Transcripts For BLOOMBERG Bloomberg Best 20160130

They make predictions, they swing from the fences. Jeff bezos will be the richest person in the world within five, seven years. Plus, the weeks most grueling charts. It is all straight ahead on bloomberg best. Betty hello, i am betty liu. Welcome to bloomberg best. A weekly look at the most important Business News from bloombergs television around the world. Market volatility continue this week with investors looking everywhere for signs of stability. As we take a day to day look at the top headlines, the dominant theme is change. Twitter shares are tanking again closing down, 5 after the company lost for key members of its executive leadership team. What do we know, and what dont we know . There is also a board shakeup coming. We know for sure that these people have left twitter. Been they left all at once. We know that they are adding to members to the board and the board and they are getting close to hiring a cfo. The fact is, twitter lives in a public space. They have a bigger glare on them right now. I dont think this is anything unusual. If this was a regular company, nobody would even notice. Pressure from carl icahn, aig is taking action as shares are higher. Joining me is Josh Stirling at Sanford Bernstein doing Extensive Research of aig. Let me get your reaction to what we have heard today, not what carl icahn wanted, but it is it enough to satisfy you . They had been dealt a difficult hand. They had been challenge for more than a decade now. Ever since Hank Greenberg left. Was general ay today was positive news. Action. A time for bold the main return to that 25 billion number which is a standout number in dividends and share buybacks. How feasible is it it for the company to get to that number . We would have had double that number was doable and a couple of years. Ultimately, what they did not do was choose to pursue and aggressive path to simplify the firm, which was taken off the table. They are clearly focused on defending their status. It is an unusual position to be taking. The fed would like you to know they are watching things, see what you see, and everybody can take a deep breath and stop freaking out. Theyis is what they did changed their description of what they see in the economy. They saw Economic Activity was expanding. They see labor markets are improving every month. Economic float at the end of last year. This is the key language to address we are closely monitoring Global Economic conditions, assessing their implications for the labor market and inflation and for the balance of risk. Do we have an idea of how much the market the dollar , areent, chinas problems going to affect the overall outlook at this point . I dont think we know yet. Information is coming in every day. The stock market is mainly relevant to the fed in what it does to wealth and conception. Also a little bit about Business Investment spending. Whats relevant mainly to it does to the whole world, not ismuch china per se china relevant merely to what it does for the whole world, not so much for china per se. Amazon delivered its best earnings ever. Companies surprise investors who were hoping on more profits in the quarter. Tears coming in at one dollar. Are not the kind of profitability investors might have hoped for at the end of the third quarter. Thats right. If you look at the stock, it like ebay, but the fundamentals are much different. They did not produce the same yield it had on the upside on that margin in the september quarter. The blue the numbers up. Analystsent of expectations. , the reasonphasize why they did not blow it out is that they had higher than expected unit growth. Adjusting. N acceleration they made less because they sold in volume . Arehe incremental units expensive to fulfill. They have to put their own logistics to work. That incremental cost hurts them. This is a great quarter for amazon. It is just not what analysts were expecting. We are seeing that topsyturvy, we are going to do a little bit of topic, little bit of growth oncealysts were thinking, they showed a profit, they were going to keep going. But amazon never really made that promise. Bank of japan is just announce its latest policy direction. Vote54 they basically adopted. 1 . Forecast came up for for gdp for this year. 1. 5 looks to be the nominal gdp,. 3 . 27 they had also delayed the timing when they think they can reach this 2 inflation target. The negative great thing seems to be the big jump. Why have they done it . Theyre sitting on a little bit of money. They are trying to mobilize the cash reserves sitting idle in the economy, so it might be Bank Reserves sitting with doj. It was surprising thing they did this because there is a risk they pass on lower interest rates, negative interest rates, too. Is an ingrained economy. The other thing that is surprising is that there are suspicions that the doj is running into resistance buying bonds. If you nor the deposit rates, a base hit even harder for the doj to pry these bonds free from the banks. It might make quantitative easing more difficult. Betty we will have more on aigs ray and later. Not only did i talked to john down with Hank Greenberg to find out what keeping so the new plan. Up next on bloomberg best, learning from earnings. Lots of Companies Reported this week highlight and analysis, straight ahead. Betty welcome back to bloomberg best. Im betty liu. Some of the worlds because Companies Reported quarterly earnings. Begins with