tv Money Moves With Deirdre Bolton Bloomberg December 31, 2013 2:00pm-3:01pm EST
exit welcome to "money moves" where we focus on alternative assets. i'm deirdre bolton. i will show you what investors and entrepreneurs are doing, as well as investors in hedge funds, private real estate, equity, and more. we will give you an expert outlook for oil. to from commodity trades hedge funds, the view of what is coming in the new year. the editor of the m.i.t. tech review will be one of our guests.
it is already 2014 in new zealand, australia, and china as well. you are looking at video from shanghai's waterfront. in a few hours, dubai will attempt to create what has been billed as the world's largest new year's fireworks display. of the new year in some parts of the world and the year that was, we look at dealmaking. us airways and american airlines is probably the bigger one to stick out. this team she is with me now. i know -- cristina alesci is with me now. i know overall dealmaking was something like 20% lower than last year, right? >> that is right, when you look at it from a volume standpoint. on the number of deals, we did see quite a decline. that was not surprising. these are the bread-and-butter deals that drive the market. year where the
monster deals. what am i talking about? the $130 billion deal from verizon. then there were some others, including heinz, a warren buffett deal. and we have the dell take private. all of those drove the volume numbers this year. in fact, those five or six deals both in the u.s. and globally accounted for 20% to 425% -- 225% of all volume -- 20% to 25% of all your volume deals last year. >> which ones are the leaders? >> goldman is the big winner by the numbers. dice the dataand a couple of different ways. clearly, goldman sachs had a big role in the verizon wireless deal. that got it a nice spot at the top of the league tables.
that said, they did miss out on some of the other big deals. and let's not forget what is going on internally right now with a lot of the investment bank. there are discussions around bonuses. in fact, the discussions are finding out how much money they will take home in the next tree weeks, probably. and basically, what is happening is investment bankers are gaining more power inside these institutions because at the end of the day, trading action has come down quite a bit, either because of the volker rule or because the trading results are not there. either way, traders are losing a little bit of an dash of their steam. an investment bankers are saying they want a big -- bigger piece. we will see if they can win that battle. >> mnj activity is low, as you were just hearing, and so was
the price of gold. in fact, the biggest drop in three decades. su keenan is with me with more on the story. >> commodities as a whole heading for the first annual drop with koran leading the pack. koran leading the pack -- corn leading the pack. gainers, natural gas at the top. cotton and cocoa right behind. wheat and coffee futures down as well. sugar down more than 15%. copper to week to cocoa, all entering bear markets as investors head for in -- for equities this year. >> even blew in error bulls got hurt. bulls gotllionaire hurt. >> now with the biggest slump in
30 years, we saw gold re-down on the date. it is on track for a 29% annual drop. assets, of course, in exchange rate product, down about 29%. let's look at the outlook for next year. >> read about 1150 in quarter one next year. the marketn we think will be digesting and moving on from u.s. tapering. what the market is most sensitive to is the bond markets in the u.s. pre-k's it is an interesting call. it's angold -- >> interesting call. he sees gold as one of the more interesting moves. >> difficult to talk about gold without talking about oil. what are you hearing? >> oil is on track for the biggest gain in five years. we are also seeing a huge boost in north american production.
outlook.ten to the >> if we didn't have a north american story, we would be in a much higher priced environment right now. what you want to watch for 2014 is whether we get another big producer going off-line. >> keep your eye on a rack. areumer pump prices expected to come down in 2014. >> thank you very much with more on gold, oil, and the dollar. we will bring in our guest host today, jim recurs. his new book, "the death of collapse ofoming the international monetary system" will be out in april. i love that your covers have money doing funny things. >> it took a long time to teach those dollars how to shoot.
