Skip to main content

tv   Market Makers  Bloomberg  October 9, 2015 8:00am-10:01am EDT

8:00 am
welcome to the second hour. stephanie: we had a great first hour and we are going to try to top it now because tom barrick is in the house. and we have jason kelly. we have so much to get into. tom, we are thrilled that you are with us. to vonnieng to go first. vonnie: there has been another
8:01 am
shooting overnight at a university. one person is dead. .thers were wounded a suspect has been arrested. the shooting took place in a parking lot outside a dormitory. president obama ghost oregon today to meet with survivors of relatives of those killed in last week's committee college shooting. at everyone is happy with the president's visit. and an organization that pushed peacefully for democracy is honored by the nobel committee. goes tor's peace prize the tunisian group who led the spring uprising. matt: take a look at futures here. we are not seen the kind of movement that we are seeing in overseas markets. in europeally
8:02 am
overnight. but only a gain in the many contracts on the s&p and the dow right now. for itst oil on pace biggest weekly gain since august. we are looking at oil and its .ighs price that is one of the reason that energy stocks are seeing their longest rally in six years. is upp 500 energy index about 15%, 16% of the last eight sessions. the commodities are doing well today, especially zinc. it is its biggest gain since 1989. thateason for that is glencore's cutting production by about a third. also is the reason you are
8:03 am
seeing the bigger gains in europe than you are in u.s. markets. i have graph glencore share price against the footsie -- the ftse volatility. if glencore comes down, the ftse jumped up. glencore is a huge part of the story in london. that is the reason european markets are doing a little bit better than u.s. futures is mining. markets have -- stephanie: markets have rallied back and our friend tom has been crisscrossing the globe from asia to the middle east to europe. welcome back. tom: thank you. congratulations on a super week. stephanie: you have been globetrotting. what you think of these markets around the world?
8:04 am
tom: confusion. i think that take away is that there is confusion on every continent, every tribe, every flag, every asset class, every central bank. is thea result, america beneficiary. the world with unfulfilled expectations is looking for a proxy of value, except -- a safe deposit box of stored value. and it ends up being the u.s. dollar and the american system. so america has its challenges. we have a social barbell that we whether the fed is right or wrong, which i think is kind of ridiculous discussion for laypeople to have. are uncertain.s that is causing volatility in the market. everywhere -- the middle east has one set of problems us commodity prices readjust, as
8:05 am
oil prices decline, as their own infrastructure demands change in balance. china dictates asia. so soft landing or hard lenny, everyone has to readjust instantly. and globalization affects everybody. globalization is a dangerous word. the heavy definition of french ation is foods, a brazilian lover. a car manufacturer turns into a fashion mogul. jason: if we go with your theory
8:06 am
-- if we go to these folks were looking at the american system, what are they looking at? private equity, alternatives, real estate? where is money finding a home in the mac and system? about an people talk bubble -- and i think the only bubble we have is a proliferation of money -- every central bank is printing more money. the businesses we touch around the globe, we can't even feel the sense of inflation . it is deflationary, disinflation or a. -- disinflationary. so for money to move around in an instant in this environment, to move it to scale, it has to go to u.s. capitol markets. it is the only market that can digest that kind of capital. so really -- real estate is being a proxy.
8:07 am
real estate is the beneficiary of all of this because it is so slow moving. real estate is like a mack truck in the middle of a ferrari track. it doesn't adjust instantly. so you have a read market -- a reit market, if you take the 12 12 million instead of 12 billion. investable.make it david: so talk about this confusion. at some point, in this globalized world, some of this confusion has to start sorting itself out for everyone's good, even hours. how do you see this? where could there be some resolution of confusion in the worldwide marketplace? tom: it is a great question. answer the philosophical is it has to start with
8:08 am
tolerance. tolerance is what i really feel winning in the world. stephanie: what do you mean -- i feel waning in the world. stephanie: what do you mean? tom: just the american economy. it's the model for the world. no matter what country, what system we talk about, the russians sitting in middle of dreams of driving a mustang down hollywood boulevard. dreams -- we are a country of immigrants. but what is happening around the world's confusion of the systems , which happens in the capital markets and the readjustment caused tremendous barbell inequality everywhere. so everywhere, the rich are
8:09 am
getting richer and the poor getting poorer. it is not a great thing. east, you have amazing countries that have been our allies that, in an instant, switch flags. nobody knows why. nobody knows what. and it is not allocable to those people in those countries. 7% of the fossil fuels comes from the [indiscernible] and you have some of the best ,ountries, qatar, abu dhabi with a different set of problems but find themselves in a labyrinth of confusion because the world is confused about religion, about politics, about capital practices, and trade is the only thing that makes it work. you give young people hope, you feed them, you ke care of them, you give them an aspiration, you are going to do away with terrorism. it's the only way. it's the only way. jason: which goes to the nobel peace price a day.
8:10 am
that is what we are seeing in the headlines this mine. david: what was your reaction when you heard about this award to the group in tunisia, the quartet? tom: amazing. right, it is all about, for knowledge meant -- for acknowledgment for the little baby steps. stephanie: and people don't talk about the wins. qatar emmattle baby which we talk about is a great it has vaulted forward on the world stage and diplomacy, sports, business. the only peaceful succession from father to son in history in the arab world was decided -- david: and women can drive in qatar, much more open than a lot of the gulf states. tom: the mother of the mayor -- hasmother of the amir
8:11 am
revolutionized their world. but you don't hear those stories. those stories told and acknowledged, just like the prize, will change the agenda in those areas. david: please stay with us. stephanie: what a great morning. david: i agree. stephanie: we want to know what your questions for tom. get in touch on twitter. ask us -- ask what you would like to know. next, we will talk about liquidity. the big thing for all of our guests. we asked tom to weigh in just ahead. ♪
8:12 am
8:13 am
8:14 am
vonnie: pimco says a lawsuit filed by bill gross has no merit.
