Transcripts For BLOOMBERG Market Makers 20151023

Domestic economy. Dramatic capital outflows everyone is pulling money out of china. It has been going on all summer but the reaction in the market on the losing of Monetary Policy is amazing. Across all Asset Classes, futures up across the board, a gain of 1. 5 on the nasdaq. Everything is gaining. Looking at the 10 year yield, rising as investors sell debt to buy riskier assets. Take a look at european stocks, up across the board. The dax is up 3 . The rest are following up. If you look at commodities, you see gains in copper right now. You see gains in gold right now. You see gains in oil right now and you see movement and currencies as well, the reaction has been global and swift and dramatic and its been across the board. David lets hear the first word vonnie area with begin with american airlines, the company had a better than expected thirdquarter. Earnings Beat Estimates. Says fuel prices helped. Jack dorsey sharing of wealth as he donates 1 3 his stock to employees at 200 million. It may increase morale after the recent job cuts. Jack dorsey tweeted last night saying i would rather have a small part of Something Big in a bigger part of something small i am confident we can make. Twitter big. Welcome, Steve Ballmer. You are one of the biggest investors in twitter, do you support this move . Thats jacks decision. Its incredibly altruistic and shows great faith in the company which i share. I think its a great signal. Stephanie its jacks decision but did he need to do it because the company is in trouble . Twitter is a company that has all kinds of opportunities. There is all caps of things that can be done better and i am impressed without jack has jumped on top of this. It is such a strong underlying aspect, the ability to improve the product, jack is on top of it. The ability to streamline the cost structure which i think i needed it needs to happen, jack is on top of it. Jack is on top of monetization. Stephanie he has been there all the time but he is a cofounder and has been on the board. Why would they not have been doing these things right all the time . Theres a huge difference between being on the board in running the place. I understand that very well. Boards dont run things. Ceos do. To bencredibly different a ceo than just a board member. David when did you take the position on twitter . It was before i knew he would take over. I was glad the board was looking for a new ceo with the resignation of dick costolo. Faith they could have the right guy come in as ceo. Iterated,y have not they have not changed and modify their product like facebook has. Challengert of the and opportunity for them . If they were doing everything perfectly, not sure it would have been a good buy. Everybody was trying to comedic it with the world tells you whether twitter handle it is. Every news show. Its an incredible asset. The fact that maybe they were not doing is good job really points to the opportunity as opposed to sitting there saying that something is not perfect and the company. They have a chance to make great improvements which is where i think shareholder value can get created as an investor. Do you want to be on the board . I dont have a board personality. Yourself do you see in any way as a friendly activist . You see the problems of the company and they can improve. Are you going to have conversations about the problems you see them having and what they should do . Thats a fair thing to do, friendly activist. Fractivist. I will say what i think in the company will do it wants to. I have had a chance to chat with jack once since i started building the position. Mostly we chit chatted. When i was at microsoft, we talked a little bit. We talked about beta testing. I wished him well. David they have a very powerful service but as a consumer, it struck me that its difficult to monetize. They need to grow but they also need to monetize. They start getting too many sponsored tweets. I can get annoyed. Is that a challenge for them . I think they have an inortunity as all people do the internet advertising business of thinking through how to make the ads relevant to balance the number of ads versus the amount of content. I think they also have an opportunity to help people who are not hardcore twitter users have a chance to be readers of tweets and not have to think about themselves as a producer of tweets. Most people say i will not be on twitter and i dont expect it we but people should be reading. David its like a news service. Stephanie everyone we had sitting in your feet is a in your seat is a twitter troll. They most if i follow people. How long before you see this company being profitable . Do you want them to be profitable . Of course, i believe profit is the requirement for sustainable market gaps. Stephanie it doesnt seem to be a requirement in california these days. I still believe in fundamental realities. Profits should drive market cap longterm. There is only so long when investors will put up with not making a profit. That could be a long. Of time and i have been wrong about it before but fundamental economics has to work. Stephanie we have to share our twitter question. We solicited to our audience to what specifically will be the catalyst for a fundamental rerating of the twitter stock. What are the bears missing . I think there will be some potential catalysts. There are ongoing improvements in the product. The opportunity is there. Ideas andlot of good people will wake up and say, wow. In our industry, product drives part of it and the other will be financial improvements in the business. When those show up, they will show up. It could be long or short term but jack is focused on it. I think the company will perform better with a lower cost base but it will also perform better financially with a lower cost base. David most monetization is about cutting costs. Getting focused and cutting costs. Jack highlighted focus in his tweet an investor should pay attention. Know how you clearly to be a cultural leader and we understand where you come from and what you. What have they done wrong . What does it take to lead a company in terms of culture in a positive way . It has been a mess. I am not inside the doors of twitter. I cannot tell you what the culture is like an everyone has to form their own. I think the key thing is you have to be prepared to invest in the right stock, the right product improvement, the right product enhancements. Twitter did not do that. Maybe the culture was messed up. They did not innovate or you can say because they did not prioritize innovation, the culture got messed up. Thats up to the Twitter Management Team to figure out. David turning back to microsoft, specifically xbox and halo five. Its about to be launched. Do you play . I am not a big halo player myself but i have three boys all of whom are revved up for the release of halo five. Stephanie and revved up for the woman who designed it . Yes. David she is on the cover. In the Earnings Release yesterday, microsoft is really moving toward a b t company. O b how important is xbox and halo five to the future of microsoft . I believe microsoft has a muscle thats a consumer muscle and another muscle is a bto b muscle. Depending on the quarter, you will hear more about one or the other. The microsoft transcendence into a Hardware Company is crucial. To b business. We are opening up a brandnew store on fifth avenue that opens monday to show up this incredible innovation. You can use it in business but it is really all about the consumer. And windowsardware but hardware is the leader with some of the Consumer Services and then there is the transition of the cloud for that b to b business. Stephanie how can you create the magic of that store westmark i think about the apple store and