-- wpi is trading at an all-time low. who can make sense of it all? ♪ ♪ to "bloomberg ." futures areng, s&p down 35 mins. david: of all days, i'm glad today you are here. ralphshlghted that ossstein >> is here. i will try to explain it. >> much more throughout the hour. the story begins overnight with china after the central bank cut the mostreference rate

since august which sparked a selloff in commodities and global markets. we go to hong kong with more. huge moves and more in the futures market? yes, what we have seen in the first few days of 2016 is this growing concern about global growth. china's moves are exacerbating this. this emphasizes the idea that chinese officials are worried enough about growth that they are making these dramatic moves. what does that mean for the global economy? we are seeing steep decline spur u.s. futures, steeper than we are accustomed to even on days when we see a sharp selloff. let's talk about china because not only did we have a steep

decline but a market that was halted because of that. 300 over the csi past week. the circuitou had breakers activated for the first time in the chinese market. that was the first time they were an ever enabled. you see affect when drop of 7% or more in the market gets halted. i want to zoom in with my terminal. the falling off of a cliff and then the fault is the flatline and that's putting stopped about a half hour into the trading session. it would take a 20% halted in u.s. stocks for the circuit breaker to take affect and markets just stop trading for the rest of the day. at 7% in the united states come you get a halt of 15% for context.

the shanghai composite is similar in that index. we have been talking about chinese market cap because we have seen $900 billion of the value of chinese stocks wiped out already this year. there you have it, the bloomberg china market cap index and there is the plunge. in europe, we see the selling as well. you see the major averages are declining. oil was mentioned. you have a glut problem and oil but now you have concerns about growth any potential demand problem. david: we want to go to asia. try to connect all these dots. we have numbers about the reserves in china and revise downward and then we get this 29 minute halt on trading.

morning, it has been another day of confusion and conflicting signals. you wonder if the left arm knows with the right arm is doing. the pboc came in and cut the toerence rate for the yuan the lowest since august and that triggered panic in the market. it forced the stock trading halt on the stock market. it shut things down once again forcing an emergency meeting of the regulators. do both arms of the regulars know what the other is doing? is the central bank talking to the stock market? we had a burn rate happening in china. they went $100 billion in foreign exchange reserves in december and that face raises questions if china lets the yuan weaken, they are also trying to intervene and not let it go to far. how long can they continue?

there is a lot of confusion here. >> when you look at what's happening, we look at this with western lenders and we expect the same from the pboc as the fed and the bank of england. we wonder whether they understand the mind of the investor outside of china. when they cut the reference rate in the way they did, if you are concerned in china, it fuels that concern. are they conscious of that? >> it's still a black box. the pboc say they are improving transparency and in some areas they are. there is no doubt they are not sending a clear signal on what their policy is. they say they will not allow disorderly depreciation. how long can they sustain this? it is hurting their reserves. we saw a big drop in december and they are now down to $3.3 trillion.

it won't be too long before people start questioning how much longer they can go with this tragedy. -- this strategy. david: you have been in government and the u.s. and markets belong time, what should we read into what the pboc is doing? >> the problem everyone has outside of china is we really don't have transparency as to what the real level of activity in their economy is. you will have knowledgeable people about china appear in print authority the growth rate is 6%. 5%. a percent or 2% or no one is really certain because you don't have the level of transparency and data we have in the entire western world. the second thing you have going inis a lack of confidence

the ability of policymakers to respond appropriately. whichtarted last august really weakened global confidence in chinese policymakers, both monetary and economic policy. the actions of the last day or so have exacerbated those concerns. >> the chinese authorities have been quite clear about this. they want to let the pressure valve off a day at a time. trying to manage a softer landing? will they make a mistake? are we at risk? >> the risk comes from the fact no floating exchange rate. we were never sure what was the true free-floating exchange rate

between the yuan and the u.s. dollar or the yuan and a basket of other currencies. ultimately, i believe they will get to that part of the world where the rest of the world lives. the transition is controlled. david: they have never been here before. we have had 80 years of dealing with markets and how to regulate them. this is new territory for them. in august, they put the six-month ban on trading. how can they open the markets again and get back into the game? like beingittle bit addicted to a drug. it's very hard to go being addicted to of been killer to going cold turkey. it has been more difficult because the interconnectivity of

the global markets. there is a feedback loop that when they do something it affects the rest of the world and that affects the demand for goods manufactured in china which is obviously a major concern of theirs and the devaluation. >> the conversation we're having in new york about the interconnected markets, you see that in china and we look at the spread between the onshore and offshore red it says the onshore rate has to depreciate more. the reserves say they are trying to temper that depreciation. do we have to gauge from the offshore rate what will happen this year? there are some people who argue that this is the key to what's happening. the arbitrage with me on sure the offshore rate. they say with the pboc is trying to do is rather than let the yuan depreciate, they are trying

to close that gap and they are trying to tell the market that arbitrage will disappear. who is going to blink first? will it be the pboc as they burned through their reserves or the commercial banks? leaving china at a record pace. rapist andage onshore and offshore between hong kong and the mainland some say hold the key to what's happening.that's the david: chinese authorities called you up today and asked open,o do, should they what would you advise them? >> i would actually advise them to have a less restrictive or wider circuit breaker and see if the market can actually find its bottom. as your correspondent pointed out, for our markets to shut down, we need a 20% decline in

our indices. there markets shut at 7%. that is a very different circumstance. it saps the confidence we market is closed. i assure you what will happen --orrow morning china time and sometimes we line up to get a dinner reservation in a restaurant and it on auto dial or get their tickets. -- get theater tickets. this will be auto dial for everyone to sell their stocks and that's not a good thing. come on the markets and on crude oil just ahead. we look to london and europe meeting next. futures in the u.s. are negative, deeply negative this morning. the dollar-e1 on the screen, a

weaker chinese currency and a stronger yen. with a $32 handle which is a 2000 below, good morning. ♪

vonnie: welcome back. jobs. is planning to cut marissa mayer's is trying to cut costs and revised growth. an activist shareholder called on yahoo! to overhaul its management and board say significant changes are needed. members of the apple executive team are all equal in it comes accordingt tim cook

to a new finding, all the executives were paid $25 million last year. tim cook was $10 million in salary and bonus plus a $64 million stock grab. blackberry has joined the race to invent a self driving car. they showed off cars that can scan for obstacles and communicate with other vehicles to avoid accidents. it is already used by other carmakers entertainment systems. >> if you are up early, you would have seen european equities fall out of bed. this is on the back of china as the pboc cut the reference rate of the yuan. the chinese currency weakness is spilling over into global markets. mark barton joins us from london.

another ugly day for europe and equities. >> good morning, these are mind blowing stats. the biggest slump since august and european stocks. down by into percent and only eight stocks are rising on the 600 which has fallen by 6.2%, the lowest level since september. lower and we have fallen below 10,000 for the first time since october. has sunk by 8% and is on track for its biggest weekly loss since 2011 and it's the worst european stock market and the fifth worst performing stock market in the world out of 98. 36% gain this is the biggest

since april and it's an indiscriminate selloff today. i-19 industry groups are falling today. it's all about basic resource companies and oil companies. the only gain today on the ftse 100 is a gold stock. a fourth day. for it's a classic safe haven play. look at the big decliners. those stocksit's with the biggest exposure to china that are sinking the most. index calledeat the morgan stanley index which tracks european stocks with the biggest revenue exposure to china. it's down by 10% this year. last year, if had its biggest fall in four years. this week, automobile has a big exposure to china and they are down 11%. basic resource is this pick have fallen by 10% on top of the 35%

last week and oil stocks are down by 8%. it's a crazy week. david: it's indiscriminate. it feels like a stampede. what stops a stampede? that was a really upbeat rip. report. what stops a stampede is the realization that the real economy is less affected by thee market changes then market actually is. move on the to over upside down the downside. is real thing to watch here the real economy in the united states, the real economy in far, areich, so certainly not booming but we

have modest growth and modest growth should be able to support the valuations in the market at these levels or even higher. the most important variables this year is the price of crude oil. there was another big move overnight in wti. these are big moves. the world'sng about biggest consumer of commodities with the weakest currency. what you make of this? is it about supply? >> in oil, it is 90% about supply, clearly. you have some very large producers like saudi arabia and firmly on ther pedal.as and they need cash flow to

