of the great recession. some of us thought it might happen this year but it did not. now it is coming through into next year. this is harder to get right. the timing matters. thewo cars are going in same direction at the same speed, you know what is going to happen. if they are going opposite directions at different speeds it is harder to figure things out. >> you mentioned momentum trades. is that one of the bigger problems right now, the idea that so many trades are crowded because central banks have been urging and incentivizing investors to move in the same direction? >> yes. we look at our portfolio and saw how much momentum was baked in everywhere. >> in blackrock's on portfolios. ofacross a wide array investment. another challenge, because of what central banks have been

doing comedy market cycle has been ahead of the economic cycle. that has been another divergence. how we lined those of is the question. speed up ornomy will the markets have to slow down? >> the challenge is do we have a contrast between warm and tepid or hot and cold? that is a way to think about the challenge for investors. talk about china. china is trying to make this transition to a domestic demand led economy. the chinese economy in nominal terms is still growing at a healthy clip. not as fast as india. evidence of how challenging that transition is for the chinese. they want more domestic demand. at the same time they do not want to encourage irresponsible lending or irresponsible borrowing in the credit market. >> they've got one of the biggest challenges economic policy has ever had. they have 50% share of gdp as

new investment. no one has ever been there. if half your economy, if you only build the same number of roads and bridges as you did last year, half the economy will start growing. they have to do rebalancing to consumption. complex, the industrials and engineering, that's going to have to wind down. last week we heard about how they were trying to ease monetary conditions. what we heard yesterday, they're going to be changing the collateral rules. trying to tighten on credit in one cents while using in another. trying to rebalance from investment to consumption. >> challenging for china. challenging for investors. at the same time, the outlook pains to note that investor complacency is at a high level. >> we have had a great run, we

thought this year would not be so good in asset markets. this year has turned out to be pretty good. some of what is going on is a bit of a correction. i think we want to put that to one side. judging how hot the u.s. economy is going to be, what the fed is going to do. whether the fed is going to tighten more or slip into it slowly. whether china is going to slow down more, my hot-cold metaphor. then we are going to get asset markets slowing down. investors are going to have to face up to whether they went to take risk off the table or whether they have the stomach to hang on through volatility we expect. >> what you think fed is going to do? hear about their outlook. i think they're going to bring they'rere -- think going to bring down their .stimate of the labor market

if we had a couple strong months , the fed will be on the edge of tightening. they want to do this gently. they're going to be tightening. >> i have to imagine that the time of such a move is a matter of debate inside blackrock. >> it is a matter for all investors. it is inside the fed and for us. the key question is whether they're going to tighten more than is already priced in. the markets have anticipated they will be tightening next year midyear. thinking, if they do not tighten more than the forward yield curve now anticipates, they have not really tightened. they have not changed our expectations. a big question is does the economy pick up speed, it has to tighten more than we are expecting. >> isn't that what ben bernanke and janet yellen have been trying to do all along?

making the fed more transparent and allowing the market to do adjustments on its own. away are still walking from the calendar-based forward economic-based forward guidance. that is the transition from this year to next year. by next year and we hear janet yellen's testimony to congress it's going to be about the economy. the calendar will be off the table. >> speaking of forward guidance, has significant will it be if the fed removes "considerable. period"? i thinkll notice it but we are already priced. >> what is it mean to you customer define it -- what does it mean to you? they do not define it. >> it meant until further notice. >> not the next six months. >> it meant we will change these words before we change the rates .

we've all been anticipating it. >> what would the fed need to do now, whether it is next week or in the next meeting, to change thestors' expectations for central bank's actions, first quarter, second quarter, may be third quarter of next year? >> they will publish next week there forecast of where rates are going to be. that's the first thing they're going to do. around, it will be changing expectations. as i said, janet yellen will testify to congress. that is the big event. >> we will take a break. some breaking news from scarlet fu. >> news from citigroup. michael corbett is speaking at a conference. he says the bank will take an additional $2.7 billion in legal costs this quarter, the fourth quarter. and an additional 800 million in repositioning expense. $2.7 billion in legal expenses

this quarter and $800 million in repositioning expenses. the chargers should cover all the legal expenses that firm is facing. at ais from michael corbat conference right now. down two is reacting, .4%. it was trading at 56.2. $5 a share.elow citigroup has taken quite a bit of expenses. 2n the second quarter, $40 million. these legal investigations are tied to investigations, currency markets, libor or money laundering investigations having to do with mexico. billion in legal

costs and $800 in legal expenses. fornvestors will be looking more detail. they have considered some of those expenses surprises. coming up on "market makers," the roadblock to al-baghdadi -- the robot to emanate. ♪

>> there has not been a year like this for mergers and acquisitions since before the financial crisis. trillion of deals so far, the most since 2007. the first nine days of september. could 2015 b and other blockbuster year? lawyers intop m&a the country, he chairs the practice jones day.

