tv Bloomberg GO Bloomberg October 5, 2015 7:00am-10:01am EDT
enough to buy the struggling commodities firm? >> a warning from volkswagen's incoming chairman. the omission scandal threatening the company's very existence. scandal threatening the company's very existence. stephanie: welcome to "bloomberg go." i'm stephanie ruhle. i'm excited to be here. deals, and a market that's driving up. there's so much to cover in the next three hours. who better to have as our next guest as steve schwarzman? and steve rattner joins us, who better to chime in on the volkswagen fallout. former u.s. autos
czar. and do not miss tom keene's joining us in 30 minutes. vonnie: thank you. good morning from new york president william duffy. he says the u.s. revelatory is to fragmented to stop another financial crisis. he says no single regular has the power to clement -- and when it risk reducing tools in a broad enough fashion. an activist investor on for changes. taken a $2.5y've billion stake in ge. that makes it the funds largest investment. z wants ge to do more cost-cutting and because is on acquisitions. he said ge could take on $20 million in debt. they are calling the flooding in south carolina historic. hundreds of people had to be rescued after days of torrential rain turned neighborhoods in the lake. one part of columbia, south
carolina, received more than 18 inches of rain it was still raining in parts of the state this morning. that's the latest. >> matt miller, with going on with the markets? matt: the jobs number is pushing this expectations of fed rate hikes out. in europe we are over 2% across-the-board this morning. in the u.s., futures are gaining and they continue to rise throughout the day. the s&p on the dow jones and nasdaq futures up about .5% right now. we also have buying in the bond market. it's not the typical juxtaposition you would normally see. you have the yield on the 5/8, the yield on the 10 year at 2%. we had buying pushing the yield down below 2%. you can see below 2% is a place that the 10 year doesn't go very
often. we were down there in 2000 12, we are there for the beginning of 2013. we have been down there -- that something complete with different. i was looking a commodities prices. on the other side of the terminal you can see the 10 year yield doesn't hold below 2% very much. and we are back down there after having dipped below it will bid in august. >> i want to come back to steve schwarzman. the take us all the way back to friday. jobs reports came out, they were disappointing. i think it was 142,000, and down revisions on the prior two months. how important is that as an indicator of where we are going in our economy or globally? steve s: it's important to the extent that it showing a trend. the u.s. economy has hit a little bit of a slowdown. we can see it in some of our businesses. it was stronger at the beginning of the year. but that should not be a surprise, given all the things that happened over the last few
months with dramatic changes in currency, it's harder for exports, all kinds of other issues that we are facing. commodities generally going down. it's all truncated into a very narrow window. and the fact that these things happened over six weeks or eight weeks -- it was more than everybody could absorb. the nature of that is that people lose a little confidence and they wait to see what happens. thato i am more optimistic things will go on a bit more of a positive trend because how much of this stuff can you take all of wants? -- all at once? you look at credit in the past few weeks, it has frozen up. the index going from 6.5% to
7.5%. deals that were clearing at 6% are now above 10% in the blink of an eye. steve s: that's an interesting thing, when people are fixated on what the fed is going to do. in fact, it has only happened. certainly in the lower rated credit areas. there is less credit. and the cost of it is much higher, whether it's leverage , or loans or junk bonds other access to capital. even in real estate. the access hasn't really been affected as much. but the interest rates are up a bit -- not nearly as much as in the corporate world. stephanie: what does that mean to you? seeing that credit has been frozen, does that change your views? steve s: this is not abnormal. we have lived through many cycles. stephanie: we haven't seen this in a while. we can't say in the last 10 years -- how many times have you
seen credit make a move this quickly? steve s: this is been a big move in terms of interest rates on the corporate side. not so much on the real estate side. the answer is several times. >> does that create opportunities for you at gladstone, in the sense that when the credit price goes up the price of property goes down? steve s: that's what you are seeing the linkage with the stock market. every thing has gotten cheaper because credit has gotten much more expensive. among other reasons. >> more globally, do you think that the global economy is growing at a healthy rate, or do you think -- how does that affect your business? steve s: the economy is growing on a global basis. you start in the u.s., we are somewhere in the twos. europe is growing around 1.5 percent. that's 45% of the world's gdp. that's a pretty good solid
amount of growth. china is somewhere around 13% of global gdp is slowing down, but if you saw the world bank statistics today, that area of the world they still think is going to go at 6.5%. the lowest numbers i've heard in china or somewhere is around 6%. i could be wrong. david: do you believe those numbers? steve s: there are no numbers that can be believed, not because people are telling untruths, they may not have those numbers themselves. you end up looking at official numbers, and innuendo you end up looking at anecdotal things. for example, in china, we own a lot of shopping mall. for middle-class people, not for the high-end fashion malls. we are up 15% this year. stephanie: how? it seems like the middle class -- that consumer is getting her drastically. -- hurt drastically.
steve s: it says that on television. it may not say that in the real world. --phanie: tell us what final china looks like that you can see that we can't. steve s: china has some things that are going quite well in the consumer economy. like andme things -- steel, and certainly with manufacturing and exports, which are not going well. it's more of a mixed economy. two years ago, everything was up. it was up really big. economytions of their are up really big, and certain sectors are not. david: with your shopping will experience, you would say consumer demand remains robust in china. the consumer demand, middle-class, for certain types of things. the kind of stuff that actually was keyed more to corruption, some of the people who were spending money at the high-end
-- those people have disappeared in terms of their source of money. but the regular consumer is doing pretty well. been thisk there has ,lmost panic, vis-à-vis china whether it was hard landing, whether it was recession. i don't think that's going to happen. i was at a dinner that hank paulson had in washington as part of this roundtable. there were about 20 people around the table, and everyone was talking about their business in china. the worst was an auto supplier who said their business was flat. in the auto sector was actually reported down a few percent. his business was flat. as i sort of trying get a feel has a lottuff, china of complex issues. not just gdp. they are moving ahead, and they
are reorienting their economy away from exports, to the consumer. fed, ishe back to the the rate hike off the table for the fed for this year, in your judgment? steve s: you have to ask janet yellen. people of been asking for years. stephanie: do you care? steve s: i don't care. we doesn't make much of a difference. interest rate hikes of 25% that people have been talking about for 2.5 years -- really. if you haven't discounted a lot of this stuff, they have the issue that raising interest rates is probably a good thing. however, the problem is that because the u.s. currencies appreciated against a most everyone in the world, in effect, we've had the impact of an interest rate increase already through slowing of the economy. aephanie: would you have
different view if you didn't have money locked up for so long? that have tounds offer monthly, quarterly, daily liquidity. would you be singing a different song if you had offer that kind of liquidity? i would probably be doing opera instead of whatever popular song were talking about. i don't like the idea of being subject to short-term volatility. sell at the wrong times and by at the wrong times. our job is to be pretty dispassionate about these types of things. you can't do it if people are rushing to take their money out. david: it takes us to glencore. stephanie: we are not dispassionate about having you here. it is an honor. steve schwarzman, he is with us for the whole hour. we have a lot to cover. the 9:00 a.m., we have hedge fund leverage -- legend marc lasry joining us. tweet us your questions for him. when we return, volkswagen's
both andcome you congrats on the birth of "bloomberg go." backy's jobs report pushes excitations of the fed raising interest rates. minors rising along with commodities, we had some data today, pma servicing and manufacturing showing growth in the region is decelerating, or is at least faltering. that's the view from today's market day to -- dana. u.k. services expanded at the slowest pace in more than two years. portugal was interesting, the coalition led government which was pro-austerity won the majority of votes in the weekend election. austerity sometimes pays. 72% in hongcore, kong. telegraph newspaper report suggesting the company is open to a bed, but it won't get a fair price in this market. stephanie: mark, thank you. we have to stand glencore and commodities for the moment.
what do you think of the commodities market? commodities want to china. not ever come onto -- not every commodity ways out. it's disproportionate for any country. china has slowed in terms of building a denver structure. it has built a lot, it's built a lot of real estate and other things. they are consuming less, and that's dramatically impacting countries around the world. david: the nature of the business doesn't permit for quick retrenchment of the supply side. they have big minds, the development cycles are five to 10 years. when supply comes on, it just crashes the price. if the demand is going to be soft, there is more supply, you don't have to be a rocket scientist to figure out that this is -- they call it the super cycle -- is over. for people who are in that
business, that is a very harsh reality. you have to go out of your high cost manufacturing, your high cost lines, you up to trim your overall costs. and you have to hope the world starts growing. it will make your life more adjusting. stephanie: you don't have to be a rocket scientist, but in the commodities universe, glencore has been considered the smartest guy in the room. how you read them today? the man who runs the company is very smart. they've assembled a huge business. , they may have gone one deal too far, and everybody is hurting. stephanie: does that mean you could want to buy some of their assets? steve s: their issue is their debt is higher than other companies. that's what creating this kind of whirlwind that is directed
against them. world, you can communicate instantaneously everywhere. to the extent that someone says glencore is in trouble, people hear it, people start playing it, that creates adverse movements in the stocks and other things. these are very tough, clever people. they are not going down. stephanie: so are you. does this mean you want to step in and buy some of those assets? steve s: we are very big in the assets -- the energy area. it's much more fun to buy things in the 40's and perhaps it was in the 90's. david: is a lot of pressure on them to sell. steve s: that capitulation takes any of thehile in commodity areas. it doesn't happen in a week or two, or three, in energy, that six months to a year that we start seeing more distress.
