Transcripts For BLOOMBERG Market Makers 20141029

May be its biggest challenge yet raising money to fight ebola. Welcome to Market Makers. I am Erik Schatzker here at bank ofattan america were minutes from now, i will be interviewing the ceo and recently named chairman of the bank, brian moynihan. I dont need to tell you what is bank has been through. 70 billion is what bank of america has paid as a result of its role in the mortgage meltdown of the financial crisis that followed. Today, there is light at the end of the tunnel. It was a three dollar stock and now it is a 16 stock perhaps on of thatto 20 and a lot depends on the outlook for Interest Rates. This is fed day and brian and i will talk about the outlook for Interest Rates and the yield curve and whether the market. Perhaps as being too complacent we will talk about Student Loans and auto debt and europe. We will talk about apple pay. Brian moynihan will be here in about 10 minutes from now. You clearly are headed for a big morning. Minutes, mysix missing notebook and my blackberry have been retrieved. While the markets may be mixed, its a big up moment for me. Arestors and facebook humbling shares this morning after the one and only Mark Zuckerberg announced Revenue Growth will slow this quarter and he is planning a big r d push next year that will raise costs. Ceo Sheryl Sandberg told analysts that she and mr. Zuckerberg are not focused on shortterm profits. Investments were making an ad tech are longterm. These are large and strategic investments. The payouts will take time but we think they provide a Necessary Foundation for the Advertising Industry to make the shift to mobile and for facebook longterm. That overshadowed what was a Strong Quarter for facebook including the announcement that mobile ads are making a whopping 66 of their total ad revenue. For more on facebook, let me bring in ethan kurzweil. He led the early investment in twitch. The us get our head about around his big r d investment. Isnt that facebook thinking longterm . Thats how i think about it. Thanks for having me. I think they are doing the right things and making the right moves to invest in the future or in Silicon Valley and startups are poaching the best people and they are trying to get ahead of that. They are buying Innovative Companies and placing their bets were they think the market is moving in terms of peoples attention. That changes fast and they are tying to stay ahead. How do you consider the whats cap purchase at this point . Its too early to tell. They are making a massive that on the future. Mobile is a big part of the future and they have remade their business around mobile. One thing is people stay in touch on mobile. They want to get that beachhead, that network of very engaged users using the product every day. If they are doing and in 10 years, it will look brilliant and if they abandon it for the newest flavor of the moment, it will look stupid we will see. From an investor standpoint, where do you want to see facebook putting this money . If you say youre glad they are investing, what we want them to invest in . What you are betting on is whats in Mark Zuckerbergs head as far as the future. Isis saying he thinks oculus important and people will spend more time in these immersive Virtual Reality experiences. He is also saying mobile and the various things that happen on mobile. They have released four or five different mobile apps. I trustn investor, zuckerberg to make those calls is what people will do. He has been right so far. That is the bet you are making. Does it surprise you that they were able to amp up their mobile ad revenues are quickly . To the ipo, mobile was the achilles heel and now is leading the charge. Absolutely its a surprise. They remade the whole company in three years. The big risk for facebook was there entire business was on a platform that did not have the same growth is another one. They had to reinvent themselves from the ad sales of the business to the engineering and the culture they had. They have largely done that. Can they do it again . Who knows . Its hard to do it once. We will see. Is a concern that the active Facebook User is skewing older and theyre missing that Younger Generation who have the most Growth Potential . Yes, thats what they r d spending is about to spend and capture that newer audience. Its about launching new apps and buying oculus. That is why they are less profitable for the time being. They want to continue to capture the newer audience. Are they dead in the water . Not by any stretch. They have plans to remake themselves again and again. We heard from dick costolo on twitter and he believes twitter can be bigger as far as user than facebook. Is that a possibility . Anything is a possibility. Nobody would have been facebook to be as big as it is even three years ago. I just continue to explode get to one billion active users. Twitter can do it but i think what we have seen is its a social network with a narrower appeal than facebook. Twitter happened with is different than facebook in that they have grown in fits and starts. Events have happened and they have appealed to new audiences and have had lots of growth and they have slowed down. Can they figure out their next act . They can but it will be harder for them. Its certainly possible. They have had fits and starts and facebook truly is a Different Company than it was five years ago. Twitter seems like its the same trick. I think thats right. Been quite as innovative in terms of rolling out new products and appealing to new things. They have been more constrained at that. I think dick costolo made more moves to get more innovative and they have cash to make acquisitions and are thinking about the future. Its too early to tell. The future is yet to be written but as you said, its a more challenging opposition for them. From your perspective, does facebook or twitter need to continue to grow and have more users . When i look at the numbers, i think its extraordinary where it is. Why would they need to grow . As anm my Vantage Point earlystage startup investor, i think these are Remarkable Properties that have done Amazing Things and have tons of people addicted to their content every day. It is truly phenomenal. The market has expectations for growth. If they want to continue to grow and be the google of this decade in terms of their applicability, theyve got to capture new users and reinvent themselves because users will move to newer and newer roddick and platforms. Look at snapchat that is taking off. Look at twitch coming out of nowhere to get to 60 million users so people do new things and they have to stay ahead of that area that is something that should be on their mind. Is it too soon to a value it oculus is an accusation as an acquisition . Thats, they are betting people will spend more and more of their time on a platform in Virtual Reality. We will know in a decade or so about whether that is in fact true and whether oculus is the platform that enables it. Twitch right and you know facebook and twitter, what is the next big thing you got your eye on . Im looking at a lot of startups around online video. Twitch was one of the first to capitalize on that trend. Youtube was before it and i think there will be many more things that online video enables for the future. We are now spending more time with video than television. A lot of that is mobile and you can do fundamentally new things with the media given where peoples eyeballs are. Thats what im looking at next. Thank you so much for joining us this morning. He got up very early for us. Up, Erik Schatzker is at bank of america where he is sitting down with seo and newly named chairman brian moynihan. That is a bloomberg exclusive. Welcome back to Market Makers. These are the top Global Business doors of the morning french Drugmaker Sanofi has fired its ceo. I dont know how to say his last name. He ran the company were six years and created tension with the board and french politicians by shifting the focus to the u. S. He also overhauled the companies struggling Research Operation and directors say he failed to execute the companys strategy. Will run santa fe until a new ceo is found. Nasa has started investigating last nights attack killer disaster. An unmanned rocket blew up seconds after the launch from the nasa