[bell] scarlet: u.s. stocks closing lower today, heading for the biggest two-day slump in three months. the s&p 500 is racing the weekly gain. joe: the question is, "what'd you miss?". scarlet: very icing green ways and on what is holding back growth. currency, we will discuss the charts that show china's position on the world stage. scarlet: and credit woes, how banks are structuring after being in a weaker spot in the market. we begin of course with the markets, pretty much a down day from the get-go. and if you look right now, we are pre-much closing at lowe's in the session. this is the worst days in september 1. i was just looking at the point to swing my 362 point swing for

the dow. joe: this comes on top of a prickly ugly day. yesterday was not as bad. there is a law of excitement it seems that a lot of excitement after the federal reserve decision. i cannot know how this is collecting to the -- commenting on the fed in any way. scarlet: it seems like by raising interest rates, the fed would move to some uncertainty, but there are others that remain. commodities come high-yield credit, those are churning through the market right now. and oil prices, if you look at it they are lower. but down $.29 is actually a small move these days if you want to call it that. and surprisingly some of the junk bond etf's that were the center of them -- of the volatility actually held up nicely today. popular one.a it is funny how the narrative quickly changes.

two weeks ago, they were thinking this was a big problem. today we have a selloff and the part that everybody was concerned about, there is not much going on. scarlet: and halting a six day selloff. the money index is rising just a little bit. the tail end of the chart is still down 11%. so it has been ugly, but we did have a reprieve. joe: a reversal of some of the things we have seen. i want to dive into my terminal, obviously one of the things of anxiety is the question whether or not the economy is a strong enough to withstand a rate hike? today we got data that was not good. we have a manufacturing report, that is the red line. pmithe market u.s. services -- services is one of the stronger areas of the economy, still above 50 which means it is in expansion.

the first data we are getting is that since the rate hike, that is not encouraging for the economy. it does not make anybody happy. scarlet: people want to see that the fed, what they said is reinforced. and we are not getting that so far. wanted top dive i dive into commodities. alex is not here, so i will do that for her. the worst-performing commodity is in metals. the white line is molly done him and the other lines that are oil andtogether is the natural gas, does not matter which one is which because they are pretty much the same. molly denham has wars -- prices have plunged because of a two-year low. need steel do not you probably do not need the metal that makes it harder. scarlet: and that element that makes it harder is used in tubes and pipes in the energy

industry, such as oil rigs. joe: that is a whammy. he can see these on twitter. scarlet: and a professor of economics and science at the university of california, we welcome him. joe: thank you for joining us. economyopinion, is the strong enough to withstand a hiking cycle by the federal reserve? >> i want to preface by saying 25 basis point is not a big deal if the economy cannot withstand that it is a weakling. think that a succession of rate increases at this point when the external environment is weak and foreign currencies are continuing to decline against the dollar would be a mistake. the fed is going to wait and see, but i do not think that we can count on a succession of increases for 2016. joe: you recently discussed a concept of stagnation and he an e-book if the u.s.

has a stagnation it will reflect the country's failure to adjust infrastructure, education, and trading needs. these are policy problems with concrete solution. in your view, we will make a blunder by not making a fiscal stimulus in recent years and spending money to rebuild key parts of the country. >> i do think we have an opportunity to invest in infrastructure. zero interest rates do not come around every day. they are not entirely healthy for financial markets, but they create an opportunity for the --lic sector to provide provide infrastructure, research, education, which is all the economy needs. the things that determine whether productivity is going to grow robustly in the future. scarlet: may be released is on the way, because the federal

government and state governments are starting to increase spending. it is nothing like what we saw before the financial crisis, but you are looking at that there is a recovery. this is stabilizing. it will that be enough to support the economy? >> that of courses with the fed -- course is what the fed is banking on. i think we all have to see more exactly what format spending will take. thatanges in tax code translate into more productive investment will be a good thing. i think we have learned that we need to invest in and for search --, so it much in depends on the form it will take. joe: can we quantify the economy by the fact that we reserve -- lean on the reserve and not so much stimulus in the recent

