tv Bloomberg Best Bloomberg November 8, 2015 8:00am-9:01am EST
♪ scarlet: coming up on "bloomberg's best," the stories that shape the world. travel with us through the top headlines. it has been a sobering seven days for global banks. some of the biggest are scaling back their forecast and cutting their workforce. we will dig into the megamergers that keep coming and we will introduce you to a company is making things the old-fashioned way, one unique item at a time. plus, our most intriguing interviews and charts. this is "bloomberg best." ♪
scarlet: hello, i'm scarlet fu and welcome to of both bloomberg "bloomberg best," analysis and in-depth journalism from bloomberg television. let's begin with a tour of the top stories from the trading week in the u.s., europe, and asia. ♪ >> tom mckenzie is in istanbul for us. tom, it seems the polls are not just dead in the uk, they are dead elsewhere as well. tom: i cannot count how many elections i have covered this year when the polls that wrong. they got a completely wrong here. the results started to come through last night showing te akbar party won this clearly. on the economic and security front, we have seen five months of unrest and tensions with a truth breaking down between kurdish militants and isis bombings and you've got the question of the economy which is slow.
down to almost 3%. we see the markets rallying in turkey. does this indicate a more positive sentiment for turkey and turkish assets or is this a short-lived relief rally? hakan: we think it's short-lived. turkey has a couple of points to overcome in their structural. one is a deficit which they need to finance and they are continuing to finance short-term assets and foreign assets. every time there is a dollar liquidity squeeze, that changes and makes the country fragile. the next thing is there is a vicious circle between the currency right now and inflation rates. everyone else in the world is fighting deflation, but turkey is struggling with higher inflation.
the depreciation is feeding into further inflation and vice versa to break out of that takes a lot of concerted effort to achieve. we don't necessarily think even a single party will be able to achieve that especially when, in our minds, election mode is not over yet. the first thing on the agenda will be installing a presidential turkey and that will take up the next 5-6 months. tom: so the political risks in your mind are still there. we had a guest earlier saying this majority is positive in the political risks have been pushed off the table but you're not so sure. hakan: no, we don't think that.
yes, there is a single party and they can achieve a lot of things but there are number of threats still in play. central bank independence has been a consistency throughout this party's rule and the presidential agenda has been put forward for a long time. that's one of the reasons why there was a second election. we don't think that is disappearing from the table. >> the japanese holdings and insurance arms have soared on their debut. they have a $12 billion ipo. shares are jumping by more than 50%. the holding companies jumping as much as 18% with a 16% gain for the bank. we can hear from the japan post president who says he believes this will benefit investors and the wider economy. taizo nishimuro: i think the listing of the three japan post group companies will cause a huge impact in the industry and help rejuvenate the entire economy. japan post shares should be considered as assets were one can expect a stable return.
scarlet: brian fowler is joining us now. brian: post holdings is jumping more than 15%. is this surprising? -- >> post holdings is jumping more than 15%. is this surprising? >> yes, and there is a huge amount of demand for the shares and a lot of excitement about the ipo in general. as you noted, these ipos are price of the top of their ranges and were oversubscribed between five and 15 times. in the grey market last week and we saw the shares moving up between 5% and 8%. the story has gotten away from me while i was sitting in this chair and wake my terminal that
we were seeing that the bids were more than twice the amount of offers going into this at the beginning of the trading. i was going to say that jefferies had put out a fairly ambitious price target of $1600 for the banking unit. at the time, that was 10% higher than where it was in the gray market. jeffries may have to come out with a more ambitious price before the morning is out. >> so brian, past this initial excitement, we are seeing them trade past 14% and the shares are surging. what about the long-term prospects for these companies? brian: i think they are pretty good. we had a story just yesterday talking about the historical performance of japan's biggest ipos and we found that over the first decade, over the first 12 months, the biggest ipos all rose by 40% or more.
that was especially true if there is a state backed element. for these japan post units, they were 89% owned by the government even now. a lot of state support for these shares. it means a lot for japan. this is not just about a few companies going private. this is about reform for japan. it's about steering risk appetite in a nation that needed that and it's been part of abe's agenda. i think we will see a lot of people especially in the countryside where these units have great brand-name recognitions, 24,000 branches across the country. you will see a lot of people becoming interested in the stock market and in the general concept of reform. jonathan: the vw scandal widens, vw says additional vehicles may be involved in their scandal as they found faulty omission readings in petrol vehicles. it had centered on diesel vehicles.
