tv Money Moves With Deirdre Bolton Bloomberg January 7, 2014 2:00pm-3:01pm EST
for seven straight sessions because of this. >> as we think about ourselves freezing today, if a thought to the cattle as well. much.you very we appreciate it. we will be on the market again in 30 minutes. ♪ >> welcome to "money moves," will refocus on alternative investments. i am deirdre bolton. what is going on with hedge funds, private equity, real estate, and more. jpmorgan chase will settle claims that it facilitated the ponzi made off --madoff scheme. also, private equity firm carlyle preparing to launch two
publicly listed -- listed mutual funds. they are whiting the investor , and we will take you to las vegas to show you the latest from the contributor -- consumer electronics show. procedural vote, six republicans joined democrats to vote yes, and archie washington correspondent peter cook is with us. even though the move over from was there,can side it is a long way from being a done deal. they did break ranks and joined with those democrats to move forward today in the u.s. senate, and even before the vote happened, we had top senate leaders lamenting this. we had six republicans, some of them from some very high
unemployment states deciding to for a the final tally further conversation and perhaps another vote later this week. this would extend the unemployment benefits for another three months retroactively. this would affect those who lost them at the end of the year. they say it is important to keep that money flowing, and the president hailed the vote and said he would sign it right away if congress passed it, but house speaker john boehner said, listen, this has to be paid for. for thellions extension. others say that they are also insisting it be paid for, at a minimum, so that is where we stand. they now have to sit down at the negotiating table and work this out, if this is going to become a reality. it still has to be approved in the senate, and then it is over in the house, where there is
issue with john boehner if it is not paid for. a time when some are still feeling the pain of the is an issuend also that democrats are going to hammer home. much, ourou very chief washington correspondent, peter cook. and the second portfolio manager on trial for allegations of insider trading, and our bloomberg businessweek reporter is with us now. the recent conviction, sheila, that reminds us just how high the stakes are for him, but there is still no chance that mortoma will cooperate with the government, right? >> they charged him more than one year ago with insider trading. they billed it as the largest insider trading situation in
history, it ill gotten gains, and they had expected to use martoma to rolle over his boss. he has adamantly maintained that he is innocent, even though the government has a very powerful case against him, so now, all day today and most of this morning, lawyers our downtown at the courthouse, battling it out over which people will make up the jury. this is a key point. they are trying to find jurors who have not been tainted by the steve:. coverage of >> this has been a huge story, no matter what newspaper you read. it has been in there. what can we expect? as you said, nobody even expected this trial to even happen to begin with.
>> it is a strong case the government has built, at least based on the information we have now. includes two doctors who they believe received money martoma forgiving him insider information about drug trials. it will also look at how people are compensated, and even when named, he will be floating in the background, but he will be nowhere near the courtroom, but his presence will be felt. >> i am sure there is a tally going with how many times his name is actually mentioned. with the very latest from the trial beginning. we are going to keep this legal theme going, because we have the settlement and justice department history. ap morgan paying 1.7 billion dollars to settle a claim that madoffcilitated bernie
and the ponzi scheme. this is one of many. >> a year-long tally of fines, including this just announced settlement related to bernie madoff. it is staggering. the 1.7 billion dollars they say will go directly to those affected i the ponzi scheme. there are multibillion-dollar it is from, and questionable activity related to mortgage fraud. this is far from finished as far as the probes ago. there are numerous other ones. >> and jamie dimon still faces the middle roads into practices, and along with other banks for manipulation.
this latest settlement, they said they could have done a better job pulling together information. there are the other probes that were made ahead of them, but it highs,l with multi-year and that just raises the question about why investors are disconnecting from all of this. >> what money goes to the victims? what is the tally so far? what has been recovered? >> $9.5 billion has been recovered by the trustee. this has the bank agreeing to pay almost $500 million. >> thank you very much, su keenan joining us from the newsroom. for more on this record one point $7 billion settlement, i am joined by a white-collar d.c.,ey joining us from and our in-house expert, at our bloomberg news reporter. you are right here, so i am
going to start with you. this idea of deferred prosecution, this was really the only choice that the government had, right? you cannot move ahead with a charge against jpmorgan chase? >> this is about how deferred prosecution works. there is a believe that if you criminally charge a bank, that they could fail. thethey do not want country's largest bank to fail due to criminal charges, so they have a deferred prosecution agreement, which allows them to admit the criminal activity, or they are shielded from a lot of consequences from it. >> you and i were speaking this morning and said the last time an institution was charged directly, it was arthur andersen. >> absolutely. that is a real concern. this is untested. it is unknown. and as i said before, i do not think the u.s. government wants
the collateral of another bank crashing. >> seth, i am going to bring you in here on that last point. the idea is that jpmorgan chase now has, let's just say, for lack of a better term, they have to have better compliance efforts, and does it show in any way that if the bank is not cooperating, they have bigger problems ahead? >> you are right. his is an agreement with the united states attorneys office. i have got two years in this case to make a payment and implement internal controls and procedures to comply with federal reporting requirements, egregious, the bank allegedly turned a blind eye to what it saw going on. it is that they knew what was going on, and they knew it was possibly a ponzi scheme. they had a conversation with the coo of jpmorgan.
