tv Fast Money Halftime Report CNBC December 19, 2013 12:00pm-1:01pm EST
but in fairness to you, i want to mention before we let you go, not only that you will be the only advertiser or cruise advertiser on nbc during the sochi olympics, but also that behind the scenes, with the price -- >> yes. >> -- guarantee, you've reorganized senior management. in a nutshell, what does that mean for the passenger and the business? >> for the passenger, we've introduced lots of innovations on the ship for better guest experience. our people remain totally motivated and exceeding the guest expectations. what it means for guests, come aboard, you'll have a great time on any one of the ten brands and we look forward to servicing you. >> thank you very much for joining us. arnold donald, ceo of the carnival group. have a great holiday. in meantime, it's time for the "halftime report." ♪ welcome to a special edition of the "halftime" show. we'll be joined by four of the world's greatest investors who
will open their playbooks on the year ahead. here with us exclusively is james dinan of york capital, lee cooperman of omega, marc lasry, and richard pzena, of pzena management. they're also investing for a great cause, and we'll tell you how over the next hour you can get in on the action right alongside of the "halftime" heavyweig heavyweights, and we're joined by rob, one of "barron's" top financial advisors, with $500 billion under management, and two "halftime" traders, josh brown, jon najarian. jamie, first, we'll kick it off with you. thank you for being on. >> glad to be on. >> let's talk about what happened yesterday. did the fed get it right? was the market reaction to what the fed did correct? >> you know, i think you look at the market's reaction, and i think it tells you that the fed got it right. back in may, the fed did not get it right. >> the fed should have tapered
before -- >> oh, no, it was a communication thing. the fed basically said, we're thinking about tapering, cutting back on the so-called quantitative easing, and the bond market freaked out. basically, rates went up a lot. in fact, they went up so much, it became questionable whether they were actually going to kill the economic recovery that seemed to be taking place, that was going to allow this actual tapering to happen. bernanke, during his press conference after the decision, i think, was very clear that basically rate wuss stay low for a long period. in the 6.5% employment number is no longer a magic number, and basically they'll be very, very, shall we say, reactive and proactive, as to how they would work the tapering going forward. bottom line, the goal is, we're going to taper, we're going to basically stop the growth of the fed balance sheet, but we won't hurt the economic recovery. >> you still feel pretty good about what this market can do in 2014, even though we've had a great year by all accounts in '13? >> i think you hit the nail on
the head. we've had a great year by all accounts this year in 2013. market trades about 17 times earnings. but there's a lot of interesting things going on out there. there's a lot of corporate activity taking place. at york, we really specialize not so much just being long the market, but looking at the adventure of investing. situations undergoing real change to create shareholder value. we think this is a great market for that, because at the end of the day, interest rates are low and they're going to continue to stay low. and big companies have access to those low interest rates. as long as that's the case, you know, people will continue to invest in the equity market. companies will continue to invest in the equity market, and quite frankly, i think earnings are going to go up next year. i think companies will continue to buy back their shares, and we think there's a better than 50/50 chance that you actually get multiple expansion next year as opposed to multiple contraction. >> how does that sound to you, rob? i mean, you've been dead-on in the way that you've talked and pry addicted this market over the last many months that we've gotten to know you.
>> boy, i wish my wife could hear you say that. [ laughter ] i am never right at home. i think jamie's exactly right. i think normalization of policy, interest rate policy, is healthy for confidence. it's going to allow businesses to get their arms around what's going to happen in the future. and the story of 2014 is one of capital spending, i think. >> you feel pretty good about what this market can do? a lot of people say, okay, we've had a great year, but great years are often followed by good years, not bad ones. the economy is getting better, the economy will be expanding, not going into recession. what's your view on where this bull market goes in '14? >> we might have a digestion period. as the fed has kind of guided from quantitative easing to enhanced forward guidance, and that's going to come in advance of an acceleration in corporate earnings and better economic growth. we think both those are going to happen. so next year's going to be a great year. a great year following a
tremendous year. and by great, we think 8.5% to 10% in the u.s. >> jamie, you have some interesting themes, if you will, for what's going to take place next year. one being consolidation. the other, activism, which, gosh, i mean, '13, this year has been the year for activism, so i guess you see that continuing. and distress the -- distressed european credit is another area you're looking at. let's talk consolidation first, because it's central to how you think about picking stocks, correct? >> that is correct. so one of the things going on, obviously, out there is enormously advantageous and value-creative for companies to buy other companies now, the main reason you can borrow money, quite frankly, after tax for almost nothing. 1%, 2% for many companies. even if you go out and buy companies for 20, 25 times earnings, they're not only accretive, but they're actually enormously accretive, and that's before you get cost savings, revenue savings, so forth.
