u.s. stocks tumbling to a two-month low with the dow jones industrial average dropping 300 points. joe: the question is, "what'd you miss?" scarlet: the countdown to the fed decision next week intensifies. joe: markets after the fed decision -- the guess is equities should be ok when the rate hike happens. scarlet: south africa in turmoil. viruses financial advisor wishing the country to contain spending. what is next? we begin with the markets. what a selloff it was. stocks, commodities, high-yield debt all tumbling. the catalyst, if you had to pick one, was oil prices, extending the drop to a six-day. it seems like as we get closer to the fed rate hike, the

nervousness picks up. joe: today was really ugly across the board. nowhere to hide at all. dow down over 300 points, close to the lows of the day. you mentioned credit, we will be talking about that. a lot of interest. we talk about it a lot on the show, the junk spreads, the junk etf's, all of that. there was a lot of volume there a lot of concern. scarlet: by big prominent investors. joe: absolutely. you had carl icahn, out in a tweet and say that if you haven't seen danger ahead, watch -- i virtually i think the meltdown in high yields is just beginning. scarlet: very, very grim. bill gross also weighed in as well, but in a more colorful way.

"who will get it if you can't get out? risk off." joe: very poetic, no gross. almost -- bill gross. almost like the syllables of the haiku. scarlet: one of the huge stories of the day -- credit, in terms of high-yield credit, the biggest 1-8 drop since 2011. the red line is that etf. the blue line is wti. you can see that they track each other pretty carefully. they did thought about around the same time here, 12:30, 1:00 p.m. companies leverage to oil are breaking lower. the leverage energy sector is threatened by oil prices. let's see what happens if you change the time spent to six months. they follow each other pretty carefully. but then over a one-year [

held up muchetf better than oil prices. wti fell below $45 a barrel. it wasn't until probably the middle of this year, july, that we saw both come down. joe: this chart raises an important question. we know there have been divergence between high yields and stocks. his credit giving us a warning or is it telling us what we already know about how that energy is? scarlet: is it a false alarm? joe: there is this story, 3rd avenue capital, and any time you hear about redemptions it brings back bad memories. the concerns about distressed debt really on the rise. other asset managers today hit really hard. this white line at the bottom. t. rowe price legg mason, getting out of plans to varying degrees. as there are these concerns, people get jittery. scarlet: for selling --

joe: all kinds of reasons to be nervous. scarlet: this is a parker global currency manager in next, which tracks top fx funds. counterpoint .07% this month, expected to slide to 2.7% overall. that would market the worst annual decline since 2011. a lot of people -- things have gone wrong in the fx market. central banks have been easing good stimulus didn't match investor expectations. --: one of scarlet: as the fed gets closer to the rate hike, you wonder how other central banks jockey. you can see all these charts and more on twitter. strategist, ben laidler, joins us with more on global equities. welcome back.

ben: thank you. getting slammed sharply. this discussion about whether credit is a warning signal to equities, do you buy that? ben: maybe a little bit. i don't know why anyone is surprised equities wiki here. sentiment has essentially normalized. look what happened over that period. of global gdp expectations have approved. if anything, they have deteriorated. we are facing the fed potentially raising rates next week. scarlet: as the recovery not justified, the bounceback we got? ben: the sentiment had gotten to two standard deviations, classic buy signal. we got there were opportunities elsewhere. the volatility picking up again when the fed declined to hike in september?

people saw market volatility is one of the reasons it didn't go. do you think there's any nervousness on the part of the fed when they see what has been going on? dare not second-guess janet yellen. we have talked a lot about what to -- the key is what happens after that. we don't expect very much. we think it will be very dovish . find yields actually come down from here. as long as that happens, that can be equity positive. scarlet: i want to point something out on the bloomberg terminal here. s&p 500 dropped 3.8% for the week. you take a look at the intraday chart over the past five days. aside from thursday, where we actually had the update, it has been a steady decline for the s&p 500. by the way, only the second weekly decline of the fourth quarter. i was surprised to hear that.

