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tv   Charlie Rose  Bloomberg  February 20, 2016 8:00pm-9:01pm EST

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♪ shery: coming up on "bloomberg best," the stories that shaped the week in business around the world. china's currency remains a hot topic. a production freeze interrupts the oil route, but for how long? javier: i would like to stay in the market. that is it. shery: and the fed weighs in latest set of minutes. mike: they said let's wait and see what happens. sherry: earnings season continues with a pain for some, joy for others. john: you are right, we crushed it. shery: while european banks cope with an ongoing nightmare. >> it is really good news in banking. >> the good news it is hard to see it getting worse. sherry: and some of the biggest
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names in business shoot from the hip. mark: in silicon valley, they are in their own world. sen. sanders: this is a litmus test. i am worried about the future of american democracy. howard: they are scaring the hell out of people. shery: plus, conversations with highflying executives at the singapore airshow. it is all straight ahead on "bloomberg best." ♪ shery: hello. i am shery ahn. welcome to "bloomberg best," a weekly look at the most important business news, analysis, and interviews from bloomberg television around the world. let's begin with a day by day review of the week's top headlines. on monday, trading resumed in china following the lunar new year holiday amid new concerns over the stability of the yuan. ♪ >> a day of dramatic headlines
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here with china dominating the news. the pboc governor broke his long silence. what did he say? what was significant about it? >> his message in and of itself, i would not say we officially knew. he said we are not engaged in competitive currency devaluation. he is expecting fluctuation in the yuan. but the fact that he said at all is quite interesting. it should have some clarity for investors. his key message out of it, that we are not going to push the currency down just to find restore export competitiveness. we do expect volatility along the way. especially against the moving u.s. dollar. we can only take him at his word, but there is a central message coming from china that it is not about competitive devaluation. shery: that is what a lot of asset managers said, the fact that he said anything at all was a sign of support. we also saw the sign of report in the yuan fixed rate today. stephen: that is right, this poor set of data that we got today on the trade front hints
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that it does not make too much sense for china to maintain a strong currency. trade data suggests that they would kind of like a weaker one. francine: the energy ministers of saudi arabia and russia meeting, and the meeting ended less than an hour ago. so we have an agreement between saudi, russia, and two other opec countries to freeze production. what does it mean? the markets were a little bit disappointed because they wanted a cut. javier: it was too much for the first meeting of these two countries, at least publicly, in eight months. but you think about where we were only three months ago, where we are today. it is a massive seachange in the situation. three months ago, saudi arabia and russia were fighting for market share. they were trying to undercut moscow. moscow was trying to do the same in china. over that, both countries were fighting a proxy war in syria. today in doha, the ministers of
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both countries -- i do not think they keep the subset, but they really reach a preliminary agreement. they slowed production in january levels and i think that , is quite significant. francine: they have a floor, they have a price they do not want the threshold to be below, and that is $30. javier: what that is indicating, russia and saudi arabia are trying to tell the market, that is it. you try to bring the price below $30, it will bring a collapse. we are only beginning to understand that what is going on behind the scene. >> the fed released the minutes for january meeting transcripts , show policymakers expressed concern with the following commodity prices. risks in the u.s. economy. joining us from washington is bloomberg economics editor mike mckee. mike, there has been a reticence on the part of the fed to actually say what the risks are. they keep hunting. do you read any more understanding out of this document on where they see the risks are and whether the
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balance is or positive? negative mike: we know where the risks are from the fed minutes, brendan, but we do not know how big those risks are or whether they will actually come to pass. now remember this was back in , january. it is been a month. since that time, janet yellen already has testified again on capitol hill about a lot of this stuff. but the minute currently show fed officials were struggling to understand the implications of falling oil prices, a stronger dollar, chinese growth, and volatile financial markets all at a time when consumer spending was hanging in and the labor market was remaining strong. in general, the minutes say, many sought -- many saw those developments as increasing the downside risk to the economy, although they really had no framework for how bad those risks would be. here is a key quote -- a number of participants noted the large magnitude of changes in domestic financial market conditions was difficult to reconcile with incoming information on u.s. economic development. if things were so bad, why was
