stocks to stop the freefall in government equities. and gender equality in the boardroom? don't hold your breath. a new study says women may not reach parity for another 40 years. ♪ david: welcome to bloomberg go. i'm david westin. stephanie: and i'm stephanie ruhle. trying to deduce whether we will have a bullish or bearish day. jonathan ferro joins us from london. one of our favorite contributors, wall street author bill cohan. happy new year. >> great to see you. stephanie: we are going to get some news.

isnie: president obama taking steps to make it tougher for criminals and the mentally ill to buy guns. the administration will require background checks from guns purchased from dealers even if they are bought online or at gun shows. dealers whomall currently aren't required to submit names for background checks. the president is using an executive order to bypass congress. federal authorities are keeping their distance from a group of domestic terrorists who took a wildlife refuge in oregon. says it is working to bring about a peaceful resolution. bernie sanders turns up the heat on wall street today. in a speech in new york, he will promise that in his first year in office, he will break up the banks that are considered too big to fail.

quinn.nie matt: take a look at futures. we are down across the board. .6% down in futures this morning. take a look at what happened yesterday. it was pretty dramatic to say the least. points on the50 dow jones. at the this big rally end of the day as people realize may be the first day of the year doesn't necessarily decide the outcome of the rest of the year. it only does half the time. it's a coin flip. the s&p moved 1.5% down. the firste move on day of any year since 1932 is 1.1% in either direction. of a swing.

movie yesterday compared to other indexes around the world. this is the s&p. this is the euro stoxx. sidean look on the bright of what happened. reaction was 11%. typically see a much higher jump. containedlity was relative to the move we saw yesterday. it just isn't as bad as you would have thought. i'm trying to be more optimistic this morning. david: i was surprised. yesterday your

expect some kind of rebound. then we rolled over. futures in the u.s. rolling over as well. that's going to be a big concern. to workernight getting very early in 2016, meddling in their markets once again. sources say the nation has taken steps to support equities and currency following yesterday's 7% tumble on the shanghai composite. it reminds me of the summer. , and whenstock rout the state funds get to work -- why are they doing this all over again? what's the lesson from the summer and why aren't they applying it? >> it's deja vu all over again. we had sweeping intervention today by the government. they intervened to shore up the stock market. they bought financial and steel stocks. the central bank intervened

with $20 billion to try to keep . lid on costs . the communist party wants the you want to be withdrawn from to be withdrawn from atms around the world. but the communist party is clearly struggling with letting the market have too much of a freehand. the hand of the state remains very visible the and they have possiblef to the worst start for the credibility of their policymaking this year. jonathan: this must be a significant setback for the efforts to privatize the markets. baby.ike a tar they can't get out. a trap are caught in

they created for themselves. china could have been included in the ms ti index and their credibility was in tatters when they intervened, banning major shareholders from selling and the like. majornths later, a ban on shareholders from selling is still in place and they won't be lifting back anytime soon because they are afraid that it would lead to a russian cell sellover. they are not going to step away from the levers just yet. that hinder the opportunity for outside investors to even play in these markets? since august we have seen less and less investors -- they don't want to be in the game. don't forget, it's always

going to be buyers market for some investors. the bond market is quite attractive for some people going forward. it has grown at quite a decent clip because china needs government bonds to backup the oil assets. we will see more funds coming into the bond market. there will always be investors who see an opportunity to buy in the bottom. buyer.ill always be a matt: i'm looking at a histogram we have on the bloomberg terminal. it shows the csi 300 graphed out. yesterday's move was almost three standard deviations away from the norm. it's very volatile. more than half of the moves we see are outside of the standard deviation. how can a bank recommend

investing in a market that is so incredibly volatile? >> it is very volatile. there is no escaping that. some people have. panic on some things. there is a sense of rush for the exit when the circuit breaker was coming into play. and there was the expectation that a ban on major shareholders selling would be lifted over the coming days. that triggered selling. are also technical reasons why the volatility is not as bad as when the year started. the underlying economy is showing some signs of stabilization. the consumer sector is holding up quite well. the service sector is getting on its feet also. that's where people see the opportunity. stephanie: thank you for joining

us, enda curran. it is striking fear in the hearts of investors that are concerned about the strength of asia and the global economy. europe erased any games we saw this morning off of china's intervention and u.s. futures are down again after yesterday's market rout. this is the worst we've seen in 15 years. i want to bring in joe weisenthal. it's as though investors are going through this bull market bear market checklist. they are looking for signs to say, what were we doing january 2007? there are not that many parallels at this point. >> absolutely. i think investors always want to look for times when things look similar in the past. one of the most popular kinds of our chartssee around that overlay with sometimes like, this looks just like 1933

or this looks just like 2008. and usually that doesn't pan out. so that's the good news. everyone knows that generally 2008 started off very badly. by january 22, the s&p was down 10%. when you get a year that starts off ugly and there are obviously concerns about china, the high-yield market, the economy, whether the fed tightened too soon, people are going to gravitate to that. the first couple of days, really there is not much predictive power. david: markets are markets. there must also be some underlying reality the markets are reflecting. in 2008 you had some really rotten things up a core of the economy we didn't fully know about. we don't have evidence at this point. >> there is no evidence at all that there is anything 2008 like. obviously credit is the

lifeblood of the economy. but it's nothing like 2008. to high-yield energy companies in texas and north dakota is not the same as -- stephanie: this is completely different from subprime, but we have to look at the global economy. the more companies that are sensitive to the u.s. dollar -- when you look at companies that export and the fact that we continue to be so strong against the rest of the world, that is cause for concern. >> absolutely. the strong dollar has been a big concern for multinationals. global trade in general is very sluggish. anything to do with commodities -- one of my favorite indicators to look at is south korean exports. it's a bellwether for trade. -- there's no question that the global economy is just not that impressive right now. to me it looks like we are getting the risk reward balance back.

we missed price risk for years in the credit market. now high-yield bonds have backed up, as they should. talk about historical charts. you can see how badly mispriced risk was for so long. i see that is very healthy in the credit market. in the stock market, this looks like a minor adjustment based on pent-up desire among chinese investors to express themselves on the short side of the market, which they were finally able to do yesterday. i say the underlying economy in the u.s. is strong. we are differentiated from other economies around the world to our benefit. i don't see this as a major hiccup. go back to overall velocity of global trade. that is a reality. what's happening in the shanghai composite is really misunderstood. it's not the move that concerns a lot of people. it's the policy response. it makes people worried

something bigger is happening. when you have a government that bans selling -- it makes people think something bigger is happening. let me finish the point. it's important. market are return investors. this is a socialist government. we look at the markets are western lenses and forget the fact that actually there are supporting the stock market. not for the wealth effect, for social stability. stephanie: we've seen investors getting smoked on their property. >> banning shortselling sounds very familiar to me. it sounds like something that happened in this country. jonathan: this is about selling. pure selling. you hold a stock, you sell it. this is about suspending ipos. this is much bigger. getting state funds to come into the market and buy stocks -- differentnot that than warren buffett saying he's going to step in in 2008 and

support the market when everyone else is running. the worst of the crisis in the stock market in 2008 -- the federal government to do anything close to what china is doing here in terms of intervening in the equity markets. stephanie: hold on. >> the credit markets are 10 times the size of the equity markets and the size of the intervention in this country -- trillions of dollars obviously had a positive spillover effect in the equity markets. we like to think of it differently. i'm not sure it's all that different. stephanie: we don't need to say that the world is ending, but it's hard to argue -- nearly half of the s&p 500 companies last year were significantly down from where they were the year before. just in terms of a momentum maybe things are just normalizing. i'm not saying the world is ending. but we are back to real markets. >> which is very healthy. because the fed -- i'm sorry.

i view this as a very healthy development. the fed has started to announce that it's not going to be supportive of mispricing risk as it has for so long. we are going to begin normalization in the credit markets. i think that overall is going to be -- what was the source of that profit for so long? incredibly low interest rates. jonathan: i love that you think this is a normal market with a quarter of the market in europe with a negative rate -- stephanie: lesson -- > listen -- >> paying the governments -- jonathan: we are still here. stephanie: look. caterpillar revenues down 19%. dupont down 17%. jonathan: that's a reflection of what's happening in china. i'm not disputing that. but these are not normal markets. comparing it he's to the global financial crisis.