hans nichols has been in berlin. take us through the latest twist. who made this latest revelation? what is the price tag that could be attached to it? hans: they came up with his last night and said they discovered emission irregularities. we were talking that nitrogen oxide. jonathan: do we need to talk about corporate communication, vw is messing this up in terms of pr? hans: i would not go that far. they are doing crisis management 101 which it gets to the bottom of what they know and the minute they know it, they disclose it. we are six weeks into the scandal and they discovered they have a carbon dioxide irregularity as well as a nitrogen dioxide irregularity. the bigger issue is that we don't know how consumers will react to carbon dioxide. right? this goes hand-in-hand and is a direct relationship between will
-- fuel economy and carbon emissions. if you have been cheating on your carbon emissions, you're likely going to have inaccurate fuel economy ratings in that could trigger my only another round of lawsuits but it could trigger some sort of epa violations where the epa has been fining automakers heavily when they are wrong on their clt output just on their co2 output. jonathan: volkswagen is down 9% as we speak. let's bring in the the global chief investment strategist at black rock. talk about timing, black rock put out a report on the price of climate change. whether you believe in it or not, it's an investment issue and it's not going away and does this story fit into the big picture for you? >> it does, climate change is uncertain and the science is well-known but the timing is uncertain. long-term investors, it's an extreme loss and that's the definition of risk.
we have seen that with utilities during the japanese to nami in 2011. >> how do you resist climate risk in portfolios? vw has echoes of enron for some people. as you look at that situation, is it difficult to reduce the risk in your portfolio? >> if you think that 85% of emissions come from about 35% of the stock market including transportation, if you have a process, a screening or excluding or if you are an active investor, investing in mitigation, you can reduce the risk of this exposure quite materially. for the last several years, it has not cost you anything in terms of hamas.
>> joining us now from janus capital in california is -- the sun is not even up there but i'm sure there is a bright glow emanating from washington that you can see from there. bill gross: i think so and i am glued to six of my bloombergs and they are all telling the same story that it's almost 100% yellow light changes in december to bright green. you know, before going to bed, i calculated that any jobs number over 150,000 would be sufficient. the fed views the economy and future inflation through a phillips curve lens that speaks to low unemployment and a new nehru around 5.25% which is now below that. i think they are ready to go. tom: what are they waiting for? when i have a special meeting and say this was extraordinary and get out front and provide the leadership the markets desire? bill: that's not the nature of the current fed.
i think we would agree with that. they are gradual and they want to make sure that the markets are prepared and unlike paul volcker who at one point in the late 1970's shock to the market with a 2% increase before telling anybody, i don't think that's the nature of this fed. so, but i think the market is anticipating a rather quick increase of 25 basis points as evidenced by the rise in the two-year yield. to 91 basis points. tom: i want michael mckee to get back to the jobs report but i believe this yield is higher and bond prices are down. how do you adjust in unconstrained manner this morning? bill: hopefully, you go into it as we did at janus with a negative duration. that is the beauty of
constrained. to prepare for a mild bear market -- it's a down day in prices like today -- yeah, early this week, negative durations going short the 30 year treasury as opposed to long. obviously making money the moment but the fed has prepared markets for this. you know, i think the markets may not be prepared because hedge funds and retail investors will look at this headline and use etf's and maybe mutual funds as an exit vehicle and they cannot get all out at the same time. ♪
♪ scarlet: welcome back to "bloomberg best." international things are under pressure. capital outflows of all lead to a direct impact on income and sparked major strategic shifts. this is led to consternation and much conversation during the week. >> it was a very challenging quarter. in addition to everything you just mentioned, think about the seasonality you have given the summer. you go from an environment in which the fed was expecting to hike and turned out to do the opposite, big changes in the sentiment in emerging markets and what happened in china and what happened on the geopolitical front. i am very glad that not only we have managed the risk of the bank effectively but we managed in the good times with clients.