what you're finding is a lot of companies -- a number of different industries, including health care, for one, where we're quite active -- where the acquirer stock actually goes up more than the target stock. so sprint, octavous, a big premium to the public shareholders of chilldock, and basically a bigger move than octavous, and i think it's around 160 today. okay? enormously value accretive, a lot of ceos paying attention. you know what, i can use my balance sheet. i can use that cash, i can use that borrowing capacity. and that can actually meaningfully create shareholder value, and that will be the continual fuel that will drive all of the benefits of consolidation as we look forward, not just 2014, but 2015. >> let's talk about one of the areas where it's playing a direct role in picking stocks. airlines. once a forgotten business, a forgotten part of the marketplace, couldn't make any money, the story's changed, and you like it. >> we do like it.
we own most of the major airlines, for those of you who do follow the industry, it's had a huge move this year. but the industry still trades, you know, 5 and change times so-called ebitda, which is ebit plus rental, the metric that people use. the important thing is, today, we have the big three major carriers, plus southwest. and those four companies control 90% of basically the airline market. you're seeing consolidation. you're seeing fleet rationalization, cost-cutting. everybody's been on a plane knows the seats are packed. in this growing economy, okay, what you're having is airlines each are becoming a scarce resource. and because of the so-called almost, like, "come to jesus" moments that companies get when they come through bankruptcy, the companies are now being run more like businesses, as opposed to just airlines. and i think most importantly, or as importantly, $95 oil used to be the bain of, you know, for the companies' existence.
today, they can make money at $95 oil. and as a result, we think the companies are attractively priced and they're going to continue to do well as we look out. >> you know, you can make money with $95 oil when you're doing $25 suitcases and $5 pretzels. >> that's what they're doing, charging for everything. and basically, the bottom line is, it's showing up on the bottom line. >> when ubs initiates the airlines and make delta the top pick, you guys like this space? >> pete made united his top pick yesterday, and i know it's one you like, jamie. i mean, unite sd is going to do extremely well, for the playbook playoffs that pete made it his number-one pick. and i think that this one is going to outperform next year, because of all of the i.d.s you just laid out, and because of with the united -- sorry, with the american-u.s. air consolidation, that is going to help boost prices across the board in virtually every market. it's not so great for consumers, but it's great for the airlines.
>> whether do you think the market wakes up to this, because united and delta are trading nine times forward earnings, and yet, for the next five years, the consensus thing is 20%-plus earnings growth. that's a massive disconnect, maybe the biggest right now in the whole s&p. when does the market have that realization that things have really changed? is that in 2014? is there more room? >> i think if you look at the history of the airline indust industry -- and it's not a great history -- i think they probably still cumulatively have lost more money than they ever made, i think it will take a long time. it will be a real show-me story, and it will take a couple of years. this will not happen overnight. but i think it's starting inii to happen. the industry has dramatically changed, rationalized, being run by smart businesspeople today. they know how to adequately price, know how to deal with high oil, and we think there's -- to your point, not just a multiple potential expansion but the earnings will
continue to kick in for all of the reasons that, you know, you also mentioned, jon. i think the other thing is on american airlines, u.s. airlines, that's the big merger taking place, these tend to be a little bit rocky -- you know, the initial integrations, and then they really kick in. you saw that, particularly united -- >> you own this one, right aal? american airlines group? >> yes, we do. we've owned it really since the merger talks started. if you read the department of justice complaint, originally they were against the merger, it actually shows where the value is being created, the ability for cost savings, revenue enhancements and so forth, obviously made the required divestiture to get the deal done, but doug parker, team at u.s. air, great managers, we think there's this enormous optionality to the upside. >> we'll talk more about your views on the market. rob, we'll get your opinion. guys, back with you, too. let's do a "market flash" with dominic chu for a look at what else is moving.
