tv Bloomberg Go Bloomberg October 12, 2015 7:00am-10:01am EDT
ever. ♪ >> welcome to "bloomberg go." you are joining us in new york city. i'm stephanie ruhle. >> i'm david westin. here with us is jim chanos. he is a shrewd skeptic and will share his skepticism. >> this guy knew enron was coming. he has warned us all about china. matt miller, you have something for us? >> the nobel committee is out
with the nobel prize in economics and goes to a professor, angus deaton. it looks like consumer demand consumption is the reason the committee awarded him the nobel prize. these headlines are coming across just now. very interesting stuff. consumer consumption is important. jail guy: sorry, jim, go -- yale guy got it. >> commodity prices have battled glencore. president obama says he is in considering any major changes to his approach in the area -- syria.
russia has become a major military player in the conflict. last night, the president characterized vladimir putin's move as a sign of desperation. you think that running our economy into the ground and having to send thin -- troops ,n to prop up your only ally then we have a different definition of leadership. vonnie: he also indicated he believed american forces offer no long-term solution in syria. a washington post reporter has been convicted after a closed trial in syria -- iran. "the washington post" calls it an outrageous injustice. here is matt miller for a check on markets. matt: take a look at futures, vonnie.
not a lot of movement. you have european indexes down right now. the interesting move came in asia. chinese stocks, big rally after the golden week. markets have been positive because of expectations of further intervention, either cutting rates were lowering certain restrictions to investment. you see the shanghai and the shenzhen both up. take a look into my terminal. we have pulled up an index of goldman sachs-compiled stocks with the greatest short interest. these are the top 50 stocks on the russell 3000 that have the biggest short index -- interest. it has come down to a five-year low. short sellers are doing very well into this low. they have rallied up, though. the s&p has been up about 3.3%.
that has squeezed short-sellers to an extent. one of the reasons for the gain in the s&p is glencore. it had a great week last week. it has had a rough year. glencore is trading down about 2%. in londonearlier trading because it is possibly going to sell a couple of copper mines. that will only make a small dent in the debt it wants to reduce. investors are selling that off. it looks like the deal was just announced. i want you to dig into the terminal and give us the latest. but i'm going to turn you to glencore. we have to find out what mr. chanos thinks. said the worst is behind
say itdman and citigroup is far from over. jim, welcome. shorte a short -- you are the national gas producer, you are short console. where do you see opportunities and commodities right now? -- the spacebased has been under general deflation for a while now. we saw capital spending go from $14 billion per year to $100.5 billion between 2001 and 2012 because of our friends in china. stephanie: our friends in china? jim: our friends in china. as china and i actually --
inexorably slows, demand for hard commodities are going to be under pressure. what has happened always happens. people expand their investment in the space to meet the demand and now we have the hangover. cheniere,ng back to they have a lot of business locked up in long-term contracts, which they say suit --should protect them from this. their $4 billion is locked up. it is a little bit of a myth that all of it is accounted for. they still are going to be dependent on the stock market for a huge amount of what the bulls think they're going to make. isid: how much of your short based on the assumption there will have to be modification.
if you knew all the contracts would be honored, does it affect your position? jim: not at all. all of the so-called trades are probably. there were be over $30 billion in debt when they are done building these rings out. equipmentn worth of in the swamps of louisiana going to depreciate. assume you ares right, you are going up against carl icahn. jim: he is a good investor, but we never worry about personalities when we invest. we look at the fundamentals and the ideas. we don't think the numbers pencil out. just last week, john said he has never been more
confident. he said it was short-sellers who caused it to go down. jim: i think he said something similar in 2008 during the crisis. the problem with glencore is that this is a company that was .rading hard assets idea was that if there was a downturn in the commodity markets, the trading acumen would help offset the assets.
if that was the reason to put this thing together, one has to question that strategy. if you look before the 2012 deal, glencore was earning and now they are earning low single digits on their capital. let's just say i'm a potential purchaser. i will let you think about that for a question -- a second. stephanie: a potential purchaser of what? jim: to close out a short position, you have to buy a stock, right? stephanie: ah! jim: they were buying assets at the top of the market. the commodities have crashed and they are selling assets. does that sound smart to you? david: there was indication in the markets that the price was going up on zinc. jim: they are getting rid of the
the pricethat makes go up, that is the problem. i'm concerned about a company that is supposed to have this great trading acumen that seems to be buying at the top of the market and selling at the bottom. that does not sound mark to me. stephanie: until 2012, you would be hard-pressed to find them doing that -- anything that was not smart. this is really a big mistake. jim: they did very well enable market isin a bull what you are saying. stephanie: ok. jim: at the end of the day, that is the issue. this just simply a play on commodity prices? are you lucky or are you
smart? the eternal question. go back to commodities generally. are there particular commodities that you think will be hit harder than others? rolling,ink it is david. we were short iron ore a couple of years ago. we are very negative on the lng market. we think that is where iron or was 4-5 years ago. all of this capacity is coming in asia. we think we have a looming oversupply problem in lng not related to show near -- cheniere. production is basically about to double in the next hand full of years on flat demand and that does not sound good. stephanie: are you short copper? jim: we are not short copper. stephanie: glencore, one more
time. help me understand how you are positioned. public school gore from new jersey. it is hard for me. [laughter] going to comment on our position, but we know the company pretty well. it is a company that was a reasonably high return on capital business. it has turned into a low return on capital and below their cost of capital. for the past handful of years, not just the past year. discomfiting was declining in its returns since 2012. -- this company was declining in its returns since 2012. it is a collection of mines. it is not a trading house anymore. stephanie: we saw things move up . what would you advise me? seeing how you view this company, what should someone do today? jim: i would stay away from the
commodities space. generally speaking. [laughter] stephanie: you think there is a risk they could take the company private? jim: that, i don't know. david: what is the next one? you look out on the horizon. what is the next commodity you think is riding for a fall. jim: i think those two are big enough. we are still pretty bearish on the domestic space, the shale oil area. we think that whole business model is questionable. that is separate from the price of oil. is going to be a painful realization for a lot of evil -- the oil business. stephanie: you agree with the frack is whack argument? jim: we do. david: fracking would look a lot
more appealing if oil is at $100. jim: yes, but they were generating negative cash flow when it was that $100. part of the problem is the wells deplete so fast. we don't think they are properly taking account of that depletion. if you do, nobody would have raised a dollar in this area. ford: go back to cheniere just a moment. what happens to your short position if it gets bought? jim: i would lose money. [laughter] david: that is a simple answer. jim: who is going to buy a company where the cash flows are dependent on something happening from 2020 out? there is no free cash flow, even when that happens. david: it is already down 30% this year, right?
jim: it is up sevenfold in the past 10 years. stephanie: we have to head over to matt miller. take us back into dell. senor dell likes to take companies private. dell is paying about $67 million for emc. it would be the largest pure tech takeover in history. vodafone was $186 billion. this would be the biggest pure tech play. vml is tracking stock in wear. $33.15al price will be per share. it is about the october 7 level.
