cory: this is a special edition of the bloomberg market day. ♪ matt: want to begin with a brief recap. take a look at the equity index, down 588 points on the dow. the s&p closing down almost 4%. looked a lot worse

this morning. 1000 thiss off morning but recovered to a loss of only 100 points at midday only to fall again into the close as margin calls forced traders to sell stocks. take a look at the close of gold and oil as well. oil has really bring the big story. you can see it bouncing around. $38.26 per barrel. following, -- falling, $42.69 per barrel. that's a huge drop in that is currently closed for trading. gold futures, curiously unchanged or little changed. 1154.60.

you would think investors fleeing first they've are havens would look to gold. that did not happen. you would think they would look to the dollar as well. that certainly did not happen. i think one of the most interesting stories of the day was the weakness in the dollar. the dollar index was down at one point 2.5%. the biggest drop since march 2009. $1.15 for the euro. morning asg dip this many people were looking for liquidity and more likely, people expect the fed not to raise rates in september. let's get more insight on today's wild ride on wall street. now.eisenthal joins me i wanted to ask you, what do you expect for tomorrow? first off, with currencies. wild swings and big moves that

were counterintuitive. joe: that is the most extorted aspect of today. that initial plunge coupled with a really fast rebound was wild, but also those currency moves, you just don't see that very much. there were 5% moves in the dollar versus the yen or versus the euro. that is the story we will keep watching. people were so bullish on the dollar a few weeks ago. the u.s. economy is doing well, the fed is going to be the first major central bank to hike rates, you have to be with the dollar. that view thatl, the fed is going to go in september has really changed and now very few people think a september rate hike is going to happen. matt: and nobody was positioned for that. what's interesting is gold. i have amassed a large amount of gold bugs. joe: i thought you were going to

say you have amassed a large amount of gold which would not have surprised me. i am sure you have these gold bugs that e-mail you with the most negative news. they seem almost desperate for bad news over the last few years. the last couple of days, they have gotten it and they have declared victory in my n.l. account, but we don't see gold really bouncing much higher. it had a good couple of weeks. i guess after so many years of pain, we ought to afford them a few days of joy. remarkable.retty years ofad over six one of the most extraordinary stock market rallies ever. the dollar is strong, the u.s. economy has recovered. then we get this three-day selloff and everyone is like, vindication. everything we set about the fed has been proven right. let them have their fun. i have any mill and all it says is, "i told you."

tomorrow? expect for a lot of people were saying that we could even rally into the green at the end of the day because the come back throughout the day was so impressive and then we just dropped in the afternoon. some traders only that a lot of people were getting margin calls. what data do you look at to forecast that kind of thing and what do you expect for tomorrow? joe: i am not good at forecasting the future. we have had a few of these days since 2009 where you have these insane intraday moves. obviously, there was the famous flash crash a few years ago. one thing i have noticed is that that level you hit, that crazy extreme level, markets often seem to find their way back to them. it would not shock me if we returned to the lows from this morning. again, i am not good at seeing the future. matt: otherwise you would have a

different job. we will bring in someone who does work in that job here at joe weisenthal. every day, you can catch them at 4:00. to, with all this turmoil, and the question being what should you do, let's bring in someone who answers that another -- answers that on a regular basis. joe davis, thanks so much for spending some time with us. what do you expect to happen tomorrow? is there more selling that needs to be done? joe: i don't know about more selling. you are seeing a great deal of momentum and negative sentiment in the market. i think that unless you see a mercurial change, either policy response or economic data point that would allay some of the fears around commodity deflation, china weakness, and concerns over a potential sudden stake, i think it's reasonable to expect elevated levels for sometime. i think it's also important to

remember, we are coming out of a very flaccid. since the beginning of the year. matt: volatility was off the hook today, right? we saw vicks go back into the 50's and we saw a jump on them the likes of which we have not seen since 2008, 2009. joe weisenthal this made a great point that a lot of times when you hit these crazy levels that seem crazy in a flash crash, we tend to retrace our ways back down to them. do you think the market expects to do that even though technicals are wishy-washy? joe: i know for certain asset , we were concerned since the beginning of the year and had a very guarded outlook, evaluations were stretched across a number of markets. despite some of the significant losses we have seen in the past several days, it's hard to make an argument that assets are very cheap.