peter fisher, former undersecretary at the treasury department. you have as good visibility into the pipeline as anyone. what do you see in 2015? s absent some external volatility,n activity went down in october when we had dislocation. absent that, there's no reason it will not keep going. interest rates will go up. that really is a pricing issue. it is not an availability of money question. the world is awash in capital. aspect, which i think has been the hallmark of this year, companies getting out of where they do not see themselves to be interest-rate leaders --- industry leaders- and doubling down where they think they have a chance. one thing that is huge, there is a lot of divestiture among big

companies. you buy this, i will take that. committed a deal and then the same day they got out of household appliance. novartis bought two buys and two same day.he there's a lot of repositioning. the market are telling companies you got to allocate your capital . >> why is that a problem? >> investment banks did not gear up for this. we have the same people doing the same amount of work. we are already telling people about the holiday season. you have got to shorten the trips to grandma's house. >> should people, like the fed, bein concerned when they see deal financing. $17 medtronic selling

billion of bonds into the credit market to finance a purchase? >> the fed should feel it is positive for the economy. this is part of the cycle. please want to cash companies want to buy assets -- companies want to buy assets cheaply. this is getting the investment cycle going again. at financingook and worry about whether the towns are going to be too easy. be in the back of their minds. >> they do took a look at that. more to leveraged loans and stuff. >> one of the differences, what i was trying to say earlier, this is not about empire building anymore. this is not i am going to ize.lomerate tie

this is about being good at what you do and giving up on what you are not good at. you can call it a response to activism but it is the new reality. it is not empire building. >> that is happening at some places, like ebay and hp. earlier this summer we saw 21st century fox try to buy time warner. >> the fundamental thrust of things is to get better where you are good. not just put on to it because it is yours. i do not think that this is activism. activism is the manifestation of everything. it is saying be good at what you are. >> the fed is trying to slowly tighten credit market conditions, are we going to see scrutiny constrained deals next year? >> if the market got to where it

got into thousand six and 2007 where coverage ratios were not good and loans were risky, you could see the limitations of that. terms it a decade ago in of highly leveraged transactions. that is not what we are seeing. it also involves the ability to access the equity markets if you want. it is not often that people are doing that because mostly they are buying back their stocks because companies have so much cash available. that is another part of the investor story. you have got this big balance sheet, do something with it. larry fink's letter was all about that very point. >> absolutely. being strategic about what you are doing with your business. that is the healthy part of it. the fed has to look at both sides of the coin. make itwhat will interesting. >> you and i are going to take a break.

thank you very much, nice to see you. one of the country's top m&a lawyers. we will be back on "market makers." stick around. ♪

>> approaching 26 minutes past the hour. time for "on the markets." underway today is a global selloff and stocks that started and stocks that started in china. here is what the chinese did. agency for stock exchanges said yesterday it is not going to allow bonds rated issuersn aaa or sold by rated less than aa to be used as collateral for short-term loans market.epo trying to constrained local governments' ability to borrow.

fallout, thehe shanghai composite dropping the most since 2009. it has followed through to the benchmarks in the u.s. the s&p trading down almost and now a little bit more than 1%. back in two minutes. ♪

>> live from bloomberg headquarters in new york, this is "market makers." with erik schatzker and stephanie ruhle. >> you are watching "market makers." i'm erik schatzker. stephanie is on assignment. my guest host is black rock's peter fisher. we've heard from peter on black outlook for 2015. the challenges of investing into the bull market. with us is another money manager , president of tiaa-cref asset management, which oversees $840 billion in asset management,

mostly for teachers and academics. a pension fund has to be a long-term investor. how does that make your outlook from the, if at all, way peter and his colleagues at blackrock look at things? >> we have a history of being a pension provider. billion wef the $840 have is earmarked. this tend to be long-term investments. a contribution plan meant to retirement. there's another part of our businesses that is a diversified global asset manager with nonaffiliated third party assets. sovereign wealth funds, retail investors and the like. coming back to the core mission of what we are, our core mission has been retirement. it is all not for profit. for those who serve others, providing their financial needs. we take a long-term view.

equities.y into we have been early into alternatives for decades. real assets and the like. we think we do a good job by taking a long-term approach. >> we've been talking about challenges in financial markets. what challenges in the year ahead concern you the most? festiva, peter -- first of all, peter nailed it. i think were going to see choppy markets. we are bullish about the u.s. economy for the longer term. we think there's going to be opportunity with a lot more in europe and asia trying to do the right thing. there is a lot of opportunity out there. term and long-term we are bullish. we are bullish on equities and we think alternatives will play a large role. >> let's talk about monetary stimulus being provided by the bank of japan, by the ecb to a

degree and perhaps more in the months ahead. one thing i noticed in the byvestment outlook blackrock is that the total amount of liquidity has been going down since qe 1. how do you think that is going to play out? due tould the ecb replace what is being drained out of the system or that is not being supplied enough by what is going on in japan? >> the ecb will do its own part. one thing that is important here. .t seems to be happening increasingly, asset managers and other players are providing liquid e themselves. i think about middle-market loans. the kinds of things that the to do.sed we are seeing asset managers provide a lot more liquidity in a lot of markets that banks do not want to do anymore.

that will also be part of the equation that i would mention. >> by a grey. something to keep in mind is how much the bank of japan is doing. this is a heroic effort. they are going -- they are growing their balance sheet more than the fed rbl he ever did. oe ever did. the fed has not told us they are going to shrink their balance sheet. they're just going to fiddle rate.he interest global occluded he is going to be there even if growth is less. >> central banks cannot do it all. let's go back to today's market. chinese stocks selling off, europeans selling off. a followthrough in the u.s. when you look at those kinds of factors coming into play, what goes through your mind?

