Transcripts For BLOOMBERG Bloomberg Go 20151231

1. Newspaper, alle 2000 London Police officers are authorized to carry a gun on duty. Intelligence agency has warned that islamic terrorist may be planning the attack and a european city. Market news with julie. Julie if you take a look at features this morning, you will see very Little Movement on this last trading day of 2015. That means there is as little suspense. We do not know if we are going to have a gain or loss for the s p 500. If you look at the year to date chart, we are hanging onto a gain of. 25 . What happens today will be pivotable if stocks rise, that will be the fourth consecutive yearly gain. If they fall, it will be the worst year since 2008. In 2011, stocks were almost unchanged on the year. So, interesting here that we do have its down to the wire on the last day. Want to check on crude oil prices put a have been watching closely this year as well. There, too, youre seeing them unchanged. Very unusual but perhaps not as unusual on the last trading day of the year when you do not have as many market participants. Crude oil has been one of the big market stories. 31 drop. The biggest twoyear drop in oil prices ever appeared backtoback declines amount to more than 60 here. We have seen stocks following oil. Oil is not doing anything today. Stocks are not doing anything today at least not for now. David they are getting ready for the holiday. There is more trouble in paradise and puerto rico. The governor said wednesday the island will default on 37 billion in bond payments due at the start of 2016. Laura keller has been following all of this. We are turning to her. They the 37 million 37 billion, what are these bonds . Laura those are two different types of bounds. The Public Finance corp. , 1. 5 million and theirs 35 million for what they call the infrastructure agencies. David there was originally 1 billion that was coming due. Does that mean that they will pay the rest . Laura yes, they will pay the rest. They have things going on with the electric authorities. 350 million for the rest of it will be paid. Puerto rico wants to have an orderly default. They are in a real crisis. Weve seen this happen with other countries. We have seen it happen in u. S. States as well. Who is going to be the biggest opposition to puerto rico going through an orderly restructuring that will allow it to smooth out some of these issues and move past this massive debt issue . Laura those are going to be the holdout bondholders. People who bought at a higher price. There are who would not be favorable and accepting anything less. Sometimes that could be the bond insurers. So, those are what we call the holdouts. That would be adverse to any kind of deal that would cut the Principal Amount or be opposed to having payments stopped. David keri, you have cover other bond crises. What i am curious about is the rhetoric we have been hearing about. It is similar in every crisis. Yesterday, the governor said him he talked about amounts of money that had been thrown already into avoiding an orderly restructuring. Does the rhetoric right now, is this part of a pattern weve seen in other defaults . Keri it is. You do see puerto rico following similar steps. As we know, they have one thing they cannot do that almost every other default, basically every other country or state that is had this issue, they can not to fall. So they are short a major tool they cannot default. That is what makes this one interesting. Brendan they are not a state or country. Aura they are in a quagmire. They are defaulting. You start to have these defaults and creditors will start to sue. What happens . You have a port. Yes, they should be paid. If they do not actually have any money, how do you get puerto rico to pay . It gets into a place of no return. Brendan do we know how they are coming up with a 960 million to pay and how long can they keep is going . Laura the general obligations which is about 350 million that was due. Fromclawed it back other types of accounts. They have fuel taxes and pulled it from different accounts to meet those payments. Theyre pulling cream from pulling things from different places. David you will be back for more on this story. It is far from over. Turning to another story. 2015 was not a bad year for most residents. Go, michigan. Bloombergs michele joins us now from washington with the biggest wage gainers, luckiest homeowners. What were the surprises . Know, one of the categories we looked at was home prices. We are used to seeing places on the west coast dominate the housing affordability, or affordability ranking. What we saw is that florida locality has dominated the top 10 in terms of the highest price, the biggest appreciation and homes over the past year. That was one little surprise. There are a few Different Reasons. A lot of foreign buyers in that area. Supply constraints, job gains pushing up prices. Brendan isnt that also that the florida prices at the farthest to rise . Michelle that is one thing we kept in mind throughout this ranking is when you judge the winners of the last year, some of them are the people that have had the most to gain. Most in thee crisis. Another area we looked at was unemployment. It was kind of surprising to see how much unproven was made in the least educated category. We broken up to four categories. Those folks who have less than a High School Degree made the most progress but they still have a 6. 9 Unemployment Rate. Meanwhile, those were the most educated are at 2. 5 . Americans with the bash this degree or higher. Fed has been saying the entire year that one of the biggest impediments to raising ands is under Employment Unemployment rates. We are seeing a little progress, given what the researcher put out today is, what is your outlook for 2016 . The markets you are looking at come from a low place. Recovery then growth. But do you expect to see growth as opposed to Just Recovery . Ichelle we would all expect to see a little bit more progress in the Unemployment Rate. Range of the feds definition of full employment. There should be more improvement but one of the longer rage problems is under employment, longterm employment. All these other parts of the labor market that are not quite recovering. These people on the fringes who feel like they are in a job that they want more hours or they earn a job that has not paid as well. And people who are out of the workforce because they have given up looking. Those are segments of the economy that policy would like to see improve a little bit more. One thing about unemployment and skill levels as there has been a bunch of Research Showing the the skill divide in labor market is giving way to one where basically if you have a job where you interact with other people, there are job gain s. Which you arejob really good at something be it operating a machine or computers, those jobs are decreasing. This might be the beginnings of for people who may be our low skilled but are in jobs, retail, and other really sort of straightforward jobs. David im going to cut them off because that was a point. Not a question. We have got to get out of here. Keri staying with us. Next on bloomberg , we take a look at the Global Economy. Guess to outpace china . Think about my last name. Vonnie here is your latest Bloomberg Business flash. Microsoft if they are being targeted by a governmentbacked hacker. The Company Tells you if they believe an account has been compromised. Evidence ofys statesponsored attacks can be more sophisticated. Sugar prices will post an annual advance. Up more than 4 in 2015. 2016 may be better. Producing give the credit to el nino. Crops in india and thailand. Brendan now we go to global. today we had to hong kong. Curan joins us to discuss the world economys biggest winners and losers of 2015. Justin foxton keri geiger are on set as well. We are going to start with ireland. Economy grew 7 in the Third Quarter. In a way, ireland is the model european economy with its exports. How much of that growth is Companies Using ireland as a tech shelter . How much of it is the Irish Economy . Ongoing debate. I think the irish story, they have considerable exposure to the u. S. Strong export base in the pharmaceutical sector. K. Is one of the fastestgrowing major advanced economies. They are benefiting from the oilp euro and cheap prices. They are getting the benefit of perfect tailwinds now. Mixed economy. Like you say, not all of it is as good as the headline suggested. Itsits just shows you how comes off brics and emerging asia, smaller advanced economies are doing better. Who wouldve predicted that . Brendan it strikes me hearing you talk about all the favorable winds helping ireland, is ireland lucky or good . Did they do something right to end up in this position . Enda it is a very open economy. Withof the problems iwh Irish Economy as it goes from one extreme to the other. Of what is happening in the u. K. , the flip is when those big export markets are on the way down, it hits that small country even more by much more significant degree that it would other trading partners. That is one of the issues in ireland what extreme or another. Modest sizeds a economy. Lets go to a couple of larger ones like perhaps china and india. Tell us about how they did in 2015. Enda yeah, so these are the Global Growth drivers. China undoubtedly a disappointing year, especially when you consider all of stimulus, not just the central bank cuts, not just all their special mechanisms to get credit flowing, but also on the fiscal side. How much the government effort the government took to get local governments going. A disappointing finish of the year. The congress was say there are signs of stabilization in china. Is great transition happening. It is a question of not happening fast enough. India, on the other hand, as a standout in the brics acronym. They are doing quite well and have managed to succeed with major structural reforms. They have a new inflation target mandates. A new centralbank policymaking board. The trimester is pushing through reforms, not as quick as somewhat hoped, but people suggest the work is in place for a decent couple of years. Brendan is there any hope for brazil in the new year . Back onen we did look the Global Economy in 2015, brazil this not come out very well at all. They have political problems, credit rating, fiscal downgrades, a corruption scandal. It is hard to see them turning the corner as long as the big commodity zoom continues. Anita circuit breaker. Brendan they need a circuit breaker. Brendan happy new year. Next we will hear from oaktree capitals howard marks on liquidity concerns. David welcome back. How to invest during the time of reduce liquidity . That was a big theme on bloomberg and something we spoke at length about with oaktree capitals howard marks. Marks told stephanie and me in october about trading versus investing in these ill liquid investment. Howard ill liquid investments are good for traders. They are bad for investors. I wrote a memo about liquidity a few months ago and i concluded by the best defense is not needing it. Not eating liquidity. Buying things you can hold for a long period of time. Ostensibly, the lower prices go, the easier it is to do that. January, are we going to see last hedge funds. We are seeing a lot of traders set up shop saying i can do this and they do not have investor backgrounds. They are traders. If this is not a traders market in the did not raise longterm locked up money, what will happen january 1 . Should i talk about what happen and not what what will happen. The two are different. Look, the Investment Business has excess capacity. There always should be a weeding out. 2004, sayingo in the average hedge fund over the next decade will return 5 and people will get tired of paying six. Nd 20 to make five of hedge funds are much bigger than they were 10 years ago. People come and go, but for some reason it is kind of like hedge funds tend to attract capital and not lose it. David i come back to the basic question