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the data still coming in ok on the labor market in particular, brendan? they did not know, so as you say, they punted. they said, let's wait and see what happens. alix: walmart stock is falling in today's session, dropping 5% at one point, nearly wiping out if gains -- if gains for 2016. the world's largest retailer lowering its annual sales forecast to "relatively flat." walmart is the biggest laggard in the dow today. shannon: investors can ask themselves, no growth next year when you knock out currency, and we do live in a world of currency. you'll get to factor in currency. profit declining, so why walmart at this point? we were talking yesterday about the stock performance. the stock had been doing really great this year. people kind of looked at it as a flight to safety the safe , haven. if there is a recession, an assumption that people will trade down to walmart, and we have seen wages going up at the bottom end with minimum wage increases. but i think today is a reminder
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that there are still issues with this company. this company is not growing. why have your money in walmart rather than amazon? alix: shannon, you and i were talking yesterday that if e-commerce continues to decline, someone will have to answer to that with 8% e-commerce growth in the fourth quarter. what do they do about that? shannon: they are blaming outside markets. brazil, china, the slowdown in those economies, and the u.k., where they are seeing increased competition there. there is always some reason. amazon -- fourth quarter retail sales are up 20%. something they have to do, they have to spend in that area. it is really expensive. they spent almost $1 billion online last year. they will spend almost $1 billion more this year. david: breaking news today, yahoo!'s board has formed an independent committee to explore its strategic options. it also says that separating its alibaba stakes is critical. there is an independent committee formed by independent board members that does not include melissa myers.
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they hired heavy hitters. tom: they want to show the market that they are taking very seriously this desire for them to find a buyer. the concern was that marissa mayer in management and the board were on two separate pages. the concern is for a buyer, marissa and management are not behind the idea of a sale. they are committed to doing to , working on yahoo! what the board meetings show is that we really want to make this thing work. david: two days ago, they were shutting down their verticals, including their finance vertical. they are laying off people, shutting down offices. the board might think, wait a minute, we are thinking about selling it. not retooling it. christine: if you are thinking about selling it, it is not to say we are desperate, find a buyer, it is we have other options, an alternative to an agreement, right? isn't that the thing to think about? tom: she has also that to think about morale among the staff. you have to retain people to run the business. no matter where marissa goes when this deal goes down, you
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need people to actually keep the trains running. the more you're talking about look, we're going to close down shop, end up in the hands of private equity, verizon, whoever it is, the more people are going to say, what are we doing here? shery: later in the program, we will focus on two sectors very much in the news this week for different reasons. there is plenty of optimism around global aviation at the singapore airshow. the outlooks are not so sunny for european banks. coming up on "bloomberg best," a roundup of company news from around the world. ♪
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♪ shery: welcome back to "bloomberg best." i am shery ahn. the commodities crunch forces a mining giant to scale back while an upstart wireless carrier promises to keep growing.
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those are just a couple of the most interesting company stories we covered this week on bloomberg television. here is a look back at a busy five days. emily: a watershed moment in a long simmering debate between silicon valley and washington. apple is rejecting a court order to help investigators unlock the iphone of one of the shooters in the san bernardino terrorist attacks. ceo tim cook framed it as a chilling attack on civil liberties. so what do we know now and how does this play out? chris: the government has come to apple with a court order trying to compel them to give them the ability to unlock an iphone. apple is pushing back. there is no sign that any side is going to stand down. this will be a legal case that will play out for a while. greg: i think apple should resist the order. it would set a precedent. he would mean that the fbi -- it
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would mean that the fbi could go to apple and demand that apple unlock any phone, no matter what operating system it had. it would go then to apple and say well, if you can give us access to phones, how about computers, and then it would go to other providers and demand the same thing. there is a lot at stake. emily: cyrus, you disagree. explain your position here. can think apple should participate in a very controlled away. i do not agree with giving blanket access to the technologies, as my two cohorts have stated, but i do believe that given the situations that we are dealing with today, i think apple should participate directly in the process. that would require the government to change their rules as it relates to how they investigate situations, who is involved in that, but i do think apple should be directly involved in that and not have to be compelled to give up the keys to the kingdom, if you will. shery: softbank is surging, up nearly 14% after saying it is ready to shore up its share price and spend a record amount buying back stock.