>> we do not get distracted by noise. we really tend to think long-term. i agree with something peter said. we are going to see corrections. in china there has been a huge run over the last few months. thing in europe, there is some weakness so we would expect some selling. will price declines, which we think are going to be very positive, they will impact the market in the short-term. we are all about having diversified portfolios, excellent investment performance and being in for the long-term. you can avoid the volatility. moving in and out of the markets quickly on the basis of these events is the wrong move. >> we think investors who do not have the risk should bring back their risk. others should try to not adjust. >> until when? if monetary stimulus is not by fiscalhrough

reform, it's not going to work. raise rates and it is not going to upset the economy. >> it is already priced in. it could be earlier depending on a wage growth and who is looking for work. we are looking for a 3.1% gdp. we're pretty positive on the u.s.. we think there could be opportunities in europe and the emerging markets. ,he energy prices coming down there will be winners and losers but overall it is a net positive . >> why question my >> it reduces costs overall. there will be states and certain parts of the industry that will be hurt. a drain onis is economies everywhere.

when energy is cheaper it is generally good. >> what is>> the best way to take advantage of it as an investor? >> diversify your portfolio but clearly commodities. we have an affiliate as part of our real assets portfolio. we have a diversified real assets portfolio. benefit fromn lower energy prices are right there. commodities is one of them. commodities has gotten hurt. you never know when to time it. we've been at a significant downward cycle in commodities. commodities is likely to go back up at some point. we see in equilibrium in oil at $75 to $85 a barrel. we will get there. >> we have a ways to go with crude trading at $63.34. rob leary, president of tiaa-cref asset management. peter fisher is staying with me. we'll be back talking about how

to resolve the fight over emigration. one republican says we should focus on workers with skills. what the labor market itself is telling us. you will hear from him. ♪

>> welcome back to "market makers." i want to recap what is happening. showing you where things stand. this is what is happening in athens. an unbelievable move. it is not moved this month in a has notay in -- the ase moved this much in a single day in 27 years. the government to call elections several months earlier than expected. andr fisher of blackrock former official at the fed is with me. what does it say to you when you see a move like that in greek

stocks and the consequent move we've seen in european stocks? most major indices trading down more than 2%. >> when i look at the greek stock market i think europe is not out of the woods yet. my second thought is we have been through the last several years where we've had these russia's events, invasion of the ukraine, stress all of the world, isis in the have notand markets reacted. that is what happens when providingnks are super accommodative conditions all of the world. when the tide starts to go out, we are at a divergence point where the fed and bank of england are going to be tightening, when we get political events the market reaction is not going to be so benign. maybe that is because of the event or because of the financial conditions. >> it is more the investors en masse coming to the conclusion that whether it is the banking

foot or whatever, it might not be there next time. >> the fed is going to be gradually weow will have to see, that really changes things. >> it is not the actual event that is important, it is the backdrop that has changed? >> europe not being out of the woods is important. they have a long way to go to have a capital markets union. mario draghi is not out of the woods on reviving the european economy. to see a strike in greece -- to see a shot in greece is a little bit about greece and a little bit about background conditions. >> investors are concerned about political instability in greece. should we be concerned about instability in places like italy? yes, in general. volatility has been extraordinarily low.

we have become habituated to ridiculously low volatility. was 1998-2002, the vix about 20 the whole time. we had good and bad years of monetary policy. investors have got to race for volatilityly higher as the norm. then we can decide whether it is the italian or greek government that gets us wound up. is runningeo renzi to there are obstacles to structural reform. we have some obstacles of our own in the usp or president is vomit as president obama is heading to nashville -- we have some obstacles of our own. president obama is heading to nashville. he will speak at a community center that houses immigrate nonprofits. our next guest says the republican congress needs its own plan. he and peter worked together in

the bush administration. now a professor at stanford university coming to us from chicago. you are calling in an op ed for a market-oriented approach to immigration. i will quote you directly. immigrants to come to the u.s. on the basis of family ties, not on the basis of their skills. allocated should be on the basis of occupational need." how? the department of labor >> keeps areastatistics on which have high unemployment rates. it is straightforward to use data to figure out which of the occupations where we had the most need. -- along with

that, the industries that would experience the least depression if we were to bring in immigrants. i would allow us to tailor our green card slots. allow more skills that are needed and that will have the least adverse consequences for domestic workers. >> you use labor department data to see where pressures are rising the most. jobsindicates where the market is most starved of talent? >> it is pretty straightforward. we know that when demand exceeds supply, wages grow. if we see high wage growth in a particular occupation, if you look at information technology you have seen wage growth.