at that time, for people like ourselves, it's a wonderful opportunity. to say, whenever we talk about glencore, we need brower, is aeter member of the board of directors. time now for a bloomberg bites. about the likelihood of for glencore.t with this chart shows is as the talk of glencore has gone up, so is the talk of a lehman moment. this is lemmings in the news business, basically. stephanie: i love a bloomberg bite.-- is this similar to lehman brothers? steve s: it's not similar to lehman brothers at all. a tragedy in terms of
its collapse because the vast proportion of lehman was making a lot of money. it was really just the real estate business that was somewhere around 30 -- $30 billion to $35 billion out of $75 billion in assets, which was the problem. had we had a different regulatory structure, they could have spun that business off -- the real estate business -- and the rest of the company could have made enormous amount of money. david: steve schwarzman, staying with us. next we talk about volkswagen is we're joined by steve rattner, talking about their incoming chairman and a next essential moment for volkswagen on "bloomberg surveillance." --"bloomberg go." ♪
as an incoming chair the supervisory board, and he is warning that the cheating scandal could threaten the company's very existence. dealing with the investigations in the united states and abroad, 30 states so far investigating. the claim as they used software to fool regulators about true emissions of its diesel cars. credit suisse is saying it could cause the company upwards of $87 billion, which says it's almost the net worth. stephanie: you were making a face. steve r: it doesn't seem to me that's the way it's going to work out. this is obviously a heroic problem, but this is a company that has amazing consumer support. not this week, not this month, but ongoing, the make terrific products. this will work its way through the legal system sometime, and a very just will be
unfortunate time for their securities. i can't guess how long it will be. stephanie: are they going to lose that support? people love them, and then they find out the executives are cheaters. volkswagen does not have as big a market share in this country as it does around the rest of the world. if the second-largest maker of cars in the entire world excusing china. in any event, they are a huge maker of cars. they do have enormous brand loyalty and affection, this aside. there will be a price to pay. as will be a bit like bp, when they will certainly have to pay. penalty the company will go a lot of existence. there will be enormous cost to security holders and equity holders and so forth. stephanie: for long-term investor, it's a buy, short-term will have to go on a volatile ride. steve r: i'm not here to give
stock advice, but in the short-term term, it's hard to see much good happening. longer-term you have to see how some of this unfolds. david: right now you are buying uncertainty. they don't know where bottom is. you would like to have some sense of where the bottom is before you make decisions. steve r: uncertainty cuts both ways. there are times during the bp crisis where you could have bought bp stock at a much lower price than it trades at today. it's hard to find those bottoms. david: steve schwarzman and steve rattner. the on "bloomberg go," morning must-read with tom keene. stephanie: that's next on "bloomberg go." ♪
favorite city. tin's city. welcome back to "bloomberg go." still with us, steve schwarzman and steve rattner. and wait for it -- "surveillance," anchor tom keene. the photo looking at hong kong, i had a suit made of the white tower. stephanie: you've been looking at the markets. what are you focusing on? tom: things are doing better after the shock and all --awe on friday. what will the chinese do? they devalued, then they depreciated, and the market said no. so they have been on a two week appreciation of the currency,
that's a litmus paper. , that's chemistry stuff your thing. stephanie: i was taking home at, i don't know. steve s: i think the chinese are going to stabilize the currency for a while. you were committed to that because they had such an adverse reaction to the devaluation. for aeally just came up few weeks later and stopped it and they think they can support that for quite some time. a friend who told me the chinese were shocked, they didn't expect that reaction. stephanie: that's what is so special about "bloomberg go." it's clear they were shocked and eternal most instantaneously. and there you have it. almostthey turned instantaneously. people think they will be evaluating because almost every
currency in the world has gone down compared to the dollar. they have been linked, and it is hurt them. somewhere from an economic perspective, it's in their interest to have more float, to have it go down politically. that hasn't played well with a lot of their trading partners. leave the u.s. aside, their trading partners in the emerging really hurthat's their currencies, which makes life worse for them. better,e: where life is let's give you some news. vonnie, with the headlines? vonnie: negotiators are on the verge of creating the largest free-trade agreement in the nation. they're going in on final details for the transpacific partnership. the agreement may be announced today in atlanta. it deals with everything from tariff reduction is to international property rights. apparel has filed for chapter 11 bankruptcy protection. the chain is reorganizing.
american apparel has been in turmoil since last december when the attorney was fired as ceo for alleged misconduct. in the wake of a deadly shooting vail --n, they will in unveil new gun legislation. they call for strengthening back run checks and repealing the deflation that protects bank -- dealers from lawsuits. stephanie: are you a big american apparel guy? i like them. matt miller is checking on the markets. matt: futures continuing to climb it. we are a .6%, .7% as far as features go. this is my terminal, you can see s&p futures continue to rise up. you see s&p futures up .8% and the nasdaq.
we continue to see more risk on jobsd today as the bad number on friday pushes industry expectations out further and further. if you take a look at currencies, you can see the dollar weakness against everything but the yen. here's the euro right now at , you can see a little bit of yen weakness there. but dollar weakness there against the pound is 151 and 152 four pound. commodities prices rise with the exception of gold on most across the board. crude istures are up, up, it's a very interesting story. the saudi's came out over the weekend and cut their prices, you see crude continue to rise and gold down, kind of a risk on trade. that means the gold bugs don't need to worry about the running press is starting to run any time soon. , don't go matt anywhere. we have the morning must-read.
we are going to check in with tom keene to see what our viewers should be reading. you have something this morning from "bloomberg view." tom: it's from aaron schilling with the best of on call in the last 20 years. bring up the quote from dr. schilling, this links to commodities. those capacities began to come on stream in 2011, as long as market prices exceed market -- marginal cost, more production is encouraged to make up for lost revenue. some producers will raise output even when prices fall below marginal costs. steve rattner, you know microeconomics are the foundation of all this. the microeconomics of cheap money is build supply. steve r: i think it or quote points out, and i agree with the point, you have all this production coming on stream, some with relatively low marginal price of production.
even higher cost producers are producing for the reasons he said. by don't see this commodity weakness ending anytime soon. stephanie: matt miller, what is the terminal telling us? about commodity prices, if you are looking at glencore, have an interesting chart for glencore. and that is the fault risk, which continues to rise -- i'm locked out of there. stephanie: really? matt: he continues to rise. it has come down a little bit over the last week. we've seen the price of glencore,. -- come up. you can see commodities prices continue to come down but we are seeing a bit of a reversal of that trade today and on friday. and also a reversal of the glencore plummeting today on friday. over the last friday's you've seen glencore rise and take back what lost on monday. it still down 55% year to date. steve s: i understand this is
bad news for those in the commodities business. david: those commodities are inputs for some outputs. it should be benefiting someone in the manufacturing sector. op-ed topoint of the the life that steve schwarzman leads is markets have to clear. we are not alone for balance sheet to clear because the greece and the engine is dirt cheap. we can find endless oil to save our lousy engine. steve schwarzman, when her ballot she's going to be able to clear for commodities? steve s: it takes a while. people have to be in financial distress. tom: it's tough to be in distress when money is free. once you actually build something, it's just the marginal cost of taking it out of the ground. if you don't take it out of the ground, you have no revenue. and so people tend to produce more than you would think. stephanie: what is going to break this debt spiral? they are overproducing while
prices go down, and while prices go down they are producing more. steve s: basically an end to future projects. over time, demand grows. the use of commodities will grow over time. and we work our way out of this, faster for some commodities, ironically, oil, where the supply demand margin is thin. and lower for iron, with his vast amounts of iron oil -- iron or being produced all of the world. -- david: does this increase the likelihood of making big capital investments because it's cheaper? steve s: you can't find anyone who wants to make a capital investment in this environment. this is really a bad environment. that's not when people build things, they are caught midway. i indicated that for minerals, these projects take five to 10
years. steve r: this is a byproduct of a lot of chief economist having bad forecasts three or four or five years ago. growth rate world's was going to be. they created capacity for growth rate that just doesn't exist today. tom: i want to give you a massive victory lap. i saw you one night in the renaissance walked by, you look like death warmed over. everyone in your detractors agree it's something. great. what would you do now? [laughter] the car in history have a structural problem. we also always believe that people weren't going to buy cars again because you need cars to go places. we weren't worried cars were going to be outmoded.
