welcome to the bloomberg market day. olivia: good morning, i'm olivia sterns. pimm: i'm pimm fox. let's look at how markets are trading right now. let's look at the u.s. stock market and begin with the s&p 500. again of more than 2%. best buy, netflix and michael kors all leading the as the 500 higher. the dow jones estoril average adding more than 2% right now. olivia: it certainly looks like a bit of a relief rally since we saw the biggest two-day drop in the drop -- drop in the dow. that is bad news for treasuries. yields are creeping up -- the --.d on the 10 year note of

oil finally catching a bid thomas still below $40 a barrel, a bit least we are seeing of respite to the commodities. pimm: the dollar gaining in value and stocks moving higher. economic eta out this morning -- new homes sales theng in july, a sign market is continuing to grow. seasonally to a adjusted rate of 500-7000, the biggest gain this year. sales account for about 10% of the overall home purchase market. americans are growing more optimistic about the state of the economy. the consumer confidence index came in higher than expected. those with the higher incomes were more confident.

those 35 are more optimistic than those of the five and older. pimm: shares of best buy beating after sales analyst estimates. televisions,e phones and major appliances than analysts estimated. best buy said it would dedicate more space in its stores to apple products. excited by the early momentum of apple watch in our stores. it's a decision we made with apple to have expanded rollout. pimm: the apple watch will be offered at all best buy locations by the end of september. by the end of the year, coca-cola and its bottlers say

they will replenish 100% of the water they used to make coca-cola. this is five years ahead of schedule. coke uses a variety of water treatment facilities in order to make their waters and ranks potable. a former morgan stanley chief executive has a new mission -- john mack is trying to persuade general electric to move its headquarters to new york from connecticut. tois an informal adviser governor andrew cuomo. in june, ge said it might move from connecticut because of a change in the states tax laws. new york, georgia, and texas are among the states vying for ge's potential relocation. those are your top stories at the moment. the nation's largest mutual fund firm is getting swamped with calls. pimm: what do those clients want to know?

the head of investment strategy, joe davis, joins us to explain. what was yesterday like? what kind of volume were you doing? joe: investors were logging on to their accounts much more than they would in a typical august day. to a normally pretty wecid and slow summer time, do not see any activity that would be out of the norm from tax season. i would also note transaction activity was much lower than the rate of a typical increase we would see in log on activity. i was fairly consistent with why vanguard considered -- why vanguard customers come to our company, which is long-term perspective. olivia: why should they keep the

space in u.s. equities? volatility in the past couple of days, but we have always suggested to investors to participate in equities market. over a longrkets time comes with the territory of higher volatility. byy times, almost definition, unexpected. we are trying to ensure investors to look through the headlines and emphasize that this is not easy. some investors cannot stomach the sort of volatility. being ablealk about to stomach this volatility, is there any products or services vanguard offers that allows investors to hedge their positions? joe: most important is having a broadly diversified portfolio. clearly, we saw the flight to quality in the last couple of

days and high-quality fixed income assets in the u.s. market in particular. many of the arrows that were but not to screen, say equities broadly speaking did not underperform. the more narrow the asset class, the greater the volatility. groups that do a wonderful job in terms of those investors willing to pay for a manageto help them through a time such as this. the note you on sent over that it's basically untenable for the fed to raise rates in september. how does janet yellen do that? the job market looks pretty good , 5.3% unemployment. joe: i would like to see the federal reserve raise rates. measure, we're

close to full employment. what would give the fed pause is around confidence. 2% corele to return to inflation, which they have not achieved for three years. it is the further leg down in it isity prices and reasonable to have some doubt a september rate hike will come. i still think it will come this year. you have an index fund that tracks municipal bonds. are you recommending municipal bonds to your investors? balance investors and those in taxable accounts, municipal bonds have always and i think always will play a critical role for investors portfolios.

