Transcripts For BLOOMBERG Bloomberg Go 20151214

David go irish. Go. Hanie there you a little housekeeping on tv. Lets go to vonnie quinn with first word news. Ted cruz has taken a doubledigit lead in iowa, where the first Republican Caucus will be held february 1. A poll says that he leads donald to 21 . 31 to 21 . In the area of voters without a College Degree. A statement out today indicates that this is not a final conclusion of investigators in a downed crash in a downed plane. Concern that the crash was caused by terrorism led to the evacuation of thousands of tourists from egypt. And 18 nations will try to speed up the pace of Emissions Reductions under the new Climate Change deal. They have developed International Carbon markets. Among those taking part, the u. S. , germany and japan. China lands to create the Worlds Largest Carbon Market by 2017. More on these and other breaking stories on a four hours today at the new bloomberg. Com. Ramy inocencio has more on the markets. Ramy u. S. Futures are mixed. The dow as what at one point was as high as 75 points, but now it is into the negative. This is after we saw markets close at their lowest levels last friday since september 28. The s p fell. You remember then, 4 less weight, which was its worst week in a month. Of course, so much of that had to do with the route and oil we have been about for the past week, the past month, the past year. Lets look at nymex crude. It is falling again, now pretty much at session lows. Its seventh day in a row of declines. This is the longest losing streak since 2014. Reasons, irann says it will boost exports, the deputy mom oil minister saying there is no chance of delaying an increase once sanctions are lifted. Opec is saying the overslept by the oversupply will continue. Falling at also lowest lows, down at its intraday level since 2002 year to date it is down 34 , and we are on track for a second decline. There is a monday merger to talk about in consumer goods. Newell rubbermaid and jarden say they will combine. Shareholders are going to own about 55 of the new company. Jarden holders will get 21 in cash. That company will be called newell brands. And on the downside, there is a meltdown that i need to talk to you for we get back to you in junk bonds. We saw their worst fall in four years. To the lowestil level since 2013. It did fall 2 friday. The barclays falling also, in levels not hit since 2009. Overall, s p stocks are down 2. 3 . Stephanie but if you think about these highyield etfs, these have been criticized for months. What are you doing putting a structure on top of it that is offering premier liquidity . We have got to talk about the selloff and what it has caused, the kind of impact on several funds, just announced. Its fund has liquidated entire portfolio. They plan to return the night hundred Million Dollars they have got under management. Just last week we heard about the distressed fund. On inmen, what is going the highyield market . I will start. This is some a lot of folks have predicted for something a few years now. You have more of a retail basin highyield than you used to. , and soe more volatile you have some price volatility and a liquidity that you did not have in prior cycles when you had more bank and broker involvement in trading. So the volcker rule and doddfrank have affected the highyield market, and we will see more of this. My guess is that energy and mining were a part of this as well because those sectors have been under pressure. Stephanie over the last few years they were high heaven yield specific funds that were bears. They said there are too many ,ssets in this asset class watching a high yield of around 6 . It should be at 9 . Out,got short, got carried then went long and now they are screwed yet again. Are we overstating things when we claim this on the vocal ruled and doddfrank . Nobody wants to buy bad market bad bonds in a good margaret were a bad market. In a good market or a bad market. I think the volcker rule has something to do with it. I would not underestimate that. Every problem is accentuated because you do not have people bidding as aggressively as you had. But i do not know much about this business three that i know if you are using highly illiquid assets, and offering daily redemption, that is not going to work out. It may take five years, it may take five minutes, but it is not going to work out. It seems to me they had a pretty good run and made 15 compounded for five years, and now they get back. They give it all david how big is this problem . That it isggests is limited to those who do not have liquidity and longterm company committed longterm Company Commitment sprint doesnt stop after that . Powerful point i had to add more drama to this thing . This is pretty limited. We will look at things in terms of the scope, in terms of the housing market. I think Warren Buffett said you want to create a real problem in the United States, hit the housing market. This is not that we have a sustained until of low Interest Rates, and i think you have the fulcrum rule, which is government driven. They accentuated the problem or created it. You have people reaching for yield. People will over time go to get it. We get rates to go to a more normalized level, we allow rates to rise. The market itself is not big enough. We are thinking in terms of 20072008. I agree with jimmy. Jimmy well done. Rates are still at 2. 5 , historically closer to four. Now international now metals and mining are higher this year. But i agree it is nothing like the housing calamity. So Economic Growth is still positive. If the economy went into recession, then i would be a lot more concerned. Stephanie there are people shouting that the sky is falling. Last week we heard about 3rd avenue, seeing that there is a first crack in the system. Backlash from janet yellen this week . Heres what he specifically had to say about liquidity. I do not think it is a crisis. It is a change evolving in the market every day, and people are learning how to adjust her there will be a lot of winners and losers as a result of what is happening, but the most important point about this is the opportunity it is creating because dislocation in prices is exacerbated by what is going on. Certain securities, because of the illiquidity component, are getting super cheap. Do you agree with that . Right about the loser part. It goes back to my simple point. If you have a daily redemption you will have an issue, which is no matter how far that goes like any hundred Million Dollars fund . Stephanie how many external funds are you invested in . Are around 100, but we do not look at high yields. I look at highyield as an equity risk, so i would rather wait until they are really distressed. , andve real workouts investment creditors committees and that sort of thing. Were not close to that. Longonly,o highyield. Stephanie are you concerned investors,histicated simple because the fed was punishing favors. I have to get returns somewhere. Itdavid Lisa Abramowicz is joining us. Not be a crisis that is systemic, but there is a main question. Who is left the buy right now . Who wants to dive in . On friday you saw the price of the biggest jump on ats, a blackrock fund, plunge, the most since 2011. You could just see a tank right there preview can see that there was just nobody around who really wanted to make a bet on high bonds. This is a big concern when you are hearing about redemptions from an increasingly number of funds, and people are wondering, technical it may be a affair right now, but a technical event that goes on for long enough becomes fundamental. Underpinning the weakness you are seeing in junk bonds is energy. I want to look at an index of energy junk bonds, and you can see that the price is completely plummeting. The value has completely plummeted, and this is fundamental. This has to do with oil prices that seem to be in absolute freefall. Supply does not seem to be slowing down at all, even though demand clearly is tapering off. This is clearly underpinning some concerns, and this is fundamental. Oil prices are not turning around anytime soon. What does that mean for the Broader Market . Jimmy i do not think that is a terrible thing. Let oil go where it is supposed to go. It is good for most economies of the world. It might be helpful in some other serious terrorism issues. I do not think that is a terrible problem. Yournk it is very bad if business is based around it and you raise money at 4 . I think you will have a problem. If you bought those bonds, you will have a bigger problem. Junk bonds yielding 4. 5 i am too old. Stephanie no, you are too right. Jimmy for this moment, but i lost all that carry by not being in them two years earlier. Junk is synonymous with doubledigit return. Stephanie it is called junk for a reason. We have to take a quick break. When we come back, we will talk about central bank intervention. Maybe that is the root of all these problems. Jimmy and scott are staying with us. Next, next was up eight on restructured rbs. The ceo says why his that she is confident that his Investment Bank will turn a profit. Stephanie vonnie welcome back to bloomberg. According to a person to me with the matter, lowe, who supports dows decision to merge with dupont in the biggest deal ever in the chemical industry. It happened days before a standstill agreement between dow and the hedge fund. He says that loeb says liver is should not have a role in the company. A new York Hedge Fund was to meyer orrison Marissa Mayer at yahoo . David . David in todays global go, we focus on rbs, in an exclusive interview with ceo ross mcewan. The company will return to profit in four years. Ross we have another year, 2016. When i took over we were in 57 countries. We are going to be back to somewhere around 13 or 14 countries. Manus cranny joins us from london. Congratulations. Put the restructure plan in context for us. Manus when you look at rbs, you he wants to create a u. K. Bank bailed out by the u. K. Why not just get rid of it and be that u. K. Domestic bank that everybody is screaming for . He said we have strategic strength in debt capital markets. Corporate Investment Bank, the shape of that