Welcome to monday morning on Market Makers. Erik schatzker is skiing all week long. We have a special treat in store. Bill on like kanye, i will not upstage you. Stephanie this is my guest anchor for the day. I do not think kanye upstage anyone. Bill it is the postgrammy interview where he did say stephanie what did you think . Bill i dont know. Stephanie did you listen to becks album . Bill he is a gifted artist. Truth be told, i did not know he had an outcome. I would have given it to beyonce. There are other things to talk about besides kanye. Those betting on a greek failure are paying are playing with fire. He will go see it with creditors up to a point. It will be reflected in a midterm plan and will respect the but will not condemn it to austerity. Stephanie finance ministers meet monday on how much money greece needs. We are expected to hear from them less than 90 minutes from now. The president is being pushed to provide weapons to ukrainian forces. Sales fall at the largest restaurant chain. Samestore sales at mcdonalds fell last month, worse than expected. They have announced it will replace john thompson, given the huge ipo of shake shack. Sam smith was clearly the big winner at the grammars. At the grammys. Beyonce and pharrell each 13 grammys. Back to each won 3 grammys. The yield on the greek threeyear note is up. It is the biggest oneday jump since 2012. That was at the height of the last debt crisis. Mark walker advised the government then. Joe is here. He was in greece two weeks ago. 2012 was the last time we saw a jump this big. The markets, the media was more spooked and panicked. Are we missing the punchline . Joe you saw italian yields spiking, portugal, it was a sense that greece was the start of Something Big and if it were to leave the euro, we would have a ripple effect. The belief is things are more contained. Spain and italy are on their programs. There is the financial contagion that is much more likely. If greece were to leave the eurozone, that would be a big deal. It is not the kind of thing the market sees reason to fear much from a broad perspective. People are going to lose money obviously. No one knows how it would go. The fear of the contagion does not seem likely given the Investor Confidence in countries like italy and spain. As to the question of whether greece defaults, they do not have any debt of any size owed to the private sector. They have the bonds that were purchased in payments to the official sector to the european governments and the eu are interest only. They oh some money to the imf. I do not think the default is the real issue. In terms of contagion, i am not sure a greek exit is a nonevent. The circumstances are different. In 2011, 2012, the reaction was that eurozone countries do not default or restructure and a huge fear that there was insufficient firewalls to bail out other countries and if greece left, who knew what would happen. What keeps the euro zone together is politics. Stephanie you advise greece in 2012 and you are not advising now. What is the difference . Mark the circumstances for the negotiations in 2011, 2012, were very different. Greece took a passive role. The europeans wanted greece to take a passive role. The first meeting i attended when i spoke in response to the initial Program Proposed for greece, the response was who is that. The response was, what does the debtor have to say . Having the money is a different story. Europe gave them the money. Most of the money was not used to support greece, it was used to support creditors. The negotiations is different today. You dont see, there is a lack of engagement at a serious level between those responsible for the Economic Policy and the europeans with whom they have to discuss. We have soundbites and posturing or statements which are important from a political perspective. That is fine. Greeces position has changed. There is support within the country for the government to sound off. There is support for a program that focuses less on austerity and allows for growth. I think those are important points and i think greece can make those points. You do not make them by provocative statements by saying everything you wont do as opposed everything you will do. Were going to make sure the oligarchs to not little things. We are going to try to change the political environment. The only specifics is we are raising minimum wage, getting rid of some of the reforms backtrack on employment. A lot of things are going to undo the program. That is fine if it is accompanied by something positive. You mentioned the politics. Do you think that is a weakening to some extent . We do not want the euro to break out, but in this one case, we let it go . Mark some people feel that way, including advisors of a German Government and the french government. I think there is a mounting level of irritation and frustration on the part of the counterparts and they do not see the beginning of a dialogue which could be fruitful and distracted that would lead to some sort of solution. They may be miss judging their position, but time will tell. I think it is a good negotiating strategy. They are in a position to be at a table. Mark they have a Banking System that is at risk. Greece will be the loser if there is no support for the bank system, the bank system fails. Maybe europe will say we will not let that happen. Stephanie the most expensive game of chicken. Mark walker. Stay with us. This would be like apocalypse now. A new report says crude may be on the verge of another big drop. Get your head around 20 bucks a barrel. Stephanie time for top headlines. Tony abbott survives a challenge by his