after nearly a decade at the helm. what is next for the disgraced auto line? emily: bad news for investors if the fed ignores advice. the federal aviation ministration has granted the nfl permission for takeoff, the permission to use drones. bloomberg world headquarters in new york. i am mark crumpton here with scarlet fu. dominating the news again. scarlet: absolutely, and we will get to that in a moment, but let's start off with equities. a mixed day. the nasdaq is up slightly, ever so slightly, the dow off by 46 points. the swing from peak to trough

moves40, the smallest meeting.ore the fomc with treasuries, a pretty clear-cut direction, but we are not getting that much in terms of movement. we do have lower prices, higher yields. the 10-year yield moving up. there is no clarity on what the fed does next, and the parade of fed speakers only serves to confuse the markets. as one person said, we are in purgatory right now. earnings, we do not get that until the second week of october. in foreign exchange, the euro is gaining ground because mario draghi says it is too soon it to see. time, andeds more they need more time. you get the idea, don't you? come inside the bloomberg terminal right now, because i want to show you one of the most popular functions on the

terminal. this is a snapshot of what is going on in global equity markets, but what i want you to pay attention to now is this. this is volume, and the volume is at leastnd s&p 9% below the 10-day average, so we are not seeing a lot of activity. we are supposed to see a pickup in trading. we are not getting it right now because people do not know what to do. : we have criticism about that lack of movement last week at the fomc meeting, so as scarlet points out, if you look at the screen, two of the indexes down, the dow and s&p, and the nasdaq is in the green. we are told that a member of the board has advisory announced the resignation of the ceo today, winterkorn. offered to step down, and the board except this with great respect for professor

winterkorn. scarlet: eight -- a blogger and a reporter from detroit join us. jamie, let's start with you. what i found interesting in that press conference is they gave a timeline. look for a ceo successor by friday, so things are moving really quickly, are they? yes, even before they have replaced him. friday was the day's contract was to be extended, typically a rubberstamp process, but with the company stock tumbling so much the last couple of days, and not really having an answer, not having any answers other than "we cheated, and we are sorry," obviously, dr.

winterkorn had to go. ofk: you were here a couple weeks ago, and we were talking about whether he would step down, and now that he is gone, 2020 hindsight being what it is, can you give our audience an example of what happened here? we're talking about 11 million vehicles, and the question is how can this many vehicles be involved and the ceo of the company not know what is going on? jamie: especially this ceo, because he knows pretty much what is going on. on monday, we were talking about 500,000 cars, and then we sell regulators in europe saying, "hey, maybe we should look at our same cars and see if we have said,lem," and volkswagen "hey, don't look at it. we will tell you.

while and we are also looking at one engine and a larger engine family. basically volkswagen has said, this one11 million in engine line have this problem, but they also have small diesel engines that could have this problem, so are they kind of saying this is one specific issue, or is there something longer going on here was to mark that is why volkswagen is freaking out. scarlet: yes, and others are freaking out. i have pulled this up on my bloomberg terminal, an index of carmakers around the world, and you can see a pretty dramatic decline over the last couple of days, and it continued today even with volkswagen shares recovery. certainly, people are worried that other carmakers are cheating, as well. i wonder, you are in detroit. have you heard a thing on the ground? are people looking at this as an know,unity to, i don't

make up some market share or gain some market share? are they saying anything, or are they staying quiet? >> we saw a lot of guilt by association, and they have been quiet. alternatively, and what we are seeing, especially in the wake hitting they crisis industry is that the regulators in the u.s. have gotten so much more aggressive. we now have gm, fiat, chrysler, and toyota, representing nearly half of the market, and they have in-house people. i would not be surprised to see hyundai get on that list also. so the regulators are getting much more aggressive, and now to have epa getting involved and tossing around the idea of $18 billion worth of fines just to epa, there is a chilling effect to the entire industry. mark: matt, they started asking

about this in march 2014, and we are talking about a year and a half ago that these questions were starting to be raised. is there any way that volkswagen can repair the damage to its reputation? they i think over time, can, but not with clean diesel. i think that dream is gone. theyis why on friday when are talking about a replacement, i think they are looking at floated someone who was when they faced off a couple months ago, but actually, i would look at the guy who came he was there- before he came over. mark: but before they can even think about what the automakers should do going forward, they have to clean up someone else's mess? matt: yes, and today, they put out two statements, one from saying, "hey, i am

arry," and then there was look at the uptick in personnel changes, a very strong signal. is incentive to look outside become play, to someone who is not part of the family, if you will. i want to ask both of you a question. jamie, to you, and also to matt. what about bringing back in alan mulally? matt: i think they are like boyfriends at this point. they go on vacation together. alan mulally is a good choice. i do not think it is going to happen. alan mulally is a very successful ceo, and he is very proud of the american-ness during his tenure, and he has packaged himself. he would want to be reviving another great american manufacturer or an american

engineering type company. chance than he would go to volkswagen. talkingu know, jamie, about the folks in lower saxony in germany, the authorities are getting involved here. jamie: all around the world. various states, the united states, canada, korea. germany is getting involved. i read that volkswagen is asking germany -- the way that there was a former u.s. attorney hired to do an investigation of who knew what and when, and it's teams that volkswagen is kind of asking lower saxony to do that investigation or maybe open a criminal probe that would be separate of what they are investigating of themselves. there is a lot of government activity on a lot of levels. it is a mess.