--are certainly reminded reminding investors to have a long-term focus and ignore volatility. it's tough to make an argument that we are at buy or sell levels across a different number of broad aspects. investors should recognize the volatility is normal. maybe this is a lot, but you don't usually have these periods of continual climb. we haven't had a correction since 2011. that for anng is extended period of not having that 10% correction and the rapidity of the lies of the past few days. it seems a little bit more compressed, but nevertheless, i think this does come with the territory of being a long-term investor and earning those risks overtime. heard sos morning, i many investors and 9:30, 9:45,

10:00 saying we want to go there and buy as much as we can. we have a shopping list of individual stocks. that makes a lot of sense, but is it smart for retail investors going to buy individual stocks? joe: i think whether it is an index or math portfolio, you want to think the broader the better and the low cost is the most important. to your, stick framework in long-term investment philosophy. you want to try to minimize as hard as you can the emotion that days such as this can creep into your experience or you want to minimize that. in 2000 8,estors 2009 exiting the market on days like this and they were not able to fully recapture it. matt: that is or rule number two, right? mute the noise or don't invest

using emotions. day likeu do that on a today, especially following last week? it seemed such a frenetic atmosphere on the floor. joe: i think the key thing is to recognize, for many investors ,hat are long-term in nature it's also to recognize that not making a trade is still a decision. not ton active decision capitulate into this market or be too aggressive when perhaps the market may not have found a bottom. i think it is much more born to be deliberate. the longer the horizon, the better. that tends to be minimize -- that tends to minimize the focus pay on a day like today. there can be permanent losses if one overreacts. rolesyou sent me three and i'm sure your investors as well. the first was to recognize that

this kind of volatility is normal. the second is to now the noise. i will hold the noise -- the third which is what i think is the keystone of your strategy. he is going to stick with us. it's a monumental, has to be historic day at least for the equity market. still ahead, we have just opened in new zealand. it is the first nation to start trading on tuesday and stocks in asia and the asia-pacific stem the bleeding following the national selloff. ♪

>> if this volatility continues, which it will, the fed will be -- will not want to fuel further volatility. in such circumstances, it will most likely wait and not initiate the interest rate cycle in september. he is the bloomberg view columnist. the bloombergo market day, this special edition. we will take a closer look at the european market close. >> it has been a bad day for european stocks. the worst day since 2008. it is about those concerns over growth in china. that selloff in asian equity spilling over into europe. you can see the stoxx 600 down more than 5% at the close.

every stock declined today except for three. if we look at the industry groups on the benchmark as well, all of them declining and it has been oil and gas stocks actually leading that drop. in a surprise given the rout commodities and the fact that brent crude dropped below $45 per barrel today for the first time since 2009. let me show you what has been happening across the national stock indices. out of 18 western european markets, 13 are in correction territory. today, not a single one of these stock indices have escaped that selloff. 4100 -- the 2100 dropped to its lowest levels since 2012 today. was one of the best-performing indices at the beginning of the year. 's dax index has entered a bear market, dropping 22% from its record earlier this year. why?

it has a lot of exposure to china. we have been talking about a bloodbath. looking at this color behind me, it's pretty appropriate. i want to get you a live update on trading tuesday in new zealand. it opened if you minutes ago. paul allen is in sydney. how are new zealand stocks looking this morning? always a bitd is of a theme setter for the rest of the asian pacific. it is going badly. already off 2.5% in the first few minutes of trading. it is pretty quality stocks getting hit as well. accountancy firm, the largest construction company in new zealand, and auckland airport all getting hit. china is new zealand's largest

trading partner, takes a lot of the milk products. sinceo its lowest point 2009. in newig exposure zealand to china. australia as well. your market opens in under two hours. our traders there bracing for more losses? >> absolutely. theillion was wiped from market here yesterday, the heaviest fall in 6.5 years and we are expecting more to come on that scene today as well. it is a china story. if we look at one stock in --ticular, fortis you middle escue middle is a great indicator. they are only commodity is oil and their only customer is china.

