Transcripts For BLOOMBERG Market Makers 20140416

Ritholz. Very excited to have you here today. Im pretty excited about all of the interesting crosscurrents going on in the market. On the one hand, you have a group of very local bears talking about every pullback as it this is it, this is the top. And then on the other hand, there are some fairly relentless bowls who are just quiet relentless bulls who are just quietly eyeing stocks wer continuously. We will talk about that, but lets get to the newsfeed. Bank of america posted a First Quarter loss, a mere 6 billion in costs linked to mortgage disputes. Resolving issues over home loans and foreclosures have cost be of billion have cost bank of america more than 50 billion big ones. Shares have fallen three percent so far this morning. Ann shares of yahoo are trading higher today. Ceo Marissa Mayer can thank jerry yang. I say, alibaba is preparing to go public and it reported a 66 jump in their overall sales. Yahoo owns one fourth of the company. Company again and trading today, opening at 22. We cannot forget the ipo price was less than land. Amazing when you talk about how hot the ipo scene is. First to gothe public since the financial crisis. Every time we get information out of the fed, everyone reads the tea leaves. Are we over reading it . Are we over justifying the market to get ourselves comfortable . Cant we just say, market said markets down, some people win or lose . We always over justify the markets. We love a narrative. We are not especially comfortable with data and math. Week on a show that you girls are especially uncomfortable with math. Oh, really . What do you think about that . I think many people in the United States have an issue with the mask come and if you want with math, and if you want to be in finance, you have to be a strong comfort level. I know a lot of analysts and traders and i think the older people, andooks at i could give you a list of a dozen females who are comfortable with analysis. Based on the millions she makes, i think she gets it. I dont think that assumption holds true anymore. I love writing. You mentioned the noise earlier i love talking about the noise that creates this false narrative that allows investors to be comfortable even when they are completely and utterly wrong. All right, then how about Central Banks to get us comfortable by pumping money into this system, and allowing investors to forget that underneath it all, these economies are rotting piles of garbage . It depends on what your job is. Our job is to of people and make them feel ok . Ande a grad student at nyu scratcher beard and smoke close cigarettes, was this you in college . Are there pictures of that . Might my twitter picture is from college. Otherwise, your job is to say, what is the impact of qe on Asset Classes . And then deploy your actions appropriate lee. I love the guys screening about alan greenspan. On the other hand, when i suit up and go to the office, my job is not to be a think tank consultant. I have no clients with money to deploy. They dont want to hear a story. Just tell mew where the storms are. We wrote a piece a number of years ago called where sea. Nsters live and the idea is, if youre a captain of a ship, you cannot just raise against rage against the seas. Lets say, im in a could he analyst and i looked at grubhub and i actually did my homework and said, an Equity Analyst and i look at grubhub, and i actually did my homework and i say, i get it. If i dont know how they are going to make money, why would i buy that deal . Im a fundamental guy. And then everybody look like a chump when they are up in an hour. Where is the right place for those who do true fundamental analysis . In the Banking Department to help underwrite ipos. That is not an especially popular position on wall street, but fundamental analysts are not there to help investors make money. They are there to get deals moved forward and help the syndicate. Ask you think those who do fundamental analysis should be equity bankers . X no, i think no, i think those who do fundamental analysis are Investment Bankers. I think some investment anchors our salesmen. The idea is you have a bunch of 26 roles pumping out pitch books. And who is writing those its books . It is the fundamental analysis. They are contributing the data, the narrative to those pitch books. And the data on ipos, if you were to buy an equal amount of every ipo, its some big money. In leslieto bring picker to the come the conversation. Sawmoelis start trading, the First Investment company to start trading. But theyve had a hiccup getting there. What do you think about that . They left quite a bit of table,n that on the you might say. Companiesason is, such as the Investment Bank went to onetime payout partners. It encouraged Institutional Partners to buy into this idea and say, listen, i notice a rough market right now. We are willing to be some of this money on the table and take a onetime payout in order to get a successful ipo, in order to get a 12 pop on its first day. Is it really that rough of a market where in five percent of on the s p and weve had almost 60 ipos come out . But think about how particular banks make money. They dont have the underwriting capabilities that a big bank does. Can ken moelis compete with the big m a guys of the world . Left, theyve done between dollars theyve done a trillion dollar deal. His record is extraordinary. Do you think there was any reservation about his ties to herbalife . He is herbalifes banker. He was with other herbalife executives visiting with investors, talking to them saying, do you really want to go to the end of the earth with bill ackman . Do you think the investigation around herbalife has cause any potential investors to say, you know, maybe i will buy this in the secondary. I dont need to be the first in. Perhaps, and you have the story of the new York Attorney general investigation the other day. We dont have any of the details. For aent shorted stocks while. Why does an ipo bloom in the First Quarter generally, and then things slow down . Do we think we are going to have a slowdown in q2 . I think a lot of it has to do with momentum. If you look at the stock market, things are ok. If you look at those true momentum stocks, the amazons of the world, the facebook, those are the ones that were the hardest hit. And then you can extrapolate that two of the ipo companies, which investors can also use to see the overall index. It makes it really difficult to sell hard ipo stories. And they may not have the track record a 30yearold company has. Think about the great track does have. Oelis that would make me scratch my head. He is and asked kicker. Can we say that . We just did. The one thing im aware of is, its a different feel, a different headspace when you are effectively taking partners out of their equity position. Saying if im a potential investor i dont want to buy a new company with the fuel of one that im cashing out . It is essentially the difference between twitter saying, we are going public, so we will have more operating cash and be able to hire and acquire and do all that fun stuff versus and again, go back 20 to 30 years ago. All of the people were partnerships. When they became publicly traded, a lot of things changed. I dont doubt that there are endowments and hedge funds that are bought out by the guy trying to get rich. And at this