>> u.s. stocks glowing -- closing lower. joe: the question is, what did you miss? plaintt: two charts makes . joe: the trouble with buybacks. we speak to the author about report on the puerile's of short-term thinking. an nyu professor joins us on new rules in the pharma sector. with thewe begin markets. the u.s. stock market was opened , no real economic data. retailers were the big loser. the dollar weakened and oil came down a little bit but it was kind of a ho-hum day.

row five of six days in a in the rso nothing dramatic. we were in the green a little bit and then up and down. you have to look at gold prices if you want to see some serious action. 2010.west level since this is huge, this is all about the fed. saying --sts reaction a lot of the is in the treasury market. , really interesting earlier today. let's dive into the bloomberg look at short-term versus long-term volatility. the yellow line represents volatility at the front end of the market.

the green line is the long in rate volatility, that's pretty much stagnant, not going anywhere. you're seeing volatility on the front end but long-term the rates are expected to stay low for a long time. in terms of long-term growth and inflation outlook, not much change. joe: i want to dive into my terminal because the one area where there was some action was in china. the big thing, rebalancing. move from ano industrial economy to more consumer-oriented. isthe industrial side growing at 6.1%, really mediocre, the lowest level since the crisis. on the other hand, retail sales is growing at 11%.

a little bit of a triangle shape there. i don't think we can go crazy extrapolating from this but it's interesting on the domestic consumption side of the economy which is growing. hopefully this will continue. here is what its financial markets are doing. look inside the bloomberg terminal. yenblue line is the chinese but when it goes down it means it has we can. this is when china devalued its currency. since then you can see the yen has pretty much recovered and has gained 1%. index hasai composite gone to a bear market because there's is that big plunge, to a bull market. this is around when the federal reserve decline to do anything at the september 17 meeting.

the fed and other central banks are concerned, the risk from china have eased. so the fed has hit its low chinese volatility mandate. infancy all these charts and more on twitter. alix: there is a stronger case for a rate hike increase in december, which we have been what is the dollar factoring in terms of the hike? >> it's about a 68% chance. herbal fed funds average after the hike? we had not had a range like this before. the new range will be 37.5 basis points.

there will probably be a bigger spread with the target rate. what's good for the world we talked to fed officials, they say we're going from an easy monetary policy to a very easy monetary policy. 25-50 basis points is not the kind of thing that's going to knock the world down. weightedthe trade industrial dollar has been on a tear this month. evil would call it a tightening of financial conditions. how much tighter really get before the fed moves in december? then the big picture, dollar will be appreciating and we are still in the early stages of what i call the obama dollar

rally. the million-dollar rally is about 55%. the obama dollar rate is only about 20%. when is it going to peak? meets,ks before the fed they may extend the duration of qe to maybe march 2017. is going to be measured in quarters. i imagine it will last all of next year and into 2017. joe: when we see the euro against the dollar, we clearly see that policy divergence trade, so to speak, we can clearly see the gap. the yellow line is the yellow lineand that

is the spread. it's true that there will be a long time when the fed thets tightening following ecb doing more qe. >> i think that's the wrong way to approach this. ,hat might be priced in today think about this. you will be starting next year, you are putting money in your 401(k). how is that money being discounted? i say it is not. he is being adjusted -- new money is being adjusted. current --map cap map out current expectations, but future decisions. borrowed euros, swapped in

dollars for negative cost, and raise money for m&a. does that mean the euro carry trade is alive and well? in a position be long enough to hold onto that interest rate. one of the big carry trade's people talk about his short the yen. call it 20 basis points. that is nothing compared to the volatility of the currencies. , think what we're seeing is they take the euros and swap them back into dollars which is why the cross currency swap has really exploded. joe: we got some data out of the u.k. this morning. kind of a mixed picture. the u.k. unemployment rate

longed to new lows. the wage data had been sort of hot, fading a little bit. this is interesting because there's talk that maybe the pressure is greater than on the fed because there is less labor market slack and more inflation. will they sitr around before they hike? >> they keep giving false choose. they back in the summer, said they would raise rates in november, which they are not going to do. two quarters from now in looks like the u.k. economy will slow down. is zero.cpi i think they're going to have the same from that other central banks will have.

