tv Bloomberg Best Bloomberg January 16, 2016 10:00pm-11:01pm EST
mark: coming up on "bloomberg best," the stories that shift --shaped the week in business around the world. oil prices were dropping what is , plummeting and what is ahead. >> i thought the bottom would be around $30. now we are around the silly season. mark: what do central bankers make of the rough start? >> if we look at the eurozone, it is picking up. we have an exclusive interview with brookfield's bruce flatt. mr. flatt: this is a residential tower. it is up to the 40th story
today. mark: all this and more on "bloomberg best." ♪ mark: welcome to "bloomberg best." let's begin with a day by day review of the top headlines. on monday, investor concerns spiked as oil and commodity prices plunged. betty: more than $100 billion has been wiped off of the 61-company bloomberg world oil and gas index as it hits the lowest level in more than a decade. >> are investors close to throwing in the towel? i see that hedge funds are hedging their bullish bets. are we close to that point or
not? francisco: there are a couple of things and we have seen a couple of them. u.s. production is declining and domestic suites are becoming a tighter market to international markets, so that is the first step. we also need to see, frankly, some better news out of china, although a weaker yuan and a potentially a government fiscal package could help through that over the next month or two. i also want to see a more stable u.s. dollar -- definitely not continued rallies in the u.s. dollar. we are starting to see the conditions for a bottom, but we're not there yet. remember, that we need to see strong demand, and that may not come until the summer because the winter, unfortunately, has taken a huge amount of demand out of the oil market. mark: investors are being bogged
down with day to day volatility. especially in the currency market. take us through what is happening in china. >> thing thing is, the current episode looks remarkably similar to what we had in september. following the initial selloff, markets stabilized. things calmed down, and then what happened in january was another surprise. the yuan fixed much weaker, and it was a rerun of the same story. and all of that adds to a pattern whereby the underlying trend for the yuan remains on the downside, but it is the case that the officials do not want us to fuel financial instability, concerned, rather they want to take it one step at a time. so that similarity is quite concerning. betty: the dow is plunging, as we are seeing, coming off its
low of the session. it is still down about 300 points right now. it also begs the question more as we are seeing this volatility, and that is when does this really start to get real for the economy, right? right now it is just stocks. when does it become, you know, your job? economies,ities to it is really hard to nail down, but what you can see historically, most the time you have a bear market, it predicts a recession. however you cannot go the , opposite way. just because it is a bear market doesn't mean it is going to be. >> the russell 2000 is in a bear market. the s&p is in a correction mode. is this the tip of the iceberg? ms. cohen: investors are worried, but the underlying economy outlook is good.
with china, and in the notices, thoughts about what the federal reserve will do next. mark: the bank of england keeping rates unchanged. no surprises. interesting comments from mr. mccafferty, he sees upside risk to domestic cost growth. as we know, the bank of england is focusing on domestic cost growth. the bank of england's focuses on -- focus is on core inflation, which on an annual basis is 2.1%. >> they revised down growth, inflation. they talk about risk being more
evident, more volatile. mark: two early to say the impact on the economy. >> indeed. they have been bearish on china as well. they are waiting until february are the key decisions. why has wage growth slowed? what does it mean for inflation? we will have to wait until february for that. i think from the minutes yesterday, they were more dovish. they do not expect a rate hike. mark: chinese stocks back in a bear market for the second time in 7 months. >> my take on china is china has a serious problem, a set of challenges to convert from exports and construction stimulated by easy money to domestic consumption of goods and services to moderate the growth rate, and, actually, to move to a free flowing economy,
maybe one that is going to have a recession, like the rest of us, which they have not had for the last 20 or 30 years. and, so, yes, it is a serious problem, but is it something that is easily surmounted, or is it a disaster? people have gone from the first to the second. >> sentiment is really bad. the problem in china -- what we are learning here, is at the end, trying to artificially sustain prices is not possible. the market will always win. when you see interest rates in hong kong up as high as 60%, they are telling you the currency is in trouble and they have been loathe to let the r&b depreciate. 60% rates -- having lived through the exchange rate crisis in europe myself, this is telling you we are near the end
mark: welcome back to "bloomberg best." i am mark barton. we discussed the volatile business of oil covering every aspect, supply and demand, the short and long-term outlook for investors, producers, and consumers. here is a sampling of what our reporters and guests had to say this week. >> i keep. about $20 crude. why is $20 so important -- hearing about 20 dollars crude. why is $20 so important? vincent: the high in the 20's is where you would anticipate the cost to be. if you look at the great work done bringing down the cost,
managing this tough environment, it seems as though the cost declines have reached that maximum threshold. it is very difficult, challenging to see how they can improve on that level in 2016 relative to 2015. >> why are people so concerned about oil prices being low -- isn't it a stimulant in some countries like india? vincent: they are helping the average consumer, but keep in mind, you have had cuts in subsidies. also keep in mind here in the u.s., for example, you have had significant job growth in the energy sector. that has reversed. high-paying job growth -- that has reversed. we now see job losses in the space.
