♪ anchor: welcome to a special edition of the bloomberg market day. i am alix steel. ♪ alix: anyway you slice it, it was a down day for stocks. you are looking at a now that had its worst two-day performance in over a month, and the s&p had its biggest active back loss in weeks. i should point out for those of you who love those moving

it did it's 100-day moving averages, and on the dow jones transportation average, it had been getting some kind of indication it wanted to move higher last week, but there you see it, ending in the red, off about half of 1%. and there goes the dow. with me is the bloomberg markets managing editor. editor: it was actually much more dramatic. about 200, andp then it got a little quiet, and it could have been worse. alix: part of the story, we did have some m&a. we had it in the pharmacy sector and also in the health insurer space, and these were some potential deals. kind of like a love triangle. you have cigna and aetna, digging for humana, and you also have and some, who once cigna. looking foring up

cost cutting and how to grow their margins, looking at the affordable health care act, kind of rolling out. the enrollment numbers are not going to be sky high anymore, and that will have an effect on the market too. joe: bringing the market's down once again. you know, this is supposedly a crucial week for greece. it seems like they need to get a deal done, but this weekend was supposed to be a crucial weekend, and not only did they not get a deal done, they wrapped up their talks in about 45 minutes. the rhetoric is pitched alix:. we are still going nowhere. from -- thethe note rhetoric is pitched. we are still going nowhere. have been making this point for weeks, that it is all about the power. if there is no deal, there is no government can

work out, and guess where he is going? russia. potentially, he will meet with vladimir putin. joe: one of my favorite things i read was actually a tweet from a former ubs economist, and the concept was that they put up a post talking about reforms and reduction of the primary surplus, and macinnis -- magnus is having nothing with it. it is not about details. it is about power, winning. he they need to show that cannot get anything from standing up to them, and needs toy, tsipras show he had extracted something from the creditors. the money is irrelevant. french president françois hollande said they are getting closer to a deal. they are getting closer and closer, but, still, the rhetoric continues.

the asset management, investors are going to pay more attention to the possibility of the downside risks associated with a potential default. not that it was not there before. now they are like, oh, yeah. joe: there might be a hint that there is some nervousness. meanwhile, another is saying there is so much money leaving the greek banking system even now before any default, he does not see how they are going to be able to pull it off. about otherking things moving the stock market, we talked about m&a, and this came out yesterday, so kind of on the radar. california home builders, standard pacific and another group that are going to be merging, although at the end of the day, it is kind of like standard pacific buying the company, and i think it will be the fourth biggest homebuilder in the u.s., and on the conference call, the standard pacific ceo said the risk would be that we do it too late, so it

is really for looking for that scale. kind of a grind higher. joe: speaking of the home builders today, today we got two and it isata points, pretty mediocre. the economy not coming back in the second quarter. and then we got a survey of home builders, and basically it is how optimistic they are. homebuilders are getting more and more optimistic. know, if youas you look, i think we have a chart of monthly housing starts, and what i love about this chart is we are still basically at the lowest levels ever. bottom, sothe very america is really under. we have a lot of catch-up to do after the collapse of the crisis, so even if we get this slow economic growth, there are

so many houses that you can understand why some are being more optimistic. and you can remember that didcanadian -- hovnanian not have a good quarter. looking for to those numbers in a couple of days. i want to bring in our awesome guest, kevin, a portfolio manager, and lisa abramowicz it from bloomberg. hi, guys. happy 5:30. i want to talk about stock valuations. coming out with a note this morning, talking about what kind of correction is in store for stocks. 1351 days without a correction. what do you think? soin: we do this every often, and we just put out a revised down lower expectation parthe equity gains, and of it is exactly would you are talking about it.