apple who reported a drop in sales for the First Time Since 2003. Bloomberg tv asia took a deeper look. They are also affected by the slowdown in china, right . Absolutely. How big of a problem is it for apple . They are relying costs on developing and china. Looked to china as that little bit of an extra boost. It is a time when people go buy a present for themselves, or presence. Veaway we have seen that austerity going on in china. We dont want to throw money around too much. Nationalisticed things to buy chinese products. These chinese products. People are being patriotic to their own goods. Add in the economic pressure that we are just starting to see. A slowdown in china is not good news. There are all of these things impacting. It is really hard to look at this quarter and what apple is telling us, and see any positive signs this year. If there is an upside, is the kind of knew it was coming. Facebook crushing fourthquarter earnings as the Company Continues to rake in ad revenue from video, mobile, and instagram. Open all overall revenue was up 57 . Profit 1. 6 billion. What surprises you most about these numbers . Facebook is executing extremely well. Trent i have been looking at is the growth and engagement in facebook as they shift and mobile. In 2009,nd nine, the people who use facebook in 2009 have gone up 50 . Only 10 only use facebook on their tc. Pc. What is the biggest challenge . I see a lot of parallels to google. They are trying to find the next huge business. Google found things like android and a bunch of multibilliondollar businesses. You can see that on facebooks investment the are using this ai toow to look at internet. Org. It will be interesting to see you what plays out. Visa yours revenue hit a record just in time. Here to tell more about the earnings is nicolas hans. We are living in a world during of incredible financial tension. Does that have a meaningful impact on what happens at your company . Does it bleed through into what consumers think . Everything impacts consumers. We are winning over cash. Coments for these is quite convenient is quite for these and our numbers keep increasing. Moving towards a Cashless Society what it means for monetary policy. Sweden is quite far away along the road. Theess societies u. K. Is getting there. One out of every seven transactions that was done was one out of five a year ago. There is a revolution. It is a win or alibaba earnings reported up 32 in sales. Net income more than doubled. Kedrosky. G in paul the alibaba numbers in general this is a complex company. It is the closest comparable this mix of paypal and amazon. You have a merchandising business, a Cloud Business and a payment business. The merchandising side of the business came in ahead of expectations. Payments did considerably better. The business,f which is a small component, was up 100 . General, it was fairly positive across the board. It is a difficult company to bring together. Do you want to weigh in . Alibaba is a Public Company alibaba as a Public Company is a very strange thing. The gate with his huge ipo and turnaround months later and say, the market fell off, we want to buy back shares, shows confusion of what this Company Wants to be despite of this size and success. Therefore ray into it is going to leave the investing community concerned. Sweptsung shares have after missing estimates for the Fourth Quarter because of slowing demand for high end smartphones. Go through allto the numbers for us. We heard it from apple, and now we are hearing it from samsung. I dont think anyone is surprised. Profit downer net 40 . Billion gas undershot that expectation. Undershoton that expectation. An incredible decline 31 across that division. At only are they not selling all of this is trickling down. It is also the low and china manufacturing story. Samsung have criticized for having to brought a product range. There is too much going on. As a result, it is not winning on either end across the spectrum. Betty you are watching bloomberg best. I am betty liu. Aig and building a strategic planned. It will sell its broker dealer network. And more aggressively cut costs while returning 25 billion to shareholders in the next two years. Will this approach stave off interference from carl icahn . I asked Peter Hancock about the plan. What we laid out this morning over the next two years to make this company more focused, more profitable and return 25 billion to shareholders. That is speaking to all of our shareholders, policyholders, regulators i am sure we wont satisfy all of them, but we need to deliver a sustainable franchise if we are going to make the right decisions of trading longterm versus shortterm to deliver results. Betty when i pick up the company . Why not break up the company . We have focused it down to the essence of what we can deliver to clients. Our business is absorbing the risk of our clients. We need to use diversification. Diversification is critical, and if you break up the company, you would lose between 5 billion and 10 billion at the minimum. That is an that is in the eyes of the rating agencies. This is risk diversification. You have a sizable business that has uncertainties balanced by the stable cash flows. Perspective, that is a further reason why splitting the company would be very expenses expensive. Retirement like an if we split life and retirement there is an annual cost we would incur. Woulditting them influence our role, that cost is a 10th of that. The tax benefit