u.s. stocks closing after a volatile tgif. the question is what did you miss? the biggest names in davos away in on volatility. >> our guest says u.s. stocks are still too expensive. fornd oil prices lower longer, why one analyst says this is a miss. the markets, what an incredible week. kind of a turnaround on tuesday and then it took off on wednesday. we are on the strongest two day advance. >> the kind of put it into perspective, the dow sought tremendous swings from the low it hit on wednesday.

600 42 points to the close. >> in terms of leadership, america express -- american express declining. if you look at it on a point aces, it took about 53 points off of the dow. dow would have gained over 250 points today. >> we did see a lot of volatility in the treasury see no where we tend to a lot of movement. hit about 1.93 and ended the week relatively flat over 2%. a lot of gyrations happening in the market as we saw the reduction and a possible fed rate increase. we saw that at go through the treasury market. perhaps the fed can't move

ahead with its rate increases, ,mong the biggest decliners global stocks if you measured by the all country world index closed out its first week of gains in 2015. financials and utilities, and other interest rate sensitive group. was looking at one stock today that didn't participate in this rally. the decline was so significant. it was down 12%. the oil actually rallied. -- it has a lot of oil. 41%, so this particular stock getting beaten up so much harder than the rest. >> 2/5 of its market value.

>> that is pretty rough. taking aning group is huge hit. we are looking at that two most important things in the market. i want to take a deep dive inside. it shows u.s. data is still coming in weaker than expected. economists and market watchers are factoring and pricing in economic data. goes down as the yellow line has been doing, that means data is missing economist estimates. the price has been rising pretty steadily through 2014 and 2015. a falling price means rising yield. the last the story

year was will the fed raise rates? i'm going to zoom in so you can take a look. you see that change a little bit here. really seeing things change with money moving into treasuries. it is moving in line in tandem with the economic index. >> have we seen financial conditions actually tighten in the last few weeks? the answer is yes. you see this yellow line here. that is bloomberg financial conditions index here. rightll see that increase here, this green line in the eurozone. ironically the guy seeing financial loosening is asia. that white line is declining. that is unmistakable in the first couple of days.

conditionse are regarding the benchmark it interest rate. you can see all these charts and more on twitter. >> joining us is michael regan as well as oliver reddick. >> was this capitulation? of people would think that wednesday it was capitulation, about a 3.7% drop. a lot of technicals at play, a very oversold market. some wishful thinking. holding out hope for some policy there, a bank of japan meeting.

banks deliver on all of that. mica says it wouldn't surprise me. in august.e did >> we haven't participated in the rally. >> if you come outside the bloomberg terminal, you can see week returns in terms of industry groups. half of 1%. utilities off by 6/10 of 1%. what do you make of that? >> financial volatility in the red. it calls into question more than just the interest rate story. people coming into 2016, very

bullish. thinking higher rate. we have a widening credit curve and company's are going to be able to look -- are going to be of a to make more on the margins. financialsr group of with online brokerages, each rates. trades. with this market volatility the mom and pop and the retail investors, they don't want to have a part in that. if they start to pull money out , not taking a fee out of the top based on volume, based on trading. also more systemic things as they are exposed to the margin, the long end and short end of

the curve. if that doesn't happen they are going to have to deal with a flat curve. >> and also volatility from the universal bank perspective. this volatility is better for business. -- is bad for business. restraint for the banks. >> how do you know where to pull the trigger pull the deal -- pull the trigger on a deal. is nasdaqide of that is up year to date. intercontinentalexchange is up. it is disturbing to not see financials participate in a strong week like this.

nothing disastrous, but they are the same thing. that in that interest income isn't going to be the same. also volatility keeping people on the fence as far as capital hardens go. inside the bloomberg terminal, you can see the gap is 118 basis points. inhave been here before early january and mid-2012 going back to 2008. not unfamiliar ground. not a lot of room here, not a lot of margin to be able to charge, to be able to make money over that alone. interesting about the net interest angle, there are a lot

of things going on with the banks and trading businesses. what is interesting is that is a clear -- that is clearly related to the fed. people reacting saying we don't think the fed is going to go as much. is this a very healthy market if we are getting panicky after an interest rate hike? was the fed supposed to go? >> thank you very much. a columnist from -- shouldn'tup, why you buy into this rally. that is next.

