scarlett: good afternoon. alix: we are watching the countdown underway with the fed beginning the most anticipated meeting in years and it is expected to end with a first rate hike and now must one decade. we will tell you what that could mean for the markets and economy. los angeles public schools are closed after receiving a threat. qualcomm rejecting calls the split itself into two, betty they could turn around their earnings as one company. well investors agree? l.a.on that situation at public schools where closes -- what a threat has closed classes. first, we went to get a check on the markets on this announcement. ramey has the details. ramey i went to get to the : i want to gety

to the markets and stocks are really flying out of the gate as the firstgrown 1% in two minutes. s&p 500 and the dow jones are up by nearly 1% and the nasdaq not far behind, up about .8 1%. rallys their best to day since late october, but important to note that markets are on track for their worst december since 2002. with that, let us see which sectors on the s&p 500 are leading the game. type into my bloomberg terminal and this is the imp function -- imf function. energy is up by 2.7%, financials are also right behind and health care up by a little more than 1%. also, i went to go to the price of oil. nymex crude is moving and toding gains right now, up

2.3 percent. the second day of games and the best today rally in the past three weeks. year low, this six but as oil prices, so does stock. exxon and chevron on the move and some of the biggest gainers on the dow jones, especially after raising their calls for the stock. exxon mobil and chevron umpire than 3%, almost nearly 4%. upward of 3%, almost nearly 4%. and price targets being raised, up from 95. alix: what is on the downside today? it seems we are getting a snapback. is in the biggest selloff natural gas, as it has been. pulling out of natural gas, investors not bullish. since 19 99evel now. the concern is continued warm weather and people obviously do

not need casper heat. this is down .75 of 1%. ,he yield on the u.s. 10 year if we pull that up, up by four basis points, 2.26% is the yield. alix: thank you. on firstlet's check in word views. vonnie quinn has more. you are monitoring the situation and l.a. vonnie: yes, thank you. they are telling the associated loss that the threats at angeles school district was e-mailed to a board member and appeared to come from overseas. they have 640,000 students and kindergartners through 12th grade and northern 900 schools. -- and more than 900 schools. >> it was not one school, to schools, three schools. it was for many schools, not

specifically identified, but there were many schools. that is the reason i took the action that i did. vonnie: school officials say they decided to close the schools out of what they call an abundance of caution. police will search for schools and parents are being told to keep children at home. new york officials received the same threat that led to the closure of all the schools in the los angeles system and new york concluded it was a hoax. ashton carter is in turkey, looking for new ways they could strengthen the fight against islamic militants in iraq and syria. carter wants turkey to control their border with syria. republican presidential candidates square off tonight in another debate. this one in las vegas. ted cruz is in the lead in iowa. that is where the first caucus will be held in february. ted cruz and donald trump has been friendly for months, but trump is being more aggressive

toward him. the debate is posted by cnn. by cnn.sted defense motions for a change of venue as the jury deliberate in the manslaughter trial of a baltimore police officer charged in the death of freddie gray. it is the second day of deliberations of william porter. pretty great separate the serious spinal injury while being taken to jail and they are concerned it the officer is acquitted, riots could break out. a look at first word news. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com. i am vonnie quinn. scarlet: thank you. credit markets getting relief after the route. has high yield gaining for the first time in four years, bouncing up six-year lows. alix: as the fed gets ready to raise rates, what could be a sign of high-yield market, we have technical analysis.

we are joined with more. up 185 on the dow jones and you think you will bite stocks today or what do you do? -- i will buy stocks today or what do you do? >> by comparison, the answer is almost 10 to one, so more intensely on the downside and upside. also, it leads us a little bit reluctant to went to break through -- to want to break through 2020. ,carlet: in terms of j and k you are looking at that, what does that tell you about whether we have exhausted selling? chris: what worries us is that the weakness we have seen in credit has not extended leon just energy and basic resources. we have seen financial spreads creep a little bit wider with health care spreads wider and industrial spreads wider.

i think it is a sign that this is not just relegated to energy. and as a function of that, we need to give this the respect demands. underit also liquidity large caps and ipos have not acted to well, so there are signs in different areas of the market that liquidity is not as ample as one or two years ago. catches myhing that eye, the longer-term ramifications of this selloff in high-yield, whether or not relegated to energy, a lot of companies have gone to the debt market and gotten cheap cash to buy back dividends in m&a. what is it wind up doing to those stocks if it freezes up? to that point, i take a look at the balance sheets versus weaker balance sheets and in the green line, and it looks like investors are preferring those stronger balance sheets. how do you see this playing out? chris: there is emphasis. when credit is under pressure --

it is probably why consumers have backed that. another technical is stocks are having buybacks which are big performers and they are no longer outperform us, so the market is saying, we want more than a buyback. we want growth. all of this comes back to what we are seeing in credit, liquidity gets more stressed, and emphasis in the quality that is paramount for themes looking out 2016. scarlet: where do you stand on the debate of whether credit is leading equities or if you look at the basket that correlate or correspond to the names in hyg or jan k, they are underperforming? chris: we probably do not have the same cleaning properties this time around, but nonetheless, and credit conditions deteriorate, they tend to be below average and there is 30 years or 40 years of data that support that. if you look at it of thinking of

ford market returns and given the environment now, we are comfortable saying that forward returns are probably below average given the credit drop. of the conversation ends up being, it is high heels, and investment grade is fine, to wind up seeingwe this creep into investment grade and how long does something like that take? they could be six months or 12 months as you have a lot of fund managers forced to sell but stuff they can and not what they want to. chris: i think it is hasty when was it that spreads which have widened out high-yield and investment grade,. the stock -- scarlet: i love when someone says that on television. chris: i always get nervous when the credit market is sending a different message than what the equity market and is saying. in terms of what we have seen with commodity markets over the years, we are5

missing the lehman moment. we have not lost the company at. it hard to believe the 10 year cycle and commodities comes to an end without the company losing this. scarlet: without a victim. chris: we don't have it yet. scarlet: we are approaching the year and and banks want to shake balance sheets and a bit quarter and of the year and. what kind of role does that play the lack of demand for liquidity and sensitive assets? chris: in respect to that, they own less mainly as a function and they don't os much on the balance sheet as they used to. i don't know if you will get the 2011signal that regard in work financials were at the center of the storm. women to get financials, it is an area as a potential leadership group or 2016. we are not ready to make a big call there yet, but we seek noted areas of improvement.