facility on virginias eastern shore. The rocket was owned by orderable Orbital Sciences corporation was carrying supplies to the International Space station. We lost hardware with this flight. We lost quite a bit of research hardware which we will work to do with the different providers, to recover and get them opportunities back to space station. In addition to that, we lost some spares we will have to of course of replace. The rockets have been making the deliveries from nasa since the Space Shuttle was retired back in 2011. We will hear from the fed policymakers in a few hours from now. Janet yellen and crew will recommend their bond buying program. It is also forecast the fed will Interest Rates low for a considerable time. Early this morning, Nouriel Roubini told betty liu that the fed is likely to move later on Interest Rates, not sooner. The worst thing the fed could do is to stop quantitative easing. It will lose its credibility. We would have a hard landing. Maybe the decision in june come in july or september. He also said the Global Economy is not fragile territory. Erik go to the main stage, schatzker is in midtown manhattan at bank of americas u. S. Headquarters sitting with the new chairman and ceo of bank of america, brian moynihan. Thank you. I am delighted to be here with ryan moynahan. Congratulations, you just became chairman of the spanking were already the ceo of course. We have a lot to cover in this conversations or hope you dont mind if i begin with the present. It has been awfully challenging month, i dont need to tell you. What do you expect in the months to come . If you think about financial markets, they will reflect the economy. What we see in the economy this month when you see statistics, its a strong as it was last month or stronger and stronger than it was a couple of months ago. You hope that comes through and america continues to make progress. If you look around the world, other places are not growing as fast as we would want them to. Strongica, you see its which should pay forward. Competence oftain people spending and gas prices coming down those are good for the american economy. As you go forward, that will reflect in the economy. What about volatility because that scared people . You just have a convergence of events with a concern about many things and when people get concerned, they start moving and prices start moving around. Will we see more of it . You. Always see more of it based on the news. We were also so low in volatility that activity is causing it to move quite significantly but there are adjustments in equity or bond prices but a lot of that has retraced. The 10 year when way down and came back up but if you look at the fundamentals, it has stabilized. What affect did doddfrank have on bank of americas ability to trade during that market volatility . The question is how much liquidity support you can get in marketmaking. It is more and the liquid stuff and less and the less liquid stuff. Would not attribute it to doddfrank. I think the Market Structure has changed. I think that is something we have to keep working on to improve the Market Going Forward is to conduct is to continue to have good liquidity. Our job is to provide liquidity in markets as an agent between the principles. Everybody knows thats the job of our industry. Getting that pendulum swinging back and forth is something we will be working on for a long time. Can you say yet whether the capital restrictions are exacerbating volatility because you cannot provide liquidity in certain markets the way you once were able to . You cannot say trace that in a linear way. These fears about doddfrank and liquidity and what is happening in Corporate Credit may be overblown . Like anything, you have to wait until you get through. You cannot take the last two days which have been different from two days before that. Overall, the amount leveraged in the system is down which is good but that will have another affect which will the it will cause less i timothy and less liquidity. Figuring this out will take time but is the responsible Leader People like ourselves and my colleagues and the experts we have to figure out how to get this right to avoid the excesses before we provide liquidity. That is still a work in progress. A selloff was triggered in part by concerns over european growth. The data is terrible. How much you worry about europe . The data is there and you can see it and its real and people are feeling it and you listen to customers and clients and they see it. It was not growing very fast but slowing down. This seems like were working our way backwards. Bythe adjustments were made the imf and others of the growth rates outside the United States, the United States came up. The linkage between the United States and a couple of key economies and what will happen in the world as your he comes less of a contributor, the u. S. Becomes more and if we do not grow, you will more you will have more risk worldwide. That being the case, what is your strategy in europe . It has always been the same Global Corporate Investment Banking, they companies so we have had a pretty good year in europe compared to the prior years because the activity picked up helping our clients restructure their portfolios. Now is the time to be committing more capital to europe . Yes, inactivity and people we have several thousand people in london working those markets and people in various countries. It is not taking a long lending risk but more providing markets and capabilities but it does not change. What he worry about the most . If you do what we do, we transmit the economy from consumers borrowing to consumers giving us deposits and companies darling from markets. The risk is lending. We are always going to reflect the economy. Economy doesf the not row, how do you manage the company and a low growth environment. Thats what we have been for the last five years and thats what we are prepared for. The problem with rates rising is rates are rising, its why are they rising. Is it because the economy is growing . That would be a great thing. If the economy is not growing ont, the focus will be simplifying the institution and taking out the excess cost. It has to be relentless to get behind this. What do you make of the current expect patience for fed policy . The fed is meeting we will hear what they have to say in his policy announcement and about four hours time. Too complacent about the trajectory for Interest Rates and bond yields . They move it around a little bit. Guessing what the fed doing four hours is not a good thing. Thats not what im doing. Exited the buying and made that clear and have been very transparent. Their concern is the health of the u. S. And the labor market. You can think of that as more people earning more money. You dont start changing data drastically, just incrementally. The market has rates that in a fit of move until the end of next year and that is people guessing about when it happens. In the scheme of five years, it will be a low rate environment mostly because they low growth environment. These questions matter because you have to decide how to position the bank with Interest Rates. If you are for a rising rate environment or a very positive slow yield curve environment, that says something. If you are not positioning yourself that way, that says Something Else. We inherently are positioned for rates to rise. If you think about one of our major liabilities, its no cost deposits that dont go below zero. Youre sort of stuck in this mode that the floor has been there and you have been crunched and people look at it this way. Its not that we position ourselves its that when rates rise, the accounts that do not their interest and start to produce more revenue. That is important to our company. It has been six years of the situation. This is the toughest environment for banks to make money. We pay six basis points for all deposits. It does not go lower because there is not much left. Interestfree. Its not that we position ourselves, your position by reality. Will be easier to make money next year . We will make more money in the environment but the question is when that happens. Expectation is that rates will rise next year. You dont run this company for the sixmonth difference in that estimate. You run the company for the twohundred 