is there forced selling of equities to raise cash by hybrid funds who cannot won't get out of there in liquid credit names illiquid credit names? ben: maybe. relative to other asset classes, a positive yield gap year. it is why people are holding equities today. the s&p has been week. equity has been weaker elsewhere in the world. the relativebeen safety haven, and that is not a surprise. you have the bye from this big weight of domestic consumers in the index which is doing pretty well. at the end of the day, u.s. equities are fairly close. equities need to see stabilization in oil? ben: yes, you need stability. clearly lower oil prices are good for equities and the massive transfer in the trillion,market, $6

if you calculate it out down to these prices. the broader equity story is weak growth. you go where that is. there's not a lot in u.s. equities today. is not very exciting. scarlet: not a compelling story for people to get behind. you look at equities as a percentage of total financing assets, you say there's a correlation with demographics. ben: overtime if you look at that team middle age demographic -- scarlet: there it is right there, midrange in the 40's. ben: hopefully we are earning lots of money and spending lots of money and investing lots of money. that key period in your life when you invest more in equities. in developed markets, that portion of the population is maturing out and falling somewhat. in the end it continues to grow and overall we see about 60

basis points being taken away from gdp growth in demographics. -- dig in within that, there are some countries were that is growing four, 5% year and somewhere it is falling. i want to bring you somewhere else that is causing a lot of anxiety, and that is china. in august china had that m ini-devaluation. the chinese yuan has slumped to its lowest level in four years now, sliding for a week and a half. today there was an announcement that people interbedded as dollarng the peg to the and more tied to a basket of currencies, theoretically setting the stage for a quiet devaluation. does that concern you at all that there will be more fireworks? ben: i think we are in a slightly new environment here and we will see more volatility

and appreciation. let's put it in context. he left hand moves twice -- you have had moves twice are some currencies this week. moreate appreciation, pickup in volatility. chinese gradually moving to liberalize the currency, moving from managed float to a freer flow, and it will be a gradual policy and usc some of that. -- you have seen some of that. scarlet: it seems like the chinese authority were waiting until the yuan got included before taking next steps. can we expect other initiatives an pop up now that the yu issue is settled? ben: i think it was hands-off. i think there is an element of getting ahead of the fed

decision next week and potentially some dollar strength. again, i think this is all a step in the gradual liberalization of the regime. i don't see any more than that. scarlet: ok, got it. joe: ben laidler of hsbc, thank you very much for joining us. scarlet: coming up, carl icahn ones that this office just beginning. ♪

scarlet: i'm scarlet fu. "what'd you miss?"

let's get to mark crumpton with "first word" news. of the late libyan leader moammar cut off the has been kidnapped by militants in libyan. they reportedly wanted information on the fate of a cleric who went missing year ago. he was on a video question information about the cleric. wass unclear when gadhafi kidnapped. fbi divers returned into a lake in san bernardino, california today looking for devices including a computer hard drive. investigators suspect the devices were dumped in the water by the couple who carried out the mass shooting. the fbi says there is evidence that tashfeen malik and syed farook had been at the lake before the attack. congress has proven a spending bill to keep the government open through next wednesday. now lawmakers and the white

house are working to finalize a $1.1 trillion government-white spending bill and tax package. josh earnest: anytime you have a bipartisan negotiation like this, an agreement is only produced went both sides compromise, and that means the president wants to compromise, too, and there are things in this bill, presumably funding levels and other things, that we don't enthusiastically support. house majority leader kevin mccarthy says a vote on the on the this spending measure mnibus spending measure will not take place until thursday at the earliest. and appeals judge halted in order that block to the fantasy games in the state. the companies will be allowed to keep operating until additional judges have a chance to rule on the ban. the new york attorney general says that the fantasy sports sites break state gambling laws. you can get more on these and other breaking stories 24 hours

a day at the new bloomberg.com. from the "first word" desk, i am mark crumpton. scarlet, joe, back to you. scarlet: junk bonds are tanking following the liquidation of the focus credit fund. suit?ore funds follow tracy alloway joins us now. you wonder if this is a manifestation of the liquidity concerns. makingthe reason this is waves in markets today is it is striking at the heart of those concerns come that we have seen this massive growth in the corporate bond market thanks to years of low interest rates from the federal reserve. at the same time, we've seen banks cut back on fixed income. at the same time, we've seen folks talk about the idea of illiquidity in this match. all these etf's, all these mutual funds top of promising investors instantaneous access to trade bonds, and turns out the bonds themselves might not be that liquid. joe: this chart we have up right now -- we were playing with it