of liquidity. The report you saw that came out of the new york fed that supposedly looked at the numbers and looked at the data and said as far as Corporate Bonds go, there is no liquidity problem. So, is there isnt there . I dont know. Weve talked to other people who said there is an issue and the fed comes out and says that there isnt. Markets thosethe who trade every day say there is a big problem. The fed, no problem. David how do you account for that difference . Howard i have not studied the study but practitioners think there is less liquidity. And ive taken part in some meetings with some officials trying to get at why. And i dont think the concerns were imaginary. Concernhe way, the real is what happens if there is a real market incident. David exactly. Stephanie do you think there will be . Howard there always will be. I will not know when or how bad it will be but stuff happens. Stephanie youve criticize liquid alternatives. Etfs, for example. In august, we were ready for those etfs to get tested and they did in the health rocksolid. David bond etfs. Equities did not do so well. Stephanie have you changed your view . Howard no. I do not think we have had a serious panic in bonds. David the market is getting a little bit nervous. If you look at, for example, swaps and the spread credit default swaps which are ensuring in this case ield, credit default swaps ensuring investors against failure, a default, and the spread to treasuries, it continues to decline here. So, at least the market is sniffing something out, even if the new york fed thinks that all is clear. Stephanie what do you think . Howard i think investor swing from optimistic to pessimistic. At both extremes, it is excessive. One of my your job, favorite cartoons from the 1960s has a news reader sitting there stephanie are you calling me a news reader . Im out. A newsreader . Howard everything is good for the market that is the way people flipflop. David talking about flipflopping, i want to come back to that question that is bothering me. It is one thing if the regulators and practitioners disagree about what should be done. It is different if they disagree with the facts. If there really is a difference between what the regulars are saying that they do not believe there is liquidity problems and the practitioners do believe, that is a dangerous situation for the markets . That is not healthy. We can disagree about what has been done. 2007,nie in 2006 and the regulars not know what is going to happen. Howard there will be a debate that will go on until it is really tested. What does howard marks invest in now . You must see lots of opportunities. Howard what matters is value. Equalerything else being as prices go down, the ability to access value cheaply increases. Stephanie what does that mean. Oil and china are attractive to . To you . Bond yieldsyield have backed appearance of this is a great opportunity. Howard thats right. David so, youre going to pile in. Howard well, things are going our way. We have been reticent for the last actually four years. We have had this motto. Move forward but with caution. Says the less prudence with which others conduct their affairs, the greater prudence we must conduct our affairs. There is a bull market in prudence, or it is on the rise, anyway, and that means we can turn more aggressive. We have been very cautious for a long time because nobody else was. David that was howard marks. Strikes me he was pretty prescient. One is fewer hedge funds. Every day we hear another closing. The other is challenges to liquidity. The third avenue situation appears to involve some liquidity situation. Justin i love the general tone of the guy who makes his money off of other people running into liquidity trouble. Lowhaving to sell to him at prices not been too worried about the liquidity prices because that is how he makes his money he put it nicely. There was this for a fiveyear period where was good to be a trader. There was lots of liquidity. That does not go on forever. Who knows how bad it gets over the coming year, but we have had a few of these squeezes that give opportunities to somebody like howard marks. David it is always nice to have patient capital. Next, we had to london where markets are just closing the books for the year 2015 on bloomberg. David welcome back to bloomberg go. We are delighted you are here. We go to europe and a moment, but we start with the first word. The counselor of jim germany wants her country to coping with the refugee crisis will take time, effort and money. Use germans will economic power to turn the crisis to the Nations Capital bandage. Enrique marquez is accused of conspiring any terrorist attack, also charged with lying. An unscheduled stop or an air canada flight to toronto. It was forced to land in calgary. 21 passengers were injured, but none were lifethreatening. David this last trading day of the year, the few markets that were opened have now closed. We had to london. Caroline is there. It is official, we have had the worst december since 2002 when it comes to the european markets. Germany and italy already dusting off and putting the champagne on ice for new years eve. The rest of the market is not as quite in the mood. Spain trading lower. Nearly every Industry Group is down. What is in this interesting, forth toback and athens over the summer, it created so much volatility, greece, the market, the concern it would leave the eurozone, today it is the one area of green. Meanwhile, the rest of the eurozone is lower. Miners in europe down by 36 , also also down oil also down. I want to put this in perspective because today stocks are up, but wind it back and look over the year to date and we are up 7 . We are on for the fourth Straight Year of gains, the longest winning streak since 2006. Not all sunshine. Lets talk about where i should have been putting my money, what were the winning bets . One is checked and one is green energy. All about the fight for clean energy in paris. You could have put your money into wind systems, up more than 100 . This has been want to keep an eye on. We have seen the share price continue to trend higher. We expect more growth to come, wind turbine installation globally expected to rise 30 next year. Got to be the one you should have put your money into, check this out. You cannot even see the number, , that is how much this stock rose. This is fingerprint cards. They make fingerprint sensors for your smartphones. This has been where to put your tact, it is all a bet on and it has been way more volatile. The only analysts that rates the stock says dont buy it. It seems it was the winner for 2015. If only we had known. Forill this be the bet 2016 . Today, you can see the volatility weve seen over the target . It a m a it was one of the best performances, this is why Telecom Stocks did ok, all because of a report in the u k by the daily mail that your big billionaire john malone, he piled money into the cable industry in europe and might be eyeing up vodafone. They might do a asset swap. Speculation is once again building, will we see vodafone bought up by cable . That does seem to be the winning formula, we want quadruple play, have tv andle to the internet. Could this be a winner . Thank you so much for coming on new years eve and happy new years to you. It is time for chamfers over there. I will see you in the new year. David lets now go to the morning mustread. Piece, your most recent is on American Population. Debt couldould the aging be behind many other phenomenons in the u. S. . This age ins about the population and how it might be affecting decisionmaking. Justin ive been looking for a while at this slowdown in the u. S. Economy that began in 2001 and has been going ever sense. There was a little bump during the real estate boom. Ands a 2 growth economy that is because entrepreneurship seems to be down, all sorts of measures of business dynamism and turnover are down. Somet know we are missing great technological boom and it sort of struck me after reading a dutch newspaper column that maybe it is because we are getting older. When you get older, you become you you become more risk averse. My answer in the end was maybe, because the experimental data is much more mixed than i wouldve thought. David how old are we getting . We are getting to be about 38, that is the median age. It is much higher in most of western europe. Explain this, we hear about the rate boom and all the innovation and the young people. Happening in silicon valley, we have Companies Like uber and these big tex and services Countries Companies coming out of the region, is it too small to be a Growth Engine for the u. S. Economy . It is supposed to promote and draw in our governor is a and risk draw in entrepreneurism and risktaking. Justin in terms of job numbers, that is absolutely true. The companies are having an impact beyond just the people they employ. The big argument is are we missing this somehow in the measurements . If we are looking at how many new businesses there are, maybe we are missing the fact that we have these new giant businesses like uber that is changing things. To get to mind morning mustread which is about exactly that, the ft looks back over its words of the year and one of them was a gig worked and it sort of made a historical reference which i thought about. Referred to jazz musicians of the 1920s. Todays digin economy is the way that technology has cast a wider net, drawing in people who would not otherwise be gigging. What struck me is that for decades in american culture, im getting a dads a jazz musician has been a phrase meaning my boyfriend has no prospects. Is that true of the economy . Justin the job market is tough since two since 2000, and people are making do with a little bit of work here or there, that has been going on for a while before these companies launched. The number of people working for uberar or whatever four or whatever david people on the workforce are much more entrepreneurial and they have a counter keri the gig economy seems to draw in the entrepreneurial type. They are not doing traditional jobs and dont get traditional benefits. It is kind of a halfway where they are not quite going all the way with their own businesses, no kind of stuck in this bans land where they are participating, but not getting the full benefits no mans land where they are participating, but not getting the full benefits. System since the Second World War were your benefits are tied to your job. There are more exceptions to that, but that is the way we think of it. Is that is what is holding back dynamism . If your benefits are tied to your job, you cannot leave. Justin job tenure has been going up for the past 10 years. How bad odd considering the economy has been, but people will hold on to what they have, if they can. Ways, thata lot of benefits attached to your job stoppeds working working well in the 90s. Ae gig economy brings about bigger conversation about how to improve that. That is a valuable thing because there are lots of people working parttime at walmart or starbucks or whatever. Reducing the subsidy for tying your benefits to your job, it was poisonous eight years ago. It is hard to imagine anyone coming back and touching that. Keri it is still expensive even if you go through all the benefits that obamacare has given to people to go out and get their own Health Insurance plans and self managed retirement accounts. That is hard for people and the selfemployed and gig economy to do. It is an infrastructure that is so easy to get into when its about your workforce putting into place, your job putting it into place, you have to self manage and people lose a lot of those benefits. That has a knock on effect to the next 10 or 20 years of the economy and people not having Retirement Benefits or Health Insurance. David let me just take a moment to say how wonderful the benefits are here at bloomberg. Coming up next, we will take talk to a neuroscientist about how you can manage your own lowpower. Willpower. Vonnie welcome back. It