we've had increased demand in that occupation and as a result we tend to see higher wage growth there. take other industries, some leisure-hospitality industries where we've had a lot of people coming in, the pressure goes and the opposite direction. you do not want to bring people into those occupations where wages are falling. you want to bring people into occupations where wages are rising. >> does this make sense? >> i'm sympathetic to the idea that we want congress to do something. it is a great thing to get them to focus on. i'm a little nervous about targeting unemployment rate in individual sectors. want to getd will into the act with the labor department. i am sympathetic to the idea to find a way to increase immigration in a way that makes economic sense. >> based on the weighty political winds blow -- based on the way the winds blow in

washington, do you think this is something republicans will pick up on? >> they could and i hope they will. the economy is doing better. maybe if we do not get too much volatility in the economy and the markets, congress could focus on something important like immigration reform. >> what kind of response have you had to your op-ed in the journal? the positive letters. occasionally i will get hate mail. this has been uniformly positive . i gotten a lot of congratulatory e-mails, mostly from friends. also from friends and people i do not know. it is not just the skills-based asset. there is a proposal for a visa that would be a way to arelarize those who undocumented right now without giving amnesty. that is an important component. the president has annoyed a lot of people, including the republicans in congress, this would be a way around that.

it is consistent with the view that people have done something to break the law but that does not mean the only punishment is deportation. there are other punishments and i would like to see something that is a little bit more supportive of the economic growth for the future. to the pointback about using the labor market to determine where there is on that opportunity or unmet need, demand, for skills? is there any -- you said it is basic economics and it does make sense. are there any pitfalls question my >> the big pitfall people always worry about when you bring immigrants in is what will wages forect on domestic workers. there been a large number of studies. in the a hot topic immigration debate and the economics literature. most of that literature finds

that the effect of immigrants on domestic wages is minimal. to the extent that there is any effect at all, it tends to affect those who have come to the u.s. earlier. prior immigrants are the ones that are most likely to be effective. to reason is that they tend be in the same occupations and the same industries people are coming into. that does not mean it does not have any effect. the concern that people generally have in terms of what will bringing in immigrants due to unemployment rates and wages, that concern is overstated. >> i certainly agree that we should be bringing in immigrants. a little angst about the labor department targeting to precisely sectors of the economy. >> how long a period what we need to study for this data to be persuasive? ofwe look at a short period

time in the late 1990's we might conclude we needed to bring in a load of people to staff silicon valley. three years later they would be doing nothing. >> that is why i want to say we would review this periodically, every three years or so. i would look at the data. the joltsi like is data that gives you information on hires and so forth. the buzz word is stem, science, technology, engineering and math. it is clear that we want people who are mathematically literate. at semi-give haitians like mathematicians, 20 years ago we had in -- if you look at some occupations like mathematicians, 20 years ago we had an influx of

mathematiciansicians. a plumber might have been a more valuable skill. we want to make sure that the kinds of skills we are allowing nts new green card entra will reflect the market realities. i like data-drivenstuff. i think this would be the best way to get at the real statistics rather than the abstract. >> the debate over immigration policy is so full of reactionary jingoism. it is nice when someone comes to the table with concrete proposals. we encourage the debate. edward lazear from stanford university. my guest has for the hour, blackrock investment institute's director peter fisher. we will be right back on "market

makers." a selloff is underway globally. we will tell you more about it and why it is happening. ♪

>> a 56 minutes past the hour on bloomberg. it is time for "on the markets." what is happening at citigroup. trading down almost 2.5%. companycorbat said the is going to report $2.7 billion in legal expenses in the fourth quarter. plus $800 million in additional expenses for repositioning here that would include headcount, job reductions as well as some realions concerning estate. citigroup has been trying to rationalize its real estate footprint. citigroup has been shrinking under corbat.

giving investors a little bit more runway. "market makers" will be back in a moment. stay with us. ♪ . .

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. a global selloff in stocks. a sea of red, pretty much everywhere you look. teenage leased land? abercrombie & fitch lost its mojo and now the retailer has lost it ceo -- it's ceo. and we speak to the world for .argest money manager that will be blackrock's larry flynt. stephanie ruhle is on assignment

this week. we have to start with the selloff. a big selloff. china shanghai, following the most. it moved on to europe -- 2% drops and more in some of the larger indices. partly due to what is happening in greece, a pullback there. government moved up a scheduled presidential election. it is being called a snap election and some suspect it could lead to the collapse of the current government. worried that the opposition could take power. indices,e benchmark the s&p 500, the nasdaq, the dow jones industrials, down.