party. He won with about 60 of the vote in what was essentially a noconfidence measure. Alibaba is betting it can become a player in smart phones. They are investing 590 Million Dollars in chinese smartphone maker. The investment will give them a platform for its operating system aimed at boosting mobile sales. Nissan is raising its profit forecast for 2015. They are being helped by a weaker yen and stronger demands. It may help offset the impact of a recession in russia. If you thought 40 a barrel for oil was cheap, you have not seen nothing yet. Crude could hit 20. Alix steel has the report. How could this be . Alix way to go. This is a twopronged thing. They say it will bottom around the 40 range. We could see prices dip for two reasons. You see storage buildup. Once demand recovers, you will have to weave through the inventory. The second reason, shale. It is all about shale and not about opec. You could drill a well, but not fill it. Once the price recovers every price decline will be met with more reductions. All of those guys who called the bottom at 30 and has made money at 40, they are about to you they are about to lose money. A lot of people think the bottom was 30. We fall quickly. Alix you see the volatility because of financial money coming out. There is also the baker hughes rigs count. We have seen that declined substantially. Have a lot of trading happening around us. The neat the report, not seeing the same kind of production cut. Production is actually not being cut today. You have to go back for it to be cut. Do they mention anything about the saudis continuing with their low oil prices . Alix they said that the idea that shale is different from any other type of oil drilling is something saudi arabia has not taken into account. It will not be a ushaped or vshaped recovery. Saudi arabia not having that big impact as quickly as it has hoped. They are not getting the payback to produce. Stephanie thank you. When we return, the remarkable life of John Whitehead, on a day that he went from dday to a career on wall street. We will be discussing his life and legacy when we return. Stephanie welcome back. A wall street giant died over the weekend. He turned the firm into a Global Banking behemoth. Mr. Whitehead was cohead of the firm from 1976 until his retirement. Lloyd blankfein said he was a man of a norm us grace and his legacy will endure in the end to two since he led and those he cared for and mentored. How fitting you are here with me today. Talk to us about him. Bill it is true about John Whitehead. He was a giant among men. He institutionalized Goldman Sachs in a way that it had not been. Goldman had been led about 35 years by the sin the weinberg who was on Sidney Weinberg who was on 30 corporate boards. John whitehead had the insight to realize that Sidney Weinberg was not going to be around forever and we need to institutionalize all of these relationship. He carved up his empire into 10 different pieces and assigned them out and had them cover them in the hope that the coverage model was very radical. Stephanie a transaction model to a relationship model. Bill he created the coverage banking model. They would Cover Companies and get the banking business as a result. John whitehead was at the forefront of creating that. Stephanie from 1984 until today, what was he doing . Bill he was in the state department under ronald reagan. He served very well in rebuilding downtown manhattan. I happen to see him several times. At first, he would not talk to me at all. At some point, he relented. Stephanie what was he like . You love to dog on bankers and find the ease in them, but i dont see it and how you are describing him. Hell not in John Whitehead. He was insightful, sharp as eight hat. He was someone who had a great sense of humor, told great stories. Stephanie he put others first. Bill you never put clients at the forefront like you claim to. John whitehead did more than anybody else. He came up with that idea of putting clients first. Stephanie John Whitehead will be missed. We will be back with more. Live, from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Stephanie welcome back. Erik schatzker is off today. Lets take you to the bulletin. The top business stories of the morning. Greeces new Prime Minister reaffirm and he is reaffirming his rejection of austerity measures. He will not support anything that will keep greece in a recession. Alan greenspan predicts greece will abandon the euro. He spoke on bbc radio. I do not see it helps them be in euro and i do not see it helps the rest of the euro zone. It is just a matter of time before everyone recognizes that parting is the best strategy. Stephanie no one wants to risk lending money to greece anymore. For hasbro, the Fourth Quarter was about boys and their toys. They posted quarterly profits that beat estimates, the reasons, transformers and nurse. Next year, they should be stronger with girls toys. Jeb bush has a lead in New Hampshire over his potential 2016 rival. That is according to the latest poll. Bush was backed by 16 of those surveyed, followed by rand paul. New hampshire holds the first primary. Another blizzard heading for boston, which has had more than its share this winter. They could get up to a foot of snow today. People are being asked to work from home. Through sunday, they got more than 62 inches of snow. Tough luck on the weather, guys. We have been highlighting some of the Top Hedge Fund managers. These are the funds that had the best performances of the year. Today, we have felipe jordan. Welcome. It is a quarter of a centurys worth of work. Stephanie what did you do specifically . We had