tv Bloomberg Best Bloomberg February 28, 2016 6:00am-7:01am EST
vonnie: coming up on "bloomberg best," the stories that shaped the week in business around the world. as the brexit nears, the pound dropped. could rates the next to fall? donald trump stays on a primary winning streak. steven: the big question is how do you stop him, can you stop him, and where? vonnie: from the frontiers of innovation to the frontiers of opportunity at bloomberg's africa summit. we got insight from the leading edge of technology and adjustment. glenn: 5g is exciting, but it is 4, 5 years away. jay: power is a huge opportunity. there is tremendous demand. vonnie: our roster of high profile guests are headlined by bill and melinda gates. bill: the best governance is where you look down the road 10 to 20 years.
vonnie: and oil with the future of electric cars. it is all straight ahead on "bloomberg best." ♪ vonnie: hello, i am vonnie quinn. welcome to "bloomberg best." perio a weekly look at the most important business news and analysis from around the world. let's begin with a day by day look at the top headlines. with the june 23 date set for a u.k. referendum on eu membership, campaign season on brexit began in earnest monday. a controversy had an immediate financial and economic impact. u.k. prime minister david cameron answering questions from lawmakers in the house of commons. these are live pictures you are
watching. cameron has been making the case for staying in the european union. but cameron's stance is suffering a setback as long as the london mayor is rallying for a so-called brexit. is this about volatility? does it really not matter how many people turnover to the boris johnson side? rob: he is one of the most recognizable politicians in the u.k., and his decision to support brexit has had quite an effect on the pound. jon: we have a chart that shows the odds, the risks of a brexit. is the brexit risk premium exaggerated? rob: there does seem to be a serious risk of brexit. it is something we are arguing for months that investors need to take notice of. events over the weekend are potentially raising the risk. because of boris johnson. but it is actually now having a referendum date, the issue is a
lot more tradable than it was. alix: the possibility the so-called brexit continuing to weigh on the pound today, which is near its lowest level against the dollar since 2009. addressing lawmakers in london today, bank of england governor mark carney said the central bank is doing contingency planning. mr. blanchflower: this has enhanced uncertainty. so this will have a big impact on the markets. mark carney recognized that and said they will make plans. but this is obviously a global event and might well have an impact on global financial markets. this has raised uncertainty in the world's fifth biggest economy. alix: six months ago, we were talking about the possibility of a rate hike for the bank of england. i am looking at the function, wirp, for the high. now, it seems like a hike is totally off the table this year. but the probability of a cut has risen 22% in december. what will we see first -- a hike or a cut? mr. blanchflower: i think in
2016, perhaps in short order, we will see rate cuts and perhaps more qe. in the u.k., there is more move to maneuver. rates are at .5%. make a move without going into negative. that was the talk today. the markets probably got it right. vonnie: another big win for donald trump. he won the nevada caucuses by a wide margin with nearly 46% of the vote, topping marco rubio and ted cruz by more than 20 percentage points. trump is predicting he is on his way to lock up the republican nomination. steven: it is a big win for donald trump, not just because it is three states in a row. obviously, he has momentum. but the margin of victory, which you mentioned, is just massive. if you add up the second and third place republicans, marco rubio and ted cruz, they do not reach donald trump's number headed together. vonnie: ahead of super tuesday, with home states involved, can the momentum be stopped here? steven: that is the question. ted cruz is investing in his
home state of texas. he is leading in the polls there over donald trump. it would be a big state for ted cruz to lose. a firewall, so to speak. if he loses that, where can ted cruz win? ted cruz has been investing a lot in the south. donald trump -- this is his territory. other candidates will try to cherry pick delegates here or there. whether in the non-southern states or in certain districts that reward large chunks of delegates. the real question is whether or not donald trump could, as it seems like he has done in the last three contests, sweep a majority of the contests, and the question is how to stop him, can you stop him, and where? cory: it has been an active day of comments from both sides in the battle for encryption. a court filing from apple insisting the justice department is overstepping authority by demanding they unlock one of the iphones used by one of these san
bernardino attackers. the argument here is about fighting terrorism. that is what the government is putting forward. it is about one phone and stopping terrorists. what you make of the apple response saying it is not about terrorism, and it is not about one phone? brian: apple has a good response. they hinge on two things -- one is it is unreasonable burden to comply. when you read the ruling, they are suggesting it will take two to four weeks and six to 10 engineers to write the code that the fbi is requesting. they say this impinges on first amendment rights by code being speech, and they do not want to write code that compels them to do something they do not believe in. so they have a strong case. but the justice department did not pick the battle if they didn't think they had a good case. paul: the thing to understand is a lot of code functions as speech. it gets shared as much between people as it is being used. it is not an insane thing to say if you are aware of how the industry works.
