Transcripts For CNBC Worldwide Exchange 20130227

This is todays edition of worldwide exchange. Im ross westgate. Here are your headlines whats the price of Political Risk . Italy hopes to raise as much as 6. 6 billion euros in its first longterm debt sale following the election as the formation of a coalition looks unlikely for now. The sequester set to take place in less than two days. A poll shows plenty of negative sentiment around the budget cutcuts and lawmakers for letting them happen. The French Market gets a boost. Ids gets a boost after stronger than expected operating profit in 2012. And wheat trades higher after predicting an uptick in profitability. Plus, global uncertainty lead hong kong to set a wide growth range in its annual budget as the territory makes an effort to tackle its skyhigh housing costs. All right. Welcome to todays worldwide exchange. Were getting halfway through the week. Kelly is traveling back from the World Mobile Congress in barcelona and will join us in the next couple of shows, just not today. Well be in berlin for the super return conference. Is dea is dealmaking back . Well be there to find out. Plus, retail giants limited, target, tjix, and jcpenney set to report earnings today. Well head out for a checkup and to find out how much of an impact Hurricane Sandy has made on profits. It was a budget day in hong kong. Well head out east to get all the data as the citys poised to enjoy a return to higher growth. And we fly tout singapore to speak to the global head of trade at hspc who think that the face of trade is changing as more highend products are due to be exported out of emerging markets. Bides all of that besides all of that, the focus is on the auction in italy. That will hit the tape in an hour and ten minutes. How much will italy have to pay for its political impasse . Rome looking to sell between three and four billion euros of a tenyear issue. This was the sixmonth auction producing the most since 2012, up around 50 basis points. This is where the euro is trading ahead of the auction. 130. 79 where we stand currently. Yesterday we were down at sevenweek low of around 1,317 1. 3017. Its warned in italy that a loss of Investor Confidence could increase borrowing costs and reignite the debt crisis. As for italys politicians, the leader of the center Left Coalition has vowed that he would try to form a government and seek an alliance that would respond to the call for change. Hes also admitted dhi disappointment with the election results. Translator it is clear that anyone who cannot guarantee the ability to govern his own country cannot be said to have won the elections and, therefore, we havent won even if we were first. This is the substance. And this is also the reason for our disappointment. He also called on grillo to come to the table. Speaking yesterday the leader of the fivestar movement said the last thing italy needs is another grand coalition. Translator i talk about coalitions. Theyre finished. The story is finished. Another story will start. Why do you continue talking about coalitions . Theyre finished. Right. Weve got some n3 data out of the ecb, as well. Eurozone january up 3. 5 , forecast up 3. 2 . Private sector loans contracting. 9 versus. 7 in december. Private sector deposits in cypress banks down over 2 to 47. 4 billion euros in january as well. Loans to households up 8 billion in the month of january. I think theres data in italy which i cant see at the moment, as well, from the ecb. Here we go yeah, italian banks also buying 18. 5 billion of Government Bonds in january, as well. Right. But the focus is going to be on that auction piece. Interest rate strategist at corporate and investment bank, peter, good to see you. Good morning, ross. Whats going to happen in this auction then . Well, i think what were going to see is some of the recent panic in the market is going to subside. And were likely to see some relatively solid bidding. So i think youre going to see a yield on that ten year i noticed that this new bond should be trading around that psychological 5 yield level. I think some decent demand there could materialize, albeit its more likely to be from domestic sources. I think thats the picture here. Were likely to see a more riskaverse positioning from the International Investor base. But were still going to see some decent support here for the auction. So i dont think theres going to be any problem getting this paper away at all. No. What yield are we talking about . 4. 9 on the ten year, around there . Yeah. Add on the roll, the old ten year, and youre looking at 5 . What would be the result in terms of bid to covers . To be honest, i think the more important facts given when i left my desk we werent in a really big rally will be whether the unit of the auction comes relative to the gray market trading at the time. And also how much of a tail there is on the auction. So the tail is the difference between the average price at the auction and the highest yield at the auction or the stopout yield. Yeah. Actually were not were not really going to know that. But its something that you should get a feel for immediately after the auction results are out. You should see that as to whether or not the markets rallying or selling off. That would give an indication of just how low or high people were prepared to bid. Yes. Thats right. Give you an indication of the dispersion of bids. So if if it looks like there was an excessive demand, there was an excessive demand in terms of people being willing to pay above the market levels at the time, then you should see the market rally after the auction. Viceversa. Well have to see what happens. Is it a straight readthrough from this into spreads with spain, as well . So a solid auction here may mean that theres a little bit of rewidening. But i think structurally now because weve got Political Risks in italy, i think theres good reason for spain and italy to tighten structurally. I think thats one of the positions. I sort of think that there is further cause for bunds to continue to rally. So italian spreads to widen. So i think were just a stepping stone here. But the longer these Political Risks are in existence, the more damage its ultimately going to do to the italian market, im afraid. All right. Yeah. Well see what happens. Peter, thanks for that. Interest strategist at Corporate Investment bank. That auction takes place in about 50 minutes. Normally it takes 10, 15 minutes to get the results through. Just over an hour from now. The Federal Reserve chairman, ben bernanke, has strongly defended the feds Monetary Policy before a committee on capitol hill saying he continues to back the 85 billion monthly bondbuying program. In terms of exiting from our balance sheet, we have put out a couple years ago, we put out a plan. We have a set of tools. I think we have belts, suspenders, two pairs of suspenders, different ways we can do it. So im not i think we have the technical means to unwind it at the appropriate time. Of course, picking the exact moment to do it, of course, is always difficult. You know, you want to you want to withdraw the support at the right time, not too early, not too late. As for when the fed will start winding down its extra stimulus measures, bernanke said it would happen when the timing is right, insisting he sees little risk of an inflation spike in the near term. You called me a dove. Many in some respects i am. On the other hand, my inflation record is the best of any Federal Reserve chairman in the postwar period. At least one of the best. 2 average inflation. So we have worked on both sides of the mandate, and were trying to achieve a stronger economy for everybody. Right. That was mr. Bernanke last night. Gave support to u. S. Markets as were just over an hour and nearly ten minutes into trade in europe. Down on the session lows. You see pretty even stevens on the Dow Jones Stock 600 between advances. And advances nosing in front at the moment. We have come back from the earlier, better start that we had. Nevertheless, trying to claw back losses from where we were yesterday. The xetera dax flat at the moment. The ibex in spain up. 5 . The ftse mib up. 2 . There are some individual stocks worth looking at this morning. Here we go, eads up 5 after earnings beat expectations. More on that Company Later on in the show, as well, with our correspondent in paris. And 6. 7 raise in brig. Shares rising because of the opt stick outlook for 2013. Swiss livestock up 7 . Their numbers came in with expectations. Shares rising after the c. O. Said further writedowns are unlikely. And cable deutsche down 4. 5 on reports that vodaphone will have a takeover bid. Italy, 4. 86 . As peter said, 5 . Anything blow that might be a low result. This is interesting, draw your tension to gilt yields, 1. 95 ever since the moodys down grade. Gilt yields have fallen. Below 2 for the first time in a month. There you go. Going to down downgrade yields for, not because of down grade, of course, but mainly because of the risk of attitude elsewhere. The pound getting a safe haven flow. Who would have thought that once you lost the aaa rating . Euro dollar, 130. 72. 13. 17 was the sevenweek low. Dollar yen, 91. 65. Trading way back from 94. 77 mark. Aussie dollar weaker, below 102 today. We could get down to a fourmonth low of 101. 98, as well. Thats where we stand in europe. Lets recap that asian trading session today. We have more from singapore. Thank you, ross. Those bernanke comments did calm some nerves here in asia. After a choppy day of trade, the composite ended higher by nearly 1 . Developers surged on bargain hunting. Brokerages made a strong comeback. Chinas Securities Regulator issued a draft to allow more brokerages to expand assetbacked securities businesses. Also, there are reports that beijing will soon allow resident in hong kong and taiwan to invest in the mainlands a shares, boosting market liquidity. Meanwhile, shares in hong kong bounced off its twomonth low, up. 25 . Aia shares added over 4 after posting an 89 jump in 2012 profit. The property counter also lent support while hong kongs government pledged more Public Housing and lends supply to home affordability. Another lackluster session in japan after yesterdays over 2 tumble. The nikkei lost 1. 