[closing bell rings] scarlet: u.s. stocks closing lower after section highs. oil following. fed in 2016. we look at top trades for 2015. joe: a global recession on the horizon? we speak to david levy. scarlet: retailers getting a late shopping search. we break it down with charts you can't miss. we begin with the markets. foremost of today's session it looked like we had a fairly calm day. it was fairly minor. the smallest part since the day before thanksgiving.

stocks closing after session lows. joe: not a terrible day. we have had the series of sleepy action. today looked like a snooze. scarlet: what has been consistent is oil prices have led the way. giving back some of yesterday's advance. the big headline came around midday when puerto rico said it would default on $37 million in bond payments. on its pay interests general obligation debts. joe: these are the general obligation, that has caught markets a little bit by surprise. scarlet: you can see the pain being felt, all down on the day with an back the first -- with them the worst performer. all commodities are

doing badly. this is a chart of iron ore which has been absolutely dismal. very closely associated with the slowdown. day ore is on a nine winning streak. commodities are ending the year on a balance. in terms of the story of whether commodities in china, whether there will be a comeback may be a hopeful sign. alix: is it stabilizing? joe: or is it going to collapse again? scarlet: plenty of questions that hinge on china. i'm looking at the gap between china's exchange rate onshore and offshore. yellow line tracks it offshore in hong kong. tohas become more profitable

buy in hong kong. his weaker. there is another way of looking at it. this is the spread, the difference between the two rates . if you look at what has been going on, here it is. this captured my attention. the difference really swells before narrowing. according to people familiar with the matter china is clamping down banning to foreign banks for three months. tox: whenever you are trying control your economy people always try to have opportunities, like trying to stamp out things in its way. you can see all these charts and more on twitter. wu.first guest is david welcome back. joe: thank you for joining us. one of the big questions we are

going to talk about next year is going to be the pace of the fed rate hike. there is still quite a gap between the fed of for rate hikes and where the market sees rate hikes around 2. guest: i'm on the side of the market only because you guys spend time talking about china. the chinese are going to be setting the pace this time around. let's think about this. the great divorce. we sit here and talk about u.s. recovery maturing. that should be something we celebrate in the u.s. economy. the fact is i would argue the u.s. economy is getting back on his feet by having exported problems to the rest of the world. six years of qe, the u.s. simply

force the rest of the world to adopt interest rates that were too low for their own good. they went on the bench. the u.s. has managed to deleverage 5-6 years guest:. when the rest of the world begins deleveraging what does that mean for the u.s. economy? guest: it is going to be difficult. it is going to be bullish for the dollar which make it difficult for the fed to do that. in the last six years, global debts have gone up by 40%. $54 trillion. in china especially so. chinese that has gone up by 400%. the point is this when the dollar was weak interest rates were low. now the dollar is strong. u.s. interest rates are poised to rise. i don't think china has the same

incentive. it is going to be deflationary. now it is going to make it difficult for the fed to regulate. joe: is the strong dollar the mechanism by issues they will force the fed to slow down? guest: i think so. that means china's purchasing power goes down. people are talking but oil prices. look at oil prices now. the correlation is 80% right now. that makes it a very difficult thing to see. joe: how much control does janet yellen have? guest: very little. the rest of the world is more

important to the u.s.. the u.s. is important to the rest of the world. you have the chinese that need to cut interest rates in the fed that wants to hike rate. i don't think these are mutually plausible. something has to give. the chinese are a bit more desperate. the day we spoke on they raised rates. we spoke with janet yellen's former advisor. andrew levin told the cc a collision in the near term over the path of future increases. >> the markets are misreading the extent to which can out of expect thee members funds rate to be up at 1.5% by next year. who gets to decide that? the committee, not the market. scarlet: do you agree that will see a collision? guest: i think it is possible

but the committee tends to follow the market, not the other way around. in september everybody thought they were going to hike that the stock market that hike. they chase the stock market and not the other way around. 5 when you think of -- joe: when you think of the stock market, you think of them being fairly closed and i sleep with the rest of the world. there is a correlation now between them and oil. when did this happen. when did it become the chinese currency. you did see correlations with other parts of the market? >> august 11 there is no question. be the d siding event of 2015. that bodes the future. that is telling you they are not just going to be like any other currency going forward.