alix: let's get to mark crumpton. is already falling in virginia and the storm is heading north. forecasters are promising it will be one for the record books. it may drop more than two feet of snow on washington. at least 50 million people could be effective -- could be .ffected thousands of flights had been canceled. american tourists from ohio is under arrest in north korea. state-run television says the university of virginia student is accused of plotting against the government. the arrest of another american was reported earlier this month.

the ad paints the texas senator as an inconsistent politician who once supported allowing millions of people living in the country illegally to remain. crews responded by describing trumps position as amnesty because it would allow many people to return illegally. there is more fallout from the fatal shooting of a black teenager from a white this -- white police officer that was captured on a video. two officers were replaced on administrative leave because the reports contradict the video. chicago has been on edge since the video was released late last year. 24 hours per day from the bloomberg first word desk. back to you. >> thank you so much. major market volatility takes center stage. this is what they had to say.

>> i think people are confusing the supply demand picture and if they are seeing there is a slowdown in the global economy. i think that is wrong. there has been a disconnect between what the financial markets tell you and what the real economy shows you. >> a super cycle started in the u.s. and it is coming into emerging markets. >> what is true for the u.s. is not true for the emerging markets. >> other crises when they come together right now, we think in thisecond half of the year is so severe you start to see a rebalancing of the market. >> i think back to 2008 for a

couple of reasons. the financial imbalances are small. a view for a number of years. >> retail money, you will expect and these short file corrections, you will expect selling. and we saw. but i believe this is a capitulation without a bear market. next guest says there is no reason to own u.s. stocks right now. where in the world should you invest? weore you we get to where could be putting our money, do you agree with any of them? talking about confusing supply oil marketin the

with the equivalent of a slowdown in the global economy for instance. >> the economic side of the table is tough. one of the reasons is if you look at global valuations, almost all of the cheap countries in the world, the geopolitical news is going to be terrible. the stock market is always going to be down 50 through 90%. the economy is bad, there is high unemployment. on the flipside, countries like the u.s., the economy is doing great. we have had a great economy for several years. rates, all of these positives. that is the disconnect. sellinglly want to be what is expensive and buying the cheap stuff. that is one of the reasons it is so hard to do. you have to get the green with the geopolitical news flow.

>> you look at the ratio to gauge if stocks are expensive. right now it is around 24. at what level doesn't make it a buy for you? >> valuations over time going back to the late 19th century. when you have a benign inflation environment, it can be closer to 21. all that means is you are going to have a lower futures expected to return. i said the u.s. is expensive, but it doesn't matter until the u.s. goes into a down trend in the stock market. into 2016.d coming you go from an expensive market that is going up all of a sudden to an expensive market going down. ask public etf's that are tactical and the tactical etf's

or either the majority of cash and bonds or 100% against the stock market. >> if we are going down and you want to be hedged, what does that mean in terms of capitulation? how far along the selling are we? >> you never know. valuations have been low as five. that is a long way down. when you have an expensive market you can easily have a 20% bear market. in 2009 we hit a ratio of 13. if you look at the rest of the world, there are more than one dozen countries trading already. russia, brazil, and a lot of places in europe that we think you buy a basket of those countries. we think double-digit returns in

the u.s.. >> you have also developed a strategy for cloning hedge fund strategy. we all love looking to filings. how did you work on the strategy and how has it actually returned? >> this is our fifth book. this by handdoing all the way back to 2000. a lot of the great stock tickers , focusing on their picks, you can actually clone their portfolios fairly easily. one of the beauties of this is you don't have to pay the 2% management fee that you have to pay a lot of these headphones. if you buy top 10 stock picks,

rebound in the corner, take five minutes, you rebound going back to 2000 and there is a whole host of these managers. managers and historically have done a great job. >> what did you learn about the time horizon that investors need to commit for these clone strategies? challenges in investing in any strategies you have to invest the entire market cycle. the reason we talk about buffett, the reason it year, this wase putting the top 2% in the entire country. he has underperformed his stock picks. how many people could have sat through that? how many people would have fired that manager? it is important to stick to a strategy. >> thank you so much.

that is a bold call. single-digit pes. the u.s. east coast will be hit with a massive winter storm that will cause the cancellation of thousands of flights. it will be a tough weekend for shake shack. about 70% of locations are in states hit by the blizzard.