>> thanks, scott. we'll begin with oracle. the software maker posted better-than-expected quarter results. it's spurring hope that it's growing, curtailed earlier this year by i.t. spending. and darden restaurants, posting a 41% in quarterly profits, under pressure from barrington capital, the struggling restaurant operator said it would sell or spin off its red lobster unit. and we're going to end with facebook whose shares are also falling, this after it announced a secondary offering of 70 million shares of stock, including 41 million from ceo mark zuckerberg, who said he would use the proceeds, in part, to pay a very big tax bill, scott. back over to you. >> so many opinions to get on the desk, dom, on a number of the stocks. doc, talk to me about facebook. the secondary offering, but also the fact that zuckerberg himself is putting shares into the pot. >> that didn't scare me at all, judge, because such a small piece. but i do think you're going to see an outperformance in the first half of next year, twitter
versus facebook. in other words, i was ahead of this incorporation into the s&p 500 tomorrow. that's the known quantity, the facebook. i think they're going to continue to do well, but i'd be willing to trade out, get out of my long facebook, get into twitter, because i think you get outperformance there in early 2014. >> jamie, how does a guy like you sort of assess what's happening in social media today -- facebook, twits ter, se of the other names, that have had really good runs, especially recently? >> we basically watch them from the sidelines. >> do you? >> i think the reality is, we know what we're good at. we tend to be good at venture investing, corporate takeovers, corporate credit. obviously, these things are real, in everyday lives, and we invariably would ask our kids and get better knowledge from our kids than what we could come up with ourselves. i probably would not disagree with jon's comments. i think they're very forward-looking, and that's probably typically how the technology companies go, the social networking companies.
you know, they go in favor and then something else comes in, and i think you do better if you trade them, than if you buy and hold them. google, obviously, is a big exception. >> sure. josh, how do you view oracle? bad news now behind? is it safe to get into a fame like that? >> yeah. well, look, if you're looking at the software sector, it's still the most inexpensive relative to all of the younger companies that are more exciting. so it depends on what kind of investor you are. if you have a strict value discipline, that's the name you're looking at. if you're more interested in momentum and growth, you're probably not looking there. but i think they can all work. >> all right. up next, more from the master class today. lee cooperman coming up, reve revealing the 2014 outlook. get a pen, there's a good chance you've never heard of some of the names. that and much more straight ahead on "the half." with fidelity's options platform,
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welcome back. starting january 1st, some of the best investors in the world, including our guest host today, jamie dinan, are participating in a stock competition for charity called "portfolios with purpose." stacy asher founded it in 2011, and joins us now on set. congratulations on the group you've been able to put together. >> thank you. >> it is amazing, besides jamie, lee cooperman, david einhorn, joel greenblatt, rich pzena,
reid walker, and you have new ones this year. who are they? >> oscar schafer, marc lasry, kyle dash joining the group. so exciting. >> they're all playing for charity. >> right. >> how do we get information about this? how does the contest even work? >> so portfolios for purpose are an annual fantasy portfolio stock competition, where each player competes on behalf of their favorite charity. there's three levels -- the novice class, open to everyone, and $100 to participate. >> anyone watching can participate. >> anyone and everyone, no prior expiererience needed. and then the middle class, with two years of investment, and the master class, for well-known, highly respected and those that are really dedicated philanthropists, and that's $10,000 to participate and tation only. how it works is you sign up before december 31st. you pick your five stocks, long or short, billion-dollar market
cap minimum, and then you pick the charity that you want to compete on behalf of. >> so i know this is all about charity, but there's got to be a little sense of bragging rights among the group. >> oh, yeah. >> dinan wants to steal einhorn, and einhorn wants to bease h ss, right? >> absolutely. very competitive. >> what's the website? >> portfoliosforpurpose. organization, through december 31st. competition begins january 1st and runs for one year. >> you're doing it. why do you do this, and who are you playing for? >> i'm playing for the museum, city of new york, and i happen -- one of my other day jobs and the chairman of the city museum. and i call it my fourth child. it's something that's near and dear to me, and we can also definitely use the money, as post charitable organizations. i think it's a great way to connect between investors, professionals and people that want to be like professionals and really try to instill in them that it's not just about picking stocks and making money,
it's about giving back and actually, quite frankly, it's all about the joys of giving back. and hopefully, we're going to create a lot of not just really great investors but a lot of great future philanthropists. >> you're one of the founding board members, right? >> it's very interesting in the way it unites investing with charitable giving, competition, and everything good that surrounds this industry. giving back, and all of the great gentlemen who have agreed to participate in this organization. it's fantastic. >> let's talk about another one of the gentlemen. you can stay with us, in addition to being one of the world's most successful hedge fund advisors, lee cooperman is also a big philanthropist. as we said, he's taking park in pwp, as well. lee, welcome back. great to catch up with you. >> thank you. sorry not to be in new york, but 75 and sunny where i am. >> don't rub it in, lee. don't rub it in. we're trying to get through the weather here the best we can. let's talk markets, since we have you on the phone here and we're certainly coming off a