ofna is the largest consumer priorities. china is increasing consumption 50% in global consumption. they will dictate commodities and not the biggest driver of commodity prices. investorshat did learn versus what did china learn? >> investments have been in denial about what it means. august 11 is just the tip of the iceberg. china wants to have a weaker currency. to engagee they want in currency, china needs to cut interest rates. china's companies have seen massive increase in debt. begging for low interest rates. the only way the impossible trinity, the only way for china to cut rates, they have to let the currency go. china has no choice but to attend to the policy.

to me what the market didn't summer,nd through the it was because in my opinion it had to do with the fdr. it wasn't clear as of late october, washington was on the fence. this is why they were allowed to do it, to invite washington from the position. 30, one of november the basically reserve currencies in the vip club, it has accelerated. china's incentive is gone. scarlet: david wu is just getting started. he calls of the defining moment of 2015. we will continue this conversation next. ♪

scarlet: i'm scarlet fu. what did you miss? be coming forould iran. that is according to a person family or with the matter. this comes on the heels of a landmark accord. vice president joe biden is heading to turkey next month as the fight against the islamic

state intensified. the white house says biden will meet with the president and prime minister. . police say ans. unlicensed driver trying to pass a car on a snowy road in new hampshire died last night after colliding with a car carrying secret service agents. the agents were seriously injured. the crash happened in wakefield near the main state line. and bill cosby has been arraigned on a sexual assault charge in pennsylvania. he did not enter a plea. the charge stands from and a counter with a former employee 10 years ago. prosecutors say he encouraged pills and drink. case to reachrst

the criminal court. global news 24 hours a powered by our 2400 journalists in 150 news bureaus around the world. back to you. we're back with david wu. as we were talking, china suspended to foreign banks from conducting u.n. business until next year, i three-month ban essentially. how does this play into your theory? is this a controlled evaluation? >> i think it is. we are aware of the fact that these guys have been engaging in interventions from time to time. the reality is since november 30, since the imf voted to the interventions have been far and few between. idle have to tell you last month it had accelerated,

that is not because the chinese, somehow all the money is pouring out of china because beijing is no longer intervening as aggressively. there is no reason for them to prop it up anymore. scarlet: you can see the gap widening, the orange line here indicating the onshore rate and the offshore rate. that gap certainly widening. scarlet: on the subject of the currency there is a lot of head scratching. the we were talking about august 11 devaluation. that was in august before inclusion was totally guaranteed . it cost a lot of money. they stabilize the currency. people talked about was this some sort of mistake. or did they not execute what

they intended to do. what was your thinking? understand it was .bout the sdr china had to basically show they are open to the currency to be determined by the market fully. miscalculate, the outflows ever going to follow august 11. i am sure the president given the go-ahead for something like that, that was huge decision. no one told him a couple hundred billion dollars was going to leave the country. probably a little bit of payback of what they did. that it wast assume a mistake. we now have to basically go the other way around. they are going to be the

celebrating. if there was a big concern at the start of the year, i would be pounding the table saying everything was going down. chinese companies sitting on a trillion dollars of debt. belows going to $100,000 of their damage. every chinese company i met with told me the last three months, paying down the dollar debt, because they got the message. as a result there has been a reduction of the open currency which allows beijing to allow the currency to go down more quickly. joe: as you can see on this chart, china is enormous on this front. this as aalking about result of ultralow fed policy that caused reflation and ledger