Investment Bank, is what he is really focused on. That is why he says it will take another couple of years to get there. Put this in context. If not for being president , 37 ceo that this is a is ahead of the game in terms of selling those assets. He says he can take his foot off the gas next year. Stephanie four years for a turnaround . Jimmy that would not work at sandler. Sometimes i think it makes things more complicated. I wish him well. Much mores a complicated problem than i realize, but four years is a long time. 70 go here is what he had to say. Such a good start in the last two years, taking so many assets off the books, they have recreated their Capital Position so quickly. We are in a position that we can go slower next year if that very we get we have a experienced team selling assets. We have sold russian assets, a lot of assets around the world this year. They are coming out of countries and trying to sell the business. I think we have them an amazing job. In the market slows down because there are a lot of others out Capital Position is such thou that we can go slower. My objective is to try to finish the job by the end of next year. But if we need to, we have a Capital Position now that allows us to be more passionate. Stephanie what is the Growth Strategy . Strategy willwth be what he does in the u. K. , which is in terms of lending to the small and medium enterprises. Moorish Mortgage Backed securities, that is hanging over that. They need to get the litigation issue off the table in 2016. You would like to shave the percent. No rate hike in the u. K. In 2016. That is the second ceo in a matter of months that say that says our Business Plans go to higher rates. You may give a rate liftoff in the u. S. , but you are not making a big rate hikes. The you curveof the youku tou u stephanie lets take it back here. Regional banks, jimmy, have also suffered. They are forced to be under the same Regulatory Regime that the big banks are. They do not have the money or the resources. Will we see more m a there . Jimmy absolutely. I think you have a lot of momentum along the m a curve right now. The reality of it is banks need to get larger, so you need to really assess do i have the currency, the board, the wherewithal . Do i have targets to seriously make acquisitions . If the answer is yes, do so. If the answer is no, you should be thinking about what partner you should end up with. Conditions are ripe for a continuation and of furthering of real m a. Stephanie in 2016 you think we will see a lot of m a . Jimmy absolutely. Is my job to make sure that happens. You take a report card on what has happened already, has it been successful . If you look at those combined companies . 2008, looking at. He 100 yearlow you had come is trading less than a dollar at the time. The deals that are getting done now make a lot more sense. You see how buyers tend to react more positively not always the case, but there seems to be more of we are taking their currency. We are not just selling our company. So i think that the deals over the last three or four years are going to be proving to be very successful. That we will deals be involved with will be very successful. Stephanie scott, do you deal ever . Ess banks now than our bank waiting is lower than it was five ago five years ago or six years ago. People are having trouble seeing how banks are really going to make a lot of money. We are lower than we were a few years ago. David im happy to say youre not going anywhere. In the next hour we will look at them exclusive interview that Erik Schatzker has with Hunter Harrison of Canadian Pacific railroad. Stephanie welcome back to bloomberg , i have said this before, we need a commercial camera. It gets good here. Jimmy dunn is here as well as scott malpass. We have to cover the news but before we do, we have to take a quick snapshot of oil. It fell below 35 a barrel. Said it would reach 100 by the end of the year and that is not happening. It is down 2. 5 today. Iran reiterated its pledge to boost crude exports. If iran is boosting exports and saudi arabia is boosting, we have a supply problem and a storage problem. Storage problems will rise in 2016 unless we get a demand to balance this out. David you have a bunch of countries who want the money and they will pump as much as they can. Vonnie Hillary Clinton has solidified her lead over Bernie Sanders in iowa. According to a new poll, the Democratic Frontrunner has a lead over Bernie Sanders. , the pollber survey measured the impact if joe biden had decided to run. Tobrazil, protesters took the streets to protest against the president. Allegations of corruption and brazil is in the worst recession in more than 20 years. And in the eastern philippines, thousands have fled their homes because of a powerful typhoon. 13 foot seang surges and schools are closed and flights are suspended. You can get more on these and other stories 24 hours a day at bloomberg. Com. Keenenie normally, tom gives us the morning mustread but he is in dubai today. So jimmy has given us his morning mustread. Dick parsons and the oppose it crisis in the banking industry. I cant believe that. We picked a quote. The record pace of disappearance of 63yearold bank ceos may be revealing the industry is on the brink of a talent crisis. How this plays out remains to be seen. Is so antithe banking industry. If bankers are wildly overpaid, and those you have the jobs dont want to be in them, where is the disconnect . About banks talk being overpaid, there are strong about Investment Bankers not commercial bankers. But i think what he is really getting to or what i like to think he is getting to is that you dont have the great training programs. Differenthave so many significant banks. He dont have them investing like they used to. That is a that natural thing. As consolidation, due to regulations, ranks have to get bigger. Little banks cannot exist. If they are privates they can go indefinitely. But if they are Public Companies and need to show a reasonable return to investors, it is difficult for small banks to come up with a Business Plan to make that makes sense. Stephanie doesnt tickle back to compensation . If you look at the banking industry, people dont want to stay at those banks anymore. Almost every possible takeout at the morgan has Left Organization and gone to the buy side. Scott i jimmy i would argue that those are in a better position to get his job. I dont think the conversation is that they can of an issue. I really dont. There is a good covers there is good conversation good compensation to do the job. Times, we always look at that with m a. The reality is that people tend to have their own board and groups and there is a way to find another ceo. Cap go to bank b that eight a premium to their existing shareholders and there is a good chance that the ceo is at least as qualified as whoever was going to take it anyway. So i dont think that is such bad succession planning. It is convenient for that. I think that is a natural way. We have too many banks in this country. We do. And all of the regulation has not been too big to fail, rather, too small to survive. David the good news is that you are working on that problem. Jimmy im trying. Youre trying. Scott just to reinforce something that jimmy was saying i was on the Security Side of where the best corporate lenders in the country. Jimmy i would find it hard to find there is someone who was trained in a big program and went to notre dame and now he is responsible for a couple of billion dollars i would like to know what else he could have done where he has made a bigger contribution then leaving the bank program and running notre dame and the endowment. He hit the cover off the ball and you think at notre dame, what we have been able to do with that money, it is fine he left the bank program to go run the endowment. David you will be happy to know that we have a whole story coming up on that. But first we have to go to china. Chinese stocks rallied for the most in five weeks after they showed unexpected strength. Correspondent enda curran joins us now. I have to say, when i saw these, i was encouraged. Enda absolutely. It is bringing the year to an end on an optimistic note for a change. This is what economists have been hanging out for. Record lows by the peoples bank in china and we have had a big stimulus push by the Central Government to get lending and funding info structure projects that until that started to gain traction, these numbers show some momentum going into the economy on the lending side. Inail sales did so well november. That doesnt bode well. From here, economists say in my be a launchpad for 2016. But it is early days. David so much of this seems to involve what the Chinese Government does. They took concrete steps to stimulate the economy. Is this likely to cause them to say, ok, we dont be to do anymore . Or do they say ok, we need to do more. Enda they want to be sure they will hit the growth target. We dont know what next years growth target will be. Have acoming weeks, we Party Meeting of the top Economy Policy where they will map out the agenda for next year. Stimulus is likely to be in that mix and another shift will be a move to a supply side of the economy. Next year we are looking to see a lot more in terms of structure reform on the enterprise side and changes to company taxes. Other ventures other measures to boost traction. Stephanie when we get such conflicting data out of places and we look at places with intervention, how does that factor into how you see the Global Economy . Scott china is a unique situation. I have been there 3040 times. We do invest in china. It is so culturally different and have to understand the culture to understand how the government thinks and the history of where they are today versus many years ago. War are on this path to a server to a more service led economy. It will be messy and volatile that im looking out 1520 years, i want to invest in china. There will be a lot of opportunity. Stephanie if you are a longterm investor. David it is a shift where are they on that . A long way away from where they want to be but they have started. They are allowing private