scarlet: ok, jamie, thank you so much, covering things for us from the detroit bureau, and matt, we have been calling on him quite a lot during this, you can call it crisis. if we should say hope to see you back soon. thanks so much. mark: that sickle look at some of the top stories we're following at this hour. pope francis has more than just platitudes for those who came to hear him at the white house. the pocket had a message certain to delight the obama administration, saying something has to be done and now about climate change. pope francis: given the urgency, it seems clear to me also that climate change is a problem we be left to our future generations. [applause] mark: the pontiff also said that religious liberties should be

protected. he calls that one of america's most treasured proceions -- possessions. scarlet: setting aside differences, and appeal it comes ahead of an emergency summit as europe struggles with its biggest refugee crisis in decades. have many people have fled this year, trying to escape violence in syria and other wear. mark: the greece coalition government officially assumed and they were agreed to by prime minister alexis tsipras and are a key condition to the latest of international bailouts keeping the country afloat. reelection after he wrote campaign promises to fight austerity. scarlet: all right, ecb president mario draghi says the bank needs time to determine whether or not more economic stimulus is needed. they told the lawmakers that if

the outlook weakens, the ecb act, but hesitate to with the bank policymakers who are reluctant -- much the cyber attack was bigger than first reported. the government says the fingerprints of 5.6 million current and federal employees, contractors, and job applicants were stolen. that is five times more than the original estimate. the fingerprints could be used for access to computers and other devices. thelet: and the nfl is first sports group to get permission to use drones to shoot films and tv segments, but they cannot be used to shoot game or over overcrowded stadiums. we will have that later. those are your top stories. still ahead on the "bloomberg market day" what they are urging janet yellen to do, next.

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mark: welcome back to bloomberg market day. i am mark crumpton here with scarlet fu. scarlet, we have about an hour and a half to go, and let's bring in mark miller. not a lot of volume. matt: not a lot of volume or direction in today's market. plans her daysie off to leave me sifting through a market to find any kind of news. we have -- you can see almost no change at all on the s&p 500,

and we were down and got a bit this morning,p but i will point out that eight out of the last nine papal visits to the u.s. have resulted in a gain of almost 1% for the s&p 500. -- t out of nine positive scarlet: where did you find that, matt? matt: i think peter forward it to me at the market desk. anyway, and average gain of 0.89% whenever the pope visits the u.s., so we are not seeing that today, and that is maybe because the pope is going to be here for a few days, and we average those numbers out over the entire papal visit, and very 306, and ige, 16 would say that information tech is the one group in the s&p that is really putting up significant gains. we do not see them in anything else. so it would make sense that

mastec would be the biggest gainer today. take a look at some of the situation. nasdaq would be the biggest gainer today. here we see today another 4%, so this is down about 33% over the past 17 trading days. it is having a real problem, but so are all steelmakers and all commodity indexes, so it has really been a rough month or two for commodities. is anothermoran company taking a hit along the lines as copper continues to trade down, and freeport matt 9.99 down almost 3% now, -- freeport-mcmoran down almost 3% now. fewer business junkets going to make to gamble, and that is a and, the trade on wynn,

then carnival cruises out with earnings that disappointed, but they said it was not as that as it looks, it was oversold, nomura upgrading them, and it is one of those showing real gains today, the 132. scarlet: all right, matt miller, thank you. i do not think there is any selloff. -- any conspiracy. i think julie just took the day off. mark: the federal reserve, get off quick, and they decided to stay at zero, and futures traders are betting it will stay there until the end of the year. scarlet: but some say this will have some had results. this is the latest outlook. the federal reserve is messing things up.

>> yes, the federal reserve is flirting with disaster. it is causing a distortion in of market, having the impact potentially breaking down capitalism, which is a little bit dire, and i think what they are showing here is the liability based is this model called pension funds and insurance companies, they cannot function because they are not getting what they need. even chicago. not being up to pay back promises because they are not getting that. mark: also talking about an aging u.s. population. >> exactly, so all of these things come together so you have this population of savers who are not getting what they need. the u.s.singing consumer is essentially being roasted by the federal reserve, and he likened them to being on ace bit. .- a spit scarlet: that is an image.

about othered banks, and mario draghi was speaking to brussels, addressing european parliament lawmakers, and let's listen to what he said. : facing this environment, the recovery is continuing in the euro area, although at a slightly, slightly slower pace, not much slower, by the way, because our projections have been revised marginally, and we do expect that the rest of the year -- in fact, the data seems to confirm that, and it will continue at the lower growth rate of the second quarter. scarlet: these projections, we expect. mario draghi. splitseems to be a between the thinkers and the doers, right? things like martin wolf and others, urging the fed not to raise rates, and then the doers, the practitioners.

sky bridge capital and others urging the fed to act. >> that is right, and what you're seeing is those are the es in the field seeing these returns, and when you talk to bond investors who are forced, they feel they have to buy certain deals. have not seen this in so long, and you are taking on risks that you know are not right for your clients, so you do not need to do it, so how you do your fiduciary duty, they are the ones experiencing this. these are no longer working in the right way. mark: the bankers, the central bankers focusing on their models and fighting non-existent inflation. that struck me. if they cannot get it to their 2% level, that is their threshold, and a lot of people saying they are paying too much attention to the labor market and employment.

>> yes, critics are saying you are clinging to these things that may be used to work, but because things have been so different for so long, the policy has changed so much, those models are broken now, and you cannot rely on them. scarlet: thank you very much, writing the latest bill gross newsletter. ok, much more ahead on the "bloomberg market day." we will be back. ♪

♪ mark: welcome back to bloomberg market day. we are talking to the canadian finance minister, who says the

country is not in recession, and was not the first half of the year, despite data showing otherwise. they say the downturn was largely confined to the energy sector. the canadian economy retreated at an annual pace of 5/10 of a through juneapril after sliding 8/10 of 1% the first three months of the year. scarlet: you think the fact that there is an election coming up might have something to do with it? right, ok. one woman claims she was fired over her program of goldman sachs, and she said the new york fed interfered with her examinations of the bank posted divisionand compliance and then directed her to change findings. a lower court had already dismissed the lawsuit. : london has now surpassed new york city as the financial hub, edgy new york by eight points. hong kong was third, followed by singapore and tokyo.

london was boosted by the decisive election when of david cameron. is this something that seems it is slowly happening over time? scarlet: yes, i wonder if you can pin it on david cameron's decisive election win, or london being a safe haven in its own right, so it is not representative of the u.k. some much as it is a city that stands above other cities. a research group studying 98 financial centers, providing profiles and rankings for the factors that include human capital. scarlet: yes, the question here is what happens between the u.k. and the rest of europe, the referendum. it become its own little island? it physically is, but in mindset. thoseit could change rankings. we will see you tomorrow. scarlet: we will see you tomorrow. we have much more coming up, after this.