leveraging. guest: it is a huge issue. china has the most inflexible exchange rate. without china importing u.s. whytary policy, this is interest rates in china were much too low. this is why the council has amassed leverage. killhis leverage will just their profitability. they need lower interest rates. this is where it is interesting. there were four countries in there before they try to join. what do these countries have in common? they all did qe. i'm not saying it means china is going to do qe tomorrow but someone is going to make it a lot easier for china to ease monetary. guest: what would it look like? guest: china has been converting their government vehicle debt

into media. sayomorrow they wake up and we are going to buy $1 trillion of this that will free up a trillion dollars on the bank balance sheet. there is no question they have a lot of ammunition. the important thing is to understand the cover here. if they are you doing qe. they say are currency fell by it was not our objective. it is a byproduct of our monetary easing. why can't they tell the same story? now they say we are going to have these monetary policies. rest ofncy falls the the roman not be able to say much about it. scarlet: all right, david wu. you are sticking with us. coming up, his other top traits

of 2016. what else is in play for david wu? ♪

scarlet: i'm scarlet fu. what did you miss? top trade ideas for 2016? china and the yen was a big idea . let's start with europe.

how do you want to be positioned? us a dollarry tells tends to rally into the first fed hike and then falls solved. this time especially so. there is aing fundamental reason for the dollar to weaken, but i think given its positioning the risk ofthe euro could have a run 112. is going into q1, by the three last fed hiking cycles after the first fed hike, the u.s. equity market fell off. i think if that happens we could see the euro going higher. i want to go into your

other trades for the year. dead.annie mae what is the idea here? guest: regardless of who is going to get into the white house, there is going to be a tremendous bipartisan agreement something has to be done. they have been dragging their feet about what to do with it for some time now. i think they are very profitable. we need to get out of this business. think it was a guaranteed. the housing market coming back actually makes it less likely the government can guarantee they will remain for longer.

let's talk about china for a little bit. why this in particular? mentioned atlly the start of the segment ion or prices have gone up seven days in a row. the market is sensing they may have to do a bit more easing. especially given she can take on the deputy mayor which is suggesting it it is reaching a new level. i am just saying they have a lot of bad news with korea. , ita's largest export represents 16% of the space

export. i think this is going to be a big story. scarlet: there is increased speculation they may have devalue. guest: with oil prices at $30 a barrel because the saudis want it that way, they want to drive down prices to drive the u.s. show producers out of business. saudi arabia doesn't produce anything other than oil. inflation is going to go through the roof. thank you so much. always great to talk to you. scarlet: a global recession on the horizon? we speak to david leavy about why this 2015 is different. ♪

scarlet: what'd you miss? >> we go to turkey. year'shave foiled a new suicide attack. failed state militants to see is to suicide vest that contain bombs. police officers will be required to carry tasers when responding to calls among the new department policies announced today. they come while i the officer faces murder charges. he pleaded not guilty yesterday in the shooting death of a black teenager. in florida five people are dead and two others injured after a

wrong way crash. a woman drove a pickup south and athis morning northbound lane. she had a sedan carrying four people hit on -- head on. and the mississippi river has been swollen by rain and as forecasts rise to record levels, authorities are watching levees. global news 20 for hours a day powered by our 24-hour journalists around the world. recap on how quick u.s. markets closed. we were sitting on modest losses most the day. in the final 30 minutes there was a late selloff. 500 slippinghe s&p from his three-week high. remember aportant to

light volume quiet day. the dow rallied 200 points. week continues. i wanted to take a look at the stronger dollar. so much for the stronger dollar. u.s. currency has been trading in a tight range even after the fed began left off. ,.e white line here negative readings, if you see here, zero man here, the fed rate hike, what you can see is

the dollar amounts bounce around . the debate is how quickly rates rise. the fed reminds is constantly it is data dependent. there is certainly no compelling evidence. >> the u.s. stock market will go down in 2016. 10 years the u.s. treasuries are quite attractive. because of my outlook for weakening economy, and actually i believe that we already are

entering a recession in the night states. scarlet: joining us now, forecasting center chairman. macquarie called for a recession. joe: thank you for joining us. you see the u.s. going into a recession in 2016 and dragged down by weakness. >> this is a stable part of a unstable economy. it is coming in the breakdown of the been we have had in development of emerging markets and resource economies. that is the cycle's housing bubble. there is so much going into building capacity as if exports could keep growing faster than the global economy forever. we are now seeing that investment.