30 years we have been in business lets talk about risks are it are auto loans or Student Loans the next subprime . Where we have been in the company is coming out of the crisis, we stopped engaging in institutional lending. The sheer amounts of Student Loans is not that big. It will be tougher individual are worse to get that restructured. There are policy discussions about how you handle that but that is not much. Automobile lending, we stay in the super prime space. You also see whats happening elsewhere. And you arerheated seeing the regulators reflect on that and youll probably see the pendulum swing back and forth. What about Corporate Credit . Regulators talk about it and i hear from the people i talked to in private equity that the banks are becoming very, very permissive with terms of the loans and financing. They talk about bank of america. Are things getting too easy . If you are one of our lenders, they would not say that. Coming up on they are in a competitive environment. The issue is less about what the banks are doing but you think about leverage. We have all stuck to the guidance that is given. Regulators realize that they have to get everyone to stick to their guns. Somebody was talking about the phenomenon. Loans, they talked about actually making the loans. Youre not worried about Corporate Credit . On not worried about that. Leverage is always the issue. Nowsaw that move out and has to settle back down on thats what the market is bringing back. The disciplines returning, its returning in the sense that if leverage high, it has been selected in industries across the board. People are trying to maintain discipline but its very competitive on yields. They have spread the middle market as tight as its been. Conditions are fine but the price you pay is low. Have is that involve . People say we are in the late innings of a credit cycle . What does that mean . You are fighting about what rate you get hate, not about the structure of the credit. The discipline has been holding on the middle market. Corporate credit will not be the problem it was. We are at alltime lows. In terms of credit risk so it will come back up and people will make great fanfare about it. In the context of what we call we have veryevels, low credit costs in the industry and it will have to come back up. That will afford will reflect when the economy comes back. Whitmore to talk about with brian monahan. I am at the new york city headquarters of bank of america. I am here with the chairman and ceo brian moynihan. You have shrunk this bank a lot since you became the ceo in january of 2010 in terms of assets and expenses and jobs. Is the shrinking done . Its largely done in the sense of what people from the outside would say paring back lines of businesses we got rid of but we constantly work on our effectiveness and that is a constant effort. Its been a low growth environment and we will have to continue to be investing in the business. We invested 3 billion dollars in technology and more sales people and pay our people more. We have to take out expenses to make affordable money youre a big company like ours, the amount of Revenue Growth you can get is a fight. The question is why we shrink it. From 20032009, there were six or seven large deals and we have 230,000 people today. We added 300,000 people. We had to reposition all these companies are each Company Became part of the whole. We have our eight lines of businesses and all of her businesses in markets. We simplified that about being customer driven. We got a million two point 7 trillion Balance Sheet and we trend that. 100 early and dollars liquidity and now we have 400 billion. Is for the core Customer Base and everything that was not directly for them, we pared away. You know that the litigation overhang has clout of all of clouded all of that for customers. Are you out from underneath the overhang . Yes, if you look at the different components of liability in the settlements. Most of that is behind you . Yes, but there is the question of thats over now we can concentrate and run the company but we were running the company all along. In the timeframe of that, we and from probably 5 million banking customers to 16. 5. We went from probably 50 billion in assets to 100 billion. Earnings in the Wealth Management are up to leading margins and all that was going on. And thisl that out comes through when you look at our numbers, use see these four lines of business make money. Then you have one Business Holding back, that is now largely gone. Tophat is your priority . Is it book value or 20 stock . My top priority is to run this company to the benefit of the customers in the shareholders. We have a lot of capabilities and every would day we bring those cap abilities to every customer we can. 600,000 credit cards per quarter to 1 million go into our core customers on the use the more. That is better economics for us and better customer experience. A commercial business and the Investment Banking business and the trading business its about doing what we do best. We are in the top market position and everything we do. Are you prepared for the next hack attack . I hope so, we work on it every day and spent hundreds of millions of dollars. How money hundreds of millions . Widow put a figure out. We dont put a figure out. It has probably doubled or tripled over the last five years. Will it happen again five years from now . I dont know. We will spend whatever it takes. This is the number one issue to protect yourself. The doubles at the doubles or triples, that means the need is there. It is a lot of good work that our team does on this every day on the do a great job. Does not mean there is not a lot of good work ahead of us. They go to the heart of what we do which is to move money for people and protect their information and drive and its a complex issue because it requires lots of people to coordinate and drive together. And theour industry regulatory framework, everybody understands this is the issue at the moment. In the old days, people walked us and thiss to rob is a different way of doing it. We have to keep our guard up and work hard at it. There is an enormous opportunity for Banks Like Bank of america and mobile banking and payment processing. Bank of america has been among the leaders in mobile banking. What happened with apple pay . It is out there working. There was a hiccup there. There was a Technical Glitch on like of 1000 transactions. We had 150,000 people sign up in the first 24 hours. The numbers are staggering. What are we what is the industry doing . Effectively, what youre doing is takingapability around electronic wallet. You have the convenience now which is more secure. What is better for a customer . The information with the customer stays with the customer and the information about what they bought goes to the transaction. You keep those things separate which is tokenization. It is more secure. The customers keep their own data. Who ultimately will be the met fisher this move to mobile banking . Will it be the banks or the merchants or the backend processors or is the value all going to accrue to apple . Itll be the customers. You believe that . Is not whation mobile payments, its how people shop. Its how people will behave. Involvedint of being from the perspective of it and shall institutions to make money. The payments could be made some white. To move a lot of money cash around for our Cash Management customers and for consumers. We have a couple of Million Dollars per day going out of atms. If its more electronic it will be more efficient and safe area the customer benefits because they are getting a can because they dont get. If you think about depositing checks and what has gone on two years ago in august, you cannot deposit a check for your mobile phone but now you can. The atms are over half of the deposits. It was only 25 seven years ago. The customers dont have to go anywhere. Do the customers see this . They listen to you talk they think to themselves that bank of america is doing things for me that i like. Brian monahan sounds like a customer oriented person. Hearingn, do we keep bashing a big thanks from people like the old dudley, president of the new york fed . Last week he was at it again saying that the Corporate Culture and wall street is still roque and