matt: do you hear investors and economists predicting any reaction from central banks in australia or new zealand? is more easing likely? >> the short answer is yes. the central bank here in to cutia was trying rates to assist. they may be continuing to cut rates to make sure the economy remains stimulated. traders are now pricing a 75% chance that interest rates here will spike by year end. a similar story in new zealand as well. they were already in an easing cycle. matt: thanks very much. paul allen there in sydney looking at the first markets to open up as tuesday start on the

other side of the world. they are opening up in the red. coming up, we are going to hear more from joe davis of vanguard global. he will tell you why, if you are just a regular joe, putting your money away every paycheck, you are making the market work for you. stay with us. ♪

>> i think the market is very oversold. over 1200 new lows, 12 month lows on the new york stock exchange. usually, this occurs at the end of a bear market. this has occurred at the beginning. that somethingl is very wrong. father -- was mark marc faber joining us earlier on

the phone from thailand. to the bloomberg market day. let's get more from joe davis, vanguard's global chief economist. we were talking about a couple of rules you have. deal with the fact that volatility happens, this is a market, after all and ignore the noise are one and two. number three is, i love it because it tells the average worker who is putting money away with every paycheck how he can make volatility, even days like this, work for him, right? joe: sticking to that investment portfolio. take time out of the equation. it is so difficult to do, even the best active performance managers don't do it consistently or accurately. putting that money to work on a deliberate basis that is consistent with your budget and your long-term goals. historically, that is -- that has outperformed the worst and

best asset classes. it is a valid and very time-tested approach. matt: if you take a step back, we are all focused on thousand point drop and biggest absolute point drop ever. up there with the biggest point closes ever on the dow. if you take a look back, even though these markets are , they are still up year and it still doesn't look half bad. joe: it's huge. the past 10 years, a balanced portfolio where there are equities or fixed income can earn a very strong return. to play when you adjust for the low rate of reported inflation, our outlook is, we were the most guarded since 2006. valuations had been tight. we saw investors taking on more

and more aggressive risk positions. has beenome of that squeezed out of the market. history shows potentially that it could be more. i think its the port and for investors to refocus on the basic fundamentals that they can control. the cost, balance, and long-term approach. matt: you are global chief strategist and also global chief economist. it on your economist hat. how do you expect policymakers, central banks around the world, to react to what we are seeing now? joe: particularly focusing on china and the u.s., china, in our view, the markets were underappreciated. they were growing slower than what potentially was being reported or widely known. we believe china policymakers are reacting so far this year in being more accommodative but they are so behind the curve. we would expect more fiscal and potentially monetary policy china in aich puts

difficult situation because they don't want to go back to the same old measures in the past. the u.s. federal reserve, i think the u.s. fundamentals will justify a fed lift off in september. clearly, they cannot ignore what is going on overseas. i think the odds of them moving september from a risk management approach doesn't make sense. particularly given that -- the additional risk of inflationary pressure that we will continue to see. matt: you don't think the fed will do it although the economic fundamentals should allow them to if you are looking at unemployment? joe: if you look at the labor market, yeah. matt: but the inflation picture doesn't look good. these commodity crosses her the inflation picture that the fed would prefer to see. we were veryiew, hard-pressed to see the federal , getting about 1% over the next three or four years. we don't believe the world needs

a negative real fed funds rate. beis hard for the fed to reasonably confident. from a prudent approach, information changes, even if some of this is an overreaction, they may want to be a little more cautious than they otherwise would have been. matt: i really appreciate your time this evening. thanks so much for joining us, joe davis. next half houre of this special edition of the bloomberg market day, we will get a preview of what to expect on the bloomberg market day tuesday in china after a bruising monday. we will be back after this short break. ♪

matt: welcome back to this special edition of the bloomberg market day. after an insane day in docs and currencies here, that was all kicked off by developing nations. plummeting during the rout in global markets. plummetedican markets to a two-year low. for more, i want to bring in cash of were mckenzie -- casha.