october 7 is right here. emc begin to climb. michael dell is going to pay about $67 billion. and, if youbusiness are thinking about losing, it is going to be bad for hp. david: we are going to be coming back to dell. jim, what do you have to say? jim: we are negative on this space and we have been public on hp, we have been short hp for a number of years. we were short dell when he did , if you, the take under will. we are back to decelerating revenues in pcs and services for most companies, so they are looking for growth anywhere they can find it. deflation is the keyword in this
stephanie: you are watching "bloomberg ." chanos is here with us. he is one of the most notorious china bears. you have been consistent on this subject. last week, we had david russo on. i talked to warren buffett. they were more optimistic. >> the china group is 10% on average for 30 years in a row. it has a $3 trillion economy. going to grow at 6.5% this
year. >> you have been bullish on china? >> bullish on china. it has a long way to go. david: there are some astute investors who have a different view on china in the long-term. do you want to respond to that? jim: i don't disagree with either of them. i think long-term china is going to be fine. that unrealistic to think they are going to stay at the growth rate. that is consistent with what we said. 7% real. downs been on a ratchet for the past five years. i see no reason why that shouldn't continue.
the first international airport in the region is a boon for growth. we are between the second and third to use this analogy in the to throw is continuing money at fixed asset investment. the problem is the model. despite all of the china bowls saying they are -- bulls say they are reforming. 2010, household consumption is 38% of gdp. it is just not happening. the data does not support it. stephanie: the data we are getting out of china or the data you believe is the truth? in the past, you said you do not believe a thing they put out there. jim: i'm using their numbers. stephanie: you are now using
their numbers? jim: it is using bad apples too bad apples, stephanie. if china is saying it is going to consumption, we are on safe ground to say it is not really growing. stephanie: is there stockmarket reliable enough that you can play? it is what you do. you go short. many people this summer said the rules are changing at such a rapid pace, it does not matter what my view is. jim: we have not been long or short on shanghai at all in five years. the shanghai market is heavily leveraged. it is a retail market. the government is heavily involved since a year ago. look at stocks that trade related to china in hong kong or elsewhere in the just simply in companies
that are involved in trading with china. playing the shanghai market is going to the casino. matt: i have an interesting chart i have been looking at on capital flows in china. capital flows out of china area we put this together on the bloomberg. we trekked inflows through those. i should have put a zero line. outflows backting in 2011. they got steeper and steeper. is this one of the problems you think? are people losing faith? you had been preaching this it's too thousand nine. i think people started buying your argument straight off the bat. jim: i think china is a hot money problem and your chart is indicative of it. they unrolled the yuan
depreciation project and had to backtrack. stephanie: why is that a hot money problem? if you look at the sheer volume of their population, many investors said once we can unlock that market, there is tremendous opportunity. those same investors have gotten burned in the last few months, but it does not necessarily change their outlook. about ouri'm talking singapore or western investors. shadow banking assets. yielding 12%-15%. 12%, and 6%, earning then assuming the currency would appreciate as a bonus. those flows are tremendous. --n china
stephanie: what is the trade in china to do. think trade with china, be a tourist on china. stephanie: what is the trade? don't invest, but trade around? jim: again, i want to be short commodities. i want to be sure macau. jim is sticking around for the hour. tom keene joins us from across the pond in london. ♪
stephanie: not too pretty. but the markets are not that bad. jim chanos is still with us. here is vonnie quinn. vonnie: it is the biggest takeover in the tech market. dell agreed to buy emc. for $67 billion. an american newspaper reporter held hostage in iran has been convicted. confirmed early today. he was tried behind closed doors on a variety of charges, including espionage. the newspaper calls the verdict and outrageous injustice. iran has successfully tested a new long range missile that can be guided until it hits its target. the company will use the nuclear
agreement to build up its military power. here is matt miller for a check on the markets. mixed trade and not a lot of movement in the indexes. unchanged across the board. .old gold has been up three of the past four weeks. last week was positive for a group of commodities. new mining had its best weekly gains since april of its last year. this is all due to the fed. a lot of losing faith they will be able to raise rates this year. mario draghi is reminding
people. it looks like global central-bank easing is bringing the gold bugs back out. very interesting stuff. david: thank you very much, matt. tom keene is joining us from london town. this is our daily must-read. what do you have for us? tom: what i've got for you is the wonderful announcement of as the nobel prize winner in economics. this is a win for cambridge, the university of bristol. win fora microeconomics. david, when your kids take math at school and you say, sometimes, i'm going to be like angus deaton, that is what you
are telling your children. it is about microeconomics. it is about stuff we don't get. this is about microeconomics and how consumers behave. david: why do you think the committee chose him? om: there is no question within the language of their short press release that the reason they went to him was because of inequality within our economics. 1980. foundational in to really begin to think about how the individuals act given the inequality of society. david: the nobel prize tied back into the presidential campaign. it will be a central question. stephanie: we are going to leave
you in london. you have a must-read for a senate does not come from "us weekly." [laughter] jim: one of the books i just finished rereading was "mr. china." china was going to be this great booming market. he spoke mandarin. his team did all the right things. they hired all the right people. so of a cautionary tale. he wrote the book in 2005. stephanie: can we pull this quote of? the idea of china has already -- always exhorted -- exerted a pull on the adventurous type.
there you go. that is the part that matters to you. jim: right. stephanie: why? jim: it was hard for him as a he hader, even though done everything right to make money. from him, helen was lied to, whatever the case might be. he confronted issues at every turn in china. this is always been the illusion about china. this great market, this booming growth market. profitability for outsiders has been elusive. it has been a great cautionary tale. bull on big all -- chinese culture and history, but it is making money that is very difficult if you are not specifically chinese and wired
and specifically the different businesses. david: is it the lack of rule of law, the central control of the economy? jim: it is a wonderful cautionary tale about some bank documents. china, bank documents in as opposed to having signatures have to have these seals on them. david: everybody has their own chops. stephanie: there what? david: a chop. it is like a whacks seal. seal. each one has to put their chop on it. stephanie: chop, chop, chop. jim: as long as the documents have them, they are legal. tore is no mechanism determine if the person who put it on their had the authorization to do it.
it turned out to be quite costly. this is one of the things you don't get in the west. stephanie: we have to get to a twitter question. the anticorruption campaign make you feel positive? jim: i think the rise of xi jinping is important. prior to xi jinping, china was open for business. as long as you made money, anything went. , send money abroad, do whatever you want, just grow. it has changed. that corruption has come to the forefront. he has taken a very anti-western on how his outlook companies do business. the landscape has changed dramatically, politically and economically under his leadership and he is a very strong leader. the anticorruption should
facilitate investment, right? jim: it should. thehould accept it was also greeks that move things along. stephanie: one more time. i don't follow. jim: corruption made things happen. stephanie: yes, yes, yes. jim: and now you have managers and party officials who are absolutely terrified and also maybe too afraid to put the investment. stephanie: we've got to share a twitter question. sure block o asks, are you -- short the equities or the equity 500? jim: neither. we are long on the s&p. we are long the indices and short stocks. i think that is an easy answer.