normalizing. to i think they will have just as big a problem if not bigger. they might go to -20 or even -30, and then what happened? how do they get out of that? alix: we have much more to talk about. we will be right back. ♪

right to markt crumpton. mark: president obama let americans in observing veterans day today, following the

traditional wreathlaying at arlington national cemetery. the president said today's about more than showing gratitude to veterans. he said it is also a reminder to give they still have our nation and our duty to them. the suspected bombing of a russian airliner over egypt last month is raising concerns about security here in the united states. most of the one million airport employees are not subject to security searches. after series of drug and weapons charges at u.s. airports, lawmakers are seeking changes to expand screening and background checks. about 13 point 5 million people tuned in to fox business last night for the fourth republican presidential debate, according to the associated press, who said it was the most watched program in the networks history but still the least watched of this year's republican debates. 14 million watch the previous debate on cnbc and 20 million tuned in for each of the first two.

republican presidential candidate -- former candidate bob dole is endorsing jeb bush for president. dole, a world war ii veteran, ran for president in 1996. on these andore other breaking stories 24 hours a day at the new bloomberg.com. i'm mark crumpton. back over to you. scarlet: we are back with mark chandler of brown brothers harriman. an interesting story going on in europe, which i know you track. willeftist coalition unseat the current center-right government. what are the ramifications of that? mark: what is going to happen, not this friday, a week from now

, the credit agency that rates portugal will give it an investment grade rating. it below investment grade, that would mean that the ecb would not be able to buy portuguese bonds under their qe operations. this is a growing issue, a political pushback against austerity. a year ago, there might been one or two and its increasing the leftist center pushback against austerity. scarlet: in the emerging markets, we want to get your take on how the strong u.s. derailwould or could other emerging market currencies. >> i'm not sure it would really

affect the chinese currency. for all practical purposes, it is still pegged on the dollar. general, emerging markets have fallen out of favor. it's like we had a love affair with them and they break our heart again. what happens is, the dollar is weak, so emerging-market countries borrowed dollars for their own purposes. now they have a big currency mismatch. foreigners cannot wait to get enough of these emerging markets. south.rything has gone the dollar has gotten stronger, china slowed down, and the commodity super cycle has ended. emerging markets are difficult place now and will stay that way. brazil,a country like the current deficit is falling. but political problems make it

more difficult to resolve the economic challenges. literally, what happens, say it gets into the sdr, what does it actually mean for the currency? effect?the knock on a lot of trade is not settled to it. a lot of people don't borrow yen for investment purposes. here is the problem with those do,ers, what china wants to when they sell goods to hong kong they want to count that as an export. we new york cells are garbage to new jersey, we don't count that as an export weary china wants it both ways. how much is trading with hong kong which is another part of themselves.

status, economics but prestige, on how far they have come. joe: as the fed hikes interest uses, does it make sense for ? >> it is already fuzzy. back before 2005 it was a hard tag to the dollar. they allow other currency to move in a select range. over time we should expect a little more variability. very few countries really have floating exchange rates. the u.s., canada, new zealand, great britain. i don't think we should expect china to be much different. scarlet: hong kong obviously has its currency pegged to the u.s. dollar. is there room or scope for hong

kong to reconsider its currency regime? >> i don't think so. a lot of the money flowing out of china is going to hong kong. their central bank has had to intervene to defend the cake. if they wanted to soften it up, they could have on it, but they haven't done it. it's like the goose that lays the golden and. egg.at lays the golden road, in the medium and long-term, it could be shanghai, but shanghai's not ready yet. they still don't need the offshore center. alix: so we've gone from europe to china to hong kong to the rest of the emerging markets. when you look at 2015, what is the single biggest risk that you see?