is roughly 10 times the cost. That is not a reason. Thedesertification diversification is a much bigger issue. Betty but they said that diversification has not worked. How is this new design you have unveiled this morning going to bring you back to doubledigit returns on equity . What we have done in this disclosure help people understand return on equity by dividing it between the operating and legacy businesses. More than a quarter of the companys capital is dedicated to legacy activities. Things that have accumulated over decades through sale or through gradual runoff. By breaking out the operating business, it is much more competitive and we have plans to make it very competitive so. Comparisons are more meaningful. I sat in this very studio with the man who built aig Hank Greenberg. I asked him what he thought about the direction the company was taking. Betty what did you think of the plan . I agree with peter about breaking it up into three companies. I think that is a mistake. Manage,t is too big to it is a fraction of what aig was. Betty it is smaller . Maybe by half. Betty size is not the problem . No, it should not be the problem. It sold off some of its best assets alico and others. It is not as deep in the far field as it used to be. We were in 137 countries, not doing business and growing in these countries. It is nothing like that now. Betty but they are underperforming again. Do you think at a cost plan went far enough . Do you think todays plan went far enough . It is if they can execute it. Betty some of the critics have said that you should separate life and the pnc. Part of that has to do with the systemically important designation on aig. Why not get rid of that the way metlife he did for instance . Metlife is a different company. That is a mistake. All, having both classes of business gives you a better balance one support the other. Betty right that is what hancock says to him a that is his argument. If youre running your business is right. In any event, it seems to me that aig should be contesting the designation. They are have to size they were. Why are they being held to a size they are no longer at . Betty in your view, is peter the right person for aig . What is yet to prove that he is . Betty it sounds to me like, yes, there is a question mark to you. See aigld like to regain some of its strength in stature it had. I dont see it yet. Betty have you talked to carl icahn at all . No, no, no. Betty and you do not agree what he has outline for the company i . As a manager of a company, it makes no sense. Betty would you have interest of coming back to aig . No. Betty in any capacity . I am busy doing what i am doing. I am busy building a company that is doing quite well. Betty well continue to cover this aig saga on bloomberg tv. Here is some other business stories that caught our attention around the world this week. This is a big day for xerox. The company beat fourthquarter profit and announce it is splitting into two different companies. One that will manage hardware operations and another that will house its services business. What brought you to this stage . What made you to decide that this is the best thing for your company . To what extent was it outside factors and what did mr. Icon play . It is a decision driven from analysis on what is happening in the market, customers, investors , and quite friendly, our employees are actually driven by. What is been reported is that this was driven by carl icahn. It was not. Came to the conclusion without speaking to carl icahn at all. When we did speak to him, he is a large holder of our shares, he agreed that the outcome that we reached. On a go forward basis, he will be involved from a perspective. Hen company splits into two he will have governance input into the services business. He will not be engaged with the Document Technology business at all. As i said, i am pleased with the fact that we came out in a place at a strong for the business and happen to align with what carl icahn wanted to do as well. Saudi arabia is considering an ipo of the largest oil business. In little bit of news coming through this morning coming on this story. What is the latest . Weve been hearing from the ceo at ramco and he said in the last hour a couple of things on price. The saudis are not responsible for low prices. In the same breath saying saudi arabia would cut production. As for the ipo, he just said they are looking into options one would be selling off a stake in the downstream operations, code in the industry for refining. The other would be selling a stake in the parent company. Both those options delon the table. He did throw a little bone to International Investors saying if there is an ipo, they are looking at listing some of those shares outside. Here, corporate story they are reversed definitional takeover. The question simmering in the background, as it paid too much given the 50 slump in the price since the deal was announced last april . If Oil Prices Remain with a are today, shall is going to have to work very hard to make this acquisition. In all probability, Oil Prices Wont stay where they are. They go down in the short term. In the immediate term, we expect it that is when the deal was put together. It is a longterm deal. Things change over to longterm. , and take a longterm view shall is taking a longterm view, they will get this to work. It may be harder in the shortterm. There is another merger taking a wellknown American Company to ireland to lower