knowing the management team in the fixed income group, they are some of the best in the business and i offer diversified, low-cost portfolios with an incredible number of securities in these funds. potentially a attractive offer for investors. olivia: vanguard has a lot of emerging markets investment. x as well. what do you tell people who ask if this is 1988 -- 1998 again? joe: we will have to continue to adjust to a new business model. the slowdown in china is nothing new. it has been ongoing for several years. they have adjusted to this new realm which is secular in nature, so i would expect more volatility. that said, there's a critical role in emerging-market assets can play in the portfolio. it cannot be moved solely in tandem with other market. from a market cap perspective,

one has to be a little careful not to be too concentrated in emerging markets unless one is willie -- one is willing to withstand the volatility. pimm: are you recommending investors invest in european stocks right now? joe: you have to own the world right now. at the beginning of the year, we had the most guarded capital markets outlook we've had since 2006. we were not bearish, but we were concerned about frost in the markets. investors toraging maintain globally diversified portfolios since most of the cash flow was going into u.s. assets. some investors have been rewarded for that. it may not show up every day but in european markets and japanese markets, they have seen some rebound. economic growth and stock returns don't always necessarily correlate.

pimm: thank you for joining us. joe davis from vanguard group. nasdaq -- netflix maybe one of the best performers on the nasdaq. but we've uncovered some new facts that may put investors on edge. ♪

olivia: welcome back to the bloomberg market day. pimm: let's go straight to julie hyman for a look at what's happening in the markets right now at this rally. julie: we are seeing a little bit of an extension of the rally, going back to the highs of the session. the nasdaq is at its highest right now since december 2011.

there are some superlatives to describe the increase we are seeing in the major averages. just as it was a broad-based selloff, it is now a broad-based rally. nothing but green on your screen as all the groups in the s&p 500 are higher. the groups doing best include tech, consumer discretionary and energy. jpmorgan said we are not going to see a deep correction here, while cutting its or cast 22150. upgraded consumer discretionary in particular, that group is up high about 3%. take a look at some of these momentum companies we have ,alked about -- apple, facebook apple being helped by positive analyst commentary, saying the correction we have seen an apple shares was overdone. best buy saying the apple watches actually doing pretty well in its stores. financials coming back with

commentary helping things. one analyst calls it the lebron james of banking, saying it is good at offense and defense. bank of america and citigroup rebounding. one of the groups we have been watching is i/o tech. it's one of the groups that definitely got hit over the past few days, snapping back today. snap back at this today, it is useful to have some perspective. this is the bloomberg commodities index. 22 rob materials. i'm looking at the one year chart because we have been talking about the rebound today. had been on the leading edge of the declines we had seen. rebound looks a lot smaller in the context of this group trading at its lowest.

it looks even smaller if you look at the five-year chart and it's hard to see the rebound at all. just to put into perspective, which we always have to do, we are in a longer term bull market in stocks and a longer-term bear market in many of these commodities. clearly does not look like a rebound. pimm: let's look at some of the top stories crossing the bloomberg right now. saudi arabia plans to cut ilion's of dollars in next years budget because of the slump in oil prices. the saudi government may delay or cut back some infrastructure projects. oil accounts for more than 90% of saudi arabia's revenue. olivia: warner bros. was to bring hollywood to china. they are in talks to produce local language films. six of the top 10 movies and

china have been domestic chinese productions. russian authorities are removing some foreign made detergents and washing powders from stores. officials claim some of the brands have been found to have high levels of toxic ingredients. the companies have yet to respond. pimm: a global market, yes. seemed to of netflix suffer the most with flash. the stock lost 20% of its value in the past few days despite the fact the company has been doing everything it can to please investors, including changing its business model. olivia: cory johnson has been following the story and joins us from san francisco. why the whiplash with netflix estuary cory: i think netflix better defines the market over the last year and a half than any other equity out there. it really shows you -- netflix led the way down.

it's showing with the rest of the market is doing, which is responding from yesterday. netflix and china have very little to do with each other, yet you see a rise in the stock hoping that china can fix things in the global economy. but longer-term, netflix really led the way down. it was the biggest loser on thursday and was a big loser yesterday, yet it was the best performing stock on the s&p over the last year. it really defines the market better than any other stock out there. can you explain what is this new business model netflix is portraying? cory: if you look at what netflix did a year ago, they looked at what the stock market was rewarding. i have this amazon envy -- why can't we be like amazon? have no profit and free cash flow and put it all back into the business. so you can see it in the money

