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tv   Bloomberg Markets  Bloomberg  May 27, 2015 5:30pm-6:01pm EDT

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alix: we are moments away from the closing bell. this is the "bloomberg markets." i am alix steel. alix: the name of the day is rally. you are looking at nasdaq closing at a record high, while the dow and s&p seeing its best day in two weeks. tech leading the way, seeing its biggest game in four months, a record high. finally playing catch-up to the
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s&p and the dow. i am joined by "bloomberg markets's" managing editor joe weisenthal. it was a green day across the board, but really tech. joe: yesterday we talked about the sell-off. we talked about the fed. alix: you did. i was on vacation. joe: right. today was forget about all that. another rally was the transportation sector. there had been talk about the transportation sector being a red flag, but today it was strongly up. that was one good sign. alix: it is a discretionary world. we had a commit. core doing. joe: both companies are individual stories and probably say less about the overall economy. then we have these signs out of greece, like we are hashing a
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deal together and writing it up, and other sources in europe saying no, we are not getting close tore a deal. that seems to be the story for a while. alix: rhetoric and rhetoric. hat talked out to me was the emergency liquidity was not approved. is that because the e.c.b. is trying to apply some pressure? joe: you don't really know, but you have to assume that as the clock ticks, they are together what they can to build pressure. alix: it is a good point. joe: obviously the huge story tonight beyond the mark stuff is the fifa corruption stuff, which is going to be an amazing story for a loaning time. charges brought. a raid in switzerland. corruption allegations relating to the awarding of the coming world cups in russia and qatar.
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fifa corruption is something that everybody has been talking about forever, and today it seems to be breaking through and people are taking action. alix: and later in the day, where we went with the company angles. adidas saying they support a culture. then the nike thing happened, and the deal there is connect the dots, it shows that nike could have bribed a brazilian soccer official for a sponsorship deal. if that turned out to be true, that would raise all kinds of problems for the company potentially. joe: the other thing i find to be utterly fascinating about the world cup, and the macroeconomics of it all, think about the last few, africa, russian, brazil, cart qatar. it was all about the bricks, all about the energy nations on the rise.
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and now the games are actually happening and the global narrative has totally changed so that the u.s. is clearly the world's strongest economy. all these economies are in trouble. the energy economies aren't so great. i feel like global international games are such a lagging indicator of where the mood is. alix: that is a good point. you saw qatar, and i say qatar. t their production is around the same. your point is the rise of fall of these guys. joe: today the qatar had it's worst drop in over three months. then it recovered a bit. the word from fifa is nothing is going to change about where the games are going to be played. any problem with the games is a huge issue because they have sent an insane amount of money
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to build their facilities. so even the slightest hint that those games would be in peril is a huge problem. alix: $200 billion, and russia, $20 billion. we want to bring in elias of bloomberg news, and gina, a senior equities strategist at wells fargo securities. the thing that struck any eye was a bloomberg article about china. he says that china isn't showing the requisite tolerance for pain, and that recent steps are likely to ensure a belated financial reckoning in the years ahead with the potential to shake up the global economy. so the government isn't actually doing its job to weed out the bad guys. >> well, is the u.s. government doing the same thing? >> join the club, right? >> exactly.