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this to be worth almost $4.5 billion. how does this compare with their own past purchases as well as with others? pavel: that is right, at 500 billion yen, it would be worth about 14% of the company's outstanding shares. to give you a comparison, softbank's biggest rival in japan has announced a 350 billion yen buyback earlier this month. for softbank shareholders, this could not come soon enough. the stock has been clobbered this year, falling 28% yesterday before the buyback announcement. this puts the company's market value actually below the sum of the values of its shareholders, which includes sprint, alibaba, the game maker supercell, as well as yahoo! japan. helped thehat really announcement is it will not borrow more money to pay for the buyback. it is good news because the company is already $100 billion in debt. instead, softbank withdrawing
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its cash holdings as well as asset sales to pay for the acquisition. guy: anglo's $5.6 billion loss, that is full-year earnings, and announced a massive overhaul to operation. they are currently saying rating cuts to junk yesterday by moody's. what do you think investors are convinced about the strategy update that we have seen this morning? jesse: it seems the plan outline is ambitious, but they are actually talking about a complete exit from box commodities. they want to focus on consumer-driven materials that will benefit from long-term growth trends of the economy evolves. it is quite a significant change to exit coal and iron strategies. i think a lot of exits have the outlook for those commodities much worse than other commodities we are talking about. guy: you are getting out of bulk, you are focusing on consumer. some would call this a fire sale. is that your description? mark: i think it is stripping back to the core, rebuilding the
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base and making sure we are fit to go forward in the most positive way we can. we have been making changes over the last 10 years that have been incremental. i think it was time for a bold step out. we have been working on that strategy over the last couple of years, and i think in this market, the opportunity is there to reset and start with a very different looking portfolio and making some bold moves. brendan: corporate bond sales are seeing the slowest start to a year since since 2005. today is a special day. apple and other tech companies are leading the resurgence in offerings after there was frozen last week. what is going on? lisa: there are concerns about global turmoil, global growth, and finally you are starting to see the safest, most respected companies come to market -- apple, comcast, ibm, toyota. these are the fortress balance sheet-type companies coming out with really big issuances and
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saying, you know what, let's take advantage. yields are still pretty low. brendan: like the adage in home finance -- you can only get a mortgage when you do not need one. lisa: you raise such an interesting point. apple -- what does apple need more money for? right? they have a fortress balance sheet. they have got $38 billion in cash in short term. that is on the balance sheet available to apple. they have got $78 billion in annual revenue. $56 billion in debt is pretty miniscule in the scheme of things, so they are piling it on in my mind as we look at this. there has been an all but closure of capital markets to higher risk companies that persists. the pace of high-yield bond issuance is the slowest since 2003 for this period this year. and yet you are seeing the , issuance of safer debt. for what? apple is going to use this to buyback shares, do this, do that -- who knows, who cares, right? people will give them their money. it is sort of, the tech industry is notoriously fickle, and people are not getting paid all
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that much, but this is perceived as safety. emily: groupon shares surging for a second straight day after a significant investment by alibaba. the stock has jumped some 83% in just two days. those shares are down about 50% over the last 12 months. what in the world can alibaba do for groupon that justifies a huge stock jump like this? gil: it is really what groupon can do for alibaba. if you think about alibaba, there is a strategical and a tactical imperative. remember, alibaba is a company that thinks in decades. jack ma famously says he wants them to be around for three centuries. that is how he sees entry into the u.s. market, a long-term imperative. what he is doing now is planting seeds --, lyft, snapchat. these are seeds he has planted in order to learn about the u.s. market, so when invision is
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ready, -- invasion is ready, they will be prepared. emily: how optimistic are you about groupon's long-term future? gil: there is a realization that they are not going to 0 because alibaba took a stake. especially if you are thinking about betting against groupon. >> t-mobile, the nation's third largest wireless carrier reported rising profit and , predicted as many as 3.4 million new subscribers this year. stephanie: dare i say, you crushed it. how did you do it? tell me, what are you doing inside of this company? john: you are right, we crushed it. we added 8.3 million customers in 2015, again. we had 108% of all the postpaid phone growth in the industry. let me give you an idea of what that means. in 2015, t-mobile added 3.5 million postpaid phones subscribers. at&t, verizon, and sprint , can you guess, together -269,000. stephanie: are you making money doing it? you started this price war a couple years ago with the on the carriers, it is great for consumers but how about you?