3 . Financials led the renewals on losses and worries. A stronger yen sent exporter stocks lower. Cannon slipped nearly 3 despite the camera maker forecasting that 7 to 8 growth for 2013 sales. Elsewhere, the kospi ended marginally in the green, up. 2 . South korean automakers drove higher thanks to the yens regained strength. Hyundai added. 7 . While the company agreed to set fuel economy cases in the u. S. , although the amount is not disclosed. Meanwhile, australias asx 200 gained. 7 , boosted by upbeat u. S. Data and bernankes comments. India sensex, less than an hour before the market close, currently trading higher by. 9 . Back to you. All right. Thanks for that. Catch you later. Sharp yen gains sparked by fears of political deadlock in italy could pose a challenge to Prime Minister abes economic policies after his demands for monetary easing sent the yen tumbling the past week. With Global Investors looking for a safe haven in the currency, could this be the abenomice . More at cnbc domest. Com. Still to come, budget day in hong kong. Have they come in on target . Six nations including the u. S. , china, and russia have concluded two talks iran over their suspected nuclear program. They have said theyll lessen negotiations but theres a long way to go. New negotiations have been scheduled for next month. And weve also got more out of iran in a statement on the technical Nuclear Talks scheduled for march 18. They say the next toplevel talks will be april 5 through 6. And the p51 offer included items proposed by iran. E. U. s ashton who has been involved said the meeting with iran will be on april 5 to 6, as well. The new offer we presented was balanced, fair basis for diplomatic talks. They wont detail what the new proposal are in iran. And paris eads sharply higher after the Aerospace Group posted a better than expected fullyear earnings profit as well as predicting a rise in earning in 2013. We have more. Reporter its not a big surprise. A few weeks ago the ceo of eads said the company will be able to improve significantly its revenue and operating profit thanks to all of the divisions of the company. The main being the commercial aviation unit. Also Strong Performance at europe copter, astrium for satellites and defense activities. All in all the operating profit beat expectations. 68 increase for the past year. Three billion euros. The revenue was stronger than expected at 56 56. 5 billion euros. The most important is the outlook for this year. Eads targeting a higher profit with an operating profit of 3. 5 billion euros before exceptional items. 610 deliveries. Between 600 theres a negative note there are two, actually. The first is about the airbus 350. The Program Remains challenging says eads. Any scheduled change could lead to additional provision. The other negative point is regarding the airbus 380. Still a very low level of deliveries. Thats the reason the company is targeting only a small increase of its revenue this year. Over to you. All right. Thanks for that. Catch you later. Stay tuned, as well, well be joined by tom enders ceo of eads at 13 15 cet. Hong kongs government is under pressure to make housing more affordable and narrow the income gap. In his budget speech, the financial director pointed to external worries, warning a new trade slowdown and potential currency wars could knock the citys economy off course. Cnbcs bernie lowe picks up the story in his report from hong kong. Reporter the uncertainty was obvious in the financial secretarys wide range of projected Economic Growth which he pegged at 1. 5 up to 3. 5 . As a result, the budget was widely viewed as short on bold moves but did offer a mixed bag of relief measures for business as well as people. While acknowledging the need to keep the Property Market from running amuck. After several steps to cool prices prices, he didnt add restrictions and added to reclaim land of 4. 5 billion dollar. Its the key is on solving the housing program. In the next three to four years, it is estimated that a total of 67,000 firsthand units would come on to the private residential Property Market. The highest since september, 2007. Reporter simply bumping up the supply of land isnt going do the trick if land prices remain in the clouds. Many say that unless the government does an about turn on its generations old policy of high land prices where plots go to whoever pays top dollar, things arent going to change. And they suggest that maybe the government has to set lower acceptable prices. I think the government has to roll out more lands and lower their reserved prices. That would eventually impact the expectation of the future prices. Reporter finally, the secretary tossed out freebies to business and people. Eight billion hong kong dollars for the elderly, 15 billion for poverty abatement. A couple rentfree months this year for those in welfare housing. Both cortion individuals will get up to 10,000 hong kong dollars or about 1,300 u. S. Knocked off their tax bills. And every household in the city gets some money to help pay their electricity bills. Thats a snapshot of this years hong kong budget. From hong kong, its lights out. Thats bernie with his report. Joining us with his thoughts, william chan, Grant Thornton tax services partner. Good to see you. Whats your view now of the property sector in hong kong . Was there any need to cool it down from a government perspective . Well, after the last weeks measure, i dont think they need to do anything further to cool down the Property Market. The prices have been stable. Its only been come up shortly, it hasnt been stable for the last couple of months. Theyve not been going crazy lake a year ago. Whats your view of what might happen with the property view long center . For the long term, who knows. Talking hong kong rather than i expect for this year yeah, rather than going up, keep going up, i think its stable. May go up by 5 to 10 the most this year. Yahoo yeah, gdp growth, is that optimist sonic. I think its fairly optimistic because given that the growth only 1. 4 and the World Economy hasnt picked up, so i doubt that we would double the the gdp would double last year in hong kong which i dont think so personally. I think its def aeps definite than last year but doubt it will go 1. 4 to 3. 1. And we said down a few measures. Hes got a one off reduction in personal income tax for the current year. Its going to be capped at 10,000 hong kong dollars, it was 12,000 tax break last year. Could they have gone further or no not . Yes. Well, for the tax break i dont think that one off measures like giving textbook every year will help. I think its the tax break every year will help. I think its the lower tax rate that will help people manage the budget. We cannot be sure the secretary will give another handout last year. A one off reduction in tax rate will help people to budget their own finance. I mean, do they have the fiscal room to have sort of a permanent tax cut . Well, for the last so many years, hong kongs running a budget surplus, although every year the cal congratulation came out to be calculation came out to be a budget deficit. By the end of the year i imagine well have money to do this one off, you know, do to see do a longterm cut. All right. Thanks for that. Good to see you. William chan from Grant Thornton tax services in hong kong. Now the biggest event in the mobile industry has been underway in barcelona. Even automakers were getting in on the action. Tom mckenzie went to find out the trends in mobile technology and why they might involve your car. Reporter this year World Mobile Congress has been less about smartphones and much more about the software plarms on our mobile devices and how they communicate with each other at home, work, and play. Then there are the automakers, ford and g. M. Making a real push to tie up with mobile companies to make sure youve got your favorite apps and Devices Installed here on the dashboard to give you a seamless driving experience. Then theres Technology Like this robot that effectively allows you to be in two places at the same time. Could give working from home a whole new meaning. We did, however, come across one very different type of smartphone. This made by russian startup yoda. It claims to be the first smartphone with two screens. Its set to go sale later this year. It all add up to a fastchanging landscape for the industry and the increasingly mobile world that we live in. From mckenzie world congress, barcelona. Congress is underway. Our coverage wrapping up. Still to come, we have cable and Wireless Communications ceo explaining why smartphone sales are due to surge in emerging markets. Also, private equity is back. At least thats a result of the biggest players. Could the specter of overeasy money spoil the party . Well be at the conference in berlin. From the global head of private sector at allstate. And the second leg of gdp. More to come. These are the headlines whats the price of Political Risk . Italy hopes to raise 6. 6 billion euros in its first longtime debt sale following the election as the formation of a coalition looks unlikely for now. The u. S. Sequester set to take place in less than two days. Theres plenty of negative sentiment around the budget cuts, and lawmakers are letting them happen. French equities get an earnings boost. Aerospace giant eads lifts its outlook after a stronger than expected operating performance in 2012. Wheat trades sharply higher after predicting an uptick in its profitability. Were just getting the latest gdp revisions out for the u. K. Fourth quarter gdp unchanged from the first estimate, contracting minus. 3 quarter on quarter. The annual rate was revised up to. 3 . The last estimate was flat. The 2012 fullyear gdp, therefore, revised to plus. 2 from flat on the year. We had a slight revision upwards in Third Quarter gdp to 1 quarter from. 9 . The annual rate in the Third Quarter revised up slightly, as well. December serves as sector output contracting minus. 4 on the month versus up. 6 on the year. The fourthquarter Business Investment first estimate minus 1. 2 . That quarter o quarter fall is the biggest the first of 2011. Sterling, relatively steady after that unrevised Fourth Quarter gdp. As i say, slight revision upwards in the Third Quarter number, as well, which is just meant for the whole year. We werent flat on growth. We actually were up modestly. Ill show where we stand with yields meanwhile for italy in particular today. 4. 89 is where we stand. 4. 24 , of course, where we were before we got the results of the italian election. You see the move that we had on tuesday. And gilt yields, 1. 