that is the biggest success for the quarter. manus: if you look at wealth managment, it was a tough darn quarter for everyone. china was anybody's guess. it just did not deliver the kind of target the market wanted. probability dropped by 10%. the essence of the conversation was on a scale of 1-10, how concerned are you and he still thinks china has potential to be the generator of what he sees phlegmatic. on this occasion, he seemed fairly stoic that china and asia to would still be the core of where the growth comes from. rishaad: we will talk about that in a moment. i want to bring in bill. we've got a series of headlines from the banking industry this
morning. not just ubs, bill, but, standard chartered, 15000 and job cuts and raise 13 billion pounds. there is potentially more to come. why now and how long is this transformation going to take? bill: i have long said the whole banking industry is in transition. there is an awful lot going on. we've got particular stories of the moment. standard chartered is a good example. we've also got the kind of evolutionary twist that's going on just now. we start off with standard chartered, for a long time, we have been looking at them and wondering what will happen next. is it going to either run into another regulatory crisis or was it likely to become on somebody's wish list as an acquisition?
now i think this morning, they have taken losses with some kitchen sinking under the new ceo. i rather suspect after the initial stock falls, people will look at standard chartered and think about it in a different way. it is an excellent franchise in asia. that's one story. the other side of it is this wealth management thing. i am wondering if the wealth managers, the bank is now focusing on this, are missing something blinking obvious. which is that the business of wealth management is about wealth preservation. it's old economy business. it's about the third and fourth generation making sure they don't blow the money. all the money now being created, the wealth being graded across the planet today, is happening in the expanding economies, the asian economies, and even elsewhere where people are first generation entrepreneurs and they are not putting their money with some swiss bank to manage. they are making their money sweat.
and i wonder what the world changing and things like the block change and bitcoin, we will see an evolution that leaves many of these people in the dark. rishaad: we are looking at china because it is a land with huge numbers. more millionaires and billionaires than anywhere else and a slowdown is sending money abroad at unprecedented levels. we are talking about gargantuan amounts of money. >> it's absolutely enormous and it's totally unprecedented in the history of china perhaps since 1949. the amount of my that went out of china last year through these money flows, people take their money out of china and putting it overseas for safekeeping, estimated to be $324 billion last year. this year alone, those numbers have been growing. >> that's how much is left in
2014. you will refer to what happened in august? sheri: when china devalued the yuan on august 11, it was estimated by goldman sachs than three weeks after, $200 billion left the country. again in september, we started to see similar levels. $194 billion left again in september. these are staggering numbers. >> all very well to talk about. they are not allowed to do this. you are telling me 50,000 u.s. dollars per person per year?
>> those other currency controls? >> how did they get the money out? >> chinese people use various means. some of them are very creative. one means is come to a hong kong money changer. you take the money here, you open a bank account in hong kong. when you go to the money changer in hong kong, they give you an account number back in china for you to domestically transfer your money from a chinese bank. when you tell the money changer that the money has been transferred, they transfer the money to you from the hong kong money changer and into your hong kong bank. >> that is called smurfing? >> that's another thing, everybody gets a quota of 50,000 u.s. dollars. if i asked friends to put in $50,000 to transfer my money, we can it into a legal account overseas. >> there are other ways, like taking across in a suitcase. >> there is underground banks you can go to across the border in china. other places, too.
you give them your money in yuan, then your money gets to hong kong, it can go anywhere. >> it could end up ramping up property prices. >> this is what property prices are surging all over the world. chinese have become the biggest foreign buyers of real estate in the united states. they are buying 0.25% of new homes in vancouver, london and around the world. ♪
♪ scarlet: welcome back to "bloomberg best." billions of dollars changed hands in mergers. it's approaching $5 trillion. let's look back at the notable deals in the analysis. >> francine, bring us in on this euro angle. francine: it's a 22 billion euro deal. visa said it has acquired or is in the process of acquiring its former subsidiary visa europe. it me to gets control of the set europe which means 3000 banks use this.
it's putting more, much more pressure on its competitors and it announced this as part of its profits and it reports a new $5 billion buyback. the valuation is a surprise. it's a huge number and it means they see value in europe. if you look at it from macro perspective, visa is saying there is value in europe. and, i want that massive subsidiary back. tom: we are fortunate to have stephen whiting with us. this is a perfect example of no nominal gdp, no animal spirit, when in doubt synergy combined. i know you cannot comment on visa per se, but we see this industry to industry.