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, john: the model is working. what does that mean? that subscriber growth is leading to revenue growth. service revenue is up 11.7% year-over-year. the ebitda growth -- we grew 32%. adjusted free cash flow in q4 was up 800% year-over-year, so the model is working. and we're doing it by solving customer pain points. it sounds cliche, but the uncarrier stands for fixing what was a stupid, broken, arrogant industry for the most important thing in most people's lives. ♪
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♪ shery: you are watching "bloomberg best." i am shery ahn. last week, troubles at deutsche bank raised serious questions of the health of one of europe's
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largest financial institutions. this week, the discussion broadened. is there a crisis brewing in european banking? it is a topic that sparked debate throughout the week on bloomberg television. manus: since the fall of lehman brothers in september 2008, eight of europe's biggest banks have mass layoffs, billions and lost hundreds of billions of market value. >> senior writer for bloomberg news ed robinson has written about what he has called europe's banking nightmare. define a banking crisis, if you could, and is this one? it certainly feels nerve-racking, covering it on a day-to-day basis. edward: in the short-term term, at least a banking crisis. you saw 10% plunges in deutsche bank, credit suisse, et al. you saw massive defaults in deutsche bank. we saw a lot of fear in the
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market, but i would argue that that is a kind of short-term feel, that was last week -- in the long-term, what we are seeing is the next chapter in a transformation of this industry. i like to look back to last may 21, when deutsche bank stockholders, you know, up to 40% of them basically gave a vote of no confidence to the co-ceo's at that time. and what that did is basically said the strategy of trying to preserve the core of your investment bank and the way that it existed even before and immediately after the crash, that is just not going to work in this environment anymore. there is something more radical has to be done. that is what the market was basically saying to european banks at that time. >> we see some of the leadership changes to reflect that, haven't we? edward: yeah, and what we saw last week, the restructuring seemed to go on and on. we seem to be cycling through. this is like mark three for deutsche bank or mark two for for credit suisse. it is just investors are out of , patience. you have to get a plan, we know
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it will probably take years to execute this plan, and all of a sudden, you have that process going on, and then of course when china slows down in august and the markets start to get turbulent, that throws fuel on the fire. >> to what extent has this been crafted by regulators? this sort of perpetual crisis. we are still dealing with the changing regulation imposed on the market post lehman brothers collapse and crisis. edward: it is constructive to compare europe to the u.s. in that regard. in the u.s., banks were clearly kicking and screaming about dodd-frank and the impact that would have. manus: they got rid of their toxic assets day one, didn't they? edward: it happened really fast. they took their losses early. dodd-frank passed in 2010, started to impose, implement rules and regs. they have kind of gotten back to business. the universal bank seems to be alive and well in the u.s. look at j.p. morgan chase's record earnings last year. jonathan: it is really good news in banking. john: i think the good news is that is hard to see it getting worse. bill: a lot of the reality about
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banks is known. but it is the fact that we have , contagion risks to come. we have got a ridiculous situation where banks are having to pay to deposit money with the ecb, and the result of that is they will charge more to lend to their customers, which suggests -- reduces the amount of customers borrowing in an already depressed europe. so we will see mpl's already higher than they should be and will get worse. we have got the potential shock coming in from market events. i keep going on a long about these weapons of financial mass destruction, the at1 bonds. we are going to see something occur there in italy. i think there is a good chance we will see other cocoa bonds kick in. that will generate a wave of negativity. at the end of the first quarter, we are going to see a lot of holders of these bonds who wake up to the reality they are no longer price at par but some of them all the way down into the
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70's, and they have to sell them. so you get a wave of selling hitting the market, and that will contage a bank process further. the question, is this separate between banks and buybacks? no, it is not. >> i want to press on that point. these, -- bought these it was all about distance to trigger. there's very little danger any of these will be triggered. the point is now is the coupon covered, and will it be honored? clearly, deutsche bank, the liquidity coverage ratios, and nsfr -- massive liquidity, so in the short term, i do not see a cap because we are nowhere near the triggers. guy: martin wolf writing in the "financial times" talking about the banking sector. people worry about the huge highly leveraged complex banks. they are undoubtedly right to do so. erik nielsen, the banking sector has been battered. unduly so or rightly so?
