tv Bloomberg Best Bloomberg January 17, 2016 1:00pm-2:01pm EST
mark: coming up on "bloomberg best," the stories that shaped the week. prices plummeting and what is ahead. >> i got 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 live at the euro zone economy, it is picking up. mark: an exclusive interview with brookfield's bruce flatt. mr. flatt: this is a residential tower. it's up to you probably 14 stories today.
mark: all this and more on "bloomberg best." ♪ mark: 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. wti crude editorial your low. >> are investors close to throwing in the towel? i see hedge funds have cut their bullish bet to the lowest since 2010. are we close to that point or not? francisco: there are a couple of things and we have seen a couple of them.
first thing we have seen his breath coming close together. this means u.s. production is declining and domestic suites are becoming a tighter market. relative to international markets. that is the first step. we also need to see, frankly, some better news out of china, although a weaker yuan and a potential 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. it does not help. 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. >> the current episode looks remarkably similar to what we had in september. following the initial selloff, markets stabilized. it spread between best writing to the downside. and then what happened in january was another surprise. the yuan fixed much weaker, and the cnh sword. -- sored. it was a rerun of the same story. that adds to a pattern whereby the underlying trend remains on the downside, but it is the case that the officials do not want want -- this to fuel financial instability, concerned, rather they want to take it one step at a time. 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 around 300 points right now. it also begs the question more more 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? >> from equities to economy is so complicated. it is very hard to nail down, but what you can see historically, most the time you have a bear market, it predicts a recession. you cannot go the opposite way. >> the russell 2000 is in a bear market. the s&p is in a correction mode. is this the tip of the iceberg? >> our feeling based upon evaluation and the outlook of the u.s. economy is that this is not the tip of the iceberg. clearly investors are nervous
but the underlying performance of u.s. economy is quite good. our feeling is this is a reaction to some of the important news around the world, including the sharp decline in energy prices, the worries about china, and if -- and what the federal reserve will be next. mark: the bank of england keeping rates unchanged. no surprises. they voted for a rate hike for the six consecutive month. 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 core inflation, which on an annual basis is 2.1%. that includes oil. >> there was no sign a rate hike was imminent. they revised down inflation.
they talk about risk being more evident, more volatile. mark: two early to say the -- to early to say the impact on the economy. >> indeed. they have been bearish on china as well. the point about they are waiting to are the key decisions. februarywhy his wage growth slowed? what does it mean for inflation? i think from the minutes yesterday, they were more dovish. they do not suggest a rate hike is that all eminent. mark: chinese stocks back in a bear market for the second time in 17 months. -- 7 months. >> my take on china is china has a serious problem, a set of -- serious set of challenges to convert from exports and construction stimulated by easy money to a 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. 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 sustained 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 slow to let it depreciate. 60% rates -- having lived through the exchange rate crisis in europe myself, this is telling you we are near the end game, but something cataclysmic is going to happen, we will have a crisis, and eventually this is
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 hearing about $20 crude. why is 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 the emps have 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, very 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? low oil prices actually stimulate some of that growth? 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. it 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. i think the customer has already factored in low oil prices. the hard thing for us is if it starts to spike again. because 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 -- is where people 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 2004 levels. are we capitulated on oil? >> i am tempting to say the price of oil has nothing to do with oil in the sense that supply and demand of the market is heavily oversupplied. we have drifted off the picture the last two weeks. oil has become financial iced. -- financial iced -- financiali zed. 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 in 2008 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 -- we have seen the fed raise interest rates. that makes the dollar go higher. you get more black boxes, more algorithmic players. these of the moves that have nothing to do with fundamentals. now we are in the silly season. we have a speculative move when he 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 -- the market had a look at it. 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. here er and people are panicked. they are thinking how low we can go. $10 yesterday.
>> single digits at the moment. mr. kennedy: absolutely. no one is sure if it is bottoms out. we get a respite today after seven days of falls but no one thinks we've seen the end of this. >> 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 and that is cutting. bp will cut of further 4000 jobs. brazil's petrabras is cutting. 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.
it's been displayed by oil companies. you have not seen forced m&a's, like we have in the past. scarlet: 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 under with $20 oil prices. 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 talking 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 is the market is pricing in new volume. the question is how much new volume. right now expectations are
between 300,000 and 500,000 barrels per day. we tend to think it is closer to the low 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. and now it's also the biggest international investor in u.s. shale have to take close to $5 billion in terms of a write-down on the u.s. shale assets. >> they bought the assets in 2011. they spent $20 billion going long. at the time, that was well received. it was a lot higher at the time. 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. -- n a huge form a deal pharma deal, 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.