96 . They have tumbled steadily post the moodys down grade and ahead of it, as well. And were below 2 for the tiefrt time in around a for the first time in around a month. European equities, meanwhile, steady, unchanged really. The cac coran up around. 25 . This is the backdrop as private equitys been a crucial player in two headline deals this month. The dell buyout, Berkshire Hathaways takeover of heinz. As a result, some analysts are rushing to declare a comeback for the sector. As firms struggle to post precrisis returns amidst fundraising, has it made a return . In berlin, the biggest players in private equity are meeting. Karen, they reveling in the cheapness of money . Reporter good morning, ross, indeed. Yes, we are seeing a lot of leveraged buyouts. And the liquidity environment out there has been supportive for private equity, hence the size of those deals that we were talking about. Dell and also heinz. Weve been talking about what the low yield environment has meant for a lot of Insurance Companies. Lets delve into that. Some of the Insurance Companies have committed found private question. Joining me is peter khn, in charge of private equity at allstate. Nice to be with you. The environment here, were seeing more managers in the private equity space is indicative of the fact we are seeing a recovery in private equity. I think the market is recovering. Its recovering off a period that was probably unnaturally high in the 2006 through 2008 period. So in the years since, you know, fundraising fell off quite a bit. Obviously, m skpp sk activity f m a activity fell. Fundraising up year of probably up 10 on the year before. Still coming off a low base. As we look at the markets now, not just on the fundraising side but the m a side, there are factors that are supportive of more transaction activity. I dont think we expect, you know, a groundswell of activity. But you know, transactions like a dell or heinz which are large transactions, not typical of what we think will dominate the m a market this year. Theyre interesting hashingers and are reflective of the fact there are assets out there. The markets a bit more stable. People are willing to make projections. In the past it was more difficult to make projections about how you thought a business might perform. It was tough to price it. The other issue as you mentioned is more availability of debt finance which is a significant difference. Reporter the numbers that weve been discussing this morning suggest that allstate is going after higher yield. Youve got that 5 billion under management for private equity. What are you doing with the funds, and whats the argument for investing in private equity now is. Sure. So at allstate were in the mid of a systemic middle of a systemic shift to lessen reliance where the low rate and expectation thats rates will go up at some point. We think its prudent to shift away from that and move more from lending to owning assets. That involves private equity as well as ancillary related businesses. Private real estate and real assets, in all those areas, i think you can expect to see us significantly increase our exposure as we try to take money away from being more rely ant or dependent on the fixed income markets. Reporter what stands out from this huge amount of money that you manage . Is the amount that you invest on individual basis. 50 million to 70 million per fund or 50 million to 50 million in direct investing. This is moreopene nuts a multibillion more peanuts in a multibillion dollar world. Right. In an institutional setting, youve got to make the numbers scale out in a way that makes sense. Theres a challenge and balance thats got to be drawn. We dont want to invest too much in any one transaction. Were trying to be prudent with the portfolio. Manage diversification in a thoughtful way. But beyond that, you know, were trying to not be exposed too much to the large end or mega end of the buyout market which is the one thats probably received the most press over the years. Weve had much better return experience by investing more in the socalled middle market and even the lower middle market. So in those funds, you know, they typically dont raise as large an amount of money. And so its somewhat difficult to deploy more than a certain amount. So we try to put our bet size in a place where it allows us to concentrate with our winners, concentrate with our best. And still keep the portfolio diversified so that were doing the prudent thing from a Risk Management standpoint, too. The statistics so far this year tell us a big slice of the funds are going into u. S. Private question, 80 and 10 into european private equity. What are you interested in had weather it comes to a geographical footprint . What captures your attention . Great question, karen. Were trying to get exposure to the dppd of the world. Gdp of the world. As Equity Investors thats our job. We have to think it how we see gdp playing out and where we can apply private Equity Capital against that. And so we are currently under weight in europe. Weve got meaningful equity exposure, but were underweight relative to the market. And were taking a cautious stance toward europe. I think there is you know, a lot of people believe the tail risks have been reduced in europe. Wed agree with that. I dont think we see europe as a perfectly straight shot situation. So were taking a cautious approach in europe. In the emerging market regions, you know, theres a more interesting story. The growth story is obviously, you know, far more something, far more significant. A challenge in private equity, though, finding good, experienced managers who can attach our capital to that growth and then most importantly earn a return on get it back to us. Because the markets less developed in the e. M. Regions, we need to meet with lots of managers before we find ones that were satisfied to invest with. Some of the concerns that have been raised early on in the conference about the size of the leveraged buyouts and also when it comes to the premiums being paid, the u. S. Being cheaper premiums than europe which is interesting because the u. S. At least has a growth story versus the negative returns here in europe. When you look at whats coming up, weve got the sequester at the end of the week which may mean a cut to spending and impact to the u. S. Growth story are. You concerned about the mont of money being paid for deals . Yeah. Your point about europe versus u. S. Is hard to understand. Im not sure we understand why in an environment where the Growth Outlook si lower one would pay a higher multiple. Youve got to dissect the numbers to understand what youre looking at. Sometimes the averages can be misleading. As it relates to pricing in the u. S. , looking at our assessment of the numbers, purchase multiples are at the higher end of average ranges. Theyre not at the highs, but are at the high end. One factor supporting that clearly is the debt market which is quite supportive of leveraged peaout activity now. Maybe more so than wed expect. And sometimes that has a tendency to push up on pricing. But as the equity investor, youve got to factor those things you mentioned in the equity that might come short term. But the long term from whatever the result will be from the sequester will have a Significant Impact on the top line. The revenue of, you know, all the businesses one might buy in a leveraged buyout. Peter keehn, thank you very much for joining us. You can return to the conference. Thanks. Ross, as you hear, there are big news by Insurance Companies out there to try and case better returns in the environment. And private kweequity is one wa. It is. More to come from you in berlin later. So, you know, get coffee. Well come back. David rubenstein, coceo of the Carlisle Group joining karen shortly, as well. Right. News from bank of japan to bring you up to speed with. Well recap what theyre saying for you. Bank of japan officials saying the government will submit the governor nomination at the equivalent of 2 00 gmt on thursday. So that would be 3 00 cet first thing thursday morning. When we come on, well cover it on cnbc in asia when we come on airpla air in europe. Set your clock, 2 00 tuesday. Well have the time that equate to wherever you are in the world. Im not going do it for you. Apple holding its annual Shareholders Meeting at the headquarters at 12 00 p. M. Eastern. The top issue on everyones mind will likely be what the iphone maker will do with its 137 billion cash pile. A topic pushed to the forefront by Hedge Fund Manager david einhorn. Unclear if he will be in attendance. Issues include requiring don executives to hold at least 1 3 of stock until the environment and creating a committee examine human rights issues. Apples board urged against both proposals. Stock was actually up on tuesday on rumors of a possible stock split announcement, as well, today. Steady in frankfurt. Just up. 1 . The faa says reports that its approved test flight of boeing 787 dreamliner with a battery fix are untrue. A spokesperson for the Agency Denies that tests could start as early as next week. Boeing proposed a multitier fix for the battery system last week. Boeings Engineers Union is dropping a demand that its next contract includes pensions for new workers, as well. The move could hasten a deal as the two sides resume talks later today. Boeing stock in frankfurt up. 25 . And argentinas government will head to a u. S. Appeals court today hoping to reverse an order making it pay 1. 