the start of a broader drop in financial markets? cashing in on crude. walmart may be the big winner. we will tell you why. ♪ stephanie: it is tuesday morning. we are here in new york city. you're watching bloomberg go. i'm stephanie ruhle. david: i'm david weston. brendan greeley is here. brendan: hello. david: today is fed eve. stephanie: it could be a day we see a rebound. at some point for every buyer, there is a seller. this could be the day where things are so ugly they start to look good. we will have the first

word with vonnie quinn. vonnie: john kerry is in moscow trying to resolve differences with russia over syria and ukraine. he met with russia's foreign minister. he will meet with vladimir putin later. the u.s. and its allies say they are targeting rebels opposed to syrian president bashir al-assad. arabia says it has formed an islamic military alliance to fight terrorism. 34 coalition includes nations including pakistan, turkey, and egypt. say every muslim country is already fighting terrorism on an individual basis. republican presidential candidates debate tonight in las vegas. ted cruz is now in the lead in iowa. he and donald trump have been

friendly for months, but now that he has the lead, trump may be more aggressive towards him tonight. you can get more and these on other stories at bloomberg.com. rami: u.s. futures are up this morning. numbers, s&pe futures and the dow jones futures are up .8%. we saw the markets do a little surprise rise yesterday to close higher after oil rallied. today and tomorrow all eyes are on the fed. and that possibility of an interest rate hike. wirp function.w.a.r 78% is the probability we are looking at of a rate hike of at least 25 basis points.

that decision is scheduled for 2:00 p.m. tomorrow. treasuriesa look at going into a second day of losses. the yield is up about three basis points. this is its highest since december 4. crude is also higher. nearly 3%it rose after it dropped below the $35 a barrel threshold. ed morris raised one concern that wti may slump to the high 20's. thanks so much. we have a lot more to cover. it is fed eve. -- it i this is triggering flashbacks of the financial meltdown. dubai withs in

former u.s. treasury secretary larry summers. he warned that the rate hike expected might be premature. to delayeve a decision rates runs risks that are easily reversed by subsequently raising rates. whereas a decision -- decision to raise rates if it proves to have been the wrong decision is a much more difficult decision to correct. jim bianco is joining us from chicago. larry summers saying tomorrow is simply too soon. do you agree? im: that's a good question. it's what will the fed do, and they will raise rates. and what should the fed do. jim has always been a make a dove. -- mega dove.

i'm not surprised by his comments. david: -- we would see the s&p 500 drop off. is that what we are going to see this time? jim: if you want to ask about the rules of physics, when did the typing start -- tightening start? did start to years ago or tomorrow with the -- did it start two years ago or tomorrow with the rate hike? i think it started two years ago. if they raise rates tomorrow and four times next year, it's going to be a tough 2016. that does not sit well with stock prices. brendan: is there a chance that they will have trouble getting the rate risen? they haven't done this for a long time and some people are speculating that they might try

and get resistance. that gets into the plumbing of the markets. i think the reason the odds are 78%, the fed is going to raise 100% is because the market thinks it's going to be 15 to 18 basis points. they are not going to get all the way there. all the ways to raise rates they invented two years ago. it's completely different than they've ever done before. the market is trying to tell us that we're going to get about two thirds to three quarters of a rate hike and that's it. stephanie: in the past when we m&a,seen highs spikes in it's coincided with high points in the s&p and that has taken place just before the stock market starts to fall. and was the case in 2007 2009. is that the case here?

jim: absolutely. go back to 2000, 2002. credit has led equities. where it goes, equities follow. that's one of the reasons this is so worrisome. every major turn since 2000, credit went first. now credit is having a serious downturn. it is a big negative for the equity market. it's a foregone conclusion but given what's going on with high-yield and commodities and oil, is it going to give the fed any pause at all? jim: it absolutely will give them pause. a lot of members are going into this meeting saying, we just need to get off of the zero bound. we gave strong indications that it will be 2015 so let's just do it and get it over with. which means that they are actually reluctant. if it were a different point in time maybe they would opt to

delay. key to successfully doing this is signaling that the next rate hike is going to be a long ways off. they don't want the market to start sequencing rate increases. march is going to be too soon. some people are suggesting there could be four rate increases next year. i think that is way too optimistic. i think we have one now. and maybe just two. they are uncomfortable moving in a time of volatility. they like to see things settle. they have been broadcasting this for so long, we just looked at -- stephanie: but then the market changed.

of fed: there's the idea credibility which i'm very skeptical of. this time they really hung themselves out on a limb saying -- they have come as close as you possibly can to saying we are absolutely going to do it. and then once again delaying far outweighs the pain of just doing it. at this point it will look like a broken promise. they need to get that interest rate probability above 75%. they did. it's been there for three weeks now. so it's really difficult to create that expectation in the future if they don't do it this time. jim: you're missing the larger point here. they would have a credibility problem if they didn't move. have a bigger credibility problem if they move and things get worse. there's only been two attempts to get interest rates off the zero. 2006 japan, 2011 ecb.

the head of the central bank left and then they cut rates back to zero. now the ecb is actually negative. if we are talking about fed credibility, they better hope things don't get worse and the junk market doesn't fall apart in january and february. they will wish they held off in december because of what happens to their reputation. stephanie: what is janet yellen's job? is keeping up the junk market what should -- what she should be focused on? the fed has to watch for the feedback mechanism into the broader economy from this. global markets have become addicted to central bank intervention. are blowingk bonds up, that doesn't necessarily cause problems for the fed unless it translates into a slowdown in capital investment. the fed is looking at the broader picture and it sees a

domestic service sector that's doing just fine. robust job creation. this credit crunch spreading outside of that specter into the broader economy that's when it starts to respond. brendan: and all the staff researchers have post economic stress disorder. they went through this not that long ago. 2006,searchers said in there were just a few cranks who happened to be right talking about it. the researcher looking at student loans and saying, the default rate has ticked up. i wonder what's driving that. research are keyed into the possibility of disaster. carl: and you can get insights from reading the minutes of past meetings and those are not particularly optimistic. the staff research at the fed is less optimistic from what we hear from the voting members of the committee. david: you talked about the junk market falling apart.

your research, what is the likelihood of that and what are the ramifications? is it limited to high-yield? time you start having a crisis in a market you don't know where it's going to end. i like to use the cleveland analogy. when the subprime market blew up everybody said, it's the size of cleveland. don't worry about it. metastasized into something bigger. when greece was having problems, everyone said, it's the size of cleveland. and it got bigger. if the high-yield market blows up, it's not a big deal. but that's just the beginning of it. 2007.ike we had some small markets having problems. we had a couple of funds having problems. and then 2008 game and it was way bigger.

that doesn't mean this one has to follow that track. whenever you get a market like a high-yield having the problems it has, you can't ignore it. especially the type of problem is having. right now what's going on is investors are demanding their money back and the market is to illiquid so they are preventing them from getting their money back. that's what's most worrisome. our investors going to stop asking for their money back the rest of this week? stephanie: if the market continues to go down, more investors -- it turns into a runaway train. it's not an isolated market. they are completely interconnected. the commonwealth of massachusetts is already looking into the gate that was put up why 3rd avenue. we've already got legal action. stephanie: and 3rd avenue is not a major player. he would never find a bank

saying, they are in our top 25 largest clients, not ever. david: so welcome to fed eve. thank you for joining us, jim bianco. next, we will talk about the fed spectrometer. ♪

stephanie: welcome back to bloomberg go. i'm vonnie quinn. general electric is selling off its financial units. it's ge's japanese -- business. ge is leaving to concentrate purely on manufacturing. -- mechanical is moving ahead with a takeover plan for syngenta.

chemchina is discussing a revised proposal after its first one was considered too low. syngenta is also holding talks with monsanto. investors are sharing in the benefits of rising airplane deliveries at boeing. it expanded its stock buyback plan to $14 billion. decade concern after a of rising sales, the bull market for airliners might be slowing down. david: brenton is back with us for his weekly big idea. today's focus is the fed. he has a spectrometer which sounds pretty fancy. why has this got you so excited? brendan: this is not my spectrometer but i refer to it all the time. this is in fact carl riccadonna's spectrometer. this is the makeup of the federal open market committee.

