Transcripts For BLOOMBERG Bloomberg Best 20160116

Tt this is a residential tower. Mark all this and more on bloomberg best. Lets begin with a day by day review of the top headlines. On monday, investor concerns spiked as oil and Commodity Prices plunged. Betty more than 100 billion dollars has been wiped off of the 61company Bloomberg World Oil and gas index as it hits the lowest level in more than a decade. Investors close to throwing in the towel . Are we close to that point or not question Mark Francisco question not . Francisco there are a couple of things and we have seen a couple of them. Declining andn is domestic suites are becoming a tighter market. That is the first step. Frankly,eed to see, some better news out of china, although a weaker yuab and a potential government fiscal package could help through that over the next month or two. I also want to see a more stable u. S. Dollar definitely not continued rallies in the u. S. Dollar. We are starting to see the conditions for a bottom, but were not there yet. Remember, that we need to see strong demand, and that may not come until the summer because the winter, unfortunately, has taken a huge amount of demand out of the oil market. Mark investors are being bogged down with day to day volatility. Us through what is happening in china. The current episode looks remarkably similar to what we had in september. Following the initial selloff, markets stabilized. And then whatwn, happened in january was another surprise. N fixed much weaker, and it was a rerun of the same story. That adds to a pattern whereby the underlying trend remains on the downside, but it is the case that the officials do not want us to fuel financial instability, concerned, rather they want to take it one step at a time. That similarity is quite concerning. Plunging, aso is we are seeing, the tao is plunging, as we are seeing, coming off its low of the session. It also begs the question more and more, when does this really start to get real for the economy, right . Right now it is just stocks. When does it become, you know, your job . Down,is very hard to nail but what you can see historically, most the time you have a bear market, it predicts a recession. You cannot go the opposite way. Russell 2000 is in a bear market. The s p is in a correction mode. Slow growth. Is this a correction mode correction mode. Is this the tip of the iceberg . Investors are worried, but economy outlook is good. China, and in the notices, thoughts about what the Federal Reserve will do next. Englande bank of keeping rates the same. Interesting comments he sees upside risk to domestic cost growth. As no know, the bank of england is focusing on domestic cost growth, as we know, the bank of england is focusing on domestic cost growth. Focuses on englands core inflation, which on it annual bit which on an annual basis is 2. 1 . They revised down growth, inflation. They talk about risk being more evident, more volatile. Mark two early to say the impact on the economy. Indeed. They have been bearish on china as well. They are waiting until february are the key decisions. What does it mean for inflation. I think from the minutes yesterday, they were more dovish. They do not expect a rate hike. Stocks back in a bear market for the second time in 17 months. Is china has china a serious problem, a set of challenges to convert from construction stimulated by easy money to chemist domestic consumption of goods and services to moderate the growth rate, and, freelly, to move to a flowing economy, maybe one that is going to have a recession, like the rest of us, which they have not had for the last 20 or 30 years. Yes, it is a serious problem, but is it something that is easily surmounted, or is it a disaster . People have gone from the first to the second. Sentiment is really bad. The problem in china what we are learning here, is at the end, trying to artificially sustained prices is not possible. The market will always win. When you see Interest Rates in hong kong up as high as 60 , they are telling you the currency is in trouble and they have been slow to let it depreciate. 60 rates having lived through the Exchange Rate crisis in europe myself, this is telling you we are near the end game, but something cataclysmic is going to happen, we will have a crisis, and eventually this is all going to come down. Mark coming up on bloomberg best, the week in oil on every angle. We dig deep into a complex and perplexing story. That is next. Mark welcome back to bloomberg best. I am mark barton. We discussed the volatile business of oil covering every aspect, supply and demand, the short and longterm outlook for investors, producers, and consumers. Here is a sampling of what our reporters and guess had to say this week. I keep. About 20 crude. Is 20 so important hearing about 20 dollars crude. Why is 20 so important . High in the 20s is where you would anticipate the cost to be. If you look at the great work done bringing down the cost, managing this tough environment, it seems as though the cost declines have reached that maximum threshold. It is very difficult, challenging to see how they can improve on that level in 2016 relative to 2015. Why are people so concerned about oil prices being low isnt it a stimulant in some countries like india . Vincent they are helping the average consumer, but keep in mind, you have had cuts in subsidies. In theep in mind here u. S. , for example, you have had significant job growth in the energy sector. That has reversed. Highpaying job growth that has reversed. We now see job losses in the space. Negativelso see a effect, not only in the energy sector, but also the derivative industries that support the energy sector. Matt i know it did not make a huge difference to you guys at 45 a battle, 40, 30. Now that we are so low, it must be a boost to sales. Hitt some point you do diminishing returns. The customer has already factored in low oil prices. The hard thing for us is if it starts to spike again. Volatility is the one thing that causes customers heartburn. Customers can get used to almost any ambient level of pricing, but when you have extreme volatility, that is until get paralyzed and say i do not know what to do. Down 2. 