>> this sector has been so be.

-- been so be enough. it is not surprising when you look at this downdraft. right now the index is hovering at the lowest since 2003. if you look at the destruction basically since 2009, let's take a look at the returns on an annual basis. threes great losing years. a 12 -- three straight losing years t. a lift up in 2012, i can barely call it that. pretty incredible. >> really brutal. again, this is what a commodity to and bust cycle looks like. you get a lot supply, prices go down. we have gone lower than we did in the 2008 bear market.

>> i'm continuing on the commodity theme and looking at chesapeake energy. levered companies going to wind up paying off their debt? this is chesapeake, the biggest producer of natural gas. the total debt is in orange. its debt load is four times the company market valuation. the company suspended payments on asus bended that on a suspended stock dividend. payments on a suspended stock dividend. look at the fall we have seen in this bond, trading $.52 on the dollar. this is not even its worst one.

debt inbuy back this order to give themselves breathing room so they can survive the downturn? energy companies had to become credit traders. what role do the banks play in this? >> that is incredible, especially the market cap versus the debt level, and you question -- without taking drastic measures. morgan stanley has cut james .orman spain by almost 7% he has $4.64 million in stock for the year. that includes cash and deferred compensation. equity is down $21 million.

>> much more coming up, we are seeing major flows into the u.s..

andt's snowing in virginia washington, d.c., and the storm makes its way northward. much ofspected across the eastern united states. flights canceled today and tomorrow, could be one of the 10 worst to hit the eastern seaboard. a united nations envoy says north korean leadership should face charges or human rights

violations, starvation, torture, arbitrary arrests, and executions in north korea. the envoy says little has changed since the report was released. the u.s. military has found remains where a student islet from taiwan went down. -- pilot and an structure and an instructor word engaged in air-to-air combat training. according to a criminal pilot piloted to flights after landing in california. he was asked to submit to a drug and alcohol test. he is free on $25,000 bond. news 24 hours a day from the bloomberg first word de sk, i am mark crumpton.

looked like we were heading for a fourth week of declines, but then we get the low-key technical levels and have made a comeback. the dow industrials adding 211 points. the nasdaq climbing 2.7%. it was an unbelievable swing. we take a look at the low on wednesday. we have rallied by 643 points. 10 out of the last 13 sessions have seen a down move by triple digits, but that is not necessary -- necessarily reflected in the vix. we were still in the 20's. huge swings in the dow and the vix not participating. scarlet: american express: the

most in seven years. it took 52 points off the dow. the dow jones industrial average would have gained 262 points without american express. emily: $47 trillion in investment returning home and to the u.s. as emerging market growth flat lines. what is the market impact of this massive unwinding? the strategy director at deutsche bank, this $47 trillion, where is it coming from? >> every country on earth has assets invested abroad, china, russia, europe, and that number can be split into two different elements, foreign reserve managed by central banks or private assets. if you include direct investment, $50 trillion. we have great difficulty finding

out what the exact number is, but it is a very large amount of money. some of that money is in advanced economies. a large amount is invested in emerging markets. scarlet: a lot of that is sovereign wealth funds, oil-producing countries need to be pulling back, cashing out in order to raise money to pay for upper -- other obligations. >> they are pretty done smart people. are then wealth funds risktakers, and below the risk takers are reserves. there is a huge buffer into you have to hit the sovereign wealth fund. if you're sitting in the middle east and think markets will get difficult for me take less and less risk.

your investments are shorter and shorter in duration. the amount of selling you need to do is less than people expect because there is a huge buffer built-in. scarlet: that's a false narrative? >> it's a good story, but a unlessou cannot check you have access to the flow. the information is dated. it is a cool story, but it is a cool story until you check them. up paringhey wind back their investments, what are they buying? >> if it would be a sovereign wealth fund, mostly invested in u.s. equities, 60% equities, 40% fixed income. they will sell high yields and equities and probably have sold considerably, if they use options, and as they do so it becomes cash available for the reserve manager in case of