point, they are saying, we are not giving you money to expand the business, but giving you money to buy a six house and the second yards. Why do we want to be invited to a part of that . I want to be invited to a party. That is a very different Public Offering then, hey, we think we could use this money , anday facebook did continues to use their currency to make acquisitions, whether you think they are pricey or not. That is the advantage of a tech Company Going public, taking that money and leveraging it, versus cashing out. Check in withwill you later, because everyone is following how this Mullis Moelis deal is trading. Back, the man who had front row seats during a highspeed trading meltdown. We will talk about all of this noise around hft. And we will go behind the scenes of tumbler. How the microblogging platform tries to keep its startup after being bought by yahoo . Welcome back. Im Stephanie Ruhle. No one knows the risks of highspeed trading that are then tom joyce. In august, 2012, joyce was running Knight Capital when the computers flooded the market with unintended trades. The result, Knight Capital lost 450 million in one single day to mow which nearly drove it in one single day, which nearly drove into bankruptcy. Tom joyce is with us today. Laste we get into it, the time we spoke, you were leading the charge at Knight Capital. What are you up to now . It has been 10 months now, and outside a fair amount of average golf, i have been involved with three companies. Withas come out effectively, a new model on a new groupon. The College Students like it so much that we are going to try to go after the entire universe. That is a completely different route than what you have been doing for the past 20 years. Is any of this because you want to get away from the trading business and you dont see great opportunity anymore . Know, one of the things im involved with right now is a Company Called clear pull those up it is a Management System that is actually part of called clear pool. It is a Management System that is xray part of a daytrading firm. System. Of a daytrading they used so many algorithms to avoid toxic flow that the industry started saying they liked to use some of that. They spin off so they spun off a group that will be an execution Management System. A little bit of the new stuff and a little bit of the old stuff. Lets talk about the book. Highfrequency trading has been in focus for the better part of the year. What is your initial reaction . My reaction to that romance novel . Novel, i like that. The one word that comes to mind is salacious. He wrote a story about a group of investors that he did not particularly like. He could have easily written a salacious novel about i dont know baseball . Baseball, the oil industry, the markets of the 80s. It was a book written largely for entertainment. He obviously has of you, has iview, which is fine, but dont understand why he had to be so irresponsible as to call the u. S. Equity markets rigged. This, clearly, is a book unencumbered by the facts. If you look at any not any, but the vast majority of Academic Studies that have been done on the u. S. Equity markets and if you look at the execution quality of the equity markets, particularly for the Retail Investor now mind you, the Institutional Investors are the big boys. They have staffs of traders sitting there watching the market. But particularly the execution polity for the Retail Investor has never been better. The spreads are as tight as theyve ever been. Execution costs are as low as theyve ever been. Iscall the market rigged completely responsible. If i was a member or on staff at the sec, who i believe has done quite a fine job in terms of monitoring and developing the u. S. Equity markets, i would be close to vitriolic over this. Really . So you have to take the position, we will hold off on the sec discussion. That is another three hours. That aside, the moderate antihft market argument is about the institutions that are the retirement accounts, pension that, 401k, iras, etc. Blackrock or schwab or anybody goes to put an order in for a full new a few million shares. The hfts get taken out in advance stop they get to buy that ahead of that and flip it to them. Liquidity. T creating they are just attacks on the transaction. Trading in a zerosum game. Do you think the specialists are better . That is a whole different, conversation about specialists and the corrupt system there with and highfrequency. Rading the specialists are obligated to make a market. We saw in may, 2010, we know that the option is just not playing as exists. The question is, im in computerized trading and allowing technology to narrows reds, and there are many technology. What i dont understand is how you allow an hft to sniff out an order from blackrock and just put a tax on it. There is a lot of crazy stuff in the book. When you pull that out, that tax complaint. Et of his there are a lot of stories in the book about things like that. But if you know anything about highfrequency trading and by the way, ive never been involved with the firm that was not involved with highfrequency trading. Knight capital never did highfrequency trades. Day,d 3 million trades a virtually all of them on behalf of the Retail Investor. In the spread Networks Story he alked about, we were never spread network. I personally have never been involved with highfrequency trading. When knightly, capital was bought, i got out of dodge. I dont want you to think im affiliated with it. Buy big share block. They buy small ones. Ifhe is trying to sniff out someone is front running it, guess what, it is illegal. It is illegal to front run with you do it quickly or slowly. People who are front running other orders, those rogues have to be dialed back in and prosecuted. Sayother thing that people about highfrequency trading is that they get an informational advantage. There are two ways to look at that. One is, if i and the information at the exactu both same time what the information is and stephanie figures out a way to analyze it and profit from it faster than you, too bad. She found an edge. There are always people smarter than you, stronger than you. Which is me, im smarter. If i whisper in your ear, this is what is going to happen, and then i tell you isnt that what happened in the exchanges . It certainly happened in the special exchanges. Thank you. Were private clubs and the inefficiencies of that system, especially in hindsight now that we know what computers can do was kind of remarkable. Giving exchanges are mostfavorednation status in terms of informational access to certain of their clients, then shame on them. And that should be investigated, too. But on a level playing field, just because a highfrequency trader spent eight years getting his phd in physics and can process the information faster than you can, i dont think that its unfair. Michael makes them sound like the they are these white knights, these crusaders on wall street. Roaddly, i kind of hit the last july. Think idx was ruled out im a little stale on some of this stuff. But frankie, if idx but frankly, if idx builds a better model, god bless him. Idx is a dark pool. To me how goldman, for example, who had their own dark pool, why would they start why wouldhis they start doing business with idx . Are they an investor . I dont believe so, but they are now a partner and they use iex. That