>> why not buy when rates are low and below even the levels we deserve in some respects. david: halloween may be over but activision has agreed to buy king, the maker of candy crush. this struck us, at first, it seems like a strange marriage between call of duty and candy crush which are different games. caroline: yeah, brutality meets suites is bizarre. it's relevant to where i am now. king is based here, headquartered here and making the most of the advertising tax rate in ireland. it's close to a $6 billion bet on mobile. they are getting a taste for mobile gaming. now they want to embrace the franchise that is candy crush. what's interesting is king digital has made more than 200 games. i can only think of two. they will have to start being more than a one trick pony.
if they are going to live up to $6.5 billion value. this is 20% under that and people were worrying about this company. stephanie: what's the value proposition for activism? caroline: this is a big start up event, more than 40,000 people are gathered here and all of the gamers are doing this on mobile. they will move into present the mobile as well as it's all about using the smart phones and this is a big bet on mobile gaming and the smart phone. candy crush is a big competitor to those who want to own the mobile space.
for the news, even. >> the mergers and acquisitions are on track to smash records. at the current pace, it will top $4.5 trillion by the end of the year. today alone we seen an original $40 billion of transitions with the merger monday. there is one familiar name at the top of the table, that would be goldman sachs. there is one person who deserves credit. goldman's global co-head of m&a. >> so we can see what deals have been done, what deals have been announced, and which deals are under discussion. but we can't see the pipeline. that is where you have some
visibility into the future. does it look at good 3-6 months out as it feels today? >> the pipeline continues to be strong. if you ended the year today, you would have the second-biggest m&a year on record. we are on pace to top where we were in 2007. the nature of the transactions are big strategic deals between corporate and large transactions. that continues to be what we see in the pipeline. shareholders receiving these deals quite well. the logic of the transactions makes sense. as we look at the pipeline, we are encouraged about activity going forward. >> there were how many big transactions? gregg: 10 deals over $1 billion this morning. >> and you were in how many of those? gregg: seven. it was a good morning. >> vice chair of the banking division at barclays still with us. barbara, do you agree? barbara: i do. it is the largest m&a year we have seen on record, ever, in terms of size as well. this is in terms of size. there are actually fewer deals that have occurred, this is
bigger. at least 7% of the transactions are over $5 billion. what greg alluded to is major strategic transaction among corporate's heard that is what you are seeing. you are seeing the combination of size, scale, scope, reaching for revenues and cost reduction, trying to address technology changes to increase productivity. i think it will continue. >> companies this earnings season have been ratcheting down guidance for next year. do you expect that to drive even more dealmaking because profits are so hard to come by? barbara: yeah, there are actually -- most companies are making their profit estimates. people guide to what they are over a year period. where they are challenged is on revenues. a large part of that is coming from, where can we grow? where is global growth today? that speaks to the macro environment. so, whether you have china, which indicated they were stable at 6.5%. 2.5 %.u.s.'s 2 to
"bloomberg best." i am scarlet fu. from people that run companies to people that run for president. every week we feature interviews with some of the most influential and intriguing figures. let's run through some of the best interviews from this week. >> i'm always curious about why the airline industry is one you focused on -- here we are in silicon valley, the heart of innovation. airlines, cruise ships, trains, phones, even the music industry -- not known for a lot of innovation. richard branson: well, i think virgin is a group that innovates in conventional industries. if you walk on a virgin american plane, you will feel this is special. people cheer. people are innovating all the time. they only way we can have a cruise ship company that makes money is to have the most innovative teams setting it apart from everybody else.
with our train company, we got the most exciting new trains and we doubled the number of people traveling on the trains. we enjoy trying to shake up industries. ♪ mark: this morning we spent some time with the real donald trump here in gotham city. we asked trump about politics and a tax issue, about which we knew he would have a lot to say about -- corporate inversions. john: corporate inversions. you have said this is a serious problem. >> you said this is a tremendous problem. john: you said that you've taken advantage of angry the loss. corporations have done that. how is this different? this is legal. how is it different? mr. trump: you can stop it easily.