3 billion to a group of dissident bondholders. The Lower Court Ruling stems from the countrys 2001 default. The case is being closely watched amidst worries about a new debt crisis in argentina if the country must pay the holdout investors. And sales of cuban cigars are surging despite the ongoing instability in the eurozone. Get this spain is the numberone buyer of cigars made in havana. The stateowned Tobacco Company said sales rose to 460 million last year. Thats up 416 million last year, thats up from 2011. Wed like to know know what guilty pleasure would you give up during austerity or not. No matter how austere thing get, what wouldnt you give up . Email us at worldwide cnbc. Com or direct to me rosswestgate. What would be the last thing, the last thing you would stop spending money on . Right. Still to come, hsbc says emerging markets are driving a shift in exports that could change global trade flows over the next decade. More to come after this. Japanese companies tapping into demand from emerging markets. Whats currently in the market . We have the story from tokyo. Hi, ross. I have two examples of that today. As china battles pollution programs, engineering and shipbuilding think they could have a solution in the pipeline. Theyre converting emissions, fighting technology in factories. The firm aims to market the technology to companies in china where air pollution from factories is becoming a Serious Health hazard. The technology was originally developed to reduce emission was diesel engines. Uses plasma to break down hazardous particles too small to be trapped by standard filters. Mitsui expects to compete with mid sized manufacturers who lack pollutionfighting equipment. Toyota motor is stepping up and starting suv exports from north america to china and russia. This will mark the first time the carmaker will ship u. S. Made vehicles to the nations. Exports of venezuelaas to china venza will ship to china. Toyota expects to be exporting 150,000 vehicles a year from the u. S. By 2014. 20 more than last year as demand by nouveaurich consumers grow in these nations. Back to you, ross. All right. Thanks for that. Welcome to bizarreo world. Dennis rodman is in north korea. The former nba star arrived in pang young along with Harlem Globetrotters in tow to film a tv documentary. The trip hasnt been a total slamdunk. Rodman could have gotten his careers mixed up. He tweeted he might run to the gangnam style dude. They might have a north korean version, one never knows. If they do, id like to see it. Lets look at whats on the agenda in asia tomorrow. Besides dennis rodman. As we mentioned, japans government will present its nominees for Central Bank Government deputies to parliament with all signs pointing to a new head of bank upon japan. New delhi becomes the latest government to try promoting growth while balancing the books. And china, everbright, shk properties, and giordano reporting. And the ftse turning negative ahead of the auction. Down currently. 5 . The jeter of mobile phone use majority of mobile phone users in europe have a smartphone. The numbers expected to keep growing. What was emerging demand kelly put to the ceo of cable and wireless at the mobile congress. Actually the trends for mobile data are up in every market we operate in, every single market. The issue is as mobile price comes down with competition, then fixed mobile substitution is accelerating. Fixed mobile substitution is a finite thing. It will go on for another two, three years. Mobile data growth is actually infinity from this point of view. Were at smartphone penetration of under 20 in supermarkets. Theres a long in markets. Theres a long way to go to reach 50 , 60 . By the time we get there, the first will be at 70 or 80 . Weve got long penetration and a long way to go. I segreth in the industry at the moment see growth in the industry at the moment the growth starts to slow. The growth in mobile data is literally everywhere. Weve heard big announcements at the conference from a lot of Companies Aiming at the lower end of the smartphone market. To your point, once they reach, what, 100, 200 price point, do you expect a new wave of users in your markets . Youre talking to all the posh companies. 50 is where we see the breakthrough point in terms of high levels of penetration. Actually in our markets as always theres a business elite. And the middleclass elite who are keen on having the latest iphone, particularly the latest galaxy, latest blackberry 10. And then its and that account for between 10 and 25 of market penetration. Thats the highest end of the market. But actually the given its a high, fixed variable cost business, the more we can penetrate with costs at the margin than a 50 phone will spread penetration to well over 60 or 70 . Do you expect to be one of the Biggest Companies in the region over the next couple of years, or are you a savvy, maybe a smart acquisition target for the likes of, i dont know, American Mobile . Well, im not looking to sell the company. Im looking to grow it. We sold half the company in the last few weeks. Well be in the rare position of being the only unlevered Telecoms Company in the world, i think. Thats not something i plan to be in the position for long. Were looking to invest organically in our businesses, but also invest in acquisition targets in this region because weve got good management. Weve got good market positions. And weve got a Great Cable Network across the region. Weve got all the elements to be one of the goto players in the region. There are lots of good telecos, but we think we can be one of the goto players. Were looking to expand here. All right. Lets focus more on emerging markets. Our guest says theyre poised to change the pace of global trade over the next decade. The latest hsbc commercial banking trade forecast shows emerging markets are making a shift toward the production of higher value goods in specialized sectors such as chemicals and telecoms. James emmett, head of global trade at hsbc which put together the research. Ja james, nice to see you. Whats the biggest standout for you . We know the economys developing, theyre going up sort of up the scale. Wheres the biggest change going to come . I think what youre seeing is two key stories. The first is, as you say, emerging markets, moving up the value chain. Were seeing that in particular in markets like china where the growth as we project out to 2030 and indeed out to 2020 very significantly comes from higher value sectors, industrial machinery and ict. What youre also seeing in here, though, is a story for developed market, and thats the story of diversification, making sure that theres a real understanding of how developed markets can differentiate themselves, and what that means for businesses in those in those countries. I mean, if chinas going up, if were going to be driven by industrial machinery and ict secondters, you say thats going sectors, you say thats going to drive growth. How much higher are wages going to be, as well . Well, thats an interesting question because what youre actually seeing as a result is the opportunity for a number of other markets to take up some of the lower wage sectors that china was traditionally or indeed currently specializing in. Areas such as textiles and apparels. And this brings in opportunities for markets such as bangladesh and vietnam to really move into those spaces and to take on the growth of that type of business. Yeah. Whats interesting is that if youre saying here that as they go toward this high value sectors, the contribution of things like textiles will drop. The question is if youre a european clother, in the clothing space, are you going to stop having things made in asia, or will you just switch them from china to somewhere else . I think asia will continue to be important. Its important to recognize that china will remain a significant player in the textile and apparel business. What we are also seeing is a significant diversification or change in the supply chain itself. So if we look at latin america, the reemergence of the story, these factories with close proximity to the United States who are able to supply in an almost justintime fashion, but with wage differentials that are significantly lower than they were a number of years ago, and were seeing a number of these examples taking place, whether in mexico or indeed closer to europe in markets such as turkey and in north africa. Yeah, youve done an amazing chart, graphical display. Youre talking about sector shifts. What youre trying to show is what theyre good at now and weve got one at the moment. Explain what were looking at. Argentinas interests, is it going to go from animals and animal products to road vehicles and transport equipment . Thats what youre suggesting there. This is looking at growth in sectors. Not to say theyre moving away from underlying agricultural products, extremely important for argentinas exports. In the case of argentina theres a significant opportunity to tackle or utilize the material, educational capability, and, indeed, infrastructure that exists in argentina to move into that transport sector. And thats where were likely to see further growth coming from moving forward. Yeah. And its the sectors thats going to outperform. Okay, thats the interesting thing. Brazil, industrial machinery. Whats your thought on how fast things might change in brazil . Well, brazils a very interesting story in its own right. Obviously china is a very significant player for brazil as a trade corridor. So youre seeing Significant Growth in that trade corridor which is significantly primary product. Brazil has very, very materially moved up that value chain in its own right, moving into whether its aircraft or other types of manufacturing. And again, this is where well likely see Significant Growth moving forward. Yeah. And you mentioned mexico and the around the border, as well. How much is ive been interested looking at the peso. Theyve got the free trade agreement. How much do you think u. S. Companies will sort of onshore back to north america if you include mexico in that . Is mexico going to become the lowcost Production Center for a lot of u. S. Companies . Well, that reashoring and onshoring is an important one. It reflects a significant change that were likely to see in the coming years. This is perhaps one of the key factors as we look forward. This change in overall supply chains and patterns and to that extent, mexico will be a very significant market in terms of growth and trade certainly for the u. S. Which accounts for give or take 78 of mexican trade. All right. Fascinating study. Plenty more to pull out of it, as well. Well have to let you go for now. Thank you. James emmett, global head of trade at hsbc. Ill show where we are. Weve got italian debt auction it to take place in three minutes. The ftse mib has dipped down interest negative territory. Just down a quarter point after losses that we saw yesterday, as well. Still to come, 85 billion of u. S. Budget cuts are due to come into effect on friday. How are u. S. Fiscal battles going to go from the private Equity Industry point of view . The u. S. Sequester set to take effect in less than two days. A new poll shows mrs. Plenty shows theres plenty of negative sentiment and lawmakers are letting them happen. Burning a home in apples pocket, question about the iphone makers cash pile set to dominate the agenda at the annual Shareholder Meeting. What is the price of Political Risk . Italys hoping to raise around 6. 