this is what the makeup is in 2015. here is the board. here is the regional fed presents. hawkish is a positive number. dovish is a negative number. the score is a negative seven. pretty dovish. let's pull up 2016. the makeup changes. it rotates every year. we are skeptical of centralized power. stephanie: one more time? i don't follow. brendan: the federal open market committee changes every year. the governors are always on it. but what changes is the regional fed presidents rotate in and out depending on the year. so this is the rotation that is changing in 2016. doubly stays because he's the new york fed president. but we get jim bullard. now negativ-4.

so it has shifted more hawkish. more public to see appearances, more press appearances by the regional fed presidents because they are going to disagree with the still relatively dovish board. dissentoing to see more between the board and the presidents in 2016. stephanie: what does this mean? you have more hawkish members rotating onto the committee next year. but if you look at the arithmetic, it's not hawkish enough to derail the trajectory of policy. dissents,d be three but janet yellen is going to keep on a dovish trajectory. stephanie: so we can expect more noise, no more resolution. carl: i don't think there will be enough sway to change the course of policy. david: there's nothing in your spectrometer that keeps you from

preventing one or two raises, not three. carl: they are going to move more aggressively next year. i don't think that's going to be the case because the core of the committee is dovish. they are very tentative. to hopeou also have they pay attention to what's going on in the economy. stephanie: if the more data you look at the more indecisive you become -- that's the situation we are in. everybody is going to find data to support how they feel. we are just looking at too much. carl: there's a broad consensus now that has agreed to lift off. they have agreed to one rate hike for any number of reasons. there's not a consensus for rate hike number two. david: thank you very much. when we come back, we will take a look at the top stories on the bloomberg terminal today, on bloomberg go. ♪

david: time for your top trending stories at the bloomberg terminal. you've got them here. european stocks again, dollar falls. --estors ignored risk look at these,ou the market is preparing for the fed announcement tomorrow. what we are seeing in jump on 70 price of oil. you cannot look at any of these markets and think they are not interconnected. $240 billion into the job market since 2008. we are looking for one thing to there's one bad

deal, there is one factor causing oil prices to go down. there's not. david: everything there is disruptive. morning is, of the does it all add up to disruptive enough to make the fed not do what it has been broadcasting it will absolutely do? david: the consensus is it is not disruptive enough. brendan: i have a hard time believing it is. but it could change by tomorrow. over the course of the morning, stephanie has been winning me over. stephanie: janet yellen has been very clear that this is what we are going to do. but the markets moving. things are changing. you have to be nimble. this is a dynamic situation. david: brenton stays with us when we come back on bloomberg go -- brendan stays with us when we come back on bloomberg go. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you.

we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. david: welcome back to bloomberg go. that is washington, d.c. where the fed is starting meetings today.

brendan greeley will be on his way down there tomorrow. brendan: with the rate decision in hand. vonnie: in baltimore a jury as to liberating the case against the first police officer being tried in the murder of freddie gray. freddie gray was killed by police while being taken to jail. if the officer is acquitted, riots could break out. congress and the white house are closing in a deal over the budget and taxes. paul ryan will release details of the agreement. one would keep the government from shutting down. the other extends dozens of tax breaks. kim peek of britain is caring on britain's great tradition of exploration. he wrote a russian rocket headed for the international space station.

he will spend six months in space. you can get more on these and other breaking stories are bloomberg.com. david: tom keene spoke with larry summers at the arab strategy for in dubai. are we nearing financial instability? take a look. believe that you should raise rates for financial stability reasons you have to believe that there is a serious ofblem of overconfidence, bubble formation. it seems that most of the plausible bubbles are no longer plausible bubbles at this point. perhaps you could have said there was a bubble element in the high yield bond market at some point, but you can't say that today. perhaps you could have said that about emerging markets at some point, you can't say that today. you could have said that a

commodities at some point. you can't say that today. the notion of raising rates today as a prophylactic against financial instability seems quite odd. i think we are much more likely to have problems that come from under confidence in financial markets than problems that come from overconfidence. i look at the international sense of dubai oilt now reeling from lower prices, many will say it all hinges back to china. you have written much on china. do you agree with the assertion that china drives the international debate right now? >> i think china is an extremely important factor for commodity markets. has beenemand growth the lion share of the growth in demand for many different commodities. china according to one calculation laid more cement and concrete down between 2011 and

2013 than the united states did during the 20th century. that gives a sense of the magnitude of heavy investment in china. i think those days are gone. china is working to reform its economy, to maintain growth. they may or may not succeed, but either way, they are unlikely to generate the kind of growth in global demand for iron ore or and iat they once did think that has important implications for those commodity markets. -- thee raising events raising of rates and the presumed path of raising rates, how will that adapt or change china? or australia? >> it can't be a favorable factor for commodity markets. it's likely to add strained. .

sub substantial -- some substantial part of that strain may already have been felt. the increase in rates has been telegraphed and the people who are most alarmist about increases in rates need to recognize that these are factored in to markets to some extent. the extent to which there will be further effect really depends on which surprises the fed delivers down the road. not merely on carrying through on the commitments that it has already made. stephanie: that was tom keene speaking with larry summers in dubai. qualcommgo, we saw officially rejecting the idea that they would split. the company just went over a strategic review. a little over a month ago, a well-known activist investor called for the company to split up. basically he said, they have one

vertical that simply makes chips. they have another one that collects fees from smartphones on their patents. clearly it should be two companies. moreve seen more and companies have activist investors call for a split and they have simply folded and said, yes sir, thank you very much. the company has completed their strategic review and said thank you, that no thank you, we don't think that's the right move. but no thank you, we don't think that's the right move. they have not been the sexiest tech company. david: they are a little bit like nokia. they were part of the first revolution in handheld phones. pretty much all the flip phones that you had in the late 1990's and early 2000. they have not been a part of the next generation. i think there's also something broader going on in the tech industry. do you make money off of the stuff you did in the past?

the patent bundle? or do you focus on investment and what you might do in the future? david: they missed the apple boat. brendan: they missed the apple boat. there were a lot of people caught on the shores. david: it doesn't help qualcomm that nokia went down as well. they suggest that they are doing better in the first quarter than they think they are doing. stephanie: we wouldn't hear a new strategic plan yet. with their stock down 38%, they can't simply say we are going to stay the course. the course is having them in the wrong direction. brendan: and how high up the stack are you? if you are at the top, you are getting a very high margin. the farther down come into the motives, the routing, the lower the margins are. motives are a more integral -- modems are a more

integral part of the network -- stephanie: maybe they know something we don't about just how special they are. now is your opportunity to show us. let's get back to conversations had overseas. we just heard larry summers mention iron ore. retreated 45% this year. the collapse has pushed producers to the brink of survival. that is according to rio tinto ceo sam walsh. jon ferro spoke exclusively with him earlier today. the lowest-cost producer in the world, we are in a privileged position. if you look at normal supply and demand economics and its the high cost producers that would come off. last five years, we have seen 400 million tons of on.city come

most of that falls into the high cost category. those people are hanging on by their fingernails. that's life. sooner or later the adjustment will take place. it's not natural, it's not normal for the lowest-cost producers to be looking at how can we withhold supply? >> it's not moving the price though, is it? called $30 nancy lanza back in february -- fancy land back in february. -- fantasyland back in february. you are knocking on the door of that. >> $30, it won't physically work. you are talking about a price of

$25 from australia or $15 from brazil. there's a lot of high cost producers that just aren't going to pass muster at that sort of price range. it's not sustainable. it is fantasyland at that level. >> is that what needs to happen to wash out some of this excess supply? prices need to go lower? >> it's what happens in every cycle and i suspect that right $39 theret a price of were people suffering pretty loudly. be au also said it would lonely place if we got anywhere near $30. it is still looking pretty crowded. >> there are a lot of producers that we believed would leave the market that are hanging on by their fingernails. that's life. they are burning up cash reserves of their shareholders. that's a decision for them, not for me. >> divestments, a lot of assets on sale.

presumably a lot more assets on sale. not the assets that you want. you have the strongest balance sheet. a lot of investors look to rio to make the acquisitions. the price demand for them is still too high. when do we get to a point where deals will be made? >> i expect we need to see a bit more pain, a bit more reality. a minor interest rate adjustment could actually be a tipping point for some people. sitting,are currently i'm quite comfortable with what our own internal growth projects. they are very good project. our underground project is becoming closer and closer to receiving review by the board.