♪ . .

scarlet: welcome back to the bloomberg market day. let's get straight to the stories making news at this hour. vice president joe biden says he still has not decided whether he will run for president, but he

is getting an increasing amount of support from democrats. 25% of democrats or those who lean that way say that widen is their top choice. hillary clinton still lead with 33% and bernie sanders is right behind joe biden at 24%. missouri,es in ohio, and votto will hold next year's debates. nevada will hold next year pasta bates. the first debate -- mark your calendars -- is in da, ohio on september 26. and the ceo under fire for increasing the price of a drug war than 5000 set -- more than .000% is reversing he discussed the price increase on bloomberg. guest: the price to save your

life was only $1000. these days, cancer drugs can cost $100,000 or more and these drugs can cost half $1 million. it is still underpriced. up tot: the price went 1700 dollars per pill. he did not say what the new price would be. uber is testing in a new market in china. it allows drivers to pick up passengers along the route. driver would use the app. it underscores uber's amendment to china. lyft offers a similar program for commuters. globally, the chinese president is making the rounds. he is in seattle right now at a boeing plant where he plans to address a group of employees and tour the facilities.

this comes on the heels of a major deal with boeing, allowing the company to build its first factory in china. ramy inocencio is live in seattle for the latest. did he put on a yellow hardhat? him do thatnot see yet. he wrapped up the is this roundtable where he spoke to 30 chief executive officers from both the u.s. and china. about half an hour ago, we got good footage of the apple ceo, tim cook, walking out of these doors and heading to his car and we saw the ibm ceo as well. with allas talking to of these chief executive officers was about greater in china.ess these companies represent about $3 trillion in terms of market value on the chinese side, so a lot of business talk going on

here. he is on his way and very well may be at the boeing factory right now. right after this shot, we are going to try to follow them up there and see what is going on. with boeing, what has happened is that beijing has greenlighted a massive purchase for boeing, on the order of 300 airplanes, totaling about $38 billion. in addition, they have greenlighted a 737 finishing facility in china, and that would be the first for boeing. airbus does have a finishing facility in china but for boeing, this is something they have been trying to achieve. scarlet: nothing is done without a lot of preparation when it involves the chinese government. amid the american business leaders and their concerns over cyber security, theft, and corporate espionage, what has been the tone of the visit?

how does it feel? past two days we have been here, listening to what the president has been talking about, he has then addressing top u.s. concerns, cyber espionage and currency devaluation. in terms of any substance to what he's saying, that remains to be seen and we may see movement on that once the president gets to washington, d c to meet with president obama. there's nothing especially new or market moving. he has been touching on a couple of cultural things, mentioning "house of cards" and ernest hemingway. that has struck a kind and warm note, but that's only the super national level. -- superficial level. cards" doesuse of

get attention. spokeg with china, i earlier with a senior banker at midmarket securities. she won a pulitzer prize for her coverage of china and is the -- and is a author best-selling author. chineseher how the government has evolved since xi jinping became president. guest: when president obama went over there, the chinese economy was soaring. , who hasinping accumulated at a norma's amount of power and done a great amount of work in the three years he has been in power, but he is in a diminished position. his economy is struggling and the u.s. is recovering. so we have a reversal of roles. i don't think there is an upper hand right now. both have restricted maneuverability.

xi has been aggressive on the military front. because he has been public, it has been difficult to back down in the south china seas. the pentagon asked the administration to send some ships there in a show of force, but the administration has said no. gain.s., if obama wants to any sense of consensus around there, it's going to be hard if he doesn't display any kind of military strength. when it comes to the south china seas, one of their defenses about anything it does is that it is internal and does not concern outsiders like the united states. they have applied that to the human rights argumen this is a regional dispute that does not answer in the u.s. what kind of role can the u.s. play then? south china seas,

they can move that discussion from an internal discussion china keeps trying to harp on to a global stage. china really needs to take on some global responsibilities. it's the second largest economy in the world, it is a security council member. it is a real player, but china has still been hesitant. it wants to claim the mantle, but it doesn't want the obligations, and that is where the u.s. can push them. their senseeal to of responsibility now that they are a big boy at the table. they they have -- guest: have done well on climate change, but when it comes to espionage, they are hurting. they are facing a weaker economy and weaker access, potentially hacking and commercial espionage. scarlet: we know u.s. companies are worried about corporate espionage that chinese companies

will steal trade secrets. is this feeling mutual? what are they concerned about? guest: they certainly want access to the u.s., but we are beginning to see chinese companies come to the u.s. to buy companies to sell to americans, to build plants and manufacturing facilities. they are beginning to get to know how to live in the u.s. market. the americans are having a harder time. regulationseen new making it more difficult for americans to get access. they are throwing internet rules and regulations, stiffening them difficult tore operate. if you look at the survey of american business people, about -- wereoptimistic

optimistic about business in china. now it is at about 27%. scarlet: i wonder how much of a bad taste the exclusion of china from the trade relations is hurting? guest: there are many irritants in this relationship. it is on week terms and it is not clear how it is going to get better. onhave some bright spots climate change, but on many spots, there's little maneuverability on either side. i don't see a real potential for breakthroughs. she says perhaps more pomp and circumstance than substance is time around. u.s. coal the industry dealing with the worst slump in decades. ♪

scarlet: within the energy complex, falling demand for fossil fuels has helped drive down oil and coal prices. still, cole has found in unlikely savior, and that is foodie's. especially foodies with a taste for gourmet pizza. for oneosting a taste particular kind of coal. what is that? anthracite, which is different from the coal you would use to fire an industrial plant. this is the first coal that was ever mined in the u.s. and it was used to power the country through the end of world war i. it burns really, really hot and has lower emissions than other types of coal and that is why it is perfect for coal-fired pizza.