support their social programs and what they are hoping to do in their local economies. change expect any real in the overproduction of oil. have fromthing you the middle east and particularly saudi arabia and iran -- the other thing you have is an enormous amount of capital invested in the united states in deeperlsewhere recovery type ways to obtain oil and gas like shale. these tend to be short production cycles. production in shell comes 12-18 months and then it tells off. we have an honest amount of capital sunk into the ground. the marginal cost of producing that gas and oil is considerably

less even at $32 which is the marginal value. to keep cash flow going, everyone is still producing. especiallyhappening in capital investment is any new drilling or any exploration. ofticularly because so much the incremental production we have had over the last few years comes from these 12-18 month cycle producers. we are just going to have to eat through that. we will have low and volatile energy prices until we get through that. even if you curtail shale oil production in the united states, you have iran coming online with perhaps one million barrels per day. that will increase. >> absolutely, and i say curtail, what's being curtailed

is the investment in new exploration. , theyhing in the ground have the same incentives that saudi arabia has. $10 or $15 per barrel to produce and you can sell it for $32 and you need the cash flow. hope any time soon, thank you for staying with us. was a big executive shakeup at jpmorgan yesterday so what is this mean for the bank's future? futures are down or percent this morning. we are having a rough day on the markets in new york. ♪

david: welcome back. big changes at jpmorgan yes --

at morgan stanley yesterday. james gorman is leaving the company. kelleher is being promoted. give us your taken what's going on. >> these are all very talented people. i know all of them. i think the biggest thing going on here is that the morgan probably correctly have a moremes to clear succession plan and to so heclear numbner2 can focus on the future of the firm and then the question becomes, what do you do or do you select? it has been my strong view for some time that notwithstanding the importance of the retailed

business for morgan stanley which is 40% of their earnings or notwithstanding the importance of the banking business to morgan stanley or goldman sachs or jpmorgan, at the end of the day, these large , almostll ultimately always, be run by people with capital markets experience. notwithstanding the investment that has been made, that is where the risk is. tom king will bring you the morning must read next. we will do that next. ♪

jonathan: good morning, welcome back to "bloomberg ." waking up to another ugly morning in global markets.

s&p futures are -42 points. to navigate these markets, we have ralph schlosstein with us for the next 30 minutes. it is all about china. here is vonnie quinn. vonnie: it is the worst start for china's stock market in two decades. that led to a selloff in stocks which forced the market to shut down less than 30 minutes into the session. they plunged 7%. futures here in the u.s. indicate stocks will open much lower. in paris, police have shot a man armed with a knife while he was trying to enter a police station. a reports that the man was carrying fake explosives. from the attack of the charlie hebdo in paris. california aving headache. heavy rain caused blood slides

-- caused mudslides. equals the el niño strongest on the record. news 24 hours a day powered by our 2400 journalists. i am vonnie quinn. david: tom keene, you have brought us your morning must-read. it is about fear? yes, let's go right to it. i recommend you check out bloomberg gap fly -- bloomberg gadfly. even reading the cliff notes version of the technical analysis books, lower highs and lower lows. ralph at theack times that you and i have seen

the emotion, it means opportunity for some people. who has the opportunity right now? tom: the new providers of , the large pools of institutional capital. thee funds and institutional long investors who may have some amount of dry powder on the sidelines. as i said earlier, markets always overshoot on the upside or the downside. and that capital will flow. the difference this time compared to previous financial crisis. is that the large banks can no longer be looked to as a principal source of liquidity in the markets. tom: where will it come from? will come from hedge funds and value investors when

they ultimately come in and support a lower valuation which will be overshot. question is, what will be the new internal rate return? if there is a terminal value on the 10 year yield and on the , within the transactions of wall street, given this new environment that we are in, do we have a lower internal rate of return? ralph: what is clearly going on, and what i would've said at the beginning of this week, is that what we should expect for 2016 with certainty is quite a bit more volatility. increases peoples discount rates and therefore lowers the pe at which any stream of earnings is valued. jonathan: day one, we talked about peak pessimism. i have a must-read as well. it is george soros.

when he says we face a major adjustment problem, i would say it equals a crisis. he says there is a serious challenge that reminds me of the crisis we had in 2008. this is the worst week since only four weeks ago, it hasn't been that dramatic, but when people like george soros mentions 2008, does that resonate with you? tom: -- ralph: not really. it is simply not present today. you have a banking system that is extremely well-capitalized. risk, even inless the lower leverage that we have in banking and investment banking. the kind of freefall, deleveraging a fact that we had in 2008 will not happen here. it is not in the cards. you mentioned volatility,

i think the bloomberg shows something? essentially, what this measures is options on the s&p 500 and what options traders are rising in here. volatility was higher in september and august, we have son it pick up this year far, interestingly, i talked to an options trader yesterday and he said in his circle, there is a view that we are in a automated process. ralph, i am curious, what would cause that? what would reassure investors? reassurancereatest will come not from the markets but from the real economy. and when people see that we not storming but acceptable growth rates in the united states, and some growth in europe and japan and and

uncertain but positive growth in china, we are talking about 85%-90% of the global economy. so the concern here has to be that if this becomes much more , then the wealth effect starts to affect the real economy. i don't believe that is what we will experience. go back tont to talking about the return. going into a company and looking you haveial projects, an internal rate return, and i wonder in this new world, are they getting cut? it used to be that we had a pretty high rate before they went forward and it seems to me that the rate must be lower. the hurdle rate is ultimately tied to the cost of capital. debthe cost of that capital, notwithstanding the last few months, is still extraordinarily low by historical standards.

capitalcost of equity is kind of normal. so those are things that would drive hurdle rates down. on the other hand, volatility and uncertainty breeds a lack of confidence and pushes hurdle rates up and lessons investments. tom: we have a market that is barely in corrective mode. i agree with you about equity volatility. oil since october is down 34%. we have other dynamics with the same shock. goes back to -- the new andrew mellon's of the world, the reality is that we mediocre gdp, and the whenes of good growth is

everybody comes in. what andrew mellon faced in the 1930's? ralph: i think if you look at the ceos in the world, there is not a ceo in the world who doesn't aspire to having mid-high single-digit earnings growth. in an economy that is growing 2% in real terms and inflation is 1%, you have nominal topline 3% growth. margins are tightly squeezed already. so it is hard to get earnings leverage from 3% revenue growth. as you say,thing, is to combine, takeout costs and get 1-2 years of the type of earnings you want. a --'t think there is

government should always vigilant -- the government should always be vigilant on practices. but our global competitiveness hinges on our ability to basically have businesses that have a scale and a competitive edge and a viable margin. unfortunately, that is extraordinarily painful for the employees in these companies. tom: viable margins is key. jonathan: i want to tie this up and bring in news of the day. if i am a manager, i can get in and out of china i hope. ceo, you have a multi-decade approach. see ine anything you china, based on the news of the last month, that would make you advise a company not to get in at this point? would, ithink it

depends to a extent the business that they are in. if you are in a consumer business, you can't ignore an that is the second-largest economy, 50% of the global gdp. and where there is going to be an inevitable increase of movement into the middle class and a jurassic increase in consumption. so if you are a global consumer company, you have to have a china strategy. david: how much of the problem that we are seeing is just a doubting of the numbers? that there is a risk premium attached to anything in china because we don't know whether the numbers are right? said earlier, 7% or 3%, we don't know. ralph: i think the lack of transparency and confidence in the data, and in the integrity

of the reporting of the data, that is number one. and number two, the lack of confidence in a sound policy execution to respond to that data, those are both harming significantly, investment in china today. david: i want to make a turn to activism. it seems like every week, we hear a letter being sent to a board. like star board, they wrote their second letter. where is activism in the united states today? ralph: there are two trends. number one, the amount of institutional capital managed by and supporting activists has gone up dramatically. directly,120 billion $200 billion if you take some that are less active activists. that is an important

consideration. the most important consideration by far has been the willingness of institutional long investors to support those activists in their campaigns. that4 years ago, the idea someone could take a 1% position in a huge company and actually threaten the strategy of that company would have been ridiculous. because, what is a 1% investor to gadfly? and gabelli icahn are on the same page, fine. how do you discern harmful engineering from good and sensible cash employment? ralph: that is the fundamental issue. tom: we have an hour. [laughter]

that is the issue every executive has to face. the unfortunate part of the investment world that we have evolved into today and activism does play so strongly in this. is the focus on quarterly earnings, quarterly returns on investors and what the activists sometimately playing on is engineering. maybe a years worth of return or two years worth of return in three months or six months. five years return in 10 minutes? [laughter] ralph: it isn't necessarily right for the country or the corporation. jonathan: ralph schlosstein will be staying with us.