we are saying, is this a 2008 or is this free markets? and i think the point bill is his we are back to free markets. jonathan: we are not back to free markets. >> i disagree. i think we're back to a healthier attitude about -- jonathan: healthier than last year, absolutely. >> a journey of 1000 miles begins with a single step. it's not pretty. this is a reflection of that normalization. the rally we experienced from 2009 to 2015 was abnormal and fed-stimulated. we are watching oil drop. we were seeing some positive

signs yesterday. they are not here today. we are going to be following this when we return. joe weisenthal, we will see you. by the way, joe weisenthal couldn't look better these days. the market may not be feeling it in 2016, but that guy is. tune in to him today at 4:00. return, we are talking draghi. ♪

hans nichols is looking at eurozone installation. a third year below target. this can't just be about energy. argument.the

thisear in germany that energy argument is what's driving it down. that's not quite true when you take a look at the energy aspect of these deflationary numbers. you had -5.9 on the energy front. last month it was 7.8. the month before that, 8.3. before that, 8.5. when you look at that slope, it was about a year ago. you are not seeing the downward drag that cuts out the german argument that you need to look through the energy number. we basically don't have any upward pressure from wages. we also have italian inflation this morning at 0.1%. you also have that in brandenburg. the region surrounding berlin. it's in all the economically depressed areas. you don't have any upward pressure on wages. mario draghi looks at

these numbers and what is the message he takes away from it? does he have any tools left in his toolkit? >> he can always try to increase the size. if things get worse he may convince the germans to join him if he increases the size and scope of quantitative easing. one quick point on the unemployment aspect. in germany, we have fewer seeking jobs here. jobless rate is going down. 6.3%.bless rate stayed at the german economy is humming. havecertain point you will upward pressure on wages and you will face a competitiveness challenge that concerns both economists and policymakers here in berlin. stephanie: you are there on the ground. that's where you live. what is the sentiment like? >> it's a crazy question. you don't feel richer or poorer based on how strong the dollar is. you only feel that way if you

are traveling. the christmas markets did not change one bit for me. they changed for my parents because they were visiting from the states. in terms of what currency is doing, the big effect is from the smiling ceos when they report the results because they are much better -- especially those with exposure to the state -- they are much better than expected. what about the sentiment about negative interest rates? do the big institutions feel that? we don't have that yet here but we are close. the german economists argument that i'm treated to with a fair amount of regularity here. retirees,at savers, pensioners are getting less and less for their return and it's also hurting the big insurance companies. that's why it's this big political debate in germany.

what the ecb does, what germany can do to stop the ecb from doing negative interest rates. there's upward pressure on wages. growthe 2.5% to 3% wage in germany, but no return for retirees. that's a social problem that could lead to more tension. ,avid: thank you, hans nichols reporting from berlin. next, the top trending bloomberg news stories you are reading this morning on your terminal. on bloomberg go. ♪

david: welcome back. time for bloomberg trends. here's a look at the top five stories you will see on your terminal. we have bill cohan taking us back into the world of hedge funds. nevsky is closing his hedge fund. raising one of my favorite

questions, is it worth it to continue to pay for this extra alpha that people are offering in the market? it was a tough year last year. i don't know. this was an opportunity for hedge fund managers to show their stuff. stephanie: but the ones who do warrants the two and 20. it's natural selection. aree who aren't performing going down and the investors are leaving town and going to funds citadel who are performing. >> how do you know which funds are and can you get into them? stephanie: that's the question. bill cohan is with us for the hour. we will be right back. ♪ the only way to get better is to challenge yourself,

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

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. david: taking a look at a cloudy december morning in london. stephanie: except it's a january morning. david: sorry.

i haven't quite made it into 2016 yet. we are here with jonathan ferro, tom keene, and bill cohan. and harvard university's martin feldstein. welcome. >> glad to be here again. he is doing civil war finance. latest kuwait is the saudi arabia and allied to end diplomatic relations with iran. it follows saudi arabia's break with iran prompted by attacks by protesters on saudi offices in iran. ahrain, sudan, and the uae also scaled back relations with iran.

president obama is using an executive order to try to keep guns away from the mentally ill. it will require background checks for guns purchased from dealers. president obama will talk about gun control later today. we will have those remarks on bloomberg tv. the agency that regulates the oil and gas industry in oklahoma is taking steps after a series of earthquakes last week. some injection will operators have been told to reduce wastewater disposal volume. many of the quakes occur in areas where the wells pump salty wastewater deep into the earth. jonathan: thank you very much. tom keene. this is the former prime minister of the united kingdom, tony blair. he is wonderful on the

ambiguities of the political es of the middle east. a lot of this was as expected from a former prime minister, talking his historical book. what really caught me was his desire for a more rule-based economy. that's what the united kingdom is really demanding from the middle east. jonathan: it's an appreciation that the threat is not a broad in these territories, in syria etc., etc. home. ins in the u.k., it's france. david: the threat is not at your door. it's in your house. eds from far is led london?

tell us about the rest of the noted kingdom and the tensions. don't think the religious tensions are as prominent as some people would like to make out. leeds to london, a four or 5 hour drive. tom: there you go. david: you have spoken out about the sunni shia divide. just this week there was the execution of the cleric. we haven't talked about the extension to which saudi arabia has been funding wahhabism and extremism in the area. >> absolutely. and the official funding coming from saudi arabia has probably been cut back. it's hard to be sure. a lot of private money is going madrasas in pakistan and these groups

causing the problems. --phanie: if that's the case could you make the argument that tony blair's prescription here is a bit high in the sky and unrealistic? prime minister blair has a history of giving speeches about the ambiguities of the middle east. i think we go back to your tenure with the reagan administration. we have been living this for 40 years. what is new now about the american dialogue with the middle east from when you served president reagan? role and arowing focus in iran on the fact that they as a shia nation are basically looking to revenge centuries in which shia were discriminated against by sunnis. i think that's where there's a

real reason to worry about tension in the middle east. jonathan: that point is crucial. the real religious tension you are speaking of is not between different religions but between sunni and shia. , if i'ms not forget looking at markets, i need to understand the difference between shia, sunni, who is on what side. stephanie: do you need to know that? jonathan: absolutely. then you can appreciate the fallout in the bond market. it's about crude. if you don't understand the middle east, what chance have you got? it doesn't seem like there is an appreciation for geopolitical risk where there should be. >> i think that's right. what we saw in these recent actions in saudi arabia just underline that. the breaking of relations between saudi arabia and iran is a very disturbing development.

iran has its surrogates in a number of countries. -- theah, and in yemen prospects for something blowing up in the next year are quite serious. david: we want to turn back to the u.s. economy. federal reserve vice chairman stanley fischer recently voiced concerns about the fed's ability to contain the next financial crisis. he says the fed is not as equipped with regulatory powers to rein in asset bubbles as other central banks. what do you think about the fed's ability to address the next -- >> i heard stan say that because we were on a panel together. i am a big fan of stan. because asoncerned he said at that time, while the bank of england has expanded its ability to lend to nonbanks, the

fed has been constrained in what it can do. and of course dodd-frank severely reduced their ability to deal with the crisis of the sort we had before. i think that's one of the reasons to worry about the fragility of the financial market. tom: i want you to address the i believe there was a football game earlier this year. when you look at this desire for central bankers to control asset bubbles is there any economic research that shows it could ever be successful at that? >> we know they have been unsuccessful by bribing -- driving interest rates down and pushing up asset prices. last time it was all about subprime and a whole bunch of other things.

subprime trigger the crisis, but it was a mispricing of assets and we are seeing it again. we are seeing again the gross mispricing -- tom: you've got the theory. bill cohan, you lived the bubble. at the timehairman -- when he argued that he actually used the tools in his toolkit having learned what happened in the great depression? when he argued that he actually saved us all? i mean, i agree with you. the fed policy increased asset prices, ms. price risk. he would say, i saved the wall. mispriced risks. saved you all. -- with stock prices up 20%

and house prices up 40%, the fed was very successful. that laid the foundation for the risk we are facing now with lots of reaching for yield by investors and lenders. >> when they just say that's the price we had to pay for what we were in in 2008? >> having screwed up once got is in a situation where we hope we come out of it painlessly. but you can't bet on that. stephanie: if i'm janet yellen and i look at the markets and , what does.5% drop that mean? we arehan would say, back to more normal market. this is a positive. or is this a sign that she acted too early? on the end of last year before the drop yesterday,

the s&p was -- the price-earnings ratio was 40% higher than its historic average. so i guess it's now 38% higher. it is moving back toward normal. but still way out of line. that think you can say about a whole bunch of asset classes. jonathan: which ones? >> commercial real estate, long-term bonds. the spreads between high-grade and high risk bonds, emerging-market debt. so there's a general reaching for yield. isn't that just a view envelope gross low-inflation? low gross low-inflation? >> you've got mispricing. and if those adjust quickly, there will be substantial losses on the scale that we started to see yesterday. -- if that happens,

stephanie: what's the definition of mispricing? >> it's priced for today's interest rates. if the short rate is going to stay at less than 50 basis equitiesrever, i guess can be priced at this level. but if short rates are going to come up and we are going to so with 2%tes, inflation and 2% short rate we start seeing 4% nominal short rates, it doesn't make sense for bonds to be where they are. the real question is will the market look ahead and make that adjustment quickly. david: i want to go back about the underlying economy. if the goal is to get the real economy going, is one of the lessons we are learning that monetary policy is a pretty blunt and inefficient instrument to do that?

