scarlet: u.s. stocks closing lower, being dragged down by walmart. joe: the question is, "what'd you miss?" scarlet: we will start with the ugly. walmart falling the most in 25 years in it is a serious drag. and we will talk to the cfo of wells fargo. -- onend why the highest of the highest armies -- performing stocks ever, standing out from the pack. --walmart county 30% accounting for 30% of a decline. as a result, you see u.s. stocks with back-to-back losses. the sales data did not help.

alix: -- scarlet: treasuries rose after pushing for a hike. joe: what is interesting, you could not see too much bleed over from walmart. retail did not have a bad -- a very good day. so people took the walmart news cannot necessarily be indicated -- indicative of that. we will talk about walmart coming up. scarlet: and the volume on the dow up 30%. alix: this is versus the 10 day average, many people coming in after the break to trade. joe: it felt like today there were a lot of different moving parts. alix: we will look at the bloomberg terminal with a perspective of how dramatic the selloff of walmart was. here is a chart of walmart, standard deviations this is the five year average.

they are measuring the risk involved and we are literally $.08 from hitting that deviation move, when has that ever happened like that? i cannot find a day where you would think something like that price decline. i wanted to max this out so we could see a longer-term perspective, so we are looking at maybe 34 years and still, this is a dramatic move. you would have to go to a different point, but this is a different shot. of: a huge company, billions dollars he raised, it does not happen often. scarlet: this is a deep dive into the supply chain. joe: right. i want to look at the terminal, lookingas suppliers -- at suppliers. why did walmart matter so much?

this is a way that they get there goods. crab, 26% of revenue through walmart, nestle as well. he is companies, many of their sales go through walmart. so whatever is happening with walmart, it is having an impact on the broader landscape. the future of walmart will have an effect on these relationships with these companies, some for the good, so for the better, this is a huge company that can set prices. alix: i want point come out si stock.t sea -- pep it wasn't down, but not as much as a active. joe: people will still buy pepsi . alix: the supply chain was not hit as bad. and we spoke with doug mcmillan and what he said was he

acknowledged it is more company specific than reflective of the market. i want to look at this terminal with a deep dive look at walmart suppliers. before the crisis, the revenue was as much as a 50% year on year. so they were outpacing nominal gdp and they continue to do so through the recovery. something changed in 2013, right here. right around where the lines cross, the revenue was the accelerated and it was below, the gap was widening ever since. you can see the gap getting bigger and that is an alert to investors. joe: i want point -- at one point -- alix: we want to get to netflix, you will look at this number for subscriber growth overall for domestic streaming adds, they added about 1.6 5 million.

i am trying to find international streaming, that was at about the .5 million. million subscriber growth. a that is where they have been putting a lot of money, takes an international business -- to expand international business. $.07 a share,ut that is a little lower them -- than estimates. they had played with a high content costs. joe: they are down about 14%, so investors are not liking this number at all. i think the other focus was on international, but they missed by about 200,000. scarlet: they are starting to break even. i do not know what that means, but they are lighter than

anticipated and that is an issue. trying to deliver profit, they were talking about the international business, something that would break even at a certain point. having said that, the stock had been priced for reduction. they were telling us earlier netflixmart can fall, not getting the numbers that investors anticipated and not cause -- and that caused it well. joe: walmart is the ultimate brick and mortar company hitting -- eating slams -- getting slammed. scarlet: cory johnson is here from san francisco, this is about the international and domesticbers streaming numbers. >> we will look at how this

works. this is purely a punch of how much market they want to spend. if they want to spend $4 billion, they could have more subscribers and possibly add them. this is not money going towards profitability. we saw going into this quarter that their subscriber base had a millions of users, since it five 62.3 million drivers race - -raised. .ast quarter they rose 5% maybe they will not be able to pay for content, because ultimately what this is about is having enough revenue to pay for increased in expensive -- expenses. they are talking about how many dramatic shows are in production and it is far away larger than what was in the past. guess what, netflix is a

purchaser of content, they do not have international subscribers if they are not adding scrubbers at a faster pace. they have already agreed to pay for these. we will not see in these results, how much money they promised to pay in the future, commitment and contingency. sheetan off balance item. over $10 billion in minimum payments for future content and they'll have to buy more going forward. shaw who also reports on netflix, he is pointing out that they fell short due to a credit card that cut off customers. is it fair to look at one quarter and say that they are slowing? >> that is more of a revenue

