Transcripts For BLOOMBERG Bloomberg Go 20160217

Us. Gina martin adams from wells fargo. First, first world with Caroline Hyde. Caroline thank you very much indeed, david. Yes, lets look at the stage being set at the moment for the battle between apple and the u. S. Government. Apple is refusing a federal magistrate order to help the fbi unlock the iphone from one of the shooters in the San Bernardino terrorist attacks. Apple ceo tim cook says the company has given the fbi data that is in its possession, but cooks as building a back door cook sayse but 10 buildin him cook says building a back door to retrieve the information would not be good for security for customers. President obama says the senate needs to consider his nomination for the replacement of antonin sculley on the Supreme Court. The Obama Administration had reportedly planned a vast cyber attack against iran if the dispute had led to military conflict according to the New York Times. Disablingas aimed at the power grid and communications. Global news 24 hours a day, powered by our 2400 journalists and more than 150 news bureaus around the world. I am Caroline Hyde. Matt i will take it from there, caroline. Taking a look at futures, you can see u. S. Futures are showing gains across the board about 13 points on s p futures, dow jones up about 100, and they are climbing. If you take a look at my bloomberg, i have got a oneday picture of s p futures. You can see that we were actually down overnight and did not start trading up until just after 4 00 a. M. And then appreciated noticeably. Why is that . I am sure you all know it is oil. Take a look at oil here. Reports or a confirmation that talks would happen with iran right around 4 00. That is when oil started to pick up. If you switch back and forth between my bloomberg and this chart, you can see that the correlation is pretty striking today. It has been of course all year. Lets take a look at the dax index as well, the oneday chart of the dax, you can see strength building as well. We had Credit Agricole earnings out. They were better than the streams were looking for. Banks across europe rose up across the board. Stephanie you have got to remember this is on the heels of the disastrous week from Deutsche Bank. Credit suisse having a tough time. Think about the plight of these european banks. The tier one debt and all of the bondholders feeling panic. When you look at Credit Agricole, who is not even considered a major player, you see stock up 12 . There is such a massive exaggeration in overshoot across the board when we see any sort of headlines. Does that surprise you at all, gina . Gina in a way it does because of the shift in tone from where we have been. This year,r turned and everyone decided to go into panic mode. But given the fact that we have been dealing with it for six weeks it is not, right . After the last six weeks, you get accustomed to these overreactions on both the upside and the downside. Of groundare sort zero, forgive the statement, but ground zero for what is going on with the policy mechanism. It is something of an unknown. Matt that leads me into my next chart here. Take a look at gilt. Stephanie i love looking at gilt. Oneday cart. Chart. Fell. Recall, guk i want to look at the town here come over a fiveyear period, here is the british pound here intraday, but if you look at the fiveyear period, look at the lows. The pound is really weak versus the dollar. It is interesting to look at what is going on in the Interest Rate markets over there. If you get back to the bank, it is fascinating to me that you had the worst week, the last two weeks that we have had in years, and then on friday, at least for u. S. Banks, we had the best day that we have had in four years, so as stephanie says, the swings are really exaggerated, the volatility is in there across asset classes. Thehanie matt, think about investors that got absolutely smoked in 2008, early 2009. Had they held, they would have had glorious 2009s. You have got the same investors in the market to remember that pain, and they simply do not want to miss getting this trait right. Do not want to miss out on the downside as much as they do not want to miss the upside. That is the key. We are now conditioned to expect incredible declines as well is very sharp rallies as a result not only of 2008 but 2000. That is something very new. Investors do not often think about tyneside. About downside. Stephanie what so many investors are doing today, it takes us to our next story, can there morgan is up in premarket trading. After sec filing showed Warren Buffetts Berkshire Hathaway increased its stake in the pipeline company. This is just a snippet very big carl by john carlson, icahn, the list goes on. Lets bring in our own simone foxman. Lets back this up, simone. These 13 filings are telling us where some of the biggest investors out there what they did in the Fourth Quarter. Before everything fell out of bed, walk us through some of the most notable moves. Simone obviously, you have to start off with Warren Buffett. He bought a stake of about 400 million in Kinder Morgan. To ginas point earlier, certainly there are a lot of folks out there looking for energy to bottom and looking to ride the upside. Appaloosa, david tepper getting in on that trade as well. You also have David Einhorn and carl icahn both cutting their stakes in apple, so both of them that has been a big deal. Stephanie before we move on to apple, it is important to note that they bought these positions before the market fell out of bed. Everyone you have mentioned it they do not have to offer monthly or quarterly liquidity is, so they are ok. Simone right. You will never touch the exact bottom. None of these managers will say i will really get this right at the bottom. These are all longterm investors. But the prospect for energy recovering has been a really tough trade for people over the last year. If you said after the end of 2014, wow, Energy Companies are really going to struggle, the valuations to decline well, Kinder Morgan was down last year. You had a rough time. David oil prices were already pretty low. Lets move on to apple that you were going to. Lets talk about tech a little bit. I think there were quite a few Tech Companies that is the one place you saw the largest aggregate inflows for Hedge Fund Managers across the board. You are also talking amazon, facebook, and a lot of these companies have suffered in the market downturn, so certainly i think there were a lot of people hetting in on this traitde, t facebook, amazon, netflix, google stephanie it is interesting because not everyone is on the same page. You see chass omen going and ivd David Einhorn cutting. Doesnt Say Something to you when major investors start to pull out of these banks . Simone not necessarily, not after the incredible rallies we had last year. Gina energy was a clear market laggard, so naturally in decemberjanuary, you see a lot of transitions, shading transitions. The extent of the outperformance and underperformance of energy last year was the big surprise, and that might be a region why you he such a reason why you see such volatile trading. Stephanie people forget that fund existeds before. He was a milliondollar fund. Then when subprime came, clearly his name you would have thought he got gold wrong here. Matt are you calling him a onehit wonder . He did have one big hit. Stephanie a really big hit. Paulsonsan see john holding in the etf, the Worlds Largest etf, and another reduction here right before it takes off. Function. E hcs everyone is holding at a big holding, but it is probably better illustrated just by looking at a oneyear chart of gld. This is the end of the Fourth Quarter when we have his reported reduction in holdings, and here is the 37 rally that he missed out on. He is a very big billionaire. Stephanie he is raising 1. 5 billion for distressed funds, private equity stop your he is investing a ton of money in real estate in puerto rico. Gina a point about the gold etf this is used to sort of backup the hedge funds. Mywas essentially saying investors would rather be in gold than in dollars because were worried about this monetary easing. What it shows is either he got out of that share class or his investors did. This is what is backing up his trade, too. David that is a quick overview. We will come back to it later. Bloomberg news simone foxman, thanks for that. Brent crude advances today as iran and iraq meet to freeze production. Were joined by bloombergs javier blas in london. Venezuela may be meeting with iran right now as we speak or do talked about how important iran was to this deal. Javier it is very important. It is ongoing. It is almost 3 00, 3 30 in tehran. Qatar, iran, iraq, and venezuela are holding a second day of meeting after the meetings we had yesterday involving russia and saudi arabia. What they will try to do is convince iran and iraq that they need to probably iran will get some maneuver to continue increasing, keep output from coming back, but this is really what will make the deal that was announced yesterday work or not really work, and then we will see a fall off and pricing in the 20 range for rent and wti. David javier, what is in it for iran . Just as i get in, you are saying, sorry, do not come in anymore. Javier iran will be offered a special package where they can ramp up production to a certain point. The consolation tehran will have to do is do it to a certain limit and benefit from a price increase, or we continue where we increase one Million Barrels today and we see the price go to 20. That is a difficult consolation because it is not only the economic element of it, but it is also a political calculation where iran wants to have a real approach met with saudi arabia. Moment, diplomatic relations are completely broken between the two countries, and i think the politics here will be as important as the economics of the oil market. When you are looking at the broad picture, we are talking about a freeze in supply. Has that typically proceeded cuts in supply . Talk us through the dynamics and what opec is thinking. Is it a temporary freeze . What should we expect six months down the line . Javier when you think about where we are coming from in december 2015, the last opec meeting, opec abandoned any production limit. It was a freeforall. The country was on a really capitalists, the markets are supplied, we will not interfere with the market. Today, they are talking about freezing output. Whether that goes into a production cut, we do not know yet, but what we know is that previously they were refusing to engage with the idea of setting limits to production. Now they are accepting limits to production. The Saudi Oil Minister said this is the beginning of a project that could require farther cuts. That is code for farther cuts in the future. That does not result in over supplying the market immediately but opens the door for a resolution. Javier blas joining us from london. Thank you very much. Gina martin adams will stay with us. Caroline this is bloomberg. I am Caroline Hyde. Bloombergs access a deal to freeze will not Goldman Sachs says a deal to freeze will have little impact on the oil market. Last week, goldman says prices will eventually drop below 20 a barrel. For the first time in more than 60 years, there will be scheduled commercial flights between the u. S. And cuba. The two countries signed a deal that will allow as many as 110 daily flights. All current flights between the u. S. And cuba are chartered. It is to normalize relations. That is the Bloomberg Business flash. Stephanie thanks so much. Now we will move on to global. We stay in the u. K. Unemployment held at a decadelow 5. 