8:15 am
he is demanding hundreds of millions of dollars. if he wins the case, he says the money goes to charity. cuts are underway at one of the uk's biggest banks. roughly a thousand jobs. the bank will sell assets and cut clients. in california, the real estate boom has slowed down. the share of homes bought by overseas investors is added -- at the smallest in 10 years. that is your business flash. david: tom and jason, we have heard from several big investors this week on the issue of liquidity with it from points of view. we are going to play little bit of what they said so we can set up a discussion here. wax the banks all have plenty of liquidity and capital
8:16 am
requirements. what you will have is you want a number of companies that will have issues. everyone was investing in emerging markets because they thought there was huge growth. all of a sudden, there isn't huge growth and everybody is worried about a slowdown. >> most investments in the markets swing from one extreme to the other. liquidity is an example. be about this liquid. but sometimes, they are really liquid and sometimes they are in liquid. .- they are illiquid and they swing from one to the other. thisreally don't see how could happen again. unless that changes, the speculation is going on in the street is dramatically lower. tom is laughing his way to the bank. liquidity is not an issue for you. tom: it is an issue for everybody. is different.s
8:17 am
david: we had john mack. tom: john mack is one of our greatest leaders. liquidity in the context of what? what's happened is, besides the major investors around the world, not being investors, but traders -- when we talk about liquidity, liquidity means that you are going to shift your asset allocation for moment to moment. it never used to be that way. stephanie: that's not an investor. tom: that is not an investor. so the ebb and flow of information around the world and the access to information around the world has caused this frenzy for better, higher returns, which don't exist in many places. structure andgh the other time. on the private equity, real
8:18 am
estate side, would have locked up money and we have permanent capital. that is a good thing until you see the great hedge fund manager who just bought $145 million penthouse on a 375. we have to restructure. tophanie: but that mark market structure has perverted the markets in that, when we hit volatility, hedge fund style trading worsens it because they can't sit through tough markets. when you look at 2008 and 2009, you said private equity guys are geniuses. are they geniuses or do they have the ability to sit tight and didn't have investors bringing down the doors saying i want to get my money back? tom: they are all really smart. hedge fund managers are really smart. rubensteinity, like and mark lazzaro -- mark and i started together with a steel desk. he is brilliant. and the business makes a lot of sense because the strategies
8:19 am
applied across the capital , produce jobs, profitability, revenues. the problem is, when you feed the animal what it wants to feed, it was more. so when you have 20% returns and a 0% environment, somebody is taking a lot of risk someplace. jason: howdy respond to that? we have talked about -- how do you respond to that? we have talked about that. we have talked about lovely traded vehicles and more traditional. where is the sweet in this sort of market where we have what howard marks said, these swings to liquidity, how do you deal with it specifically for your investors? tom: i take the back door and the cowardly way out, right? people and billion brilliant organizations and say how am i going to comedic -- compete with them on an hour by hour basis? steve schwarzman has created the best model in your book,
8:20 am
starting with george robertson. these businesses are all infants. in real business started 1991 so nobody knows what private equity is. but real estate, as a proxy of value at the moment, has things that no other asset class has been it is slower moving so the volatility -- the standard deviation is perfect for volatility covariance. you wake up in the morning and if david is unlike the cola and so's 3 million of coca-cola before he has a cup of coffee. you want to sell the gm building, maybe a year later. stephanie: maybe just call john gray. [laughter] we have to take a quick break. you are watching bloomberg go. ♪
8:21 am
8:22 am
8:23 am
8:24 am
anphanie: tom, we are seeing increase in people who want to rent right now. what does it mean for your business? tom: partially. homeownership is not about housing. it is about a proxy for creating household by a normal than they make in the job that they have cared most people buy a house because they think they are going to flip it at some point. we have a subsidized mortgage system, fannie mae and freddie mac, that are influenced by the government. there is an overabundance of mortgages and security to -- securitization and it's not housing. at two levels, people who have been burned in 2007 and 2008 say i am done. score -- 7205 go fico score.