item, not a profit item. scarlet: in terms of growth, that could have hurt the growth this quarter? >> may be a little bit, but we are talking about international growth. this is a new requirement. and a lot of credit card companies in the u.s. issuing new cards, that should not be affecting growth internationally, where this matters. the market in the u.s. is much more saturated and the international -- than the international market. this is happened for decades. this should not affect them internationally. more importantly, this is about getting the kind of scriber growth that will let them pay for content that they have already contracted, remember, statement, going back over the last couple of years, if you look at their inability to make

of this capital. if they are spending for growth -- one number i look at, how much money they spend on marketing as a percentage of revenue. they said a few years ago that they would pull out all opt -- all stops. even though they are growing, they are spending 12% of revenue on marketing but they are adding fewer customers. alix: you mentioned the cash flow. scarlet: it is steadily getting more negative. in the quarter of 2015. scarlet: -- alix: and they are likely to raise more capital, because they already committed to this content. balance sheee off

billion last2.2 quarter. square, a company we know, they have quietly filed for ipo. the actual filing is out there, it will be run i jack dorsey, as is twitter. they have officially filed for ipo. it is interesting we see that on the day that first data a, the first one out of the gate, a big acquirer of smaller companies, applying as well. headlinestioned the saying that they will raise additional capital next year for content, means they will use it to borrow money, even though

competitors are out there saying, you do not want to be a buyer of content in this market. they are running out of cash and need more money than they currently have to stay in this business and grow how we want to. joe: i want to ask more about content, because one of the stories is that everybody has been investing in premium content, from movies to original tv shows it is not always going -- isk out with snapchat out.oing to all work snapchat pulling back on their idea. >> price is what you pay and value is what you get. when you are buying modern art at a flea market or antique store, you want to be the only buyer. it will only jack up prices to

have others. there are some many out there to consume this content. we know that amazon prime is a growing subscribers, who live -- subscribers, hbo is adding scrubbers. this is fantastic. i watched a show recently, it is things are going on, fast fortunes being spent on content. a lot of medical shows underway. and a big part of hollywood is all year long now. this is not a good time to buy, it is a good time to sell. scarlet: well said. cory johnson from san francisco. we will be right back. ♪

scarlet: -- we"what'd you miss?" guest,ing in our next john. thank you for joining us. we all know the headline numbers, we want to look at the granular parts of the report, one thing that you sent -- set aside for a bad loans. see the risks right now in the loan market? >> asset quality at banks is very high, we have been releasing reserves through this point in the cycle and we finally got to this point where we left the allowance at the same size it was a quarter ago and we just let chart jobs fall

to the bottom want -- char ge-offs fall to the bottom line. off rate thatarge is as low as it has been for 30 years. credit is strong. the story in the reserve is that we managed to produce $5.8 billion without relying on reserves release, which is bank profitability of until this point -- up until this point. joe: one thing we have talked about his financial conditions and if they are getting tighter, supposedly because of volatility and the global economy, but when you actually talk about someone making a loan for a home, do ,hose things actually matter does it the volatility factor into the decision? >> not so much in single-family mortgage lending, this is a tale

of two markets, one of them is the prime market for those with larger balances, there is no secondary market for the loans. they end up on the books and that is about the ability to repay. it is cash in the bank and the ability to sustain debt and each bank can set their own guidelines for that, generally speaking very low, very high quality. and the other side, the government programs, where credit is getting tighter in fha, as lenders like wells fargo have put overlays on what the industry will take as a minimum to protect themselves. fannie mae has probably liberalized a little bit too accommodate more. the big difference between now

and where we were in 2006, is the requirements of the hard-core underwriting for a borrower's ability to pay, that set the threshold. it is not so much about market volatility. compared it to 2006, how about two 2010, when the best way to grow capital was the old fashion way, rather than relying on unpredictable markets. organic growth has been hard for banks. stumpf said that. is this the way to grow capital in this environment? assets, about growing it consumes capital to grow those. our organic bone growth has been very strong, made to high single digits in the last few years. the portfolio comes along and