$18 a share. it comes up to around $12 billion, if i have done my math right. this is an all stock deal. really taking shares off the table for the shareholders. david: listed in the u k. most executives are in the united states. that tells us the story. >> that has been the story for big pharma deals. companies doing deals overseas to lower the aggregate tax rate. that is what is going on here. 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. he's picking up the producer of
"godzilla" and "jurassic world. what is this worth? >> a whopping $3.5 billion. wang saying his firm will buy legendary entertainment for the intellectual property rights and he hopes this will help china gain a stronger foothold in the global film industry. legendary entertainment produced not only "godzilla," "jurassic world," but "the dark knight" films and they have produced $10 billion worldwide. >> ge planning about six the 500 jobs -- 6500 jobs. let's ring in 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 in germany. 770 in france. that is the lion's share. mark: we must make it clear -- this is not to do with the sliding price of oil. alex" what they wanted was access to store turbines. it can be incredibly lucrative. it can be re-created at higher margins. they are sort of 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.
the french state owns a nearly 20%. what happened on the market could jeopardize the french state's plans to sell, to reduce its stake in renault. the economy minister andy environment ministers try to reassure last night. he said the case is in no way comparable to that of volkswagen. the market overreacted. he retains trust in renualt. mark: bloomberg television presented a number of exclusive interviews this week. including conversations with leading figures in global monetary policy. stephen angles 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 its own 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. i think we have to expect some kind of adjustment for 2016. those are also the good times 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 in this region, 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 it cut the deposit rate further or 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 30 last year. -- december 3 last year. we decreased interest rates and expanded our asset purchase programs 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 positively 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. in the first couple of weeks of the year some of the estimates , for corporate profits for 2016 have been revised somewhat down here again. again, this is reflective of the rest of the world, as it is of the u.s. economy. 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's 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. erik: it has amassed more than 225 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 shares 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. erik: long-term returns. that number can be put to work. erik: and risk. >> coming up on "bloomberg best." ♪ erik: welcome to "bloomberg
best." i am erik schatzker. i paid bruce flat of visit. -- a visit that is near to the headquarters. 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. cracks are showing the junk-bond market. flat does not seem fazed. bruce: we are finding money in the real world market and they want to own tangible assets. what investors in the stock markets get confused with is the daily movements of stock prices confuse them about 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. the price is very -- prices vary .
those prices vary. today, you are seeing a real asset companies are not trading as well as they were. but the fundamentals are very good around the world. there is a robust amount of money wanted to go to work and be put to work in real assets. erik: does public market real estate is undervalued or cheap? >> you will see more privatizations around the world, pipelines, real estate businesses as that transition changes. erik: right now do you feel more comfortable buying or selling? bruce: we are always doing both. the reason we are in these businesses and in 30 countries is that there is always somewhere that does not have enough money.
what we tried to do with our global fund 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, and even today even though we like united states and it is our largest market or investment, we will always be buying something because we are $100 billion in assets in the united states, 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.
we are a net buyer in 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. bruce flat does. where others sees misery, he sees opportunity. bruce: those companies need capital today. our capital is available to harvest assets which are unproductive to their mainline business. they kept those on their balance sheets because those assets were somewhat core to them, but really unnecessary. we can take them off their balance sheets and buy them -- provide them with significant amount of capital to put back into their corporations. today, increasingly 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 themselves trying to catch a falling knife and it hurts. bruce: we bought the apache operations. they sold us probably nine months ago. but we hedged all the gas and oil going forward for a long period of time. we have always tried -- what we is have a to do decent amount of return over a long period of time. even though we are contrarian in nature, we try to protect the downside. our first and foremost 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 and perth office portfolio. leasing is not as robust as it was three years ago. our commodity infrastructure businesses are not as good as they were a few years ago. but it creates opportunity. i would say it is around the edges for us. it is creating a few issues but it is modest. for us, there is more opportunity coming in the issues that it brings for us. erik: how can you be so sure? >> is called supply and demand. when oil cells or natural gas cells at less than what the replacement cost is to bring it out of the ground, ultimately, people will not justify the cost of capital to put more money into it. 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 of china for the past couple of years. does that still hold? bruce: we are devoting significant resources to build the number of people in efforts in china so we can invest over the next 10 years. it's an amazing and economy -- amazing economy and 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 continue to build our resources there. we are putting more people there and we are going to invest more. our experience has been pretty good although modest relative to the size of our business. erik: i am not surprise you say brazil offers good value. things should. -- should be cheap there. they have an economy in recession, a freefalling current
-- currency and the mother of all corruption scandals. plus, they have drought in places like sao paulo on top of it. does it make sense to keep putting money into brazil? bruce: it is a bit of a mess right now, but this country will come around. we have a history of being there a long time. andontinued to put money in we are finding opportunities which either you would never have had access to before. or, we are buying at fractions of replacement costs. 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.