up next, he will talk with us about m&a. ahead of the open, ugly, ugly, ugly. uglier in europe. the dax is down over 300 points this morning. in the commodity market, wti is the headline. we are at a 2003 year low. do you know what's tom keene says about an unfriendly dollar yen this morning? good morning. ♪

vonnie: welcome back. here is the latest lumber business flash. yesterday, netflix went live in

100 30 countries including india, russia and singapore. shares rose over 1%. united airlines says the ceo will be back at work in april. he had a heart attack in mid-october. he is 57 years old. and another record for star wars. the blockbuster is now the box office champion. it has taken in $716 million to beat avatar in 2009. it has taken in $800 billion overseas -- $800 million overseas. futures look like it will be tracking the same way, dow futures are off by 360 points. pretrade, -2.8%. if we switch up the board, there it is. the dollar yuan.

it is not about that, it it is about the reference rate. august and china, put those two things together and people get nervous. we do have a stronger japanese yen. is $32 aine today, wti barrel. we are still coming off a record year in m&a. ralph schlosstein is still with us. this is a negative headline i had to read and yet a record year for m&a? to august.s the back ,f we had this show in august we would be talking about a steep decline in stocks, steeper than we would have right now. steeper than china. an upset ine had the currency markets comparable to what we have now. and what really matters is the

length of that volatility and uncertainty. if it goes on for one month or two months as we saw last summer, it really does not have much effect on the real economy, nor on the confidence of executives to execute strategic transactions. if they volatility last summer had gone for six months for nine months or 12 months, we probably would be sitting in a different circumstance in m&a today than we are. obviously we had a record year last year. it was a record year in dollar buyout of announced transactions. dollar volume of announced transactions was up over 40%. the number of transactions last year was flat. so what has happened here is large transactions,

transactions over $5 billion, account for more than 70% of the increase. transactions over $1 billion account for 100% of the increase. so what we are starting to see and if this volatility doesn't continue for an extended amount of time, is a broadening of the m&a market, which we typically see after the peaks are reached. does this reflect something in the business cycle? we don't have much organic growth left. we had to go buy some topline revenue growth. and that really does go to the basics. it is defensive rather than offenses. ralph: that is an incredibly important part of what is going on. is not necessarily buying a faster growth rate.

line, but it is buying a faster growth rate in the bottom line. so when you take two companies , and you atgether the revenues together, and they add up to what the two companies generate, you at the bottom line's together and they add up to more. david: exactly. the difference is cost which tends to be people. jonathan: we are talking about uncertainty and m&a and big concentrated deals last year, not all of them are finalized, are they at risk of falling apart? ralph: i think the answer to that is that you have to get of the contracts of every one of these agreements. because many of them don't optionhave a walk away unless there is a regulatory disapproval.

one of the effects of high in the markets is that any risk investment becomes cheaper and the spread or voting for oreen against whether the deal will happen is widening out. please stay with us as we go to break. the futures are down 45. we will come back and talk about politics with ralph schlosstein on "bloomberg ." ♪

david: welcome back to "bloomberg ." futures are selling off. all of them are down. china stopped trading again in the shanghai, and you said they would be alto selling. u.s. investor and they call you up and ask, what i do -- what do i do, what do you tell them? ralph: historically, these downward corrections have been more likely often than not buying opportunities, not panic selling requirements. at the end of the day, the u.s. economy will growth this year. the u.s. consumer will continue to spend. and some reevaluation of the stock market when volatility , the ease go down.

--et if we are sitting here you will be happier. jonathan: i hope you come back in six months. schlosstein, what a pleasure to have you here this morning. up next, we talk about wti, the lowest since 2003. peter borish will be here to join the discussion. the s&p 500 is negative 42 points this morning. good morning. ♪ 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: market meltdown. stocks fell so quickly in china beforeading was halted the rest of the day even began. u.s. stocks will be much lower

at the open. the battle to succeed morgan stanley ceo leads to a surprising marcher. ♪ david: welcome to the second hour of "bloomberg ." stephanie ruhle is on assignment this morning. she is missing out. wti, $32 today. david: not much good news out there today. borish joins us on set this morning. we have to talk to you about crude. david: welcome back. never a don't moment. it has been a long year already. david: we want to get started

with the first word, that is a vonnie quinn, of course. vonnie: early reports say at least six police recruits were killed in libya. police shot and killed a man armed with a knife while he tried to enter a police station. he was wearing fake explosives. it has been one year since the attack on the office of charlie hebdo. with aorea has come up way to punish north korea for the nuclear weapons test. they will resume propaganda broadcasts that led the north threaten war.to i am vonnie quinn, now to julie

hyman on the markets. the markets are the story of the morning. take a look at the declines that we are seeing. when you see declines in futures, it doesn't tell you what the percentage of the clients will be when the open. for that, we rely on a cap galatian called their value. we are looking at a 2.6 decline 2.1% in the dow, in other words, steep declines as is reflected in the futures. , apple is movers lower. i want to mention that we had another call on apple this morning. ubs is cutting the potential for iphone sales by 5%. that would be below iphone sales in 2015. 230 million units. they are also cutting the share per year. that is following the supply chain check.

that is after i came up with commentary about the demand. it doesn't have to do with new user demand but rather a weaker refresh cycle. i wanted to spend time on that because apple has been lagging recently. bank of america is continuing the incredible slide. down more than 70% last year and it has continued. talking about all of this, it originated in china, once again. we're seeing action in the yuan that is affecting stocks. the circuit breaker activated on monday and again today, i can zoom in on this chart and show you what we're talking about. trading in china was halted immediately within the first half an hour of trading after it fell by 7%, that activated the circuit breaker. it does come back to the chinese currency where we saw and have been seeing, larger than

expected devaluations here. you can see this as the dollar versus the chinese currency over the year. you can see that this really is the climb that we want to pay attention to. david: thank you very much. julie hyman just explained what happened. there was a 29 minutes of chaos before chinese stocks were halted. us, curran his life for what brought us to this point? enda: good morning david. been another day of confusion and conflicting signals. particular, today, we saw a hint that regulators are working against each other. byig trigger was the move the essential bank to cut the reference rate by .5% for the yuan. that triggered big selling in the stock market and it triggered the circuit breaker. it put a positive trading for the second time in one week.

we are looking for a recovery now. bank cut theentral reference rate, they also intervened to put a floor under it. we saw how much money they are putting in on the debate. real -- it was a poor week for confidence in china. what is happening in the markets is at the lowest of all time. but more importantly, there isn't a hint as to when they the turn a corner or when circuit breaker fourfold fall tillage he or the stock market will end. jonathan: that is what i want to discuss. that tells me that this could be a whole lot worse. the consequences of what is happening in china with the currency, and the spread between the onshore and the offshore, it shows depreciation. things are likely to get a whole lot worse? gradually? enda: if chinese policymakers

by the reserve freight, i don't know what it will take. mentioned, reserves dropped by a record in december. at the same time, we are seeing capital leaves the country at a record pace. intervene so that is arbitrage for the onshore and the offshore, it is level. they have had to intervene to offset the lend rates. and then we get to the currency. another headline is that china deserves.illion in but they also have a lot of liability. the reserves are tied up with assets. so what china has in liquid and in cash that they can use overnight, it is one to watch overnight and going forward. david: we have some sense of how they got themselves into this,

how do they get themselves out of this. peter: it is not an easy process. first of all, currency weakness -- when people come into the country because they like the market and they want to buy the yuan and they are getting beat double-edged benefit of a rising equity market with a stronger is that, the unwind everybody wants to leave the show. people filter and at different times. the movie is over so now you get the negative affect. .ower equity effect it will take longer. .he key level is 2800 last night we close around 3100 because of the limits. cap below that tonight and that is when the excitement begins. jonathan: do you think you should trade off the back of a 300? should that be a guide to the u.s. open? peter: absolutely not.