they are spending on new content. shows like "daredevil" and they are spending money on those even though they are very expensive. yet you saw the business go profit free. if you look at the percentage of revenues, you can see the change in their business model. they win in the international market and spend a lot of money on content, profits be dammed. ?livia: how does that work raising market expenses to grow the company? cory: they increase market expenses, the increase in cost of content, which they capitalize on their balance statement, which is a little odd to me. but it showed a real change in the way they are going to business.heir and the stock responded. he went from the doldrums the previous year to the

best-performing stock because the bull market wanted topline growth and did not care about bottom line. will we not always be in a bull market, but can netflix after making this business change, which led to a big rise in the stock in 2015, can they pull back on marketing, lower their content costs, even know they have more competitors than they ever have had, and become a profit generating company? that's not something they've shown an ability to do, particularly after effecting this change last year. take your point that perhaps it reflects sentiment, but it can't be the best reflection of the overall market because netflix year to date has doubled and the s&p is down. market's bothe extremes. it's the biggest winner and

biggest loser and certainly reflects an amplified version of the market. pimm: thank you very much, cory johnson. olivia: still to come, much more, including going to europe just ahead of the european market close. don't go away. ♪

olivia: as commodities prices fall and the chinese market recovers, there's big news for mining companies -- php billiton reporteda big drop and a drop in output for its largest customer, china. if they could quantify the importance of chinese growth for their company's revenue and earnings? >> right now, we are seeing reasonable trade flows into

china. it matches some of the things apple has said. ,roduct is getting placed there's no evidence of inventory build, so we see steady as she goes. you are also in the oil business. nobody is doing $60 for oil today. what happens to your petroleum business question mark can it be profitable if rent averages $45? isst: yes, it can, and it profitable. a core part of our shale business makes decent returns at current prices of over 30%. our business strength is the quality of our assets and we stress operational excellence. when we run a business, we have some of the best resources and

we run them better than anyone else. we make money in the environment across all of our businesses. olivia: he also said he thinks 7% growth in china is realistic. that conflicts with what we heard from another big mining boss, the ceo of glencore, which has lost half of its value in the past few months. us nobody has good visibility into what's happening in the chinese economy right now. pimm: it does not matter what happening in china. look at the bhp billiton stock -- other mining stocks and natural resource stocks have followed suit. whether it's rio tinto, all of these stocks have gotten hit with the lower prices eating offered for commodities. when you combine that with the slowdown in china, they are the biggest customer, when they stop buying, there's not a lot of room for a price increase. olivia: it is a tough time to be

in the mining business. very cyclical and a put lots of capital to work but those projects take a lot of time to come to fruition. all result, they come on the time, a big supply hits the market and prices go down. -- you'vep billiton lost almost 50% of your value if bhp billiton stocks for the last 12 months. here is oil -- this is just taking a look at today, down to $39. dropped 30%e has since its peak just a couple of months ago. there is a supply glut. pimm: glencore just went public last year. glencore's stock is in half. take a look here. nearly 60% in the last 12

months. olivia: the stronger dollar not helping any of these commodities. what'sonnect that to going on in emerging markets and you see what's happening in the iron ore business, the shutdown of iron ore mines. we have seen that happen in brazil and we know that's not doing much for the brazilian economy either. incredibles is some mining video we are showing. looks like a bhp commercial. it for me. stay tuned for the bloomberg market day. pimm: much more coming up. stay right here. ♪

pimm: welcome back to the bloomberg market day. i'm pimm fox. let's take a look at the top stories this hour -- more signs of growth in the housing market.

citiesices and 20 u.s. rose 5% in june, compared to the same month one year earlier. robert shiller, nobel laureate and professor of economics at yale university spoke to us about housing and the possibility of a recession. been: i have not predicting a recession in 2016. it would not be a surprise if there was one, but i don't think it would be strongly connected with the housing sector this time. home prices have been going up and it's a better market for there's houses, so if another recession, it would probably come from consumer confidence flagging, from a general loss of confidence. pimm: speaking of confidence, americans are growing more optimistic about the economy. the consumer confidence index came in higher than expected. will.s. budget deficit below are than previous forecast in the year that begins on october 1.

