scarlet: from bloomberg world headquarters in new york, i'm scarlet fu. erik: i'm erik schatzker. here's what we are watching. stocks open lower but they have hold back. the s&p 500 little changed on the week. as donald trump arrives to tour flood damage in louisiana, there are more changes in his campaign. losses are increasing and so are withdrawals. is it time for hedge funds to take more risk? scarlet: we are halfway through the u.s. trading day. stocks have come back off their

lows, virtually hyman, when we take a look at where the index is standing, it is the first decline in 3 days. a weekly decline for the major averages. the nasdaq has just creeped into the green. it does have a lot of movers, a couple of companies that reported earnings sort of keeping it afloat. the dow and s&p remain in the red. on the plus side, one of the movers helping the nasdaq and nasdaq 100 is ross stores, that company coming out with earnings that beat estimates. that was almost double what analysts had been anticipating. those shares are up 4%. foot locker performing better than anticipated. it's comped up 4.7%. --4.7%. helping nike and finish line rise in today's session. erik: i want to talk about the

prism stock. julie: we watch them yesterday as they fell 35%, 40% after the department of justice said it was going to phase out use of private prisons. bouncing back today. it's interesting the rationale why. we are seeing some analysts defend these companies, saying the drop yesterday was overdone given the potential impact on these companies' business. corrections corporation, it gets of its revenue from the u.s. government. but analysts say if you break it accounts u.s. marshals for 16% of revenue. department of homeland security immigration accounts for 4%. , the company did say the bureau of prisons has rescinded a contract renewal and

now they will be renegotiating. bouncing back by 19% today. getting to the dollar and oil today, because we are seeing something of a reverse for oil. it too had been bouncing between gains and losses. index bouncing back today. we've seen some declines in the british pound. that is one of the things that has been boosting the dollar, and hurting commodities to some extent. erik: let's check in on the bloomberg first word news this afternoon. courtney donohoe has more from our newsroom. >> trump campaign chairman paul manafort has stepped down. his resignation comes after the campaign announced a major shakeup on wednesday. t had come under

increasing media yesterday because of his pass consulting for the pro-russian former president of the ukraine. he accepted the resignation. hillary clinton reportedly told fbi agents that: powell advised her to use a private server. colin powell advised her to use a private server. lochte said he should have been more careful and candid about how he described what happened. lochte said in a post on social media today that he was inlogizing for his role taking the focus away from other olympic athletes. long-awiaaited late-night service starts. said six's office

trains and our will run on the central and victoria lines overnight. the expanded service is expected to boost london's economy and support about 2000 jobs. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm courtney donohoe. erik? erik: it's been an up-and-down summer for hedge funds. blackstone's fund fell about 5% in july. losses are now 20%. jones will manage more money himself and he's telling his own managers to take more risk. effort to fund has said to have gained 6% in the first week of august. fund returnsdge and the challenges facing the hedge fund industry, we welcome a managing partner.

how deep and challenging is the problem hedge funds face right now? hedge funds are having a bad year, they haven't had good performance for now, going on three years. it's a major problem. one of the big issues is there's too many of them. you got up to 15,000 hedge funds that are competing against each other, and 10% to 15% are adding value. you would be a good thing if you saw some hedge funds -- it would be a good thing if you saw some hedge funds go out of business. erik: hedge funds collectively manage $2.9 trillion, less than 10% of the $30 trillion total investable assets in the world. so, i think there's a difference between capacity and generating returns a number of

hedge funds. there's way too many hedge funds, low barrier to entry, and that's why you have so many. the fact that hedge funds manage $3 trillion is also an issue. a lot of the strategies have become much more efficient, so it's harder to generate returns. that doesn't mean you still can't generate returns. erik: i would like our viewers to see a bit of what we are talking about. we put together a chart illustrating hedge fund returns so far this year. the typical hedge fund is flat on the year. it's hard for you to see, but you know these numbers like the back of your hand. equity hedge funds having a rough time, macro hedge funds continue to have a rough time. systematic macro of those 4 strategies i pointed out doing the very best, why is it the computer seem to be having an easier time than the humans when it comes to generating returns

right now? years, ahe past few lot of fundamental managers have had difficulty because you had monetary authorities getting involved in the economy. when you do that, fundamental research doesn't work as well. a lot of these quantitative cta's have done extremely well, they are not correlated with the capital markets, and you've seen a lot of that. of strategieskind are hedge fund managers employing versus disposing of for the time being in this slow growth, low rate environment? >> what we've seen since last august is a shift from strategies with a lot of eta to strategies that have less correlation to the overall marketplace. there's been a big demand for ctas again. they focus on trends in the marketplace. ctas tend to be negatively correlated to the capital market.

increase inig demand for direct lending. there's inefficiencies in the marketplace because small companies can't get lending from traditional sources. they are turning to hedge funds. market neutral equity is seeing some interest. you've had a big rebound since february in the credit markets, and a lot of these fixed income strategies have done really well. the only problem is interest rates keep going down, credit spreads keep getting tighter. just because they've done well recently doesn't mean they will do well going forward. erik: do you see potential problems beginning to form in some of the strategies that are in favor? i'm thinking specifically of the direct lending you mentioned. it's also popular in private equity. the money is locked up for a while in hedge funds. you have real potential for a mismatch, don't you? >> you absolutely do.

if you're going to invest in some type of illiquid strategy, whether direct lending or reinsurance or structured credit, you've got to make sure the liquidity provisions match the underlying securities. there are direct lending funds that have liquidity -- i would stay away from those. there's others that have longer lockups, long notices to get your money, and those will be much more in line with the securities. invest inre going to a direct lending fund, you have to make sure the manager your investing in is doing detailed credit analysis before making these loans. they do have a lot of credit risk involved in them. scarlet: it's interesting that he is going to try to urges managers to take on more risk. are we going to see more of

that? changing into a family office doesn't necessarily solve the problem. that's what george soros did. soros has gone back to managing more of his own money. what do you think? jones will put his hands back on the wheel, or at least for longer, and he's urging his managers to take more risks. more risk can generate better returns, but it can also generate larger losses. >> what you've seen over the past few years is the volatility in the capital markets come down a lot. cta's or global macro managers, returns have been muted if they've allowed the portfolio as a holes volatility to come down. -- whole's volatility to come down.