but the price makes news. [laughter] talking about significantly lower futures prices. part of that is that we close off liquidity in china. so now, when people need liquidity or they want to rebalance the portfolio and they are making the assumption that there are certain types of trades, they will go to the most liquid market. this reminds me of the august in 1998, where every evening, there were problems in russia and the futures markets continue to unwind and we would open lower and start to rally. this is goinge of to tell me that if we open lower and we don't rally as we have done so far this year, it will be more concerning. david: to that point, people are still wanting to sell over there. how do you open the market? you open the market and perhaps -- by the way, it is only open for 30 minutes, that

gives the people in my office a chance to get some sleep. and ironic benefit. [laughter] peter: the same thing could happen all over again. we are going to cross over to renting greeley right now. greeley right now. how close was this call? if the fed is meeting today, would it be closer? brendan: it has changed every day this week. on monday, the fed said that the u.s. has weathered volatility abroad before, we will be fine again, i am not worried. those minutes in there was a lift of lingering concerns. what those you concerns were. thee concerns include possibility of future dollar

depreciation. it could increase the stress on emerging markets. and that china could find it difficult to navigate the cyclical changes underway in the economy. what does that sound like to you? it sounds like it is a description of this morning. extreme, they are seers of the future. what do these notes tell us about what the fed is likely to do this year in terms of the number of hikes? brendan: they talked a lot about inflation. it came up a lot that they were worried about the credibility of their inflation target of 2%. credibility is a red flashing light. when you hear a banker say that, they are worried that the bank it's -- they are worried about the markets. the you look at all of market measures and inflation, the predictive power is not

anywhere near what the fed has inflation getting too. so what we saw in the notes, we saw a discussion of running the economy hot. keeping the unemployment rate unnaturally low, getting the inflation back up. they also talked about the possibility of expectations being anchored lower than what people are thinking. that makes their job even more difficult. so what i read out of these minutes is a very dovish fed. we saw that in the world indicators. we backed off shortly after the minutes were released. a 2003 low for the wti this morning. i see does inflationary headwinds. can they get four hikes in? peter: i don't believe so. the best in outlying trade is to assume they will be back below

2% before the end of the year. the annual commodity report on the, gives tremendous on where prices are, not just crude oil but everything. in the fed minutes yesterday, people talked about gradual increase. my crystal ball gets foggy in a couple of days. i don't know how you can forecast that far out. the deflationary pressures are very strong. and it makes sense. we are more efficient in terms of how we produce things, more efficient in how we use them. so more supply, less demand, lower prices in world aggregate growth. if the demand curve doesn't shift up, prices will be under pressure. inflationary prices will be low. david: the deflationary

pressures, they are described i would has happened in china. do they make the fed less relevant? on one hand, they aren't likely to hike more. they don't have a lot of stimulus left to give by cutting. yes, that leads us to the favorite story of whether washington, d.c. and the senate and the house and the president could actually do something on the fiscal side. no. we look at it in terms of gdp. you tell me which one of the components are actually going to grow about expectations this year in order to meet the consensus gdp forecast -- i don't see it. our forecast is closer to 0%. jonathan: cool under pressure. david: wow. that is a big call. greeley at peter borish,

thank you for being with us today. next, an executive shakeup at morgan stanley. we will look at what that means on "bloomberg ." ♪

david: welcome back to "bloomberg ." we are having a big morning in the markets. downve been consistently more than 2% across the board. oil is not having a good day either. you will see this is wti and it is down significantly. under $33, extraordinary.

let's get started with the first word. vonnie: walgreens has plans to renovate stores -- same-store sales fell in the first quarter. however, they did beat estimates because of the prescription drug business. blackberry wants to get into the self driving car business. it has joined the race to create the car. the qnx software showed off those designs and how it competes with other vehicles to avoid accidents. they have already partnered with other cars to build in system entertainment systems. had a heart attack just a month after taking the job, he is 57-year-old and he will be back to work in april. david: morgan stanley shares are down somewhat this morning following news that greg fleming is leaving.

erik schatzker, welcome. moore bothmichael here with us. you have been looking at this closely. what do you have to report? michael: this seems to prove that -- will stick around. he was seen on the outside of a viable candidate. but if gorman is going to stick around, they may focus on the next generation. he has spent the last year moving people around. he has given people responsibilities. this replaces the president. the authority been running the investment banking and trading division. david: when is this effective? immediately? michael: pretty much. erik: there is a transition but

you can expect it won't be very long. do we know anything about his next plan? erik: fleming is widely admired and considered very came will among his peers on wall street. it is reasonable to assume that he is a candidate for ceo if it should come up. it is possible that the ceo position at the bank of new york mellon will be open at some point because the current ceo is under attack. his bank has been underperforming. in histwo activists grill and he is 64 years old. so it is reasonable to assume that is a possibility. but the job isn't necessarily greg fleming's to turn down. to do the search process and yes to be identified as the preferred candidate. after that, it is hard to see where he might go. there aren't any other obvious jobs on wall street.

james gorman isn't the only ceo sick and around. around.ticking right? jonathan: every month i wake up in europe, they seem to be saying still. u.s.uys in the top of the banks, they don't leave. what does that say about europe and the united states? interestingan question. the european ranking system has been in more turmoil but i would add that there has been a change in leadership in almost every -- outside of the french banks -- there has been a significant change in leadership in almost every financial institution in europe. i can't see how you could have another american running a british bank. i would point out that daily and winters blaze the trail for greg fleming.

they spent a few years wandering around in the wilderness and ended up as ceos of major financial institutions and the same thing happened to jamie dimon. he wandered around before he wound up running jpmorgan. not so bad. building on what jonathan said, what does it say about the boards at the u.s. banks? especially when the performance is not great. here is morgan stanley versus the smb financial index. here is the index in the blue. you can see that the stock has underperformed. i think it shows they have been more patient. it is not quite as bad as they have been in europe. some desires been for stability after the financial crisis because there

has been a lot of turnover. erik: there are two ways to look at it. a leader needs to lead and he needs to know that he has the confidence of the board. [laughter] michael moore and erik schatzker, you will stay with us. going on in what is global markets, that is next. wti, $32 a barrel. good morning. ♪

jonathan: welcome back to "bloomberg ." s&p 500 futures are negative. dow futures are -397 points. erik schatzker joins us on the set. china, china, china. erik: i am calling this the great chinese mystery. the reason is this, it doesn't seem as though anybody is able

to figure out what to do with china. chart, which looks a bit confusing, but i will explain in a moment, the white vertical line is 8:23 last night, that is when the headline moved that china was setting the u.n. down .5% points. when chinese markets opened, that is the red line. there was a massive selloff and now we know the markets are closed. but what happened with the other assets? we are showing treasuries and -- ant takes minutes eternity in financial markets -- for these two begin to react. treasuries figure it out, oil figures it out but the stock jockeys don't know what to do and it takes hours before we actually see stocks, futures, , we see itin japan

selloff in a meaningful way. jonathan: a whole load of retail money in china, they are going to chase it down. they are going to wait and see how it opens and then they are going to chase it. but here we are, hours open and finally it makes sense. at age: 30 last night, it didn't make sense to anybody. sure, one thing is for the markets are reacting now. up next, why and the day might be a bright spot in this market. crude is way down. ♪

david: welcome back to "bloomberg ."

it is a big morning for markets around the world. crude oil is down 12%. ,et's show you the action now you have been following brent but this is extraordinary. i don't want to cherry pick the date up but on a weekly .asis, -11.96% it has been ugly, ugly. let's go to julie hyman for breaking news. julie: we are looking at initial jobless claims. of 10,000decrease week over week and it is in line with what analysts have been estimating. of200 77,000 in the week end january. 0,277 in the week end of

january. who knows, maybe this will turn things around. futures are holding steady with the declines. if you take a look at other assets, it is telling. we have seen this come down in treasury yields. we really see this slow that you might expect. people are selling stocks and commodities, people are getting into treasuries and gold. let's look at the u.s. dollar, it hasn't been so strong, particularly after the federal reserve minutes yesterday which gave a dovish tone. it gave the idea that said might not raise rates as aggressively as people expected. below see oil move lower, $33 now, nearly at 4%. help me out. david: where do you go to find

the right spots in the market? our next guest says investors utilize mergers. on today's morning meeting we are happy to welcome blackrock's mark mckenna. explain this theory about diversifying a portfolio. mark: obviously a lot of volatility is in the markets right now. but what people aren't talking about as much is that we are -- th and m&a boom amidst an m&a boom. that allows us to set up strategies. now,han: in the here and the interesting point is that m&a hasn't happened in energy. stronge waiting for the

enough balance sheet. we are not there yet. when we get there, when the pay is big enough and we can see consolidation? back when you take a step and think about where ceos can create value, there are a few places. they can increase their margin, so cutting costs. they can increase their trading multiple or they can grow through organic or inorganic growth. two of the three of those, margin improvements has been taken out because we are at peak margins. multiples, they are still near all-time highs. whatic growth, as we see is going on in china and the u.s., so what is the one thing they can do to facilitate growth? it is m&a. so particularly in the energy sector, as pricing starts to stabilize, we expect to see consolidation. if i want to pursue your

