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Speaker 1: Global business news twenty four hours a day, f Bloomberg

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Speaker 1: dot com, the Radio plus mobile app and on your radio.

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Speaker 1: This is a Bloomberg Business Flash and I'm Karin Moscow.

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Speaker 1: This updates brought to you bi Sector spider e t

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Speaker 1: F shy buy a single stock when you can invest

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Speaker 1: in the entire sector. Visits sector s p d r

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Speaker 1: S dot com are called on a six six sector

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Speaker 1: et F and this morning, Walmart Stores down four point

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Speaker 1: four percent shares of them, the world's largest retailer, lowering

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Speaker 1: its annual sales forecast after the strong dollar pulled down

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Speaker 1: the value of overseas revenue. Futures meanwhile, are moving higher,

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Speaker 1: and we checked the markets every fifteen minutes throughout the

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Speaker 1: trading day. On Bloomberg, SNP EVENI futures have four points,

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Speaker 1: DOWI mini futures of forty four and ASTAC EVENI futures

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Speaker 1: of seventeen decks. In Germany's up one point six percent,

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Speaker 1: and your treasury of one thirty second the yield one

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Speaker 1: point eight one percent yield on the two year point

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Speaker 1: seven three percent. Nimex screwed oil of two point four

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Speaker 1: percent or seventy three cents to thirty nine of barrel

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Speaker 1: comes Gold is down half per cent or six dollars

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Speaker 1: thirty cents to twelve oh five. Ten announced the euro

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Speaker 1: at all six then one thirteen point eight three. Dish

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Speaker 1: Network posted profit that missed analysts estimates is more TV

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Speaker 1: customers canceled service and in video is up eight percent.

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Speaker 1: This morning, the biggest maker of graphics chips used in

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Speaker 1: high end gaming computers predicted sales that may exceed analysts estimates,

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Speaker 1: demonstrating again how its enthusiast customers are protecting it from

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Speaker 1: the worst of the PC slump. And that's a Bloomberg

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Speaker 1: business flash. Tom and Mike Karen, thank you very much. Well,

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Speaker 1: it is a truism in investing that the smart guys

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Speaker 1: buy companies before the rest of the world knows why

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Speaker 1: you would want to do so. The smarter guys identify

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Speaker 1: those companies for the smart guys. One of the smarter

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Speaker 1: guys is Quality. He's head of equity derivatives flow equity derivatives.

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Speaker 1: They officially call it for credit sweets, and he's here

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Speaker 1: with us now. Um, you look, let me ask it

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Speaker 1: this way. We have a sort of risk on field

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Speaker 1: to the markets. The last three or four days what

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Speaker 1: are people doing in the options market and does that

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Speaker 1: tell us whether this is sustainable or not? Sure? Thanks, Um.

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Speaker 1: One of the things that we're more concerned with is that,

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Speaker 1: like you said, even though there is more of a

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Speaker 1: risk to risk on tone to the market, Um, the

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Speaker 1: bigger concern is is this just a short squeeze or

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Speaker 1: is this more of a function of you know, basically

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Speaker 1: the world is okay? Again taught me you're looking confused.

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Speaker 1: I'm I'm going back and forth with Okay, the rich

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Speaker 1: Truman is our is our crack producer here trying to

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Speaker 1: float Tom's balloon here? Um, So risk on for the moment,

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Speaker 1: but are people willing to bet on that? And so

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Speaker 1: that's the again, like you know, that's the million or

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Speaker 1: billion dollar questions? So speaking is you know, is this over?

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Speaker 1: Is this period of fear over? Um? And one of

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Speaker 1: the things that stands out to us is, look, we're

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Speaker 1: in a period now where we've just gone through earnings

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Speaker 1: and you don't have really that much volume going through

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Speaker 1: at the moment um. That's something that should throw up

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Speaker 1: some alarm bells, so to speak. Right, and even though

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Speaker 1: you don't have much volume, what you do have in

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Speaker 1: the market right now. A lot of buy backs active again,

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Speaker 1: buy backs start after the earning experience ends because companies

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Speaker 1: will start getting involved. We've heard it's incredibly slow. You

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Speaker 1: do a lot of quantum and the derivatives. You do

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Speaker 1: that out of your chemistry degree at Harvard. We talked

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Speaker 1: about EC ten at Harvard and did you take ten? Everyone?

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Speaker 1: Everybody takes a ten. What they don't know is keem forty,

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Speaker 1: which is inorganic chemistry, which is a rite of passage.