shouldn't we be looking at fiscal instead? >> absolutely. the bush administration back in 2008 said we need a fiscal stimulus and i supported that. and it was much too small. the obama administration came along with a much bigger one. still not big enough and terribly designed. so it really didn't do the job. bills why in a sense, the that passed to the fed to push of equity values. a totally different strategy for the fed but it brings with is the risk we see today. tom: let me get your thoughts on the dollar. theade back about 60% of -- there's an i elements here of dollar strength we saw in the 80's.

could we get dollar strength that is so great that we get back to one of those historical moments we saw in the 80's? . >> we could, but we are not there. look at gdp figures. despite exports were up the weakness in many of our trading partners and despite the strength of the dollar. the only reason exports were not of his imports were very strong. control thelen dollar? >> she can influence it but that's not what she focuses on. europeans are very keen to drive down the value of the euro everuse it's the one l they have to get that bunch of economies moving. stephanie: gentleman, thank you so much. tom keene is heading back to

radio. cohan is sticking around. 2015 was a tough year for hedge fund managers. we will take a deep dive there next when we return. you are watching bloomberg go. watching these markets. we don't like the direction they are headed in. ♪

vonnie: welcome back to bloomberg go. president obama's pacific rim trade pact will get a big endorsement today.

the business roundtable will urge him to pass the tpp. the roundtable is made up of ceos from major u.s. companies. there may be more pressure on the ecb to increase stimulus again. inflation was weaker than expected last month. by ecb expanded stimulus cutting the deposit rate and extending the duration of asset purchases. apartment prices in manhattan surged to a record in the fourth quarter. that's up 17% from 2014. some of that price hike is due to luxury deals in developments that were agreed to years ago. jonathan: if you are licking your wounds from yesterday, you are not alone. tough year for hedge funds. fortress investment group and blackrock shut down their hedge funds in 2015.

and it was rough for greenlight capital. simone foxman has the story. why did greenlight stand out? einhorn ay is david notable figure in the hedge fund world come he is a fundamental stock picker. i think the year for him was really indicative of a struggle a lot of fundamental managers had. larry robbins. oflly not seeing the value companies they like going up and the values of company they don't like going down. it's a really tough time to look for value. stephanie: couldn't one argue that this is the lifecycle of hedge funds? we saw a number of hedge funds struggle. assets underok at management year-over-year, you

are continuing to see money pour in to that asset class. you raise capital, you make money, you lose money. some firms shut down. this is what a normal cycle should look like. the argument is, why would you pay -- because hedge funds are underperforming, but because you don't need them? at a bill ackman, a david einhorn, there are some of the best managers ever. david: the only ones who guarantee big returns are called madoff. >> had you know which guide to go with at which time -- how do withnow which guy to go at which time?

my favorite story about carl buying netflix at 60 and sold it at 300. five times your money. anybody could have done that. the person investing in the hedge fund is using them as a vehicle for a hedge. you can only really judge that against what the investor is also invested in. if you invest all of your wealth with one hedge fund manager, then you don't have much of a balanced portfolio. stephanie: which leads directly off'svid's bernie made victims. whole point is you have a diversified portfolio. at some point when he's right it's going to balance things out.

>> the promise of the hedge fund world is we provide alpha, smarter than your average insights into the market, and you pay two and 20 for that and i'm not sure that that is worth it. matt: we can look at greenlight capital. it was more than a 25% loss for david einhorn's greenlight capital. you can see where he lost it. these are sun edison. this is consol energy. some of the winners are general motors over here. he's really a stock picker. are these bets he's going to stick to? if he does and they come back, it's not a bad thing. or is he going to sell out of these? >> he has doubled down on consol

energy by buying certain derivatives. on, he said i may have stuck with this too long. those were all big-name trades for him. when anything happens people are going, what happened with greenlight capital? goingors have to ask forward, you stuck with these trades even as they were losing you a lot of money. did you do something wrong in not getting out? had twoe: he's only down years over the course of 20 and this is a guy who basically as soon as he mentions the name of the company, he moves markets. this is a history of the gains for greenlight capital over the last 20 years. there you go. 23% 2008.

one of the things to point out is patient capital. you are not necessarily looking for regular returns. >> that's exactly my point. if we have a big red here on you are not putting your money in greenlight capital for a month. if you're a hedge fund investor, you are putting millions of dollars in many different funds. stephanie: who is investing in hedge funds? david brings this up all the time. if you are an investor and bill ackman says i am going to be in herbalife until the end of the earth, that is not for my mom and dad who need to figure out when they can get a vacation home in naples, florida. jonathan: he's underperforming when the market underperforms

and that's what a lot of people are going to look at right now. can buy an etf. i need alpha. i don't need beta. stephanie: this chart doesn't show that through 2014 he gained over 18% per year. looking over the long-term, i think that's what investors when they are asking should i pull money or wait, a lot of people will say, i've been with him since 1996 and maybe it's worth just sticking around. david: simone foxman, thanks very much. more bloomberg go coming up next. ♪

stephanie: bill cohan and i have been agreeing all morning. which means he needs to leave.

stephanie: what a way to start the year. after yesterday's cell of, u.s. stocks are set to open lower again. we are asking, what is the fed going to do next?

of thedown with one central bank's newest policy and asked her that question. finding out what the future holds. a bad year for stocks and a big victory for hillary clinton. we will have a full list of predictions. ♪ stephanie: welcome. you are watching the second hour of bloomberg go. we are here in new york, freezing. i'm stephanie ruhle. david: i'm david weston. here with us is our colleague, jonathan ferro. we are also joined by robert albertson from sandler o'neill. welcome. here's vonnie quinn. vonnie: president obama is taking steps to make it harder for criminals and the mentally ill to buy guns.

the administration will expand background checks for guns purchased from dealers, even online or at gun shows. president obama will talk about gun control later today. we will have those remarks on bloomberg tv, radio, and bloomberg.com. in oregon, federal authorities are keeping away from an armed domestic terrorist group that took over a national wildlife refuge. the group's goal is to turn over the property to local government so the land can be used without federal oversight. decades, los two angeles and not had a pro football team. now three want to move there. and st.and, san diego, louis franchises all filed to relocate to los angeles.

i'm vonnie quinn. now to matt miller on the markets. matt: futures are down across the board. still seeing significant moves on s&p. there was a little bit of a recovery yesterday. we were down 467 points on the dow, the worst first day of trading of any year since 1932. we had a 150 point rally. that brought us back to only the sixth worst opening day since 1932. take a look at the euro. we're seeing dollar strength across the board. so jonathan ferro's trip should be a little more expensive. the dollar versus crude. here you see crude come down,

bounceback a little bit as well. you can play along at home if you like. you can enter on your bloomberg g#btv15. they are fairly inversely correlated. a couple of stocks to watch on downgrade today, disney is an interesting one. it got $1.5 billion in global won the weekend again. got a downgrade this morning. just about 1%. the concerns are the usual. i guess they have almost been cliche at this point. cord cutting, espn subscriber growth.

and priceline also getting a downgrade. david: thanks so much. we are less than 90 minutes from the opening bell. u.s. futures are pointing to more losses after equities inrted with the worst rout 15 years. robert, you have followed the markets for your entire career. give us your take. one day into the trade. what's going on? >> there will be one day and then two or three days and the market gets it over with. the market is having an understandable recognition of the challenges. and we all know what they are. i think the markets missing a few things. is there hasiggest been a reshuffling of the global order. remember it was the emerging markets driving us and we are all trying to be respectable. stephanie: what do you mean emerging markets driving us? >> they were the strongest

growth rates by far including china. brazil is definitely going the wrong direction. we have to get the perspective right. the u.s. economy has held on well and it is continuing to expand. europe is still looking like it may recover. it will take a little bit longer. australia -- a lot of these countries. people don't understand, it's not global gdp that affects each market. its global imports. and countries like china are only about 9%. whatever europe does or doesn't do slightly better could completely offset whatever china does wrong for the short-term. so the balance is different for a while here. we will go back to that. right now everyone is overreacting to some of the very obvious crises and changes. earnings in the united states seem to be lowering compared to where they were. is that a cause for real concern? >> i think this year is going to

be slower including corporate earnings. it's pretty obvious. we have to understand what happened. decade -- four decades. in between at gdp recessions, it drops a half percent. wife? hy? demographics mostly. the world isn't a 3.5 or 4 grower. it's a 2. we are overreacting. thatanie: didn't you agree we are in a great environment? it isn't a reason to sell. it's just slower growth. >> absolutely. it is growth. it's just slower. the nextis looking for recession. i get a kick out of that. it has taken us forever to get back from where we were -- stephanie: isn't that fair?