6 . Brent, we have not seen a move like this since were back at 2004 levels. Are we capitulated on oil . Supply and demand of the market is heavily oversupplied. We have drifted off the picture the last two weeks. Become financial iced. It is becoming intensively given by financial markets. It is a risk on, risk off proxy. If yoelation with emergingmarket assets, it has intensified. It is a proxy for Risk Appetite at our own risk index is in panic territory. This is not like the drop we saw in 2009. This is more like the exact opposite speculative move we saw as oil went parabolic of to 145 a barrel. You have momentum plays that do not quit. We have seen the highest number of speculative shorts in this market the last three years, and the lowest number of speculative longs in the last five years can we have seen the fed raise Interest Rates. That makes the dollar go higher. You get more black boxes, algorithmic players. Now we are in the silly season. You can make up any number on the downside. It all matters how long this speculative frenzy of selling will continue in the crude market. That touch below 30 significant, not significant are we testing what is happening . Round markets love big, numbers, and if you asked if we would see a two handle on crude, people would say dont be silly. People are panicked. Single digits at the moment. Mr. Kennedy absolutely. No one is sure if it is bottoms out. What do all those Oil Producers and Oil Companies do when they see the return of oil prices to the 20s . How are they going to handle it . We see what Oil Companies do in the situation continue at cutting. Bp will cut of further 4000 jobs. Third catch brazils petra bought is coming. Stephanie what you think we will see in terms of forced m a or bankruptcies given where oil prices are . Hamm there has been a lot of resilience. You have not seen forced m as, like we have in the past. Stephanie as we get to 20 oil, some smaller producers facing tons of debt they have no choice. they do have some longterm choices. Very few have that they have to go underpin the lower it goes, the short time it is going to be there. That is the way the market works. Stephanie i am the house optimist, so i do not like to talk about markets going red or taking the leg down. Are you telling us that is what is in store . Red has beencolor there for a while and i do not think it is going out of fashion. To talk about iran, you have to ask if the market is pricing in new volume. The question is how much new volume. Expectations are between 300000 and 500,000 barrels per day. We tend to think it is closer to the lower end of the range, but if it were to be at the higher end of the range, or where to come back faster and more aggressively than expected, then that certainly could be what an oversupplied market wouldnt want to see and could scare it further to the downside. As if it could not get any worse you are the biggest miner in the world with the commodities hurting you. Andng to take close to 500 5 billion in terms of a writedown. Inthey bought the assets 2011. They spent 20 billion going long. At the time, that was well received. It was against the backdrop of winning Commodity Prices across the board. Underlying when the commodity drops, you will see these writedowns, more to come across the sector. Mark you are watching. Loomberg best i am mark barton. On the heels of a record year in 2015, the martyrs and acquisitions keep on coming. A roundup of the the murders and i positions keep on coming. A roundup includes big deals. Making it a powerhouse. Both companys shares have turned negative. For more on the deal, let me bring in drew armstrong. Charm. Ond try was a was it the introduction of cash . True it is quite a bit of cash quite a bit ofis cash. It comes out to around 12 billion, if i have done my math right. For, it was in all stock deal. Shares off the table. David listed in the u k. T executives are in the u United States. That tells us the story. Drew that has been the case for a long Time Companies overseas doing deals to lower the aggregate tax rate. 8 . Ill go down 7 , and that is a huge savings. Is to be thest man first person to control hollywood film company. Giganticore of this holiday deal. What is this worth . A robbery whopping 3. 5 billion. Wang saying his firm will buy the rights, and he hopes this will help china gain a stronger foothold. Produced entertainment not only godzilla, jurassic batman and they have produced 10 billion worldwide. Mark they are looking to cut jobs worldwide. Lets bring in alex webb. Where are the bulk of these cuts going to take place in europe . Alex we think germany is going to be one of the biggest, certainly. They have not broken it down entirely. They break down france and germany, where there are strong unions. 