1 , and employment is at a record high, but here is the problem the oneweek here in the u. S. Fell. Wage growth slowed to a want to bring in our own guy johnson. Why is it that way tge growth is not picking up . Guy it is a conundrum they are trying to grapple with right now. There is a number of reasons for it, but nobody can actually nailed this one down. It is a pretty big problem. We are not seeing a wage growth picking up. We are seeing employment continued to go down. Is there more to the labor market than we think there is . D the traditional theories not holdo . There are a number of different competing theories at the moment. But nobody can nail this one down right now. The phillips curve, which you would normally expect to be torating here, ie, you start see inflation picking up, that is not happening. Stephanie are we paying enough attention to the fact that wages are slowing . When you see the overall top number, people start to get very bullish. And you can already see the market should be picking up, but it is not. Look at the way the bank of england is forecasting this one at the moment. It continues to forecast a pickup and wage growth. It has not happened, so the models clearly are not working. What was interesting last time sec,d was the cap on the last time around, he switched that, so no change. The bank of england cannot figure this one outcome of the markets cannot figure this one out at the moment. There are a number of fac factors at play here. At the moment, everyone is confused, that goes to the fed as well. Both sides of the atlantic very similar. That guy, if this is imported and confusing, why is it that the london markets of not reacted to it . E,en i look at the fts it is basically as up as the rest of europe is. Guy first of all, it does not change the bank of englands outlook. The bank of england has made it clear it will be on hold for a long period of time. We are not going to see any change, and that will be the story for one, maybe even two years. We are pricing the height of the bank of england although way out until 2017. The other thing is we have the referendum. That will be a bigger factor for sterling right now than what is happening on the unemployment story. As a result, the attention is over there rather than on the data we are seeing at the moment. David ok, thanks, guys. That is guy johnson joining us from london here it when we come back, glencore stock rallies. We will see what else is trading this hour coming from bloomberg. David welcome back to bloomberg. Time to take a look at the top trending stories on bloomberg. We picked our own. Stephanie, i want you to go first. Stephanie glencore obviously has been in the news for the last 10 months. With Oil Prices Dropping in a massive way, we saw glencore, the premier Commodity Oil Trading house, really take a dive. Glencore getting refinanced. Over 8. 5 billion getting refinanced. Their37 banks refinancing debt, but this is a company who a few months ago some said these guys are going under, they do not know how to operate. Positive. To me, it is no surprise to see their stock up. Gina the reality is the credit markets are still functional. For a few weeks, we have been trading as though there was no credit available to anyone. European banks were going under. So this is great news because it is further evidence that the system is not imploding. We are capable of finding Companies Even in of funding Companies Even in the stress distressed situations. Stephanie i cannot imagine that to turnnk ceos wanting around. David it is part of a larger plan to restructure, recapitalize and get Balance Sheets straightened out. The story for me is china. This is geopolitical risks. They built those artificial sea. Ds in the south china now they are deploying service to air missiles, which is a pretty ominous sign. Stephanie an ominous sign without a doubt. Investors who were feeling uncertain about the situation in china david meantime, the u. S. Has deployed stealth fighters to of northea because korea, so geopolitical risk is coming to be concerned about. Gina quite friendly, geopolitical risk have been around for a while as a concern, most evidently displayed in the s p 500, which has been one of the bright spots, right . Early last year, defense spending increase in the u. S. , and that has been a bright spot for equity investors. Stephanie how sensitive are these stocks to the upcoming election . Gina i would say they are a good place to be regarding the upcoming election because of the geopolitical environment. Dangerous places our health care. David you will buy guns the matter what. Stephanie we will be safe here at bloomberg. Stay with us. David welcome back. We are joined by Gina Martin Adams and Brendan Greeley. We have a couple morning must reads and big charts. Stephanie how about oil, s p 500 index, i would like to give myself credit. I do consider myself a house optimist. David you love green. Are optimistic long enough, eventually, you are optimistic. David we will go to carolyn for first word. Carolyn the u. S. Is making a show of force around north korea and the wake of a Nuclear Attack and rocket launch. Jets flew through south korea yesterday. U. S. Officials say the flight demonstrated the result to maintain stability in the korean peninsula. David cameron is getting closer to a deal over the uks membership of the european union. He has won the support it and goes of micro of angela merkel. They say they will do Everything Possible to keep them in the eu to a keyeron goes summit tomorrow. President obamawill not be succeeding him in the white house, and he says the American People will not collect donald trump. Mr. Obama says being president is a serious job and it is not hosting a talk show. Powered byay news our news bureaus around the world. I am Caroline Hyde. David thank you. Tom keene could not be with us today, so we brought our own morning mustread. The pro golfer can be held to explain stock market behavior. They studied puts i concluded that professional golfers make the put much more often is going for par the birdie. They say they are affected by what John Maynard Keynes called animal spirits, the feelings of the primitive creatures who lie within us. Hitting the prospect of losses, golfers focus intensely on avoiding those bogeys and often succeed, and this explains what is going on. Stephanie this is what explains it, investors are irrational risk managers. Brendan but the state of the art has moved beyond. We used to think people were leon and irrational were beyond a rational and now we know there predictably irrational. Phenomenon,llknown something that behavioral psychologist have known for decades and that daniel connman won the nobel prize for. What is interesting is that in finance, the research is much farther developed. In finance, you have to get it right and in economics, it is a while and they still debate whether it is right to think about behavioral economics. Behavioral finance people know this is how people behave in the real world. David gina, does this explain the stock market . Gina in a lot of ways, i think it does. It is the price of stocks, right . This explains why when prices fall, they fall faster than when they rise. There markets generally are significantly shorter and much steeper because loss aversion takes hold, risk aversion takes hold in the bear market goes through the process. I think this is a lot of what we are experiencing this cycle. I mentioned that because of the 2008 experience, nobody was talking about this in the 1990s because we had 20 years of bull market game, which minimizes the loss of version and the behavioral aspect of price. Stephanie who are the investors . When you look at the equity markets plummeting on volatility that does not seem to be connected to their sectors, who are the sellers . This is a good point and one characteristic of the cycle that is extremely unique. This cycle has been driven in the equity market by reduction in supply, and not as much by increased demand. The sellers are effectively the sense that we dont have demand but the reduction in supply have gone away. What happened to the equity market over the last eight years is share backs of increasingly reduced the amount of shares for sale. At the same time, there has been little flow into the u. S. Equity market. What happened over the last year . Bite backs slid a little and the market became vulnerable, and we dont have that buyer as a last resort stepping in to support equity prices. There are a lot of dynamics going on that are extremely unique. Wealth of version is one. Stephanie dont forget, buyback period will end soon. That does not happen, that is another catalyst we will normally wait for to help push stock brendan back up. It is not just momandpop investors irrational. There is a great article today from Bloomberg News talking about traders who went long on securities from Northern Iraq in 2008. Everyone else in the world, all the pros were selling stuff as quickly as they could if they could find any price. These guys decided to buy it but it took nerves of steel to do it. Lost the version is a powerful force, even with smart market people who understand how it works. Gina that is a great point because professional investors are people, too, right . [laughter] we talked about this with price action, gold and suppose it trouble over the last few months. These are professional investors that make mistakes just like to al investors, but maybe lesser extent because of the, significant modeling capability. They are people, too. Stephanie or, you love the fed, blame it on the fed. This could be an example of style drift. Individual investors pushing yield products in the market starts to fall and they are i dont know much about the highyield market and i want to sell. Those mutual funds have to provide liquidity. Brendan i would rephrase, i love the fed and you blame the fed. This is something i feel like i am on the fence about, is the fed and other Central Banks depressing yield or are yields depressed as people look at the horizon and they dont see any growth or inflation . The ultimate argument. I think it is both. You look at yield and how it fell out of bed when the japanese territory went into negative rates. That is either panic in a situation where we dont know the impact of negative Interest Rates or it is just rates are lower so yields fall across the globe. This is a subject for a Harvard Business school study in the future. Stephanie i need Something Else to disagree with brendan about, so you are here not just to enjoy the morning mustread but you have something for us. Brendan i do. We know that we are taking on a lot of credit in emerging markets, private companies in emerging markets are taking a lot of dollar denominated debt. This is a problem we have been watching and i think we have a chart. As early as 2000 14, they actually surpassed in terms of gdp the percentage of the dollardenominated debt they are taking on. He continued to go up, so we see that as a risk, but he pointed out that there is a vicious circle going on, which is the ,ollardenominated debt commodities collapsed, affecting the gdp of the countries, making currencies worth less, and the currency depreciate and when that happens, everyone looks at their own dollardenominated debt and they pulled back and makes the economy of that country even worse, so joshua levy on the currency scheme pull together a basket of currencies. We show the second chart their of these countries, so we are used to looking at the broad trade weighted dollar. Stephanie can we bring that chart up . Brendan when we look at the basket ok, the charges mislabeled, but when we look at the basket of emerging market emerging market currencies against the weighted dollar, it is so much less. If you look at south africa, indonesia, brazil, if you take them as the basket, the same countries taking on the dollardenominated debt, their currencies are so much weaker. Stephanie but that is specific countries were it is tied to the commodity market. Brendan but it is commodity collapse, plus dollar strength, blame janet yellen, plus this incredible amount of dollar denominated debt that they have to do lever, making everything worse. David gina, we talk of the strength of the u. S. Dollar, but if you look at this trade weighted dollar, and maybe you are not this up, but we up to 100 in the index. It is stronger than it was but not way up. Gina there is a divergence going up right now in the dollar between the index, which is heavily weighted to the euro and United States and the trade weighted dollar which is more china sensitive. What you have seen so far this has struggled to make any changes. More aboutit is emerging markets, and in particular, chinese currency. Speaking to brendans point, i think the Current Situation has a lot of rhymes with the situation that we experience in the u. S. Economy in 1997 and 1998, and that was the last time we had in emerging markets or the financial crisis, if you will, or emerging market not done. It was after the fed increased rates in 1994, pressuring emergency market emerging market currencies and in that situation, it was about Government Debt in built up and it was more asian focused, but latin america was a part of that crisis as well. The Current Situation looks similar, emerging markets cap accelerated and it has been the corporate sides that have accelerated because feds held rates low. Now is the fed is increasing rates, we are starting to see distressed involved. Brendan the one thing is different from now and then is having learned their lesson, countries, south korea, brazil, built of foreign currency. Stephanie hold the phone. Rizzo learned a lesson . Brazil learned a lesson . Brendan theyre Banking System was doing ok and since their own currency panics, which came earlier than the late 1990s, they have built of foreign currency reserves. They seem to be wellstocked to defend that