years? >> it looks like the potential rate of growth has ratcheted in theom 3% to something range of 2% or a little bit more. obviously there is a debate about whether or not bit the acceleration, the decline in rate of growth reflects policy. and the policy mistakes that you describe that we allow the fed to be the only adult in the room, the only policymaker doing anything. or whether it reflects longer-term trends in technology, the adverse effects of globalization and certain kinds of technical changes on the u.s. economy. we do not know if we will have to continue this conversation -- in five or 10 years we will know for sure. joe: what have you written about -- what you have written about the issue is that

there is a propensity to spend that is sappy and demand out of the economy. how significant is the rise of inequality been in terms of weakening the economy and furthermore, the think -- do you think the fact that we only have the fed boosting the economy, while it may help the economy, it is linked to inequality? significant.ly is it is important socially, it is important politically third what is important politically. -- important politically. this is not just a consequence of the financial crisis or federal reserve policy. it has been underway for 20-30 ares and i think it's roots partly economic. it reflects globalization. it reflects technological

change, which has not favored less skilled labor. but it also reflects policy and our willingness to allow minimum declinethe road and the in unionization. so nothing in 2060 will reverse that trend, it has -- 2016, it reverse that will trend appeared we need to do with the consequences. scarlet: the status quo will be in place for a bit. i want to bring back the chart. it shows over the past four there arew differences between upper income, middle-income, lower income. the lord's bar is the lower income. so what do we know about how and will spendper income versus the middle income and lower income? >> we know that consumption accounts for a smaller share of income at the very upper end. stories about conspicuous

consumption notwithstanding to the contrary. there is a problem that spending beeneen weak and that has benefactors by the interest rates down to uncomfortably low levels. inequality is a factor in that mix. but it is hard to quantify -- ity how much it count accounts for. scarlet: ok, you are going to stay with us. we will be right back. ♪

♪ --hat'd you miss?" let's get to first word news. president obama held a new first conference -- a news conference today, saying that -- he also talked about the crisis in syria. >> it is entirely right and proper for the united eight to speak out on the behalf of its values. when you have an authoritarian killing hundreds of thousands of his own people the notion that we would just stick and by -- stand by and say nothing is contrary to who we

are. and that is not serve our interests. agenda, he has -- heads to california to meet with families of the san bernardino shooting. this will be the president's last stop before he travels to hawaii with his family. he also delivered at an early earlymas gift, granting releases to offenders and pardoning to others. arely all of those nonviolent drug offenders. at the early releases -- the early releases on the most at one time. congress has taken steps to inure fiscal piece washington. and they have passed in $1.1 trillion spending measure that averts a government shutdown. at also lifts a 40 euro -- four-year ban on crude exports. the bill and now go to president

obama said and the why chicago police officer charged in the fatal shooting of a black teenager made an appearance today. jason van dyke is facing first-degree murder. the release of the dash cam video of this shooting led to continuing protest and called for reform. and mother teresa is moving toward state -- sainthood. the vatican said that pope given her a second miracle. she won a nobel prize for her work caring for the poor. and you can get more on those and other breaking news stories at bloomberg.com. with a professor of economic and political science at a berkeley. we have seen very tepid wage growth in major years despite improvement in the unemployment rate. what is the single biggest dynamic holding back? wage growth >> it is important to recognize that we are looking at some wage

growth now come up. two pointer percent -- two pointer percent in november, so that is positive. what is holding it back, it is clear that the traditional relationship between unemployment and which is now only 5%, and wage growth has broken down. one,flects, number technology. if a robot can do your job you are reluctant to ask for a higher wage. number two is globalization. your ultrasound can be read in india, so you are reluctant to ask for higher wages. but any economist who says he knows pressure which factor is most important is basically blowing smoke. scarlet: i am glad that you bring up productivity because you have recently written about this. you said it takes time for productivity enhancing fx in technology -- effects in

technology to show up. so it sounds like there is an experiment for phase as people try to figure out how to best harness technology before it raises productivity again. so what is the link between productivity and wage increases? >> obviously if we get that increased productivity as we figure out how to reorganize the economy on the basis of the new technologies that are coming down the road, it will be possible for employers to pay higher wages and maintain profitability. i am firmly of the view that given enough time we will figure out how to more productively apply information technology, biotechnology, macro technology and so forth. it took time in the case of the internal combustion engine, it took time for electricity, it's a time for the steam engine, so saypeople -- to people who