>> it started with developing nations and with china. peopleomething a lot of say were coming because their currencies have been overvalued for a really long time because of such a strong dollar. to a certain degree, this is a good thing because economies want to be competitive. matt: a lot of retail investors who live in america or western europe don't think about the fact that these developing nations still have currency pegs on or at least trading bands that act -- bans that act like pegs. of people would make the comparison to 1997, 1998 and it's not anything close because a lot of countries already do have floating exchange rates. and they have reserves that allow them to defend their currency without making their

.urrency pegged or within a ban they concealed defended to a certain degree when things get tough. differenceis a huge as well. they have positive cash flow and reserves even if they have problems right now with the commodities. but when it comes to oil economies, a lot of oil countries pegged their exchange rates to the dollar because they say we are an oil exporting economy and oil is a dollar-based commodity. as the premise are of cause exam -- kazakhstan said, he said it shouldn't be like that anymore. devalue, even though initially it is bad, you are bringing in a lot more revenue if your costs are in your local currency and your gains are in the dollar. matt: do you expect further devaluations? but i think it depends on where

we go from here. if china and that shoring itself up. if they end up signaling that they have this in control. it all depends on china. this is a fear driven selloff, not an event driven selloff. we need to see some sort of positive sentiment coming from the chinese and to see what they do. if they end up cutting interest rates, they have the ability. they have very low inflation. or if they end up lowering reserve requirements which would free up the money, that would essentially be a monetary loosening policy. matt: some of the countries you cover are beneficiaries of a really low oil price. i'm thinking venezuela, russia, are really not. those economies have been doing much better and their currencies have been doing much better. then you have the oil exporting economies like columbia -- colombia.

worst loser in the world and of course venezuela which is another pegged exchange rate. their black-market rate is well into the multiple hundreds. it is a perfect example of what not to do. matt: very exciting area to cover. thank you so much for joining us, katia. i want to get more insights on the markets and joining me for that is bruce simon, the chief investment officer at city national rockdale. this is the same perspective out west, right? it is still 3:00 the afternoon there. i'm sure a lot of people can zealand, australia, and asian markets because of the time difference. what is the outlook for tomorrow? tomorrow is going to be another volatile day in our view. who knows where things will end up?

i think a lot of this, the intensity of the volatility today and the market fluctuations are likely to spill over for the next couple of days. we dumping, whether you're talking about emerging markets in asia or even in the u.s., are through the end of this volatility. -- we don't think matt: today i was hearing from some people that maybe this short covering will give us a rally through the end of the day. but even with the shorts covered, it looks like people still have a lot to sell. is that what you are hearing as well? >> it was a crazy day. we were down 1000 points, we rally back to almost breakeven and then the market weakened again and pre-much went nuts between then and the close. tomorrow, it is probably going to be a similar day. pressure on the market is likely to continue for

the foreseeable future. there was some short covering today but the way the market closed tells us that there is probably some or downside here. withve been in discussions a lot of our clients out here in beverly hills and los angeles and most of them, despite the uncertainty and the volatility today, are feeling like this might be a buying opportunity. maybe a little early for those folks who have a short-term horizon, but we are of the view o 12 over the next six t months, this is likely to be a pretty good entry point for u.s. stock investors. matt: if you have a short-term horizon, you have to be a professional gambler, right? that's not the kind of market you are advising your clients about. if you have a medium to long-term horizon, are you saying to use this as a buying opportunity? >> exactly.

we have been worried about the market valuations all year. we have been telling clients to expect a correction somewhere in 15% area. we did not know how deep it would go or when. it looks like that's where we are at right now. lower for longer, slow growth economy, not so much impacted by what is happening in china directly, we think that the equity investors will be positively rewarded over the next 12 months. when you look at the fear gauge, the vicks indicator, when it approaches that 40 mark as it did today, you can see returns over the next 12 months recalculate in up about 29% for every time the vicks has cleared 40 in the last 15 years. the following 12 months, the s&p has been up on average 29%. that tells us there is a lot of fear in this market.