so many investors were 2000 81 sub primes smacked them in the face. they don't want to be standing there holding the bag again. forever atcan look something coming out of the woodwork and shocking them. they have to get over it and realize it's the slower growth that change. it started in 2000. look at growth rates everywhere. it all started they downshift. we had a horrible crisis. it drove us deeper big it doesn't mean we are not going to recover more. we are on a slower growth trend. everybody got lost focusing on a crisis and what's going to be the next one. it's going to be a tough year. i wouldn't think the s&p 500 was trading at 18 times real-life earnings. it's not trading as if a recession is around the corner. it is trading at almost perfection. the easy money period has ended.

we are trading at 18 times -- stephanie: remember how people were -- jonathan: there is no doomsday scenario. stephanie: remember how people were invested just before the financial crisis in 2008? they were among the most illiquid products with no exit doors. jonathan: i don't dispute that. guests come on this program and say things are not as bad as they seem. no they are certainly not. you can talk about a global recession and say things aren't as bad as they seem. if we are having a macro conversation, yes. things aren't as bad as they seem. but if it's a market conversation, the market is priced beautifully. >> it's overpriced. it's gone too far. we have interest rates rising, that goes against valuations and equities. we all know that. there's lots of challenges. it's not going to be a great year. havelipside is, the banks

4%, 5%, 6% growth. that's getting to be pretty good. i think i will take that unless another bomb is going off and right now it's not. stephanie: but if we get a correction could that be confused for fear of a recession? absolutely. anytime it goes down a little or up a little people think it's the old days and it's a sign. right now the sleepy thing is trying to move and everybody is overreacting at the little pieces. this is the year for sure, everyone says this, you have to pick stocks carefully. you will have some volatility to help you do that. it's not a macro show of any drama lik right now. if you want to worry about drama, i would focus on geopolitical stuff. there is plenty out there -- stephanie: that is specifically why so many investors are

sitting in cash. with this massive geopolitical overhang that one cannot predict somentrol, it's for investors to take their money out of the markets entirely. >> absolutely. but at the end of the year if the market is up a few percent they are going to feel pretty dumb. david: i want to go back to macro. i read something interesting you said. we had david rubenstein on the program. he said we are due for a recession. you have a different perspective. >> this is a very different cycle. consumption, the largest piece of our economy. it took three years to get back to pre-recession. it normally takes one. look at labor force recovery. it never went down before in a recession. analyses and these look at the time, it's about three times longer the cycle in

behavior. so if it is every eight years for a recession, this time it will be 24. i don't really mean that. the point is it's not happening next month or next year. jonathan: the old cliche, recessions don't come of age, they come because the fed killed the recovery. that's why people are talking about the recession. >> i understand. the fed is so terrified of that and so far away from the brake pedal, that's not going to stop it in my opinion. other things could. stephanie: at least what you cover, financials, is the answer the response to slower low growth consolidation? >> that's part of it. and the other part is blessed dodd-frank which has driven all of these banks into holding hands. year's percentage of acquisitions to total banks was one of the highest in history. it's going to happen. this year you will get some

pretty big ones. stephanie: hold hands with a banker? not now that they are making less money. thethan: we will hear from cleveland fed. good morning. ♪

jonathan: good morning. welcome back to bloomberg go. brendan greeley is in san francisco for the american economic association's annual conference. withrday he spoke president of the cleveland fed.

brendan: i asked her about what she worried about developed out of china, which she worried about what was going on with the s&p 500. you have spoken to central bankers before. you know exactly what they say. the markets are out there somewhere. we are not worried right now. this is what she said. >> underlying fundamentals of the u.s. economy remain very sound. there is going to be volatility in the markets. that's the nature of financial markets. -- they out of china released some manufacturing data that was a little weaker and that spilled over to the u.s. stock market. brendan: so her estimates for growth in the coming year are 2.5, 2.75. is in general more optimistic than the markets are. thishan: you are calling nerd mardi gras? why?

because thousands of economists every year get together and try to figure out what is the thing that we don't completely understand that we are trying to understand? amazing as economics gets. last year they all sat around in boston. i went and the question was, who is thomas piketty and why is he selling so many books when i can't sell any of my books? this year there are a couple of questions. where is the growth? you had martin feldstein earlier today on the show. i went to his panel. he and several other luminaries worsening around wondering why is it that we aren't getting more growth and basically they all blame to the politicians. they said we need more structural reform. this is what we have been hearing forever from mario draghi. , isood up and asked them there anything that the five of you can agree on that would create growth that you could recommend to the u.s. congress right now? and they all said, maybe

infrastructure spending? and then martin feldstein got up and said, only if it's deficit neutral. that is what mardi gras looks like when the nerds get together. how is she going to vote? will she be a hawk or a dove? brendan: bloomberg intelligence has a fed spectrometer. she is a plus one. plus two is the most hawkish. negative two is the most dovish. i asked her and she said, i like to think of myself as an owl. i like to think i make wise choices. stephanie: she has no years. [laughter] looking at her estimates, she's right in the middle of the pack. she's right in the center.

don't look for her to be dragging the fomc one way or the other. i asked her about inflation. wayn't see it happening the the fed sees it happening. this is what she said. >> i would say there's not a lot of evidence that the dynamics will change. if you look at the dynamics they what --ng at about would predict. the median cpi measure has moved up. that dynamic is what the models are predicting. talking tou've been central bankers in europe. they have the sex same problem. they keep predicting inflation. the inflation doesn't appear. cleveland has a different inflation model. their estimate comes in slightly higher. point 3%.one i don't understand how anyone at the fed thinks we're going to get to 2% by 2017.

jonathan: the problem for the rates,you can say raise but to say you are doing it because you have a forecast of inflation going back and gdp being absolutely ok, very different. mostast five or six years, major central banks, dead wrong. >> that's right. they don't have a good record. i'm not sure the central banks are the show. 130 easing's last year. that should have sent us to saturn. it hasn't worked. we already have 2% core. i know. commodities. but commodities are kind of locked into the emerging world and causing a problem there. in europe, probably 1% if you go to the core number or close. i would make one prediction this year that sometime later in the year, central banks give up and fudge the inflation target. stephanie: say what?

for ay are too high global economy that has downshifted to half its normal historical trend line. they have to worry more about moguls. that's what blew us up in the first place and i think they will. i think they will back off this. i'm not saying they're going to throw it out. but they will skirted it. the fed already did in a sense. that we can to know get to 2%. we don't have to see it. i think you are going to see that inflation target getting put a little bit back in the closet. stephanie: we have a lot more to cover over the hour. brendan greeley, i might let you go back to sleep. it is very early in san francisco. robert, you are sticking around. before we go to break, take a look at this. it is all about the experience when it comes to sony's new playstation virtual-reality platform. the company has planned demos for shopping malls and game stores. the new platform will premiere

later this year facing competition by facebook's oculus htc's headset. all of these will be on display in vegas. when we come back, emerging markets. why their stocks have paid a harsh price as china takes another leg down. how close is the u.s.? that's next. ♪

stephanie: welcome back. you are watching bloomberg go. we've got to talk china. deepening recession in brazil, the downturn in china, and oil prices going through the floor are affecting global markets. if you have exposure to any of dear, you have paid a price. robert albertson's chief strategist at sandler o'neill. monitoring both of these emerging markets. we touched on them earlier. brazil has fallen off a cliff.