8:25 am
you have millenial's saying i don't care about buying a house. i'm going to rent. david: government support and market conditions, there were probably too many people who owned houses. tom: yeah. david: we overheated the market because we thought it was a good thing to own a house. jason: you guys, blackstone, jumped in and bought a bunch of foreclosed houses and turned them into rentals. where are you in that cycle? are you still buy more? are you slowing down? where are we in that investment? tom: that's a great question. you have two components of value. you have rental and -- you have rental income. i see it as cash flow. that part of the business is fantastic. jason: so the ownership business is proving well. yeah. everybody thought the managerial expenses would be too
8:26 am
compensated but it's not. home price appreciation, a lot of smart traders got into the market when we did. when you are buying a $.40 on the dollar, the home price appreciation for a trade is evident. in his public entities, it is not evident. there is no place for it. so the re-investors, the corporate investors just want to see cash in place yield, some home price appreciation. i think is the best asset class we have at the moment. stephanie: stick around. bloomberg go has a lot coming up next. we have morning meetings. stay right here. ♪
8:27 am
8:28 am
8:29 am
stephanie: you are watching "bloomberg go." you are looking at the nasdaq tower. clearly there must not be anything in the news today, because there are david and i celebrate in the launch of "bloomberg go." bob was withweek,
8:30 am
us, there we are joining the times where party. i would like to thank mike bloomberg for cleaning up times where. -- time swear. -- time square. barrack, andtom john beckelman. welcome. to get the first word from vonnie quinn. vonnie: one person has died after shooting at a college campus in arizona. three others were wounded. it happened early today at northern arizona university in flagstaff. a suspect has been arrested. the shooting took place in a parking lot outside a dormitory. the obama administration has ended the $500 million program to train syrian rebels according to the new york times. it's a sign that the much -- much criticized program didn't have enough forces to take on the islamic state in syria. the u.s. says not all of
8:31 am
russia's missiles are set -- hitting their targets. russian missiles fired from ships in the caspian sea landed in a ron or it -- in iran. markets,check in the here's matt miller. looking at individual movers ahead of the market open. kicking it off with tesla in premarket trading, its third downgrade from wall street this week. today it's barclays coming out and reading tesla and underweight, saying they don't have the confidence this company can produce the model likes fast enough. enough from the launch. they don't think they can cross the threshold from becoming a startup or tech company to being a ford. they have a huge market cap of does $50billion, ford billion. right now they have a price
8:32 am
, that's the0 closest price target i can find on the street. gas, note sales for sales at the gas stores but not at old navy or banana republic. let's look at alcoa, not a big game in futures. alco is hurting here, they came out in earnings yesterday with real disappointment, three cents a share, seven cents a share versus $.13 a share, which was the estimate. the problems honestly coming from metal prices. aluminum prices are too low. and finally jpmorgan upgrading wells fargo to an overweight. at the same time, lowering the price target, saying that wells fargo provided a steady report in uncertain markets. stephanie: thank you. let's take you to the morning meeting. john, you have been going around the country talking to regional
8:33 am
and committee banks. what does lending look like? john: lending is pretty strong. it's the problem of having a lot of liquidity and not as a generation to put it to work. i think the key theme we are seeing now is we talked to a lot of banks -- stephanie: regional banks. regional banks and community banks is the opposite issue. we are hearing a question we get a lot -- what are you hearing in boardrooms and for management? that's been a shift to focus on the liability side. what's happening to deposit them liquidity on the liability side. and how will we manage that as it just rates begin to move -- when they begin to move. stephanie: what is the answer? john: to be very prepared, do a lot of forecasting and stress testing, a lot of budgeting, understand the behavior of the deposits in your franchise and
8:34 am
know what you're going to do about it. david: a great idea -- stephanie: a great idea. who is doing it right? john: most of the companies we work with. it's the most challenging environment we have had, there's a highroller list of these issues. was there influenced by the regulatory environment, which is very focused on this issue. david: talk about the regulatory environment. the conventional wisdom is that in washington, has had an unintended consequences of helping the big national banks and hurting the community and regional banks. is that your perception? john: i think that is reality, not perception. in the standpoint of whatever there is a higher requirement of compliance, there is a cost associated with that. if you are a larger company earning larger revenues, you can better afford that infrastructure that is required. if you are smaller, it's more of a challenge. not to say it can be done, it's just more of a challenge. when regional and community banks tighten up their
8:35 am
deposits, who are they was murdered about -- most worried about? with a keeping a close eye on run a history perspective or geographic? question answer that -- someone use the word millennials. what challenges banks is the future behavior with their customer bases coming from a demographic standpoint. a lot of branch rationalization is happening in terms of people consolidating branches and using lower-cost automated branches, not because it's more cost-effective, but because there's a sense that younger people just don't go into banks anymore. they prefer further services delivered to them a little differently. stephanie: what's going to happen to all these committee banks? they don't have the resources to go super deep like the big guys do. john: i don't think they need to go super deep. it's a function of community banks of understanding their footprint and customer base, and finding the balance of what they
8:36 am
do need. those that feel like they can't provide what's necessary will find other ways to attack that. that's either through consolidation or investing for the long haul. david: thank you, john beckelman. a good morning meeting. let's turn to a store that's one of my favorites and i know is one of matt miller's favorites, because it involves fast cars. stephanie: tom was racing ferraris earlier. chrysler is expected to spin off for ari later this month. could bey car brand valued at over $12 billion. how is this being structured? a key phrase you just entered is luxury car brand. i have something from bloomberg that will show you why this ceo of fiat chrysler would rather have this be a luxury brand than a car brand.
8:37 am
this is luxury companies like pronto and lvmh. they have a valuation of nine times, carmakers only have five times. this is part of sergio sale pitch, is that this is the luxury company more than a carmaker. david: he is a really unlocking value for shields. having a parse a fiat chrysler artificially depress the multiple. he's nots --matt: getting what it's worth. you've seen fiat chrysler shares rally, partially because people know if you hold a share of fiat chrysler, when this ipo happens, they sell 10% to the public, 10% stays with enzo's second son, and the other 80% goes to everyone who holds fiat chrysler. for every share you hold, you get a ferrari share for free. stephanie: get a ferrari for free. advice for the
8:38 am
day, get a ferrari for free. david: who owns fiat chrysler shares? 80% remain with holders. matt: you chrysler is definitely controlled by one family. saw earlier this morning, everyone knows john ,lcon, the psion of the family and their sister. the three of them together control essentially the family holding the runs a holding company that runs a holding company that runs fiat. stephanie: what does that say to you about the economy that we have seen such an extraordinary comeback in the auto industry, just six years later. tom: a couple of things. energy prices readjusting themselves has changed people's focus. and an overabundance of money and capital, including car loans. int john was talking about
8:39 am
the asset side of the banking business, we talked a lot about regulatory intervention -- risk attention is what's going on. banks used to originate a car loan and leave it on their balance sheets. no one does that. in 2007, 2008. tom: we are back, and now risk retention, they have to hold 5% of that. bankingy did away with versus investment banking regulations, originate in syndicate became the model. purchases, a car place to put expendable money -- david: is there a weakness or danger in car loans? --matt:ere's a lot more there's a lot more subprime auto loans. that's part of the growth you have seen. the reason that we are at $18.4 million is because so much subprime and so much financing has been stretched. it used to be a five loan, now
8:40 am
to seven-year loan. so many cars are being leased rather than being sold. at very low interest rates. i wonder what kind of fica score you have to have to get that ferrari? it's a very different story. ferrari is a very different story. stephanie: when we come back, we have to talk ivy league. maybe some of those graduates will get for aris. john barack, jason kelly. what is your question for tom? if you have a bloomberg terminal, send us a message. stick with us, you're watching the first week of "bloomberg go." ♪
8:41 am
8:42 am
8:43 am
vonnie: shares of glencore, the minor traitor, have doubled since -- trader. they have doubled, saying they
8:44 am
will reduce the production by one third. zinc is up by up 12% in london. of pcs wereipments down a most 8% in the third quarter. a market researcher says that's because of the higher dollar-based prices. apple's mobile pay services moving into a couple of the biggest restaurant chains by the end of the year. customers will be able to use apple pay at select starbucks. apple cuts deals with ksc and chilies. c and chilies. that's the vision to know this hour. david: we are joined by elizabeth garrett. i'm glad to welcome you to bloomberg, resident of cornell, a large -- a law clerk for thurgood marshall and provost at euro will moderate.