jpmorgan did a little letter, bank of america, if you can get that through 1815, we could feel better about the stock going forward. this market is craving new leadership. i do not think we can have the same leadership in the past three years or four years looking forward. scarlet: how much is linked to the interest rate environment? chris: even though we have seen the short and higher and 10 year hield -- 10 year yield higher, there are very funders and that is when it tends to be better for the bank stocks. i think it is catalyst in terms of of -- improving relative returns. alix: you sound relatively cautious. thatyou have high yields have this seizing up, yes, treasuries seem like a logical place that would preserve your wealth, but where do you want to go? year, theng into next

big stocks keep getting bigger. we need to own big or small. we have seen this same trade. these can last longer than you expect. you do like the beta traits. chris: let's not confuse beta with momentum. microsoft has been a leadership stock all year, so whether it is made or not, that is leadership. we love microsoft, mcdonald's, coat, stocks that are up. we do not consider them risk encore they do, but they are buting -- risk or data, they are working. scarlet: were this a common thread besides the fact that they are big and they have strong balance sheets? alix: and international exposure. chris: we have noticed in our factory work that companies at high foreign revenue have not much over the last few weeks as they have the last couple quarters with the strong

dollar, so maybe there is some type of change going on there. historically, high foreign revenue tends to do better in the back cap of the dollar bull market dent in the early and. scarlet: in terms of the fed and the announcement, how does this change your take on the market? chris: it is not. i'm not sure it would help save us any money. a lot of ink has been spent i what the fed may or may not do. here is what we do, we are probably in the later innings of a bull market and the market has now had to handful of groups with leadership, mainly big caps. alix: thank you. head of technical analysis at strategic research partners. had of tomorrow's a decision -- ahead of tomorrow's fed decision, we will be on bloomberg radio and bloomberg.com with special guests, analysis, and we will yellen'snet

announcement. it starts at 1:00 p.m. eastern. scarlet: coming up, investors have been blinded by warning signs from high-yield? not necessarily. qualcomm sticking together. can the chipmaker convince shareholders that this is the right move? scarlet: ahead of the decision tomorrow, we hear about what worries them about tightening. ♪

alix: welcome back. i am alix steel. scarlet: i am scarlet fu. a look at the big business stories in the news right now. homebuilders are growing less confident about prospects.

this sentiment gauge help with the second month in a row. it had hit a tenure high in october. the bears have the concerned about the rising cost of labor. -- developers have been concerned about the rising cost of labor. scarlet: they have allowed drivers to form unions and negotiate wages. uber is not commenting. they will impose substantial cost on passengers and the city. john rakas is seeking an early release from prison, saying he is dying from cancer and has links to live. the 91-year-old is serving a prison term for line about finances. prosecutors must respond by next week to his request. you can always get more of bloomberg business news at bloomberg.com. erik: let's head over to the markets where we have a check on -- ourlet: let's head over to markets where we have a check on movers. ramey: we went to start off with

twitter, falling and down by nearly 3.8%. this comes after the court cut the price target to a low of $22 from $25. analysts are saying the social media site have, quote, " relatively weak traffic in october and november and losing ground on instagram and snapchat which caters to younger users." that is a challenge that they are siding. let's move on to 3m shares sliding, down nearly 5%. they cut revenue and earnings forecast and they are going sluggish growth around the world. organic sales growth this year will be about 1% in comparison with the previous record of 1.5% to 2%. that was said in a statement this morning. two of the biggest losers this year are getting worse. cliffs natural resources is down by nearly 9.8% on top of a 9%

fall. you can actually see that this was a drop around the 11:30 a.m. mark and it lost 25% of its all you to touch below its record. you can see it has since come and coaly so iron core producer is down about 7.8 percent. also, peabody energy shares, downone is worse, it is 94%, including what is happening percent.wn .75 it is the fifth biggest loser in the index this year. alix: thank you. the mantra in the market is, wherever credit goes, they are not far behind. did credit leave equities? goldman sachs found the weakness in high-yield credit was foreshadowed by weakness in the equity market. of companies that carry high yield.

it showed that if you take a look at the height yield five-year total return index versus their underlying stocks, a huge spread that we saw of points.4 basis that was extreme, but the stock fell 25 percent since april 1. if you pay attention to the stock, you would have seen that they might be due for some kind of correction in the high-yield market. scarlet: i think the mistake a lot of people make when comparing equities and height yield, they are looking that s&p 500. and less so on the equal weighted index, so when you look at it that way, it shows that there is not as much dislocation. if you look at hyg, this tracks high-heeled credit, it is dominated by energy and telecommunications, but two weeks go, about equities in the hyg appeared about 4% under fire , -- under value, but the

collapse since then means the equity is about 5% overvalued, so you could say high-yield is playing catch up to underlying equities. alix: goldman sachs is watching investment credit grade. they are looking at the credit spreads and corresponding tutors and finding that investment grade stocks have outperformed credit by about 4% over the last two weeks. 5% dislocation, and this is where the hidden risk is because there are investment grade names within the s&p 500. if they do rollover, that does have a good repercussions. scarlet: and it is not limited to telecom or energy. still ahead, qualcomm rejects calls to split itself into. what does that mean moving forward? ♪

scarlet: breaking news. alix: the red headline saying the u.s. government is said to

the plan.fied with antitrust officials are said to push the merger between how and baker hughes. they had agreed to extend the review to today. if you come inside the bloomberg terminal -- alix: shares are actually halted right now. forbig plunge is important the two oil services companies to get together to whether the oil price?route we have seen and what did they have to do off load more assets or find different types of buyers or the assets and wind up making the oil services the community just as competitive when they were big guys? scarlet: we should note that baker hughes shares have been halted, so that is the trade out. take a look at halliburton shares which got a leg up but have come back down to below where they were trading beforehand, so they are up about 87 cents. we will monitor these headlines as the date progresses. alix: qualcomm has rejected

