funds. the other thing, when you look at what is happening in the sector, banks have [bell] anchor: ed we have. closing in the red. some negative territory. , almost sixfalling points, whereas the s&p lost about 21, 22 points. the nasdaq had fallen as much as 565 points. really, when you look at where we are, the s&p 500 closing at the august lows, going back, ?hat, 7, 8 months there are segments of the market that have already fallen into a market, including the russell 2000, which tracks small caps.

alix: it is interesting to see what may happen tomorrow, into your point, it has wiped out about $2.2 trillion this year, and we are only in week three. there has been on damage, a lot done in aal damage short amount of time. overall, it is more of a sell rally. shot at more than 65% in 2016 alone. there is some nervousness, if not outright panic. it is steadily a ratchet higher for the vix. this is just for the last three months. let's take a look at the .ne-year period

we never came back down to the levels we got to in the first quarter or second quarter of 2015, even when we recovered instability. there is aor not recession on the horizon, that is the question, but, clearly, there is an earnings recession, and the equity valuations are pretty full. obviously, there is china area there is oil. only about 1/10 of the companies have reported. already, growth is negative for the s&p 500. belowfor most sectors are expectation. when you see the sort of cracks in the credit market, it makes you wonder if those legs of the

stool are going to be pushed away, too. we have had a couple of minutes for things to settle. five stocks ended up closing higher. 25 war down. -- 25 were down. mike: and their forecast, really disappointing people. scarlet: absolutely, ibm down. alix: x i'm not far behind, and chevron. exxon not far behind, and chevron. mike: looking at these swings from the high to the low, it

makes more sense to keep things close to your chest. day,ng the high during the it has kind of been a fake out, and because of that, -- you guys were pointing to the vix, which could indicate some kind of capitulation. there are some fundamental changes here. you look at earnings, it is not just energy. you look at the buyback and the m&a, that is starting to whether -- wither. to raise questions on whether or not the company will be able to affect their bottom line. breaking it down by credit scale, the worst rated companies are losing year to date almost twice as much as investment grade.

they have lost almost twice as much as what has been lost on companies that have better rates. thiss also excluding energy. scarlet: so much more quality. mike thank you so much, and oliver. talk about the two most important things we saw, and for that, i went to take a deep dive. this is brent. ever since 2009, week in the huge run-up. right around here is where brent broke below $40 per barrel. fact, cumberland advisors points out that this correlation is about 91%, and typically, over the last 20 years, barclays says that correlation between

stocks and crude is just 25%. this is especially as there is oil, andside to cumberland advisors brought this up. has the market overreacted? so much is already baked in. yes, you can overshoot and overshoot for a long time. i want to looke, at how stocks are finally catching up to the emerging markets. this is tracking those markets, and it is down about 18%. we measured it out on the , andnal back from its high the goal line is the emerging that hasndex, and followed since its high in april 2015, clearly in a their market market, and, of

course, in the midst of all of this, a shuffle. alix: where is the money going? you are taking the money out, so where is it going? an associate at the oxford university china center is joining us now from london. george, great to see you on this day. george: great to be here. there is a lot of worry about global recession, that the aobal market will reflect recession or a recession that is underway get what do you think? mostly, this is what we kind of have to do. for what it is worth, i think we are conflating quite heavily, actually. , what you have been talking about in financial markets, the repricing,

particularly the repricing with the huge energy and commodity bubble we have built up over the are 10 years, and we conflating that, i think, with a global recession. one and what we see going with u.s. retail sales, european data -- and given what we are seeing with u.s. retail sales, european data, we do not want to say we cannot get a couple of quarters of terrible growth, but actually, i think we are going to skirt around it. it is not going to look very pretty. in the last quarter of 2015, i think things probably were pretty bad, but, yes, i think, curiously -- you talk about the correlation between oil and equities. strangely, you know, the collapse of oil prices that wee a huge tonic

should celebrate. it should boost consumer incomes and affect capital for companies and for capital spending to put up, but i still think, you know, that these things will come through in the end. that brings up a good point. paul glickman -- paul krugman said it has gone nonlinear. but a really big decline set in leveraging that could be if mythic and drag on we world economy, and that have entered a different phase, where oil has troubled some much that it is on no one's radar screen, and we have seen sovereign wealth funds go into mass selling mode.