8:45 am
john: she raised the academic level of the school over her tenure, especially. football got worse. academic got much better. if you had been at usc, it wouldn't have worked out for you? i was telling beth, no one understands the difficulty of a provost. the constituency she was in charge of, when you are taking the most brilliant faculty, the most brilliant doctors, the most difficult alumni, the most amazingly complex administrators and you have to blend that into a necklace -- david: it's really lions and tigers and bears. i'm delighted you are here. i want to talk about higher education in general. it's a topic of a lot of discussion these days. specifically on how it works financially. there is a sense that we have a model that you draw it out, it's not very simple. the cost is going up faster than inflation is, faster than
8:46 am
perhaps the incomes people are --ting, can't you see that how do you see that? we have a graph of private versus public. is that a fair point to be made, and what do we do about it? elizabeth: you have to think about highridge occasion is a segmented market. i focus on private research universities like usc, like cornell, the ivy leagues. it is very expensive to go to one of those institutions. but even the tuition for those who pay full, releasing 2% of the cost of a residential undergraduate education. this is a very special experience. it's an experience you really can't do on the cheap. no one wants to sit in a classroom with 2000 students and one professor. what students and parents demand our hands-on education, the ability to work in small groups, the ability to go out in the world and solve problems working with professors.
8:47 am
technology actually doesn't decrease our cost, it can increase it as we flip the classroom. butave lectures online, then we spend more time one-on-one or in small groups with her students. while it is very expensive, it's also a very costly experience. it's a great top private research institution, we make available a great deal of financial aid. so that any student that is submitted has their needs met through institutional grants, through a series of loans. we make sure that students who can succeed at cornell or usc or other institutions can afford to go there using our own resources and some of the federal resources. working withu are the best student universities in the world, but the student debt crisis shouldn't -- and to be worse. should everyone go to college? we've created a dialogue that everyone should go to school. when i want a public high school, many, many people went to vocational school for half of their day.
8:48 am
if you look to get a plumber and auto mechanic, a tradesman, you don't find people who are below the age of 53 have we created a site 80 -- a society where everyone should go to college, maybe everyone shouldn't? elizabeth: one of our great strengths is our diversified education system. their opportunities at community colleges, liberal arts colleges. the question for every family is what makes sense for the student given the students ambition? when you think about the debt crisis, the increase in the debt that is troubling comes in three areas. the first is in the for-profit sector, an entirely different issue and one that the government is dealing with. the other in undergraduate world , the real crisis is when a student takes on great amounts of debt and that doesn't finish the school year, doesn't come out with a degree. it is very important that the student think about an institution where he or she can succeed, and emerge with a degree. once you have a degree, that the investment that historically has
8:49 am
really paid off area. the other increases graduate education. stephanie: it's taking 60% of their students six years to graduate. elizabeth: it depends on the community college. but you are right, higher education is a diversified market and each student has to think about what is the right answer for me? it may not always be a four-year college. referring to 2000 people in a classroom is not realistic. but you can have a lot more than 2000 people online. it's not the same, but the blended learning -- you don't have to sit during a lecture. you can do a lot of that online. at usc, we did a lot of online learning. we have thousands of students, some of the graduate programs online -- cornell is now beginning that. we have an interesting degree in industrial labor relations, which is a blend. it depends. it depends whether he brings costs down. in certain ways it does. at the level at cornell, it's a
8:50 am
costly venture. we don't just put a lecture online, we have synchronous interactions, small groups, personal interactions. expect online a similar experience to what they are getting in graduate education if they can do if the go or los angeles. onlinegreat about this education that cornell and others are offering is we are making our education available to people all over the world who may not be able to ring their for afamilies to ithaca couple of years. i'm a big fan of online education and hybrid education a high level. you have to be careful, it's not a venture without great cost if you do it the way we have been doing it. we are here in new york city, roosevelt island, give us an update on where that dan and what that means for cornell going forward. i'm very excited
8:51 am
about cornell tech, it's focused on technology that was sparked by mayor bloomberg, who asked for proposals. at cornell, we put in the winning proposal. we are now going to be opening a 12 acre new campus on roosevelt island with graduate education that is entirely conceived different way. we are not talking about disciplines, we have business dunes, engineering students, law students. we are thinking about how we train people to live in this exciting, ever-changing world. going up one roosevelt island's it will be an area of new york city. we have 125 students in our current facilities in the google headquarters at the port authority. we graduated our first classes, half of them are staying in new york. ,hey are starting up businesses we are focusing on problems not discipline. we are focusing on connected media, on a built in environments, healthy media. it will revolutionize not just cornell, the higher education. stephanie: and you don't have to
8:52 am
freeze in ithaca. thank you. elizabeth garrett, president of cornell. tom and jason are not going anywhere. i will give you a quick bloomberg right. -- bite. go on your bloomberg to see a list of the top college endowments. harvard at number one with almost $36 billion. that endowment was reinvesting that money for better returns. stay with us. you are watching "bloomberg go." ♪
8:53 am
8:54 am
8:55 am
stephanie: welcome back. this is "bloomberg go." benchmarksing key and where they are going to be in a year. the u.s. dollar? tom: up. stephanie: debbie ti crude price? tom: down. david: fed funds rate? tom: above. stephanie: u.s. unemployment?