calls to break itself up and decided to keep the semiconductor and licensing arm together following a strategic review. shares of qualcomm have fallen 37% this year. scarlet: joining us now to discuss is bloomberg semiconductive reporter ian king who has been covering this from san francisco. now that the company has made its decision, what did you learn from qualcomm's review of the current structure? what did we learn that we did not know before? ian: we did not learn an awful lot. as we reported yesterday, in terms of the way this was discussed, it did not make sense. ,hose questions around it basically, what are you going to do next? it looks like they said, well, we have the resources, but we need to stick together and by not doing so, by not splitting up, we will not change the opinions of our regulators

taking a look at us. alix: the stock is up on the day, is that meaning they are successful in convincing shareholders? has been a pretty tough year for them. they did a better job than they had done of explaining themselves, but a bit of that thatbviously [indiscernible] day [indiscernible] exiting the profit forecast. thank you. ian king in san francisco. alix: still ahead, is a potential print hike premature? economists weigh in. they are always so optimistic. ♪ 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. alix: from bloomberg world headquarters in new york, welcome back to bloomberg markets. i'm alix steel. scarlet: i'm scarlet fu. let's get more from the first

were news desk. an update in the case of the l.a. school district closing. dep says that threat came from a german ip address. this would coincide with what the district school board member said, saying he received an electronic threat from outside of the country. receivedcity says they the same threat that led to the closure of the l.a. school system quickly concluded and was a hoax. mayor bill de blasio says he is convinced there is no danger to new york schoolchildren. the nypd thoroughly assessed the threats that were made, including toward our school system. although the threat in that specific sense, is not credible. secretary of state john kerry is in moscow tried to resolve some of the differences between

syria and ukraine. now he is meeting with let 'er rip. russia says its airstrikes in syria are a islamic state but the u.s. and its allies say they are targeting rebels opposed to bashar al-assad, who russia supports. congress and the white house are closing in on a deal on the budget. follow i will release details of two agreements, one would keep the government from shutting down, and the other would extend those tax rates. the white house says there has been unprecedented demand for coverage under obamacare. today is the deadline to enroll for coverage. cities such as dallas, denver, and las vegas are lagging it comes to people signing up. former subway pitchman jerod appeal.s filed an engaging inuilty to

sexual conduct with a minor. the appeals court in chicago will hear his appeal. that is a look at our first were news right now. you can get these and other breaking news on bloomberg.com. -- alix:he head of ahead of the fed's rate decision tomorrow, nouriel roubini says that economists have a tough decision. scarlet: he spoke with tom keene in dubai. it is a difficult trade-off because the labor market is improving. unemployment may be close to the structural, and therefore canleration of wage growth occur. economic growth is close to potential. measures of side, inflation suggests it is too low. wage growth is still anemic.

the appreciation of the dollar reduces import prices. another leg down in the price of oil and commodity. that is the dilemma the fed is facing. labor market suggest it is time to start hiking but there is no sign of inflation in the economy. long ago and far away, you started with jeffrey sachs. were there any studies that you did that suggested a central bank could get out in front of events, by definition, is any central bank a reactive institution? >> some central banks can be proactive as opposed to reacting. one of the dilemmas that that is facing is there is a symmetry. suppose they moved to soon. externaluse of an shop, they make a policy decision, and they go back to zero, and that is a mistake.

suppose they were more cautious and started slowly. up, you can picks still tighten faster. so this is symmetry between the risk of moving to soon and too late. this suggests that you want to be cautious. people are questioning whether the fed should start to raise rates for now. 5 has become iconic within our great contraction and over this crisis. are you still watching the? quantitativen to easing, central banks have decided not only to go to zero policy rates, but now negative policy rates in denmark, sweden, switzerland. it is a bit of a trade-off. you can do more quantitative easing or you can go more deeply negative. in japan and the united states

and the u.k., we have not got into negative policy rates, but more qe. in the eurozone, there has been movement toward the negative. tom: what happens when we unwind negative interest rates? moves theerland 10-year, seven-year, back toward a zero, is that a normal process? >> we don't know. policy ratesth negative and long-term interest going more negative, there is a capital gain. once it goes in the reverse, there will be losses on those government bonds, so there will be significant wealth effects. more than the issue of going from -20 or how to reduce the balance sheet, those things can be addressed. it is a moral, economic issue. can you do it, and what is the impact on the economy, in terms

ofreducing the balance sheet central banks, or moving from , and positive,o as the fed is doing now. scarlet: that was nouriel roubini. while they were having that conversation, we are now at session highs on the major indexes. you can see the dow, s&p, and nasdaq, a sharp move higher in the last couple of minutes. 500st noticed in the s&p posting its first of back-to-back games since november 3. alix: i can relate this back to oil. inside my terminal you can see the correlation between oil and stocks. the yellow line is the oil price and the white line is stocks. look at today's trading day, as we saw stocks bottom, we saw oil -- not bottom, but

things continue to climb higher. in a sense, dragging stocks along with it. scarlet: coming up next, much .ore we will continue to monitor the markets year and we will look at what is happening with walmart and oil prices. we are talking about high-yield etf and whether we will see the right kind of liquidation. our falling oil prices walmart's saving grace? the connection between the global glut and the big-box retailer. and live coverage of the los angeles press conference on the terror threat in the school systems. stay with us. ♪

scarlet: you are watching

bloomberg, i'm scarlet fu. alix: i'm alix steel. sam walsh gives his outlook for the iron ore industry and his companies strategy in china. sweden central-bank stays the course with aggregate interest rates. first let's start with comments from rio tinto ceo sam walsh. industryron ore producers were hanging on by their fingernails. he also gave his outlook of growth out of china. >> we spent a lot of time studying china from the ground up, more in relation to our perhaps thethan broader base of the economy. is chinese gdp growth will be around 7% this year and that the government has the wherewithal to keep the economy

going. chemical isnational moving ahead with a takeover plan on syngenta, according to people familiar. the chinese chairman met with executives last week. its china is looking at first proposal after it was decided to be too low. the sweetest central-bank is continuing its policy of negative interest rates. the governor discussed how unusual global trends are making it difficult to make predictions. >> we have had to deal with a world which ended up being completely different to what we expected, and that makes it hard when it comes to making projections. it also makes it hard to get inflation up to 2%, which is why we have a negative policy rate. a company is buying ge's