output really stinks for coal across the world, but for anthracite, output is growing. this year, it will reach about 2.5 million tons and the industry could average between 5 million and 10 million tons. so that is huge for this type of coal. scarlet: but you can't compare small businesses, which is what most coal-fired pizzerias are to the coal industry has biggest customers. aix: and again, it is different type. it's not like a pizzeria wants a coal-fired pizza and they say we can stay in business. it is interesting to think of it as an offshoot of what coal can be used for and this is what we used to power our homes back in the early 1900s. scarlet: and the center of the inl-fired pizza movement is new york, on the east coast.

spreading the wealth with the pizza love. scarlet: coal-fired pizza is -- it's the smoky flavor. we've been talking about one of the most important issues in oil world and that is that u.s. banks are deciding how much money to lend an oil company based on its reserve and the oil price stop companies could see credit lines cut at a time when equity and debt markets have dried up for them. could this be the silver bullet to help them rebalance? alix: this is why i want to do this series, to lay out what the issues are. we have seen a few companies that could see their borrowing they are usingd about 70% to 100% of their credit facility and their hedges are rolling off. like they used to lock in their oil price for the next year is slowing down and they could lock in for lower prices and not as much production.

flawthis did is exposed a in these models, which is that they are cash flow negative and have been for years. and that negativity has been picking up. they tend to be smaller, so they need the capital markets to keep pumping and that's the question. capital markets overall are getting skittish. we saw 38 ilion dollars of debt -- 38 billion dollars of debt. lot to: so there is a get through here. do the companies have plan b? citigroup pointed out that the performance of these second liens have been so bad to they were issued, some of the yields were up 20%. why would investors want to loan you more money when you are down cents or $.50 on the

dollar? scarlet: what does it mean for production? alix: the u.s. could lose up to 500,000 barrels of production a day. the assets that are really capital intensive. they point out that one area shut in is stripper wells. i did not know this. are producers that only produce 15 barrels a day or less. they are super small wells that intensive and at $40, they are uneconomical. they are not insignificant but citigroup thinks this kind of production could get taken off-line. scarlet: inefficient wells, really? alix: yes, but they contribute quite a bit. they don't contribute as much production is the big guys in less trouble, so until it trickles down to investment

grade names, it's going to be hard to see production get shut down. scarlet: for more on bank redetermination in oil prices -- alix: very sexy. scarlet: very sexy. you just came back from a week in the permian basin. what did you learn there? banks said ital would the tricky this year because their credit lines are not only based on reserve, but also on production. as production starts to increase and edge to the proper price, it could be cut by 30% to 40%. companies will have to repay -- if one company has a $10 billion repay line, they have to two.

the cash needed to add new wells is high and will miss. production will be much higher than the market expects today and will accelerate in the coming months. scarlet: 30% to 40%. you gasped when you heard that. alix: the numbers i have been hearing are between 5% and 15%. double or triple that and you are looking at $60 billion worth of money disappearing overnight. approximately the money that will disappear. but keep in mind that they know production is increasing and the whole process has in below $45 a barrel. u.s. shale production is

the purple line. at what point do we wind up seeing shale production come down and buy high much -- and by how much? -- they willpanies not complete the well as long as that would disappear. byduction could be down 100,000 or 150,000 barrels a day. there would be less light on the , the inflection point, we are waiting for that in the oil market. alix: if we wind up having a reduction pair back, that implies a rebound in the oil price and that would mean i'm going to go back and keep drilling or that well i didn't

finish, i'm going to go back and finish. alex: the bank would be much more cautious because of the volatility of the oil prices. go to the bank, it .akes more time as we show on the chart, it would take more time than the collapse. how much can you extrapolate that to the rest of the shale industry? the local banks in and it'son shale oil not a bad area. for example, the face price for an oil producer is much less in

the permian. thank you very much for joining us today. local oil and gas analyst. we will be back at the top of the next hour to take you through the market close. the faa clearing the nfl for take off, granting the league permission to use drones. ♪

scarlet: for the national football league, drones are officially a go as the faa figures out how to navigate the drone industry. has been given permission to fly drones just in time for the 2015-2016 season. the league sought permission and its film division was granted

permission. what is the nfl allowed to use drones or? yout: this doesn't mean if are a fan in the stands you are going to look up and see drones overhead. it's mostly for when they do documentaries and tv segments. they will be shots of empty stadiums. that it's a major -- the first major sport league to seek using drones. scarlet: this is different than individual teams using drones. you reported how the cowboys and giants were using drones during their oppressors -- during their pressers. guest: exactly. if they wanted to get them, they had to get the same permission the nfl did so they were technically using drones illegally.

the faa reached out to them and we will probably be seeing a few more teams getting this same exemption. scarlet: you hosted a panel yesterday at a sports psychology conference and you talked about how drones are the new frontier in sports. what did you come away thinking i had no idea? guest: the things i went into the panel going well was how to film using drones and drone racing. scarlet: drones racing each other as sport? pod racing from "star wars" if you are family or with that. you can make a pepsi bottle, fly them around and use them for advertising. you can use them to drop off tickets or merchandise in the marina -- in the arena who when the votto. there are lots of ways to use them in a cool way. this is what sports owners are trying to settle with -- the in

venue experience to get you to buy tickets and go to games. scarlet: we want to get your thoughts on your cube era come at baseball hall of famer who passed away. remarkable is that he is beloved by both yankees and mets fans. guest: he had an amazing career. he was part of the d-day invasion and it hits close to home for me. i'm from unclear new jersey and used to go trick-or-treating at his house. my first job i ever had was at yogi berra stadium. scarlet: did he ever give you one of his name is lines? guest: no, i didn't see them when i was trick-or-treating, it was usually his wife. ♪

scarlet: it is noon in san francisco and 3 p.m. in new york. alix: this is the bloomberg market day. scarlet: u.s. stocks fluctuating in trading.