george: yes, he said that well. we have to try to get a handle on it, which is quite difficult. what is the impact of this collapse in prices on energy and trading prices -- companies? and what is the liquidity situation like? banks thatout those do fund the kind of assets for these companies? what do the banks look like in this regard? i alluded to, the nobel prize winner put it beautifully, as you would expect, but this double unwind, which i alluded to before, it is a huge shock. the decline in prices comes through, but it is not looking very pretty. it is very difficult to say how long it will go on for. all of this, george,

has brought up more chatter. the banks have set us more money. there has been a lot of questions about whether it is enough with oil around $30 per barrel, and earlier this month, we estimate a person what it was wee, if it was like 2008 -- asked another person what it was like, if it was like 2008. bill: no, nowhere near. near.nowhere george, do you agree? the most recent accident that the economy went through, and it was a pretty awful one with long term liquidity effects, but the leverage just was not there. if you look at china as a particular case in point, you

have got a huge leverage problem there, which i think is going to monstere chinese and headache, maybe not in the next three or four certainly in the next years. complain that our banks are 20 highly leveraged -- are too highly leveraged, but it is nowhere near what it was in 2008. and, very difficult trading p&l conditions. scarlet: we will dig in and focus on what george magnus says, next. ♪

the bloombergis markets special report. i am scarlet fu. and i am alix steel and we had a late-day rally. scarlet: the nasdaq is now only off by 5.25 points. lower.rgy sank they are now in their worst monthly decline since 2008. magnus joins us from london. george, this really started

overseas. it started with chinese stocks, and part of that is the instability in the currency as well as the stock market. a famous hedge fund manager looking for a 50% devaluation in the yuan. over with it. what do you say? for him to stay. it is complicated, isn't it? be chinese are quite aware -- the chinese are quite aware of the risks not to the rest of the world but to china itself and to the whole rebalancing of the economy, which they are trying to do, although with great difficulty, i would say. who areess to those looking for a big drop in the currency, i do not think you can't will it out. think thator one,

china has not shed its addiction , and because of that, i think the growth in debt is going to continue and that it will weigh very, very heavily on the economy and on the banking ortem in the next six months probably within the next couple of years, and when it does, i think there is a serious danger fall quite a can lot. but they will try to hold the drop and even if the yuan against the u.s. dollar, they will try to manage it in terms of the basket. : martin from "the financial times" says the fundamental indicators would be a fault in savings and investment and a rise -- would be a fall in

and investment and a rise in consumption. stope: yes, we have to doing that, and we have to wake up to the fact that we have basically been peddled a necessarily by the chinese authorities but by the commentary in our own countries. this narrative that china is going through a difficult transition but that it will come out of it in the next three or four years and that the service economy is that much bigger and that consumption is that much higher, that is not really a narrative that is based on fact, and, actually, the progress, to the extent that there is some, is much slower than people recognize, and the reforms, actually necessary, fundamental to realizing this objective of transforming the chinese growth model -- most of

the important reforms have stalled, so i think this is the next thing that we recently have to pour a bucket of cold water -- so i think this is the next thing that we have to do, to pour a bucket of cold water over ourselves. scarlet: given that, what is looking investors? that we have not made this transition yet, or that once we do transition that it will not be anything like what we expect ?t to be george: if you remember, and i ,m sure everyone does remember the shenanigans in the chinese stock market in august, and here we are in the first weeks of january, and here we are all over again. things theyveral are reacting to, and one is the

lack of credibility assigned to the conflicting messages coming out from the people's bank of china and others, and lots of agencies -- the left hand and right hand not knowing what they are doing. is taking jinping control -- president xi jinping is taking control. of people were prepared to give them the benefit of the doubt, but that is now much more in investor psychology that china is not growing as much. a quick reality check from george magnus. thank you so much for staying up to join us. whichwe will dig into stocks led the turnaround. we will head to san francisco, next. ♪