we have had a very long run without an interruption. when you look at valuations, not only are they ahead of where they have been historically, with the price/earnings multiple, for example, it is a little bit ahead of the historic average, but at the same time with the margins, companies are very profitable. so if you were to fix both of those things, you could have a pullback. lisa: one thing i am looking at is a leading indicator for the stock market, and we have seen a pullback in the past couple of weeks, a one percent decline in the month of june. we also saw two point $6 billion in outflows last week, so this is sort of suggesting there is weakness, and it is actually much more fundamental in high yield. my question is will this trickle into stock valuation. it is about a three-month lag. that is one question out there also. joe: basically a lot of what

lisa said. can stocks be this area of tranquility with all of these other asset classes, people worried about volatility. theytocks sale along like have been? kevin: i do not think they do, but it has been like this for quite a long time. if you look at a longer-term, 80 a5-year or six-year chart -- maybe a five-year or six-year chart, it is a very unusual thing. there have only been a couple of times in history where this has happened, so it would be natural to expect some choppiness. consequently, looking at the portfolio, what we have done is take down some of the higher names. only to reflect valuation concerns but also some of the things you are talking about. frankly, the economy is just not that strong. so we have been a bit more cautious coming into the year. lackluster.a bit

joe: one of the interesting calls of the day was from bank of america, saying the biggest risk to the global market is not tightening, even though that is what we talk about almost every other day. it is the extreme unlikely scenario are the fed would have to totally reverse course and have to do more qe. lisa: i have some thoughts on this. is not that, it outrageous, and it is not as out of left field as you would think. basically, the u.s. economy will be so weak that the fed not only will have to engage in some other additional stimulus, which is a huge problem, as there has already been 4.5 trillion dollars of stimulus. it has got diminishing effect the longer it goes on. do we really need more stimulus to get this economy going?

we are in bad shape. $640 billion that has been withdrawn from sovereign debt alone since april. i want to play for you what someone said about how ugly this can get. the bond markets are the area that worry me the most, which is if there is any mass amount of markets,ing out of on how do we find that? how do we sell that in ap period where liquidity has really dried up. do you agree? are you as scared as martin gilbert is? kevin: there has been some concern. it was suggested

there was a lack of liquidity in the bond market. some concerns about liquidity, that makes sense. the other thing about the qb that the market does adapt, and we have been through several of these. to come with more qe, as the economy gets weaker, the market has seen this before. so the surprise factor is gone. lisa, what do you make of this whole idea that he talked about that his fund is actually opening up a line of credit so we can meet redemption in the midst of panic. that seems like a very unusual thing. lisa: it is not that unusual, and earlier this year, black rock and other asset managers to same thing, where they increased their credit line. sickly, they do not want to be stuck with assets below market values when they have to make redemptions. that is key. thank you, lisa.

jo. kevin, stick around. we have much more to talk about on bloomberg market day. ♪

welcome back to the bloomberg market day. i am alix steel. going right in the headlines, jeb bush has formally announced his presidential candidacy at miami-dade college and officially became his party's 11th candidate to launch a white house bid, and he also said he is ready to take on the status quo of washington. presidential candidate jeb bush: we do not need another president to pander to the elite of washington. we need a president to disrupt the culture in the nation's capital, and i would be that president.

his biggest hurdle may be his own last name. what a 2% of republicans and independents said they would never consider voting for bush. says it is closing underperforming stores in north america as part of a comeback plan for the struggling company, which has posted sales declines for five straight quarters and lags behind sister chain old navy. two hundred 50 corporate jobs and say 140 stores will be shuttered at the end of the fiscal year in january. full priceve 500 stores and 300 outlet stores in the region. surged afterres there was talk of a takeover. companies have already reportedly had discussions on the matter. also considering a bid from humana. and no movie has ever taken in half of $1 billion its opening

weekend until now. "jurassicstudios' over $200k in million, that is only the second time that has happened. and a portfolio manager is still with us, and the big elephant in the room has to be china. we are looking at chinese stocks rising over $10 trillion for the first time. what do you make of that? very larges a number, and it is a very different kind of economy because it is a closed economy. we also see that saudi arabia is opening up also, so one of the big themes this week, in addition to talking about the federal reserve is this idea at we have a very large economy. china and saudi arabia. the point where they need to merge more with the global economy, so the idea that we have a $10 trillion market in china is not terribly surprising

