tv Bloomberg Business Week Bloomberg May 15, 2016 4:00pm-5:01pm EDT
david: welcome to "bloomberg businessweek." we are inside the headquarters. in this week's new thing how , will history judge fed chair janet yellen? trouble in paradise, and a company that might be sitting of the biggest oilfield in america. all that and more ahead on "bloomberg businessweek." ♪ carol: i am carol massar and i am here with the magazine's editor ellen pollack. you guys run a section about how banks are cutting off charity. ellen: they are not cutting off
charity's because they do not believe in charities. they are worried that money passing to the banks will end up in the pockets of terrorists or countries where sanctions prevent any kind of financial activity. carol: so some banks have gotten in trouble because money past sed through them and it has ended up in the hands of terrorists. and that's the big worry? ellen: that is a big worry. they are cutting up these -- cutting off these charities. meanwhile these charities are trying to feed people in syria, feed people in war zones. they are trying to do the best they can to ensure this money does not in any way to the terrorists. they are sort of at a standoff at the banks because the banks don't want to get in trouble themselves, yet they need the money, the charities the money so they can provide food and , blankets, etc. carol: as opposed to big institutions. ellen: and other charities like islamic relief, christian aid, a bunch of them. carol: also in global economics
you guys are following the paper , trail when it comes to the panama papers. tell us about that. ellen: this week, we sort of step back, and we look at the reaction to panama all the disclosures from the panama papers about how various high-profile people have funneled money through panama and have used it to create tax shelters offshore. and the president of panama has been very vocal now saying we are not just a country about sheltering money. carol: we are not all that bad. ellen: we are not all that bad. that is not only do. he is trying to be on a charm offensive to try to explain to the world that panama is not just about sheltering money from taxes. carol: interesting. moving on to the policy section. you guys talked about cities and and what they are doing in terms of panhandling. as i travel the country i see it. ellen: a couple in springfield,
panhandlers sued because the city passed an ordinance that prevented them from panhandling downtown. they argued it was a violation of their first amendment rights, which is their right to express themselves in downtown springfield. carol: freedom of speech. ellen: freedom of speech. they won at the federal appeals court level, and the supreme court declined to take their case, which means the previous ruling stands. so it really does protect panhandlers for exercising the right to free speech and asking for money in downtown areas. and it prevents municipalities and cities that want to try to clean up their downtowns from putting in rules that stopped free speech. carol: kind of an expansion of free speech in terms of interpretation. we've got to talk about the cover story. larry summers and janet yellen kind of duking it out. ellen: it is more larry summers trying to put forth his theory
of secular stagnation. and it's sort of an argument against the way most central bankers, including janet yellen, approach fixing the economy. carol: david gura and i spoke with the reporter on this story. >> do you believe the economy is likely in a state of secular set stagnation? >> it goes back to the 1930's, alvin hansen when we really were in the great depression. he worried the secular parties -- part means long-lasting, not purely cyclical. the secular stagnation argument seemed to lose force after we had the strong growth caused by the war spending and then crucially, the growth continued after the war ended. when the stimulus was gone. so secular stagnation kind of fell out as a term. for summers to revive it, which he did in november 2013, right after he was not picked to lead
the fed, every year that is gone by that remains weak he's -- that growth remains weak he's looking more and more correct. ellen: he's looking at things like there is not enough demand for stuff, right? that's why you are seeing this subpar growth of this point. >> think of loans like watermelons. vonnie: haven't ever done that before. >> the demand for a loan is like anything else, supply and demand. when you have excess savings, people want to make loans with their excess savings but that it nothing to do with the money. they have investment projects they want to go for. and so, if things get really bad, the interest rate is supposed equal supply and demand. but the interest rate cannot go below zero. so you never get that except with much slower growth. now what he is pointing out is , that central banks are trying to solve that problem by pushing
rates below zero, which was long believed to be impossible. carol: and negative rates. >> negative rates that we have now are occurring. it is like this, it is like a unicorn. it's this weird thing. he is taking this seriously. carol: and it is a global thing. >> europe, japan. look, let's not try to force everything into the vision of the world we developed over the 1970's and 1980's. let's acknowledge something really different is going on here. furthermore, let's think differently about the policies that we need to combat the situation. david: you set up this bio mary -- binary here, summers and yellen. but to be fair, congress is another element. he is pushing for congress to do more. >> right, because fiscal policy, when interest rates are this low and can't really going lower, , fiscal policy plays a much bigger role. david: government spending?