when will it pay off, i say to be patient. joe: you mentioned globalization. that as a theory china's working age population begins to shrink and shrink generally in the world, that finally u.s. workers will have some bargaining power and get some accelerated wage growth. what you think about that prospect? >> i think it is not all about china. for every china or korea, whose liberal force is shrinking, you have an india or a brazil, where the labor force continues to grow. so i think that we will have to solve this problem at home by giving the skills and training and education to american workers, that they need. rather than hoping that the pressure of globalization will receive.

-- reseed. ,oe: we recently saw the ecb the market perceived them as having under delivered on stimulus. generally, the recovery has been slower and took more time. do you think that they are doing enough to recover and you have written a lot about this currency scheme, do you think that the euro is flawed and will it survive in 20 years? >> i was surprised that the ecb did not do more at its last meeting. i think that it will eventually, the european central bank is a supertanker that takes a lot of time to turn, but it will turn and there will be more similar -- stimulus. is the euro flawed, absolutely. will it survive, absolutely. i think that breaking it up would be too costly and

disruptive, that he will have to make it work. it was fundamentally a mistake. joe: how can they make it work? >> they have to finish their banking and agree on an insurance scheme to help stabilize the banking system. ecb have to transition into being a normal lender. i think that they need to restructure debt and repatriate fiscal policy at the national level where it belongs. if they do those 3-4 things they will have gone a long way to repairing the flaws. scarlet: you are speaking with us because we are going to get here area -- get to your area of expertise. next, we will send about china on the global stage. ♪

♪ i am joe weisenthal. we are back with barry at thereen, a professor university of california, berkeley. we will focus now on china. he are a senior advisor to the big can thisly how get in terms of its role in global currency? what do you see as the future for it? globalit will be a currency, china's economy is too large and they do too much trading for that not to be the case. but we learned from the events of the last six months that is coming more slowly than people thought. there are problems of economic management. iny have been crazy things

managing the stock market. they bundled their 2% valuation. they still have a ways to go. over a five to 10 year horizon, i think that central banks will continue to add it to their reserve portfolio. it will become more important than it is today. haven currency like the dollar, that will take decades. you recently said that history is littered with the corpses of countries that opened up their accounts prematurely, what does that mean exactly and had we know that a country is opening up its capital prematurely? barry: you have to weigh the speed at which it is removing capital controls and allowing

much financial reform is doing at home. what history tells us is you should do the reform first, strengthen financial markets, the domestic institutions, domestic regulation, before you throw open the capital account. otherwise there is the possibility of an accident at home and if you liberalize capital flows at that point you could have massive outflows and currency collapse. mexico in 1994, basically. so china should not go there. i think that policymakers are aware enough of that history that they are unlikely to go there. joe: so what would you like to see china do at this point? becoming, the currency part of the basket. that was a major goal. what specifically would you like

them to do in the next step to show that they are doing this at the right pace and taking reforms seriously? barry: deal with shadow banking in china. they have a lot of rest funds -- trust funds that are not properly regulated. so bring them inside parameters. if you want to be more ambitious , you should really commercialize privatize the big five tanks, so that they can make decisions on an economic basis and not a political basis. and if you want to be even more ambitious, make the central bank of the people's bank of china, independent of politics so it can run monetary policy on the basis of what is sound and stable, rather than what is politically expedient. joe: you mentioned the bungled valuation that we saw this summer, what did that tell you?

what did tell you about policymakers in china? barry: they do not understand the importance of communicating intentions to the market, so they just changed the exchange rate without making clear why they were doing and people drew inferences that may have been incorrect about how the chinese economy was really going down rapidly. so that is why they did with a day. they need to work on the communication strategy. joe: thank you so much, barry eichengreen. we really appreciate it. scarlet: the president has signed a tax bill that repeals the oil export ban, this is after congress was going to ensure that there was going to bps by basically removing the prospect of a government shutdown. once again, the president is signing a bill that will repeal the oil export ban. we will follow that headline as we get it.