hopefully if the fundamentals play out as we expect them to, investors will be positively rewarded. with inflation, i am sure the fed feels like they can stop it on a dime. with deflation, there is really very little they can do. as far as the economic backdrop is concerned, the employment picture might look good, but the inflation picture is where they want to see it, right? >> i think you need to decompose the inflation picture a little bit. clearly, commodity prices are in freefall and that is pushing the overall cpi down to very low levels. but if you look at service inflation, that is still running at about 2.5%. we are not concerned, at least with the decline in commodity prices, that that will drag us into any deflationary environment. we have been saying this for the last year, it hasn't played out

as we had expected, that lower commodity prices are a net positive for energy consumers like the united states. we think there is still enough room in there. we believe, despite what the futures are saying, that the fed may actually move forward despite the volatility we are seeing in the market today and begin lift off in september. matt: i want to talk a little bit about that in a few minutes but i still want to ask you where you are advising your clients to put their money. $30 billionmanages of assets. netflix shares get smoked here it has putting sales growth ahead of profit finally caught up to that juggernaut? if so, willie catch up to the others? -- will it

cory johnson joins us next. ♪

matt: let's get a preview of what to expect in asia's markets today. joining us from hong kong is david engel. the shanghai composite down 8% and change yesterday. what can we expect today? we have gone about 6:40 in the morning. china is waking up to this bloodbath. i just want to close my eyes. it looks like we are poised for more huge losses today. most of these markets are still closed. we have been up and running for a few minutes. we are down 2.5%. when you look at asia, we are

talking about for big markets. correctionred a yesterday. this market looks like it is going to get absolutely whacked this morning. 1.24,panese yen went from 1.21 when it closed, 1.16, and we are back to 1.18. futures are indicating about a thousand point drop. we are down 5%. that opens about an hour and a half from now. iron or was down 5% in australia. copper got whacked as well. china, 8.5%.about 37%.ility on monday was up there is nothing to suggest that would change otherwise. this short of it, another

risk-lost session here in asia today. ingles there. we will go straight to asian programming at 7:00 p.m. so you don't want to miss that open. david says japan looks like it is going to get whacked. we are already seeing red numbers opening -- in the markets opening. it was a roller coaster ride for technology stocks here in the u.s. today, although they were some of the only green you may have seen on your screen. not, however, netflix. not facebook. not apple. they all sold down in the red though not nearly as bad as they were earlier. apple was down 13% at the open and it only closed down 2.5%. joining with -- joining us with a deeper look at netflix is cory johnson. i was talking to larry haverty who was saying that a lot of

these stocks were falling to.her than they deserved he thought netflix was overvalued to begin with. a great investor, but he is also really good at loving the stock that he owns. i'm sure those were the one he that were unfairly punished. i think netbooks is a great illustration of something we see across the world of technology. a lot of companies want to be like amazon where the market does not call upon them to turn a profit. they have even changed their business models, we see that in the private sector where a lot of private companies are saying we will not rush to an ipl. the excitingtflix trading today where the stock was down substantially at the open, tried to rally, almost positive, only to fall right after about noon in new york and that slide continues. if you compare that to the dow jones industrial average, what you see is a stock that did so much worse than the dow that if

the dow was the with handle, whip.x was the with -- market andked at the decided to change its business model over the course of the last year and a half. if you look at what they decided to do, they decided to spend a lot more on marketing, grow their international business, and say to hell with profits, we are going to go top line. you saw them go profit free and decide we are going to put profits aside. their profits fall dramatically even into negative territory, not just in terms of growth but to the point of losing money. the result was revenues grew at a more quick pace. you saw a rise in revenues. increase inver-year

a little bit more as they shifted their business model. they decided to do with the market asked for. the ducks were cracking. netflix decided to feed them. they spend more on marketing, to a greater losses. we saw a re-acceleration of topline growth. wall street is changing its mind now. matt: i think about amazon. it is also a company that grows a top line at the expense of profits. but when the market asked them to, they turned the spigot a little bit. why list -- why can't netflix do the same thing? cory: i would argue that amazon hasn't done that very successfully as well. that is of great concern for a lot of reasons, not least of which is keeping the employees who aim to get rich by working there choose to work at places where you take a lower salary and you eat ramen in your mom's

eestnet for your first two years with the hopes that the stock option will get you rich. it's a very different approach to human resources. amazon is notoriously a different place to work. netflix offers free parental leave for new parents, unlimited vacations. to matter fort how they run their business because netflix decided to do with the market wanted at the expense of profits. if the market changes its mind, it's not clear that netflix can change on a dime. matt: unlimited vacation? cory: crazy. matt: that sounds awesome. go onyou and i would just vacation and we probably would not last very long. matt: cory johnson, thanks so much for joining us this evening. still ahead, we will have more bruce simon.on --

we will ask him where he is telling his plans to put their money. stay with us. ♪

