from bloomberg world headquarters in new york, good afternoon. i am betty liu. this is what we're watching at this hour. talks are plunging today for the start of the new year, but they are crawling back from their session lows in the dow .ecording his wors the dow record against worst start to the near since herbert hoover. economist imf chief tries to makeard sense of the global economy. he joins us for an exclusive interview. we are about an hour away from the close of trade. i want to bring in bloomberg julie hyman -- bloomberg's julie hyman at the markets desk.

you have been watching the slide all day long. we still have an hour. julie: it is only a day. yes it is a steep selloff, yes it is a negative start to the year, but it is only one day. we will see if it continues, then we will see some concern. of thenot at the lows session, coming off of the lows a little bit. with this decline, will it be the worst start for the year since herbert hoover was president? to be down to the wire. if you take a look as some of the past worst starts, you have to go back to 1932 when he was in office. then he saw a decline of more than 8%. in 1922, a decline of 2.3%. if we hold to where we are right now, we might end up becoming the worst start since 1922. at today's a look session, what is driving the

selling, it is pretty broad-based. financials have been climbing throughout the whole session, but been on the bottom. health care, discretionary, consumer technology, computing to losses -- contributing to losses. good year which had a last year, and jpmorgan selling off along with the other big banks today. betty: basically, get a grip, it is only one day. [laughter] julie: you have to take the perspective. betty: does this indicate anything about the full-year? julie: it does not. we just but on a story about this phenomenon on the bloomberg terminal. only about 50% of the time does the market go the same way as the first today. here is the s&p over the past year. here are strategist estimates, which then at about 2200.

looking at a modest gain for the year. these are the bottom-up estimates. you can extrapolate how the entire s&p will trade, and get a lower optimistic scenario -- a more optimistic scenario. as human beings we tend to be optimistic, so they are not always right. even given the decline today, there is still some optimism for the full-year. betty: thank you. let's get a check now on the headlines in the bloomberg first word news this afternoon. mark crumpton has more. mark: thank you. president obama plans to carry out his promise to restrain gun violence. he is meeting with attorney general loretta lynch today to discuss potential executive actions he can take. abc news reports the president could act as soon as tomorrow. but the white house says congress can will get involved. >> the president does not operate under the illusion that there's a law that could be passed that would prevent everything incidence of

violence. but there are laws that can be passed that would reduce the likelihood that the goods are going to fall into the hands of people who should not have been. we can pass those laws, implements then commanded force them in a way that does not undermine the rights of constitutional, law-abiding americans. mark: on thursday, the president will hold a televised, town hall meeting on guns. the conference center where the shootings took place will remain closed. the inland regional center serves the emotionally disabled. video threatens more action against the united kingdom. a masked man speaks with a british accent before shooting a reported spy in the head. tom coughlin is stepping down as

the head coach of the new york football giants. he coached the team for 12 --sons on lung super bowl's with super bowl in 2007 and 2011. he stepped down in the best interest of the organization. news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. betty: thank you. as you know, chinese stocks plunged overnight after the first economic report of 2016 single manufacturing weekend for a fifth straight month. our next guest says much of china's economic slowdown is already priced into global equities. but he is not bullish on china at all. he is the chief strategist at server crest. you have been negative on china for quite some time. i have. and what you see in the past year or so has been a

fundamental disconnect between chinese mystics. arcade and the underlying real economy. betty: the fundamentals. do you feel like they are finally catching up? >> not quite caught up. fall,appened, this sudden really came about because it was a correction that was put on hold last summer. ing that shoulde th have happened last summer. the government stepped in, kept them it on real valuations, and it became unglued. they should be trading more at 2100, a third less than it is now. so be prepared for further downdraft. but they do not represent something new about the chinese economy. they represent something old that the market in china is not reflecting. betty: that they were not allowed to reflect for several months. we know that some of the bans

that china has put into place against the selling will be lifted over the next couple of days. now, considering what we just saw overnight. but should it have that big of an impact on us and the rest of the world? >> no. reasons, ifenty of you look at the u.s. data, do not like the data that came out , it wasout construction disappointing. the manufacturing number was disappointing. if you want to make moves in the u.s. stocks because of those things, that is fine. but the idea that this overdue selloff and overpriced chinese equities that is taking place, but that is any indication of the u.s. stock market, i do not think is correct. betty: why not? >> you have a distorted market in china that is not reflect the reality. the reality is a slowing chinese