easy strategic news for wells fargo, this is a business we understand, something about the selling entities capabilities is additive to what we do. our recent examples, with ge, three portfolios so far this year, and we announced the largest yesterday. alix: earlier today, we spoke with the ceo of bank of america and asked how much the bank can make at the fed raises rates. take a look. upis great -- if rates go 100 basis points, we make $4.6 -- $4.6for taxes billion here in. >> we are also interest-rate sensitive, meaning windows go up, we make more money. we do not really tell people, we

are already making profit any zero environment. we have had some long-term -- added some long-term assets in the last couple of orders, with the expectation that we will be in the low. rates move up, we will make more money. we are not really handicapping it in a way that was just described. alix: thank you for joining us. i do want to update everyone on breaking news. square is filing for an ipo. it will be listed on the new york stock exchange. as part of that, we are getting some underlying fundamentals on how they make money. the six months that ended in june, 506 million dollars was the revenue, that is almost .ouble versus $371.9 million

i asked if that was a year or year, or not. 77.6oing back one year, so maybe yours, are operating in a loss, making a lot of money, but you're still not yet profitable. we'll keep you updated on that. joe: coming up, we look at the paper that made plain white growth hasn't been so slow and what it means. ♪

♪ joe: on tuesday, the federal reserve bank in san francisco released a paper and it hit a bombshell. ontrary to belief, it says,

money may actually be tight, destroying a premise that we have talked about. what was in that san francisco paper, we talk about monetary policy so loose, but the paper said it is already tight. >> normally when you think of fed policy, they have been added zero, they have bought bonds. so it is easy to think that it is easy, but you have to benchmark that against something else, measure that in relation to something else, the way that people usually do that is to look at something called the neutral rate of interest. what this study showed is that this neutral rate of interest is a -2%, or below that. joe: define the neutral rate and i saw you brought a problem. --

prop. >> this is the inflation adjustment for short-term, and not too easy or too tight. abovectual policy rate is the neutral rate and you are reporting downward pressure on inflation, because you have rates too high. fed rate is athe implies thatt rates are too high relative to where they should be. joe: how do they figure out -- i know that the paper said the rate right now is -2%, but how did they come up with that number? >> a lot of different things go into the model, but one component that suggests rates are so low is the idea that the u.s. consumer is still recovering from the great

thingson and to some that that brought, saving more, being more cautious, so you need a lower interest rate. joe: how did the shadow fund go into this? >> there is this concept of a shadow has -- shadow fund. rates were interest brought down. the shadow fund is was to take that into account. policy shouldfed be reflected by a negative rate. wven that shattering -- shado rate has risen so much that it is above the neutral rate. joe: great stuff. so maybe monetary policy is not as loose as everyone thought. matt will stay with us to talk about the great debate about the fed. we will be back. ♪

♪ alix: -- --rlet: "what'd you miss?" we will go to mark with the headlines. brought aie sanders windfall -- $3 million was about $2 million less than hillary clinton. political analysts say the window may be nehring for joe biden. -- maybe narrowing for joe biden. russia says bombing raids over syria came close to a u.s. jet

in the area, but the kremlin says the encounter was to simply identify a plane and "not scare anyone." russia says the incident occurred saturday when it's fighter jet flew within about 1.2 miles of a u.s. plane. washington and moscow remain at odds over how to coordinate operations in syria. iran's guardian council comprised of senior clerics and lawyers as approved a nuclear agreement with the west. iran's parliament has already signed off, which would curb iran's nuclear program in return for the lifting of international sanctions. here is one thing that will be off the menu at jenny myers restaurants -- tipping. all 13 establishments in the union square hospitality group, including the union square cafe in new york will illuminate the practice. the company says it's part of a sweeping change in how employees are rewarded. that is your first word news. alix: let's get a quick recap on

how u.s. stock markets closed. we have the major indexes suffering the first back-to-back losses. walmart accounting for 30% of the dow jones industrial decline following its reduction of its 2016 forecast. the latest retail sales data did not do much to help the sentiment. it pushed back expectations for interest rate increase by the federal reserve. it also sent treasuries higher. alix, a big story has to be walmart. people are wondering, does it spread to the rest of the regional sector, or is it company specific? alix: it's a company specific story, it's not a reflection on the consumer. nonetheless, $20 billion in buybacks is not enough to offset this loss. put it into perspective, look at what happened to the walton family. they lost over $9 billion in one day alone. they obviously control more than half shares.