there were these kinds of reports, federal banking authorities, over 100, and they did not file and turned a blind eye. as a result of that, they had a lot to do with the oxygen going in to keeping the ponzi scheme going. >> and this is what made the government case so strong. it was not like, we did not bring you notice. it was you had some pretty senior people saying this is a problem, and somehow, that got ignored. >> that is right. the allegations are these individuals, people at the upper echelons of the bank essentially knew what was going on, and they essentially turned a blind eye, because this was his biggest account, and they were getting a lot of money and a lot of fees, so the allegations are very serious. day, jpmorganthe is the poster child for compliance. they have spent about $20
, andon over the last year they are serious about this, as well as in washington. >> seth, hold that thought. keri back in. they have huge amounts of money. they can hire compliance lawyers or anything that we need. this is not like a mom and pop, regional bank. what does this mean? >> i think it means that going to have to clear out the rest of its investigations. going on in asia, and then there are the other issues with the foreign exchange and interest rates and things like that, and then we will see what happens to be jpmorgan brand and the stock price and if they can get back to the fundamentals of making money and having record returns when all of these are behind them.
until we clear out the case files, we are really not going to know. thes far as how you see jpmorgan competitive stance, do they eventually win more business, or is it immaterial? >> i think it this point, a lot of people that i have spoken to think that at this point it is immaterial. however, that can change at any point. clients could decide to take their business elsewhere. i do not think it is happening right now, but that does not mean that it will not happen. >> thank you very much from bloomberg news, keri, and seth we thank you also for joining us. we have a quick break, and when we come back, a fund manager who can directly address the growing appetite for off assets. that lastlion fund
>> our next guest runs a mutual fund, and charles is with me now. he is with a long short fund that started with about one hundred $90 million in assets about one year ago and is now at $2 billion, so, charles, welcome. first of all, how do you explain this exponential growth in such a short amount of time? >> we feel very fortunate. we think about it probably in three ways. particularly in no order, the last one maybe being the most important, but from an investing standpoint, we have done what we set out to do. we believe these to be risk-
adjusted returns, and we feel very fortunate to run our strategy at newberger. stockpicking, a quintessential berger item. and most important, we have been in an environment that has required a solution, and the traditional asset allocation models just do not work because of how low interest rates have underlyingo the advisor has been challenged to think through asset allocation, and if you have a negative view on fixed income, and you are looking at 50% of your capital in fixed income, i think they are looking for solution-based approaches, so we have benefited because i think for a good period, investors have been skeptical about the equity market rally, and we have benefited because they are questioning how much fixed income they need within a total portfolio. >> i want to get back to the
asset allocation in a moment, but i notice that the return is up around 14%, and when you first said rick -- risk- adjusted, this is the key. some people have said, who cares if you are up 14%, because the s&p 500 was up 29%, to which i am sure you will say that they will not the up 29% every year. >> we believe fundamentally that we make more money by losing do not have to make you as much money to be in a better place, so we are looking tends to bes, which long buy is, but not nearly as long as the market, it is going in theuce market returns environment like we enjoyed last year, but with the majority of our clients with a traditional safe, fixed income, flat to down last year, our strategy, we think about our return stream.
or over our beta. it tends to be better. our beta has been about 0.4. we are taking reasonable but hoping to achieve reasonable returns by taking reasonable risks. >> and, of course, your advantage of working with a mutual fund as opposed to a hedge fund, obviously a mutual fund is a lot more liquid, and nav's if youaily like. it does not require you to be a qualified investor, so the majority of america does not have the opportunity to invest in alternative strategies, and for the longest time, they have allocated at least 30% of their capital to alternative strategies.