is a dark pool and goldman has their own dark pool, arent they in their own lunch . They could be. I dont know any of the new crowd over at goldman sachs. You would have to ask goldman sachs. But it seems logical what you said, they seem to be walking away from their own thing and embracing someone elses thing. You work with regulars for decades. If you were the sec, what would your sponsor be to michael lewiss claims . Frankie, i would be a bit vitriolic about it, because by regulation of the market, he slamming the sec. I would say, there is no way are the u. S. Equity markets rigged. They are the finest in the world. I did not say they were perfect. We need to look at where there are informational advantages. Those who weret apparently frontrunning orders. And then we will look at new changes that can be instituted moreke the exchanges efficient. What about things like quote stuffing and spoofing and jamming in 10 million orders and canceling them immediately . I would say, in the last few years, when you feel like you go to do a trade eta, almost every time it feels like it goes right up in your mush. Spreads arerow illusory. You get 20 shares of something on a 2000 share order, and then the offer just runs away from you. Would you impose an improvement in liquidity supposedly, an improvement in liquidity and spread is not what it appears to be the i had that happened when buying shares and by the time i hit go, the price is different than quoted. I think everybodys experience is different. If i were the sec, i would stand up in the markets. But thank you, tom joyce. Live from bloomberg headquarters in new york, this is Market Makers with air shafts are and Stephanie Ruhle Erik Schatzker and 70 rule. Welcome back. Erik schatzker is off this week. Is my guest post today. I hope you are excited to be with me. Matt miller is at the auto show. If you are at the auto show, what is the one car, the one maker you would be the most hot on . I would actually ask bmw why i cannot get a six series with a stick anymore. He is interviewing a board member from bmw. Carmakers from around the world are gathering to show off their latest models. This is the matt miller super bowl. He is there right now. Matt, you better deal with berries issue. He wants a six series with a manual transmission. I hear you. The six series is a bigger car than the others that they have on offer, but i will ask them. A real pleasure having you here. I just checked out the cards you have here and there are some amazing ones. ,ur guest host, Barry Ritholtz once a six series with a manual transmission. Can you make it happen . Anything can happen. But the paddle shift is more than normal. The endave been driving series lately. Absolutely. A nice, matt keller, the car looks superb. The drive, performance, everything you would be you would expect from a highperformance vehicle. I highly recommend anyone in the new york area to come by and check it out. Lets talk about some of the other cars you are debuting. You have a convertible that is squarely aimed at the american market. Yes, the convertible market, this is the biggest in the world. From that point of view, you marry these two things together and this car is ideal for this environment. I think we will see great sales as a result this year. X4, thefor an smaller suv. Is it really that explosive . We had Great Success with the exsix. It has done 250,000 sales in the past couple of years. Will do thex4 same. X3 has been sold out everywhere it is in the world. I wonder about other plants, the possibility that there may be another north american factory. Is bmw deciding on that tackle we have effectively deciding on that . We have effectively doubled the past few years. That will be our biggest plant in the world. But we also have the high cost problem that we are reaching our production limits in virtually every plant we have across the world. At some point, we will be inking to invest further manufacturing capacity. And there are many options. But no decisions as of yet. Mexico an option . No decisions yet. The sixe get back to series issue that very brought up. I think if i were going to get an m3, for example, i would have to have a stick. Are you going to phase out manual transition should manual transmissions across the board . It is too early to say that, but having said that, in the majority of our costs, particularly as you get further up into the bigger cars, people are taking automatics and using paddle shifts and electronics on all of the m cars. Is obviously easier for a lot of people and you have the best of both worlds. A positionis in where it is becoming the minority. People are also looking to drive cars that have electric drive trains, hybrid drivetrains. You have the x fives over there that you are debuting in the hybrid model. That the future . You have these incredible electrics that we will talk about in a second. Particularly in an urban environment with legislation all around the world beginning to push co2 down and miles per gallon up, zero emissions are definitely on the government agenda. To do anbility additional 10 to 20 or 30 miles will become more important. Plugin hybrids, we will bring that technology to the market place. This will be the start of many. Does it hold onto to the bmw driving characteristics you would expect . Can it still be the ultimate driving machine . Of course, this is in the dna of the company. Everything we do is that way. The eye three has been on the market for four months and everyone is blown away by the excitement of the driving situation with it. And that is an electric drive. Inve been driving an i8 its last phase. You lucky dog. Someone has to do it. Its a tough job. It has a gasoline engine on the rear axle and electric motor on the front axle. It performs like a sports car, but when you needed, zero emissions. And when you dont need it, it is 82 gap 82 miles to the gallon. I cannot wait until that goes protocol. It makes me think about tesla. Can you challenge tesla with that . Im sure you will say yes, but what do you think about their direct sales model . If i look at our future retail concept, we have multichannel approach now and we find the customers all want to do something digitally, and then something in a physical environment, and then flip act forth. I think there are many things here. We are convinced, however that the dealer body is going to be the backbone of our sales environment going into the future. And i stress this, it has to change. As consumers, if we look at what has happened in the past five or six years, weve all become very familiar with doing things in a different retail environment. And the currency has got to be the same. Multichannel approach, new technologies, new ways of handling the customer, new ways of delighting the customer, of what we are about. Thank you very much for your time. The head of the sales desk, so i figured i would be the right question to ask them. Board member ian robinson. Thate to tell you during interview, Barry Ritholtz was feverishly pulling up the six series, angry over the price jump. Coming up, we will speak to the cofounder of the first bank to go public since the financial crisis. The one and only ken moelis. Welcome back. Im Stephanie Ruhle. Moelis and company is up more than five percent in its worst day of trading. And is shares last night the First Investment bank to go