we are only short certain chinese equities on the hong kong market. stephanie: let's go from china to europe. in the beginning of the summer, everyone had greece, greece, greece in focus, when the real problem was china. greece back in focus. more than just a vacation destination for you. jim: yeah, i was there this summer. the company desk country is now eu.ssal state of the they lost their sovereignty this summer when the country voted overwhelmingly in the referendum to not sign for the rest area he. choice they had no because the germans and others have their banking system basically in a tight bind. country that does not make its own decisions in a meaningful way area stephanie:
when was the last time it made its own decisions. jim: before 2010. david: it made some pretty bad ones. [laughter] jim: he did. it should never have been in the eu. that is the real issue. a precursor of the problems of the eu. spain, portugal, italy are one more recession away from where greece is. stephanie: i thought spain was doing better. jim: drain -- spain is doing better off a low bottom area so was portugal. there are construction cranes everywhere. they are getting back to the same old game of building condos. david: construction boom. jim: they have hired debt to gdp than they did before the crisis. problem wheres you have a dominant player in the eu, you have a number of weaker players, and you don't
have any ability to rebalance. when florida gets in trouble, we don't cut it loose or put it on an austerity program. when we have regional problems, the federal system enable it to basically balance out. that does not happen in the eu and that is a problem with the structure. stephanie: stick with us. send jim a question. we have a lot more to cover. we will find out if used trading in his lamborghini for a tesla. ♪
glencore is making moves to reduce some of the $10 billion worth of debt. they plan to sell a couple of copper mines, one in australia, one in chile. the stock is down about 55%. spends was the world's top-selling luxury brand for the first month -- third month in a row. it was driven by demand for suvs. bmw is in second place, followed by audi. that is your news. , youanie: jim, last week and some like-minded tech analyst were down on tesla. is it because you think this is an overvalued battery company? it is an overpriced car company. one of the interesting things is now comparing it to other car
companies. that bmw, a little company in germany, sold as many electric cars in the u.s. as tesla. stephanie: really? david: wow. stephanie: matt miller. do you think people are aware of that? matt: i think you have to look at it more as an eye three-story -- i3 story. 8 did not sell as many. room.ld me in the green i was surprised. jim: bmw is claiming that almost their entire fleet will be 2025.ric eye 20 -- by other companies are now catching up to tesla. they have to become a car manufacturer. that is a lot more difficult than becoming a high-tech darling.
returns are relatively low in the car business. it is very capital intensive. networks.uge these are all bells and whistles. it is a great product. whether always wondered the play was for them to build up a good ip protection and sell it to someone who needs to get in. david: most of their technology --jim: most of their technology is other people's. they sold the sizzle and not the state area if you look at their market cap, it is about half of bmw. bmw sells 2 million cars per year. stephanie: are you sure tesla? jim: i'm a potential purchaser.
we will leave it at that area stephanie: make it a bit bigger. jim: we are short solar city. stephanie: let's talk about elon musk. is it elon musk that you are short? jim: i think his name has added something to the valuation of both of those companies. nothe end of the day, it is about personalities, it is about the business model. solar city is akin to the old movie "tin men." they are selling aluminum siding door-to-door. solar city is basically leasing you solar panels if you are a residential customer at a noneconomic deal. stephanie: you compare this to a subprime finance company. that is a lot different than guys going door to door selling solar panels. jim: not really. they are taking consumer credit and their long-term deals.
the deal is dependent on the backend. that is the interesting part. city yields solar around 8%. that is certainly junk credit. we think a portfolio is yielding 7% on the leases. david: is this specific to solar city? on: we are bullish installation with solar. we think that is going to continue. all the more reason to be bearish. aty are selling you power $.17 per kilowatt hour. they have got to get the rate down. solar is slightly more competitive than the utilities in california. but it is not cheaper than other
solar providers. that is the crux. other solar providers can get it to you cheaper. stephanie: matt, do you want to chime in? matt: i was talking with jim about how i thought the price to sales ratio was for tesla. this is a company with a $30 billion market cap that makes $50,000 per year -- 50,000 cars per year. stephanie: the valuation is the issue, not the product. matt: solar city is even more amazing. .ere is tesla solar city is worth 15.5 times sales. the valuation is even higher. opportunity is even richer in solar city? stephanie: jim, a purchaser, i'm not that smart. are you short tesla? jim: again.
stephanie: don't again me. [laughter] let's just say i'm not very positive on the company. stephanie: do you want to be short folks like them? jim: no. stephanie: don't want to touch vw? jim: if anything, we would be looking at it on the long side. i think they will survive. stephanie: really? david: we will be right back. we are going to play a little word association game. stephanie: it is my favorite. what is on this guy's mind? stick with us. "bloomberg ." give us a topic. tweet us. ♪
you are looking at an amazing contemporary art collection. jim chanos' art collection. jim: and an amazing backless dress. stephanie: thank you. jim, it is time for word association. we give you a word and you give us an immediate response. we were talking all about the art bubble. contemporary art. jim: bubble. stephanie: got to be close to birth -- bursting. david: lenovo. plus china. trouble. stephanie: there you go. hillary clinton. jim: front runner. stephanie: do you like her as a front runner? jim: she is the front runner of the democratic party. david: jill biden?
-- joe biden. jim: would love to see him run. stephanie: paul ryan. jim: wisconsin native. david: favorite long. jim: tough. tough. tough right now. david: hard for you to go long. jim: everything is expensive. i will pass. [laughter] stephanie: favorite short. jim: favorite short. u.s. exploration production companies. stephanie: apple. jim: long. stephanie: last one. tom brady. he is passing again. aaron rodgers almost. stephanie: "bloomberg " will be back. ♪
we have got an exclusive interview with the ceo. why do we buy the things we do? an economist comes up with the very answer and wins nobel prize. ♪ david: welcome to the second hour of "bloomberg ." i'm david weston. stephanie: i'm stephanie ruhle. we started strong and we are continuing. us.r or zag joins welcome. hope you like the new house. brendan joins us. brenda: it is nobel prize day! >> in economics. stephanie: look how excited he
is. and jeff mccracken joins us. david: we've got a lot to cover. let's go to "first word." vonnie: thank you so much. dell has agreed to buy emc. $67 billion is the price tag. dell went private two years ago. the american newspaper reporter has been convicted. behind closed doors on a variety of charges including espionage. the nobel prize for economics. deaton is best known for how individual consumers make
choices. here is matt miller. matt: thanks very much. let's take a look at futures. not a heck of a lot of music -- movement. basically unchanged. the story of the day will likely be oil. everybody is talking about this $50 per barrel mark. we are hovering around it. $49.80 per barrel right now. stocks at thergy best weekly gains this year so far as investors got out of the stuff that was making them money and got into the staff that was oversold. the same is true for material stocks. last week, the materials index at its best week again in 2015. people are rotating into the areas that have gotten beaten down the hardest. stephanie: we are going to take you now to deals.
we are asking what is the big deal? megadeals totaling $170 billion. that is just two deals. such big deals. mccracken, we already introduced you. let's dig deep. dell-emc. $67 billion. why is this going to work for hp? when it didn't work for >> i think the reason it will work with the dell is because michael dell is there and they have silver lake behind them. they will take the whole thing private. people preferred to be private when they don't have to be public in the glare of it all. dell is now $60 billion in debt. the going to be a to pay that off? >> they had to create a tracking
stock. margins making hardware for tech? >> there are. this is high-end storage equipment. but it is not a fast growth business. the fast growth is coming in the smaller players. the companies you have never heard of before. this is where the competition is coming from. the point is that these guys are able to deliver this through the ,loud, at a much more cheaply much more nimbly. say these when you guys can provide it much quicker, you were talking about companies like the ones you've never heard of? >> exactly. it is much more inexpensive. you don't need to store things with expensive gear now. >> you can go almost
month-to-month to the cloud. it makes me wonder about ibm and hp. through both going their own challenges. what is the deal mean for them? everyones against what else is doing. hp is splitting up. ebay is also splitting up. dell and the ceo at emc think caner is better, that they have a one-stop shop to get consumers and companies and governments to buy their various businesses, whether we are talking about pc or data storage or what have you. it is just all they are going against what everyone else is doing. >> does this have to do with timing in the markets? >> i would say it has to do much more with secular change. emc's problems get worse. they just announced a whole bunch of job cuts and consolidating a couple of months ago.