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erik: unduly so, but there is barely smoke if there is no fire. i think the issue here is that as martin says correctly in the "ft," financial institutions are complex animals, and we have been burdened by a whole lot of new cost from survey, regulation. the natural change we have to go through and what have you, and then we have a flat yield curve. for a bank, ultimately you live off the transformation, borrow short and then live longer. but the curve has been flat for 5, 6 years. guy: the possibility of further negative rates seen as a real possibility. we are bashing the banks at the time we need them to do better work. erik: that is right, and it is a problem. alix: european banks trade for less than their book value, something that typically might be appealing to activist investors, but they are nowhere to be found. lionel, you had an article about this out today.
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why are activists kind of shunning european banks? lionel: it seems like it would be an attractive trade for them given that you could maybe be involved in push management, make some tough decisions that they have not taken yet. the problem is that we really don't know, or activist investors are not really sure who is in control of the european banks. is it the regulator? is it the european central bank? even if you have directors on board it, are you going to have the regulators and other shareholders on board as well? there are so many complexities and difficulties with pushing banks in a particular direction that for now they are staying away. alix: can you compare the activism in u.s. banks versus european banks? lionel: i think there is more activism in the u.s. in general. i think that again the european , issues are far more complex. we have a lot of countries involved, a lot of different national regulators and a lot of , strategic issues that have not
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been worked out with the same aggressiveness. we have balance sheets that need to be cleaned up, business lines that need to be sorted out, and again, even though you would think this would attract aggressive investors, there are so many unknowns and so many future losses that could hit these banks that activists are, in europe, staying away. alix: part of what we hear when european banks are at risk is oh, no worries, mario draghi has your back, the ecb will help you, there is a lot of liquidity. but in terms of profitability, mario draghi cannot help them with that. >> your absolutely right. it was fascinating last week on the day deutsche bank was plunging, lloyd blankfein was speaking at a conference, and his words were, the european banks have access to ample amounts of funding, and he was more worried about the counterparts, the suggestion of that, the share price performance. european banks in most cases have got a long, long way to go until they actually get the wave u.s. banks are in.
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as you know, a lot of u.s. banks not earning above their cost of capital at the moment. alix: exactly. what is the next wave of trauma for the european banks? chris: what is the next wave of trauma? difficult to say. i suppose it is whether or not the ecb will take rates down further and there will be more, sort of, soul-searching about what do negative interest rates -- if the ecb suggests a goes -- as suggested goes down what , does that mean for profitability, and does that have another negative impact? is there any growth out there, which will start -- if you want to alleviate that problem? shery: still ahead, the best interviews of the week. mark cuban on silicon valley, bernie sanders on the supreme court, and the fed president who thinks big banks should be broken up. that is coming up on "bloomberg best." ♪
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♪ shery: welcome back to "bloomberg best." i am shery ahn. it has been a week of controversial conversations on bloomberg television. bernie sanders describes his ideal supreme justice. minnesota fed president neel kashkari explains why he is open to breaking up the biggest u.s. banks. let's begin at the nba all-star weekend where stephanie ruhle went one-on-one with dallas mavericks owner and noted tech disruptor mark cuban. mark: in silicon valley, they are in their own little world. they have insulated themselves, they have lost touch with reality. you've got kids, because they graduate from this school or that school with an idea that they get an $8 million valuation, they raised $2 million, keep 75% of the company -- it is ridiculous.