8:56 am
tom: down. stephanie: if you have $1 million and could house anywhere on the planet right now, where would it be? tom: los angeles, california. david: [laughter] which is where you live. bloomberg's own jason kelly, thank you for spending the hour with us. next, diving deeper into bill gross's multimillion dollar lawsuit against pimco. wagner, where he is putting his millions to work now. that's coming up on "bloomberg go." ♪
8:57 am
8:58 am
8:59 am
we are now just 30 minutes away from the opening bell. welcome to "bloomberg ." stephanie: it is time for our 9:00 high five. here we go, in slow motion. erik schatzker is in the house.
9:00 am
guess who else is here? david: tom wagner is here. he is a distressed debt and high-yield wizard. erik: you manage $4 billion? yes. thank you for the villanova plug. vonnie: for the second time my deadly gunfire erupts on a college campus. one person is dead and three are rooted after an earlier incident today at northern arizona university. it happened in flagstaff. a suspect is in custody. president obama is heading to oregon today to meet with -- survivors and loved ones. a demonstration is expected.
9:01 am
obama administration is ending its program of training syrian rebels. ash carter confirms the decision today. -- the group that unisia to democracy are receiving nobel peace prizes. the group prevented a civil war there. congratulations to -- matt: we are up across the board. the nasdaq unchanged. after big gains in asia and the dataake a look at check. the 10 year yield right now come up little high. i should go back to bowtie fridays. stephanie: go back to something.
9:02 am
matt: we have a bit of selling in the bond market. a bit of selling in the dollar as well. dollar weakness right now. the most interesting story of the day, materials. unbelievable gains in metals today. pimco coming out and saying it's time to get back in. this could be the bottom for metals and materials. other analysts may disagree. big gains since september 28. in the last week or so, big gains in metals. freeport mac brand, a big copper 4%.ucer, the premarket up over the last eight days, huge gains. big streak of gains. the biggest in a couple of years. erik: tom wagner is here. thank you very much. it is time for the five stories
9:03 am
that mat markets right now. -- a full buyout. why he is talking to banks about raising $40 billion. it cod be tricky. high-yield investors are growing a bit wary after new issuance over the last five years. let's ask tom wagner. if michael dell were tocome to, woulyou buy any? tom is unlikely that we would be buying in the primary marks. the markets will have to assess the longer-terfidelity. that's an viability. if there are substantial synergiesobtained in that transaction, it can make sense for investors to taka look at it. there ino disputing that $40 billion of debt in our market t.
9:04 am
wells fargo being investigated by the consumer finance protection bureau. the pro has been going on for at least a year. -- the probe. this?u involved with have you bought some of that debt? tom: we have not. when you look at the way the administration is approaching the student debt issue, it is a very risky part of the capital markets. you have preference for students to walk away from or restructure some of their debts. i will not get into a discussion about whether or not that is appropriate. it was clearly something getting momentum. it needs to be thought about very carefully for those buying these securitizations. increased momentum moving towards allowing students to restructure or earn their way out through public service or something along those lines,
9:05 am
those losses will fall on the private investors. erik: tom is not a buyer. stephanie: we are talking colleges. number three, job cuts about to hit standard chartered. all winters planning to ax quarter of his senior staff, 1000 people. trying to reverse a two-year private slide. reallyse european banks shrink their way into being profitable again? you came from credit suisse. when you look at who these banks aren't playing, how will they get their mojo back? tom: they need to focus on those areas where they have the highest earning power, the best core competency. as banks exit markets that are higher risk or higher capital, those that require the banks to of doddk -- as a result frank, that risk-taking ability has been constrained.
9:06 am
there are those calling for that to be further constrained. it will ship the capital market activity, the risk-taking activity out of the banks and into investors. david: we talked about volkswagen. regulators have another reason to investigate, a second computer program that may have affected cars's emissions. the new york times says it's one of the reasons vw withdrew its request to have them approve their 2016 models. tom: bw has a couple of substantial problems. -- vw. will see brazil of values ball, which will pressure the securitizations and the costs of see theirou will values fall. they have not seen the impact in
9:07 am
the values of the cars that they bought. as you change the software, what is the impact on horsepower, fuel economy? if it becomes impaired to the point where it is meaningful for the consumer, the valuable go down. when consumers think about buying a new vw, they may think twice. david: if you loan, the collateral has gone down. erik: here is number five. glencore is still mighty. musclesis flexing his in the zinc market. they will cut zinc production by 4% ofd, equivalent to global supply to drive prices higher. todayiller, this effort is working, isn't it? matt: absolutely. we saw the best a poor zinc today since 1989.