fortune,heir combined near $170 billion in 2014, and now it's lost a lot of its value. >> we are going to say oh, they are doing pretty great, they have $120 billion. but there are many examples -- there are not many examples of many families losing $50 billion. that is a rough year. i would not want to lose $50 billion. alix: with walmart, that doesn't normally happen. next likes coming out with the results. domestic screening results missed estimates. netflix says it's earlier to raise additional capital to pay for content. not only its original content, but also ones it acquires from different production places. as a result, the stock is tumbling in the after-hours trading by double-digit percentages. >> it's come back a little bit and still getting slammed about 8%. scarlet: we should put out the

idea that they have a for content and need to keep paying for it, no matter what subscriber growth is goes to show how prevalent a loss like that can be when you don't need subscriber revenue. i want to look at deep dive, but i'm trying to find a first. can someone else do it? ourlet: r bloomberg -- bloomberg stocks team wrote about this on bloomberg.com. this is an implied correlation index, and it measures expectations whether the s&p 500 numbers will move in unison or not. on monday, this is where we want to focus on -- this index fell to the lowest level ever. it is down 30% from that point in august, when the s&p 500 began its decline. we are seeing that loss of correlation. it is throwing everyone for a loop. alix: jp morgan has the definitive risk parity that comes out. they have said that because they have seen this correlation increase in august, you can see a 20% reduction in equity

exposure. anywhere from $50 billion-$100 billion. that correlation is quite significant. scarlet: that is massive. alix: i finally have my chart up. look at the aussie dollar and what happens overnight. check of this decline against the dollar. that was because you had one of the largest local banks raising its variable home loan interest rates. the expectation is a central bank may have to cut rates to offset any kind of tightening we are seeing in the economy. the probability is about 50% for a cut next month. ,> the odds of a fed fund hike if you go into my terminal and look at the work function, which is based on fed funds futures, less than 30% chance of a move this year. you can see that right here -- sorry that's so ugly.

20% by the end of september. now people don't even see the odds of a move by march. 52.9% chance we don't get the first move on until april. all this talk about december, december, december not convincing the market. on the flipside, we've had other fed governors say, we are not so sure that hiking rates in 2 015 will work. with us now to discuss all of this is our guest. we have had different speeches from the fed governors, we are not so convinced that 2014 makes a lot of sense. we are not convinced that the fed is anywhere close to hitting its inflation targets. how surprising to you are these speeches, which seem like different views advantage chairman? >> i don't think they should be too surprising to anyone. we knew a month ago after the fmoc meeting that there were four people on the committee against raising rates. when you do a process of illumination, -- of elimination,

you can narrow it down. i think the interesting thing is that they are casting doubt on this relationship between unemployment and inflation. it is something that fed chair janet yellen is leaning on right now. scarlet: to the extent that we have seen a divergence in the fed views, is that different? i want to quote while bringer, i do not viewrd, the improvement in the labor market is a sufficient statistic for judging inflation." " a variety of economist rick-- totally throwing out the phillips curve. is that unusual? >> people are making a big deal of this right now. i don't think janet yellen and

stanley fischer are so adamant about the phillips curve being correct. i don't know it there is a difference between them right now. when you hear someone like janet yellen say i expect to raise interest rates, that's not necessarily a high conviction call, given all of the uncertainty around the economy. that uncertainty is rising. we can see that in their commentary in the minutes of the fmoc meeting that came out last week. i don't really think there is this beta cap between defense leadership and these other members, as some try to imply. >> the phillips curve is a theory that by economists. the data would show in the u.s. that it has not helped. at the labor market gets tighter, you're going to see pressure on wages, boosting inflation. we have not seen it at all. people wonder if this is even applicable in this day and age, given all the structural changes in the economy. >> yeah, and the other big thing