public since the financial crisis. The firm decided to sell fewer shares than it had originally land two. Is on theen moelis floor of the Stock Exchange with our very own cristina alesci. Take it away. Congratulations to you, ken. Thanks. Obviously, the ipo did not go quite as expected. Talk to me about the decision to decrease the offering. I thought it was a very good transaction. The market got very volatile. You have to price for your comparables are and they all traded at about 10 . We thought it was a very well executed deal and we wanted the stock to trade up. My first question and my last question was, tell me a deal size and a price that our investors will make money. Last year was your best year in terms of revenue since you started the firm. You are projecting a 92 increase in the First Quarter revenue this year. What about this year . Will you beat last year in terms of revenue . Our First Quarter, i would be disappointed if we dont, but i cannot give any projections. We would hope that the market stay strong and we are able to improve on what weve done. Are you doing to reassure investors that this is not another blackstone situation. Youre going public at a frothy time in the market. You reported your best year ever. What do you think investors will say . How will you guarantee this performance Going Forward . X 67 of the stock is still held by employees. Nobody sold a share today. I think we priced it to go up. Our stock is trading well today. I think we have to perform. And we intend to perform. Are you worried at all that it could be at the tarp the top of the market . I cannot work it worry about the market every day. I worry about each single day. I worry about the things i can control. All right, but why go public . You have all of this additional reporting obligation, all of this additional scrutiny. Wouldnt it have been better to be the only independent bank that is not public . Isnt that a competitive advantage . In some ways, for the last five or six years we have it has been. We have been able to grow without thinking about shares. But i think theres more growth in the future than the past. Pressure on the conglomerate editors is unbelievable. Conglomerate competitors is unbelievable. Ive never seen such pressure on the larger competition than ive seen today. I think the talent will come out , and having a liquid, tradable currencies to get them to come join us will be very helpful. They want cash rather than stocks at the end of the day . Yes, but we want to give them stock because we want owners. We want an ownership culture. We want our employees to be owners. 67 of the stock is owned ttns . Our partners have been working at it for seven years and with very little liquidity. They have been getting stocks in the firm for seven years. This will attribute some liquidity for them, which they will have access to. It is great for them. How did you get investors to basically buy into this offering with the use of proceeds being a onetime payment to you and your partners . Not investing into the business, but directly into your pockets. I think they want to be part of this business. I think the cycle is good for and then day. Four m a. And i think they are buying into the future. After sevenity years of nonliquidity, i think it is fine. At thise are looking and saying, hes taking money off the table. Is taking money off the table, why should i be buying . I met with 50 institutions and not one asked me that question. Beont know why they would interested in it, because nobody asked it. They want to be part of our future. I did not get asked that question. I dont think it is a worry. One question investors may ask in the future and not today is, look, maybe you are paying your people too much. Investors will be scrutinizing your business. What do you do when an investor comes to you and says, you need to reduce your costs and not pay people as much on a cost revenue basis . I will say, get alongside of me. I happen to be the largest owner and investor. What is in their interest is in my interest. I will say, im amply be aligned here. 67 of the stock is held by the employee base. When i talked to our own employees, the great part is more owners than partners are in place. If we have to put that confidence up here, i think we will be talking to our own owners. It will be much easier. Inc. You very much. Congratulations again. Stephanie, back to you. Thank you, cristina alesci. , a good day for him. If you were to invest in an ipo right now, what is your outlook on the Banking Industry . I think a lot of the worst of it is behind us. , you know, advocate when i was stroking my goatee and smoking my clothes cigarette, i was a big advocate for restoring some of the regulations that had been print had been removed prior to the collapse. There is a ton of money in an industry that can do well regardless of what is going on. But is there a ton of money left . Think about the big banks. Big banks are all about human capital. They are not making tvs or cars. The smartest, most talented people who want to get paid the big bucks, what jobs can they have at a bank right now . Paid 78oes that million while jamie dimon got paid 23. There is a ton of business. Full disclosure, we own think of america, and we have for couple of quarters because it is wildly undervalued compared to the rest of the market. Would you want to work at bank of america . Oh, no, i do want to work at any large bank. Why . I am not a corporate guy. I have been fired from prematch every corporate job ive had. But it makes sense with bank of america if they start to operate like a utility and dont have highflying traders who are willing to take big risks. If they dont have those talented people in the building anymore, those guys getting paid 5 million to 10 million to trade bonds . Here is something that has changed. You bumped into me having conversation. Chain us happen to mention that when he launched coast associates, there were 100 or 200 associates and everybody knew each other. That was back in the days of standard ocular and they were putting up 20 of 30 a year. Have wildly underperformed in the market. They can go out and capture a lot of fees. A lot of these big banks are the only game in town has the industry starts to shrink. Some of it is the hft technology, more productive and more efficient. I think a lot of people will want to get out of those big banks, but they cannot. We are going behind the scenes at a company that loves to hang out with each other, ride bikes together. Tumbler is now owned by a Silicon Valley giant, but the founder is holding on to it new york startup vibe. During the commercial, we were talking rob base, but now we are back talking tumbler. It was bought by yahoo last year for 1 billion, a record for a new york startup. It hosts over 180 million blogs with many hosts. It includes lady gaga, beyonce, and others. What does it look like beyond the screen . I went inside headquarters to find out. Check it out. Tumblr me to headquarters, home of one of new york citys hottest companies. Is out to prove it is not just a hip destination in the digital world. Its offices have colorful art the artthing, including is from people on tumbler. This is where i call my husband and say, dont forget to pick up the milk . Sure. It even has standing desks. It is supposedly healthier, but im too lazy to try it. Numbers growth has exploded since yahoo bought the social blogging site for 1. 