huge market event yesterday with what the fed did, beginning the tapering program. and certainly the massive market reaction on the other side of it. so where are we now, lee, with the markets? what's your view for the upcoming year? >> i have a very firmly held view -- it could be wrong -- but i'm positive but with a small "p," emphasize the small "p," and i watch your program, and in recent weeks, you had three prominent guests, very, very smart guests -- warren buffett, and carl icahn, negative looking for decline, and david tepper, full speed ahead, and i'm close to warren buffett. we're in the zone of fair evaluation. with profits growing very slowly, in the end, it's really about the multiple you assume for the earnings that we're generating. we have $115 in estimated earnings in the coming year, and i'm thinking 16 times earnings, equals $1,840, and it goes up a rate maybe 6%, 7% per annum, so i think the market is hovering around 1,800, and the own fair
evaluation, someone could challenge the assumption of a 16 multiple, with relatively low interest rates, but still an artificial amount of support being injected into the economy, and you should adjust downward the multiple, and we still have the washington circus which i'm uncomfortable with. so i would say constructive but small "p" rather than big "p," and an observation, what number looks out of line? corporate profits this year up five. the cpi rising sub-2%. real gdp rising about two. short rates are zero. the average 10-year rate was probably 2.5% or a little less. s&p up 28%. it seems like a large number relative to the fundamental underpinnings of what's going on in the economy, keeping in mind that was on top of the 13% rise last year, on a 6% profit increase. you know, the end of the day, what i like to say, is bull markets don't end from old age. they end from excesses. and the excesses that normally
create bear markets are not present. we need a recession. we don't see that in 2014. i don't see a real effect of competition to equities. one of the things i said three years ago with you was the fed has created an environment where there's no alternative effect to the stocks, and put your money in bonds, and still unattractive. high yield is sub-6%, and left with the s&p, which the bottom line, historical norms. and third, i would observe that investors are still underinvested. it's the devestige of the 2008 shellacking, slow on the risk curve. and with the liquidation from 2008 to 2012, it doesn't end with one year of modest accumulation. and so, i would say all in all, i think the market outlook is okay. >> mm-hmm. >> i'm using a range for what it's worth, a range of 1,600 on the s&p, a high of about 2,000. and i'll cage my view if i see a
recession coming -- >> right. >> hopefully, i'm smart enough to see it, second, evaluations get into a danger zone. when we went up 10% from here quickly, boy have to change my views, because then the market would be in a similar overevaluation. >> let's talk quickly about some of the stocks you like. we mentioned this is about, you know, portfolios with purpose, lee. you're playing for the damon runyan cancer research foundation. the stocks you have picked as part of this competition, i think people would be interested in hearing about a couple of these. >> sure, sure. >> sandridge energy is the ticker's s.d., and you own that as omega, as well, correct? >> go on the assumption that anything i pick, we own, because, like, it's -- you know, when elliott spitzer became famous, and was afraid of them, and they asked, why would you get on tv and recommend something they didn't own. sandbridge is one. it's an energy company. this year, tpg's hedge fund
launched a proxy fight, and in their literature they filed on the website, asterisk was 11 or 12, and better motivated, you know, high-quality management. they won the proxy fight. the stock is now about 5 1/2. our own independent analysis indicates value of around 10. the company's been on a fundamentally improving trend and the market has been slow to recognize it. this is one that, with contest, going up against marc, rich, you have to be looking for triples and doubles rather than singles, and singles aren't going to do it. [ laughter ] i think sandridge has the potential to double. another one we've liked, we've owned since $2, currently up this morning, this afternoon, whatever, sprint. we think the street is underestimating the earning power of the company. we see much higher earnings than are projecting and i would not rule out the cell phone industry consolidating. if they allow it to consolidate
the way it is, i would not be surprised we go from four to three. >> it's an interesting -- that's an interesting thought, lee, because jamie, who's sitting here with us, that's part of your thesis, as well. and you like sprint at the prospect of the potential consolidation maybe with t-mobile, right? >> that is correct. i actually have a meaningful sprint position, and a meaningful t-mobile position, and i would be a huge fan if the two companies were to consolidate. enormous cost savings. huge business synergies, obviously great for the revenue side of things. the head of softbank, a visionary, one of the best business people, probably in a generation. i think it would be huge on all accounts, don't underestimate chargely ergen of equistar, of dish network, also looking to get big into the wireless spectrum. reuters reported he is looking at t-mobile. it could be interesting. when you have two people bidding for one company, usually good things happen. >> lee -- >> jamie is on the right track.