economy. but we have been living that for the past two or three years. it has hit commodity producers, and is producing winners as well as losers. china is in any position -- in a unique position where in some prop up this areas. ,utbound chinese tourism, nike those are doing well. take a step back from the very distorted chinese stock market. look at the fundamentals that are taking place over the past several years. betty: those are being reflected in other company stock prices? >> and how they have been creating winners and losers overtime. betty: does that mean that there is some buying opportunity? if you were a value invest or, you might enjoy seeing

these decline, because you could pick up value. open upuld opportunities, and u.s. stock market is richly priced. that makes invulnerable to these kinds of disturbances. that is why we see the negative contagion. fundamentally, i do not think that if you're selling stocks today, because of something that is going on in china, not really related to the fundamentals, in her mind seeing a lot of what i saw in august. they had a selloff in china, the sold without asking questions. when they asked questions, it did not reflect the global or the u.s. economy. no means, is this a signal to the end of the bull market? >> i do not think you have to be pollyannish to recognize that

this selloff, to the extent that it is driven by china, does not make sense. betty: thank you for joining me. next 20e ahead in the minutes of bloomberg markets. the former imf chief economist olivier glen charged joins us at the bottom of the hour for an exclusive interview about the global selloff and the mood of central bankers. you get his take on the economic picture. up next, a wall street ball is bull is scaling back his forecast. ♪

andy: good afternoon

welcome back to bloomberg markets. it is time for the bloomberg business flash, a look at the biggest business stories in the news right now. mary barra becomes chairman at general motors. the automaker is investing $500 ft, the ridesharing started that competes against uber. justice isent of suing volkswagen over admissions cheating software founded more than six thousand vehicles sold in the u.s.. the civil complaint alleges that the german automaker illegally makeall the software to these religions pass emissions standards. they could still face separate criminal charges. they are cooperating with legislators. delaying thes reopening of its new york

location, because of health violations. include failing to properly hydrate food. that is your bloomberg business flash update. kicking off 2016 deeply in the red. the dow having its worst opening day in 84 years, when the country was in the midst of a great depression. is this the beginning of a massive stock selloff? the beginning of a bear market? we now speak with a notorious inl, who called for 20,000 2012. he is the chief investment officer at bernstein private wealth management. couple of years ago, you said we could see 20,000 by 2018. are you holding to that? >> what we think is very

important is to continually adjust your point of view is the world evolves. remember that world is risky. what we're seeing today is a more typical level of risk than we have had in a while. now we are seeing it back to more normal levels. it historically happens about once a week for the s&p. betty: historically? >> over the last 20 years. last july, it was only having once a month. that was the unusual thing. we think that risk like this is likely to persist because of the structural issues around the world. what we see now is returned over the next few years will be more moderate. we will still hit 20,000 -- betty: by 2018? >> that is possible, it could be later than that. the question is how often we

20,000, because we will see a lot of zigzags in the year ahead. if you want to ask what it will take to get there, you just have to see compound growth of about 5.5% in the index. that is actually not that much. if companies can grow their whatts by something like you did he at, you would just get there with that. a year in is this which we see the index go nowhere or even down? >> it is quite possible. we don't know. we will see a lot more risk, and most poorly for investors, it is an important time to be active and selective about which stocks and bonds you buy. a lot of the uncertainty we see in the markets is creating noise, which means risk

valuations. we think that is an opportunity rich environment if you have discipline and clear focus. betty: is anything happening right now that is making you rethink how much more difficult it will be to get to 20,000? the reaction to the fed, what is going on in china, is any of that making you rethink your target? >> it is the extent to which the economy can grow. that determines how much profit companies can generate, and how much the market is paying for profits. right now valuations are not cheap anymore. betty: are they rent? rich? >> some are. you need to focus on those you want to tilt yourself into those decenthere you can get profit growth and you are not overpaying.

you are to do that in a broadway globally, because it is risky to focus on any one country or sector. signaldoes anything the start of a bear market? >> not really. there are a lot of indicators of a classic bear market, and none of them are flashing red around the world. when ecm and assigns of a recession, that is definitely a problem. the economy is growing at a moderate pace, but it is growing. worry thereed to was excessive leverage in the system. we have seen it move a little bit, but not that much. when the fed increases interest rates, that may be a precursor, but that just happened. that is after a several years. it may be in the later innings, but we're not at the point were you have to worry about a bear markets. the opportunity is to think about how to position yourself.