they have been looking to do something. if you with hp did not pan out. they have been waffling about trying to make something happen because they realized the slowdown is not going away. stephanie: what is hp thinking? >> they will take a look. goldman sachs is not on the deal. it is because they are working for hp. this is jpmorgan and morgan stanley. that is a big deal. goldman will convince hp to take a serious look. hp is pretty far down the path of taking into two pieces. if you are a competitor for customers, sometimes these transactions can cause enough disruption in the marketplace that you can sign up customers. >> emc was 20% of the data
storage market. dell was 10%. i'm sure that will have an impact on hp. you are expecting big changes at ibm, as well. >> hp says it wants to help provide services for companies. as a to provide services, as it is a combination of things. you have storage with emc. servers with dell. your clients are outfitting huge data centers. you also need services to keep things running. the idea is having more of a one-stop shop. this is the stuff carly fiorina was talking about 15 minutes ago -- 15 years ago. stephanie: carly fiorina said
that 15 years ago and it did not work out for her. >> not at all. hp is breaking up. bigger is not necessarily better. stephanie: peter, when i think about technology companies that matter right now, do they come to mind? >> it depends who you are. for firms that need that kind of storage, yes. on the one hand, this deal is clearly taking advantage of -- i dove financing think it is probably a timing issue. is the world evolving so rapidly that even this deal does not get them where they need to be. stephanie: do you want to talk beer before we go? it is 8:00 in the morning area
-- morning. abi more timeve to negotiate a deal? it is all of them to ask for an extension. we reported yesterday that them bumping their bid to $43 something per share, abi wants -- share.re area >> we have some breaking news. let's go to matt miller. matt: we are looking at breaking news on eli lilly. the trial of its drug that is supposed to help combat high risk heart disease. the third trial is over because it did not prove efficacy. in $90 million charge in the quarter. similar drug they
are working on. these two companies have been racing to market to get the first drug out to fight that cholesterol buildup in the heart. it looks like eli lilly is now dropping out. it will be interesting to see how merck responds. lily is down 4% in the premarket. it has had a pretty impressive year in 2015. a drop of about three dollars 14 a guest $3.14. david: we are going to be coming back to pharmaceuticals. tweet us questions. jeff, thank you for joining us. tom, thanks for being here. stephanie: brandon, you are not going anywhere. an american wins nobel in economics. his work on poverty and welfare. we will get into that and much more. ♪
david: welcome back to "bloomberg ." we are now going to head over to london. we have mark barton joining us from london. mark: very good day to you. i was going to tell you european stocks were rising for a seventh consecutive day, but unfortunately i can't because they are falling. industry i want to tell you about is the mining industry. check out this stat. mining indexes rising for the 10th consecutive day. that has not happened since 2000. it is up by 27%.
check out the big utilities in germany. biggest increase for these two companies in seven years. i want to get on to china. there were interesting moves today. the shanghai composite rose by over 3%. look at the yuan. it has strengthened the most since march. i want to tell you about a golden week holiday. this is my stat of the day. restaurants and retail sales first -- it is the equivalent to the total of kuwait's output.
[laughter] david: thank you very much. it is his delivery. i don't care what it is. i just want to learn from mark barton. from tennis to kuwait. i love that. [laughter] david: this morning, the nobel prize for economics was awarded to angus deaton. he is focused on health in rich and poor countries. we talked to tom keene about the north-self issues. tell us about his work. >> the biggest message from angus deaton is don't look at the aggregate. you need to go beneath the average and look at the just tradition -- distribution. that matters a lot. he was on this topic well before it became a popular one. he has been proven right in the
sense that there is the attention that is warranted. we're seeing any quality arise. it is not just income inequality. there are a whole variety of dimensions rising. stephanie: why is that? because of better health care? >> part of it is smoking. down verys come rapidly among better educated, high income people. part of it is other health behaviors. there is a big, missing gap. i think a lot of it is stress. .tress levels of ghana
we know that prolonged exposure to stress is deadly for your health. focus on bloomberg. >> there you go. stephanie: you got that? we try not to talk about econometrics methods. very early on, when other economists were doing moral philosophy was imagine models, he was looking at her vacated. that really changed the profession. he is known for careful attention to appear at 11. it is not just theorizing. let's look at the data and see what it is showing us. crunch the numbers. >> when you look at economic models, it is shocking how much of it is based on an imaginary single person who lives forever. that is not how the economy actually works.
people at different credit levels behave differently when exposed to the same stimulus. the imf and the fed are just picking up on this now. >> a growing body of evidence is suggesting that a lot of the change in the wage inequality has to do with firms growing apart from one another. stephanie: what you mean firms? companies? >> companies. exactly. all of the rise in the wage inequality in the u.s. is not because this eeo is earning more than the typical worker. companies are growing apart from one another. facebook is different from dell. apple is different from mcdonald's. >> if you are on one of the rocket ships, you are doing great. if you are not, you are not so much.
we will discuss all of the data. stephanie: so interesting. so interesting. david: a lot more to talk about. the top story selected by bloomberg news. check it out if you want more information on the dell-emc deal. ♪ matt: futures in focus. abovevel has not closed since july. opec officials predicted that global oil prices would recover. increasest weekly since august. here to break down oil is the chief options strategist at bull's-eye oil.
behind do you think is this rise in crude prices. is it just a rotation or is it the expectation that demand is going to grow and reduction has been beaten down? >> i think it is a combination of things. it is a technical move and a psychological relief. you have seen a lot of commodities markets battered and beaten. they are starting to stabilize. part of this equation is a currency issue. if you look at the dollar, it is pivoting around a $96 level. it is solidly below that now. that is an important component right now. i think you are seeing psychological relief. we saw the crude oil market test $44 five times. it traded sideways for a month area now we have seen an upside breakout. matt: we have seen a rotation
into energy stocks. is that going to continue. last week was a strong. >> is this for real this time? see. as ofteno happens, the markets get over to him the upside and the downside. i'm feeling more stability. i'm seeing asset reflation. you are seeing the stock market stabilize and there is less withrted fear area the vix that 53 in august and it is now down to 17. that has been beaten back down. i think people are a little bit more forward-looking area i think the demand destruction that everybody anticipated is not happening. halfway point. that is the target based on this
technical range in breakout. matt: got it. thanks so much for joining us. more "bloomberg " after this short break. ♪ stephanie: welcome back. before the break him a we were talking about data and digging into it. there is no better place to look at data than china. >> the news that is out suggesting an uptick in services is really important. -- chinese economy continues is shifting toward services. all of the arguments that we cannot trust the official gdp numbers because the indices are based on steel production or other industrial output are diverging -- that is exactly
what you would expect as an economy moves toward services. we have long overestimated the probability that the chinese economy will continue to grow at 7%. we are now swerving the other way. but it is a result of services. >> is this conscious government policy or does this just happened? >> the chinese leadership is --ing to figure out if this how this is happening. it means much more attention to education. they have made massive investments in higher education. it means continued investment in in her structure. it is a different growth model. david: how are we going to get better david -- data on services? >> in fairness, we are talking about movies and these are not great data and one of the problems is that the services data come out less frequently
from china. we are guessing too much on that component. >> can we get good data off chinese social media? >> even here, this is a big issue. how do you combine private sector data with official data. there are big gains we can get from trying to combine them, but even here, it is not as easy as you would think. the official data are so old and late that it would be great if we could update it with comprehensive private data. stephanie: peter, unfortunately for you, we are going to use social media to keep you on your toes. twitter question. our big banks concerned by the growth of the alternative consumer and small business blunders? >> technology is always changing. it is healthy to keep every industry on its toes. it is a good thing.