here we are in 2016. when it comes to the u.s. economy, we are still in a growth environment. take us through brazil. how do you look at it? where's the right place to be? >> i've been watching brazil for a very long time. i have a lot of respect for the brazilian people. i have constantly decreasing respect for the political structure. stephanie: this is a good time. this may be the moment. >> here's what is happening now that nobody would have guessed a year ago. and china did for a while and it helped. standing up to corruption and getting pretty rough about it. and every but watching that saying, this is new. this is still not going to be anything good for us that happens until 2018 maybe. but this is now on the track of where it needs to go to get it to work. brazil has been constantly dropping into a policy trap or

the only way out in the end is inflation. the last time that happened in the 1970's and 1980's, it was disastrous. the population doesn't want that. i think it works. it doesn't work for a couple of years. david: excuse my skepticism, but are they really doing something? they've been talking about it for years. cost of doing business is enormous in brazil. >> that's correct. that has been one of the restraints. this is a funny country. if you go back in history to when he was founded and we were founded, we looked alike. stephanie: that's a very nice thing to say. let's take a look at this table. none of us look like resilience. brazilians. i wish we looked alike. have you seen matt miller? >> you would have a lot of fun in brazil. they will take a few years of political wrangling to sort things out. they probably need a new president.

and they need more changes in the finance ministry. stephanie: it is so fundamentally corrupt -- >> can i answer differently? the correction correction is beginning. it's not over. from what i saw last year and there,hear from friends this is real. jonathan: robert albertson is going to stay with us. coming up, oil prices in the doldrums. what is being predicted for the year ahead. -3.ures, ♪

>> and we to bloomberg go will get started with the first word news.

the administration will require expanded background checks for those purchased from dealers, even if they are found online alread or at gun shows. president obama will talk about control later today. we will have those remarks of bloomberg tv, bloomberg radio, and bloomberg.com. saudi is the latest arabia allies to end diplomatic relations with iran. the move follows the saudi's rate was ron prompted by those attacks and iran. iran, prompted by those attacks in iran. beijing had its first red alert since late last year. chinese officials say that

quality is better than 2015, and the year before. most the dangerous pollutants since 2014. let's take a look at fiat chrysler. the company put out sales growth in december of 13%, which sounds like a lot. it is, indeed. it is there 69th consecutive month of growth. it is good for the company, but a miss from what the industry was looking for. the stock is unchanged. i will be following all the car sales numbers today because december is going to cap what we the greatest year for car sales in the u.s. as determined by unit volume of all time compared we should be the

record of 17.4 million in 2000. lilly, alsoat eli moving this morning. it is down in the premarket. i want to highlight smith & wesson, because of what you just heard bonnie talking about. executive order from the president. this is the kind of thing that expect will spook consumers into going out and buying more guns. that tighter gun control will get harder for them to buy smith & wesson later. the shares are trading up 7.5% in the premarket right now. this stock has done incredibly well over the last five years. after benefiting from strong macro tailwinds in 2015, what will be on the horizon for the muni market?

e discussed this in our morning meeting. at your notes, and you think that the tailwinds are theady priced in, and the corporate's are sending late cycle signals. what do you mean? 2016 will be a little bit bumpier because some of those tailwinds that helps performance in 2015 are already in the price . lower inflation expectations, dampening price volatility, keeping the longer end of the yield curve flat. ,hat makes you more vulnerable meaning more dispersed credit performance. it will not be as easy to see coming because the rating agencies have not historically downgraded muni going into a late cycle.

ratingsu said the actually increases into a recession. why is that? >> i cannot speak for the rating agencies themselves, i expect it has something to do with rating agencies trying not to predict economic cycles, but just looking back at previous performance. it is up to investors themselves to have a view on the cycle. for us, we think there is a good chance that in the next year or two you will see more dispersed performance among the fundamentals. we will take with the market gives us, and if it is giving you tight spread at the same time it gives you credit fundamentals, it is our strategic principle in the first quarter. matt: how do investors protect themselves and their muni portfolio's? somewhat counterintuitively,

we think you do it by adding sectors that have traditionally been more cyclical. state and local governments which have been the non-cyclical play are still burdened by liabilities and deferred capital needs. sectors that have been more cyclical like transportation will deteriorate less in the next cycle turn. fromuld not even detract had 2015 strong performances. matt: thank you for joining us. back to you. >> we're now going to talk to the predictions that are coming out.

stephanie: when byron comes out with his predictions, the street listens. and whether we are talking about economy, thisthe is a moment where people in the market are looking. they are on a desperate hunt for conviction and guidance. we have to talk about hillary clinton. will be thethat she next president. when comes to investing in the overall market, how connected are we, how focused are we? do not think it will have a lot of impact because right now you have to make the bet that it is hillary clinton. because it is a zoo in the republican party? >> well said. if you look at what is going to change, the central bank will not change, the labor force growth will not change. interest rate is still going to

go up a bit when i listen to byron, which i do every year, he is fun to listen to, he has been time, he isng smart. on keller is right clinton i'm not sure he is right on interest rates. stephanie: he says that the u.s. dollar will decline to $1.20 against the euro. >> i don't think so. matt: i want to get back to interest-rate projections. show we i, before the were looking at his predictions, and this is the u.s. active treasury curve over the last year. isn't that cool? >> it's very pretty. years,f you go back two you can see that the yield

actually does get higher. it climbs, especially in the last month of the year. in the long-term rate, if you look at 30 years, he is right, they stayed where they were at the beginning of the year, and you can see that the curve really does flied out at the end of the year. these were predictions he made, and the response on as far as 2015. -- and they were spot on as far as 2015. never mind the euro-dollar at has a view on the bond market that yields are going to stay in love. it is the treasury yield you have to look at. that end of the yield cover. the moment the front end comes up, and the long end stays up, that is a view on inflation and growth. the point of the front it is

they will not be able to hike rates as many times as the public thinks they will. this is not a story that translate into policy because they will not be able to hike rates. consensus view at the moment. >> that felt like virtual reality. you are right with the fed cannot keep bringing rates up on the short end, if the long and does not move as well. happened,es not everybody is right. the problem with the long and it is determined more by the market and it is by the fed. the biggest part of the market's foreign buyers that are not interested anymore because they do not have the dollars to invest. and the fed is not going to go too in there and buy much, i don't think. as a voice, we will have a bubble. this feels like the same had in then i

housing sector in 2004. i was dead wrong for years, and then i was right. if you waited out, you will be right. it relates to china, he believes that it will drop below 5% because the banks will get in trouble. >> i don't think i will agree with that. what we have to remember, is that it has done it before. if the banks are in trouble, no problem. they still have the flexibility and the money to do that. is going through this transition that no one wants to give credit for. slowlye coming way up but surely on consumption.

stephanie: but productivity is so low. if you compare productivity to the u.s. or europe, and you factor in what people make, six $650,000000 a year -- a year. i have been going through the projections to see where he is right and wrong. he said that china would give up a 7% inflation target, and that it was -- not inflation, growth, and that they would go go closer to 5% as well. blue.s china's graph in this is what bloomberg intelligence thinks. they are not too far off each other. and we did not go that much below 7% from their official data that they put out in 20 15.

the question is, do you believe there data? spend time disbelieving it, it is a waste. at 7%, they can go down to 6% they are doing this transition. down to 5%. going % like in a -13 brazil. a second connection i would make -- .att: this goes back to 2006 you are looking at a full 10 year charge. in china, it does not mean much. china is the only country in the world that has a consistently growing birth rate economically because almost two thirds of the population has yet to move into the city and jump on the latter. they have a 20 year supply of

economic birth rate growth. it does not mean that they are going to be a huge success. it does not mean they have to transition easily. they are the only country that are rebalancing successfully. we are at the very top of the consumer spectrum. we are at the very bottom of the countries that count, they are moving up and they are patrolling off properly -- pulling it off properly. their issues are not ours. they will not affect us. we do not rely on exports to china, even half as much as a years worth of residential u.s. housing construction. stephanie: that is his china takeaway. we will be back with more bloomberg go in a moment. our investors losing their appetite for investment-grade debt? ♪