the congressional budget office is the shortfall will shrink from 426 ilion dollars this year to $414 billion next year. but the good news won't last for long. the cbo is the fiscal situation will get worse by 2018 because of more entitlement spending. fda has concluded that bill gates cannot call it's vegan friendly spread mayonnaise because it does not contain eggs. and in pro football, the nfl and layers union has said dueling letters to a federal judge about tom brady. the league says the union has shown no reason why the four-game suspension should be lifted. the union says the nfl has caused substantial prejudice to tom brady and the judge says he will decide the case by september 4.

those are your top stories at the moment. markets are closing in europe, so for the latest, let's go to hans nichols in berlin. just as yesterday i had nothing but a sea of red, today we have fields of green. all the major equities are up across europe. take a look at the stoxx 600. the dax also up more than 5%. you have to go all the way to the ftse 100 to see something that's only up 3%. trading has been a little lighter today. take a look at the 10 day average and it is germany where you see the most action. it that about 85% of the 10 day average. company a technology who is hit hard yesterday and the auto companies making a strong comeback. bmw up 7%. even deutsche bank, which has

had its ups and downs for the year is up around 6%. on the fixed income side, you have greek bonds rallying, up about 45 basis points. everywhere else, yields are increasing. france and germany both up about 16 basis points. united kingdom, they are trading up about nine basis points. pimm: hans nichols reporting from berlin. it's a big day in the housing industry -- new home sales rose 5.4% last month, a sign the housing market is continuing to recover. according to they case-shiller price index, a climbed 5% last month. here to talk more about what is in store for the housing market professor joining us from philadelphia. we got some housing news according to the case schiller index, prices climbing 5%.

nationally, prices up 4.5% and new home sales higher. could you give us a little perspective -- will this gross -- will this growth in the housing market continue? susan: yes, it will. this has been a rebounding market on the price side for a number of years. sales and construction starts have been up for the last two months. this is both start and sales and prices. they are on pace to continue to a recovery.ding to housing is a bright spot in the economic recovery. is this because of low ?evels of mortgage interest susan: yes. mortgage rates are a driver and key to the economics drinks housing is bringing to the overall economy. but it's not just that. and thates are tight means housing prices are

increasing. as housing prices increase, we get construction starts and that is what brings on the jobs and gives us the positive, virtuous cycle of more demand and better overall economy. pimm: tell us what is going on with delinquencies. do we see an uptick with delinquencies? susan: no. it is good news. as housing prices go up, that's a positive. housing along with autos are the bright spots for the growth prospects now and in the next few months to come. we have to watch the potential interest rate increase because that could hit housing. just a little more about housing affordability in the context you describe of a limited supply. susan: housing affordability is the one negative here. while housing sales are up and starts her up, we are seeing a

dramatic increase in renters and not homeowners. homeownership is on the downside and declining. that's directly do to affordability. it's difficult to get a mortgage and higher housing prices do not help. pimm: take a look at the comparison of how housing stocks have performed against the s&p 500. they have outpaced the major market index. taste on what you know today, will that continue? susan: a good news is in the price as we speak. .t's not a summer phenomenon it's going to continue through the fall and depending on how aggressive the fed is, and i don't suspect they will be aggressive at this point, it has legs that could continue into 2016 and beyond. the federal believe

reserve will raise interest rates in september or december? susan: that's a big question. if they do, i suspect it will be a 10 oh in the water and 25 basis points may not have much of an impact. but we have the global economy volatility to give pause to any such decision. pimm: thank you very much for spending time with us. to julie go right hyman in the newsroom who has some breaking news. julie: the district of columbia regulator has rejected exelon's takeover of pepco. we had a maryland judge saying the state cannot block the takeover but it looks like d.c. is indeed blocking it. pepco shares right now trading down by 15% on this blocking of this deal. exelon's $6.8 billion acquisition, shares down 15% and exelon is down by 3%.