a good year across all p ls. They are composed in our Hedge Fund Business in directional trading. It is not just longterm trend the following. It is equity arbitrage, a Global Portfolio about 4000 stocks worldwide. Stephanie this is what is coming out of the black box. It is not black. It is transparent. Bill is it different than what bill does . He has his own version of the black box. I do not know what he has in his box, i know what we have in hours. We do not want to be in the prediction business. We start by figuring out how much risk we want to take and how to quantify it and how to realize it. Then, we figure out what type of returns are in line with the risk expectation that we can generate and how many returns can we find that have low correlations to one another. Bill you do not have guys sitting around, making these decisions. You need people to build computer models. Maybe in 20 or 30, or 40 years that can happen. It is not out of the question. Stephanie are you building better models today . We look at performance every year. Your investors look. We had a modest year. You have no lockup at all. Investors are willing to say we will ride out a bad year. We know how to control our risk and realize our risk. Bill lower the smart thing she did . Those are things we built the year before, the year prior to that. We have a big edifice on which we have constructed different models over the years. We keep evolving. Stephanie what to you input into the models that we might not think of . People are sensitive to the weather. People are sensitive to seasonalitys. People are sensitive to particular dates. People are sensitive to stephanie what do you mean dates on calendar . I am not going to open bill can you share the macro that you made . Some hints anything . We make a few in our business. We trade volatility. Volatility compressed a lot last year. That is statistical. Bill is the computer churning . It is relatively quit quit is relatively quick. You take advantage of market discrepancy. Stephanie do you see yourself as traitors or investors . I think we were in the trading business. Stephanie will we see a decrease in macro strategy . The short answer is yes. To a certain extent, it has been helpful. It has then creating some problems, liquidity has dropped off. It banks make markets and when they are active, and have the Balance Sheet it two sides to that corine. To that coin. Stephanie the daytoday, what is our problem, finding new models. Stephanie luckily, he found a few good one so far. Jordan is the president of capital management. When we return, ferguson rebuilds. How Small Business owners are recovering after the devastating riots. Stephanie welcome back. Time for top headlines around the world. In turkey, the lira has fallen to an alltime low. The turkish president has stepped up his attack on central bank. He is trying to get policy to cut Interest Rates. It has fallen in the last two weeks alone. The central bank is unlikely to reverse the Interest Rate cut. Inflation will flow. The only thing that can get the economy flowing. She is the first woman to head a group of eight in the central bank. A 50 fear a 54yearold mystery has been solved. Mountaineers found the wreckage of a plane that crashed back in 1980 11 today marks the sixmonth anniversary of Michael Browns death. The town has not recovered from the riots. Much of the violence targeted Small Businesses. This is how the world knows ferguson, missouri. Protesters have retreated and news crews have returned home. The destruction remains. It is important for businesses to remain in the community. Some owners are remaining in the community. Bryant mitchell relyed on his own relied on his own cash. His boot camp is back to full capacity. My people expect me to be open. Kate is digging into her savings because her store has been condemned. The building is gone, but the spirit is here. It cost about 20 grand to open initially. The impact weighs heavily on communities. According to research, social catastrophes can cause more long term damage than a natural disaster. Los angeles lost almost 4 billion in taxable sales. A spokesman sent us a statement that says city staff has been working with Business Owners and investing in the community. Some say the support is not coming fast enough. The responses flow. It has hurt business. I hear nothing from anyone. They need to come out and make themselves seen and known. Come to me and say what can we do to bring your business back. Stephanie ferguson have a way to go. They are still rebuilding. Lighting up the red carpet at the grammys. We will talk to celebrity stylists june. Stephanie lets get serious. The worlds most famous rock stars and pop icons were in l. A. For the grammys. The winners included sam smith, beyonce, and beck. The real attraction was on the red carpet before the event began. We have an inside look at what goes into celebrity styling. June, last night, it was not just about artists looking great. There has been a revolution. We have seen rockers and hiphop stars go from jeans and unshaven to tom ford. June the return of glamour. The women are right off the runway. Everyone wins. Stephanie kanye west was working, may be an honor of his wife, some male cleavage. How does that help a designer . My husband is not leaving the house with male cleavage. June that is about personal persona. For kanye that is his way of being cocky. Would you wear your male cleavage out . Probably not. Stephanie why not . June it would be exciting. Bill what happens to the rockers. June they opened the show. Bill even they are toned down. June simplicity is the new grandeur. Less is