is the start of a new era for the u. S. Oil industry. They will they are loading will be the first cargo of u. S. Crude for export in four decades. Ago,than two weeks president obama signed the bill lifting the export ban. John malone instigated a discussion according to an investment company, encouraging vodafone to pursue a deal. Banks have a limited about 600,000 jobs since 2008. Deutsche bank says it will get rid of 26,000 jobs by 2018. David i understand that markets are moving even on new years eve. Tell us about that, julie. Oil actually gained a little bit, less than a percent, now we a sharp downtick, down only 1 and that has been accelerating to the downside. We dont actually have any particular catalyst that is causing it to go down, but we noticed the move. , also we haveade seen brent make a similar move. The dollar on the flipside, is going up. Not quite as sharp a move as in oil prices. Nonetheless, just something we are keeping an eye on and trying to get to the bottom of on this last day of the year. David on your best self, we are talking about dealing with daily stress. There are ways to keep your decisionmaking to a minimum. I spoke with neuroscientist and author of the organized mine, Daniel Leviton for some tips. Knowing you are going to be , put systems in place to help you cope with or compensate. If you are under stress because of a deadline or there was a lot at stake, cortisol is released in the brain and it causes your digestive is to shut down and causes rational logic linking to shut down. Thinking ahead to the kinds of decisions you will need to make and the strategies you will use to make them is important to reduce the bad effects of stressful decisionmaking. David one of the interesting points you made in your email in your book was email fatigue. Youve got an email that comes in and the first thing you have to decide is are you going to read it now or later and if you read it now, is it something you will respond to now or later . Do you forward it, the you need to get more information you can answer it . That is six decisions right there for one email. A lot of Research Shows that after a couple of hours of making very trivial decisions like that, these are not momentous, we deplete neural resources necessary to make important decisions. The reason is, the brain does not distinguish between the important and the trivial. David i wonder if there are ways to eliminate some of the decisions. Years ago, i took to just , darkg Navy Blue Jackets gray slacks and either a white shirt or a bright blue shirt, so that andave to debate i read that president obama does the same ring. The same thing. I interviewed some white house staffers for the book and it sounds trivial, that it is a big deal. One less decision that does not matter and a lot of people do this. Oliver sachs, a successful had then neuroscience same thing for lunch every day so it was one thing he did not have to think about. David you go around the country and talk to various groups. What organizations do you think do this the best . Interestingly, the military. Some of us tend to think of them as an organization that is very large and so large that it cannot change quickly and be nimble, but that is right the contrary. In the last 15 years, the military has made enormous changes in the way they do business. You can look at the training manual for incoming recruits. One of the things they have done that we are now seeing in Corporate America as a powerful technique is to push authority downward. Everyhey mean by that is level of the organization should be given an awareness of what the overarching goals are and be given the authority to make decisions, even if they contradict a direct order from a ceo or general based on situational awareness. You get better performance out of people, this way. David we did this to her three weeks ago, and this has stuck with me, things like the email and i find email exhausting. Keri they can be particularly exhausting. I found that many years ago when i was working in investment ,anking, if i read my emails which they were a lot of emergency or urgent emails, it set me to be stressed out for the entire day. Learnedthing that i through the years that can help cope with stress that touches on a lot of things that you said is how you frame when problems,. As a puzzle them and see how you can solve them, it is a lot easier to deal with daily stress that comes up that if it is all my god, it is a problem and you get overwhelmed. Framing is really important and it comes into everything you do in your daily work and also goes into email. What resonated with me was the same thing i pulled out of the new yorker profile of the president is that you just wear the same thing every day. Thinking about what i wear on tv has been one of the eggs stressors. When i was a writer, i just wore jeans everyday. Kong, asianng markets could be a cliffhanger in 2016. Predictions for the new year, that is coming up. David we are looking at hong kong. How about those fireworks . Rememberd be a year to for the markets. Rates. Fed will raise remain is going to it is hard to see Commodity Prices rebounding anytime soon. They will not depreciate and then spend billions of dollars trying to push it back up again. 3. 2167 . Ill grow i think the main thing we are watching for is for i think social media messaging apps will take over more of your life. People on mobile devices learn how to avoid bumping into one another and objects. We will see people using their smartphones more to monitor their health. I predict at least one hedge get manager is going to into the food truck business because going to be difficult to make money. Super foods will find a home in the future exchange. 2016 will be even better. I am glass half empty right now. The world will be a better place, cannot get any worse. We will see this unrest we have been seeing spread out in the middle east all over the place. Attacks will continue and we are in for a rough ride. Becauseedly optimistic it depends on china. Hard to bet against china, so i should not even try. The middlehats class more closely, how they spend their money and how they want to spend their vacations. I think at the end of the day, we will be talking about china. Japan, the worlds lard third world is worlds thirdlargest economy. The next james bond will actually be chinese. The new star wars movie will break the foxtrot box office record. Therell be some shenanigans. Therell will be a lot of naughty babies being born. There will be a lot of naughty babies being born. Two, we have a minute or a production from justin and from keri. Justin markets will fluctuate. Reckless one. I will continue to be confused about the state of the economy in 2016. I was totally confused, this year, same with the markets. I think confusion is going to rain for me. I can predict that i will have to go down to the lockup for absolutely everything decision because each one will be a cliffhanger. David thank you very much for joining us this new years eve. The hedge fund of that could not hedge, how many people have to give back the money and go full Family Office . China rebounds and white make a difference in the economy next year. There is never been a day like this and m a bankers are counting on more of the same in 2016. Happy new year to sydney, australia. Welcome to the second hour of bloomberg go. Brendan lets get started with first word. Vonnie cities in europe are taking no chances on new years eve. Over 2000 all 2000 London Police officers that are authorized to carry a gun are on duty. Brussels has canceled its traditional fireworks display because of the threat of an attack. Brussels was the site of the 10th arrest. Terrorist of Authorities Say about 10 cell phones received during a search and are being examined. The u. S. Is about to impose to no according word yet on exactly who will be targeted are what the sanctions involved. The Un Security Council has barred a run from any activities involving missiles capable of delivering nuclear weapons. Iran from any activities involving missiles capable of delivering nuclear weapons. Julie we highlighted this is a ,ittle while ago, we saw oil still a little mysterious. Huge move in percentage terms, but just a movement that is notable whether you look at wti or rent, you saw that movement downward dashboard brent, you saw that movement downward. U. S. Futures, we are not seeing indication for much change, but it is more negative than it was when we first check about an hour ago. We are waiting to find out if its going to be a negative or positive year for the sn the. It depends on what happens today. Right now, we are posting a gain. Here are the winners in percentage terms. We talked about netflix and amazon, Activision Blizzard also on the list of the videogame companies and on the bottom, not surprising, we have commodity companies. There has been concern about its Balance Sheets, liquidity and Southwestern Energy and in the Dow Jones Industrial average, these have been the winners and losers. The big winner has been nike, up about 32 . Walmart on the flipside as it continues to fall. It is not been a good year for hedge funds, we learn that scott wagner is returning returning muttered returning money to investors. Blackrock has also liquidated funds. Aaron hood joins us, thank you for joining us and welcome to bloomberg go. Aaron it has been a bit of a mixed bag, disclosures are not necessarily related to performance, they are related to the back that business has gotten complex. It takes time and energy to do things other than invest money. That causes these guys to think they should just think to just stick to managing their own money. That is fascinating to me that they are not getting out of the game altogether, they say they will park their own money and focus on their own wealth. What is it about the Regulatory Environment that makes it more difficult . Think its that, there is scrutiny on fees in the Hedge Fund Business and classes that are redeemed to be more expensive than your traditional asset classes. I think it is the overall idea that these guys have so many other things to do than focus on managing the money and they are limited in the scope of what they can do based on what they talk to their investors about. Togives people more latitude raise money to extend the duration of the capital, because that asset liability mismatch is important for people who want to take a longer view. It worse for hedge funds in areas like highyield or energy or sectors that are suffering more than others . Aaron you saw this year, kind of a mixed bag of performance across the board. A lot of Hedge Fund Managers did ok. The credit guys and highyield guys had more trouble, in particular around people with there was somes, challenges there and it took another letdown after the summer where it seemed like it might be stabilizing. The two big ways to get yourself in trouble our leverage and asset liability mismatch. Brendan whenever we talk about highyield, what i hear is oil. We are talking about the collapse in the price of oil. Is the basic problem that a lot of people were not prepared for the development . Aaron that is a lot of the market. Broadbased manager, you have that no matter what and i think people stepped in buying in the summer and ended up taking another letdown another leg down. David we had someone yesterday who said there is nine trillions dollars nine joyland dollars in emerging markets sitting out there and he said that he expected nine trillion dollars in emerging markets sitting out there and he said that he expected aaron you have not seen activity at all outside of materials and energy. Fundsn global credit have no future, lets take a look. The Global Strategies and credits and shorten rage certain rate they really have no future. When you love or something that has five years if you charge to and 20, the investor is down to three to start and both are gone. David he makes an important point about hedge funds and their compensation