antithreatened to downsized big banks of is not fixed. What is he talking about . Is the culture still broken . Our customer scores arent as strong as before the crisis. Are as strong as before the crisis. All the criticism will go on thats an issue that will be a dialogue until everybody feels that what happened in 2007 and after cant happen again. That is the key and thats where capital liquidity and simplifying companies we have been talking about this for five years. A lot of activity is taking place. Can we continue to improve our ture so you will not have so you dont know the culture but people will behave properly for the customer and shareholder and can you make sure their compensation practice is good. We have adopted all the Different Things and we continue to work to improve it. I feel very good about the culture in this company i feel we have made great improvements. There is 200 word he thousand people out there who have to make up and ourple get Management Team has to make sure every one of them has everything to do to make your Company Product that is a lot of work area thats what we continue to strive for. We have to be striving for protection until excellence comes along. The european banks have started to pay people with the socalled performance bonds, effective compensation that can be clawed back in the event of of not making capital gains. Do you think that would work at bank of america . We have had clawbacks or four or five years. Specifically this bond i get all my compensation paid in stock. I have to hold of her share i have until two years after i retire. My alignment of interest is absolutely 100 with shareholders. Our employees in the 401 k alone own six or seven percent of our company and our the biggest shareholder. Top of that, the shares they have outside of that so employees over a lot of this company so they are interested in making sure does a great job for customers and shareholders. I think the alignment is there and the practices in the u. S. Going back to the pay czar we forget what we went through. Theres constant debate about what the next practice will be establish trying to duration of compensation with the duration of risk making and we have been matching that. You have been through a lot already, perhaps twice as much as youre almost five years and this job would suggest. How much longer would you like to do it . Its the best job in the world. When i get up in the morning and think about what we can do for customers and see the people in the town we had to do that, there is no energy lost. This is fabulous stuff. You could do in for another five years . I say i could do this for a long time and i am 55, what else would i want to do . This is a great job of as long as they do a good job, i can do it. When i dont think its fresh and good i could be gone tomorrow because i work at the discretion of the board. Many people predicted that you would not last. Do you find yourself surprised that you did . No, because i never believed when they said that. When they say im doing a good job, i know i can improve every day and i know the company can improve. Youre like the baseball player who does not read the sports pages. I doubt because we have to talk to people in its most important. Our customers and teammates and make sure they know what we are doing and people have it different interpretations. The key is to drive the Company Along its basic foundation of the values and principles. If we do that, it will take care of itself. My obligation is to improve the place. My Management Team is the same thing, its not me, its the team, 230,000 people this is a 200yearold company. We have been doing this since john quincy adams. Job is to move this ball and make this company even greater. Thats the goal. It will go on after us and it will be terrific. You can never get too wound up about this because you are here for a moment. This is here for centuries. I thank you very much and great talking to you. He is the chairman and chief executive officer of the bank of america. Hes got he says hes got the best job in the world and has been through a lot and perhaps looking forward to brighter days ahead. I will send it back to you. I appreciate just before halloween talking about the Addams Family but the baseball player who does not really sports pages, we know that does not mean he is a bank ceo who does not watch bank bloomberg. Im positive brian does nothing but watch Market Makers. You got that right. Thank you so much, great interview, get back here because weve got another hour of the show ahead. For now, i will take you to another big story its a spectacular failure for nasa and its commercial Spaceflight Program just seconds after launch from virginia. An unmanned rocket carrying supplies to the International Space station burst into a huge fireball. The rocket was owned by Orbital Sciences corporation. Nasa has used private contractors to deliver supplies since retiring the Space Shuttle in 2011. At me bring in lori garver, former nasa administrator and now general manager of the air Line Pilots Association. What do you make of this explosion and are you blaming it on the fact that it was a private corporation, not run by nasa . Of course, it reconfirms why we say Rocket Science is difficult. And they usually get it right but it doesnt mean its easy. We have been using the private sector to launch satellites for decades. The fact that nasa is using the private sector in this way to launch cargo to the station is fully appropriate. I dont think its questioned by this accident. There will be an investigation and they will determine if the vehicle can fly again but nasa has a backup. They contracts specifically with two entities. The other one is spacex scheduled to launch in under one month. As far as Safety Standards, do you believe the private companies are beholden to shareholders first and have lower Safety Standards the nasa . I do not. I think the private sector as we have seen all kinds of markets have a very strong incentive to perform. Orbital science will suffer more than nasa by this loss. Nasa has put in place this robust system that i mentioned with another backup provider. This is something that happens because there is Rocket Science involved. I think orbital science will be able to determine what happened and whether they can continue based on how serious that is. There are a limited number of flights that nasa has contracted for and this is an engine from russia that they are not developing anymore. It was built in the 1970s. This is a complicated recovery but i do not blame the fact that they were contracting with the private sector for it. Commercials space is here to stay in my view. Will nasa be able to get back into space if they were not reliant on private companies . Nasa has been reliant on private companies. The Space Shuttle was built by private companies. Even the Space Shuttle had punished safety record. Had a blemished safety record. Government management does not ensure full success. We believe this is a program that is robust enough to continue and nasa will get back to the space station. The russian vehicles launched this morning and another cargo delivery to the station that can suppliesriments on that they need that were lost on this bagel. We lost things on this vehicle that will take time to replace. Was some spares but thatately, it is something nasa will have everything they need. Do you believe we are ready for manned flights from these private companies . Company and this vehicle never intended to have human capability. Even in the future. As spacexwe are ready and boeing are preparing now to launch true in the next couple of years commercially with a nasa contract. I feel very confident as i represent Airline Pilots today t the Publics Trust eventually we will get into space and nasa will fly astronauts and ultimately many more people into space. Thank you so much for joining us. Good to put this in the proper context. She is a general manager of the air Line Pilots Association and former nasa deputy director. Coming up, you have donated to this group for years and now unicef needs to pony up real dollars as they are taking on ebola. Cases inmber of ebola west africa has gone past 10000 and Health Officials warn we are in trouble if the Ebola Outbreak in africa goes unchecked. It