$2.5 trillion, it could be four or five. $2.5 trillion that they know of. this is money that wants to come back to this country. the corporations want to bring it back, but they can't because of the tax laws. they are so prohibitive, so bad, and so complicated. now what is happening is that companies are leaving our country -- you are reading about it. you see pfizer -- they are leaving our country, and think about massive numbers of companies going out and getting that money. also to get a better tax deal. that is what different. john: what you're saying is the law is the problem, not the company's behavior. it's not bad what pfizer is doing. mr. trump: no, and there's no way you can stop it other than lowering the taxes. because right now they'd be paying so much it's prohibitive.
they'd have to pay so much they would have to be fools to bring it in. under my plan, and a couple of others, but no one even knew about corporate inversion until i brought it up. these are the candidates that don't even know what corporate inversion is. i really know. we lose hundreds of thousands of jobs to other countries because of corporate inversions. what you're going to do is lower the taxes, bring the money and so that we can use that money to build and do things in the u.s. josh: you are not criticizing pfizer at all. mr. trump: no. look, in the old days you would leave new york and go to florida. or you would leave new jersey and go to texas because of taxes. now because the world is so different, you leave the u.s. and you go to ireland, and different places in asia, and you go to europe. i mean, it's a different world. we have to compete better. >> can i finish with two personal questions, somewhat interlinked, some people would say. the first is, do you have any ambitions to stay beyond five years? the other, do you have any reaction to the events in canada and the recent elections? [laughter]
mark carney: the two unrelated questions there. very good. on the second, i would congratulate mr. trudeau and his new cabinet. i have a number of good friends in that cabinet. it is very strong. i look forward to working with the new finance minister. and actually, you know, in the fsb role, we have a tangential role in the upcoming discussions in paris. which, if i may, which brings it to bloomberg. it will potentially sets up a market-based role on climate change. with respect to the first, i'm not even halfway into my five years. it's far too early to answer that. ♪
♪ scarlet: welcome back to "bloomberg best." you can always find fascinating feature stories around the world on bloomberg tv and on bloomberg.com. here's a sampling from this week, starting with the first episode of "made" a new series of short films that show how everyday luxury objects are created. ♪ >> after material selection and
cutting down those materials to manageable sizes. we heat those up in forges and use our hammers to shape them into knifelike shapes. the hand eye coordination, where you want to put the hammer, the angle of the face is very precise. it looks like brute force. but it also requires very fine-tuned motor skills. forging is something we have always enjoyed. it's a big part of the process. it is one of the things that allows us to use so many recycled materials. we can operate our forges up to about 2300 degrees. forging is very physical, something we can't do all day. it is something that when we went full-time, it took me about 6-8 weeks to physically produce the number of knives that we needed.
the shape needs to be cleaned up on a grinder, kind of the final finishing of what the finished profile will be of the knife. after profiling, we stamp our logo onto the knives. after we stamp the knives, we normalize them. which essentially is heating the knives up above a critical temperature and holding them at a high temperature, allowing all the alloys to spread out and that relieves all the stress within the steel. next, we quench them in a specific viscosity fluid.
to do that we often use liquid nitrogen. the goal is to shock the steel into forming the heart and the structure of steel. for some steels, they will have to cool from 1500 degrees to about 900 degrees in 0.6 seconds. it is the science that drives us. knife making really incorporates a lot of metallurgical science. and to do it well, there is some much you need to know. for me, who is studying my phd in science, it gives me a way to continue to geek out. i can never learn all there is to know. ♪ >> five years ago, myanmar pulled up the blinds, unlocked the doors, and said, we are open for business. the end of direct military rule in 2010, and the lifting of sanctions two years later let the outside world in, along with its investment dollars.