every time they come out with a product, there is a line around the block. What are they doing . They want apple. When you open next week, how will get those people lined up . I have a certain responsibility for the stuff in the pipeline coming to market now. I am confident in the people who are there that they will figure that out. Look at the reaction to the new surface pro and service book, it was fantastic. Its based on a new version of windows but its a whole new area of innovation for the company, great people, great town, the stores all of that stuff now is really coming together. We put a lot of money in it. People like to say we lost of money a lot of money. Plan is, i love it when i plan comes together. David lets go to our hardware. Been at the launch of every single iteration of halo. The lines wrap around the block at midnight and multiple Different Stores around manhattan. I have had every xbox since the inception and bought multiple copies for my friends. Pcx revenue, this is windows the xbox revenue climbs until 10 billion. I spend a lot of money buying stuff for halo or buying stuff for call of duty in the store on the hardware platform. How much can you get out of that increasing revenue stream of people who are spending to buy different suits for their commando . Its an interesting question. Best posed to the company. If there is a lot of opportunity, the answer is yes. There is an explosion and everything around gaming. Microsoft bought mine craft. It has some replaces it can be taken. It can be taken to new levels and new worlds you can create. Xbox, talking with some folks yesterday about the new eastport where you pack arenas with people playing league of legends. Think about halo, 18,000 turn them is. Theres more to give the customer than the company can figure out how to monetize. Stephanie the nerds want to play. How big of a role does Virtual Reality play . We look at oculus and how excited the gamers are. How big can it be question mark im enthusiastic about the possibility of virtual and what we call augmented reality. I look at you and through the glasses, i can see your names and your bios in addition to seeing your face. We were are working on a product that microsoft made public called owl lens. As the owner of the l. A. Clippers, we are also asking what can we do with augmented reality. We are sitting there in the building and we dont the goods a great idea to have people sitting and looking down. You want to look out at the game and still be able to see the most important information, what is the freethrow shooting percentage, how many dunks have they laid down, whatever the case may be. Stephanie wearing google glasses looks really cool. We have so much more to cover. You can read more on halo five in this weeks Bloomberg Businessweek. Steve will stick around with us. When we return, we are going deep on some of the Biggest Tech Companies and where they will be one year from now. We will ask steve to weigh in but before we go, lets take a look at Steve Ballmer back in the day at one of his infamous microsoft meetings. Take a look. First developers, developers, developers. Yes stephanie we are here with amanda needs no introduction, Steve Ballmer, owner of the l. A. Clippers. We want to get an understanding of what the future holds. Yahoo tart with what do they look like 12 months from now . Its hard for me to say. Did a partnership with yahoo several years ago. Then,d say mostly since they have swum around the not really found a direction that leads to a future. I wish them well but that is not really happened over the last several years. David is it a freestanding company 1218 months from now . I think its a company that has to find a direction in which you can make progress before you can decide whether its freestanding or likely to be acquired. We looked at acquiring it when i was at microsoft. It wouldve been about 2007 but it had a real surge position and there were real economies discover putting the two companies together. Im not clear where they sit anymore and its not clear who would acquire it. David it would be a lower price tag . It might be. It has to do with the value of the alibaba stake. Stephanie facebook, many people say they simply won the war in terms of mobile. When they went public, that was their achilles heel. How can they convert to mobile but it seems they have crushed it. I think facebook is a great company. Ideatook the germ of an and they continued to build it out. Did not over monetize nor under monetize. Its a super Impressive Company with a clear direction. The success of facebook mean that twitter will always be far behind question mark i think facebook and twitter are two different beasts. Facebook is a social network. You can say that twitter is much more of a news and communication network. Thats one of the things that check dorsey will work on is to clarify their real position. I think they are more apples and oranges. Is it too late for ibm to win with the cloud . They are kind of late into the game. Its too late in my opinion. David that does not say much for their strategy. I dont know their strategy very well but i think there is a lot of momentum with microsoft and amazon in terms of core infrastructure. Google is doing a good job and some consumer stuff but they will try on the b to b side. These companies have amazing Cloud Infrastructure and distorted data centers. It would take years for ibm to catch up and they dont have killer apps like search or office or the amazon store. Without a killer app, its not clear how you drive that investment. I think they will struggle in the cloud. Stephanie what is the ibm value . Some say watson is special but what is it really . Companyas been a superb that has a great cash flow. How they choose to rechannel that, maybe they will be more successful in the cloud. Companies can be very resilient. We started the rebirth of microsoft from a Software Company to a Hardware Company and a services company. Nadella came up with that. David alphabet, it does it start with more than g . I dont know. I dont know what else of that is. I know what up that is. Know what you had to grade a separate corporate structure. I dont understand the alphabetting of google. Will google be effective in the hardware business . Thats a theyre talking about with cars or nets. They have to make a sustained commitment and they have not shown a willingness to do that yet. Stephanie lets talk amazon. In a recent article, he did not want amazon to become a country club but amazon became like microsoft and we would die. Thats a quotation from jeff bezos. I dont think of you as a country club guy. What you think of this . The microsoft culture is very strong, hard driving, people are really focused on changing the world, people work very hard. I believe the same is true at amazon but there is intense competition between microsoft and amazon. Intenses but there is competition just in the city of seattle over talent. I think they are a place that people dont want to work. Anybody who ever let microsoft can count on them coming back. We can count on them coming back within a year or two because its not a great place to work to do innovative stuff as an engineer. Stephanie so people who would lead to go to amazon, you would say that the doors open and they were back . Many people did around trip. Not everyone but many people. Its probably fair to see you see movement between the two companies. Its not Silicon Valley where everyone is moving between every company all this time. In seattle, there are some startups that mostly the two big employers are microsoft and amazon. Stephanie you do the interviews at starbucks so they went . Thats right. Stephanie capital they apple. They have done a great job. Back to 1997 when steve came back and they were