it is almost like you're talking to other programmers and the computer. cory: is the privacy argument enough to carry the day here? richard: it is really not, in my view, because in reality, we cede privacy all the time. certain facts and evidence is put forth, we find ourselves in a situation where privacy has to be ceded for our safety. david w: we are getting started with the g-20 in shanghai, but china signaled they are open to more easing. china has said they have multiple policies to assess any downside risks. david: i was at the speech where the pboc governor was speaking. we should note he was speaking in english, which shows you he was catering to a mostly international audience, at least at that time. he said there is a need to ease. but we know that. interest rates -- real rates are on the way out. the real debate and what was not answered was how they plan to do that. we are in a situation, now, in china where capital outflows are
getting exacerbated by speculation that the pboc will ease. they cannot exactly cut rates. he also made the point on speculation that there is absolutely no basis whatsoever. you look at the fundamentals of the chinese economy. no basis for a persistent decline in the value of the renminbi. i guess that speaks volumes to what they are now using to turn off, if you will, and all of the speculation that the yuan will fall further. it has gotten very expensive to defend it. they have seen a massive drawdown on those reserves, which he says is not a trend. i guess that is what a lot of people have been talking about. that they need to come out and manage expectations. vonnie: later on "bloomberg best," tech leaders tell us what is on the horizon for smartphones. and u.s. treasury secretary jack lew says we are not in a moment of economic crisis. but next, more news in the world of business with big companies facing very big questions.
vonnie: welcome back to "bloomberg best." i am vonnie quinn. let's go around the world with a look back at the week's major company news. banking and commodity firms have been hit especially hard this earnings season, and it appears their struggles are far from over. mark: shares of hsbc, europe's biggest bank, down today, posted its first quarterly loss in more than five years. shares were off as much as .5%. why do we have this unexpected loss? stephen: hsbc is suffering along with asian commodities. and with the commodities crash, it really has shown loan
impairments increasing. it has shown a slowing down of the loans they have been able to give in the regions. under certain risk controls, it is not able to expand as aggressively as it had planned. when i spoke to the ceo, they are slowing a job hire program in china by two years, and they will also not put $100 billion of assets in the country as quickly as they planned. so what we are really seeing is ambitions to expand in china checked by the macro environment here. it is looking like he will have to find a plan b. mark: that is the big question. we have had measures announcements in june to cut 25,000 jobs. is plan b more cuts? stephen: plan b might very well be more cuts. speculation from analysts when the results came out where that the program already announced might not go far enough in the current environment. curiously, the only division to report an increase in
fourth-quarter profit is the investment bank. it is a rare case in europe of the investment bank propping up the consumer and what divisions. angie: qantas shares take a dive in sydney, this by rising to a record $666 million in the first half of the fiscal year. that was better than analysts expected, and in the higher range of the company forecast. cheaper oil also helped boost growth. you decided half a billion in terms of a share buyback. why not a dividend? alan: because of the cumulative tax losses that we have had the last few years, we do not have a huge amount of frank credits left to pay frank dividends, which is important for the australian shareholders.