businesses to flourish. Great businesses have been built in china. There will be brands 510 years that will be the best in the industry. Stephanie what would you do if you are an you were on a seat as an investor with investors that demanded shortterm . Iquidity patty possibly invest with investors knocking on your doors saying, i want to cash out tomorrow area tomorrow. We wouldnt do it if we hadnt found a couple of firms that we believe in who have real skill and who are good and who we can trust and who are great thinkers. Most people cant access that. Most people shouldnt be investing in china. David enda curran, we want to write to you. Where do you think they are . Enda it is one of the biggest tasks ahead of them. Still make up around 25 of the economy and we are already seeing consolidation happening. We saw the big shipping merger in recent weeks and more like that is expected to happen. Bounceants to consolidating these companies, making them more efficient without shedding tens of thousands of jobs when the economy least needs that. There is a fine line between making the companys more efficient to go forward and act Like National champions around the World Without shutting down and hurting local economies which are already slowing down. Stephanie thank you for joining us. That was our own enda curran. Notre dame that is what we are talking about. The wealthy is catholic university. Well discuss that next, you are watching bloomberg. Vonnie welcome back to bloomberg. Rubbermaid has agreed to buy jargon court ration. Rubbermaid makes Household Goods en has goods like candles. The price of gas is down 4 the reasons are mild weather at the start of the heating season. And the women working in londons financial business are expecting bonuses half as big as the ones that money will get. Ones that men will get. One reason is that positions with high sales are dominated by men. That is your bloomberg is less flash. David son of a gun. Stephanie stating the obvious. In the past decade, notre dames investment has seen a return of 10 . When hybrid a boost when private Equity Investors and emergingmarket right fundscott malpass is the ill. What is so special about you . Last week we talked about harvard and they cant seem to get it right. Scott we have a number of things. Great alignment, institutionally, about our sense of purpose and institution. We have a long time and you have to leverage that in ways that other investors cant. Our Board Administration understand the resources and the focus to do that right. I have a great team and a great Investment Community. Todelegate authority to us do what needed to do. Stephanie what are you doing . If private equity and real estate warrior leading allocations last month . Scott we invest in everything. We are willing to accept liquidity if we can get a premium. So we are about 30 private equity. But we have great partners. We have a great team with great partners. We find the fabulous investment firms with great lines who have real skill at what they do. And we have a longterm relationship with them. Stephanie are you concerned investment is getting overvalued . I take you to tech. Evaluations are honkers. Scott they are but they are nothing like they were in the late 1990s. It is cyclical. There is too much money out there and there is a lot of liquidity. We are late cycle in the capital markets. Meaning that you have a huge runup in asset prices across every class with the exception of energy, recently. So things do look more expensive area but we work through that. We look at multiple cycles. David talk about the teams that you are so assessed that you are so proud of. How do you assess them . Scott Warren Buffett said he looks for brains, energy and integrity when hiring teams and it is similar. You want folks to have excellent judgment, who have a repeatable edge in what they do and their niche, they are the best at what they do. , stanabout steve mandel there are folks in those areas who are the best at what they do and we are trying to find them and work with them. Stephanie what are your policies on investment . The u. S. Follow conference on catholic bishops guidelines on responsibility so there is a whole list of issues that we have to analyze relative to our investments. Evaluate companies there are Certain Companies we cannot invest in. It is an ongoing monitoring that is ourt foundational piece. Stephanie what happens to you with the bill that could pass in congress that could tax endowments . Scott it is a huge mistake, the reason why the United States is successful is because it has allowed private to flourish. It would affect fundraising and the quality of faculty. Resources, laboratory research. Europe even has now understood that they shouldnt be doing that. They shouldnt have done that. And they are trying to let their institutions have more independence. We have always had that surgical the other way would be a disaster. David briefly, what is your mission . Catholic a institution, educating the heart and the mind at least where it and giving the worldclass undergrad experience with a great residential life. Jimmy can add to that as a trustee of notre dame. Jimmy you are doing just fine. [laughter] david please stay with us. Erik schatzker is live with us where he will have an exclusive interview with the ceo, Hunter Harrison at the top of the next hour. Erik good morning. If you were going to plan a 30 billion takeover, would you pick a better place than this . Jimmy, i know you might pick a golf course but this is the hh , where Hunter Harrison, the chief executive of Canadian Pacific is trying to orchestrate this is where he raised his show jumping horses but this is where he was trying to take over Norfolk Southern. I will be talking to mr. Harrison in about 15 minutes time after 8 00. An exclusive interview. What is his next move . What does he make of the fromnts from math rose matt rose. Hunter harrison will answer those questions for us. David we are looking forward to that. The top universities making millions off the sports programs should the athletes be paid . We talk about that next. On bloomberg. Stephanie you are watching bloomberg , we are here in new york city. Notre dame football is headed to the fiesta bowl. It seems like the fighting irish and the Clemson Tigers will perform so well, it is the age old question of athletes getting paid is back in the picture. Scott, i realize this question should be to the athletic director, but you have to have a view on this. When you think about the impact those Football Players have on endowment dollars coming in the door, do you think they should get paid . Scott they are paid . They are given a full scholarship about 60,000 a year. Fouruarter years, we make our commitments to athletes, they are under scholarship. We are here to educate them and help them grow as people. We are not here to help them with financial gain. Stephanie do athletes understand that when they show up at notre dame, notre dame is making a lifetime commitment to them . Specific tot know florida but the way we recruit is different. Whocoach goes after people can have a 40 here commitment and not a fouryear commitment. All ncaaty is, 1 of athletes get paid for a short. For a short amount of time. I think what scott said, it is atrocious that they whole the a guy gets hurt at other schools and they take their scholarship away. Things like that are wrong. We shouldnt do that. But the thing that is wrong is the dialogue. There is something to be said about playing a College Sport in terms of part of your education. Are a big lacrosse family if you talk to your husband or boys, the value that they get is from playing a sport. David of ohio state, who is going to win . Ed scott our guys will win. We are ready to go. Jimmy no question about it. Stephanie thank you so much. Jimmy dunn and scott malpass. We will be back in just a few. Were talking about bill ackman. Is engineering a blockbuster railroad deal. We have an exclusive interview with the ceo of Canadian Pacific. A brave new world for highyield debt. We will tell you while jump ons are likely to suffer into next year. And what is the buzz about lululemon . They could be an exit should target. We will be talking about the founder and former ceo, jim polson. Chip wilson. Stephanie welcome to the second hour of bloomberg , i am stephanie ruhle. David we have a lot of news. Watching oil are prices fly. Earlier, barrels below 35. Oil production only seems to be going higher whether we are talking about saudi arabia or iran. But you have to take a look at the financial markets. Stability,pt and investors grow concerned that we are going to see a slowdown in Global Growth. If there is a slowdown, you wont have demand. David over the weekend, my friends were talking pretty negatively about with the economy might he doing. Stephanie the fact that we are seeing more and more cracks in writing as many tactical bullish run as they are starting to see, see, i told you so. David we have the first word coming our way. Vonnie six weeks before the cruzpublic caucuses, ted has jumped out into the lead. 31 cruz leads donald trump over 21 . Ben carson is in third with 13 . Donald trump strength had been voters without a College Degree but now ted cruz leads. Sia is now commenting egypt says investigators are continuing their work. A kremlin spokesperson says they believe a terrorist action brought the plane down. All people on board were killed. Angela merck and has gotten a little confidence over her refugee policy. I do put an offer limit on the number of refugees that are many will admit. On these andore other breaking stories 24 hours a day at the new bloomberg. Com area bloomberg. Com. Down 2 10futures are of 1 . In the past 30 minutes, we did see this the s p had been out by as much as 20 points and the dow had been up like 75 points. We did see markets close at the lowest levels last week after the majors tumbled 2 . The s p fell 4 of the week which was the worst in the week in a month. All as this week will be on the fed and janet yellen on wednesday in which people are saying will be the most important meeting since the financial crisis. They are expected to raise Interest Rates. In 9. 