earlier -- showing the high watermark of the fund. the yellow line matches up nicely with the shadow fed funds rate. at the peak of when the fed was easiest, that is when this fund was at its highest. i think you could extrapolate that notion to the rest of the corporate bond market, the idea being that now has financial conditions start to tighten, interest rates rise as of next week could we see some of the easy money being taken out of the market. scarlet: this fund in particular had been struggling for a while. it is not like you just ran into trouble in december. it has been on its way down since the middle of 2014. our credit funds overall the new richmond tells? -- our credit funds overall the new roach motels? tracy: right. tracy:[laughter] interesting way of putting it. is it a canary in the coal mine or an idiosyncratic thing?

it was down something like 30% this year. i spoke to one investor got outy who said he early because he saw the writing on the wall for this particular fund. we will just have to see. joe: we also saw in the more liquid space that the junk etf has been getting absolute clobbered lately. tracy: again, this goes back to the liquidity question. if you cannot buy and sell actual bonds, the next best thing is a derivative of those the promises ets easy and cheap entry and exit into the market. the growth of credit etf's has been so staggering at a lot of places say that these are the true price of the market. valuesrd the underlying and look at the etf's. that shows sentiment and current pricing best. scarlet: it shows the stress in the market as well. tracy: right. it gets to liquidity concerns, right, because you wonder if

etf's par price of the market or are we seeing that it has gotten bigger than the underlying market. joe: what are the things you would watch for next to see if junkie retailed, debt, or to this strikes something deeper in the credit markets. tracy: million-dollar question. joe: just a million? tracy: billion, trillion? scarlet: we have worked our way up to chilean. more: here is something interesting. we have been talking a lot, especially on this show, but the sort of weird things happening around quarter end. we are moving to the end of the year. it will be really, really interesting to see whether the market ounces back a little bit following the close of 2015 as risk appetite comes back and maybe as banks feel less pressure on their balance sheet ahead of the regular tour reviews, quarter end. scarlet: just to wrap up with fund, is there

precedent for locking in with investors and not allowing any kind of withdrawal? uncommon, isn't it? definitely uncommon. i urge investors in pond mutual funds to read the documentation carefully because there is also its of language there -- all sorts of language there that allows for investors redeeming in kind. if things get really bad in the market, instead of having cash given back to you, the idea that funds could give you bonds instead, and then it is your job to sell them into the market. good luck with that. joe: something we will be watching in the days, weeks, and months ahead. tracy alloway with bloomberg, thank you very much. scarlet: south african markets extending their rout after jacob zuma fires his finance minister. ♪

joe: i'm joe weisenthal. "what'd you miss?" auth african markets are turmoil after the president fired the finance minister, who was trying to control spending. what is next for the struggling economy? joining me is charlie robinson of renaissance capital. what do you make of the changes of the treasury this week? charlie: unrelenting bad news is the opinion of everybody, and i agree. the finance ministry was doing its best to keep the fiscal story on track. the credit rating agency said it was one of the few good things going on in south africa right

now, and the man responsible has been removed. development bric bank, but everyone sees that as a whitewash story. joe: the new guy they put in, the view is they don't know anything about him but the assumption is she will be much more pliant and not willing to stand up for a more disciplined fiscal stance. that's right. the best case interpretation is you need someone a bit more in with the politicians to be able to stop them from interfering with the fiscal story. that is a really best case read. everyone is just assuming that zuma wanted some who would pump cash and to the state company that needs a lot of cash, has been supported a lot, would agree to building a nuclear reactor with the russians, which is going to cost an awful lot of money. people fear it's a route by which corruption will find another way of getting through to south africa. change atbefore this

the treasury, obviously, the south african economy was doing quite poorly. the rand had been plunging quite a bit. it was at near record lows before all this happened. what is at the root of the ongoing struggles? here you can see we are showing the rand chart and you can see what a bad year it has had. what is the root of this? charlie: commodity guys are getting hit around the world. 2ere is a second issue -- issues. one is south africa, even before this year, has been the second slowest growing emerging market since 1994. in 20 years, it has not been achieving much in the way of growth. since zuma has been president, it has fallen back in the use of doing business surveys, it has gotten worse in the corruption surveys. it is not just that commodities are down and south africa is getting hit. it is also the fact that this