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>> he did bring up a good point. there are these local government lending facilities that are -- that give you a funny feeling when they say look, we have some land, we can borrow against it and use that to fund their pet projects. it is scary. you want to cut down on that and increase the transparency in a place like china. at the same time, how do they cut back on stimulus programs when everybody else around the world is gunning down on theirs? >> to the credit of the chinese, they did try to cut back on stimulus for years while the rest of us were reinflating and trying to get economies going. the chinese up until the last year were cutting back significantly on stimulus. it wasn't until this year that they have caved, reduced reserve requirements, and currency manipulations and now this. >> i have a question. could one nation who has been engaged in some type of stimulus program blow up
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without some other countries following suit? >> like no contagion you mean? >> if they blow up, wouldn't that be catastrophic? >> yes. all the financial markets are intertwined. there is probably no escape for anyone. >> it could go the way of japan and it could have huge implications. they need to accept slower growth and less borrowing to avoid japan's fate. >> and we heard that about the european programs last year. it is the same story across the globe. joe: i am fascinated in china by this thing. it is well known the stock market has been on an incredible tear this year. we had a great story yesterday about out even the most bullish analysts on china have been relatively pessimistic based on where the market ultimately went. i am fascinated that the
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chinese government finds it useful to have a stock market bubble blown so that these comes can recapitalize essentially. they know there is so much private sector debt, but if they can recapitalize and heal their balance sheets that way. alix: we are going to get back to this chart in a second. corey johnson has those numbers. >> looking at the numbers. adjusted earnings per share, once you take out stock options and expenses, 23 cents. the analysts were wrong again. 55% sales growth in a year over year basis, adjusted earnings per share better. and the guidance for next quarter, better than the analysts were predicting. as a result you see the stock trading basically around where it close today around $160 a
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share, a very expensive stock, trading at 26 times its book value. it is all about revenue growth for this company, and they are showing very strong growth and drawing market share away from more experienced companies. alix: thanks, corey. it sort of talks about tech and where the bubbles are. joe, you were talking about a chart. we are looking at the nasdaq versus the tech focus. joe: right. right before we came on. bring that back. when people talk about stocks, they tack about the shanghai composite. you but it is really the shenzen mark. it is completely absurd. the to what end is chinese government fostering these bubbles, in we can call them that? is it just to maintain that 7% economic growth that is their
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target, or is it because of something that is more of a need? at would point is it not an appropriate time to be engaging in a stimulus program. 2% should be enough given what is going on globally, or 3%. what do you think when you see that? >> i think i feel pretty good about u.s. stocks. there has been all this chatter about our tech stock is in a bubble because of all the private market activity and private companies going public and a lot of i.p.o. activity so far this year. when you see the nasdaq did that, the s&p 500 s&p 500 stocks are up, but only in comparison. it improves the attractiveness of the u.s. market broadly. joe: one other story i wanted to bring up is the fascinating thing going on in europe about the negative interest rates. people have said that there are negative interest rates. it creates a problem for the bond markets because
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theoretically you could have the owner of a bond, who is expecting to receive payments, and could be expected to make payments. they are trying to change the rules. your take on that? >> i have to say last night my 6-year-old son said to me mommy if i put money in the bank, do i make money on my money? i said not anymore, honey. we got into a discussion. it is exactly to this point. t devise -- defies financial logic. investors are saying look, we are not going to do that. we have an adjustable rate, and a to set it shows that this cannot last, and what happens when it reverses? >> that is a great question to end on. thank you for joining me, and thank you, joe weisenthal. with lots more coming up on "bloomberg rewind," we will take a look at how the dollar, oil and the fed are driving
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stocks. back after the break. ♪
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alix: welcome back to "bloomberg markets." i am alix steel. right to the top stories at this hour. corruption charges are rocking the world of soccer today information a dramatic raid at dawn, swiss police arrested seven fifa officials. they are probing whether they broke laws in awarding tournaments to qatar and russian. two officials were charged in new york. the u.s. justice department promised more arrests. the bail-out talks are said to be going nowhere. a source denied greek
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statements that they are close to a deal. the official asked not to be identified because the talks are private. and jpmorgan corey jaymee diamond spoke today at the 31st samuel bernstein strategic decisions in new york. he commented on business. >> it is scary for a bank to go through something like that. are you the regulators and government did a very good job preconditioning the market, doing a bunch of banks at the tame same. though we won't lose a lote of business, i expect we will lose some. lix: he said shareholders were lazy. here in new york city there is a problem with the subway system. someone has been stealing the power cable. at least 500 feet of cable has been swiped, and that has caused delays for hundreds of thousands of commuters
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traveling through queens. authorities say they will probably sell the power cable for scrap. those are the top headlines. the s&p 500 is up more than 11% over the past year. what will a fed rate hike do to end this bull market? joining us is gina, a senior u.s. equities strategist at wells fargo securities. does it? >> not usually. usually the first fed hike is in the midst of a stronger bull market. it takes several fed hikes before it slows things down and pushes us into recession. in my view it is likely unlikely that the fed wants to kill the economic path to progress they have started. i think they will move very slowly, and that is consistent with history. if you look historically on average, stocks muddle along in the six months before the rate hike, and then the return is