strategy at i want to focus on energy, and you expect there will be consolidation, how do i know which companies to invest in? how do i know which companies they are? mark: we are focused right now on the announced mergers. inif you think in investing announced mergers right now, it is a function of the strongest supply we have ever seen. are $350 billion of mergers in the market. one point $2have trillion, quarter times the typical amount. if you think about what that $1.2 -- right now we have trillion, that is four times the typical amount. if you think about what that means, there is nothing close to that type of return. market, itn today's

doesn't look so good anymore. with $70ok at shell crude at the end of the year, it looks ok. but it looks terrible now. are the shareholders at risk of falling apart? mark: when we focus on our strategy, we focus on these transactions that are fundamental in nature. that is one of the differentials you have to think about when you select to you invest with in these opportunities. these will persist. david: is there money to be made between the time the merger is announced at the time it is consummated? or is this a longer-term investment? mark: this is investing from the time it is announced to the time it is closed. wrap things up, i'm a client and i call you up this morning. i see china is down and global

markets are down and i see wti, that seems to be the trading cue, what do you tell them? mark: i tell them to think about investing in a wide strategy. , they think about mergers are like buying a house. they tend to be governed by a contract rather than the wind of the market. so we think investing in uncorrelated investments like mergers is the place to be involved in the markets right now. david: mark mckenna, thank you so much. from blackrock. vonnie: there was violence today in paris. a year after terrorists killed a dozen people in the attack on the charlie hebdo magazine. police shot and killed a man armed with a knife as he tried to enter a police station. at first there was concerned that he was wearing explosives

but now, it is said that they were fake. early reports say at least 60 police recruits were killed in libya and dozens more may be trapped in the records -- in the wreckage. the bombing was probably carried out by the islamic state. $4 billion, half of that will be covered by insurance, that is for the tornadoes in texas. bloomberg news, 24 hours a day powered by our 2400 journalists. i am vonnie quinn. jonathan: thank you. another volatile day in 2016. if you were 30 minutes late to work, you missed the whole session. with make sense of this lisa abramowicz. great to have you here.

higher?re going to go that is what they keep telling me. but guess what happens? lisa: how do you feel? is every sense of trust gone? buystly, why would anyone u.s. stocks right now? valuation's are pretty high, the fed is pulling back. you had stanley fischer come out , it is, in the ballpark reasonable to him. the easy money times are over. bank reducing their estimates for global growth, china is struggling, they're trying to figure out how to hit of the market and failing. the circuit breakers are failing. people are rushing for the exits to get ahead of the 7% cut off in drops at which point he stocks are halted. no reason for

somebody to come in and buy stocks at this point. the interesting thing that i'm noticing in markets right now is that you are seeing a divergence between the route in stocks and credit markets. in even riskier credits, you are seeing stability. you are seeing some buying. which is interesting considering the carnage we see in stocks. this could simply be a case of equity markets catching up to the riskier debt market that did sell off dramatically at the end of last year. so if you look at this, you can see the stability and increase line, versus stocks, it has come down a bit. is interesting. perhaps they are just catching up with one another. back to want to come your question. i assume it wasn't rhetorical. why would you buy?

it looks like that it will be cheaper than it was yesterday. the u.s. economy is still growing, at a modest pace but it is growing. where else do you put your money? look at these markets, where else to go? lisa: as much as george soros has made a pile of well for himself, when he said it was like 2008, there does feel like there is a floor. there is a lot of money on the sidelines. town is no other game in other than developing markets and at lower valuations, it looks more attractive. but the question is, why not wait a little bit. a timing issue. i'm not good at market timing. to the u.s. economy as a consumer, and it is not as good as we would like it but it

seems to be pretty solid and good. this is not like a 2008 where you had a core of a problem that was rotten. julie: there is another suggestion for where people could go -- cash. it is not the most glamorous, the global strategist at jefferies point out that in didn't don 2015, cash much for you but it didn't do worse than stocks or bonds. billthat is short-term turned so he said, if you are going to put your cash somewhere, it will be liquid if you put it in cash, so that is an alternative. i would argue that a lot of the bigger investors have already done that. so you actually have a lot of cash on the sidelines waiting for these valuations to fall. yes, there isnt,

money to be put in stocks and there could be a floor that the correction will make it that much more effective. jonathan: lisa abramowicz and julie hyman, thank you very much. coming up next, we will talk about crude. the worst week in over 12 months. and where is -- finding opportunities? wti has a $32 handle. a 2003 low. good morning. ♪

vonnie: welcome back to "bloomberg ."

here is the latest business flash. is forecasting a different forecast. is that profits may rise by $1.5 billion. the owners of sacks of avenue is buying the guild group. 200 $50ay will pay million in cash for the company. ilt was valuedguilt at over $1 billion. meyer is trying to cut costs at yahoo!. -- called on yahoo! to overhaul. they say significant changes are needed. that is the bloomberg business flash. jonathan: more volatility in global markets.

brent crude is $33 a barrel. a man taking a look at this all morning every morning is robert thummel. he is overseeing energy assets and he joins us now from kansas city. my question to you is this. be brent curve didn't look pretty. are there any projects there? my question to you, is there any opportunity in the midstream given that production isn't rolling over? robert: a good question. midstream is a good place to be investing. it is less reliant on higher oil prices were higher natural gas prices to deliver value. so a couple of places that we have been investing for a long time spectra energy as well as enterprise project partners. both of these provide natural gas pipelines and they offer a

percent current yields right now. they just skewed their irritable and -- their interval. -- those offer a great opportunity. jonathan: i want to talk to you about how crowded that is right now. what we have seen is a destruction in the fundamental of the future supply. how long can you keep that position on midstream? at what point does the pain start? robert: for the oil market to turn around, the u.s. oil production has to fall. and what we have seen, we saw it in april and it fell in august but it has been flat ever since then. we think that when oil production falls, that will help signal a bottoming in crude oil. and the grid count is at the lowest for this century.

2016, oilat in producers are going to cut their capital for the second consecutive year. happened -- the last time that happened was in the 1980's. how is that impacting the midstream? it depends on the location of the pipelines. you have to be strategic about where you invest and where the pipelines are of the companies that you are investing in. that seems very persuasive but let me ask you two questions. hasnderstanding of fracking made it much more likely that you could bring oil back online faster than before. which has to have a downward treasure on the price, even if production stops. and also, we are not the only game in town. we now have i ran about to come on with substantial production, saudi arabia is continuing to pump, russia is pumping.

why do they keep downward pressure on the prices? robert: the breakeven cost is substantially higher than $33 a barrel. so we had to think longer-term. we look at it as long-term investors. that is what we focus on. long-term, the demand for crude about one million barrels a year for an extended time. where does it come from? it is going to come from opec but also the u.s.. will be a milestone year in the energy sector and here is why. for the first time ever, we are going to export crude oil from the u.s., outside of north america. export gas to liquids like methane and propane, that is a remarkable compliment of the u.s. and it is going to be low-cost energy that they will be providing to the

rest of the world. , anill be important important contributor to delivering low-cost energy to the rest of the world. a lot of the reason for that is because of what you just said. the technology has improved substantially. david: we have julie hyman. big question is, what is the demand going to be for the rest of the world? what i have here is crude production versus inventory. inventory is the white line. it has built and built and built. reduction has come down substantially. but there is still a huge gap, trajectory was, that we have been watching. something i want to point out is the level of inventory this year versus the past years. we are essentially more than 100 million barrels above where we took that we are at this time of year. lot of supply,a even if you are exporting. a lot of supply to work through,

especially if we are in a slowing environment. jonathan: what is your response? robert: that is the reason why prices have fallen. inventories are higher and that in ordermention that for crude oil to bottom and then start to improve, and it will improve, we need to see u.s. production fault. it will happen in 2016, we believe. somewhere believe -- somewhere between 500,000-1,000,000 barrels this year. david: there you have it. that is robert thummel, always good to have you on. morehead as we count down to the open in new york. overow futures are down 2%. as in the futures are down over 2%. ♪

jonathan: good morning, welcome back to "bloomberg ." s&p futures if -40 points. if you switch up the board, i can tell you why. concerns about china once again. they cut the reference rate on the u.n. where the most since august. the dollar-yen is lower. crude is that $32 a barrel. let's make sense of it with tracy alloway. if you wake up this morning and you want to know one thing, which market would you go to? alloway: it has to be china. respects, forget about 9:30. at 8:45, that is what we want to look at. you see another move towards , that is a big deal.