government has now been doing anything to accelerate or even keep pace with what other countries are doing on the reform front. what would you have to see in south africa for you to be optimistic or people at on the currency -- or be bullish on the currency? current account adjustment. i was talking about this on your show -- the exchange rate work to be done. once you get the currencies -- as cheap as south africa is right now, it's the cheapest it has been in 20 years in real terms, not just in nominal terms. when you get it this cheap, you expect the current account to be an awful lot better because imports will die, because gdp will be very weak. current account then gets better and that in itself helps set a flaw. related to that is something quite important for south africa. the pension funds industry in south africa is usually a couple hundred billion dollars.

they are led to have 70% of the cash in south africa, 30% offshore. but when the currency gets week, all the offshore stuff they own, 30%, becomes bigger than 30%, just because of the exchange rate moves. south african pension funds themselves will have to start bringing a bit of money back into the country. joe: so how close is south africa to achieving the current account switch to you start to see things be supportive of the currency and the economy? charlie: sadly the data that came out a few days ago shows a worsening current account. 3% deficit in the second quarter, 4% in the third quarter. hasing in the way the rand treated, you would have to guess that the fourth quarter has not been much good either. but next year i'm assuming next year. joe: charlie robertson of renaissance capital, thank you for filling us in good next, we discussed how equities may react if the fed decides to raise rates next week.

♪

scarlet: i'm scarlet fu. "what'd you miss?" let's get to mark crumpton. mark: secretary of state john kerry will hold talks with russian president vladimir putin on syria and ukraine. he will travel to moscow on monday after attending a meeting on syria in the french capital. secretary kerry will see president putin and foreign minister sergei lavrov on tuesday. the triple be his second to russia this year. tomorrow in saudi arabia, women will vote and run for office for the first time. nearly 1000 women are seeking council seats. saudi women are still not allowed to drive and he must get permission from the male

relative to travel alone overseas. russian president putin is warning that any threat to forces in syria will be eliminated. he spoke today at the russian defense ministry, saying that the russian military base in area has been beefed up with more planes and antiaircraft weapons. turkey shut down a russian warplane at the syrian border last month. the defense has rested in the manslaughter trial of the baltimore cop in the death of freddy gray. defense attorneys called 12 witnesses over three days including the defendant, william porter. wasecutors say the officer negligent for failing to call a medic and failing to buckle gray in while they drove in a police van. suffered a spinal cord injury while writing handcuffed and shackled in the back of the van. closing arguments are scheduled for monday. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com. "first word"mberg desk, i am mark crumpton.

scarlet: thank you so much, mark crumpton. we to get a recap of how markets closed, and a joke of it was ugly. dow jones industrial average losing almost 310 points, off the lows of the session. s&p 500 losing 1.9%. this is the biggest decline in two months. joe: i think you can do a quick recap with just the word "bad." oil got slammed. high-yield credit got slammed. obviously, stocks got slammed . scarlet: it's curious, the fed rate increase is so well telegraphed, and yet as we get closer, the nervousness increases. joe: who knows if it is really about the fed? i don't think oil is going to get clobbered because of the fed. but it certainly doesn't make them happier at the federal reserve to see markets pick up and volatility in the days ahead of their decision. scarlet: joining us with more is david lebovitz. david, how do you view what happened today?

what is your rejuvenation of what is driving these assets lower? david: you made a good point earlier. it starts with a and extends to the high-yield, and when the credit souls off, historically equity volume. it is the risk-off sentiment, stemming from oil. people are nervous about the fed. it has been well telegraphed, but around the fed rate hikes historically, we typically see volatility like this. not necessarily expected, just exacerbated given what is going on in the commodity space. scarlet: in previous tightening cycles, stocks wobble a bit. david: that is our view, that stocks will appreciate following the first rate hike. the fed is hiking rates for all the right reasons. seven years to the beating from windows emergency provisions were put into place. this is an economy that doesn't need zero rates and equities will price that in going forward. joe: when you study, going back, stocks have continued to rally typically after the fed rate hike. but there have not been that many examples.