some are missing that we learned in the minutes last week is that it's not a given among members on the federal market committee that the unemployment rate is even going to keep dropping. actually more people on the committee see the unemployment rate as being to the upside than on the downside. this was a notable shift from their june meeting. you have a lot of people saying okay, we may not be able to get the unemployment rate 2/10th of a percentage point. that is a whole dimension to this fellow scarf thing. -- this phillips curve thing. getting unemployment lower. >> the bottom line, from your perspective, is that they are not too much in disagreement over ideology. we're just learning what these dots are, basically. >> absolutely. the phillips curve is actually alive and well globally. you see it in the u.k., places like turkey have exceeded their

inflation target. why are we seeing it here, and it is working elsewhere? >> the other big thing is that the phillips curve depends on this relationship where the natural rate of unemployment is that would cause inflation to accelerate. right now on a planet is at 5.1%. the fed thinks it's around 4.5%. -- right now unemployment is at 5.1%. the rate of underemployment is so much higher than it was in past cycles. that could be driving the natural rate of unemployment lower. aging in the workforce, older workers usually have lower unemployment rates. there is a compositional effect that could be driving the rates down. we could be realizing at this point that we are not as close to that natural rate of unemployment as we thought. scarlet: fascinating conversations. the smartest guy at the table, thanks matt. alix: a big call out of hsbc.

we will tell you what it is and what it means for global growth next.

scarlet: it is time for the bloomberg business/, look at the -- business flash. it was a rocky september 4 a hedge fund firm, paulson partners fell 6%. it drops to 6/10th of a percent. losses are eroding what has been a bright spot for the $18 billion for. it's not trying to recover -- it's now trying to recover. alix: analog devices are said to be discussing a possible merger. people familiar with the talks say they are still evolving and may not produce an agreement.

it's been a record year for mergers and acquisitions in the semiconductor industry. cnet out hundred $10 billion in deals in 2015. scarlet: square filing for initial public offering in this hour. an initial offering size of $275 million. the mobile payments company was led by twitter ceo jack dorsey. that is your bloomberg business flash. last week, stephen major, the head at hsbc made a bold call on bonds. he cut his 2016 forecast of the treasury yield to 1.5%, predictably in the past two point percent. alix: what would this mean for equities and global growth? strategistal equity and global head of equities sector research -- ben, thanks for being here. what is the 1.5% yield on 10 year next year me? -- i don'tt think

think it is a good story for equities. this is the story for the last 5-6 years. we've seen discount rates have allowed multiple to expand. if it's global growth expectations, i think that would be profoundly negative for equities. that's not what we see. global growth is clearly under pressure. yields,e german bond that will drag down at the u.s. treasury curve. the inflation environment have in the u.s. is not going to stand in its way. quite a lot depends on why the treasury curve is coming down. >> something we just talked about earlier is that banks are excited about the rate hike. they have assumed that it if there is a rate hike, there will be a hike on the long end. in your forecast, do you think that the rate hike by the fed would result in more flattening, and is janet yellen going to face the same conundrum that greenspan faced?

ben: looking at the relative winners and losers, we like most is high-yield stocks. it's not going to happen. a lot of these high-yield sectors attend to be big underperformers. alix: we are also fixated on his 2% inflation. with oil prices currently stuck around $50 a barrel, below 50 in the u.s., global deflation, you could argue, seems to be a bigger problem than inflation. what does that mean for emerging market equities versus the developed markets? ben: it's a huge value proposition. the question is how do we get to it? scarlet: yeah. ben: currency is weak and multiples are very cheap. but you are stuck in this vice

between concerns that the fed is going to raise rates and concerns on global growth. until we get through that, it's going to be difficult for em in aggregate to perform. there are specific opportunities in em right now. scarlet: it's a valley trump for the most part? ben: like china, for example. 20% discount, 2 historic averages where you have multiples at a premium. one of the tightest markets out there, people are very underweight. it's one of the markets that a lot of folks ability has the willingness to continue using it. that is a positive thing. >> hsbc without with a call that says is not going to be a huge crisis like in the past because more of the debt is not dollar-denominated. there is more flexibility. the currency channel is more flexible. is there any risk of a full-blown crisis, or do you not see that happening? fed makes one of nervous.