emily: i am emily chang, and you are watching a special report on the big selloff. amazon and others making major comebacks at the end of the session, recovering $57 billion in lost market cap. bob, joining me in the studio in san francisco. so what happened today? some of thelook at things that were driving the market, concerns around china, mapper economic issues, a lot of those things, yes, they have an macroeconomic issues, a lot of those things,

yes, they have an impact on tech . you take the things impacting the tech market, it does not make sense that these stocks are getting hammered this much based on these other concerns, so i ofnk there was a recognition that and then a reversal. interesting is not only did they recover, but they saw the most volume. why is that? i think there is a general paranoia in the market. we have been seeing that in different ways, and there has been a concern for a while that tech is overinflated. , i think that is still overinflated, but you look at other things that are very solid, like amazon, microsoft, and all of the things that google is doing, and you look at netflix and their growth on international basis -- look,

there is still a lot of opportunity for these companies to continue to grow, even despite the concerns about china. despite the volatility, tech is building a called a safe haven. do you think it is a safe haven? to know what is a safe haven, but there are the kinds of things going into the toure, and who is going provide those services that the company needs, and a lot of webe big tech companies, hosting and delivery of content and the mobilization of everything -- all of those things have to be delivered through some infrastructure, and then there is the software tech companies that we are steering -- we are seeing being brought back to life. earnings being reported next week. could we see something there? the big onese, and

everyone is talking about is apple, and i think apple may end up having a reasonable quarter, but the question is what is their expectation for the rest of the quarters. the iphone can float them for the next couple of years. that is being reflected in the stock. yesterday, they talked about the peak of the device market, and i have talked about this for about a year, as well. this changes everything. when you look at a world when stabilizing, you have to think of other ways to generate income, and that is the situation of apple. they have got apple pay. they have got other things that can start to move forward, and they are growing as a percentage

of the revenue. the problem is they are still a small percentage of the revenue. i think they will take some of that money and do something with it. emily: beyond that sales number for apple, what else are you looking for? any trends you are expecting? ob: i do not know what they're going to announce. it will be about expected iphone sales. they are not expecting new product introductions. emily: and what about china? be: i think china can still an issue. apple is very much a luxury brand, very much a brand that people want to rise up to, but that isthe iphone 6, lower cost, so that can help them, as well. thank you for joining us with our special coverage today. coming up, a live report from

davos. i am emily chang. ♪

scarlet: this is a bloomberg special report. alix: let's get to mark crumpton with first word ms.. mark: thank you. senate hasthe u.s. blocked a bill to restrict the obama administration's plan to resell syrian refugees. 60 were needed to advance the measure, which had already been passed by the house. the search for 12 marines in the waters north of hawaii is suspended. searched for five days after two helicopters collided near oahu. a memorial service is planned for friday. karen weaver says she will not call for governor rick snyder's

resignation, after the governor apologized to residents after the water supply became contaminated with too much lead in a cost-cutting measure. it was so hot in 2015 that it set a record for setting records. more than a quarter of a degree fahrenheit warmer than the last global heat record set in 2014. a quarter of a degree may not sound like much to you and me, but on a planetary scale, it is a hugely. global news 24 hours a day, powered by our 2400 journalists in 150 news bureaus around the world. i'm mark crumpton, now back to our special report on today's market activity. scarlet: let's get a quick recap on how u.s. markets closed. we did fall with the s&p 500 reaching a 21 month low. as you were saying earlier, in

august we surpassed that 21 month low. this is a renewed selloff across stoxx worldwide, because we got a lot of skepticism over china's transition. what is next in europe, in canada, the developed world -- where is inflation? all kinds of existential questions at this point. one thing we should notice that there was a late day rally that briefly took the nasdaq into the green. it briefly arrested drop of 3.7%. their most extreme losses by more than half but they couldn't hold on, and are still down in the red. another day of declines. alix: if you want to chart it, you can take a look at asia. the nikkei was closed at its lowest level since 2014, hang seng as well. that is going to set the tone for the markets overnight. then it spread to europe.