electric portion. it is the latest in a series of deals by ge. they are leaving the finance business to concentrate on manufacturing. for the bloomberg quick take where we provide background on issues of interest. today's topic is obamacare. the annual deadline to sign up for coverage is here. so what has participation been like since the law went into effect? the totala shows, number of uninsured americans fell to about 33 million people, down from 42 million the previous year. according to the white house, more than 17 million. the uninsured americans gain coverage through the aca, the most additions came from state that expanded medicaid. for people covered under their employers, costs have risen on average about 4% this year. individuals by their own insurance have seen a wide variation in changes. government subsidies certainly help. 84% of those enrolled on

exchanges receive on average $270 a month. what about its effect on medical spending? the white house estimates that the law has shaved 1% annually from percentage costs. health care spending projected to make up 20% of the economy in 2024, up from 18% last year. another challenge is political pushback. obamacare is still unpopular, but as coverage expands, more people have turned favorable. after the supreme court upheld the nationwide tech subsidies, a component of the law, republicans have moved on to challenge small issues with the mandate. of course, no shortage of presidential candidates who want to get rid of obamacare if elected. but it will be tricky to navigate that opposition. a poll shows 51% of americans believe obamacare should begin more time to see how it works. that is today's quick take. alix: thank you.

for more stories, visit bloomberg.com. now let's go to abigail doolittle. she is law that the nasdaq with a look at today's market action. 155% on the s&p. atgail: let's take a look one of our big stories in the financial markets, the selloff in junk bonds. what about junk stock? some of those companies in the nasdaq 100 that issue high-yield bonds. american, micron, and netflix stood out. bestn is one of the performers -- excuse me, netflix is one of the best performers, up 150% to date. american airlines is down 20%. micron is down 60%. these companies share at least one thing in common outside of the junk debt, and that is a 25thne in revenue in

similar to what investors are asking about in high-yield bond, is there an opportunity ahead? both american airlines and micron are expected to grow revenues in the next fiscal year, and both trade cheap relative to the comps. considering the trading similarity with one high-yield etf, that they be the best tell on what could be had for these beaten-down junk stocks. scarlet: thank you, abigail doolittle. fomc interest the rate decision, tom keene spoke to larry summers in dubai. they discussed the plunge commodity prices, the linkage to china, and how that may influence that policymakers. >> i think china is an extremely important factor for commodity markets. chinese demand, growth has been the lines of chair of the growth and 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 you a sense of the magnitude of heavy investment in china. i think those days are gone. china is working to reform its economy, working to maintain growth, may or may not succeed, but either way, they are unlikely it seems to me to generate the kind of growth and global demand for iron ore or oil that they once did, and that has important implications for this commodity markets. tom: then the raising of rates andhair yellen, fisher, the others at the bank, and the projected vector, how will that change china, or within iron ore, how will that adapt or change australia? >> it cannot be a favorable

factor for commodity markets. it is likely to add strain. some substantial part of that, maybe all of it, has already been felt, in the sense that the increase in rates has been telegraphed. the people who are most alarmist about increases in rates need to recognize that these are factored into markets to some extent. the extent to which there will be further affects really depends on what surprises the fed delivers down the road, not merely on its carrying through on the commitment it's already made. alix: that was former treasury secretary and armor harvard university president larry summers speaking to tom keene in dubai. we will have special coverage of the decision tomorrow starting at 1:00 p.m. eastern on bloomberg tv, bloomberg.com, and bloomberg radio. scarlet: tumultuous times in the junk bond market. what is the role of etf's, how

do they contribute to it? ♪

alix: welcome back. i'm alix steel. scarlet: i'm scarlet fu. prices hover around $36 a barrel, consumers are coming out ahead things to cheaper gas prices, which is good news for retailers like walmart. it does bring some relief. has struggledk mightily since october. joining us now is shannon pettypiece. path -- ae direct drop in gas, i say that walmart. shannon: first of all, walmart has their own private fleet of trucks and drivers. unlike a lot of retailers that outsource that, any savings of gas might be slower to get passed along. walmart gets those benefits directly. 80% of their merchandise it shipped from their warehouse to

their stores with their drivers. walmart customers tend to train slightly lower income. see lower income customers a savings from gas money, that is a bigger impact. they spend a bigger share of their income on fuel, so their buying power is greater when you talk about low income customers and when you talk about higher where $20 iters, is not a big deal, but for walmart customers, you have enough to buy new school close. it could have a big impact. alix: is there any kind of way to get into the decline in oil price, if it is lower for longer. 50ting we will not see a percent decline in oil. is that what makes the difference or is it literally, i just paid a dollar at the pump? shannon: as oil prices have gone down, and it's been about a year

that they have been pretty low and people are saving money. thatrst there was a belief people were saving, they were afraid to let go of those extra dollars, they did not know when the price for go up again, or they had savings to replenish, other things that were more immediate. but as gas prices have stayed low for a long time, it seems, according to some consumer research, that consumers are now starting to let go of that money be you say one dollar at the pump, you may not be putting that tomorrow your debt. you may say, i will spend more money at the grocery store this week. scarlet: how does walmart compared to other retailers? target, dollar general, they could see a benefit, too. at the same time that the shift is going on in people have more money saved elsewhere, there is also a shift in were consumers spend money. less emphasis on apparel. we have seen a lot of the

apparel retailers doing poorly because people are spending instead on technology, experiences or food outside the home. so you have a lot of competing factors. walmart, unlike other retailers, is positioned to take advantage of these other areas like tech, home improvement, auto repairs. scarlet: shannon pettypiece, thank you. she covers the big retailers for bloomberg. alix: if there were ever a test for high-yield etf's, this was the moment. the on's are negative for first time since 2008, a number of funds are winding down. so what has it been like for managing high-yield etf? mark wideman is the head of ishares blackrock. he stopped by this morning talk about it. are having a pretty easy time managing our high-yield portfolios. the assumption that the high-yield market is illiquid, having more problems than usual,

i don't think is founded by our own trading experience. scarlet: so let's talk about the role of exchange traded funds in junk on funds. here with us is eric balchunas on princeton. -- the wayne that that one may think of it is like this -- when the market decline, investors sell etf's. then the manager sell securities to fund redemptions. what about that is not true? >> you just described a mutual fund really. the difference between a mutual fund and an etf, when a mutual fund investor wants to get there holding back, they are forced to sell. in an etf, 87% of the people friday, got their money back via other investors. the bond isof really part of the authorized participant to the market makers. they are doing that as part of arbitrage when they see the they go below the nab,