9:08 am
day fore the best a poo zinc we have ever seen. it is working quite well. erik: maybe copper teaches us the same lesson. be careful what you wish for when you try to control prices. itted it can has adm no longer control the global market. matt: it depends on the commodity. how over supplied and diversify the production is. tom: that flow of cheap capital into the markets is deflationary for commodities over the longer term. you get a lot of capital flowing into the markets to increase production to increase the capital stock of productive capacity. severe passes, you see under pressure on commodity prices.
9:09 am
-- downward pressure on commodity prices. you are announcing the impact in every commodity. david: i must not understand commodities. glencore has 10% of the production of zinc. tom: oil took a massive production -- it was thought that we were oversupplied. if you control 10% of the market and cut a third -- erik: it depends how tight the supply demand dynamics are. tom: that size of a cut could be meaningful. erik: i have a funny feeling we will come back to glenn core a little bit later. stephanie: what do you want to know? send us a question via twitter. this guy knows the credit markets. send us your questions. coming up next, bill gross suing
9:10 am
for hundreds of millions of dollars claiming he was wrongfully pushed out. pimco employees say he wrongfully pushed them out. ♪
9:11 am
9:12 am
9:13 am
stephanie: welcome back to "bloomberg ." vonnie: uaw leaders will fight -- decide if they will send a new contract to be a chrysler. they want pay raises for second-tier workers. workers rejected a previous proposal last week. a commodities giant taking another step to correct costs. glencore cutting zinc production by a third. the minor and traitor already --
9:14 am
-- the bank isr trying to reverse a two-year slide in profits. --t is the latest matt: because of that agreement with uaw and excitement is turning to build over the ferra , that's one of the reasons this stock is up 73% over the last year. has septembernes traffic up 7.2%, capacity of 3.7%. a gain of 1.6%. that is because of the pretax margin forecast that was raised to 17-18%. they are raising their margin forecast.
9:15 am
i want to take a look at sun edison month stock rising today in the premarket. and analyst has come out and said sun edison's capital constraints are a serious concern. however, he says this selloff is overdone. the stock is down in the third quarter that she has a price target of $21, up from $19. that is it for me. more "bloomberg " after this short break. ♪
9:16 am
9:17 am
9:18 am
erik: welcome back. you are watching "bloomberg ." we have breaking news. matt: talking about walmart
9:19 am
right now. shares just a bit in the premarket -- the company just released the headline that its cfo will retire. he has been with the company since 1994. -- theyhat, he was with will replace them with bread, who comes from sam's club. .- bret he joined walmart in january of last year and will be replacing charles holley as cfo of the gigantic retailer. is seekinggross revenge on his former colleagues at pimco, suing them, the firm and its parent company for hundreds of millions of dollars. 20 page compl aint reads like a movie script.
9:20 am
inld powers left the firm 2007. -- bill powers. the complaint. lust, power, greed at pimco. l: i did not connect with any of those motives that bill alleges in his suit. pimco is a very intense institution. the man's that every employee ,ake that their top priority which is not workable at the home front. oris not a matter of money lust or greed or any of the other motives. erik: what is it? bill: this is a model for other corporations to look at how a company manages conflict. workow regime change can
9:21 am
when a company -- when i started we were $28 billion. when i left, we were over a trillion dollars. you have to change the dynamics of your culture. goldman sachs does a good job of departure ofr their key managing directors and having a fertile alumni association. " is not have that. -- pimco does not have that. stephanie: we have one of those alumni right here. tom wagner. tom: it is important for any organization to handle withdrawal of any cyclic play, no matter how big a star they maybe. any singleal of employee, no matter how big a star they may be. we have worked very hard. , we spend a lot of
9:22 am
time thinking about how we would bring other people up in the firm. we have some amazing superstars with us. stephanie: goldman sachs is a great example. you look at alumni networks, i left deutsche bank, there were such bad relations. goldman sachs is a great job. give me insight into how pimco operates. i went through this when jeffrey katzenberg left disney. the lawsuit went on and on. you get discovery of e-mails and letters. it is embarrassing and distracting. this could be pretty ugly. bill: one of the people mentioned in the suit that needs to be mentioned in this case is mohamed el-erian. when he came back from harvard, he brought bill the new regime change thesis.
9:23 am
and a partner meeting, bill gross announced in concert with his new hunger game culture of pimco, look to your right and you're left -- you're right and the person to your right or left will not be here in four years. hill was right. -- bill was right. and aou say game on hunger game corporate culture that we are looking to get rid mohammed andat bill at the top, there were two winners of the end. both people at the top were taken out by the younger people. you have a institution of governments -- governance that provides leadership of an
9:24 am
organization. no one is above the. everyone has to play by the same rules. you cannot have an autocracy where they are making all the rules and you have 48 other managing directors that don't participate. erik: i have to read one thing. a response from pimco. michael reed said the lawsuit has the merit and our legal claim this team will respond in court. -- and our legal team will respond in court. i will say this. clients, theymco don't want to see this get ugly. they want their managing this money managers focused on -- they want their money managers focused on the task at hand.
9:25 am
number one is bill gross, number two is john mack. ♪
9:26 am
9:27 am
9:28 am
erik: welcome back. you are watching "bloomberg ." thank you so much. -- the death says thanat 1453 people, more double in saudi arabia's estimates. securityof homeland will inspect damage in south carolina come exploring hard-hit areas in colombia in charleston. dust and charleston. the governor is urging people to evacuate. republicans shopping for a new house speaker. kevin mccarthy was favored to take over.