aside, you just heard from a colleague, su keenan, tracking a lot of these various moving parts in the market. you were, like many, mistaken among right? with gold, however not about the dollar or oil. what do you see coming? investors are happy 2013 is over. what is interesting is that we all know the price action down for the year, but the physical demand is through the roof. i recently came back from switzerland after i met with refiners and gold stewards and they said they are working triple shifts to produce gold. they have for the first time ever -- i talked to a guy who has been in the business since 1978 and for the first time ever, they are having a difficult time keeping up. to china.l going the price is going down for some
technical reasons, probably manipulation as well. but the physical demand is through the roof. the floating supply is disappearing. it is going straight to china. it is being put underground and will never see the light of day for 300 years. you have a paper short, a balance and a very small amount of physical gold. single -- theent currency wars, one of the things is people are losing confidence in paper money. and there is the physical demand -- you mentioned jewelry. but there is a concern that paper money will not be worth anything. >> right, but that is the history of all paper money. china is redefining the global gold market. they have turned their back on the lvmh. old standard bar is dead. the new standard is the k bar.
and it is pure than the former standard. -- more pure than the former standard. smuggling and bringing it in through military channels. it is a fascinating play and it is set up for a huge goal rally. at some point, you will want your gold and there will not be any around. >> looking at the historical charts for gold, obviously you are a winner if you bought dirty years ago. >> right -- 30 years ago. >> right, a very big winner. down.ice action is technically, it is very bullish for gold. every time the gld has gone down, people set up. the banks get the shares and trade in the secondary market. when the banks want the gold and cannot find anywhere else, they
cash in their shares and go to the gld warehouse, and they are selling it to china. the disappearance of gold is a very bullish sign. it means it is scarce and banks cannot get it elsewhere. >> how much could it go up? thee not necessarily within 12 months because the markets do not follow the lunar year, but how much could it go up? >> my intermediate price target has not changed. if anything, it has gone up. i have it at $7,000 per ounce, possibly $9,000 or higher. but not right away. it could go like this and then straight up. it will take a little while. i am looking for the inverse of the dollar. inversely to the dollar. the dollar goes to zero because of a loss of confidence, gold will be infinite. the fed will have to return to gold to restore confidence. >> will take a break.
when we come back, i will have few the fed, what you thing the next -- comes next, or if you are reassured by these indications of tapering. we will be back to continue the conversation with jim rickards and we will tap his expertise as a hedge fund manager. my colleague kelly bit will be here to expand the conversation a little bit. plus, we will tell you all about warren buffett's big that on oil. we are back in just a few minutes with more on "money moves." ♪
x welcome back to "money moves" on bloomberg television streaming all day long on your tablet, your phone, and at bloomberg.com. hedge fund manager jim rickards is my guest for this hour. kelly bit, my colleague, is here as well. hedge funds are closing out the worst your relative to stocks since 2005. -- out their worst year relative
to stocks since 2005. it is hard to get 29% returns no matter what you are doing, but that is the job of hedge fund managers. >> on the one hand, we had stocks of had a huge rally boosted by continued fed policy and stimulus. but on the other hand, it seems hedge fund managers had a bit of a hard time because they were a bit defensively positioned or if they had a short book they probably did not do that well. and they probably asked -- and made did not expect fed policy to continue as long as it did. that, because they could not quite predict what the fed was going to do this year, a lot of them did not see those outside schemes like the market. >> how do you judge your peers? how do you adjust people who are not a global fund and do not outperform the stock market? >> you are not supposed to
outperform the stock market every year. hedge funds are not supposed to be up 29%. >> correct, because it is a hedge fund. >> in the year when the stock market is down 30%, which we expect in the next couple of years and have seen repeatedly. 2007, it in 2000, and 2008, 1987, 2001. there are all of these times when the stock market is down 20% to 30%. those are the years that the hedge funds should be up 10% to 15%. making money is great, but not losing money is more important in the long run. >> there were some volatile incidents, but nothing like the money making opportunities that -- i hate to say it -- but that -- ague blow up can cause big blow up can cause. >> yes, exactly. europe did a lot better this year and a lot of managers did quite well from sovereign debt.