5 billion euros in its first longterm debt sale following the election. This as the Coalition Government looks unlikely for the moment. U. S. Stocks closed up. The dow up 1. 8 , the s p up. Opinion 6, nasdaq up. 4. Were closed lower for the dow, currently trending some 15 points below fair value. The kean moment is some the nikkei at the moment is some two points, the dow, four points below fair value, the s p zero points below fair value. The ftse 300 up one point. We did get a bounce going this morning for european stocks. Sort of petered away really. The ftse 100 up 12. Xetera dax is flat. Ibex in spain up. 3 . The ftse mib fairly flat. All the focus is going to be on italy in this halfhour. They now start the auction process. Theyre looking to raise up to just about 6. 5 billion. Four billion of a new ten year, 2. 5 billion of a new five year, the maximum theyre looking to raise. The yields on these, 4. 17 in january on the tenyear. You see where were trading today, 4. 9 . Thats where the grain market has been, as well. Well have to see where we go with this result. Tenyear spanish yields high of 5. 73 . Heres one i want to point out, the tenyear gilt yield, 1. 95 . Below 2 for the first time in a month. Post the moodys downgrade. Whats been a bigger driver has been general sentiment and u. K. Has benefited as a safe haven flow. Yields in the runup to the downgrade and after have continued to fall for the british government. George osborne will be pleased about that. On the currency markets, euro dollar, yesterday to 130. 17. Sevenweek low. Were below 131 at 130. 94. Dollar yen, 91. 70. We hit that 194. 77 which is that 33month high at the beginning of the week. Thats where we stand now in this european session ahead of the u. S. Open. Lets recap the asian trading day. We have more from singapore. Thank you. Those upbeat u. S. Economic data and bernankes comments really calmed jitters here in asia. After a choppy day of trade, the shanghai composite ended higher by almost 1 as tightening worries eased. Developers surged on bargain hunting. Brokerages rebounded after chinas Securities Regulator issued a draft rules to let them sell more assetbacked products. Also, there are reports that beijing will soon allow residents in hong kong and taiwan to invest in the midlands ashare markets, boosting market liquidity. Meanwhile, the hang seng bounced off its twomonth low up. 25 . Aia shares added over 4 today after the insurer posted an 89 jump in its 2012 profit. The property counter also lent support. While hong kongs government pledged more measures to address home affordability. The nikkei lost more than 1 , down for a second day in a row. Financials led the losses on renewed eurozone worries. A stronger yen sent exporter stocks lower. Cannon slipped nearly 3 despite the camera maker forecasting a 7 to 8 growth for its 2013 sales. In south korea, gains in utilities helped the kospi finish in the green, up. 2 . Thats after a government report called for a hike in power rates. Automakers also drove higher thanks to the yens regained strength. Ouss as australias asx 200 gained 10 after bernankes comments. And Indias Sensex just gained about. 7 . Back to you, ross. All right. Thanks for that. The 85 billion in automatic u. S. Budget cuts or the socalled sequester will go into effect on friday. The American People arent happy about it. In the latest nbc wall street journal poll, 52 say the sequester is a good idea. They also dont feel good about how president obama and congress are dealing with each other on the issue. More than half suggest budget talks so far make them less confident about the economy. It doesnt mean they dont favor budget cuts. 53 back some move to lower spending. Fed chair bernanke also addressed the sequester during his congressional testimony yesterday saying fed policy cant completely offset a drag from fiscal issues. The cbo estimates that it would cost about. 6 of growth in this area and the equivalent of 750,000 jobs. Would be a drag on nearterm economic recovery. More broadly, all of the actions take then year according to the cbo would be a drug of 1. 5 a drag of 1. 5 points, quite significant. A more appropriate measure would be to introduce spending cuts gradually. Hes back on capitol hill today testifying before the House Financial Services committee. That kicks off at 10 00 eastern. Karen is at the super return conference in berlin. The biggest players in private equity are there. Karen, what do they think of whats going in washington at the moment . And also with the fed, so how they pacting them . Reporter how is that impacting them . Reporter its one of those big unknowns, what it does for the industry. Lets find out with one of the largest private equity groups. I have david rubenstein, coceo of the bernstein group. Lets talk it the sequester. Theres uncertainty what this mean in terms of budget cuts. Ben bernanke saying he wont be able to offset budget cuts with Monetary Policy. Is the political wrangling and macro environment in the states affecting the way you weigh up your investments in the states . I wouldnt say so. Obviously no one is certain whats going to happen with sequester. I suspect kwefrt will happen, but i sequester will happen, but i expect one or two weeks into it there will be negotiations to try to resolve this. We make longterm investments and are not focused on the sequester in terms of impacting longterm investments. Reporter i wonder what it means for prices in the short term. Weve been talking about nine times ebit being the premium as we expect across the u. S. Private equity space. If you look at the softer Macro Economic environment, do the numbers add up anymore . I think prices have current up in terms of ebitda multiples for private equity. Probably around 9 . I suspect probably people will pause a bit before making commitments now and see when the sequester issue is resolved. Reporter the sequester is just one issue thats damaged confidence of late. We also had the italian elections this week. What is of note is the fact that private equity has so much more access to the credit markets than they did in previous years. Do you think were returning to the heydays of 2007 . I wouldnt say were in a bubble period of time. Clearly credit is readily available. Interest rates are low. I dont think were in a bubbletype environment of 2007. I dont think the italian elections will overall affect the private equity market. Reporter whats the access to funding like that youre seeing in your business . I notice deals, some are funded by equity, but others are reliant on debt financing. Just how much access are you getting now . In the emerging markets, most of the deals actually are equity owned, very little debt. In the development market, you tend to have more debt. Debt is readily available. Were putting in a lot of equity. Thats about 42 or 43 of buyouts. Thats a pretty good investment. Reporter thats half. Private equity has tried to convince us you run businesses for returns, not as much for Financial Engineering. Are we returning to those days precrisis where we saw the model as the best way to get returns was Financial Engineering . I dont think Financial Engineering is the most important thing being done. I said in my speech today that 60 of the value of the private equity deals being done comes from operational improvements. Financial engineering is a very modest part today. When private equity deals were done 25 years ago with 1 or 5 equity, maybe Financial Engineering was more important. Today its operational improvement. Reporter im curious about the european space. Theres still a lot of distressed assets out there, especially across the periphery. Is this an area you focused on in terms of buying assets . We are interesting in buying assets from distressed sellers. Obviously they sold them in less rapid pace than people would have thought initially. I think now that the banks are in reasonably good shape, they can afford to sell assets that are distressed because the banks are no longer likely to go bankrupt by selling prices at the market when they give them. Reporter there are assets that a lot of fund managers, private sector wont go near because of the risk. Are there areas that youre extremely worry good . Were w more nervous about certain we are more nervous about certain countries than other countries. Im not saying were against assets. There are industries we dont get involved with. Generally, i think were looking across the board in terms of industry asset that were willing to buy. Reporter talk to us specifically. In the past when you spoke to ross, you were talking about europe being one of the largest emerging markets. Whats special about the backdrop here . Remember, europe is the biggest economy in the world. The e. U. Is a bigger gdp than the United States. I think what i said last year and ive said this year is its the largest emerging market. Prices have been beaten down. While its a large economy, you can buy things at distressed prices now. I think its an attractive place in which to invest. Reporter its curious that you mention that. Some people have concerns that the premiums being paid in europe are higher than the United States at 9. 