9:29 am
is being of wisconsin pestered to jump in. john boehner is staying on until they figure it out. one part of the markets you have been watching his high-yields in distress. we have seen huge backup, high yields clearing above 10%. what does it really look like? tom: you have some substantial pressures on the high-yield market as a result of falling commodity prices. the energy sector and natural resources kegger have been under siege now for a number of months. that has put the entire index in a state of stress. 8%.have yields above around the ende of the month, beginning of this month when high yields were under extreme pressure. there were opportunities at that time that were very compelling. the question now for investors,
9:30 am
have we seen the inflection point when things improve? will we revisit those lows that we saw? i don't know it the entire market will go higher or lower from here, but we will revisit those lows in those challenged industries. this to what degree is going to be a spread game and a function of where the high-yield complex moves relative to the benchmark? steve major with a pretty bold call. the 10 year treasury yield will drop to 150. overthe high-yield market time has been priced in three different ways. spread when things are looking good. then high-yield start to get stressed and never once has -- what dollar price can you buy bonds at? erik: that is the talk you like. tom: right now, we are seeing all three.
9:31 am
marketlthy part of the still priced on spreads. you are talking about the high-yield market begin crisis, are we seeing funds go under -- will there be less hedge funds in the market given the climate wherein? -- we are in? tom: no. you will have some funds that go away. you will see new funds emerge all the time. investors love new funds because it is new capital on a fresh portfolio. i don't know if we will see a decline in the number of funds. we may see dollars shipped away from this market. move away, which will increase the technical pressures on the market. stephanie: how are you going to sell in this market? fundyou cannot manage a and have liquidity terms inconsistent with the liquidity
9:32 am
in the market. you have to manage your liquidity. -- my partnertful the right craft -- way to approach our market. howard pulls us he has raised $10 million. he can only deploy $3 billion of that. i wanted to help visualize what the high-yield market looks like and what high-yield spreads look like. if you look at my terminal, you can see the spreads really narrowed. over the last few weeks, they have picked up. now, you are getting paid like real junk bond holders. it has come back a bit where do you think that will go? tom: you have the spreads being pulled wider because of the stressed components of the market in energy and natural
9:33 am
resources. last back to the end of month, when you look at the cash index around 8%, there is a time when the hyg or the benchmark $.83 on theing dollar. the market had become so sellmistic that you could a put at $.75, buy a call it $.85 -- at $.85, you were able to get up 2% for free. the cost was more than paid for by selling the put. 75 equated to the entire market moving 1000 basis points over and spread. the whole market was priced at distressed levels. that was a compelling way for us to cover a short in the high-yield index with set
9:34 am
earlier this year. get life questions from smart people. how much of what's going on in is just oneld market the basis of weakness and credit petrobras andout glencore? tom: if you take the week companies out of the picture, through right now, slightly up on the year. the asset class has performed relatively well. those companies not experiencing any difficulties -- you cannot ignore the overall market. the overall market as a number of industries and sectors that are challenged. this is normal for high-yield. people tend to think in terms of recent past when we saw the --ire market get repriced
9:35 am
the norm is more like what we saw in 2002 when you have certain sectors that come under distress and pull everything down to attractive levels. we tend to focus on those countries experiencing the most difficulties for investors in retail, look at the market as a whole and say this is an interesting way to play. we are looking at petra ross. -- petrobras. they will likely end up being a compelling investment somewhere, somehow, someway. it may not be directly. it may be through companies that currently serve or may one day serve petrobras. maybe at some point, we will come back and chat about it. erik: what about glencore? tom: there is a lot of talk about it being systemic. i don't think glencore is systemic.
9:36 am
systematic what's going on in commodities generally. it is a good indicator of stress in commodities. i don't know that glencore itself will fall into complete distress. they have a number of substantial challenges they need to resolve that go beyond the moves we have seen thus far. us a sneak peek. matt: what an amazing segment here. take a look at the index is right now. not much movement on the majors. it is a market of stocks today. look into my terminal, i have my imap function up. some days, it is useless. loser care, the biggest of all the groups there. you can see the biggest winners, materials. materials are the big winners here.
9:37 am
already --ou think zinc already. the best they they've had since 1989 and we began keeping records of bloomberg. hadhe best they they've since 1989. at $49.97. the companies that trade and mine these materials are the real movers. freeport-mcmran -- oran gaining. alcoa disappointing because the alumina price has not come back. price has not come back. a mixed market, but interesting if you look into it. sprint?e: tom: very attractive. today, no. stephanie: if it gets to --
9:38 am
tom: a lower price. something above zero. stephanie: if this were his first interview, we would have gotten the answer. david: we want you to stay around. next, talking about the value proposition in puerto rico. ♪
9:39 am
9:40 am
9:41 am
stephanie: welcome back to "bloomberg ." vonnie: the head of the atlanta fed assist interest rates should be raised before the and of the year. -- head of the atlanta fed it says interest rates should be raised before the end of the year. hintingfrom the meeting that policy makers will hold off on a rate boost. change is coming to walmart.