after having a look at the best way of returning the surplus cash that we have to shareholders, we and the board felt buyback was the most efficient way to do that. >> bhp billiton has cut its dividend for the first time in 15 years. it reported a 92% drop in first half profits. underline profit came in at $412 million in the six months to the end of december, compared to $4.9 billion a year earlier. >> what are they doing in this business to counter the downturn? how do you deal with the headwinds? ryan: in a nutshell, it is share and spend less. on the spending cut, they have pared back by about 20%. they will cut spending in the following year by about $2 billion. but it is really about the dividend. they are joining a lot of companies, saying with this kind of commodity cycle we cannot guarantee greater dividends. tom: how are you going to cut expenses when 90%-some of your delta on your income statement is price changing commodities? how much more fat is there to
cut? peter: we have done an outstanding job in cutting costs. we have productivity gains of $10 billion the past three years. we think that will continue to be an important factor. in this financial year, we are guiding another $2.1 billion of productivity gains. having said all that, clearly in the space of 30% reduction in prices, you cannot make up for that. that is the reality of a cyclical industry. emily: time inc. is now interested in possibly buying yahoo!'s core business. time is competing with verizon, at&t, and comcast, as well as buyout firms like bain capital and tpg. how would this work? alex: the structure would be this reverse markets trust. that is lingo for when one company spins off assets, in this case, yahoo!, they merge it in a stock for stock deal with a company that is slightly smaller
than it. so time is well-sized for this transaction to go through. it would be a tax-free transaction, which would be some benefit to yahoo!. john: operationally, this would be a disaster. time inc. is close to 40%. i think that time inc. is a struggling company that is struggling to find itself in the digital world, let alone the mobile digital work. so i think you have -- putting these two companies together would be a mistake. guy: intercontinental hotels says it plans to return $1.5 billion to shareholders in the form of a special dividend. we are joined from the london stock exchange by the company ceo, richard solomons. good morning. the market was looking for around $1 billion. you have gone for $1.5 billion. why the extra size? richard: we have completed our proposal program. we had a good year. prospects look good. so we increased our regular dividend by 10%. and as you said, we are returning $1.5 billion to shareholders, which will make about $12 billion since we became an independent business. it is another step on the road.
>> honda announcing a shakeup at the top with quality concerns persisting a year after the carmaker replaced its chief executive. who is in, who is out? juliette: we heard president takahiro hachigo speaking earlier this morning. we have live pictures here. he is still holding these press conferences in tokyo. i guess he is still putting a stamp on this company one year into the top job. if we have a look at who is out, the change is that the chairman, fumihiko ike, is to retire in june, part of the management shakeup that was the eight other executives leave the company. under chairman ike, we have seen him have this job since 1983. he joined honda in 1982. if we look at the chart in the bloomberg, it shows how honda has underperformed its peers during that period. it has fallen 18% since april, 2013. compare that to the blue line. that is toyota. they have seen gains of 23% under the same period. stephanie: shares of jpmorgan
are trading down after the bank held its annual investor conference yesterday. jpmorgan investment bank head david pinto said sales and trade revenue was down 20% so far this year. the drop in revenue is due to market turmoil and lower fees. mike: it is a tough environment -- you have low rates and low oil, low stocks, low capital markets. stephanie: investors sitting in cash. mike: so the expectations for earnings this year are pushed out to next year. next year's are pushed a year further. it is delayed. that was the bad news. it is a tough environment. stephanie: what did you ask jamie? mike: my question was why is it good to be a big bank? you see the public sentiment. you have the movie "the big short" up for an oscar sunday. the public dislikes big banks. why is it good to be a big bank? stephanie: his answer? mike: his answer was because a 787 is a safe airline. i thought he should have elaborated on that more. i thought he could have given a
better answer. i think jamie dimon struck out on that last answer. angie: shares in sharp tumbled more than 60% the past few days after foxconn said they would buy the troubled electronics maker, and then postponed the deal. what went wrong? pavel: foxconn issued a terse one-paragraph statement saying new information has come to light from sharp. they require more time to discuss it. both companies have said nothing else. our sources tell us the point of contention is something called "contingent liabilities" -- these are costs related to potential, possible restructuring and layoffs. sources are saying that they could be in excess of $300 billion, but could also be a lot
vonnie: you are watching "bloomberg best." i am vonnie quinn. the mobile world congress in barcelona this week was a showcase for dazzling new gadgets. check out these images captured by bloomberg's photo team. it was also an industry summit featuring tech's most influential leaders such as mark zuckerberg, who publicly backed apple in its dispute over privacy with u.s. authorities. caroline hyde was there to cover all the news and gather interviews. caroline: we see sensitive subjects being debated by mark