it forces banks to continue to be innovative and make it easier to bank on your phone or to walk into a full-service atm that can do more than just withdraw funds from the machine. stephanie: plus, they gave us the city bikes area >> that is pretty cool. stephanie: we have to take a break. anywhere. it is one of the fastest-growing lodging websites anywhere in the world. what is the value of airbnb? the ceo on the question of whether the company will ipo. david and i both said, couch? i neither want to rent nor sleep on one. but that is up to you, millennials. ♪ the only way to get better is to challenge yourself,
brendan greeley is here and yet such a good time earlier he had to come back. and bloomberg editor for tech, tom giles. >> dow has agreed to buy emc in the biggest tech takeover ever. to in service sales. stay --t obama plans to russia has unexpectedly become a major player in the fighting. and the committee investigating u.s. in benghazi has shifted the focus. the focus has shifted to hillary
clinton's use of an e-mail -- private e-mail server. here is matt miller. look first off at futures. digging to some individual companies. most of that is already priced into the stock. we get confirmation that dell is aboutto buy emc corp. for $.15 per share. eli lilly moving in markets today. it is down 10% because it has canceled the production, or the trial of a drug that is supposed -- merck is running about $600 million a year in revenue.
fiat chrysler, it's big hit is the ipo attting out $48 to $52 per share. own a fiat share, you get a ferrari share for free. moste, one of the interesting and exciting stories, $9.2 billion is the evaluation. this is going to pop when it starts trading. stephanie: get a ferrari for free, you heard it from matt miller. >> we have peter orszag year. we can asking the question. for a drivers always have money. rari drivers ari fe always have money, isn't that right?
peter: i don't drive one, i don't know. inphanie: rent cap couches over one million homes in over 100 countries. where do you stand on cash and capitalization and at what point you need more and will you look for it? cash right plenty of now to put you -- to pursue our dreams. we have plenty of room to grow in asia and china, so that is what we are focused on. >> year? in the next no. stephanie: let's talk about that valuation. it is clear you've got a lot of money coming in the door. there is a lot of doubt about tech valuations.
can you speak about silicon valley, your company, and did you think you are worth that -- do you think you are worth that number? to ultimately, that is up investors, not us. i think the comparisons are totally inappropriate. you didn't have a lot of people online back then. you have a couple billion people online today. those companies didn't have revenue. many companies are growing more than 100% year-over-year. valuations go up and down. the market will soften for sure in the future. i'm not an economist and i will not tell you when. stephanie: do you attribute com.com bubble -- the dot bubble companies that are not on the market yet? you are profitable? >> we do not comment on
profitability. we are doing really well. >> who is your competition at this point? definitelyhotels consider him their competition. industry. pretty big there are different views. 40% of travel in the u.s., people say at friends and family. airbnb twice as long as hotels. and you typically stay outside the hotel district. what i tell everyone in the hospitality industry or out of the office without a win -- outside the hospitality is this is the key to winning. someone tellsn
you tech violations are worth nothing, does that keep you up at night? >> no, airbnb is going well. if we succeed, it is whether or not the guests around the world love our business. we provide an amazing business to people every day, we will be doing incredibly well. >> you mentioned china earlier. how big a market can that be for you? >> five years from now, you can go to any business in the world and these markets are locked, but tomorrow they will be open to you. it will feel truly local. gophanie: i would definitely for an airbnb at the white house. i'm just saying. invited toctually the white house because i worked with him on entrepreneurship in cuba. i nature to mention one thing to him. the lincoln get
bedroom on airbnb. he said he would talk to michelle and felt it was a long shot. stephanie: i've seen "dumb and number." so you are saying there is a chance? the lincoln metro has been used for less noble purposes than airbnb. stephanie: he did speak to president obama because he is on his counsel for entrepreneurship. a company that we do not know yet if they are profitable. doesn't this make you worry? when he asked the -- when he asked -- when we asked him about the valuation he said he did not discuss that. why should that not tell us something? that tells us there is a bubble that is flowing into tech without knowing if they think me -- knowing if they make any. these companies are
increasingly playing a bigger and bigger role in the economy or longer time frames. no one -- for longer time frames. the value of these companies. stephanie: but does it matter if they make money? uber. airbnb, baidu they make money? tom: private investors think they do. -- brendan: we have tools, information sharing. has that started to change things from a consumer perspective? peter: the sorts of services might help people afford a home that they wouldn't have otherwise afforded. ?ut are there externalities is there harm from other people?
you can imagine in an apartment building, apartment a is participating and their major traffic apartment b does not want. if you are assuming the risk yourself, that is one thing. if there are other people involved not to be to that transaction and they are being harmed, that is when policy needs to think hard about it. my husband might be up for that, but i'm not. >> we will be right back with bloomberg role. -- bloomberg go. ♪
is developing a drug for high risk cardiac disease. it will take a charge of $90 million in the fourth quarter. and a takeover bid for sab miller. they have been discussing whether to boost its $100 million offers. says the current offer undervalues the company. strongeris counting on demand for its oil next year. the cartel came out with a forecast while disclosing the most oil in three years last month. they're hoping that production numbers will shrink in 2016. >> let's get to the morning meeting we hear what key banks are looking at today. joining me is barnaby martin, i head of credit strategy at bank of america, merrill lynch.
what credit flows are you looking at over in europe? barnaby: you would have thought marketth all of the slowdown in china, etc., they would have -- they would leave bonds, stocks, etc. moneyweek, we have seen leaving bonds, but at the same time we've seen money going into equities. it's rare to see that kind of rotation. it makes us believe that what is happening here is as we move toward an extension of qe, which bank of america expects next week, what retail investors are saying is, hang on, yields will be so low for such a long time in europe that the best bond proxy out there, perversely enough, is actually stocks. this is being catalyzed by more movement toward more qe in europe. andhanie: really, equities
bonds usually work in tandem, not split apart like this. is a head scratcher for us as well. the only way to explain it is to that thehe oddities inconsistencies throwing up. the one asset class that should be outperforming because of you we -- of qe is struggling at the moment and it is bullish for equity markets. can the how much lower yields go? we are looking at negative two for germany. barnaby: government debt was cut short by the bund shock. now as we is clear look at the specter of qe2 in europe next week that it is difficult for mario draghi to generate the kind of homegrown inflation that he need so badly
to prevent the market worrying and debtin and italy sustainability. anthink next week will be extension of qe, which will just be the removal of the 2016 end date for qe. he will be one of the biggest buyers of government debt in europe, and in that respect we will see a trend is amount of negative yield creep into europe. >> where do you see the distress debt? are the prices going down more? barnaby: the last few weeks work quite painful with what we saw coming out of china, etc. with the lending to the banks you've got sme rates in the periphery that have almost converged to german estimate -- german sme rates. that is a fantastic thing to put in place.