we think we will come out five years from now great opportunities. 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. erik: how much mark d see yourself deploying their capital -- capital do you see yourself deploying there? >> 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: many more billions? how do you feel about the economy here? bruce: good. it's not perfect but pretty good. everyone is complaining, but it is pretty good. erik: low interest rates are good for your business but you need to see the economy pickup for vacancy rates to go down, for rents to go up.
bruce: housing sales went to 500,000 new homes a year. they are back to over one million. they are not a 2 million or they were but it can continue to creep up. it's also bad. business in america is pretty good, not great but pretty good. >> next, a lesson in real estate from bruce flatt. happy turned $400 million into $1 billion. ♪
>> it is a residential tower. it's up to its 40th story today. erik: when complete, it will be almost 2 million square feet. they about real estate over the past two years, including some marquee properties like canary wharf. bruce: not many people have that amount of money to take it private. we bought the telecom towers in france. we took it private. 2009 we people -- in bought general growth at a bankruptcy in march of 2009, we send a check and put $2.5 billion up in the worst financial crisis of the time. not many had $2.5 billion. it is an enormous competitive advantage. the 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 both london and manhattan. erik: he bought it when prices were lower. >> we continue to buy. we have been buying buildings recently in both cities. we are developing in both cities. these are phenomenal markets. what i say about those two , they are a small number of places in the world over the longer term you will almost never lose money in those markets. erik: because >> they are great, great cities. as long as you have staying power, you will seldom lose money. erik: even if your timing is not great. >> even if your timing is not great. if you bought at the most imperfect time, but 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. and 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. there were 100,000 people that lived in the neighborhood now and we had repurposed this center for those people. and for the tenants upstairs. they turned the winter garden atrium into a shopping center and lured some of the top brands. how long until you know what it was money well spent? 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. more than that. it changed the image of every tenant about what the employees felt about being here. office space is about being in a place. time came in here. biggest relocated their headquarters. saks, relocating their headquarters. that's our business. our business is about taking an asset and operationally repurpose thing it and creating value. that is what we do. erik: better option than selling? bruce: usually. that is our business. 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 fanfare. the company grew out of an investment vampire -- empire was low-key. 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 four businesses we have were spun out of our private equity business.
we started by being investors in these businesses. we used all our money. eventually, we separated them off to the side. we built a platform and we raise institutional 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 blackstone, the kkr, the apollo's? bruce: if you do not mention it today, you should. erik: they are competitive. those firms have a reputation for being savvy and cutthroat. bruce: they are all savvy and excellent organizations. we are a little different. we are owner-operators, we buy
businesses, we hold for longer periods of time. greater multiples of capital. 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: to that point companies have personalities just like people. what is brookfield's personality? bruce: generally low-key, conservative, worried about the downside connection. we think about risk. we are owner-operators of the businesses that we run. we have a significant amount of instant -- capital invested the side -- besides 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, and an asset manager second. as opposed to most organ organizations that other organizations that start as asset managers first and become investors that can. that is not to say anything about any others but that is what we are. what we are is a bunch of value investors that raise funds. because of our balance sheets, andbecause of our balance sheets, scale and size, and the discretionary 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 we done this year.
we raise successor funds. usually they are larger. we will raise every few years, $20 billion or $30 billion. of 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 huge 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 -- certain size because there are only a few people that you can call. erik: only a few firms it can write a check that big. >> yes.
that is an enormous competitive edge. we both have balance sheet money and we have our clients money. erik: you have more than doubled size in the past decade. will you be twice as large as you are 10 years from now? bruce: i am sure. erik: really? 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? where it becomes hard to deploy the capital? bruce: this is the infrastructure business and real estate business. these are the largest two businesses in the world. no one thinks of them that way. only say infrastructure, 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. these are enormous amounts that in funded by governments before.
today they can't afford to have them on the balance sheets. 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 almost the worst person that is predicting his rates today -- interest rates, real assets are still an amazing place to be. erik: he is so upbeat about brookfield's prospect, i had to ask isn't there anything that keeps him up at night. bruce: you cannot be an business and have a positive attitude towards business. but risks are big. the biggest risk for any organization like ours is 2008, 2009 were scary for most organizations. liquidity was drying up. the good news today is despite all the issues around the world with different things, liquidity is generally freely available. erik: and will continue to be? bruce: we do not see signs of it not being available.
not to make -- for ingress -- for investment in great companies. if you are in the high yield from market, it is not good today. for good corporations, it is freely available. erik: that is all for this edition of "bloomberg best." remember you can get more news , from around the world at bloomberg.com. i am erik schatzker. thank you for watching bloomberg television. ♪ we live in a pick and choose world.
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