1700 and germany. 770 in france. Mark we must make it clear this is not to do with the oil. T sliding price of the power tonted store turbines. Can be recreated at higher margins. It is eliminating manufacturing retain the they can lucrative service and maintenance contract element. The carmakers will be in the spotlight this morning when the markets reopened. Shares dropped as much as 23 . Drop of 20 , a rally a 50 on the drop. Have the markets overreacted . That is the message the french government is trying to tell you. They own nearly 20 . What happened on the market could jeopardize the french states plans to sell, to reduce nault. Ake in re the economy and environment ministers try to reassure last night. Way said the case is in no comparable to that of volkswagen. The market over reacted. Inremains retains trust renualt. Mark Bloomberg Television featured interviews this week. Stephen ankles spoke with the ubs chief executive, breaking news of the banks plans to expand operations in china. Completedbs has global restructuring. China has gone through restructuring. What are your plans this year in 2016, which has started pretty volatile . It started how 2015 ended quite volatile. I think china is not the only zone. It is a good time to plan for the future. That is why we are starting to implement our Strategic Plan in the next five years. We think we will double our account, grow businesses in acreages, fixed income, assetmanagement, across the board. We also plan to expand our services the Service Companies that are getting outsourced. I think china is a great opportunity, like it has been for the last 20 years. Do . Hat more can the ecb bonds . Y buy corporate first, if we look at the eurozone economy, it is picking up. Last year,th of 1. 5 and we expect 1. 7 this year. Inflation remains too low. It is true. Haveg the situation, we been active and effective. Active look at our decisions of december three last year. We decreased Interest Rates and expanded our asset purchase programs until march, 2017. We said we would reinvest the principal. We have been very active, and it is effective. Michael friday, the government reported almost 300,000 jobs were created in december. Monday, the markets tanked. Does it worry you when the markets do not react too good news . Kaplan investors are reacting to corporate profits and expectations of corporate profits and i am mindful of the fact that corporate profits in 2015 were down in the s p. There has not been a lot said about that, but it actually declined. Some of the estimates last year for corporate profits in 2016 have been revised somewhat down e again, this is as much down. Again, this is reflective of the rest of the world, as it is of the u. S. Economy. I am not surprised the markets are going to Pay Attention to other things. Ark and bloomberg best continues with another exclusive interview. We will devote the rest of the program to Erik Schatzker sit down with Roos Flatt Bruce flatt. I am mark barton. Much more to come on bloomberg best. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Everyone knows blackstone is the biggest manager of alternative assets. If i ask you as number two, would you know the answer . It is brookfield. Firm with its headquarters in downtown manhattan. Is the big complex on the water. Eric says it has amassed more than 220 5 billion in investments in 30 countries. Ceo has drawn comparisons to warren buffett. Investors were always trying to find those spots around the world. Erik since he became ceo, s has returned more than berkshire hathaway. Generally conservative. Erik until now. We talk about real assets. Our business is owning the backbone of the global economy. 10 years from now, there will be amazing opportunities. The numbers are big. That number can be put to work. Erik and risk. Bloomberg up on best. Erik welcome. I am Erik Schatzker. I paid bruce flat of visit. It has been a tough few months in financial markets. U. S. Stocks are in a correction. Oil fell below 30 for the First Time Since 2003. Flat does not seem fazed. Bruce they want to own tangible assets. What investors in the stock markets get confused with is the underlying asset value of what is there. From time to time, it is good to have stock market access, and from time to time, it is not. Those vices very. Pricesn doesnt those vary. Today, you are seeing a Real Asset Companies are not trading as well as they were. The fundamentals are very good around the world. Robust rope bust amount of money. Erik does Public Market real estate is it undervalued or cheap . You will see more privatization around the world, pipelines, real estate businesses, as that transition changes. Erik do you feel more comfortable buying or selling . Ruce we are always doing both. Always somewhere that does not have enough money. What we do is move the money to the locations where there are opportunities available. We are always investing and selling. There are places in the world we put money in, there are places where we are selling. Up until the last six months, even though we like United States and it is our largest , we will Investment Assets inet seller of the United States because they have matured and done well over the last five years. Erik you are a net buyer where . , south america, the oil and Gas Infrastructure around commodities. Anything that is out of favor. Investors are contrarian. Always trying to find those spots around the world. Erik you will