if you are taking more , you are getting a better deal. it's like investing in a mutual fund that was 70% invested and they told managers to take more risk and now they are 100% invested. the issue you have is when volatility of the capital markets goes up, you have to make sure you don't have the big rod ends. -- broad ends. h croft is a consultant and marketer to hedge funds. scarlet: coming up, could the sentiment lead to a reunion with cbs? this is bloomberg. ♪

time for the bloomberg business flash, a look at some of the biggest stories in the news right now. starwood property trust said it plans to sell its european business called hatfield celebs -- hatfield phillips. aboutld phillips manages $15 billion of real estate loans in 15 countries. erik: a new lawsuit a course -- accuses stanley morgan of forcing -- investment funds on its employees in its 401(k) plan. a participant said the company treated its $8 billion plan as an opportunity to promote its own mutual fund business. board: viacom's approved a deal ending a

long-term dispute between dauman and sumner redstone. the chief operating officer will serve as interim ceo and could take on the role permanently. and that is your bloomberg business flash update. erik: let's talk a little more about viacom could lucas shaw is with us from los angeles. surprised if anybody hasn't been following this story closely. it's amazing. what is the reason for the settlement to be reached now? dauman'ssimple as lawyers negotiating a $72 million settlement or is there more going on than that? >> sources say there have been negotiations for some time. there were a couple of recent court decisions in massachusetts and delaware that were seen as slight wins for dauman. i don't think the redstone

family wanted this to go to trial. they had to go through a trial with sumner redstone, and of his. he's old, he can barely speak. the thought of having to go back to court did not appeal. and othere of dauman shareholders, though they could keep fighting it, they realized that a certain point they were going to lose. there was a finite time limit on how long they were going to let fight this. the saga between the ceo and owner and people who have been close for so long was really hurting the company and impeding various deals. scarlet: the question is, now that tom dooley will be the interim ceo, will he end up running the company? >> that's the million-dollar question. tom dooley has worked at viacom and some of its predecessors since early 1980's. he was at a company called viacom.

he was the first guy to go up and shake sumner redstone's and after he bought it. he's always been the number two or number three, and it's unclear whether he's really going to get a full vote to get a full vote because he's been closely allied with the law for the past 15, 20 years. philippe dauman's experience, isn't the ceos job at viacom a poisoned chalice right now? >> it's an uphill fight for anyone right now. i have to imagine that for someone with a lot of ambition, a lot of self regard, they would like to take on that challenge and take some of these brands that have melt so -- meant so much in pop culture for so long. erik: what's the bigger challenge, turning around a andodion --nickelodeon these other brands, or dealing with sherry redostonstone? >> anyone who ends up running

the company full-time will end up having sherry redstone's confidence and trust. stone has picked five board members who are on the board. this is a company that has her fingerprints all over it. whoever ends up being the full-time ceo will be someone that she believes is capable of running this company and for whom i hope there won't be any management turmoil. scarlet: what is a regime change mean for m&a opportunities? dauman was working on something .ith paramount pictures >> i think the paramount deal is off unless sheri decides she wants that. there was an asset that sumner held close to him, and movie

studios are valuable. even if they may not be appreciating in value a tremendous amount, they're only a handful of potent movie studios, six majors. selling one of them doesn't make a ton of sense for a company in turmoil. viacom may not have the financial flexibility to spend a ton of money on a big property. there will obviously be questions about a potential union with cbs. ceo has been quiet throughout this. there is been some speculation about whether viacom might pursue a digital property. it has been a criticism of phililppe dauman that he did not buy some of the mcn's, companies who built their back on youtube. a lot of those initiatives did not work for the company's who built them. scarlet: -- erik: lucas shaw on the viacom story. walksdstone's win, dauman

away with tens of millions of dollars. who are the losers? profit column. scarlet: with shares in the tank following the bacteria outbreak, chipotle is trying to right the ship. ♪

scarlet: one year after a series of bacteria at breaks, shares of chipotle have yet to recover. now wall street is getting impatient, no longer willing to give the company a free pass. you are demanding all kinds of changes in terms of transparency that chipotle has not been -- they are demanding all kinds of changes in terms of transparency that chipotle has not been .ourth coming with >> the stock hit a high a year

ago and now it's down 50%. company or sourcing, why do you do this? mpanies are saying, what you do this? erik: adding diversity to the board does not in and of itself address the supply chain problems chipotle has had. >> that's right. there's a sense that the board is a little bit insular. the board comes from the denver area. get people saying, let's some outside voices in there, pros in the restaurant industry who can say, this company needs to go up. they have major problems now. let's get some people in there who can help manage the company. scarlet: the company is still sticking to its plan, which is healthy food, ethical food. having said that, to company suffered a big loss with the absence of a senior marketing executive who was arrested in a drug sting. >> it was really bad timing.

this is the guy who has been running marketing for them for years. they have a very lean executive staff. they always have. he gets busted in a cocaine ring. this is a guy running the marketing. they boosted the ad spending. erik: what other companies would you or other people point to as examples for how to recover from a crisis of confidence? scarlet: chipotle? erik: sorry, chipotle. scarlet: -- >> jack-in-the-box went through a big e. coli thing in the 1990's. kids died from jack-in-the-box and he took them years to recover. the chipotle thing, they had 500 people get sick. their brand was built on healthy, better for you, happy picks.