currency if they decide to. Is that enough . Bea it doesnt seem to enough because of what we are seeing an emerging market currencies. We have about half in this cycle like compared to what we had in 1978. We are only halfway through. I think the complication this time is that, yes, the governments have built up currency reserves to defend the currencies, but at the same time, the debt holdup is in the corporate sector, so the mechanism by which, you can sort of saved the debt default and it is a little bit fuzzy. I dont know what the ultimate outcome is, but for now, it is depressed growth in emerging market countries, depressed price in indices and some flights with more risk averse assets. Stephanie i will say that you are my favorite guest of the day. Gina thank you. It is just Getting Started but i will take that. Stephanie Gina Martin Adams, thank you. Brendan, stay with us. I would love for you to stay longer. We will be back with more. When we return, we are talking real estate. How and where they are investing in todays real estate market. Welcome back. Im in the green room. Coming up, we sit down with wpp precedent, Neel Kashkari. Am Caroline Hyde with the Bloomberg Business flash. There is growing concern for the worlds secondlargest economy. They are warning that chinas recent surge in bank lending is unsustainable and s p 500 says the increase in debt could pressure chinas credit raising. The last time they doled out money like this that quickly was an the stock doubled in less than a month. Tenant debt is cutting more than 10 of their workforce, about 7000 jobs. The Fourth Quarter profit missed estimates and they have been hampered by cost overruns and delays on the latest aircraft models. Another blow to struggling minor americans. They cut the credit to junk and say outlook is negative. They issued a similar rating on monday and Anglo American has been battered by slumping commodities and they are trying to sell off assets. They lost three quarters of their market value last year. That is the Bloomberg Business flash. Stephanie thank you. Lets talk real estate. Us now and Brendan Greeley is with us. There is so much volatility in the market right now. You have Real Estate Investments which are long so you dont have to be so concerned with the market. Dan we like to go up. Stephanie clearly, but how are you invested and how you protecting yourself against the volatility . It is anink part of aftermath of the last crisis. A lot of us, in our world, we took less leverage, and i think we continue to look at markets that we like and i think we tend to be more concentrated in the markets we think of the 247 as opposed to going into some secondary or tertiary markets. Stephanie what does that mean . Markets you like or what . The 24 7 city, new york, chicago, washington, d. C. , parts of miami, los angeles, san francisco, boston, this is with vibrant downtowns, in the suburbs are not as critical to the Economic Health of the city as maybe some other or what we think of as lesser markets. Stephanie even the miami was in the epicenter of years ago . Dan miami did something we had not seen before. It used to be you build and then sell. Today, you sell and then you build in miami. Up until now, you can get a construction loan in miami unless you have 50 contracts with 50 deposit. That is really different and something we dont see in any other city. When you go to miami, where we do have a couple projects, and you see the cranes, for the most part, all are presold with substantial deposits, as much as 50 . What happened last time, people were at 10 to 20 and when the market crashed, people walked from the deposits and 50 , the belief is no one will walk with that deposit. We think of miami as a different case than last time. David you invested in distressed real estate . Dan we have done a lot of distressed that we have done some that are not. David when you go to a property, what do you see . Dan i think there are other people who do what we do so we are not so unique in that regard, but we look for situations where much of what we have done is look for situations where we like the real estate but the capital structure was nonsustainable, so property that may have been a good performing property or the leverage was too high or where the owner may have had problems elsewhere, so it was not as specific to that property as it was to other issues that may be the owner of the property was dealing with. That is how we think of distress. Brendan i went to talk about longterm changes in residential wheels. All the credit activity we see right now is going into multi family rentals as well. Is that the future . Are we done with the standard or less of the standard American Dream where you buy your own house and live in it forever . It feels ak that little bit like that at the moment. Has goneinglefamily 62 , a6 and then to pretty significant change. One of the things that no one has really answered is what happens when the millennials have families and schools in urban centers are not able to do with the kids . Do they move to the suburbs . It is what somehow has happened historically. I think it is a good time for multifamily and it think there are places in the country will we start to see that we see building occurring. That is something we have not seen another cycles other than condominiums in miami, so i think we think that multi family will continue to do well, but singlefamily, we are reasonably be positive. It is that one place where we have not had that euphoria in commercial real estate. Isphanie someone else having a bright spot, or at least in your mind. You do a lot of phrasing, not just cranes but money for Hillary Clinton. At this point, we sit every day and say, this is anyones game. Where do you set . Iowa and did not do so well in new hampshire. The next 30 days are pretty important. I think those of us who support hillary are pretty positive. I think we believe that Bernie Sanders economic policies will not provide jobs or americans. David but he must be a surprise to you. Surprise thats a he has resonated with people to the extent he has. David and raised a lot of money. Stephanie who is the biggest threat on the republican side to her . Dan that is above my pay grade. Stephanie no way. [laughter] i will not give you that. Dan personally, and its not like they asked me this question, but i think donald trump is the hardest to understand how to run against. He is the most unpredictable. The others, you have a pretty policies, you match but i dont know how you run against donald trump. Brendan she was very public about making the changes to her campaign after new hampshire. What was your message to the campaign at that point . What was missing that needs to change for South Carolina . Obvious problem is that people in our world, we think about what would we like to see in terms of policy that we think is best for her ringing the general election for her winning the general election. I think some of us would say, why keep claiming that you are so far left a Bernie Sanders . Why not say that we have done pretty well with the system and we have created jobs. If you look at the obama years, we created jobs. In some ways, why we apologizing for policies that worked . David something her husband did not have to do. Ch, thank you carried as Central Banks struggle to boost inflation, we take a look at china. Kindest next on bloomberg. That is next on bloomberg. Back. Welcome it is time for us to charts with Matt Miller Perry we are looking at how the Chinese Government attempts to increase inflation within the country. Stephanie this is a battle of the charts but the warmup. You better when they do because were giving you this. David and you dont have competition. [laughter] matt thank you very much. I am attempting to tell a story with a couple of charts and these are warning signs out of china. One is a lending. In whites, chinese credit is outstanding. Their lending has massively increased. In blue, the shanghai composite index, so the last time they tried this boosting lending, it boosted doubled the shanghai composite index within 12 months, but it came down with the concern that lending was too much. Another warning sign, m2 money supply, the broadest measure of money supply, and china is here in white and the u. S. And gold and the ecb and blue and japan see the so you can money supply has just shot up. David a lot of people were concerned about chinese credit before. Matt their goal is to do what they did in the past. David thank you. Stick around for another great hour of bloomberg. Next, we will sit down with Neel Kashkari. David state of the consumer will the economy get as they rough patch . We will ask sir Martin Sorrell. Breaking up would not be too hard to do that is what Neel Kashkari says about the big banks. We will ask and why. We will look at the data 30 minutes from now. David welcome to the second. Ur of bloomberg i am david westin. Stephanie i am stephanie ruhle. Sir Martin Sorrell will join us. First, we have to go to matt on the screens. Sentiment out there has said we not seen many investors this bearish on the overall market in over 20 years. So, if you think about the Way Investors are positioned now, they had a rough start to the of. They got long at the end of last end. They got really hurt the first few weeks of the year, and now the market is grinding higher. This is a worstcasescenario market. Matt only grinding higher the last few days. A lot of people to the bearish sentiment the overflow of bearish sentiment as the field capitulation. David that does not look irish to me. Matt because we have had a great day. Nasdaq futures are gaining more than 1 . What push this up this morning we were negative on s p futures early this morning is oil. If you look at oil in the wake of news between a meeting of a meeting between venezuela and iran, oil picked up. Oil has been wellcorrelated with market this year, and it is today as well. If you look at oil over the last year it is interesting. Even with this news we had the saudis meeting with russians, venezuela,eting with you still have oil dropping 44 over the last year and 70 from its highs. I have a cool chart. Hillary put this together for me. It goes back a year and you can see the increase in percentage terms of production for different countries. Russia and iran have doubled or more production. Saudi production is up 70 . Iraq has really boosted production, amazingly. I have a wealth of charts today. A quick shout out. If you want to access any of the charts i put up on the bloomberg, shoot me a bloomberg, and i will shoot you some of the codes. There are so many Amazing Charts we have to illustrate what is going on in the market, i did not have time to put up the codes or mentioned earlier. Look at european markets were up across the board there. , and dax showing gains. They are being estimates. Credit agricole shares are up Something Like 10 , 12 . You see other banks rising in sympathy with Credit Agricole. Deutsche bank is up. Santander is up. 40 now is the game for Credit Agricole. Big gains there. Working percent now is the gain for Credit Agricole. Begins there. We have cuts for rack space. That is earnings misses, translated into cuts from analysts. Lets go to bloomberg first word news with vonnie quinn. Vonnie thank you. The stage is set for a battle and the u. S. Government. Apple is refusing an order to help the fbi unlock the iphone of one of the shooters in the San Bernardino terrorist attack. On the apple website tim cook says building a backdoor to get data on the iphone would undermine security for all apple customers. The u. S. Is making a show of force against north korea in the wake of the nuclear test and rocket launch. Four fighter jets groups flew through south korean airspace. U. S. Officials said the flight demonstrator resolved to make and the ability. And british Prime Minister David Cameron is getting closer to a deal over the u. K. s membership in the european union. Angela merkel told lawmakers she will do Everything Possible to keep the u. K. In the ua eu. Global news 24 hours a day powered by our 150 news bureaus around the world. I am bonnie i am vonnie quinn. Sird we are now joined by Martin Sorrell. After an hour with tom keene. David are you sure. Nnie leftk up where vo off the british Prime Minister. What are your views in terms of what should be done . Mr. Sorrell we should stay in. David yes, but how . If you look at the electric we do polls, and at the moment they seem to be of theabout onethird population want to stay in, onethird want to come out, and onethird dont know. The interesting thing about the third it has been like the polls here they complain they lack information. The campaign, which i think is a nineweek campaign, limited, would you believe, to 7 Million Pounds, 10 Million Dollars each something the americans could not understand. That campaign is going to be critical in terms of deciding the result. David what drives the British Public the immigration issue . Mr. Sorrell far be it for me to preach to you about populism as youre going through a massive populism global ceo. Ou are a mr. Sorrell you see it here, in greece, france, portugal. It is the result of a went that weyou and 2008 can in 2008. That is had a dramatic impact, not just on corporations,s individuals, populations. Immigration has been equivocal sector, not in winning seats, because of the way the electoral system works, but in terms of percentage of the vote. Interesting thing will be to see what influence that has. Cameron is going for a deal as quickly as possible as he does not want the campaign to be after the summer. We will have more terrible pictures this catastrophe we see in europe dead babies on reaches, etc. Those are really searing images that have a tremendous impact. Getting the vote out of the way in june getting the deal done, getting the deal done by june is critical. Letting it run if you want to , because thetay in longer the immigrant crisis goes on, and all the pluses and minuses surrounding it, the worst will be for the people that want to stay in. I think the Prime Minister is trying to get it done and get it done quickly. He did have the flexibility to wait until 2017. Stephanie you brought in populism around the world, the brexit, the ligand crisis, politics in the u. S. What is your take on the economy some say it is slow going, but it is good, and others feel we are in a doomsday scenario. Mr. Sorrell we are not in doomsday. This is a hangover. 