its tax bill. A lucky based Johnson Controls is combining with tyco in a multibilliondollar deal. Means for both of the companies and also what it means politically. Lovington. In joe why does this make sense . Control comehnson to sell more. Protection, monitoring they can add that to their bronze portfolio. Standpoint,cial there is anemic growth, maybe 1 or 2 . M a remains redhot because you can take out cost savings and build growth through cost savings over the next couple of years. Those two items combined with the tax savings out of the inversion of the three main drivers of todays operations in japan is about market share . Gain about failing to sales in indonesia . Ford, independent, they sold less than 5000 cars. You have aa, situation where the market is dominated by the japanese players. Ford never put a ton of investment on the market in terms of producing locally. In japan, it is really a matter of struggling to gain market share. To beet that is expected in decline going forward. The writing was on the wall for this move for ford. Welcome back to bloomberg best. Im betty liu. Our review of the weeks most interesting conversations start. Ith guy johnson sink. Ece is continuing to we missed this chance collectively. Creditors, lenders, the European Union we miss this great opportunity we had to stabilize off the headlines are you dont have a problem with greece again. You are giving it to fix greece . God and his angels could not fix greece. Even if the angels were in charge, given the constraints that lets be practical here. Greeceroken economy like be mended . Can we possibly fathom recovery when businesses, small, medium, and large, were forced in the last couple of months to prepay 2016 in 2015. For it canrely it expected to recover. I want to read one excerpt where you discussed the direction whether we can go up or down here. Direction involves restoration of high inclusive growth. The other road is one of even lower growth, consistently higher unemployment. There is equal probability of these two outcomes. After all of the Central Banks help, it is only a chance for either or . I would love to say that it would be this or that. There is enough there isnt enough evidence right now. The key issue for policymakers and Market Participants is that the road we are on right now is going to end. Central banks will not follow growth from the future borrow growth from the future. Through aproduce that better policy response, or we have to give it all back. It is up to us. Why is his current road ending . Betty why is it ending . It is run its course. The predictions and underlying predictions are around us. We are seeing markets become more volatile. We are getting less growth out of the system. We are seeing political moment movements become more extreme. The tensions are there. These are tensions within a regime that is just ending. It has been a good year. The raising of capital is at the forefront of every investor and markets. You will not raise more capital . We will not raise more capital. This was published by the eba and we gave out a press release it is 280istmas where basis points. That is 60 million euros. In september, we committed to be about 11 by 2018. Given the capital generation, after paying dividends, after funding growth, we are comfortable that we can achieve the target of being about 11 . Wet puts us in a place where would have a Good Management buffer against what we believe would be the minimum. Tell us as you look at the democratic race, what you see. I think iowa is going to be very close. Sanderssrnie transportation have risen. He is the one that now needs to win it. I think Hillary Clinton will be strong in all 99 counties. I think she will be strong throughout the state. I think Bernie Sanders has run a Great Campaign and has outside strength. What really matters is march 15 is probably separation tuesday. I think Bernie Sanders would have to win a lot of states up until that point. It ismissouri, ohio amazing the big states that are happening that day. It is hard to see a scenario ifre Hillary Clinton, even she stumbles, does not secure a nomination with strength. You need investors to believe in your company you know what, investors will believe in your company when the they have to and trail for a while. Get crump. Ason, you that is trump and crumbs together. Facts will tell. Unless your amazon and investors believe in you. Facts at amazon are astounding. But very first hour of the first day, what jeff bezos has said, we are going to build infrastructure to serve customers. And we dont care about anything else. Oh so it is an endless period of investment. I will make you a little prediction. Jeff bezos will be the richest person in the world within, i dont know, certainly within 5, 7 years. Betty coming up on bloomberg best, syrias top on a serious subject. The terminal could turmoil in the markets be a sign of an upcoming recession . Betty you are watching bloomberg best. Im betty liu. Good todays market volatility come tomorrows recession . This week, Bloomberg Television examined the question, is the u. S. Economy recession bound . You just heard scarlet outlined a profit recession scenario, does it have the potential to lead to an economic recession . Truthfully, if you took out energy, you would not see that profit decline. Energy is a big plunger here in terms of the decline side. They would tell you, production declines, employment declines, and income declines. Human beings are making more money. We have had job growth. Data,n the manufacturing themsm has dropped figures have dropped. 