, given the underlying economy, but they have got a long way to go in terms of opening up their economy, and there is a lot of volatility that will happen along the way. i was reading the valuations are the highest they have been in five years and that there is a lot of debt and leverage in the stock market, especially when you have gdp at its weakest since 1990. can you have this arming, can you have higher valuations and a lower gdp? at what point does that not work? kevin: this is a very different thing than what we are used to hear. their options in terms of investing are much more limited than what we have here. so one of the places the money has gone has been directly into the stock market. you mentioned margins. what they are coming up against is the fact that we have had such an explosive rally. i think the market is up more than 100%. i think something like 125% over the last year or so, and you're

right, much of that is borrowing and speculation, but that cycle is very common for an economy that is taking a larger place on the world stage. what also really stood out to me is that foreign investors are singing a little bit of a different tune. we are very big outflows, about , and china billion is a big part of that though it is not all china. what you make of that? well, emerging markets really have turned the other way. you could not get enough on emerging markets. that was where the growth was. commodities played a big part of that. this, other side of however, it has been very difficult. are some significant ties to the european banking concern increases around greece, for example,

naturally we would expect some spillover in the higher volatility areas with emerging markets. think this is change that is structural or cyclical? i ask that because over the weekend, they were saying that the market and policy makers others is cyclical, think it is structural, and there has not been reform. heaven: yes, i think that is a theme that plays out. for europe, you have a sip of because it currently has come down. when you got what is going on current where there are even bigger structural hello, the fleet fro -- -- free flow of capital. the bigger picture is that large economies much -- must become more integrated to succeed. thank you so much, and it was good.

thanks for coming kevin caron. coming up on bloomberg market his hank greenberg and trial, but there was no money awarded. we reaction, coming up. ♪

welcome back to the bloomberg market day. i am alix steel.

hank greenberg won his argument to hold the u.s. accountable but was awarded no money. he spoke earlier on bloomberg television. hank: obviously, the litigation has been a big overhang on the stock. headline risky of was something keeping a lot of people on the sidelines, and obviously, the judge had a very difficult path to walk -- josh: they had a very difficult path to walk. practicality,r and if you all remember what september 2008 was like, there were a lot of decisions made very quickly, but in hindsight, their work was jens. he found a very practical balance, which, ultimately, i we are very happy about, but sort of as a practical observer of the markets, having done and awful job.

josh, they said that the rescue was legal and esa's. i was wondering if we could get your reaction to that news. measure,hink by any you would have to say that the aig rescue was effective. a mitigated question. the courts have spoken. it is shocking to think that the treasury and the appeal does not happen. obviously, the government has to have some degree of flexibility with respect to failing financial institutions to be a look to act appropriately in times of national crisis. usually, the courts will support a government that thoughtfully does that, and i think here you debate thisctfuly relative to how they treated other financial firms, but ultimately, if you were there in 2008 and were trying to solve the problem, you cannot go back and renegotiate these things.

i am personally sympathetic to their position, but the courts have spoken. anchor: was his goal to make any money, or was it just to make that point? josh: i think aig thoughtfully decided that its future was in focusing on the core business of being a great global insurance company, and ultimately, i think they had a legal obligation that they had to seriously consider whether or not to join this. forher they would be open damages themselves should greenberg win, but aig has been doing everything they can to distance themselves from the fact that they were so close to the financial crisis. if there is one thing that is exciting for them today, i think this is probably the last of the financial crisis legacy headline said they will have to deal with. mark: josh, we have about 30

seconds. i have to ask that many times the government has tried to get this case dismissed. of giving fact, and the case more credibility, more legitimacy? is right, butthat i also think from all of the reporting and all of the documents that came out, it was a difficult case to defend because of all of the documents from the treasury and fed lawyers that came out, and ultimately, i think the council on the side of the plaintiffs did a good job of painting a story. they placed a lot of the emotions of wall street and the greater country about whether or not the bailouts were fair and whether we as a country want to support bailouts of large financial institutions. was josh talking about hank greenberg and the $40 billion in damages for shareholders. well, thank you so much for watching the bloomberg markets day. i am alix steel. have a wonderful evening. we will see you back here tomorrow. ♪

>> from our studios in new york city, this is charlie rose. we begin tonight with iraq. president obama authorized up to 450 noncombat troops to be sent on wednesday. theill include training local iraqi security forces against isis. the troops will be a in an bar where isis has made territorial gains recently. president obama admitted the u.s. did not have a complete strategy to beat the group.