2009 was a terrible year. 2010 was a sharp snap back. 2011, slow growth. 2013, 2014 we have shown record results each year. I cannot tell you about 2015. Were about to announce, but it portends good for 2015, too. In slowgrowth around three percent 3 real, 3. 5 nominal no inflation. Fast Growth Market slowed. SlowGrowth Markets have question marks over how fast the u. S. Will grow this year. In that world, clients have little Pricing Power and they are focused on cost. That is one set of things. The other side of things you see this every day. End, the disruptors, airbnb, bet. Uber. Stephanie never heard of them it of them. Mr. Sorrell what do companies do they tend to be focused on getting it done in the short term. Costfocus. I think it is wrong. Stephanie they do not have a choice right now. The ceos do not want to behave that way. David in myspace, when they experience, in my they want to cut back cost. Is that affecting your business advertising . Mr. Sorrell it is true we are in the weather. Even when will see good times coming, they wait, and we lag. World, the growth world has reached a new normal, and the new normal is low growth. I do not think it is a recession. We might see some economists that technically have a recession two quarters of negative gdp growth. We have to get used to do with the markets are telling you is it will be lower longer. Low growth longer, lower Interest Rates longer. David are your clients cutting back on their media spend to save cost . Mr. Sorrell the answer is they are trying to refine their spending. If you look at our billings, they have gone up, and the industry has expanded. It is a trillion dollar industry that 500 billion in old stuff, 500 billion in new stuff. In nominal terms, that is increased every year with the exception of 2009. Mr. Sorrell that is because you reap the benefit of all of these new media platforms. They did not exist. You have to be there. Mr. Sorrell that is chu. I do not care where the client spent, as long as we have access. Close links are not good for us. David they are reallocating the dollars and euros rather than cutting back. Mr. Sorrell 40 of our business is digital. 2000, 0. In 2000, fast growth was 10 of our business. Half of our revenue did not exist 15 years ago. In 15 years time i wont be here but i would say more than half what exist. Stephanie since you have your finger on the pulse in just about everything mr. Sorrell hopefully. David if the u. S. Election happened stephanie if the u. S. Election happened today, who would be president . Mr. Sorrell Hillary Clinton. Stephanie who would be the gop nominee . Mr. Sorrell trump. Stephanie would you have guessed that three months ago . Mr. Sorrell if the polls say someone is getting 30 , 40 of the vote, that tells you something. Os we had a panel, and a lady put her hand up, running a campaign for hillary in london, people has to explain to abroad you know, apologize for trump. You do not have to apologize or trump. The simple fact is he is polling the polls might be wrong in some respect, but he is consistently polling 30 , 40 . That is telling you something about what is going on. Doesnt make a difference to your business whether it is Hillary Clinton or donald trump . Mr. Sorrell it probably does. It is interesting, if you have a democratic president and a Republican Congress, if you had a republican president and Republican Congress that would be interesting. Stephanie i think you have to take a page from Donald Trumps book we are the best. We have a lot more to cover. Advertising in the Digital Space is there any room left for competition outside of google and facebook . Sir Martin Sorrell will be weighing in. Stay with us. Vonnie investors carl icahn and David Einhorn cut back their holdings in apple in just just in time. They reduce their stake just before apple started to slide. Apple is down 8 this year on concerns the Smartphone Market is becoming saturated. Another blow to Anglo American. Fitch has cut the outlook to junk. The rating to junk and says the outlook is negative. They are trying to sell assets. That is your Bloomberg Business flash. Stephanie around 40 of his business is now digital, but is there and fourth petition outside of goal and facebook for competition outside of google and facebook. Sir Martin Sorrell is with us, and bloomberg editor at large, cory johnson. Lets break it down. We sat down with barry diller and we set any company that sits down with google is a sir. At this point, they control all. I would not say they control all. Very is subject to hyperbole. If you look at our spending, 80 billion 4 billion went to google. The secondbiggest was fox and news corp. Most of the traditional media was anywhere between 750 billion and 1. 7 5 billion. 40 billion. 4 billion. Aol is interesting. They are the fourthlargest. They went up sharply. They consolidated microsoft. They linked up with verizon. About onewe will do quarter of one billion with aol. An interesting development. If you exclude the yahoo search, they would be number three. 402o is up 10 from about 440 million. Coming back to very, he is right in the sense that google is 4toone. About 2. 9 to 4, including essence. Stephanie i think matt had to has the breakdown. Matt this is from Bloomberg Television intelligence. The yellow here is digital. 18 . I can click into 2014, and you can see the growth in digital. It is growing the fastest in fact, it is the only one among digital, radio, newspaper, outdoors, that is growing at all i wonder when it is going to catch up to television, or eclipse television. Mr. Sorrell in the u k, it has surpassed tv, editing denmark was the first we saw digitally outpaced. About the kerfuffle tax they paid. They they have that had done on corporate tax. They only paid 130 Million Pounds over how many million years, whereas traditional media owners are paying at a much higher rate. The fact is in several markets around the world, digital has displaced tv. Now, there is a definitional problem. I do not know in your states if that is old tv and digital tv is in the digital column, or where it is, but in newspapers, you had digital newspapers and magazines where are they dashing digital, or newspapers and magazines question mark matt magazines . Matt they are spread out. Mr. Sorrell you have to think about viewing hours. When will this this is of traditional tv owners there are new tv watchers on smartphones, tablets, etc. , which are nonlinear, and over the top. Cory twitter is a platform what we have seen growing revenues. Increase to rates medically. The users are not increasing at all. When you look at twitter, you see marketers willing to pay more. What do you see the role of twitter . Mr. Sorrell i think the markets have it wrong in that sense, if i can be so bold. Cory in paying more. Hadsorrell twitter significant growth. I think it is a pr medium. I look at myself into trouble. It is a branding medium. Thinkot think i facebook is a branding medium. Googles strength, going back to comment,mment barry and why he is right, it is broader. You can say i want a new car or a new truck. Through advertising, targeting, search, i can get them to buy. Mr. Sorrell with stephanie we watch more advertisements on youtube than anything else. I sit through them because i have no choice. Mr. Sorrell just one thing on youtube and facebook videos. The facebook video attention view,or length of video is much shorter on facebook. It is more social. It is much longer on youtube, because it is our intent and more search much more intense and much more searchbased. People are searching more, and that is why google is more powerful, even in video, because you get longer views. David if you look within the Digital Advertising space, and you took google and facebook, they would account for the overwhelming majority. What room does that leave for the other content providers . Mr. Sorrell we have yet to see what will happen to yahoo . Where that ends up. Stephanie what should happen . Mr. Sorrell if i were sitting on the board, i think i would split off obviously there would be tax leakage issues, but i think i would separate the alibaba stake, and take the core business, and align it with Something Else. Stephanie would you separate the Marissa Mayer portion . Mr. Sorrell that i cannot comment on. That is naughty for you to comment on for you to raise it here cory he called her out in raise it. Cory he called her out in public. Mr. Sorrell that was not in public. You made it public. I think the core business would be best aligned with Something Else. I think aol as a third force is interesting. Cory aol is a possible acquirer. Mr. Sorrell you have aol with verizon. It takes it interesting. Ceo sir Martin Sorrell, thank you. Mr. Sorrell a pleasure. Stephanie we would love to keep him longer, but he called me naughty. We have to end it. David please stay forever. Matt futures are up with crude nearing 30 a barrel. Here to discuss the next move is john brady joining us from the cme. You why we do not see more of a rally on these talks. I mean, for months, we had rumors the saudis would talk to the russians, venezuelans would talk to the iranians. Now we have it and they are making deals. Why dont we see oil moving past 30 . Mr. Brady the market understands making a deal is one thing and enforcing a deal is on the thing. You have warring factions. They are essentially at war in syria, and iran and iraq have incentives to break any deal in the future in terms of production. Getting a deal is one thing, but with the market is suggesting here with the week rally is that forcing the deal will be a much different story. Matt what will we see as far as actual reduction cuts, or are we production cuts, or are we going to see that, because so far we have a reason out of the saudis and the russians, and they were producing at record levels. Now, there is a freeze, and incentives are in breakfor iran and iraq to that, but russia has an incentive. Everyone has an incentive to break the freeze level. The ones everyone is trying to target is venezuela. The government is on shaky ground. Maduro could fall at any time. There is strife industries. The market is saying this deal is not enforceable, and eventually the market is going to trade lower. Matt i wonder what the market looks like from your position. Do you see a lot of shorts . Is there the possibility we get a covering rally . A. Brady there is, but shortcovering rally would only take place on some exogenous event the market does not see. Later today, we will get the storage numbers, and it looks that there will be another build close to 3 Million Barrels domestically. Cushing might be up to seven Million Barrels over the week. Andthe supply german emmett to shift and shift dramatically, there has to be an exogenous event the market does not see right now. Matt thank you so much for joining us. John brady at rj obrien in chicago. Coming up, Neel Kashkari says financial reform has not gone far enough. \ stephanie you are watching bloomberg. We are watching markets in the dow, andfutures, s p, the nasdaq, all of care we had a good day out all up. We had a good day out of europe. Credit agricole, their stock is up 30 . Extraordinary if you think about what banks went through next week. Were here with Neel Kashkari, who has a lot to say about banks. He is the Minneapolis Federal bank president. Welcome. We have some breaking news. A little bit of data. Matt miller is going to give that to us. Matt disappointment in Housing Starts month over month, Housing Starts fell 3. 