5 times ebit. So when you look at what people are prepared to pay, is there a risk of overpaying for the premium assets across europe . Theres no doubt that multiples in europe are higher than the United States and have traditionally been. I suspect thats pause theres sometimes more competition in europe than there is in the United States for particular assets. I think you have to make sure theres enough equity and youre not paying a price for an asset that doesnt have any growth prospects. Generally i think prices are not out of control in europe. Reporter i wanted to ask you about big themes going on out there. Global currency role that spallmakers are adamant policymakers are adamant is not happening. If you see the rate of investment, theres a sense that there are huge opportunities by the currency play. Whats the impact of the weakening pound and yen for you . Clearly when you make a longterm investment, youre looking at four or five years down the road. Its difficult to know how currency is going fluctuate during that period of time. So generally, the currency fluctuations are not a major concern of our business when we make a longterm investment. But sometimes we might have to hedge things once weve sold an asset and want to make sure the currency doesnt fluctuate between the time we sold it and the time the deal closes. Reporter i wonder also, we touched on profitability. Looking at the Overall Group numbers, q4 earnings for the Carlisle Group were down 28 . This was attributed to the private equity funds making less money from selling companies but also performance fees. Is this starting to turn around . If you look here, the outlook seems bullish. So will those numbers start to improve from here . Well, first of all, our numbers we had an extraordinary Fourth Quarter in 2011. So it was off that extraordinary Fourth Quarter of 2011 that some people said it went down. We had extraordinary 2012, as well. Over the last two years, weve given back 37 billion to our investors. Were quite happy with what weve done for our investors so far. And were pretty bullish on prospects going forward. Reporter what are you targeting . I was talking to one of the big Insurance Companies before about the size of returns that theyre aiming for. It was about 300 to 500 basis points or public equity funds. Is that the ticket price that you also look for in the business . Whether we try to buy a company, were looking for much higher returns than that. We try to average returns that are probably going to be well over the Public Market indices. The average that youre talking about might be appropriate for Insurance Company, 300 to 500 basis points. Were trying to do better than that. Reporter i very much appreciate the time. Thank you for joining us on worldwide exchange. David rubenstein, coceo of Carlisle Group. Weve got more coming up. You may have heard it some of the big deals out there. The likes of dell in the background. Also energy future, the sale by the New York Times of boston globe. These are big deals that ever corps partners have been working on, the advisory firm. Well talk to the private equity group to see theyre up to. Richard anthony, ceo of the private funds group for evercore joins us at 11 30 cet. Back to you. Thanks. The italian debt auction, lets get straight to it. They have sold four billion of the new tenyear. Four billion was the maximum they were looking for. The yield i should say better than might have thought. 4. 83 on that may, 2023. 4. 83 , we were trading at 4. 9 in the cash market a short while ago. That may be seen as something of a a result. And it was 4. 83. It was 4. 17 at the end of january. It is higher, but we were expecting that. And on the five year, they sold the 2. 5 billion we were looking forthat. The yield there 3. 59 compared to 2. 94 . So theyve raised the money. There wasnt suspicion they wouldnt raise the money. Gender bund futures general bund futures are raising gains from before the italian bund auction. Future are rising, b 2 rising, fairly well received here. And the italian tenyear, 4. 83 . The tenyear Government Bond is down 4. 83 . Lets check ive got the right auction yield on the ten year, as well. They sold 2. Billion as i was saying at the 3. 95 . The yield on the 2023, 4. 83, and funnily enough thats what were trading at roughly on the cash market, as well. That was just interesting. Essentially theyve got it away, the 6. 5 billion, the maximum they were targeting, has been sold. Yields okay compared to our expectations. So well keep our eyes on the impact on that. Its sent italian futures higher. Also thanks to the european crisis, were living in a lost decade according to the ceo of asias biggest Asset Management firm. More on our exclusive interviewer with Charles Beasley after the break. [ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, writing the next chapter for the rx and lexus. This is the pursuit of perfection. We have the results out of the italian bond auction. They raised the. 5 maximum they were 6. 4 maximum they were targeting on the ten year. The yield is 4. 83 . We saw in the cash market, yield in 4. 9 during the result. So its been taken as a positive, that result. As for italys politicians, leader of the center Left Coalition has vowed that he would try to form a government and seek an alliance that would respond to the call for changes. Hes admitted disappointment with the election result. Translator it is clear that anyone what who cannot guarantee the ability to governor inch his own country govern his own country cannot be said to have won the elections. Therefore, we havent won even we were first. This is the substance, and this is also the reason for our disappointment. He called on grillo to come to the table. Speaking yesterday, the leader of the fivestar movement said the last thing italy needs now is another grand coalition. Translator they talk about coalitions. Theyre finished. The story is finished. Another story will start. Why do you continue talking about coalitions . Theyre finished. Charles beasley is ceo of echo management and joins us now. Good to see you. You spend a lot of time, of course, in asia and japan in particular. The auction result has gone okay. Whats your view of where we stand now in this are we in the next phase of the eurozone debt crisis post this italian electio election . I think the comment i made after the aftermath where draghi wagged his finger and said i have what it takes to finish this. What went unreported is what he said four or five minutes later. I was in the room. He said it would square four things, it would require fiscal union, banking union, budgetary and economic union. Finally, the elevation of sovereignty away from National Governments to super allocations. Dawned on me this is almost generational change politically in the making. While you have the economic focus on the crisis, the political context is, i think, unchanging for at least a decade. Yeah. What weve seen here is in the sense in the italian election is the idea of the populists to reassert their approval with the move that you talk about, that he was talking about. In its clear lie a protest. Any time you have a comedian and getting sorry, 25 of the vote in the marketplace, clearly theyre saying something. As you saw i think in barcelona last year. We had two million yelling over who owned the tax receipts. I believe its sent fusional. And what draghi is saying is centerpedal, thats the conflict now. Does europe do what its done traditional when it has conflict, buy, buy . I think merkels observations to the marketplace which is democracy can take a long time is something we need to remember. There are two counterpoints. Theres the economic and the political. Any time inflation goes as low as it is is yeah. Where does that leave us in term of the economy . And, you know, and deal still with the aftermath of debt crisis for the banking system, as well . Like japan, is europe facing, you know, a lost decade . It looks like it. I think it is a lost decade in europe in the political sense and how quickly theyre able to change it, i dont know. Japans slightly different. Japan has gone through its crisis. Its worked its way out. Remember, people were saying, gosh, isnt it taking a long time. Actually now beginning to realize that it does take a long time. Whats the lesson then that you take from japan back to europe . I think what you see now is interesting. We recently had an election, the ldp has gained a significant majority. Now the focus for them, the objective for them is to end deflation. They wouldnt be able too do that unless they receive a a large political deposit from the population. The population, though, is essentially saying were tired of the old policies. We want change, and there is a consensus that is built in japan around what needs to be done. Thats powerful. Thats new. We havent seen that for a while. Okay. Well talk more about that, as well. Well talk theres talk about the aging population in japan and the savers. And theyll start spinning down. Well find out whether you think things whats predicted can be different for the future. Meanwhile, a reminder of headlines. The u. S. Sequester set to kick in this friday. Polls suggest its finding limited support amongst americans. Apples 137 debt pile set to dominate the annual Shareholder Meeting. And italy has successfully auctioned four billion euros of tenyear treasuries. The yield hitting the highest level since october. It was well within the bounds of investor expectations. Oh this is lame, investors could lose tens of thousands of dollars on their 401 k to hidden fees. Is that what youre looking for, like a hidden fee in your giant mom bag . Maybe i have them. Oh thats right i dont because i rolled my account over to etrade where. Woah. Okay. They dont have hidden fees. Hey fern. The junk drawer . Why would they. Is that my gerbil . You said he moved to a tiny farm. Thats it, im running away. No, no you cant come [ male announcer ] etrade. Less for us. More for you. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. Charles weasley still with us, ceo of nico Asset Management. We were talking about japan a little bit. The plenty of weakness in the yen. People are wondering whether yen can weaken further. Well get the announcement from the new bank of japan announcement thursday morning, 2 00 gmt. If it is, what will that mean . I think its less the name than the individual, more of conviction on the part of both the government, the government as it is now. And i think they will win in the upper house in the summer, as well, which is a powerful position. That consensus that they need to end deflation is shared by whoever the Central Bank Governor is. If thats the case, i think you will see the end weaken further. I think it will trade above 95 to 105 at some point. Its made a big change since the end of last year. I think that the deflationary policies, that they will inflationary policies, sorry, that they will create will be more important. Is that going to support japanese assets even more . The nikkei much last quarter to this up last your to this year some 20 . Yes. Weve become popular again. We were unpopular pundits for a time. Now people want to know more it whats going on in japan. I think there is momentum behind this move. There are things were seeing now that we havent seen for some time. Month on month brokerage accounts being opened to purchase stocks on margin going up. And if youre looking for that sort of new york shoe shine salesman giving stock tip analogy, the sort of bible for japanese investors for Retail Investors has been sold out. Flying off the shelves. Japanese retail turnover and the stock market has gone from 16 to 30 . Theres no question that japanese investors are now beginning to believe that if there is an absence of deflat n deflation, leaving money in deposit the bank is no longer the right thing. Can they actually pull themselves out of deflation . Can they create the inflation . Its well saying were going to aim to do it. Theres a big challenge in delivering it. Theyve done well talking about it. The policies are predicated on three things, two straightforward, one unusual for japan. Clearly fiscal stimulus, satellite side stimulus. Deregulation, a thatcheresque way, i think you will see. Labor market reforms, tax reforms. Certainly disposals of japanese governmentowned entities. More importantly, the monetary stimulus. I think that will become quite is new for japan. I think they will pursue it. What happens to the future of japan . There are those who say, look, weve got a a vast asian population, huge debt issuance. This is a ticking time bomb. Well, it is. However, they also have 1. 