where do you want to start? >> the context once to be set up here. stocks have done very well. this is a pullback, not a collapse, particularly in china. i know that this is the biggest you since 2000 nine, but if looked at how well the shanghai , butad done, -- since 2009 if you look at how well the shanghai comp had done this week -- >> from a 35% run? >> yes, put that in context. >> 35% after a 5% drop. at >> we says people are pricing in more the bank of china. they are not sure if china has

changed its policy overall, but this is not a complete collapse. >> i am here for the collapse. the collapse is on. we have a bigger drop in the equity benchmark index for greece than anything we've seen since the financial crisis. that is notable. this is not supposed to be a very controversial election in greece. he needs a new president. it is a very ceremonial role. are considering the debt crisis rearing its head. and there is the key comments off "high frequency economics" from carl weiner -- >> [indiscernible] being the opposition party? buthe opposition party, pro-euro.

they are expecting a big haircut by spring. those things will be set back in their capital adequacy by this will stop the eurozone ministers meeting yesterday gave them a two month extension on the bailout to try to turn the -- change the terms of the credit line. >> let's go to the chief strategist at -- hang on. let me get the firm. >> stansbury research. at what isou look happening in china and greece, and what message does that send to you? >> you have covered it exactly right. it was a 5% fall in china, which was extreme, but with the lead off the big numbers, china is built up 20% just this month, even after the 5% fall. i am extremely bullish on china still. the story is relatively clear

is heavily driven by retail investors at this point and the important point bear is china -- the important point there is china is owned by global investors. global investors still do not love the u.s. markets. is plenty of upside. there is plenty of valuation there. even though we have seen a correction, as she talked about, there has been an incredible run. i believe this is a short-term correction and there is plenty of upside in the china-asia market. difference between a day like today and october 15 when we saw the 10 year plunged 2%? i think in, particular as you were talking about -- the question is, is this going to spill over into the peripheral markets?

will they catch a cold and the others catch a cold as well? right now that is not happening, but that is the turn stop we are extremely bullish on europe. if you think about this -- the euro stoxx 50 index, the benchmark index of europe has a 4% dividend yield right now. meanwhile you see a yield of less than 1% in germany and less than 2% in the peripheral countries. i'm extremely bullish on european stocks and i think today is an opportunity to take advantage of that. focus on the core, focus on the euro stocks the -- euro stoxx 50, which -- as opposed to the peripheral, which people may start to question. >> spanish stocks are down 2%, as we pointed out.

greek stocks are down 3%. would you want to wait for the smoke to clear? even if you take a by option --buy, for portugal, you could sell even more? traitor --more of a trader mentality. chance for a bernanke bubble. throw the kitchen sink at it. i know it is questionable how much of the kitchen sink they could throw. with valuation this cheap relative to bonds, it is dangerous to try to pick the exact day. these valuations -- 4% healed in stocks versus 1% or less in bonds, it is really a no-brainer. y 4% healed in stocks -- 4%

ield in stocks. spanish, italian bonds notes, they are creeping up in sympathy with what is happening. the fundamental issue, greece is still not fixed, no matter which party leads the country. the debt burden has almost doubled since the crisis began. >> right. i think we're seeing a lot of fixed situations in europe, and that is why i am concerned. to be a heavy buyer of italy or spain. i think i would much rather focus on the core as opposed to the peripheral countries. because how many other countries are unfixed? we do not know the answer to that. meanwhile we have incredible opportunities in the core. >> i want to bring another ingredient to the driver for stocks today.

federal reserve considering changing its language at the meeting next week, dropping terms. does that mean that bad news will be taken as bad news and no longer as good news? that could be a driver here. i wonder, steve, whether this selloff will continue until we get clarity on this front? a huge point,t is but i think people have not done their homework on this. i hate to come across as being bullish on everything, saying i am long on china and europe, but i will tell you i am long on the u.s. raiseswhen the u.s. interest rates, investors are very careful of that they arriving. it is over, the good times are over, we can't make money now. history tells a very different lori. every time the fed has been in a rate rising cycle, stocks have gone up while the fed was

raising rates. the homework is easy. it is easy to go back and look at the last three decades of history and see stock prices fed -- goo while the up while the fed is considering. look of the last three decades or we could look at friday and all the jobs created in november. much, thank you very chief strategist at stansbury research. and thank you very much, olivia sterns and scarlet fu. coming up -- you will hear from greatestf the world's money manager, larry fink off blackrock. ♪

come toood things must an end, right? stop selling off big. up 10% on the year, enjoyment of the bull run. may not be quite so good a time. we sat down for an it was served interview with larry fink -- for an exclusive interview with larry fink. rates will continue to be suppressed. i think ultimately equity returns will be somewhat muted. you will not have that disparity between the bond returns and 10% equity. but i do believe -- i believe there is a 20% risk that the economy does even better and three --tes will touch

10 year rates will touch three, in that range. when will the consumers start feeling it? feeling that they can afford to consume? one thing i am certain -- from all the conversations i have had with ceo's from retailing, the retailing that came out this they believe it was entirely wrong. just bad data. i have heard that foot traffic was marginally better, not a half a percent lower, and retail -- >> you believe the consumer is stronger? >> i believe what we are seeing, what we are witnessing in oil, we have the oil transformation because of technology. technology is chris warming consumer behavior -- transforming consumer behavior.