1 billion last year. Tumblers user base is up. Time spent on the site is climbing. And get this, they are hiring five new people every week. Thets headcount swells, and so does its square footage, from 5000 four years ago to 50,000 today. We had people on the floor, sitting on the radiators, sitting on the windowsills cramped up. Then we branched out. X david is a High School Dropout who founded tumbler seven years ago when he was 20. Now he is a major player in the new york tech scene. As tumbler matures, he worries over it losing its startup nature. Go ae idea that i might week without crossing paths with someone working on a particular project is a scary notion. We work really hard to make sure we do not lose the sense of family. Made a new york pride is on display are out made in new york pride is on display throughout the office. Meanwhile, its owner is 2500 miles away. The power players are in california. Why not make the move . That question has always come up, like, hey, there are all these engineers out here. How much do you think can be moved out to the valley echo being to the valley . The morning razor, i cannot imagine doing it in any other bornof the world, being and raised here, i cannot imagine doing it in any other part of the world, let alone california. We actually use tumbler to archive all of our media appearances and quotes, so when clients come to do their quarterly audit, here it is. They are like, wow, it is the first time they saw it. This is fascinating and easy to do. You think people look at the blogosphere in the wrong way . Are sothink people antiquated, thinking blogs are for those who are selfindulgent , talking about all this nonsense . Or do you see it as a insightful, for authentic journalism . Going fromchanges of gatekeepers and from few to many, a new world of many to many and it is a very darwinian form of competition where the best blogs and the sharpest commentary rise to the top. Ton of freelance analysts who specialize in different areas that you never would have heard of 10 or 20 years ago. Now these guys and gals are getting a regular footprint. Are you skeptical about how some of these startups operate . They are extraordinary ideas from a technical standpoint, but youway they are being run, know, everyone is community, sharing of ideas, do you ever feel like dropping the hammer on these places . It depends on what the endgame is. If the game is just to get to a Critical Mass and ipo and get sold out, that is one thing. The startups are useful technology. Indeed. We will be back in just a moment. Coming up, back to the auto show. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and Stephanie Ruhle. Turns 50. Tang fords updated pony car is just one reason the automaker is sounding optimistic. We will talk to the chief operating officer. Is certainly my guilty pleasure. Why america loves the shows on bravo. Bravos president tells us what is next. Very strange bedfellows p ralph. Ad ralph nader and rich investors. Welcome back to Market Makers. T we have the next hour Erik Schatzker is out. Hes an extraordinary writer for bloomberg news. And hestic blog up there is sharing all of his special insight. Before we get to your favorite websites you are showing me during the commercial, its awesome here during commercials, time for us to get to the new s feed. A surprise firstquarter loss or bank of america. 6 billion against mortgage disputes. Shares down as much as 3 today. Wrist quarter firstquarter earnings plunge. That was blamed on a drop in fixed income and equity trading. There was some bright spots. There was a strong firstquarter if you look at it overall and strategic businesses. We made a billion dollars in pretax. That was at 14 return on equity. That will be one of the best return on equities in the history best returns on equity in the industry. A Strong Performance and our strategic businesses there. 21 . A lot of businesses performed extremely well. I do often rude for them. Nobody is blaming the weather. Construction fell in warmer parts of the country. A sign the recovery in Home Building still has not taken a firm hold. We will head back to the new york auto show. As carn high gear executives, collectors and enthusiasts like my friend, matt miller gather. Matt is seated with fords chief operating officer. Americanang what doesnt love it . Theyre talking about revamping this wellknown pony car. Were talking about the mustang for sure. We will focus on something a bit. Ifferent ear thanks so much for joining us. We talked about the mustang a lot with bill. I kind of want to focus on whats behind you. You sell a few of them around the globe. Absolutely. Were using the show to debut the fourdoor. It is the number one selling nameplate in the world. A lot of people dont know that. The whole world. The second year in a row, sales were up eight percent last year. Our biggest market these days for the focus is china. Sales were up 50 last year. Its an explosive number. Every year, people say, ford is grown so much in china and i always say, yeah, but they started out from a low bar. Now that part is getting higher and higher. How long can those numbers last . Weve had a very consistent plan there, which is focusing on customers and bringing upgrade products, expanding into more segments. We look at our performance, sales were up 50 . This First Quarter, sales are up 45 . A couple of years ago, we were trying to push to 2 . We are expanding in new segments and really pleased to see the response from chinese consumers. I was joe was talking about the bold moves that for banks. I want to talk about the up 150 and a second. What are the improvements and changes you made with the focus . You dont fix it if it aint broken. We are always innovating and moving forward with our products. With the new focus, it has a more sophisticated interior and more fuelefficient powertrains. More technology and we have made some great upgrades to the riding and handling. The chinese and americans and europeans are liking it. The market is starting to grow again overall. Gradually. Our performance is doing very well. Our share was up last year and up again in the first order. Even in markets like germany, very competitive market where we are taking on some very strong competitors, our share in the first order was up one point. We are doing well and on plan with our Transformation Plan in europe. Do you take it in china as well . You were not the number one player to begin with. We are taking share from others but you have some people who are entering the stage where they can afford a vehicle for the first time. To first have a chance by their vehicle, we are capturing over 50 of our sales from firsttime buyers. That bodes well for us as we move forward and as we expand into new segments because customers will have a good experience initially with their ford product and that hopefully with the next one. Then they will want to buy a mustang. Or an suv. We have a full lineup of suvs in china. If i lived in china, i would f150. An applicant for it is traditionally an american market. This new one gets 700 pounds lighter and 30 miles to the gallon . We have not talked about mileage yet, but it will be the most fuelefficient at series we have ever produced. We are very excited about it. A lot of groundbreaking technologies. How do we