system. In a world with high returns where growth is robust, you could make sense out of paying two and 20. You are looking at modest growth, is it inherently inherently flawed . Be focusede needs to on the fees, but at the same time what it will investors are looking at is have the old toolkit available so not just long equities and fixed income. You need to have alternatives and macro strategies. They will need the whole toolkit if they need the returns. Brendan the pressure for yield that Family Offices are not, you can decide your own risk exposure if you are managing your own money. If you have to make a pension, you dont have that luxury. I want to tryngs and understand is, did the new year begin not today or tomorrow, but at 2 00 in the afternoon on december 16 . Aaron i think so, it has been a significantly different thing for people to race and try and help resolve this year, meetings take up a lot of oxygen in the room. Every time one comes up and you see a lot of managers that are fundamental guys but would much rather have their time spent looking at individual remains, then they would have a macro to drive the market, but sometimes it is what it is. Brendan there was that moment in the press conference were janet yellen basically said it was just 25 basis points, not that big a deal. Is that true . Aaron i think it is about the direction and the attitude and the people struggling to understand where the economy is and where the Business Cycle is. David going back to the overall picture, every year, hedge funds are created and hedge funds go away. I we paying attention are we paying too much attention to Big Companies . Is there something extraordinary going on . Aaron one, there is an ordinary life cycle of businesses, it is fragile and hard to keep for a long time. The level of commitment and success comes and goes. The second piece is there are managers who have been at it for a long time. It is an exhausting and tough business. Some of those guys are saying they will take a step back and worry about their own capital and not have to have the focus and commitment required to invest institutionally. Brendan take some time to focus on horse jumping. The will stay with us for hour. Of dollars in value, just a record year for m a. What is the outlook for 2016 . Stay with us. Vonnie here is the latest, puerto rico is about to escalate their conference with investors. Only a fraction of the almost 1 billion order rico owes investors at the start of the year. Goldman sachs did not quite get it right this year, but sticking with the forecast to 2016, they say the 10 year will be 3 in 2016. 2. 310 year yield is about percent now, the benchmark for everything imported. Shares of Weight Watchers have soared since Oprah Winfrey started a campaign endorsing the program. In october, she announced her partnership with Weight Watchers and said she would buy 10 of the stock and joined the board. That is your business flash. David that is the oprah affect. Still with us this morning, we want to talk about the record year in mergers and acquisition. More than 37,000 deals were completed and pending deals trillion oint 3 4. 3 trillion. Aaron this was ahead of the previous years, that will be a pretty significant year. Billion,north of 30 twice the number than its ever been before. Those are pretty significant deal sizes and runs up that bell you pretty quickly. David the question i have is why, is it cheap money, is it toward the end of the Business Cycle where people are buying revenue . Gettinghat we found is growth to the bottom line has been extremely challenging, Balance Sheets are in good shape for the most part and there has been a largescale availability of financing. Those things and uncertain tax and revelatory environment gets regulatoryd and environment gets together and they come of whats right smart and strategic deals. Brendan what that could mean is that this development is not cyclical but structural. Companies are looking for growth through m a and organic growth that mayger possible, mean that this is not a cyclical trend but that we will see it out for the next five years. Aaron i think the m a market is clearly cyclical and has a high correlation with the equity markets and that goes to ceo conference and liquidity but if you look at this cycle, it is a little bit different, based on the last five years, in terms of volume versus overall market cap, you still have a lot of Financial Market sponsorship available. Point is not that much of a rate increase, there is still a lot of cheap money out there. David it is not just the number of deals, but the number of very large yields. There is the slide that shows, and i wonder if there is some if all the big guys got together, at some point theyre going to say thats enough and weve seen a little bit of that already. Aaron consolidation gets to appoint and gets limited, but it is interesting to look at the chart and see those are the five andest deals of the year preferably Different Reasons and for completely Different Reasons. Brendan we talked about how the Justice Department has changed its stance, but it seems as if they are more skeptical of large mergers. They we have reached an apogee of mergers to where we are actually reaching the point where industries are becoming concentrated enough to be anticompetitive. Has the Justice Department changed or have we gotten to a point where we have to notice . Aaron in some industries they have to notice, and in others they change their stance. Brendan i think at t and tmobile three years ago was a real shot across, at the time, it was a real shock. Aaron that was a space that everybody has a keen interest in, so when that went the way it did, thed talk to us about who bankers are, the critiques seem to be playing a large role, this year. Aaron advisers involved in almost all of these top 10 transactions and if you keep going down through the large transactions, you see boutiques involved on both sides and it is not just in a Fairness Opinion rule or late stage role, they are meeting the chart on some of these larger transactions. That is the result of a few things but a trend toward the boutiques continuing to grow and take share. David are boutiques not at a disadvantage . Aaron there was enough competitive marketplace for the financing that in this environment, it has been something that has been easier to come by. Companies want to balance the idea that they can have a close dialogue with a trusted advisor versus having transactions leak out into these broader institutions as they are worrying about financing. David i always wanted to ask you this, you are a west point grad, an army officer. That training and experience apply when you went into Financial Markets . Aaron there was an element of trying to make good decisions and and keep moving on and circle back with a time is right to learn from the things you did wrong. When i looked back, i think that the army is one of the few places that actually does a real after action review and uses feedback. The reason for that is because the consequences are so high. You can have a kernel stand up and take criticism because he knows that its the way we all get better. That has been a pretty good lesson and at west point, one of the things you learn on the first day is no excuses and if you can apply that mindset to most things you do on a daytoday basis, you are in good shape. Thank you so much for being here. Next, 2016, the year of the monkey and the year that the Chinese Consumer market takes off. David welcome back, that is a live shot of hong kong, not quite midnight yet, so no fireworks. Lets turn to china and the outlook for the Worlds Largest for the worlds secondlargest economy. We are joined now from chicago, louise, you are focused on the Chinese Consumer. Louise happy new year to you, i year, 2016 ising going to be the year of the Chinese Consumer, the economy has been slowing down and there was a lot of hope and promise that Chinese Consumers are going to start to pick up the slack and help to drive Global Growth, so we expecting that to pay off and see dividends in 2016. Brendan when jack ma spoke to the Economic Club of new york couple of months ago, one thing he said is dont worry about us, what i want to do more than anything is help Chinese People buy American Products. Is there an economic basis for that to happen . Louise absolutely, Chinese Consumers have really loved foreign brands and products for many years. Chinese consumers are traveling overseas, they are digitally engaged and are very engaged with learning about new brands and products. Fore is a huge opportunity American Brands and American Products to be sold to Chinese Consumers and an opportunity for cross Chinese Consumers learning about and americands consumers learning about Chinese Brands and products and traditions and customs. This pattern of globalization will start to take off in 2016. Brendan what is the price point that will see the most growth when we talk about American Products . Is it a ford mustang, a pair of levis jeans, where is the growth going to be . There has the past, been a lot of attention on Luxury Products and multinational brands that are at the premium and for the consumer. There is a much larger base of Chinese Consumers that have lower income that are still connected digitally and interested in consumption. We call those people connected spenders. There is an opportunity beyond the biggest kind of most premium multinational brands for smaller brands, lower price points to also see tremendous growth in the next year. David if this does become the year of the consumer, how will we know it and how will we measure it . The gdpentage of represented by the consumer is actually very modest, like 38 . I heard that we should look at household income, how do you measure it . Louise we look at both. From a macro perspective, consumption is important because it tells you how important it is in terms of the overall economy and we expect that share to be rising. Even though gdp growth is slowing down, consumption growth is going to outpace overall outward growth. In addition, you have to look at income as well, the purchasing power because it helps you understand what types of products and services they will be able to buy and what price points they will be looking for. Brendan we were talking about products, what about services . We have seen this trend in the u. S. Away from things and more for experiences. Louise Chinese Consumers are interested in services. Some of their biggest concerns are health and wellness and workplace ballot work life balance. They are time constrained and thinking about their health and personal lives and they are looking for services to help them better adjust those types of needs. Brendan that is a Fascinating Development because what were looking at is solutions to what we call first world problems. As they move into the first world. Louise kelly, thank you so much for joining us. Chinese demand hitting the heavy metals this year. Outlooks for heavy metals in 2016, next. In 2015, it was one direction, down. Brendan welcome back to bloomberg go, we are looking at times square were we are 15 and a half hours away from the new year. We already saw the new year running in in sydney and hong kong and auckland. My six year old at the ball will drop and now she is begging to watch it. David she will be sound asleep by then. Brendan we go straight to the first word news. Vonnie the Mississippi River basin has been a flood for the record book, affecting millions. Some of the highest flood stages ever have been recorded. Thousands of people have been told to evacuate. The flood crest will make its way down the mississippi well into next week. One passenger called it the frank from hell, the flight from hell. Authorities say 21 passengers were injured. Some breaking news with julie hyman. Oute jobless claims just and the number of americans filing applications for Unemployment Benefits rose to the highest level since july during the week of christmas. 