5 quadrillyon, one of the few times you hear that on this show, 1. 5 equalrillion, the same quadrillion, the same as the national debt. The highest cash savings in the world. As that comes out of cash savings and i think into funds, into longer term, longer duration assets, that has a powerful impact on a country. The demographics are what they are. Its a very wealthy nation. Yeah. As i think i read your notes, japans got the money, australias got the resource. And indias got the new since industry strateenagics. But strategicics, but i think that pivot to asia is precisely because of the need to watch carefully the chinese hedge money in the region. The fact is, these economies need do well together, including china. Charles, good to see you. Thanks for joining us, Charles Beasley. Well take a short break. Still to come, well be back at the conference in berlin. Karen will talk to the ceo of evercore private funds about the role of Political Risk for the private equities base. Henry win. And im here to tell homeowners that are 62 and older about a great way to live a better retirement. Its called a reverse mortgage. [ male announcer ] call right now to receive your free dvd and booklet with no obligation. It answers questions like how a reverse mortgage works, how much you qualify for, the ways to receive your money, and more. Plus, when you call now, youll get this magnifier with l. E. D. Light absolutely free. When you call the experts at one reverse mortgage today, youll learn the benefits of a governmentinsured reverse mortgage. It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home. And heres the best part you still own your home. Take control of your retirement today. This is worldwide exchange. A recap of the headlines if you just joined us. U. S. Sequester set to take effect in less than two days. A new poll shows theres plenty of negative sentiment around those budget cuts as lawmakers as lawmakers lets them happen. Burning a hole in apples pocket, a question about the 137 billion cash pile set to dominate the agenda t annual Shareholder Meeting today. Italy passes the Risk Appetite test. The treasury sees good demand at the latest debt auction, meeting its target to sell 6. 5 billion pounds of paper. Fairly well received auction from italy. Ill give you details in a second. U. S. Futures despite the gains yesterday, the dow up. 8 , the s p up. 6 . Caught slightly lower at the moment. Currently, what, 14 points below fair value. The nasdaq at the moment is 3. 5 points below fair value. The s p 500 currently 2. 5 points below fair value. We have called for a softer start. We meandered alone. Tried to get a bounce going after the selloff we saw yesterday in europe want hasnt really followed through, though. The ftse 100, slim gains now. Just up ten points. Up eight points for the xetera dax. The ibex up 15 points. Ftse mib has responded to the italian auction. Just up, what, 25, 40 points. A quarter percent. Just to recap whats happened in italy this morning with this auction, they raised the total maximum amount they were targeting which was, what, 6. 5 billion. The yield on the ten year, 4. 83 is what we got. You see the ten year here, 4. 85. In fact, the yield on the ten year was better in the auction than it was in the secondary market. And indeed in the grain market, trading at 4. 9 . That suggests that there was very heavy demand. The upward move in yields from around 4. 25 to 4. 85 meant there was plenty of good demand for this high yield in auction. So that suggests we wanted the paper. Thats what weve responded to today. You see yields in italy, were positive on the session. Italian yields, five year, 3. 68 . In auction the yield came out at 3. 59 again. Better than we were seeing in the secondary markets. Theyve been taken fairly well after that election result. So one of the questions weve been asking, how do you make money . Heres a recap of some of the answers weve seen on the channel already today. [ inaudible ] anyone in particular . Well, no, the longest are the better at the moment i think. At the end of the day, its better to stay out of the short labor. We saw it two days ago, its sold already. We likemett metals, platinum an palladium. And theres a huge difference in production. Gold and sterling will probably do you quite well. Sterling is not going to look particularly brilliant going forward. You know, thats a state of policy more or less from the bank of england. Overall as i say again, the hunt for yield continues. Also as the massive money expands, the hunt for something tangible and hunt for a hard asset continues. The 85 billion in automatic u. S. Budget cuts, squalid seque socalled sequester are going into effect friday. The American People arent happy. In the latest nbc wall street journal poll, 52 suggest the sequester is a bad idea. They also dont feel that good about how president obama and congress are dealing with each other on the issue. More than half say budget talks make them less confident about the economy. That doesnt mean they dont favor budget cuts. 53 do back some move to lower spending. Fed chairman bernanke addressed the sequester during his congressional testimony. He says fed policy cant completely offset a drag from fiscal issues. Cbo estimates it would cost about. 6 of growth in this year and the equivalent of 750,000 jobs. Would be a drag on nearterm economic recovery. More broadly, all of the actions would be a drag of 1. 5 points. Quite significant. Right. I hope you heard that. Meanwhile, bernanke says a more appropriate measure would be to introduce spending cuts gradually. Hes back on capital again. This day hes testifying before the House Financial Services committee. That begins at 10 00 a. M. Eastern. Private equitys biggest players have been predicting an uptick in deal activity this year. Firms that put idle cash to work. Well be going to karen in a few minutes for the Super Return International in berlin. And well have more reaction as well to this italian debt auction. Lets remind you theyve raised a short while ago the 6. 5 billion maximum they were targeting the yield on the ten year in auction, 4. 83 . Something of a result. Bearing in mind you can see it in the cash market at the moment, trading at 4. 86. Plenty more to come. [ male announcer ] how could switchgrass in argentina, change engineering in dubai, aluminum production in south africa, and the Aerospace Industry in the u. S. . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Is moving backward. [ engine turns over, tires squeal ] and youll find advanced safety Technology Like an available headsup display on the 2013 lexus gs. Theres no going back. Apples holding its annual Shareholders Meeting later today in silicon valley. Could be a contentious gathering. Cnbc has a preview. Reporter yes, guys. Later today, apple Shareholders Meeting takes place in cupertino at apple headquarters. Way inthere. Its an interesting event i will be there. Its an something event. Prime among them, the stock is lower today than it was a year ago. That might not sound like a big deal, but it hasnt happened to apple in quite this way. N a long time. Really since, you know, the last century to put a fine point on. It really where apples stock was down year over year in a case where the market was not down year over year. The prime reason why it is down, investors not so confident that as the smartphone growth moves into emerging markets, apple can continue at the pace where it has been without either selling cheaper iphones or giving up market share that have googles android os. Meetings sure to come to that. A couple of important items. The item number two, the number of shareholder rights proposals in it. One of them had to do with apple wanting a shareholder vote on any decision to issue preferred stock because of a Court Case Involving david einhorn. Apple cant vote, cant have shareholders vote on that item at all. So that is off the docket. A couple of things, though, that shareholder will vote on that are sure to be somewhat controversial. One, theres a proposal that would require apple executives to keep a High Percentage of the stock they are issued and hold on to it for a long period of time. Apple does not want shareholders to vote yes. They wanted that voted down. Some shareholders want apple to have a Human Rights Committee on the board of directors. Thats another one that apple doesnt want. Of course, well also see apples Board Members come up for reelection. Well see how that goes. Typically shareholders vote up the board once again. Since the stock is down year over year, sure to be a few more disgruntled or at least skeptical shareholders compared to years past. Well see what happens. Well be about there live with cnbc covering the action. Back to you. All right. Yes, he will. Make sure you dont miss that. Reminder, meanwhile, of the other headlines. The u. S. Sequester set to kick in on friday. Polls suggest its finding limited support amongst americans. Apples 137 million debt pile going to dominate todays annual Shareholder Meeting. And italy passes the Risk Appetite test. The treasury meets its target of selling 6. 