the distress in europe is going to be quite tough to find. a very different scenario than you have in the u.s. where you have distress because of the energy price falling on material. stephanie: we have to leave it there. i could talk corporate yields all day long, but we have peter orszag and turning really still with us. we have this negative policy rates. we actually have some real world experience in sweden and denmark. our negative policy rates no longer be on the tail? -- beyond the pale? questionthink the real coming back to the fed is we've got this juncture between stanley fischer, for example, over the weekend saying we continue to expect to tighten by the end of the year, and yet data is coming in a little bit softer. and we have this policy mess in
washington coming up with debt limit, perhaps government shutdown, a highway bill extension. in that backdrop, you have to ask the question, are they going to lift with that going on? and ath rising debt budget not clear, i mean, that is going on in december. everyone is tweeting at david and i right now. scotland, but born in england. he was educated in england, but born in scotland. the credit doesn't go to the people most likely to consume. way peoplek at the behave in an economy, how do we ?ecide to extend that
it might not get to the people who would use it. and one of the side effects is that in the aftermath, understandably for whatymakers themselves, risk you create for the borrowers? continues toy develop, those people -- you are exactly right -- are where you would get more consumption growth and more overall growth. credit is still somewhat constrained, understandably because you are dealing with the aftermath of the financial crisis. stephanie: but what makes sense is that credit is constrained, so individuals are not getting credit. but if you look at the high-yield distress and the loan market, you are seeing more and of junkls clear at 6% companies that could lead us into get another asset bubble. and it could be investors trading in product they simply should not be. peter: and if you look underneath the surface of the
fed statement, it appears that inflation is nowhere on the scene will stop the biggest rationale that they are putting forward for tightening is exactly that kind of mispricing in certain parts of the financial markets. part: tuning tomorrow for two of our discussion with ryan teske, the ceo of airbnb. willhen we come back, we be talking to peter orszag and brendan greeley about major league baseball. philly fans love this guy, but this play right here, you cannot love this. nobody can. david: this is very ugly. nowhere near second base. ♪
serious business. it is a controversial slide on saturday night that left a shortstop with a broken leg. is suspended for two games. he is expected to be appealing that decision today. if you did not see it saturday night, here you are. this is the second time we have reviewed this. as a second baseman yourself, you should be warned this could happen to you, my brother. what do you think? quote from his a agent and saying that chase feels terrible. of course he did not need -- did not mean to break a leg, but that is a gutsy whitey's regulations exist. this is a consequence of what happened. david: he's not going for the , he's saying,ag
but the bag is way off to his left. stephanie: he is channeling karate kid. it speaks for itself. stephanie: i cannot look for it -- look at it one more time. democratic candidates are preparing to face off this week. what is your take on what is happening in d.c. right now? peter: i still think hillary clinton is the most likely president of the united states, but both parties are going through a reaction to frustration with most americans not being happy with current prospects. and it what is driving is happening in the labour party in the u k, too. the middle-class party does not feel the future is brighter than
the past, and you get a lot of frustration with consensual -- conventional choices. david: who has the most credibility of the campaign that you have reviewed? peter: we are still early on. i think al hunt in bloomberg view is correct that hillary has put out more details than anyone else, but no one plans are complete at this point. brendan: we are still in the "i will find loopholes in the tax code" phase. peter: exactly. stephanie: thank you so much for joining us this morning, peter orszag, brendan, thank you. ben we come back, we will speaking to david barth from bloomberg avenue. ♪
ruhle. our cohost is erik schatzker. erik: good morning, everybody. i'm not the only canadian that is here at 9:00. david barstow is here. arse isie: -- a david b here. great to have you. matt miller is here to look at the state of financial markets. dell announcing its planned acquisition this morning and emc shares are moving. matt: that's right. obviously emc owns the majority of vmware. pay in cash for emc. they will issue a tracking share for vmware which is worth about
53% of the company. that should be about nine dollars. you are going to see what is happening to emc's stock. it is down. it doesn't look like investors are particularly thrilled. it looks like it is going to be about $67 billion. let's take a look at futures right now. not a lot of movement here. these are the many contracts swinging back-and-forth between gains and losses all morning. europe is negative. asia was positive. a lot of talk about the fed. you had a number of fed officials come out and support the view that there will still be a rate increase this year. guess who doesn't agree with them? wall street. traders are betting a 40% chance that the fed will move in december.
there is more like a 62% chance that they will move in march. even if officials come out and try to reassure the market -- they are saying, we don't buy it. vonnie: the washington post says iran's conviction of the tehran correspondent is contemptible. more than aheld for year on espionage charges. a court official announced the verdict today on state-run tv but offered no details. the u.s. has criticized iran for trying him in secret. the investigation into the suicide bombings in turkey is focusing on the state. the explosion killed at least 97 people at a rally calling for peace between the government and kurdish rebels. clinton still ahead in the presidential polls.
she will debate her democratic rivals for the first time tomorrow night. she is favored by 46% of primary voters. she is nearly 20 points ahead of bernie sanders. they will debate in las vegas along with martin o'malley and jim webb and lincoln chafee. david: time for the five stories that matter to markets. more drastic action from glencore. the embattled commodities trader is in talks to sell two copper mines. it is part of its plan to cut its $30 billion of debt by a third. peter grauer, bloomberg chairman, is a member of glencore's board. you have some experience working with them. >> we were a significant shareholder of a canadian agriculture company.
david: glencore is looking to unload. >> we understand there are having difficulty getting a decent price. we got lucky. sometimes it is better to be lucky than smart. we sold that asset a few years ago. david: so you not only a value investing guy. options areerg's pretty crummy, right? he effectively has a gun to his temple. >> one word. leverage. when you have leverage, your options are limited. there are some people in our community who aren't nice and they take advantage when there are leverage situations. there is a kinds of gamesmanship
going on in the marketplace. stephanie: what do you do if you are either in? ivan? >> get liquid as quickly as you can get. stephanie: bloomberg has learned that deutsche bank is considering the sale of its life insurance unit. bolster caprying to ratios without having to -- equity. they have cut jobs and businesses. this is a company that likes to over hire and make money in super risky businesses. that is their brand. effort. a volatile you're a momentum player. david: should banks be in the insurance business at all? >> i think banks should figure out a money to make money -- should figure out a way to make money anyway they can.