coming up, the high yield credit market. that is next. ♪

♪ "what'd you miss?" -- let's get to first word news. president obama held his news conference at the white house today. he says that 6 million people have signed up for health care coverage. andy also talked about terror threats. >> it is very difficult for us to detect lone wolf plots or those involving a husband and wife, in this case, because despite the incredible vigilance and professionalism of all of our law enforcement and homeland security, it is not that different from trying to detect

the next mass shooter. you do not always see it, they are not always communicate in publicly and if you're not getting what they say publicly then it becomes a challenge. scarlet: the president now heads to california to meet with families of the san bernardino massacre victims. then he will go to hawaii to spend new year's with this family. and ensuring fiscal peace through most of next year, the house and senate have passed a spending measure that ever at a government shutdown. -- ever it's a government shutdown today also lifted a ban on crude oil exports. the president has just signed the bill. and democratic presidential candidates are preparing for their final debate of the year. -- clinton leads bernie sanders. 64% say that hillary clinton would do a better job of handling terrorism.

but the senator does lead clinton when it comes to honesty. the international organization for migration says that refugee arrivals by sea and land to europe are expected to top one million coming next week. most come from turkey and greece and africa. and the u.s. will give $88 million to help feed hungry people in ethiopia. it brings the amount of humanitarian aid to $305 million. they are appealing for $1.4 billion to help feed more than 10 million people. and you can get more on these and other stories, 24 hours a day at bloomberg.com. time to get you a quick recap on the markets. it was ugly. the dow closing down 367 points

on the day. there is really no other way to say, it was the worst one-day move since september 1. are people closing out before they head for vacation? joe: there is a lot of talk about the end of the year, options and expirations. but who really knows? who really knows why it rallied on wednesday. it back.have given it was quite ugly. interestingly, one area we will talk about that at performed was the high yield market which two weeks ago was the center of volatility. scarlet: oil prices fell. and commodities over all, if you look at the index, it actually rose. it is bizarre. terminal,go into the what has been an interesting --e is what happened -- seem theme is what happened in japan. they were trying to boost stem list -- stemless.

this is the backdrop. this is massive, about three quarters of gdp. this is an edible. the cluster of lines on the bottom is anywhere from 22-25%. when it comes to the question of whether the bank of japan improved stimulus are not, it extended the maturity of debt it buys, but did not add to purchases. joe: you saw that it jumped really quickly after the news and then it tumbled. when i look at this chart i see a long time of doing things that does not have an effect. scarlet: a long effort of fighting deflation and i do not know how much success they have had. joe: real quickly, we have all this good data and the blue line is the difference between the current actual temperature in the united states subtracted from the normal temperature. as you can see it is surging, has been asked for nearly warm

this year. here is the data that shows it. that is why natural gas prices are getting slammed. it will be around 60 degrees for christmas. scarlet: i think tomorrow will be the coldest day of the year. that is certainly the backdrop. we want to go back to the high yield credit market. the big concern is the plunge in bonds. investors have pulled $3.81 billion in just the past week. white. us now is chris joe: thank you for joining us. ofl us, there was a lot confusion this week because of the fund that had a lot of distress, the 3rd avenue. people talking about the junk market and high yield. what is the distinction between a high-yield market and the distress market? >> when we talk about the corporate bond market we talk about it holistically. high-yield ande

distress, the best analogy to make is they share the same confidence that they are different countries. there are different cultures, practices and standards on trading, so as you move down the credit curve you move from high-yield to distress. they function differently. scarlet: is there a way to quantify it? is distress 1000 basis points above or is there something quantitative to it? ratings,ms of credit anything above -- below triple b falls into the high-yield category and triple c is the distress category and those are standard ratings. scarlet: but sometimes companies are late to the party. >> there has been some conflict on the ratings companies and their business model which is actually to charge further ratings, which at times but the at odds withies

what the responsibility is. you do not want to go and say, i am downgrading you if they are paying bills. that is why we see some ratings companies attacking this in a different way and they are attacking the consumer ratings instead of the issuer. joe: so these are different countries. when we see what happened with the 3rd avenue fund, there are a lot of investments in credit. what does that tell us or not tell us about what is happening in high-yield? and to tell us about the cultural differences and differences in practices. >> 3rd avenue was clear that they were invested in distressed credit. that is 40% or greater of probability of default. that is far away from high-yield credits. they are set up as default

probability, so most people are invested in high-yield and investment grade credit. what happen with 3rd avenue is not indicative of the broader market. to give you an example in the differences between both, in order for a customer to sell bonds in high-yield, it could take one hour or a day or several days to clear through the market, depending on things. that would be relatively quick when you compare to distress. there are times when distress issues, because they are so small and because they are so specific, it could take several months for in order to be processed. a customer could be trying to sell and there may not be a buyer in the marketplace. scarlet: those time intervals are surprised me. i thought it was a lot quicker and easier to get in and out. do they provide investors with a false sense of security? >> the etf's are designed in a

way that they are safer than bond funds, so i am confused as to why people are pointing the finger at etf's. what we have a 3rd avenue, we have a fund acting like a hedge fund and the difference between a mutual fund and hedge fund is the lockup. when you invest in a mutual fund, the is something is you will have same-day liquidity, you want to take it out today you will have a check tomorrow care but with a hedge fund there is a lockup that could be months long. maybe can only take out money once a year and only during a certain time. joe: we have seen a lot of layoffs across wall street in research and trading, has that added to the problem in how long it takes to make a trade and some of these areas? >> i think a lot of the traditional market making businesses are trying to cut costs and they are looking at personnel as a way to do it. people have been getting paid

well for a long time in many markets, so that is an easy way to get your operating cost in line with profits. but i think in general what we are looking at is a market that to qbloding in size, due and central bank intervention and that is literally changing the structure of the bond markets. so i think what is really occurring is a cultural shift in which many of these incumbents are trying to figure out a different way to do business. scarlet: chris white, you're going to stick with us. more on a high-yield market, next. ♪

♪ scarlet: "what'd you miss?" -- it is time for the business

flash. citigroup plans to cut at least 2000 jobs. most of them will be in middle and back office positions. citigroup had 239,000 workers at the end of september. a jpmorgan will settle on a case involving disclosure failures. -- andre accused of not they will pay 206 and $7 million -- $267 million. and the most anticipated movie of the year has opened around the world. star wars the force awakens is thrilling viewers. millions of tickets have been presold. a disney said at a disney said it better today international total was $72 million and made a record $57 million in the u.s. just last night. the business flash, in case you are wondering why

-- is not here, she act is -- back with us is chris white. joe: one of the things that people have pointed out is that thanks to regulation of banks have shrunk a balance -- of their balance sheet. how much of a role do you see this aspect of postcrisis era affecting what we are seeing in the bond market? >> people are playing the record backwards, so to speak. thanks started pulling out of the bond market in terms of a balance sheet standpoint, basically from 2008 and on word. fashion. a coordinated they have not been implement it for some time. so the real question is, what has made banks start to retrench from providing on-demand liquidity for customers and letting them rank of their balance sheets?

there is speculation, but i would not point at the 3rd avenue situation as being caused by regulation, only because for some time now the high-yield and distress marketplace, the bank's role has not been the printable provider of liquidity's for customers. it is really the intermediation role that is a search function. let me find the other side of that trade for you. it is more of a broker than a car dealer. scarlet: that means it is ripe for distraction then -- disruption that? -- then? >> it is a changing culture. the market is missing huge pieces of architecture that is required for modernization, so a lot of the things tried today are things that are effective in the equities market get it when we compare the bond market to the equities market, there is probably a 40 year delay or discrepancy. scarlet: that much?

>> absolutely. interestingly enough, what drove the equity market to modernize is exactly what is driving the corporate bond market to modernize today. the equity market exploded until the late 60's -- 1960's and caused a disruption among large institutional investors and liquidity providers, because there was dislocation in terms of providing liquidity for investors. scarlet: so we have seen that in the high-yield market, but a lot of people say there was not enough support behind it and not enough credit now on individual offerings and he can look back cuttingwith the banks staff and expenses, or it could be a step away from risk, how do you see it? >> that is a great point. the market is growing in terms of size and impressed -- in bre

adth. there are more issuers in the market today than prior to fed intervention. as the fed has stepped in, more and more companies are coming in, one of the largest did not even have any debt in the market place before 2008. can you guess who it is? joe: apple. scarlet: they had money, but they do not want to repatriate that money. >> exactly, we are talking about the cost of capital and by lowering interest rates, the cost of capital if you're going to use corporate debt, that is far cheaper than equity. we have to pay dividends. what a lot of companies are doing is, i'm going to borrow money and buy their own stock back. joe: so if this explosion of debt was due to the extraordinary federal reserve stimulus and what we have seen with 3rd avenue essentially a

natural part of the withdrawal of liquidity? >> i think that what we are noticing is that the market has gotten larger, but something we are not paying attention to is the funds have also exploded. so what you're getting right now then environment where consumer of liquidity might be bigger than the actual market. asdealers collectively serve a group that is now dwarfing them in size. any the best analogy i can make find ayou want to go and taxi yourself, go. but if you have a family with you it will be a lot longer to find somebody who will provide you with a ride. that is what is happening, the funds get larger and the demand gets larger. scarlet: ok. this white, thank you so much -- chris white, thank you so much. next, we will pay attention to

spain. it is an election that will prove the end of two-party politics and we will look at how the votes will transform. ♪

♪ ,carlet: "what'd you miss?" spain is set to vote in an election that will mark the end of the two-party system in that country. the prime minister's party is on course to come in first, but they should lose the majority. they will need support from another party to govern.

we have a political analyst from open europe it has been following the run-up to the selection. joe: it looks like we will continue this trend of the establishment and the parties diminishing in power, explain what is happening and why the prime minister is likely to win, but lose popularity? >> this election is fascinating. you have to think that since the death of franco and the return to democracy in the 1970's, it has been a two-party dominated country and and i have two newcomer parties. one is the antiestablishment, they are clearly located on the left side. and you have a new upstart business party called ci udadanos. we will see a race that is unprecedented, so this is the most interesting and unpredictable election in

decades. scarlet: it sounds like political convulsion in spain and it is surprising it is not happen earlier, given that unemployment peaked at 25% earlier, why did it take so long for things to get rolling? >> it is interesting. when the new antiestablishment party came out two years ago, i thought that these guys were really filling a gap in the market, because spain was really lacking this party, a party through which people could actually express this disillusionment with the political establishment. glance, thisrst group and the other looked like two very different parties. they are both part of this disillusionment and a big chunk

of the spanish electorate with the old traditional establishment. joe: why has not spain seeing a rise of the populist party on the right like we have seen in other countries in europe? >> and exist because of historical reasons. the experience of a right-wing dictatorship is fairly recent to spain and the transition of democracy, which has been a very soft. i can tell you that the founder of the main center-right party, they have become the popular group. and the founder of the party had served as a minister under francisco franco. so from dictatorship to democracy has been soft compared to other countries, not at all -- not all supporters of the dictatorship have been ousted, but some of them have become part of the new democratic

system. scarlet: this will be a significant election, what is the significance for the rest of europe? spainis significant for because as we have said before, the traditional parties have usually had 70% of the vote. but this time around, they will 45%-60%.g around this will be said of him for the rest of your because spain has been recovering, but they are not out of the woods yet. the rest of europe will be watching, because the outcome is hard to predict. joe: thank you very much for joining us. we will be watching the results on sunday. scarlet: what you need to know to gear up for next week, next. ♪

scarlet: "what'd you miss?", don't miss this. i am skipping ahead to tuesday because we have the final gdp. it will be revised down slightly pce is, but the core said to change. joe: everybody wants to know about pricing. another thing you do not want to miss, wednesday will be personal income and spending, personal income is expected to rise and as well.will rise the big question now, how strong is the economy?

should they have waited? we'll have all the data next week. scarlet: that is all for "what'd you miss?". thank you for watching. joe: have a great weekend. ♪

john: i am john heilemann. mark: i am mark halperin. with all due respect to bernie sanders, when it comes to your inaugural address, we have you covered. this has got to change. , together wedent are going to change it. i said it before and i will say t again --