zuckerberg. primarily his own wealth. remember the 99% given he has away -- why wasn't that a foundation? he also discussed his disappointment that india has banned the use of free basics --remember that is free access to certain websites like facebook, like wikipedia. that has been banned. he talked of his disappointment there, with the push for internet.org. notably, the shift to video -- the shift to 360 degree video, and what is needed from the telecom equipment makers and operators. he needs them to stop being competitive and be collegiate. this is something we spoke to jason taylor, head of infrastructure for facebook, about. jason: building infrastructure is a fundamentally hard thing to do, and if we solve a problem through this project, or, say, an operator solves a problem, and they share it through this project, the odds of their neighbor, maybe one of their competitors, actually seeing the same bottleneck are probably really low. but that idea or that particular solution will probably find a home somewhere else over the globe. caroline: mark zuckerberg -- a bit of a call to arms yesterday. really trying to get the operators, equipment makers to
work together to push forward collectively to get to 5g. where are you in the 5g spectrum, because i know you are looking for strategic announcements, new initiatives with many of the players. rick: we are. we are working on technology, the processing capability to be able to support 5g. we think as a look at the future, the so-called internet of things with 40 billion or 50 billion pieces by 2020, it will required technology to facilitate that. we went to ensure we can provide that, not only on the endpoint, the mobile wallet, connecting cars, connecting devices, but also in the infrastructure to
facilitate that. caroline: what sort of investment is needed to get to the end goal -- whatever 5g actually is -- we have not had the exact recommendation for what 5g will be. rick: it requires all the companies to work together, making sure we have a common platform to support that, and provide the ability to move massive amounts of data it in a very efficient manner. with 50 billion pieces, think about the bandwidth required to support that. caroline: are you worried about the saturation point in the high end smart phones? glenn: not at all. the smartphone really just begun 7, 8 years ago. we're not worried about that. we are still seeing growth, still seeing great innovation whether from the os side or the hardware side. it is still growing. there's a lot of gas in the tank. what is exciting about that is what is behind the glass. everyone talks about what is behind it. the innovation will be behind it -- what drives it, the apps, and how we solve problems for our customers. caroline: when you say it is
still growing, do you still see demand for higher end phones at the same pace? glenn: same pace is a different discussion, but we are still seeing demand, it is still growing. we are seeing in the pre-pay segment. we are seeing it really everywhere. everyone wants a smartphone, and 90% of what comes on to our network are smartphones. caroline: already you are envisioning 5g -- the next way in which you and i can get download speed even faster. you teamed up with the likes of intel, ericsson, but facebook is now calling for everyone to work together, share learnings, get 5g out there faster. do you agree with what facebook is pushing for? glenn: what everyone is saying is we want broadband everywhere -- we want broadband to be ubiquitous. 5g is exciting, but it is 4, 5 years away. the key to 5g for us is first of all, let's maximize what we have today. there are advantages in the next generation, but what we have today is awesome. caroline: what sort of size market will we get to in terms of the internet of things -- have you done much theorizing about the scale?
we have had 50 billion. where is the next number? simon: $50 billion was the number last year, and it is around $75 billion, or even more by now. we think iot will be a huge market. there could be billions, hundreds of billions. there are many forecasts for how big this will be. i am pretty sure they are wrong, but i am certain this will be a big market. one that brings new businesses, new markets. caroline: also new risks. talk to us about security elements. simon: i have been talking here are the conference about security in iot. cyber security is the big theme at the moment. it is conventional computing -- websites being hacked. with iot, when it starts getting deployed, you have to talk about security in a different way. the good news is now is the right time to do it. the technology is in its infancy. if we let iot be deployed and try to fix security later, that will be a real problem. so we are working on some of the low-level building blocks to allow secure software to be
built on top of secure hardware architecture. caroline: paint a picture for me in the next few years. when am i going to i be not driving? you already invest in driver assist. helping a car park in spaces. when do i need to not do any of that? mark: what we have said in the past is we will probably see, by the end of the decade, somebody will introduce a fully autonomous vehicle. caroline: will it be you? mark: it may or may not be. when we come out with an autonomous vehicle -- and we need to define what that is. there are different levels. the level we are shooting for is a vehicle where the driver does not have to take control in a defined area. but when we come out with one, we want to make sure it is true to our brand, and our brand has been about accessibility. we want to make sure it is accessible for millions, and not just folks that buy luxury vehicles.