hit directly -- erik: they have anything but a crisis. you point out that -- investors overlooked a lot of stuff with chipotle. are they overlooking similar potential viacom problems? >> part of the multiple for shake shack is always been its known to the investment community, it's in wall street. we will have to see what their prospects are for growth. scarlet: thank you so much. erik: up next, shakeups in the trump campaign are not over. today paul manafort is out. ♪

from bloomberglive world headquarters. scarlet: this is bloomberg

markets. let's start with headlines from the newsroom. >> donald trump and mike pence are surveying the damage and louisiana. damage at a the baton rouge church. the heavy rain dumped as much as two feet of water and some areas. firefighters, meantime, are making headway in the massive wildfire east of los angeles. that is not 26% contained. authorities began lifting some a vacuum. it is unclear when all will be able to return home. towards is leaning triggering the exit from the european union in april of next year. that is according to british officials. reports are that theresa may could wait until the end of 2017 before opening negotiations. she se is reported to be submitted to the c as early as april of 2017.

a weightlifter from care to stand -- a weightlifter is the first in the rio olympics to be stripped of a metal after failing a doping test. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 companies. eric: thank you. it has been more drama in the trunk campaign. this is after reports that paul manafort helped ukraine's repayssian government to funds. with us is jennifer j of bloomberg politics. also, jennifer epstein who has

been following the clinton campaign. jennifer jacobs, let's start with you. it might not be surprising to about paul manafort, but he was not out on the day they were appointed. is there a direct connection to be drawn there or does it have more to do with the ukraine allegations that have been brewing for weeks? >> i think it has more to do with the new stories that have started to bubble up, especially in the last 24 hours about his work for pro-russian forces in the ukraine. some past consultant work that he has done. therding to people inside trunk campaign, trump himself was concerned that these stories could become a distraction. beentrump said, paul has really good to us but the

clinton campaign is aggressively going against these topics and it is becoming a distraction. trump is trying to turn over a new leaf and move forward in his campaign without a shadow of controversy over him at all times. to have a staffer that is making headlines in the negative way was something that the campaign did not want. i do not think it is a matter of infighting. paul manafort said he liked having the extra staff and they needed more hands to do the work. i think he is working well with kellyanne conway. i do not think that was it. you mentioned, trump wanting to turn a new leaf. he also apologized, which is an unusual thing. i think it is the first time this campaign that that has happened. he is caving in to pressure from the outside? >> he is listening to his

advisers at this point. they tell him, you can still speak spontaneously, rev up your audiences, but let's try to focus on taking out hillary clinton, work on being disciplined. he has been doing that. this was the third speech this week, the one last night, after this reorganization with kelly conway,- kellyanne giving him talking points to win over pools of voters that he needs to win over. he expressed empathy, he was humble, he expressed remorse for some things that he said, but he .as also strong and fierce it was pretty well received, but you had democrats saying, don't believe it, this is just his speechwriter telling him what to say. scarlet: speaking of putting himself out there, the term campaign is also planning an

advertising blitz. you cover the clinton campaign. they have obviously been winning the money racing game here. $5 million. does that sound like a lot? is it too little too late? >> the clinton campaign spent $5 million alone during the olympics. those ads talking to david letterman about outsourcing jobs. to put it in perspective, this is small. it is still more than zero, what he spent up until now. that alone is showing their trying to make progress. what you're seeing, on all fronts, whether it is what he said last night or giving a blanket semi-apology, or trying states, up staff in the these are all efforts to philly

remedy the past months. alix: the other news is that the clinton foundation will stop donations.oreign i would like to know more about the timing of this announcement. why now? it seems to be that the time to make such an out that was months ago when there was a great deal of attention on the foreign .ources of donation that was just a couple of western allies like the u.k. in part, president clinton realize this is a moment in time when he has to say to his team work at the foundation, here is what we will do.

that is how this whole thing was announced. chelsea,that he and the decision-makers here, were not influenced by outside pressure. clintonse ally of the said the same thing, there were a lot of forces out there pushing the clintons in this direction. there all of these questions. corporations and foreign government know that they potentially have until early november, if she were to win, to send as much money as they want to the clinton foundation. rather than it now the company giving more than they would otherwise. eric: what line will the clinton camp walk at the clinton global

initiative next month? >> last year, i believe hadident obama, who judicially gone, did not go. last clintonthe global initiative meeting to the global assembly. again, president clinton doesn't want to get this up and his legacy and he is doing all he can to modify it. this is an acknowledgment that if she wins, things have to change. scarlet: put this into perspective for us. how big of a gap is there between the two candidates. is there a historical president closingrecedent for this kind of gap? >> trump is so far behind in some crucial battleground

states. it is hard to say if he can catch up. of course, his advisers are certainly hoping. effort in his speech thosech out to some of talking about black young people in poverty. some new tactics. that is exactly what he has to do in order to win over new voters. you hear it in his words. he has admitted at rallies, i may not win, but i'm trying here. eric:that is exactly what he hao do in order to win there is pre. i was looking at a post that point it out, in this stage in the campaign, in 1980, the candidates were tied, and ronald reagan ended up winning by about

10 percentage points. shifts in theical last two months of the campaign. gerald ford going into the 1976 election, was winning in the weeks before. then that collapsed. >> you have a candidate that has some really high negatives, but so does she. can he overcome all of the negatives? that is hard to tell. i'm not sure if the previous candidates had as high unfavorable numbers. of course he has made comments that offended hispanic voters and female voters. he has a lot to overcome. he continuously makes news that overshadows hillary clinton.

the demographics have changed so much. jennifer jacobs, thank you so much. coming up, classic car is coming up. this is bloomberg.