5 years. Dive into my bloomberg terminal. Function w. A. R. P the wirp function. A jump of 2550 basis points. Oil is down for the seventh in a row. Both nymex and rent. The longest losing streak since july. Nymex crude is down 2. 6 . The 2009. Level since to break that milestone we would need to close below 33 site below 33. 98. Canadian Pacific Railway revise the bid for norfolk summon Norfolk Southern. Down in of canada is florida live in West Palm Beach with an exclusive interview with Canadian Pacific ceo, Hunter Harrison. Erik schatzker . Morning, once again we are at the hh farm. This is where Hunter Harrison raises championship show jumping horses. It is also where he is holding pacifics next board meeting. Thank you for joining us. You have made two offers so far to Norfolk Southern. Where do things stand now . Little progress has been made. I think we have made some breakthrough with the shareholders and i think that our polling says that they are very interested in the transaction. We would love to sit down with Norfolk Southern. At thisnt basin point they still refuse to sit down and talk with us but i think the next 10 days will bring action. I think that we are getting to the end of the process of just talking. And they areto going to have to talk to us. If they refuse to engage in the conversation that you want to have, if jim squires doesnt sit down with you or get on the phone with you, what is the other tactic . We havewell, i think done our polling and they have done their polling. I think theyre of the view that if they are waiting us out, they are going to wait a long time. Offer . Finetune the there is a little bit of wiggle room. Go to thee have to shareholders and leave them out of the process and see what they say. Erik you raise two important points. Lets deal with them. The amount of room left to it proof to improve this offer. How much room is there . Hunter its very limited. We are very close to where we think we are not in love with this deal. If things can go on without it we cannot lose sight of what we are representing. That is the Canadian Pacific shareholders. We will not dilute their position. Erik so you are already given already giving them 47 of the company. Hunter yes. That we areoint approaching where we effectively say, that is all there is. If they dont want to accept the offer of them they have the alternatives. Erik given that you are already , does on the equity side that mean that any improvements in this offer would be cash . Hunter that is what you hear from the market. There are mixed messages always. They want it both ways. They want cash to redeem if they need to. It is hard to get to the real fact. But i think we are to a point cash, the want shareholders. But if you listen in, they say cache is a matter and the price doesnt matter. Which to me seems a little awkward. When you hear a ceo of a private of a publiceo company say that the price doesnt matter, i wonder what does. It is hard. When you cant talk, it is hard to interpret what their remarks are. Erik the cash portion of your offer, which is almost 33 a share, is dependent on Debt Financing. Credit markets are getting shaky. We are seeing that. We saw that last week and were seeing that play out this morning. At what point does the Debt Financing become too tricky . Hunter i dont think were there. With this organization. We have the wherewithal to do what we think needs to be done from a value standpoint. Of runway forenty us to do what we are prepared to do. Now, could we go out and get more . Probably but we are not going to. Because we dont think the value is there. 150 orot going to pay whatever, and if they are waiting for that, they will be waiting a long time. We said early on that we are not in love with this deal, we think it is the interest of the shareholders from outside. You erik you have a commitment letter from jpmorgan, how firm is that . Hunter it is good. And to theackman conversation last week on a Conference Call that you held with your investors. Why bring him into this situation right now . Hunter well, i dont think it is a case of bringing him in. He was in there to begin with. He is a large shareholder. He sits on the lord. He is on the finance committee. Board. Its on the he is on the finance committee. It is confusing to some people, the offer. And it could become a little bit tricky Going Forward. And bill does a great job in explaining it in laymans terms. That was the reason. Erik what you think is confusing about the offer for some people . How will he get tricky Going Forward . Hunter you will have to wait and see what the offer is. Termll potentially use the , a different instrument, to sweeten the pot. We will see what the reaction is. Erik like a warrant . Hunter like something that starts with a c. That is not cash. It is more of a guarantee of their position. Cbr. A erik how would it work best and how would it work . I understand you dont want to preempt the bill but we are talking about how you might improve this offer and you are trying to help people understand why it makes sense. Hunter in the time allowed, it is hard to do that. Brackets thee, itde downside of the offer modifies the risk. Bill and you believe, and believes, that he can help people understand where the value is in an instrument like that . Does bringing him into the situation in this fashion risk confusing investors about who is in charge . Hunter i dont think so. I dont think so. Look. This is a team. There have been quite a lot of talks over the last couple of weeks. Bill and i work for a well together. I run the railroads. If you want to split it up, he is a highly regarded financial advisor. Erik he has his hands full with a couple of pretty challenging investments. Life. Valeant and herbal not to mention that he is running a hedge fund. It involving him necessarily improve your odds of success . Well, we hope so. That is why we brought him in. Into the fray. I think it gives some indication there as to what the Value Proposition might be. Erik he said on a Conference Call that he would be buying Norfolk Southern stock if he wasnt on Canadian Pacifics board. Why doesnt he wait a proxy battle . Hunter you should wage you should ask him that. Pershing square decision. Im not privy to their strategies and what they are doing. I dont know their financial positions. Erik would it help you if you did that . Hunter certainly any activists that would push shareholders to understand the transaction and get serious, certainly would help. Erik do you think it will take a proxy fight to make that deal friendly . Hunter in other words, ousting the board to get them to agree to your terms. It sure seems like it. When people wont talk to you and there is no indication that they will talk or that price helps, i know they have started a dialogue with burlington i dont see it happening any other way. When you say Burlington Northern has jumped in there, i he spoke about this last week. He said he wouldnt be speaking on the sidelines. What do you think you meant by all of that . Hunter he is a good friend of mine. He is trying to muddy the water. The one thing you can say about the position is that they are consistently inconsistent. Lastu look over the threefour years, the statements that they have made are pretty ridiculous. Last october they said that the goal standard was a single line haul. And they say mergers are bad. I havent seen a plan or anything. Erik do you anticipate that you will make an offer for Norfolk Southern . Hunter no. Erik when you say muddy the water, it you think it is a distraction . Hunter no, i think theyre trying i think they are trying to bring up the downstream effects. Erik if the Service Transportation board would be willing to consider a merger of Canadian Pacific and northern suffolk,o consider wouldnt they also consider a merger . Im not saying they wouldnt do it, but they are not prepared. Are they going to wait two years . Are they going to be a merger people . Throw to get in and statements around is a little responsible a little irresponsible. What does that mean . I havent talked to him. Erik do you want to talk to him . Hunter i would. He hasnt called. As we sit here today, what do you give the odds of getting this deal done . My personal view is that it is better than 5050. Erik how much better . Hunter well, it is better. It is not a slamdunk. We have challenges ahead of us. 6575. Is in the range of erik that is pretty good. Hunter it is a close call. A lot of things will play out. Comenk there is more to from the opposition. I just dont know what that is. Erik and we should be watching closely over the next 10 days . Hunter there will be a lot of action. Erik i wish you a merry christmas. Dallas Hunter Harrison. We are here at his farm west of palm beach. You heard it from the man himself. Back to you. That is Erik Schatzker with the Canadian Pacific ceo. Phanie my favorite line they havent called. My phone is on the hook. David next on bloomberg , we look closely at this deal and the chances of it moving forward. Stephanie Canadian Pacific ceo Hunter Harrison says he and not in love with the current state of the bed. Erik schatzker rejoins us live. Ed hammond is here with us too. ,hat was your big take away hunter is not in love with the deal but he is prepared to go hostile. Yes, he dropped some hints about going hostile. He feels the deal needs to be friendly. That is why he thinks a proxy fight needs to be required. We are starting to get a sense of why bill ackman is involved. Started a proxy fight to put Hunter Harrison in place of the ceo. He may be able to orchestrate a proxy fight, but we also heard that Hunter Harrison that bill ackmans presence will be key to explain to Norfolk Southern shareholders the next offer. Valuel have a contingent attached to it. Which hunter said it could be confusing. David he went straight to it. That sweetening the deal, he doesnt want to put more cash in it, but he will put a collar on it. Ed i have sat on a lot of bill ackman Conference Calls and he can go on a lot. So he can explain in great detail why it would be beneficial. It would have the effect of freezing the value that