almost bankrupt, we made an investment in apple as part of settling a lawsuit. Microsoft made an investment. In a way, a you say that mightve been the craziest thing we ever did but they have taken the foundation of great innovation, some cash, entered into the most valuable company in the world. Microsoft gave them a good run for their money and nobody else is tried to compete with them seriously in hardware. Who is really going after the mass . Who is going after the ipad . You can basically say microsoft and samsung. One that is the only has a software and hardware capability. If there is going to be cop as competition for apple, it will come from microsoft i believe in that. Stephanie do you have to take market share from apple or is the pie getting bigger . Nobody had a tablet two years ago. It looked like every kid in central park had a device. You dont have to take from the other guy but you got to at least take the new innovations that are coming. Imac ore book is not an an ipad but its a new category. Its an innovative category. Who was going to get to those categories first . Companieshe only two that have that Software Hardware skills. David we are both from michigan and is apple going to be a car company in tenures . You have to ask apple. Its a much bigger leap to do cars than it is most of the things they have tried. Isolate tesla but its still relatively small. Will other people be able to put intelligence in their cars . Yes, but maybe apple gets there. Uber, love it or hate it . Its Great Service so i love it and no market cap comments because i dont understand the economics very well. David Steve Ballmer will stick with us. We will come back and have two former spurs players next on bloomberg go. Buddy nice place, nice car what happened . Well, it all started with my free credit score from credit sesame. Com. They gave me so much more than a free credit score. Credit sesames Money Management tools and personalized offers saved me tons of money and helped me reach my goals. I just signed up with their free app. Whats my credit score . Your credit score is 650. Thats magic no, thats credit sesame. Com you get so much more than a free credit score so do more with your score at credit sesame. Com stephanie welcome back to bloomberg , here with Steve Ballmer. Joining us center for the spurs and cofounder of admiral capital group, david robertson. Welcome. What a morning. A big morning. Lets art with matt miller. Tell us what is going on with the markets. Matt i cannot wait to see what with the admiral have to say. China has massive youth. Lowering its reserve are minced by half a racist point. This is the loosening we have been waiting or. It reverberated across the market. Check out futures. We were already positive because of the great earnings from microsoft, google, and amazon yesterday. Big spikes across the board. Spike. Emarket the dow mini contracts i have in my bloomberg. Right here is when the announcement was made. Already off and climbing. But a big spike after chinese loosening. Be 10 year. At people investing money in riskier assets. Stuff, theybuying have to take it out of somewhere, and they are taking it out of the 10 year. To 2. 09. Is point pop and the run and be strengthening. It is gaining strength. Onlye the spike, you can now you can only by renminbi for 3. 5 a dollar. Gold is rising. Copper rising now. Any of the dts that have asked that any of the etfs have anything to do with china having some big pops. Stephanie were going to take a deep diving to the business of sports, specifically basketball. If you look at the game, 50 of your fans are women. It has become a global sport. Every country loves basketball. If you look across ownership, it continues to be white men who owned the team. You stepped into the after a horrible situation. Adam silver made a decision, the team needed to move. How did you walk into that position and take leadership . Help them move forward and turned the page, really after a moment of crisis . Steve in a sense, everyone wanted to move forward. It is not when you walk in and everyone here is perfect. On courters had recent success. Never won a title. The basketball people live in the regime that they did not like living in. It was mostly a job of saying look, you are enabled. Doc rivers, drive us. Players, you have this monkey off of your back that has been a real issues, not just the last go, but there were other good things going on. Business people, time to get serious and drive the business. David i still wonder and ,his is an issue that comes up is it sustainable to have an Ownership Structure that is entirely different and looks different in race, ethnicity, and gender than the employees and the customers . It is desirable, i think. You bring different experiences. We are in san antonio. Small market. 55 hispanic community. You need different opinions. We have a large ownership group. It has been a fantastic experience. Spurs havehas the organization for a long time to be hired a female assistant coach. She has proven fantastic. I look kind of door does that open to the nba . That is an amazing change. That may not take a that for a few more years, that people are seeing this is a great thing to do. The players accepted it. She did fantastic in the summer league. I think we need more leadership in the diversity area to keep people under staring understanding how important that is. Stephanie what did we learn about this Donald Sterling incident . A oneoff. Is it something in the game of basketball. The country was shocked and heartbroken. It is inside culture. Something many of us live with every day. A of things under the surface that you do not my kids go to a school. We live in texas. San antonio is a wonderful city, but there are a lot of cowboys there are a lot of oldschool people in texas. You run into what all the time. I taught my kids always treat people with respect, regardless of how you are treated. It is a cultural thing. We are still growing, learning. Even as a country not to get too political but as a thetry, we feel like we are best. All of these other countries offer so much. All of these people offer so much. We love immigrants. That is what we are. For us to really embrace who we are, i do not think we have come to that place yet. Military,orts, the tend to be leaders in those areas where we appreciate diversity. Bringing in people from china, australia, costa rica. Tim duncan, from the islands. David when you took over the clippers, did you seek to lead in this area . Matt steve yes. Under this aside, our president is a woman. We have real diversity in our Leadership Team on the business side. On the basketball side, there was not really a whole lot to change. I loved having doc Rivers Running the organization. The assistant coach level, but we have a woman making her way up on the basketball side. Video room. Keep moving. A great path into leadership. Our basketball side on that dimension is in good shape. Diversityretty good in terms of gender, race, etc. On the business side. Stephanie what did you learn over the years . People atleader of microsoft. What did you learn in terms of what you needed to do . In a way, i will argue that leadership skills are really transferable. Atecided to give a speech training camp. Wishing the guys well before the season. Stephanie you missed it . You had to miss this. Steve i taught a class at Stanford Business school about the ship and value creation. About leadership and value creation. To applythese seem well to basketball. Get in the weight room. Build new skills. It made a lot of sense to our players. You have to get yourself fit. I talked about seeing the field in business. You have to see the whole landscape. Hold yourself accountable. These are the lessons of leadership and value creation. David