we do not need to wait until a thursday or friday of a weekend to buy things cheaper. things everyeap day. all the retailers know the internet is becoming bigger and bigger. i was talking to one of the blackrock partners, and he told me on the airplane, paid for wi-fi on the airplane and did all his shopping, on an airplane, flying. >> this is about habits changing. .> this is what is so fantastic we are using past traditions as a means to assess the economy. it is entirely wrong. optimism. >> i am optimistic. me, is the big surprise for despite my optimism that corporate profits have been keeping pace.

giganticot seen a 's.rease in p/e we had a gigantic equity market. we are fair value to modestly above fair value today. we are not at the levels we saw in 2000. 's are not seeing the same p/e where you had true bubbles. >> what concerns you then? >> i have a lot of concerns. >> what concerns you the most? >> i believe we have moments of severe volatility like we saw on october 15 and the market had a couple hours of pure havoc. a large hedge fund, took some substantial losses. until we navigate our markets toward more electronic trading in the bond market, we're going to see these events.

i think it is up to our .egulators to focus on this i have been telling them and private rooms -- in private rooms we have transformed the banking system. i believe the banking system is much safer than it was two years ago. for the safety, their ability of holdings balance sheet is quite diminished because their capital charges or higher, the ratios of different, and under the volcker rule, they cannot hold it unless it is for proprietary business. >> the shock absorber is gone. >> be total shock absorber is gone and it is getting smaller. we see more and more institutions reducing, still reducing their balance sheets, even today. that was larry fink, the ceo

of blackrock sharing his outlook for markets in the coming year and some of the risks he sees. we will return to part two in a few minutes of this break -- mike jeffries. he is out as the ceo of the one-time hot teen retailer abercrombie & fitch. stick around for more on what the next iteration of the company may look like in a few minutes. ♪

>> big news in retailing this morning. abercrombie & fitch ceo mike jeffries is out. the clothing chain, which clearly lost its relevance with teens.

been pointingve out, the stock is trading higher. investors looking for something better without my jeffrey -- mike jeffries? isthey do not know what it going to be though. they pushed him out without a replacement. they have only now engaged the services of a firm to find his replacement. announcing his retirement, but the pieces have been in place for him to depart the company for some time. activist fund has pushed the board to make these changes. they had two new brand presidents of hollister and abercrombie. there are all of these changes in advance of his departure. all that was left was for him to actually leave. there are a number of curious hengs about the way in which

is leaving. first, the timing of his departure. i mean, christmas is around the corner. christmas is the biggest time of the year for these guys will stop you have to ask, why would it not be done after the season? >> i might suggest that their christmas strategy is fully baked at this point. dothey were going to anything differently between now and christmas, it would be because something is not working. third-quarterhe numbers from abercrombie were not good. >> the stock was down something like 65%. here are the comparable sales we've seen for the past several quarters. it has been decline after decline after the client. perhaps the board knows that the sales for the holiday season thus far are not looking strong, so they may not get out ahead of -- so why not get out ahead

of it and get rid of him now instead of later. find as not easy to competent, capable ceo. >> no, it is not. definitely not. hey, look at the running room they are giving the new ceo. they are giving him quite a long time -- >> mike jeffries is gone as of now? >> correct. as of now, as of a month before christmas. about whospeculation will replace him. aboutis no speculation who would want the job. a lot of it is teen retailing and what we have seen. the world of fast fashion. in many cases it is cheaper,

taking over in terms of spending. logos are out, right? shopped there are no longer shopping there. the same thing is true of american eagle and era. ropostale. this is a whole sector that is troubled. to stepoing to want into the breach here and repair that? what would you do with abercrombie? >> is there anyone doing it right? in retailing, is there anyone doing it right? >> h&m and forever 21. >> h&m, most of the fast fashion retailers look yonder teens -- beyond teens. >> they do.

piece before the holidays, hollister changing the look of their stores. which is one change. >> one change. will it revive the brand? i am doubtful. thank you. we will be back with more of larry fink. ♪

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> welcome to "market makers." i am erik schatzker. stephanie is on assignment this week. a few minutes ago you heard blackrock ceo larry fink tell me that he thinks the biggest risk for investors is illiquidity in the bond market. not just illiquidity in itself, but the inability to buy. imagine what that would mean for prices and a stressed involvement. think of a falling knife. he told me why he thinks it is so important for regulators to get this message.