8 . We looking for a gain of 2 . One million, 99,000. A little bit of a miss there. Loving permits climbed. Building permits climbed. Building permits were slightly better than the survey or i should a they fell slightly, but were better than the survey. Then we are getting tpi numbers as well for a look at the inflation the fed badly wants. Final demand, a gain of 1. 10 . Look at x food and energy, a gain of. 4 . A little bit of a climb on ppi. We see it outperform, no matter which variant you look at. X food and energy, yearoveryear, a gain of. 6 percent, compared to a gain of. 4 the market expected. We are Getting Better than estimated ppi numbers, and slightly lower Housing Starts. Stephanie thank you, my friend, matt. Neel kashkari, what is your thought on this . Mr. Kashkari we look at data, and every day data comes into it we are paying attention to markets. In minneapolis and all the banks, we have strong teams economist chewing on this, we put it together, so well wait and see. David that adependent, once again. Stephanie you have always been data dependent. Im giving that a note. No. Mr. Kashkari well, you can try again. Atid you gave a talk brookings institution, talking about to be to fail, and suggesting your part of the fed needs to look if there be more regulation. Dodd frank did not go far enough. What drove you to this. Mr. Kashkari we remember the crisis. We hated that we had to bail out the banks, and i think americans hated that as well. We see the anger in the American People still today. None of us wants to be in that situation again. Dodd frank was passed quickly because they wanted to reform the financial system, which is supported. The transformational measures were taken off the table stephanie like what mr. Kashkari breaking up the banks, turning them into utilities, so they virtually cannot fail. There are a number of options. In my view, weve done some good. Thanks are safer. Theyre more capital. They had deeper liquidity. We have not taken the risk of a bailout off the table. If a number of banks ran into trouble at the same time, i think policymakers today would be forced to bell them out. Stephanie you never take risk out of the system. Somebody will be left holding the bag, and it is those investors that have risky assets. Insurance companies 401k it is not like it is evaporating. It is going to someone else. Mr. Kashkari he needs to be safe. In the 1980s, 1000 servings and loans savings and loans failed. Was no collapse. In the tech boom, we had the crash, devastating for Silicon Valley, but no risk of an economic collapse. That is what we need to be. Matt i think the concern is banks are still too big to fail. A lot of people say too big or too bigger to fail. The total assets of the sixth biggest have climbed to about 10 trillion. Check this out. A custom chart hillary made for me you can see we were only 8ut a trillion trillion before the financial crisis, and 9 trillion when we came out. They continue to get bigger. This is different for different tanks. Jpmorgan, bank, wells fargo, have grown. David this is a fascinating chart, but i wonder if it ask mr. Sorrell the right question asks the right question. Our banks are relatively smaller than other banks. Mr. Kashkari that is correct. It is not just an american problem. U. S. , we cannot control what other people do in other countries. What im saying we need is to be honest about the risk that still exist, take action take our Banking System saver, and hopefully we can encourage other systems to follow around. Along. David there is less risk. Mr. Kashkari there is, but i do not want the American People to think we have solved to be to fail when i believe we have not. That is why im standing up ands eking. It and speaking. If i were not speaking, i would not be doing my job. Stephanie it was the hank Paulson Treasury Department that pushed the takeovers. Bear stearns those are the big contribute to making the banks bigger. Mr. Kashkari that is true. I was in the middle of that. I take responsibility for that. In the midst of that terrible crisis, we had to make the problem worse by encouraging the system. We knew at the time hey, if we could stabilize the system, that will be a shortterm victory to it we will still need to fail longterm. I do not want to have the future treasury secretary, fed chair, 20 years from now, 50 years from now, back in the situation we were in having to make those terrible choices. Stephanie is it fair the populist opinion is so antibanks, and banks continue tied toine after fine, acquiring these are the banks when it was the Treasury Department that push them to do it . Mr. Kashkari i understand the concerns, and those are fair, but i understand the concerns on main street. Mainstreet was devastated by this. It is not just people that bought homes and bought mortgages they could not afford. When is manifested itself into a deep recession, a great recession, people lost their jobs. It was not fair. Zero Interest Rates have heard mainstreet. They have helped banks and money managers. Mom and pops on the street have not gotten wages appeared obamacare has made it difficult to hire more people into small businesses. Mr. Kashkari i agree that asset valuations have been helping the wealthy more than the middle class and lower income. That is what is so tough about coming out of the terrible crisis. You all know the rogoff and reinhardt book about how hard it is to cover from the banking crises. That is why we do not want this to happen again, because it ends up being not wall street that is her, but mainstreet, and they are paying year after year. Hurt. Mainstreet, they are paying year after year. David we had steve ratner on the show yesterday who had a different point of view. Mr. Ratner the biggest banks have gotten smaller since the financial crisis, not larger. David really, because i thought they were bigger . Mr. Ratner yes. They did get bigger for a second when it took over some failing institutions wells taking over what, jpmorgan taking over bear stearns, and so on, but after that round was done, the banks were 500 billion of assets. The biggest have shrunk. Banks smaller than 500 billion have grown significantly, and that is important because big banks are subject to enhance migratory scrutiny and so on. David it is true banks are scaling back because of the capital and other requirements. Mr. Kashkari i agree, but it is just around the margins. The question is have we done enough ali moving fast enough . Societies tend to forget the lessons they learned. In 1987 with a stock market crash, president reagan created the president S Working Group to look out for Financial Stability risks. When i joined treasury in 2006, the committee had already been mothballed. People shut it down. The words no risk in it there were no risks. It was paulson and bernanke units and we need to start this up again. We forget about these things. We are seven years after the crisis. The economy is stronger than it was. We do think the action now before we let it go by. Stephanie then should the government get out of the lending business . When youre talking about who is primed to do this, many people look at the government and say you should not be doing this. Mr. Kashkari i agree. The government should not be making lending decisions. We want the private market to do that. We need to make sure there is not so much concentration that it becomes a Systemic Risk for the whole economy. David explain why this is your job . If im aan tarullo bank, im wondering who was talking to me . Dewyze is your job at the minneapolis fed why is this your job at the minneapolis head . Said . Fed . Mr. Kashkari one of my predecessors wrote the original book to be to fail in 2000 or, arguing large banks were a problem and they were exactly right. Congress, when they created the Federal Reserve system, they created the central bank. The purpose was to have a diversity of opinions at the table. Im speaking out on behalf of my colleagues in minneapolis. Stephanie when Goldman Sachs love this . If you wanted to break up the banks, that would affect bank of america, jp morgan. Goldman a streamlined is remind. Mr. Kashkari really . They have been designated as historically important. David have you coordinated with venture will dan to allow . Mr. Kashkari i am talking to him. Ive not heard back. We do not preview policy pronouncements with regulated institutions. I hear from a lot of Smaller Community banks that are frustrated that they are being caught up in regulations trying to stabilize the biggest next. Imagine this imagine if we take transformational action to make sure the biggest banks are safe. Maybe we can relax some of the rules on the smaller banks. That way they can grow and allow credit to flow. I think small banks may benefit from this. Stephanie matt . Matt i just wanted to again, we are talking at the size of these institutions before and after the recession. The six biggest banks have grown by about 2 trillion in assets. Sifi may show you all the i systemically important Financial Institutions from the beginning 2013, recession through up 21 . It is irrefutable the big banks have gotten bigger. The question is what has not frank dunn to make these banks no longer to be to fail . Dunn to make these banks no longer too big to fail . Mr. Kashkari you want to make the banks stronger, but able to fail without causing devastation. David is that the function of the stress test . Mr. Kashkari that is part of it, but it is so hard to see the things coming. In 2006, when i went to treasury, often said we were due for a crisis. We look to see what shock might hit us. We never saw the housing bust, and we were looking. How many experts last year predicted oil would go from 100 to 30 . Stephanie fair point. The idea the id we will see the next shock coming, forget it. Stephanie i see that you do not want to it is not your job to if theyks profits, but cant, the chinese banks will eat their lunch. Mr. Kashkari i do not buy the argument they need big global banks. They manage thousands of suppliers. Youre telling me they cannot manage a few more relationships . Of course they can. In other countries want to take financial risks, we cannot stop, but we should do what is right for the American People, our country, and hopefully encourage other countries to follow. Stephanie i agree on that one. More with Neel Kashkari his take on the impact of the fed Stimulus Program and walk through the wall of worry, as we look across the global economy. What are the pitfalls he is most concerned about . You are watching bloomberg. The markets and the green. Stay with us. Deposit day in the markets. A positive day here because Neel Kashkari is here. [laughter] david i am here in the green room. Collins, next, mike fixed income Senior Investment officer. That is all coming up. Vonnie i am vonnie quinn here is your latest brick business flash. Tmobile says they beat analyst estimates. The thirdlargest the thirdlargest u. S. Wire carrier wireless carrier has posted six recorders of adding one in one million users. Behind the surge lower prices and offers like free streaming video. Cut yourmbardier will thousand jobs. They have been hampered by delays on its newest playing planes. Stephanie were back with Minneapolis Federal reserve president Neel Kashkari. We touched on income inequality little bit a few minutes ago. When you are running for office in the state of california, you actually live on 40 a week. For one week. Stephanie you knew what it was like. When we look at the popularity of Bernie Sanders and donald trump, they say americans are saying we are frustrated. Can you speak to rate being where they have beens and how that has affected the overall economy . Present obama says we are doing so well the American People are telling a different story. Mr. Kashkari absolutely. We are pleased over the last year, several years, we have seen strong employment growth. The headline Unemployment Rate keeps going down. It is around 4. 