not the most exciting story. it was a lot of continuation of the same policy. it did seem a lot of managers up two longt exposure to reach the s&p and global stocks. >> to kelly's point, that is why it it was in general i tough year for global macro traders. it was an easy year, let's say, for people who have a specialty or a niche. >> that is exactly right. i'm not aware of any section that did as well as the stock market. i would not invest in a hedge certaint was only stock. hedge funds thrive on volatility. they are small and nimble and can get ahead. low volatility is a difficult environment.
though we are talking about performance, putting that aside there were big personalities. we had sac capital, allegations of insider trading. there was, in fact a charge. a big activist year. what were your favorite headlines? >> like you said, the continuation of the insider trading probe is something we were following for years and it did come to a head with sac and everyone speculating what the government would charge stephen: with.- steve cohen >> our legal colleagues tell us that the last time a firm actually pled guilty, you have to go back to enron. let's just say, doesn't happen every day. >> right, and it was a record settlement, the $1.8 billion that they did pay. expectingment we are has yet to play out. but we did see the michael steinberg trial and the jurors found him guilty.
activism has been very big this year. einhorn,ames, ackman, icon. >> carl icahn got his hand into pretty much everything. apple sharehe buyback proposal, and of course with dell. ackman has battled with icon and dan loeb -- with carl icahn and dan loeb. and dan loeb himself had a great year and had to -- and try to bring changes at lowe's and sotheby's. he was pretty successful. >> at of scarcity, how surprised were you that activists were willing to take on apple? howut of curiosity, surprised were you that activists were willing to take on apple? with more than $100 billion on the balance sheet, you had people saying it is bigger than any hedge fund out there.
how could you be sitting on this cash? and activists were willing to put pressure on. >> that is right. they can get two or three times leverage without much difficulty. the banks are not lending to everyday americans, but they will lend to hedge funds. and cannot act in concert, if they do they have to file with the sec, but there is no reason why the smaller hedge funds cannot tag along with the larger ones. the effect is that there is a multiplier effect. they are acting in concert. >> we have seen a proven this year. -- seen that proven this year. thank you very much, kelly bit. jim rickards is coming -- is staying with me this hour. when we come back, jin says economic growth in china make trop -- a drop to levels that the world is not exactly prepared for. we are back in just two minutes. ♪
>> we continue the conversation with my guest host this hour, hedge fund manager and author jim rickards. he is an expert on china and has basically been there on the ground on and off for the last 23 years. there is a recent study that predicts china's rise to be the largest in the world and will take longer than consensus. i don't know all the research parts that they put into that consensus, but longer than 14 years. does that sound right? >> i think it will take longer than that. the consensus recently was it will surpass the united states. not pertotal gdp, capita gdp. total gdp will be pushed out a little bit. i would percent out even further.
all of these arcs aaa and. assume growth of seven percent, or even five percent -- all of these are extrapolations. assume growth of seven percent, or even five percent. time ofexperience a financial decline. in the meantime, it will come back and experience growth into the second half of the 21st century. >> and you talk about financial stability -- and i know you meet with government officials when you are there. a few years ago there were a lot of tales of a lot of money just swirling around the system outside the banking system. a lot of people were saying this is going to make the country less stable than other "emerging markets." it is hard to call china and emerging-market, but you know what i mean. what do you see their? >> the banks are not like the u.s. banks. they offer you nothing. the people are not happy with it and they want to go into something else. chinese are closed accounts and
cannot invest in overseas markets. that is one of the reasons they buy so much gold and real estate. >> hard assets. >> in terms of financial investment, china's stocks -- the stock market has done very poorly in recent months and has been volatile. they have these structured products that look a little bit like ceo's and cdo squares. cdo's and cdo squares. a lot of investors think they are getting a deposit-like product, which they are not. this is a ponzi scheme. the chairman of the bank of china said it was a ponzi scheme. they invest in real estate and other bubbly assets and then released each security and some new ones and pay off investors and keep the game going. when there is a financial panic, people will line up to redeem these things and the banks will shut their doors. they will not be able to redeem