the bid would be and say to the shareholders, look, this is what it will be worth. Hunterdont get is why harrison cap explain that. Stephanie Erik Schatzker, thank you. Ed hammond we will have more bloomberg , in just a few. David Consumer Banking at j. P. Morgan, our guests, one of the most powerful women in finance. eeeeohmumohweh hush my darling. dont fear my darling. the lion sleeps tonight. hush my darling. man snoring dont fear my darling. the lion sleeps tonight. woman snoring take the roar out of snore. Yet another innovation only at a sleep number store. Stephanie welcome back to Bloomberg David welcome back to bloomberg. Lets go to the first word. Vonnie Hillary Clinton has increased her lead over Bernie Sanders in iowa. The Democratic Front runner has a 4839 lead over sanders. That is thanks to women and growing concerns over terrorism. Measures the impact if joe biden decides to run. 18 nations will start to speed up the pace of emissions reduction. Among those taking part, the u. S. , germany, and japan. China plans to create its own Carbon Market that would make at the Worlds Largest. It was a big defeat for frances far right National Front party. Marine le pen hoped to build on results and says the party failed to win any regional assemblies. Areants to leave the euro and stop immigration in france. Stephanie we have got to talk about the highyield market. The cracks in the system and that is bringing us to our next guest. It is time for your morning meeting. Michael joins us. What do you blame on these cracks . Many are pointing to the explosion in highyield etfs promising a liquidity in an asset class where the assets are not liquid at all. Michael i actually think the etfs are a little bit overplayed as far as being the problem for the highyield market. It is much bigger than the etf. I think it is more openended mutual funds, that are nearly 23 of the entire market hearses two and half percent for etfs. Funds, youmutual actually need to sell the bonds to raise cash. With the etf market, you can trade the etf on the secondary. The bigger issue is the openended mutual funds more than the etfs, and the etfs get a bit of a bad rap. This is in the context of an environment where dealer Balance Sheets are significantly less than i have been in quite some time, as judged by the new york fed data. When you have situations where you have poor sellers and dealer Balance Sheets that are constrained, then you will see the problems. Stephanie is it really the fault of doddfrank and Balance Sheets . Michael i think that is absolutely right in the unfortunate thing, we are the bearers on the street and have been for the past 14. The most recent selloff has not been fundamentally driven. That is a problem because as we go into 2016 and as investors realize that leverage that alltime high, that it which growth turned negative, this is a problem that will continue to afflict the market and it is not just retail outlets. What is important is what we have seen over the past couple of weeks has been technically driven. Michael, can you blame it on the fed . There have been many beers bears, highyield hedge funds that got carried out because the market cap going out so they simply went back into the market, and now they are hedged and wedged and trapped. Michael i think that is largely right. That is one of the reasons why we have a negative to two negative three return. If you told me a week or two ago , or asked me a week or two ago if the fed hike in december was going to affect the highyield market i would have said not initially. Year will hikes next certainly keep Market Participants away from highyield. As all of this that refinances at higher rates it is going to cause a problem but the initial hike was not going to be much of an issue at all. Not so sure, i think it could prove volatility in the market just given what we are seeing. Next year if the fed decides to hike three times, i think that could be a big problem for the market. Stephanie what about high default risk . Impliedave seen either actual default risk spike. Are we actually going to see an increase . Michael i think we are. The last 12 months it was raised. August of last year the default rate went inside of 1 . We have almost tripled in the last 15 the default rates. We see the default rate going 2016, much as 5 or 6 in a little bit less on a market weighted basis. We think the risk is going up and on top of that, recovery rates are lower. Hiredry rates lower with to fall is never a good recipe for the market. Stephanie lets go live today, whether it is 3rd avenue were still nine, are you seeing it hit your market spreads . Michael we have seen that over the last week and half or so. We have had over 3 billion in retail outflows over the last week and half. I would suspect to see outflows this week because lows follow returns, not the other way around. We had a negative total return of the last couple of weeks and have lost nearly two and a half percent. So if that returns is an indication of what to expect, it could get ugly. Stephanie give us hope, if anyone by . Michael there are some folks i think dipping their toes in the water but what we are hearing, it is not a broadbased at this point. Topless, ichael michael con topless. Stephanie we are delighted david we are delighted to have colleagues Elaine Pharoah with us, ceo of jpmorgans card business and has been called one of the most powerful women in all of banking. I did not realize your business with such a large portion of jpmorgan. Think we account for about 50 or so, very consumer focused. Banking, we have a lot of joint customers. David is it growing . Elaine definitely. We changed our strategy about six or seven years ago and have been on a growth spurt its then. We continue to raise market share and add customers, and were glad to show they are engaged with us. David talk about the holiday season, we are in the Fourth Quarter. You had a bumpy Fourth Quarter a year ago. How is this when looking . Elaine if you look at the industry estimates for holiday spending, i think they put it somewhere between two and a half percent and 4 growth since last year. Credit card and debit card growth is a little bit more than that. We are looking at modest growth this year. The challenge is the growth is somewhat uneven. It really just reflects affluent consumers continuing to spend strongly. Mass consumers spending but spendings smartly spending smartly. We will see how it goes as we get closer to christmas. David are your numbers tracking that are than the two and a half percent to 4 . Elaine theres a fair amount depending on cash and check, and credit and debit cards continue to gain share of that type of currency. While the retail sales overall might be to in a half percent to 4 we would expect debit card and credit card growth to be more than that. David talk about the rate hike. How will that affect your business . Elaine it affects both of our Consumer Bank business as well as our card business. Most of our rates are pegged to the prime rate so it is a variable rate, prime plus whatever the goto rate is. We have not had a rate increase in very many years but consumers will see a small increase. We look at it and model it to see how much the typical consumer will see in terms of higher interest cost, and it is very modest, like a dollar on a monthly bill. David we had occasion to talk to the ceo of wells fargo who expressed some questions of whether you will have cards in the future. I think you will go to an atm in the future and not use a card. I think we will be the last generation to use the term credit card. I think it will be Credit Access and double access debit access embedded on a card of some type. The Human Interaction is Still Critical to the only channel. David is that consistent with what you are seeing at j. P. Morgan . Elaine i would differentiate between using a physical card and a card within a mobile device. Whether it is apple pay or samsung hey, you are still using the funding activism just using it funding mechanism, just using it in a different form. David i belong to paypal, for example, and it is charged to a credit card but my initial dealings are with paypal, not with the issuer of the credit card. Elaine we are focused on making sure our products are popup while it, and a lot of consumers care about rewards. That is why we are very focused on making sure we are everywhere Consumers Want to use. We do not believe in steering our customers to one payment type. It is also why we are bringing out our own mobile wallet, which we have called chase pay, because we think there is a better opportunity to create customers. David i cant help talk about you because you are changing your position at j. P. Morgan. Eileen i am transitioning from my card ceo role into more of an advisory role, and i am pretty excited about it. Jobs like the ones i have had are pretty intense and between raising daughters and my husband and i both working, we have had a lot of things we want to do. I am so fortunate to work at j. P. Morgan chase, to be able to transition into this advisory role and focus on key growth initiatives. David but you expect to do it for a while . Eileen yes, i am not retiring in the true sense of the word. David thank you for joining us, eileen sarah. Next onn cofounder bloomberg. Stephanie we have been reporting for months on which apparel retailers are thriving, which are stumbling, and particularly the stress success of a word i cannot stand, leisure. With us, the father of that trend, founder and shareholder of lululemon along with his on jj who has his own luxury take on sportswear. Our Commentary Group is with us now. Chip thank you. Stephanie we spent so much time looking at lululemon and nike and adidas and under armour. Is the right thing you should look at, how much bigger the category is getting . Chip i think if you look back to the 1970s windsurf, snowboarding came into the regular way we wear clothing, i think lululemon was just one big step further. Now my wife and i come back in 2008 122 look at how were we wanted to look at how we were changing how we were addressing. Were dressing. Stephanie why are you seeing, even though you