>> we have to focus on investors. it's what we do with a losing trade. the thing that worries me is what if the u.s. economy doesn't and the fed cannot raise interest rates as much as they would like to, and we don't have the political will to have fiscal stimulus or to go back to qe? hopefully the engine of the car has turned over. doesn't, i don't think it really compares to the downside. joe: on emerging markets, what will make us fall back in love with emerging markets? >> they've got to put lipstick on. they need to solve political problems like turkey and brazil and malaysia. almost every emerging-market crisis has been preceded by a fed rate hike.

it might be like the dead cat bounce in a sense. brazil?d maybe in hard to pass that up. see prudent to wait and what the fed does with interest rates. alix: always a pleasure to have you. scarlet: coming up, white health and split -- health inflation should soon begin to increase and whether that means for broader inflation measures. ♪

alix: i'm alix steel. where is all the inflation? goldman sachs may have found part of the solution. it comes in the form of health inflation. .ake a look at the core pce you break it down, the largest component is actually health at around 17%. at about 16%.n that's a big deal. goldman said in part that is what has been dragging down that core. and the relationship between health inflation and overall inflation has taken a turn. with health inflation rising faster than overall inflation. here we are talking core pce. then in 2012 you can see the

kind of move in tandem, it is comparable. in the last two years, health services has been rising at a slower pace than inflation excluding energy and food. is it cyclical or structural? it is not clear. joe: in the early 2000, that was one of the big stories. one interesting point that goldman made is that there has been a series of policy decisions that have dragged down health care inflation. , whenample the sequester they did the deal back in 2011. there are other things with hospital payments and stuff like that. all these things have generally dragged the pace of spending lower but they have not necessarily change the trajectory. once these things reverse, that will pick up again. goldman sachs quantify

that those factors held down health inflation and that reduce the core pce. alix: it's things like ships in coverage. more people are insured, thanks to obamacare. so you have increased medicaid enrollment and they pay help riders much less than private insurance. so it is a slippery slope and that is not going to change. >> one interesting chart showed that wages at hospitals are leading indicator of actual hospital pce. if you look at the chart, you can see that based on the trajectory of hospital wages it's almost guaranteed that the hospital component pce is about to rise. the key thing is that we know next year headline inflation will almost certainly john.

there is no a debate about that. jump.l almost certainly if it starts to rise and put upward pressure on core, then we will get the real inflation that people are looking for. scarlet: state budgets have recovered and state budgets pay for half of medicare. the downward pressure will then start to ease. alix: the blue line you see is the prediction -- the orange you is poor health care if strip out policy changes, which is significantly better than what we see right now. the idea is you would add 1.5% year on year growth by the second quarter of 2016. that will raise core pce by about 15 basis points. scarlet: so maybe inflation is on its way to rising thanks to health care. professorlk to an nyu

on the changing health care business, next. ♪

i'm scarlet fu. "what'd you miss?" >> a new idea for ending the conflict in syria. it calls for a popular vote but the plan makes no mention of the syrian president bashar al-assad keyping down, as ke demand for some. egypt's president was returning when he made the announcement -- he was trying to reassure tourists that the vacation

destination is safe after last month crash of the russian airliner that took off from the red sea resort. the vatican is expanding its probe into leaked documents. two bombshell books curtailing alleged waste, greed, and mismanagement alonmong the church hierarchy. they were based on leaked documents from a reformed commission pope francis set up to get a handle on the vatican's finances. the hurricane over the atlantic is packinguda sustained winds near 75 miles per hour, center 260 miles north of bermuda and heading northeast at 40 miles per hour. kateurricane center says will likely cause life-threatening surf and rip current. you can get more on these and other breaking stories 24 hours a day at bloomberg.com.