make it the toughest, smartest, most capable a f series we have ever produced . By listening to our customers. A lot of new technology and first in Industry Technology to make customers lives easier and more productive. We are excited to get that launch in the fourth quarter. Does jimmy fallon get the new f1 50 . Were giving them a 2014 with the fact that he will get i a 2015. Let me ask you about the issues facing the industry here. Your competitors are feeling the heat more the new. It looks like everyone will start recalling vehicles faster. How does it affect ford . I can only speak afford. Our commitment has always been to give our customers the highest quality vehicle. If we see issues, we act on them quickly. , we havet our record acted quickly when we have identified things and then addressed to them. I think that track record speaks for itself. Never there is an issue where recall in the industry, we have a routine process where we look dot has been announced we have the same part or design to make sure we dont have the same issue. We are also looking at ways to improve our processes. We are confident in the current methods we have to identify and what isdress the key to getting Something Like this up to he what is the key to getting this up to your level quickly echo y . Our whole Company Culture is for setting the right atmosphere and having the right processes in the company. Empower people to make decisions. That is what our process is all about and we are very confident in the methods we have today to service those issues. Is it possible to rule out the firestone disaster was pre it was a long time ago. Many changes have happened since then. Our track record shows that we have issues, we deal with them for our customers. Thanks so much for joining us. Thoset wait to get one of limitededition mustangs to test on the track. Know how i feel about the ford f1 50. I love it. But i like an oldschool one. Stephanie likes the old f1 50s. The new ones are much lighter. Matt miller from the new york auto show. When we come back, we are talking risky business. Finding Investment Opportunities in situations like ukraine. We will be speaking to the chief Investment Officer at ubs management. Rob is recipe for success. I know i needed up. Up. It we will ask the Networks President what is next. This is Market Makers on bloomberg tv and streaming on your phone, tablet and bloomberg. Com. Apple tv and now amazon fire tv. Welcome back to Market Makers. Im Stephanie Ruhle. Rising tensions between russia and the west may for some investors to head to the sidelines. Our next guest says the best Investment Opportunities often come about when uncertainty is at its highest. Alex friedman is the global chief Investment Officer at ubs will management. He oversees the Investment Strategy for 1. 5 trillion dollars in assets. What does that mean . The richest people in the world ask him what to do with their dough. What is the right strategy . They ask, but they dont always listen. The first strategy is related to this point about risk in the ukraine. When people are afraid, its usually a good time to invest. Years, we look at the emerging markets right now and valuations suggest its not a bad time to take some risk there. We were talking earlier about the general reluctance of a lot of the public to embrace this move off the march lows. It has been aided rally. Have you seen from that toptier investors . Do they think in terms of uncertainty and fear or are they looking 1020 years . We have the privilege of working with one of the richest billionaires in the world. If im a billionaire, dont i have money all over the place . You may. Some have many accounts and some have a smaller number. In our case, because we are the largest wealth manager in the world, that suggests that we are ofng to work with on many the largest fortunes in the world. Many of them are Still Holding to much cash. Our overall book is 2530 cap. That theme fear momandpop investor with 100,000 aire caring too much cash and billionaires make the same mistake. Hard to generalize, but yes, probably too much. Were heading into a relatively likely inflationary path and cash does not serve you well. Are investors taking money out of . Tech is an interesting one. Here has been a clear rotation 75 of techies Enterprise Spending. Those are valuations that have people a little scared. Are people scared . To what extent . It seems like more companies are sapp. The same as what do we think cap access is going to pick up this year . I have a strong conviction that it will for a number of reasons. See that stock price appreciate. Theyre going to put money to work when it picks up, Enterprise Spending i have a pair conviction fair conviction that the tech story is overblown. Microsoftsseen the , sis goes, ibms and hps doing well whereas netflix and tesla are down 25 . The high flyers last year, look at them this year. It is so nuanced and compensated. Theyre the ones doing really l you would become an excellent tv anchor. Are. U know what they whenthat are vulnerable Interest Rate start to rise in the unite states because the hot money flows back. Theyre the ones who have done the best. Because the 10 years come down a bit. Their currencies depreciated quite a bit. When we saw the 10 year back over three percent, money that was seeking higher returns on the fixed income side, but those higher risk countries iare wee u. S. Seeing the money going back or are the economies going to heal . Their currencies depreciated, so they became more competitively on a shortterm basis. So towere temporary speak. There is no structural reform to deal with their deficit. If you believe in a Global Recovery or that the u. S. Is recovering and that u. S. Is also recovering you believe europe is also recovering . It is slower, but on the right path. Not freefalling like it was before. Is growing at one percent. Export Companies Like mexico and taiwan should be doing well. When you talk about hot money flowing, how do you define hot money . Banks in the unite states and europe send fixed income yields way down and do that to the equity markets in the the emerging markets. Any kind of yield is better than what youre getting in the u. S. When Interest Rates are seen as rising back to the unite states, that hot money that investors were sending to the emerging markets comes flowing back on the fixed income side to treasuries and german funds, etc. Do you see any bubbles . I dont own real estate in london, but i imagine that feels a bit like a bubble. Question is unless you are russian oligarch. I think they are putting money back to russia and they are attempting to diversify with the challenges on the ruble. Tensions have escalated in the ukraine. I dont think the u. S. Equity market is in a bubble. We will not see multiple expansions. When we talk to the big guys about investing in places like ukraine and places where there is questionable regulation and they are not sure of the rule of law, many investors say, unless we really understand the rule of law and believe it can be enforced, we dont touch it. You agree . Its a great question. I would come back to this very simple concept. Why would you theirve money for 30 years . Why do people get married . In marriage, there is lots of in the case of a 30 year bet for an investor, we have visibility. We have a lot of confidence in the rule of law. That