area.reports of that in the u.s. we can see profits have been falling for a year now. scarlet: there is no way the u.s. can deleverage? guest: deleveraging is a term that oversimplifies. , think so many people use it we are talking about the u.s. total debt grows faster than incomes in the private sector. we have booming growth based on assumptions of a continuing exports can grow that huge speed forever.

now what we want is mounting but many other places, financial stresses. where youur interview it would bes call, unprecedented in the says that global weakness has never dragged out. the economy has its own growth drivers. why is this different? this is not a cyclical change. it is a financial breakdown that will show up in a lot of emerging markets. time we haveirst had the global economy in the recession without major central banks having a lot of room to cut interest rates. obviously there is not much there.

third, it used to be that the u.s. was relatively small, relatively large. now the e.m. sector is considerably larger. finally, i have a longer list but u.s. exports have been a larger share of gdp than they ever have. sales. are not just lost this gets into the flows of funds and determine profits. guest: if you look at the most ecent data, our stronger dollar makes exports cheaper. we're not relying that much guest:. guest:besides current growth, we are looking at the flows of funds that determine aggregate profits. something that is given too much attention in economics and we have been doing for a long time.

what we see is that profits are well to go the distance. you have to create wealth which is investment. you run a trade deficit. we are giving away wealth. what did it do last quarter? what are the magnitudes? where they taking profits? joe: your argument in the last earnings season, there was a profits recession things to energy. you just start have this weird thing happening where the business sector is not making as much money as it was. that is a fallacy to separate it does ultimately bleed into the real economy. guest: you can't separate. joe: here is this chart you were speaking to earlier. profits.he strain of

guest: that is one piece. all these factors are a factor. joe: what would you say to some who say we will have a big tailwind in housing, as long as , it is has room to run hard to imagine the economy falling off a cliff? guest: i disagree with that characterization of the situation. interestay be that rates are low, people have gotten jobs, but the big problem is many people are not being paid enough for them to leave their parents or break up with

their moments -- roommates. prices,ok at real home they went up to the stratosphere last cycle and came crashing down. there he high historically. this is not the problem. people need to be able to afford it. 5 you are staying with us. we continue our discussion for a 2015 global recession. ♪

scarlet: what'd you miss? weight watchers shares have

a campaign endorsing the weight loss program. optimism thatwed turnaround the long struggling company. puerto rico will divert revenue to make others. the puerto rican governor warned if forced to choose between paying creditors and paying for essential services he would opt for the latter. atwas a record-breaking year the box office thanks to jurassic world and the new star wars movie. to get sales went over $11 billion for the first time. that is 7% more than a year before. that is your bloomberg business flash.

joe: you are calling for a u.s. recession next year but you have been negative for a wild. last year you said there was going into 2015 you thought there was a risk they could beat dragged into a recession for you thought there was a risk of a slowdown. what did you get wrong about those calls and how have you informed your call? guest: these are not in a vacuum. what we were saying about 2015, this was the evolution of a call. we said we see a risk 30 to develop because we knew the emerging markets had serious problems. we warned that there was some probability this would happen. that that was something that we have never seen before. we still think that and we have

adjusted. now we have a lot of conviction this is indeed happening. back then it was a possibility. the early one was about the near meltdown in europe right before we had a new central banker who this is an economy that has been limited because of huge balance sheet problems. how do you define recession? guest: we don't have a good way to measure it because we don't have a lot of data. in the united states it is done based on a set of measures. it is not coincide exactly with that. i'm talking something that no one will have doubts about. gdp will be contracting. employment will be following --