not find many ceos they get excited about freefalling Commodity Prices. He sees opportunity. Bruce those Companies Need capital today. Our capital is available to harvest asset, which are unproductive to their mainline business. Those on their Balance Sheets because those assets were core to them, but really unnecessary. We can take them off their Balance Sheets and buy them significant amount of capital to put back into their company. Today, all of the Commodity Companies are looking for capital. Tried toe people have get into industries and businesses around the oil and gas over the past few months and found that those and found trying to catch a falling knife and it hurts. Bruce we bought the apache operations. They sold us probably nine months ago. We hedge all of the gas and oil Going Forward for a long period of time. We are in a conservative return over a long period of time. Even though we are contrarian in nature, we try to protect the downside. We think about downside protection. Second, we think about how much return we get for our clients. Do you worry about oil prices and impact . Bruce no doubt. Along the edges are calgary and houston, leasing is not as robust as it was three years ago. Commodity infrastructure businesses are not as good as they were a few years ago. It creates opportunity. Edges, it isthe creating a few issues, but it is modest. Us, there is more opportunity coming band the issues that it brings for us. There is more opportunity coming than the issues that it brings for us. For the natural gas sells less than what the replacement cost is to bring it over the people will not justify the cost of capital, therefore, the price will go up spend. You have to you cannot bring natural gas out of the ground for two dollars. Me ask you about china. Brookfield has had a favorable view for the past couple of years. Does that still hold . Bruce we are devoting significant resources to build we canand resources so build over the next 10 years. It will contribute to the world of business. In the worldhing over the next 25 years. This is the perfect time for us to build our resources there. We are putting more people there and we are going to invest more. Not surprise you say brazil offers good value. Things should. They have an economy in recession, a freefalling current it, the mother of all corruptions scandals, plus, they have drought in places like son paolo. San bruce it is a bit of a mess right now, but this country will come around. We are finding opportunities you would never have had access to before. Or, we are buying at fractions of replacement cost us. Have found in the real asset business, buying pipelines, toll roads, or real estate, if you buy at discounts to replacement cost, you have a of safety when you buy. We are buying with a large margin of safety when we buy in brazil. I would not suggest if you had a oneyear horizon that you should go to brazil. It is not for the faint of heart. With ouro be prudent Balance Sheet money and our clients money. We will never bet the farm we never bet the farm on anything. To keep investing to get out the other side. Funds into10 of brazil and that is a significant amount of money. Erik what are we talking about . Bruce many billions. Erik how do you feel about the economy here . Bruce good. Everyone is complaining, but it is pretty good. Erik you need to see the economy pickup for vacancy rates to go down, for rent to go up. Toce housing sales went 500,000 new homes a year. They are back to over one million. They continue to creep up. That is good. If you are in the housing business, that is not a bad. Business is not great, but it is pretty good. Next, a lesson in real estate from bruce flatt. Erik welcome back to bloomberg best. This building used to be called the world financial center. There is no mistaking who owns it now. Gave me a scale model tour of the project. The biggest is manhattan west. Up to the 40th story today. Complete, it will be almost square feet. Not many people have that amount of money to take it private. We bought the Telecom Towers in france. We took it private. Bankruptcy. Out of up in the5 billion worst financial crisis of the time. It is an enormous competitive advantage. Competition gets less as you go up in size. Would you buy commercial property in manhattan or london . Are among the largest owners of class a property in london and manhattan. Continue to buy. We have been buying buildings recently in both cities. We are developing in both cities. These are phenomenal markets. They are among two of a very number of places that over the longer term, you will almost never lose money in those markets. They are great cities. As long as you have staying will seldom lose money. Even if your timing is not great. Very seldom do you ever lose money. Erik that is one reason he doubled down on brookfield place. Four years ago, we had significant renovation to do. Million almost 400 redoing the building, retrofitting it into this new age of technology. Retail to bring the retail into the area of battery park and lower manhattan. It had to be repurposed for the environment downtown after the buildings were built across the street. To theto lower it ground. There were no retail or people. We had to repurposed the center for those people. And for the tenants upstairs. Turn to the atrium into a Shopping Center and lured some of the top brands. Bruce it was money well spent. What it was worth, nobody would paid you anything for it. We