>> you are watching bloomberg. >> this is your global business report. a consulate with a supplier is leading to a major production issue for volkswagen. factories in germany are seeing a slowdown in getting popular

models off the line. the u.s. is falling behind the rest of the world when it comes to billing out and maintaining infrastructure. what is being done to maintain highways and bridges? weevil explore in today's quick take. >> as for india, it has gone from one of the complete unknown to one of the top smartphone phones. operationresident of told bloomberg about the growth xiaomi in india. >> we have grown to become a household name. this is a really good future proof model given that this is

the direction that retail is heading. >> idc expects the approaching season in india to boost shipments of smartphones and feature phones for the third quarter. >> volkswagen production at four ofman factories is at risk disruption. the automaker has been so far theabout the severity of slowdown. bank riskeutsche officer who blew the whistle on the bank has rejected an $8 million reward from the fcc. in an opinion piece in "the financial times" says it is disappointing that top executives retired with multimillion dollar bonuses.

deere & company is posting earnings that topped estimates. combinesr tractors and grew weaker. that income was $1.55 a share. agriculturalargest equipment maker also raised forecasts. >> time now for our bloomberg quicktake, where we provide context and background on issues of interest. everyone agrees that coming highways should be fixed, but no one wants to pay the bills. here is the situation. u.s. roads are in better shape in sweden, the u.k., and australia. even in germany, where the autobahn was born, western are in bad shape. the u.s. pays for highways by,

in part, charging a fuel tax, and funneling the money to a trust fund. they agreed on a plan in december 2 provide $281 billion over five years for roads, bridges, and mass transit. both major party u.s. presidential candidates are calling for even more infrastructure spending. here is the background. by 1980, 40,000 miles of interstate highways were open. this has now grown to about 47,000 miles. the highway trust fund, which began in 1956, set money aside transits, bridges, and systems. now they contribute about 65%. here is the argument. china instituted they taxes on

new vehicles. france privatized highway operations in 2005. in the u.s., higher fuel taxes are not on the cards were people drive longer distances. the model, with cars and trucks becoming more fuel-efficient, people are not buying as much. left field tax means more pressure to find a solution. you can read more on the bloomberg. that is your global business report. had the bloomberg.com for more stories. ♪

eric: you are watching bloomberg markets on this friday afternoon. classic car weekend is kicking off in california.

we are in the middle of the action was one of the legends of auto design. take it away. thank you for being with us. it is great to see you. tell us what is important about the show. by surely be here? >> this represents the birth of the automobile. you see the cars that were created when there were no rules and regulations. wereat time, the cars really defining beauty. that is why a lot of car designers and car fanatics come back to the show and they just want to see this pure, raw, emotional beauty. >> tell me a bit about what for you.ans you have created some of the iconic cars in the world. when you say beauty, what does

it mean? >> first, there are proportions. then, it is about sculpture, then, graphics. graphics is something we can still do today pretty easily. the proportions is very difficult because proportions is a lot about what is underneath the car. when you look at proportions, you will notice, they don't have bumpers, they don't have sick doors -- thick doors. a lot of them have very long hoods which are incredible and beautiful. that type of proportion is something you see in these cars. secondly, the sculpture. in the 1950's in a good 60's, you were able to sculpture the cars because you did not have electronic boxes to put below the clerk. designers at that time had all this freedom that has become a

lot more difficult for designers today. has become more difficult. we see these cars and there is so much variation. it feels like modern cars are not quite as free. what happened? >> in those days, you could build a car at home in the garage, and you could start selling it. there were no rules and regulations, not much, at least. today, we have so many rules. and, it costs millions and millions. it has to do with these rules, regulations, admissions testing, etc. i do believe the reason week come back here -- we come back here is to find how we bring that sort of motion back into cars.

people have become not so excited about cars. they have become a little boring. the cool thing now is all the smart devices, not the car. >> talk to me a little bit about how electric powered trains may affect design aesthetics both from a practical sense and also is that it? >> i'm looking to make the powertrain and how weak it some of the beautiful shapes back. with electric powered trains, we are freeing up space. we take the heart of the battery and put it under the floor, or somewhere, not the front or the rear. when you have so much of the front or the rear taken up by the gas tank and on top of that electronic boxes, i think with the reduction of electronic

boxes, we will be able to re-proportion the car, and actually, bring some of that beauty back. that is some of the research i'm doing now to see how we can bring this emotion and excitement back to cars. i think the electronic powertrain might allow us that. >> that is really exciting. it makes us seem like you are optimistic about the future of design. >> i am very optimistic. a few years ago, it was all doom and gloom. people did the same thing. today, to be honest, it is hard to see the difference between top-of-the-line sedan, unless you are an expert. what i working on, i believe we can come back, and reproportion the car. i also think it has to do with established car industry.

the established car industry has now become so big. it is these giant conglomerates, and they are very afraid of jumping out of the box. these new car companies you see, there going to try, and they have to try to learn back the customers with an amazing, beautiful vehicles erie >> we will leave it there. back to you. you so much.k of course, you can keep up on the latest with classic cars, just had to the bloomberg. xiaomin the next hour, is in coming to the u.s.? this is bloomberg. ♪

>> welcome to "bloomberg markets ." ♪

>> from bloomberg world headquarters in new york city, on this - welcome in friday in august. >> here's what we are watching. stocks splitting for the first time in three days, the dollar strengthening as expectations price for a rate hike this year. erik: venture janet yellen will speak at the annual jackson hole ting. scarlet: our neighbors to the north dealt with disappointing economic data. why slack and canada's economy is slowing global concerns. erik: let's take you back to the markets desk and bloombergs julie hyman. julie: we are still seeing shares little changed. i was looking at volume stats here. for you monday s&p is to present below the 30 day average.

i was looking at how volume was on average in the past 30 days. the average over the past year is 669. no, milliones -- shares. over the past month we've seen a significant drop-off in volume and over the past week or so we've seen it go even lower than that. something to keep in mind for perspective as we look at the trading action, and those all three major averages have been falling. for the s&p and dow, it's the first declining week in the past three. for the nasdaq, it's the first down weekend 8. it's had a seven-week winning streak going into this week, where we've seen the fallout after all three major averages rose to records. in terms of today's session, one of the standouts has been helping the nasdaq, applied materials.