from the bloomberg first word best, i mark crumpton. scarlet: thank you. let's get a quick recap on how u.s. markets are doing this veteran day. the bond market was closed so equities were the only game in town. a bounced around before ultimately closing lower, the dow closing at its lowest level this month. anddollar also weakened oil prices declined. there was not much significant data outside of china, which was retail sales were outpacing industrial output, indicating that the government's transition is working. >> one of their interesting pieces of data -- the and emplot rate. not the unemployment rate, but the employment rate, in its best level ever, and we have been talking about this divergence between labor participation and

u.k. labor force participation rate. a lot of people are working in the u.k. -- it is pretty impressive. alix: it's true. especially compared to the u.s. which job market is better and which should move first in the unemployment rate. scarlet: i want to take a look at platinum, the selloff -- this is something, alix, use talked about, especially given the vw scandal. holdings in etf have been declining, a steady dropped the last couple days. most recently they are now down to 75.6 metric tons. september 21 is the time you want to keep in mind -- the beginning of this long drop. admitted to vw cheating on those emissions test candlesscandals, and what precipitated the slide. people think there will be less demand for diesel engine vehicles, and that would mean

less demand for platinum. alix: it is certainly tied into the lonmin story. this is huge -- lonmin employs a bunch of people, this is one of the big metals they mine. what are the economic ramifications? you can see the trickle-down. >> one of the big stories in the economy -- why does u.s. economic activity remained below -- does short-term sinking explain my investment is so weak? joining us now is a roosevelt institute fellow. you just wrote a big paper on the scourge of short-term thinking, buybacks and dividends and how this is taking away from investment. what is the basic thesis? >> the idea is that it's a narrative we all grew up with -- a corporation exists for their benefit and if they are taking funds out it is because they have better use for them. the financial markets will allocate money more efficiently, and this is as it should be,

because this is what gives development spending. the point is that is wrong. it is not true that they are dynamic or growing rapidly, edgin fax this is the weakest business cycle in postwar history. there is no sign of a growin shareg of the economy, none of these benefits are being delivered. and that is not surprising because financial markets don't allocate capital. most of the money that flows out, the $1.2 trillion that flowed out last quarter, is closed to new -- joe: but we have had financial markets for a while, and the counterargument is -- there aren't that many investment opportunities, demand anywhere mediocre,ld is there are many places to invest.

why not spend it on dividends and buybacks? what has changed in terms of the short-term iism? >> i don't think this is a new phenomenon. this is the weakest in terms of business investment. the second weakest as the previous one. so this is an ongoing problem that is worth today, but not a new problem. i think it is clear that strongerer pressure is today than it was a decade ago, and i think it explains a lot of what we are seeing. joe: this chart that we have right now shows the cumulative change in investment, and the bottom line was the 2007-2015 cycle, and as you can see from the beginning, it has been the slowest. >> and that above it is the previous cycle. this is a secular intensifying. joe: was there a policy change at some point that change shoulders, and is there a policy fix you recommend? is a is clear that there

transformation of corporate governance in the 1980's and 1990's, the shareholder revolution. to ability, the right recognize the ability of shareholders to dictate the use of funds within the corporate sector was much greater than previously, and that is something that has gotten stronger. there is a real shift in priority, away from the development and growth of the corporation and toward maximizing short-term payouts. joe: you mentioned that there isn't that much investment in high tech companies. it seems like there is just based on the media, because we hear every single day sub new investment. why isn't that -- >> it is important to look at the aggregate numbers. certainly are sectors have startups and there are exciting new companies, some of which are getting funded. but if you were registered in the behavior of the economy, you

have to look at the total numbers. when you add them up, the story doesn't make sense. you have that $1.2 trillion coming out, and at most a couple hundred billion, very generously, going into startups. most of them are coming out of the established corporate sector not going to that. joe: something that you point out in your paper is germany, the size of germany's stock market relative to the assets of its corporations is not as big. you calculated theatio. what is the lesson there? >> the lesson is that some of the most successful economies on earth, and we highlight germany but you can talk about japan, newly industrializing countries, are countries that limit the rights of stockholders compared to the united states. in terms of europe, it has the weakest protections for shareholders, and very