you can also see a negative effect, not only in the energy sector, but also the derivative industries that support the energy sector. matt: i know it did not make a huge difference to you guys at $45 a barrel, $40, $30. now that we are so low, it must be a boost to sales. >> at some point you do hit diminishing returns. the customer has already factored in low oil prices. the hard thing for us is if it starts to spike again. volatility is the one thing that causes customers heartburn. customers can get used to almost any ambient level of pricing, but when you have extreme volatility, that is until get paralyzed and say i do not know what to do. >> this is brent, down 2.6%. we have not seen a move like this since -- we're back at 2004 levels.
are we capitulated on oil? >> supply and demand of the market is heavily oversupplied. we have drifted off the picture the last two weeks. oil has become financial iced. -- financialized. it is becoming intensively given by financial markets. it is a risk on, risk off proxy. if you look at the correlation with emerging-market assets, it has intensified. it is a proxy for risk appetite at our own risk index is in panic territory. >> this is not like the drop we saw in 2009.
this is more like the exact opposite speculative move we saw as oil went parabolic of to $145 a barrel. you have momentum plays that do not quit. we have seen the highest number of speculative shorts in this market the last three years, and the lowest number of speculative longs in the last five years can have seen thee fed raise interest rates. that makes the dollar go higher. now we are into the silly season. you get more black boxes, algorithmic players. now we are in the silly season. you can make up any number on the downside. it all matters how long this speculative frenzy of selling will continue in the crude market. >> that touch below 30 -- significant, not significant -- are we testing what is happening? >> the markets love big, round numbers, and if you asked if we would see a two handle on crude, people would say don't be silly. people are panicked.
people are wondering, how low can we go? >> single digits at the moment. mr. kennedy: absolutely. no one is sure if it is bottoms out. >> what do all those oil producers and oil companies do when they see the return of oil prices to the 20's? how are they going to handle it? >> we see what oil companies do in the situation continue at -- cutting. bp will cut of further 4000 jobs. brazil's petrobras is coming. stephanie: what you think we will see in terms of forced m&a or bankruptcies given where oil prices are? mr. hamm: there has been a lot
of resilience. you have not seen forced m&a's, like we have in the past. stephanie: as we get to $20 oil, some smaller producers facing tons of debt -- they have no choice. mr. hamm: they do have some long-term choices. very few have that they have to go underpin the lower it goes, the short time it is going to be there. that is the way the market works. stephanie: i am the house optimist, so i do not like to
talk about markets going red or taking the leg down. are you telling us that is what is in store? >> well, the color red has been there for a while and i do not think it is going out of fashion. to talk about iran, you have to ask if the market is pricing in new volume. the question is how much new volume. expectations are between 300,000 and 500,000 barrels per day. we tend to think it is closer to the lower end of the range, but if it were to be at the higher end of the range, or where to come back faster and more aggressively than expected, then that certainly could be what an oversupplied market wouldn't want to see and could scare it further to the downside. >> as if it could not get any worse -- you are the biggest miner in the world with the commodities hurting you. having to take close to $5 billion in terms of a write-down. >> they bought the assets in 2011. they spent $20 billion going long. at the time, that was well received. it was against the backdrop of winning commodity prices across the board. no surprise when the underlying commodity drops, you will see
mark: you are watching "bloomberg best." i am mark barton. on the heels of a record year in 2015, the mergers and acquisitions keep on coming. a roundup includes big deals. >> shire agreed to a huge buyback today, making it a powerhouse. both company's shares have turned negative. for more on the deal, let me bring in drew armstrong. the second try was a charm. was it the introduction of cash? drew: it it is quite a bit of cash. it comes out to around $12 billion, if i have done my math
right. for, it was in all stock deal. really taking shares off the table. david: listed in the u k. most executives are in the u -- united states. that tells us the story. drew: that has been the case for a long time -- companies overseas doing deals to lower the aggregate tax rate. it will go down 7%, and 8%. that is a huge savings. >> asia's richest man is to be the first person to control hollywood film company. we have more of this gigantic holiday deal. what is this worth?