we will keep you abreast of any developments on where the companies go from here. pimm: thank you very much. more on that utility deal coming up. also ahead on the bloomberg market day -- presidential candidates are taking aim at china as the u.s. markets shake off the weeks turmoil. we will find out more from washington, next. ♪

pimm: welcome back to the bloomberg market day. i'm pimm fox. let's begin with some of the top stories crossing the bloomberg right now. u.s. clients have begun suing the website asked -- ashley madison over the giant data breach. the company promised anonymity, so it's not surprising one of

the first suits was filed by a john doe. hackers exposed the data of more than 37 million customers. an indian consulting services company is helping to build a technology center at carnegie mellon in -- carnegie mellon university. they will recruit in areas such as robotics and artificial intelligence. they are the second largest provider of i.t. services. madewner of mystic pizza, famous in the movie with julia roberts, has admitted he mishandled a lot of dough. for embezzlingd hundreds of thousands of dollars in income. it has become a tourist attractions and the movie was released in 1988. those are your top story -- top stories. republican candidates are shifting their target from illegal immigrants to china.

phil mattingly joins us from washington, d c. blastingdates are china for a variety of potential sense. think bestver they serves their agenda is what they are going after. attacking china is a tried and true way of handling politics. this time around, the market turmoil gave an opportunity to push their agenda and what they think is most important. number one is donald trump who has been talking about china with some regularity throughout his campaign. he started with an instagram post talking about how things are going to get messy and then took to twitter to attack china about the united states and how close the two economies are. problematic, saying the trumpet presidency would uncouple the two. bernie sanders took to twitter thislf talking about how

was an ineffective trade policy and the u.s. needs to change its trade policy. if you talk to an analyst, not a lot of thought that either of those things were involved with what happened in the market yesterday, but one of the interesting things to watch is how candidates treat china during the campaign. if any of them get to the white house, things will change compared to what they say now compared to what they do there. easy politicalan target, particularly at this point in the campaign cycle. does any of it really matter? phil: one of the interesting things was from scott walker, who at one point was considered a front runner and is in the middle of the pack right now. he called on president obama to cancel next month's state visit with the chinese president. theaid rather than honoring chinese president, president obama should focus on holding

china accountable. some other republicans have picked up on that. the near-term impact is there's going to be some pressure on the white house -- the white house dispatched susan rice to beijing today to start working with the chinese in advance of that. but it's not just what happened in the market. you also have cyberattacks, the provocations from the south china sea. there are issues the obama administration is facing on the foreign-policy front at the politics are bit complicated and there could be some near-term impact as the administration prepares for that visit next month. pimm: you talked about the political part of it, but you have republican candidates talking about china in the most negative terms, but you have companies like gm and caterpillar that depend on china for a big part of their export business.

phil: what is interesting is he you have not seen attack china. there are candidates were cognizant of the fact that one rough day in the markets does not make a crisis or obvious scapegoats. a lot of very big donors have s in chinanterest right now. if you look at bush administration officials like hank paulson, there are extremely close relationships with china. look at the candidates using this to push for certain purposes, to push their agenda forward. look at the candidates who are not jumping in on the bashing. they are cognizant of the business interests their donors just in general and the united states. but there's also a recognition that if they get to the oval office, if they do have to deal with china on a bilateral basis, some of the comments they make now could be held against them. foreign policy and diplomacy requires people sometimes before

they get to the oval office hold their horses. that does not appear to apply to donald trump. som: it's interesting he is down on china and macau is a big part of the casino business. phil: the interesting thing donald trump has picked out better than anyone else is that he finds things that resonates with people and this is an issue -- i think if you pull how china rates in the united states and the political sphere, attacking them always holes well. -- always polls well. donald trump is seizing on that unlike like a lot of things you heard from him over the last weeks and months, it does not track with his business interests or how he operates, but it does resonate with the electorate, or at least the 20% to 25% who his appeal has grown

and stayed with. pimm: thank you very much. phil mattingly reporting from washington. still ahead on the bloomberg market day, we will talk about what happens to markets when they rebound. it's a rally, but there's still a lot of ground to make up after yesterday's decline. ♪

stock market continues its rally, but still a lot of ground to make up after yesterday's selloff. i want to bring in matt miller. 29 of the constituents of the dow are higher. only merck is a little lower today. matt: mark mobius has called it a dead cat bounce. it does make a lot of sense you would get a relief rally after such a string of droughts.