9 . Stephanie is that a false positive . Mr. Kashkari i think it is. More people have left the labor force and they will come back in if 80s job. Unemployed if they get a decent job. Why havent wages gone up more than they have . Mr. Kashkari it is a complex issue. Productivity appears to be slowing down, not just in the u. S. , but around the world, and you see the same challenges worldwide. There is a confluence of events. Within the levers that we can control, if we keep making sure we have accommodated monetary policy, we can keep people coming in off the sidelines, bring them back in the labor force, and bring inflation up to our 2 target. Stephanie the only way that happens is if corporations create jobs. We are in this environment where Corporate America is looked at like public enemy number one. We are not offering accommodative policies, and more manufacturers are taking jobs overseas. Until we start to work with big is this in a positive way, we will not create those jobs against his people back into work. Mr. Kashkari you are raising important issues a lot our fiscal policy, outside of the domain of the Federal Reserve. David and legislative. Mr. Kashkari and legislative absolutely. Stephanie s fiscal policy the one catalyst to get us out of this rut . Mr. Kashkari fiscal policy that was competitiveness oriented could be a jump start. David you mentioned productivity how comfortable are you we know how to measure productivity in this new world . Mr. Kashkari it is tricky. I just saw analysis that said some of the people that thought productivity was miss measured, that they were wrong. It is complicated, especially with technology in place. How do we know . I do not know that for sure. We want a lot of innovation, creativity in the economy. These things are necessary to keep the engines going, and i would not trade places with anyone in the world. Stephanie you know what keeps the engines going lending. Banks fuel the american economy, the American Dream. While you have banks sitting there, frozen, saying i have potential legislation coming, Hillary Clinton says i want. Frank squared, i want. Frank squared, they are not doing that much lending. Mr. Kashkari why can it not come from my former employer, a small or Midsized Bank . Stephanie because they are getting by regulations right now. Mr. Kashkari if we make sure the biggest are safe and secure, we can relax regulation on the smaller and it says Midsized Banks. David i have a friend who runs the Construction Company and junckers says he has a devil of a time getting credit because regulators will not let them do it. It is too risky. Mr. Kashkari i hear that all the time small and midsizes banks feel they are being caught upd. They say we were not part of the problem. We are too small. We will not cause a problem if we get into trouble. I think those concerns are warranted. Stephanie are those big midsize banks going to evaporate . Mr. Kashkari we will see. I do not think they are going to evaporate. I think they are showing a lot of promise, and it is good innovation we want to encourage, but i think traditional banks will be around for a long time. David please stay with us. We have a treat coming up. The gloves are coming off. Matt miller takes on Brendan Greeley in a battle of the charts. Stephanie matt is stretching over there. David that is coming up next on bloomberg. David this is bloomberg. Time for our new segment battle of the charts. Matt miller against Brendan Greeley. Stephanie Neel Kashkari is the guest judge. Brandan we are going to play a game called guess that you european periphery economy of 3. 9 . Anyone would dream of that growth. This is the spread of sovereign debt against german ones going down and down. Spread goes down. Things are looking great. Something happens however, right now, for the last two years, that has been rising here somebody tell me there is a clue in the cover what european periphery cover country is this . Mark e pink question pink . That is red and white. Poland. What happened, the long Justice Party voted into office, not playing with the european union. Stephanie you are up, matt. Matt that was pretty good. I like the annotations on the chart. I want to talk about something that is important to our founder and owner, mike bloomberg, and Neel Kashkari income inequality. With this chart shows with these flags is quantitative easing, and the effect they have had on income inequality as measured by the coefficient that is a popular measure of inequality, equalero being an society, and one being an unequal society. The pink line is the s p. Qe works to boost the s p and stocks until the end of qe two, until the wealthy class realizes that the transparency is a signal to get out of equity. They are making money no matter what. Efficient is spurred by each boost of qe, and all the more transparency coming out of the fed, because we all know what to do with the signals they are giving us. So, qe and the fed transparency has boosted income inequality. Matt stephanie are you calling it the genie coefficient . Brandan matt miller is sucking up to Neel Kashkari. That is what is going on. Stephanie that is allowed. David which tells the story best . Matt which do you like best . Mr. Kashkari it is like trying to take between kids. Stephanie i like my daughters better than my sons, and i like matt millers chart. Income inequality is interesting, but i learned more in this one. Stephanie were out of time. Brandon won. David we are 30 minutes and 25 seconds away from the opening bell in new york city. I am david westin. Stephanie i am stephanie ruhle. I will say welcome back, on because i was not here yesterday our partner from the great white north, erik schatzker. A good day for me. K crutches for only a couple more days. You know who is with us Michael Collins, prudential a man who oversees 575 billion dollars in assets. That is a lot of money. Michael, welcome. Right now, a check on markets, matt miller. Lets look at futures up across the board. Dow jones sees many contracts up 149 points. Nasdaq futures they up. Oil is really the booster this morning. We had futures down before 4 a. M. , and then they climbed with crude oil. Where up 3. 5 at 30 five cents a barrel on reports that venezuela and iran will meet to discuss Oil Production, the possibility of a freeze or cut being expanded from the russiasaudi agreement we got yesterday. Take a look at european banks another booster this morning. Credit agricole up more than 14 . Deutsche bank up, and Banco Santander up in sympathy with agricole, posting earnings more significant than the market was looking for. I want to talk a little bit about 13 qs. I know you guys will get to it as well. Here you see some of the additions we learned. Keep in mind, this is ending december 31. Warren buffett added sorry, carl icahn added these report back rent, shinier, and hertz global. We knew most of this. Year to date, they have been big losses. Warren buffett added kmi. You can see year to date, it is a 4. 5 , but candor morgan had bear of a time, last year, to say the least. D. Ulson got out of gl he reduced his position. It is still the secondbiggest of any hedge fund, meanwhile the Spider Gold Trust is up 50 and it really rallied more like 37 from the end of last year. The s p activist want you can see it down activist fund, you can see it down 16 this year. It goes to show you what these investors are making or losing so far in 2016. Now im going to go to vonnie quinn for bloombergs first word news. Vonnie thank you. Tim cook is accusing the u. S. Government of overreach that will set a dangerous precedent. He is rejecting a court order that would help unlock an iphone use by one of issues in the sand and you know terrorist attacks San Bernardino terrorist attacks. He says it would undermine the very freedoms the government is meant to protect. U. S. Government might be receiving far less data from privacy advocates have long suspected. This is according to the New York Times citing a newly declassified report. It indicates emails might have benefited specific foreign targets. Is casting a obama looming battle with the u. S. Senate over the future composition of the Supreme Court as a matter of fair play. The president has the constitution requires the senate to consider his nominee to replace antonine scalia. Vote on ahey will not nominee while president obama remains in office. I am vonnie quinn. Erik thank you. It is time for the three stories that matter to markets. Number 1 so much for the Oil Production freeze. As we discussed yesterday, the agreement among the saudis, the russians, and the venezuelan is going to be meaningful. The iranians are going to have to sign on, and they are saying not so fast. They want to get crude output up to presanction levels. Youthe moment, matt showed wti futures. Brent futures are trading higher come but they are still lower, as you can see here, before yesterdays announcement. Michael collins of credential you have been significantly Underweight Energy and commodity in the fixed income world, certainly to your benefit. When you see the saudis and the russians cooperating, and the venezuelans joining on, is that enough to inspire you to perhaps begin taking some risk in the Energy Sector . Mr. Collins yeah, you know, it is not clear. Erik it sounds like no. Mr. Collins we think there is going to be a ceiling on Oil Prices May even with type of agreement, and even if this ceiling is 45, 50, or even even if he dollars, that is still a enough price weak enough price that oil copies are still going to struggle. Stephanie but does struggle mean default . If they struggle and plot along, as long as they make coupon payments, that is ok. Mr. Collins it means default. Stephanie then there you go. Mr. Collins there is a significant percentage of the highyoung Energy Sector are, the big, integrated Oil Services Companies that are going to default. Any as much as half of them default. Erik forget restructured in some way. Mr. Collins get restructured in some way. The problem is the recoveries. Historically, the Energy Sector has been considered a defensive, assetrich, highquality sector. This time around it is different. Recoveries home default are going to be significant recoveries upon default going to be significantly lower. Stephanie energy is 30 of the highyoung market. Mr. Collins was. Was at one point. Stephanie was. I have yield participants im relatively small group if there are a number of defaults, could investors go along with them . Carl icahn being one of them. Maybe he is bulletproof come but there are Hedge Fund Investors that are hedged and wedged in here. Mr. Collins i do not think it is a huge impact on the global market. It is not a systematic risk. Energy was 16 . Now it is down to 10 if you look at the market value because prices are down. It is going to increase. David one last question about this when are these defaults going to happen . We have had people talk about angry determinations in april. We are not that far away from april. Stephanie i am so proud of you. I cannot get the word re determinations. Mr. Collins Oil Companies have the right to cap these and take the money out. Stephanie come april 1, things get to reevaluate they want to give money to. , may 1, the Oil Companies could say i am out of no out of do ugh. Mr. Collins that will not be the liquidity trigger. With oil prices at these levels, they will hit notwithstanding what the banks do. You made the point about investmentgreat. Everyone knows high is a disaster. Is your point that investmentgreat energy debt is not priced for a world of sub 50 oil . Stephanie did you think that was a quick question . Wait until you see the answer. A lot of them are a lot of the bonds are trading at . 40, . 50, . 60, . 70 on the dollar, and they are investmentgreat. They are priced for the downgrade. It is going to happen. It is inevitable. The tide is still coming. David number 2 Bluechip Companies led by apple, ibm, and secondbiggesthe day in debt sales. Ofthis the rough equivalent the resigning my mortgage . Mr. Collins it is, and taking out another mortgage, really. Apple is the poster child of debtfunded by dax. This has been problem buybacks. This has been prevalent for the last few years. You will evoke carl icahn again. Mr. Collins reduced stephanie who reduced his position, i should point out. Mr. Collins a lot of the supply the last couple of years have been to find in the Energy Sector. They do not need that. A lot of the supply will come down. A big portion of the leveraging transactions will moderate here, right . , which is a good technical because you have less supply. Apple is going to go the other way. They seem to be the darling of the markets with the aa 1 rating. Stephanie do they deserve to be . Mr. Collins they have a couple hundred billion dollars in cash and assets. They are levered about one turn. The problem people forget they are a technology company. I was a Technology Analyst 20 years ago. Most the cup a cover do not exist anymore. 