5 billion euros worth of paper. Still to come, the u. S. Retame sector also in focus today Retail Sector also in focus today with target, jp penny, and limited brand reporting figures. Aw this is tragic man, investors just like you could lose tens of thousands of dollars on their 401 k to hidden fees. Thankfully etrade has low cost investments and no hidden fees. But, you know, if youre still bent on blowing this fat stack of cash, theres a couple of ways you could do it. Or just go to etrade and save it. Boom. Private equitys biggest players are predicting an uptick in deal activity this year. With Political Uncertainty weighing on sentiment from washington to rome, might global Risk Appetites suffer another blow . Karen is at the International Conference in berlin. She joins us once again. Karen . Thanks. There have been big private equity deals out there. Youve got to wonder where are the fund coming from. Lets find out. Joining me is Richard Anthony from evercore private funds group. Nice to see you. Thanks for joining us at the conference. A pleasure. Reporter tell us where the funds are coming from as you see it. Yeah. Thats a big question, karen. I think the theme weve picked up over the past year is asia. Its become a very, very strong theme. But i think also as well when youre asking that question about where the funds are coming from, its really, were in a market of haves and have nots if the truth be known. I think the brand name funds have been doing well in asia. And also the more established market. Again, this is a challenging fundraising market were in. Reporter we were talking to one Insurance Company as they try to get better returns. I believe sovereign funds are also interested in private Equity Investments now. I not thats accurate. What weve seen over the past, you know, five, ten years, is again in asia largely. But in other parts of the world, too. The sovereign wealth funds come together and allocate substantial portions of their portion note yo to private equity. When you think some of these federal funds in the hundreds of billions, even a 5 , 10 allocation to the asset class will have a major impact. Reporter the performance has been so patchy, many Company Bought in the heydays of 2007 trying to clear the decks from investments. So whats the argument thats put forward when you try and convince people to part with cash and put it back into private equity these days . Look, thats a really good question. I think the argument you have to look at on an individual fund basis. The argument will be, look, if we perform for performed for you in the past, we deserve capital again. That performance, youre absolutely right, has to come through the successful exits of Companies Across the portfolio achieving outstanding performance. Reporter what is the ability of companies to exit now . Some of the chatter is that trade sales rather than ipos, the path of least resistance for companies. Why is that and whats going to change in terms of the equity picture for private equity noorkts come back for List Companies to come back for listings . . Thats the uncontrollable feature of the market if you like in the sense. When the ipo market is attractive, of course a private equity firm will consider that route. They cant control it. And obviously they need to exit the company. Theyre always going to be exploring trade sales, sales to other funds. You know, if the market comes back strong this year, which its looking like it could, theres no reason we wont see more exits through ipos. Reporter theres been a huge amount of leveraged buyouts out there. And one of the big ones is dell, as well. Whats the backdrop in terms of going to the debt markets . What types of deals are you seeing in terms of financing and what makes sense in this environment . I think on that again, i think its very deal by deal. Theres no question that private equity funds are finding attractive companies to buy and are looking to put appropriate levels of leverage on them, are achieving that leverage. Were certainly not back to the heady days of, you know, 2006, 2007, where leverage was highly available. And some would argue there was probably too much leverage available. Reporter thank you for joining us, nice to see you today. I hear theres a lot of networking going on. Ill let you get back. Thank you. Reporter coming up, well speak to james moore, global cohead of private funds group at ubs. Were going to be speaking about what the investment banks are doing in this space. So ross, more to discuss here at the private equity forum. This is the largest, of course, across europe. The super return conference that were attending today. Yeah. Karen, good stuff. Plenty of great guests, as well, from there. Thanks very much. European stocks have ticked higher post the italian debt auction which we had, what, around 40 minutes or so ago. Lets get more on how thats being received. Claudia is in milan, claudia . Reporter we saw the yield at 4. 83 on the ten year. Higher, of course, than the 4. 17 we saw in january. But better than what the market was predicting. And of course what it was afraid of which was the 5 level which was very important to not go above. Also the bid to cover ratio was comfortsing, as well, 1. 65. The same goes for the five year at 3. 59 versus the january of 2. 94 and a bid to cover there was 1. 6 times. That their did calm the markets. We see an index here thats slightly in positive territory with the banks suffering. Banks are actually doing quite poorly, down 4. 37 . That is in the numbers yesterday that although were positive, the one number that was concerning to the market is the interest margin down from 6. 7 to 5. 6. Otherwise, it is a, say, a relief here that the bond auction did go as it went and now once again well concentrate on what the politics will bring in the next days. Yeah. Actually you will have to see. We dont know, do we . Thank you very much for that. U. S. Futures, meanwhile, have been falling to a slightly softer start this morning. We are currently, what, 13 points below fair value for the dow. We are around three points below fair value for the nasdaq, the s p, 2. 5 points below fair value. A reminder of whats on the agenda. January durable goods due at 8 30 eastern. Demand is forecast to drop by 5. 3 . 10 00 a. M. , january pending home sales. Theyre expected to rise 1. 8 . The dallas fed president , richard fisher, speaking about the economy after the closing bell. And on the earnings front, weve got numbers from retailers target, dollar tree, and tjx before the open. Well hear from groupon, jcpenney, liberty media, and Limited Brands after the close. Lets get more insight on the retail earnings and the overall sector. Dana telsy, kanada and chief Research Officers at the telsy advisory group. Dana, good to see you. Thank you very much indeed for joining us. What are we learning at the moment from this earnings season about demand . I think overall what were learning is the month of february is cautious. Were seeing guidance come in below consensus numbers. First half of the year, it doesnt feel as if theres going to be sales beats. If anything, the beat could come on more margins. Well be cautious throughout the year. What do we think about the likes of macys and tjx . What color are we going to get from them . I think overall, macys reported yesterday in their guidance was one of the only ones that came in better than expected. The focus is shifting toward toward omni channel with more sales done on line and through mobile. Theres a lot of investments being made toward it. We had very good sales for tjx during the Fourth Quarter. I think we should have an upbeat report from tjx. And if anything, were also going to hear what their online strategy is also. Yeah. How does that contrast then with the likes of saks, jc penny, kohls . What we heard was weak innocence some of the flagship tourist areas where the flagship new york store didnt perform as well as the chain average. We heard that from steve madden, too. From kohls overall, their sales came in below expectations in the Fourth Quarter. And i think were going to hear what are they going to do to improve the merchandising given the competition from tjx, macys, and even the gap . Kohls has work to do. Yeah. As far as guidance is concerned at the moment, dana, whats the implications for, you know, our forward looking earnings targ s targets . I think overall First Quarter is going to be a real challenge. You have an earlier easter, you still have weather thats more winterlike than spring transition like. I think youre having conservative guidance coming in below consensus. I think the ability to beat consensus numbers comes in the back half of the year. I think the Companies Overall who could issue solid guidance, i think you could see solid guidance out of tjx. Yeah. Is it going to be whats going to win out here . The general environment or Company Specifics . What were seeing right now is the general environment is winning out more than Company Specifics. Investors overall are cautious toward the group. Theyre investing in brands. Brands that overall have come under pressure where they are looking. So its been like df corps who reported last week and overall the guidance was okay, but certainly it gave people more confidence that there was some color out there. I think macys is another one where guidance was a little better than expected. And overall, i think thats going to be one of the stocks for 2013. Yeah. Are there any tailwinds for these guys . I think overall the tailwinds that were seeing is the housing recovery. The housing recovery and product costs that are in check this year that basically were a little bit out of control last year is helping margins. And housing recovery is helping demand. All right. Dana, good to see you. Thanks for joining us as ever. Dana telsey, ceo and chief Research Officer at the telsey advisory group. Thats just about it for todays edition of worldwide exchange. Well continue to monitor the action to the italian debt auctions. Theyve gone along smoothly post gridlock in the italian political scene. Plenty more to come on the countdown today, opening of u. S. Markets. Squawk box picks it up from here. From us at worldwide exchange, hope you have a profitable day. Hopefully kelly will be back at the end of the week, as well. Shes finished her barcelona jaunt