it's helping the other chip equipment makers on the rise. the company's forecast coming in above estimates and it is seeing customers upgrading their equipment and so they are benefiting from that cycle. scarlet: you mentioned stalling out. where does that leave energy stocks? julie: they have been consistently lower today, even as oil has been bouncing around. energy stocks pretty much fell out of the open and they continue to hover along the lows. groups one of the dragging down the s&p 500 and particular today. if you look at what we've seen this year, energy stocks magnify the moves we get in oil. here is the chart. blue, energyn stocks here trading in white. energy stocks have been somewhat more stable here. they have not risen as much in

this latest upswing we have seen. see them atend to times move more than the oil price. year to date they have risen less than oil has at this point in time. erik: thank you for pointing that out. scarlet: ramy inocencio has more from our newsroom. >> donald trump's campaign chairman, paul manafort, resigned great trump said that manafort offered and he accepted his resignation from the campaign. manafort had come under increasing media scrutiny because of his past consulting for the pro-russian former president of ukraine. in obama administration mission yesterday, $400 million cash payment to iran was contingent on the real -- release of american prisoners is being slammed by gop lawmakers today.

meantime, house speaker paul ryan accuse the president of misleading the public. donald trump says mr. obama, quote, openly and plainly lied about that -- blatantly lied about that exchange. the haunting image of little boy caked in blood and dirt has become a rallying cry for the world to do more to and that conflict. spacewalking astronauts installed a new door at the international space station today. hookeduts jeffrey wellen up the port in a few hours. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm ramy inocencio. fedlet: let's move onto the

here, with the jackson hole symposium looming. john williams joined the chorus of policymakers commenting on the central bank's next move. >> one of the concerns i do have, having rates raise more rapidly, as i can have a negative impact on the u.s. economy. that can have a negative impact on the u.s. economy. scarlet: all the fed talk we've heard this past week dovetailed with the minutes from three weeks ago. what have we really learned from policymakers? has definitelys become one of the flag bearers for the more hawkish group of officials on the fomc who would like to see a rate increase in her rather than later. we learned there's a lot less worry across that group that

inflation is not going to get out of hand. those are kind of the main things at this point. erik: john williams was among the fed officials who has been talking lately about where the neutral weight -- rate will be. that was mentioned at least once in the minutes of the july 27 meeting. is this ichiro -- issue what the neutral rates should be? >> it's a big issue because when you look at the top of the jackson hole, it's about designing resilient monetary thecy frameworks for future, and the subtext is that neutral interest rates are so much lower. we have a recession, we will not be able to cut rates as much as we used to. we've seen the fed use its balance sheet, use forward guidance in the previous

recession. the other major central banks around the world are at zero. this is a major issue and they need to figure out some backup plans. erik: what is the other stuff? >> the fed likes to say, we did quantitative easing, we did forward guidance, that worked. erik: i think the debate is still out on that one. >> exactly. that is fair if you can get interest rates up to 3%. if you can't, you need to start thinking about doing need to raise the inflation target, doing need to get more cooperation from the fiscal authorities to come in with fiscal stimulus, do we need to look at negative rates? everyone else around the world seems to be going to that. scarlet: john williams, he's a

nonvoting member of the fomc? >> this year, correct. whoset: how do you weigh commentary is more influential? >> i don't think it has anything to do with the split of voters and nonvoters. i think it matters who are the influential voices on the committee. people out there doing the research shaping everyone else is thinking? john williams is one of those people. he's done more work on this neutral rate concept. he's a very influential voice their. charlie evans is another one who -- he's not a voter this year, but he's been pushing this idea of maybe we don't need to worry about inflation getting out of hand, maybe we can wait until inflation gets to arc target before we raise rates. .oth of those are nonvoters

scarlet: this is a chart you've brought to us. matt created these custom indexes showing the probability of a september rate cut which would be the white line versus late probability of a december rate hike, the blue line. it looks like 15% for september rate hike, 29% for december rate hike. lines move together all year until recently, the july fomc meeting. you had the december rate increase probability continuing to rise. the september rate increase kind of getting stuck there. people kind of interpret this to mean that september is not very likely, but maybe december. the interesting thing is whatever yellen says next f riday, whether she put september in play or not, will people interpret that as a single that december is more likely, or is

it that neither september nor december are very likely. it depends on what she says. scarlet: she has been pretty quiet. >> she has not given a public speech since june 6. we heard from her after the june fomc meeting. erik: she could always point or not point in one way to september. .> that's what she's been doing unless she wants to go in september, which doesn't seem to be the case, that's probably exactly what we will get. build ugly was talking about how markets are underestimating how many hikes the market will have to do between now and the end of 2017. he says people are underestimating us over the next year or so. t's kind of like further out there on the horizon, we have this general sense that we are going to be doing more than the market does. but you know how quickly those plans can change.

maybe it's not even that big of a disconnect right now. erik: also in september we will get a revised set of economic projections from the fomc, and a new set of docs as a result. >> a lot of people think those dots will come down. maybe 3.5% is still a little too high. they are going to have dots for 2016 as well. be a clearg to signal of what the committee is thinking, what is going to want to do, and we will probably be counting how many zero hike dots are there. scarlet: you can find this on your bloomberg at dots go. the dots are individual members projections and the green line is the median. erik: good to see you. scarlet: bloombergs matt besler joining us, and we look ahead to janet yellen speainking next week.