>> three years ago i said a lot of people were coming in. a lot of investors and companies coming in to kick the tires. >> yum brands was among them. it introduced first major western fast food chain. setting up in a country which is essentially a blank slate presents unique challenges. particularly when it comes to infrastructure. >> in a lot of cases we have to first build the roads in order for us to access the particular spot. then we erect the tower or later -- lay the fiber, and that becomes a more challenging process. >> but it is paying off. mobile data usage has surged at a pace that rivals more developed markets. the economy is also rocketing along. in the past five years, myanmar's annual growth has averaged more than 7%. the asian development bank sees
the economy expanding 8.3% this year, and close to that in 2016. >> there are foreign investments still to come, but it's waiting in the wings as investors hold of any election. they are focused on how free and fair it is judged to be and the stability of the government. >> both major parties have said they will prioritize a revamp investment laws to reduce the number of hoops which foreign companies must jump. >> we need easy and simple regulation. state regulations are very complicated. >> despite the dramatic changes so far, investors watching from afar want the pace to step up even more. >> we would like to see that market open up faster. particularly the capital market. we think it's incredible opportunity, but there is need for more opening and more education. >> the potential is huge and very obvious. it's hard to believe how the country has developed so slowly in the last 50 years. >> the clock is ticking, but for ambitious investors, and myanmar's hungry consumers, sunday's election can't come quickly enough.
♪ >> it's a new dawn for iceland, a country moving to rest itself from the capital control being credited saving it from financial meltdown. >> we've taken small steps this year. we have allowed pension funds to start investing outside the economy. we are very optimistic we can take those steps. >> right now, the country's economy is going. -- growing, forecasted at 4% this year. it's been helped by a booming tourism industry, with more than one million visitors expected in 2015. the fisheries sector is also doing well, benefiting from a weak currency and robust european demand. set against that backdrop, the government taking steps to reign in restrictions, to reopen the doors to foreign investment.
>> i would've liked to see this happen much earlier. but it is a really complicated issue. it is about assets. >> capital controls, which stopped capital outflows and helped to stabilize the currency, have created distortions. icelandic pension funds barred from investing abroad, have pumped the money into the stock market and real estate. that is creating a significant cultural shift for a society used to widespread homeownership. >> i think it is becoming a reality for young adults that soon they will figure out that they will not be able to own their own apartment. that will be a shock. that is going to be a shock when they realize they will be stuck renting for the rest of their life. >> there are risks to lifting capital controls. no one is quite sure how removing the controls will impact the historically in volatile currency. for some companies, lifting the restrictions can't come soon enough.
federal reserve chair janet yellen suggests a 2015 rise is still on the table. that bet on the liftoff rises to that bet on the liftoff rises to over 65%. the shanghai composite closed out 20% after heavy state intervention, halting a $5 trillion crash. bank of england governor wrestled down the currency strength to continue push down. the most since august against the dollar. >> we are back with chief global strategist at deutsche bank. we were just talking that but -- about some of the japan and europe, but we have also seen a
lot of influence into bonds at the expense of equities. how long do you think that is going to last? bond flows are currently almost $800 billion above normal. pretty incredible. >> yeah, and the shortfall in equities is even bigger, about $1.4 trillion. in a normal cyclical asset reallocation mechanism, it has been absent from this cycle. that is federate normalization. so, how long will this go on? until the fed begins to normalize rates? if the fed begins to normalize rates in a december, it's going to become time in the cycle when the market basically reprices the curve, which is what typically happens at some point in the rate hiking cycle. it is that point at which you see a reallocation away from fixed income into equities. we have a recent example too. alix: we are looking for the fed to normalize and begin setting things back on a path to normalcy. what about the other central banks -- even if we don't believe they are going to move right away, does that push off that reversion? >> importantly, the point i
would make is as far as currency, so for example, the euro is an important determinant of financial conditions in europe. what that depends on is the relative or a tightening in the u.s., so you don't necessarily need to loosen in europe. scarlet: that does it for "bloomberg best" this week. remember, you can always get more business news from around the world at bloomberg.com. i am scarlet fu. thanks for watching bloomberg television. ♪ ♪
emily: he worked alongside steve jobs to revolutionize the way we listen to music and became known as the godfather of the ipod. he spent nearly a decade at apple, then hatched a company of his own. in 2010, he cofounded nest labs, where he promised to invent every unloved product in the home. a promise so thrilling, google, soon to the alphabet, snapped up nest and its star ceo for $3.2 billion. joining me today on "studio 1.0," nest ceo and cofounder, tony fadell. tony, so great to have you here. tony: it's so great to be here.