we are monitoring the movement in the final hour of trading. alix: hillary clinton losing ground in the latest poll. wait until you hear is gaining on her -- someone who's not even running. announcing itgram hit a new milestone that leaves twitter in the dust. scarlet: good afternoon. i'm scarlet fu here with alix steel. alix: it feels like a relatively calm day with the dow jones off by about 50 point. the s&p relatively flat and volume across the board is light. trading on the s&p is down about 10% versus the 10 day moving average. digitseen the triple moves on that thou but this is not one of those days. scarlet: it is the smallest

point move swing since last monday, which was before the fomc began it meeting. but there are a couple of indices moving pretty dramatically. the bloomberg terminal because i have a chart of the machinery index, including companies like caterpillar, companies that are the forefront of our manufacturing economy. this index is at its lowest since july of 2013, more than a two-year low. alix: i want to look at my bloomberg terminal for the euro versus the dollar intraday chart. right around here at about 11:00, that is when we got the announcement that the volkswagen ceo was going to resign. and what did we see? we saw the euro actually gain against the dollar. one analyst made the point saying that it is totally rare

that a company story has an effect on global markets, but the volkswagen story is having a very large affect on -- very large effect on global markets. goes, the euro could go -- that correlation not 100%. think it took a lot of people by surprise how big the news was because it did affect people's perception of the that on these carmakers and brought down a lot of other german carmakers on concern that volkswagen a be the tip of the iceberg. what other shortcuts might other carmakers be taking? expects thext guest s&p 500 to test its august lows before rallying higher by year and. scarlet: joining us now is phil orlando.

his company has about $300 billion in assets under management. talk about where you see the fed sitting because there's a state of confusion when it comes to what the central bank is going to do next, not just in the united states, but in europe. same we are having that debate internally, so i'm not sure anyone is clear what is going on. the fed's mandate is to look for full employment and stable inflation. the employment portion is in good shape, inflation is clearly lagging. what the fed did last week was to introduce a third element to that discussion, specifically china and whether the slowdown we have seen over the last several years is enough to possibly derail the expansion we are seeing in the united states and possibly drag the entire economy into recession. that concern is what is causing a lot of instability surrounding the federal reserve right now. have a targetou

of 2400 on the s&p? calendart's the end of 2016. for retest we are looking off the correction we saw in the summer will be completed over the next couple of weeks. we think the federal reserve, went to get some better economic data out of china, and maybe it takes three weeks or so to show that china is developing traction, perhaps the fed tightens policy at the end of this year or the beginning of next. as we are rolling out 15 to 18 months and discounting earnings, we think earnings will be $130 a share, given the fact you have benign interest rates and inflation. the appropriate price-to-earnings multiple on that kind of environment is about 18.5 times earnings. scarlet: which is a little higher than where we are now, which is 17 and change.

as we try to determine what the fed is going to do next, what do you do as an investor? it feels like you are in purgatory because you are waiting for the fed to make the first move. there are earnings coming in the second week of october, but it may not give the clarity we are seeking. phil: the tories a good word. we are taking a neutral position. -- purgatory is a good word. we are sitting at 61% or 62%, so you have an emphasis on defensive stocks and allocations for cash to fixed incomes. as we exit purgatory, we think about discounting the resumption of economic roles and that is when you shift to more economically sensitive allegories. alix: i want to talk about currencies for a second. i've charted the implied volatility of emerging market currencies versus the dollar and

you can see the massive volatility we have seen, but we are not supposed to be seeing .mplied volatility how do companies hedge and protect them selves because of this? phil: it's very difficult. look at the currencies most folks focus on, which is dollar-euro. there is a strong pattern we've been playing over the course of the last 18 months or so that with the federal reserve choosing to punt last week, it has sort of reversed that situation. the euro appears to be stronger and the dollar is the one that is weaker. part of the conspiracy theory is that was part of the fed toss game plan. they were concerned -- fed's game plan. they were concerned it would strengthen the dollar and create more pressure on countries like china. one reason to step away was to allow the dollar to continue to

weaken and create less of a headwind for china and allow them to get back on their feet. scarlet: nevertheless, you have those wild swings alex -- alix illustrated earlier. fx effectp out the from earnings the way we did when we look at earnings ask energy companies? phil: that's exactly right. alix: we don't do that when the dollar is doing well. i don't buy that. phil: investors tend to discount earnings when they are getting a tailwind from currency, and to be fair, they should take out the headwind from currency as well. the 1.i would make is that while eres oferpillars and de the world are going to take a hit from the stronger dollar, if you take a step back and broaden

your purview and look at the wilshire 5000, it's those big cap companies taking the hit from currencies. majority of us-based companies will do 80% or 90% of their business here and in a fit from the strength of the dollar, which -- actually benefit from the strength of the dollar. it is a company-specific situation. scarlet: and maybe it's time to look at small cap companies. phil: the way to hedge yourself is to have some russell 1000 in your portfolio. up on the bloomberg market day, we have the results of an exclusive poll that shows support vice president joe biden would have if he decides to enter the race for the white house. ♪

scarlet: welcome back to the bloomberg market day. alix: let's go to matt miller for a look at the markets on an easy-going day after that horrible day yesterday. you aresy-going unless a stocks reporter looking for stories to illustrate the movement of the market. you see red arrows across the board. point dropnly a 40 on the dow jones industrial average when we were looking at a 100 point drop earlier. info tech stocks have been some of the only gainers today. that's why the nasdaq is not losing by as much. i want to talk about some of those i.t. stocks. paypal is a story we have been on the last you days. .antasy sports is getting huge you have draft king and the number of other companies coming

out with easier way for players can --involved and you it is basically legal gambling online. paypal is one way to access these sites and get money back. you can fund them with credit cards but then you don't get your winnings, a case you are not a loser, except for by check. so a lot of people are opting bloombergl and intelligence says this is going to be big growth behind this stock. i also want to look at facebook -- instagram has 400 million users, and that's a bonus for a stock that has done pretty well. remember when facebook came out for like $40 a share and did not do well for so many months. it came down to $25 and everyone got worried about it. you have a billion users,