a mathematician would say that this is a statistically significant number of studies. does that concern you at all that three or four examples is not predictive enough? david: you know, we are cognizant of it, but we had the examples that we have that is the data we are forced to deal with. when we look at the past three rate hike cycles, which i would say are representative of the way the federal reserve has behaved since they have depended on the fed funds rate to dictate monetary policy, equities should do ok in the wake of this hike. the biggest question in our view for 2016 is what happens with earnings. does earnings growth, back? at some point we need to see the future cash flows materialized for the current price of stocks to be justified. scarlet: we have a chart of what happened in 1994, 1995, when the fed began raising rates. that is the s&p 500, sorry, during that time. we bumped along the bottom for a little bit before it finally took off, a few months before the fed ended its tightening. joe: and that was really aggressive tightening could

david: exactly, and if the fed is successful in being more moderate, able to go slow like they say they want to, i suspect we may not see the same bounce along the bottom. we may see the stoxx get their legs under them sooner rather than later. joe: going back to the credit what do you think we are looking at in terms of defaults? factoring in a significant amount of increase. what are you looking at? we are looking for defaults to pick up in the energy space. when you excluded the energy sector from high yields, we do this as an investment opportunity. what is the best way to get a view on that? what is the best way for some of to get the yield at high-yield? if you look at the market capitalization, subtract it out, figure out what the weighted spread would be, subtracted from the overall index, you come up

with a high-yield x energy composite. when you look at high-yield, that is price for material to default. that is the key thing. the u.s. economy doesn't look like it is going into recession anytime in the next one or two years. if that holds true, which we believe it will, high-yield x energy is a buying opportunity. the baby seems to have been thrown out with the bathwater. scarlet: let's go back to a chart that, joe, you referenced earlier. there are peaks and valleys that show the different parts of the cycles, but what we do see is that defaults have been trending lower since the late 1980's. the defaults is an orange. whereas spreads have continued to widen and they trend higher ever so slightly. what do you think it will be in this cycle? david: it is our view that what we are seeing in the high-yield now is somewhat of a function of what is going on in earnings and also what is going on in the energy space. obvious league, the decline in oil prices has put upward pressure on spreads, but more fundamentally, when you think of high yields in general, the

reason earnings are so important is these companies need the earnings to service their debts going forward. scarlet: they need the cash flow. david: exactly. high yield has become increasingly relied on recurring cash flows as opposed to cash on the balance sheet and that is why you are seeing investors demand a slightly higher risk premium. joe: and so outside of the energy space, you don't see the same sensitivity to earnings. you see copies that are much more capable of servicing the debt? yes, exactly. these energy committees are living paycheck to paycheck for lack of a better term. they are able to keep themselves floating, but the only reason they are doing that is it would be even more expensive if they will shut themselves down. when you look outside energy space, the earnings are coming through. when you exclude the energy sectors, the key thing that is happening right now is we're in the seventh year of this bull market and it is getting a little bit old and you need to be more discerning when you are taking or securities.

the risk-on, risk-off trade is behind us. this is a time when the active management and security selection becomes increasingly important if you want to avoid those potholes, which inevitably materialize as the cycle gradually ages. scarlet: can the distraction in the energy sector be contained whether it is in equities or credits? david: we think it can trade at the end of the day, the u.s. economy is not a manufacturing economy. we are not an energy economy. we are a service is a concrete even though part of the boom did -- services economy. even a part of the boom did come from there. this is not an economy that is being driven by the energy sector. when we look at things like consumer discretionary, health care from that is where we are seeing opportunities go forward. and we expect that investors will be rewarded by identifying -- joe: i'm looking at a headline that just cost of terminal about this 3rd avenue fund and apparently the manager in 2012 had a note saying that liquidity fears are a myth, don't have to

be concerned. could there the other records of illiquidity -- pockets of illiquidity or leverage we are not thinking about? david: this reminds me of conversations we were having the robo -- a year ago about liquidity in the money market. the bottom line is you have to know what you own and understand when you own and the best way to get hurt is by overreaching and investing in things that are not necessarily appropriate for your given risk tolerance. security selection is key in this part of cycle because there are going to be potholes along the way. scarlet: when you look at security selection, are you steering away from companies that have relied on financial engineering, like share buybacks and spending money on dividends and borrowing money on dividends? david: not necessarily avoiding but recognizing that has been a pretty common practice. we have seen a lot of debt issued in order to increase dividend payouts. the biggest question for us going forward is do we see companies return and focus more