270,000 was the projection from and 257,000 was the number last week. There may have been some swings typical from the holidays. We have seen the Labor Department changes methodology to account for seasonal variations. A spokesman said there was nothing unusual in the state level data, but the jump could have been caused by the volatility introduced when those numbers are adjusted for seasonal variation. Not clear exactly how to take see number, but as you can behind me, we are seeing a little bit of a downturn in the insurers and it looks like it is off a cliff, but remember it is very low volume and only down about a quarter of 1 . We are indicating a lower up open and we have some stocks to watch as well, including vodafone in the u. K. , shares are up nearly 2 after a report that the company was in new merger talks with liberty global. We will be watching that company. Undoubtedly, this story will be well tweeted today and bloomberg went ahead and look at the most tweeted stories of the year using our bloomberg social media monitor. Here it is, this is for the year to date. They look at the companies that were most tweeted about. Is number one. David brazil is a very social nation. It would make sense that apple is on here as well. Bank of america, interestingly. People are not just we team about the banks, they are tweeting to the banks. Brendan the year of blackberry. David metals are set for their first monthly rise and april as a year and rally driven by fading demand growth in china. The senior analyst, kenneth will it be a hard or soft landing . Kenneth scattered debris all over the place and foaming up the plane, most metals demand it was down all over the place. Down eightd was percent to 10 . Have the dumbest managers on earth, pumping out as much metal as they can. If im an investor i would be in their door saying get rid of all these guys because they are saying they knew the price would collapse, they are producing more to put their weakest competitors out. John from glencore made this point and we have a video to play. If you were a homebuilder and you saw that the demand for cars or homes was going down, i think you would cut back production. Very few people have done that. If you look at glencore, we have cut dramatically, copper, one of our big reserves because demand is cut dramatically. We cut back on producing copper. You look at the oil and gas industry, they just keep pumping it out. Brendan why do we look at oil . We look at saudi arabias strategy which is to produce as much as possible. That is a rational game theory strategy. Why dont we take that when we apply it to metals and say how could these guys be so stupid . Isnt it also a rational strategy . Kenneth it is, but then go out there and hedge. Why wouldnt i hedge and their reaction is investors can hedge, no mutual fund can go out there and hedge iron ore, but a company can and if i know im driving the price down, why dont i protect my cash flow rather than see the market cap dropped by 60 in a twoyear period. Ofie this is a graphic refined world copper production and just to tie it back to what can is talking about, talk it back tie it back to what kenneth is talking about, it has been trending higher after a big drop. David the point is nothing like what the demand has looked like. Brendan when will the supply curve again to notice the demand curve and adjust . Eric i have no idea on that, what i will say is we have seen nothing but outflows from gold etf. One day in 2011, it was bigger than sp y at 76 million, now it is at 22 billion, falling like a stone but we do see there is forsionally some flows but the most part, investors are taking their money out of geo d gld. Is still outperforming the s p 500 since it launched in 2004. Youad as gold has been, if take it back, it is still beating the markets. Brendan something that has frustrated me about the commodities index, it includes everything we have been talking about, oil, copper and gold. Was this the year we look to all those commodities and think we were just a product of demand and watch the dynamics of each of those moving in different than it Different Directions . Kenneth it all comes back to china and the bottom line is, china and one of our big teams, what do we look for in 2016, watch for the yuan. Because the yuan has been a closed circle and they have been using oil and copper and gold to bring it in and take advantage of their high Interest Rates. As the yuan starts to devalue, you see china going after the banks right now. If that unwinds, what happens is chinese demand for copper, we think it is 50 . If they were bringing in all this copper for financial services, it might be 35 and that is the next shoe to drop. You could see commodities prices take another humble if the demand we thought was there is completely fake. Continuing on the subject of the eps, what does the flow of funds tell us about the markets going on with metals . All this money is coming out of gld and average investors are in that group, however we have seen some lows into a very new school, so the very paranoid hardcore gold bugs are going to act very bullish. It promises physical delivery of gold bars and coins when you redeem at any investor side and that is good for investors who are paranoid about whether gld actually stores the bars. That tells us that for the average investor, gold is a very bearish scenario. There are some gold bugs out there who are interested in getting their exposure and waiting for that bad year. Brendan what you are talking about, this ability to redeem gold ours, that is not a hedge against the market downturn, that is a hedge against the apocalypse. Growingat is why it is by 30 5 , to get next day ups delivery but when you get that old physically delivered, there is no tax consequences because you are taking possession of whats yours. Paul etf, noron taxes and gold. Brendan what i went to the ron paul convention, people kept offering to sell me gold. I was thinking, why are you taking my script if it is worthless . Broadbased or energy, what do the fund rates tell us, there . Eric will we have seen is money coming out of dbc which is your oldschool broadbased production, 60 energy and it floated his what the new school broadbased commodity etf which is less dependent on energy. One example is the First Trust Tactical global commodity, it can energy, 45 agriculture and cocoa. David cocoa and sugar have done well. Eric it takes the commodities not based on production but on volatility and correlation and it goes for the part of the future on the curve that has the least role cost because as you know, role cost destroyed these etfs overtime. You have some of these newer designs taking in some assets even though some of the traditional wroughtbased etfs have lost money. I love to go beneath the surface and look at where the money is going. Brendan im looking at gl cl go which is just a big dashboard on the terminal of commodities and it is red, year to date except for agriculture where sugar and cotton are each of more than 5 each up more than 5 . We are distinguishing commodities from commodities. Eric there is an etf out there, the greenhaven continuous economy etf continuous commodity etf. I have been looking at the stuff for 10 years, you never know which of these random commodities is going to have a killer year. Last year, it was coffee. The evil week of etf is taken in the year as well because again, it is going to go down less than the ones that are energy dependent. Energy bounces back, those will be better. Brendan coffee year today is down 25 . You never do know. Eric and kenneth hoffman, thank you very much. Coming up next, before student athletes arent a penny, vonnie here is your latest Bloomberg Business flash. Microsoft tells users that they believe in account has been compromised by a thirdparty. They say there is evidence that the state sponsor the attacks. The oil industry has not seen day like this in four decades. The first cargo of u. S. Crude for export has been loaded. A dutch oil trader is buying it. The price of a hamburger is likely to get cheaper according to one key gauge. To a 10 year fell low, more trimmings this year because farmers stuff their cattle with cheap grain. The business of sports, next, the university of california in berkeley is challenging its student athletes to score big when it comes to finances. Export spoke with the starting quarterback for the california golden bears who is expected to enough today he will enter the nfl draft. Stephen, the founder of a Capital Group that teaches a course helping athletes learn to manage their money. Innovation is at the forefront at berkeley and i would not call the class super innovative, but there is several issues that a professional athlete has to think about. At the top of my mind is the sustainability of income. Professional athletes earn their income in two to 15 years. Unique aspects of being a professional athlete and what that means for the rest of your life in the financial input nations and how to invest. The school was very supportive and it has been a successful class ever sense. David where did you first hear about this class . I heard about it from many people, one was missing franklin last year and is now a professional swimmer and she was telling me about it and i got interested and talk to you about it. Naturalothing about her literacy and was very basic and did not know a lot about investing in stocks and all that stuff. I have already learned so much that is applicable, stuff that i would not have learned otherwise. David going back to you, stephen, you have been quite through quite a few of these athletes. What is the biggest risks they face that you are trying to prepare them for . You put the answer in the question. Understanding the correlation between risk and return. I see a lot of pro athletes that are looking for high return. Whereis a period of time they are making the money is short and they want to make sure they have enough money to and of money to live off of the rest of their lives, so they often take risks in seeking returns. If youre looking for 15 return, 25 return, you will be taking high risk and if you have an Asset Allocation that is blended and you are looking for three to 4 , you will be taking a lot lower risk and that is the fundamental issue, is to teach them the correlation of risk and return. David i know you dont want to count your chickens before they hatch, but you are looking over to a fairly successful career ahead of you. What is the thing you are most concerned about getting right when it comes to finances . Just managing them well and knowing what im doing with everything. Taking the im course, to know what to do and when to do it and how to take care of myself for the future. David have you talked to other colleagues about their experience, what went right and what went wrong . Absolutely. A player for the colts for eight years, the left tackle for peyton manning, i talked to him about this stuff and he has helped me out a lot. David as i understand it, you have a billiondollar portfolio you are managing, at least ritually. How are you allocating right now . Three different types of stock Portfolio Management and one was very aggressive, one was conservative and one was neutral and i say i wouldve gone with the neutral one because it was what got us the most return over 10 years. We get it over one year, three years and 10 years and that was the most accessible one successful one. Looking back on it, the choice that the players are making is very consistent with their personality and style, jerod is a very conservative, oldfashioned kind of values driven young man and so when he allocation, he was very conservative with a lot of bonds, very few stocks with a steady rate of return where as i had a lot more athletes that i had athletes who were a lot more aggressive who like the idea of higher risk and higher allocations and Venture Capital and jerods decisions were very similar to his personality. David he is expected to announce this afternoon that he is going to go pro. Youll have to worry about that money investment, but he had quite a time after i talked to him. Yards and ar 4719 completion percentage of 65. 