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Speaker 1: Their models within science, within chemistry, are the models in

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Speaker 1: your world world right now upside down or askew? Do

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Speaker 1: you have any confidence in derivative construction given how slow

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Speaker 1: it is and given the correlations that we see out

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Speaker 1: there on the bloomberg? That's a great question. So the

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Speaker 1: great thing about chemistry is that when you put X

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Speaker 1: plus Y together, if it's supposed to blow up, blows

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Speaker 1: up in the market putting xplus y together, everyone's wait

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Speaker 1: for it to blow up. It doesn't blow up. And

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Speaker 1: the reason why is because it's not just excell and

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Speaker 1: Y that actually matters. There's a B, C, D, E,

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Speaker 1: F G out there that all influence it. And it's

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Speaker 1: you know, again, one of those things in science that

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Speaker 1: you call a multidimensional problem, which is a complicated way

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Speaker 1: of saying, you know what, no one knows the answer

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Speaker 1: for sure. But what you can do is you can

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Speaker 1: create a model that says, hey, you know what, most

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Speaker 1: of the time, when most things happen, this should happen.

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Speaker 1: And like you said, when correlations start breaking down, people

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Speaker 1: start asking why, what's the acceptable failure level? Though, then

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Speaker 1: for a quant strategy, when you say most of the time,

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Speaker 1: how most do you have to be in order to

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Speaker 1: make it work? Again, that's you know, another great question

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Speaker 1: if this was based questions. You know, if this were

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Speaker 1: baseball a third of the time would be great. But

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Speaker 1: it's not baseball. It's investing. And the interesting thing about

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Speaker 1: investing is that even something that say only works fifty

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Speaker 1: one percent of time, right, great traders can make money

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Speaker 1: on that if their money management is such that the

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Speaker 1: fifty one percent of time that they get it right,

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Speaker 1: they make ten to one right. And so that's that's

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Speaker 1: why I like, this is myth about QUANTZ and that hey,

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Speaker 1: these guys are right ninety percent of time. They're not. Really,

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Speaker 1: It's about just getting something that's right most of the time,

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Speaker 1: or enough of the time, so that when you put

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Speaker 1: it all, can you do that with an inequity desk,

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Speaker 1: with the distortion off of fixed income, of negative interest rates,

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Speaker 1: the zero bound reality of every central bank out there

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Speaker 1: in the first and second order derivatives of commodities right now?

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Speaker 1: Can you can you in two thousand and sixteen create

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Speaker 1: a model? And that's the thing you can't if you're

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Speaker 1: looking backwards, because you don't have history to basically give you, Hey,

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Speaker 1: here's we don't even have a risk free rate exactly exactly.

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Speaker 1: I mean, so what do you do on the desk

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Speaker 1: at credit situies? What do you do if you don't

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Speaker 1: have a risk free rate and you can't look backwards?

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Speaker 1: What you do is you just sort of make a

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Speaker 1: best guess. But what you can do is you can

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Speaker 1: basically take say, hey, you know what, um. And the

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Speaker 1: analogy I'll give is, you know, sometimes when you're playing golf,

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Speaker 1: right and you hit a driver, um, you know right

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Speaker 1: away whether they're that's gonna slice right, UM. But you know,

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Speaker 1: predicting like how far you go or whatever? Again, this

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Speaker 1: thing go two or fits yards, three yards, It doesn't matter.

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Speaker 1: What you really are trying to get at is when

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Speaker 1: you hit it is this thing going to slice and

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Speaker 1: sometimes again, predicting what happens way out in the future

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Speaker 1: is tough. But what you try to do, and especially

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Speaker 1: an advantage we have on a train desk is I

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Speaker 1: don't have to get what's right three months out, but

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Speaker 1: what I'm trying to just get what's right one day.

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Speaker 1: That one to Mike's question, though, if we hear from

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Speaker 1: interview after interviews that things are quiet, is what we

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Speaker 1: hear in a lack of volume, can you construct forward

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Speaker 1: thinking models? And that's a really tough question. It is

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Speaker 1: a tough question and unfortunately for a lot of people. Right,

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Speaker 1: And it's not just something that comes on the investing side.

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Speaker 1: It comes even at the level of a bank CEO. Right.