30 years from now we will not have iphones. We might have Something Else. The Technology Sector risk is something that is interesting. Where was ibm 30 years ago. Mr. Collins at least they have survived. Digital equipment corp. Was one of my favorite. Stephanie i asked mark cuban about ibm and he said watson had better work. If it does not, what is ibm . Mr. Collins if they erik if they can sell bonds, does that signal a thought . Thaw . Been alins there has bifurcation within the corporate market, within the highyield market, within emerging markets, when there is a mini flight to quality within the markets were safe havens are garnering a lot of demand, a lot of interest, and they are able to issue debt at low coupons. The apple average coupon was below 3 . Stephanie that is amazing. I will give you another name credit esters have been talking about puerto rico. Haveo rico lawmakers approved a bill that will allow the main electric utility to restructure almost 9 billion in debt. It is a key step in efforts to resolve its fiscal crisis. Remember, they are 70 billion in the hole. The bill goes to governor padilla for his signature. What is your take on puerto rico . Some have compared it to detroit. Others have compared it to greece. Maybe they are in the middle. Mr. Collins they are in the mix. They are a troubled coming municipal troubled, invisible entity. Some will be restructuring. I think it is the to the iceberg. The levels of debt in a lot of these places whether it is detroit, chicago, the whole state of illinois, or my home state, your home state of new jersey, right . These entities are in trouble, right . The longterm, fundamental outlook is not great. Erik doesnt it show us that rico can be restructured i will not say amicably, but at least parties can come to the table and reach an agreement in a way that does not require the governor to play a game of brinkmanship, which some would say he has been doing the last few months talking, but not doing . Mr. Collins sure. There is a myth that means appellees cannot go bankrupt, but when they run out of money and have too much debt, push comes to shove, and something has to happen. Restructuring if it is technically considered a bankruptcy, i do not think it matters. The fact of the matter is they will not have enough money to pay all obligations. David it strikes me that in both greece and detroit there were governmental entities that came into sorted out. In the imf and ecb in greece. The question is who will short this out sort this out. Stephanie it could fall through the cracks here. Mr. Collins people took hair cuts. That is the bottom line. Who sorts it out i do not know if it matters if it is the puerto rican legislature, or the u. S. Congress i know paul ryan is actively involved, trying to get some kind of mechanism in place to work with them. Either way, to me, as a bondholder, or as a pensioner, at the end of the day, you are going to take a haircut. Erik not just a bondholder hundred 75 billion in bonds. Michael collins from prudential. He is with us for the hour. Those of the stories that matter. Its more ahead on bloomberg. A quick check on futures stocks set to extend gains for a third day, and one stock on the move, priceline. They beat estimates. Online bookings grew despite negative impacts or at least stemming from the u. S. Dollar. We will be back. Matt welcome back. We have breaking news on Industrial Production and it came out a minute ago it is up. 9 in the market was looking for a gain of. 4 . Im taking a quick look at s p futures to see if there is any reaction here. We have a little bit of a gain in s p futures, but they have been on their way up. Another little leg up in the last few minutes. Currently, s p futures are up about 1 , and Dow Jones Futures are up about 150 points. Lets look at the Companies Making news and moves in the market today. As eric mentioned going into the break, priceline out with better earnings than the street expected. Priceline there with big games, up 11 and change. I want to take a look at fossil, the maker of watches, and other fashion equipment, with earnings that beat the street, and also up about 12 . As far as cisco rack space was one of the mrs. We had today. We see moves down there. Finally, take a look at cake. 1 andfactory down change after missing estimates. 48. 80 is what we see in the premarket. Stephanie some analysts have pointed out is not a good with regard to Cheesecake Factory, but it might mimic retail. It is a mall restaurant. You see it tied to every major mall out there. When you look at cheesecake numbers, you can tie that to macys, cheers sears. Matt it is the only place i have ever seen a Cheesecake Factory at the ridge hill mall in yonkers. Vonnie quinn has a Bloomberg Business flash. Forecastconomists had an increase. All four regions showed declines in construction. A blizzard the crippled the east coast probably made matters worse. Shares of ferrari rising in the premarket. Shares climbing after the disclosure that george soros has a stake in the company. That puts the stake among the top 10 stakes in the new independent carmaker. Tmobile says fourthquarter earnings analyst estimates, and it is taking as many as 3. 4 million new subscribers this year. The Third Largest u. S. Wireless carrier has posted six straight quarters of adding more than one million monthly users. Behind the surge, lower prices and offers like free video streaming. Michael collins will be money where others are getting burned. He will tell us why, next. Erik you are watching bloomberg. We are with Michael Collins at potential. We want to talk about bank bonds. It has been ugly for bank bonds. You have been overweight headed into the selloff and you still feel good. Why . Greatllins it has been a year in our view is the fundamentals and the banks be better than fundamentals in your industrials. Building more defensive. The Regulatory Environment will be there to protect bondholders. That is been the theme. Spreads on banks have done welcome, outperform industrials of the last couple of weeks. I think it is an overreaction in the market. The spreads on these banks have gone from 130 one 140 over treasuries to 200. They have widened, outperforming other bonds in the market. I think it is an overreaction. Markets have panicked about what happened in europe, what is happening with essential credit losses related to energy exposure, which i think is manageable and will be muted. There is so much capital below the senior debt in these banks that the risk of actually losing money at the senior debt levels is miniscule. I really wish you were sitting with us half an hour ago because the picture Neel Kashkari paints of banks is essentially the complete opposite. There is a lot of political concern or political noise about what is happening with the banks. You know, you hear Bernie Sanders talking about break up the banks. Neel kashkari, who you think would be a little more business from the, talking about breaking of the banks. The fed is not going to allow the banks to go under. They want them to be safe institutions. They are going to make sure the bondholders are generally protected. David they certainly want them to be safe and successful, but i wonder where the fed is headed maybe not the breakup that Neel Kashkari is saying, but to keep the pressure up, to the point where the only logical business decision is to break themselves up. Mr. Collins yeah, it is not a great earnings story. It is not a great equity story, right . Their earnings power is only being squeezed and taken down. There is talk with negative Interest Rates, and maybe the fed eventually getting there, that that is going to be a tax on the banks essentially, and heard their earnings even more. There is Regulatory Risk. My position is you own the senior debt of the banks. Your cyclical risk is low and your default risk is low. They are safe, defensive assets. There is a Regulatory Risk they get woken up, and you are not really sure where the debt will go. Are applying to u. S. Banks that is what you are talking about when you invoke Neel Kashkari does that apply equally to european banks . Tos it make sense that up two weeks ago people were talking about the possibility that Deutsche Bank could fail . Mr. Collins the big european banks are a couple of years behind u. S. Banks with recapitalization, but it is happening. They still have tremendous levels with tier one capital, equity capital. We are actually really sanguine about the big, mainstream european banks as well. Erik does that mean they are a by . Aeir credits are trading at discount to what it will cost you at citigroup, Goldman Sachs, or bank of america. Mr. Collins they are trading at 200 points over treasuries, which is a big spread forces and as low credit risk. The european banks are probably 50 behind it. Subordinated debt is another 200 behind that. There is value created. Erik is that money good, in your opinion . Mr. Collins yeah, i think it is. David one year ago, convertible debt, essentially, was attractive. Did you invest in them . Mr. Collins we have always been os, noted about the coc just because of the funny name, but because if they go below the threshold of about 7 , they automatically get aqua ties. We are a big on investor. They do not want equity. They do not want equities. The equitythe characteristics of generally students away from those. Stephanie should the regulators allow them to be in the market . Mr. Collins the point is to turn them into equity. In a bold security. I do not think it is a bad idea, but as an investor, you have to realize you do not have just a bond, but a hybrid security that in the worstcase scenario you will get advertising, presumably at a low valuation. Stephanie this seems like the same kind of instrument that if things went sour, unsophisticated investors could say i did not know what i was buying. Should they be in the market . Weseems the kind of thing saw in 2008. Mr. Collins yeah, they have unusual characteristics as bonds, and after being sold as highletting bonds, that should be questioned. Stephanie when you are throwing one of these around, it is not good. Michael collins is sticking with us. Abearwe hear from a perm on where he is hiding money in this market. This is bloomberg p moments away from the opening bell. We will take that time to check on stocks. Berkowitzerica, bruce berkshiret hathaway increased its stake. Much inoes not quite as the most recent quarter. Would like to know what they dont like out there. Lets break down some stocks. Michael collins is still with us. Nd we are also joined by mark we will let you run a victory lap because you told us you were in the second bubble in the last hundred years and in this number, you predicted a market crash. Besides saying, how you like me now, what are your thoughts . It has only just begun. The way i look at markets and investment today, this is lets make a deal. Investors have to choose door number one or two nurnberg two. Stephanie was a donkey and the other has an rv. Mark Something Like that. These are buying binary choices we have to make. Are bettingone, you planners and basically on greenspan, bernanke, you get what im saying. Door number two is the opposite. You are bidding on natural markets, price areovery, that free markets adaptive, complex, homeostatic systems. I think the disparity has never been greater. You know in poker that you have even got the best hand or the worst. Are made and you want to avoid the area. This is where we are as investors today. The big problem is there is cognitive dissonance here. It teaches all of us that door number two is the right one to choose. Are all piled into choosing door number one. Fort ever reason. It clearly feels the best in the short run. Let me forget about today until tomorrow, that kind of thing. Door will behe cracked open. It may be slammed open. We will see when that happens. The dreaded black swan monster. This is what used to happen with cognitive dissonance we had. Beit does not all have to philosophical or theoretical. If you had listened and done it was said,ple, at the dawn of qe, do what bank is telling you to do, by risk assets, make a lot of money. You may love money even with the recent correction. You can now still have made money and aside it is time to take some risk off the table, no . Mark that is fair. You want to go at the fed when it is working. The problem is when do you know when it is not working anymore . It is not a linear thing. What we are seeing with negative Interest Rates, at some point, this stops working. At some point, the market cannot work anymore. When you are trained to be a pilot, you pull back on the yoke and it is very predictable. Back, you keep pulling the plane will point down and the more you pull back, the more the plane pulls down. The only way to get out of the stall is you put forward as you are going toward the ground and then you pull back. It is a nonlinear feedback that it is counterintuitive and very dangerous. This is the problem. You will simply follow the fed. Stephanie drives his plane directly into the side of a cliff. Help us out . Thes it possible what markets are going through now, they are transitioning from door number one until door number two . Maybe they are realizing the Central Banks are out of commission, the game is over, and the markets will have to clear on their own merits, and there will have to be price discovery. Market is that happening now . Is that why we are having volatility concerns and the problems in the market . I think that is exactly what is happening. We need to resolve between the cognitive dissonance we have between the two doors. I think what youre saying is right and people need to choose. Liquidity is a stream today. If everyone were to change doors, it is not so easy. It cannot be done in a nonmessy way. Get such different stories. Some people say, we are trading more bond than ever. How much do you manage . 