can be said for the u. K. And some of your. Some, yes, for sure, with real risks. In the ukraine and russia, who knows . What is the biggest risk in japan for you . A run on the bond market in japan. If you have some kind of inflation but no underlying growth, you know how much debt they hold. Its not clear to me that they could actually sustain their debt load. Thank you so much for joining us today. We have to get them from so far away. Nhouse come out extreme coming up, bravo has made a h realityit series. Now they are making a big bet on scripted tv. We will be speaking with the president. Stay with us. Welcome back to Market Makers. We are approaching 26 past the hour. Its time for bloomberg to take you on the markets. Green across the board. S p down. S p in the nasdaq the world is not coming to an end. The thought process that we bring is, we dont know what the future holds you dont need a process. Just to on the markets. Markets, we are underweight bonds. We have so much fixed income because we dont know migh whats going to happen. For you, you are saying, you dont understand the rationale behind buying ipo . You can tell me for how long you want to hold that. Whether you are trading at we have to take a break. When we are back, we are talking bravo. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and Stephanie Ruhle. Welcome back to Market Makers. Ims death a rule. My partner is out this week. Today, we have Bloomberg View columnist barry helping out. There is another be i love in tv. The Bravo Network may have chosen an appropriate name after eight consecutive years of growth in viewership. Lovemen who dont admit it bravo tv. Now they will unveil 15 new shows, which include to scripted series. For a network that has been dominated by reality tv franchises like the real housewives. Joining us now with behind the scenes look at whats to come is the Networks President. Congratulations. Thank you. Many people say bravo came out of nowhere. Us whats inell the special sauce. It did not come out of nowhere. This has been an evolution for years. The real start of that was with queer eye in 2003. Since then, we have been focused on the very specific audience. We are an anomaly in that Many Networks are categorized by subject matter. Ourre differentiated by audience, which is highly educated, upscale, engaged come influential we target that specific audience and we organize our content around lifestyle categories like food, fashion, design, pop culture. Is it a surprise that we now hoo getting around that with bobby brown, Sarah Jessica parker it seems like a move bravo shouldve made. We really have. We have been doing that for years. To me, thats a natural extension of the internet channel. Theyre going back to a throwback to traditional tv in many ways. What are you seeing in terms of the real estate shows . One of the things we noted in the runoff, flip this house, crazy, these things went fated for a while and now youre saying to see them come back. You track the market . Were very conscious we have had Great Success with a franchise called Million Dollar listing. 1 millionngs in new york does not get you that much. More than anything, people want to see inside other peoples homes. They want to see what we call real estate. Pornat we call real estate. You also follow the drama of these realtors and whether they will make the sale. We put people with personality on tv and you are following them have you figured out how to brand them . Characters,at the they have created brands for themselves. Famous actors could not do that. How do they do it . They connect with the audience. They are real people, not playing roles. Theyre playing themselves. I tak they go through the same life experiences. People think they are their friends and they want they believe in the product. Nenemight be the biggest fan out there. Why take a turn and go scripted tv . They were giving you the same romantic comedies that i did not want to see. We are a top 10 network and we feel like ever said vacation is in port and. There are certain things we can do with unscripted shows. With scripted, we will hit a broader audience. We Just Announced we are doing a half hour scripted comedy about zillas. We have a onehour drama called girlfriends guide to divorce. We think that is going to really resonate with our real housewife fans and top chef fans in a different way. You mentioned the network really gained popularity with clear i, which was this groundbreaking show with queer eye. Why did that plan out so quickly and why did we not see the stars from that show on other shows . We have seen that. Ted moved onto top chef. Much of theas very moment. The world has changed and its funny when you look at those episodes now, people were not images of gayreal people on the network. It was only 11 years ago. It was just a different world. Another network that you wont name. One of the reasons bravo is unique, when you watch andys show, he brings on characters from all different networks. All different john us. Is that what you are trying to do . Say i will break down these barriers. Were very conscious of whats going on in pop culture. Tvhow about people watching called the peoples couch we show different families and different couples literally watching tv. They watch game of thrones and then i dont want to know what people are doing on the couches after game of thrones. What is Digital Strategy . Digital is important for us. The technophiles want to engage. We try to provide as much Second Screen activities so they can read with a character during the show or after a show and they and vote. Y engage in vot they want to have a lean forward experience. What is your viewership when you have a marathon watching . What you get from six straight hours . The marathon strategy has worked for us for years. It that was the start of the television experience where you hours. You have seen that carry over into netflix and the way people use their dvr. Nothing beats a rainy saturday with a real housewives marathon. Do agree with that . I have apple tv. We binge watch other stuff. Congratulations. Thank you so much. Peter cook sat down with consumer advocate ralph nader to talk about his latest campaign. You wont believe who yo he is teaming up with. Welcome back. Hedge Fund Investors who bet big on fannie and freddie may have a new ally. Its not somebody would expect. Ralph nader the consumer advocate is siding with investors like bill ackman who say the federal government cannot wind down the Housing Giants without paying off its shareholders. Spoke to mr. Nader about the unusual alliance. Siding with wall street thats the strangest bedfellows ive ever heard. Ralph nadery not style. Hes usually taking on wall streets biggest players. He says this case is different. He is a longtime shareholder in the Mortgage Finance giant eared t. Crease of bill ackma he agrees with bill ackman. That shareholders have been used and abused. They were thrown into a conservatorship in 2008. Right after the chairman of the Federal Reserve assured the shareholders of fannie and freddie that the companies were rocksolid. Took weeks later, they over conservatorship and the stocks plunged. They deceived the shareholders. Corporations did that, the sac would d get after them. This needs to be cricket. Along with much stronger regulation of fannie and freddie and enforcement taxpayers buildout