every day that goes by this week, it this is becoming more true. 2016 is looking a lot different. tracy: an excellent point. last month, the fed hiked rates and everyone felt good about the market reaction. everything that people expected three weeks ago isn't panning out this week. it is almost as if we have the taper tantrum materializing after the fed rate rise except it is a selloff of bonds, it is a selloff in risk assets. jonathan: what are you looking for for the rest of the trading day? oh, boy. there is a question. i'm going to be interested to stockst happens to the like facebook, apple, the ones that have been a driving force behind the s&p 500. we see apple down quite a lot in

pre-trading today. that is interesting because that is the company that has tons of cash. it is supposed to be a company that investors are familiar with. that weird to see a new see a knee-jerk reaction. david: there was a question today about the iphone sales which is their lifeblood. tracy alloway, thank you for joining us. the most important hour of trading is coming up. we are down on futures. s&p is down over 2%. come back with us on "bloomberg ." ♪

david: welcome back to bloomberg go. we are just over 30 minutes from the opening bell. welcome to bloomberg go. i'm david westin. jonathan: and i'm jonathan

ferro. let's bring in erik schatzker. wti $30 a barrel. we will be talking about that and much more with james zenni. he is the ceo of the capital z capital partners. welcome. >> thank you. erik: let's begin with vonnie quinn. authorities in libya think isis is to blame for a bomb that killed at least 60 people in a coastal town east of tripoli. a suicide bomber drove a truck into a crowd. at least 200 people were injured. exactly one year after the charlie hebdo attacks, a knife wielding attacker in an explosive vest is killed.

by islamicere killed extremists at the offices of the satirical newspaper last year. el niño is giving california headaches. heavy rains flooded roads and caused mudslides. will be thel niño strongest on record. local news 24 hours a day, powered by 2400 journalists. we see this big market selloff. futures all indicating a sharply lower open. alloway whatacy she's going to be watching. have an asian you led selloff, you see it decelerating as the day goes on. we will see if that happens this time around. take a look at the shanghai composite for this week.

we saw $900 billion wiped off of the market cap of china. closewe saw the market just about 29 minutes into the session as the circuit breakers were triggered after a 7% drop. here in the u.s., it would take a 20% drop in the major averages to get a circuit breaker triggered that would close the market for the rest of the session. let's take a look at currencies. the currency not listed here which has been a focal point has been the chinese yuan, which we sought the valued. the euro is trading higher versus the dollar and the pound is falling versus the dollar. there is nothing ambiguous about the oil trade. crude prices pushing lower. seeing the lowest price since 2004, below $33 a barrel for

wti. gold is rallying for the fifth straight session. it is at its highest since november 5. people are flooding to the exits. david: thanks very much. now to tell us what this all means, chief market strategist at wunderlich securities, art hogan from boston. look at what the chinese did overnight and the concerns that raises about the pace of growth or not in the chinese economy. you look at the selloff underweight in futures. is this market buy or sell? >> it is certainly volatile and certainly a rough first week, but you need to step back and say, how much of all of this is new?

the biggest piece that is new is probably the continued devaluation of the chinese currency and new pieces of geopolitical concerns. china's economy has been slowing for several years. it is not as though the pace of the slowdown has increased. the manufacturing piece of the economy has slowed a bit. action that is being taken. the stimulus action being taken is the devaluation of the currency, very much like we saw in august. that caused a concern in the markets very much like what we are seeing now. it's impossible to decouple the commodity story. and trying like this to find a new level of support is going to happen. the biggest concern of oil is the fear of disruption of demand. it used to be fear of disruption of supply.

now we have north korea testing bombs. and if they are successful in the region, they could really disrupt demand. i think that's why we are seeing the biggest part of the pressure on energy right now. jonathan: we knew there were market forces pushing down the yuan. i don't like the word devaluation. it makes it sound like it's artificial and it's not. it's nothing new. but the federal reserve and ecb and bank of england are holding our hand. the pboc does not do that. does it need to become more transparent? >> they are new at this. it's not as though this is something they have a long history of orchestrating. transparency isn't exactly something the pboc is known for. that -- yes, this is not devaluation any more than

devaluation is happening in currencies across the globe, but it's also necessary for china. currencies they are competing with in the region are falling off. this is something we should expect, but it's not signaled very well and that's the major problem. the ecb and fomc will let us know well in advance and we usually don't get caught by surprise. what does that tell us? china is doing what they should have been doing a long time ago. the problem is their currency becomes more of a transmission mechanism of what their economy is doing. in the past when they would take their currency to the dollar regardless of how much their economy was increasing or decreasing, we didn't feel it that much. zenni, i want to bring you into this. art pointed out that this was echoes of what happened in august. did that change your overall investment strategy? will this? >> august saw the markets back

up. and it continued through the year. does it change our view? absolutely. ofre's the expectation prices and returns. entry always assessing points or acquisition prices vis-a-vis the market. so absolutely these are data points that we look at all the time and it's something you have to consider every day frankly. today is an interesting day. david: james zenni is in new york. art hogan is in boston. joining us now is ruchir sharma. he is with us on the phone exclusively from mumbai. you are going to have a first-hand opportunity to see

how this is playing out in emerging markets where you are right now. if you take with the chinese did again overnight and at that to all of the cumulative moves that have taken place at the end of the pboc and other regulatory agencies and then look at how financial markets are behaving, does it make sense? >> yes, i think so. i think the fundamental problem in china is that they are relying on too much debt to meet their targets. i think that is an unresolved issue. debtlast year, china's grew twice as fast as the economy. that's the imbalanced economy that china has had since the large stimulus of 2008 that they launched. there are two big issues.

change is going far too rapidly to meet a very ambitious growth target. and secondly the currency is very overvalued. the currency has been de facto pegged to the u.s. dollar and has depreciated significantly over the last decade. it's sort of a catch-22 situation. in september when they devalue the currency, they did not gain anything because all of the other emerging market currencies fell even more. so the chinese currency was close to an all-time high. a good point.make you begin your comment with chinese debt. art hogan, i want to put the question to you. the contagion from the slowdown in china, i see it in the commodity market. the big concern is that it comes by the credit market at some point. npl's in china are picking up. how close are we to a credit event? >> if we are going to have a

credit event, it's not decades. it's a matter of years. but it's if there's any major change in policy and china. what is happening is a generational change in how they do things. my guess is they are much closer to not calling into the abyss on the credit side of things. that is part of the conversation for sure. i'm not as concerned at their level of debt. it is certainly not japan. erik: we are still trying to absorb what happened today. i want to know what happens next. should we look forward to further devaluation of the yuan? forward toook further intervention in the securities markets as they try to open this and put various restrictions on trading? >> i think the big question is how much are they in control? we are assuming they are very much in control of their actions and our engineering this.

there was the biggest draw down in foreign exchange reserves in china in history. is capitalthe issue is leaving the country at a record pace. and i just don't know how much they are in control in such a situation. when you have capital outflows of more than $120 billion a month, that is a very significant outflow. assume they we can are in control of the situation. maybe they cannot stem the outflow so they have no choice. erik: why are we seeing more of a reaction in developed markets, particularly in developed market equities than in emerging markets from this latest move from china? down 2%.stocks are stocks down 1.75%.

it is mirrored in latin america. >> we should look at the dollar prices at the dollar prices of these things. the currencies are moving a lot. the dollar prices have moved a lot. we are seeing big moves in dollar terms as well. emerging markets have already been in a bear phase for nearly five years. a lot of the bad news in the emerging world has been discounted. what's happening now is the developed world is waking up to the reality that in a globalized world, some of this is going to spill over to their shores. and that's really the big story. even the u.s. is concerned that the global slowdown may now finally be coming to america.

and that's the realization that is finally dawning in the developed world. whereas the emerging world has already been a bear phase for five years now. david: art hogan, as you refine your investment strategy, do you debase that largely -- base that largely on what's going to happen to china? is it worse if they systematically devalued the yuan and have further problems with their security market? even trying to have control in their equity markets is the wrong move to make. that's money that is not well spent. back away fromto in terms of stimulus is actually trying to control her market whatsoever. -- there market whatsoever. market whatsoever. into these step altra volatile markets that they have, which are very small portions, the total market cap

is a very small percentage of their gdp. they should just walk away from that and get price discovery get prices to where they should be. toconcern is they continue try to prop up their stock market while doing the right thing with their currency. as we go forward there will be some realization that you waste money when you try to control stock prices. i think price discovery will be the necessary step the chinese government needs to make and that can't happen soon enough. we do this too much on a daily basis -- there market is not their economy. erik: i want to go back to james zenni. you are a private equity guy. it's easy to get swept up by the fear you can see in these price movements. what if you take a step back, is this healthy? trees don't grow to the sky. things can't go up forever.