can talk more to it. He was a player. I didnt see enough differences to dramatize the difference is more than similarities. Militaryu are a officer and a player, major player in the nba and now a Significant Investor in real estate. What did you learn and what did you bring in terms of leadership . David r. there is tremendous crossover. The ins you learn on the floor i value as much as anything are learned in the classroom or boardroom. You learn how to get back up when you have been knocked down. You learn to have thick skin. There is such a great relationship, whether it is business or music or sports. You see all of this crossover. The business guys love sports, sports guys love music. You see something in another area where you think i can add value. Then athlete, playing at highest level, building a team, all of these great things i have done that i will can come to the Business World and add value. The real estate guy, but i can find the real estate guy. That is how we have been able to build. Stephanie how do you separate passion from emotion . Is what drivesl he and emotion is where we make mistakes. Let me highlight three things i think are important. Number one, ideas matter. You have to know where you are going, whether it is a game plan in basketball or a Product Innovation concept in business. Number two, you have to be tenacious. Get up off the floor. In are going to take hits sports, business, and you have to keep going. Number 3 colin powell has a great leadership line. Optimism is a force multiplier. He said a from a military context. I know it works in business. It better work and sports. You are going to get knocked down a lot. You have to stay positive. David r. absolutely. Military, force multiplier is a keyword. It is true. As leaders this is one area i have been fortunate in. I have been able to lead a school, a foundation, the spurs, and now in business. If i do not believe in what we are doing, where is everybody going . Stephanie if you guys know how to lead, how will you win . Winning takes a few things. It does take tenacity. It does not necessarily happen in one season. Stephanie i do not want your leadership talk, i am talking about this season. Tenacious. Ave to be if we have a great season, we will still lose a quarter of the games . Ift is a great season, even you lose 25 of your games. You have to keep focused. In a goodrdan said year, i will make half of my shots. You have to stay healthy. Like a Good Business team, we have to gel. To wee a of new players have our backbone back. We have a lot of new guys we hope will matter this year. That bonding will be critical. If we do all of that, we will have to the spurs again this year. David r. i am still having nightmares from last year. You guys, that was fantastic. That was a great series. But you win by preparation. I have been fortunate, being with the spurs, we have one fell a lot. Won a lot. It comes down to preparation. Over the summer, we brought in david west, we built of our team to go with these veterans we have. That is exciting. Number two, culture. We spent 25 years building a great culture. David west took a town less money to play with the spurs because of culture that he wants to be around tim gunn tim duncan, tony parker. This is a great place. Not learn, in any other locker room, like in the spurs locker room. David whoever you do, how will people watch it . All ofwe are looking at our options. We have a lot of great options. Stephanie i think anything Steve Ballmer does is over the top. There are two issues. You stream the broadcasts over the top or go on tv. They knew Product Innovation in sports will happen on the internet. How do you have inner conductivity. How you let People Choose their own camera angles. Superimposed statistics over the game. Features thatnew only happen over the internet. We want to work on those, even while it would be nice to keep and we are trying to keep a broadcast model in place. We like to keep that in place and add value. Steve, thank you for being with us. David, you will stay with us. Here is another yearbook game clue i have not figured this out yet. This graduate of China High School grew up to be best friends with jon bon jovi. Take a guess at bloomberg tv. Chester High School Means philadelphia area. Stephanie i think i know who it is. I his hair does not look quite he same these days. David tweet us your guesses bloombergtv. Will come back to bloomberg. China taking more steps to keep the economic slowdown from getting worse. In the Third Quarter, the chinese economy grew at the slowest pace since 2000 nine. American airlines wallenda shopping spree the Third Quarter. It spends billions in a cell five back plan. Amazons stock search boosted its jeff bezos the third risk this person in the United States, trailing bill gates and Warren Buffett on the bloomberg linear index. David robinson, we are back. Lets talk about your present business, which is real estate investment. Why did you choose that area . David r. it was a combination of a lot of things. Sachstner is in goldman brought expertise to the table. I am a communityminded. All of my businesses or not of my desire to change communities. Years, michael has been to get kids into college, educate young kids. Setndards and totems standards and tones in the community. Peoplepartnered with like usaa. They donate 10 of their profits , along with ours, to put into a foundation where we invest. It is a natural extension of what i was doing before. I wanted to be the best basketball player, now i want to be the best business person, not just for trophies or for money in the bank, but i think we have tremendous impact. David how do you choose communities . David r. right now, it is merely invest. I have been in san antonio. What we had been doing in Charter Schools in san antonio will impact the country. So many areas now, we go into houston. I partnered with hilton global. The university of houston. 25 kids that year. Send them to visit our departments at our hotels. They get time at the university of houston and focus on hospitality, and we get them scholarships to college. We use those relationships we formed an Hour Real Estate fund to make impact. Stephanie assuming the Real Estate Fund will work. People love this a real estate only goes up. But you are based in San Antonio Team is in new york, but we partnered with usaa. We focus in san antonio. That Partnership Gives says a presence in so many kenyan these. They have offices around the country, feet and the ground. Now we can say what is happening in atlanta. They have a Great Research team. We get a chance to know what is happening and make Wise Investments in those areas. David do you choose because it is a Good Business opportunity or because it is a community you can help . David r. a Good Business opportunity. We are all about returns. You want to do the best for your investors. But we try to find opportunities along the way, because that is my passion. We will go into atlanta and talk about what are you guys doing here . What is happening, especially in the education space, but in other areas. How can we get involved . Usaa is interested in putting time and money there. We are looking at everything. I will meet with the mayor. We will talk about what is happening, not only on the real estate side but the community side. He mayors love that partnership. It is a great value i think we add as a fund. Stephanie something we have seen you do with the organizations you are involved with is consistency. You have the ability to take volatility out of a situation and create consistency. How have you done this in the Business Community . Based in san antonio, isn though your real estate in georgia and washington state, texas is having a tough time. Has been success fairly