>> well-connected bloomberg go. here is your bloomberg business flash. wrapping up a record-setting year in the u.s.. december sales rose 19%, beating estimates. -- fiatsler did not chrysler did not do as well as expected, but they are still up 13%. the democratic presidential candidate bernie sanders says that banks have too much political power over the nation. burger king is escalating the fast food price wars. they're are not saying how long the promotion will last. stephanie: high-grade corporate

debt stays steady through the roller coaster of 2015. we are asking the question, our investors becoming less enthusiastic about the asset class? superstarg in our own lisa abramowicz. what does it mean for corporate cutting? when peoplemoment start to appreciate corporate bonds and how strong they are. as the high-yield crack poisoned the whole asset class? >> the people that i talked to say that the route that we have seen in the high-yield bond market has made the junk bond market less reliable as an indicator for the s&p 500. because of the dominance of energy related death in the high-yield bond index, and because of the liquidity issues that we have seen. of investinga case

in the bond market, and recently we have seen a fundamental weakening in investment grade bonds market. the last months of 2015 we saw outflows from the investment-grade bond funds. five out of six weekly withdrawals. bank of america, merrill lynch said that investment-grade bonds which led about 25 elaine dollars -- $25 billion -- stephanie: they are pulling out entirely? investment-grade is trading where it should. the us are not bulletproof companies, but they are good corporate credit. >> you can argue that some institutional investors, people talk about the regional outflows run high-yield, but institutions have been coming back. when i talk anecdotally to people, institutions are seeing

opportunity and high-yield bonds, but you have not seen the selloff in investment grade credit even as these companies sell unprecedented amounts of bt for share repurchase s. they are not edifying their fundamental business. some people are getting concerned. this is fundamental weakening if investors continue to sour on investment-grade debt. this has a spillover effect into u.s. stocks. >> i agree. i think the high market was in an abnormal position for a long time because people were looking for higher returns in the debt market. they will look for that in the equity market now. investment-grade is still reasonably safe because we have not built big excesses. we have had a slow recovery, leverage is up, do not forget that the one that was under

leveraged was the corporate sector. and there are a lot of fears of going back to crisis. i am pretty calm on this. and investment-grade bond market is a number of companies, glencore, they have not gotten fully downgraded. what does this mean for investment-grade credit indexes? holdot of investors that these bonds will be forced to sell. the more than investors -- stephanie: they are ratings sensitive? >> that is correct, thank you. a lot of the damage that started in high-yield was energy and oil related. matt: you definitely saw a lot of that in stocks.

if you take a look at the blue line, it is the high-yield bond index. the white is the world index. the high-yield tracks with stocks more than the , which is stays stable in the green. long-term,ook at the and a measure i look at, the earnings yield on the s&p 500, measured with the yield on barclays, u.s. corporate g index, it has been greater over the past two years. it depends on the measure you look at. >> thank you. great to have you with us. here for the next hour. the race for the white house is heating up. that is next on bloomberg go. ♪

>> welcome back. it is time for power go. bill clinton made his campaign debut yesterday. shunned the opportunity to attack his wife's opponents. wife's record, talking about things like campaign-finance reform. what do we think about bill clinton back on the trail again? >> it is bit of a dynastic family, as are the bush's, no surprise. we look at what clinton did while he was in office, and we give him a good grade on the economy. so isect that will not he it with a hillary presidency. she seems to be following in the populism of beat up on the banks

again, we have not done this for three weeks. is we have to wait another four or five months until the republican show is over. and then you have to let whatever it is going to be fight it out. i do not think having mr. clinton on the campaign is not a bad thing at all. stephanie: there has been a lot of wall street commentary this morning. people are reminded that hillary clinton in the white house means you have ill clinton. it is like getting extra credit that people had not counted on. her, bill are sour on clinton has been the most likable political leader we have seen maybe in our lifetime. of the bunch at the moment, she is very likable. >> ok, bill clinton on the campaign trail. who cares? i want to know what it means to the markets.

it came down to something as simple as it would win and who n charge of the federal reserve last time. >> i do not think it matters anymore for a while. it is out of the show, even though everybody wants to put it back in. they were two very different people, barack obama and george w. bush. >> taking down to something as simple as one man in who they were going to employ. of global: in terms economy, we're still better than the rest. thank you for being with us. ♪

minutese just over 30 away from the opening bell here in new york. stephanie: it is time to welcome our co-acre, erik schatzker.

-- coanchor erik schatzker. troy is here for the hour. stephanie: we're excited. >> i love the enthusiasm. erik: troy is with sky bridge capital, a manager with over $13 billion in assets. good to see you. we have the first word news. now few hours from president obama will: the executive action he is taking to reduce gun violence. mandatory background checks for private sales, and enforcement of current firearm laws. mr. obama's remarks are scheduled this morning at 11:40 a.m. eastern. kuwait is the latest saudi arabian ally to end diplomatic relations with iran. attacks onmpted by

saudi officers by protesters. they were angry when saudi's executed a shiite muslim cleric. the philippine fighting toill stop focus on politics. manny pacquiao will have one last fight. back to you. matt: a big recovery in futures. 1%.re down about 1/10 of mimics the recovery we saw yesterday in the market. look at the dow jones yesterday, we got out for the entire trading day. a big rally late day, and

and 50,back one on her 160 points. down 1.5%, buty not so bad on the first day of trading. you who are worried that at first day of trading would influence the entire year outcome, that only happens about 50% of the time. no better odds than a coin flip. were the cleanest dirty shirt yesterday, which is the clinically correct way to say that -- politically correct way to say that. the s&p was down, but not as bad ax.the euro or d if you have a bloomberg terminal, type in this code and you can see the vix throughout the year. yesterday a jumped to about 20.7

for the fear index. yesterday,ke climb.ly you see a 15% we only saw an 11% jump yesterday. not as bad, the market did not react as badly to the drop as it could have and normally does. erik: thank you. stephanie: that is acceptable. erik: it is time for the three stories that matter to markets now. here is where we will begin. so much for free markets. in china, the worst ever start to a year for chinese stocks. toy were ordered by equities prop up prices. regulators signaled that a six month old ban by shareholders and corporate insiders will be extended past it's expire ration this friday -- past its

expiration this friday. one investor told bloomberg that the government should have learned its lesson after the plunge last summer. when you see the chinese in theent intervening nation's stock market, does that lend confidence, or erode confidence? >> erode confidence. it is just like what they did last year. devaluationurprise that freaks them out. the equity market is not that big a deal in terms of its relation to the chinese economy. they should care about the chinese economy, not the chinese stock market. growth is the most important question for investors this year. will china have a hard landing, or once they? -- won't they? stephanie: isn't it more hate

the game, not the player? the rules can change any time. wouldn't it make more investors less likely to want to play? i do not want to play basketball if they change the rules during the game. >> absolutely. look at the u.s.. we changed shortselling back during the crisis, those are crisis level things. what they are doing now is the impression they believe they are in a crisis and a lot every stop they can to avoid a hard landing. percent saying 6.5 growth, and if that is true, why are they doing these measures? or does a 7% selloff spook investors like yourself? it is increasingly the norm in a market like shanghai. >> we have this great function which allows you to graph the

distribution in the number of outcomes. the last year, here is the 7% move. to .5n see it happens standard deviations away from the normal. but so many of the moves happen outside of the standard distribution, it is an incredibly volatile market. this graph really accentuates that, illustrates that well. does that not give you pause? >> as whether or not they should pay attention to it? is a volatile asset class, a volatile market. focus so much on equity, focus on the current evaluation. as they devalue their currency, it makes it harder for the trading partners to compete. they are frightened of slower export growth. they are worried about transitioning from an export

economy to a consumer economy. we focus on the currency moves which the weaker and weaker. that should cause more don't focushis year on equity moves. matt: you can then run and hrh for a currency as well. stephanie: i'm going to give you number two. the other hedge fund is shutting down. $1.5 billion will be returning money to investors. as one door closes, another opens. get your head around this number. raised 4.5 billion dollars for his new fund, and they have been getting trading this week. we are to blame, we talked so much about all of these hedge closing down, the number this year over the last nine months has been 674 the year before, it was 661.

it is just not that different. this is exactly the business that you are in. blame us for overstating this. what did it really look like? >> and is an entrepreneurial business. there are startups and shutdowns all the time. clients cannot stick by them, but that happens. when you startups raise as much money -- matt: hold on. stephanie: this is a different kind of fund starting up. since the financial crisis we have seen a massive number of traders say i'm going to start my own fun. that is completely different. >> of course. it is still amazing to see and $4.5shut down billion rate relatively rapidly. in the history in general, it remains a challenging

environment the good news is, concernugh there is over where china lands, the opportunities are much better than they were six months ago were a year ago. markets are more prepared. there is more risk premium will do assets already. we think that hedge fund should do relatively better this year. stephanie: isn't that good news also that because it is not so frothy you can see a good manager rate at a time when others go down? when we are in a momentum phase, everybody can make money. that is the time when nobody is generating real assets. this is an acid generation momentum. >-- an asset generation moment. investors are much more circumspect of all assets. they want to see value

proposition. it is a much more balanced market if you look at it that way. david: cymer prices rose an annual .2%, and the european union statistics office said that is a 10th of a percent lower than what economists had accurat estimated. it must be frustrating to mario draghi. history to do everything he can that she iss going doing everything he can to get things going. -- because he is doing everything he can to get things going. the economics trajectory is good, but inflation, despite all of his efforts is still what below their targets, which

probably means we would have more stimulus for longer than anyone -- erik: when you see inflation flatlining, your conclusion is more qe. >> he has said that time and time again. forward, if they are serious about 2% inflation, the only way to get there is to eat for a long time. david: isn't there a law of diminishing returns on qe? even the united states, it is arguable, if got less effective. t got less effective.iv >> it is. what if it is one of the only tool you can try, you will at least try, and see that inflation will come back. if it takes six years of qe, and takes six years. when you hold your cash in negative deposit rate and bleed money year-over-year?

it will take a lot longer than you like, but at least there are some signs of progress on economic growth. david: you also have not a fully integrated economy. in germany, the numbers were encouraging today. by country. it is hard to administer the monetary policy >. >> very challenging. young a monetary need without a political unit has never been done before. of will in europe to put band-aids over their wounds and pump out money to get cyclical growth turning into secular growth. that is a challenge for them. erik: those of the stories that matter to markets now. next up, we will bring you the movers of and down in premarket trading. not by much.ive, stick around.