>> they are in a box and they need a big excuse not to raise rates. i think they missed the window to raise rates. >> i think it changes the calculus. >> push forward to september 17. let's say the fed hikes rates. anythingt going to do for a long time and you continue to get good numbers out of washington. housing and autos, this is pretty good stuff. >> i think markets would prefer rates to go higher because i think they are tired of the artificial rates and being a zero rate environment. think you can see it in your bloomberg function, i think investors are pushing off their expectations for a hike from september 2 december.

for anotheroes on few weeks, i think there will be a hike. >> probably a 2015 rate rise. >> what worries me is that the fed may have lost influence. that should worry all of us. just some of the incredibly smart choices we heard here today on bloomberg television. bookings were amazing. welcome back to bloomberg market day evening special. i want to bring back bruce simon in beverly hills. he is the chief investment city national rockdale. janet yellen had the want to raise rates so badly in september but she can't seem to get the inflation numbers she is looking for. lockhart,oday from something about china is making their jobs more difficult.

is it possible that the rest of the globe is going to drive the fed decision making process in september? >> i think it is certainly a greater influence than was a week or two ago. ultimately, what yellen really wants to do is normalize interest rates. by beginning to lift off in september, i think she will demonstrate to the u.s. investors and investors around the world that she has enough confidence that the economy continue -- can continue to grow despite what's going on in the rest of the world for us to tolerate a small increase in rates. we don't think it's the start of a steady rise in rates. we think it will be low and gradual over the course of the next couple of years. despite what fed futures are saying which have indicated a much lower probability in september, we think what is really driving her is getting to a point where rates are normalized so that will make you slowdown --conomic so that when we do get a real

economic slowdown, she has some to offsethe quiver that. think --onder what you obviously, it is short-term thinking whether the fed goes in september or december. it doesn't really matter. where should longer-term investors be putting their money? where should they be looking to get in? believe, and our firm has been of the view for really the last couple of years, that the best place to have money invested for a long-term investor, say a three to five year time frame is the u.s. stock market. we don't live the big rebound story in europe as many other investors have blonde onto. we continue to believe, when you look at the dynamics both in europe, japan, and emerging asia

, that the real opportunities remain here in the u.s. topite the fed's attempt raise short-term interest rates, we still think interest rates will remain very low, probably to 2.5% range. we think that is a supportive environment for stocks. from thes have gone high end of normal range to a much more reasonable level. based upon our forecast for the s&p over the next 12 months, we think the market is trading around 15 times earning which is very much in line with where it has been over the last 25 years or so. matt: what do you think about investing in asia? i relied this is for someone who is a long-term investor and should have a costco box of pepto-bismol by him at all times to reference one of your recent notes. the ceo of ford says they are

investing their and still believe in a long-term. thinks they are seeing increased sales there and he is very happy about china as an investment for the long-term. separatek you have to the performance of the stock market which has been on april roller coaster both up and down in the last year, and the performance of the real economy. id. think anybody among professional investors really believe the chinese economy is growing at 7% or can't sustain that kind of rate. offon't think it has fallen a cliff. we think it is more 3% or 4%. if you look at pockets of the chinese economy, particularly the emerging consumer class, there are still relative pockets of strength. up about 12%.re auto sales are down a bit, but we still see some strength in

in underlying economy and the consumer, particularly in a emerging-market asia. that is where we focus a lot of our investment dollars. matt: and that is where they want to go. thank you so much for joining us. ♪

angie: u.s. that provide no protection. is fair. the dollar hit a seven-month low against the euro and the growing concern about the big picture. great expectations. the turmoil puts pressure on the fed with the odds favoring a hike in december. welcome to "firstup." coming to you