steady, especially in the real estate side. Dallas and houston has gone well during a tough time in the country. For me, i come in i believe culture is the biggest thing. What i learned through the navy and through the spurs, but you start to build the culture. Then you are able to in fact then you are able to affect influence. Those being in communities, do you see signs of a slowdown or growth in terms of the economy generating . You have a grassroots reproach you have a grassroots approach. David r. there is money, and from all over. You go to new york and boston chicago, i d. C. , they are getting flooded with money that does not need a high return. We need to be more diligent. We will go into atlanta, dallas, houston, seattle we are looking to find great communities where there is job growth, wage increase, all of these wonderful signs. Millennials moving in. We see opportunities across the country and bring the community aspect, which i think adds more value. Stephanie you had time with Steve Ballmer. Will he invest . We will talk later. It is great. We are growing. Building these relationships is a great thing. As an athlete, you spend time running away from people you need to focus and do my job. But as a businessman, you have to make relationships. As an athlete, you spend your time running way from people, one in your personal time. This is a different time for athletes want to be social media personalities. David r. that is a big change. Stephanie if you were a plan today, could you do that . Absolutely. Your doctor your time. In my time, we did not want our business in the streets. But now was a community, a world, that is who yard. Have a Live Television show you would do that . In my generation, who would want to see everything behind the scenes . Like me now,ople but if they saw everything i do, they probably would not like me. From my generation, they probably understand, but now watching notre dame, they have a show. My son and these guys are opening of their lives. Stephanie are they taking their lives everything their eyes off the ball . Is are. the question they learning to adapt to the situation . Some guys take their eyes off the ball, some do not. That is a talent. You look at a guy like lebron james. How can this guy be a business mogul, you see him everywhere. These guys preformatted extremely high level. And those are the guys the young guys need to look up to, and so that instead of the other guys falling by the wayside. David go back to education. There is a lot of attention being given to education reform now. How do you know youre getting a return on your investment . There is a lot of goodwill behind a lot of money i am not sure is delivering. David r. great question. When i first started with my , the carverol academy, i wanted to raise money and i had this great idea. I wanted to educate less privileged kids and my owner came to me and i have and said i have seen more money wasted and education than anything else. A discouraged me. I thought that was one of the best things that happened, because it made me sit down and evaluate my commitment. The key is partnerships. There are a lot of people out there doing great things. You have to build synergy with those guys. You do not have to duplicate efforts. Public schoolsth and became a charter school. We were the first school in san antonio. Now there are 10 schools and we are building 20. Atphanie you have one son notre dame. What are we going to get . David r. ica national championship. Stephanie your son is playing duke basketball. David r. hes a freshman. Fantastic. Looking forward to that. Stephanie David Robinson of admiral capital. From there 30 minutes opening bell. Welcome to bloomberg. I am david westin. Stephanie i am stephanie ruhle. We are joined by erik coanchor, back from San Francisco, erik schatzker. Has 11 billion of credit management. Also here is david kotok from cumberland advisors, which has about 2. 5 billion dollars under management. Collectively, we topped eight cool 13 plus the two and half dollars i have in the bank. To the first word before we get to richard and david. Vonnie quinn has that. Vonnie china is talking more to keep thetaking economic slowdown from getting worse. Time, Chinas Central Bank cut Interest Rates. In the Third Quarter, the chinese economy grew at the slowest pace since 2009. At least 24 people are dead after a fiery crash between a truck and bus near bordeaux in france. New developments in the race for the white house. Former Rhode Island Governor Lincoln Chafee is ending his bid for the democratic nomination. The latest Bloomberg Politics all shows ben carson leading all republicans in iowa at 28 , 9 more then donald trump. Ted cruz is third. Carson and cruz will join us on with all of do respect, at 5 00 here on bloomberg tv. Matt that chinese news pushed up an already positive market. If you look at futures, up across the board. We were already doing well because of the great tech earnings from amazon, google, microsoft after the bell yesterday. Marketsnews pushed further. We have been waiting for that loosening. Look at the 10 year. Selling as people rushed to buy riskier assets. Selling in the on market pushes yields up. Marketing in the bond pushes yields up. Commodities got a lift. All Asset Classes got a list. Gold is no exception. 1 ,bout three quarters of right now at 1174. Something i thought interest in i showed you earlier the on short rates for the renminbi. In strength. You can see the onshore traits of the renminbi gaining in strength, even though they are cutting rates. If you put in the offshore trades, cnh currency, it is actually getting weaker. It is fascinating that the onshore trade for the currency is doing opposite of. What offshore traders are doing. Thank you. Lets keep it going with the top stories. This rate cut by the peoples bank of china. We have david kotok, richard richard, since this is your wheelhouse, lets begin with you. Many provide people with context as we go into this question. It is not the first rate cut out of china in a long time. We have had six since november. How significant is this move . You allnk it tells about how weak the chinese economy is. It has a reported number of 6. 9 . If the economy was growing so close to the target, there would be no need for the stimulus. The Chinese Government Economic Growth is very slowing. And they feel compelled to act. That context,n in that this is in the context of the chinese economy being weaker than what headlines suggest. What does it mean for the rest of the world shifts in currency. This is a big move affecting currency and Exchange Rates. Erik which ones . We have a mole launch of currency trade. Erik can we use a better word than melange . Maryd had a bloody earlier, i am are the minutes. Wheninterest banks banks of Interest Rates near zero, 00 everywhere, so you do not have Interest Rates are per charging these differences. China dropped another bomb in the Interest Rate. Mixed volatile Exchange Rates. The yen, the euro it is coming. It is probably happening now. In china, look at the differences in the risk. What do you see . Erik what matt miller was pointing out . Yes. Where the world can treat, they are doing one thing. Where the internals are looking at the growth stimulus inside china, they are doing another. You have two different groups driving Exchange Rates in the same currency. Stephanie what do you think about the market perversion here . With the Chinese Market steps up, it is another sign of economic slowdown and we all jump in and five. Richard that is the big points. Maybe it is not so coincidental. Stored. Y was draghis today it is china. It was the u. S. Before that, delaying action on the outside. Maybe next is japan. Maybe we should be asking what is the overall Global Growth picture . How long will the kiwi regime, the qe regime, the melange, last . Should we say is the market at some point ruchir, what do you think . Draghiat we heard from yesterday tell us something we did not know . That thet tells you weakest spot in the currency, the global Economic Growth is running today at below 2. 