xaomi plans to trade on apple's turf. prepare for a smartphone invasion in america. this is bloomberg. ♪

erik: you're watching "bloomberg markets tilde isrlet: beijing-based xaomi preparing to enter the u.s. in the near future, according to the company vice president, who joined bloomberg television earlier today in an exclusive

interview from beijing. he explained to betty liu why the time we find a -- why the time he finally be right for xaomi to enter the u.s. >> the u.s. market is a very important market. things the time carefully given that we are spending all of our resources in china, india, other markets, like indonesia. the u.s. is a market we definitely have in our sites. we are going to make our way to the u.s. market slowly. we don't have a date for that yet but we are in the process of launching a few products in the u.s. market. we have a product coming in october. we are looking forward to introducing our brand. we will do it in the same way we have done in other markets. media,ead with social the channels that allow us to get in touch with this young

generation that is enthusiastic about technology. scarlet: -- betty: why the slow approach? >> we are still young company. just 6 years old. we've got to take things slowly. the u.s. market is a very complex market. even when it comes to things like establishing customer service, that has to be done very carefully. because we are such a small team and young company, we thought staying focused was probably the best idea for the first few years of our international expansion. the india market has turned out to be an incredible opportunity for us. we are doing so well there. makingy team -- and on it successful before we go further. looking forward to entering the u.s. market sometime in the near future. betty: you have to have money to fund this extension and you have not done a major financing in

several years. how are you on the financing front? >> without going into details on our financials, we haven't raised money in a long time and we don't plan to because we don't need it. we did raise a substantial amount of capital. we also extract that from our own operations. own investment firepower is significant. investments we will be making in china, we backed quite a few companies with cash. capital front,e and no need and no plans to raise in the near future. goarlet: that was xiamo's hu barra. erik: time for the bloomberg business flash. foot locker shares climb to the highest in 4 years today after the sneaker chain posted -- posted results that beat estimates.

armourof nike and under also pushed higher. scarlet: what is classic style? erik: chuck taylors. the return trimmed declines for bridgewater's pure alpha ii to about 9%. the fund had lost close to 12% through july. that is your business flash update. still ahead, economic data remains mixed. next.discuss expectations this is bloomberg. ♪

scarlet: this is "bloomberg markets." i'm scarlet fu. erik: i'm erik schatzker. scarlet: investors began 2015 expecting the fence to raise rates 4 times this year.

but now the question whether they will see 1 at all. let's join pimm fox and cory johnson on bloomberg radio for more. that may cause people to look outside the united states. i want to welcome our bloomberg television viewers. this is the bloomberg invented straight joining us is heidi richardson, head of investment strategy at ishares to tell us more about markets and money. tell us about the relationship between u.s. interest rates and investments in emerging markets. >> this low interest rate environment we are in in the for and likely to be lower longer has been a great beneficiary for emerging markets. if we think about the dollar being so low for this year that we've seen an interest rates being so low, it's great for emerging markets that have debts that are tied to u.s. interest rates, as well with a lower dollar, it's been a beneficiary

to higher commodity prices traded to the flipside of that with this wonderful tailwind was if we got into a considerably higher interest rate, which were not anticipating for some time, detract dollars and investors to the u.s. dollar, raising the dollar, hurting those currencies for foreign investors, and elevating their levels of debt on their balance sheets. lower forin this longer, it's a great beneficiary for emerging markets. cory: interesting that the dollar will probably have a big effect on quarterly earnings. the dollar should have a big effect on corporate earnings, wouldn't you expect? >> absolutely. when you think about what happened over the last couple of years, big multinational firms relied on this environment were hurt by the stronger dollar and so now that the dollar has been weaker for this year, it should be a nice little kicker to the

corporate earnings for these multinationals. pimm: tell us about two particular emerging markets. india, the start market up 7.5% so far this year. is india the place to be? then tell me about what's going on in indonesia. >> i think when you're looking at emerging markets, having broad exposure is great for portfolio construction and asset location. if you're looking for an out for play, the alpha reform environment and policy measures for certain single countries, particularly india and indonesia, is a great tailwind. if we consider what happened in india over the last few years with moody coming into office, not only do they have monetary policy reform, but structural and fiscal reform as well. that's really powerful as a tailwind. inuations are not sheep

india. we look at entry points to create more exposure to those. i think the outlook in terms of long-term investing, thinking about where you want to be, the demographic play there is going to be a powerful story for india. cory: in the near term, the currency trade may be not bringing a lot of foreign investment into india. thehey are relaxing some of restrictions as part of the reforms in terms of foreign direct investment. you will see more foreign direct investment coming into india as we move forward. pimm: tell us about brazil. of 36% so far this year. so far this year. we are waiting on the fate of resident -- president dilma rousseff. tell us about investing in brazil. it's really going to dictate

the future of the opportunities in brazil. if we consider the attraction of brazil this year, they came off a considerable selloff over the less couple of years. this big bounce we've seen is coming off a depressed level in terms of the selloff, if we look at what happened in the currencies last year the brazilian riel was hurt incredibly. with the dollar weakening this year, we've seen a bounce in the currency as well. despite issues with corruption zika andobras, the everything else in brazil, if the impeachment process goes through with president roosa, -- rousseff, he will be a real tailwind in -- it will be a real tailwind in brazil. you expect to turn up in interest rates eventually. about the minutes

released on wednesday from the july meeting, it was really a mixed bag in terms of economic data. i think it's going to be compelling with janet yellen's speech next week for jackson hole and the direction of interest rates and how and when they are going to raise. richardson, head of investment strategy at ishares. back to you, scarlet fu at bloomberg television. fox.et: thank you, pimm erik: there were about 40 etf's. now there are about 6000. how do you navigate that market? ♪

erik: i'm erik schatzker. scarlet: i'm scarlet fu. this is "bloomberg markets." ramy inocencio has more from our

newsroom. donald trump's campaign chairman paul manafort has stepped down. comesrt's resignation after the campaign announced a major shakeup on wednesday. manafort had come under increasing media scrutiny because of his past consulting work for the pro-russian former president of ukraine. clinton is ratcheting up her fundraising reports. the former secretary of state has more than 60 if it's planned over the next five weeks across 16 states according to "the wall street journal." donald trump's campaign is also planning more fundraising events. u.s. olympics swimmer ryan locthe -- swimmer ryan lochte saying he should have been more careful and candid about how we describe what happened. he was apologizing for his role in taking the focus away from other olympic athletes.