>> a whopping $3.5 billion. wang saying his firm will buy the rights, and he hopes this will help china gain a stronger foothold. legendary entertainment produced not only "godzilla," "jurassic world," but "batman" and they have produced $10 billion worldwide. mark: they are looking to cut jobs worldwide. let's bring in alex webb. where are the bulk of these cuts going to take place in europe? alex: we think germany is going to be one of the biggest, certainly. they have not broken it down entirely.
they break down france and germany, where there are strong unions. 1700 and germany. up 770 in france. mark: we must make it clear -- this is not to do with the sliding price of oil. alex: this is a different issue. they wanted the power to store turbines. it can be re-created at higher margins. it is eliminating manufacturing capacity so they can retain the lucrative service and maintenance contract element. >> the carmakers will be in the spotlight this morning when the markets reopened. shares dropped as much as 23%. we saw a drop of 20%, a rally a 50% on the drop. have the markets overreacted? >> that is the message the french government is trying to tell you.
you have to remember that they own nearly 20%. what happened on the market could jeopardize the french state's plans to sell, to reduce its stake in renault. the economy and environment ministers try to reassure last night. they said the case is in no way comparable to that of volkswagen. the markets overreacted. he retains trust in renualt. mark: bloomberg television presented a number of exclusive interviews this week. stephen ankles spoke with the ubs chief executive, breaking news of the bank's plans to -- engles spoke with the ubs chief executive, breaking news
of the bank's plans to expand operations in china. stephen: ubs has completed global restructuring. china has gone through restructuring. what are your plans this year in 2016, which has started pretty volatile? >> it started how 2015 ended -- quite volatile. i think china is not the only zone with those challenges. it is a good time to plan for the future. that is why we are starting to implement our strategic plan in the next five years. we think we will double our account, grow businesses in acreages, fixed income, asset-management, across the board. we also plan to expand our services -- the service companies that are getting outsourced. i think china is a great opportunity, like it has been for the last 20 years.
>> what more can the ecb do? can they participate further and buy corporate bonds? >> first, if we look at the eurozone economy, it is picking up. we had growth of 1.5% last year, and we expect 1.7% this year. inflation remains too low. it is true. but facing the situation, we have been active and effective. active -- look at our decisions of december 3 last year. we decreased interest rates and expanded our asset purchase program's until march, 2017. we said we would reinvest the principal. we have been very active, and it is effective. michael: friday, the government reported almost 300,000 jobs were created in december. monday, the markets tanked.
does it worry you when the investors do not react too good news? -- react to good news? mr. kaplan: investors are reacting to corporate profits and expectations of corporate profits and i am mindful of the fact that corporate profits in 2015 were down in the s&p. there has not been a lot said about that, but it actually declined. and in those first couple weeks in the year last year, some of the estimates last year for corporate profits in 2016 have been revised somewhat down here again, this is as much -- down. again, this is reflective of the rest of the world, as it is of the u.s. economy. so i am not surprised the markets are going to pay attention to other things. mark: and "bloomberg best" continues with another exclusive interview. we will devote the rest of the program to erik schatzker sit --
>> everyone knows blackstone is the biggest manager of alternative assets. if i ask you as number two, would you know the answer? it is brookfield. the canadian firm with its headquarters in downtown manhattan. >> this is the big complex on the water. eric says it has amassed more than 220 $5 billion in investments in 30 countries. ceo has drawn comparisons to warren buffett. >> investors were always trying
to find those spots around the world. erik: since he became ceo, brookfield's has returned more than berkshire hathaway. >> generally conservative. erik: until now. we talk about real assets. >> our business is owning the backbone of the global economy. >> 10 years from now, there will be amazing opportunities. the numbers are big. that number can be put to work. erik: and risk. >> coming up on "bloomberg best." erik: welcome. i am erik schatzker.
i paid bruce flat a visit. it has been a tough few months in financial markets. u.s. stocks are in a correction. oil fell below $30 for the first time since 2003. flat does not seem fazed. bruce: they want to own tangible assets. what investors in the stock markets get confused with is the underlying asset value of what is there. as investors, from time to time, it is good to have stock market access, and from time to time, it is not. it often doesn't -- those prices vary.