they can monetize that and instagram has 400 million, and that is good news for the company. from doing a boost boosting piper jaffray their forecast because of the new fifa soccer game. the other story you have been covering is the 's ceo.tion of vw tell us how auto stocks are doing. yesterday, julie hyman, who is normally in this position, found a great function -- it's the supply chain around any company. you can put it there and change around a lot of very balls. -- a lot of variables. it's a rebound here for volkswagen in europe. a lot of it is suppliers and

competitors, as well as its customers. didn't really play this game in the european stocks, although fiat chrysler is one i guess you could consider a u.s. stock that did show those same kind of moves. scarlet: let's get to a look at some of the top stories crossing the terminal right now. leaders business gathered in a seattle hotel to meet with china's xi jinping. the u.s. and china have had strained relations over cyber espionage and human rights, but $600nations conducted billion in trade with each other, so the stakes were high. attendees included tim cook, bob eiger, warren buffett and jack ma of alibaba. alix: oil producers in the u.s.

are about to see their credit lines shrink just when they need the money the most. the latest round of revaluations is underway and 80% of oil and gas producers will see a reduction in the maximum amount of money they can borrow. credit lines will be cut by an average of 39%. scarlet: the commission on presidential debates will announce -- has announced where the candidates will be facing off next year. locations include ohio, st. louis, and the university of nevada and las vegas. a vice presidential debate is set for farmville, virginia. the first debate will be in dayton, ohio on september 26. is coming up. >> that is next year. scarlet: who is going to be the nominee on the democrat side?

a quarter of americans say vice president joe biden is their top choice for president. that's according to a bloomberg politics poll released this morning. hillary clinton is still in the lead. bernie sanders is bringing up the rear at 24%. alix: clinton toss favorability ,atings have dropped representing a three point up tick. what was the biggest finding? the fact that biden was pulling higher? the biden that boomlet continues. basically tied with bernie sanders for second place and his name's not on, he hasn't declared he's going to run. if i was bernie sanders, i would

be worried about that. and clinton are tighter in this poll. that spread is tighter than we have seen in any national polls so far. that is going to give, to the extent the politics are on his mind as opposed to poseable -- as opposed to personable things, if he wants to get in the race. guest: we also have to ask if america wants joe biden to get in the race -- 47% said yes. this is everybody, not just, kratz. but there wasn't that much difference between republicans and the kratz -- republicans and democrats. tone of a welcoming this poll is you are joe biden. his favorability number ticked up, every other national person we measured on that scale had a downward trend, so that is meaningful, and that includes the pope.

scarlet: is that because he's joe biden, he's an ordinary guy and rides amtrak and says weird stuff sometimes or is he holding up the obama legacy in that has a carryover effect? guest: part of it is that he's joe biden and part of it is he's not a current candidate. scarlet: because he's not a candidate, he pulls well? guest: once the light comes on and they start finding ways of putting out differences, his number will get a little shakier. everythat's true for situation -- i'm sure there has been a time in your life when there is some hot dude and you wanted him and when you got him, he's not so great. you always want the unobtainable. when hillary clinton was secretary of state, her popularity was through the roof. as soon as you get in the rough

and tumble, not only to people scrutinize you more, but you are taking shots from your opponents. right now, joe biden is the unobtainable and has just been through this personal tragedy that everyone in america has sympathize with and many can relate to. that takes him a guy a lot of people have positive dealings for. alix: what does hillary clinton do when she says this -- she sees this favorability rating go down? john: there has not been a single piece of good news for secretary clinton in the last few months. more or less every poll that has come out in iowa come in new hampshire, nationally, every poll has gotten worse for her. what you care about as a candidate is not any given poll, but the trend, and the trendline is down. this will make the people around her worried and realize a need to step up their game. guest: she does not have a huge advantage with women that she's to have.

there's just four points difference. of the women's vote and bernie sanders gets 31%. she doesn't have this cachet to pull through. thank you very much. alix: tune in tonight at 5:00 respect."all due tomorrow, we get the republican results of the poll. scarlet: still ahead, instagram touting a new milestone -- a picture worth a thousand words -- it's actually worth hundreds of millions of users. eat that, twitter. ♪

alix: suffice it to say that instagram is killing it. they snapped up 400 million users. it took five months for them to rack up there last 100 million

-- there last 100,000 users. is doinginstagram better than twitter. how does it face up to its parent company, facebook? are international users as valuable as the mystic users? all great questions. let's address a few of those. the numbers we get from instagram are given out in a peculiar way. they will tell us in a press release when they get the number but they don't reported in their quarterly earnings or when facebook reports it. facebook purchased instagram back in 2012. in the middle of december, they gave us this 300 million number and then today come we get this 400 million number. while the growth is still much smaller than facebook, it's not only growing really fast, it's going to be bigger than twitter. that is important for instagram, because they are just starting to find ways to monetize and use

the way people are clicking on those pictures and using mobile to do so. instagram being very judicious in their use of advertising and monetization of the business. what it shows is they've been so careful not to screw up the user experience with careful tweaks to the design. the pictures are for the most part still square, but those growth rates are through the roof. alix: those numbers are great and it's good to see, but where are they in the process of making money? cory: i think the way facebook looks at this is there's a couple of ideas. if people own instagram, they are not going to some other social media site. they are not going away from the facebook platform to consume social media and the integration between facebook and instagram is not to be taken lightly. facebook is a place with a

monetize more, but look at that picture of me on instagram with $.50. cent.h fifty investors will demand more detailed information and i want to bring up that chart that shows the growth rate between the different social media platforms. facebook against twitter and against instagram. just since december, using dramatically better gross, -- better growth, far and away above what we have seen from a's book or twitter. scarlet: facebook is also dealing with the law of large numbers. it's hard to move it by that amount when you have such large numbers. what about the fact that the growth is coming from outside the u.s.? cory: that's a great question and i'm glad you read asked it.