on investment? the u.s. economy finally has a productivity issue and productivity is oftentimes the function of the tools you have a your disposal. what is needed thing about the tools that their employees have at their disposal and -- companies need to think about the tools that there plays have their disposal make sure that they are adequate for the future. joe: we will be watching the post-fed action. scarlet: coming up, today is the argentinian president's first day in office. ♪

scarlet: i'm scarlet fu. "what'd you miss?" time for the biggest business stories in the news right now. horizon pharma is buying a company, boosting their exposure to drugs with rare conditions. dropped after they their bid for rival drugmaker. regulators have concerns about friday.s' plans to buy -- rite aid. both companies say they did expect to the request. if you're hoping to land a job at barclays, you could be waiting for a while. the ceo is extending a hiring freeze indefinitely. he has been trying to boost profit at the u.k.'s number two bank and is considering whether

whethert another 20% -- to cut another 20% at the investment bank. that is your bloomberg business flash. mauricio macri takes the reins today in argentina as the country's new president. the conservative politican has put economic reforms at the top of his agenda. will this new political era bring in more business, the investment the country desperately needs? alberto ramos is head of latin american economics at goldman sachs. joe: what do you think are the prospects for the macri era? alberto: definitely quite positive. this is a different philosophical view about the way the economy should be managed but the that legacy is complicated. we have a large fiscal deficit that is monetized by the central bank. we have a large number of financial controls and price controls and trade controls and capital controls that need to be dismantled, and the sequence of that process is required for

significant fine and on top of that they need to reintegrate to the international capital markets, resolve the issue that has been talking argentina for more than 10 years. hopefully they will find a settlement. scarlet: that is a huge to do list. how does he go about tackling that? one and a time, simultaneously? is there one thing that will be the linchpin for everything else? alberto: obviously, the optimal sequencing of all these reforms and adjustments will be key. the economy is very weak, very debilitated. i think the key issue probably is to adjust to the currencies, one of the key issues, but there are many others. reducing the fiscal deficit. finding more conventional sources of financing. basically, there is no argument that the adjustment is needed. the question is the adequate size of the adjustment. mauricio macri seems to favor a

more frontloaded strategy. it is complicated but on the other hand, and more slow, protracted adjustment also raises the risk of adjustment fatigue. we have seen brazil and many other countries that once the adjustment gets moving -- joe: to rip off the proverbial bandit. alberto: that's right. if you believe those are the policies, it is better to do it relatively quickly and hope that better days will arrive in the economy adjusts. scarlet: does that mean there might be some pain before we see the benefit of all these reforms? alberto: the pain is already there, the cost is already there. just making it explicit, not creating new costs for the economy. oddly enough, in the short-term, better policies may lead to worse outcomes. debtor policies mean currency is more aligned with the phenomenal economy and stifling fiscal and monetary policy. it may be more inflation unless

growth. but this is the cost you need to pay to get to a better place. this is the cost and need to pay to grow the economy. see you mentioned we might a currency adjustment. how soon out how big of an adjustment? alberto: the currency is significantly misaligned. the sooner, the better. the authorities are doing a full assessment of the controls and the economy and the level of reserves. additional sources of funding, external funding, that would allow the central bank with a certain degree of confidence to adjust the currency without sterilizing -- destabilizing the economy financially. scarlet: you talk about the inflation numbers and unofficial inflation numbers. do you trust the unofficial data that is out there? how do you go about measuring activity in argentina, especially if it transforms itself to get things under control? alberto: there are issues about the integrity of the official data, one of the issues that mauricio macri will be tasked to