is a fire raging in west africa. We have a couple of embers that landed in this country and you can stop those all you want but you want to put out the fire and you need to get over there. Unicef is fighting back against ebola. The organization has over 400 Staff Members on the ground west africa and has raised about her 2 million for their response efforts. Carol sterns is the ceo of the u. S. Fund for unicef. Have you found it challenging to raise money right now . It is hard. Its easier to raise dollars in the wake of a natural disaster. You can show the building was here yesterday and it fell down and heres the victim. In this case, it has been a progressive crisis but it is a crisis, lust and we are struggling. Big donors feel its not on u. S. Soil so i dont need to worry about it . Some of it is it is not in my backyard. This is a global crisis. This is not a local crisis. The germ does not know where the border is. We have an opportunity to contain it and control it and if we dont, it will spread. Youve got 400 unicef people in west africa him a what are you doing to protect them . The staff that are there are following all of the protocols, obviously. They are checked every day and chlorinated and wash after everything. For those interacting with people who have this disease arehazmatted. We are also trying to deal with this to make sure people are not further victimized. We have seen a stigma for those web and left behind and want to make sure that does not happen. What you think about the criticism about how people returning from west africa are being treated in terms of quarantine . If you make the choice and it is a selfless choice to going to serve in a place that puts you at risk, i would hope it would take that same selfless generosity and applied when you come home. You really need to ensure that you do not become the means by which that disease gets spread and that is a self responsibility. What you need to do is raise big dollars to fight this. Does ebola need its own als challenge . We are not talking enough about how to raise money to fight ebola. We tried today, draw the worlds attention to the plight and put the social Media Campaign and had 78 million twitter impressions on tuesday. We raised 12 million in the United States to help but this is a 200 Million Dollar need. Terms of fund raising, lets say youve got 78 million twitter impressions lets say in two days when kids go out and are raising change with their trick or treat boxes, that is a few dollars. From a fundraising perspective, is it worth your time to go through those events or is it more worth your time for you and 10 extra ordinary fundraisers to knock on doors of the ultra one percent and say i will need 10 million from each of you . Its not either or, we are doing both. We have been able to raise these dollars because of the generosity of the Paul Allen Foundation that didnt match fund and jpmorgan and in the nba are phenomenal partners. We have been lucky with their friends but we do need everyone to care. This is a global issue. The germ does not know where the border is. These are children and they are no less children than our own. 22 of those who have died or children and 22 of the contract a disease or children and more heart wrecking are the kids who are being left behind, being orphaned. Have you changed your strategy as far as unicef workers in west africa now that it has gotten so big . You have enough money to do it youre trying to do. Does not international hold these funds. You never want to say to a mom that we could have saved your child but we did not save your child because of what if. We need to put dollars and sense into these boxes. Thank you so much. Carol sterns, ceo of the u. S. Fund for unicef. Market makers will be right back live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. The fed gets ready to and its bond buying program. Rate guru, the one, the only jim grant. Cashing in on the oil bust. We will look at the companies that have the most to gain from that big drop in the price of crude. Running, be up and horse racing gets ready for its most lucrative weekend of the year, the breeders cup. Welcome to the second hour of Market Makers. , is on his erik way back from the office. Lets start with a bulletin, the top Global Business stories around the world. Ceo. Fee has fired its sixan the company for years. He created tension with the board and french politicians by shifting sanofis focus to the u. S. Director say he failed to execute the company strategy. Chrysler soaring today. The Italian American automaker plans to spin off its Ferrari Supercar brand. The Company Hopes to raise 2. 5 million in a convertible bond offer. Meanwhile, the ceo im losing my voice, excuse me. You know what, this is when you have a friend. Michael mckee . Hes insisting ferraris value is undervalued. I still cant afford them anyway. Another blow to pimco, which has been trying to find redemption since bill gross left. Pimco running a total of 6 billion for the firm. If the move has anything to do with grosss departure. The world series all coming down to a Decisive Game seven. Kansas city royals scored seven runs in the second inning, went on to be the San Francisco giants 100. It ties the series at three games each. Tim seven tonight in kansas city. The royals have not won in footie nine years. Who do you think america will be rooting for . Im definitely voting for the kansas city royals. Look at oldck and School Kansas City royals baseball cards, there were no 1970s players with mustaches. You had those on your bicycle wheels, right . I did. We are approaching movember. Got to honor the mustache. I have a soft spot for the royals. Both deserve to win. Giantscan only love one in your life, and that is get to be the new york giants. Sorry, San Francisco. End thisa may afternoon. The Balance Sheet approaching 4. 5 trillion dollars. The feds policy statements may still underscore its inflation dilemma. It remains consistently below the bank target of 2 . Even as unemployment keeps falling. Lets look at Janet Yellens big decision with three of our favorite fed watchers, the man who saved me moments ago, michael mckee, tim grant, and critics. s biggest arent you glad mike is here . Moments ago, would you have wanted to take over for me, reading the top business stories of the morning . Im a writer more than a reader. And a french horn player. What are we going to expect today . The fed is going to say it is concerned about the absence of inflation. Can we parse this a little bit . Whats wrong with stable prices . Central banks have universally defined [indiscernible] rather, prices that creep up. Thats not stable. That is inflation. I recall the years in which the eradication of inflation was the single most important item on the american agenda. Is there anything wrong with 2 inflation . A small amount of inflation allows for smaller debts for debtors, and enable some deficit spending to help build the economy. To you lose that much . You lose enough. If you are earning 1 and inflation is 2 , youre not exactly ahead of the game. If we agree that we can even measure it properly can we measure inflation down to the 1 10 of 1 . It is much more complicated than that. It really doesnt take into account what the average persons spending basket looks like. It is a challenge for clients. We talked to endowments on foundations who are typically try to have philanthropic causes, lets say Funding College tuition for at risk students, you cant keep up with the price of inflation are the japanese better off for having had deflation . They have not had deflation. They have had stable prices. How much have prices gone down in japan over the past 20 years . Overall. Ly 2 to 3 i think what is wrong with the japanese is not a dwindling rate of price inflation. Idea that theys create stimulus by forming debt. The the fed does between hours of 9 00 and 5 00 is by bonds with money that did not exist before the fed created it. The fed is fostering deformation throughout the world. It that is deflationary. Saying we must have deflation, and to effect this outcome they encourage the creation of debt. The fedsare saying qe program is deflationary and its a problem . Thats exactly right. In 2010 you signed a letter to ben bernanke saying the deflation program would be a