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>> welcome back to bloomberg go. here's your latest bloomberg business flash. president obama's pacific rim trade taxes getting a big enforcement today -- endorsement today. the roundtable is made up of ceos from major u.s. companies . in december.% fiat chrysler did not do as well as expected, but sales still climbed 13%. the fines that volkswagen faces in the u.s. could reach $80 billion pai.

that is on top of hundreds of private lawsuits. matt: headlines and from the ford motor company. saying that it light vehicle sales rose 8.3%. we were looking for an 11%. this is an incredibly important month, december, the reporting month, for the automaker industry. if they all come in in line with expectations, then we will see 17.5 million units sold in 2015. that would be a record for the auto industry over the 17.4 million units that were sold in the year 2000. but we saw that chrysler came in light, ford is coming in light with growth. , wehey all come in light could actually miss the analyst prediction for a record-breaking . the sales that they do make,

have an very profitable. they are selling a lot of the higher end cars their trucks, high-margin vehicles, are pushing double-digit margins in the u.s. enough, fiatson chrysler had a drop in ram pickup sales in december. overall, they had their 69 consecutive month of growth. it is a very interesting story. this stocks, we had upgraded by goldman sachs. you can see it is a 16% in the premarket. also, watch disney and priceline, a couple of downgrades here. incorrectly said mcquarrie downgraded priceline earlier, i

believe it was raymond james. this was even after they pulled in $1 billion worldwide from our wars. -- star wars. analysts say they are worried about espn and cord cutting. delivers next, netflix the best return of any stock in the s&p 500 last year. but will it have a repeat performance this year? ♪

netflix dominated the s&p 500 without much in the way of profits. cory johnson is with us from san francisco. $5 billion. that is what netflix lanes to spend on programming this year.

when, if ever, is it going to turn into a stock profit? question. is the with the of been able to do is growing on the top line, ignoring bottom line substantially. it has been the amazon playbook and it has worked for the stock market. said show uss where you can grow. the where you can grow is an important part of the story. international growth will be so important, and they will program around that. but at the same time there has been a dramatic change in the business model. three years ago, netflix was about showing movies, and they were getting outbid in some of that stuff. they win the original content business, and had early success with house of cards and oranges the new black. they have had successes since then with their superhero show, daredevil, jessica jones.

a new murder mystery series has been wildly received. it is a big bet because they often turn up snake eyes. any studio, usually ends up with some bongs. they have not had a lot of them yet. grow geographically -- ly you are clear excited to head to vegas. he mentioned orange is the new black, house of cards. this saturated the market in terms of subscription. how much bigger can i get? -- they get? cory: that is exactly the point. in the u.s. you have seen dramatically slowing growth in users. they may be as big as they ever are going to be in america. international growth is the key. as of next year they are going to be in every you been there ever going to be in. then it will be about growing

subscribers in the places they are. the programming becomes eve n larger because they need they big hit. s. -- or they can race can raise prices. matt: but they will not travel without in the markets they are going into. people stealy content or get it for free in other ways. he cannot raise prices if you enter a content market like that . showingg intelligence, white subscriber growth in the u.s.. in orange, scrubber growth internationally. while it has come down, it is at 90% and they are really starting to ramp up a little bit internationally.

notty nice and growth, but a huge change. i think investors want to see them do better on this orange line, although obviously investors are pleased with netflix performance, evidence i last year's result. they were the biggest gainer and s&p 500. >> how much of that is licensed content? they do not break that down. originaltha chunk will be programming. but they carry this mysterious balance sheet item called commitments and contingencies. billion in10.1 commitments and contingencies over the next couple of years that is not on their balance throught is not flowing the income statement on a regular basis. they say that as a minimum of those commitments, and that is

going up. bet is quite real. they think they will get this without having the money to pay for it right now. erik: i have a question about hedge fund holdings in stocks like netflix. it is not a classic hedge fund hotel. but if you analyze the 13 filings, you can see that some of the biggest additions and subtractions in terms of positions come from hedge funds. what does it say to you? do you like to see them go into momentum? others like citadel were bailing out. >> you better be trading and

investing for the long haul. momentum could shift where rapidly. what we see is more trading move for better or for worse. investors have more confidence and forward earnings. patent protection. erik: some of those positions may be filed by september 1, and gone by october 31. >> exactly. havewho own cheaper stocks more growth, but that is a minority. stephanie: thank you. ,e will be back with more talking hedge fund bets in 2016. ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. so your business can get back to business.

sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. erik: welcome back. were moments away from the opening bell here in new york city. futures have recovered from earlier losses. they are pointing to a more or

less flat open right here at 9:30 a.m. gopro is up 7%. smith & wesson of more than 9% 9%. -- is up more than control executive action from the president later today. with the opening bell you heard it, it is time to dive into investment strategy with our guest troy. you are a strategy paper. icker. let's talk about strategies for happened in 2015. it is a story you know very well. though many had done strategies performed poorly. -- so many hedge fund strategies performed poorly.

the market was neutral, up more than 5%. talk to us about market neutral. >> through 2009 through 2014 you had ever and the quantitative -- never-ending quantitative easing. if you were a market equity guy, it was not a question of if you would lose money, it was how much. about fundamentals. a byproduct of qe was you had very high correlations between stocks and securities. everything moved in tandem. dispersion was very low. the spread between worst and best performance was not that large. that was the worst england permit you could have for that strategy. in this environment today, qe is over. shorting is not a one-way lose respect.

correlations have come down and dispersion has gone out. they have a fighting chance to correlate returns. 2016, we think it is a very attractive place. it is one of our three things we are ramping up. structured credit, which we can talk about. and the prepayment center. what do we need to creditas a structured anymore? >> you have commercial mortgage securities, and then you have collateral loan obligation. that makes it the structured credit market. stephanie: you think that clo should be back? >> if you look at what has happened in the credit back, the biggest source of pain has been credit yield for high-energy. 5% exposure, but the spread has widened out just

as much as they have in the high-yield bond market. we like that a lot better than high-yield. now, general motors is out also with a disappointing sales figure. we are getting this morning sales figures from all automakers. we expect the december sales figures to back up to a record 2015 for the entire industry. however, so far, all of the big three have missed the estimates. general motors now trading in sales ofmarket, auto 5.7% growth. we were looking for 10%. ford put out a .3%, we were looking for 11%. chrysler put out 13%, we were looking for 19%. positive, still growth, but they have missed estimates. till we know if

that 17.5 million figure will be missed? afternoon,ntil this because we have to look for all the u.s. automakers, all of the japanese, the koreans, the germans, they all have to come out. there are about 30 automakers in the entire world that we have to look after. erik: back to strategies. market neutral, what was the third? [inaudible] erik: she does that mean that you take money out of event driven strategies? >> we mainly focused on the china hardl landing. we are reducing our exposure because we are already two years into a massive m&a cycle. it has nowhere to go but down. we are much more concerned about markets this year than we were last year. there is a realistic potential for a bear market this year.