the underlying investor has very little exposure to the alternative category in total, and we certainly are benefiting from that, but we benefit in a way that says our strategy is to buy stocks, do fundamental research, and then occasionally sell stocks short when we believe the near-term is challenged. >> so what then is the right asset allocation, as far as you are concerned? >> that question is in possible to answer. is driven by the investor. it is for them to determine. our view and this is on the team, you want to own risk assets. we believe equities have good value, and we have believed for a while that bonds have good value, and that is good value against the volatility, as we understand it, and we have been cautious on things that are very interest rate sensitive. x so, charles, before we let you go, one long and one short.
>> it is hard to limit us to one. you are some that have believable growth. be the brands would simplest example of a company that we believe can grow within the context of environment. it is a franchise model. investors, and when you run a franchising model, you use other peoples capital, so we like that. it very much represents what we do. we onlyhort side, there try to invest -- and the long side, we tried three to five years, but on the short side, it is very different. we try to invest with three and four-month time limits. this is actually a cheap stock with lots of free cash flow. we just think the competitive environment, against what macy's is doing, against what others are doing on the promotional side, and we question in the
the consumer electronics show going on in vegas, but what goes on behind this means is just as important, and our senior west coast correspondent jon erlichman is there. what are you seeing and hearing? >> there is lots of flashy stuff on the floor, but there are many who are meeting with clients, especially if they do not have a new product they want to talk about, like motorola. we had a chance to speak with
the ceo, dennis woodside, about a product and how it is doing against samsung, and here is part of that conversation. >> we are trying to build a global brand around moto. there was not a global brand that could compete with galaxy or iphone. we are only five months in. we are seeing this stand for really high quality experience, android, easy and intuitive android devices, compared to some of our competitors, and we you going moto g, and if on amazon, it is the number one seller. so it shows we are getting some momentum behind both of those strategies. >> and we will continue to see this story play out at the at&t vocalmobile area, a very battle. >> jon erlichman joining us live
and is is "money moves," am deirdre bolton. the bank recommends i goldman sachs that they cut out developing nations by one third, forecasting significant underperformance over the next 10 years. starting next year, a chinese automaker will start selling cars in the u.s., a company byd,ed by warren buffett,
and they focus on election -- electric cars, and berkshire hathaway took a stake. notlindsay vaughn will defend her downhill skiing title, and that was a reason she heard her knee and then reinjured it. she must -- is the most marketable winter olympic athlete. turning to the latest on the so- , and we are vortex bringing in su keenan. she has the latest on this come on it to you wild ride. some say you really should not be cranking up the heat at this time, right? >> yes, they are talking about having people conserve. this jones to never before seen levels on a 13-state electricity
grid. it jumped 13 fold, and traders say in the past 15 to 20 years in trading, this is probably the coldest weather they have ever seen. anything never seen like this. >> as for natural gas, you told us about the volatility in prices. any change today? gainer inthe biggest commodities last year, and we are seeing it taper, with milder weather ahead. news is production in the u.s. is pretty strong right now. >> we need to think differently about energy in this country. we are now the world number one natural gas producer. we have the opportunity in the next half-dozen years to pass saudi arabia as the world's number one oil producer. this is a big deal and a great opportunity at the time we need it most to restore our domestic economy and put our people back to work. supply, butod on demand is the issue right now.
we have seen futures jump. this commodities being, oranges or winter wheat, what are you seeing there? weather, we are seeing some declines across the board, but not as bad as expected. cattle futures, meanwhile, on the rise, and that is higher meat prices, and we saw a record reached yesterday. >> from commodities to private equity, carlyle getting into the mutual fund business. it has filed with the sec to sell two funds, one focusing on commodities and another with a broader basket. jason kelly, the managing editor insidemberg link, and the trillion dollar industry author. right out of the gate, jason, this is a larger picture of more private equity firms going in after the institutional money but now after individual
money, right? >> right. this is just a play for a huge market which really has been hereto for untapped. families, college endowments. what this gives them access to is $13 trillion, by one estimate, or mutual funds, and they see just a massive opportunity to sell to retail investors like you and me who are investing our 401(k) in a broad variety of funds. >> they are not going to be messing with the administration. they are not going to take my $10 and your $10 and figure it out. there is going to be another firm in their working out the managing details, right? >> these are massive companies with lots of know-how and administrative prowess to do these types of things. one of the interesting things you hear a lot about, you and i
know about the fee is on our 401(k), and they are clearly than what they pay for private equity, where they paid two percent management fees and 20% profit. we pay a fraction for mutual funds, so what these guys are seeing is the volume that we talked about before, and also this idea that those fees are very predictable, they do not have the volatility, and that is making their own investors feel better about what lacks down and kkr and in this case carlyle are doing in terms of diversifying into the new asset classes. >> the fees that you payroll been a mutual fund are a lot less significant than what is to shall investors pay. >> much lower, and you are talking about fractions. and that is why private equity has been so lucrative.