i've been an owner of dish for, i think, seven, eight years. i think charlie is great. mas asan is equally brilliant. we own dish. we own sprint. but sprint was the second one i picked. the third was very interesting medium-sized company. we're very high on what's going on in mobile banking and mobile commerce. and so, this company called monetize, which trades in the u.k., we think is going to be a big winner in this whole mobile banking area. very, very high growth, one of the things that has the potential not in 2014, but three, five years, a five bag, maybe more. a strong balance sheet. rather significant affiliations, visa europe, visa u.s., significant equity ownership in the company. ibm does significant amount of business with them. and they've been signing up new clients literally on a weekly basis. so far, sprint is monetized,
sandridge, quality corp., a health care provider in brazil, growing very rapidly, lots of free cash flow, very low multiple relative to the free cash flow, looks very interesting. and a new name for us, and we own it, is sun edison, which is a leading company in the solar energy field, and it's kind of remaking itself. they'll be spinning off their money-losing semiconductor business. they're going to take their -- some of their product and put it into a high-yield, income-oriented vehicle, and we think the sum of the parts is 20, and the stock is trading around 12 and a fraction. those are the five we picked. we have a 90 or 100 positions in a portfolio. >> right. >> even though i'm kind of positive small "p," we are finding a lot of things that make sense, so we're kind of busy and selling things that we've gotten fully valued and moving to things that we think are undervalued. as i said before, i'll get negative -- began to say, if we see a recession coming, the valuations get into a danger
zone, which i think could be 10% up quickly from here, or alternatively, we have growth closer to 1%, or alternatively growth of about 3.5% or more, i think that brings the fed into play. >> mm. >> for now, we're picking stocks. >> right. >> and we're picking them in a sunny climate. >> lee, great to talk to you, as always. >> sorry not to be there to shake your hand, but i wish you, your other participants, your viewers a merry christmas, a happy new year. >> same to you. >> okay, lee, jamie here. i wanted to articulate, i really agree with you on your view with the risk really being the stock market goes up too far, too fast, too soon. i think that is a big risk. people get too euphoric, euphoria is always followed by basically drag and regrets. i don't think there's a high likelihood we'll have a recession next year. i'm probably much more optimistic, we'll have 2%, 3% type growth, and basically, you know, quite frankly, you know, the fed really, you know, on
your side. you've got, you know, the sequestration coming down on the fact that -- i think, though, in the environment you're talking, lee, i think it will be a great environment for people who are stock pickers. >> yeah. >> it's a real beta move. guys out for januarys, are really, i think, going to shine. >> lee, we will talk to you soon. have a happy and healthy one. we'll catch you on the other side of the new year. jamie dinan is back after the break with some of his favorite auto plays. more "halftime" heavyweights. marc lasry will reveal the first stock in distress. it's all straight ahead on "the half." in today's markets, a lot can happen in a second. with fidelity's guaranteed one-second trade execution, we route your order to up to 75 market centers
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it's a double whammy for the bottom line of some giants of corporate america. the one with with big overseas business. they'll see their products become less competitive, and their profits will be worth less when they bring them back home. look at mcdonald's. the company saying profit in japan today will drop by almost 60% for the year, thanks largely to that weaker japanese yen, already at a five-year low against the dollar. coca-cola, which gets more than half of its business outside of the states has already warned about it. and there's other big companies with big business abroad, p&g, yum brands, and tiffany, to name a few. scott, those easy-money bernanke policies were a gift for so long, it could be a whole different ball game. >> yeah, we will see. sarah, thank you so much. jamie dinan is here with us, as we said. let's talk about the biggest position as we sort of segue into the auto discussion i wanted to have. hertz. >> mm-hmm. >> big, popular hedge fund trade. why does everybody love it? >> because it's a great stock to own, i think, okay? it falls into the consolidation theme. most of you know that late last year hertz successfully was able