falling. the u.s. is going to do relatively well. we have many more institutions to enable and stabilize ourselves. the situation in the emerging markets, as we have seen connecting cases like argentina or brazil, they cannot use fiscal monetary policy to boost their economy. the u.s. doesn't have that situation. joe: you are talking about this huge debt overhang. the thing will rebuild of a lot of dead or is there something policy wise that keeps encouraging the creation of bubbles and taking on debt that policymakers need to address? guest: that is an interesting question. there is a tendency as economies grow and mature the more the biggerthey are,

balances that come, the more aggressively you have to keep selling debt and pushing debt to keep that process. there are a lot of complex dynamics. it is not a cyclical thing. in six years, they put to shame the u.s. debt bubble of the last 30 years. these are unsustainable phenomenon and the thing that economists have to highlight is that what you did in the past matters. there are financial complications. things will rebalance gdp. >> i'm going to ask what may be a concurrent opinion.

where do you see growth? it is not so much in growth. u.s. is still growing. we are not among those that believe it has turned down. it is vulnerable but the weakening is coming from overseas and now the decline in the energy boom. take a long-term view, there is some indigestion. it would take a little more time. i think we will survive its because we have the institutions and the air i had. we will have a generation of prosperity down the road. joe: all right. thank you very much for joining us pray looking forward to seeing how 2016 plays out. 5 lets talk about

-- scarlet: let's talk about the weather in retail. we discussed how it has affected this year shopping season. ♪

scarlet: what'd you miss? the retail shopping season wrapping up for 2015. rose data shows sales

between black friday and christmas eve. a were up 6.4%. you look at what is available and you say this year we've gained boxing day. it began november 1 and the truth is it is not really wrapped up. >> 70%, 80%, whatever you would like, wait for it. >> one of the big thieves in retail is that amazon is massacring almost everyone. what kind of physical retailers are keeping a nostril above water and sending off the amazon threat? guest: the big boxes are most challenged. they are selling so many different things.

they can create a customized experience, and delivering online. i think it is the bigger guys that are more challenged by the other big guy. you say management executives are trying to ignore their is a shift going on where consumers are buying less stuff. macy's, brooks brothers technology this. what is their response? they want to provide a better experience but how do they do that? guest: that is the big challenge. shoppers are saying i need less stuff, and now i'm thinking about other experiences i've might want to buy for myself and family. reallyetailers have to think about are the in the business of selling lots more things? did they change the merchandise makes and start selling more services?

do they create unique experiences of people have a reason to come to the store? guest: does that mean they put less stuff on the floors? certainly not at the level they were back in 2008 where the floor just fell off from everyone. do they put less stuff on floors to make it look like a better experience? guest: it is the experiences in terms of having less clutter. when there is a sale you stack it high theoretically but the reality is people are looking propositions, that lets me try things whether it is beauty or food. those kinds of experiences are the things shoppers looking for today. was or anything that stuck out to you? , itt: i have to tell you

was almost like a challenge of how quick i can get the stuff or how quickly it would be delivered to me or overseas. i think that service model and all the things they cap dad into products,interesting the best retailers created constant flow of information, brick and mortar or online. every message you got was different and they seemed it with celebrities, with some whimsy, with a mixture of things. you were willing to open the e-mail or the text all the time so it was that differentiation that wasn't about price. scarlet: let's talk about apparel. is this cyclical or structural? is there something bigger?

guest: i think it is both. ,yclical, people have stuff there isn't anything different out there people might want this year, that one item or two items. i think it is the weather. then i think it is foundational in the sense that people are saying how many more things do i need to wear, are there other things i can spend my money on? we call it buying happiness opposed to buying stuff. thank you very much. speaking of retail, bruce hisowitz has increased stake in sears. he is signaling an active role. joe: they have been getting slammed. maybe they are buying at the bottom here. scarlet: coming up, the last day of 2015, next.

john: cruz once the believers, iand truth once everything, but first the white house wants to eavesdrop. the wall street journal made a blockbuster report, saying the obama administration is spying on friendly world leaders, including benjamin netanyahu, even after the president said he would end that surveillance