today, you are seeing a real asset companies are not trading as well as they were. the fundamentals are very good around the world. there is a rope bust -- robust amount of money. erik: does public market real estate -- is it undervalued or cheap? >> you will see more privatization around the world, pipelines, real estate businesses, as that transition changes. erik: do you feel more comfortable buying or selling? bruce: we are always doing both. there is always somewhere that
does not have enough money. what we do is move the money to the locations where there are opportunities available. to the point, we are always investing and selling. there are places in the world we put money in, there are places where we are selling. up until the last six months, even though we like united states and it is our largest market for investment, we will probably net seller of assets in the united states because they have matured and done well over the last five years. erik: you are a net buyer where? bruce: brazil, south america, india, europe, the oil and gas business, in infrastructure around commodities.
anything that is out of favor. investors are contrarian. we are always trying to find those spots around the world. erik: you will not find many ceos they get excited about freefalling commodity prices. he sees opportunity. bruce: those companies need capital today. our capital is available to harvest asset, which are unproductive to their mainline business. they kept those on their balance sheets because those assets were core to them, but really unnecessary. we can take them off their balance sheets and buy them significant amount of capital to put back into their company. today, all of the commodity companies are looking for capital.
erik: some people have tried to get into industries and businesses around the oil and gas over the past few months and found that those -- and found themselves trying to catch a falling knife and it hurts. bruce: we bought the apache operations. they sold us probably nine months ago. we hedge all of the gas and oil going forward for a long period of time. we tried to we are in a conservative return over a long period of time. even though we are contrarian in nature, we try to protect the downside. we think about downside protection. second, we think about how much return we get for our clients. erik: do you worry about oil prices and impact?
bruce: no doubt. along the edges are calgary and houston, leasing is not as robust as it was three years ago. commodity infrastructure businesses are not as good as they were a few years ago. it creates opportunity. it is around the edges, it is creating a few issues, but it is modest. for us, there is more -- there is more opportunity coming than the issues that it brings for us. when the natural gas sells for less than what the replacement cost is to bring it over the
ground, ultimately, people will not justify the cost of capital, therefore, the price will go up because you have to spend. you cannot bring natural gas out of the ground for two dollars. erik: let me ask you about china. brookfield has had a favorable view for the past couple of years. does that still hold? bruce: we are devoting significant resources to build people and resources so we can build over the next 10 years. it will contribute to the world of business. and to everything in the world over the next 25 years. this is the perfect time for us to build our resources there. we are putting more people there and we are going to invest more. erik: i am not surprise you say brazil offers good value.
things should be cheap there. they have an economy in recession, a freefalling current it, the mother of all corruptions scandals, plus, they have drought in places like son paolo. -- san paolo. bruce: it is a bit of a mess right now, but this country will come around. we are finding opportunities you would never have had access to before. or, we are buying at fractions of replacement cost us. one thing we have found in the real asset business, buying pipelines, toll roads, or real estate, if you buy at discounts to replacement cost, you have a huge margin of safety when you buy. we are buying with a large margin of safety when we buy in brazil.
i would not suggest if you had a one-year horizon that you should go to brazil. it is not for the faint of heart. we have to be prudent with our balance sheet money and our clients money. we will never bet the farm -- we never bet the farm on anything. you have to keep investing to get out the other side. we may put 10% of funds into brazil and that is a significant amount of money. erik: what are we talking about? bruce: many billions. erik: how do you feel about the economy here? bruce: good. everyone is complaining, but it is pretty good. erik: you need to see the economy pickup for vacancy rates
to go down, for rent to go up. bruce: housing sales went to 500,000 new homes a year. they are back to over one million. they continue to creep up. that is good. if you are in the housing business, that is not a bad. business is not great, but it is pretty good. >> next, a lesson in real estate from bruce flatt. ♪
the biggest is manhattan west. bruce: this is up to the 40th story today. erik: when complete, it will be almost -- 2 million square feet. bruce: not many people have that amount of money to take it private. we bought the telecom towers in france. we took it private. we bought -- out of bankruptcy. we put $2.5 billion up in the worst financial crisis of the time. it is an enormous competitive advantage. competition gets less as you go up in size.
erik: would you buy commercial property in manhattan or london? bruce: we are among the largest owners of class a property in london and manhattan. we continue to buy. we have been buying buildings recently in both cities. we are developing in both cities. these are phenomenal markets. they are among two of a very small number of places that over the longer term, you will almost never lose money in those markets. they are great cities. as long as you have staying power, you will seldom lose money. even if your timing is not great. very seldom do you ever lose money.