i am a believer in letting them in as many businesses as they think they can do. david: the fed may still raise rates this year. one member of the fomc said so. he spoke in lima on sunday. here's a direct quote. that assessment was premised on the assumption of continued economic growth and further improvement in the labor market. them saying, we may still raise it. if you look at the futures market, it is like 30%. it is not very much. >> there is a 60% chance there will be no hike in december. i look at you guys through my crystal ball. every morning, you tell me what i'm supposed to do. i can't worry about trying to figure out what the right answer
is because everybody seems to be getting it wrong. and the fed has lost -- the market has lost credibility with what they have to say. i have been on shows in the past year saying raise the rates, and i was wrong. stephanie: that's because you were on the wrong show. if you are not focused on the fed, what do you have to focus on? you are affected by rates clearly. look at what happened in the last few weeks alone. focus on the fundamentals of an individual business and its own securities. we are not just in debt. we are a well-capitalized company. you have to focus when all of this noise is going on because everybody is getting it wrong. number four is china. the yuan strengthened the most
since march overnight. there is speculation the chinese lenders sold dollars to prop up the exchange rate. china is awaiting the imf decision on whether the yuan is included in its basket of global reserve currencies. what is your take? >> we own hong kong property stocks, which are the best blue-chip companies nobody knows about. they are well-capitalized. stephanie: hong kong property stocks. >> henderson lend. companies you don't talk about a lot on this show. they are some of the finest companies in the world. let's move on. these are distressing times for distressed debt hedge funds. the distressed restructuring index is down 4.2%.
i think you have a chart of this. matt: i have a chart of this. you can see not only that index which tracks -- it is published three times a month. thatan see how hedge funds invest in distressed debt -- that is the white line. i have added a line here. the orange line is hyg. this is high-yield corporate debt. they track each other relatively well. i'm not saying that hedge funds are only investing in hyg. [laughter] matt: but if they were, they would be doing just about the same. you can throw this out the hyg.w and just by hyuy stephanie: what do you make of that? >> i feel bad for him for saying
that. you can't invest in something where nobody knows what they are investing in. is just annd investment in an index and nobody has done any research on the individual securities. matt: you could be doing just as badly with the index fund. stephanie: those are the stories you need to know right now. we are seeing a market commentary. fomc left off these are not seriously misaligned. still notike we are getting universal messaging, which is one of the reasons people are so confused about what the fed is going to do next. david: it would serve the market interests well to have members of the fed publicly at odds with each other over the economy? >> of course not. the goal is to create some certainty for people to at least have a thought about what the
future is going to look like. that is very difficult to do. we try and stay away from that stuff. giving you different kinds of information, how do you act on that? how can you invest that way? david: maybe that is the problem. forget about the traitor for the moment. the investor who wants to put money to work with confidence lacks the confidence. >> which is why you think long-term. you should eventually make money. stephanie: are janet yellen's fellow members of the fed making her job harder? they should express their views in private and publicly stand behind her. everybody has been asking
stephanie: welcome back to bloomberg go. i'm vonnie quinn. emc isl takeover of expected to create a giant new player in the corporate computing sector. dell announced the deal this morning. it is the biggest technology takeover ever. glencore is planning a move to cut its debt load by about a third. the firm is selling copper
mines. the plunge in commodity prices is hurting glencore. its shares lost more than half their value this year. inrari is often the races the stock market. fiat chrysler launched its ipo today. ferrari will trade on the new york stock exchange under the symbol race. matt miller is here with a look at what is moving in the free market. matt: last week we were hearing it was going to be frri and now it is race but obviously it should really be enzo. let me show you some of the pre-market movers we are following. is down almost 2%. there is a force that they will be firing people. declined to comment
on the recode report. mattel got a good write up over the weekend. the new ceo is going to cut jobs , refresh the company's leadership. he is going to make amends with disney. that is really the key. and a makes barbies whole bunch of brands that are going down, but they make frozen toys. that has been all of their growth. if they make amends with disney, that would be tremendous. today came ouths a price targetve for the next 12 months. stephanie: people are buying
beer. miller the offer for sab to $43.50 a share. david: it has to be in the $44 range. erik: they don't have that much time. this improved proposal is not a firm intention to make the offer. it is still in the realm of talk. millere sounding out sab to see whether it is enough. stephanie: are you following this? >> not really. but i do drink some of their beers. stephanie: you are watching bloomberg go. next, we will dig deeper into dell emc.
david: welcome back to bloomberg go. we are talking about the dell emc deal. explain the ins and outs of this transaction as you understand them. >> large. very complex. it is systemic of what is plaguing the tech industry right now. that isot a company heavily exposed to pcs with no storage getting together. it seems very logical that these two get together. what is going to start after the deal is consummated is perhaps more important. you need to adopt to a cloud
model. sales have been declining for the past several years and dell has been weak. a complicated deal. you take two companies whose growth prospects are questionable. you put them together. and then we have to get to cloud. how does that make sense? stephanie: two broken toys don't make one that works. >> you have a better platform now. you didn't have storage, you only had pcs. you didn't have pcs, you had only storage. restructuring you are going
to undergo is perhaps done outside of the scrutiny of the public market. andaps more cost cuts aggressive stances on market strategy. hopefully after multiple years, you have a better platform. this islot of predicated on the vmware tracking stock what is your view of tracking stocks? debt that is going to be layered on this monster business now combined? >> the fact that they were able to tap the debt market with this large of a transaction is a great achievement. it's going to be a slower growth business. hopefully with the restructuring they can extract enough cash flow. anand and david
and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around.
vonnie: welcome back to bloomberg go. say and youts weapon threat by iran could threaten the country's nuclear deal with the rest. -- with the west. the rocket can come within a third of a mile of a target for more than a thousand miles away. a princeton professor is the winner of this year's nobel prize in economics. angus deaton is being awarded for his work in india. and an injury turns up the heat in the mets dodgers series. the mets are fusing after --
broke after a hard slide ruben tejada's leg. >> we are just minutes away from the opening bell in new york city. the offer for sab miller. the money behind it isn't giving up on this prospect as the deadline for a formal offer approaches just days from now. they officially raised their offer. offers a new official from ab inbev. sab miller has indicated they would like them to pay closer to 45 pounds per share.
david barse is here. you mentioned that you are not paying close attention to this deal. how close attention do you pay to m&a at all? >> we tend to get most of our exits through resource conversion, which is what this transaction is likely to be. where there is a risk arbitrage opportunity, those are sometimes interesting ways to invest money. it is often a pretty good way to make a good return. is planning suisse up to $2 billion in cost cuts according to a swiss newspaper. it makes me wonder -- you are receiving service.
as these tanks have trimmed -- banks have trimmed their products -- >> they will never be gone. erik: we're looking for a beat from you on big pharma. eli lilly says it is going to stop development of a high risk drug for cardiovascular disease. i can't pronounce the drug name. this comes at a cost to eli lilly. they will take a charge of as much as $90 million. 10%lilly shares almost down in premarket trading. matt miller want to check on eli lilly right now.