logically, some of the lowest values of corporations. in terms of its ability to innovate, export successfully, it is the big winner. alix: does that mean that the fed didn't do what it was supposed to do? they can make be buy a house but they can help the economy? >> that is absolutely right. old tools of the monetary policy don't necessarily work. if you may credit more available to the corporate sector, they will spend on real investment -- it doesn't work that way, because the money comes in through the front door and goes right out the back door. the only way the fed gets any purchase is through the health sector. they can get you to go out and buy this house, but that is not the best way. joe: what about japan? you mentioned germany -- japan has a repution, not a lot of activism or aggression in terms of layoffs, but also the economy has been extremely weak for a

long time. >> that's absolutely true. you wouldn't want to just copy everything japan has done, but if you say during the 1950's, 1960's, 1970's -- this was an economy that was similar to china today but much richer, one that raised its standard of living in just a generation. during that period of the greatest success, it was an economy in which the shareholders were restricted. joe: jw mason of the roosevelt institute -- they did for joining us. we will be right back. ♪

scarlet: scarleti'm scarlet fu. "what'd you miss?" petroleum, which

will be making another run at apache corporations. they say they have withdrawn an all stock offer after they refused to engage in substantive talks. it would have created an explorer that pumped more oil than their competitor. alix: bill ackman must fac a lawsuite that accuses him of insider trading and connections. earlier a federal judge in california rejected a head to dismiss it, saying that the plaintiff had adequately alleged claims. scarlet: a record-breaking single day for alibaba. they handled more than $14 billion in transactions during its shopping bonanza. they needed only 12 hours to beat last year's record of $9 billion. jack ma says he may expand it to the u.s. and u.k. and that is your bloomberg business flash. stock that has gotten

clobbered is valiant, plundering , plummeting amidst concerns of -- but some say it has real assets that make real money. just today they lowered their price target on the stock. valeant continues to show robust growth. joe: joining us now is a professor of finance at nyu who wrote about their valuation on his blog. given the speed of the stock collapse, have you approach a company like this? >> whenever there is a crisis like this, i think it is best to step back and think about the company. you can get caught up in the news story of the day, but to me, the biggest concern i have with valeant is the story they have been selling for the last five years, which is a story we all bought. a story of a different kind of drug company, that grew through acquisition rather than r&d.

underpricedat have drugs -- it is almost like taking a value at the end of the drug pricing market, buying those drugs, marking up the prices. ethical questions because we are not talking about ethics that health care -- not talking about cosmetics, but health care. i think the business model -- they cannot go back to what they used to do. to do that, you have to do it under the radar. you cannot be front and center. you cannot be in the news into this because people will notice. the basic business model of pushing a price -- what are they replaced with? when you look at the replacements they are not that good. you could become a traditional drug company, but that is not a great model. scarlet: why is a traditional business model not a good thing? we see so many of them doing well. they are going through this a

consolidation phase. what is not appealing about it? >> let's look at pfizer and merck, with klein. what they are doing -- pfizer's big move is to reduce taxes. that is what companies beyond the growth phase tend to do. there is nothing wrong with that, but that is what you do. if your r&d was paying off big time, you wouldn't be doing this. they are reflecting the fact that the drug and pharmaceutical business, its best days are behind it. it is posting on drugs they developed 10 years ago. the ratio of r&d spending to growth is close to zero. you are spending tons of money and with no growth. that is the business that valeant will have to become like and that is not a great model. my suggestion is if the company's tainted to the point

where its products it damaged, maybe what it should do is reverse what it did and break itself up. i think it has valuable pieces that would be more valuable to somebody else, because they are under the radar. joe joe: so it has real assets. scarlet: matt levine wrote about what the potential size can be -- if this is a scandal that will cost than $8 billion, then their $20 billion loss of market cap is too much, so you should buy it. even if the business model is broken, isn't there an argument that the stock is sold off so much that it means it is undervalued? >> that is not what is front and center for me. it is what kind of business model -- how are you going to grow? this is a company whose r&d has never been as good as others.