are not running a company, lulu losing its groove . Chip i have my opinion on it. Stephanie that is what i want. Chip i really think it is culture. I think lululemon was first and foremost a People Development company. It is the same model that apple and tesla followed, and that is taking a beautiful product and making a technical and taking it directly to the customer. That requires a very specific type of development of employees. Thehanie i cannot imagine jobs leaving apple. You make those comparisons and you left your baby. Chip it is my baby but now i have another one. Stephanie if you compare yourself to Companies Like apple, does it just make you a deal guy that you can walk away from your own company . Chip absolutely not, i love lululemon. It is the genesis of my whole body. There is corporate things that get involved and board of directors and management, it gets too big. Maybe i am the type of person who should start companies, get them going, and pass them on. Do you think with the market not giving lululemon a lot of credit right now, do you think it could be better as part of a Larger Company . Chip i do not know. I know that three years ago when i was chairman i personally was thinking of buying under armour. I would think now that under armour is worth three times the amount of lululemon. Someone has got a be thinking. Stephanie why didnt you buy under armour . Chip i think kevin probably had a big future and big idea where he knows where he is going, and he had more control over the company and his future. Stephanie if he didnt, would you have tried to buy them . Chip you can always start a conversation but i think lululemon had its own future and its own growth and it really did not need under armour to do that. Tense, whatse past is its future now . Chip i would bring the culture back, culture of training and development of people which is what made lululemon so special. I would bring back technology which is everything that our family each lives and breathes on, technology of fabrics and apparel manufacturing. Stephanie why not go in big now . You know what they need that are than anyone, you are the founder of the company. Step back in. Chip i have said that quite frankly, the board had a staggered board which meant you could only change over three Board Members by year and i could vote against any board member because of plurality voting. Stephanie when you look at should they knock on his door and say, help us, clearly we are suffering . Much of the time has been spent on kidneys. Realistically chip, shannon, and our family is the best in the world at technical apparel and i think we understand it, and we understand the culture of lululemon and made it what it is. I think there is opportunity for lots of things in the future and it is on lululemon if they want to bet. Would you guys ever look at doing acquisitions for that . Chip we could talk about it. Quite frankly, this is our third company, we know how to do it, go global, go fast. We have the right people and processes and we are out to succeed. Stephanie saying you still have such a big stake in lulu but do not believe and what they are doing, are you going to sell out their shares . Jj we believe in what they are doing. We talk about lululemon like we are still in it every day. You have to answer that but i think at the end of the day we walk away from it saying we have nothing but the highest hopes for where lululemon can go. Said aboutn what you culture, is there a natural limitation on how big your new company can get . Maybe it just got too big. Chip i think when i had my original company i sold it, i took the good of that and tossed out the bad and grew it exponentially. I think i have learned a lot in lululemon and now we have taken the good and thrown out the bad, and i think we can grow it exponentially beyond lululemon. Stephanie have a very rapid Growth Strategy. When i look at other retailers, they grew very quickly and ate some big mistakes. How will you avoid that . Chip i do not think there is any way around mistakes. Where it isy knows going and you can make your best guess is. Guesses. I think we have enough experience in our company and enough of a background where we can overcome anything that gets thrown at us. Kittenase . Who is jj it started with technical cashmere. Wasly the idea behind it much about how we were living in our academic Athletic Apparel but we have a love for streetwear and we wanted to find a way to bring those together. Time, reallyave us looking at every piece from a construction point of view. And really bring the best of both worlds together. Brooke are there any takeaways from this current retail environment, lessons you have learned from mistakes others have made . Jj i think we have probably 20 years of lesson. One of the things we did at the early onset is we opened up seven of our first shots as temporary studio popup type things, and that was for us to test fixtures, store build outs, to get feedback on the product before we wanted to roll out a more significant strategy, which we have done. Stephanie seen consideration, i love that. Wilsonthank you to chip and son jj wilson. More coming up on bloomberg. David we are 30 minutes and 25 seconds from the opening bell in new york. Welcome to bloomberg. I am david westin. Stephanie i am stephanie ruhle. Brendan we are going to dig into that in a second. Lisa abramowicz who has been specializing in high yield for as long as i have known her, waiting for this moment, but first we have vonnie quinn. Vonnie investigators say there is no sign of terrorism and the crash of a russian airliner. Russia has said an explosive device was placed on the plane and an Islamic State group claimed responsibility. It killed all 224 people on board. It is the sixth time to your guest has been opened since october. Cruz is leading by double digits and ios 7 weeks before the caucuses. He is backed by 31 of republicans. Donald trump is a 21 and ben carson is at 13 . Hillary clinton has a nine point lead over Bernie Sanders in iowa. For more on these breaking stories, go to the new bloomberg. Com. Ramy lets take a look at u. S. Futures, they are now off the lows and into the green, by about a quarter of a percent. The Dow Jones Futures is up about 1 5 of a percent, following the price action in oil. Markets closed at their last level in two months after the majors tumbled 2 on friday. The s p sold nearly 4 on the week, its worst in a month. Oil is down for a seven day in a row for both nymex as well as brent nymex crude. Flipping into positive territory ever so briefly here as we are about 30 minutes before the open. Today we did see crude fall below 35 a barrel at about the 6 00 a. M. Mark and we are above that. Crude is still at its lowest level since february 2009. Oil companies are feeling the overall knock. Exxon, and chevron all down. J year to date, these companies are down by about 20 . Chevron has lost nearly a quarter of its value this year. Brendan staying with oil, three stories that matter to markets right now, we are watching to watching oil plumbed new depths. There are a bunch of different things, they are newspapers that we could look at today. As the senate approaching a deal on the exports of oil, the possibility of peace in libya, the possibility of iran securing new customers. I would argue that all ofhis was known last week. It is not new and what we are seeing right now, it takes a while for new reality to settle in. Lisa i think the determination of opec and iran to keep pumping and preserving their market share, that have not been fully realized by the market and now that people realize how much they want to preserve their market share at the expense of lowering prices further, now people are getting a little bit more worried. Technicalhis is what advisors referred to as no, seriously a drop. Stephanie a highyield credit in 2009 has liquidated its entire 900 million portfolio. This amazes me. Heard about stone mind still mine on friday, 3rd avenue lifting its gates on thursday. We areu look at this, now finally digging into many of these funds that were not making money over the last few years, they were just collecting fees. Did they have the right call on the market . They were fundamentally negative then they went on because they had no choice, and now they are stuck. It does not seem like things will get better for these guys. Frankly, why would anybody go whole hog into highyield right now . Why would the marginal buyer go into it and less they knew they were getting an amazing deal. Stephanie if distressed buyers are sitting there, but it is not cheap. The highyield index was trading at 6 . Getting aney are amazing deal that means somebody else is getting a really horrible deal. David is all of this making Janet Yellens job or difficult this week . It is not going to have any bearing on them getting a rate hike in this week but it will take up some time in the q and a. React well toot latebreaking news. Decisions have been made before this latest route highyield. This statement has been written, they are just coming together to vote. All of this will play into the path of policy after liftoff but will not deter the fed. David the last time they delayed a rate hike because of volatility, it looked so much worse than it does now. You looked at financial conditions leading up to that september meeting, it was extremely tight and tight enough that it was worth a few rate hikes already. If you look at financial conditions today, they are fairly easy, loose or than average by historical standards so that gives the fed the goahead but all this plays into how cautious they will have to be in the socalled policy tightening. Hike. Say the fed does not that will not change anything. Stephanie that means that fundamentally the markets are terrible. Still not considered cheap if you are a distressed player. Lisa what with the fed accomplish . They would probably scare the markets even more if they do not hike. David i know you have been making this call forever, but it seems impossible to believe given everything they have signaled up into now, that they would not make this move. Ellen over my meetings with clients there is