interventions. a lot of it has already probably happen. there might have been extra selling from large accounts, and they can come from norway the same way they can come from the middle east. if it's happening, it's happening on a large scale. alix: that would mean that we would see more pressure on treasuries, flooding the market, and you would see yields rise. we have not seen that. is there someone else buying up the slack? world is fearful, there's only one market you can buy, u.s. treasury markets, so everybody piles into it. managers,g by reserve sovereign wealth funds have little to no impact, 30 basis points, but hard to measure that with great precision. that is roughly the impact of selling from them. alix: that's why we seen the

curve flattening? afraiduse you and me are haveme of the guys marginal impact on the u.s. market. scarlet: 20 is that mean for the u.s. dollar and the japanese yen? >> the dollar benefits by default rates. we expect much because we are afraid of what's happening in the world and what the ecb and boj can do. , therms of positioning curve stays well anchored and fixed income flows. alix: does the fed like this? do we want to see a flatter yield curve or a stronger dollar? want a probably don't

stronger dollar as much as we are seeing now. they're probably happy to have the backing end of the curve so easy. it's not a policy mistake. it's an accident that's happy from their point of view, conditions are easing in the u.s., and because emerging markets are pegged to u.s. treasury markets, it is beneficial for everybody. scarlet: you had the ecb and the boj hinting at stimulus. how many of those will follow up with action, or is this rhetoric? >> the bank of canada will wait .o-three months they have a good incentive to do so. the ecb has a good incentive also, and probably will hit the button and the negative for the euro. on the boj side, uncertain. we have a lot of money

coming into the dollar in fixed income for safety. is this a cyclical change or structural change and how humans invest in the market? >> it is a structural change. we have people who don't take a they have been a fixed part of the market. u.s. andada and the europe have been investing in foreign equities unhedged basis. what's going to happen is will invest more it home and less abroad, less equities and more on the hedge basis, depending on the country, and a wired to -- a wider variety of fixed income properties. more diversification then. thank you very much. alix: there's a belief in the

market that oil prices will be longer, and we are going to dispel the smith, coming up. ♪ -- dispel the smith, coming up. ♪

scarlet: i am scarlet fu. it's time for the bloomberg business flash. lloydn sachs awarded blankfein $23 million in salary and bonuses for 2015, according to a person familiar with the matter. he earned 24 million dollars the year before. $21 million, a decline of 7% --

short on amazon and netflix. clamping down on oil companies that burn natural gas on public land. it says it will reduce harmful emissions as a bid to curb climate change. energy companies frequently burn off gas supplies of natural gas because it does not earn as much money as oil. that is your bloomberg business flash. alix: "what'd you miss?" low oil prices for a long time might be a myth. pricesed to see higher for a sustained time to shut in production. my guess says that may not happen. noty guest says that may happen. theory in this

lower for longer environment is that we've seen a lot of cost for exploration production companies coming down. expenses have fallen off a cliff. what do you say to that? >> technically, that is correct. the operating expenses have fallen as a result of cost-cutting at the enp companies and major downward moves in the costs they get from their vendors, the drilling and services companies, so it is actually correct that those costs are moving down, but have they moved down enough to allow companies to make a reasonable return at $30 a barrel oil or further down at $40. the answer is no. that is industrywide. that might few plays work at the margins, but by and

large nothing works at today's price, evenck with these cuts. note thathad a great these costs will eventually go up because the services are going to have to get that are, so they will have to charge more for them. technology will get more expensive. no one is talking about that. right.are absolutely the reason we think that you don't get to keep the current savings is that eventually the business will have to reflate its cost structure as it uses more of its inputs, more people, equipment, more technology, to your point. that will cost more money. now you will get some of it back through better technological advancements and productivity gains come but your not going to get the same cost structure and two and three years down the road when you're going

back into production growth mode. great point. a the other theory is that this is just an endless supply of u.s. but you point, out that shale has decline rates as high as 40%, meaning you get a lot of oil quickly and then it peters out. a stark comparison to other countries that have 10% or 3%, why is that important? >> it is important because it hydrocarbonll production is on the treadmill. you have to replace the kleins and grow on top, but how fast is the treadmill moving? 40% is pretty fast, and as you get a good -- right now, we produce $4 million -- 4 million barrels a day in shale, and down 2020, 20 21, an order for the lower for longer thesis to work, we have to produce 8 million or 9 million barrels. , it will bene rates