and another project in western australia aimed at maintaining the grade of our product. stephanie: and there you have the rio tinto ceo. i'm going to take you into the terminal. in march of 2015, rio tinto cut 100000 jobs -- jobs. you've got 58% of the analysts have it as a buy. 16% as a cell. 37% above the current market. what's the issue? more and more investors are simply taking their money out. they may like what the analysts have to say. a 37% increase would be massive. there are so many factors they cannot control. looking at thee same dynamic as you are with just oil. he's talking about -- they can't go any lower because it

doesn't make any sense. that's not true. markets do all sorts of things that don't make sense. i'm sure he would love to back off on capacity but he's dealing with an entire market that steps are they trying to keep -- an entire market that's desperately trying to keep -- david: the little guys get squeezed out. if you have the cash and you can survive, you come out just fine. that's what he's thinking. brendan: did you hear the drip of condescension when he referred to the other guys as the minnows? they are cutting the 2015 organic growth forecast on slow global growth. listen. it hasve been saying -- been about 1% versus 1.5%. here's what's interesting whether or not you follow 3m. we are talking about janet yellen and her decision tomorrow. 3m is not adjusting their forecast based on anything to do

with their company or what they've produced. this is about a global slowdown. this is bad for the global economy. you know who's smiling in dubai is larry summers who has been telling us for a year that growth is over. stephanie: and he has cornered the market in sly smiles. david: we will talk about oil next on bloomberg go. ♪

vonnie: welcome back. samsung has asked the supreme court to overturn a patent infringement award it was ordered to pay apple. an appeals court ruled that samsung had copied iphones design. that entitled apple to a cut of their profits.

if the supreme court takes the case it would be its first involving design patents in 120 years. -- is in talks for a deal with a german company. sanofi would be the global market leader in consumer health care. suffered aft just setback in seattle. uber isn't commenting. david: as oil continues to drop below $35 a barrel, there may be a winner. walmart is certain to look like it may be a winner. shannon pettypiece has written something. she said lower gas prices also make coax shoppers into making more frequent trips to the store.

the average driver will save about $38 on gas a month in the fourth quarter. she joins us now. explain to us how walmart might benefit. why haven't they benefited already? oil has been down for a while. : exactly." walmart is in a specific niche. they have their own private fleet of drivers for their trucks. a lot of companies outsource their business to a trucking company. walmart has been seeing gas savings directly right away. ,s things get lower and lower they benefit directly from that. there isnsumer end this belief is that consumers have been saving this gas money. now we are getting to about a year when gas prices have been really low. so the savings, the home repair

you did with the extra money -- stephanie: did that actually happened? shannon: that is what we are seeing. car repairs or saving or paying down debt. it has been a year. so there is optimism that now consumers might actually start to let go of the little bit of that -- stephanie: why? as soon as we saw gas prices drop, we said, those people are going to go straight to the mall and pick up skinny jeans. they didn't. what happened to make us believe they are going to change their behavior? retail is a bloodbath. part of why we are talking about walmart specifically is because the walmart shopper is different. their income is lower. they are spending a bigger proportion on gas prices anyway. numbers fromome jpmorgan. someone making $75,000 a year,

they're spending when gas prices went down went up by .5%. for a walmart shopper, someone making less than $30,000 a year, their purchasing power went up 1.6%. three times extra purchasing power that a lower income shopper gets when gas prices go down. brendan: there is also solid evidence that the lower you are on the income scale, the more likely you are to spend the stimulus. if you look like it as a stimulus, the lower down you are the more likely you are to immediately begin spending it. shannon: we may be seeing this benefit from walmart. it is so hard to see what would have happened in the world had gas prices not been what they are. the one that has had traffic going into their stores going up for the past five quarters. it's not amazing. but it is something compared to a year ago. stephanie: they've also had a margin problem. that issue isn't going anywhere.

people were flooding into their stores, they are there for deals. it isn't going to move the needle. shannon: that is possibly why y're getting a benefit from lower shipping costs. the cost of that can make or break that margin. even if their typical shopper has more money, are they going to spend it at walmart or are they going to amazon or some other sort? -- or some other store? shannon: exactly. it could be a lot better. the consumer has a little more money. where are they going to spend it? stephanie: not paying retail for anything. brendan: i'm looking at the terminal. we have this long-term trend where you have same-store traffic it was in negative numbers. leaped. really

so we are seeing the shift. what i want to know is -- walmart's strategy was to improve the customer experience in the store. when are we going to see that improvement? shannon: the company would say you are seeing it now. they do these surveys of customers in their stores. they say two thirds of their stores are at this acceptable level compared to 18% a year ago. they say they are seeing some improvement. once you lose a customer, the hardest thing in the world is to get that back. you guys have talked about this year. they've got a long way to go. may be benefit from oil. maybe. shannon pettypiece, thank you for joining us. stay with us. why is there so much panic in the high-yield market? that's coming up next with steve rattner on bloomberg go. ♪

david: we have been talking about fed eve. you are going down to washington. brendan: i am. they will give me the numbers and i will give them to you. what i want to know is, where is the inflation? and what's going to drive it? the fed keeps saying we're going to get to 22%. i don't know how that's going to happen. that's what i want to ask. david: brendan greeley, thank you for spending the hour with us. we will have steve rattner talking to us about high-yield and what's going on. that's next on bloomberg go. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. >> nightmare on wall street. coming off the worst day in five years. is it a sign of things to come? all signs point to the fed

raising interest rate tomorrow for the first time in almost a decade. and a new report tells us who makes the cut and how they make their money. ♪ david: welcome to the second hour of bloomberg . stephanie: here with us throughout the hour, one of our favorite guest anchors and christine harper. .e have got a lot more to cover we are looking at markets. a stock market opening in our net half. we are seeing a bounce back in the high-yield market. there is always a price or buyer somewhere. donald trump heads into its's presidential debate with his biggest lead yet. in a new poll, trump had 38 or

send among registered republicans and independents leaning that way. today what out congress is working on. paul ryan releases details of two new agreements, one keeping the government from shutting down and the other sense dozens of tax breaks. he says it is victory for republicans and democrats. fight terrorism. pakistan, turkey, and egypt. a joint operations center will be established. every -- on an individual basis. this and other breaking stories 24 hours a day on bloomberg.com. u.s. futures right now as

you can see are higher with the s&p, the highest is .7%. the nasdaq futures are up similarly. are a believer, you might be preparing for a big pullback. let's take a look at the dow ines transport average back august or the transports actually fell nearly 11%. if you look at the down just reels during the same period, you see a correction there as well of about 11%. goingould cover losses into late november but now there has been a diversions. can see since november 20, transports have actually dropped 2.6t 10% here compared to a percent fall here with the industrial. any new high in the industrials must be confirmed by a new high

in the transportation average. thinkansports, if you about it, would rise even higher to lend support to industrials. track for 2016. david: the high-yield debt route is triggering for 2007 with hard plunging, it is showing a little bit of a revival today. christine, what do you see in this? there are two schools of thought on wall street. if you look at the types of assets, very risky energy debt and things like that, that is a small pocket of the market. if it remains there, it will not be a huge problem. we have seen it coming over time. what happened with 3rd avenue and the other funds is maybe

underield could come strain more generally. a lot of high-yield funds have started that offer quick liquidity. not want to be in high-yield anymore, a lot of money can come out of the funds very fast and it is not like hedge funds where you have to wait and you can get it out immediately. you can see a real sense of fire sales starting. he's killed so many investors back in 2007 and 2008. funds that did not have gates were treated like cash machines with investors looking to get money out anywhere. so many investors were embarrassed that they missed all the warning signs and that they don't want to be put in that position again. >> i agree with all of that. i would add there is a strong

view, hard to quantify, but a high level of conviction that what is going on the banks, there is a lot of liquidity. one of the funds needs to sell some paper in order to meet a redemption, it is harder to find a buyer. therefore you see prices depressed because of the liquidity. christine: contrasting what is happening now to 2007, which is an 2007 in 2008, 1 thing that occurred was the risks holding subprime's suddenly turned out to be on the balance sheets of the federal reserve banks. countrywide, all of these things had big portfolios. some did not know it. it is not just risk management. it is regulation.