if you take a look at the dax, germany has quite a lot of export exposure when it comes to china. the dax closed as its lowest level since 2014, and the stoxx 600 closed below the moving average. that definitely sends a bearish signal overall. it may have been a red day in the global market, but at the world economic forum, it's not all doom and gloom. joe wiedemann and simon kennedy report on what economic leaders are talking about. i'm joe weisenthal and i'm here with simon kennedy. we will talk about the only interesting things that in doubles today. simon, what is it? the big question is that donald trump is going to win the davos primary. very unpopular among ceos, worried about his rise to the top of the republican polls, and

what it means for foreign policy. ceo, talking about sanders and trump. joe: so they are not thrilled that president trump. simon: not at all. oil inother big topic is a changing attitude ceos have toward oil prices. was, it will bounce back but it will be a while. now the attitude seems to be acceptance, these are true low oil prices. what we have come to feel as ultralow may be with us for a while. the acceptance stage, perhaps. simon: absolutely. and we are seeing the markets tank again today. there is some sense that there is a tend to peer through the gloom, larry flynt to talking about it being a silver lining. most optimistic guy at ubs talking about china having a lot more policy room to boost

its economy if needed. joe: absolutely. the mood in davos is not as gloomy if you were just watching public markets. finally, lots of attention paid to the increased security. more snipers, more car checks, longer lines. mon: reflecting the geopolitical concerns we are seeing in korea in the middle east. another talking point. joe: and those are the most interesting things we heard but we will be back there tomorrow. scarlet: bloomberg's "surveillance" anchor tom keene is there, and he joins us on the phone. i'm so sorry we had to drag you away from the piano bar. give us a sense of the ground after the selloff. what are you hearing? tom: well, this is the first real evening in davos. i'm standing outside the piano bar. the hottest day i have

seen in davos in 12 years. between thesconnect market movement and ceo's, either very optimistic or saieh the markets are overplayed. i would suggest that will played in the next one or two days after the festivities today, but scarlet, all and all, i was thunderstruck by this dismissal that oil markets don't matter. i have never seen that in 12 years here. hear a lot about the transition effects from the oil to the economy, and are we in another recession, is this like 2008 with the risk to the banks and their exposure to energy loans. are you hearing any of that 2008 jeter? -- chatter? tom: i'm not, but the question

is dead on. i had a very off the record conversation with mark carney, but leading economists make very clear that low nominal interest rates distort how we behave and think, given adversity. this is maybe the first rollover we have seen in the markets for such odd, low interest rates, and that leads to distorted behavior. scarlet: distortion is the word of the year. joe and simon were talking about themes that came emerging -- trump, deflation, security. which what seems to pop up the most for you in your conversations? it: for the guests we have, has got to be deflation. i think we are going to cross a day tata check. besides theed today

russian ruble was the german two-year yield rolling over. i've been waiting for that and it hasn't happened. it's not record lows, but today it went at 1.042, an important signal. alix: negative rates in germany, said raising rates here -- have you heard any calls for the fed to put their foot on the gas or off the guests when it comes to raising rates? tom: i think it is not even read divided, but certainly this is a question. what i would suggest is that there is no real panic yet about central-banks. i think we need more market activity. as you both know, i was looking at the bloomberg terminal at headquarters here, and it was shocking to me, what a catharsis, the lack of blood on the streets, it is just not there. scarlet: bloomberg "surveillance" anchor tom keene thank you so much,.