5 , probably, if you just chinas crude road crude growth rate. Beenis the weakest it has since 2009. That is what Central Banks are worried about. When you have the Global Economy so week, all it takes is one shot to get the Global Economy into the next recession. I think you are running close to the edge. That is the concern that the federal bankers are revealing in their actions. But one point to make about china, credit which is critical, is the capital outgrowth story. That is the move may have done today. In september, capital outgrowth accelerated compared to august. Even though there was a sense of calm, which has overtaken the markets, it is important to remember it the most important data to look at is looking at what happened to Capital Growth in china. By cutting Interest Rates, that is a risk of furthering capital outgrowth from china. Manage assets, 10 Interest Rates, and asset prices rise and they will, this will do it. Economics, gross, labor. You look at gdp. Gdp drives in and outflows of capital. Financial markets arrive capital or asset purchases. Those are two different things. Coming to it with a simple view there has been a growth problem for some time. One cause could be insufficient credit. But Central Banks have taken that off the table. That cannot be the problem. We have a problem that has something to do with other than short credit. Messagea disturbing because there is so much you can do to take credit off the table. That is not the problem. The problem is clearly somewhere else. I do not know where stimulus could he how much more it could i do not know where the stimulus could exist. Deferred action by the fed is most likely the case. Better than feared earnings. Earning beats than misses. Maybe the top line revenue was not so great. But lowering that narrative is gdp. Rich raises a good question. How much further could this go . If this is a race to the bottom, how much more does is last and how much more to the notion of quantitative easing the . Ruchir we are seeing the benefits not as much as initially. The chinese economy has been slowing since 2011, even though it is in the headlines this year. Growth gets about 10 and since then, it has been slowing. The Chinese Government comes out in terms oflus plan fiscal stimulus and Interest Rates cuts. Each time they do that, you get some bounceback and economic liberty. Bouncing in economic activity, but the balance is shortlived. The duration of that balance is shorter overtime. The way i like to think about chinese growth is it is like a pingpong ball bouncing down the stairs. It is going down, getting these bounces because the stimulus and liquidity injection, but the trend is going down in each bounces getting smaller. End, how longe will it take before the pingpong ball reaches the apex of this bounds and the market starts to conclude it will not do enough any longer . Ruchir it is hard to tell where the Tipping Point is. Datahere are two important points. In china, the biggest problem is debt, and it is continuing to grow twice as fast as the chinese economy. There is no rebalancing in terms of the debt situation. The second is capital out rose. If in the next few weeks, this Interest Rate cuts and easing leads to more capital outgrowth from china, and that means the easing cycle in china or that it has reached its image. I would look out for the capital outflow of china. In september, that number accelerated and that is something to keep an eye on. Ruchir sharma of Morgan Stanley and Company Advisor david cook cut kotok, thank you. If you have questions for richard byrne, tweet us. Which stocks are moving in the premarket. Vonnie welcome back to bloomberg. The First Quarter for procter gamble. Revenues fell short of estimates by nearly half 1 billion. They reaffirmed its cautious view for 20 a little fuel Prices Airlines tocan betterthanexpected thirdquarter. They Beat Estimates and the board okayed a 2 billion stock buyback. The u. S. Dropping charges in a major Insider Trading case i would reverse the decision against michael steinberg. Weakened hisurt case. The ruling narrow the definition of inside trading. Matt we start with up. The chinese the u. S. Companies that are sensitive to the chinese news are often times those that own casinos in macau. Vegas sands,las wynn resorts all gaining on the news china will cut its Interest Rates and requirements. Lets look at the date earnings from the tech giants yesterday. Microsoft up 10 . Amazon up 10 . 10 le, now called off, up after they Beat Estimates yesterday. They are not all winners. Lets look at some big losers. Pandora down 30 . Skechers, disappointing earnings. Down 30 . Stratasys down 20 . Taking a look at what we will do next, how the thinking is changingscape with richard byrne. Stay with us. Stephanie welcome back to bloomberg. We have to talk banks. Are seeing stalled Revenue Growth and big declines and fixed income trading across the board. Four major european banks are restructuring. Byrne, we have to start with Deutsche Bank. Alumni,eutsche bank like you. De were last the ceo of utsche in america i almost word for him. We saw a huge management shakeup. Yesterday, an announcement that bonuses are being slashed. Who is this bank and who will they be . Charge to keep me out of trouble with my former colleagues, but lets start with a bad thing and then a good thing. Bad thing, Deutsche Bank, among others, as the triple crown of having three things they will have to fix. One, their price book. Two, their market cap. Mostrs, knowledge, but people do not realize the market cap of Deutsche Bank is 40 billion. People are surprised all many Tech Startups are bigger than that. There is their leverage. All related. Rich obviously. You get your price book up and then your market cap up and maybe leverage the whole thing. The positive is they seem to be doing all of the right things. Maybe there is a Capital Raise in their future, but simplifying the organization, he cannot how to cut costs. Stephanie cut cost for who . Rich you have to understand the under. Regime banks are some great stats. I do not know if this is true, but some of the largest banks have over 20,000 complaints people. Bank, there were cardcarrying members of the fed, walking in and out of the building. I am told there are maybe hundreds of peoples across these banks. The cost of doing business has changed dramatically. There was a stat about number of investigations yesterday. That is one thing. Exactly new. Ot Deutsche Bank new this was coming. There is a first mover advantage to be had, right . In changing your capital structure, improving ratios. The u. S. Banks to do that. Is there any advantage to being the last one to do it because. That is effectively what they are doing. Rich that is effectively what they are doing. Rich you have to understand what the metrics are that they are being governed by. The context of your profitability and the context of the capital charges against those differences is forcing banks Deutsche Bank, you are seeing that now, credit squeeze are leaving, exiting businesses. The good news is a lot of those businesses leaving banks are going to the alternative Asset Managers like us and many others who have trained their whole lives doing these things at bank s. But that brain drain is difficult. It is making banks no longer one shops and turning them defining them by what they are not doing rather than what they are. David is this a cyclical issue or a more permanent transformation . Are