>> this is "money moves" where we focus on innovative alternative investment. it is already 2014 in hong kong and other parts of the world. here is a look at the fireworks display over victoria harbour. and in china, there were light shows as part of the great wall in beijing. one million people are excited to greet the new year from times square. warren buffett is expanding his bet on oil transportation. berkshire hathaway is swapping about $1.5 billion in shares in
phillips 66. it is worth full ownership of the company. the deal is expected to be completed in the first half of 2014. home prices in 20 u.s. cities ,ose in october from a year ago values jumping by the most in more than seven years. this is according to the case schiller index. the real estate market will probably get it next boost from gained -- gains in employment. netflix is testing new prices, based on the number of people who use one single account. the plan provides access on as many as four screens, letting household members watch different shows at the same time, but it could cost you more. netflix says it is just in testing phases and the price --ges could rise from 699 six dollars 90 nine cents to $11.99. we turn now to the trends for the new year. we turn to bob rice. from theickards, both
same company. with blackstone. jonathan gray was there. blackstone is the biggest landlord in the u.s. and hilton is the biggest hotel company in the u.s. a pretty big play for a pretty big company. >> it was an interesting year for them. and it was interesting about the headline that we just saw. the index is rising. why is that? who is buying those homes? a lot of them are being bought by institutions who are driving the price up very rapidly. a little bitbuy indiscriminately. they cannot negotiate every deal down to the last penny. this is the really interesting thing. more than half of single-family homes arc changing hands -- are changing hands for cash these days. where does this lead from a trend point of view about the
classic american dream? they are now renters and not buyers anymore. >> steve schwarzman basically came out and said publicly, look, in 2008 when everyone else was, we were buying in these areas. at essentially a 35% discount. andthinking of florida other troubled spots. just by having the cash and being able to use it, it looks good from that perspective. >> cash was king in 2008. >> jim, what are you seeing as far as these -- i know we have talked about macro and about the fed, but about what it means to you as a hedge fund manager and to the u.s. economy. surprised thatbe we have a recession and 2014. i was a little surprised that we tapered. was taking the fed at their word. they said, if the economy does not need their targets, then
they will not taper. that was true in november. in december, it was still true. and growth are important and were a bit better, but inflation was nowhere near where the fed started. using their own criteria, they should taper. havedid taper, but they the worst forecasting record in economics. they have been wrong for years in a row. my guess is that they will be wrong again. of the fed and speaking of qe, you have been looking at the bond market for 30 years and saying, look, there is something every investor should be paying attention to, whether or not he or she is in treasuries. >> we are almost at the end of the bull market in bonds. we may not see interest-rate spikes for the reason that jim just mentioned, but you have to say there are only so many numbers between 2.5 and zero. there is not a lot of room for
further price improvement in bonds. emil investors have to look at that and say, i have a lot of duration risks, and if prices spike up, bond prices will be creamed. will decline every -- nine percent for every one percent in interest rates. but even more than that, traditionally these were the things that took volatility out of the stock market. if that is not going to be true anymore -- and i don't see how it can be -- what do you do to balance out that volatility? >> and you have spoken about how investors are basically desperate for yield, right? have been punished over the last several years. there is no place for them to get yield. they are being pushed into riskier and riskier bets by the fed. that is very intentional. riskier, theyaid
meant riskier in the entrepreneurial sense, and that is not happening. >> what about risk with muniz? normally, that was supposed to be fairly safe as investments go, and the detroit bankruptcy is changing a lot about the way we see muni investments. waynd it is changing the municipalities can declare bankruptcy. now it looks like they will be able to start reformulate in the pension benefits, which are the -- which are some of the biggest drags him in his apologies. >> when you file for bankruptcy, there is something called automatic state. creditors cannot sue you until you do the workouts. there is one exception to automatic stay. they favor the bank. bank can foreclose on derivatives ahead of unions, head of citizen, and of taxpayers. once again, we have a system that favors banks ahead of everyday americans.