lester we were not concerned at all. those managers have much more sensitivity to market. s. erik: let's connect the dots. the reason we are focused on it is because multibillion-dollar managers are closing shop. --ot of people have said stephanie: is it fair to say that they are shutting down because they are losing money, --is it fair to say this is my point. is he making the statement, things have gotten especially harder, and over the next five years and more struggle to make more than 5%? is that the environment, and i do not want to do it anymore? superyour opinion will be valuable. he blames the machine. an algorithm driven market makes it difficult to be a

fundamental investor. you are a high frequency, and you do it on basic is tough toy, it compete against the algorithm. if you are a credit manager, back in the date you turn your book over six or eight times, you could do that because there was liquidity in markets. now the liquidity is much less than it used to be because of dodd-frank. that strategy has gone away. there are strategies that come and go. that is the point. there are more opportunities today than a six months or a year ago. the spreads are wider, the risk premier higher. there has been technical dislocation without fundamental distress. energy credit, fundamentally distressed.

wi-fi fundamentally distressed assets, and hope for a turnaround when you can buy technically stressed assets that have very robust fundamentals? stephanie: if you are buying fundamentally stressed assets, you need to have a company that can evaluate them. more investors are getting involved, and they do not have the manpower or the expertise. they do not have the asset class for your average investor. >> that is the trick with energy. a lot of these guys did not understand it is about oil. nobody can predict oil. not swap it for equity which only has value is it goes up. t is not only hard to , and it's hard to

invest. stephanie: gm putting $500 half -- less get than 10% of a company. that is where amazon went public in 1997. they put in $500 million to get 10% of copycat number two way behind uber. there are certainly a lot of liquidity opportunities in the system. ofse are more pockets excess. what worries us, getting back to what could cause a recession, is when you have so much access in places like housing, or the s&p was trading at 30 times forward earnings instead of 16.5 percent. if high-yield bond spreads were 100 over today, that would be very scary. we are not there. we have a few pockets here and

there. we just do not see, other than china having a hard landing, anything disruptive enough from the military policy transition to cause a bear market. david: what about india, places like that? people have been doing their war because they are a straightforward story. -- going there because they are a straightforward story. they are big winners from oil. india has been a pocket of, but they are still a cap place to be because so much of the growth was dependent on china. that is trending down. even though valuations are cheaper in developed markets, they are only at long-term average valuations. he should always be paid more than an emerging market. and tell emerging market growth turns around, what is the hurry? what is the rush? years to turnake around. hopefully they will be to the upside again in the end.

that is where the epicenter of pain will be held in china does do a hard landing. david: thank you. trading?ave now >matt: when we started this program futures were down big, i should say substantially. futures are now weighing into the open. futures swans up, and now the cash trade is positively the dow jones industrial average adding 17 points. of 1%. adding about 2/10 still not making up for the big losses yesterday, a loss of 1.5%, but a little bit of a bounce. at my terminal, i can show you the industrial breakdown,

which segments are rising and which are falling. utilities, energy, materials are week this morning. health care, and financials are gaining. they were losers yesterday, they are gaining today. we saw a reversal of yesterday. a lot of movement in oil this morning. our typical leg down around 7:00 a.m. it came back up, and now down 1%. $36.37 a barrel for nymex crude. take a look at the currency boards as well. we have had dollar strike this morning, and that continues. pair, you most of the a little bit, with dollar weakness.

eric mentioned smith & wesson, so let's look at the life trade. -- live trade. a gain of 10%. the five your picture to see how it has really done. i have been noting lately that this is smith & wesson versus the russell 2000. for theversus the s&p last five years. not a terribly different picture brady can see that smith & wesson over the last five years of 487% gain. of all of the stocks i have put this up against, firearms does a lot better for an investor. let's get to abigail doolittle. she is down at the nasdaq with the latest on solar companies moving on a big analyst upgrade. >> we are moving after goldman

downgraded the sector to a neutral from attractive. they did upgrade solar to a neutral from cell, setting a street high price target, and added solar edge to the connection list. while some of these names may cool off a little bit this year, including last year's tax incentive boost, some solar may do well in 2016. erik: thank you. tom coughlin has resigned after 12 seasons as head coach. this was made about 22 hours after the giants lost to the phillies in the last game of the season. he has been the coach for the last two super bowl titles. next, we are looking at agreed and activism. greed and activism.

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>> welcome back to bloomberg go. here is your latest bloomberg business flash great bernie sanders is dabbling down in his attack on wall street. the presidential candidate has promised today he will break up the biggest banks if elected. he says they have too much power. he will join us at noon on bloomberg with all due respect. king heat up the fast food wars. they are not seeing how long their promotion will last. samsung unveils a , with art refrigerator

recipes and ordering takeout. he can also see the inventory with a phone app. erik: today's value proposition. cap activists become too greedy? no hedge fund strategy really has been as hot as activism for the past three years. >> that is right. activists are focused on making their investors money. erik: they have so much capital they now need to put towards things. that is what i mean my greedy. -- by greedy. >> bottom line, they do have more influence than they ever have had. they are making big

transformative changes at conglomerate companies that no one can touch before. size has been a benefit in that way. but you are right in that the smaller cap opportunities that they had back in 2002, 2005, they are really not on the radar as much, given how large the funds have become. activism is a strategy where there is substantial benefit to size, but your limited when you get to over $10 billion. david: you are also aiming at a target that is moving, given that boards are very aware of activists. they are often anticipating what would happen. >> with all respect to where you are in me market cycle, over the last few years there has been booming mna. -- m&a. certains push them in a direction that they are receptive to anyway.

for long-term shareholders, and they're not out for a quick dollar. so that is why they have more influence. if this year turns out to be a rough year for markets, if china does have a hard landing, activism will not be talked about as much because they will have much bigger thing to worry about -- things to worry about it stephanie help is. stephanie: help us understand. have you increased your portfolio exposure in the last five years? and now what will you do? >> for us, the main activism is a subset of event driven equity. to make moneygned in regimes were management teams want to go through m&a spinoffs.

luckily, we timed it well. the last few years have been disappointing despite tons of m&a. every investment thesis, we like to keep it simple. how can guys who have made tons of money not do well? what we have seen his since the end of qe, maybe is because was premium has gone out, maybe it is because of the crowding of decrowding ofns-- those positions, whatever the reason, in the apartment where we expect the best returns we have not gotten it to and now the clock is ticking on the m&a cycle. next five years we will probably have a very market. everything is relative for risk, reward. 2013 with a high water market. we hope that this year will be relative to last year. you can always make a 15% or 20% in any strategy. erik: lots of hedge fund

managers talk about the limited opportunity beyond a certain size. where is that for activism? >> that is tough to say. theoretically is not until you billion, billion, 30 because then you need to be purely large mega-cap stocks. when we have seen recently is a few of the larger funds have done the best. it is unclear is there is a if thererrelation -- is a direct correlation. once you get above 25 billion, or 30 billion, it is much more challenging. focused onn really the equity part of capital structure. there is another type of activism in the debt capital structure. stephanie: classic distress. exactly. we will be talking about that

three years from now. stephanie: you think we will get to 10%? >> it tends to peak at a percent in the normal cycle. less cycle was 15%. 8% against,ould be but we have as much pain as you do. we have one sector that is bombed out, and then you have the rest bombed out. it seems like a reasonable forecast. stephanie: 15%. you will be staying with us on bloomberg go. we will take a look at top moments next. ♪

erik: welcome back. it is time for the best of on the have heard program today.

>> it does not seem that appreciation is where it should be. >> i think that is right. i think what we saw in the recent actions in saudi arabia line fast. it is a very disturbing development. >> the market is having an understandable recognition of the challenges. i think that the market is missing a few things. >> the u.s. economy has held on well, and it is continuing to expand europe is looking like it may recover. sometime later in the year, central banks give up and fudge the inflation targets. for a globalhigh economy that has downshifted to half of its normal historical trend line. >> investors should care about the chinese economy, that's

about the chinese stock market. when they start pulling shenanigans like this, it erodes confidence in their future growth which is the most important question for investors this year. will china have a hard landing, or once they? -- won't they? stephanie: what are you most worried about? >> the china hard landing, for sure. domestically, they are doing well. problems with exports and manufacturing. the only thing that could cause a bear market this year's china growing at 2% or 3% which no one will know after the fact anyway. you have to be ready for that. there are not a ton of opportunities. stephanie: that does it for us. ♪

betty: it is 10:00 a.m. in new york in 11 p.m. in hong kong, welcome to bloomberg markets. ♪ ♪

from bloomberg world had cars in new york, good morning, i'm betty liu. stocks are rebounding as global equity markets are stabilizing following the worst year but the s&p 500 in 15 years. tension risk is the between saudi arabia and iran and how that affects the global market. we will get insight on the year ahead from real estate. we will get word from the berkeley center in brooklyn. we are about half an hour into the trading session. than it wasumpy yesterday and times of the selling. we are kind of meandering so let's go to julie hyman. julie: that's a good word for it. we