4 . Six touchdown passes as a last tuesday when as of last tuesday when they beat the air force. He is thought to be the number one pick for a quarterback in the first round. Brendan i want to take a second to appreciate another order back that played in the armed forces bowl, Keenan Reynolds at navy yards by arushing qb, alltime ncaa record, most career touchdowns, he is a little short with too many options to to which of a runner to be a pro quarterback, although i would argue you could build a team around him. His commitment is to be in the u. S. Navy and i just checked the starting salary for an ensign, differentmpletely route. David it is an Interesting Program they are doing. Pants off to them for what they are doing for those proactively hats off to them for what they are doing for those pro athletes. He went and got his cfa and is now advising rock stars on how not to squander it when you are young. Next, we will see president obama and Jerry Seinfeld as they share a cup of off the and discuss cars, cursing and busy World Leaders. Crazy World Leaders. This is a sweet car. Check this out. , thought the coolest car american made, for the coolest guy ever to hold this office. Your winning a lot of points with me, right now. David are any of you who do not recognize what that is, that is president obama and Jerry Seinfeld and a beautiful 1963 corvette stingray. On jerry latest guest seinfelds series, comedians in cars getting coffee. The episode shows a lighter side of the president who owned up to his profanity up to taking office. That stuff or stupid stuff is happening every day, so you have to be able to just make fun of a lot of it. That was even dumber and more annoying than usual. That is when kersey is really valued. Cursing is really valued. David i saw this and its quite something,. I think it is also an amazing series. Brendan i think it is great the president is doing this. He is at a point in his office where he does not matter how it reflects on him, but i think the series itself is amazing, such a gorgeous idea and it describes itself. He ducks about having been there for so long and how the World Leaders do not think much of him. These guys, the longer they stay in office, the more likely that is to happen. They lose it. At a certain point, your feet hurt and you are having trouble pa. Peeing. [laughter] brendan a prediction for everybodys future from the president of the united dates, considering his retirement. David it starts with Jerry Seinfeld knocking on the window of the oval office with the president at the desk and he says you have to go around, you cant come in, this way. , justl take a look back an hour ago, sydni welcomed in the new year with very large fireworks over the harbor. You can see the iconic bridge and opera building. David i want to wish you a happy new year. Brendan happy new year to you, it has been a fun week. David i cant get too much of this. Brendan stick on television, you will get more, all day. About 30 minutes from the opening bell. What i think you looking at is auckland, new zealand. Brendan we will be celebrating new years in new york city a little later today. The houre with us for gershon distenfeld. Welcome. Gershon the name changed happened earlier this year. Erik heres vonnie quinn with the first word. Vonnie cities in europe are taking no chances on new years eve. According to the telegraph newspaper come all 2000 London Police officers will be on duty. At the paper says an Intelligence Agency warned that islamic terrorists may be planning attacks in the city. U. S. Has vowed to impose sanctions on those involved with irans missile programs. No word on who will be targeted are what the sanctions involved. More than 8. 5 Million People have signed up for individual health plans to the Affordable Care act. Renewed upr coverage from a year ago. The u. S. Has estimated nearly 10 Million People will be enrolled in aca plans by the end of 2016. Julie im going to start with oil. We have seen some declines in oil capping off what has been a terrible year for crude. We see it down about three quarters of 1 . We have this downward, still mysterious. Yesterday we got an unexpected build in weekly inventory number in the u. S. So that put pressure on oil prices. Currencies this morning, a mixed picture for the dollar. We are seeing it slightly lower against the japanese yen although the yen is set for a Fourth Annual decline versus the dollar, a record streak of declines. We have the euro falling versus the dollar. Little changed against the dollar this morning. When you look at what commodities are doing, part of that has to do with that dollareuro strength. It looks like the last day of the year might be a down one if these futures are any indication. We have seen u. S. Stocks trending along with oil prices so that could play into todays session. In terms of what is going on in europe, we are seeing it play into the session. The German Market is actually closed today but the stocks europe 600 is down. This has not been typical of what we have seen year to date. European stocks have outperformed u. S. Stocks at least if you look at that s p euro stock 600. It is up about 7 for the year to date even as u. S. Stocks have been just about flat. We dont know how flat exactly until after the trading session is done today. I titled this thanks, mario. Stimulus and the promise of stimulus have helped european stocks this year. Erik it is time for the five stories that matter to markets now. We will begin with number one. Scott balmer is throwing in the towel at sab capital amounting to investors he is closing up shop after 17 years and returning most of their 1. 1 billion by the middle of next month. The sab overseas fund was down for the first eight months of the year. Is at least the Third Hedge Fund manager to exit the business this month. Others, bommer will now focus on managing his own wealth. Gershon this really does not surprise me. I think it is clear hedge funds have had a bad year. There is a bigger underlying erik it had bad years before. Gershon i think it relates to the liquidity market. When i think a lot of Hedge Fund Managers are finding, they opened up, they had 200 million in assets and they were able to run their strategy. Because they did well, they raised a lot more money and they are finding to implement the same strategy on a larger pool of assets is difficult. The second thing that is going on and Hedge Fund Investors need to understand this, when Hedge Fund Manager does well, they raise more money making it less probable they will continue to perform well. When they lose money they have every incentive to shut down. 10. 6 , he has to make back 12 . Whatever the number is, cannot heard incentive cannot earn Incentive Fees until then. The incentive is to make up whatever excuse you want, take a couple of years off and open your own fund. Erik market structure, loosely speaking, is partly to blame for this. Given the fact that hedge funds are having a difficult time performing in a new market environment, is that necessarily a bad thing . Gershon it might be a bad thing for Hedge Fund Returns. Erik clearly it is bad for Hedge Fund Returns but did that for everybody . Gershon i dont think so. Of the things we have to get back to as investors is looking for longterm value, not focusing on what happened today. That is not necessarily a bad thing for investors. I operate in a market that has news of liquidity and highyield. Liquidity is declining across all markets. Erik here is a question. I can go on with this forever. I wont. Could we look at on what we were just talking about and ask whether Public Companies or at least bank shareholders, and by extension taxpayers, were subsidizing Hedge Fund Returns by creating these leveraged deal or Balance Sheets that provided liquidity they used to generate these returns in the past . Gershon that is possible. Puerto rico is a great example of command creating supply. We see that again and again. Investors want certain types of investments. Triple taxfree so it was stuck i think tax fund that we have to return to investing. Investing is a longterm exercise, it is not about i think commodity xyz or what commodity is going to appreciate or depreciate tomorrow. David sears, the largest outside shareholders making some noise. Chief Investment Officer at their home, is increasing his stake. He signaling an active role that may include considering actions to be taken at sears. Fairholm hase been an investor in the company for more than a decade. I dont know how closely you follow this. Itch greg smith it already had a substantial position in sears and acquired more it strikes me it already had a substantial portion in sears and acquired more. Gershon that is an industry that has gone through a lot of disruptive change with amazon and others coming on. When that happens you will have stress, people with different opinions sorry. And look like you are pointing at me. Erik you are so responsive. Gershon you will have different people who have different strategies. You will have differences of opinions. You will see more activism in relation to that. A company like polaroid over a decade ago. They were very slow to move from film to digital and it was too late and they went bankrupt and had to restructure. I dont know that enough with sears but you will see the possibility. Of restructurings. Erik what is tantalizing about this from the journalist perspective is that one of any lamperts biggest allies for years, as Berkowitz Bruce berkowitz, has suggested that perhaps he and lambert might not share the same point of view. His investors have so much at stake in sears that he now has to exercise fiduciary responsibility. David that is what julie wants to tell us about. Julie this maps out berkowitzs position overtime. He started to ramp up the position to 2008. He maximized it in 2011 or so. At the same time the stock has gone down and down and down. Down bywhile, just more the underperformance after so much time. The big question with sears has been, white isnt lampert why isnt lampert down . He still keeps reinvesting in the company, even the companies he spun off, he still owes majority stakes. David what is the big new idea . What are the going to do . Julie i think we know the answer to that. Days america may be just away from exporting shale gas for the first time. The terminal in louisiana will make its inaugural shipment in days. Leave the complex by tanker in january. Has revolutionized the u. S. Energy industry and lng may have a similar effect around the world. I think if you look whether you look at new lng products coming on in australia. Hat took years to build chevron building one of those big plants. Russia increasing supplies. Iran has tons of supply. It is a race to supply europe between russia and iran. You have this new supply coming online from the u. S. 20 projects in canada on the docket. Maybe only three or four of them get built now. The world is awash in gas as well. Erik what is the highyield investors perspective on lng . Gershon the highyield investor is worried about the price of natural gas and oil. Im sure we will talk more about that later. To me, i think we are really focused on the trees and not the forest. Supply this, demand that, where is the price going to go . Not know we were going to have some 40 oil and they were making plans, assuming higher prices. If you were a bear on oil two years ago you are forecasting 80 or 90. Companies werent prepared for this. They are scrambling. There is going to be a lot of defaults and restructurings. We will talk later about what that means for the rest of the market. David right now we will go to number four, a media megadeal that may be in the works. Vodafone shares are up 2 after the daily mail in england reported the company is in merger talks with liberty