erik: that is one reason he doubled down on brookfield place. bruce: four years ago, we had significant renovation to do. we spent almost $400 million redoing the building, retrofitting it into this new age of technology. we changed the retail to bring the retail into the area of battery park and lower manhattan. it had to be repurposed for the environment downtown after the buildings were built across the street. we had to lower it to the ground. there were no retail or people. we had to repurposed the center for those people. and for the tenants upstairs. erik: a turn to the atrium into a shopping center and lured some of the top brands. bruce: it was money well spent.
what it was worth, nobody would have paid you anything for it. we probably created $1 billion by redoing it. it changed the image of every tenants, about what the employees thought about being here. time came in here. saks, relocating their headquarters. our business is about taking an asset and repurposing it and creating value. that is what we do. erik: better option than selling? bruce: usually. erik: on the mezzanine, a curated food court. bruce: we found restauranteurs in the city who have other locations and we brought them here. we hand-picked them for this location.
erik: bruce flatt has been content to build his businesses with little found -- little fanfare. he was a former accountant from winnipeg. he has ambitious plans to take on some of the biggest and best known firms in private equity. bruce: our businesses we have were spun out of our private equity business.
we started by being investors in these businesses. eventually, we separated them off to the side. we built a platform and we raise funds for those sectors. our private equity business is now relatively small. we put a lot of effort into it. it will be as large as many of those businesses eventually. erik: you wanted to be mentioned in the same breath as the black stone, the kkr, the apollo's? bruce: if you do not mention it today, you should. erik: those firms have a reputation for being savvy and cutthroat. bruce: they are all savvy and excellent organizations. we are owner operators, we buy
businesses, we hold for longer periods of time. we are a little different. we built the other four businesses big. we will build this one just as big. erik: that sounds like bruce flatt throwing down the gauntlet to me. bruce: however you want to say it. erik: what is brookfield's personality? bruce: low-key, conservative, worried about the downside protection. we think about risk. we are owner operators of the businesses that we run. we have a significant amount of capital invested inside our clients and i think that changes the dialogue we have with them for the positive. erik: how are you different from the firm most people would compare you to by virtue of what
you do, blackstone. bruce: we are an investor first, asset manager second. most organizers -- most organizations start as asset managers first and become investors that can. what we are is a bunch of value investors that raise funds. because of our balance sheets, scale and size, and the money we have, we are still 25%, 40% of the money we have in every strategy we operate. erik: how much money do you plan to raise between now and the end of this year, now and five years from now? bruce: we have a number of funds in the market that total about $25 billion.
they should be done this year. we raise successor funds. we will raise every few years, 20 or $30 billion. private money, from institutional clients. the numbers are big. that money can be put to work. erik: size does not scare you at all? bruce: 20 years ago, we thought it did, but today, it is a competitive advantage. very few people have as much capital as us to put to work for as long as we have. that gives us a competitive advantage. we get a phone call when a transaction is of a certain's eyes because there are only a you people -- a transaction is of a certain size because there are only a few people you can call.
we can only do it because we both have balance sheet money and our client's money. erik: you have more than doubled size. will you be twice as large as you are 10 years from now? bruce: i am sure. erik: you will be approaching half $1 trillion in assets? bruce: probably. erik: that does not scare you? bruce: no. erik: is there a point where opportunities begin to run out? bruce: this is the infrastructure business. these are the largest two businesses in the world. no one thinks of them that way. this is the backbone of the global economy. it is how you get electricity in the morning. erik: water comes out of the drinking tap, the airport i fly out of. bruce: you've got it.
real estate is on every corner. erik: this is going to be the golden age for real assets. bruce: interest rates are in the range of the worst person that is predicting interest rates, real assets are still an amazing place to be. erik: he is so upbeat about brookfield's prospect, i had to ask if there was anything that keeps him up at night. bruce: you cannot be in business and have a positive attitude towards business. the risks are big. the biggest risk is liquidity. 2008, 2009 were scary for most organizations. liquidity was drying up. liquidity is generally freely available. erik: and will continue to be?
bruce: we do not see signs of it not being available. if you are in the high yield market, it is not good today. for good corporations, it is freely available. erik: that is all for this edition of "bloomberg best." you can get more news from around the world at bloomberg.com. i am erik schatzker. thank you for watching bloomberg television. ♪