caroline: who wins out -- you, google, apple -- do they become your competition? mark: our view is we want to make sure that we continue to be a leader in the area. it is interesting. we are not only a leader in our core business, great cars and trucks, but at the same time, we are a leader in semi-autonomous features, things that will keep you in your lane. that will adapt your speed on the highway. we are a leader there. one of the the announcements we are making here is we are actually tripling our engineering investment in semi-autonomous features. at the same time, we're also investing in autonomous vehicles, and as we do that, we are going to work with a lot of different partners. so our clear goal is to make sure we are a leader in this space, and where it makes sense to work with others, we will, and where it makes sense to work on our own, we will.
amazing innovation. health sector, fantastic innovation. orther it's stem cells genetic. i see in the energy and material sector, real opportunities for throughs we're able to understand the basic physics of catalyst.and >> interesting you say that. you and i argue about it for a long time. you call fory america, actually all the things we keep on opening really going to change. they haven't yet come through. energy seems to be an exception. >> ironically for the climate thelenge, actually hydrocarbon has been the most innovative. demand. the cost reduction they're doing makes the bar tougher for the clean solution to come along.
because icheaper and -- i think the chance next 15 years we do get high.eak through is very that's an optimistic view but it's based my view of the science >> you have long term views and you take long term action. more andoncerned that more of the rest of the world has fallen into the short mindset and business practice? >> i think one of the -- one reason we keep trying to push really promote the idea, you have to go long term, if you don't, then you're going to have acute crisis. what you're see with europe with crisis.gee that's because people can't find economic opportunity in their own area so they get up and move. if we make the right long term investments, people want to stay where they are. be healthy and get their kids in great education system and get a job. like you have to focus on the long term and we're
always coming back to that because it's important. >> you two live your lives that way. that to action to other ceo's today can't. regular americans don't necessarily have the money to decisions and politicians certainly don't? >> best government is where you or 20own the road 10 years. you build the institutions that will help you. the united states is the envy of the world because our universities, our national laboratories and all the key driving change. , i.t., biology and any of those specific areas. to drive that economy that's why u.s. is somewhat better off than most others. >> it is unacceptable to target
exchange rates to gain unfair outside of your country. that's just -- it's a question who gets more of the existing pie. it doesn't grow the pie. to my counterparts, they understand, they want to be direction,s not a that the world community can go in. >> we hear economist talk about business. reallyblem we have is demand problem at this point. what can be done? you hope this agreement does have economics about how global stimulated?e >> i don't think this is a moment in time where you'll see thevidual countries make kinds of specific commitments that have been made in some other contacts that have been marked by real crisis. this is not a moment of crisis. is a moment where you got
real economies, doing better than markets think in some cases. you have a future that could be influenced very much by the policies describing the idea of how to you avoid having things go to a place that you want them to go. that's a different conversation than what do you when you're in a full blown crisis. see the kindsyou of detail is once you've gotten beyond the point. that the kind of conversation that i'm describing the dial.oves >> could you just tick off what you see the biggest risk to in europe? a multitude of things that we have to see. reformstry specific that have been to be undertaken. there's a certain risk that the interest rate environment for and also consideration with reforms.
enthusiasm has somehow -- this is one. is in this. toy are more related demographic. european level, there thatultitudes of decisions can influence part of the long term goal. the creation of a single market for digital product and also the capital market. the importantly is framework for our monetary union. consist of one monetary combined with fiscal policies. aligningchallenges of that is in control.