we looking at worlds smaller, less leverage, and have lower margins . Rich yes. Stephanie why would i want to be an employee at a Deutsche Bank or barclays . What i not say i would go to a lazar where there is inh there are businesses banks that work well in banks. They have worked through this pay scale issue. I think ins have settled. Theres also an issue that there are not that many bids away. I think people have gotten comfortable with what they have got. Stephanie that is the sad truth. David next, where our investors searching for yields on bloomberg. I just had a horrible nightmare. My companys entire network went down, and i was home in bed, unaware. But that would never happen. Comcast business monitors my Companys Network 24 hours a day and calls and emails me if something, like this scary storm, takes it offline. So i can rest easy. What. You dont have a desk bed . Dont be left in the dark. Get proactive alerts 24 7. Comcast business. Built for business. Welcome back. You are watching bloomberg. That is the view from 731 lexington. Isnt that beautiful . Stephanie it is even more beautiful at this desk, wouldnt you say . This is the place you want to be, not outside. Richard byrne here, talking about sovereign bonds and currencies because of this rate cut out of china. But his specialty is credit. Lets talk about this. I want to introduce of this conversation by playing an excerpt from an interview i did in San Francisco with the ceo of ls fargo, who has married who has a very comprehensive view of what is going on in the world of loans and credit. It is company specific. Most companys corporate Balance Sheets are in the best shape they have been in decades. I do not worry a lot about the people we are doing business with. I have not seen the big leverage in recent years. Corporate Balance Sheets in the best shape he has ever seen. Erik, i think there are a couple stories here. One is Third Quarter. Lets pretend we were doing this interview two or three weeks ago. Third quarter just over. That was the biggest move in the credit markets since the crisis. 6, 7 years, we lived effectively in the Sahara Desert to differentiate good and bad companies. We saw it. It was technically driven but also had a base in fundamentals. Highyield stretched to 18. 5 . You have to be nimble. A what happens to all of these investors what happened to all these investors . Are they simply getting killed . It is a complicated answer. The long only strategy for the last what seems like our entire lives now. It has been the winning play. Hedge funds typically when short like they were supposed to do. I think people style drifted. The valiance of the world, the energy names of hedge fund hotels. Where are we in the credit cycle . Radical tonk it is say we are getting along in the 2k. This is what mistakes get made. When there is a High Percentage triple see the there is a high leverage of the faults. Thank regulation is greater. All the latest eight cycles and behaviors i go with it. Does this mean we are going to burst . Six months from now are we going to say, how did we miss this . The other hand, Monetary Policy is the whole story. Default for the wells fargo narrative badhe percentage of lows go of loans going bad, one third of a percentage point. Remembered what it was like. Ven pre2008 for the first time we started seeing that, popping bonds down 15 points. When all the governments of the world are saying we want to ofn you more money, some those are going to be bad loans. How we can tie this back to our bank discussion. Banks are not encouraged to keep assets on the balance sheet. Banks are not the liquidity providers, they are not the lenders. World, average loan use because they usually. Alled bank loans it used to also become junk bonds and not high yields. On being realistic and what these underlying assets are . For the most part we have had events in injury. Started seeing a massive outflow and a contagion effect that took down the weaker credits within the market and started to differentiate dispersion some of the decompression. Matt im looking at the tables. Gives you basically a ranking of how the egg ranks are performing here. This is highyield issue wins. Kind of peaked here in 2012, 2013. Im wondering if maybe there is too much supply. At some point there is it going to be any more demand for this stuff. Because of regulations a lot of the big banks are going to want to get out of this business as well. Its not done yet, but you can see the trend. Much of that supply is refinancing. There are some footnotes to the story. For most part front inflows. The largest of the year. There is more demand than that supply is able to satiate. Online to steal a page to see what is happening in the stoxx world. We did have this chinese rate cut. Now the dow is up 128 points. We will get more details from matt in a minute. Thought it was worthwhile mentioning. I have another question for you though. She had 11 hours. The alpha business, which is to say you are trying to generate excess return. A lot of people dont want that in credit. They want exposure and increasingly they are turning to etfs. Do they make your job harder or easier . Tothere are lots of ways play the market. That plus mutual funds is the long market. Before you continue, the volatility we have seen is because of etfs . Youren the bulk of Investor Universe is fast twitch, there is daily liquidity or weekly or monthly, then fund flows tend to dictate. Trip very technically driven. When they start flowing negative, if you added up on the last few years, the aggregate size has doubled since precrisis. Ofler inventories, because all the reasons we have been talking about this hour, have gone down. Think what happens when that starts happening. If we truly get another divergence in liquidity like we did august 24, we saw the highyield market crack, what if it gets worse than that . Are we going to look at etfs like we did six points ago . I think technicals only take you so far because Monetary Policy is where it is. I think that will always trump what happens. When fundamentals start catching up and we start seeing and things start happening it will create a real credit degree real credit events. We are seeing it in natural resources, coal, some falling lines out there. The market is starting to trade them at the spread differentials that they deserve. We are going to have to get past cohesive global centralbank thing at some point. Im not going to ask you to say Franklin Templeton is going down. Somebody like franklin who is so long yield in terms of highenergy, we dont see that changing. Maybe this is a year where we are going to see more and more of these guys simply go away. This is probably a really good time to take a lot less risk for a little less sealed. Things are still somewhat relatively compressed. Cycle it seems like that risk is not a worth taking. Good companies and market shares with the right capital structures. That is when it is on your buying list. Good luck trying to sell some of those positions. Look at awaree a stocks have opened up. We are almost 10 minutes into trading. Across thes gaining board because of the strong earnings we had in the tech sector. And because of the news they are going to cut Interest Rate by quarter percent, requirements by about half a percent. You can see the s p 500 year to date starting off around 2070. We are finally looking at gains year to date. Isn more interesting facebook. We have hit over 100 per share. Obviously it has come away from that watched ipo. Gold has fallen out of favor, but obviously the price has gone up recently. If you take a look at a chart of gold, you can see these weird lines and moving averages. A 50 Day Moving Average move up, that is what is known as a golden cross. Kind ofuy into that