>> government spending and tax cuts. that combination. anything to inject more demand into the economy. because if you have more demand, going back to the watermelons, then you can have the price go up. the interest rate becomes positive again and you are in a healthy environment. david: to healthy economists, one cover page. >> we had one fairly simple idea. we cannot ship them, obviously. >> not in the same room. >> it was hard to do. we used some found imagery. because larry clearly wants the spotlight. we kind of had this idea where janet yellen originally on the cover and larry comes in and kind of pushes her away. carol: in talks to some of the tension one could assume between the two. they had different ideas about where the economy is going. >> janet has to be more cautious. larry can say whatever he wants. so he is very critical of the
way she does her job. and is very sort of alarmist about the economy. carol: and you had a couple of different options you guys played with? >> we did start originally focusing on larry. i think the original line we had was "larry knows everything." but is kind of what he would like to think. but we get back to the tension between them was really what we wanted to hit. carol: she is really in charge. she has the job he wanted. >> and you can may be read into that a little bit. david: up next, the oil company doubling down on its home state of texas. and a start up hoping to make a more efficient human beings by popping one of its pills. how apple plans to overhaul its music streaming service. all ahead on "bloomberg businessweek." ♪
♪ david: welcome back to "bloomberg businessweek." i am david gura. this week's feature section, pioneer natural resources says there is no place like home, which in this case is west texas on what might be the largest oil reserve in america. caroline spoke with a reporter. >> they have in the past two years tapped into an extremely productive new find in an old field, the permian basin in west texas. has beendly, pioneer very conservative about financial matters keeping their , debt load, raising equity when necessary, getting rid of unnecessary assets to make sure they have the cash to keep drilling when they need to, and
also to stay out of the kind of lever position that some of their peers find themselves in. >> they have banks a lot here on horizontal drilling. explain how that works and how difficult that is and what this company has managed to do by drilling horizontally. >> horizontal drilling, along with fracturing, has been around for a long time, but only in the last decade or so have we seen it used extensively in some of the field of north dakota, ohio, pennsylvania, and now increasingly in the last few years in west texas. so you drill down and then across. you penetrate these horizontal layers of very dense rock they -- that need to be exploded or fractured to get the oil and gas to flow out. more and more, they are extending these horizontal bors as much as 10,000 feet.
they are adding lots of places where they crack the rock to get out more oil and gas. it's really been a learning process, and more recently with the permian then the block and in -- the one in north dakota or the marsalis in pennsylvania. carol: what if they figure out that other companies haven't? we all spend time talking about all the energy companies that are in trouble right now. a lot of them took on too much debt. what was it so crucial to pioneer's story? --they just what was understand what was going on in west texas earlier than most, or what? >> they sit on something like 800,000 acres of drilling rights in west texas in this basin. which they accumulated and lots of small purchases over the years going back to the 1980's. when sheffield was there, and it was his idea to buy the stuff. it was pretty unspectacular producing land, but it was good enough for him.
and he was buying this from the majors, mobile and exxon and other people back then who were departing texas and putting the ir money and offshore plays and overseas plays. in fact, pioneer itself did some of that but held on all that texas stuff. and in recent years, pioneer and some other companies like concho and diamondback have seen there may be more oil if they can just figure out how to get into it horizontally. round about five years ago sheffield told his geologists ,, let's figure this out, and even he was surprised how much oil there might be in the basin in these horizontal shales. david: speaking of energy, future box is on a different type of fuel. they say its bills can be more -- pills can make you more efficient. >> they have three pills and coffee cubes. one is called "rise," and you are supposed to take this daily.
pills is, so all of the are formulated based on a combination of securities and pro-science. there is so -- some evidence. carol: not exactly under the fda? >> everything is fda approved. carol: it is? >> it's relatively mild. there are some other companies that say they are not selling real nootropics. that the term they came from the 1970's and is related to one compound that is not scheduled by the fda. it's not actually allowed to be sold as a supplement. but other companies are selling it and it is available. , carol: and you have some well-known investors which you break down in this story that have invested in this. you tried them? david: several of them? carol: and?