when we look at overall portfolios, we are slightly under waited for these. risk is higher, and you are not being paid a lot extra to take that risk today. betty: where are you overweight? just in cash? of a have a little bit position in cash because we think that bonds are obviously not turning either. .t is good to be selective betty: thank you for joining us. comeon the markets when we back, including your options trade. here is the s&p on this first trading day of the year. it has not been good for the bull. red.0 sectors are in the ♪

betty: welcome back to bloomberg

markets. stocks are plunging to their lowest level since october 2 start of 2016. ow is tumbling. julie: joining me for today's option insight is the derivative strategist at mk and holdim hol. this does not necessarily mean that the year will be bad, it is just one day. what does the options market showed today? laste case we built since have shiftedhat we into an environment of structurally elevated volatility. that is compared to the early 2013, to august of last year timeframe. distributionsurn tompared to the july 2007

2012 timeframe. s aremes like this, tail bad. let me give you a couple of data points. about013 to august, just 16% were within 1%. igh volatility timeframe we reference, it moves notide plus or -3%, we did see many of those. it does not mean we have to expect day like this all that frequently. investors need to really come to terms with the reality of this environment. julie: that brings back the idea that this swing like this may not that unusual, and may not be

alarm if youse for look in the context of that volatile environment. >> exactly. julie: i want to talk about your trade for today as well. the last time you are here we were looking at retail. newark fairly cautious on that because we were going to get the over the nexts few weeks. there is one stock you are not negative on, and it has to do with underwear. [laughter] >> exactly. last week we shot of february puts with a downside to retail. did is one stock that we well through the holiday season. it is basically victorious a's secret and bettman works thatbody

drive this. this thursday they will report december, which is an important number. julie: that is for all of l brands? >> correct. the second thursday in february, and will report on january give values on fourth-quarter earnings. we want to bring all of those catalysts, and go out to calls.y and buy 100 the most you risk is what you pay for them. the stock is 93 right here. we think that they could go sharply higher. julie: in seems as though mall-based retail has been painted with the same brush as regular retail.

does your retail analyst have any insight why they have been resistant to that? >> it is just the brands themselves. victoria's secret pulled their semiannual sale into december. and body works from a brand perspective has done well. julie: interesting. betty: an interesting combination. still ahead, the former imf chief economist olivier blanchard hard talking about what is going on today. is warrantedf this because of the slowing growth in china. ♪

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>> life from world headquarters you're watching bloomberg markets, i am bloody that i am betty liu.

-- i am betty liu. : president obama says regulations for gun control actions are within his authority inconsistent with the second amendment. the president spoke in the oval office halloween a meeting with attorney general loretta lynch and other top enforcement officials. they presented him the options of gun control measures he could take without congressional approval. president obama: i think everybody is all too familiar with the statistics. of thousands of people every year who are killed by guns. suicides that are committed by firearms. frequency of mass shootings that far exceeds other countries. >> the executive actions are

extended to include background checks on sales by forcing sellers to register is federally licensed gun dealers. an armed antigovernment group says it plans to stay at a federal wildlife refuge in oregon for as long as it takes. members have taken over unoccupied buildings there. they are protesting prison sentences given to two local ranchers. so far police are staying away. new leadership from philadelphia. the city inaugurated jim kenney as its night in ninth mayor. the 57-year-old succeeds the outgoing michael, who leaves office after two terms. city councilthe for more than two decades before being elected in november. trump will keep talking tough on muslims, even though his comments are now being used in recruiting videos for islamic -- islamic extremists. news, "i have to say

what i have to say your code trump has called for a ban on muslims entering the united states. a somali group with ties to al qaeda and islamic state used a clip of mr. trump in its recruiting video. news, 24 hours a day, powered by our journalists and 150 news bureaus around the world. i am mark crumpton. less than 30e minutes until the close of trade. abigail doolittle is live at the , where she is looking at the big decliners, including amazon. abigail: sharp declines largely because of amazon. it has been the biggest point drag on the composite index all day and by a wide margin. the stock was down between neutral. and analyst said he is quoted -- analyst says he is "conflicted" about this move. likely tostments are produce less outside in 2016.

in 2015, some investors may be taking this as a signal the stock got ahead of itself. there aren't a lot of winners but we did find one, lululemon. first jeffries raised its operating from -- raised its rating up from a buy to a hold. wells fargo's upgraded lululemon to an outperform. improvements could help the supply chain overcome problems with inventory and discounting, with the same margin potential site by jeffries. but for an expensive stock with a 28% short interest, it is probably too early to call it here. betty: now with global selloff lackluster data from china's manufacturing sector, is all this an indication of more tough economic news to come this year?