more. Bill what happened to the grammys . June i do not know. They had their moment. Stephanie what goes into styling these artists . They want to look glamorous, that they cannot abandon their brand. June it is another extension of their look. You put on your finest. You put your best foot forward. For men, it is about the piece that makes them feel most confident. They want to wear distinguished looks. A lot of blue and black lapel suits. There were highs and lows. Stephanie i look at madonna, i have not seen her in ages, she showed up as a matador, and i think i have seen her like that for 20 years. June she had to make a statement quickly. She did not feel reinvented, but it is madonna. You do not poke fun at madonna. I think the best look at her runway was her butt cheeks that she flashed. Stephanie for you, our designers begging to get artists in their close . June they know who they want. They love rihanna. They are even dressing cam. Kim. These girls in runway could tour 0 couture pieces. The social media, when you have 20 million followers, designers look at the dollars and how that influences the consumer. She has worked towards cleaning up her image. Stephanie is the consumer going to buy a 15,000 pair of earrings . June no, but it puts the name out there. It solidifies the brand as something relevant. Stephanie if they are going to buy the look for less, how does the designer make money . June everyone has a diffusion line. Bill can we wade into the kanye controversy . He looks like he is going to interrupt beck. He goes up there, and then goes back. He says no, he should give up. Stephanie we are talking more about kanye than we are about beck. June he played it well th ough. Bill beck is a true artist. Stephanie we have no time. Live from bloomberg headquarters in new york this is Market Makers hang that this is Market Makers this is Market Makers. Hollywoods ultimate power player did he get less than he bargained for when two giant agencies merged . And betting on a housing recovery. Meet one of the Top Hedge Fund managers. His strategy is all about distressed real estate. Welcome to the second hour of Market Makers for we have a lot to say this morning. I dont really like cognac. M you want him to sit down and shut up you i dont even appreciate him. But we are talking about him, so he won. He wins. Welcome to the world of tabloids and media. Im talking about cognac. The top business stories of the morning greeces new Prime Minister saves those betting on a failure are playing with fire. Greece will submit a fouryear plan for growth andriy warm. The new contract between greece and europe, which will be reflected in a midterm plan will respect the euros rules for operations. Another name for us here is them a finance ministers meet on wednesday to find out how much money greece actually needs. And a startling new study about the price of oil coming out of citigroup. They believe crude prices may fall more than 50 in the next couple of weeks to the 20 range. Oversupply of oil is putting storage tanks close to capacity. Samestore sales over at mcdonalds and 1. 8 last month. Mcdonalds had already announced it will be replacing don thompson. Shares of mcdonalds are down more than 1 this morning. Nobody viewed spongebob. In news fun bob movie the new spongebob movie took him the film that led the box office is american sniper, finishing second with 24 million. President obamas meeting at the white house with Angela Merkel at this moment. Prices in ukraine tops their agenda, the question whether to send arms or the military there. Peter cook is outside the White House Office moment. That issue is a real point of contention here. Grandma we heard from the germans, including Angela Merkel in munich, saying it will be a bad idea for United States to send arms, even weapons to the ukrainians. It simply will escalate the conflict and Vladimir Putin and the russian backed separatist was as their own. And the russian black russian backed separatists would use weapons of their own. The door has been open to the u. S. Upping those arms for the ukrainians. Will the president back that idea or will he give Angela Merkel more time to reach some sort of ceasefire agreement in with Vladimir Putin . Are their points of agreement between merkel and obama . The president certainly respects her views. He is going to listen carefully to what she says about the progress she has made with Vladimir Putin. He is under intense pressure from members of congress, for some in his home in his own and ministration think this is the right thing to do. He knows what she is going to have to say. The president and his advisers have weighed this heavily. Are they really going to change course now . There are still some options at this point. There is the prospect of tougher economic state economic sanctions. There is also the possibility the president could dangle idea dangle the idea of arms down the roads were ukrainians. Thank you for giving us the latest outside the white house. I want to stay on ukraine. He is russias analyst at the eurasia group. You spent your career talking about Vladimir Putin. Help us understand what she is looking during this process. I think the recent flurry of diplomacy is of diplomacy is the last chance for a diplomatic solution to this crisis. I still think it is not a very good chance. Any deal received later this week will be based on the existing minsk protocols, which have been disregarded for several months now. The agreement that was reached in minsk and september minsk in september. Basic objective of the sites are not being met by disagreement. Ukraine wants to align more closely