>> i like drinking coffee. i think i going to stick with am coffee. carol: does it have the promised affect? >> with some of them you have to take them a long time to get the effect. i tried those i did not feel , very much. there is a pill called "sprint," which is kind of to be for a task that you need to finish as fast as possible. that had a strong effect. i took it with a colleague and we were both sitting at our computers and typing wildly. but i also had a little bit of a crash afterwards. david: the 1% goes to war over a prime piece of real estate in hawaii. and hollywood has brought back a new villain, wall street. ♪
♪ david: welcome back to bloomberg businessweek. i am david gura. lifestyles of the rich, richer and richest are clashing on a resort on hawaii's gold coast. carol massar and i spoke with reporters. >> the northwest corner is the gold coast, and that is where they build all the great resorts. starting around 1965 when laurence rockefeller built one. and then there were two or three or four more, and then the class of the field is a couple of ai, which is aalal residential community and there is just enough density to support something like four or big great- restaurants and five huge great swimming pools. all sorts of other wonderful amenities. carol: and it is expensive? right? to buy into it, give me an idea of how much? >> if you want to stay at the hotel, it starts at $1000 a night. if you want to buy something there, it's millions of dollars.
the nicest places are owned by hedge fund folks and captains of industry. but something has happened lately in the last couple of years that has made us people feel very, very small. that is that they have been hit by a policy that is keeping them out of the hotel. david: trouble in paradise? what has happened? always still go to the hotel, but they have to pay. they can, and it is not just that they -- they have to pay for their guests. they are unaccompanied guests. vrbo thing. i'm only there to each of the year. my buddy wants to go and stay there for a week. my buddy cannot use any of the hotel's amenities unless he pays $250 a day fee. let's say he is there with his wife and two kids, that's $1000 a day just to be able to walk up and swim in a pool at the four seasons hotel.
carol: was that the deal with -- when the people bought in? >> well, no. they did not have to pay for unaccompanied guests 15 years ago. but there was fine print in the home ownership agreement that says the resort can set fees anytime for any reason. it started at $50 and it climbed to $150. and as of last august, they announced it was going up to $250. and then they wound up in court. that is where we are at now and that's why "bloomberg businessweek" is writing about it. there is formal dispute between one plaintiff who wants it to become a class action, so one who has been owning sense -- 2002 and thinks by setting these crazy fees, the hualalai is trying to knock out business for the hotel. david: the structure of the suit is kind of novel. talk about that. were a homeowner there
and i were upset that every time one of my guess want to do you something and had to pay $250 a day, i can file suit and they could say, but you sign a contract. several different places in the contract, you said it was ok for them to set fees. maybe i can work around that if i saw a different kind of case. that is what they have done. they filed a non-fair competition case. so this is not a contract violation case. it is a case where they are saying that the four seasons essentially is trying to knock out a competitor for renters. say i have nothing to do with the hualalai. i could call right now and reserve a $1000 a night room which will be crowded for my wife and four kids. or i could go on vrbo or real real estate agent in hawaii and say among the homeowners is
325 renting their house next week? it turns out it's $1600 a night. and then i forsake the four seasons hotel, and renting -- and i move on to this private renting scheme. vonnie: in the preview of money monsters jodie foster's new film , starring george clooney and julia roberts. >> what we are moving into now is the unnatural disaster flick. these are not acts perpetrated by god, but by bankers. "money monster" is the latest in a line of those movies. david: it starts george clooney and jodie foster. what is it about? >> george clooney plays a guy who is very closely modeled off of jim cramer on cnbc. he is a really bombastic die and in this movie, he makes a prediction that certain stocks are better than savings accounts. one of those bets goes wrong and
he is taken hostage by someone who loses all their money. david: this first started back of the financial crisis. we've had movies made not long after that. the wolf of wall street, the big short a string of movies. , >> this is the latest in those , and we are starting to get into the phase of these as they are formulas. we are seeing another one this summer with breaking bad being positioned as the female-driven first wall street movie. so we can expect a lot of these. david: up next hillary clinton , is hoping silicon valley's titans really are #withher. ♪
david: welcome back. still ahead in this issue online and on newsstands, how does uganda become the marketplace for mercenaries? hillary clinton trying to take the lead in silicon valley, and apple trying to reinvent its music service. all of that ahead. ♪ carol: i am here with ellen pollock, and there are so many more must reads in this issue to talk about lowering expectations. ellen: especially when investors are going to retirement. that goes back to their summers, that secular stagnation. it does not look like the economy is picking up steam, for a while. it means interest rates will
stay low. carol: we have been in this environment for a while. ellen: and that means people cannot count on returns like fixed incomes that they were planning on for their retirement. to be rule of thumb used you could take 4% of your assets and spend them every year. but what advisers are saying is that would be overly optimistic. carol: so you have to work longer and longer. ellen: a lot more. carol: let's talk about the technology section. you write about fingerprint technology and how that may be a problem for criminals. ellen: it could be a big problem for criminals. it has to do with evidence from iphones. that is in the news a lot, the san bernardino killer and apple has been refusing to help federal officials get into it and give them a code. but now you have fingerprint technology. if you look at the law, criminals can be compelled to
give fingerprints or compelled to put their finger on that sensor and open their own phone, which could provide evidence in a case against them. carol: so it makes it easy for investigators to find out stuff. ellen: provide evidence they might not have otherwise. carol: talk about uganda and how they are becoming big when it comes to exporting mercenaries. ellen: who knew that uganda was a mercenary nation? there are many services that help recruit guys, i think there mostly guys, to go to places like iraq and other hotspots and handle security, other aspects. basically rent a soldier. carol: we cut up over the reporter on this story who went to uganda. >> it all began in 2004, 2005 after the iraq invasion. a lot of people were aware there were contractors working for the u.s. government in the form of
blackwater, tattoos, special forces backgrounds. the majority of guys we had guarding bases and doing more monday and tasks like guarding convoys, they are from the third world who would work for very little money, as little as $20 a day, sometimes less. there is a huge demand for bodies all over the country. initially, they were people coming from e.g. and peru -- peru.nd a lot of countries took umbrage at their citizens being recruited for this. they say you need another source or men. and uganda through various quirks in the mercenary industry ended up being one of the main suppliers to the u.s. and first. -- effort. sometimes they have no training in how to use weapons. the first couple waves were mostly veterans of the uganda military. but hundreds turned to thousands
and they started dipping into nonmilitary veterans. former police people and quickly that became underemployed university graduates and taxi drivers. anyone who can learn to fire an ak-47. carol: it does not work out. and youally went there tracked down some of the licensed recruiters. talk about that process, who you met and who you saw. >> funding recruiters is harder than you think. you can visit a bureaucrat, his name is milton, has a very small office and labor industry. after cajoling, he will give you a list of licensed recruiters. it is a like to have a big white list -- client list outside their office. you have to go down back alleys. sometimes the office is three or four rims -- rooms in a tiny mall or shopping center. what is remarkable. people in uganda are very friendly. even though there are american
and british contractor bosses, they were happy to talk about it. most of the information i got about the industry came from people in their offices as well as men. david: and milton is a government employee? >> yeah, charged with tracking this whole industry. he is not very forthcoming at times are you david: it seems like this is something the government has really encouraged , fielding the demand for mercenaries have been a big part of the country's economy. >> part of that is not through coincidence, one of the original contracting companies that first sent men to iraq was owned or the president's sister-in-law. carol: interesting ties. >> and his half brother owns a share in the company. the government has their fingers in this industry. have realized having hundreds of millions of dollars sent back
home in the form of remittance is good for the economy. david: this was the politics and economy section. hillary clinton getting support from silicon valley. >> in indiana, ted cruz announced he was leaving the republicans to donald trump. so we have a silicon valley investor and was a fan of mitt romney, he tweeted i with her. there was a big signal to silicon valley about where the wind was shifting out there. so i sent a reporter, tim higgins, who covered apple and is now in washington, to find out what was going on. he found there is now this split. there was a lot of enthusiasm in the valley for bernie sanders, a lot of people excited about obama in 2008 and never really were on hillary clinton's team, now they are excited about sanders. so she always had this challenge of tapping into that excitement not just for votes, because this
is california, but really their money. now they are finding they might have a chance with republicans. isid: i think that this man a trump delegate, someone not shy about his of a terry and beliefs and how they fit in -- libertarian beliefs. is that a strong vein in silicon valley? >> yes, they were excited about rand paul i'm a but donald trump is not rand paul. he has been flexible in terms of who he will support. it is fun to go to the convention if you have never been before. it is not clear whether people will follow him. we talked to a big fund dealer in silicon valley. she was a big democratic dealer, and when she sent you a big names coming out, the truth is, all of the people rather down the chain want to go to the buses and give $2600 to show up at the boston house for the party and the pool and the
summer. there is a lot of that going on. in california, the money matters more than the vote because the state is so blue. david: president obama has honed in on that. he has picked up on the fact there is money to be reaped. when you look at silicon valley as a place for money, where are we in that evolution? >> [indiscernible] that is the question. a lot of these people came up in the industry long after bill clinton was out of office. it is not exist during his presidency, so they do not have long-standing values over there. in hollywood they do, but not silicon valley. it was all fresh money, fresh faces, so obama was really able to get in there and campaign. it was perfect, because they were seeking venture capitalists and programmers and tech heads.
so hillary could it had a hard time selling to that crowd because she has not known them as well. now you have a bunch of people that asked the obama administration and when trees to facebook and -- straight to facebook and uber, and they work with hillary clinton when she .as at the state department i think those people will naturally bring their new friends over. david: how tesla is threatening germany's crown jewel, the luxury carmaker. why you might want to let google do the typing for you. ♪
in germany. >> if you look at big car companies, they have always made compact aerodynamic hatchback cars that are easily made to meet clean air regulations usually in california. how do you get along battery rained out of something? make it light so you don't need a big battery. so usually this is what they do. this for athey do living. when you try to make a profit on something very profit challenged, conceded a good price areas they start up with the model s, which is really expensive. most of them over $1000. we made it cool as opposed to to makend just regulations. they make cool cars. they just happened to run on electricity. reporter: so many people involved in this model three. what is the likelihood tesla can release them when they say? are you optimistic they can do it? >> it will be really tough.
you look at tesla's second vehicle that no one talks about, which is a model x. they had real manufacturing problems. they tried for unique features like the doors that open up instead of out like traditional cars, and that is tough to engineer and manufacture. they had a tough time getting that going and up to speed. this is a company that is selling cards -- cars in the tens of thousands. if they hit analysts estimates, they will sell 60,000. getting up to 300,000 will be very difficult especially given they have had to talk time getting a second model of the same assembly line with any kind of quality and speed. carol: it will also be tough in the garage. in your store you talk about what porsche is doing and mercedes and bmw. a lot of these are concept vehicles, and they think it will be three or four or five years before they have anything that is really a car like what tesla
is doing. >> some of these cars will come out in the next couple of years, but it will not be immediate or will come outree at the end of 2017. tesla very rarely hits the deadlines. that could lip as well. i could come around the time some of the european electric cars hit the market as well. the thing with european companies is they have been around forever. they can get a car on the market on time. they will do that. they will deliver what they promise because these companies can how to say, hey, we give you x amount of range, and that is what they have done for years. the big question is, will people by their cars when tesla is out with a cool brand that americans see as something different? it has a cool following, and so does the eeo. people believe in him.
david: we also learn about the company vroom trying to revitalize the used car business. >> it is one of the online used-car marketplaces. there are a bunch of them. it popped up to disrupt the used-car marketplace. vroom is taking the entire process and making it easier. they have gotten rid of the haggling process. if you ever bought a car, that is one of the worst things. what is the real price? exactly. they give you a set price to pay. and then they have a catalog of more than 4000 cars on the website. you can go through them, 38 different brands you can see. you browse through like you would on amazon and you figure out what you want, and they tell you everything. the make, the model, year, the mileage, and they also will not sell a car that has had any
accidents. that is how they ensure quality. drive? here is the test if you have driven it before. if you are buying entirely online, that the element is missing. >> of course. so the company delivers to your door. it is a couple of days. there is a seven day money back guarantee. the car, you can return it. they will pick it up. says their return rate is less than 1%. i was reading your article about there was only two facilities, they drop off the car at your house, you can still get a good deal. how do they keep that down? >> the way the ceo looks of the company, they next my profit without maximizing volume. so usually dealerships have a higher margin already been a new color -- car dealership. a percent less than the average
david: you can listen to the show on the radio. xm 119.rius or go to bloomberg.com/radio. apple is going back. apple is reinventing its streaming music service. a lot of people are frustrated with the large itunes libraries and they cannot seamlessly sync itunes and apple music. thoughts for the usage, they think this is all apple, why
can't i usually go between one or the other? and apple is supposed to get these types of things right. so the product is one of the flaws. and the other is just expectation because it is apple. 10 million users, 12 million users is not enough. people thought it would be a home run, several hundred million credit cards on file, so why not wanting million after six months? carol: they came out with itunes and changed the whole way we access music. they did that so well. we assumed they would do this well, but they did not. so now they have to rework it. >> they don't deny the problem. they know they have issues. we started off writing a story that was about a culture clash and a camp that already existed at apple with longtime employees. it is not so surprising there would be a clash with these two
parties, but it was acrimonious and it lasted a long time. the more we talked to them, it became clear that it was not like this was new to apple. they were trying to manage this and figure out the next steps, how they could make the product that are i make a deal to more users. david: what is heart about getting this right? >> getting people to pay for music. pandora and others made it people could access music for free. there is always so many people ton want to pay, and then a of services five for that group. they are trying to make that bigger, but you have spotify, youtube, pandora, and smaller companies like rhapsody. once you have not heard of. they are offering more or less the same thing, a huge library of songs on-demand. how do you stand out in the marketplace? one of the reasons apple music really struggles is because it
would seem apple would have added advantage because it is apple. on the oneoming up year anniversary, they have a developers conference. they will lay it all out? >> yeah, that will be the did you -- the debut of new apple music. maybe they will bring up more stars like last year. with a new album exclusively with apple. it hit number one, and apple has wanted that. they thought they would get exclusives to the point of competition. jay-z and title had taken artists they would normally get. they took jan say -- beyonce. traid: in this week etce section, we give the new google e-mail a test drive. >> they are prewritten for the replies to e-mails you have gotten based on google's
understanding of what those e-mails are. >> somebody e-mails me about a dinner, let's say. there is the often to put that on the google calendar. it is reading into what has been written. >> the same technology scanning your e-mails for often like that is now also suggesting answers so you don't have to write them. >> so how prolix are these answers? >> they adopt, they mirror the town of the e-mail that has been sent. so it is a business-related e-mail, formal, the replies generated 10 to be a bit more -- tended to be more like formal. but if it is a friend, it might take, i can't wait! so it is trying to have a meeting for the tone as well as content. >> charlie: you have committed to a week. how did it work out? >> for the most part, fine. there were a few incidences
where i would have added more to the e-mail. my dad e-mailed me, and he said i am getting the angiogram next week, and i wanted to say good luck. probably my dad deserved more than that. but for the purposes of this story -- >> is it a timesaver? did you find it was saving you time not having to write out to your father? >> it did. but otherwise, one of the things this addresses is that vast volume of e-mails that really ,an be answered with a yes, no ok, i will get back to you. so for those, if it is not personal or whatever, it is great to hit the button and move out, send them out. david: bloomberg businessweek is available online and on newsstands. listen in at
scarlet: coming up on "bloomberg best," the stories that shaped the week in business. from saudi arabia's new oil minister to impeachment battles and brazil to the bank of england's latest rate decision. >> interesting. >> there are no big deals left here. scarlet: earnings season continues. we will look back at who delivers and who disappointed. >> there is a limit to how big you can get through deals at a certain point. scarlet: and we replay the week's best interviews from the world's most influential people. >> $3 trillion is not what i