for the kkr possible the world. they were able to command big fees for the types of returns that they had delivered for big pensions. >> taking a look at the stock for carlyle group, it is up today, marginally higher. we are closer to eight percent for public investors of carlisle. they are not against the outreach to the so-called reach out consumer. >> very much in favor of it. this is something -- over the last year we have seen private equity, publicly traded private equity trade up significantly. blackstone went public in 2007 at $31 per share and in the past few weeks it has eclipsed that figure for the first time. and that is by virtue of almost doubling over the past year. the big story behind that is
their ability to get into businesses that are not private equity, that are a bit more predictable and are therefore drawing more and more investors into their stocks themselves. the stocks that are traded on the stock exchange, and in carlisle's case, on the nasdaq. more and more investors are piling in to get a piece of whatever magic they seem to be working, not just in private equity, but in areas like hedge funds, real estate, and soon mutual funds. >> worth paying attention to, after all. jason kelly there, managing editor of "bloomberg link." when we come back, last year was a great year, judging by performance, for frontier markets. the frontier index is up 20%. more on whether or not that momentum can continue, straight ahead. ♪
♪ >> investing in frontier markets is a hot discussion, and for a reason. the frontier index is up more than 20% last year, outperforming emerging-market counterparts. charlie is with me now, partner and global portfolio manager at cargo management, going beyond risks you frontier markets. great to see you, thanks for coming in. long onlynning a investment firm. where do you see the most investment opportunities right now? >> in frontier markets we have become more selective than in 2013.
performance was largely driven by africa, as well as corporation countries, like qatar. we have become more selective. >> i do not mean to cut you off, but i am curious, is africa already so discovered by other investors that you have to become more selective? >> there is a huge pool to africa. the capacity to absorb it is limited. the scarcity of public liquidity in those markets has been discovered. most of it is very well discovered. to cut yout mean off. you said africa and also in the gulf countries? >> and those countries have done well mostly because they were upgraded to emerging-market status. we have become more selective and are looking for opportunities in those markets that we deem more value oriented, like vietnam.
>> a lot of people got burned a few years ago. >> exactly. we actually started buying when the market bottomed in 2011, 2012,has been open since 2013 but vietnam remains an attractive place. >> which trades, which investments are you most proud of her last year? where you feel that as a firm you made the right decision? >> we made some right decisions and some wrong decisions. >> like everyone. >> the right ones thankfully paid off, helping us to finish the year in positive territory. quite a large decline in the emerging markets. we were rewarded by our selections in vietnam. we were also helped by the decline. in vietnam we were mostly focusing on consumer-oriented stocks. them and graphics in vietnam are
very attractive. the average age is still in their 20's. you have a large population that needs all the basic things, from baby products to electricity. so, a play that worked well in vietnam. what else worked well for you that will influence what you do this year? >> we have done well in africa. we have invested in nigeria, kenya, and egypt. particularly after the regime change, we got more positive on egypt. you still see some value in northern africa. >> an interesting point. when other investors were taking money out, even rich people in that country were getting assets out as quickly as possible. how do you know when to go in and where to go and? >> we are not contrary and for the sake of being contrary and. we are actually looking at different trends. we are bottom up investors, so
valuation is key to us. we have marginal safety in the stock that we are buying, focusing on businesses that are high cash flow. but at the same time we have a macro ability looking at the gold strands and the balance of things, the leverage, private and public. in some countries, even today, when anyone talks about the fragile five, we are seeing some positive trends. we are currently pulling the trigger in indonesia. we have been investing there over the past few months, slowly , buying names that we think are defensive global opportunities. >> can you give us a few? >> we have invested in the consumer space. one of them is a specialty retail company that is still growing in double digits.