do you look at this and say, ok. >> it sounds a little self-serving, but today's news doesn't really surprise is, frankly. we are very data-driven. it's in our dna. we've been looking at the events that have unfolded the last couple of years and scratching our heads. along with that, the credit markets have been very forgiving. that's a cocktail that could be potentially dangerous. so we have seen these cycles before. and we have been very patient and very disciplined. look at the number of deals we have done versus the deals we haven't done, it's the factor -- it's a factor of hundreds. the news i think -- this isn't really news. much,an: thank you very

art hogan and ruchir sharma. we are less than 15 minutes away from the opening in the u.s.. futures negative. crude, fresh lows throughout the morning. the lowest in over a decade. good morning. ♪

julie: you're watching bloomberg go. we got a look at apple once again. in 2015.down year there are a lot of concerns about iphone demand.

analysts at ubs are cutting their estimate for iphone sales for this year by 5%. that would be below last year's sales. earnings per share estimate for the company. they were down earlier today. one of the reasons that analysts have been citing his supplier channel checks. here is apple over the last year. the trajectory versus the five-year average. it was a very unusual year for apple versus its recent history. [no audio] ♪

watching bloomberg go. morgan stanley ceo james gorman has decided to stay for at least another five years. possibly all the way to 65. and he promoted one of his deputies to president. the other, greg fleming, is leaving the firm. what does this mean for the future of morgan stanley and its competition with goldman sachs? this man knows. bloomberg contributor editor bill cohan. and of course, jim zenni of z capital partners is with us. what's your take? >> i think the timing of these things is always a surprise. maybe this shouldn't be happening right now. is obviously younger than the other guys and had a bright future at morgan stanley. i think it's clear that he had bit sort of chafing at the

a little bit. and james gorman wasn't going anywhere. the combination of those things plus the fact that greg is kind of a hot commodity in the market makes the timing interesting. , you are a long-time observer and client of wall street. what makes more sense? to try to find a way to keep a talented executive like jim fleming inside the firm even if you have to make concessions as a ceo to do it, or to show that you are the man in charge, that you have the support of the board, and you can send a clear message to your clients and shareholders? >> that's a good question. to what extent is this reevaluation or questioning their business today? when i left the street, when dinosaurs roamed the earth, employment on the street has declined for the last 20 years. cs went through it just last

year. it's an evolution of, what do we want to be? the business is different. there were more risk takers in 2008 without question. are less risk takers than they are today. was at thetanley forefront of changing its business model by making brokerage and asset management a bigger part of the business, deemphasizing investment banking and trading. that was their whole shtick coming out of the crisis, which almost sunk the firm, by the way. it was a whole philosophical change the james gorman was overseeing. fleming tog of greg run that business was a clear

sign that that's where morgan stanley was heading. now with the institutional investor guy moving up, they are obviously rethinking some of that. to see greg go is really surprising. >> i think you are going to see this continue. both at morgan stanley and all the banks. however, if you want to play that game, if you want to play the institutional equities and fixed income game, you can't really have the firm run by two wealth management guys. james gorman is a consultant by training who came out of wealth management at merrill lynch. greg fleming was a banker who became a wealth management guy at morgan stanley. you have to have someone who represents the traders and the salespeople. >> is that would morgan stanley really wants to be when he grows up? you're risk right now is

often in the capital markets, and you need someone in a senior position who knows how to manage that risk. it's not just what you can gain in the upside. it's hedging on the downside to make sure you don't get in trouble. >> your question was really the best one. why can't we all get along? why is there room enough in this tent for all of this talent? you go find a company where that happens. thanks very much, bill cohan. jim zenni, you are staying with us. next, we are minutes away from the opening bell and futures are down. crude is off to its worst start ever in the year. we are following it all here on bloomberg go. ♪

david: welcome back everybody. you're watching bloomberg go. we are in the midst of yet another selloff. points ass down 331

we speak. s&p 500 futures down 38.25. the markets opened seconds from now. if we finish down more than 300 points, we will have seen more than 800 points wiped off in the space of four days. there's the bell ringing on the floor of the new york stock exchange and at the nasdaq. some people have cause for celebration. most don't. let's see where the markets did open. in dollar terms, the declines we have seen just far -- thus far amount to $2 trillion wiped off the global market cap so far. all these concerns about global growth are coming to a head. it is just seconds we have seen u.s. markets trading thus far. we have already seen sharp declines in line with what we

saw indicated by the futures this morning. if you take a look at the major averages, the nasdaq down more than 2%. i want to look at my bloomberg terminal to get a global perspective. i is the world market monitor. in the middle you've got europe all down at least 2%. on the bottom you have asia. you would be hard-pressed to see any kind of green today. especially if you look at the year to date numbers. the only place that you see +'s for europe is in trading volumes. the selling happening this year thus far, we have seen trading volumes go up. the past month

or so, but a 100 day average. you are seeing a lot of selling on relatively high volume which seems to indicate a lot of market participation. prices.ok at oil we have seen a high correlation between the direction of oil and the direction of u.s. stocks. now,ve crude oil above $33 but still potentially at its lowest close today since 2004. you have the supply issue. you have global growth worries affecting the demand side of the equation. all of that equals a lower oil price. we talked about apple a few moments ago. 2.5% on concerns about iphone demand. that is creating a big ripple effect. apple has a very large supply chain and those suppliers are down as well. jonathan: julie hyman, thank you very much. the epicenter of this market is china. what happened with the market overnight?

jim zenni is still with us. let's take a step back from all of this. this reminds me of a movie i watched in august. we had an aggressive rally off the back of us. i knew the currency would depreciate. i knew there would be market forces around the yuan. have you learned anything new in the last week about china? wei think the big concern are seeing in markets is there isn't a clear sense of direction from policy makers about how they plan to support the economy in the first place and how they plan to continue with economic reforms because ultimately that's what it's about. what you have seen so far is fairly heavy-handed direct intervention by the government in the equity markets and the the of clear directions in currency markets. where there are so many concerns about the economy and reforms,

we are seeing a self reinforcing cycle of panic that is not being countered by the government. all it does is the heavy-handed intervention which are stoking panic. you have studied china for many years. is this because they don't have a plan or because they have a plan they can't tell us about? >> there are political considerations that enter into this. inna does have a lot of room terms of monetary and fiscal policy and we have heard some statements from government officials that they will use monetary and fiscal policy. and the balance is going to be very important. at this point there will be much more needed than macroeconomic measures. they will need institutional reforms.

unless that happens i don't think there is going to be much confidence that investors will have and that's really what we are seeing in addition to the middling or bad economic data coming out. i want to jump in with a quick market update for everybody who can't see the prices. the dow is down 314 points. almost 36 down points. in both cases it's good for a decline of almost 2%. we see yields dropping to 96 basis points. almost 23.34. to eswar prasad, my question is what options do chinese policymakers have right now? what is among their range of options? >> a really need a very broad range of measures at this stage. the time for half measures is passed.