five trading days, we've seen a drop of 1700 points. in the last two, more than 1000 points. the fact we are up 388 points doesn't surprise me or mark. andaid they injected cash made a couple of moves the market was clamoring for, but is that going to be enough to hold up the economy? think but the bigger picture problem -- you have this slowing economy that is absolutely massive. atm: it is still growing anywhere between 5% and 7% depending on his newsletter you read. matt: but it is slowing. pimm: not growing as fast. matt: some people who are optimistic saying it's growing at 5%, others who are pessimistic are saying it's growing at 2%. and they are the biggest buyers in the world of oil, copper, you name it commodity.

all of those commodities producers are feeling the hurt -- last night, new zealand opened first. it's the first market to open every day. their biggest -- the country they export to -- a export milk to china. same thing with australia. they get hit. across the board, the fact they cut interest rates a little bit billion -- 20 pimm: it's like the walmart problem. if walmart is your biggest customer and if they sneeze, you catch a cold. it's the same situation in china. if your largest customer decides they're not going to buy as much copper, iron ore, or milk, that's going to hurt your bottom line. optimists are saying because of what happened over the last few trading days, the

said has an excuse to push its interest rate hike forward, maybe 22016. maybe to 2016. does that mean we are going to be stuck at zero bound and rejoice that china can dictate fed policy by widening its trading band? i don't think that's a reason to see the markets come back, certainly not to make up the 1700 points the dow lost. i don't know, that we are going to ask a lot of intelligent guests. pimm: you can find a statistic that can improve almost anything you want. we had a guest on earlier who is positive and then we had the richmond fed report that was negative, so you can choose. fortunately we have a lot of intelligent people to talk to. pimm: such as julie hyman who is

here with our options inside. julie: we have this rally underway taking the s&p up the most in a single day since last december. on the nasdaq, it's the most since 2011 in a single day. the rally not quite recouping the losses we have seen but going toward doing that. let's talk about it from the options perspective. kevin kelly is the chief infect the -- chief investment officer at kelly capital partners. wasvolatility was him -- unprecedented. he even brought his "by heart volatility" hat. you are looking at the volatility of volatility. kevin: this is a great indicator of what we're going to see going forward and how fast volatility is going to move. it seen as the accelerator of volatility. era,g the lehman brothers

they topped out at 145. we sought close at 170 and peak around 212.-- peak people are going into the vix and using it as the premier hedging tool. julie: there were some sort of liquidity problems and balance problems because of the delay in pricing on the vix itself for the first half hour after trading. did that also push of the volatility of volatility? are things were volatile when people cannot get orders done? kevin:. it did. it started out at 212 and and settled at 170. you saw the nasdaq bottom out at 8% and then was only down 1%. we did not see it come down to pre-lehman brothers area. we tend to look at

volatility on the s&p or the major averages. you have been looking at the russell 2000 all caps because it has been an unusual move there. kevin: we have never seen it before where the russell 2000 vix closed below the spx. the russell 2000 is small cap stocks and tend to be more volatile. it mean nowdoes that the large caps are more volatile than the small caps? have moremeans people -- the s&p has defensive sectors like utility and health care. people actually saw for the first time in history, it went into small caps. the other unprecedented thing you are looking at his is the first time in history the vix was up 40% to days in a row. individually those two days. everybody is telling me volatility is in the dumpster,

so isn't it a function of that? kevin: we were coming off such a low base and it seems we underestimated risk. now we are overestimating it. andaw chinese pmi numbers they were down, but it did not affect the market because we were focused on earnings. now it is starting to trickle out. today is around 30. do you see it staying around that level? we can see it meeting into september around 25 or 20. julie: stay with us. more bloomberg market day. ♪

>> good afternoon. it is 9:00 a.m. in san francisco, noon in new york and midnight in hong kong. matt: i am matt miller. stocks soar higher after the

selloff. is the buy-in here to stay? ism: the chinese government reacting to the cutting rates for the fifth time. will it do any good? matt: the secret to being a great stock picker might be involved. one bond manager says that his high-yield bond research is help them figure out which stocks will rise. ♪ pimm: good afternoon, i am pimm fox. introducede already myself, but i am matt miller. but again with a look at the markets at this moment. rallyiously have a underway. after the steepest 2 day drop since the financial crisis, we have seen markets recovering some of the ground