experts searching for a lost airliner are hoping to find a new search area. the searches new leader says the team where -- wants to study where in the indian ocean the -- piecese of wreckage of wreckage was discovered. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm ramy inocencio. this is bloomberg. scarlet: as the hedge fund struggles, etf managed portfolios has grown to 770 strategies and $76 billion in assets in the first quarter alone. over the past 16 years, etf's have expanded from 40,000 to 70,000 now. investors are getting more options when it comes to navigating etf. one such option is 55 capital. joining us is our resident etf

specialist of bloomberg intelligence. your five portfolios invested solely in etf's. tell us how you decide which ones to invest in. >> glad to be here. there are thousands of etf's out there. the challenge that advisors, investors have is how do you pick among them and how do you mix them. what we do is try to get the right colors to form the shade you want. to do that, it's looking at liquidity, fees, index exposures, tracking era, and liquidity of the underlying. erik: what are the minimum requirements? >> they vary. think of the matrix of variables that go into the choice. that could be some etf's

are not very liquid but underlying is very liquid. on the other hand, there are etf's that are very liquid, and underlying is not liquid, which becomes dangerous and there is a fire sale going on. it's not as clear-cut as the threshold on one aspect. we've been working on this for years, shameless plug on the terminal. of bigger investors who aren't etf strategists, these are advanced users. big institutions tend to get caught up on volume and they only end up investing in the top 30 most traded products. the underlying liquidity can be sourced. strategistsch, etf are the one area where they are using the underlying liquidity and that allows them to go deeper into the toolbox and use products that did not come out in the 1990's and have better

features or cheaper or have things more appropriate for them. it's an interesting thing in the industry that is trying to get people to understand us. ofk: there is the liquidity the underlying instruments, of the etf, and of your product. what liquidity do you give your investors? >> daily. the advantage of using etf only portfolios is you get the benefits of etf's. and, we provide the same to investors. scarlet: we mentioned earlier about how hedge funds are struggling. how might the way you build your portfolio be similar to how a hedge fund else it's portfolio -- builds its portfolio? >> hedge funds, the way i think of hedge funds, is really that they are legal compensation structures. to a large extent, investment

strategy, we have a team which could belong in any best investment firm. the business structure we have chosen to deliver our investment acumen minimizes frictions, fees, taxes, and offers it in a transparent way. we think in the world we live in, returns are low but frictions are important. that is likely to be the more sustainable business structure going forward. >> if that's the case, why haven't etf's replaced hedge funds faster? >> the reality is when you look at the evidence, the average hedge fund is not worth investing in. you look at the performance of the average hedge fund. it's like saying if you want to win gold, silver, and bronze in the 11th, don't bet on the s,erage athlete -- olympic don't bet on the average

athlete. any product that gives you the average hedge fund exposure, that challenge is gathering assets. >> does liquid alternatives packaged in etf's. do you see those challenging hedge funds? some of those are doing long shorts. you think sometimes you talk to people, you find out institutions want the name brand, do you think hedge funds have a particular value add just for that reason? doike an active mutual fund, you think liquid alternatives are a place that could be a growth area for etf's? our views and 55 capital are still that the jury is out. the challenge is the challenge between transparency and performance. i think the jury is out on that. erik: how much of a challenge is it to buy and sell etf's? >> not much, depending on the

etf in question. there are issues of a synchronicity and time, maybe trading a company where the 'sock is closed and the etf trading. that could be liquidity mismatches, which we need to think about. this highlights why investors need help in picking amongst these etf's and mixing them. >> the whole idea of buying and selling etf's, it's about a year since august 24. people got etf's at a discount. as a professional etf investor, what do you think the industry should do to make sure something like that doesn't happen again? the industry has done a lot since august 24 last year.

some of the largest etf providers worked with exchanges to make sure that stop loss rules don't get triggered in the way they did get triggered in august last year that created some drops. there's a lot of work that has been done since then. the system is more robust than last august and probably will get more robust next august. etf's are being created all the time. there is a lot of ingenuity being applied to the kinds of etf's we've seen, the risks as well. analyzed,tf's you have what do you think is dangerous? capital's view on etf innovation is that there are too many and at the same time too few. etf's getting

produced are trying to find the next pitch zone. it's not clear how investors should be using them. what we like to see his basic building -- is basic building blocks. it used to belong in sophisticated institutional portfolios. at 55, we are trying to democratize the portfolios themselves. we like to see basic exposures that previously investors -- so complicated, esoteric, niche etf's really don't fill our purpose. what we like to see his basic sectors, so we can use these bricks to make a nice wall. scarlet: if you could fill in the blanket, what would you say to -- it would be great if there was an etf that, blank? wethere are several etf's

think are missing. just like you have sector etf's and equities, you could have sector etf's in fixed income. you could have pure single factor etf's. you can have more contamination free country etf's. there's a host of building blocks you can think of and you stop thinking in terms of portfolios, rather than in terms of next hit song. scarlet: thank you so much, cochairman of 55 capital, and our thanks to eric balchunas of bloomberg intelligence. erik: weak economic data out of canada this morning. this is bloomberg. ♪

scarlet: this is "bloomberg markets." i'm scarlet fu. erik: i'm erik schatzker. scarlet: we are looking at the dow, nasdaq, an s&p 500 lower, although they've come off the recent down. s&p losing 3/10 of 1%. oil has been a big story all this week on a blistering rally. today not doing a whole lot here. shall we go to abigail doolittle? abigail is live at the nasdaq. what do you have for us? abigail: it's a true summer friday for the nasdaq. down just slightly right now, as scarlet was talking about. there's been one standout winner

all day we have been taking a look at, and that is applied material shares on pace for their best day in more than three months. materials put up what is called an impressive quarter. as for that raise, they did take their fiscal fourth-quarter sales above estimates by as much as 17.5%. 's raise the guidance there. behind the strength is new orders from chipmakers looking to upgrade their equipment, plus strong demand from flat-panel companies. this stock is now up 58% year to date for its best year since 2003. scarlet: what about for the week? what stats are you looking at when you consider the nasdaq for the past 5 days? abigail: right now we are on the cusp of whether the nasdaq could

put in its first eight week winning streak since april 2010, so in six years. behind attention, on the laggards side we are looking at some of the mega cap names. a big winner on the week. on the week,ut 9% higher today. earlier this week getting a boost after estimates raised to a street high. saying that dram crisis -- is increasing. he saying there is a positive multi-quarter trend going on here, the idea that supply is tightening while decline in pc's is lessening. we see this positivity in a longer-term chart of micron, and i say this because back in 2012, the stock put in a bullish golden cross.