>> from smart watches to digital currency, it has been a fast- moving year in technology. joining us now to talk about some of the biggest innovations, brian bergstein is here. thanks for joining us. i know you have said that google glass marks a new digital divide between people. why do you think this product is so significant? >> it is very interesting because it is not just another device that does much of what your smart phone does. it does -- it is completely different in the fact that it is on your face. and it is the beginning of this
new field of wearable computing. it will mark a divide between people who want to be as jacked into their technology as possible. and those who think that is a step too far. evokes some very strong reaction. that is a preview of what you will see as these devices get even more streamlined and eventually these things will be baked right into glasses, or even contact lenses. it will not be as obtrusive and you will have a decision to make. do you want to have information in your field of vision all the time, and the ability to record things all the time, or is that too much? is that somehow antisocial? and when i have written negatively about google glass it has provoked some hostile reactions from people who say it is inevitable. but just because it is inevitable does not mean you have to like it. it will be an interesting cultural, or social device. >> in these -- in the top 10
breakthroughs list, you actually as wearableas far computing goes, smart watches as being a lot easier. it is not on your face and not directly in your line of vision. you can look at it when you want to and it's not always there interposing itself. do you see smart watches taking off in a mass-market way a lot sooner than any wearable visual device? see think for sure you will a lot more people wearing smart van youin 2014 in -- will see with google glass, partly because it's not out yet and smart watches are. i don't think they will be a huge mainstream hit right away. more warmis a far social tradition in checking your watch for a quick update on information and having this thing that is constantly in your field of vision and screens to the world, i am online, but you
may have to guess that what i'm doing. the smart watch cannot do everything google last do, but it is meant to give you updates and for most people that is all they need. >> i was going to say, they give you a little bit of space between you and technology. we all check our smartphones now at dinner. and in years past, it is not like you would just bring your physical mail and sit there in a restaurant and am -- and open up envelopes at the table. breakthroughs in self driving cars -- which personally, i would love an matt miller hates. but there you go. these think we will see kinds of innovations? >> i think it will happen a lot more slowly than people might think. the google self driving car is a fascinating project. it has been a little misleading because what the google car does is very successful and safe, but
in has only been driven still very controlled situations. being accident free or trouble- free in those situations is not indicative of what real world drivers face. when you come to an intersection where a cop is directing traffic or the signals are out, these are signal -- situations that are still too complex for a computer to handle. we will see the gradual evolution. some cars can already drive himself. -- drive them self. see driver assistance technologies gradually taking shape along time before you can sit back and do what you want at the wheel in most situations. >> stay with us. we have a quick break to take. when we come back, we have bitcoin, the digital currency.
x we continue our conversation now looking at the biggest innovations of the year. with me, andin is my guest host for the hour, jim records of -- jim records of tangent. is talking about this, go on twitter, put in #bitcoin, you get a lot of results. how useful is it? >> right now, only useful in the sense that it is attractive for speculators, people who want to bet that the excitement about bitcoin is going to continue. a lot of people have made a lot of money by investing in bitcoin early.
seen that actually translate into millions of actual dollars and the value of bitcoin has gone up. right now, it is mainly useful as a payment system. i can use bitcoin to buy things, mainly online, maybe a little bit shady, or very shady. but that is the question about bitcoin. will it transition as a method of payment, and a useful method at that, to really being a currency, one that transcends borders and regulation? at this point, it is not its own currency. its value is that it can be translated into actual currencies, at least for now. >> hold that thought, because i want to bring jim in here on the issue of trust. the people using in have to trust its integrity, right? are trustingou something that was written by 18, or maybe an individual. they are off the radar screen.
we sort of know how gold and stocks and other commodities perform in most situations. we don't know what bitcoin will do. and if you buy a bitcoin for $200 and you exchange it for, let's say, $500 of goods and services, that $300 gain has to go on your tax return. recording it,are but i daresay a lot are not. there could be eventual tax invaders by not declaring those gains. the government has to go after that. we know the nsa is watching everything. be a bit careful when transacting with bitcoin. >> there is no full faith credit backing of bitcoin. you are basically trusting, as you point out, a software developer. >> it is a community of users. that community could get together and by consensus say they will have a 21 billion bitcoin cap.