to ask you, a group of european ceo's today got as of onend said, voice, it would be a bad thing if european business. way?u feel the same >> i think when dave cameron pandora box, he made huge mistake. we think the result -- we are thatg the result of mistake. i'm very much in favor of the u.k. inside europe providing they're playing the game of the union. ed as a of today, they are much more selfish. is breaking down the e.u. wantingot of people each one to have a different status. the end result is that, u.k., we have a very specific status.
because of e.u. them. i prefer they go on their own it would be much worse for them than for the european union. >> you've been pretty vocal about this in the past. much in favor of staying. i believe. how are you feeling about that now? how do you gain this out over as thet few months up?oric heatings >> i think it's going to be a close call. it's looking much more likely stay in.will be to with enormous amount of energy. he's an incredible self-promoter. the risk for camp wants to stay that boris galvanizes.
as figure head. you end up with a population ax-factor. not thinking about the tragedy europe andl be for the u.k. if we left the e.u. much the meantime, how does any, does it affect ito's to it? leading up >> i think it would affect if more and more as we get closer. the u.s.g with election will affect people more and more as it gets close. a very scary year. you got the risk of u.k. leaves european union. you have a u.s. election where to defy continuing expectations. people in europe have no idea be. that would of have in france, the rise leppan. aound the world, you have tremendous political uncertainty. only place that seems certain is
vonnie: you are watching "bloomberg best." i am vonnie quinn. this week, bloomberg hosted the inaugural africa business and economic summit, bringing game changers from across the african continent together with ceo's, investors, and policymakers from around the world. under discussion, the opportunities and challenges for investment and growth in africa. erik schatzker was there to speak with business leaders who understand both. erik: you championed africa and barclays business when you were ceo of the bank. now as you know -- and everybody at this point knows -- it is very possible that tuesday we will find out barclays is exiting all or part of its investments in africa. simple question.
will barclays regret that move? will it end up looking at it as a mistake? bob: i know barclays business in africa, as you said -- erik: very well. bob: i know it from the time i was there. i don't know anything about an announcement on tuesday, so that is news to me. i also respected incredibly as a competitor of that business now. barclays africa is a terrific platform. 11 countries, i think they are top three in nine or 10 of those countries. i think barclays has done well, particularly in getting synergies from clients and synergies from products. the credit card technology that was developed in the u.k. has come to africa as an example. they have done a terrific job of connecting corporates in the u.s. and u.k. who have businesses in africa here. erik: you make it sound like a business they should want to keep. bob: the question you should ask, erik, is what is the problem you're trying to sell. i think it is not -- is barclays
africa a terrific business? it is -- is a global bank or a global bank headed in the u.k. the right owner from a capital point of view? erik: is it? bob: for the last 20 or 30 years, being large and global and owning markets and the emerging markets brought capital synergies. today, the best model is a regional model, not a global model. the issue barclays faces is the regulatory requirement to hold 100% capital when they have 62% economic ownership. it is a tax on the global balance sheet as opposed to just the domestic balance sheet. some of the impact on the earnings -- i think the last time i saw barclays africa earnings, it was a 16% r.o.e., so a pretty good standalone business. erik: what people talk about what they talk about investing in africa is not just the need for capital, right, but for capital to be deployed in a way that is sustainable, that helps
communities, that promotes governance. how do you balance your need and in some ways your obligation to do that with another need, that of delivering a return to your shareholders? patrick: this is a great story about africa. you look at the returns would can get on something like a wind power investment, a wind farm. i was yesterday at home field. they were looking at a gross return of over 20%. even if you adjust down for a 5% depreciation of the currency, ignoring we had some big step downs last year in the rand against the dollar or sterling, you have to say that is still net after all expenses a return well into double digits. erik: on a currency-adjusted net basis. patrick: absolutely. that is the story.
you have to be patient capital investor. there is no way you can come in and out in a short time. erik: g.e. has tripled its revenue in africa since 2011 from about $1 billion to more than $3.5 billion. can you do that again in the next four to five years? jay: i hope so. that would be the goal. erik: what is realistic? jay: i would say maybe double, that would be helpful. the goal is we continue to build pace that builds back block that we deliver on over the next three years to four years. somewhere hopefully in the $3 billion to $5 billion range. erik: what is the opportunity for your company? jay: power is the big one. when i first got here, our oil and gas business was our biggest business. it still is. percentagewise, it is getting less as the other businesses grow. power is a huge opportunity. there is tremendous demand. health care is another huge one and then rail.