they may want to think about the fact that what happened was taxpayers ended up having to bail it out. there is a little difference between put backs and collateralized paper. the smaller cap equities is much less liquidity in those. stephanie: you have got to look at jefferies. the numbers are out. -- you think jefferies, christine: jefferies first half was in part builds on the fact that they could do things regulated banks cannot do. they were taking all of these risks in commodities because

they are just a broken dealer and they do not have dodd-frank constraints. a lot of the industry was looking at them jealously and thinking, we could have done that. they were not on the hook for all of that. we will see the degree to which the banks are having stuff, to the loans made to credit lines. there could be things we do not know about yet. at this point, it looks like jefferies went out on a limb a little more than some of the big tanks and are paying the price of them. have reducedey rates. if you thought about the investment day, they said they have reduced it by $4 billion. i'm not saying it went unnoticed, but there were no fire sales being announced. they reduced exposure in high yields. the lending business is now completely operational. in 2016, they are not going to be caught. jefferies is in a position where

they can be nimble. is a knock but it could be an opportunity. christine: the question is will they be providing liquidity, and that is not because of regulation. it is because they are starting to see maybe they are not taking risks in the market in this way. resilient in ae downturn than they otherwise would have been. i wonder whether there may have been a lower risk, but if it happens, do we have less tools to do with it? up aed talking about going quarter of a point, do we have the tools to fight off a real downturn in the economic markets? inevitable atre some point. a some point, there will be correction.

notwithstanding everything we just said, i think the financial system is in shape to take a correction and work its way through it. we may well be facing a different world in terms of equity and bond prices. get one of three outcomes are jefferies inventory and balance sheet is at the lowest level it has been in a decade. if this is a slight correction, they are not very happy. if it is a big one, it is a positive and they are nimble. that reminds me of 2008 at a lot of the language released today. they go to incredible detail how they reduced their balance sheet and what percentage of their assets are level three, a very low percentage. this is similar to what we started hearing back in 2007. investors know how much risk is on the balance sheet.

come a time and time again, made it through the crises. stocklding company, the has taken a hit and it remains to see whether investors feel comforted or whether they are worried about risks that may get worse over time. the takeaway will be, is jefferies a one off because an energynown as house, or are they the first chapter in what we will see as a very ugly story? >> i cannot fan of the answer to that. certainly, it is hard to match and the for -- the fourth quarter will be anything better. it is all taking a toll on everybody's earnings. christine: i think you'll see more disclosure in the fourth quarter earnings in terms of what they are doing with the unless something changes dramatically in the next month. stephanie: i cannot imagine that

to be the case. david: if there are these corrections, how does that affect the real economy and consumer spending? steve: a downturn in a high-yield market in of itself probably does not have an immediate effect on consumer spending. it makes it difficult for companies that are junk rated. formarket has been tricky some time now and that just slows down economic activity on some level. people who worry about this in part because these kinds of >> in the high-yield market has been a precursor to more serious economic weakness, not that they necessarily cause it but the canary and the mine shaft. they are the first signal that perhaps all is not well in corporate america. corporate profits this quarter will be quite weak and margins are getting squeezed. the dollar is not helping any export companies. consumer demand is not terribly strong. the market is getting nervous

about the strength of corporate america. christine: you could argue the high-yield market has gotten over the top. not able toanies borrow a few years ago -- >> it is impossible to say that made sense. christine: you are now converting to a somewhat more sensible market and that may in some ways be a little healthy. david: steve ratner, you will stay with us. stephanie: the two most viewed people on the terminal, jeff, david, ceo 3rd avenue. david: up next, german investment improves -- confidence improves. ♪

vonnie: welcome back. here is your latest bloomberg business flash. decided to keep its

semiconductor and technology licensing arms together following a strategic review. shares have fallen 70% this year. in seattle for over and lift, the city council voted to allow drivers to form unions and negotiate wages. this says the loft threatens privacy and will incur substantial cost on passengers and the city. howard stern is staying with serious xm he is saying on his show he signed a new five-year deal. he does not come cheap. his current deal reportedly cost serious xm about $18 million per year. stephanie? stephanie: now it is time to take you to global go, we are headed to europe or stocks are rallying after a five-day consecutive job. mark barton is joining us with a look at the trading session. how does it look?

the decline amounted to 6% or 600 billion euros. m&a fever in the air today. syngenta is one story. let's start with french judge -- french drugmaker in talks for an asset talk with germany's angle time, a 22.8 billion euro assets lot -- asset swap. is one of the m&a things i have got to tell you about today. the other is a swiss pesticide maker, up by 1.9% today. of the chinese chemical group, is interested in tabling another offer. have a look at sterling. we have got some inflation here in the u k

, .1% after being stuck around zero 44 consecutive months. inflation here it is long away from the bank of england's 2% goal. there has to be some level of impact given the scandal going on with volkswagen. mark: it is interesting. volkswagen failed last month -- sales rose by four point 2%. yes, it was less than one third of the industrywide figure of 14%. dig beneath the surface and you get the reality. the market share is shrinking, .t has shrunk by 2.3% to 24 5% in september, it shrank by .4%. what we seeing now is the real impact of the scandal, as

current deliveries reflect orders to replace just a few months ago. they are rising by 2%. europeywide figures in have risen for 27 consecutive months. economic and consumer confidence rise. investors and consumers are going out and buying cars. stephanie: cars, maybe not a volkswagen. thank you for joining us. when we return, will a potential rate hike the two premature? we will find out. with nouriel roubini. ♪

david: the fed is expected to raise rates tomorrow. tom keene spoke with an economist at the arab strategy form -- forum in to buy.

>> on one side, the lipper market is improving. that rate may be closed to the and inflation could occur. economic growth close to potential it on the other side, it measures inflation. appreciation -- i have given other like down and oil and commodity prices. i think that is the dilemma the fed is facing. there is no sign of the inflation in the economy. tom: you studied with jeffrey sachs. thathere any study you did suggested a central bank could of events, ornt

by definition, is any central bank a reaction? nouriel: some central banks can be proactive instead of reactive and one dilemma the fed is right now, suppose they move soon, the economy could be stalling maybe because of external shock and then making a policy mistake. caution more slowly, if economists are strong and inflation picks up, you can type a little faster. moving too soon or too late, you want to be cautious. therefore people are questioning whether the fed should be right now. david: he set up the dilemma well. what should the fed be looking at and how do you reckon with -- how do you reconcile those two numbers?

none of it, you worry about unemployment getting too low because then it feeds wage pressure which feeds cost pressure. it is the beginnings of the tiny little sense that wages are improving. here is the point. inyou look at where we are recovery, the fed is raising rates desolate in raising rates. only starting to think about raising rates. if you look at every single other economic indicator, commodity price inflation, weak gdp, strong dollar, all this stuff, we will tell you it is not time for the fed to raise rates. the fed has put itself in a position where it has to raise rates or it loses all credibility. what people are now focused on is what do they say is happening after that? that is what the market is most interested in. stephanie: i just pulled up matt

ander's function work reviewers are saying there is a 78% chance we will see a rate hike. clearly, the market will not be disappointed. .arkets are dynamic i think there is a credibility issue for the fed. the fed governors are out there more or less saying rate hikes will come. the point is it will not make any difference in the economy. the issue is this is the beginning of a series of rate hikes. full coverage tomorrow morning. we will be back. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. stephanie: welcome back to your you are watching bloomberg for the hour. steve ratner with us. a lot more to cover.

first, let's get you some first word news. the white house is saying there is unprecedented demand for coverage under obamacare. today is the deadline. the government's's ability to enroll them has been temporarily overwhelmed. baltimore is in deliberations today in the case against the police officer on trial for the death of freddie gray. a final injury while taken to jail. if the officer is acquitted, rides could breakout. sergeant bowe bergdahl will face a desertion charge in the general court-martial. he was captured by the taliban and. they had him for five years until he was exchanged in a prisoner swap. the officer recommended bergdahl be charged with a misdemeanor offense.

you can get more on these and other breaking stories 24 hours a day. david: big news in the past hour is qualcomm. the board is rejecting a split strategicshing its review, deciding to keep licensing and semiconductor businesses together. it also raises forecast for fiscal fourth-quarter earnings. qualcomm is up by two and a quarter percent. premarket, into the it is going the other way down 4.5%. it cut its revenue and earnings sluggish growth. this is according to a statement this morning. finally, surging in the premarket up nearly 29%. it comes after short seller whitney said he stopped betting against the company in a column.