the numbers are going to be small. the monetization on mobile is worse than that of the users on desktops. internationally, the way people advertise, you see those users generally get less in terms of revenue per ad. growing internationally is going to be a big deal because there are silly people they can get to. alix: thank you very much. scarlet: what's your handle on instagram? alix: i'm not on instagram. i was on hotmail until 2005. scarlet, you are going away. we have a lot more to come up on the bloomberg market day. ♪

♪ alix: welcome back. top headlines this afternoon, finance minister oliver says

that the company is not intercession now, despite data , despite data showing otherwise. in a new go -- coalition forces suspending reforms commands by creditors. this is a key condition and the latest of international bailout keeping the company afloat. alexis tsipras won reelection despite austerity. and an army helps return the interim president into power today after forcibly removed weeks before the election. as the president ruled the country for 20 years. a potential compromise was raised in an emergency summit hosted by my dear print under the proposed demise, elections will be delayed until november.

and pledging to zero out greenhouse gas emissions by 2050. your letter -- unl ilever spoke to bloomberg. >> it is our duty to make sure --, we are not driven by instead consumers. and emissions test scandal has led it to a second in volkswagen. theyshakeup in volkswagen say that they need a fresh start, more than one million cars are involved. vw could face billions in fines and repair costs. and mark gilbert has a new piece out today saying that the vw scandal looks like -- on four

wheels. he spoke to scarlet earlier today and was asked if auto engineers are the new rogue bankers. >> a lot of echoes, what we're seeing in the auto industry. there is never only one cockroach. that is what we have learned from the currency rating. also in the oddest -- auto industry. at about -- i doubt very much that volkswagen is the only one has been playing fast and loose with the rules. look back at the auto industry trade magazines and look at reports in recent years, everyone knew the carmakers work gaining on the system, it is how you got soul efficiency better than anybody can get in the real world. this is the culture of regulation that is at fault. if you do not fix one broken window, all the other windows get broken. may have allowed automakers to get away with murder on

emissions testing and fuel efficiency testing and they will try to get away with more, that is where the cult is. scarlet: is it right that it is worse in some ways with this scandal, the conquest of this, as we have seen with the gm recall for instance, lives were at stake, but you see that this is worse? >> in two ways, this is not an error they tried to cover up, this is an actual -- they knew it they are doing, and they did it deliberately. in the finance scandal, it is only money, ok. emissions we have testing is because the stuff that comes out of cars is dangerous for people. so, whichever engineers that worked at volkswagen, they are normal people.

someone is going to go to jail and particularly if this shows of and the rest of the industry, the fines involved could make $10 million that the bank's cave look like a drop -- banks paid look like a drop in the ocean. --rlet: volkswagen has owned at least 20% of it is owned by lower saxony, and they do not want it to fail financially, what is your take? >> one lesson i hope we learn from the financial crisis is that economic darwinism is a good thing and i think it would be a mistake for the german government to keep people quiet and out of the fire. there are lots of jobs involved and it is terrible, but this is about culture. if you allow companies to get away with this behavior, they will repeat it, again and again.

so i hope darwinism comes into play and this could be a disaster for its employees, but that could be what is needed. scarlet: it is interesting, people think that there is this comparison between wall street and the auto industry, the public thinks that wall street people are folks who do bad things, but they do not think about that when it comes to the auto industry, we have seen so many scandals in the last 12-18 months, is there a sense from the public that there are some bad people in this industry? >> is interesting, the google able, they are aware of this culture that can be involved and can lead to this behavior. when johnson and johnson had an issue where people were tampering with the drugs and

people died, johnson and johnson reacted very quickly, pulled them off the market, apologize. all the things you hope a responsible company would do. it does seem that the auto industry in particular, maybe because they had a hard time in, but they seem to be not trying to do lots of good things, they are trying to get away with what they can. we need cleansing. gilbertat was mark began with that speaking with bloomberg earlier today. this can be felt across the markets and it does have an effect on the euro. this comes from a note, i brought up earlier today, only about it -- tell me about it. markets fell yesterday and there wasn't really a reason for stocks --ere were two

sorry, a mining company. and will slide in, it didn't make sense of these two companies will be driving the overall market, but one thing that was said is this is a weird situation where volkswagen his driving global markets -- volkswagen is jiving global markets. this is a fascinating idea. ip showed,lick -- cl what does this say about the automotive industry in general? the idea that it could go beyond volkswagen and have other factors is not outside of the realm. alix: and the euro is below its average, you don't think that would be the case. he think that would hold. that was interesting. weird,rkets have in

especially because of the fed. things that you would not expect are not happening. stocks are selling off, there are strange things happening in the market. it is interesting to look at. alix: and we will talk about this with mark, the currency weisenthal, and others, we will be talking in half an hour, a great conversation. , pope francis is getting political in his first visit to washington. we will discuss his agenda. ♪

.lix: welcome back

a look at top stories making headlines. bloomberg is testing a car pulling service in china, the busiest market. this allows jairus to pick up passengers on their route. a thisk it through theap underscorespp. uber comingrscores into china. now a $21 million investment, hearst has acquired a minority in a bimonthly magazine that owns several sites. it started outs a fashion magazine and now it will reach 57 million visitors and generate thousands of views a month. this is a digital have a company grew and get your eyes ready for a double feature. artotal loser" and -- lun

eclipse and superman. this has not happened in 30 years and will not happen again until 2033. those are some of the top stories. -- market a team compared to what we have seentame recently. -- have been recently. around you are searching looking for investment opportunities, there is not a lot of volume in a quiddity in the market. take a look at indexes. he will see that there is not much change. matt: the s&p 500, a little bit of a change. the nasdaq gaining most of the is techjors, because it heavy and that is an industry doing well right now. and well off session lows.