will recognize an arbitrage opportunity, and that is where redemption option -- have been feared it happens more in the primary market were investors are trading with each other. that we showed was from ubs showing key motive flows birches mutual flows. udf's incredibly well. proxy of getting exposure but not being in a mutual fund because of redemption risk? >> etf's have a better tax efficiency. really, the numbers are what you need to look at. etf's have about $40 billion in junk bond holdings. mutual funds have 330 billion. the total market is $1.2 trillion, so etf's own only 4% of the junk bond market. mutual funds own about 20%. is used byestors, it people who normally want to trade. ofn though etf's only own 4% the market, they made up 33% of all high-yield trading on friday. that is about putting them on

the level of equity etf's relative to the equity market, making up about a third of trading. scarlet: what triggers a high-yield etf redemption? basically, a redemption would come like this. somebody wants to get out, the price goes below the nav. then a market maker will recognize, i can sell these and pocketthe etf, the difference in by selling the bonds to the market, they are getting delivery, and that is a redemption of the etf. so a little bit of misconception when it comes to etf's and the overall market. thank you, eric balchunas. scarlet: we will be right back. ♪ . .

alix: it is 1 p.m. in new york, 6 p.m. in london in 2 a.m. in hong kong. scarlet: welcome to bloomberg markets.

from bloomberg world headquarters in new york, good afternoon. alix: here is what we are watching at this hour -- the countdown underway with the fed beginning its most anticipated meeting in years, expected to end with a first rate hike in almost a decade. los angeles public schools are closed after what is being called a credible threat. what you are seeing here is jefferies reporting a steep drop in earnings, blaming a slump in fixed income trading. public school classes are canceled in los angeles after the district receives a terror threat which reportedly came from overseas. we are awaiting a press conference to learn the latest. scarlet: first, let's head to latestkets desk for the

the day before the big fed decision. we are at session highs with markets continuing the momentum from this morning. right now, taking a look at the up, the dow s&p is and s&p not far behind. i want to show you how volatile things have been and how they can turn on a dime. starting from december 10 and going through today, we have made everything back from friday's big 2% selloff and now we are seeing our best today market rally and our first back-to-back day since november 3. with that said, we are on track for our worst december in 13 years. the s&p right now is just off by .25% for this year.

alix: you have oil gaining for a second day -- it seemed to be a minor catalyst yesterday. overall, no huge change in the fundamentals. there has been talk about the u.s. lifting those export holdingt said nymex is on to its gains and pushing to nearlyssion highs, up by 3.75%. caveat that we are at six-year lows there. i want to talk about baker hughes. they have since recovered from a brief halt in trading represented right here where this dip is where everything stopped. at thented to look merger for halliburton and how it was delayed. the stock off its session highs and first gain in four days.

nearly 3% ass up the doj is said to be unhappy with the disaster plan proposed .o get the merger the doj says it may delay a final decision until 2016. check in on's bloomberg first word news with courtney donohoe from the news desk. courtney: let's start with what is happening in los angeles. a law enforcement official tells the associated press that the threat that closed all schools in the los angeles school district was e-mailed to the school board member and appeared to come from an ip address in germany. which is the second-largest in the nation has 640 students in kindergarten through 12th grade and has more than 900 schools and 187 charter schools. all schools, i have asked

them to be searched today by the appropriate people and appropriate people are not necessarily teachers or support people if there is a problem. new york city officials say they and many cities across the country received the same threat that closed the los angeles school system. mayor bill de blasio said they threat came in the form of a generic e-mail and new york officials quickly concluded it was not credible. one official briefed on the investigation said it involved bombs in student backpacks. hotel in mali where an attack by a jihadist group that killed 20 people has reopened. saysisson blu official they will begin normal function. security has been increased. attackers stormed the hotel on november 20, leaving 150 staff and guests in terror. it was the bloodiest attack in the capital and left two people

dead. into theump heads republican debate with his biggest lead yet. amonghas 38% support republicans and independents leading that way -- leaning that way. conference is happening for los angeles. we will send it to that. thister they reviewed information that had been shared based on past circumstances, i could not take onechance as it relates to student or our staff that serves these students. is important that in the last four hours, this city, this community has come together on behalf of our students, our students that are in regular

schools, our students in charter schools that are authorized by we are takingrd, all sorts of precautions. are walkingnagers the campus with law enforcement people. plant managers and principles with law enforcement are looking at all of our schools, both small, large schools, etc.. we have made sure our parents are notified through connect ed messages and we have repeated that time and time again. that walked to school, especially young children, neighborhood children, we have had the principles meet and administrators meet them at the gates of the school and they were not dismissed until parents came to pick them up, a

guardian, etc.. possibleing everything to make sure that children are safe, but that also, students and parents understand that the precautions we are taking are done in a calming way, done in a way that is in the best interest of everybody in this particular city. not only is it the city of l.a.. as you know, the school district represents many independent cities and we have reached out to them also. there are incorporated areas in the school district that we have reached out to. i have reached out to the board of supervisors, i have reached out to the city council. i have notified the state

superintendent of schools, i have notified the secretary of education. there are noe secrets. somebody has sent information that leads us to posit and make sure that we are safe, that our children and our staff are safe. interestedd be more in this city than our mayor. , hisayor and his staff staff joined us early this morning, and our mayor is here now, i would like to turn it over to him. : the decision to close the schools was not mine to make, but it is mine to mayor of the city of los angeles. since san bernardino, we have seen whether it was our colleagues there who asked for the help of the police department after that shooting,

this morning, when lausd reached out to the police department, we are here because our first job is to ensure people are safe in the city. it's very easy for people to jump to conclusions and usually what people think in the first few hours is not necessarily how it plays out in later hours. decisions need to be made in a matter of minutes. i have been on the phone when we learned of this with the ceo to ensure students could travel free on buses and rail lines today to get home safely and make sure they are able to get through the city without having to worry because we know a lot of parents have to get to work and cannot afford to miss a day. with back and i are here lapd. listeningou have been

to a news conference with a superintendent of the l.a. school district was explaining the decision to call off classes after a board member received a credible bomb threat. you are watching now as the mayor speaks on the decision and how it was not his to make. alix: you can continue to watch this news conference on bloomberg live. we will keep you updated on any headlines that to cross. bonds have gotten junk year as prices on the high risk securities have sung to levels not seen in six years. mounting concerns of rising defaults are stoking fears thing could -- things could get worse before they get better. our next guest says this is the time to buy high-yield debt. he is the head of macro strategy at brien capital and joins us now. what is your duration and what are you buying? guest: we started liking this on right a morning and continue to

like it. i think we have one of these situations where perception became reality. one was a stressed fund and another was a hyperactive trading hedge fund. came at a time when oil was down and you had all of these names saying bad things. friday, it tried to rally and today, we are having a nice, strong rally. or the flipside is we are having a dead cat bounce. are theyby how much going to outperform equities? we could be bouncing around the bottom for a while. i think for a while we have steady markets in everything. some of the decent mutual funds have 10% yields. i think you will get paid to take that carry risk.