the commodity thing is a commodity price cycle. there have been a thousand more in history, and i don't think you need is our for that. -- a czar for that. these are markets. they go up and go down. don't stress over commodities. itve r: you have to look at that way. in china was buying half the commodities in the world, they -- buying less of them that's not a business you would be dying to go into. steve s: china will continue to grow at a lower rate. but there are a mix of things they buy, that will change. tom: i don't want to step on private matters, but mr. kravis and his team had to take write-downs samson resources, an example of venture capital markets clearing out. do you presume it will be more of those events as we go to the end of the year to right size accounts for next year? i think it will be a
bunch of that in the energy complex, which is why the junk bond yields on energy are skyhigh, and you almost can't do it. that trouble is coming. it just comes in little bit in slow motion. it takes a while for banks to reevaluate their estimate of what reverse -- what reserves are and what they are worth. that will have its cycle. financialon't confuse engineering with was actually going to get produced. tom: with mechanical engineering or civil engineering? i like that. they are going to go through bankruptcy and restructure, so are lots of others. but the numbers you should be watching our drill counts, u.s. production, numbers like that which are coming down very fast. this was going to bring supply and demand back into balance. david: thank you, tom keene. before you go, let's talk about
the supreme court of the united states. first monday in october, which means it's the first day of the term. stephanie: look how excited he is. david: there's one case we should watch, which would involves r.j. reynolds. it's a rico case, and it's a question of whether it can apply extraterritorial he. sued r.j.mpanies reynolds about money laundering and you do with drugs in latin america going for european banks. and they say what's this got to do with united states? the supreme court, to everyone's surprise, is taking this case. upphanie: look at how amped this guy is. it's like a law review. tom: to this day, i don't know what upheld means. david: the lower court was right. stephanie: tom, you're never going to be. tom keene racing back to the radio booth because our listeners are panicked without
afghanistan where its hospital was bombed. there also may have been struck by accident during an air raid. 22 people were killed, afghan forces have been fighting the taliban in the area. the u.s. plans to turn of the heat on the islamic state in syria. ,ccording to the new york times they will open a major front in the northeastern part of the country. for the first time, president obama has ordered the pentagon to provide ammunition and possibly weapons to syria rebel forces. scientists from japan, china, and ireland have won the nobel prize in medicine. they were honored for discoveries that helped doctors fight malaria and infections caused by roundworm parasites. it's the first time china has ever had a nobel medicine laureate. that's the latest. stephanie: thank you, vonnie. excited to talk supreme court. we have to talk presidential election. taxes on wall street have been a big issue for the left and the right.
here's donald trump speaking this last week. trump: it ends the tax rates for speculative partnerships that do not grow businesses or create jobs, and are not risking their own capital. stephanie: donald trump is the front runner. can you believe this? that supports guy doing away with retired interest. david: i think what donald was whatg --steve s: i think donald was saying is he is focused extensively on financial activities that don't create jobs or economic growth. in the private equity industry, that's what you do. stephanie: no one seems to know that. mitt romney couldn't articulate to america that private equities is a job creator. steve s: you were a job creator because of you grow your company's fast, and you put leverage on them, you will make much more money. firms like blackstone, for
example, earn about double for their customers what the stock market ends. is youy way you do that have to have companies growing faster. stephanie: the american people don't know that. no one has told him that story and they look to donald trump is the business icon. steve s: donald said on his tax things, he was against hedge funds that are basically in his view, investing in financial products. it's unclear what he wants to do with other types of business. , it's anxes generally important issue. it needs to be addressed on an overall basis. it is interesting to me that many of these candidates are going to more of a flat tax and getting rid of more and more deductions. i have always thought that to do that, whether it is with two great points, or three, and getting rid of all deductions
would be a very simple way of having tax. everyone would understand it, there would be an inherent fairness with it. you protect people at the bottom with a safety net. why is that not a good thing? david: steve rattner, that makes sense on its face. but donald trump is saying he will cut $11 trillion out of taxes and grow the economy 6% a year. which sounds a little -- 8% a year. donald trump said yesterday he had massive tax elections. so much so that he didn't know if he was going to benefit from his own $11 trillion tax cut. i think if we ever get a look at donald trump's taxes, we will see in living color all the things that should be changed in order to make the tax code more fair. it tax plan is ridiculous, isn't paid for, it can't be paid for, we can grow that fast. he simply took what jeb bush put out, which was also on the
aggressive end, and put it on steroids. david: we know you have been a supporter of democrats in the past. is anyone on the republican side making sense about their economic plan? steve r: we don't have too many economic plans out, we have 's.hes and we have trump i think like john kasich makes a lot of sense when they talk generally about how -- david: he's done a pretty good job in ohio. jobe r: he's done a great in ohio. we have some sensible people out, but they have not put out their plans. david: you just met with john kasich. steve s: i like john. he has done a remarkable job in ohio. he won his last election by 30 points. i've never heard anything like that. he is quite experienced, and he is a good person. he also worked at lehman brothers.
that's a theme through the morning. stephanie: david, you have a different background. in the media world, these candidates -- many people are saying john kasich, who is he? how quickly can a candidate turn things around and become front and center? people have known donald trump, he has been a celebrity businessman for years. ohio, which ism important when it comes to the election. -- i know him some, not terribly well. of havingrikes me a lot of jeb bush is strength. he also seems unplugged and genuine. in that first debate, he was asked a question about same-sex marriage. it felt like a heartfelt response, he said he personally would object, but he would love any relative that was part of that. he was like a genuine person to me, from what i know of him. steve s: he's a genuine person. so is jeb.
thinks, and what he he is very delivered about it. he hasn't gone up as much in the polls as he can, but to stephanie's question -- what does it take to break out? i think you have like 18 people trying to figure that out, at least. they just happen to be candidates. look what carly fiorina did with one debate to performance -- one debate performance. we live in a television world, where if you have a good night, it could be a good career. stephanie: does that mean the media hasn't this portion amount of control right now? carly fiorina did fine, she did really well. but the next day, the massive support the media gave her -- it almost made me want to watch it again. there's media and money. you run out of money before you run of votes. the real question is, who has the money to stay the distance.
jeb bush has clearly raised a lot of money, hillary has raised a lot of money. stephanie: jeb bush has the money, but not the voice. steve r: it's different because of the super pac's. if you have one very wealthy ,onor to fund your super pac where they frame the lines between the two kinds of money, to be split day your travel and events, you can stay in a long time even if you are sitting at 1%, 2%, 3%. stephanie: you know who has the money? blackstone. you just had your 30th anniversary. as you look back, tell us -- what would you do over again? steve s: this is pretty astonishing, for my perspective. andtarted with two people $400,000. we never put any more money in the company. if you months ago, before the markets decided to go down, we a $5252 billion -- billion market cap.
we are private equity, real estate, hedge funds, credit. thet half of the size of entire industry, in terms of public companies. really an amazing thing. but it is sort of like any sporting event -- you win it one play at a time. what you have to do is always protect capital. stephanie: after break-in. twitter has officially announced cofounder jack dorsey is now becoming their ceo. twitter, a company that has had many management fails in just a few years. for you, again, extra care. david: i'm going to say this is the least surprising breaking news we will have today. aren't you shopped? -- shocked? stephanie: they have had fail after failed. is there something you would change? steve s: they are always things. opportunityi had an
-- sort of in the 1980's -- to buy a 20% interest in a company called bloomberg. stephanie: i was hoping you were going to say that. steve s: which is where i am today. stephanie: you have to be kidding me. you said no? steve s: i was talking to mica, he wanted a partner, i thought it would be a great idea and i told him the only problem we had was we have money tied up for 10 years, and we have to give the money back to the investors. stephanie: i feel like julia roberts and "pretty woman." big mistake. we have to go, blackstone ceo steve schwarzman. ♪
on energy,g down there may be a takeover battle in the oil standards industry. david: welcome to the second hour of bloomberg go, i am david westin. stephanie: and stephanie ruhle. we are joined by brendan greeley. welcome to bloomberg go. david: i learned a valuable thing last week about willing -- will ask investors. there is one investor who will be joining us later, to say i am excited is an understatement. hood, paulrobin
tudor jones will be with us. twitter has officially named jack dorsey their ceo. jack and i are sort of -- dorsey has been on the board the entire time. he is the cow founder -- the cofounder. since been acting ceo august. this company needs a strategy overhaul. can someone who has been there since the get-go do that? david: we are about to find out. brendan: i would argue no. -- if yout challenge are outside, how do you come in and make it make sense? investor nelson tells has taken a stake in general electric. ge is the largest under fund
management. it is now one of the top 10 shareholders. peltz once the ge to take on debt and repurchase shares. hundreds haveina, been rescued from historic floodwaters. days of heavy rain have swamped homes and businesses. another six inches could fall today. thousands have lost power. it will take weeks to determine if roads are safe. hillary clinton will outline her gun control plan today. she wants to repeal legislation and protects gun makers dealers from most liability. she would take executive action if congress doesn't require sellers at gun shows to be under the same laws. david: let's talk about the
market specifically. matt: we are up 8/10 of 1%. we are up .7%. what i like to do when i come in is look at what the market did in asia overnight, and what is going on in europe. it is a great precursor. if you look at my bloomberg terminal, i pulled up my function for european markets. this is not useful, it is all green. 4% and telecomp is up 3%. commodities, stocks and some i.t. that is doing well this morning. i want to look at twitter after the announcement that jack dorsey is going to stay on as ceo. to make surets that they had a ceo who was only focused on twitter. stephanie: hold the phone.