11 of those times did not become recessions. Three times did. And that sense, if you want to have a negative narrative, it is really easy. Recession watchers point to weak any factoring for the downturn. Report showing the biggest got been 10 months. The weakness in manufacturing is not widely dispersed. , waterlook at subgroups vehicles, appliances only five of the play subcategories are down yearoveryear. If you want to say manufacturing recession, you have to see it in a broadbased way, and that does not appear to be the case right now. And services gap and manufacturing. It illustrates just how wide it has been. How long is this kind of cap sustainable . Look, and three quarters, we will be talking about Service Sector slowdown and manufacturing recovery. Like, meet in the middle . It is one of those things where recession is not recession unless it is built into the labor market. If you look at all the consumer comment measures, they all hold up. The big question is how long can that last question how mocon that last . How long can that last . Absolutely in a midor late expansion economy regardless of whether we are close to a recession or not. You do not see an economy on the precipice of recession or entering a recession. It is great to say that Consumer Confidence is measured by surveys, but consumer end ratesng, retail sales are higher than people expect. What is the prospect for actual spending . Retail sales is measured in nominal dollars. It looks much more robust. It does not look like it will take off to the moon. We dont see the kind of demand collapse that you would see in real terms on the way into a recession. It is easy to write off weakness and china as weakness in china, right as i . Whenis the Tipping Point chinas market volatility it is related to commodities and oil. The question for the u. S. Economy is this highyield problem something that will be curtailed to a story or become mainstream or a credit problem . So far, you are seeing the credit problem being quite contained. Changes,ittle piece there is Something Different going on here. Pretty for the recession at . Flip a coin, 40 . Youre looking at the account deficit as the dollar has strengthened. Inflection point was at the and of 2013. We had a Real Recovery up to that point. That was a recovery in our current accounts deficit. We saw huge benefits from energy because we are not importing much energy. In a couple of years, we will not be importing any. The deficit and Everything Else increased. It increased very substantially over the last year. We are looking at current account deficits for the Everything Else categories. That is a big problem. I am not saying we will ever have a recession or cant have a recession. Current data does not support the idea of a recession. Data is a whole bunch of that you normally look at that dont support it. There is fear in the markets, and as a result, any piece of information sees a narrative. [laughter] betty as we wrap up this edition of bloomberg best, lets look at the charts that told the story in the week in business. Take a look at this. In white here and slightly outlined in pink is the crude price. Pink. Put the wdi in the blue lines are opecs output. They are going to continue pumping capital into their well and bring oil out of the ground. This is the department of energys outlook for opec. You can see where oil fell in 2008, opec that their output commensurately in a have done that every time there was a real serious drop in the price of oil. Except for now. Now we see brent coming down to record levels in wti. They continue to pump out more, which is interesting. Reason you have the big fall there i have a surprise element in this chart. Is this green line that looks like a dragon rearing its ugly head over the chart. This green line is saudi arabias foreignexchange reserves. There has been a lot of noise made over the kingdom is running out of money. That is hogwash. Take a look at this going back 10 years, declines up, up, up. 100 billion in Foreign Exchange reserves. Betty, what is going on with european and u. S. Bank stocks . In europe is the worst performing. This is a year to date chart. Any number minus below 100 of course is a negative figure. Green 600 index line, is down by weight for it 15 . Barrels million euros. Only one bank stock has risen this year, betty. I would give so much money if you guess which one. Waste time, betty. Commercial bankers of the czech republic. European investment banks are being pummeled, betty. Tougher financial regulations and rising costs tied to compliance. The big decline has been italian lenders. For the record, european banks are valued nine times estimated earnings since is lower since the summer. This index has fallen by 11 . The second worst movie performance since 1990. Last month, investors were bullish on u. S. Financials. What has changed . Economic growth concerns. Fear of rate hike concerns. Analysts are advising down there forecast from this industry. By the way, u. S. Financials are ued at 20. 8 times early 12. 8 times earnings. The big question is, is it time it is timerk to buy . Betty that is it for bloomberg best. Im a betty liu. Thanks for watching bluebird television. Bloombergso debate. Where is the economy heading . How can the worlds secondlargest economy volatilitymarket tell us . We have an allstar panel. Thank you for coming on