9:42 am
the chief financial officer will retire at the end of the air. -- and of the year. mac for pizza, becoming an investor in blaze pizza. erik: the topic, puerto rico. can it restructure its $73 billion in debt? , shouldhe question puerto rico default instead? he advises the government of puerto rico. which of you wants to take it first? that puerto rico
9:43 am
will have any choice on the issue of default. it's financials suggest it is going to run out of money very soon. it is suffering a liquidity crisis and i'm not sure it will have any choice on the issue. erik: do you feel like owning a powerplant in puerto rico? tom: we have a slightly different view. a consensual solution can be found in situations like arica. the reason we invested in the electric company, public electric utility of puerto rico come we felt they would be the first debt issuer in puerto rico that we need to restructure its debts. they are not in compliance with epa regulations. we thought it would take a proactive and constructive to partner with firms and go to them with a plan to
9:44 am
restructure their debt and they goal of helping them raise new capital, lowering the debt costs by 30% and allowing for lower ast of electric power -- constructive and collaborative approach between the debt issuer and debtholders is often times the best way to approach the situations. >> i have a problem with that approach. can we talk about that? it is myopic. what the island and commonwealth needs is a comprehensive global solution to its financial problems. only by a global solution will creditors like tom be assured that their debt will be paid and that the economy will recover
9:45 am
and that the people of the who have the greatest stake in the outcome here will be able to fulfill the american dream. stephanie: who is responsible to make the global solution? the people of the island are not able to do it on their own. >> that is true. erik: a comprehensive global solution is a euphemism for bailout. >> no. chapter nine bankruptcy is not a bailout, it has never been a bailout. it is a method by which the problems of the island and its creditors can be solved. when i was a kid, my father said if you owed the bank when hundred dollars and you cannot pay, you have a problem. if you owed the bank a million dollars and you cannot pay, the bank has a problem. the creditors have a problem and the debtors have a problem. bankruptcy is an organized,
9:46 am
efficient way to solve that problem on a global scale. i would love to get into a room with tom and his colleagues and try to persuade them of that. all the protections they need are in the bank. david: somebody has to convene and preside over that meeting. there is no one with the authority to do that. >> that is the problem. congress ought to provide that relief, not just to puerto rico, but to the creditors. stephanie: that will not happen for puerto rico anytime soon because you are looking to change the law. if this does not play out in short order, you will get burned on this. tom: we have struck a deal, two thehe 300 groups -- of three creditor groups have struck a deal. we will look at that as a mechanism that continues elsewhere in puerto rico. i take exception with one thing.
9:47 am
a chapter nine proceeding is a bailout. a bailout by definition as we talk about it today is a transfer of wealth from one group of people to another. in the case of puerto rico, that would be from the bondholders who reside outside puerto rico back to the island of puerto rico. that that was sold under a nineact where the chapter ability was explicitly prohibited. was priced differently as a result of those prohibitions being in place. to change that ex post facto is unfair to the holders of that that. -- that debt. a lot of people say who cares about hedge funds. 85% of the debt is still held by those who paid 100 cents on the dollar. most of those are retirees, taxpaying americans in the continent. i don't think simply applying chapter nine is the way to go. >> here is the flaw in that
9:48 am
logic. the island cannot pay the debt. erik: they could raise their rates. david: perhaps so. >> how does that work in the context of the entire island's economy? that question can only be answered through a global solution. there will be a wealth transfer. no one thinks there will be 100% payout. how are we going to get there? what is the process by which we are going to get there? on a runoff entity by entity basis or in one comprehensive solution that is supervised by a neutral in the middle who can assure the creditors that this plan is feasible, it's in the best interest of creditors, it is. and equitable -- fair and equitable? of the deal, we
9:49 am
have reduced the cost of debt materially. rates will be lower. there will be epa compliance, they will have cleaner energy. that is a win-win for all constituents in that case. >> we don't know that because we don't know that that settlement is feasible in the context of all the settlements that the on creditors may or may not eventually enter into. how long is it going to take percent -- 417 entities to do it for 17a time -- entities to do it one at a time? stephanie: come out of retirement could make it happen. >> don't need to do it again. thank you very much. tom wagner with us.
9:50 am
he holds debt. the man with some skin in the game. stephanie: stick with us. we will give you the best of this week on "bloomberg ." ♪
9:51 am
9:52 am
9:53 am
david: welcome back to "bloomberg ." we had a big week here at "bloomberg " with some blockbuster financial minds. let's take a look at the week. , tomr hedge fund titan stier. tom: people will pollute. our company is used to winning. that may sound a little trumpespue. stephanie: don't make that a word. not happening on our watch. >> raising interest rates is a good thing.
9:54 am
however, their problem is because u.s. currencies appreciated against everyone in the world, we have had the impact of an interest rate increase already. >> there is uncertainty in the markets. what the markets one is certainty. tell us what the rules are. tell us what the interest rates are going to be. the federal reserve is in a position where they cannot be that definitive for some time. >> i give her an incomplete because the firm is not yet over -- i have great respect for janet yellen. >> i want to say it on air come i did notroes -- agree with them and i was really upset with them when they were trying to break my arm to sell the firm. stephanie: great respect for ben bernanke you. -- i have great respect for
9:55 am
everyone who books "bloomberg ." we covered a lot ground today. give us a final point. tom: we spent some time talking about puerto rico and chapter nine. there is a debate here that can go on for weeks and weeks. there will be many more of these around the country. you have meniscal debt levels rising, state that levels rising. -- municipal debt levels rising. if the process of chapter nine is one that is transparent and fair, why is it that none of the professionals who worked the case of chapter nine can speak public about it? there is some type of limitation placed on their ability to talk about it. if that exists, what does that say with respect to the fairness in a good old us of something like chapter nine -- equitable this of something like chapter nine? chapter 11, the creditors can
9:56 am
put forward their own plan. their seniority and equality has to be respected. chapter nine, chapter 11, chapter one is finished for "bloomberg ." , talking to jim chanos. stephanie: thank you so much. thank you, tom, david, erik schatzker. thank you for watching. ♪
9:57 am
9:58 am
9:59 am
>> it is 10:00 a.m. in new york, 3:00 p.m. in london. >> welcome to the bloomberg market day.
10:00 am
good morning. i am betty liu. we made it to friday. how concerned is the imf about slowing global economic growth? an interview with the imf new chief economist. europe and asia, stocks propelled a rally as commodities surged. why sink is rising the most ever -- zinc is rising most ever. republicans in disarray after kevin mccarthy pulled out of the race for speaker of the house. who will fill the power vacuum? we are about a half hour into the trading session. markets shrugging off the political news and what the fed said yesterday because they are

43 Views

info Stream Only

Uploaded by TV Archive on