problem because it would create inflation. In this open letter that you did sign, quotes, the planned asset purchases with Currency Debasement and inflation, and we do not think they will. We dont think they will achieve the feds objective. Inflation, and inflation. There is not inflation of a cpi kind to speak of. There is inflation on wall street. The levitation of assets has to do with the creation of debt and the suppression of Interest Rates. The fed has been distorting the price mechanism through its qe. If that market capitalism, or Something Else . That is the application of the doctrine of statism to finance. They dont call it price control. The fed is suppressing and manipulating an distorting prices. Thethe outcome is levitation of some prices and the distortion of others. I would sign that letter again. I spoke to jim, who also signed the letter he cited because i find it. Signed it because i signed it. Here is what he said. I was wrong. Im first to admit it. I was probably the only liberal who signed that letter. We were all wrong if we thisht the outcome of would be an immediate expression of inflation at the checkout counter. We were not wrong in warning against an overall distortion of prices, including inflation on wall street. Yes. We agree with that. Its difficult when you look at the economic fundamentals to figure out where a bond price should be, which is where we use to talk about trading and relative value. No everything looks cheap matter how bad the sovereign issue are. Also, a poor set of incentives to what could be very risky debt issuers. The fed would meet that crisis with another round of qe, more suppression. Qe is suspended. The fed has embarked on a radical course of intervention and it will be hard for us to you are arguing they will come back with another round of qe . The point of the data dependency is to leave the door open so that if the fed does see a significant downturn, they can come back and it can be openended. We dont expect that. Is that thepoint door is open for additional monetary easing if necessary. Ben bernanke recently said at a private meeting he doesnt expect to see rates fully normalized in his lifetime. I think the thing we have to keep in mind, the fed has roughly four point 5 trillion on its Balance Sheet and will continue to reinvest that. Very longt isnt maturity securities. If youre talking about a 4. 5 trillion portfolio that will not roll off for a long time, now you and ecb activity on top of that add ecb activity on top of that all they are buying are twoyear covered bonds. Who cares . It forces you to say, i think your bonds are too rich. Im going to buy u. S. Fiveyear bonds. 6 , notwithstanding the election in brazil. First you call him a copycat. I did not say go long. You suggested it would lead to Currency Debasement. The dollar is stronger. You said the fed was being criticized by all these Central Banks that are now doing exactly the same thing. Right. What the other Central Banks is doing is just as misconceived as what the fed has done good done. The Swiss National bank has monetized maybe four or five ti mes with respect to swiss gdp. The Swiss National bank here is a metaphysical edge. The bank creates swiss francs from thin air from which to buy euros. It goes and buys dollars, also created at no cost and with the dollars it buys american equities. That is something for nothing. Michael, this is not a sustainable program. Interesting point about the fed and the board have trillion dollars, fourth largest economy in the world. Janet yellen is running her own Little Company there. The whole point is the fed is going to stop now. Qe ending. Michael, debt keeps accelerating with qe and zero rates. Debt keeps building up and building up. What is the endgame here . They start raising Interest Rates. Then you start to see that level. Will not keep increasing at this point. They will keep it stable until they start raising rates, and let the Balance Sheet runoff. At this point we are seeing corporate debt and Consumer Debt start to run down. The u. S. Is getting its Balance Sheet in better shape. Given the amount of debt we have, can we really raise rates . It would be inconvenient if rates went up. It would help debtors. Its important to differentiate between short rates which we think the fed will probably take up gradually, or long rates, which is what were really talking about when we talk about that 4. 5 trillion that will continue to be reinvested trade the short rates i dont think are going to have that major impact. The rates the corporations have used to issue cheap debt to reduce their interest expense, but sovereigns have used to issue debt at very cheap levels. People like us are forced into these securities at lower than an economically justifiable yield similar because of said activity. There is a very important distinction between what the fed is doing at the front end and what that intermediate to long end of the curve is doing. Funds. Le buy mutual issued by countries and companies that are at best marginally investmentgrade. Holdities and mutual funds extremely illiquid. One of these days, people are going to want their money back and they will be hardpressed to get it. I would disagree on that. I think the systematic mispricing is underlying Interest Rate. That is one of our High Conviction investments coming off of the selloff in the summer. The explosion of etfs, especially in the credit markets when things get tough, especially on they did a couple weeks ago and people want daily liquidity, how are they going to get it . It seemed to work any well. You have the redemptions, the bonds were liquidated, and everything went back on trading. The bigger problem was the Interest Rate markets, 40 basis point intraday move. Great conversation. You have a fantastic sense of humor. And welldressed. He has. Meg, thank you so much. Meg mcclellan and and jim grant. Tune in for bloombergs special coverage of the fed policy statement at 2 p. M. Eastern on bottom line. When oil prices go down, these Companies Cash in. This is Market Makers. Im Erik Schatzker, with my partner, stephanie ruhle. We talked for quite a long time, dont you think . Think about the job he has had, the crisis has told bankamerica through. He is able to get himself at the varsity table with jamie dimon, james gorman that is why i asked him. So many people said youre not going to make it. Are you ever surprised that you did . Again believe you said he has the best job in the world. Breathingave the doj down your neck and shareholders who dont want to see you get paid the big dollars, there are days where you got to say i wish i was running a hedge fund. I think. We will come back to brian. Oil becauselk about its in a bear market. Gas prices are coming down as well. That is dividing some relief to consumers. Which businesses feel that tailwind from lower fuel costs . Scarlet fu is here to talk about the winners. About crude oil and gasoline, it is not a oneonone relationship when crude falls. Its much more elastic a price rise when the prices are going higher. Its not the case when prices are going down. Cude futures down 20 . Retail gas stations pretty reluctant to cut the prices back. They wait until they cant not cut prices. Of stock onlot hand. Its not just in time inventory. The stock market is a forward discounting mechanism. Transports average at a record high right now. Airline stocks had fallen as much as 18 from their high in Early September but have now pretty much recouped all their gains. Period fors a rocky airline stocks. How is this playing out in the corporate world . Interesting one here too. Shipping is a big expense for the company. They spend about two dollars shipping for every dollar that they taken in sales, according to colleen gillis. If you look at shipping expenses, its equivalent to 6. 1 of net yields. Is ups cutting amazon a break . They are locked into a contract with ups. Because they lose money on shipping, every little bit helps and presumably down the road that might be something to consider. It will come down a little bit. They do lose money on shipping expenses overall. So they negotiate this once a year . I dont know how often they negotiated. They dont tell you. Amazon doesnt have to tell you anything. Airlines should benefit from these falling fuel prices, and alta airlines, which bought refinery a couple years ago to have market roll over its fuel cost thomas said its fuel cost fell by 23 million last quarter. There were some losses. There are reports out there on delta is onethat of the carriers increasing airfares. They are not passing on the cost to consumers. They are holding the line when it comes to airfares and try to push through air fires fares. Theyre looking to capitalize on it, perhaps. Airlines are coming off such a tough period. Theyre not going to say gas prices are down. They are enjoying the profit margin all they can. Scarlet, thank you. Will be backers in just a moment. Im going to make you talk to me a little bit more about brian moynihan. Now i want to go backstage. We will be back in just a minute. Is 26 past the hour. Time for bloomberg to take you on the markets. We are going to talk about facebook, dropping. Dropping after projecting fourthquarter sales that fell short of the highest analysts predictions. The company said it would be spending 50 to 70 more next year as they are hiring more and investing in newer products. It is crazy. They are spending on r d and people dont like it. We will be back with more Market Makers in two. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Welcome back to Market Makers. Im stephanie ruhle, thrilled to have my partner back. Im Erik Schatzker, just back from a trip across midtown, one brant park right by the New York Public Library to talk with brian moynihan, the chairman and ceo of bank of america. We covered a lot of ground. We talked about fed policy. Those are some of his concerns. Hes not so concerned about the other things we have heard about, like student debt, for example. He does not think it will be hard on the financial system. View of loans a other than to say bank of america is targeting high quality credits so they do not feel as exposed to things happening in the subprime market. Here is what he said. My worry is if the economy does not grow, having managed a company in a low growth areronment, that is what we prepared for. People say when rates rise. The problem is rates rise. Why are they rising . The economy is growing faster. If they are not rising, these economies are not growing fast. The focus on simplifying institutions, focus on the excess cost has to be relentless to get underneath the revenue base. A that potentially four b of employees, not to mention employees at the rest of the big banks in america and across the globe, is a frightening prospect. Is if the saying economy doesnt grow, rates will not rise. Banks are positioned to benefit from rising rates. We are kind of screwed if rates dont rise, because that is the real promise of the banking business. So long as we live in a world of withcial repression Central Banks keeping Interest Rates low and introducing monetary stimulus into the system, trying to keep rates low guess how we got ourselves out of the hole we are in. Im no jim grant here. All am saying is if brian says im running a business, businesses tend to do well. Im running a business that benefited from qe. He saying businesses tend to do well when the economy is growing. If the economy is growing, there is inflation. We are going back to your conversation with meg and jim. Inflation presumably will call bond prices to cause prices to fall. Dont count on it, thats what hes saying. Thats fair. All eyes will be on the fed today. What has qe done . It has helped investors up until now and they are ignoring the wet that if we dont that need things to normalize. They dont want things to normalize. They are addicted to this. 50 of one and half a dozen of another i hate that saying. I cant win here. You are right that these banks probably might not necessarily be around if it werent for the steps that Central Banks took, but Net Interest Income is really skinny. A lending margins are almost nonexistent. That is why the return on equity or banks like b of a citigroup or jpmorgan or anybody circle anybody else you would imagine that the manager of your mutual fund would manage his own investments better than you could, right . A recent study by two professors found that is not necessarily the case. I want to bring in our senior markets correspondent, julie hyman. They are from sweden, these two. They looked at people in sweden. Why sweden . Sweden discloses a lot of information. They could have a pretty high level of transparency about these people managing money, how old are they almost down to the date of birth for many of them, what gender are they, what income level are they, to try to figure out a do they do better than their peers in those same categories when they are managing their own portfolio. The answer largely was no. Seenis something we have in different surveys. This is just another way to look at it right it. If you look at their return in the funds they manage, their average monthly return is 1. 3 . In their personal portfolios on andnthly basis, 9 10 of 1 among match to individuals, people of similar economic backgrounds, similar gender, similar age, 8 10 of 1 . They are doing basically the same as their peers. Isnt that a good thing, though . Theyre making sure the best opportunities go to the investors in their funds. I guess in theory. The interesting thing was when they do better than their peers, its because they are mimicking what their funds are doing. Stockheir individual holdings are the same as those in their funds hold on. Fair to assume that is what they are going to do at night. It is fair to assume. You would also think and hope they have a level of financial expertise and sophistication that would ensure that they would be doing as well in their personal investing. These are active investors. Does this mean we should all go the way of index funds . Yes and no. It is cheaper to invest in an index fund. From a fee standpoint. 17 basis points on the bank or institution. We have seen huge increases in inflows. Since 2000. 325 belies thatg that notion is if you go back to those managed funds, they outperform, up 1. 3 on a monthly basis. Becausetion is, is that of the financial expertise of the individual managers, or is there something about maybe it is a managers getting together as a group, maybe it is the mandates of the fund that allow it to outperform. Is . O you know john adams the creator of dilbert. The wall street journal asked scott adams to weigh in on the debate between actively managed funds and index funds. Russell brand, his views on the economy and the creator of dilbert allee feels about activist investors. Scott said i can think of many cases where i would recommend. Oright be trucked, stupid, forced to say things at gunpoint. That could be a factor too. Obviously he read the study. [indiscernible] everat is the best quote about the active money managers. There are so many quotes to choose from in the active moneymanagement universe. Of those people im just talking about anyhow. Julie just gave a noyoudidnt. This is going to continue in the break. When we come back, we will be talking about who is spending what. Im Erik Schatzker with stephanie ruhle. We are going to talk about horseracings equivalent of the olympics and the super bowl. The worlds finest purses will be at the race track in Southern California for the annual breeders cup this weekend. There are 14 races. Millions of dollars in prize money. There is one big question hanging over this event, can the Kentucky Derby champ California Chrome defy history and win the Breeders Cup Classic . With us, the ceo of the breeders cup with us from los angeles. Craig, youve got to be very excited to have California Chrome in your Breeders Cup Classic, even though we did not win the triple crown. We are very excited. Just to have a horse like that making an appearance in front of a hometown crowd, which he has not really done since the triple crown series ended. I know the musical news media as well as the public are itching to see him back on the race track. What does he mean to your event . Certainly, we are partly wagering on events. Attendance on track is huge for us. A horse like that who has a has a lot ofo affection directed at him, is a definite attendance driver. It is a feelgood story and makes people feel good about horse racing. You would normally have x show up for the race but when hes going to be there, hes going to be why . Thats tough to predict. He lost his last two races. Certainly at the belmont race track when he was going for the triple crown, its a little different from what were are doing this time around. His presence made a difference to 30,000 people. You are working on a horse racing fantasy league. Why hasnt it been done before . Sometimes its a little hard. We are mainly focus on her gaming activities in terms of traditional racing opportunities. Obviously the world has moved in a fantasy direction. We decided that working with fantasy companies is a nice direction for us, try to get people who have not historically had a connection to the game interested in it. Clearly the best way to bring people to the track is by having a famous horse on your hands. You cant always count on that. Notion of a horse racing fantasy league, what else are you doing to get people out to the race track . The breeders cup is a unique event on its own. We have 13 races handing out over 25 million. We will have some of the finest horses in the world here. It never comes down to just one. We also have food and beverage offerings, fashion. Is something for everybody. We have an infield event on friday. Halloween themed with music and entertainment. It is not just the horse race, its also an event. You will see fashion and fun, really. What are the Biggest Challenges you face, with the exception of highprofile horses having to drop out due to injury, what else do you see standing in the way of success this weekend . Im highly optimistic that we will have big success this weekend. We have over 201 horses preentered. We have 34 horses from around the world and countries including hong kong, ireland, france, the u. K. Its a very international field. We have something the public is highly interested in. Churchill downs, who owns the racetrack for the Kentucky Derby, is a public company. Have you thought about taking your company public, and when might you do it . Private, are a nonprofit corporation. Our only interest is in promoting horseracing. Our real charter is to put on the breeders cup World Championships and do it in a fantastic way for the fans. We wish you luck this weekend. Lots of force racing for fans to enjoy. Horse racing for fans to enjoy. Horses in Halloween Costumes . This weekend, not friday. He said there would be a halloween theme. Erik doesnt know the key points in their. I dont groove on halloween like stephanie does. Sure i would not say i groove on halloween. What verb would you use . I freakin love it. Market makers will be back after the break. We are less than a week away from election day. We dont know yet which party is going to come out on top. Winner. Ow one certain a local tv station is carrying all those ads, so many of them awful. This midterm is carrying a hefty price tag. Peter cook is crunching the numbers. Peter, a new record for certain here . Not 100 certainty yet. We dont have the final numbers. The center for responsive politics projecting this midterm could become the most expensive in history at more than three . 6 billion. That is not as much as 2012. Brought itntial race even higher. Their latest projection shows this total will likely exceed the three. 6 billion dollars spent at the last midterm in 2010. It is still light years from the 1. 6 billion spent in the 1998 midterm. The biggest change, the explosion of outside money. You have the candidates and the parties this time around projected to spend an estimated 2. 7 billion. Outside groups going to kick and perhaps as much as another billion dollars. , much oflion a day that spent in a handful of races. Theyre very targeted. Looking at the competitive races, their money in those close races may be determinative. Republicans in terms of the total money game here likely to outpace the democrats. Democrats, their backers likely to spend 1. 76 billion. These totals do not capture everything. Spending by some groups does not have to be reported at this point. You can probably add at least another hundred Million Dollars to this. Who is the biggest individual spender here that we think we know . The biggest individual spender right now is tom stier, the Hedge Fund Manager gotten so much attention for his next gen climate action. 73 million out of his own to 2014ight now candidates and specifically to his own super pac here. Only spent about 20 million. You have got to wonder what is he holding that money out for at the end. He is spending it largely unDemocratic Candidates active the Democratic Candidates active on the environment. Extraordinary. Peter, thank you so much. We will be back in two minutes. We have breaking news. Betty liu at the breaking news desk with more. Nelson peltz of try and is doubling down on his debt on dupont. He is the active investor who has been looking for a change at companies from pepsico. He just got on the board of Madison Square garden. He has just upped his stake in dupont, the largest Chemical Company in the United States per market value. Callas exercised his put options to increase his stake in the company to 2. 7 . He now owns try and now owns 24. 3 million shares in dupont. He has exercised he has just done this. To said thistalked looks like nelson peltz is in it for the long run. He has been looking for dupont to split its company and cut down costs. That is a familiar theme. Back to you. Its always hard to know exactly how much money peltz has at work in a company like dupont. According to the filings, he only had. 7 before increasing his stake. Clearly he put some money on these options trades. 2. 7 is a billion six. That is a lot of money. That gives him more credibility. A lot more skin in the game, guys. A lot more skin than the game for him if hes trying to look for more change at dupont. Betty, thank you very much. Nelson peltz increasing his stake from 400 million to 1. 6 billion. We had a big day today. Tomorrow might be even bigger. This woman is responsible for parents having to spend a fortune on disney products just to keep their little girls happy. We will be speaking with the codirector and writer of frozen. Im glad matt miller is not here. I dont want to hear him sing. 36,000 of the costumes sold on the first day they had them on the disney website. Matt miller might sing . You have never heard matt sing . God bless you. All coming for you tomorrow. 56 minutes past the hour. Bloomberg television is on the markets. You are going to deliver this in your singing voice, right . Im not going to sing frozen. I recommend everybody log onto google and check out Robbie Williams singing frozen songs to his pregnant wife. Stocks touching a onemonth high. The u. S. Dollar falls for a fourth straight day. Investors speculate over what the fed is going to say and do today. Not Much Movement in equities. Equity driven strategies at Baycrest Partners joins me. Is going to talk about facebook yesterday. The report wasnt disappointing. The forecast may be a little bit. And then theyre going to spend a lot of money. The way i look at it is all the super highgrowth internet usbased companies are beginning to transition from that too still a pretty good highgrowth stocks. I think they are going to disappoint investors along the way. Anything, i would be [indiscernible] in terms of what happened in options, we saw a selloff of 182 calls earlier today. These are like shortterm trades. People are adjusting their positions based on expectations. Bought those calls are earlier before that and they are closing it out. Someone said this may be the trick but next year will be the treat. Let me ask you about your options trade you bought brought today. I dont think well be frozen at all. You had baidu reporting on earnings tonight. Buy january 2 30, 260 call spread. Its nice to see stocks selling off. Dollarsme around eight to get into that trade. That is my max lost. I get to make almost three to one on the best case scenario. Thanks for joining us. Stay with us. Welcome to money clip. Appeared bankrns of americas ceo says the worst of his legal woes are passed. Thats coming up in a bloomberg exclusive. Investors punish facebook for its forecast and Mark Zuckerberg keeps up his spending spree. The most expensive Midterm Election ever appeared where the money is coming from. Atop the world according to amy poehler