the question is what can they do to fix confidence that has been shattered? it's not that the economic data is that bad. although we did get some bad manufacturing data for the previous month which may have triggered some concerns. when it comes to the value of the stock market, there is a sense that other than these interventionist measures, the government is not really doing anything to reform the economic system in any fundamental manner. at this stage i think it's going to take a fairly broad raft of measures in addition to economic support for the economy through monetary policy and more fiscal policy measures. announce broadto reforms. i think it's that lack of confidence in the direction of the economy that is really perpetrating this market turmoil right now. jonathan: stay with us. i want to cross over to julie hyman. julie: i want to point out copper. two dollarsg below

a pound for the first time since 2009. we have been watching this commodity selloff happening in oil. just a reminder that it's not just an oil. a lot of the commodity producers are trading lower today. it's not necessarily a total commodity selloff. if you have looked in recent days, energy has had this bottom spot. it's a broad-based selloff. it's not just about commodity prices as it has been in recent days. you get something similar if you look at the individual movers. those that are most heavily weighted, microsoft, wells fargo, facebook. tech selling off today. apple is certainly contributing to that with concerns over iphone demand. obviously china is a big growing market for many of these tech firms and u.s. companies

generally. jonathan: one of the accusations towards china in the circuit breaker has always been that the market is gravitating towards the circuit breaker and finishing the session down 7%. for agulator is coming lot of criticism this week and seems to have responded, china suspending the stock circuit breaker rule. that's the regulator saying on the social media site. eswar prasad, earlier we had a conversation about the pboc being new to handling all this. doesn't this point to the immaturity of the regulator? a decision one week and changing at once again? >> i'm glad they are changing it because it wasn't a great decision. certainly having a circuit breaker in and of itself is not such a bad thing, because you don't have market panics and you want some time to table is them. the chinese government has been facing is they want the stock markets to

work like real markets, but they don't want to cede control and they do not have the institutional framework necessary to support the funding of a market. they don't have good corporate governance, transparency, auditing and accounting standards. as the government has not been willing to tolerate that much volatility. in that environment, putting in circuit breakers ends of pushing the market right to that margin whenever there is any concern. so i think taking that off right now makes sense. but this points to the need for much broader reforms that are necessary if china's markets are going to work well. this is true of the currency markets as well. the pboc needs to do a much better job of communicating it's really intentions and allowing the currency to flow more freely. bring jim zenni into the conversation. quickly, if there hadn't been a circuit breaker, where with the composite have ended

today? >> it's hard to tell. perhaps if what they had done was not try to stop trading but in fact try to announce some other measures with policies in order to boost the economy, that i think would have had a very different effect altogether. we must also remember that it's the manufacturing sector that has been slowing down in china and is largely reflected in terms of most of the stocks that are being traded. those sort of measures would do than circuit breakers that involve more direct intervention. you are a private equity investor. let's use the casino analogy. on theou put your chips table in a casino or even the house doesn't know what the rules are? >> that's a loaded question, right? we are the casino business. i hope you know the rules.

>> i think what's going on is a credibility issue. they're trying to stabilize the markets versus long-term credibility. there's going to be a rub their. re. in our view, absolutely. we have thought things were very much overvalued over the last couple of years. and the markets are very frothy. so this is good for us long-term and we have a lot of dry powder. it's all about discipline. we are really driven by entry point -- acquisition entry point. we like to try to buy things opportunistically and relatively cheaply. when the stock market falls and you turn around and tell people they can't sell, when you suspend ipos and then

you have some kind of propaganda effort by the media to make it almost unpatriotic to sell stocks, used or that kind of fear abroad. -- you stir that kind of fear abroad. you suspend stocks after you drop 5% for 15 minutes, do you know what i'm going to do in the market reopens? i want out. i want out straight away and then we go towards the 7% mark. it's retail that is chasing the circuit breaker and that's why it hasn't been as effective as it would have been elsewhere in the developed market. it must be awfully challenging for an investor to find price discovery, which is what everybody needs. a little bit of transparency into valuation when you have not just circuit breakers enforced but bans on selling by major shareholders and corporate insiders. bans on ipos. how long is it going to take before we have a real sense of

what equities in mainland china are actually worth? >> there's going to be a lot of work that needs to be done on the institutional framework, as i mentioned. investorswhen chinese invest in chinese corporations , theen foreign investors reality is there isn't much good information out there about these chinese corporations. so essentially that creates even ings.market str i think the key issue here is what lessons the chinese government takes out of this weather in fact they are going to be markets as being too or what isvolatile, necessary to support the better functioning of markets. on some level china is this grand experiment in motion between allowing market forces to work and the government still trying to maintain stability and control, which they've always wanted to do.

so far that experiment is working out well at all. david: back to the circuit breaker for a second. it has been a criticism of the existing circuit breaker. taking the circuit breaker off is not a policy. the question is, what comes instead of that? we are not getting a sense from china yet of a comprehensive approach that you talked about earlier. >> that's what we will have to wait and see. now that they have taken the circuit breakers off at least there is a sense that you won't have people trying to test how far the regulators are willing to let the market go. and markets have fallen quite significantly since their peak in june 2015. so certainly how much more is going to be taken off the markets at the moment is basically a panic driven way down on the stock markets. so unless we see broader measures to support the manufacturing sector and work towards reforms, this is going to be trained that is very

difficult to stop. david: i understand there has been movement in our markets since the announcement. julie: i want to talk about policy here in the u.s. what is the federal reserve going to do now? looks like therp day after we saw the increase in rates announced by the fed. the probability of another increase at the meeting, 30 9.5%, and then at the april meeting, 46.3%. 39.5%, and then at the april meeting, 46.3%. so now it's 36.8%. the probability of cut at a january meeting has gone up. seeing expectations change. this is interest rate markets. david: thanks very much.

eswar prasad of cornell, thank you for joining us. jim xina, you are staying. na, you are staying with us. ♪

vonnie: welcome back to bloomberg go. the owner of saks fifth avenue is buying a startup. combined to diversify online shopping options. netflix is getting closer to being the world's global online

television service. 130 countries in yesterday. and the new star wars movie is north america's all-time box office champion. dhe force awakens passe avatar. a quick market update for everybody. we are still in the midst of a selloff. but the dow and the s&p 500 as well as the nasdaq all recovering. you can see the s&p 500 down about 26 points. 465 stocks are down and some 35 are up in the s&p 500. macy's is up 5%. constellation brands is up 5%. urban outfitters is up 4%. jonathan: there are winners on the index this morning? erik: there are not very many.

yahoo! not getting any love from investors yet again. energy, we have been talking about wti slipping overnight to $32. let's return to our conversation with jim zenni, the ceo of z capital partners. you are subject to valuations the way any investor is. you are looking for opportunity. but if there is trouble in the credit market, and you have talked about credit being frothy, it's not necessarily a good thing for you because the cost of leverage goes up. >> it does. -- we are case, we very opportunistic and we don't

have to lever our balance sheets as much as traditional private equity at the end of the day. private equity is very competitive. it's always an auction process. in our case, we have to access the capital markets as well. but in many cases it's on a lower leverage. erik: how many terms of leverage do you typically use in a deal? totalween four and five at the end of the day. in the broadly syndicated markets today, you will typically see in some cases six and seven times levered. david: the fed is trying to keep it down. , and it has come up many times in the past even recently that they are going to start criticizing loans much more as anything over six times.

nevertheless, those loans necessarily aren't sitting on bank's balance sheet. some extent there is bit of a disconnect. private equity firms will leverage as much as they can. it's a double-edged. in our case, it probably impacts us less than the broad private equity world. david: so it's hard to say that anything we are seeing today is good. but is this good for you? because prices will come down and if you've got access to credit -- >> it's great for us, actually. it's opportunistic that i'm here today to talk about it. we sort of anticipated this kind of event playing out. we didn't know exactly where and when. but we are really well positioned both in our credit business and even on a private equity. david: do certain kinds of assets that private equity

buyers typically target -- do certain ones become more attractive in this kind environment versus others? >> i don't think you can broad stroke it like that. it's pretty much across the board. unless you are attracted to metals and mining, oil and gas, then yes. broadly speaking, probably not. it impacts all valuations. jonathan: let's go to the market moves today. crude, how are you exposed to that? >> all of our businesses have positive trend lines. one of the contributors to that without question is the price of oil. our casinos higher traffic. without question. month.ber of visits per it has caught up. it's a big tax relief for your average customer. jim zenni, thank you

for being here. 23 minutes into the session. the s&p 500 down. wti just coming off a low this morning. ♪

david: we are just about out of time here on bloomberg go. the dow is down 210 points. s&p 500 down 26. treasury yields are going down. jim zenni of z capital partners, thank you for being with us. that does it for bloomberg go. much more on the markets. stay tuned to bloomberg television. we will have the jobs report that 8:30 tomorrow. -- at 8:30 tomorrow. ♪

betty: it is 10:00 in new york. welcome to bloomberg markets. ♪

betty: good morning. i'm betty liu. here's what we're watching at this hour. breaking news moments ago. china has second thoughts and suspends the circuit breaking rules that have not kept investors from panic selling chinese stocks. we will go live to beijing for the impact. that is causing more selling around the world. it has been a bad start to the year and it is getting worse. u.s. stocks are plunging at the open after european and asian equities take another dive. and if you think stocks are doing badly, look at oil prices. crude falling to a 12 year low now. $32 a barrel is not far off at all. we are about half an hour into the trading session. has her hands full with a lot of action in the markets right now. julie: not as