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Speaker 1: You're trying to a strategy that's supposed to give you

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Speaker 1: a profitable bank, or strategy that's supposed to give you

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Speaker 1: a profitable trading investment. Right. Um, but you're really just

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Speaker 1: going on best guests. You're going on maybe some pass

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Speaker 1: case studies, maybe some um, you know, real like numbers

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Speaker 1: that again, like you said, there's no history for it,

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Speaker 1: we'll just will just working for I say, I'm the

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Speaker 1: St Regions Hotel, in Beijing and I read my first

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Speaker 1: article on CDO squares and I had the basic response

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Speaker 1: of everybody, including the big short what's that? It's my

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Speaker 1: basic idea, what's the new CDEO squared away from flow

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Speaker 1: equity at credit? Sueez? What's the derivative item or guests

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Speaker 1: or manipulation that you see now that causes you professional concern? Well,

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Speaker 1: things that will cause me the most professional concern are

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Speaker 1: where do people have their wealth? Because wealth destruction is

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Speaker 1: ultimately what we're looking for. Right. It's a great Michael

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Speaker 1: Lewis quote. You know, to airs equities, but to really

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Speaker 1: screw things up takes fixed income. And what you really

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Speaker 1: need to do is find out, all, right, what is

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Speaker 1: that you know, area where people have concentrated What what

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Speaker 1: you would say about foreign exchange? You can't air, you

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Speaker 1: can't say that I'm radio exactly. So again, where is

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Speaker 1: a lot of wealth in the world held And a

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Speaker 1: lot of it is held in you know, basically government bonds, right, um,

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Speaker 1: And as you move towards the negative interstrate world, what

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Speaker 1: are you gonna do when the person who has their

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Speaker 1: bank account in you know, some country all of a

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Speaker 1: sudden is losing money because you have negative rates. Like

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Speaker 1: you said at the beginning, this is something that we

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Speaker 1: have a model before. And while you can look in

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Speaker 1: the equity markets and equity strategies, use your quand models

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Speaker 1: to say, hey, you know what, this stock should go

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Speaker 1: up and this stock should go down. The question that

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Speaker 1: you're asking me about what causes me concern is that

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Speaker 1: it's not the day to day movements of the equity

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Speaker 1: market that's gonna, you know, cause the concern it is

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Speaker 1: when you get actual wealth destruction. When someone who has

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Speaker 1: a million, you know, Frank's, all of a sudden wakes

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Speaker 1: up and has nine thousand francs right then they start

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Speaker 1: making decisions. I would point out that the twenty year

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Speaker 1: Swiss franc is breaking down, not through record low, but

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Speaker 1: at zero point one zero percent. I've never said this

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Speaker 1: on air. The twenty year the two decade yield is

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Speaker 1: a tenth of a percent. Well, you don't want to

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Speaker 1: be investing in Swiss funds at the moment unless unless

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Speaker 1: you have to, I guess, or if you think they're

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Speaker 1: going to continue to decline. Now, that's part of the

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Speaker 1: prediction effort for somebody who's going to be investing in

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Speaker 1: these things. Uh, what is what's the impact of this

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Speaker 1: idea that the neutral real rate is much lower than

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Speaker 1: we've ever seen it before. Uh and and made stay there. Yeah,

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Speaker 1: this is something that is you know, and a phenomenon

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Speaker 1: that's going to propagate itself. And we're just gonna have

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Speaker 1: to see um again. If the neutral rate has to

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Speaker 1: be lower, that means that risk assets need to be

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Speaker 1: higher because you know, like I said before, people don't

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Speaker 1: want to earn zero. They want to earn something um.

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Speaker 1: But there's a big pull between you know, again the

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Speaker 1: greed and fear um aspects of it, and that people

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Speaker 1: want to return. But when they're nervous, when they're in

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Speaker 1: a risk reduction mode, they won't go get that return.

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Speaker 1: And so again you take everything down to zero. We

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Speaker 1: don't know yet if actually that money is going to

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Speaker 1: go into buying stocks or buying bonds. We'll find out though,

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Speaker 1: Thank you for stopping by. And a Gaussian word quality

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Speaker 1: is with credit SUITEZ and equity flow uhrwids, we have

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Speaker 1: much to talk to what people'll have them back on?

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Speaker 1: Continue this? Uh? Was that was that? Okay? Mike? I

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Speaker 1: don't think I don't think we avoided a fair amount

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Speaker 1: of jargon. Right, Well, you kept me from getting lost,

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Speaker 1: which is good. Yeah, next week crotosis. Look at that

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Speaker 1: features up six down, futures up fifty four. I'm watching oil, Mike,

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Speaker 1: help me watch oil because I got to relaunch my

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Speaker 1: launchpad screen right now. It's for West Texas up two

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Speaker 1: point eight percent, Brent crude thirty five two. It's up

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Speaker 1: two point one on the day, and we get of

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Speaker 1: course the holiday delayed inventory numbers out at ten thirty.

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Speaker 1: This more we like those holiday even right now was

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Speaker 1: actually inventory is quite important. We'll give you, I hope,

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Speaker 1: good perspective on that as well. E en one three

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Speaker 1: stronger Japanese gen stay with us a bonus another hour

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Speaker 1: of Bloomberg's surveillance