global. The report said investors in recent weeks have encouraged the companies to pursue a deal. This is not the first time we have heard about liberty and vodafone. Erik i have been directly and indirectly involved in m a coverage of bloomberg for a time. I become a student. I think you have to read the fine print. This is the daily mail, which is not often a source for news on deals. You have to wonder if they have got something that everybody else has missed. This helps to answer the question. Malone has here john instigated new merger talks in the past few weeks. Dealers now here. The response has been favorable and the wheels have been put in motion. I think you have to read the fine print and draw conclusions for yourself about how solid the information is. Im not disputing for a moment with the daily mail is reporting i just think it is easy to summarize a story but it pays if you really want to put money at work to go back and read the story in its entirety which i encourage everybody to do. David this would not be the first time that as people look at two companies and say it would make sense for them to get together and they start predicting it and sooner or later it happens but not necessarily because they has specific information. Erik the daily mail is transparent with what they have got. The manhattan federal judge will allow facebook shareholders to pursue classaction suits against the social network. A claim the company hid details about the growth of its mobile business ahead of facebook bus 16 billion ipo back in 2012. Ofwas in part because concerns over mobile that facebook shares plunged 50 in subsequent three months. The Company Released a statement saying this. We are disappointed with the decision and have filed an appeal. We believe the class certification the class action certification is without merit and conflicts with wellsettled Supreme Court and Second Circuit law. Gershon this is everything that is wrong with investing in my mind. If you invested in facebook at the ipl, you have nearly tripled your money. In three years, 3. 5 years. People are saying we are upset that we did not get time we did not get the free lunch we expected in the 1990s. That is ridiculous. We see it in the industry. People are so focused on shortterm, what did you do last week. Erik where is my first day pop . Gershon the securities i own went down in price more than the ones i did not own. A one month period is nothing. Erik the only way you could be hurt by this is if you basically s sold the shares right away. Gershon trading is not that different from gambling in a casino. You might think you have an edge in investing but the reality is even if you think you have skill, your odds are not much greater than 50 . When you lose money you should not go crying. I have no idea if the suit has any merit but it does bother me. Erik i am that much happier that you are here because i love it when our guests are really irked by something. We continue with him in just a few minutes. The five stories that matter to markets now. Next up we will take a look at what is moving in premarket trading. Vonnie welcome back. Highest levels as july last week. 200 87,000. The Labor Department says the increase could affect typical swings during the holidays. Facebook says a program that provided Free Basic Internet Services to more than 3 Million People in egypt has been shut down. No word on why it was halted. Facebook hopes to resolve the situation soon. Worlds a gift bank biggest bank banks have eliminated about 600,000 jobs. Almost 50,000 of those, and the Fourth Quarter. Julie i want to take a look at of small biotech names starting with one that is small. A Company Based in israel and its shares that also trade in the u. S. Are surging by fifth surging by 18 . This means it is going to be a protected drug from any patent challenges for seven years. You can see the shares gaining on that. Wanted to check on a couple of other stocks that have been volatile this week. One of them is of small biotechs starting with one that is small. A Company Based in israel and its shares that also trade in the u. S. Are surging after the results of a study for one of its experiment the treatment. 72 Asset Management taking a stake of 5. 3 . Avex lifesciences continues to decline after it reveals it is under investigation by the ftc. I wanted to take the the fec. I wanted to take a moment to look at biotechs. A lot of drama as we saw huge drop essentially entering a bear market for this group august to october but for the year to date it has outperformed the nasdaq i have back index of by 12 as the s p is little changed. We have seen Amazing Movement in terms of valuation for the nasdaq biotech index on a forward pe basis. Up, we will take a look at three Technology Companies investors should be watching in the new year, next. Erik aboard 14 about 14 hours from now, time square will be filled with human beings watching the ball drop as new years eve is celebrated in manhattan. Bloomberg intelligence put out its 50 companies to watch in 2016 and today were focusing on technology. Gershon distenfeld is still with us. Julie hyman has more. Julie youll be right there. I wonder what the proportion of new yorkers is in times square on new years. Lets get to these tech companies. Tesla, not a surprise. The suspense when it comes to tesla is whether it is going to be able to meet its own lofty growth goals. There are a lot of skeptics. Company says it is going to get to 500,000 cars in 2020 in terms of sales. There are not necessarily so many questions about demand because it has already seen strong demand. Its a matter of can it make that many cars. It would need to average 57 annual growth rate. David they are hoping to make 50,000 this year. Julie there are questions about those numbers. David 10 times as many to meet their goal. Julie a lot of skepticism about tesla. Even if elon musk has near mythical status when it comes to his ability to lead a company. When you look at the annual global sales, 50,000 is the estimate for this year. David it is a very cool car by all accounts. Gershon there is another issue. They did not just invent the electric car, they also created a superb luxury car that could compete with the best. In order to meet the sales targets they now have to go down market, produce a car in the 30,000 range to 40,000 range which is more competitive. All the other manufacturers are getting into the electric car game as well. Whenever i hear 57 growth Rate Companies that are expected to grow more than 20 inevitably come on average, dont hit those numbers and stocks underperformed by quite a bit under time. Overtime. Julie another company we do not necessarily of with cars is qualcomm. The company is trying to get more into cars in terms of its chips. A lot of the chipmakers have been trying to diversify. First they made chips for computers. That sort of market is waning. Then they got into smart phones. That market is waning in some sectors. While the next frontiers is the Auto Industry and Smart Technology in cars. Qualcomm is getting into that. On other fronts, qualcomm is dealing with patent challenges. It just resolved a handful of them in china. Still needs to make progress on that front as well. David i have no idea whether qualcomm will be there but there will be a revolution. Google going at the self driving, ford is doing it. There will be some winners and losers. Gershon thats why you have to be skeptical that qualcomm will be a winner. They were earning above market royalties for long time. It will not have that tailwind and probably will end up in commoditized. Julie that is my perfect segue into cisco. Watching this one because we are seeing some of their products being commoditized in a new way. Talking about routers and switches which has been their bread and butter. Erik trying to move into Software Defined networking. David thank you to julie hyman. Gershon distenfeld, youre sticking with us. Good higher rates put pressure on companies that went through bar and bridge during the time of cheap money . Erik that is london. Sonny with a few clouds as they prepare for their new years eve celebrations. We are moments away from the opening bell. It was a lousy december for european stocks. The worst since 2002. Mark,ock 600, a good edge rose almost 17 . For us, the question for to them 16 is almost the same as it was in 2015. What is the fed go to do and what kind of impact will that have on the market . Returns were hohum in 2015. Come also recal komar is joining us. Al if you look at what the bond market is suggesting, the 10 year yield did not shoot up like everybody has been saying in the consensus. I have said repeatedly the 10 year yield is going below 2 . To 1. 5 is the target. The fed can control shortterm Interest Rates but it does not control the 10 year yield which is more market determined. The Global Economy is slowing and high yield market in the united states, i think the signal in gives one more ha hedge fund which is closing even as Commodity Prices are under pressure. Oil has gone to 2004 levels. The fed can help inflation goes to the 2 level but it is going in the wrong direction with the oil going down in price. Putting it all together, i dont s in twothe fed hike dozen 16 when the market is going to be in so much trouble i think i cut in rates is more likely. Im glad you mentioned highyield. Us. Hon distenfeld is with a 1. 510 year yield in the absence of quantitative easing, does that not suggest we will be in a fullblown recession before the end of the year . Srikumar a significant slowdown, we are expecting for the Fourth Quarter going below 1 level that you can remain positive that would be. Ufficient to push below 1. 5 if you have a situation in the Global Economy with Oil Prices Going lower. Another five dollars to 10 lower than where we are. That means that inflation would go in the wrong direction and you cannot justify a 2. 25 10 year yield. You can get 1. 5 yield in two ways. You can have the economy slowing and you can have the inflation going down and i think although them are likely to happen. David you are predicting the yield will go down in a 10 year. Oldman has a report predicting it will go to 3 by the end of the year. What do you know that goldman is missing . Srikumar i have been right repeatedly in my 10 year bond forecast. The consensus has been david that is a big difference. Srikumar the consensus has repeatedly. 3. 5 every year at the beginning you say it is going to 3. 