let's ask one of the leading voices on the global economy. now senior fellow at the peterson institute for international economics at the aea conference in san francisco or an exclusive interview. thanks read behind us is chaos because there are people law that people walking into the local -- people walking into the nobel prize launch. every year this conference is a way to figure out what it is that economists are worried about. last year it seems what economists were worried about is why is thomas kelly selling more books and i am? for you, what is the concern this year? >> nothing of that magnitude, obviously. what am i worried about? i think the risks are not as high as they have been in the past. there is always a list of worries you can go through.

that clearly wary on the mind of people is china, that china could suddenly collapsed. here i would say two things. i think the plausibility of china collapsing is as small as zero. but if it did then it would be trouble for the world. brendan: how do you define a collapse? is it distinct from what we refer to as a hard landing? >> i would define a collapse in china is decreasing debt decreasing growth -- in china is decreasing growth. large decreasing growth. ofwhat is your best guess growth? >> what i think i know it is growth is small and going at the same rate as it was in the last two years and has stayed down very little.

whether it was 5.9 or 5.8, i don't know. brendan: you are no longer the chief economist at the imf, you can say. >> i have always said what i knew and what i thought. i don't think there has been a major slowdown. even after this morning's numbers i am not very worried about that. brendan: yesterday at a panel there was a discussion about what it is that could be done to create growth globally. this was one of the panels you were on. it seems like there was a mood that monetary policy has done enough and it is up to politicians to make hard choices. for you what are the hard choices that need to be made? pushnetary policy can only a and eventually it hits supply. --is clear that monetary

monetary policy doesn't to structural reforms. if you want to increase the growth rate of an economy have to do something on the supply side. some people think it has become a cliche, structural reforms. i think the are important, but i don't think we should expect miracles. i think we are going to have mediocre growth. take my home country, unemployment at 10%. you clearly should be able to give it at five. we have this set of magic tricks, structural reforms, and we are going to increase the growth rate forever by one or 2% per year, that is the minutia. we have to try very hard and structural reforms are more important now than they were three years ago. >> you have released a paper , thisthe phillips curve

relationship between unemployment and inflation. it runs counter to what a lot of traditional model say, which is the one thing you've been seeing from central banks, their inflation or castes have been consist playoff. you have gone through a period at the imf of revising models. do inflation models need to change? >> all models need to change. the world is changing. the notion that you're going to find some notion that existed with adam and eve and still works today -- changes slowly. our relationship for conception to income is fairly reliable. -- consumption to income is fairly reliable. if the economies are -- tanking is going to be less.

the precise relation changes a lot because it depends on expectations and the labor market. our job is to see how they change. >> we don't have to go all the way back to adam and eve. >> i didn't have it at the imf but now i do. >> one thing you showed is that the phillips curve is getting flatter. what that says to me is your policy advice to the fed, concerned ultimately about inflation, is that the acceleration is not going to happen as quickly as it had, which means they can be a little more adventurous, they can keep flow a little longer without worried about it. >> that is an implication of small effect on inflation. you can have a bit less on our and not much on inflation.

maybe we can go, you are going to pay a high price in terms of inflation. i think that is correct. i would tell the fed also be careful. you could overshoot. with your experience inside a large institution, which changes slowly, how is it that ideas that the one you are presenting here, how do they become part of official policy? part of official modeling? >> i think it depends on the urgency. my sense is that the world was coming to an end. when the world comes to an end people willing question their beliefs. are quieter, it takes more studies, it takes

convincing part of a staff, part of management. it happens. to change the models on austerity within the imf. >> on many many things, capital follows don't have the same nature they had 20 years ago. the effect of fiscal policy is not the same. things change and we have to be ready to look again. >> the one thing the fed is worried about is where the natural rate of interest is and which direction it is moving in. do you think that is fundamentally changed, that the natural rate of interest is lower than it used to be? down know it has come fairly steady. a bit more during the crisis. continue, maybe it becomes negative.

my own view is it is probably going to increase a bit. every factor that pushes down is likely to push up. at employmentk and see where we go. >> former chief economist at the peterson institute. cautiously confident about some movement of the natural rate of interest. .> thank you so much the former imf chief economist and an exclusive interview. much more ahead on bloomberg markets. we are heading toward the first closing bell of 2016. it has been kind of rough going. the dow is climbing back from its lows of the session.