are going to if we have regulators, whether it is the federal reserve, the financial stability board, our regulators need to admit we have echo system of bonds, and yet we are seeing regulatory pressure to change the market. what is interesting -- on october 15, equity markets were fine. i am not trying to suggest we do not have flash crashes, but those are technical glitches. >> you think this is a systemic issue? >> i do. >> are the regulators talking about this? is this your number one concern? >> my number one concern -- i have not seen action yet. i am absolutely convinced we will have a day, a week, two

weeks where we will have a dysfunctional market one day, and i do not know what will trigger it. and it may not happen in the next six weeks or six months, but i am sure it will happen in the next year or two, maybe sooner. >> but it is a different kind of crisis, isn't it? not a mortgage crisis. no, like october 15, you will see the markets shift down and shift down and it will create uncertainty again. createhat type of market economic instability? you just do not know until you see it. be frightened for those few hours -- i came out that guy -- came out that day, and the markets were up 10ish since that

day. but we will have that moment. the regulators will admonish the world and force more regulatory issues. i believe we can fix this problem now by enforcing more .nd more of the changes now >> in corporate bonds? >> yes. corporate bonds, high yields. what does that mean? keep in mind issue worse. they like to have flexibility. 100 flavors of ice cream. what this ultimately is going to -- we are going to have to have more continuity between issuers and types of products, maybe maturityibility around date so we can have a more fungible market. market comes after illiquidity? what is concern number two? >> this is a very uncertain

world. we have probably more global instability than we have seen in a long time. we weree cold war, living with a very, we thought, pro-global trade -- but we had a russia that was cooperative to that notion. obviously we have learned they are not as cooperative as that. and that is a big change. probably the most significant change in my mind as we think about the world. the uncertainty in the middle worse, buttten much we have dealt with uncertainty in the middle east unfortunately for too long and too far. the greatest uncertainty i have about the world is going forward -- and this is going to create all of the volatility -- we have a depend on abe to find again

benomics. we have the central bank doing a lot of quantitative easing. are now in the second year of chinese transformation of their 10-year plan. see how that is playing out. an exciting new prime minister of india, who ran on the social platform of reform and breaking down the bureaucracy of india. in italy whoi talked about reforms in italy, we arere now beginning. expecting some action out of germany and out of france. we have reforms in mexico. and then we have the u.s. , hinging on various things, whether it is

immigration or tax reform or trade. have greatt uncertainty going forward. five majorhave central banks trying to stabilize a world, like they have been for six years. they did all the work. rates are so low, their job cannot have the same impact -- as whenly in europe -- we had great volatility, very a mismatch had between demand and supply in so many different areas. are going to have to unfortunately -- or fortunately depending on how you think about it, we will have to depend on politicians to do these reforms .r rebuild the local economy that will create a lot of instability, as we are witnessing the last few years. democracies are as messy as we can all remember in our lifetimes. >> that was larry fink, ceo of

blackrock, sharing with me his view of challenges that lie ahead for 2015. when we come back, where is your publicest but to work? markets are private markets? we will take the question to the chairman of blackrock for all flash -- blackrock. ♪

out with itsis investment outlook for 2015. we have been talking about it all morning. you have to be careful how you take risk. that is the collective view of 120 blackrock money managers. some of it reflects the view of the roughly $4 trillion they have under management. of the alternative investors gives us lots to talk about this morning. the investors, the pension

funds, the endowments, the sovereign wealth funds -- what are they asking to do? >> this is very uncertain times for our institutional clients. we have a volatile world. i think more than anything, what claims are turning to blackrock for is our insight on what is in the world. they also want to see their money in motion. our index business as well as alternatives five from, we are willing -- we are able to see money in motion early. that is what it is about. again,do you expect -- no one is calling a bear market for 2015. .ell, some people are of course blackrock is not calling for a bear market in 2015. they are calling for a challenging market.

have you expect these institutions to behave if we were to encounter -- how do you expect these institutions to behave if we were to encounter another series of stretch markets with exacerbated volatility beyond what we saw in october question mark something beyond? message to ource clients is obviously to look e.on short-term volatility. we are looking at longevity. yields are at an all-time low and that continues, but we must think of the future. what we are telling our clients is to look at the short-term volatility and perhaps the seeelation, where you longer-term opportunities, so you can get growth match between assets and liabilities. and in particular, you get to the insurance world or these pension funds. that is where we are favoring real assets, because we think that makes a more balanced approach to inflation that can

generate the right sort of yield. >> is there enough opportunity for all of these institutions at once to reallocate into alternative asset or real assets, things like infrastructure for example, or real estate? >> there is no shortage of capital, as you mentioned. what we need is governments and policymakers to really think about what they need to do to attract private capital into the markets. we've look at the changes seen since 2008, the credit .risis, banks have pulled back there is a gap in terms of the demand for infrastructure. we see that in the u.s. all the time, but also capital. it is patient capital, and that is very important when you think of the longer-term infrastructure. >> so>> -- so your clients want that longer-term infrastructure?

out, it isointed difficult to make infrastructure investments in that space. not just the developed world or emerging markets. all markets require infrastructure. >> we need airports, highways, and the like. bridges. even governments themselves, they find it difficult to finance the massive road in urbanization, in middle-class demand for housing, the demand for -- you look at markets like india and china. there is massive demand for infrastructure there. then of course you shift over here and you are absolutely right. you look around the u.s. and you can he be need. it is evidenced everywhere. whether it is airports or roads, whatever. >> these investors can afford to make investments in illiquid assets.