575 billion. It is worth than it was. Corporate bond market probably had the biggest delta in liquidity. We are used to dealing with highyield and emerging markets. It is a little worse than it was, but we are still transacting. A bond a day. A lot of trading activity is marginal with transaction causes. There is still demand for highquality bonds. Liquidity is not a constant variable. It is highly conditional. A constant flow, that is when you get the liquidity, so dangerous that the liquidity you this is whatn causes volatility, when you have conditional liquidity. What you are talking about is not a black swan at all. You say you see it coming and you think you can quantify. We know some of the value of the marketplace is because of cheap money. There is a genuine underlying value that israel. The question is, what is the difference tween the two . It is impossible to know the difference. It does itt of what it removes as much informational content of the prices. I totally agree with what youre saying it we will have no right to call the crash a black swan. We will, it will surprise most people, even though when we look back at this, we will see, that was the most obvious black swan event ever. If people have been listening to you, they would have been able to build the portfolio you build. Long stocks and protect yourself at times like this. Lets say you did not and you were lawns docs heading into the correction and you do not have correction. What do you do now . Mark valuations have not done anything. When i look at them, the ratio is the most robust way to look at valuations. It remains as high as it has ever been except for 2000, going back 100 years. If you use price to book or price to earnings, we are back to 2013 levels. They are noisy and it has been shown it does not permit anything. We have gone back to 1929 highs. 2000 highsour way to before we moved down. Nothing has really changed at the end of the day. For me, the level of the vix still remains very low. Just to keep it simple. This is what matters. The total value of the market divided by the underlying replacement value. Yes. Is strikes me a little bit, like Warren Buffett saying, lets report our companies on book value. That is a really underlying asset. Mark absolutely. The boy to argue we are in a servicebased economy but none of that holds. You think it applies just as much to facebook . For economy, it has to apply because it applies on aggregate return on an on capital. If we corrected whatever more than 10 off the highs, do you have any idea where this ends . Mark we have to take back everything we have done since the 2009 low. We have to take back all the accumulation of debt and risk assets that is happened. There has been a lot of debt that has been accumulated. Im the fixed income guy and i am looking at evaluations on the bond market. I am at the had spreads in the highyield market, 900 basis points over treasury, which historically has been a great entry point. Has the fixed income market led the stock market and the selloff is almost done . Tends to do that. Credit tends to lead the equity market. What the vix has done. It has not really done anything. I expect theover, print in the vix higher than we have ever seen it before. Stephanie when this is your outlook, i want to understand how you are positioned for this. I think people need to step aside and think about the investments they will be able to make much later, and the investments today should be ignored. It should be a store value, cash, dry powder. Thank you. That was an interesting conversation. Are in the trade here in new york and we need to check out where the stocks are. Gains at 1 acrosstheboard. The Dow Jones Industrial average is up 150 point. Let me get in here and pull up the imap on the s p to take a look at which sectors are gaining and which are falling. Nine out of 10 on the industrial groups on the s p are gaining. Utilities are the only loser right now. You can see materials and energy are leading the charge. It is a commodities play today and that would make sense considering what we saw happen with oil this morning on the news iran and venezuela will going to talks, adding or extending the agreement saudi arabia made with russia. Bank stocks, we saw them rallying in europe. In the u. S. , we see them rising basically in sympathy. With credit earnings, not a huge bank, bank of america up 2. 5 , jpmorgan up. One of my favorite stuff to look at is the ticker for ferrari. We saw that george soros added a aboutsition actually among the top 10 holders. We also saw among the top 10 holders of ferrari, that boost the stock, down considerably from the ipo price in the mid40s. Fund police and ferrari. Elon musk up to his sake and solar city, which is not necessarily surprising. He told us as much in february. Shares,is down, selling 12 million through Credit Suisse in the stock is down, 2167 early trading. Lets go to abigail doolittle, thehe nasdaq where she has latest on carmen at the open. Abigail yes. On theare soaring today open after the maker of personal navigation and fitness device maker beat earnings and revenue estimates for the Fourth Quarter guidancemainly upbeat for the full year of 2016. The ceo said garman finished 2015 strong, exceeding expectations, and that the company is wellpositioned for 2016, which seems to reflect in the stock. Carmen is beating the nasdaq year to date widely at this point, perhaps the bright spot for the year. Suggests carmen may be staging a turnaround to move higher. Erik thank you. When we come back after this short break, big investors are moving their money around. We will find out. Later today, stephanie will be speaking with john on the companys latest earnings. Vonnie inflation at the wholesale level moved higher in january. An increase in food prices more than setting a plunging energy cost. 1 10 of 1 . In the last 12 months, home sale prices have fallen. Travel agent in the u. S. Has fourthquarter earnings beat estimates. The dollars strength did have an impact on revenue. Lifeline is more susceptible to currency fluctuations than some of its competitors. The Company Makes less than a quarter of its sales in the u. S. There will be scheduled commercial flights between the u. S. And cuba, a deal that will allow as many as 110 daily flights. All current flights are chargers are the Obama Administration and cuba agreed to normalize relations more than a year ago. That is the latest. Was some big news in tech out of the quarterly filings, hedge funds for the most part. ,avid einhorn and carl icahn miller sold facebook, cory johnson is here with us to talk about those revelations and more. What struck you . Icon is not dumping but trimming. Einhorn, very different things. I love finding weird stuff. Known names can be fascinating to go to to see what theyre adding and subtracting, particularly when they are adding what theyre talking about in the letters. While it is interested to see what people have added and you the functionand shows you not just what they own, but what the changes are, stocks that are down a lot and someone adding conviction, to me, that is a better story than someone trimming around that. We know the apple story. We look at weird names and Great Investors and you get the same thing. He may just be negative on the overall market. Trimming on these levels and planning to reload when the market drops. Cory he is very event driven. He is often looking for one thing to happen, one change to happen in terms of the cap structure of the company, for example. I think the most important thing for investors to do is to read annual letters from Great Investors. I have been tweeting these out this morning looking at the annual letter. Fantastic letter to read. Investing philosophy and you see the Great Investors going through and saying, these are the things i learned last year. These are the things i made. The stock was down and i will hold onto this you learn about investing the same way Warren Buffetts annual letter is a mustread for everyone in the. Mistakes drawing conclusions. Ackman does a lot of his position building through derivatives. Certainly does not give you a complete picture. In some cases, it may actually give you the wrong picture. Cory you can see why Great Investors, you can think what was ackman thinking with valeant. It looks like a crummy company with a lot of respects. What is David Einhorn thinking . You get the explanation letter. Both to try to form as complete a picture of the puzzle as you can. You keep saying these stocks end up being a hedge fund hotel. When you see investors like a ,hat einhorn and carl icahn then there are two different pictures. This is a moment where there are buyers and sellers. Cory the discovery of a new name, for years before and since, i go to dinners with investors and everyone has got to bring that name it we are all looking for big ideas and looking for change. Those are the things you can really reveal. We spent time talking about what some of these big investors are doing. Vonnie has been spinning some time with it. In adea that apple is now battle effectively with prosecutors over access to the inone used by the shooter the San Bernardino tragedy were 14 people died. By cook rejected in order california judge where the company allow the fbi to lock this iphone 5c. In a letter published on appless website, tim cook described it as a chilling attack on civil liberties. His position is not exactly news, but this is a very useful. Ase that we can use your legal background will prove useful here, to understand how Silicon Valley understands or at whyt perceives privacy and it is such a battleground between government and industry. I understand they want them to turn over new code. It is not so much that they have the iphone and you cannot use it. It is just you cannot get into it. It is new code they have. It is the backdoor issue. God is in the details. The details are interesting. They are saying apple, can you write some software that will allow us to get into the phone without triggering 10 times Race Function and let us have that software and we will only use it this ones. Tim cook is saying we do not believe you only use it once. Painted byes being tim cook are not exactly what the court order says. It suggests there are broader strokes. This is the worst case for killedk because this guy a lot of people, had an iphone, and the government is saying, maybe he is connected to other terrorist. It is the worst case to say, we do not want to let you to know that. Also protecting the brand. How many Corporate Leaders let the lawyers do it, do not make a comment, tim cook is standing up for his principles here. Stephanie im with you there. This will be quite a battle here. Set ofie only love on a bloomberg. Cory johnson with us. Eric is a act and david and i are here. Matt is in the house. A big day and we will be back with more. Do not go anywhere. Time for some final thoughts. Stephanie this is the sentiment , bullish sentiment index, the American Association of individual investors. I want to pull up a chart. This mucht seen negative their sentiment in the markets from investors in the last 20 years. You think about how people feel overall. This is why people are positioned so heavily in cash. 20 years . Im taking that with me. Mine is a bright and dedicated Public Servant who has come out with this om. He did not talk to anyone in the federer banking business. He just went in his office and came up with it. What does dan think . Im waiting to hear. We will say goodbye to you. That does it for us tomorrow. 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Plus, we will preview the release of the latest fed minutes. Tim cook denying a court order unlocking an iphone belonging to a shooter. The latest on the Data Security and the fight against islamic states. Big day. We will head to the market desk. Julie, what are we seeing . A lot of green. Bounceback being the beat up