40, but still high. that is a tremendous amount of oil you have to find every year to stay flat just to replace the declines, and not cost money, right? to reallywe want highlight is that the inventory of cork shale is not infinite -- core shale is not infinite. there is not a limitless supply of shale oil. alix: this that you does gave, by 2024, u.s. shale will need to grow by nearly 4 million barrels a day to meet demand. that is huge. that is an enormous task. tidy three points -- a permianfinding basin and to bok and basins. why did these points mean

we will not see lower for longer. we will have to move higher in the market. >> let me define lower for longer. is a lot of you out there in this case that lower for longer means $40 or $45, we ,ould say that is not possible unless technology just explodes higher to another level, which we don't see happening, but the reality is that if i have to find 3 million barrels a day or 4 million barrels a day every year, and demand growth globally is tracking at 1.2% -- 1.3 million. you cannot get the cost structure to work where you can simultaneously have $40 or $45 return have producers and meet all the demand at the same time. we cannot get there in the way we look at the world. alix: that means higher oil

prices in your thesis. you look anywhere from 50-70 dollars a barrel for that. thank you for joining us. strategist at the mccoury group, the marking a theory in the market. coming up, to tycoons, to concerns over china. goldman sachs president gary: and larry think on their worries for the country.

scarlet: i am scarlet fu. "what'd you miss?" what will china do next? what the government does next is a big question at belvaux's this week. davos this week.

you listen to what china has told you for the last 10 years, they are doing exactly what they told you they were going to do. they started out on a plan to build out the infrastructure, spending enormous amounts of money and cital on building infrastructure. when they were building out the infrastructure, cities, where roads, airports, it was very tangible and you could see it in the economy. you saw it in the imports. it was growing the economy from a low base at a high percentage. once they built the infrastructure, they told you they were going to migrate hundreds of millions of people into the cities and take the chinese and make them consumers. they are taking the chinese people and making them consumers. >> think about productivity. they've taken the people to

the cities and made them consumers. , they startthat spending money, but it is called consumer discretionary spending. consumer discretionary spending does not show up as predictable as government investment. >> there's one problem in the meantime, which is that their at aserves are eroding rate of half $1 trillion each month. what are they going to do? >> they have choices. they are clearly evolving there are economy to a consumer-driven economy. >> in the next six months, they will have to do something, right? >> they may have to do something. have taken multi-decade views on what they're doing, building up their surplus account over many years. ands undeniably going down,

you can see it in the numbers. they may take some action in the next few months to deal with that. do i believe they will devalue the currency? i do believe they will devalue the currency. scarlet: if he is right, it won't be pretty, if you ask like rocks larry fink. sk blackrock's xi jinping. --larry fink. >> i really respect the chinese leadership. they have this 10-year plan that is pretty audacious. from ano transfer export driven manufacturing economy to a domestic service economy. it took most countries 50 years and a few recessions, so we can toect perfection, but transform their economy to a

domestic economy with domestic ,onsumption, a strong currency lower energy prices, their companies are going to benefit dramatically by lower commodity devalue,o if they which is some narrative, in my mind the repercussions are far me theycause it tells are going back to this export-driven economy and walking away -- >> how do they stop the erosion in foreign exchange reserves? >> the united states has had current account deficits for a long time. let's not get too carried away about what the implications are. but you said it, they may have to do some type of capital controls if you become so unsettled. what i have learned is that all that selling of their currency

was a domestic problem. , oras people leaving companies making sure they have the forward dollar rate. it was not speculators from overseas. it was a china-oriented thing. inx: that was larry fink davos. we will be right back. ♪

scarlet: i am scarlet fu. "what'd you miss?" don't miss this, mcdonald's reporting early on earnings. the focus will be on the u.s. domestic comparable sales. alix: i'm watching international margins, halliburton, you will want to see what happens as cape

x pares down. the ease kos bracing for a major snowstorm this weekend. -- the east coast bracing for a

>> with all due respect to jeb bush, if your going to show up late, you will need that note from your mother. ♪ joe: tonight, ted cruz glances flag, and jeb bush pulls a trick out of his bag, but first, that old conservative rag. biweeklyere is this, a national review is mad as heck and will not take it anymore.