we appreciate your joining us. alix: coming up, warning signals popping up in the rail industry for reasons you might not suspect. does it have to do with oil? we will discuss. ♪

scarlet: this is a bloomberg special report. it is time for the bloomberg business flash, to look at the biggest business stories now. is beingkreli subpoenaed by a congressional committee investigating the price of drugs. a house panel has asked for documents from several companies about how they price treatments. overnight company

raise the price on the parasitic treatment to $60 per pi ll. alix: a million walmart employees are getting wages starting next month. that move is part of a $2.7 billion workforce investment. walmart has 1.4 million u.s. workers and will also provide short-term disability at no cost. scarlet: the latest "star wars" movie is still raking in the cash but another is in the pipeline. disney says episode eight will be received in december of 2017. if you are a fan of the franchise, you still have plenty of time to get in line. and that is your bloomberg business flash. alix: i'm saving vacation days. the rail industry could be sounding alarm bells. the longest and

deepest carlo declines since 2009, which means less stuff is being moved around. what kind of warning signal is this for the broader economy? we are joined now by karen hicks exner. we had a great report out on this -- what is your take away? >> the takeaway is we haven't seen this long of a decline in deep of the decline, but the brats is wide. we have gone for what was bulk coal, grain now wanting to consumer type products. that's what really concerned us. when you see this forming in the depths, that is what gave us the signals we were looking at. alix: how long have we seen some of this weakness? i want to compare it to the signs of weakness we might have seen in the broader economy. >> you are right. this matches some of the stuff we have seen, and a leading indicator -- car loads are down, we haven't seen that long a stretch, only five times in 30

years. four of those preceded or were at the beginning of a recession. only one time in 1996 was it because of the weather. alix: we have that chart the charts what car loads have done. are we? are you making a recession call? >> that is less for us to call, but when you look at the other data out there, ism dropping below 50, you're looking at consumer sales in december being down. when you look at the breadth of the indicator, it certainly gives you that. alix: you mentioned it is not just energy and coal, you look at car loads to check the consumer and what we are buying. can you explain what that is? arentermodal car loads

standardized container boxes that come in thousands at a time, and they either get lifted up onto a real truck or on the back of a truck. those turned negative -- port volumes were down in october for the first time in a while. that's a huge sign when you start seeing a adjustable commodities but when it leads into the consumer. that was what really concerned us. alix: those containers need to be filled on the way back. what are we filling them with? but wery to balance, will start putting things like grain or scrap metal -- alix: definitely not coal. it has really fallen off a cliff. >> yeah, it is down 25%. that is a factor of low natural gas prices continuing to change. a muted winter. you have seen volume declines get exaggerated. that has been carrying on for a while.

things thatther have pushed that even further. alix: whenever i think of rails , i think of what warren buffett said. betting on america when he bought burlington motor. scarlet: an interesting point. what's also interesting is if you track gdp with overall industrial production, they don't always track each other, so it's not really one for one. do you feel that if we do get some kind of widening in the weakness of rails, that will spread? >> it's a good question. when you have an 86% correlation between the two, do you want to make that bet that this time will be one of the few points of differentiation? that is not something you are going to place your odds on. it's like the dow theory. when you have the transport

stocks come down so aggressively through the year, and the dow holding in fairly well, the signal was -- hey, either the transports are telling us the wrong thing and they will go back up, or the dow will come down. i think we are now seeing the dow moving in the direction of where the transports were, and only have seen already. alix: great stuff. such an awesome look. ken kehexner. scarlet: crude oil hitting new lows. one gallon of milk is now roughly worth two gallons of oil. we haven't seen that since 2004. we discussed the ramifications of oil being that low, next. scarlet: oil-milk ratio, i love it. ♪

scarlet: this is a bloomberg special report. alix: the oil price is not yet at 50 year lows, but it is really close. this comes from renaissance capital, who look at the oil price, comparing it to gdp. the yellow line is oil consumption as a percentage of he late-5% back in t 1970's, early 1980's. it hit a high around 7%-8% around 1980, then fell around 2% in 1990. the lowest it has ever been was in 1998, 1.1% of gdp. level,ere to get to that oil prices would need to fall the $23 per barrel, making it 1% of overall gdp. we are not there yet, but we are pretty close. that is an interesting way to put the oil slide in