probably created 1 billion by redoing it. It changed the image of every tenants, about what the employees thought about being here. Time came in here. Relocating their headquarters. Taking anss is about asset and repurpose thing it and creating value. That is what we do. Erik better option than selling . Bruce usually. Erik on the mezzanine, a curated food court. Bruce we found restauranteurs in the city who have other locations and we brought them here. We handpicked them for this location. It has been a success. Flatt is on a collision course with some of finance. Est titans in i will tell you who and why, when we return on bloomberg best. Has beence flatt content to build his businesses with little found little fanfare. He was a former accountant from winnipeg. He has ambitious plans to take on some of the biggest and best known firms in private equity. Businesses we have were spun out of our private equity business. We started by being investors in these businesses. Eventually, we separated them off to the side. We built a platform and we raise funds for those sectors. Is private equity business now relatively small. We put a lot of effort into it. It will be as large as many of those businesses eventually. Erik you wanted to be mentioned in the same breath as the lack stone, the kkr, the apollos . Not mention ito today, you should. Firms have a reputation for being savvy and cutthroat. They are all savvy and excellent organizations. We are owner operators, we buy businesses, we hold for longer periods of time. We are a little different. We built the other four businesses egg. We will build this one just as big. Erik that sounds like bruce flatt throwing down the gauntlet to me. Bruce however you want to say it. Erik what is brookfields personality . Bruce lowkey, conservative, worried about the downside connection. We think about risk. We are owner operators of the businesses that we run. Have a significant amount of capital invested inside our clients and i think that changes the dialogue we have with them for the positive. Erik how are you different from the firm most people would compare you to by virtue of what you do, blackstone. First,we are an investor asset manager second. Mostanizers organizations start as Asset Managers first and become investors that can. Is a bunch of Value Investors that raise funds. Because of our Balance Sheets, scale and size, and the money we we are still 25 , 40 of the money we have in every strategy we operate. Erik how much money do you plan to raise between now and the end of this year, now and five years from now . Have a number of funds in the market that total about 25 billion. They should we done this year. We raise successor funds. Raise every few years, 20 or 30 billion. Private money, from institutional clients. The numbers are big. That money can be put to work. Erik size does not scare you at all . Bruce 20 years ago, we thought it did, but today, it is a competitive advantage. As much people have capital as us to put to work for as long as we have. That gives us a competitive advantage. We get a phone call when a transaction is of a certains eyes because there are only a is people a transaction of a certain size because there are only a few people you can call. Wecan only do it because both have Balance Sheet money and our clients money. Doubledu have more than size. Will you be twice as large as you are 10 years from now . Bruce i am sure. Be approaching half 1 trillion in assets . Bruce probably. Erik that does not scare you . Bruce no. Erik is there a point where opportunities begin to run out . Bruce this is the infrastructure business. These are the largest two businesses in the world. No one thinks of them that way. Backbone of the global economy. It is how you get electricity in the morning. Water comes out of the drinking tap, the airport i fly out of. Youve got it. Real estate is on every corner. Is going to be the golden age for real assets. In theInterest Rates are range of the worst person that is predicting Interest Rates, real assets are still an amazing place to be. Upbeat abouto brookfields prospect, i had to ask if there was anything that keeps him up at night. An businessannot be and have a positive attitude towards business. The risks are big. The biggest risk is liquidity. 2008, 2009 or scary for most organizations. Liquidity was drying up. Freelyty is generally available. Erik and will continue to be . Bruce we do not see signs of it not being available. If you are in the high yield market, it is not good today. For good corporations, it is freely available. Erik that is all for this edition of bloomberg best. You can get more news from around the world at bloomberg. Com. Schatzker. Thank you for watching Bloomberg Television. Betty he is the billionaire media mogul who calls himself a country boy from tennessee. Dish Network Founder Charlie Ergen speaks out. Charlie i think we have a lot to talk about now. Betty for the first time on Bloomberg Television, ergen weighs in on the Seismic Shift taking place in television. His plans to become the next big Wireless Company and why he may be looking to merge with that guy, the pink tshirt wearing tmobile ceo john ledger. Charlie they certainly have done a fantastic job, being an upstart company, the uncarrier, so to speak. Betty but the famously tough boss faces questions about his management style. Charlie we have high expectations, and if you are not somebody who is used to high expectations, youre just not as