stephanie: the cpi number has just come out. prices unchanged. core rates rising .2%. as a slightke this positive or it we have been in this situation at least for the last couple of weeks. the more data we get, the more negative situation. things are getting worse in that case. import that those numbers just cross. david: finally some news that does not make janet yellen's job harder. keith, talk about your recent survey. you did one a few years ago. what did you find that is different now? for having me. we did a survey of over 1400 consumers to assess their willingness to pay for consumer security. we found a higher willingness to stick with paid consumer

security than what we found five years ago. when we asked consumers about the willingness to pay, 65% of what they're paying five years ago, 13% expected them to roll over subsequent purchases. did not happen. 55% are still paying for security. a lot of what is causing this is mobile, new opportunities to add more value through stuff like family protection your keeping consumers with these pay packages for longer. we found a market improvement for a renewal rate up to 85% on average in the consumer survey. david: mobile is a big change from what you did in 2010. is percentage willing to pay the same and mobile as it did in desktop? keith: not quite. in mobile, 32% of people willing 55% overall and

desktop or the price they're willing to pay is lower. the average monetization on a unit, versus4 per mobile, $49. the base is so much longer -- larger. so over time, as the willingness to pay improves, as there are better avenues for the monetization, it could be a much larger opportunity because of the larger base. does this tell us something about how concerned people are about security on their mobile phones as well as desk tops? keith: definitely. if we look at the desk top business taking off, we are starting to see that those emerge in the mobil mart -- mobile environments. today, you see it largely in android mobile phone ecosystem. other platforms like ios could become increasingly at risk. we saw some of the first breaks over there. if see the adoption rates higher time,for android but over

as the profile increases, we think consumers should focus more and more on protecting for more and more increasingly important information. david: thank you very much for joining us. will turn for we oil, taking a plunge over the last week, dipping below $35 per barrel, hitting its lowest price since february of 2009. today, gains of 2.5%, jacking futures off their highs. tom fromned now by denver, colorado, and how the air. -- how the air. -- havier. side going one direction and not turning around anytime soon? : this is part of a normal bottoming process.

werets to see a recovery v-shaped. process may well take the better part of the first half of next year. i do think it is there and it is giving some confidence. it does -- rise to the february 2009 level. we are at a point now where that is the more likely case. low 30's and then a gradual recovery in the second half of next year. moore of citigroup says the worst is not over. by no means think the worst is over for oil prices. we think come q1 and maybe even going into q1 of next year, the factors will be rising in the market and keeping a downward

pressure on the rise. javier: it is difficult with him. i see crude oil in the market. the guys who actually buy and sell barrels of oil are telling me there's too much. bankers because the capacity is completely and fully utilized. you see way too much oil. i think we'll see lower prices in the beginning of 2016. david: what does the storage factor do? what does that do to price of oil? using: we will start floating facilities. for that to happen, we need to the time expressed, we need

to see crude oil for immediate delivery going significantly lower, dropping toward the level i am seeing. already in the physical oil market, we have seen crude oil traded at the lowest price in 11 years. david: steve, we talked to you that will -- about oil before. there is: -- steve: the whole private world of oil and natural gas, in worse shape in the u.s. in terms of price. ofre is an enormous amount value going on at the moment. david: what is this doing to some of the oil companies? some of the independents who have a substantial interest to make? tom: what we have right now is a lot of diversion to paying those kinds of bills and not

reinvesting in the business. the decline out there now was the one thing not talked about. it will be agree bumpy first half year. the key point for opec was to reallocate capital such that the development of the kind of pace we had a year ago or two years ago, it is brought to a halt. that has already happened. now the question is how quickly does the embedded decline kick in? is 2016 will see a significant change not only in north america and u.s. production, but even in some of the opec players. they have reasons to want to now begin to dial back. can it test briefly below 30, sure. but that is all part of the same bottoming process your you have

got a group of producers within opec, including the very largest , all of whom need a higher clearing price and have some influence that, especially as the reallocation of capital occurs. there will be some bankruptcies. that is clearly in the offering as we speak right now. let's say there is a self correction, a turnaround, and that is the second half of 2016. between now and getting there, what do we see? tom: it is hard to gauge that. it will feed on itself to a degree. my bet is it will be less so than we have seen in times past. but he could approach what we saw in the financial meltdown of 2008 and 2009. i do not think it will be quite as large because there are players who have hedged through the year.

the hedging is largely gone now. stephanie: those players who have hedged, are there possible companies out there that you look at that would be a great deal? yes indeed. the better plays in north america, especially in the u.s. and shale will attract attention. the permanent basin is relatively young in its development and unconventional presents opportunity here and in colorado in the basin. we have recently done a transaction that was a great one in terms of a situation like that. there are a series of opportunities that will crop up. longer-term, it is really the big resource that has promising potential but it will probably be behind the timing.

vote -- thankou you both for joining us. look over the last 20 years to see what the next generation of billionaires looks like. that is on bloomberg . ♪

vonnie: welcome back. forecastits full-year citing continued slow growth at the global economy. 3m says it now anticipate sales of 1%. shares down as much as 5% in premarket trading. china national chemical moving ahead with a takeover plan according to people familiar with the matter. executivemet with the last week, discussing a revised

proposal after the first one was considered too low. inflation at the consumer level did not change last month. prices since 2009 are keeping inflation well below what the federal reserve wants. roseonsumer price index .2%. according to a report only 44% ofubs, billionaires have prevailed over the last 20 years. time, 1221 new billionaires were created and a female billionaire population grew faster than male counterparts coming from a much lower base. [laughter] what does that say about the changing faces of the world? john joins us. scope and idea of the the grasp you have of all of the billionaires in the world, how many bank with you?

john: good question. of all, happy holidays to you and the crew here. we have relationships with something like two thirds of the world passes billionaires. that focuses on high network families and the advisors that serve them. we have a global footprint unmatched i and the other firm. it gives us great perspective on the global nature. it tells us a few things. we came out with the first report. master architects of great wealth. this is a followthrough report where we dug deeper into different things. what we found our women they camees, where from and how they created their wealth. they're growing faster than their male peers.

once a billionaire, not only -- not always a billionaire. just because you made $1 billion does not always mean you have $1 billion. stephanie: this is a time when every other bank in the last three years said private wealth management is the place we want to be. what are you doing to hold that position and maintain it with all these billionaires? john: our job is to get perspective and give them advice. a lot of these things come from how do we help them with strong family governance, how do we help them with trust in the state planning work, how do we help them with philanthropic needs. thishing that came out of was the wealthy or the client, the more philanthropic their becoming. it is a newer phenomenon. in the philanthropy world, it is 30 is the new 70. we have seen a lot of newer self-made millionaires figured out the best way to keep their

wealth sometimes is to give it away. break it down in terms of geography. what percentage of billionaires are in the united states, china, latin america? not have exact figures but the fastest-growing segment of the inez is an agent in the women second and across the whole segment. the u.s. is still growing fairly rapidly. a lot of it is family legacy wealth as well as self-made leaners, coming from different segments now. the first age was around the turn of the century. most great wealth was created from energy, from rail systems, transportation, and steel. differentis totally here technology and finance. as we see things like oil prices and asset prices drop, we have seen more and more

of the .1% got a lot richer in the last five years. terms,ee in real market do you think we will see the ultra wealthy be affected or have they gotten so rich at this point that it does not matter? it varies a lot. i've had dealings with many of those people. some are ultraconservative and keep the money and treasuries and they will not be bothered by this. others want to make more money and are invested in one form or another. certainly most of the ones i know have at least some of their .ealth invested they will lose a little of what they had. the smart ones are diversified your they have a lot of liquidity and nothing will happen that will change their lifestyle. smart onesthe really have guys like steve managing the money. john, thank you for joining us.