a nervous excitement because they are excited to have the conversation change and get off the conversation being dominated by, when will they raise rates. But nervous because we do not know exactly what is going to happen and the fed does not know, that is why we would argue that there will be a lengthy positive after december. After december. Story,the number three china stocks rallied the most in five weeks, up 20 since august after strongerthanexpected Economic Data signals they may be stabilizing. The also rallied on reduction cuts to bolster prices. This is the reverse of what we saw in august. Brendan there are statements from the Chinese Government saying they are going to resolve some of the state owned enterprises were not making money, they have to have not been making money for three years. David that is a pretty low standard. Brendan nickel producers got together, stainless steel, copper, they got together and said, we are going to curb reduction. Halle commodities producers in australia and south africa, there is overcapacity. Lisa the data comes out and it looks pretty good, and when i was looking at my twitter feed, everyone was saying manufactured numbers. Do you think these numbers are valid . Ellen what we have done is gone beyond government numbers and taken the pieces of the economy and built our own index. China has been slowing for years, we just care can they manage that slow down orderly . It is going to be a very long process and we will continue to have many cycles like we did this weekend where Global Growth bubbles up. A slowdown in china, we are in bed with this are quite some time. Oversupply is a start but it is going to be depressing import prices in the United States for quite some time. Overall is what matters to the domestic u. S. Economy. The fed dismisses the pace of appreciation as being transitory because it does not continue into perpetuity, and they can be pretty sure it is going to have an effect on the economy but not allow the domestic sector to spill over into the industrial economy. What happened this summer, now you have a transfer mechanism as to how you can affect the domestic economy. Volatilityot to eye because that is when you see consumer start to pull back. Regardless of how strong the fundamentally economy is, that volatility makes them nervous. Abramowicz is going to stay with us, and ellen is going to stay. Those are the stories that matter to markets now. Stephanie, we are going to let you go. Stephanie the only person who likes this is my husband, i cannot talk. David it has been a valiant effort. Brendan as we head toward the opening bell, we are going to look at what is moving up and down in premarket trading. Vonnie welcome back to bloomberg. Expected toshell a lose 2800 jobs, about 3 of the combined workforce. They announced plans to drop 7500 workers. Gas is expected to drop below two dollars. Is says the average price 2. 02. Gas has not been this cheap since the recession. Hollywood belongs to disney tonight. Hollywood boulevard is closed for the opening of the new star wars movie. Ramy lets take a look at some company movers, and gopro shares are sharply lower, down nearly five and half percent. The reason is because Morgan Stanley is downgrading the stock to underweight from equal rate, as well as cutting its price target by at least in half. They expect high inventory next year as well as a slower opportunity for drones. A monday merger to talk about in consumer goods, Newell Rubbermaid is going to buy jardin. About 4 . Down Newell Rubbermaid shareholders will be the majority at 59 . Calledw company will be newell brands, valued at about 16 billion. Coach is training higher today, because Piper Jaffray is raising its call to overweight from neutral. Somee pointing to signs of nearterm improvement thanks to some new products coming out as well is what it says is a better balance of price points. Sinces its most buys october 2013. Still, its share prices down 19 year to date. Looking at activist investor dan we will look at what the Hedge Fund Manager is calling for now. Do not go away. David welcome back to bloomberg. The era of the activist investor does not seem to be ending anytime. Dan loeb is calling for the removal of the dow chemical ceo days after they combined with dupont, and two activists have targeted yahoo calling for the replacement of Marissa Mayer and job cuts. With us is Bloomberg News bureau chief jason kelly, and lisa is still with us. It strikes me, these activists are never satisfied. Reported 144 million or something in the deal and still is not satisfied. Jason you have situations at tao and yahoo where the big thing happened and yet the talks are really going on. And very specific, and in the case of dow, sort of personal it feels like. The backandforth between lobe thing is liverg is has to go in the post merger era. It is interesting to see the level of detail they are getting into. ,avid when i am confounded by what they have announced is pretty complicated. You need some people to run this thing however you come out the other side. Who is going to run it from the downside . Dow side . Lisa do they then want to come in and have a full plan . Wondering if activists are feeling more emboldened and if so, why . Brendan that is what ive been thinking about, the james marvel quote, when i come back i want to come back as the bond market. Is there a value in never being satisfied . Jason to the point of specificity and relentlessness, when you turn to yahoo and look at what is going on, you have this relatively small firm that has come in and put out a 99 , down to thetion details talking about criticizing burress and mayor for how much shes criticizing Marissa Mayer for how much she spent on a christmas party, but also putting out very prescriptive ideas about they need to cut 75 of their workforce. Some radical, very specific stuff. David is this marketing for small funds . Jason Canyon Capital did the same thing, they own 6 of yahoo . They are a 300 million fund so what they need to do as they build their case is to go to bigger investors and put together a consortium of people. The other interesting thing about yahoo is that you have sort of competing plans. If you look at what star board has been saying, if you look at what spring owl has been saying, and some of the others, they are sort of mutually exclusive plans in some ways so it is not just pressure from activists. You are feeling different ideas coming at you and as you say, rendon, in a very public way. Activists are taking to twitter. David who is their audience . Is it the Investment Community at large to build their brand . , who is not a low shy person, or are they trying to pitch to the larger owners . Trying to moveey the market in their favor one way or another. There was a meeting earlier in the year of Hedge Fund Managers who got to discuss how to use twitter, and how twitter was being used potentially to manipulate markets. Put out ahat, if you full planned the market may move according to your plan. Brendan you can do a lot on twitter that used to take a proxy fight. You can get your message out there whether it is through ,witter, making a presentation always different platforms exist that do not require you to go through the process of saying, i want two Board Members, meetings with management. It is not the oldest or second oldest profession, it is like the sixth. If you are a very small funds with a very small share, if things break your way you get to plant your flag on top. David look at it the other way around. If you are andrew liverish, are you paying attention to this at all . Jason i think you cannot totally ignore it, especially when it is someone of dan loebs stature. Part of the interesting cloak and dagger of that particular case is he has come out and publicly said, i think the timing of this deal was related to the fact that my standstill agreement, which is a way of claiming credit. David he got the right to put two people on the board and at least one person came out and sided with the board against dan. Jason back to what we talked about at the top, it is an ongoing process. Activism is not a one and done sort of thing. Brendan when jason kelly comes back, he wants to come back as the manager of the yankees. It is almost 10 years in the making, will the fed finally raise rates . That is coming next. David brendan welcome back. It is super bowl week for anyone who cares about the fed. Allen is with us for Morgan Stanley, you have been making the december call for longer than anyone. This point what you are looking for is more of the actual move n d of how they present itelle i came out of meetings black and blue. Now as the bruises have gone away, everyone is finally on board and the fed is finally on board. Brendan did they give you a cut for your december call . Aniline ellen there are so many unknowns. The fed is getting off of zero and they are basically saying, we will let you know after that. What is new this time around is that on wednesday, we are going to get two statements, a statement of implementation because they have to tell us how they are going to raise rates. This is my first time in the 20 year history of watching the fed that we are not just talking about the willingness of them to raise rates but it was not until they were comfortable with the mechanics until they could get this thing done. Lisa i am struck with the idea of how do you raise rates . The banks have to borrow money from the fed but what if banks have trillions of dollars of cash on their Balance Sheets, they do not need to borrow. What if the fed hikes and nobody comes . What if the bank say, thank you so much, no thanks. The risk they are willing to pay is pretty powerful, and they are really certain they know how that that is the question, can they train enough reserves from that facility to get a firm floor underrates. That is the big unknown. We are going to get some volatile trading. We dont know where shortterm rates are going to settle. They have been practicing for a while. Herhey are pretty sure that new york fed knows what they are doing. Somewhere within that range. That would be a big tightening from here. Im also struck by the fact that right now we raise benchmark rates, raising yields on government debt. It puts a lid on where yields will go. You our money, giving you more money. If the government doesnt have to painted them all that much, so it creates a difficult scenario when people are flooding to the u. S. Government bond market. The world is a scary place. A lot of real money believes it will go nowhere when the fed starts raising rates. We are going to be in a flatter environment for a long time. About tradinging a little bit out of the punch bowl. We know what this move has done for assets, they made them more valuable. Americans . Done for we often dont talk about the other side of the coin. That is an incredible buying power. It has bought it has allow the consumer to pay down debt. This extraordinary policy accommodation has lifted incomes. Raisehe fed finally does Interest Rates, imagine seeing. 