perspective. bad, but not as bad as it could be. scarlet: it could always be worse. joining us now for more is tracy alloway, our executive editor. alix: when you look at the oil market, what is the biggest thing on your radar? >> oh gosh. there is a lot to choose from. the major thing is the expectations of the price of oil, which have been falling, falling, falling. earlier this year -- alix: let me bring you in so i can show you the chart. if you come inside the bloomberg terminal, this is the wti forward curve. the orange line is the current value in the green line is what traders were looking at one month ago. explain to us why this is so significant. >> everyone is ratcheting their expectations ever lower. think back to earlier or late last year, people were expecting it to and 2015 at $50 per barrel. question is it's really hard

for the market to find any sort of equilibrium, and in the wider global market for finding solid ground when the price of oil keeps going lower. alix: a lot of oil analysts wind up getting bullish at the end of the decade, because eventually we will get into a supply crunch. in 2020 we are looking at $45. >> you are not going to get any kind of supply six until we get some stability in the price of oil and people can start tweaking their business model and investors can come to grips with the idea that we will not have oil at $70 per barrel anytime soon. scarlet: so only then are we at capitulation? >> i think so. the interesting thing happening now is that we have had a lot of people asking how much lower it can go, and now the

narrative is shifting as to why were oil prices so high. if you look at the chart of long-term oil, what happened between 2006 and 2013, it looks like an anomaly. i think investors are really starting only now to break that down. alix: and for decades, oil was between $30 and $40 per barrel. these prices aren't bananas like we might think they are. the question i have is our banks fully prepared to deal with the $30? were oil is $25 or have a set aside enough money to deal with loans going bed? >> i love it you brought up one of my favorite topics. it's a good question. thanks are much more insulated from oil related losses. this is a good chart -- this is a proxy for easy money in the financial system versus u.s. oil production. what happened here is as liquidity increased in the system, investors researching for yields. they put a lot of the money into

the oil industries, specifically shale gas. we had production go outup. essentially what is happening as we are having investors completely reevaluate what actual demand looks like. setting aside the easy money, the qe years which pushed up asset prices, they have to look at demand on a fundamental lower and it looks a lot than the asset price valuations suggested. alix: this whole demand picture everyone is predicating these oil prices on, china having this insatiable appetite, that looks to be an anomaly rather than a fact of life. >> i think so. a lot of this is speculation. the story is still winding, grinding its way out. i think what happened is a lot of investors were sold the oil story based on emerging market growth, the idea that oil was always going to be that way.

they went into contango in 2008. it doesn't seem to be materializing to the point that price of oil justifies, and people have to reevaluate the structure. until we reach an equilibrium, until he reached ability, it is going to be a difficult trading environment. alix: 100%. great story. tcy alloway, executive editor. scarlet: coming up, takeaways from today's market actions. that was a wild day. we went positive briefly in the nasdaq but ended up coming down once again. the dow industrials losing 250 points. earlier it had declined 260. ♪

scarlet: this is a bloomberg business special report. alix: learn to take a look at something that happened over the last few weeks that is pretty striking. whate looking at the wirp, traders are betting the fed will do. the probability of a rate hike in march is down to 23%, scarlet, and almost 7% of a cut. that would take it back to the beginning of the year before we saw the market destruction, the odds were 50% in march. and of course, a lot of it has to do with the global terminal. i'm taking a look at the leading. it's a 13 game losing streak against the dollar. we saw the loony weaken earlier today, which would have marked its longest losing streak since 1971, when canada ended

the dollar peg. but now they are keeping her interest rate unchanged, and a lot of people are saying that the reason it didn't rally more was because it could affect it long-term. scarlet:

alix: this is a bloomberg market special report. i'm alix steel here with matt miller and scarlet fu. scarlet: a pretty wild day of trading with the dow and nasdaq cutting their losses -- for one point at the nasdaq it went positive. you can see the dow jones still off by 250 points in the s&p 500 .osing 22 points the s&p 500 closing at its lowest since april of 2014. matt: