tv Market Makers Bloomberg April 27, 2015 10:00am-12:01pm EDT
erik: we're live from the milken global conference in beverly hills. what are the biggest opportunities in the world and what about the biggest threat you will hear from investors? cliff robbins and attanasio. stephanie: everyone is waiting to see of this republican governor is throwing his hat in the ring. we will be speaking with michigan's governor. erik: and pot stores opened a little more than a year ago in colorado. we will be asking john laquon uber -- john hickenlooper if legalization is really worth it. good morning, this is a special edition. i'm erik schatzker. stephanie: and i'm stephanie ruhle. why so special? we are here for the week at the
milken institute global conference. we've got a lot of people we will be hitting down with. ed dimarco will be joining us at 10 third is -- 10:30 a.m. and mark attanasio after the that at 11:00 a.m. and shaun donovan at 11:30 a.m. erik: i'm excited about this incredible -- we were talking to betty about it, the combination of people an event like this draws together and the kinds of ideas and combinations it produces. the risk-taking dna that michael -- you have the risk-taking did i get michael milken as to dress: -- as to drexel, plus we will be speaking to some interesting public policy types currently serving in government or academia. it makes for a heady mix, but we will have great conversations right here. stephanie: but also, if you think about what the milken conference is about it's not
just about hedge fund investing or health and well-being, not about policies. it really is changing influencers, coming in to talk about what their next chapter will be. and especially in public-private ownerships. we have seen a tremendous amount of gridlock in washington. erik: it is starting to thaw a little bit. stephanie: starting to thaw and in large part due to investors stepping in. we talked to one in detroit who have -- who has worked with them in detroit. those kind of people are here this week. we will be talking to them. but i think we need to get you to the news first. i will take you to the bulletin to the top business stories of the morning. my all a lot of, deutsche bank, has unveiled plans for a strategic overhaul of cost cuts. i don't think they have a choice on that one. germany's largest lender is planning to reduce annual costs an additional $3.8 billion.
that is not easy. deutsche bank will trigger securities business, close up 200 branches, and reduce its footprint overseas. the bank has been trying to boost its profits. yesterday, deutsche bank said that legal costs cut first-quarter earnings in half. they got slapped with a $2.5 billion fine associated with a rough -- a libor rigging. and there is more action in the drug making industry. mylan has officially rejected a $40 billion offer from the israeli company teva. mylan says it is committed to a $33 billion offer from the irish maker of storebrand rugs paragraph. -- perrigo. they have already rejected that offer.
the government accountability office said the engines in the f 35 are so unreliable that plans for production may have to be slowed down. the gao says the engines are half as reliable as they were supposed to be. they are made by united technologies pratt and whitney unit. pratt and whitney says the report and correctly assessed engine reliability. if you want to know where the smart money is going, the founder of the world's largest hedge fund firm like china. that sounds like sam druckenmiller. he tells us there is a lot to like about the chinese economy. dolly oh: --dalio: i think they have a lot of potential, so i remain bullish on china. stephanie: bridgewater has a cool $169 billion in assets. he knows what he's talking
about. moving on, a race against time in the fall. searching to find survivors in the earthquake that killed more than 3700 people. international relief agencies warned that the next big problem may be disease caused by tainted water. the quake that rocked the hall -- nepal on saturday left millions homeless. many are in villages that are hard for aid workers to reach. >> the villagers are working to find in one to two days walk and that is in the best of times. a report of heavy casualties and injuries. these are far, remote line villages. -- remote villages. stephanie: meanwhile, choppers that working -- were working to
rescue climbers, there are still some stranded on everest. erik: hans nichols just spoke to mr. jain. mr. jain is under a great deal of pressure right now. hans: he's in a great deal of pressure and now the hard part starts. he's got to sell this internally and externally. they shed some $2 billion in assets. they want to take it privately and then have an ipo at the end of 2016. throughout all of this press mr. jain on this point, and he insisted he would not need a capital increase. mr. jain: very painful, and indeed, the actions of a few have done untold damage to the franchise overall.
hans: but in terms of your expectations? mr. jain: we would have hoped for a smaller number but that is not something we can control. hans: i want to know how you can rule out a capital increase when you do not know what future litigation costs will be. mr. jain: we have built-in significant analysis in the next five years. we put in some very hefty assumptions for what could come and we are completely fine and we will be able to maintain our capital ratios despite that. stephanie: i realize normally i'd shoot jane --anshu jain is cool as a cucumber but less be honest. how at risk is his job? this restructuring and the pressure he is under and the fact that he came from the exact rate business that he designed, can he really keep his job? hans: i post that to him --
posed that to him. i said, is this your last chance to get it right? they walked away from 12% on equity and said the new goal is 10%. but what they did in the first quarter of 2015 3.1%. they have a long way to go. mr. jain is a pretty good salesman and a confident guy, and he did not really answer directly when i asked if this is his last chance. he did seem like a man in a confident position. he did say this, though. he used the word debate. really do people talk about the debate they had on their board. normally it is sanitized and a say seven like discussion or conversation. it did appear they had a robust debate on the board when they were setting up the strategy. erik: hans, i suppose we should applaud mr. jain for being realistic. but what about georgia banks investors? -- deutsche bank investors echoed a 10% return is not that
good on capital. it could take deutsche bank years to get there. stephanie: and what if they said take a high? hans: i guess the dancer would be that they really need to get to a better ratio and they have a different regulatory environment. yes, they want to be one of the last investment banks standing. in some ways, they are confident they will be able to do this with a pared down investment bank, with a focus on high net worth individuals and private banking, and then have a little bit in the retail sector just for deposits. but in some ways, they look at the competition with their european pairs -- peers and they are confident. it is somewhat different than what their u.s. peers are doing. erik: hans nichols, thank you so
much. stephanie: i wonder, is there a giant dumpster somewhere where all of these bank ceos put their marketing materials when they all decided to be one bank for every product across all asset craft -- all asset classes? they are in a giant trash receptacle in the sky. when we come back, we will be speaking with cliff robbins, the ceo of blue harvard group. erik: one tough nerd. stephanie: the best twitter handle ever. the governor of michigan, rick snyder. ♪
that is in part by -- because the japanese government did not taking a step to offset a sales tax hike. the higher tax from 6% to 8% will not go into effect until 2016. in the first quarter, apple may have sold as many as 20 million iphones in china. analysts say one reason is the design of the new models. the iphone 6 and six lots have larger screens, which turned out to be very popular in asia. apple is up about 1.8% after the opening bell. and the death toll from the killer earthquake has now climbed above 3700. rescue crews are trying to date survivors out of the rubble. it has been more than 48 hours since the quake struck. millions may be homeless. relief organizations are concerned the next danger will be disease spread by tainted water.
back to you in sunny california. erik: thank you, scarlett. coming up in about 15 minutes much more from the milk and conference. fannie and freddie, we will talk about the two mortgage giants with former top regulator and dimarco. plus, will he or won't he? michigan governor rick snyder snyder talks about his future. and we have highlights from the white house correspondents dinner over the weekend. stephanie: i thought i was going to give the highlights. erik: you will be. stephanie: oh, good. moving on, not the typical activist. his firm, blue harbor group takes a friendly approach in working with companies it invests in, unlike some of its more confrontational years. i'm thinking demo, bill ackman. -- dan loeb, bill ackman.
we will ask him about his strategy. they have more than $3 billion in management. this year, we are talking more and more about activism will stop they have really come under attack recently. they're putting so much pressure on ceos right now and ceos are not making great long-term decisions, but just living in fear of guys like you and trying to return to shareholders to keep their jobs. cliff: the key issue is short-term versus long-term. some of the criticism out there is about short-term isism. erik: is that your -- is that a valid concern? cliff: i think it can be in many quarters. we are investing in our companies for three years at a time.
if we are recommending something to create value for the stockholders, we expect it to be a serious way to build shareholder value. erik: three years is certainly longer than three months or six months, but many of the decisions that a corporate ceo needs to take today are for not just three years, but five years, 10 years, even 20. cliff: absolutely, and i think one of the great things that stockholder activists bring to the table is changing the way that a manager brings to the company. based on recommendations, that change in thinking is more long-term fundamental for the company. the debate about activism is about short-term versus long-term. certainly, the companies where we are investing, we expect them not only to create value in the duration of our involvement, but beyond. erik: but your fellow activist
are they to focus on the short-term? the derivatives they are demanding, the buyback they are demanding, the derivatives now don't let them on the balance sheet. cliff: i think the number one thing people are pointing to is what am i doing returning all of the scott -- all of this stock stockholders in the form of buyback? sometimes it's better to make an acquisition. sometimes that are to build a plan. sometimes it's better to pad a dividend. but if your shares are trading at a big discount to intrinsic value, the company would make a great investment by buying its shares. what we are recommending with our companies is that they do a buyback because we think it will be an incredibly high return investment for the company. and looking through that lens, buybacks can be very powerful in creating stockholder value. there are many circumstances where the company should not do
buybacks. if the shares are not undervalued and there is no confidence in the business plan. the controversy about buyback is confused. buybacks are an investment. when they are trading at a discount and management is confident, he can be a great investment. stephanie: you said you only want to work with the management of companies that want to work with you. how does that go down? do you serve as a life coach? cliff: our registry unique to us. we pioneered it in 2004. had been an investor for 20 years. my whole dna is not partnering with management. -- is about partnering with management. we want to partner with shareholders and unlock value.
we have not engaged in proxy contest and letters and litigation with our companies. we meet with the management team and if we assess that they are not the type that will not work with us -- that they are not the type to work with us, then we will not invest. if we meet a company that is horrible and the ceo is horrible, we won't invest. but maybe another activist should to create value. there is nothing wrong with activism, but it's not our strategy. erik: i wonder if the window of opportunity for your type of activism is narrowing. on the one hand, you have a hostile, take no prisoners approach that we were just referring to. you could throw a bunch people into that camp. on the other hand, you have an emerging class of independent advisers trying to teach boards and management to become their own activists. and if they take that seriously if they swallow that pill, then
the opportunity for friendly activism, the kind that you practice, kind of disappears. cliff: i have two things to say about that. i think what of the been -- the long-term benefits of activism broadly is what you are saying. it should lead companies to think introspective about how they can create value and this change in the boardroom could have long-term effects on productivity in american companies. i do see a long-term impact from activism and getting all companies to think more broadly about and more openly about how they unlock value will stop -- unlock value. stephanie: do you think companies the last few years have taken a look at there's -- at themselves and improve their board? cliff: absolutely. there has been a palpable seachange in the attitude of ceos in the past five years in terms of their willingness to listen to stockholders and their willingness to think about who
is on the board and how the board should change. there are still pockets of problems, but there has been a couple change in the receptive the -- receptiveness of the boards. the passive money at black rock their engagement in the process. iss has become more important. and then you still have the activists. these are all pressure points that are causing companies to listen to their owners. stephanie: and the media spotlight as well. cliff: and the media shines a spotlight as well. it is all good. 10 years ago, we were in a bad place as far as corporate governance. the ceo was at the golf club and the lack of talent on the board. that is all changing. we want to a value and do it in a collaborative way and they want to meet with us. they do not always want to unlock the value the way we want
them to and that might not be a company we want to invest in. but we always given that meeting. stephanie: cliff, thank you so much. cliff robinson, the ceo of blue harbor group. erik: we will be back in just a moment live from the milken conference here in beverly hills, california. it's a pretty nice day. ♪
erik: welcome back to a special edition of "market makers." i'm erik schatzker. stephanie: and i stephanie ruhle. we are in beverly hills for the milken institute global conference. it just kicked off last night. you and i attended the cocktail party. when i talk about who's who not just in finance, but politics, medicine these are global influencers coming together to talk about the big problems that face the world and how they will change them. erik: let's bring everybody a bit of news. it's called the bulletin top business stories of the morning. and if i'm not taking, scarlet
will handle is from new york. scarlet: deutsche bank is planning a major overhaul to revise his profits. it will review's costs by $3.8 billion, shrink it securities business, close-up to 200 branches and reduce overseas operations. -- close up to 200 branches and reduce overseas operations. >> you will see us stronger in equities, and considerably stronger in corporate finance. you will probably see us smaller in-house and less u.s. transactions and advisory. scarlet: staying with european banks, there is a report that hsbc may spin off of its -- spin off its british branch.
on friday, hsbc said it would consider moving from the u.k. because of a bank levy that cost more than $1 billion last year. this finance is rather have his wings. yanis varoufakis will no longer be in charge of day-to-day outreach with creditors. he has failed to unlock billions more in bailout aid, and at a meeting on friday my finance ministers hurled of used -- abuse at him, calling him a childish finance minister. vice president joe biden will do the honors at the justice department. after five months, the senate confirmed lidia lynches nomination last week. and no more at chipotle. the chain will become the first to serve only foods that are free of genetically modified
ingredients. those are top stories. let's turn to the global conference in california. erik: scarlet, thank you. our next guest help oversee the takeover of fannie and freddie in 2008. the giants remain under federal control. the u.s. treasury department takes all of their profits, much to the chagrin of some hedge funds that have stakes in friday -- in fannie and freddie. stephanie: they also remain under attack right now. erik: yes, they do. we have with us as dimarco -- and dimarco -- ed dimarco. you are making progress with the fha in moving the markets reducing the housing market's dependence on the backing of fannie and freddie. where do things stand on that right now? ed: it continues to progress
but slowly. we were trying to get what fannie and freddie undertook to which was backed by the taxpayer, and shift that to private capital. this is done through a series of transactions. i think the fha is continuing in that path. i would like to see it go faster and deeper, but it is certainly continuing. that is an important time for moving away from all of this taxpayer support in the mortgage market. stephanie: we spoke to chuck grassley last week, who is up in arms saying there is not enough transparency. he does not feel like he's got good insight into what is happening there. and we know hedge fund activists like bill ackman are involved. ed: i think that is a big fight and i will leave that be. but when the governor ships were established in the -- in 2008 both the treasury and leadership
may clue that the ultimate resolution of these conservatorships will require action by the congress of the u.s. i think it's important for congress to legislate the end of these conservatorships and a new housing policy for the country. stephanie: why do you think they haven't? why are we waiting so long? ed: in the early years there was a lot of concern in the market and concern over weakness. after that, i think it is political calculation. erik: if we could set aside the debate over whether executive privilege has a role or the debate over transparency, as a matter of principle do you support the sweeping of the profits from fannie and freddie into the treasury? ed: again, i will not comment on that, but that is to say the amendment is something i signed. stephanie: we have mixed data
out there specifically last week. how do you think the country is faring? ed: i think the housing market has certainly recovered in many places and housing credit is largely available. it is not available on the same terms and to the same degree it was in 2005, but that's probably a good thing. we were extending credit to liberally and underpricing the credit risk from the mortgage is being made. the market is still seeking the right balance. erik: we hear from some people that student debt the size of america's student debt the terms under which it was borrowed makes it very difficult for young people, young married couples, recent graduates to buy a home. and it will be years before they are active participants in the housing market. do you see it that way? ed: certainly, the margins in the housing market are having an impact -- the margins are having an impact on the ability to buy
a home and make a down payment. and it also affects credit scores and impinges on their ability to get emerging -- a mortgage. there is credit card debt also that is pretty high, and the notion of family formation among this generation is taking place at a sewer pace -- slower case. erik: would you like in the student debt problem to anything that we saw with subprime? ed: a little bit, but let me phrase it differently. what i see in student debt and what i see in housing is a series of government policies over the years designed with all intended goals of increasing homeownership and expanding college education, but doing it through promoting taking on debt . having households take on debt students take on debt, and then the capacity to mass that debt was maybe beyond what was prudent. stephanie: but these
delinquencies whether credit card debt or student debt do you see any trigger that will cause these people to get out of the position that they are in? when we look at subprime, those who are defaulting are saying, i am defaulting and it's not my fault. what am i going to do? and they were trying to pull themselves out of it. we look at the students who are in debt and say sorry, cannot help you. ed: i think what will help most students with student debt is to see continued strengthening not just in employment figures, but in real wages. real wages in the country continue to be pretty flat in the last 10 to 15 years. if we could see some real strengthening in the economy and growth in the real income, that will go a long way to helping not just the millennial, but all generations. erik: thank you so much ed dimarco, the forming -- the former acting director of fha.
erik: welcome back, everybody. i'm erik schatzker here like with bethany rule from the global milken conference here -- with stephanie ruhle from the global and local conference here in beverly hills. our next guest was reelected last year in a blue state. under his watch, and implement has plunged and deficits have fallen, and one magazine recently called him the country's best public servant. stephanie: and that magazine is hot, like the new vanity fair. erik: it sounds like a presidential candidate to me.
governor rick snyder is here with us. good to see you. gov. snyder: it's exciting to be at the conference. erik: you traveled with sheldon adelson along with announced and unannounced presidential candidates. does that make you a presidential candidate? gov. snyder: no, what they wanted to hear with a great story. and it is, a great comeback in michigan. we need to balance budgets there, pay down deficits, and do tax reforms. in michigan, we did it in year one. it's all doable. erik: ari fleischer himself, who was part of the organizing group that put the adelson affair to gather -- together, he asked everybody if you are not planning to run for the white house why else come to the event? gov. snyder: in many cases, if you think about places like detroit and michigan, people's perceptions lag behind reality by about five to 10 years.
i'm talking about the detroit bankruptcy here today at the conference. if i took you to detroit today it would be -- you would be extremely impressed and it would change aural perception. stephanie: when you look at the republican party on a national scale, when you say washington is a mess 50% of the reason is cousin of republicans who. want to -- who do not want to compromise or work together. it's what you have done in michigan but what would you say about your own party who are doing things wrong? gov. snyder: i would not say they're doing things wrong, but the political culture is broken. you have your work world, your family world, and the political world. would we accept any of the behaviors you've seen in the political world in your work world? you would be looking for a new job. there would be some while
discussions of the kitchen table if you behaved like that. i want to raise the bar. i think we deserve the same civility, respect, and results that you see in a family or at work. stephanie: how did this happen? gov. snyder: i don't blame or fight with anyone. it's a waste of time. why don't we just solve the problem? erik: it's an excellent point. if the political culture in this country is broken, and maybe lots of people agree with you, maybe me and stephanie. what is the way to fix it? gov. snyder: i'm working on that in michigan. erik: i know you are, it's your job. but again, you are not electable person. -- you are an electable person a republican governor in a democrat state. you are what many people would say is what we need, someone who can bridge the divide between right and left. stephanie: you've got it on lock. gov. snyder: again, it's lots of speculation. it's something i'm watching. what we need is a problem since
-- a common sense problem solver in this race. erik: what are you watching for? what are the factors that will determine whether you decide to make a run this time are not? gov. snyder: there are lots of factors. again, i love being governor of michigan. and there are family issues and anything else, but the other thing is to see who is running a look at michigan. we were at the bottom by far. we had a depression in michigan. we cut our unemployment rate in half. in terms of economic strength we are number two in the country in terms of improvement and credit ratings. these are the kinds of things you can do when you get people to focus in on the issues. stephanie: are you a better governor than someone like scott walker? gov. snyder: again, i never fight or blame. there is a no -- a common sense approach. stephanie: and you think we
should get rid of tax credits? gov. snyder: absolutely. in many ways, people get dependent on them and they are not transparent way they should be. when i got to michigan i wiped out most of the tax credits in terms of corporate tax credits, because i don't think they make sense. erik: worth the tax credits one of the reasons michigan was able to -- weren't the tax credits one of the reasons michigan was able to get back on its feet? gov. snyder: no, we got rid of all of the tax credits. and look at our economic growth. stephanie: but in part because you were at such a desperate situation, you really were at the bottom of the barrel. leaders had to work together because they had no other choice? gov. snyder: a lot of it is if you set the right tone and bring the right definition. if you go out and work with people and don't blame them, a lot of times people in the political world have no idea what to do except to spend time working on a solution. erik: how close are you to your
goal? you have to close a budget gap. how do you do it? do you do it by cutting services or raising taxes? gov. snyder: you have to look at the whole budget. there is a lot of work. in terms of washington, there are a huge amount of reforms that need to take place will stop all we do -- to take place. a week it was, with more prescriptive programs. i don't think it should be more prescriptive programs or blank checks. we need to look at the outcome of things and looking at how we serve the people. the people are the customers of government. shouldn't we treat them as the customer? stephanie: we have got to go, but would you say more than 50% or less than 50% you could be running for president? gov. snyder: i'm not going to speculate on that. erik: i would not call that speculation. i would call that an informed opinion. gov. snyder: we are showing a lot of great results in michigan
and i hope people look at michigan as to how to solve problems and create a better political culture and better services for citizens. those are the results we work for. erik: governor, how long will it be before you make the decision? gov. snyder: things are moving fairly quickly but anywhere between -- in the next couple of months or so. erik: we look forward to that when you do. governor snyder, he calls himself one tough nerd. stephanie: my favorite twitter handle in the history of twitter. when we return he killed at the white house. we will show you president obama . yes, he had a good script writer, but this delivery was a home run. ♪
live from the milken global institute. before we made our way to beverly hills, i was in washington dc this weekend where many celebrities, journalist and superstars made their way for the white house correspondents dinner. president barack obama's remarks took aim at the emerging 2016 presidential field, and himself. i'm going to say he killed it. take a look. president obama: the koch brothers think they need to spend $1 billion to get folks to like one of these people. it's got to hurt their feelings little bit. and look, i know i've raised a lot of money, too, but in all fairness my middle name is hussein. what is their excuse? [laughter] stephanie: bloomberg politics managing editor john heilemann was at the dinner on the red carpet crushing it with his own fashion police. he's now back in new york city.
i know politics is your bag, but after that special show, are you fancying yourself the new joan rivers? john: if only i could aspire to be as magnificent as joan was. i had clyde frazier as my fashion consultant. any one that allows me to hang out and be seen with someone like you, stephanie ruhle, in that incredible down as you slide around that dinner. you really blew the room away. stephanie: thank you very much. someone else who blew the room away, president. what did you think? erik: i was going to say, let's get to the kisses. here we go. john: he really does these events well. we reported on how the speeches come together on bloomberg politics last week. he has a star-studded cast of not only speechwriters but
hollywood commented -- comics like judd apatow and others. and he's done it year after year. he's got impeccable comic timing , and he does do the great mix of taking shots at others and taking shots at himself, and the self-deprecation works really well. i thought he was fantastic saturday night. erik: john, not that they would ever attend, but the republican presidential hopefuls were busy in las vegas, talking to sheldon adelson, kissing a ring perhaps. governor snyder said he is undeclared and is waiting to see who else enters the race before he makes his own decision. do you think he does it? john: i don't know the answer to that question. plenty of candidates show up to this event and i bet they do next spring.
and there was an iowa event, the iowa state and freedom conference, so there were a lot of other places for republicans to be. rick snyder, as you were discussing, he has a real record to run on in michigan. and he has been thinking about getting into this race for a little while. we have a -- the first couple of people coming out of that saying that he is more inclined to run than not, as you know. he may or may not. john kasich, the governor of ohio, seems to be moving toward possibly getting in and the two of them are looking for each other -- looking at each other wondering if there's room for the two of them in that race. stephanie: thank you so much for joining us this morning, bloomberg editor, john heilemann. watching tonight with "all due respect." erik: we'll be back and talking
>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. stephanie: welcome back to "market makers." i am stephanie ruhle with my partner erik schatzker. there is one thing up in smoke that has not got colorado high. taxes. we will talk to governor john hickenlooper. erik: and we will talk about the milwaukee brewers. stephanie: is it a good time to
invest in energy? we will speak to someone who has made a fortune. erik: this is a special edition of "market makers." we are live from the milken global conference. stephanie: he is erik schatzker. i am stephanie ruhle. you did not tell them who they were -- who we were. erik: maybe they know. risk your crews are running out of time in nepal. crews are digging out survivors from the earthquake that killed more than 4000 people. anyone still alive has been trapped for more than 48 hours. the quake measured 7.8 magnitude. many are homeless. many in villages that are hard for rescue workers to reach. >> it is in the best of times a
one or two days walk. that is the best of times. we do have teams in the area deployed. there are many casualties and injuries. in the far remote lying villages. erik: as of now helicopters have rescued one 80 climbers stranded on mount everest. at least 19 climbers and support staff were killed in the quake. deutsche bank has unveiled lands for a strategic overhaul. they are planning to reduce annual costs by an additional $3.8 billion. they will shrink their securities business and reduce its footprint overseas. yesterday deutsche bank said legal costs cut first-quarter earnings in half. a rejection of a takeover bid from the israeli drugmaker teva for mylan.
they say that they will not take anything seriously unless it is $100 a share. in the meantime, there is a takeover bid from the fellow drugmaker terror ago, which has also been rejected. the founder of the world's largest hedge fund firm says there's a lot to like about the chinese economy. guest: they have a lot of potential. as it flows to that other part of the government, in the end of it, i think they have a lot of potential. i remain bullish long-term. erik: ray dally oh founded the -- ray dalio sounded his firm in a two-bedroom apartment. and it will not -- your
antitheft devices will not work if you leave the keys inside. people do not like to tell the police or insurance company and how careless they were. stephanie: our next guest worked in the high-yield market in since 1991 he has been running the $16 billion crescent capital, which invests in debt securities and is also co-owner of the milwaukee brewers. guest: great to be here. stephanie: you have been here many many times. what are you most excited about, besides april? guest: this year, i'm more excited about the capital markets that baseball since we started the season with 4 wins and 15 losses. i am excited about so many
opportunities in private credit -- unleavened. it's an interesting concept. if you buy bonds in germany, you pay the government to holger money, so -- -- to hold your money, so -- stefanie: what is private credit? we work with companies -- mark: we have eight or $9 billion in on originated bonds. probably closer to 16 today. we have had good growth. stephanie: have you done well since banks have gotten out of
it? mark: i think it is a question of investment banks getting regulated out of the business. erik: you are a careful investor. even if you weren't, i know you would say you are rid but you are. do you worry about investors in the private lending market and what is now being called the shadow banking industry? mark: there is a wide range of industries in private credit -- erik: all unregulated. mark: first we wear regulated by the fcc. we work with private equity sponsors and what we do, but there are a lot of folks working on things where arguably there's more opportunity, but certainly more risk. stephanie: we want to talk oil. it seems like every distressed guy erik and i have talked to
have said this is a great opportunity. we have seen prices move up to the 60 dollar range. is it still exciting? mark: energy is 16% of our market -- erik: the high-yield market? mark: yes. i remember when we first at $50 billion. energy in the high-yield market yields about 10% today. so, you can buy a selected portfolio, get into the high single digits and if you get any kind of continued bounce, you can get double-digit return. erik: ok, but this stuff is borderline distressed. a lot of these companies may not make it. how can you invest confidently? you are a credit guy. yet you are thinking about oil. how do you invest confidently without knowing where the price of oil is going? mark: you have to have a view of some sort. erik: how do you get comfortable
with that? mark: if you are going to be a high yield investor, you can't really avoid it. most investors hug the benchmark somewhat. if you don't have the energy business in your portfolio that's making a major but in the other direction -- and major -- a mjor bet in the other direction. every morning when i watch her program, i have seen people on the other side of it for months now. stephanie: you have a european super credit team. what does the whole greek exit happening, not happening even mean to you? does it matter? mark: we focus on europe like it is one country. it is several companies. we try to invest in more developed countries -- germany, u.k., the netherlands. we have not made an investment in greece, for example. so, we have not made any loans
to greek lenders. erik: but given the fact that yields are so low, government yields are so low -- where is the value? mark: for the same challenges you have in the banking system here, you have regulatory issues there. there are yields around 10% today, also on levered. i wrecked lending in the united states -- can present. -- direct lending in the united states, 10%. good news in the low yield environment. erik: so, by extension, is there any value left in the public securities market outside what we were just describing an energy? mark: i think it's very challenging right now. if you are looking at the issue today -- single credit with a 5% high-yield, that is a challenge. erik: what does that mean? it means people like you are steering clear. but there are lots of people i
high yield buying this paper, corporate debt -- stephanie: 2008 style? mark: you have to segment the market upwards of 40% -- you have to segment the market. upwards of 40% of the high-yield market is double be securities. that will be more interest-rate sensitive. those securities are going to outperform. you probably do not have the credit problem. investors reaching for yields in triple c, we think will get hurt as the credit cycle turns. stephanie: what do you worry about? mark: everybody worries about interest rates. we have worried about interest rates for four years -- stephanie: we know they are going to move. mark: the question is, when are they going to move? investors need to pay -- whether it is insurance companies, policyholders, pension funds
have to pay their constituents are you have to generate returns year to year. we can't say, well, interest rates are going to rise in three years. erik: how long do you think before we see 5% yield on the 10-year treasury? mark: at the gets going to be a wild. the good news, earnings are stable. we have over 400 private companies in our portfolio. they are doing fine. everything is ok, but they are not hitting the ball out of the park. in terms of year-over-year earnings growth, earnings pattern. erik: a baseball question before we go. some thought you would be a good commissioner to succeed bud selig. mark: rob is doing a great job. you talk about a travel schedule. he has been all over the country. i think he has gotten off to a great start. he has been to virtually every
team in just a few months. he has addressed difficult policy issues we have been facing as a support, chief of which is frankly pace of game. we are shortening the games of it and that is great. erik: should we have fewer games? mark: that is something we will talk about in the next labor to. you may have a confluence of the players and the owners looking for the same thing here. erik: less revenue, of course -- mark: injury has become a key part of the sport and we want to keep our best players in the field. less games will help with that. stephanie: all right, mark. he said a word my kids use. are you kidding? vine. start with the app. really nice to meet with you. fine. he is the cofounding, managing partner of present capital who
scarlet: this is "market makers ." i am scarlet fu in new york. we will take you back to stephanie and erik in a moment but first your top stories. applied materials -- no merger. the decision comes three days after antitrust concerns also killed comcast's plans to buy time warner cable. the biggest market for phones may well be china. apple may have sold as many as
20 million iphones in china with which would be several million more than in the u.s. the reason may be the design of the new models with larger screens that are very popular in asia. and in baseball, alex rodriguez has a record and a fight with his team. he is one run shy of tying willie mays on the all-time list. he is paid every time he hits milestones. the yankees may choose to ignore that one. the next up will be up to the lawyers. those are your top stories. back over to you in beverly hills. erik: if he hits two more home runs, you better put a big fat asterisk next to that number. stephanie: next to a-rod?
erik: he will play baseball again. colorado opening its first stores for recreational marijuana and sales are growing. tax revenue has exceeded $70 million. the question -- is it enough? mark colorado governor john hickenlooper is with us now. governor hickenlooper thanks for coming back. 70 million dollars is not chump change, but it's not what people expected out of the marijuana economy. you have been very upfront selling other governors, hang on, before you go all in to legalize pot, have a look at the experiment we are running in colorado. how is that experiment going? governor hickenlooper: i guess that is our role in all of this. i think it is going well. we have a young guy named andrew friedman who has a harvard law degree and he is really kind of running this. he is creating this from ground
zero. how do you keep it out of the hands of kids? make sure you have enough resources for addiction. if this is a gateway drug and we see a spike in addiction. i think we are pretty much repaired for that stuff. stephanie: how is it so far? governor hickenlooper: it is not as vexing a challenge as many opponents -- like myself. i opposed it when it was on the ballot. erik: does that make it worthwhile or not? governor hickenlooper: we will see. we are getting to the point where it looks like we might be able to pull this off and create a regulatory system -- there are still black markets. we are adjusting the tax rate. but if you try to put the black market's out of business -- drug dealers will sell to anybody. the people who used to smoke pot are still smoking pot. erik: you're not exactly
screaming optimism. "we are getting to the point where we might just be able to pull this off." governor hickenlooper: i'm still telling governors they should wait another year or two years and look at -- when we get data back on is this affecting children? we are worried that since the adults legalized it kids would think it is fine for them and we know when a kid's brain is growing it poses real risk. stephanie: do you regret being the pioneer? it would have been easier if you let another state take their data and then step in -- governor hickenlooper: there is a point when that crossed my mind. stephanie: too late now. governor hickenlooper: you want to be the guy with the basketball with a few seconds and the tide game. i like the challenge. the team has embraced the challenge. we are working to see if we can get a charter for a credit union. right now it is all cash. if you want to encourage gangsters and corruption, how
would you do that? stephanie: are you encouraging banks to do business? we have spoken to companies that are marijuana-based, and they say we can't find a banker. governor hickenlooper: they can get a charter because they have to use our system, because on the federal laws it is still illegal. we may be doing these experiments in colorado, but we don't have -- we haven't got a banking charter yet, which is why we're joined to get this credit union through. that is the goal, so we do not have to do it all in cash. erik: governor, governor snyder of michigan, who i know you know well. he's a likable guy. we asked about whether he had interest in jumping into the presidential race. on the republican side it's very different than the democratic side. but you have to be keeping a close eye on what is going on. are you at all concerned that
the candidate who has effectively been claimed as the sold them a credit candidate for the white house is beginning to show some concerns? stephanie: loose seams? erik: loose seams is a great way to put it. governor hickenlooper: i think martin o'malley get a great job as the governor of maryland. he is moving that direction. there is a great pool of governors. brian schweitzer, ed rendell. i think there's some talent out there. i also think -- erik: should they all be in the race? governor hickenlooper: i think secretary clinton has for many, many many years been in the game and she is relentlessly pro-business, right? stephanie: she has been in the game so long, it is why many of us have said, sure, she is fully vetted. but it seems like every week every day she is not fully vetted. should the democratic party step
up and realize, hillary ain't the only game? governor hickenlooper: i think if hillary were sitting here and asked do you want to be on the stage by yourself in colorado i bet she would say let's get some people into the race. stephanie: she would not mean it though. governor hickenlooper: no, she would. i think she would. erik: why would anyone go into a fight like that, knowing the chances are high you would lose? governor hickenlooper: i think the challenge for anyone, the fundraising -- so many people assume secretary clinton will be the candidate that there is not a lot of people rushing to get in there. there's also a tremendous amount of respect for her. across the spectrum -- erik: governor, i'm afraid we have to end it there. governor john hickenlooper from the great state of colorado. we will be back in two minutes. ♪
erik: welcome back, everybody. you are watching bloomberg television. it is a special edition of "market makers." i am erik schatzker. stephanie: and i am stephanie ruhle. this is the milken institute conference. some of the smartest people in the world are here. let's go to our chief market respondent -- correspondent scarlet fu. scar? scarlet: the fact that the greek bailout talks have hit a stall
do not seem to be having an impact. the prime minister alexis tsipras showed his negotiation team. he was called an amateur by his european peers. the ftse got close to closing at a record high, but just fell short, six points short of the all-time closing high. and hsbc a spinoff of the retail bank and another giant banks penning up its retail unit, deutsche bank. management presented their five-year strategy, which did not win much support, at least looking at the share prices. come inside the bloomberg terminal here. this is deutsche bank's annual return on equity since about 1989. it fell about 20% before the
financial crisis. there is that led lower during the financial crisis. it has somewhat recovered, but it has been tough going. it is now being replaced by 10% in the medium-term. let's compare that with jpmorgan here, which i want to click on. it is the light blue. yes, sure, it is non-investment bank businesses are stronger than deutsche bank, but remember the federal reserve had implemented the rules and a tougher way than the european union. there is a big contrast between what jpmorgan and deutsche bank have accomplished. jpmorgan recently returned more than 10%, compared to where deutsche bank is trying to get to. erik? erik: all right, scarlet fu in new york, thank you very much. both sides in washington arming for battle as next year's spending bills wend their way through congress. republicans want to increase
defense spending by ending that part of the sequestration. shaun donovan is whether us. stephanie: it is safe to say you have a hard job. what is worst? what is the most brutal thing on your plate? shaun: if sequestration comes back, think about what happened last time. we lost about 750,000 jobs in our economy. sequestration is a word that people do not understand. it is the single thing that will make sure that do we have money to educate our kids? do we have money for job training? lots of talk about medical research and pioneering breakthroughs. but we will not be able to invest in medical research must we can end sequestration. erik: shaun if republicans pass
a bill that rolls back sequestration for defense spending, what happens? shaun: the president has been very clear. he is not going to accept a budget that puts sequestration i am place, that locks it in and he will not accept a bill that fixes defense without bills that fix the nondefense part of the budget. erik: is that to say that it will be vetoed? shaun: we have our first house appropriation bills, and i think in the next couple days you will get a clear answer to that question. stephanie: is he willing to risk another government shutdown? shaun: here is the problem. if we want to grow our economy, we have to recognize these key investments are at the lowest level of sure of our economy they have been in 50 years. and they are not the things driving our long-term challenges. it's really the entitlements side. the tax side. the smart thing we should do
some a what we had two years ago, the murray-ryan deal, raise our investment on the discretionary side and pay for it through smart reforms to our medical programs and our tax system. that is what we did two years ago. we came together on a bipartisan basis. that is what the president is asking congress -- we had $400 billion of reforms in medicaid and medicare in our budget. this so called fix bill that got done last -- this so-called doc fix bill that got done last week. at it makes smart reforms to our health care system that will continue the record growth in health care spending that we have. erik: does that make you optimistic there is room for compromise between the white house and the republicans? shaun: last week we had speaker boehner say he was open to murray-ryan's deal. we had asked republicans in the
senate sign onto an amendment in the budget that would do exactly that. i think we are hearing more and more, this is the common sense approach. but republicans of to ask themselves -- are they going to take themselves back over the cliff of sequester? will they let the far right in their party driver budget debate? or do they follow the president from two years ago? stephanie: what do you most want to get done? what do you want to walk away from saying, i made this happen? shaun: we are not just talking about sequestration going back into effect this year. we have a presidential tim payne going on. it will make it tougher to get a deal next year and is possible we will have sequestration for the remaining six years. this is a big deal to get done this year. erik: what you say to those people who say, you know what? in retrospect, sequestration was
not that big a deal. it did not derail the american economy. it is still growing. shaun: one of the things about being here at the milken conference -- you can look at what countries around the world are doing. they are investing more in educating their kids. they are investing more in medical research. they are investing more in job training. they are investing in infrastructure. if we do not do those things our economy is not going to grow in the long run. erik: how optimistic are you that you will get long-term funding together, particularly for the nation's transportation deficits? shaun: as i said a moment ago we have seen in encouraging signs. republicans and democrats stepping up and saying we need to find a bipartisan way. republicans have a choice. the president has been clear. he will not accept a budget that locks in sequestration. he will not accept a budget that fixes defense and not
nondefense. if republicans to together on those principles, we will win those fights. stephanie: are you worried about a debt ceiling showdown in the fall? shaun: we have been clear. we cannot play games with our nations full faith and credit. we will not engage in negotiations on the debt limit. we will keep that separate from the budget fight. we did that last time. stephanie: we know this, but are you worried? shaun: we have seen encouraging signs of bipartisanship, but the memory is still fresh of when republicans play political games with the full faith and credit -- erik: back then they were the minority, at least in the senate . so, it appeared to everybody it was the republicans again who are preventing things from happening. now they are the ones in control and it is the white house saying no. are you not worry that president
obama and the administration are going to end up looking as bad as the republicans did then? shaun: this is not just about democrats versus republicans -- erik: i know that. shaun: you saw that there was a war in the republican party over defense spending. in fact, they raised defense spending through their appropriation bills. there is a large segment of the republican party that no sequestration is wrong. it was designed to be so stupid it would not go into effect, and here it is -- stephanie: isn't it revolting that our own government would say we design something so stupid, such a waste of time, taxpayer money, it would not go into effect. that is an insult to me. if a ceo said that we would say, you are fired. shaun: it is not rocket science. we need to get another
murray-ryan deal and move on to other areas. you ousted earlier what are the other priorities? there are plenty. tax reform. but we have to get past this budget fight. erik: thanks for spending time with us. shaun donovan, the white house budget chief, at the milken conference in beverly hills. stephanie: you definitely want to stay here. we are talking the next big thing in distressed investing with chris pucillo. ♪
applied materials and the other company both create the same materials. this is days after similar concerns on a deal of comcast and time warner cable. deutsche bank plans major cuts. they will cut 200 branches and reduce overseas operations. investors were not impressed. they were down 6% in frankfurt. and it is official, loretta lynch is the nation's first female african-american attorney general. she was sworn in by vice president joe biden. she is 55 and was rigorously the attorney for the eastern district of new york, which includes much of new york city. the senate held up her nomination for five months because of a dispute over a bill on human trafficking. let's return to steph and erik in beverly hills. stephanie: we are talking about
what is the next big opportunity in distressed? chris pucillo oversees $6 billion of stocks in capital. chris, you have been killing it the last two years. right now, where is the best opportunity? chris: we see the best opportunity in infrastructure, investments made in 2008, 2 thousand 7, 2000 6 -- stephanie: like what? thechris: the indiana toll road which went bankrupt in december and was sold for $6 billion, $6 billion of debt in total. that was a great, great opportunity. there's another toll road in australia. they are all, one by one going under. a lot of it is the banks force
investors to put interest rate swaps. it was an enormous burden on the company. erik: infrastructure for an witty investor is a very long-term play from a distressed -- for an equity investor is a very long-term play. for a distressed investor, how long does it take to make your money back? chris: about nine months. when you look at the metrics they trade on basically yield to levered equity. with interest rates being low right now, the sponsors can put a significant amount of debt and not overburdened the company -- overburden the company of their locking in 9% returns to equity. stephanie: so many people will hide under the desk. not you. what is your take question mark spectrum -- what is your take?
spectrum is a focus for you. chris: it needs work. they have a lot of work to do with the fcc. we wanted to buy it ourselves out of bankruptcy. we did not quite make it through. we are out now. we took our chips off the table. we finally made money, but we would have liked to have stayed in the equity. stephanie: is there another opportunity that makes sense in terms of spectrum? chris: right now, i would have to say you would have to have in the portfolio -- a significant part of one portfolio is in spectrum. we are sort of invested, and right now we are working on patching different pieces together and getting them ready to sell to the carriers -- erik: for what vehicles though? chris: through different companies that went bankrupt over the years. erik: how much spectrum do you have? chris: right now 10% of our current assets.
and if you look at where the option was, significantly higher than that. stephanie: are you still making money on lehman's claims? chris: no, no, it's great. erik: it's almost like enron. chris: not quite but almost. we took an opportunity to buy a big chunk last year. theyre were sellers. there was a double-digit yield to our outcome. erik: did you make money when lehman stake sold de shaw? chris: everybody who owned it profited from that. erik: did you expect it to go to eric schmidt? chris: no, no. that was great. stephanie: you sound super positive. everything is great. what is not?
why are you staying up at nine? chris: like everybody, the next opportunity is what we are concerned about. the next opportunities come. hearing people saying, oh there's nothing to do, there's nothing to do. we begin to wonder ourselves in an opportunity comes up -- erik: everybody talking about oil. chris: our take on oil is really about the valuation. like everything we buy, it is about the valuation. whether it is debt, whether it is equity, the price that you are valuing for market prices is just too aggressive. erik: what are they being valued at? governor hickenlooper: we buy at -- chris: we buy at a lower full curve price. erik: lower than accreditation? chris: i don't think so.
stephanie: does the timing of a rate hike matter to you? chris: i know is not going to happen in june. september, i'm 50/50 maybe. stephanie: is it affecting the way that you are investing? chris: not really. fourth quarter -- who cares? i do not know why that is relevant to anybody. the 10-year, the seven-year. the benchmark is not going anywhere there. that would happen, i think before the oil curve. i could say short-term rates could go up, but mid and longer-term rates are not going to go up. they will be more market east and i do not know why the u.s. 10-year, which dramatically yields higher -- you tell me. i don't know. erik: going back to oil for one second -- where would the
forward pricing have to be for you to feel more confident? chris: i think $70. i think there is the demand picture. there are other variables -- erik: the plot price does not matter at all? chris: not really. the production that is i am place is going to happen. everybody is talking about oil -- erik: right, which is why wonder whether there is truly a distressed opportunity irrespective of whether they are properly priced. chris: the more debt the more drilling, the more supply. the more supply, the more supply, the more supply. unless there is a change in demand, that extra supply is going to -- it's going to have to come down. erik: so any even bigger correction is being built into
the market? chris: there is a price level we will get to. but with all of the supply, that is going to create the problem unless china or india or somebody else comes in with big demand. stephanie: chris, before we go you have said -- you have had such a great run. weisel to blackstone? chris: blackstone is a great partner. i think they will help with our business. stephanie: how so? chris: they can help us with best practices. my goal has been to institutionalize my firm as much is possible to make it more tractive to institutional investors. stephanie: stronger terms. chris, thanks so much for joining us. chris pucillo the ceo of solus asset management the review has gotten pretty good on tv.
loomberg television is on the markets. another impressive they them wall street. the s&p 500 touching fresh eyes, the nasdaq at an all time best or the third straight day. it could in its winning streak at five days, at least for now. 77% of the s&p 500 companies that have reported have eaten profit projections -- beaten profit projections. joining me for the options insight, scott bauer from trading advantage. tell me how we see these earnings estimates. on the growth side, we see 1% and earnings growth over 6.5%, but this comes before the energy companies start to report. scott: you are right about these
topline companies starting to report. when you look macro, we have seen some really good beats. but you're right. we have these energy companies coming up. one of them i want to talk about, ex-con. i think you will see some surprises out of the big ones. i think you will see surprises to the upside. scarlet: earnings have come down so much in advance of these actual results. looking at the bloomberg terminal, over the last few weeks, eight of nine analysts have reduced their earnings estimates on average to point seven cents. the bar has been lowered so much. what might indicate we will get a relief rally once these results come out? scott: the options market is pricing in a little over a two dollar move, but when you look at the 90 strikes, that is also a significant area, technically, in the stock. the 90's are taking a lot of
pressure. a lot of call buying up there. it seems like a lot of investors have a problem with playing for the upside here. frankly, i like the upside. i think that is the spot we are going to hear. scarlet: talk about your trade. you were talking about the 90. what would you buy and what would you sell? scott: i will buy the 88 call and sell the 90 call. it does not matter what price i pay if it is in that range. i think the stock is going to 90, so this can expand to dollars or so. i know what my downside is. my downside is what i pay for the spread, 50 or $.60, but i can make a dollar $.40 on the spread here, and the 90 will be a spread in the stock. scarlet: all right, i want to
get your thoughts on apple. of course, it is the big earnings after trading today. what kind of move our options indicating we might expect? scott: about seven bucks. a little over -- a little under 7% move here. that puts 142 the upside, may be 120, 126 to the downside. b 135 call, huge, huge buyers. huge weekly buyers. scarlet: thank you very much, scott bauer. "money clip" is up next on bloomberg television. ♪