>> good afternoon, i am betty liu. emerging stocks posted large losses. of china halts its stocks, futures, and options trading after a 7% slump on the shanghai index. here to talk more about the impact not only on here but on emerging markets is joe weisenthal, cohost of what it "what'd youof miss?"

it is like we are back here in 2015. interesting things coming out of china. you have the 7% market selloff. period --ly you had hugh had periods where china would do something volatile the completely out of step with other markets in the world. now it seems that there is more market integration so other markets sell up and take notice. there is the economic linkages. the data out of china was not that bad? how is that remotely new if you look at services. surprising there would be something new.

betty: it seems china is doing what it should be doing. the cvs in the numbers, what is wrong with that? >> there is a point that people try to make in china and across other emerging markets. slow down, not a rebalancing, fundamentally there is an old model that is rogan and we haven't gotten to the peak point of pain and that yet. it makes sense, and i don't know if i agree, that people who point to the handover from exports to consumption, maybe there needs to be more pain. asbe it can't be as smooth having a nice handoff from one part of the economy to another. the economic data is not all that horrible. if you look at asia and the economies tied to china. manufacturing data out

of vietnam or korea, not actually that bad. think it is less clear than people might hope to think. betty: it's putting all this in context. thank you so much. much more on their show ahead today. james sweeney will be joining joe and his team. close heading to a market to what will be a bumpy start in 2016. the nasdaq, now the worst of the three major averages.

betty: of markets are closing in just about 10 minutes time. we are coming off of our lows of the first trading day of the year. talk to us about this come back. julie: one trader did say there

was a big by order coming through at the close of trade. certainly that is evidenced by what we are seeing in the markets here. we are not down nearly as much as we were earlier with one point approaching 500 points, now only down about 300 points. on a relative basis, not as bad. volume has been higher. these are the groups in the s&p. interestingly energy volume has been down. consumer discretionary volume way up. oil has been the interesting story of the day. if you look at those oil prices, it has been a wacky day. we have had a rally and speculation with that may be.

we had this risk off environment today. some of the big movers, momentum stocks, momentum losing its luster. one of the best performers last year. netflix. tests -- tesla also concerned about its deliveries and being able to continue its pace of growth. and facebook coming off of a strong year last year. there are some unexpected lanes. chesapeake energy, which is one of the worst performers in the s&p 500, up 9%. a debtpany did to exchange, so that might have caused some jockeying in the stock. was down 70%. a system, similar story. finally, as we are seeing people come out of stocks more broadly, we are seeing them go to safety. seeing them buying into

the treasury, pushing down the yields 2.4%. and the dollar index, only down 2/10 of 1%. -- sixth sixth day straight day the dollar index has been gaining. as she was showing the dow, showing the losses, i want to bring in all of her renick for a little more perspective. what you make of today's trading? oliver: i think it is interesting. here is the thing. 2% catches people off guard, up or down. historically, if you look at what happens on the first a of the year, it is a volatile day. the average move is 1% in either direction, where any other time .75%.r it is .7 .5% --

a lot of people aren't expected to get in big meaningful trades. people are trying to figure out which direction they want to go. maybe there is some adding in of names that are doing well. all these forces are happening as an end of the year thing. betty: isn't there some data out there that says for at least january goes, where the stock market goes. oliver: january, where the market goes, provides a bit more insight. day means absolutely nothing. does anybody think we may be seeing the end? going ons of what is today, we may be seeing the end of this will run?

>> people to question that. i don't think today's move feels massiveeginning of some downdraft like we had in august or october. nobody is really panicking. i was kind of surprised. were down almost three quarters of 1%. i think what is going to happen here's people are going to realize some of this was related to some technical stuff in china. a typically volatile market may have caught it off guard a little bit. brought it down at 7%. hite u.s. investors won't the big sell button. maybe they are finding value here at some point. >> some of the biggest gainers are the biggest losers arian >> that is just the market we live in. a market driven by hannibal

company. when the market goes up you see those companies go up. it is sort of a circular argument. if you have companies leading the market, maybe it is an analyst report. there is not a whole lot to hold it up. >> our bloomberg stocks reporter. that is it from bloomberg markets. is one more look at the major averages on what has been a pretty rough and volatile day, at least in recent memory. the dow is coming back from the close of the session.

scarlet: we are moments away from the closing bell.

u.s. stocks closing lower on the first trading day of the year. the s&p seeing its third worst start of a year going back to 1927. joe: the question is "what'd you miss?" they really have power over the rest of the year? china manufacturing economy data comes in week. the shanghai composite sees its worst ever first day loss. alix: and oil prices and lower? -- useudi arabia use its oil as its weapon of choice against iran? we begin with the markets.