be sticking with us. warren buffett is hitting the campaign trail in support of hillary clinton. how much will he help the democratic front runner? ♪

stephanie: berkshire hathaway ceo warren buffett is slated to appear at a campaign rally for hillary clinton tomorrow in omaha, nebraska. buffett has reportedly donated 25 thousand dollars to clinton positive campaign in the cycle. there are a lot of questions out of this. not make al difference to the campaign and certainly not to warren buffett. but it is a statement of support. does that mean something? many voters and donors he did healthhow,

work for the last campaign in 2008. obviously one guy will not change history, but i think , he is still a credible person. when you ask other people to give, does it make it easier? that warren buffett gave? steve: it is not the money. it is the fact that warren buffett is saying this at the margin. you never know. people react for different reasons and give for different reasons. they choose not to give for different reasons. anding up one of my friends one of the viewers at the wall street community, warren buffett is doing rallies for her, yes. i think that margin, it would be helpful. stephanie: warren buffett cares about running his company, not campaigns. if fact he was even here in new

or two private events last week and he is now doing a rally in the backyard, what does it say about his involvement in the campaign and making such a big statement? steve: his father was a congressman you comes out of the political world. is a natural politician. he would be a fantastic candidate. he loves this stuff. in the 2008 cycle, i was shepherding him around for seven or eight hours of events in new .ork and the guy is nonstop a lot of cherry coke and no bathroom breaks nonstop for eight hours doing politics. [laughter] stephanie: he does not have any kids, clearly. thank you for joining us. we have a lot more to cover. ♪

david: a tad over 30 minutes away from the opening bell here in new york. good morning. stephanie: joined back by our

co-anchor erik schatzker. yesterday.orida it is good to be back. who do you want to hear from more than mark weeden, the global head of blackrock's business, the world's largest etf manager you could call the king of etf's. your highness. : a pleasure to be here. erik: we have a lot to talk about before we get to the subject of junk bonds and etf's. vonnie quinn. pagee: getting on the same against terrorism, saudi arabia announced today it is leading islamic military alliance despite terrorism. turkey and egypt. today, with moscow

coordinating attacks against the islamic state and is on the agenda. bound for the international state -- space station. he will be the first in britain to represent the state -- the space station on the european lab. donald trump heading into a debate tonight against rivals. ofmp is backed by 38% republicans and independents who lean that way. debate at 9:00he eastern and bloomberg will bring you a preview. watch "with all due respect" live. these and other breaking stories 24 hours a day at bloomberg.com. >> u.s. futures are hitting session highs, the s&p is up and futures trading, dow jones is up and nasdaq is up. leg up after that came unchanged for october because of

cheap oil. let's take a look at how nymex crude is doing. it is up by .5%, trading at $36 and $.50. we are as 2.5% earlier seeing another day of choppy trade. prices briefly turned negative in return higher yet again. citigroup out with a report saying the oil price might fall into the 20's if storage runs out. the eyes are on the fed. it's earth day today meeting today. let's check out the w.a.r. p/e function and fed funds futures. probability right here of 25 basis points. as we wait on that decision, some experts are talking out there that they believe more volatility is happening if the fed's pointed trigger. take a look at how the s&p has performed month to date right now.

2.8%, in large part as the price of oil -- the price is down 13% from the start of the month. erik: time for the three stories that matter to markets. this is a story i cannot stop talking about. lumber liquidators surging this morning after whitney tilson closed his short position. here is what he said in a statement yesterday. in the past week, i received information that leads me to believe the senior management of lumber liquidators was not aware the company was selling chinese made laminate that have high levels of from aldehyde. if correct, the company was sloppy and naive, but not evil. here is the problem. he went on the corporate equivalent of a jihad against them. participated in the 60 minute take out of the company and back in march, he said he was 99%

confident the company knew or should have known that what it was selling contained high levels of from aldehyde. i do not know if you know much about the strategy but what i want to know is, what do we do with a guy like tilson who said he was 99% sure they were normally selling this toxic product to american customers and now says what's, i was wrong? stephanie: you cannot put the toothpaste back in the tube. this.ill not see >> stock went from 7212. it is an ethics question with an anything else. in an era when

activist investors got enormous attention from investors as well. who is empowering those people? the question is whether or not you wonder through and listen to them. >> blame the peace it -- the people who listen to him. >> to anything investors do. are doing something very productive and have a long-term view. others are in for a short-term trade. you the viewer need to pay attention to which is which. stephanie: i am glad he did not go to the media. i was ready to go under my desk to blame us. -- number two, the eve of the liftoff. the fed kicks off its two-day policy meeting and tomorrow, it is a method to announce the first rate hike in almost a decade. some remain unconvinced the timing is right. tom keene sat down with larry summers in an exclusive interview. take a look.

>> my instinct would have been to place less reliance on theories. and therefore to have waited until there was clear evidence that we were in danger of significantly exceeding the 2% inflation target before acting. the theme today is they will never really do it and it may well be wrong. we have had person after person say that. what do you think? >> we think it is overdue. time to raise to load but normal levels. we think it is time to move forward, slowly, with a calm pace. expect to see big movement at the long end of the curve. we think it is a healthy step. david: have you given a thought to the point being made about the curve and the relationship

between unemployment and inflation has broken down? >> it has broken. right now, we are stealing moneys to reward borrowers and we have got to move to a world where we have some positive incentive for people to put capital way and hopefully get more in the future. >> tune in for full coverage starting at 1:00 and is june time. a primetimee special tomorrow night. qualcomm has rejected calls for it to split and will instead debt on its existing business model. it decided to keep a semiconductor together following a strategic review. shares have dropped 37% this year and sales growth has stalled since last year. stephanie broke this earlier on the program. what do you make of it? mark: i would rather know what mark week --

>> i do not have a comment this morning. [indiscernible] stephanie: i want to make a correction. thee he said he wants company to look at potentially splitting. he was not saying they need to. he has done what they asked him to do. >> he gave his support back in the summer time. three new directors join the board. they collectively decided splitting the business was not in a long-term business of shareholders, which includes jenna. we now have to wait and see if he and his colleagues stick to that point of view. they were behind the strategic review regardless of the outcome. perhaps some other activists have a different opinion and want to continue to go after qualcomm. i don't know. it is a big company. stephanie: tcn activist not come out fighting saying, i would like you to look at letting and

they actually did it. >> if there were never an activist and your stock price was down 30%, you would think about doing something. you can, through activist imaginations, drive the share price higher with the fundamentals for all come business at the moment are terrible. that is why it is where it is. as we head toward the opening bell, we are about 21 minutes away. is tradingk at what up in what is trading down. a deep dive into high-yield markets and specifically the world of etf. stick around. ♪

vonnie: welcome back.

i am vonnie quinn. general electric is selling another financial unit. buying ge's commercial lending operation in japan for $4.8 billion. it is the latest in a series of deals by ge. the company is leaving the financial business to concentrate on manufacturing. full slug and takes the slow lane. 2.4% last month. the industry overall gained nearly 14%. coping with scandals for using software to cheat emissions tests. disney shares right now is what i want to talk about. up 2.1% in the premarket right now. note,n sachs out with a increasing global box office estimate for star wars, the force awakens. billion from $1.5 billion. the film premiered last night in los angeles. a lot of people do have their tickets. keeping its neutral rating going

but increasing the price target from 110. serious xm shares right now are higher than premarket, up by four and three quarters percent. howard stern agreed to a new five-year contract just one day before the expiration of the current deal. that secures more than $80 million per year. the new deal grants access to stern's show library for the next 12 years. these the shares are also on the move. up 1.6% in the premarket. goldman sachs adding the credit card issuer to its conviction by list. forecasting market share gain for next year as well as 2017 after visa's preferred deals with costco as well as usaa next, our etf's part of the problem? don't go away. ♪

david: if ever there were tests for high-yield etf's -- if you have any questions for our guests and us, i just want to say something. twitter and you can see our twitter handles at the bottom of the stream. stephanie: i know there are a lot of questions out there. david: that is why i was saying if there ever were a test. negativee returns a for 2008. liquidity is evaporating. everyone is warning of more trouble ahead. many investors say etf's are part of the problem.

are they? here to answer the question is mark weeden. mark. i prefer to think of myself as a farmer in charge of etf's. what do you see. this is black rocks, tracking high-yield bonds. this is what has been happening year to date. we can see serious price declines marked in red. troublek rock had any managing this in this environment? mark: none. the assumption that the underlying high-yield market is ill liquid and having more difficult problems than usual, i do not think it is founded by our own trading experience. let me talk about what is going on with other etf's. there is a transformation

occurring. it is big. banks are getting smaller and they do not have as much capacity to mediate risk as they used to. the bond market bigger than it was in the financial crisis is harder to trade. a technology that allows people to buy and sell directly to each other, that is the hyg high-yield funds. in the last two days alone, that has had $1 billion in outflows. in 2008, the entire etf market was $1 billion. is a new are right it product. the real success story, we managed redemptions out of 15 million without any real impact. at the trading velocity, the secondary volume $9.89. last week it was friday, 4.3. yesterday, $3 billion. the whole underlying cash market trades between six and nine a day.