Technical Analysis that should be very good news for the price of old. It has done really quite well since july. Hospital chains sold off yesterday. We will talk with the ceo of one of those affected by u. S. Health services. Here is another yearbook game clue. Carl icahn is his neighbor in the hamptons. Here is your latest Bloomberg Business class. More than doubles from a year ago. Focusing on subscriptionbased products. Federal sales of arctic and oil of arctic oil was canceled last week due to interest. Jeff bezos is now the third richest american. He trails only bill gates and Warren Buffett on the billionaire index. That is the latest Bloomberg Business clash. Eric there is an lot of attention in the hospital industry. Systems,nity health guided down in a big way. One company that was affected in the selloff, universal Health Services down almost 11 . On a tear, outperforming the s p 500 as you can see here. Stock is recovering. Alan miller is the chairman, ceo, and founder of universal Health Services with us in downtown matt in midtown manhattan. Broadly speaking, what on earth is happening in this industry . Not just community. Alan the Third Quarter is a down quarter generally in the industry. There was a lot of reaction, maybe over reaction. Erik york item states that to july. Is that guidance still good . Alan im not going to talk about earnings. If that is our guidance, that is what it is. Erik to what degree does your company, universal, experiencing any of experiencing the same volume and cost pressures we see play out . We were a longterm player. I know one of the companies had reorganization. We are not as highly leveraged as most of the companies. We played perhaps a different strategy long range. Erik im aware your business is different. Even af the earnings and lot of your behavior Health Services. And behavioral care. So behavioral, relative to what is going on is different. Alan behavioral is different than acute care, but they work nicely together. Erik some are seeing an increase in volumes. Others are seeing a decrease in volumes. The problem they are running into is labor is for the most part a fixed cost and volumes are going down. Cost pressure is building on their income statements, and their margins are suffering. Furthermore there is this other trend that they are seeing a reversal in the number of uninsured patients coming through the door. That the number of uninsured patients is going up. Alan i dont follow them as carefully as you might. We have all benefited from the Affordable Care act. It has covered an awful lot of people. To 31insured is down million. Projected to go even lower. That has a positive impact on our bad that. See people coming to the hospital with some kind of coverage. We see expansion of medicaid. Those are our positive factors. I wouldnt take four months is something indicative of something that will be longlasting. Erik the people jumping to the conclusion that the benefit or the boost of Health Care Reform is over are mistaken . We have been at this for 37 years. I think people who do analysis have aey managers different timeframe than most people. Erik what they worry about is the great two years we have seen in the hospital industry is coming to an end because there is an much of a benefit for medicaid expansion, for example, and there is too much volatility in the states where health care exchangers are being run in the number of insured and uninsured and the debates over the questions of affordability and insurance and the level of subsidy. Alan there are a lot of things going on in this industry that are transitioning. Population of the United States is going up. A percentage of older people is going up. Needwill continue to hospital care. That is what the trend is for our industry. Those are the factors underlying all the Hospital Industries and of course the companies that are public. The Nonprofit Sector is doing better longrange. Erik you see you operate hospitals in texas. Are you seeing people losing their jobs all of a sudden become unable to pay for their health care . Down at one state is some point in another state might be up. We dont follow that as a trend. It is more important for us that , new devices,re new courses of treatment. The Mental Health thing is a big thing. In the future i think that what we have seen in terms of gun violence is really related to Mental Health. My company is doing everything we can. Dedicated hospitals to ptsd. We are not doing enough about treating mental patients, leaving them untreated. We have bad results and we can do something about that as a nation. Erik thank you very much. Alan miller is ceo and founder of universal Health Services. David lets take a look at some of the highlights as heard on go. Banks are getting out of so many businesses, those private equity firms are glowing to gargantuan sizes. I think the people who use the term shadow banking use it in a pejorative way. I think it is coming from the big banks. The regulators encourage growth below the level of the big interconnected banks. As long as the system is safe it is fine. And if you have wider aspects, and there is some truth to that. What you dont want to happen is one day it affects the financial markets. Was ceo, dont make earnings forecast. We dont know what is happening every quarter. There is nothing i missed about being a public company. When you line up the investments we are making in innovation and r d, with our leadership and ownership and they are and there aregned no disgruntled active shareholders telling the company what to do, it is extremely powerful. There is a huge difference between being on the board and running the place. Boards dont run things, ceos do. It is incredibly different to be a. C. L. Ceo rather than just a board member. Thatthe one moment for me was not captured was David Robinson and steve ammar together talking. I dont know if you could feel it out there but in here the electricity was palpable. Hes giving advice to the company in a constructive way. Richard burns, what did you learn this week in the market . Richard i think we learned that coordinated central policy beats Everything Else combined. You thought you are taking a course in attendance and class participation. It turned out the on a the final exam. The underlying story is it is like 100 of your grade right now. Centralbank decides it. Long on the mean go market . If all the Central Banks are stepping in, does that mean go long . There are lots of risks out there, we are late in the cycle. Beware of making those mistakes. I mentioned before, good companies. And look for places to invest where that supply demand is and so skewed against you. Hankhose assets, all that capital turns into an opportunity when it goes away. We have the yearbook game big reveal. This businessman was a 1962 graduate. He is best friends with jon bon jovi, neighbors with carl icahn in the hamptons. The answer is ronald perlman. Jon bon jovis son was here. He took a picture and said, it is bob kraft. The winner is brandon david. He went to high school with ron perlman. Here you have it for the day and the week. What a week, what a day on bloomberg go. See you on monday. It is 10 00 a. M. A. M. In new york, 3 p. M. In london, welcome to the bloomberg market day. From bloomberg world headquarters, good morning, i am betty liu. Here is what we are watching this hour. China is cutting Interest Rates again to keep the slowdown from getting even worse. The republican president ial nomination, the name is dan carson. A new poll shows him feeding trumpet in iowa. Away 200orsey giving million of his own shares to the companys employees. We are about half an hour into the trading session. Happened inat china. Julie hyman is at the markets desk. Julie ageold on top of what is at the rally