to complete the acquisition of dollar-thrifty group. it is a huge cost-saving revenue-synergy story, rationalization of the fleet, and increases in so-called car rental rates. for pretty much the last decade, rates have been on a downward trajectory. this year, they're up about 3%. hertz has had a little bit of integration issues. remember i talked about the airlines having integration issues, and initially hit harder with the sequestration and reduction in government travel. as it related to car rentals. so they had a little bit of a hiccup, you know, around september, you may know, as they lowered guidance i think for the first time ever. stock trades around $25 a share. we think, you know, it can earn 2.20, the consense for next year, and even better in 2015, a stock buyback at the moment, $300 million stock buyback, and that could be followed by more stock buy backs, and the
chairman owns shares, and great for wealth creation. and basically the industry is changing. going from four to three, and the three companies are basically hertz, avis, and -- >> dollar-thrifty. >> no, not dollar-thrifty. it's entl enterprise, and what' interesting with hertz, they have a car rental business, and it's been talked about, they could spin it off sometime next year. that would be very value creating, as well. >> after the break, you'll meet the newest member of the portfolios with purpose master class, here with the 2014 playbook, and later, rich pzena will unveil the top two sectors in the stock picks he says will win next year, and a day of heavy hitters on cnbc continues. tune in to "closing bell" today at 4:00 for jim chanos and bill
miller. wow, can't wait for that. more "halftime" straight ahead. ♪ [ male announcer ] this december, experience the gift of true artistry and some of the best offers of the year at the lexus december to remember sales event. this is the pursuit of perfection. at the lexus december to remember sales event. stick with innovation. stick with power. stick with technology. get the new flexcare platinum from philips sonicare and save now. philips sonicare.
purpose master class, marc lasry, nearly 30 years in investing in distressed assets, the co-founder of stock avenue. you're playing for the clinton foundation. you're a new master class member. why do this? >> one, i wanted to help out. jamie's been a friend forever. and it sounded like a great way to sort of help other people. and at the end of the day, since i thought i was going to win -- [ laughter ] -- it would actually be -- >> see, i made it familiar. i said, this is about giving back, about charity, but it's about bragging rights. come on. >> i thought to help the clinton foundation would be great. >> what's your view on the market today? it's great to have you after what happened yesterday with the fed. what do you think 2014 will look like? >> i think 2014 will be really positive. i'm a big believer, you know, with sort of where the economy is going, where things are. so i think over the course of next year, you'll probably have at least 2%, 3% gdp growth. i think europe has calmed down a lot, so there's huge
opportunities there. so i think everything's actually looking pretty positive. >> rob, you're fairly early in the europe move, as well. >> mm-hmm. >> you've liked it, you said it on our shows several times early on. >> principally on the equity side, but more recently, we've actually partnered with mark sperm and are making some investments in and around the deregulation story, in and around the deleveraging story, and in and around the fact that there's opportunities being created by the fact that banks are not lending. and, marc, why don't you just expand on that in terming of some of the opportunities that you're seeing that may be nontraditional, some of the investors that watch the show? >> sure. i think when you sort of look at what's going on in europe today, there is a massive deleveraging process that's going on, and the banks have to be reducing by at least sort of $2 trillion a year. >> mm-hmm. >> so who's stepping in to provide that financing? it's going to be firms like ours. it will be firms like jamie, where you're coming in, you're able to end up providing,
whether it's on a direct lending, on a rescue financing, so there's a huge opportunity for that, and you're able to generate some pretty high returns to do that. >> if you're getting a little bit more specific on regions or countries, within europe -- >> sure. >> -- is there a really strong bearish reason why you wouldn't be buying a market like italy or a market like greece, for example? they've rallied this year to some extent, but they're way below the highs and buying them at a cyclically adjusted p/e, in a lot of cases, and why wouldn't you do most of the trade in europe is improving? >> i would agree with you on the equity side. on the equity side, you want to be a player in europe. on the debt side, a player in northern europe. it's very hard, because of the way the legal system is, to be investing in italy or greece. it's just a much longer process, much more difficult, and the legal system there isn't as good. so i would -- if i'm going to take those risks, i would much rather do it on the equity side. i think you're right.