even last year, 2013, growth despite inflation, despite the headwinds coming from higher interest rates, we are still double digits. >> that is one specific company. what else do you like for 2014? >> we also like some companies in turkey. we know that turkey is quite contrary and. we are not suggesting that everything will be rosy for the next six months, it will be tough after the election, a lot of political noise, but when there is extreme pessimism, you can still from high quality companies at very cheap multiples, most of them we actually like the banking space now. and i think some of the banks are getting more interesting. but our largest position is really in energy. petrochemicals, the largest shareholder, it is well funded
and has no four x risk. the company is in the midst of a major investment cycle to become vertically integrated over the next three years. >> tripping into downtown, pretty good pick. thank you for coming in. a partner there and global portfolio manager. when we come back, futurists made purchases in the cloud on image-based recognition platform companies founded by former google engineers. we will give you the larger context of how it fits into the social media companies, next. ♪
pins each day, why did pinterest by visual graph? visualerest is all about images. what they can do is tell you what kind of object is in a picture and match it with like pictures. sophisticated quite yet, but it is so much better than what they already had. they need it, because when you go there you are always just looking at pictures of food, pitching -- pictures of things you want to make. they really need to allow people to search by that, index photos by searching through the image. >> you just mentioned it yourself. shoes, faces, it will allow a kind of organization that may be pinterest did not have before. what does it mean for their monetization strategy? >> when you think about how a computer thinks about images, if
you have something labeled by text, telling the difference between, which is banned, and foodborne, that is an important problem for them to solve. they need to be able to know which images are popular, which owns or not, which ones are likely to be popular. pinterest has just started to advertise. when you talk about monetization, it is a bit in the early days. but i am sure it will help them in the future. >> of course, two former google engineers to boot, helping whatever efforts they are under. >> definitely. there is so much going on in the photo world. facebook is also trying to get into understanding what is in your photos, your videos, even. they just started an artificial intelligence team. >> thank you as always, sarah. joining us there with the very
mike's tomorrow, a major allocator will be with me, the cio for george washington university will be my guest. that conversation is coming your way, tomorrow. in the meantime, almost 56 minutes past the hour, meaning it is time for on the markets. our senior markets correspondent is there, she has everything you
need to know about trade. >> a rebound today after three days of declines for the s&p 500 and the other averages. people are finally looking forward to the fed minutes tomorrow, as well as to earnings season really kicking off and the jobs report on friday. something else people are looking ahead to, retail numbers in the next week for many retailers. we will focus on that today in the sector report. the critical holiday shopping season has come and gone. we are joined by the managing partner at retail tracker. there has been so much talk about the holiday season and promotions that went on, big discounts for many of the retailers. readwe start getting these -- these numbers, what will be the real take away? >> i think a short season, they had to be aggressive. the cold weather helped them to move key product of that had
time to it. outerwear, sweaters. i would think that sales would be good with promotion pressure, but all in all people coming through with respectable results. will you think that that come at the expense of margins? because they were so aggressive? see better will sales, margin pressure, and the most important part, people feeling pretty good about inventory levels headed into spring. that is critical, in january you still have to clean out the rest of your holiday merchandise to be clean for the spring season. >> as you say, if you are a cold-weather retailer you are in pretty good shape right now. i want to get to the cap. thursday after the close they will be coming out with comparable sales numbers for december. what do you think of that? >> you will see numbers like declines for the company as a whole.
gap has struggled, that is not exactly news. they have had issues over the last couple of quarters and there will be pressure there. to thelooking forward merchandising of the gap division. we think that we will start to see some improvements. >> we have been watching retailers very closely. urban outfitters is one you have looked at. speaking to people from the holiday season, free people was one of the places where we did not see the discounting to the same extent. how do you think the company did overall? >> strong numbers from both businesses, they hit the sweater trend right. urban certainly have their challenges with the teen market. i think you will still see a four percent to six percent earnings number, guidance for the fourth quarter. most importantly, well- positioned also for a good spring overall.
we think that that is a step below $40 that is attractive. >> is that a matter of hitting the fashion right? >> completely. they started to move crop tops and other key items in to show that they are back on trend. they are in very good shape. >> we will have to have you back on. once we get these numbers in, i am curious to hear your take. talking to us about this holiday season, mark, lots of dire predictions. we will see with the numbers actually show. "street smart" is next. ♪