16,000 in the doubt. i am looking at the map here on in bloomberg terminal, so we can see what is going on. you can see the grain size of the pie, -- g place ofreen the pie, i see, a gaining group. you have utilities up as well. not really big gains there. big losses are materials, those have been doing early -- poorly all day. especially related to copper, that has had problems today. so a big loser. alix: and commodities, oil seems to want to go higher. they could not keep it and it has really gone downward and taken energy stocks with it. a lot of that has to do

with the refinement conversation we had earlier, this is down more than normal because of the time they are going to write not, they are not using capacity like they have been. oil is really coming down. when you look at inventories shrink, a drop there on the reduced refinement capacity and output. that brought down oil and energy stocks as a result, anything related to that is having a tough time. although not much movement there either. alix: it is true. thank you matt miller. we are also monitoring pope francis today, he is heading to the villa so that -- to the silica in washington dc for a massive coronation. he is driving there now, we'll update you on when he arrived. that historians say in

establishing -- this canonization is significant. and of course he is in the u.s. for a few more days, he exactly is like immigration and climate change. seems clearcy, it to me that climate change is a problem. can no longer lead to future generations. believe -- it to future generations. we have more. tell me about the findings. >> the pope is popular, this is not a shock.

what is interesting about this whole is it we went issue by issue. what has made him so different? we want to see how americans view the issues. on conservative issues, americans are very supportive of the direction that he is taking the church, abortion, the treatment of gays, the annulment of marriage is, the direction he is taking, that is well above 50%. you pointed this out, people have the most problem with the direction he is taking the church on climate change, only fair percent of americans agree with this direction. this is cyclical. you think about his remarks today, he is weighing in on a very political issue in the u.s. alix: and president obama trying to get his own square on climate change. this do to unite the president and the pope and how does that help president obama's

cause? >> they have an alliance on this issue and immigration and on criminal justice. several components of what the pope says, he is talking about criminal justice reform. immigration was mentioned today. a big component of what he is trying to do. climate change, that is a huge issue and it is bipartisan on capitol hill, there is no movement. he will come in and praise what the president has done through executive action, the white house loves that. .e has talking to officials there is trepidation because you do not know what the pope is going to say. they cannot prepare for. there are issues they agree on, but they wanted to make sure that he would touch on the key ones. alix: what will the pope say when he addresses congress. >> everyone is waiting. if you look at the issues he has made prominent, even since he was in the u.s., he has talked

about immigration and climate change. safety of life might be something he touches on that sanctity -- density of life might be something he touches on. they are picking out things that align with what the pope will be. he is not a super liberal pope, he is good at increasing the environment he -- embracing the environment he is in. people in the capital are wary of his immigration push and of his views on climate change. you might hear him talk about divorce or marriage issues, i do think it's you look easy concern with conservatives. speech, theoint republicans could be made uncomfortable. alix: it will be great to watch. thank you. you here tomorrow? >> no. alix: ok, we will be covering

that on bloomberg politics. much more ahead, we will talk about stocks and the downside is china continues to floor. ♪

alix: you are looking at a live shot of the pope in washington dc, this is incredible. pope francis is on his way to the national shrine of the national desk, he will be leading a mass there. supposedly there will be 30,000 people attending the mass. this is a really fabulous site to see in washington dc. going back to the markets metta thwe andmarkets -- markets are watchingfed china

for any kind of hiccup. have been contracting for seven straight months. and stocks are down 70% this year, so how much lower can growth -- 17%, this year's harvest lower can growth go? i am joined by gordon and mike. you sent some great charts. is notd that china reflecting its true weakness if you look at imports. explain this chart. >> the current premier of china, before he became premier he said he did not trust the data. so when he looks at it looks -- growth andes other metrics, but those that he flat at, they are hinting to negative growth. i think that the gdp data, many isple are thinking that this

not accurate. the reason that we look at other data points is it because they reflect what is going on and it looks like it is flat to down. >> there are some people that say you are not taking in the consumer. a-ish to thinknn that they are not looking at the downturn? >> i do not think that they are looking at real estate. you have had $18 trillion of credit growth against 1.6 trillion in nominal gdp growth. so this has grown significantly. there is that debt in china and that is what -- b that in chinaad and it is used to rollover existing debt. talk aboute to commodities, because there was a great note out that said china uses copper, but is proper key

for china, can these metals sustain their life in a china that is growing negatively? >> i think that they are showing significant more down to that downside. the big four, rio valley, and others, all costs are 20-30 dollars. 2004, pricesil averaged under $30 a metric ton, so that suggests that iron or should be around $40. so there is downside still. ideasi'm reading your right, you think that cliffs natural resources, u.s. steel -- alix: the guys that make the commodities? they arendirectly exposed internationally, if you with the rental market, we believe that 20% of revenues overall are international, so

their peers are dumping inventory into the market and we see that in data. residual is falling. guys are cutting. we are looking at this layout. the investors focus just on u.s., they do not look at china. china's 50% of these commodity consumptions. so this will have an effect here. ofthis is reminiscent another's take on china. it was said that you cannot short it, you do not know where it is going to go. internationale stock, the question i have, the policy in china can be so unpredictable. would you worry that someday you will wake up and the government will have done a giant researcher project -- infrastructure project? >> that was my biggest concern. the reality is china is stimulated, they had benchmark lending, they have swapped out

government debt. there is a lot of money coming into china. if they launched a fiscal stimulus, that will cause the currency to decline and more money will leave. they are in a pickle. alix: gentlemen, thank you. gordon johnson. my greek and, always good -- mike reagan, always good to see you. we are continuing to watch the pope. there you see them -- hi in the middle ofm washington, d.c.. by the way, that is a cheap eep wrangler. we will be monitoring events. ♪

♪

alix: we are moments away from the closing bell. alix steeel.

bob eiger -- u.s. stocks have been mixed throughout the day. are the bestdwide in four years. but the question is, what did you miss? pujols widens conducted damage the euro. could full wagon scandal -- who pulled wagon scandal could damage the euro. alix: and why china is crucial to the fed. joe: ny capital markets have all the power when it comes to oil. alix: first we will begin with the markets. i cannot believe we are not looking at intercollegiate move on the doubt. joe: did anything happen today? it was so boring. a little decline. alix: we did see the dow