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i have been saying it for a long time. stephanie: what is going to happen? mark: they are getting written down to nothing. a lot of them are going out of business. literally, if you invest in 95% of the silicon valley's that are coming out or have come out in the last year, the minute you write that check and it clears, you should write it to $0 because that is what it is worth. these companies have no chance. stephanie: no chance? mark: some companies are good, but 95% are done before they started out of silicon valley. 5% will be amazing. stephanie: should more be going public? marc benioff has been outspoken saying stop avoiding the public , market. if you are a good company if you , have a lead, go public, get testing. mark: i have written a blog post saying that exact same thing. i have been a proponent of that for a long time. a couple different things what , is happening in the market right now -- there is a dearth of high-growth companies. now we look at facebook, netflix, google as hypergrowth companies when their hypergrowth is behind them. they are still growing quickly. what is happening now is the hypergrowth in private companies
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is being bought out by private investors, right? i do not know that uber will accelerate their growth. their growth rates are probably going to decline. stephanie: and early investors cannot get out. mark: they are stuck. stephanie: across all of your businesses, when you think about all of your businesses, when you think about what you are most concerned about, what you are worried about what is it? , especially being from detroit. you are in a relatively depressed environment. dan: the biggest concern is the overreaching power of the federal government and the kinds of things they are doing today that we have never seen before, at least not in my lifetime. and, you know it is very , disconcerting to businesses. you know i get calls every day , from ceo's, public companies, private companies just with stories that are not even out there of stuff going on. that to me is the biggest concern. also this belief that companies and corporations are evil across the board. shareholders of public
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companies, shares are owned by pension funds and public unions, this is america. we create wealth through shareholder value. and this concept that some folks are selling that the , american system is evil to me is the biggest concern. stephanie: are we not promoting entrepreneurship as much as we should? dan: to some extent -- stephanie: i mean, is the government? dan: absolutely not, currently. i do not think they believe in it, frankly. >> you raised the subject of the replacement for justice scalia. a few moments ago. the other day, anybody who you appointed to replace justice scalia would have to be , an opponent, would be in favor of overturning citizens united. you made that comment the other day. basically the litmus test, essentially, i think, so how is that different from the litmus test that republicans apply, we will only appoint a supreme court justice who is for overturning roe v wade?
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or has a certain position on affirmative action? is there a difference between those kinds of litmus tests? sen. sanders: i'm not a great fan of litmus tests. i could have a supreme court justice read everything i have ever written. that is not what i am saying. what i am saying is this issue of citizens united is so significant, is so fundamental to the future of this country -- this is democracy, and right now, what we are seeing in this campaign are people like the koch brothers, wall street, and other billionaires buying elections, and if we allow them to buy elections, then everything else does not matter because you do not have a democracy. so this is one issue that i am saying yeah, i want my nominee to be loud and clear that he or she would vote to overturn citizens united. it goes without saying that i am pro-choice. not terribly likely that i will be nominating somebody who is anti-choice, etc. but this is a litmus test to me because i'm worried about the future of american democracy.
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neel: we all remember the crisis, 2007, 2008. i was in the middle of it running the t.a.r.p. program. we hated that. we hated that we had to bail out the banks. i think americans across the political spectrum hated that as well. we see the anger of the american people still today. none of us want to be in that situation again, so dodd-frank was passed very quickly because they wanted to reform the financial system which i , supported. but the more transformational measures were taken off the table, things like breaking up the banks or putting so much capital into the big banks that you turn them into utilities, so they virtually cannot fail. there are a number of other options. here we are six or seven years later, and in my view, we have done some good. the banks are safer, they have more capital, deeper liquidity, but we have not taken the risk of a bailout off of the table. if a number of banks run into trouble at the same time, policy makers would be forced to bail them out. stephanie: you never take risk out of the system. maybe you take it out of banks' hands, but somebody will be left holding the bag. it is those investors who have risky assets.
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and it is insurance companies with 401(k)s. so it is not evaporating -- it is going to someone else. neel: i agree. but it needs to be distributed in a way that it is safe. in the late 1980's, 1000 little savings and loans failed in the crisis. that was terrible for those firms, but there was no crash. in thetech of -- boom late 1990's, we had the crash, devastating for silicon valley, but no risk of an economic collapse. that is where we need to be. howard: volatility is normal, fits of volatility. i wrote a memo recently where i talked about my friend, sandy, the airline pilot who describes his job as hours of boredom punctuated by moments of terror. and that is the disruption of -- description of the investor's job. stephanie: hours of boredom punctuated by moments of terror. that is how you describe investor life? howard: i think that is right. and this is one of the last six weeks in the stock market have been one of those moments of terror, but it is normal.