who sits on the board? dick costolo? matt: off the board. they wanted someone -- they telegraphed this pretty well, they wanted someone who was just the twitter ceo. jack dorsey will run both. those two offices share a parking lot. we will get into twitter over the next hour and a half. but first, we have to go back to nelson helps -- nelson peltz. they have just taken a stake in ge. what do you make of this? brendan: it looks like an equity move. is not a grand strategic vision, it is hunkering down. said, we invested
because it is undervalued and underappreciated in the market, it will be a transformation that will allow the business to drive attractive shareholder returns. >> this is what struck me. why did it take so long to do this? there has been grumbling about ge stock price for years. >> ge has underperformed for years. reasons, it set of has been a struggle for ge. to be able tong buy big shares if you put the stock out cheap unless you are in a position like nelson helps -- nelson peltz. stephanie: is it too, located a company to take an active mistake? brendan: has there been also arallel to the china,
structure in a chinese building, and are we going to see growth in america? a bet on ge is a bet on infrastructure. trains, and all of those things -- brendan: exactly. is it a simpler company now to do this with because they have been getting rid of a lot of financial assets? has this triggered this? know, they may be bad for a couple of reasons. regulationsfrank made operating an industrial company with ge capital inside of it very problematic and challenging. growth.he earnings stephanie: this is an important part. many people think this only affects banks.
>> this is a subject that is being widely debated right now. over companies that are not systemic companies. -- i was going to say, insurance companies. they are not systemic. ge capital could be closer to being systemic, but that is part of what was going on here. matt: there is a terminal function that had been playing around with for a lot of different companies, it is called default risk. general default risk is very low. it is terribly low at that ge would default on debt. you can see though that it has climbed up to -- and the shareholder has -- the share price has gone lower. i think it is a very interesting function. you can play around with a bunch
of variables here. i was looking at it because of glencore and volkswagen. seeit is interesting to that ge, the least likely company to default, the risk has been climbing. that means people are pushing up the price of swaps. more about what people think about the business. i have been looking at spark spreads. it is a crack spread for natural gas. it is a measure of the price of natural gas, and what you get paid for general electricity, it is a bet on natural gas turbines. so 50% of natural gas turbines are ge. so if you look at spark spreads and the u.s., they are doing better. the real question, is it regulatory? will there be a movement towards
pricing it differently? if it does, ge is in a good position. stephanie: this is like -- david: this reads like a most friendly activist investment. he will be supportive. >> one of the things here is the shift, it may not have had the best timing. it is coming about just as the demand for a lot of these big products seems to be soft. david: is it ever the case, is to welcome this because there might be things you like to get done? stephanie: this is a great point. steve: i can't look into every ceo's head. say, oh no. i want to run the company my way. brendan: but that is hard to do.
it is good to have somebody else to blame for part of the responsibility. so you would love to have outside voices percent thing that you want? cutting costs is really difficult, because typically, it is people. so to have somebody else to , and the responsibility also, it is not my personal whim. the market is saying we should do this. someonee: if you have from the outside saying you should be spending, it makes it easier when you turn to the board and say -- brendan: that is what keeps consulting businesses in business. say, the guys from ge told me to cut costs, i have to do it. stephanie: i am learning, i am learning. we are going to get into social media. david: we want to know what you
have completed the largest free-trade deal in a generation. the u.s., japan, and 10 other nations have reached a trans partisan deal. a news conference is expected to be held within the hour. doctors without borders is pulling out of could induce, afghanistan after the capital was long to. hospital may have been struck by accident, people were killed in the attack. forces are fighting the taliban in the attack. doctors from ireland and china have won the nobel peace prize. -- nobel medicine prize. it is the first time china has ever had a nobel medicine laureate. david: good for china. there going to talk about
deal, we had jeff mccracken here . we are going to talk about here first. this is the slowest rolling deal. >> right. what have they been doing for the last 2.5 weeks? they have been lining up about $70 billion, with about -- with banks like bank of america and santander. we are pretty certain that there are some discussions about abi and sab going back and forth. -- this time.d on was about getting through regulators, but we haven't even addressed regulators. >> we don't even have a deal yet. they were chatting back and forth about what sab wants. they want to make this a friendly deal.
then they would that to the issues that regulators will bring up. david: so they are trying to get the terms. >> the financing is not an issue. stephanie: even though the markets have gotten significantly worse over the next -- over the past few weeks? roughly nine days to get a deal done. sab could extend it out. this is where the panel in london will determine how quickly the deal can get done. we will know this week about what the offer has been made from abi. david: they will have to sell off some assets, we believe. right? >> right, they will have to sell off the miller assets. you can't have but wiser and miller be part of the same company. so that will get sold to molson coors.
shares popped 10%-50%, because people anticipate them buying it. david: they think they can get a pretty good price for it. let's turn to canada. have been expecting for a while that oil prices would come roaring back. 40has settled, but it is something a barrel. are goingy they after, canadian oilsands, their shares are about one third what they were a years ago -- one year ago. this what wen't are seeing across the board in the commodity space? the big guys are picking up the small guys who are strangled? >> this may be the exception, but what happens typically when you have dramatic price readjustment in anything, the deals tend to stop for a while.
the buyers still don't know, they aren't sure and the sellers still think it is $100 or $80, so they -- stephanie: they are delusional. >> that may be. jeff: they are trading at about six a share. so i doubt they will want something greater than the offer that will be made by suncor. stephanie: if you thought m&a was flowing while the market was backed up, when we return, we will head to the bank. ♪
david: you are watching bloomberg go, welcome back. stephanie: we will take you to the morning meeting. singldeskng, every sits down, led by research and covers all of the big ideas you need to know. today we are over to bank of america. we are joined by ethan harris. i'm guessing it has to be the fallout from the jobs numbers. what are you focusing on? forward, everyone is very focused on china right now. orl they have a hard landing will they start to come out of the funk? unfortunately, we have been
caught in a statistical fog for a while. -- big not a big news week for chinese news. we have to wait to see of china improves. on the u.s. front, the focus is badhe dichotomy between the mining sector with a lot of negative shock trade but a very good service sector. so today we get the number one timely indicator for the service sector, the purchasing manufacturers index. that will be the big focus this morning. we expect to slip a little bit from 50 92 57. still a very healthy reading on the service sector. we had steve schwarzman on earlier, and he talked about china. we may beat overreacting to the negative numbers that have come out. that they are seeing robust sales in the middle class. is that consistent with what you
are seeing? think the worries about china have been overdone. china has a slowed down a lot, but it is too early to throw in the towel and talk about a crash. the government will continue to add stimulus measures. they haven't given up. you said, there are pockets of strength in the retail sector , so while china is hurting, commodity countries that sell copper and aluminum, they are hurting their, but there are some pockets of strength in china. numbers,ven the week gdp numbers that continue to come out, what is the argument for the fed to raise rates anytime this year?
ethan: the argument would be, things have slowing -- have slowed down. is stillverall picture moving up, even with the slowdown in the jobs market, we are running at about 140 that -- 140,000 gain per month, it is still an improving trend. that is in something they want to put the brakes on. the zero interest rate may not be the right range. that was ethan harris, steve schwarzman, thank you for being here. ♪
you, paul tudor jones, the founder at tudor investment corp.. cofounder, ifite you have a question, tweet us. we have a lot we will dig into. at first, here is the news you need to know. vonnie: twitter has made it official. jack dorsey has now been named the permanent chief executive. remain ceo of square. the bigneed to fix problems. growth has slowed down. -- the 50 most influential people. has been told that she is holding in her hand, a new economic era. and, it is the biggest movie opening of the year, the martian took in $55 million this weekend.