you could actually see a decent month for high yields and equities might tread water. having said that, we still have the fed tomorrow to deal with. out today that there is still a bid for yields moving up along the junk curbs. if you look at the energy spreads, they are quite strong. those spreads are trading tighter than october. do you expect that trend to continue? >> investment grade has done -- , alix: that is the blue line there. the weakerink credits will outperform in the coming months as people realize some of this has been oversold. everyone is talking why are etf's so active? ats are letting people take risks without taking idiosyncratic risks.

what happens if there is a forced seller? by buying an etf or some sort of beta product or mutual fund, you take away that risk. will be in the etf space or mutual funds where you see these inflows because people will take market risks and not specific risks and the specific risks will have to catch up. the investors who blame etf's, is that credible? peter: i don't think it's credible at all. argue this bond versus that bond but the etf's are trading much more on the secondary and primary. they are not transferring that much to the bond. we would probably be worse off if we did not have the etf space. they can say the market sold off 5% or 7%, i think it's cheap and

don't want to take the risk of a specific bond. i think etf's will be a big part of turning this around. and brees thises stuff. thank you very much. much more coming up in just a few minutes on bloomberg markets on the other side of the break. ♪

alix: scarlet: welcome back to bloomberg markets. scarlet:it's time for the bloomberg business flash, a look at some of the biggest business stories in the move right now. qualcomm rejecting calls to break itself up. they have decided to keep its licensingct her and arms together after a strategic review. shares of qualcomm have dropped 37% this year.

alix: citigroup says a lack of storage space could send a price of -- the price of crude below $30 a barrel. tanks are filling up and could force supply cuts as capacity is approached. global markets are already over -- oversupplied and opec is refusing to curb production. radio superstar howard stern says he has signed a new five-year deal. he did not discuss the terms, but he does not cause -- does not come cheap. his current deal reportedly cost $80 million a year. you can get more on other businesses on bloomberg.com. alix: right now, we've got a look at the movers, specifically biotech. --y: up, up and away intercept pharma is the biggest

gainer today on the russell 1000. up by 15 .5%. they have hired jpmorgan to look at several eye out proposals they have received. intors might the interested their drug for liver disease. am jim shares on the move, up about 3.2% after reacquiring international rights to three drugs they had previously licensed to glaxo to treat bone about $111 generate million in 2014 sales. still ahead, he sparked a minimalist movement. we will talk about that after the next break.

scarlet: welcome back to bloomberg markets. alix: he was a key player in minimalist running with the creation of five fingers shoes and now he's heading another

company with shoes designed to enhance bodies -- the bodies national of the -- natural abilities. let's head over to bloomberg radio where cory johnson and carol massar have the latest. this is the bloomberg advantage, carol massar along with cory johnson and we are going to talk up a global athletic footwear market. huge market and tony post knows a lot about this market. he's in our new york studio on this tuesday. you have been involved in this industry for a long time and created the natural running movement with your running shoe and now you have a . tough market. how do you keep ahead of the competition? tony: it's a very competitive market with a lot of great rands, marketers and space.

but we have a different philosophy. a more natural running experience and that sets us apart. some of our features allow your body to work and move in a more natural way, so we are not relying on technology or chemistry. explain a little more. we are talking about the minimalist movement? tony: the minimalist movement really started it. it got people to think about their running shoes differently. is create ad to do more natural experience by allowing the fit of our shoes -- they are very roomy in the toe box. carol: you are right. they are very different from what you see at nike or other players. tony: not only is it important for comfort, but for balance, agility, and control. our shoes fit very snug so the idea is it is connected to your

body. movement, -- ist cory: and they look great with a bloomberg keyboard. tony: in a minimalist movement, there were a lot of people who moved quickly into this type of footwear and some of the shoes did not have enough cushioning. principlese of the around the fit and feel of the shoe but added a little more cushioning. isn't that part of the point? that you should be running on your feet and not a cushioned sneaker? once you add cushioning, is it no longer a minimalist shoe? tony: there are a couple of different ingredients. a lot of heel to toe drop or offset. our shoes are on a more level playing which encourages you to

land on the four foot or ball of the foot. people tend to land on the outside four foot and, with a little bit of cushioning, it's a very natural way to one -- natural way to run. carol: i think of players like nike and a lot of companies in the sportswear space. do you want to be a niche player ? you have some venture capitalists investing. do they want it to be a big brand or is this enough to be a niche player? tony: i've been a runner for 40 years and involved in footwear for 30 years. it's about trying to fill a need i see in this space. how big that opportunity really is. it's a really dynamic marketplace. but if you believe in something and you are passionate about this -- i had knee surgery about