miller may want to check on eli lilly right now. all of this class of drug, which are designed to lower your bad cholesterol and raise your good cholesterol. there have been others that have failed because they tend to raise your blood pressure and chance of heart attack. which is exactly what they are trying to stop you from having. that is why eli lilly has stopped this drug. merck still has one in trials. stock. see eli lilly's hit ina little bit of a this morning's trading. on bigdo you have a view pharma in general? >> from time to time we have
owned them. there are times to come in and times to come out. erik: you are a value investor. i wonder how these volatile markets are treating you. there are some very sound companies who got hit pretty hard. how does it affect your business? >> it's challenging. we will probably talk about passive versus active. there are a lot of trends in the environment that make what we do even harder than what it is that we do. which is sift through companies and try and find good ones for our clients. it is a trend of passive growth. stocks just aren't performing the way you would inc. they would because of macro events -- the way you think they would because of macro events. we have been in business for
almost 30 years. some of them have been with us from the beginning. we have very patient investors. we like to think for the long-term. where would you rather be right now, equity or credit? i am a bankruptcy lawyer by background. i like having my rights protected by a contract as opposed to an abnormal psychology market-driven economy. i like being in the higher parts of the capital structure. stephanie: which would put you in fixed income. havecept in companies that leveraged balance sheets. i am always going to stay in the common stock. having that seniority and protections gives us comfort. erik: i'm also interested to
know whether you think there is more value in credit versus equity right now. >> in certain sectors that are dislocated. businesses lot of that are in financial distress. it is being driven by outside factors. erik: and leverage. >> that's right. some of them might actually thrive. very well-financed companies and one of my arguments is that you watch those businesses, they are going to start nipping away at businesses and buying up assets. stephanie: what did you think of these names in the spring? it was springtime when they were trading at $70.
then they had to ride them down to $.20. spring 2014? we have owned them when they were even higher. but we bought more of them as they have gone down. value investors trade to average down. get moretinue to conviction as those security prices deteriorated. but it has been painful. stephanie: you can only do that if you have long-term locked up money. those that don't get treated like a cash register. >> locked up money is a dirty word for me. we have mostly mutual funds. we try to educate clients to stay in. it doesn't help when passive strategies come in. had a bigrk times article saying, just buy the cheapest fund and you will do ok.
how do you invest in businesses when you know nothing about the underlying businesses? it doesn't make any sense to us. david: what level churn do you have over the course of a year? >> in traditional reasonable we try to invest with a five year time horizon. most of them -- the last 18 months have been a tough time for value investors. utterlyhe market is distorted by central-bank policy. how long do you think before we get back to what some people would call a normal market? >> maybe we are in the new normal market. i think people are going to make adjustments to fed speak and plan themselves accordingly.
you can't really rely on them to give you the proper indications of what to do. the market will adjust. there thinkolks out they are not going to raise maybe until march. erik: but if we get back to a , is thata rate of 3% good enough to be normal? a study thatd shows that in rising interest rate environment, companies with strong balance sheets do better. them to prove our thesis that we would rather be in companies with good balance sheets. we are a little more than eight minutes into the trading day. some we have had vacillation. we're looking at losses across
the board. just minute losses. an optimist, you are hoping to see the dow rise again, it would be it's seventh day in the row. it has added 800 points. let's take a look at my terminal. had i.t.ll you that we way up at the top. now it is unchanged here. the most red is health care right now. eli lilly is one of the biggest losers. jeffries has come out and lowered its price target to a hundred five dollars. they are pulling this cholesterol drug and that is really going to hurt them.
gold prices hit a seven-week high today. rate increasea this year is less than 40%. pan spinoff brought in about $15 million over the weekend. quarterwarner bros. a billion dollars to make and market. erik: now for today's value proposition. gohave cooked up a bloomberg special for our guest, david barse. he is in the active investing business. this morning, we are asking, why not just put your money in an index fund? i have a feeling i know what side of the debate david is going to take. larry is here as well.
active versus passive. you are in favor of passive. why? be clear for your audience, indexing doesn't mean the exclusive use seven s&p 500 fund or even a u.s. total stock market fund. i believe it should be one globally diversified. also, depending upon the person, you may want to have a higher allocation in the market in value stocks and real estate. point is that while it is certainly possible to be a market through active management, about 20 years ago, about 20% of all active managers were beating the market -- on a statistically significant cases
pretax. which meant much less for doing so after-tax. today that number is now down to about 2% pretax. i don't like the odds where you have about a one in 50 chance of outperforming. uh-oh.nie: period of know what time he is using to provide that illustration. is the wayve years we invest. since our inception, we have been able to beat -- we don't really have one because our active share is in the high 90's. which means only 5% of our portfolio is even in the index. so how is that a relevant measure of what we are actually doing?
erik: these figures show how large cap managers are doing against the s&p 500. for the first six months of the year, only 35% were beating the s&p 500. over 10 years, 20%. the numbers are slightly better than what larry was just telling us. nevertheless, what does that say? about the business of active management? and the point that larry made that alpha is harder to deliver? >> this is a hard, competitive business participated in with the smartest people in the financial world. side because buy it is your ultimate dream, you want to invest other people's money or your own even. this is what you want to do. this is a thrill for all of us. but it's hard.
that 20% to get into over 10 years. it's tough. we work hard to do it. stephanie: does that mean we are going to see less funds january 2015? >> i hope we are the last act to value investor in the market -- the last active value investor in the market. i don't think funds are going to shut down. i think they will change their investment philosophy. it is hard to fight the discipline of staying true to what you do. larry, do you believe that alpha exists in any particular investing focus or is passive the way to go?
>> let me say it this way. about 7% of all actively managed funds disappear every year. that's an important figure for people to keep in mind. second, you shouldn't benchmark a fund against some index that they choose arbitrarily to make themselves look good. because they can tilt their over withmore heavily small stocks. it is toy you address run a regression analysis and see if the fund is generating alpha and if it is statistically significant. there is a way to do that and that are several studies find that about 2% of all funds generate -- statistically significant alpha. isis hard to tell whether it
like a skill and somebody outperforms or underperforms by a few basis points. the answer is this. we know that it was much easier to generate alpha 40 or 50 years ago. 1945, 90% of all stocks were owned by individual investors. herd waitingsheep to be shared by professionals like warren buffett. today, that number is less than 20%. so warren buffett is not competing against uri anymore. -- competing against you or i anymore. you need a victim to exploit and the victims are almost all gone. today, the competition for mutual funds are all world-class mathematicians and phd's in finance that all have access to
the latest academic research, which has eliminated what used to be alpha for investors like warren buffett just by buying value stocks. becausean alpha anymore all investors can access those common systematic factors through low-cost index funds or etf's. what used to be elf is now beta, which is cheap. alpha is nowto be beta, which is cheap. we will be right back on bloomberg go. ♪
let's say i am a potential purchaser. you have to close-out a short position, you have to buy stock right? investors should just avoid china as an investor. trade with china. the a tourist in china -- be a tourist in china. don't commit your capital there. kong stocks.g they're the best companies nobody knows about. >> the chinese economy continues to emphasize over and over again -- is shifting towards services. had you combine private sector data like social media with official data -- how do you combine private sector data like social media with official data?
is evolving so rapidly that even this deal doesn't get them where they need to be? stephanie: an all-star cast. what is your takeaway, david barse? >> know your companies. do your research. it is a tough market. the passive guy says it is tough to invest in this space. i agree with him. stephanie: what is your favorite company? >> weyerhaeuser. david: thank you, david barse. that does it for bloomberg go. tune in tomorrow for another great lineup. ♪
betty: good morning. here is what we are watching this hour. it is the largest sect deal in history. dell is going to buy emc for 67 billion dollars -- $67 billion. meanwhile, commodities are marching higher on speculation that china's stimulus efforts will boost demand. is the worst over for commodities? can the dysfunction and commodities get any worse? we speak with former senator joe lieberman and former governor jon huntsman who say there is hope that we can all get along. meanwhile, we are about half an hour from the trading session