it stars matt damon as an astronaut stranded on mars. that is the news you need. david: thank you so much. we are going to match miller. continue to climb, they came down a little bit in the last few minutes of a session. at my take a look terminal, you can see, i have crafted out. it is a risk on that day, they are selling bonds. so buying equities and selling bonds. prices, look at the oil even though the saudi's cut the price of their barrels over the weekend, we see the oil prices continue to rise up and the reason is that the grid count fell over the last week by about 16. crude, ite nymex continues to come up over $45 a
barrel, $46.06. we have energy stocks moving higher in the premarket, exxon , basically anyone connected to oil for right now is gaining because the price of crude is rising. i am very excited. we are going to talk about something that is very important, good is this. is aiming tones rank top u.s. companies, surveying americans to see what matters the most. talk to estimate -- talk to us about this initiative. paul: thank you for hosting the national fish and wildlife -- it was the biggest event ever and your passion came through and you were spectacular. stephanie: thank you.
your passion is not just fish and wildlife. talk to us about what you are doing right now. capital, the larger mission is to find the right balance between all of the various stakeholders and how we do business in the country today. we have shareholders, who , wealk about all the time have employees, customers, local communities, the environment, and i think what the mission is, it is to try to bring dialogue and balance among all of those competing interests. much of awe have so focus on profits and shareholders interests, sometimes to the detriment of other important stakeholders. this is an effort to give everyone a voice.
david: you happen start in your terms. you said we are losing the humanity and capitalism. how bad is the problem? paul: i think the topic of the day is quality. is probablying that the biggest social challenge we have. it is something that can really harm this country if we don't deal with it. the question is, how do you deal with that? sectorre public solutions and private sector solutions. when the idea of just capital first surfaced, three years ago, --tudent in deep october a he said, why don't we put together an index of companies who are pursuing justice? we would have a great index of companies for people to invest in.
it and ito talk about became clear that this was a good idea. i will be frank with you, i have been on wall street for 40 years. was anthat there investment business around social equality, which speaks to the fact that we are to focus on profit as opposed to other things that are really in and. stephanie: if you didn't know that that existed, and you are clearly someone who is head of the firm, how do we get people to care? only talk about shareholders, they have a bigger megaphone that people who go to whole foods and so how? again, the whole development of this idea, i liken it to when the internet was first created. stephanie: wow. paul: you have a professor at
ucla who first connected, little did he know that it would morph into what it is today. epak and i began looking into this, we realized this was an investment firm. but then we realize what we were really talking about is harnessing the power of the private sector. $14private sector is trillion. you can try public selector solutions, you can try the tax in theut the elephant room is moving the private sector where employees work, what kind of products that are being made, how companies are managing sales -- that is where you are going to have changed. david: there are different views on this.
a lot of people believe there is a big problem with inequality. some people think tax credit could be a solution. we talked to warren buffett recently. he believes income credit is the way to go. >> we have an enormously rich in real it is six times terms what it was when i was born. imagine that. it blows your mind. he is talking about how rich the economy is, but he is concerned that it is not getting shared with everybody read you think the private sector approach would be more effective? rome wasn't built in a day. it wasn't bills by one carpenter. , our will be many tactics idea to create an index of the 1000 largest companies in america and ranking them 1-1000
based on their justice is one tactic, it is an important tactic. the key feature of what we are doing in this ranking, there are many industries out there. stephanie: let's pull this up while you were talking. we have a graphic. there we go. paul: so it is a two-step process. the key feature of why i think this could be transformative, the rankings for our index, we have gone to the american public. we pulled over 40,000 americans. david: this is like crowdsourcing? exactly right. very sophisticated crowdsourcing of what americans think is just. we have asked them what do you think constitutes just behavior? and as you will see on the
graph, the number one and two , fair pay, making a living wage, and secondly, how do companies treat their employees. how are my and how am i treated? do i get the respect that i deserve? did the results of this survey affect actual changes. because what people say they like and what they do our those go different things. paul: that speaks to why we put this index together. we are going to poll the american public, ask what caused behavior, they are going to take those attributes and we are going to -- in an honest and high integrity fashion -- take those attributes and apply them to the actual things companies are doing and the way they react and the way they act. stephanie: what do investors do with this information?
paul: every year we will poll the american public. a representative sample of the american public. we take the attributes and sample them -- and score them on the web in a transparent way, and we will get feedback from them. we try to do it in the most honest way with no bias. our job is to amplify what americans think is just. david: the only way to change is you have iss reflected in the stock prices. people will say they want invest in the company unless they are highly -- paul: we will take the 100 best companies and we will create the just 100. we will each take the top company from each sector and we a logo, which some
great marketing person is going to help us create, where we the top, and the vision is that the logo will be ubiquitous. when you go to buy a hammer or a car or a box of corn flakes, and versus ahis logo company who doesn't have one, you go and buy that product. oh, retail and products. when paul tudor jones has a come true.eems to he is staying with us, we have a lot more to cover. marc lasry is joining us, tweet us what you want to ask him. ♪
david: welcome back to bloomberg . theant to talk to you about greater issues, and you were telling us something in the break, a 1% shift in investment? stephanie: in consumer behavior. behavior. a woman percent corporate inft is another shift shareholder holdings in total u.s. assets is $350 billion a year, if you added up, that is $600 billion a year, and that is annually if we can just graft people -- draft people towards more --
if you could encourage a 1% shift annually towards companies who are just, according to those on your index, then you could have a $600 billion shift. paul: exactly. let's say i am a company who is ranked 1000. let's say, it is because i make a product that kills people, like cigarettes. let's say i knew as a board member, i knew i was signed up for that's when i got there. but what is my competitor is 750. , why am iask myself below my competitor? why am i ranked here and they are there? it will be a competition for goodness. david: it could make the biggest
difference in the world. stephanie: we are talking about consumers spending money, how investors invest their money -- i do, i have a lot of job opportunities out there. what sparked this for you is income inequality. you have been the head of the income inequality crisis, so let's talk about what the fed has done. ago, the fed stepped in because the economy needed it. but now here we are, the fed is keeping the rates where they are. what is that doing? what is it done to the american people? for: well, we could be here hours. it isality is that clearly illustrated -- the fed won't raise interest rates now,
it is acknowledging to me a much larger macro issue that is if you think about the last 50-60 years, there is a perfect negative correlation between the interest income pay by the federal government and interest rates. so the higher the share of gdp paid in interest income by the federal government, typically, that does correlate with high interest rate also. so what the fed is doing is recognizing this is the tail and theynterest rates, -- stephanie: they don't seem to care. paul: they are recognizing this tail risk, and they are seeing that it will have negative consequences five-10 years from now when inflation returns.
david: let me get to a twitter conversation. "do you think yellen will raise rates this year? " i think it is an interesting time in the market. financialk at conditions, where global growth is going, this is typically and theorically associated with fed lowering interest rates, some type of interest rate relief. that has always typically been good for stock markets. yet now we have a central bank that for the first time, it has met its match in terms of the bydit match equation, and that i mean, when you look at the balance sheet, there are they are uncomfortable with the size of it. they are concerned about the expanding global debt, the gdp,
and they are trying to probably insert back into the equation the fact that the interest rates can rise. it puzzle yous that they haven't raised rates already? they had their opportunity last spring. they missed it. they are trying to catch up. all you have to think about, zero rates encourage the nonstop borrowing from the federal government's because the interest income as a percentage, gdp is at one of the lowest levels because rates are at 0%. but it does encourage bad behavior by a variety of different stakeholders, not the least of which is the federal government. stephanie: stay with us. paul tudor jones is staying with us. when we return, we will get into politics. in the 9:00 hour, marc lasry. there he is.