10 years ago and went through an experience that changed my life. like a lot of entrepreneurs, it starts from a personal experience and then you develop a solution and find that this worked for me, there are other people who might benefit as well. the biggest difference between the basketball shoe market and a running shoe market? tony: re: talking about the product? cory: i'm talking about the business. i imagine it's very different in terms of the way customers react to brands. consumer basketball base is a younger consumer base, concerned little more with the paid endorsements and athletes involved. with running, that's less like case. it's easier to break through if you have a solution or idea that people find to be meaningful. fastestre you the

growing market in the u.s. right now? : we have expanded into seven international markets, so we will start selling europe, china, thailand and canada of course. carol: tony post is the founder and chief executive officer of topo footwear. alix: still ahead, it is the last gop debate of the year and it is happening in las vegas. what's going to happen in sin city? we are getting ready to rumble, of course. ♪

world has bloomberg gores and your, welcome back to

bloomberg markets. tonight, republican candidates go head to head for the last residential debate of the year. berlet: and there will plenty for the candidates to chew on after a fairly eventful month. subject getting greater attention than terrorism and foreign policy. the latest poll has donald trump with a 38% lead. now from the us spin room in las vegas is mark halperin. be the first to gop debate since we have seen the state of terror attacks in paris and california. how is that going to change the tenor? mark: it's a huge issue for republican voters, even more so now in the wake of paris and san bernardino. i think you'll see a debate on not only policy differences, but who is big enough to take on hillary clinton who is giving

her own speech today on how to deal with terrorism. , theoters right now economy is big, but that is big. because ofpecially the headlines and today's event in los angeles. what candidate does this help and who does it hurt? trump, atelps donald least based on the current polls as he has talked more about terror. if you look at our polling and national polling, voters rate him strongest to deal with these issues, not so much on policy, but on the question of strength. marco rubio is known as someone who strength is national security issues. he has a chance to step up. ted cruz has also been rated highly. the loser is probably ben carson and tonight is an opportunity for him to convince people that he should be in the dialogue, even with national security at

the forefront. the other big difference is how well ted cruz is pulling and iowa. what can we see that is different from him? where is he going to try to suck votes from? ted cruz will probably be similar to the past debates. under the radar somewhat. he hasn't gotten much focus until now. trump does to go after crews, and he may or may not do it tonight, i think crews will turn the other cheek and focus on republican voters, attacking the media, and convincing people he's ready to be president. ted cruz will be seen in a different light, even though his performance will be the same. he's a very consistent performer. hillary you mentioned clinton. warren buffett is extent -- is expected to stump for her.

what does that say about republican to do not have a warren buffett-like a gear out there because they are so divided still? has: the republican party 15 candidates, so even in the business community, there's no sense of consensus about who the candidate should be. warren buffett is an iconic business leader, but there are a lot of people up for grabs and what of the challenges for the can theyn nominee is find someone who becomes a consensus choice of business in america? the crisis, john mccain lost a lot of people because of his performance after the fall of lehman. ,ll of these republicans, trump rubio, crews, everybody, they are still trying to become the candidate of a business and there's a downside to that in this populist era. but the republicans will have a better chance to win against

hillary clinton if they can say we are who business likes if the republican nominee understands how the market works. respect" isall due live tonight from las vegas. you don't want to miss it. let's get more from bloomberg first word news from courtney donohoe. inrtney: first, officials new york city say they received the same threat that led to the closure of the los angeles school system but concluded quickly it was a hoax. mayor bill de blasio says he is convinced there is no danger to new york city schoolchildren. and the new york police l.a. officialsys overreacted by closing the nation's second-largest school system. we just heard from the white house on today's incident. >> the president has been informed of the decision made by local authorities in los angeles based on information they have received. i think this illustrates

something that is important for people to understand, which is ultimately, it is local first responders who are responsible for taking the lead and protecting their communities. an official with l.a. schools says the threat was school board member and appeared to have come from an address in front for, germany. plannedeaker paul ryan to release details of two agreements -- one would keep the government from shutting down in the other extends dozens of tax rakes. defense secretary ash carter is in turkey looking for new ways the us-led coalition can bring the fight to islamic state militants in syria. they want turkey to better control its border with syria. the u.n.'s nuclear watchdog is

ending the 12 year investigation of iran's atomic program. this decision comes from the board of the international atomic energy agency whose inspectors concluded iran did atomic bomb experiments but did not take steps to build a weapon. the end of the investigation removes iran closer to sanctions relief. and a des moines register iowa poll reveals sharp partisan divide on how to keep the nation safe from terrorists. 78% of republicans who plan to attend iowa posco is a say they are mostly not confident the u.s. has done enough to prevent another major terror attack. just 27% of democrats say the same. 83% of caucus-goers say the state should take in refugees who have passed ground checks impaired to 28% of republican caucus-goers. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com.

let's move ahead to what is on tap for tomorrow, which is fed day. investors are still bracing for debtcreased despite the route that has been roiling credit markets since last week. alix: is this another 2007 in the making? that would be the risk that would be part of the banking system in terms of the high yield pass through. is there the same correlation to be made? michael: the overwhelming consensus seems to be that it is not, both because of a lot of steps the banks have taken, pushed by regulators to build up their capital and the nature of the beast. the mortgage market, a lot of it was held on bank allen sheets. the high-yield market has been pushed on to investors. banks are not holding it on

their balance sheets. there's no systemic threat to the banking industry but there could be a threat to companies? michael: there could be a broader threat. corporate america has been relying on a high-yield debt market to be accommodating and that has driven a lot of the, day we have seen and has striven some of the growth organically for these companies. there's also the fear that 3rd avenue route -- 3rd avenue wallet was a large fund. were tohing similar happen with the same issues, whether banks would have issues with credit lines to the fund industry. alix: if we are in a place for some kind of portfolio manager has to sell what they can or what they want to sell, is that some kind of exposure or risk to make? less of a risk these days for two reasons. that banks as market makers are serving more as an agent and taking less inventory

and trying to match buyers and sellers, which some people complain about providing a lack of liquidity to the market. but it does keep the banks out of harms way. you get poor selling for two reasons -- four redemptions and for leverage. has been less reposing of corporate debt since the crisis. the repo market has shrunk and a lot of it is done with treasuries. down, you don't have that pressure to sell unless you get a redemption request. scarlet: let's talk about another story, which is jefferies reporting results -- trading revenue declining 36%. we have seen this before and a lot of people consider jefferies a bellwether for wall street firms. it not a proxy? they are different from your goldman sachs and bank of america.