erik: we know growth is slowing. we know economic fundamentals are deteriorating and fiscal budgets -- south africa's included -- are under a tremendous amount of pressure. how much riskier does that make it for banks like yours operating in africa? mike: what is quite interesting is if you look at how we were running our businesses before the global financial crisis, you take the south african banking system, it came through the global financial crisis without any banks requiring to be bailed out. no state guarantees. i think what we have got is a very strong banking system going into choppy waters. erik: you continue to deploy capital. that is not the case for many foreign investors. in the case of south africa, there are investment outflows. the same could be said for many other countries in the region. what is this going to mean for what this continent badly needs? more railways, more ports, more water, more electricity? mike: it makes it harder to finance the requirements for
growth on the african continent. hopefully, we will see at the time investors start taking money out of these geographies, that creates opportunities for other investors to start to come in. if you take south africa now, the rand depreciated last year by 25% against the dollar. if you look at the rand measured against purchasing power parity, the rand is about 20% undervalued. if you take a long-term view of the rand, it has always trended back to purchasing power parity over time. ♪
the first installment looks at the oil glut we are experiencing now and how it could create unforeseen demand for electric cars. >> the world is running out of oil. at least, that was the idea behind the peak oil hypothesis that dominated economic thinking for decades. it turns out with fracking, deepwater drilling, and oil sands, there's a lot more oil in the world than we once thought. the old peak oil theory ain't happening. what if instead of running out of oil, we just stop buying this stuff? there are one billion gas guzzling cars on the road worldwide today and only 1/10 of .1% of them have a plug. opec contends even by 2040, they will make up just 1%. but don't be so sure. consider the s curves. s curves are used to describe the spread of new technology over time like refrigerators and
color tv's. when the product starts to connect with everyday people, we have liftoff. eventually, the market gets saturated and growth tapers off, forming the top of the letter s. predicting s curves for electric cars is extremely difficult because we are making assumptions about demand for a type of vehicle that does not exist yet. fast, affordable, and spacious cars that have a range of 200 to 300 miles. here is what we know. in the next few years, tesla, nissan, and chevy plan to start selling long-range electric cars in the $30,000 range. other carmakers and tech companies are investing billions on dozens of new models due out in the next four years. by 2020, some of these will be faster, safer, cheaper, and more convenient than the gasoline counterparts. it sure seems like the plan when the s curve goes vertical. to start an oil crash, you don't need to replace all the cars on the road today.
you just need to reduce the number enough to cause a glut of unwanted oil. consider the oil crash that started in 2014. that was caused by too much supply. when producers started pumping out an extra 2 million barrels a day. so when electric vehicles are able to displace that much on the demand side, you should also cause a crash. when might that happen? tesla is building factories to go from about 50,000 sales last year to 500,000 sales in 2020. let's assume tesla can meet its own forecast. let's assume other carmakers maintain their current market share for plug-ins. if each electric vehicle displaces 15 barrels a year, here is the impact on oil. at this rate, we hit our benchmark of 2 million barrels displaced a day as early as 2023. that is an oil crisis. the thing is, that is just the beginning. it is not unreasonable to assume that by 2040, nearly half of the
world's new cars will have a plug. sure, you are skeptical. the price of electric cars still needs to come down. there are not enough fast charging stations for convenient long-distance road trips. many new drivers in developing countries like china and india are still going to choose gasoline and diesel. imagine a future where the streets of new york and new delhi suddenly fall silent electric engines. what if global demand for oil starts to fall? at first by a trickle but then in a rush. trillions invested in oil will be lost while trillions in new energy will be won. the power of nations will be shuffled. that is the promise of the new peak oil, and it may be coming sooner than you think. vonnie: of course, you can always find more stories like these as well latest business news from around the world at bloomberg.com. that is all for this edition of "bloomberg best." i am vonnie quinn. thanks for watching bloomberg