stephanie: we are here with paul tudor jones. you were just talking about how there is a major macro shift in the market. paul: i think the federal therve is matching for balance sheet, as opposed to local economic conditions. kind time we have had this of set of macro variables, a huge bear market in commodities, slow global growth, you have seen the fed respond with an ease, and i think of 1998 in
particular. now, i think for the first time , you see the fed managing with the balance sheet to take out the tail risk associated virtuallyding debt and globally, not to mention our federal debt. they will say that out loud, but to me it makes the most sense. i think this points to a choppy or market. downturn,there is a there isn't much and munition left. -- there isn't much ammunition left. paul: right. ecb, everyone expects them to go but it will be an incremental step. so normally, where you would be seeing a lot of interest rate it is, globally,
different this time, and that is one reason why the markets are going to be much choppy are areg forward. stephanie: our political leaders failing us going forward? david: this is a big question with one minute to go. a yes or no answer. think these are challenging times with a lot of crosscurrents. it would be really easy to be super bullish on equities. stephanie: i am bullish on paul tudor jones. david: the founder of just capital, thank you for so much for being here with us. coming up in the next hour of bloomberg , we will have the ceo, marc lasry, join us for the whole hour. ♪ ♪
we are now about 30 minutes from the opening bell here in new york. welcome to "bloomberg ." i am david westin. stephanie: and i am stephanie ruhle. here with our favorite canadian, erik schatzker. rik: the first day of "bloomberg ," and mark lacerate is here with us --marc lasry is with us. he is with us for the hour. stephanie: i would like to point out he is the founder with two women. erik: i could not agree more. we need to know what is up and down. matt miller has your the market movers. matt: futures have been up all day. they continue to climb. 7/10 is the gain you see.
if you look at bonds, you will see some change there. a little bit of churn. bond yields are climbing. that means investors are now selling. earlier today, we had them buying everything. now it looks like they are willing to sell out of bounds as well. the 10-year yield, notably, was below 2%. it is back up a little bit there. also, toome movers, look at today, as far as the stocks we are following. and currencies -- sorry, currencies first. currencies are also changing. you had dollar weakness against everything except for the pound. you have dollar strength now against the euro and the pound. that has turned around. you have dollar strength against the yen, which has been the same all day long. i will show you what is coming up in energy stocks.
we have changes as far as analyst recommendations. i will visit you a little bit later. erik: thank you very much. since we are talking about markets, isn't this the perfect time to talk about the five stories that matter to markets now, and we have to begin with triumph fund management taking a stake in general electric. it is the biggest investment yet for now some pets. pelts.es -- nelson -- cautionrian want in acquisitions and increasing debt so that ge can buy back more stock. here is my question to marc lasry. we are used to activists swinging for the fences, but what does it say to you that a target therian would bluest of american blue chips, general electric? marc: they believe there is a
lot of value they can get to and because it is ge, ge has been slower. if -- at the end of the day, if i am ge, i would call nelson and say thank you. it is fond of you -- kind of you, but you only have 1%. in my world, the only way people 25% of thef you buy debt. i find it amazing that someone who has 1% of the equity is able to get as much attention as nelson as -- nelson is getting. david: this is the pond on his ability to get institutional investors to listen to what he says? marc: 100%. stephanie: there have been huge impacts with small stakes. marc: you have to get everyone to agree with you. he may have 1%, but you have to get the other large holders. he is not one of the top 10. if you can get the other 10 guys, you can put pressure on ge. at the end of the day, you can do that whether you have half of
a percent, a quarter of a percent, but it is convincing everyone else you are right. your point, and what stephanie said, how is it there is so much symbolic value in the entry of an activist, not just a company like ge, but we mentioned qualcomm, you have to add carl icahn, apple, for example -- i want to go back to what you said -- thank you very nelson, but i have a business to run. why isn't it more talked to the hand -- we are working for shareholders already, in case you have not noticed? it should. i never understand why they don't. it does not make any sense. erik: so, you want management and boards, for that matter, to have more backbone? absolutely. everyone is so worried with what the press will say. all of a sudden, ge is in the news and everyone will focus on all the things nelson has said. people will focus on that, and then you will ask shareholders
if you agree with him or not agree, and other notes and other nelson will get everyone else to agree, or ge will get shareholders to agree with what they are doing. erik: what explains why these managements and boards keep rolling over? day, at the end of the everyone is worried and nobody likes to be in the news. when you are in the news, you feel there is a lot more pressure. i think the words and of reacting to that pressure. if i was the board, i would end up saying at the end of the day, we know we are doing. this has been our plan. we're happy to talk to you because you are a shareholder and we think we are doing what is in the best interest of all shareholders, not just you. the trump it is like of fact -- donald trump has come out guns blazing and every candidate, and we are saying stand up for yourself, and no one is talking. david: a lot of them have never been in the press before. once you have been in the press, you learn to have it roll off your back. stephanie: being on a corporate
board is not just about boondoggles and seeing your homeboys every six months. david: it is not? stephanie: not anymore. the bond market does not trust the fed after the weekend than expected jobs report. traders are betting they will wait until march before lifting the benchmark rate until march .- benchmark rate first of all, do you care -- how much of your day is spent, how much time are you devoting to timing the fed hike. marc: zero. stephanie: there we go. erik: however, if we look further heart -- further out, and there is a nice chart -- on the top, this is what the fed says will happen -- the average rejections. on the bottom, they proxy for market -- a proxy for market expectations. look -- as we get out to 2018, the divergence is huge. market is saying,
effectively, the economy will be growing slower and inflation will be nonexistent. who do you trust, the federer the market? i actually trust the market. people view that the fed has been more reactive than proactive and that is why you see the divergence. if you ended up having a proactive said, -- i mean, at the end of the day, we had rates where they are for the last four or five years -- extremely low. it is time for those rights -- everybody knows rachel move up. the question is when and -- knows rates will move up to the question is when and how quickly. david: that is perfect for the bloombergee story -- radio was told the fed could have added interest. >> given the inflation outlook, given how low inflation exists -- is expected to be, to ensure the target, taking and accommodate stance would have been totally justified. david: so, what would that tell
you if they came up with more stimulus? marc: i think it would be the worst thing in the world. right now, we have been living off of bailey's low interest rates, and having more stimulus is not what you need. you need to get back to a little bit of normality and understand that the fed cannot keep on pumping more and more stimulus into the economy. the -- the economy is fine. let it grow. david: we were talking about this with paul tudor jones. used to it.t there is a must a moral risk. erik: there has to be a justification to get off of 0 -- you need to see inflation, signs that expectations are rising, and there are none. marc: there are not, but everyone is happy to raise rates at the economy is growing at 3%.
everyone gets nervous if it is growing at 1%, 2%. that is why everyone slows it down and why there is pressure. maybe the normal is us growing at 1 or 2. maybe it is not growing at 3% or 4%. that is where the huge disconnect is. the u.s.: if you think economy is slow -- go global -- what about europe -- is it doing well in the rest of the world -- in comparison to the rest of the world, or do you think it is doing well? marc: i think the u.s. economy is doing great compared to the rest of the world. the first question is where do you want to invest --the u.s., china, emerging markets? at the end of the day, the best place to invest as the u.s.. if i were to be an equity investor, i would be an investor in the u.s.. for us, since we are a distress player, we see opportunities in europe, asia -- areas that are having problems. that is where we are investing because they have issues. the u.s. has so little issues right now. stephanie: marc lasry not afraid
to swim in the deep end of the poor. number 4 -- the commodity slump is threatening emerging-market corporate debt. companies throughout the developing world are an increasing risk of defaulting on dollar-denominated debt as emerging market currencies slide. this takes us right back there. we see investors, who for the last four years, were desperate for yields, getting into dicier places. now that markets are sliding, are you worried we will have a repeat of 2007, 2008, because things are getting rocky again? stephanie: -- marc: you will not have a repeat. stephanie: why question mark marc: -- why? marc: first of all, the manager system was going to go under. that is not going to happen. there is plenty of liquidity. there are a number of companies that have issues. that is fine. the reason they have issues right now is simply because of
one fact. everyone was investing in emerging markets because they thought there was huge growth. all of a sudden, there is not huge growth, and everyone is worried about a slowdown. you are not getting paid enough for the risk. you are only getting paid 200 basis points. everyone is realizing that. stephanie: yields should not clear at 6% question mark --6%? david: you have number five. erik: i do. now it is insurers facing higher capital requirements. metlife, prudential, and six others will have to increase capital by an average of 10% by 2019. regulators want to penalize not additional profits like variable annuities, but why i want to ,aise the topic with you, marc is insurance companies are some of the biggest, if not the biggest corporate bond buyers out there. stephanie: such a good point. erik: this is a world in which you play. granted, they are going after investment-great command you, typically, are not, but what
does it mean for the bond market insurers have to hold more capital? an insuranceare company, you will be pushed into buying riskier investments. you just have to. erik: to deliver a return to your investors. marc: not only to return to your investors, but to meet the obligations you will have. you have to pay everything up. before, if you have to hold more equity capital and you have to buy more treasuries, which is the safest thing, at the end of the day, on the rest of your capital, you have to take more risk. us cannot say you will force to buy paper -- the 10-year is at 2%. at 2%, why would i investing an insurance company? stephanie: we will find out. erik: so much for making insurance companies less chris --risky. stephanie: if you have a question, ask him. marc lasry with us for the hour. erik: next, we will look at some
matt: welcome back to "bloomberg ."o> i am matt miller. i want to look at premarket overs. first, twitter -- jack dorsey will be made -- will remain the ceo of twitter and square. he is not taking a pay increase. he is not getting paid anything at all. of course, he is the founder and has a little stock, but the company is up mostly percent. said heeltz of trian owns almost a 1% stake in g.i. -- ge. as a result, general electric is up 3%. apple is moving down because a citi analyst expects apple to
$9.17..06 rather than they're moving iphone sales forward because they have this new -- sixs. -- 6s. david: let's get news from bonnie. : the final details of the transpacific partnership -- the tpp deals with everything from power reduction to intellectual property rights. opponents say it could hurt u.s. workers. doorers are going door to in south carolina, looking for people who may have been trapped by flooding or the death toll is seven after days of heavy rain. major roads are closed. thousands are without power. nato is urging russia to help solve the syrian war instead of complicating it.