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about 3.a% after the hike. some are trading sideways in anticipation of the first rate hike. alix: you had a note that first quarter earnings were much better than estimated, up 1.6% earnings basis. >> as much as we talk about buy-backs, that share count was existent. but if you strip out share count, it was up 6%. including the energy sector, you are still looking at 1.5% growth year on year. we believe there actually is some core earnings growth and excluding the energy sector, earnings growth is consistent. total earnings per share grew year excluding the energy sector. if you go back a year ago, it
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was close to 7% year on year. so really no change. very consistent. it just happens that the energy sector saw such a massive swing in prices. and of course you saw a lot of movement regarding the dollar. but nonetheless, corporate america is actually pretty strong. alix: what is a bigger factor going forward, oil prices gaining another $10 or the dollar appreciating more? >> it depends on how rapidly the dollar moves, but most likely oil. i think the weakness we saw in the first quarter is entirely related to oil with a dollar kicker. alix: what do we need to see with oil? >> as long as we hold the bottom. oil is up about 30% from its low in march. if we hold somewhere between the $45 and $0 range on oil, we are going to see stabilization in the earnings stream going forward. alix: you are over weight, tech
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materials and industrials. where are we in the recovery? give us a grade? >> well, a lot of it depends on whered fed goes from here. but where somewhere in the mid to later cycle. the early cycle, that time has passed. it is time now to move on to mid to later cycle surprise. the strengths of those industries will depend on the bounce-back we get in the commodities, how rapidly the dollar moves and how quickly the fed increases separates going forward. alix: wrapping up the dollar, what is the biggest risk there? >> well, the consensus right now is expecting a 7% game for the dollar through the end of the year. as long as we get something 7% or less, there is very limited risk existing in earnings estimates. if we get more than 7%, it depends on how much more? 9%, not a huge%, 14% or 15% could be damaging to the
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earnings stream. think about the long-term move in the dollar. from 2011 to date, the dollar has been rising. alix: thank you so much. gina martin adams from wells fargo stutes. much more coming up. ♪
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alix: welcome back to "bloomberg markets." i am lick alix. back to one of our top stories. bill gross talks about his big bet against the german bund. calling it well timed but not necessarily well executed. he spoke earlier. take a listen. >> i sort of announced it at the same moment i thought of it. i haven't had the time to put on the appropriate amount of positions to take advantage of it going down in price and up in yield. so the execution was poor. >> so there will be a little
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less spontaneous expression from bill gross in the future? >> well, i hope no. if anything i want to continue to tell you what i think, to basically open my book, to write the book. but at the same time to leave the room and start putting some trades on. i think that is the better procedure. >> so it has more to do with how quickly you are able to put on a trade and less to do with the way you actually structured it? >> well, the structuring, too, eric. that the yields would go up more slowly, less quickly. and to the extent that the structure that i produced, which in technical terms was an option strangle with selling calls and sullinger puts, the quick move in terms of the price drop, which was five or six points and 50 basis points
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higher in yield was surprising certainly to me. it was poorly executed from the standpoint of the structure as well as the timing of the trades themselves. >> bill, you write persuasively that it still makes sense to arbitrage the yield differential between german buns and treasuries. for those who haven't read it, explain? >> well, i think what needs to be done and objectioned is the global monetary policy has proceeded over the past six years at different paces with different countries and with different total amounts. so you have a set of different policy rates. you have a set of different policies, quantitative easing here in the euro zone, no easing in the united states, and it has produced a disparity in terms of yields going
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forward. offense, the policy rate in the united states five years in the future as indicated by the yield curve is 2.a prpgs. the policy rate in germany for five years is .5%. my point is that if economies normalize, they don't have to be the same in terms of inflation and growth, but if they normalize, that the disparity between 2.a% and .5% in germany is significant from the standpoint of a historic alspread. it shouldn't exist. >> what other relative vaw type rades appeal to you right -- relative value type trades appeal to you right now? >> if one expects in developed countries, and even emerging countries, for nominal growth rates to come closer together, several observations come out of this. you can observe some very over
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valued stock markets and some very under valued stock markets. offense, i think germany and the u.k. are very attractive stock markets relative to those future policy rates. i think in the united states, u know, bonds are very attractive relative to that 2.5% rate. and in mexico, their forward policy rate is 6% or so, and that is going to be difficult to achieve. i think this type of framework can lead you subjectively of course, to an assessment of value not only in bond markets, well. stock markets as alix: that was bill gross of january us capital. thanks everyone for watching "bloomberg markets." i am alix steel. have a wonderful rest of the day, and we will see you back here tomorrow. ♪
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announcer: from our studios in new york city, this is charlie rose. charlie: tonight, we continue our exploration of the magnificent human brain with the look of the neurobiology of parenting. neurobiologists are increasingly beginning to understand the brain's influence on rental behavior. we understand now that the active caring for children can activate special narrow circuitry that forms a parenting network in the brain. researchers have identified cells that


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