that is no different than the fed doing qe or printing more money. this payment system, it's not exactly a system to me. paypal, swift, these are systems that move money around. if you cannot pay your taxes with it, it's not money. for antigovernment types, you're going upstate power. in my experience, state power usually wins. said, if you are investing in some kind of ancillary service based off a system, i'm assuming you have to bake in more risk than average versus some other type of investment. >> exactly. looking at the history of bitcoin pricing even up to now, you don't need to imagine big shocks and spikes and drops.
it has already happened. the price of bitcoin has been very volatile. anyone ignoring that fact is making a huge mistake. should beink they thought of as something to court for the reasons that jim cited. you are right, jim, it is not a system, but if people are using it as a method for making payments, doing deals online in -- but there are a lot of other good payment schemes out there that you can use, from paypal to wire transfers, that are much easier to understand and much more secure. gin mentioned the cap, this 21 theion cap baked into system for bitcoin, that there will be no more than 21 million in circulation. there is also a floor. i have to pay my taxes and
>> final thoughts from my guest cohost, jim rickards. we covered a lot of ground. before we let you go, i want to ask you what you think of warren buffett increase to bed on transporting -- increased to act on transporting oil. >> linning comes to billionaires, my advice to investors is, what watch what they do, not what they say. worn -- warren buffett never misses a chance to disparage gold, but look what he has done. he built up the railroad. they make money moving hard assets, corn, wheat, coal, steel, etc.
now he is into energy. i see him bomb -- dumping billions of dollars in pay for dollars and then buying assets. i think that tells us something of what he expects when it comes to inflation and other hard assets. >> good advice and worth taking, watch what they do, not what they say. it is 57 minutes past the hour and bloomberg tv is "on the markets." we want to show you what is going on this last trading day of the year. a record-breaking year for the u.s. stock market. the dow up 26%. the s&p up 29%. it looks like we will close out the year with ever slightly higher gains. gold, the worst year in about three decades if you are looking at the paper cost of futures there. if you look at hard assets, it is a different story, as jim pointed out.
speaking of this rough year for gold investors, if they were long, great year for metal and mining stocks, though. ourill bring in one of bloomberg colleagues right now. ken huffman right now from bloomberg industries. you follow commodities extraordinarily closely. what surprised you the most this year? >> it was a really interesting year. most people think about commodities, they think about gold, which had a rough year. but it was a year where iron surprised everybody to the upside. it was an up-and-down year and while there were quite a few losers, there were some interesting winners. that is something to look forward to into 2014. >> essentially, saying the same as buffets that as well. it is all about hard assets. if we're going to have more
growth, that implies more inflation and more industrial input. you would think commodities would be getting stronger. something is wrong. it will be a very interesting 2014. >>t really will be. there is this whole give and play east and west where the chinese are buying all of the gold they can get their hands on, physically taking out of the vaults in london and shipping it through switzerland into china. and then you have the western view where the fed is tapering and they don't like gold. this has been an interesting play coming into 2014. >> i want to ask you about something jim brought up earlier, which is china's role in buying the hard assets and buying physical gold. how much do you think that will affect the price next year? >> what is most interesting is the china third plan. they do not come out with a lot of information, just the 10 pieces. they are sick of owning paper money from the rest of the world. case, they are
buying assets from around the world. how they look at gold -- and they are such a big buyer in this space -- it will be interesting to see if they take over in gold next year. they are the world's biggest buyer and it could him price -- impact the price next year. >> inc. you very much. -- thank you very much. thank you very much. 30are "on the markets" in minutes time. in the meantime, "treat smart" stars now. -- street smart starts now. >> welcome to the most important hour of the session. we are scouring every market for your last trade of the day. one of those is due by where they are celebrating new year's eve right now with world records. >> they are trying to set the world record for fireworks. their goal