the secretary-general of the alliance says russia should coordinate with the other forces fighting the islamic state there. russian planes are flying missions from a syrian base. turkey says russian jets violated its airspace. that is the latest. stephanie: i have to give you one of my favorite bloomberg bites -- a function i look at every day. it is the quote of the day coming from martha graham -- " the only sin is mediocrity." david: it is the theme at "bloomberg ." stephanie: we hope it is our theme. isn't that an amazing? to my favorite movie last year -- "whiplash." ♪
"bloomberg ." we're going to talk glencore. he shares jumped as much as 72% in hong kong trading. the company is looking to sell a stake in its agriculture unit. a new report by sanford bernstein says the business could be worth $10 billion. isnue capital's marc lasry still with us. what are your thoughts of this glencore ride? for us, on the energy said, i find it fascinating. the biggest issue glencore has on the balance sheet. when you're a bank, you are in london -- you are lending money to an investment-grade company. as equity value cap going down, that is the reason everyone was worried about glencore. are the banks going to keep on lending to a libor plus one. they need to have the equity moving up, or they have to get more equity in there. the reason they are doing that is because banks are demanding it,? -- right?
banks will want you to have more equity value. cap isi think the market $20 billion, so they are well done. this is my question -- is this a problem of strategy, execution, or bad luck? they came in with a new strategy -- a trading company on top of a mining company, right? it was supposed to be a bold, new, better mousetrap. from your point of view, what went wrong? marc: oil went from $100 -- david: as a trading company, they should've been able to make money either way, shouldn't they? marc: they hedged, but no one foresaw that. i am sure they hedged a little bit, but if you hedge that much, you're making that that. if you're a trader, you are trying to hedge out for small amounts, not hedge out for these events you did not think would occur because the cost is too great, insurance is too high. david: does that mean other companies take a similar hit? stephanie: -- marc: i am sure
they did. if you're not as public, no one talks about it. david: they were just the highest profile in the sector. ? marc: yeah. stephanie: what is the terminal telling us? glencore,ou look at it is much more important in this case. people were talking about that as an actual possibility. this is it. you are looking at a default risk right now of just about 1%. obviously, the white is the share price. they have come back a little bit, but still a huge drop in the shares and a huge drop in the default risk. opportunity inan glencore, or the other big companies like rio tinto? marc: no. we are trying to invest in the senior debt of companies and you can buy that at $.40, $.50, $.60 on the dollar. you do not need to go play at
recognize that place -- none other than new york city -- live outside of bloomberg world headquarters at 59 and lexington. you are watching "bloomberg ." davidrik schatzker with westin and stephanie ruhle. we are talking with marc lasry. my first question to you on strategy -- what isn't working, not just for you, perhaps, since you are doing ok, right? bill ackman, paulson -- they are all getting smoked. nothing seems to be working for anyone marc:.
-- anyone. marc: a lot of that, if you look around the world, people have gotten caught flat-footed. on the equity side, everyone is buying the same names. when you want to get out of the name, getting out of the name brings prices down 5%, 10%, 50%. for someone like bill ackman, you have to buy such a large block. now you are in, you can not change your mind and you cannot get out. in the market, now, there is so much more volatility and everyone knows who owns what, because it is all public. everyone else knows you will have to sell sooner or later. i will start shorting that. stephanie: has. frank and the volcker rule aggravated this pressure, even though you are talking equities, even though you're talking the names -- no longer can investment banks cushion the blow. it.: that is the biggest issue out there is the lack of liquidity. everybody, sort of, does not want to focus on it, but whether
it is on the equity side, the realsaid he, when you have sellers, prices really move down debt, when you-- have real sellers, prices move down really quickly. stephanie: but that is because regulators and politicians do not trust banks. that is how we end up in this place with new regulations. marc: i agree. do you think that is going to change? no. that is why we are where we are. david: it puts downward pressure on the price. in anyhe problem today market is if you are not right, and if you're not right short-term, you will be in a lot of trouble. no one has any patience anymore for being a long-term investor. i could say invest with me and or three years, and if i am down after six months, what you do --i am out. does this make steve schwarzman, and the rest of the
private equity committee, have this extraordinary advantage because internet are not up to have short-term goals -- they can say i am sitting on it for they do not have to have short-term goals. they can say i'm sitting on it for 10 years. how does anyone compete? ability to be right and the luxury of time. you all have the ability to be right and the luxury of time. what you see in luxury markets, people are getting out of the markets and being forced to sell. stephanie: therefore no one has the chance of starting a hedge fund. if i wanted to start, no one would give me lots of money. marc: it'll will be hard, so i have a nice edge. stephanie: there you go. erik: equity keeps getting repriced. if you -- are you actively investing, and if you are waiting, are you waiting for a turn in the credit cycle? is it going to happen? marc: we are investors.
my view is i do not think you can time markets. what you can do is time a cycle. what i mean by that is today is a great time to buy. it does not mean that six months from now is not a better time. over the course of the next two or three years, if you are right, you will make a fortune of money. you have to have the patience and have the luxury of time. so, for us, you have a lot of capital locked up. so, we buy -- we have bought all of -- a bunch of energy names at 70. should i have bought them at 60? yes. now they are trading at 50. a lot of the names you keep buying because you know that ultimately you are going to be right. you just need to halftime. erik: you average them down on the way. marc: absolutely. david: what about european banks. that is an area you have invested in. marc: we are buying the debt european banks are being forced to sell. stephanie: hold on.
i will high-five you right now. we have had investors say this -- i three years straight have 30 guys parked in europe, waiting for banks to sell us distressed assets and it has not happened. marc: first of all, it actually has happened. erik: there was a billion dollars the other day. stephanie: it only happens to the coolest guys in school. that is the point. marc: four years ago, banks sold 31 billion euros of debt. this year it is 150 billion. everyone was talking about having trillions of dollars of debt. there is not. what there is is anywhere between 150 billion in debt, to 200 billion in debt. that is a huge amount of debt. firms are buying that debt at a huge discount. david: i will turn the question around -- how far in the process other european banks? four or five years? marc: southern europe needs a
lot more time. in northern europe, banks were able to take reserves. the reason you have the ecb lending you money at zero is for banks to end up making that spread -- as they make up the spread, they are more reserves, can sell more loans, and that is what is going on. we are buying -- we have one loan. five years ago -- i will not say the name of the bank. they had a loan. erik: we are in the and -- and embarrassment business. marc: i know, but we have to do more business with them. them 150 million. it is about $.12, $.15 on the dollar. what ends up happening? it took the bank five years to take the right down. it was the largest write-down and we just closed on it last year. we got a $1.1 billion loan for $150 million and over the quantity is the cap bidding the same thing. stephanie: why did it take them that long? marc: they did not have the reserves. david: the same thing happened in this country with our banks
with wes america in the early 1980's. they were in the hole and had to build up the reserves. rhymenie: does that bank s-eutcebank? marc: she is clever. erik: everyone acknowledges there are rules and european bank debt. the difference is how long it will take profits to be realized. oil, everyone acknowledges that. coal seam like a good opportunity. some are getting their clock cleaned. where's the next opportunity? can you see it? marc: no. why focus on the next when you have an opportunity now? energy is an opportunity. is trading att
$.40, $.50, $.60. you're getting paid a current. it was a 7%, 8% coupon come a you are getting the 7%. you're getting paid to wait for the next two years. stephanie: don't you have to qualify that with if you can be a long-term investor? are buying if you the paper. fast forward six months, things are trading at $20 and they have outflows coming out of that years. it is a great investment. any long-term capital --marc: you need long-term capital because what ended up happening is investors demanded capital and you have to sell. as you sell, you put more pressure on those same names and give like us wait and you people down bids. if you do not have long-term capital, he will be a disadvantage. erik: you like the names at $.40 because you think they are money good, or you would be happy with the debt-equity swap? marc: i think i will either get
paid par, or become the new equity of the company at an extremely low valuation because everyone else will get wiped out. debtat will get convert -- will get converted into equity and we will end up owning those company's. $35, $40. stay at it just cannot. so, i know everyone will say it could go lower. essence, what you're going to find if the vast majority of all these companies will then go into bankruptcy. at 35, they cannot operate. erik: what about other hedge funds? the other credit opportunity guys, distrust players, who do not have money locked up as long as you do --what happens to those guys? marc: they have issues. we will end up buying paper from them and that is good for us and bad for them. stephanie: are you able to raise money -- as those funds are losing assets, and we see it left, right, center, are you
picking those assets of? marc: yes. we just raised in energy fund. we are raising a new european fund and we have been able to raise capital. stephanie: can i ask one question? does this mean you will look more like a millennium, a hedge wherehat is a platform, smaller guys who could not have the type of infrastructure you do -- could you start to look -- i do not want to say like a hedge fund hotel -- that is what those firms look like. marc: not for us. what we are getting is institutional capital. we are customer with the teams that we have and it will be those teams that will be able to focus on what we are doing. we're not looking to add a teams. erik: before we find out what is happening in the early trading with matt, i want to know this -- when you say those guys have issues, can you dollar-size the value of funds that have those issues right now? how much money are we talking about? marc: i would tell you at least $50 billion to $100 billion.