when investors want to move, they used to move just using credit derivatives. they now have an alternative. they can use hyg. on fire right now with high-yield traders who work with banks and hedge funds who are simply saying i do not understand how black rock could manage liquidity when no dealers are willing to commit capital in the underlying bonds. this is a question none of us can get to the bottom of. are you about to reframe the question? >> no. i do not think etf doesn't have to manage the liquidity. how does an etf work? it is very different than a mutual fund. the customer comes in and says i want out here the mutual fund really has one alternative. cell and hand over the cash. that is not how the quiddity works. that is how it could occur.

especially in distressed debt for example or something you cannot soak with me like a house. etf, theomes to an market maker has to make a decision. do i take the bonds knowing they will be hard to sell or not? that is not the etf manager's problem. stephanie: whose problem is it? mark: it is the market maker's decision. if it is more expensive for them to do, maybe they will not do it. the real managed -- the real magic is the retail investor does not need to worry about that. you can trade directly with other investors without worrying about illiquidity in the underlying market. erik: you are right the market maker has no obligation. to its etf to live up promise, for the price to be relatively close, that has to happen. stephanie: that is a good point. [indiscernible] the proof was in your question it over the last two

days, we had $1 billion in redemption. that is the etf working. that is exactly what it is supposed to do. david: you are saying you found somebody who would take the bonds. make the trade. in a last two days, they pulled out $1 billion. try to move out $1 billion yourself? stephanie: let's say things get worse and we have seen >> in the system. let's say hi yields take another big step down. retail investors went into .igh-yield etf's talk to us three weeks from now. how hard will it be to trade close to those marks? high-yield's,into that is one decision. do you like high yields. my point is i think the high-yield etf's are proving they worked really well. it allows people to trade during times of stress. whether high-yield is it good investment is a totally different question.

investmentsre good right now pyramid and maybe not quite yet but in the near future. if you have long-term investment, we will see. that is a separate question. david: you mention returns. why is it the high-yield underperforms the benchmark? mark: you look at the long haul, it is a most that on top of the index. it is not very useful. the reason institutions turn to thaturing times of stress, is the underlying bond prices, they are not real. they are not actionable. that is the best point ever. prices of high-yield bonds on screens are irrelevant. times of stress, if you want to know what the price of hi is, look at aig. that is a real price.

mark is staying with us for the hour here on bloomberg go. ♪ the only way to get better is to challenge yourself,

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>> walk them back, you're watching bloomberg , hield, gaining of 3rd avenue raising the specter of contagion. how far-reaching will the consequences be? and buchanan joining us now blackrock's mark wiedman is to with this. stone line, peak six, 3rd avenue, how bad are things in high-yield? >> well, if you're talking about liquidity, liquidity is pretty challenged right now. i would say that it is not really sneaking up on anyone, most investors in high yield have been aware that conditions with respect to liquidity are pretty strained right now.

but the flipside is, fundamentals actually aren't that bad. energyu have a sector to and commodity related under some stress, but away from that, the fundamental environment is reasonably healthy. stephanie: are you feeling any pressure or what is your view on hyg high-yield etf? we have seen others from oaktree a night had considered -- criticize the etf segment etf has promised liquidity and a market where there simply is not much. >> well, i think to date, etfs have reason -- proven to be quite liquid. $15 billion product when you talk about hyg. .ery actively traded i think within small doses, it asked the can help improve the overall the quiddity profile of the market. the issue is, it is the disconnect between the liquidity offered by that investment vehicle and the liquidity of the underlying investments within

that investment vehicle. i think to date, the product is done what it is supposed to. >> i agree with mike. what i say is, the fact the etf is adding liquidity doesn't solve the underlying bond markets are less liquid than they were five, 6, 7 years ago. as long as you keep the liquidity in perspective and recognize it depends on there being buyers and sellers who want to be on opposite sides of the trade, the product will continue to work. it is not a guarantee that will always be a buyer when you want to sell. feelke a wordy field does but -- where do you feel most when it comes to larger high income funds that you manage? i think my data only go back to the end of september. i see here you have about 25% of the assets at that date intervals the rated bonds or lower, josh triples the rated bonds or lower. has that changed at all? ask because was sunk the

focus at 3rd avenue was the non-rated and triple c. >> for one, we are always actively monitoring our liquidity poor file does profile of our portfolio. we feel we have sufficient liquidity. in terms of where do we feel comfortable right now, i mention the fun of little environment. i think hield is very attractive right now. you talk about triple c yielding north of 16%. it doesn't necessarily mean you go out and buy every triple c out there but clearly in a market where you are getting paid to provide some liquidity, i think there is a lot of good higher-quality credits that you could get very attractive returns for your investors. stephanie: do you have dry powder to make those investments? down around 9%, kind of being beaten by 90% of your rivals. so i'm guessing you're facing redemptions.

>> actually, redemptions, like i said, we are always measuring, monitoring the level of liquidity in our portfolios. to date, we haven't really seen anything out of the norm with respect to redemptions. we run a number of stress scenarios to make sure we can meet any redemptions that might come our way. i would say we haven't really seen anything that causes concern. a dailye not dealing on basis, i would imagine, with your mutual fund investors, certainly not the retail investor. what kind of feedback is great through to you from your salesforce? >> there is always the concern. you talk about the funds that have been in the news. versus aiquidity issue fundamental issue. it is somewhat challenging and you don't know exactly where this is going to end. at the one thing i think is

encouraging is the more scrutiny this product comes under, the more investors outside of the typical high universe, high-yield universe, are taking a look at it. and i think with that kind of scrutiny, i think high-yield will hold up. i think it is a good relative value. i would not be surprised to see nontraditional investors start to come into high yield. i think that is what ultimately start to support this market. >> nontraditional investors, avers, isn't that how we got so big? >> list of back and recognize that, first, mike is absolutely right. when you look at the behavior of retail investors, they are way more stable than perhaps the myths with suggest. they're much more calm and steady than institutional money. not looking so much of mutual funds but in the invisible world of people trading bonds we don't

have attention to because they're not in fun format. in terms of where i think we see a buying opportunity coming, not exactly sure where it is going to be, but if you are a long horizon investor, insurance, we think high-yield by the really attractive in the near future because unless you think the fundamentals are terrible, the pricing is getting a bit ahead of it. >> the reality is people are redeeming an individual investors are redeeming. mike, i would like to know whether western asset has set up any mechanisms to allow you to offer daily liquidity to those nervous retail investors. we know, for example, blackrock has some credit reince -- was to allow that. asset management has done that. money available to you so you can pay out cash to somebody who wants to cash out and yet not ave to sell the bonds into falling knife market. >> we have established liquidity facilities for all of our open-end mutual funds.

that is kind of a last resort. i think the first measure, the first-line of defense, really, is what was mentioning earlier, just making sure that you truly understand the level of liquidity in your portfolio and that you have sufficient liquidity to meet a whole range of potential redemptions. we go back and look at historical scenarios and see just how jumpy can retail be. we stress that. together, factor that i think what we see is quite a bit of liquidity and all of our portfolios. stephanie: in the last two days, would you say the street has gotten less liquid following 3rd avenue, following stone lion? the media left to talk about it but are you actually stick liquidity change when you pick up the phone and call morgan stanley and bank of america? >> i think liquidity has changed and i don't think it is an issue within the last two days. i think this is something that has developed post-financial

crisis due to more regulation, due to elevated risk profiles. i think we are operating in a less liquid environment. if you can be a provider of capital, if you have risk capital to deploy, the liquidity premiums have grown substantially and i think for longer-term investors that don't day-to-day need liquidity, i think there is really great opportunities and high-heeled right now. stephanie: then why did etf need to offer such extraordinary liquidity? we have seen since the financial crisis, investors say, i want that liquidity. what you're saying is if you're a great opportunity. why blame etf? i wouldn't suggest -- i'm sorry, i would nasa just if you are traveling a long-term yourtor that etfz are vehicle of choice. we believe in active management.

we spent a lot of money on research effort. we think that gives us a strategic advantage. we would argue for long-term investors, patient capital, you go really get paid well to after some of the opportunities in the market right now. believe in active management as well. i think the point is, actually, there are great ways if you are patient and your long-term to invest actively in the high-yield market. etfs are is, hyg and tools of you don't want to be with an active manager or you want to move quickly. sorry, david. to thank mike. thank you for joining us today. stephanie: i want to point out, i'm getting a message from one of the head traders at jpmorgan and high-yield saying there having extraordinary liquidity. they are saying their thing activity in the last two weeks north of $1 billion a day, the kind of activity they saw before the financial crisis. so those who say there is nobody

of j.p.bonds, the has morgan are saying you are wrong. " there's a lot of trading going on. it's also trading on the underlying markets. the point is what mike said, this is a multiyear phenomenon of less liquid market. nothing really recent. >> thanks again. let's find out what the stocks are doing. >> u.s. markets are looking pretty bullish out the gate. they are rising about 1% in the past few minutes of trading. pushed into positive territory the last 45 minutes as oil rose. looks like we're said to build on those gains. the dow and s&p having the best today rally since late october despite all of this, i want to see the s&p has lost 2.8% this month and is on track for the worst december since 2002, basically the past 13 years. let's check the health of the s&p 10 sectors.