with the eu and nato. Of course the separatists dont want to recognize the government to either it is made and doesnt stick or it doesnt stick at all. What role does oil play in all of this . If oil declines to 20 per barrel, there is already a lot of pain being felt in russia with oil at 30 per barrel. Is there economy in shambles and does that have an effect on his ambitions in ukraine . The russian economy is certainly in bad shape. It was even before the train crisis. It is getting even worse because of sanctions and oil. The calculations on the issue are fundamentally and that fundamentally geopolitical and not economic. I fundamentally geopolitical and not economic. How does he play for a war in ukraine . Part of the way they are doing it is this indirect hybrid warfare where they use proxies they do not commit their forces directly. It is a shadow war. They deflect direct responsibility and deflect direct costs. Then what is the impact on arming ukraine . Given the military advantages that separatists with Russian Support have, and given putins tremendous popularity at home is there an amount of weapons the u. S. Could sent to the ukrainians that would deter putin . Is not, what next . It is always for the same reason the u. S. Goes into it to escalate or exit. Why do we keep doing this . Why do we keep arming proxies . Why do we keep getting involved . I think in the ukraine case there is an issue of geopolitical precedent. We are tied up with the europeans on this. It is an Important Message to send that russia does not have 80 on the European Court have a veto on the european periphery. Unfortunately in geopolitical terms it means even more to russia. That is the asymmetry that has been guiding them. Everything has geopolitical consequences for us. Can something be not in our backyard . There is nothing that is somebody elses problem. Everyplace in the globe is within the hour within our geopolitical sphere. Just explain, what does Vladimir Putin want to . One thing russia wants in particular is to make it impossible in perpetuity for ukraine to join 80 or the eu. From the kremlins perspective this is a geopolitical redline. Despite economic sanctions and becoming increasingly isolated despite economic cost, the kremlin continues to push policy it has been pushing policy. It is important that russia stay within russias sphere of influence. There are times when ukraine has been part of the west, part of poland. Culturally it has a lot of similarities to the west. As does fact russia. I guess i understand why they are fighting so hard. But why do we have to risk confrontation over this . For most of the period since 1991 ukraine has been in this fragile balance, partly leaning towards the west with strong ties economically, culturally and even linguistically to russia. One of the causes of the crisis we see now is a year ago that balance was shattered. Russia has an interest in inflaming the violence to secure it. Is there any lever they could pull that would push Vladimir Putin to stand out . Difficult to if there is nothing that can get this guy down, why do anything . You have to impose costs in hopes of to turning further action. To really roll back the separatists and influence in eastern ukraine, you need to commit troops. It doesnt matter enough. The russian people seem to love these. Putins Approval Rating is 85 right now. Three quarters of russians say they are feeling the act of sanctions. A similar number says the price of sanctions are worth paying. That is how it is being framed inside of russia. There is not going to be any affect from all that oil prices he is paying for with proxies, i dont see any reason why putin was stopped. We will be talking about this for a long time. M thank you so much for joining us. When we return we are still going to be talking Angela Merkel. She is meeting with president obama on this very subject ukraine and the press conference is going to begin in just 30 minutes. Plus a Hollywood Super agent at his biggest power play ever. Bill cohan has story. Prime minister tony abbott survived a challenge by his own liberal party in australia. He won with 60 of the vote in what was essentially a nonconfidence measure. She has been hurt by slumping poll ratings and concerns about his leadership style. A new report shows how hsbc did business by that did business with the report comes from a Journalist Group focused on hsbcs Private Banking unit through the years in 2007. They have undergone a radical transfer station transformation since then. Nissan is being helped by weaker yen as stronger demand in the United States. That may help offset the impact of a recession in russia. And it has been a year since ari emanuel has closed on a 10 year quest my cohost are today took a big risk, eight deep dive into ari emanuels multimillion dollar sporting bet in the latest issue of vanity fair. This was a dream. It may turn into a nightmare. It was a 10 year quest. I love stories like this, where you have someone with an incredible ego and incredible ambition. He is an extraordinarily successful man. No question. He comes from a Famous Family of three brothers. Incredibly ambitious. He has wanted ing for 10 years. He wanted it even before Teddy Forstmann got a hold of it. Ultimately teddy did not want to sell to him. Teddy do not like the agency businesses, which is what ari is , representing talent. He wants to be in the principal business, creating tennis tournaments, creating cricket tournaments, owning pageants and fashion shows. That seems to be what martin what are he wants to be in. It does make sense from a business point of view. You have assets every day. It is very important not to overpay for those assets. He paid 2. 