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the reasons are not quite normal. i mean, we have kind of one-off. i think people have gotten used to dealing with normal economic cycles -- recession, recovery, etc., but we have now kind of cosmic issues that people do not have any experience with and do not know how. china, oil, rates, terrorism are just four examples. stephanie: is the fear exaggerated or punctuated by the presidential election? when you see donald trump up there, dare i say, putting fear in the u.s. economy, really speaking in such declarative statements about the state we are in does that affect the , market? howard: i cannot tell you definitively because i do not have any research on the subject, but i would guess so. they are scaring the hell out of people. donald says the chinese are killing us. the mexicans are killing us, the japanese are killing us, but we
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are going to get the jobs back. then the others compete to be equally fearful and dramatic, they cannot -- it is very hard for them to compete with him by saying no, the latest information from the commerce department says -- they do not want to hear that. ♪
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♪ shery: you are watching "bloomberg best." i am shery ahn. this week, the singapore airshow brought together the biggest players in the aviation industry from top airline executives to manufacturing ceo's. my colleagues haslinda amin and stephen engle were there to cover the state of the business from every angle. haslinda: airlines enjoyed the
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most profitable year ever in 2015 and the international air transport association expects further gains. the chief tony tyler joins us this morning. wow such optimism, tony. , how solid is the recovery and profitability? tony: we are forecasting airline profits globally for the $36 billion. it is up $33 billion over last year. that forecast was made last december, and we will be updating it in june. a lot will happen between december and june. the fuel price coming down obviously has a large part to play in that. sunanda: the economic scenario is different as well. china is going down. why isn't china a risk to the aviation sector? tony: you are right, china's economy is slowing down, although in fact air travel within and to and from china is not slowing so much because the economy is reshaping itself, restructuring itself, and consumers are spending a bit more so, then they are -- van they are are spending on travel.
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we are not seeing reduction in china as such a big factor at the moment. fabrice: i think we are firm. which is, the book to bill will be a good one. we will continue to consolidate a backlog of 6800 aircraft. stephen: we see the low-cost carriers in this part of the world, what are you seeing? fabrice: many people talk about it, but we do not see it. the reality is we have never had such happy customers, so profitable, so it is true as well that the segment is very dynamic, so there is a lot of growth. there is a big fight or so among some competitors. so all in all, i can confirm that we see the growth and for a simple reason. asia-pacific accounts now for 40% of our deliveries, so this is the area of growth, and it
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will continue, except if everything collapses, but this is not the prediction. haslinda: malaysia airlines undergoing a massive restructuring, falling is that comprises taken private because , of massive losses amounting to more than $1 billion. a 30% cut in operations. they have already cut most of the european group. christoph: we are refocusing on emerging economies, strong gdp growth and also creating new relationships between malaysia and those countries, the most prominent being china. that has now been changed. no more cuts to be expected. we will change our network each and every year, like every airline. we simply did not have enough work for all the people we employed, so that was very unfortunate, but also that is over. we have reached our final
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headcount numbers. haslinda: how does it look in asia? what are the prospects? john: it is an enormous market for us. over the course of the next 20 years globally, we expect about 350 aircraft in space, 25% of that is going to come from asia pacific, including china. so it is an enormous possibility -- opportunity for us. today, we have 20 customers in 11 countries with over 200 aircraft flying in the region. but we have a lot more work to do in this region. a big operation here in singapore. a big operation in beijing. so we are committed to the region we want to grow here. haslinda: committed to the region, but you are going to face increasing competition. i know you love competition, but china's kovac as well as japan's mitsubishi aircraft trying to get into the space you are in. you have dominated this for a long time, but competition is heating up. >> in the case specifically of those two competitors, they book and where we are. mrj is at the low end.