there are a lot of known unknowns. we know the data, but were not sure who owns it and where it is the system, and that makes people nervous. that is white em is d rated. for a long time, at this point in the em weakness that we have had, we've had problems somewhere. but we have not had them yet. em has been out of favor for 5-6 years. policy has been week for a long time. we have not seen meaningful issues yet. that has me confident. scarlet: rather complaining -- rather than comparing em in the past to now, what about to the financial crisis back in 2007? ben: it's slightly different. the crucial difference is the currency mismatch. asset liability mismatch, how is that being hedged? it's a crucial difference here.

back to what i said earlier -- a lot of information that we don't know. naturally that makes people very nervous. they vote with their feet. doesn'tly when em normally do well with the fed rate. those of the two big worries for investors. scarlet: ben is sticking with us. road andna's new silk where ben sees the opportunity in a fund share in emerging markets. ♪

alix: what'd you miss? we are back with ben laidler, a global strategist, and china and its new silk road. is, describe what this map

and what the new silk road actually means. ben: it's about china's trade relationships, both the countries they trade with on a land borders, but also key sea routes in africa and into europe. they are trying hard to make those trade routes more accessible to them and their partners. alix: basically they're going to export as much as they can and import as much as they can. therefore they literally need the roads and routes and pipelines to do that. ben: that is exactly it. they are purporting -- providing the finance, building all of the infrastructure at the same time. alix: you have quantified $1.5 trillion is what we can see invested in that. how does that filter into the countries exposed to it? who gets the most? ben: in absolute terms it will be places like europe. but in terms of the impact, i look at the smaller markets, smaller places, smaller

economies. a little bit of money goes much further. they will be seeing significant dollars as well. alix: a great charge looking at the top destinations of contracts signed in 2005. looking at the frontier markets --, nigeria venezuela, pakistan, saudi arabia. can you quantify the impact of what it could be on these countries? ben: for some of these countries, within $900 billion over the next few years. alix: wow. ben: we think it's happening for than people think. the chinese government often gets accused of throwing around a lot of big numbers. this is one of those cases where we think it's going to come through quicker than people think. chinese policy banks are lending in support of these projects. both sides have an interest to get this working quickly. the frontier markets want to develop and export more as well. you were saying countries

along the route for the new silk road are about 63% of the worlds population and 29% of global gdp. that kind of money impact could be huge. ben: and the per capita gdp numbers, as you implied, are very low. a bit more growth and investment. and you have an outside impact. pakistan, kazakhstan, nigeria, these markets could happen outside impact. frontier markets are doing well recently. we are looking for a positive capitalist, and we think this is certainly one of them. alix: this is not the first time china has invested in front to markets. but it's been more of an investment. when you investment, you think energy, but these are contracts that are rising in value versus investment. what is the distinction? ben: china's relationships are changing. the initial relationship was import and export commodities and go looking for that. now it's much more outbound investment related. relationships are shifting towards goods, services,

infrastructure. it's an evolving, maturing nature of china's outbound investment. alix: the chart we were just looking at that showed how much contract of this happened in front your markets versus investment growth -- how sustainable is that? ben: given the low base, we will be talking about this for years. the surprise here is that it's happening for than expected. the expectations is that you won't see very much of this. alix: not just a vision, it's actually going to be a real and effective. a really cool note and peek into frontier markets. think you so much ben of hsbc. we will be right back. ♪

♪scarlet: don't miss this

--goldman sachs before the bell. and alix oliver slumber day. alix: oil services is where you feel the pain and get less business. the business they do get, they have to lower the price to keep it. it could be a total bloodbath. i'm excited. >> fun. scarlet: eps is expected to fall 50% from the same time last year. alix: what? we are also looking at eco-data. you're looking at about 120% year on year. 1.2%. if the job market is ok in holding up, the fed is about inflation. this data point would be key to when and how they end up raising rates. the ppi showed that at the end of the date this not a demand story, this is a supply story. >> also the empire fed, consumer

confidence, huge day for data with the cpi tomorrow. we will learn more. alix: what do you like the best? >> i can decide. --

mark: i'm mark halperin. john: and i'm john heilemann. mark: "with all due respect" to those on the debate stage tonight, thanks for the shadow. >> with all due respect-- >> with all due respect-- >> with all due respect- ♪ mark: the exodus from the desert well underway, the candidates, their surrogates, and the media in their way out of las vegas out of what was a reckoning. clinton, be set for months by self onersy, held her