1 paid on your savings account instead of zero. Thatis some interesting will be coming in. We dont expect the negative kneejerk reaction we get in the of the Balance Sheet has been subject to a variable rate. We find only 10 of the Household Debt is is subject to a variable rate. The majority that is locked in at a very low fixed rate is. Ortgages has been consumer use this opportunity to deleverage . Youre getting uppermiddleclass in the lower class, do your numbers show they have deleverage . Because a good question you really have to look at everything in an aggregated way. The American Consumer experiences different across income groups. I look at debt to income ratios. By incomeice it group, those are all falling. We are not creating the right kind of jobs for middle america. That remains a problem. Our fiscal house is good in terms of u. S. Consumers. We had this tepid creation cycles during the financial crisis. We are not overleveraged going into this. Expect to see the big punch in the gut we get to the u. S. Households. A lot of people are on vacation. A lot of people say this isnt a great time to be raising rates. This is the bake unknown we are venturing into. If i were to take some gross liberties, i dont know what we are doing. No one policy makers is conducted. It feels like this is an Interest Rate economy. Two fantastic employment reports. Equities are saying go ahead. They dont want to pass up their opportunity. What is the biggest green light, what is the biggest red light . It is longterm debt. I would also say that im always mindful of these Little Pockets blowing out of highyield spreads, where we often say it credits,y, triple c but always something little like that. The housing recovery is not anywhere near overheating. Consumer is fundamentally sound. Are we going to see a spare that a stairstep path . They are just going to let financial conditions guide them. When financial conditions look easy enough and they go to venture further they will venture further. Its financial conditions are going to dictate the path of policy. Lets see where the stocks are. Right now, you can see they are opening in positive territory with the s p 500 up the most. The Dow Jones Industrial as well as the nasdaq up than a few up the very little less. We are pulling up from that, but it will be interesting to see if we can hold on to most of these gains. We did see a gain as well as a loss over law last over the last five days. Stocks are on pace to the worst in december. I want you to look at them i map function. This is a performance of the 10 sectors. Energy and materials are the biggest laggards. Looking at oil it is down for seventh day in a row. It is well off of flows. Youll see it hit a low here. Crude is still low in february 20 february 2009. This is the slowest activity since 2002. The Weather Forecast is expected to see warmer winters. One thing to talk about before i send it back over, a merger to talk about in consumer goods. Billion, down 6. 7 . The Majority Shareholder at 55 , and the new company with a value of 16 billion. Taking a look at completely different directions. Is one of the most beatendown stocks at the nasdaq. A team of analysts at Morgan Stanley have cut ratings to ,nderrate, reduce estimates saying that high inventory levels could prices to write into 2016, including valuation. Of set gopro could make a target for apple. Bet thoseg to shareholders would welcome that possibility. Capitalto mattel, bml upgraded shares to outperform. Be at the beginning of a multiyear positive run. Suggesting the stock could move up by 25 . Investorss is to get behind the 20 short interest. Next, how one private equity firm scooped up one of the most youoric reserve screen if like magic mountain, if you like hotel budapest, this one is for you. This is the bloombergs newsflash. A merger in the consumer sector. Finds in a cash and stock deal. Names. Ng household a Semi Conductor says the latest takeover offer it received is no better than the one that was already on the table. This came last week from a for 2. 4 billion. The missing chinese tycoon resurfaced nearly 34 days after officials lost touch with him. Thisedia post say assistingys they are a corruption investigation. Private equity firms he capital scooped up its historic fivestar property in the swiss alps. The acquisition came years after mismanagement. That is not the only resort. They are buying the hotel in miami beach. Jim, take all these properties together and tied them up. What is the pe strategy behind fivestar resorts . In our case we try to buy assets. Try to buy assets that have real attractive physical elements to them. We actually won the auction one year ago. We closed in january. Terrific property. 500 unit condo hotel. Great assets, terribly managed. It was in bankruptcy for several years. Taken the property from nowhere to number two on trip advisor. You understated so immensely attractive elements. These are gorgeous places. We are not what they wanted them to be. Are we at the end of a luxury cycle . Has that ended . Is that why you are in . Recently the mandarin Oriented Hotel in boston was sold. Auschwitz leah catches up with you at the end of the day. Did they expect people to stop spending as much . It the geography for sure. In switzerland it was impacted by the euro. The former owners, it was a real estate play. The market this last season was down 20 year on year. I think that was basically due , so topean euro owners speak, not trailing as much. I dont think we put capital in yet. It is a 25 million renovation project. We cant start until the end of the season. Of capital being put in, is it management . We bought in Management Team and it is nowhere onto the divisor. We are buying these luxury luxury resorts at relatively good prices. Are you saying that in the market . We have been very disciplined over the last year. We have probably looked at a couple of hundred deals. In both these hotels there were auctions in bankruptcy. We think the opportunity window is opening. We are seeing a lot of deal flow coming out of oil and gas. Letter the Ripple Effect is starting to play out. The opposite of buying a swiss resort. What do you make of what is going on . Was watching this morning in great sessions. I think your guesses are spot on. Remember the size of the markets today. ,hen i left wall street leverage loans were 44 billion market. Today we are 2 trillion and highyield. The crisis has gone up 1 trillion and the leverage and leverage loans is around 9 billion, down to about 600 post crisis. We know why people going to highyield. What would a therapy session look like . If you were to sit down with Pension Funds . You insinuate i know a therapy sessions are like. I think you would be an excellent counselor. What do you say to that person . It is a mirage. It doesnt really exist without the impending attentional defaults. Historically the rating agencies have said recoveries are on 80 range in particular. Highyield bonds is lower. The recoveries are going to be very low. We bet on something in the dollar. They traded at 30. Lost . 70 and was not a small amount of the debt. What is the next leg down in the credit selloff . What is the biggest Liquidity Risk . It is hard to say. I give i look at the gross number of 2 trillion in highyield. It is inverse to the growth of highyield market. Credit profile. Lets take a look at a luxury profile. When you look at those developments in the case of the flames, we look at the demographic in the visitors. I was surprised when doing the due diligence. Look at the competitors, russia, china, middle east, this property has a seasonal element to it. It was built as a resort. We can market to these markets that have never been marketed. Thank you very much, thanks for being here. Hunter harrison says it is time to talk turkey. Other highlights today on bloomberg. Private institutions and organizations to flourish. The tax endowments would be a disaster. It would affect fundraising, it would equip it would affect quality. You have a lot of momentum behind the m a curve right now. Larger, so youet really need to assess do i have the currency, the board, the wherewithal. Those things of are yes, then do so. You really should be thinking about your partner. We cannot lose sight of who we are representing here. If they are waiting us out they are going to wait a long time. They are going to have to talk to us. Three years ago when i was with lululemon, i was personally thinking of buying under armour. Someone has to be thinking something. Just for your last thought. Today people go all around and get the biggest with drawls. Are they the next . That does it for bloomberg no. On the credit markets tomorrow. Welcome to bloomberg markets. From bloombergs headquarters in new york, here is what we are watching. We havent seen oil the slow in him a seven years. Credit gets crunched, and other highyield Fund Announces plans to liquidate. And a historic Climate Change deal, we will figure out the winners and losers. Half an hour into the trading day. Remy has the latest. Human for last week we had a pretty volatile week from four from the past five days, decidedly down. Alls p 500, the nasdaq are in negative territory. Earlier today was the premarkets, and open into the positive