these companies. Why shouldnt they be the ones who benefit from the process . Get first call. They have paid back more than they have supported fannie and freddie. The profits of fannie and freddie are huge. The taxpayers have been paid back. All the profits are going to keep the deficit down. The shareholders are still in limbo. That is not there. If the taxpayers and that step in, there had been no value whatsoever. Once again, why should those shareholders were there before the crisis happened that happened to citigroup shareholders and aig shareholders. The u. S. Government bailed them out with billions of dollars. They allowed their shareholders to survive and have a chance to recover. Just to survive and have a chance to recover instead of being vaporized in part due to mismanagement by the u. S. Government in straight of deception as to the state of fannie and freddie in the summer of 2008. In an usual situation people might look at your situation differently from those Hedge Fund Guys who come in after the crisis. It is hard to make a distinction between the longterm shareholders and the daytraders. What is important is that fannie and freddie are making a lot of money and releasing a letter today to the regulator of fannie and freddie to crack down s thatessive feed they are charging that is leading to a. 5 increase the system, if its unraveled the way so much regulation is proposing, could lead to utter chaos. What should happen to fannie and freddie Going Forward . These proposals up on the hill would wind them down and replace them. Thats true. Becausegainst that fannie and freddie could be regulated and for philip many of the goals of the pending legislation without unraveling the whole process and whining fannie and freddie down. Winding fannie and freddie down. They want to preserve it because of stability and they would say yes. We need to be careful that we dont create another layer of chaos that can come from imprudent legislation. Everything that is good about the bills in congress could be fannie anday to freddie. How confident that you will get some sort of dispensation . \ the legislation leaves the question open. Im pretty confident. The fairness argument is very powerful. Now you have some hedge funds and real heavyweights to advance your holder interest. Im glad they are there. There are thousands of people who put these shares in a lockbox for their kidseducation. They deserve to recover some of their equity. My question is, what is the alternative to fannie and freddie ech . What can we replace the system with . Since the great depression. Is there a legitimate alternative in the u. S. . There are several proposals on the hill right now. A big one getting first consideration on april 29 that would replace fannie and freddie would still have a Government Role there. But ralph nader and a lot of others believe is that you can maintain fannie and freddie and get rid of the bad things they crisis. Re the financial you can have the good of fannie and freddie without the bad. That is a much safer way to go to an sure that Americans Still have access to a 30 year mortgage and make sure that the Housing Mission of fannie and freddie continues. In d. C. And a lot people who dont believe you can get rid of fannie and freddie without losing a big chunk of the Housing Finance business Going Forward. Do you believe all of the decisionmakers are truly in a position where they want to listen to both sides . Are they saying i dont want to do anything under any circumstances that will make the rich got richer . There are two Different Things here. The larger reform effort and the treatment of the shareholders. Two very different issues. The debate over the policy issues will take a long time. It will not get done this year. The issue of how to treat the shareholders, courts are going to have to resolve that right now. How tots right now about treat this. Not everybody is convinced the government acted appropriately. That is one reason ralph nader is joining with these hedge their and using lawyers to his advantage. Peter cook, thanks. You can catch that whole interview on bloomberg. Com. Market makers will be back in just a moment. Stay with us. Thatll be it for us today. I love having you here. What is your final thought . We have been talking about psychology and overvaluation. Imagine what happens if just a little bit goes right. And little hiring, if the company gets a little better. Stocks go from fully valid to a little bit cheapened. That is what we are looking at as an unknown or an underestimated possibility. What if that doesnt happen . Happen, yousnt have stocks that are fully valued and no alternative in terms of Asset Classes like bonds or commodities. You have to look around the and europe and emerging markets. We are big fans of going by valuation. Rather than picking the spot where we are right or wrong, we will buy the whole thing with an index. Isto blackrock to pick up i single decision etf. Is there a single asset class you stay away from . Interestrate bonds. The alternative to interestrate bonds are things like corporate they are doing really well. There are a lot of places you can go outside of the treasury we have to and all that our audience knows. Tomorrow, for all you fashion victims, men have become the new women. We have the publisher of gq. Too bad eric wont be here. We will talk about the lifestyle of being a super hot guy. It is 56 past the hour. Bloomberg television is taking on the markets. Olivia sterns has more. Straight intog derivatives right now because it is time for todays options insight. Joining me is a partner at baycrest. Looking at the broader markets they are in step. Ive noticed this interesting convergence between volatility on the s p and nasdaq. What is going on . , that isere noticing not making it hot. What will happen in ukraine it is down again today. Stays in the front angle which means the number features are higher than the stock prices. That theo indicating nasdaq made a new 52week high elastic. Last week. Ct the current volatility is high and you will see the product move higher. The Fund Managers are better off at individualdual sectors. Bloomberg had a great story about options traders they were short 1000 contracts last month. The lowest level since 2011. Why is that . Case of people trying to get ahead and despite what is going to happen. At the same time, there is no indication as such. No indication that these sustained low moves in the market are going to change and turn into massive moves in the stock market. The current levels i know you have a trade on Consumer Discretionary break it down for us. Xly, i wanted to buy it in june. It cost me about one dollar. The best case scenario, i get a nice 41 payout. The good thing about this, if versus xlp,xly the performance has turned negative and it has broken to the downside. We will be back again on the markets in 30. Welcome to lunch money, where we tied together the best stories and businesses. We are doing an express version because janet yellen is set to speak at about 15 minutes at the Economic Club of new york. Well have live coverage right here on bloomberg television. Also on our live event channel tv. Loomberg. Com that happens in about 15 minutes. In the interim, we talk about what everyone is talking about today the new york auto show. The biggest attraction was not for wheels on th