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part of our view on competition is we take them all seriously whether they come from russia, japan, or china. there is no arrogance or hubris in embraer when we think about our competitors. what we can do to address the competition is try to improve our offering on a consistent basis. haslinda: congratulations on the orders. amounting to about $1 billion. yugo: thank you very much. we are very happy. haslinda: so your orders so far from japan, the u.s. -- how about the rest of asia? what are you doing to gain? >> we actually have one customer in asia. asia is the most expanding sitting,nd we are doing our best to sell mrj in this region, and we feel it very strong potential. haslinda: how do you view the competition, because you have to break the duopoly. dominated by andrea from iba. are you prepared for that? can you do it? yugo: first of all, we are the
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newcomer. we have designed aircraft that has quite a huge advantage compared to the existing product. with these strong points, we are convincing our customers to order the next mrj. haslinda: what is your competitive advantage, and how soon can you make inroads? against the business of the business offer from others? yugo: our product is pure consumption. our product will have better consumption by more than 3%, and this will save the fuel costs very much for airline customers. akbar: i do not think it is a good idea for oil prices to be below $50 a barrel. it is not good for the economies of the countries, and it is not good for airlines. yes, it improves the bottom line, but it does not increase the bottom line is much as i would like to because as i said earlier, because people travel
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less, and at the same time, because people are traveling less, we have capacity. there is competition for this capacity, so it is downward pressure on our heels. stephen: how are you hedged? if you say $50 -- akbar: we are hedged only a small amount of fuel, but at a very high price. i hope that i will be able to hedge waiting for the oil price to go it little bit below $30 a barrel for me to take a hedge again for a big amount. stephen: do you expect it to? akbar: you never know. it is fluctuating so much. that we are uncertain of where it is owing to go. either it will go this way or that way, but we hope it will increase because we want businesses to increase. people expect that because of lower oil prices we're going to reduce our fares. yes, we have produced by giving back passengers the fuel surcharge we used to charge, but
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at the same time they should not expect too much reduction in fares, because when the oil price started to rise above $100 and reached nearly $150, we did not increase our fares 150%. and this was encroaching on our heels and on our bottom-line and our margins. ♪
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♪ shery: as we wrap up this edition of "bloomberg best," let's take a look at some of the week's most interesting and entertaining charts. tom: let's go to our single best chart. i did not know what this chart would look like when we made it, but has to do a lot with michael porter's estimate that education matters. going back 25 years, that is the growth in employment of those with a college degree versus
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those with not a single bit of college as well. the starkness of that -- you can see the tensions of 2007 and 2008 -- everybody flattens and rolls over, and the college degrees, professor porter, just pick it right up. prof. porter: scale is tremendously valuable, and the people with skill are doing well in america and other parts of the world. the college degree has in the -- in the ticket to that definition of being scaled and -- skilled and being educated. brendan: today, we will play the game called guess the european periphery economy. right here, we have got gdp growth. looks reasonable, up at 3.9%. right? anybody would dream about that kind of growth right now. correspondingly, this is the spread of that country's sovereign debt against german bund going down, down, good gdp growth, spread goes down things , are looking great. something happens, however. right now for the last two years, that has been rising.
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someone tell me there is a clue in the colors what european periphery economy is this. stephanie: pink is supposed to give us a clue? brendan: that is red and white, the colors of poland. >> that top one is not white. >> ok, all right. david: this is not stump the judges. brendan: poland's justice party, voted into office, this is where things spike. you have good economic growth, bad political risk. >> so taylor swift wins three grammys, won album of the year for "1989." now for those not in the know, 1989 was the year she was born. so i was thinking, what if you had invested as her parents in various assets the day she was born on december 13, 1989? look what i came up with. they, of course, being americans, would only invest in dollar and u.s. assets.
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you invest in the s&p 500. you are sitting on returns of 446%. second time you decide to put , your money into gold. you are sitting on returns of 190%. the dollar index gives the returns of 2%, and the yield on the 10-year treasury has come from 7.8% to 1.75%. so if you are mr. and mrs. swift, you're not only happy that you produced taylor, but your portfolio of u.s. dollar assets has done remarkably well. well done, mr. and mrs. swift. shery: that is it for "bloomberg best" this week. remember, you can always find the latest business news from around the world at i am shery ahn. thank you for watching bloomberg television. ♪
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