stephanie: billion? marc: if you look at it, people buying that -- the problem everyone has, you have monthly or quarterly liquidity. most of those funds are down. you are either going to go to your investors and say "look, give me more time, or, give me and investors have lost 5%, 10%, 15%, 20%, most investors who have a quarterly liquidity take the investment allowed. stephanie: do you blame the liquidity or the fed? the fed keeping rates where they have have put so many unsophisticated investors into credit products that are simply high-yield when deals were clearing it is percent. clearing atously -- 6%. that is obviously cause pressure. a mixture of both. they're all these people that should not be doing what they are doing. you want that. you want to be able to take
advantage of people. [laughter] that is what it is. david: matt, do you want to check in on the markets that have been open for about nine minutes? matt: they continue to climb higher from the the s&p is up 1%, as is the dow jones industrial average, 16,635. the nasdaq also gaining about .8%. map, it was at my i more interesting and moment ago because there was some red here as far as industries trading down. now everything is green. the only losers i saw a moment ago were hardware losers in tech , but even they have turned around. speaking of turnarounds, 10-year yield, which was under 2%, it has now started to climb. we are now looking at 2.03%. a turnaround there p generally a risk-on day. stephanie: there you go.
vonnie: welcome back. and nato will both investigate an airstrike that killed 22 people in an afghan hospital. in a pentagon news conference today, the army's four-star commander for afghanistan said the u.s. will acknowledge its error. they were supporting afghan troops. debris, but no answers in the hunt for a cargo ship. planes are ships and
scanning waters for el faro. the crew of 33 included 28 americans. hillary clinton appears on of,urday night live, kind playing a bartender listening to the troubles of a customer running for president. >> five. i am hillary, -- hillary rodham clinton. clinton: i am. val. e: they spoof the slowness in taking stances on the keystone pipeline and same-sex the search. not mentioned, the e-mail controversy. it, yourere you have woman, your candidate, on "saturday night live, whether you thought it was funny or not.
tell me what you think about the campaign? what is a level of enthusiasm? stephanie: he is pretty enthusiastic. marc: im by us. let's start off that way. i think she is doing a really good job. the problem is -- one of the one asks that -- when everyone asks that question, i ask a simple question --of all the candidates, who would you want to be? is one they would like to be the one they keep on attacking, hillary clinton. at the end of the day, she will be the nominee, and then she will become the next president of the united states. david: it is a challenge for some in the same party to have a third term. typically, it is only if people are brilliant disaster about what happened with the predecessor. how much of this -- typically, happyit people are really with what happened with the process -- predecessor. how much of this depends on the
popularity of obama? i think part of it is a lot of people feel she should have been the president. of people say i think she should have done it. now there are people that absolutely supporter. what everyone is always asking is why don't you have more enthusiastic supporters? she has plenty of supporters, and all the supporters she has are very enthusiastic. erik: everyone is debating whether hillary would be a bush, president than jeb marco rubio, donald trump, would hillary be a better president than obama? i think she'll be a different president, obvious we. person,he's a very able done a lot of things. she has been in the public light. i am not sure what she stands for in terms of being president. bernie sanders, you know what he stands for. erik: the teddy quan -- kennedy question. herd: i do not know what
big issues -- -- what the big thing she would want to a cop -- are. marc: i think what she wants to do, at the end of the day, is make it easier for the middle class to come back. that actually is a huge issue. what she wanted to be is a she wanted to be were people like me, people like you, or anybody andthe ability to succeed, i think she is trying to come at least do that, whereas people feel like they cannot succeed anymore. i think that is the biggest issue out there. it is trying to get people to believe in that. stephanie: we have to take you to the poll, hillary versus donald trump -- if you are talking american dream -- anyone can succeed, it is one of the reasons now shop has gone support. it. 46%, versus 43%. doesn't this blow your mind? that donald trump is the site? david: it is early going. we have a long way to go. marc: at the end of the day, it
is a great poll. there is no way, in my opinion, that hillary doesn't become president. it is exactly what you said -- a gog slog, and if people through the process, everyone will focus on the daily polls, weekly polls. david: i am not sure that four years ago it would not have rudy giuliani way up there. stephanie: but does it mean donald trump will be her opponent? marc: i do not know who her opponent will be. erik: if you are right and she is the winner, regardless of what happens, is it better for her or worse if joe biden enters the race? an argumentd make both ways. if joe biden -- if vice president biden enters, then she opponent within the democratic party and people will see the difference is more clearly. the problem, right now, and the end of the day, for all the talk of bernie sanders, to me, it is irrelevant where he is leading,
stephanie: welcome back to "bloomberg ." i am honored to have been in the seat for the last three hours. we have been jampacked with some --the top business names steve schwarzman, paul tudor jones, and marc lasry. steve s.: people have been talking about this for -- unpredictably. david: do you care? steve s.: i do not care. ifid: what would he tell you they came up with more stimulus? i think would be the worst
thing in the world -- you need to understand the fed cannot keep pumping more and more stimulus. the economy is fine to let it grow. hitd: the u.s. economy has a little bit of a slowdown. , but the optimistic biggest issue out there is the lack of liquidity. does not want to focus on it, but whether it is on the equity side, debt side -- when you have real sellers, prices move down quickly, and you see that. : clearly, topic of the day is income inequality. marc: today is a great time to buy. it does not mean six months from now is not a better time. stephanie: glencore and that team have been considered the smartest guys in the room. steve s.: they might have gone one deal too far. they are tough, clever people, and they are not going down. stephanie: clearly, i was not in charge of the best moments of
the day. what i'm going to put out there, david's point that there could be times, scenarios, where ceos actually like activists knocking on their doors, where it helps them in terms of cost cutting, acquisitions. you think it is the case marc: -- case? marc: i think you can use it. david: it gives them cover for laying people off. marc: there is nothing i can do. it is not my fault. we're going to play word association. we give you a word, your immediate reaction. i will give you -- kick it off. private e-mails. marc: they are good. stephanie: they are good. they are good. [laughter] varied interest. marc: love it. stephanie: love it. david: janet yellen. marc: stubborn. stephanie: that is stubborn.
david: that is interesting. erik: boston celtics. marc: competitor. stephanie: stephen curry. marc: phenomenal player. erik: jim harbaugh. marc: great coach. stephanie: mark, if you have been anything else for living, if you started over, will you do? marc: i would love to be a teacher. erik: there is still time my friend. stephanie: thank you. avenue capital cofounder and ceo marc lasry. thank you for watching. david: that does it for "bloomberg ." ♪
from bloomberg world headquarters in new york, good morning. i am betty liu. twitter makes it official. cofounder jack dorsey is taking over as ceo, and he gets to keep his job as chief executive at square. the u.s. historic trade agreement with 11 pacific rim nations on everything from cars to crates. reaction from the hong kong finance minister. the s&p rising for a straight day. investors looking ahead to the start of earnings season. yes, it starts this week. some breaking news right now on the service sector out just now. i want to get straight to the markets desk. julie: we will see if we can hold on to the rally.