solve. there are many other price pressures in the economy. provincial price measurements. congress publishes an average of the inflation estimates for a number of private consultants. we have inflation probably running between 23 to 27%, much higher than the official nubbers. -- numbers. joe: in addition to macri in argentina come we saw in venezuela an election that went against the longtime status quo. is this part of a bigger trend in terms of politics becoming more reformist across latin america? alberto: it seems so. even in brazil, even though we did not have regime change, the dilma rousseff and administration implement a completely different set of policies than what characterize the first term. in argentina, they have powered a government that sees a way to manage the economy in a completely different way. havismozuela, the c

lost the national is a way for the first time in years. all these published experience in latin america -- over the last decade, extended by liquidity conditions and rallying commodity prices, it left behind significant macroeconomic imbalances and undermined the underpinnings of growth and therefore come all the cost is now much more visible and we see the political transition in motion right now. joe: -- scarlet: before we move on to brazil, what are macri's biggest advantages? alberto: the biggest advantage is the natural advantages and it is a country with relatively low levels of leverage that all these initial conditions are not that bad. alberto ramos of goldman sachs, you are sticking with us because we're talking about what is next for brazil's struggling economy after the break. alberto says is it an

outright depression. ♪

scarlet: i am scarlet fu. "what'd you miss?" we now turn our focus to brazil's financial outlook. demand faces headwinds and record low consumer and business confidence placed the nation. joe: back with us is about iran most, goldman sachs -- alberto ramos, goldman sachs latin american economist. it is mutating into an outright economic depression, given the deep contraction of domestic demand. word,ften you hear the d- talking about depression. why do you bring that out now? alberto: no precise definition what a depression is.

protracted or long recession, we have that. nine consecutive quarters of declining investment at the annualized quarterly rate of 10%. my incredible. -- quite incredible. the mystic is declining for six of the last eight quarters. all the telling signs of a depression in the making. no signs that the economy has yet to stabilize. expect the economy to contract two to 3% next year. overall, the contraction of gdp by the end of the cycle will approach 10%. this is a very significant contraction of gdp. scarlet: will we get there quickly or will it be slow and drag out? alberto: no signs of stabilization. we expect the economy to contract further in the fourth quarter. hopefully we will reach some tentative signs of stabilization in the second half but it is not guaranteed. we have an overlay of political pricing and a lot of friction between congress and the government. a traditional investigation it

continues to spread and also contaminating the political sphere. joe: how do you expect to see this whole impeachment drama working out? alberto: hard to handicap how this process goes. what we know is it will be a noisy process, not necessarily a short process, and we don't know where it leads. in the short term is uncertainty. it will definitely lead to the post home and of investment -- chris bowman of investment decisions. -- postponement of investment decisions. scarlet: also a huge distraction could what i always find amazing is the inflation data. we're trying to get to the 2% level. brazil is desperate to bring inflation down to single digit numbers. at what point are we going to expect social unrest? and the government is distracted. we have an awful combination of declining gdp and rising unemployment and double-digit inflation. toxic cocktail from a and social

standpoint. i don't know if that will be triggering social activision and unrest but certainly triggers social dissatisfaction, and you see that in consumer surveys. need tore does the rial get you to be a fair level or two really help the economy? alberto: great question. for level is 3.6 good it is today 3.8, 3.9. but the economy needs to be weaker at the federal level. we need a weak currency relative to the phenomenal to facilitate the adjustment. we continue to be gerrish on the rea -- bearish on the real. of: alberto ramos, head latin american economics at goldman sachs. serlet: coming up, realtors, -- three letters, sed. ♪

scarlet: i am scarlet fu. "what'd you miss?" don't miss this. you couldn't if you wanted to. week?hadt fed day next no idea. scarlet: janet yellen will be holding a news conference. that is when the real fireworks will begin. joe: everybody's interested in whether they will hike or not. they almost certainly will but you never know. what will this say about the pace of the ongoing hype, and will they be able to hike while

making it seem dovish? lots of exciting stuff there. scarlet: also, the forecast for gdp. thank you for watching. see you back here on monday. joe: have a great weekend.

al: i'm al hunt. respected all the donald trump, it looks like john kasich a super pack has some kind of beef with you. donald trump: when it comes to great state, i've just raised the stakes. who knew that donald trump had a stake franchise? happy national salesperson day. tonight,g-screen holiday movies, and at, and a late-night talk show, but first, a summer blockbuster in the making -- maybe. republican leaders contemplating their worst nightmare, the