5 and it does not. You repeat the forecast a year later. In my case, i have consistently sent on deals will stay lower and i do not go with the consensus. I look at what the fundamentals are suggesting and as i said to eric, both inflation and the growth number, what the highyield market is suggesting suggests to me that lower yields it does not matter who the other forecasts are. David we will get to the highyield market. I want to go back to the idea that the fed will reverse course. Nothing has a zero probability but this is about as close to zero as you can get. Gershon lets look at the fundamentals. The consumer is in relatively good shape. Labor markets are strong. Six years into a recovery we are seeing signs of life in the real estate market. That does not suggest that we should have incredible accommodative policy of near 0 . Points isnk, 25 basis a rounding error. It Means Nothing to the real economy. What you are really saying by saying the fed will reverse is there will be some type of market turmoil and there could be. That is going to fed that is going to cause the fed to not only cut the 25 basis points but also engage in cutie. Qe. Engage i one other thing, you think about we have coined the phrase the bernanke put. Do you think janet yellen is going to want people to Start Talking about the yellen put . I do not see the fed reversing course. Srikumar you have several points. I hope i get to answer as many as i can remember. I think the consumer is not in good shape. You are talking about a few high yield, high income consumers who are done well. The lower income people, middle income groups are essentially having to make do with parttime employment instead a fulltime jobs. The Unemployment Rate has come down to 5 only because we have pushed down Labor Force Participation rates to levels not seen since 1978. If you were to say that that is theng place because of graying of the American Population i would say 25 to 50yearold partition Participation Rate shows we have dropped its 2007. There are two ways to lower the Unemployment Rate. One is to create jobs, the other is to push people out of the workforce. Is not the preferable one. In terms of the yellen put, we have had a greenspan put. The answer is, yes, a yellen put is in existence. The fed has always come to the defense of the market. The largest institutions will get bailed out and i dont see the situation changing any in 2016. It does not matter what yellen wants to be remembered by. The fed chairman, with the exception of paul walker in the late 1970s, have a habitability of the market. Gershon what is your forecast for a nominal gdp . We have been in almost a decade of 0 rates. You think we will be in a recession or do you think we can have an indefinite disconnect between the fed funds rate and not have it lead to inflation . Srikumar your talk of longterm having zero Interest Rates. I said they should have hiked rates. The reason for hiking rates is not because inflation is heading up. Not because theres no slack in market. Er i think there is a lot of slack in the labor market. The reason for hiking is because the fed causes market distortions. You have people buying highyield they should never be buying. People who are taking risks they are not intended to examine and evaluate. Youre going to have the puerto rico bankruptcy on monday. Were going to have more of them take place in a u. S. Oil patch in the first and second quarters. As for gdp growth, if you go with inflation rate of about 1 and save real growth slows to three quarters of a percent or 1 , putting those together you get a nominal gdp 75owth of about 1. 3 q percent. Gershon i think we can agree the fed should have hiked rates a long time ago and that it is causing certain risktaking today place. Erik i would like to add one other factor, politics. We are a president ial election next year. If the fed is going to do more accommodation, they will have to do it early cause otherwise it be because otherwise it will be perceived as a political move. It will be difficult politically for the fed to do that. Srikumar it is going to be difficult to do that as you approach the elections but that is assuming the fed is an independent entity. If you are to say that, i would strongly disagree. Once again i would say the fed starting with arthur burns and Richard Nixon where the monetary growth was intended to support the vietnam war efforts, G David Miller taking place in the carter administration. The greenspan put, the bernanke put. The fed is not an independent entity. If the economy goes downhill, more market turmoil takes place midyear 2016 or Third Quarter 2016 ahead of the november elections, the fed i think will still act. I think the timing is not so critical. David it is good to hear you join us. Happy new year. Srikumar thank you very much for having me. David right now we need to check in on the markets. More than 10 minutes into the opening. Julie about half a percent acrosstheboard. We have been looking at the yeartodate returns for the s p 500. As we have been talking about, it will be down to the wire as to whether we see a gain or loss posting a loss of the year of a quarter of 1 right now. This would be the worst year if we stayed steady without loss, since 2008 after three consecutive years of gains for the s p 500. Taking a look at the imap on my bloomberg terminal, energy, up today even though crude oil prices are lower. Tech,m Consumer Staples health care, all up. We see low trading volume. I mitchell crude oil, lets take a look at where it is trading. Still under pressure after we got yesterdays inventory data. Bouncing off the lows to a loss of a 10th of a percent. Atural gas, following a winning streak is up once again. Movers that wely have today on my bloomberg terminal. Not a lot of movement percentagewise. Southwestern Energy Company percent. One of the worst performing stocks. Some of the other strong performers are those that have poorly this year. Activision, blizzard, among the losers as we get underway today. Lets go to abigail doolittle, live from the nasdaq looking at sears. Abigail happy new year. Bruce berkowitz, the largest outside shareholder of Sears Holdings has signaled he may take a more active role at the company. This is the largest shareholding equity stockholding for fair home. 20 of its equity portfolio. Berkowitz has been acquiring shares 2005 when Revenue Growth was closer to 15 as compared to a decline of 23 this past fiscal year. A company that is largely viewed by many as a real estate play. Warren buffett did take an 8 passive stake earlier this month in a reach for sears stores created to capitalize on real estate holdings. Erik the latest on sears with Bruce Berkowitz signaling he and Eddie Lampert may have a difference of opinion. Highyieldll the meltdown spill over into 2016 . Distenfeld has an opinion. Vonnie welcome back. Puerto rico is escalating its conflict with investors. The commonwealth lance to develop on bond payments due tomorrow to default on bond payments due tomorrow. The islands governor is trying to restructure 70 billion worth of debt. Vodafone is reportedly in merger talks with liberty global. The daily mail says john malone initiated discussions. According to the paper, investors have encouraged the company to pursue a deal. Microsoft will warn you in mill and Cloud Services if a government hacker has targeted them. Microsoft says there is evidence that statesponsored attacks can be more sophisticated than those of ordinary cyber criminals. Erik if highyield is the canary in the coal mine in many say it is, Equity Investors should be careful about going deep. A clear breakdown. You can see it in the far righthand side of the screen. For the first time in five years and the relationship between stocks and junk bonds. If the selloff in highyield continues, will equities have no choice but to follow suit . Lets put the question to gershon distenfeld. Gershon there is no question. This has not been a big selloff. Ful butt feel pain highyield cells off by 5 or more every year. Every period equities do worse and most of them do a lot worse. I hear this all the time, be worried about highyield and i say, what is your equity allocation . They say 50 , 60 . Nothing has a zero probability. Its possible the highyield market crashes and equities do fine. You are betting against a lot of history to take that as it should. Erik why is there this three to six month lag between the selloff of highyield and a followthrough inequities . Gershon there has not always been. I think the highyield market has sometimes been a leading indicator. 2002. Osest analogy is in 2002 you had a sector that have become the largest part of the highyield market because it was tremendous demand. Sounds very similar to what happened to energy this time. The baby got thrown out with the bathwater. The whole market sold off. The telecom space, most of it went away. A lot of restructuring and defaults. We can go through all the global crossing, windstar. A long time ago. The rest of the market did very well in 2003 and 2004 for several years. I think were seeing the same thing now. Energy is the new telecom. It was 5 indices a decade ago. It is close at its peak is close to 20 . Youre going to see unless miraculously oil goes to 100 a barrel, you will see a lot of defaults and restructurings. We are getting later in the cycle. You will start seeing you might see defaults pick up from low levels but we are back to levels where you are likely going to have high returns if you avoid the energy david we had someone on the program yesterday who talked about dollar denominated corporate debt in emerging markets. He said there is 9 trillion of that debt and that there is enormous defaults coming. I like your reaction. We are talking trillions of dollars of defaults coming. Bankrupt but it falls on the banks and jeopardizes the banking system. David he is referring to christine lagarde. Is that a big problem we are facing . Gershon i do not think it is because the fed will raise rates. We are talking about maybe going to 2 . 9 trillion sounds like a high number. I think the entire em corporate space Investment Grade and high yield is only about 2 trillion. I think were going to see increased defaults. To see moreed defaults in the past year or two. We have seen low default rates in the developed world. Now we are starting to see leverage creep up again. The question is, are returns going to be ok . You notify do you know the highest yield ever for 2009. If youket is pricing is will have a lot of defaults. Theres a lot even outside there is debt rises, . 50 on the dollar. In might restructure. Time,before we run out of where would you allocate within highyield . Third avenue got itself into trouble with triple cs and nonrated. Gershon people have been reaching for yield for a long time. We have the least amount of triple c corporate debt we have ever had a refund. You want to focus on diversifying your income sources. Incredibly concentrated in a narrow market and taking large positions. We think you should have positions in emerging markets in europe, in other asset classes. That is what we do in our a be high income funds. We invest all over the world. , where will key benchmarks be in 2016 . A few great minds take a guess,. Erik 11 53 p. M. In tokyo. Minutes away from japans big new years eve celebration. I say that not knowing for sure host thedict tokyo biggest new years celebration in japan. We like to have a little fun here so we asked a few Brilliant Minds to forecast where they see key benchmarks in 2016. Here is what you need to tell us. A year from now, the u. S. Dollar, up or down . Up. Crude price, up or down . Up. S p 500 . Up. 10 year treasury yield . Flat. U. S. Unemployment . Constant. S p . Flat. 10 year treasury . Up, slightly. U. S. Unemployment . Down. U. S. Dollar . Up. S p 500 . Up. 10 year treasury yield . Flat. U. S. Unemployment . Down. Erik i enjoyed that. David we have time for short thought. You have the floor. Gershon i found that amusing. For every person who says andrus rates are going up Interest Rates are going up, you will find one that says stocks are going down. You cannot protect the future. Try and figure out the implications. We talked about Energy Prices and implications for that. A big story for 2016 might be a huge rally in the dollar, where are the dislocations, where are the opportunities stemming from that . David give me a great opportunity erik . Or a great dislocation. Gershon i dont want you to play that year from now and show me i was wrong. Erik we have gotten used to talking about black swan risks. Are there real black swan risks that exist today that did not exist in 2005 . Gershon by definition a black swan is something you cannot predict but i think there are always black swans. Get away from the headlines. , gershonank you distenfeld. He to have you with us. Have a happy new year. We hope to see you next year. Erik happy new year. Welcome to bloomberg markets. Betty from bloomberg world headquarters, good morning and a happy new year. Here is what were watching at this hour. Partiers around the world are saying goodbye to 2015. The s p begins the day lower turning this day this years returns negative. What dangers could be lurking in the new year . We will ask alan blinder, joining us. A number one question on oil as it heads for its biggest to your loss ever. Producers want to keep pumping more. Before we get to the markets, this is tokyo. Celebrating their fireworks ringing in 2016. One of the first cities to be doing