this is the imf function. taking a look at the pops, energy is the biggest gainer. financials of by 1.6. health care up. basically, all 10 of the s&p 10 sectors in the green, perhaps with energy, it makes it rise and because of what is happening with the beauty i crude and seen a fair bit of volatility today. it did push above $37 a barrel, gave it all up as you can see right here in the slide, but then back to session highs. right now now up 2%. one thing to note, citigroup did raise one concern a report i may slip to the high 20's upon store or desk takes philip -- high 20's it tanks fill up. treasuries are going into the second day of losses as investors do push into equities. the yield on the u.s. 10 year of six basis points per yield of 2.28%. this year its highest since

december third. one stock to note, lumbar liquidators right now rallying 22% because for solar whitney tilson saying he is stuffing his bets against the company in a column on the seeking of a website. the stock had lost 80% of italian leading up to today. let's go to abigail live from the nasdaq morsi is looking at apple. trading downes are this morning after dialogue; act or cut its fourth-quarter revenue forecast saying demand is weaker than expected for its mobile systems segment. according to bloomberg supply-chain analysis, apple accounts for 78% of dialogues revenue. this may mean the demand for the iphone is also weaker than expected. such a possibility would be in line with comments from j.p. morgan yesterday and the firm was saying apple supply-chain weakness may suggest fiscal second quarter estimates could

come down. look at the stock over the last year, pretty amazing. shares are flat despite massive swings up and down. the key to the future maybe whether or not profits grow in 2016 is currently expected or not. stephanie: thank you, abigail. joining us from the nasdaq. when we return, ethan allen coming off a major victory against activist investor tom sandel. the ceo and chairman is joining us next.

stephanie: welcome back to bloomberg . here's the latest is nantz. uber and lyft suffer a setback in seattle, the city council voted to allow them to unite his and negotiate wages. uber is in commenting. lyft says it imposes costs on riders and the city. qualcomm rejects call for its

breakup. the mobile chip maker decided to keep the semi conductor and technology licensing arm together. qualcomm shares are down 37% this year. there is wind beneath boeing's wings come increasing its stocknd by 20% and buyback to $14 billion. the comedy is raising its aircraft production rates. company is raising its aircraft production rate. >> what is it like to be back and ask the best -- activist? ethan allen to selloff real estate and work with other furniture designers among other things. farooq can focus on millennial customers and boosting sales. farooq, welcome. how much of a fundamental difference in point of you did you and thompson dell have? is an 83ethan allen year young company. in business.d

we're been profitable every year. we have paid dividends. and the reason we are done it is because we reinvented ourselves. costello reinventing ourselves. if you do not reinvent, we would not be in business. that is a major difference. this is not a business you can come in and sam going to do some financial reengineering. that is a major, major difference. the other factor is we think long-term. >> effectively, you are accusing tom epping short-term it is thinking about what is quinn to make even allen successful. >> i'm not accusing anybody of anything i'm guessing our focus is long-term and has always been to make sure we take care of our shoulders. and look at what we did. this is something that -- we were surprised at this whole question of so-called activism. was totwo options, one get all kinds of advisors and the other, as we said, let's talk to the shareholders. i've been running even allen for a long time. then i tookvate and a public. we did something unusual. we talked to 85% of our shareholders through marathon

sessions. shareholdersboth want to talk to management. they want to understand what is happening. i believe -- i think mr. sandell , i think they do well with their businesses, but here we did talk to our shareholders and they strongly supported us. stephanie: you have high short interest in your stocks. 37.4 times of your average sale our shorts.ume partia >> this see what we're doing right now. even if you take a look at the last five years, we have had a compound annual growth rate of 5% while we are transforming our business, operating income on annual compound growth rate has been 127%. last quarter increased dividends by 38%. we just -- we just introduced almost 70% of our offerings have

been changed. in october, we did something very amazing. we said, let's use a digital strategy to our advantage. not in thewe are furniture business. we are in a service business with 1500 interior designers, 200 design centers in north america, 100 outside. we said, let's turn the switch on. and we turned the switch on and tod to our clients, come in our design centers, meet a designer and you will get 30% off one item. with a 33% increase in orders. >> farooq, i need to go back to dividends for a moment. larry fink preaches a culture of long-termism. you mentioned that your company is founded on principle of long-term value to shareholders. yes, i see you have beaten back the activist push from mr.syndell, but you agree to

borrow. >> absolutely. , you know, one person's analysis, more efficient capital structure and another is financial engineering. >> no, it is in. throughout the last 25 years, we have borrowed money. we have in the last 15 years repurchased 40% of our shares. nothing to do with activism right now. it sensibly.one from time to time we have our money. right now we are debt-free. we do have a fair amount of properties. with those properties we're using as we're using in the past to use as collateral for our debt. and then we have repurchased our stock. nothing new. i think it just so happens that this question of $250 million was discussed in the last few months. but this is something that we've been doing continuously. farooq >>, i want to talk about

your digital strategy. we heard rumors that has an bay might be buying guilt. can you do your digital strategy on her own or would it make sense for you to acquire a digitally oriented sales energy? stephanie: wayfarer. >> for example. >> good question. it depends on what your strategy is. everybody is running to do business on e-commerce. everybody. we decided to do it the other way. i said earlier we are not in the furniture business. the e-commerce internet has make decimate its good personal service obsolete. we said we will go the other way. we will have great entered the designers. we're 1500. we said we are what is our digital strategies to bring people to our design centers. we have one on 3rd avenue. the best thing on 3rd avenue is ethan allen. ethan allen. >> when you talk about digital

strategy, you have to bring people. and they come. people today are hungry for personal service. you have to define yourself. these folks are doing well, but that is not the only strategy. we differentiate, as i said in october, we use digital strategies -- website, e-mail, and we got people in. we increased our business by 33% , not on e-commerce. in fact we said, the only way you're going to get that 30% off is if you come to our design center, and they did. and we continued strong trends in november. year or so, we have changed 70% of our offerings. 70%. not easy. we are fully integrated. 70% of products are made in north american workshops. we have 100 locations outside north america and 70% we ship from north america, even in china. >> thank you very much, farooq kathwari, ethan allen interiors. mark wheaton is staying with us.

--mark wiedman is staying with us. ♪

>> welcome back. >> i believe the decision to delay rates runs risks that are easily reversed but subsequently raising rates. where is his decision to raise rates if it proves to have been the wrong decision, is a much more difficult decision to correct. >> they will raise rates, whether or not larry summers once them or not. the fed these should do, and larry doesn't want them to raise rates, he is a mega dove and has always been. so i'm not surprised at his comments. >> of this point, the fed has put itself in a position where it has to raise rates. it would lose all credibility. i think what people are now focused on or them what they do or don't do on wednesday is what

do they say is happening after that? i think that is what the market is most interested in. we think it is overdue. we think it is time to move back to low but normal levels. the levels we're at right now are you next gobble gobble -- inexplicable even to a child. time to move forward slowly with a calm pace. we don't expect to see big movement of the long end of the curve. we think it is a healthy step. >> inexplicable even to a child. mark, final thought? >> the bond markets are changing. bond etf is part of the solution. thank you for having me. stephanie: thank you, mark wiedman. we will see you tomorrow. ♪

>> and :00 a.m. in new york, 3:00 p.m. in london, and 11:00 p.m. in hong kong. welcome to bloomberg markets.

>> from bloomberg world headquarters in new york, good morning. here is what we are watching. the fed begins its anticipated tuesday meeting that is expected to end with the first rate hike in almost a decade. what it could mean for the markets and economy. then the republican presidential debate candidates gather in las vegas for their fifth debate. we will tell you how it could reshape the race for the white house. and we will talk with the chairman of product -- prada. how they are dealing with the weakest market for luxury goods in six years. overseas whatle the u.s., we're seeing a nice rally half-an-hour into the trading session.