but what we're hearing consistently here, if we are going to sacrifice liquidity, we want to get paid for it. are these returns going to exceed the market returns for five or seven years in private equity, or 10 to 15 plus? >> no. the yield, you're absolutely right, is very important. allocationditional rules have proven to be wanting. they are going to have to look at how they rebalance the portfolio not just to get the right amount of yield, but also the right majorities on the asset allocation curve. that is why real assets have become very attractive. i think the projects you are looking for -- here in the u.s., we have a lot of capital to go and sobuilding sites, forth, which tells you we are willing to take the risk to put

the money to work, but to your earlier point, we need to find the right product. >> how do you measure the blackrock asset business? >> we put our funds and hedge funds as well as real assets. see, howthe demand you do you expect that to be in the future? >> we will be larger. we are not really in the business of protecting what the size will be. our clients are coming to us for solutions will stop they want a range of exposures to alternatives. we want to have a range of options whether it is private equity or opportunities and parts of the world where we see a more immediate need, which is an too asset infrastructure and real estate. that is where we put all of our energy. >> thanks for joining me. nice to see you. mark macomb. chairman of blackrock

alternative assets. we are taking a quick break. lots going on in financial markets. ♪

>> we have breaking news out of washington. scathingst hour, a senate report on cia interrogation techniques post-9/11 has been released and thereleases health has been subject of controversy, dividing lawmakers on capitol hill. that is where we find peter cook this morning. peter? landing like ais bomb here on capitol hill. dianne feinstein, the chairman of the senate intelligence committee, the main driving force behind this report and its released today, which has proven to be controversial in and of its. let me tell you -- in and of itself. let me tell you what it says. looks at cia interrogation techniques after 9/11, that time

right after 9/11 in which several people were questioned and detained by the cia. as the report concludes, harsh techniques were not effective means of having information. interrogations were brutal and worse than represented by the providedthe cia inaccurate information on the program and oversight of the program as well. the minority report, being produced as well, defending cia actions. you have a number of cia officials, according president george w. bush, opposing the release of this report, saying it may be harmful to american serving abroad. much more on this later today. >> thanks very much. our chief washington correspondent peter cook.

republicans and democrats divided over the release of this report on cia interrogation techniques. "market makers" will be right back. ♪

>> that is going to do it for today's "market makers."

the head of have asset allocation on the day after the global selloff on stocks -- we don't know. it could continue into the night. asia and trading. we are seeing declines of about 1% right now. --is 56 minutes fast the past the hour. that means number television is going on the markets. here is scarlet fu. >> it is actually a global selloff we are seeing inequities. china in particular. at itsna shanghai index lowest level in five years on news that it is tightening lending. also concern in europe. the asc indexoil, plunging. investment the chief officer at recon capital partners. kevin, we are seeing volatility. >> we are.

yesterday on the s&p 500, you beinge number of puts bought versus the amount of calls, and what is really dealssting -- the investors were bridges abating inward december, signaling more volatility, and looking at the marchex for he is well. that could be on the back of the strong dollar. >> where you looking for the source of this volatility? for so long we have looked at the credit markets and oil prices, but it seems limited to equities this morning. we thinknd one reason it is constrained to equities -- if you look at energy, the target comes down to a lot, and retail has not really performed this year. if you look to the last six months, what have been the performers? health care and technology. ok, do you see any extra activity on citigroup after they

announced they would the portioning more money for legal investments? >> what is interesting -- some they areanks -- outperforming as well as interest rates rising. >> we will keep an eye on that one. we are also watching abercrombie & fitch after the breaking news this morning that they will be replacing their ceo. upt stake -- that stock is almost 28.11. is veryptions market mixed and implied volatility is extremely high. the stock is up 36% compared to the marketsector, so does not see this is a true sign it will rebound. performance in question will get longer until they get that new ceo and a leader to implement changes.

whatin to us first of all this etf covers and what you are looking to make a trade in this space right now. >> this etf covers the nasdaq 100 and going back to be leaders in the market right now, it is really technology full. they are year over year of 25%, the same in by wear and hardware. >> a lot of momentum. >> a lot of momentum there. you even have great retailers like whole foods as well as costco. constituents for apple, qualcomm, intel. >> ok, what is the trade? to buy the stock against the volatility and sell the january call against it. premium.enerate a 115 >> you can see the loss is much larger than the potential profit. >> yes, so you are buying the etf here and then you are

positioning, hoping it does not move down much further, because these are names that really performed. over theok at the qqq last year, it is up 18% compared to the s&p 500, which is only 11%. >> that is quite the outperformance. is next with olivia sterns. in the meantime, we are keeping an eye on the equity markets. ♪

tielug into "money clip" we together the best stories, video, an interview in business news. larry king's -- everything -- larry fink's bet. abercrombie & fitch's ceo steps down. republicans on a roll. getting more popular. the brains behind apple's 1984 super bowl ad. a holiday sugar high