they can't go back to doing what they used to do, because now you have the spotlight, a lot of debt, people watching what you do, and traditional acquisition models. you have to replace it with something. i don't see that yet. maybe they can come up with a way of doing it. i'll be honest, in this valuation i came with no agenda. i have no idea what i was going to find. most valuations, you think you'll find this -- this time, i will just find out what's going on. i can look numbers, at this company and say it is massively underpriced. scarlet: you think it's fairly valued? >> to me it is pretty close, given what we know today. the one thing that we don't know -- the sales acquisitions -- not all the numbers have been fully consolidated. the potential good news is that maybe what they haven't told us is going to be good enough that

it can tilt back the value, because we have half a year consolidated numbers, all of it showing up already. maybe we are missing half the story. maybe the other half will be a good story. if i am bullish, that is when i am holding out hope for -- maybe it will replace some of the value lost from all the other stuff. joe: so you say valeant is worth about $72. mera said $200. the fundamental differences you think the business model is gone, and based on them becoming an old line drug company it is not anything more, whereas bulls think they can recapture the magic. scarlet: bill ackman has a $488 call. he will want the company to do well but he is basing it on the older business model. >> i think that is the issue.

can you return to a business model, under the spotlight, everyone is watching every step you take? that is tough to do. scarlet: yeah. nyu,rofessor of finance at you are sticking with us. next up, the valuation anxiety being felt in silicon valley. ♪

scarlet: i'm scarlet fu. "what'd you miss?" another example of anxiety in silicon valley. snapchat's valuation was cut 25% by a fund manager. professor of finance at nyu and he tracks valuation. what is causing the re-think of these privately held companies? >> i think the first thing i

would point out is that very little valuation in silicon valley -- it is a lot of pricing. pricing is based on what everyone else is paying. two problems -- stories can run away. story sounds good, going back to pharmaceuticals -- there are no stories. stories that sounds so good that they price it at a high numbers. snapchat and square have that problem. they have runaway stories where the numbers got ahead, and know people are looking at the story and saying -- maybe advertising will not work as well as we thought. now square isn't going to do as well as we thought it would. this is an almost given in these kinds of games, where the pricing game gets ahead of the numbers and people say -- we got ahead, let's pull back. i'm not surprised that what happened. i don't think it's the end of the world. i would be surprised if two months it took off again. i tend to take these with a grain of salt. i don't think in outfit is any business being in this spate.

i don't think they know how to play the pricing game, and i think when you get these public company investors and private spaces you're asking for trouble. joe: one way to, theoretically, value tech companies is there will be ipos and the internet stocks have been fantastic. thebig cap internet stocks, simi internet index crushing the th, what is this difference at is different than -- >> it is not. it is a pricing ladder. if you saw pullbacks in social media and tech companies in the public space, you will see a pullback in the private space. much as we like to think of the private capital market as is and a standalone, they are mostly based in the public market. facebook drops 40% tomorrow, you will see a ripple effect down the ladder.

we tended to think of these as two separate markets, but the are connected at the hip. scarlet: the former coo of square tweeted after square gave an indication of where we like to price shares that ithe steroid era of startups is over. >> i would add three words -- for the moment. two months from now -- it is more than momentum. that is the reality. are momentumns and that can shift overnight. the same thing could happen in this space and we could be talking about zooming prices. scarlet: thank you so much for joining us. he's a professor of finance at nyu. we will be right back. ♪

scarlet: i'm scarlet fu. "what'd you miss?" nordstrom and kohl's reports tomorrow, macy's setting the tone. its third-quarter sales me issed estimates. people are not necessarily going to the mall. alix: and the inventory report tomorrow -- this has been key for driving oil prices. they are really getting hit hard, and look at that refinery utilization. are refiners back in action? joe: don't miss this -- fed-palooza. all the majors, yellen, dudley, bullar -- they're all talking tomorrow. watch for that because it is the only game in town. alix: that's all for "what'd you

miss?" think you for watching. ♪

mark: i'm mark halperin. john: and i john heilemann. and with all due respect to monopoly, that's not how the real world works. mark: but it is how presidential politics work which is why sometimes you have to take a chance. happy veterans day, sports fans. tonight, rubio passes go, cruz collects $200. but firth