4 billion. He probably paid 600 million more than the closest bitter. Closest bitter closest bidder. Can he get the Financial Results he has promised the banks . This close to 10 months ago . Enclosed in may of 2014. How much time until we give him a report card . The man i interviewed for this story was a billionaire mogul. He told the story of when mca bought given records, everyone saw but definitely records, everyone thought mca his point is, it is too early to tell. The irony of a guy with all this ambition and desire to own this asset may have overpaid and used too much debt to do it. What was your biggest ah ha Teddy Forstmann does not like the agency business. The only way you can make more money is by having another chair and another barber. That is not how Teddy Forstmann and made his billions and that is how ari is trying to make his billions. He is hope in the steel will result in making him a billionaire. A you spoke to a number of people who said do not vote against ari. Anybody take the other side of the coin . Lots of people. Some who would be willing to be named. The question is what are the bankers going to do . What is going to happen when the bankers realize that potentially ari has met realize when potentially ari has not made his numbers. It is an interesting dynamic when somebody wants something, pays or everyone else, and finances it in a way that turns out to be questionable. But not unique that he wants to get into the content business. When you are talking about go pro or a sports franchise silver lake owns 50 of this combined company. That is their big bet. They think this is the next great content play. What is your prediction yet to you and i sit your prediction . Are we going to say this deal was a disaster . There is going to be restructuring here. He paid too much and used too much debt to do it. Moody has agreed, they put out a research notice on this. It is potential serious financial difficulties. I would still bet against ari emanuel. Even though i will never be eating lunch in his town again, there are a lot of people. You may not be happy with ari. You can get the whole story in this months issue of vanity fair. I dont write the headlines. Ari emanuel sporting bet. Check it out. When we return, the Hedge Fund Manager betting big on the housing recovery created housing recovery. He had one of the best returns in 2014. Youre a keen markets getting ready to close out their day. The stocks in decline right now. 14 Industry Groups are higher. They are being led by basic resources and energy needs as Oil Prices Resume their correction. The dax post and the worst oneday drop in about a month. The euro continues to consolidate after flowing after falling below 11. The Prime Minister not backing away from his rejection of the International Rail out. The index falling for his Third Straight day. Thanks down by 10 . February 11 is the next day to mark on your calendar. Moving toward 11 . More Market Makers after this. Live from bloomberg headquarters in new york. In is Market Makers. With Erik Schatzker and stephanie ruhle. Welcome back, im stephanie ruhle. Im bill cohan, sitting in for eric. We are covering one of his and my favorite subjects. Hedge fund performance. These are the funds that had the best performances of last year and today we are joined by deepak rule a. His fund focuses on Mortgage Backed securities. In 2012, he was ranked number one. Walk us through. What is your overall strategy . Firstly, thank you. We invest in the universal security we invest in is large. Mortgage backed securities. This is both securities and loans. The total amount is north of 11 trillion. Few people realize what a large marketplace this is. There are private level securities, things that got us in trouble in the crisis. Subprime there is all that and then there are loans. It is not just residential mortgages. It is residential and commercial. That is our playing turf. It is a large sector that is finally beginning to get some attention from institutional investors. I am guessing one of the reasons you had such a huge year is the distress opportunity that existed in the Housing Market. We have seen a huge recovery. Where are we going from here . 2012 several years after 2009 were good years if you could participate in the recovery and you are right. If you look at where security yields are youre talking 4 to 5 loss adjusted yields. That does not cut it. There are a few specific opportunities left. Generically, the opportunity is over. The place to turn to in that sector is looking at the loan markets. Because they are not regulated . Not so much a question of not regulated. It is a question of who are the participants . Who are you competing against . As a lender . Yes. Youre talking about making loans . Weaselly think blackstone what we usually think blackstone does. Normally what banks do. That is what wall street does and used to do. If you look at commercial lending, it is one of the largest markets. You are making direct loans. We think there are areas where if you do not compete with the banks and wall street, you can get outside returns. Yesterday one of the biggest fans of qualitative easing. You mustve loved when the feds had qe1. All the securities you own rose in value. We hedge the rate risk. Note be nice if we could by and watch them go up in price. There is no duration risk, such as the nonagency bonds i was describing. Residential mortgagebacked securities that went up in price. I think qe was a tremendous opportunity. We got lucky. Mortgage backed securities before qe1 was launched. We did well in that. These are securities before qe3 was launched. You can say, we read heelys reasonably and were lucky. We shorted mortgages at the end of qe1. Spreads had to widen. Qe opportunities have played out. The fed is still very large. Qb has ended but it has not. Are you worried about the unwinding . It is something that thinks about. It is something the fed thinks about. Qe is a profitable trade. It is made sure that when we were looking at the Housing Market in freefall that did not happen. Security prices went up and the fed has made large profit. Last year, the fed should hundred Million Dollars to the treasury. That is from the margin. The yield they are earning versus what they are paying out. That is pure profit that they earned last year. The challenge for them is to shrink that portfolio before they raise rates to such a level that they start incurring losses. How are they going to do that . That is the central dilemma for the fed. We think the fed and the markets the whites of our eyes of inflation as Larry Summers there are different points of view. Around the second half of this year there is a reasonable probability that the fed will start hiking rates. We agree with that assessment. The question to ask why with the fed stop letting its portfolio run off . They cut short rates to zero and then they launched qe. When a let the portfolio run off first and then start raising rates . Do you think they will . Know. Maybe the two will not be that far apart. Maybe they will start raising rates in the portfolio starts running off six months after. That is not such a big thing. It makes a lot of sense for the fed, given there is this Global Demand for bonds that is insatiable. Yields are very low. What a great time for the fed to exit at this stage. How does that impact what you do . The fact that the fed theres uncertainty around with the fed does it gives rise to volatility. We have done well with our long short relative value trades. One mortgage security versus another. That is been a great opportunity. In terms of what the fed does the markets are still not clear. The hikes are being priced in the forward markets but there is no place to say what is the fed going to do in terms of its qe portfolio. There is no market the gives you a forwardlooking indicator. That gives rise to volatility. Do you expect 2015 to be more like 2012 or 2050 2000 14 2014 . I think if we were to have forwardlooking returns along the lines of what last year was we think that is a happy outcome. When we return, we will dig in deeper. Deepak narula from metacapital. He will be back with us. You are watching Market Makers. It is time for the top headlines around the world. Greeces new rime minister is reaffirming his rejection of austerity measures linked to the bail out. Alexis said bruce says he is willing to negotiate with creditors but he will not support anything that will keep greece in a recession. Alan greenspan predicts that greece will abandon the euro. I do not see that it helps them or the rest of the euro zone. It is just a matter of time before everyone recognizes that parting is the best strategy. Greenspan says nobody wants to risk lending money to greece anymore. Allie babas betting it can become a player in smart phones. The company is investing 595 million in chinese smart phone maker, nazar technology. It would give ali baba a platform aimed at boosting mobile sales. If 54yearold mistry has been solved in chile. Wreckage of a plane that crashed in 1961. The plane had been carrying members of a chilean soccer team. Ask wreckage was discovered in the mountains 10 feet above sea level 10,000 feet above sea level. Were back with deepak narula. Many people think it is all about taking credit risks. For you where your got between the wall and the wallpaper in 2014 was betting on prepayment risks. It is a sector that is trafficked by very few hedge funds. The incredible thing is if you look at the u. S. Mortgagebacked securities market, half of it is government guaranteed. There is no credit risk. The question to ask is what of the risks that are embedded in the security . The ability of the homeowner to pay back their mortgages without penalty. There are securities that let you take advantage of slower or faster than expected prepayments. Historically it has been have to returns last year came from taking different prepayment risks. The government launched several programs that were designed to help homeowners who were in distress because home prices went down. The most successful of these was a program called harp. That has been there for a few years. You have to really when you look into that program, you have to believe that Going Forward it has done a lot of good it was intended to do. It impact is going to be less. That is a wager we made last year that turned out to be profitable. You say only six to eight hedge funds of been in the space. Does all of this point to the fact that maybe the subprime trade for many hedge funds that crushed in proved that they were just one hit wonders . We look to john paulson, whose success is defined by the subprime problem crisis, many of them are not to be seen over the last five years. Where are your peers . Many of them have done well for dedicated mortgage guys with adapted with the times. Within that, there were different sectors to be played. It was not just subprime it was looking at prime, commercial Mortgage Backed securities. Traffic in the securities, you need to build a lot of infrastructure. The short trade world played very easily. You come in short the market in size and it works. Many nonmortgage experts one big in that trade . Exactly. It was not easy to figure out how to short the market mortgage market. You just needed greg litman. You needed the index. You needed that adx index. There was a machine on the other side that was willing to take that trade. That is a onetime trade were your betting on housing collapse. You have to go for security selection. That requires a fair amount of infrastructure. Blackstone has become the largest owner of singlefamily homes in terms of rentals. Are you investors in the kind of thing . Do you like thats real rental payments . Be you like thats true of rental that stream of rental payments . For hedge funds the yields are not large enough to be playing in that sector. It is not a question of risk unless you put leverage on the securities. To buy securities yearly does not do anything for us. It is too popular . Short rates are very low. Financing spreads have compressed. As a result, securities are being created are not attractive enough. It is more compelling to take a look at riskier securities and terms of credit risk or going to make loans. Was the soft side look like . Mortgage debt, which used to be the biggest debts with insecurity bid division that banks, what do they look like now . If you look at what is happening on the sell side risk has been cut back. The ability to take risk has been curtailed. A lot of tells has left the sell side. A lot of the talent has left the sell side. Before the crisis, mortgage hedge funds were small. The big hedge funds were wall street. That is where there has been huge straight gige huge shrinkage. D pok, thank you for joining us deepak narula, founder of metacapital managements. We will be back with more. You are looking at a live shot in the white house. President obama and Angela Merkel will be taking the podium, following their private remarks. The situation in the ukraine. Angela merkels position. We will be hearing most likely about the situation in greece. Probably cover other topics. We will be taking you to the white house on bloomberg television. You are watching bloomberg television. Moments from now, president obama and Angela Merkel will be taking the podium at the white house following their private discussion. What is going to be on their minds . The situation in greece. The conversation they had about the ukraine and if military aid should be provided. The man we need to ask is peter cook. He is outside the white house right now. What are you going to be listening for . I will be listening for the gap between this president and chancellor merkel on ukraine. Particularly this idea of the United States providing weapons. How confident the chancellor is that these talks are getting closer to the notion of a ceasefire. Like you, i will be listening to any questions she gets about greece and the possible exit from the european union. All hot topics. I think they will come up. Will be watching that and checking in with you later. For now, it is time for bloomberg to take you on the markets. Friday is stronger than expected fridays stronger than expected job report. The average put on more than 650 points, leaving it just shy of the unchanged level on the year. It is down by a quarter of 1 . Worries about greeces standoff against its creditors. Joining me is jim. As we wait for president obama and Angela Merkel to speak to the news to the press in their News Conference about what they discussed to what extent is that driving volatility in the markets . There is plenty of uncertainty in the market now. It is somewhat what weve talked about over the last several weeks. You mentioned the s p last week. We spent it has been a spinning of the wheels and we have gone nowhere. Im sure they will talk about greece. Three year Government Bond yields in greece above 21 . The euro perching fresh highs above 13 . European equity ball till similar index. Not quite as much but there remains significant volatility across the classes. That keeps us cautious in the near term. You mention all those factors. Another catalyst is oil prices. Oil has resumed their correction , moving north. To what extent is that driving weariness . Is just another risk event. I would argue less impactful in the near term then greece and some of the congress its all the comments i will come to the president. The potential of a greek as it exit from the euro. All eyes on crude as well. Toll brothers touched his seven month high. How are you looking to trade toll . This is a trade on the spring selling season. The report in a couple of weeks. The group has performed well after week mornings in january after week earnings in january. On the macro scale, Mortgage Rates are low. The employment report, very constructive on employment gains. We want to go out to june and applied volatility. We want to buy 40 calls out right. Defined risk for upside in toll brothers. Why toll as opposed to other builders . One is toll because we think there is less risk of market pressure going out over the year. The other is kb homes. This is a stock that trait and 0. 8 times forward look. A real value name that if we do see demand for housing in the spring selling season, we think has plenty of upside relative to the rest of the group. Thank you so much, jim. Money clip is next. Welcome to money clip. I am pimm fox and heres the rundown. Around the world greece zigs in and stick to a plan for a better financial future. Investors do not like it. The cameras are gone from ferguson missouri. We have a status report on the citys recovery. The grammys come and go. We will assess the award shows place in the music business. We will introduce you to kathy engelbert, the first female chief