he tells us that buyers are really excited, lots of momentum. peak rose, troughed the 400% over that time period. there could be some more momentum, upside momentum ahead for shares of micron. scarlet: thank you so much. erik: we told you canada was coming and here it is. and inflation up north slowed more than expected last month on the heels of an unexpected decline in retail sales, which fell in 7 of 11 categories that make up about 54% of the industry, according to statistics canada. the bank of canada -- for more on the story, let's bring in daniel. -- danielle. lackluster are almost nonexistent inflation, crummy retail sales, inability to hit

the central bank's target is exactly what we are dealing with down here. >> there are definitely some parallels. huge difference is that your economy is much more diversified than ours. energy was heavily reflected in these numbers. if you start with the inflation, you think about the central bank mandate. mandate is to create the conditions by which inflation will be between 1% and 3%. we have been below that for about two years. inflation came at -- came in at 1.3% annualized in july. gas prices were down 14% year-over-year. even if you strip that out, you still got inflation running below 2%. if you are an optimist, you say i guess inflation is well contained. if you are a pessimist, may be more worried by these results.

scarlet: there are some benefits to lower inflation. how are we seeing it help out the consumer? 2 i think the problem is that of the categories where we are seeing inflation are things that consumers can't do without, foo d and shelter. both are up 1.6%. that is still not a big increase. if you talk to the bank of canada, they would say on the ind side that imports general are largely up because we have a weak canadian dollar, so they seem to not be worried about it. consumers have to buy food. the story on the housing front is complex in canada because it is so patchy across the country. we have two red-hot markets, vancouver and toronto. when you look at that inflation number, it's not indicative of what is happening in these two

areas. british columbia, where vancouver is, is the only problem that has inflation above 2%. erik: some people might wonder why the benchmark interest rate in canada is 25 basis points higher than it is here, given the challenges you describe for the canadian economy. we were able to avoid going rock-bottom after the financial crisis because our banks work stronger, and the bank of canada is really betting on a turnaround. they are expecting in terms of growth, 1.3% this year, but expecting gdp to be 2.2%. if you look at the turnaround economists are expecting in the third quarter, they are looking for 3.2% growth.

you're still looking at a pretty remarkable turnaround. there is a lot that can go wrong with this forecast, if bank of canada is right and we see things pick up, led by oil, led by the fiscal side because we will be getting these benefit , child benefit checks which are coming online this month, if all of this kicks in and they are right, we will be talking about rate hikes soon. i wondered a while ago and never looked for an answer. has anybody done a sensitivity analysis on the price of oil and percentage points of gdp growth in canada? what do you get in terms of gdp growth? >> i'm certain it's been done. i don't have the number. erik: we will both go looking now. of bloomberg news

with us from toronto. scarlet: coming up, we will be hearing from one of the most influential world leaders in economics. ♪

scarlet: it's no secret that the worldwide movement to open trade has been a hot topic for decades. this year the issue is at the forefront, especially on the u.s. campaign trail. we spoke with a columbia university professor and network director on this new kind of globalization. >> the idea of trade is that you expand the pie, but if the pie is all going to a small group at the top, those who are left behind art to excited about trade. we have this real problem, which is that trade is important for the world economy, but inequality in the united states

has been widening pretty relentlessly for the past 30 to 40 years. public's not -- backing trade. the president still pushing for a lame-duck session of congress. there's a lot of behind-the-scenes maneuvering to push this thing through, even though the public is not too happy with it. familiar withe how globalization has created a lot of losers in the developed world. what are the costs of globalization for an emerging economy? it's easy to think that all of china or mexico or those who have closer trade ties with the u.s., they all win, but there are losers in those economies too, aren't there? >> in general, markets creates inequality and usually you need some government policy to kind of push the gaps to reduce them.

in china, the most spectacular inequalityvelopment, period. hereg this we are looking at the trade impacts in the united states and we point to china, saying that took away a lot of manufacturing jobs straight if you look at china, inequality has widened considerably and there's a lot of unrest and concern in china, how do we manage this as well. >> i want to go back to this analogy which is poignant, is leaving people behind in some sense. we talk about that fight for the pie going to a group of certain people. haslett gotten larger in the sense -- has that gotten larger, or is there a different type of person getting behind and those are the people reacting right now? >> the world economy has grown, and actually on the whole from

2008, falling out of bed. the world economy has grown pretty well over the course of the last generation, even longer. if inequality in the united states and especially the winnings of the very top 1% is now at an unprecedentedly high share. that was jeff sachs of columbia university's earth institute. scarlet: coming up, travel tends -- trends and what it tells us about the state of the global economy. this is bloomberg.

vonnie: it is 2:00 p.m. in new york. lisa: welcome to "bloomberg markets."

vonnie: we are live from bloomberg had quarters, covering stories out of chicago, brazil, washington and the united kingdom. u.s. stocks slipping for the first time in three days. it appeared earlier losses banks to that unexpected result from d eere, applied materials and foot locker. vonnie: could the rally keep going to opec's informal meeting in algiers? vonnie: paul manafort resigns from his post. is the trump team staying on message? lisa: markets close in two hours. julie hyman has the latest. julie: stocks still trading lower here.