michael: they do not have the trading rates the commercial banks to and that's an active area because of the fed. but they have served as a bellwether in some tough environments, including the third quarter where they forecast some of the troubles the larger banks would have and some of the banks have indicated the fourth quarter is not going to be great. you have seen the layoffs at morgan stanley and some of the banks come out and say we hope 2016 is going to be better but we don't have a lot of hope for the fourth quarter. you have seen some managing of expectations. what have they said about the fixed part of the business as interest-rate are set to rise? michael: jpmorgan said this should help trading. we arestanley says

hopeful, may be confident that this second half will be the bottom. the question is how much does it bounce off the bottom? if this is the low point, let's the normal environment? we are down significantly from 2009 and 2010. will it look like a couple of years ago, which is a more muted environment? biglet: have any of the thanks said anything as far as the route in the high-yield trading? michael: this has been a tough year for their distress desks. see whether this was enough activity on friday and monday to maybe give them a boost or whether they were taking losses as people wrote down positions. everyone wants that volatility and when you get it, it's like a panic. , we will --ing up

will the decline in oil prices continue? are gusts says yes, that when will we see a recovery and what will it look like? alix: and we are about 24 hours away from the fed announcing a rate hike. what can janet yellen do to make sure the markets don't overreact? aarlet: apple getting hit by trifecta of lawsuits. we will investigate the future of the tech team is. -- tech behemoth. ♪

scarlet: alix: welcome back to bloomberg markets. alix:time now for the bloomberg business flash -- a look at some of the biggest is the stories in the news right now.

lessbuilders are growing positive about their prospects. the gauge fell to a low after hitting a high in october. regan is isn seeking an early release from prison, saying he is dying of cancer and has just weeks to live. he serving a 12 year sentence for looting the cable company and lying about his finances. prosecutors must respond to his request i next week. lumberton's takeover bid for baker hughes is facing another hurdle. antitrust officials are not satisfied with the merger plan. one person family with the plan said regulators could delay a decision until next year. scarlet: you can get more business days at bloomberg.com. alix: let's head to the market desk for a look at some of the laggards in today's advance. you are focusing on the tech and chip sector. over towant to head

twitter because twitter shares are falling lower today. you can see investor reaction, down 4% and change. sociallyst says the media site had relatively weak traffic in october and november and is losing ground to other social media sites like instagram and snapchat. they say user engagement is a challenge and apple is lower today, apple shares down by about .7%. this is after dialogue so my conductor cut its fourth-quarter revenue forecast, so the company gets nearly 80% of its revenue from apple according to bloomberg supply chain estimates. they are expecting weaker demand in their mobile segment. other apple suppliers falling as well.

serous logic down by more than 4%. apple provides 60% of the revenue to serous and about 47% of sky works revenue. oil has taken quite the plunge over the past week, and being below $35 a barrel to reach it -- to reach its lowest price since 2009. of people worried we may not have hit bottom yet. alix: and that is according to tom petri. this is all part of a normal bottoming process. the earlier efforts to see a recovery were v-shaped. we are looking at a sawtooth ottoman process that may well the the better part of first half of next year, but i think it is there and it is giving some confidence that the

real plunge into the 20's is very remote. somewhere right around here which does rival the february 2009 level. we are at a point where that is a more likely case. >> ed morse of citigroup says the worst is not over. i by no means think the worst is over for oil prices. we think come q1 and maybe even that into q1 of next year more bearish factors are going to be keeping this downward pressure on prices for the next three months ahead. guest: he is a longtime better and it's difficult to settle with him. i see already crude oil trading at $20 a barrel. the physical trade, the guys who

actually i can sell barrels of oil are telling me there is too much of it. the capacity on shore is completely, fully utilized. we are still going to see lower prices in the beginning of 2016. alix: something that caught my eye was a note rum energy , the distal it market. basically a product you wind up refining when you refined gasoline. we have crude there, that yellow line, but distillates is that orange line. and it is creeping up quite significantly. some point, those margins go down and refinery say i'm going

to start working, and that creates a bigger build up in the oil inventory space. that could be a catalyst when it comes to brent prices. when you mention refiners, i can't help but think they have done pretty well. they are like the bright spot in the energy sector. alix: if gasoline demand doesn't offset, or if it cannot the margins, that is something specific to pay attention to. scarlet: what do people use distillates for? alix: diesel and a variety of stuff. coming up, what the fed says may just as important as what it does. ♪

for investors, what the fed does tomorrow may be priced in, but what they say may be the most important. communications is a major challenge for yellen and company. scarlet: so what is fed chair yellen going to do to approach those challenges. with us is michael mckee. we can't help but think back to the september fomc meeting where there was a bigger challenge. oneael: this is a big because they have to throw out the statement they have use for the past five years or so and start from scratch. it's probably good they know what they want to do so they can focus on the statement and make sure markets don't freak out. withwill start at the top a similar economic outlook, but not one that's too enthusiastic. after that, they are going to

have to make five moves. they have to talk about raising the fed funds target range, which will raise the discount rate. then raise the excess reserve, set a reverse repo flow rate, so i'll a lot for them to talk about. scarlet: which one of those will people fixate on? what do you know about the fed funds target rate? that's the one people look at as the headline number. michael: there's the question of whether they can get that up as far as they want. people will focus on now that you have done this, how do we know you won't move too quickly to push it up in the future? everybody says what about 1994? arecalm those fears, they probably going to make three promises. they will replace the language, saying they are reasonably confident inflation will get to the target with seeing actual progress.

second, they will reiterate they know the neutral rate at which you get maximum growth. it's much lower than it has been in the past. they will acknowledge they are watching overseas development and monitoring the dollar very closely in yellen speak. market expectation for a rate hike is lower than it. plot. that would be a dovish signal if they moved that. michael: that is almost a sure bet, but will they move it into a range the market finds acceptable? the neutral rate is just over 2%. they will have a significant distance to travel to convince people. it is really just 1.5%. could they keep moving that part down? >> they will probably talk about that or at least janet yellen will talk about it. this case and be

convincing and connect the dots for investors and show them the fed has a logical plan moving forward. scarlet: and everything will depend on their choice of words. they will have a new template this time around. michael: it will be a challenge for them and reporters trying to figure it out. our economics editor, michael mckee. he will be here tomorrow as our special coverage for the fed tomorrow. alix: parsing every word -- it's going to be fun. we will be right back after this break.

david: welcome to "bloomberg markets."

from bloomberg that glitters in new york -- headquarters in new york, i'm david gora. -- gura. int the first rate hike almost a decade could mean for the economy. will trending below $40 a barrel. what walmart could be one of the biggest winners. apple is working on making ipads even slimmer. the company is reportedly opening a lab in taiwan to work on display technologies. what that means for the company and suppliers. inocencio has the latest with a lot of green. ramy: the has been with us to the whole day. market covering your session highs, keeping up the momentum from this morning. dance around 1% in the first few minu