>> marc, in europe, we've seen now three state months where they've had increased durable goods sales, cars, in particular, automobiles, which is pretty positive. and that's a nice lead into next year. >> right. >> so you think that continues despite the fact that money's tight, they don't get the same zero-cost loans you might be able to get here to move autos, but you think that that might be supplanted by folks like yourselves that might go in and provide some sort of financing through various a.r.m.s? >> we'll provide it. but, look, at the end of the day, if banks are lowering by 2 trillion, nobody is giving me or jamie $1 trillion to provide -- >> no. >> right? so you're talking about, on our end, sort of smaller dollars, so you're able to pick and choose what you want to do. if you sort of look at europe, it's always been sort of 1% gdp growth. right? it's not -- it's not 3%, 4%, 5%, it's not asia. >> mm-hmm. >> so i think europe next year, northern europe, will be sort of flat, up 1%, which is fine for
what you -- what we want to do. and i think on the equities side, i think you'd rather be in sort of southern europe, because there you have much more room to grow. >> let me ask you -- >> plus, it's a tale of two different types of investments, right? >> right. >> equity investors want higher returns, but you have a constituent audience of investors that is looking to replace the shortage of yield availability -- >> correct. >> -- if fixed income markets, and when you compare and contrast the types of fixed income investments you're making in europe versus the high-yield market here in the u.s. >> well, you sort of look at it, in europe today, you can lend out on a senior secured basis, and you can probably make around sort of a 10%, 11% return -- >> mm mm. >> -- and it's a floating rate instrument, and making 10%, 11%, and the high-yield market around 6%, 7%. and not everything is senior and secured. so you're getting massively overpaid for that risk. and if you could end up making a loan at a three multiple or a
four multiple, and you're doing it at 10%, i just think you're getting massively -- >> scott, i think that's an important point. sorry, jamie. that's an important point, because investors are looking for different ways to take on fixed income risk, and here's a way to get yourself an exposure higher in the capital structure, a better -- a better return profile, and exposed to an accelerating economic growth story, right? >> right. and to marc's point, the thing is, when you're a lender -- i mean, quite frankly, you are much less sensitive to growth being 1% to 3%. if you're an equity holder, you're a lot more sensitive to growth being 3% to 1%. and that explains why europe's p/es are at 12. >> what do you think of the u.k.? it's growing about 100 basis points quicker than continental europe, and yet the equity value specifically as you get smaller, midcap, small cap, seem not to have budged versus germany/france. is that a great opportunity? or not necessarily?
>> look, i think for us, on the debt side, it is. so i'm not an equity guy. >> right. >> so i think on the debt side, part of the reason the companies are having a hard time is they're having a hard time getting -- getting sort of capital. right? so the banks aren't lending to emthis. so it's a little what jamie said earlier, and i don't know if people fully appreciated it. the ability to borrow on an after-tax basis at 1% -- >> right. >> -- i mean, it's huge. >> yeah. >> and they're not able to do that. so if you can't do that, it's kind of hard to grow, because equity capital's going to be sort of 10%, 15%. right? so it's just very expensive for them, and they're not able to have sort of that cheap form of capital. >> before we go, jcpenney. >> yes. >> are you still long -- >> i've heard of it. are we still long, yes? yes, we're still long. >> are you still of the belief that the company can turn itself around? >> no, not at all, from when i talked about it at the investor for kids conference in chicago, things have worked out.
we're big believers that it will continue to work out. you're seeing the turnaround happen over the last couple of months. i think it's a bit early. but i think you'll find out over the next course of next year, it will work itself even better. >> great to have you on the show. >> a pleasure. >> marc lasry, thank you very much. more "halftime" heavyweights now with a value investor who manages more than $20 bill, rich pzena brings the 2014 playbook, revealing the xs and os to find beta more on the special edition of "the half." next. tdd#: 1-888-648-6021 there are trading opportunities
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coming up on "power lunch" at the top of the hour, the fed makes the move and pulls back on stimulus. we'll tell you the big winners and losers in financial. why cancer-focused stocks may be the next big play for investors in the drug space. and what's ahead for housing now that the today has begun to scale back? we'll talk to the ceo of coldwell banker. more "fast half" after this. a c. those dreams, there's just no way we're going to let them die. ♪ like they helped millions of others. by listening. planning. working one on one. that's what ameriprise financial does. that's what they can do with you. that's how ameriprise puts more within reach. ♪
welcome back to "the halftime show." our next guest, rich runs the value-focused firm which has returned 39% so far this year. rich joins us on the phone. rich, welcome to "the halftime show." it's good to have you on, and congratulations on the performance this year. >> thanks. happy to be here. >> it's good to have you. tech and financials, two areas that you like in 2014. let's note that hp is the biggest holding that you have. you think after the great year that it has had, it can still work? >> well, hp, it's been a great year for hp primarily because the share price got so depressed at the end of last year that it was almost irrational. you could guy hp a year ago for 3.5 times current earnings. now it's 7 times. and the business is stabilizing. the earnings have stabilized. and actually, the pc -- the pc
marketplace which so many people have been so afraid of is not a big profit contributor for hp. so while the consumer pc continues to decline, corporate pc. as to be stabilizing. and hp has the opportunity in its primarily its services business to restore margins back to historic norms. and i think earnings can keep going up or begin the process of going back up again. so at 7 times, 7, 7 1/2 times earnings, it's still not rationally priced. >> you know, it's interesting. you start to hear more and more about this stabilization especially in the corporate pc business, whether it's you talking about hp and others mentioning that or dell mentioning that, oracle had good numbers that stock is up big today. it's also one of your picks. and you like the name still. >> yeah. it's a similar concept. i mean, these companies that are
not viewed as being cutting edge because they're not focused on the cloud or mobility, i think people have underestimated just the strength of their existing franchises. and you don't even have to believe any growth to think these companies are interesting. but when there's a hint of it, the stocks are off to the races. and i think there's still those possibilities in some of these older aligned computer companies. not rapid growth but just eliminating the fear that these things are declining businesses. >> we're sitting here sort of reacting to what the fed did yesterday and the prospect of higher interest rates and what sectors are going to benefit and the individual stocks within those sectors that are worth a look. a lot of people talk about the financials. >> right. >> as being a beneficiary of that. if there was a name that you had to pick within that space more than any other, is there one to single out, or do you like more than that? >> well, i like the entire sector. and i'll tell you, you can buy
pretty much any financial services company anywhere in the world for under its book value. and the business at some of the franchises remain depressed in their earnings power, particularly first the deposit gathering franchises. because with interest rates as low as they are with the fed paying 25 basis points for reserves, it's not possible to run a deposit-gathering business at a profit. it just costs you more than that to gather the deposits. so while there's no clear prospect for short-term interest rates rising in the near future, over the long term, it's hard to believe that this kind of interest rate environment is permanent. and if it turns out to be permanent, i think you'll see banks doing something else to try and make money on those businesses like raising fees. and so that combined with the
depth up to which the tradingei volumed in fixed-income instruments have gone, and this is more of a factor for the big banks like goldman sachs and jpmorgan and scitibank. those businesses have suffered as the risk-taking appetite as those managements have declined. but i believe there's pent-up demand for trading volume, and these are the best positioned companies in the lorng rung run. >> we should also say you're involved in a program for autistic children. they also have adult care and job placement services. can't tell you how much we appreciate it. look forward to catching up with you soon. after the break, we'll get a final pick from jamie dimon. we're back after this. life's an adventure when you're with her.
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costamari. why? >> like marc was talking about, lending the companies in europe that basically lost band funding. in europe a couple years, restored a lot of greek and norwegian ship owners. we learned it's actually on an upturn. what started from the lending business ended up transforming and moving to physically owning ships. we had to reown the equities as well. you mentioned scorpion. there's another one called salt, s-a-l-t. what's happening in the shipping industry, it follows rates. rates are moving up. baltic dry index, up last month. vlcc market, rates are up over 100%. basically ships will follow rates. >> great having you today. jamie dinan. it's been great having you guys as well. "power lunch" and the second half of the trading day start gh