Red lines are all about. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and Stephanie Ruhle. Good morning. It is thursday in new york city. You are watching Market Makers. I am Erik Schatzker. I am Stephanie Ruhle. After a week and a half, you may not be excited about it. Allquote mariah carey i want for christmas is new got a change the topic very quickly. Got to change the topic very quickly. We have an unbelievable lineup. We are already getting calls saying that joe baratta is on, i want to cancel meetings. Then we will be speaking with Alan Mullally. I will share the interview i had yesterday afternoon. Herbalife. Ing lets not forget about bill gross. Who can forget the bond king . For now, lets get to the newsfeed. It is the top business story from around the world. The u. S. Economy grew faster in the thor quarter than first figures showed. Up from the initial estimate of 2. 8 . The biggest increase in inventory since 1998 is the reason. Two lowfare carriers will benefit from the merger that is creating the new american airlines. Southwest air and Virgin America will gain flight slots at laguardia airport. Settlement of a the Justice Department suit blocking their merger. Night a record breaking for Norman Rockwells painting. It sold for 46 million. It was the most ever for a painting. It was voted a reader favorite. I am not sure when it was voted a reader favorite. Lets start with a blackstone to joe brought up. Joe marotta. Barata. We welcome joe for his First Television interview. Thank you for having me. Seems sensible to talk about private equities, since that is what you do. Why isnt it busier . Fordoes it seem so hard people in your business to find things to buy . That is the perception i think. We are in a more normal private equity environment right now. I dont think it is slow, i wish it was busier. I think for it to get busier, we will need to see a large m a cycle happen. We are seeing a lot less of that. We are buying more assets that each other own and selling stuff to each other. I would like to see more corporate m a so we can see primary buyout activity. Is it tough for you to buy businesses . If i was a company, i would not feel great about selling. Im not sure. We are not clairvoyant. We are not smaller than anyone else. You are successful, though. We have been doing it for the last few years that we have been businesses that are not getting the attention they need and we intervene to find value than the previous owner cannot do. Why arent things like they were back in 2006, 2007 . Market conditions are awfully similar. Open debtvery wide market, permissive terms for loans. It should add up to more than it is. There was a moment in time or the debt markets were exploding in terms of volume. Importantly, the banks were lending enormous quantities of money and they were willing to bridge large buyouts. Theres a point in time when we were looking at a hundred billion dollar lbo if you can believe it. That was an anomaly. Market. Ack to a normal there are similarities with regard to how heated the credit markets are beginning to get. It is a different environment. The banks are not underwriting the way they were. Is notntum of leverage as big as it was in 2006, 2007. If were going to see tightening of the standards, what is that going to do for your business . I am not upset about that. We are seeing the high yield bond market is hot because Retail Investors are looking for yield. Is that not a sign of a bubble . Do we want Retail Investors being hot on highyield deals . The highestors in yield bond market need to be focused on the credit step. I do not think you are focused at risk on capital loss. Behink the lbo guys could affected. Clearly, i do not understand the dynamics of your business as well as you will, but i am having trouble understanding how higher Interest Rates, which is where we are going, are going to be better for a business that relies on leverage . I do not think it is going to be better. It gets worse from here . As Interest Rates begin to normalize, the 10 year treasury is not going to stay at sub three percent for long. Happens, exiting from the stimulus that the Federal Reserve is providing the markets, it is going to be bumpy and create volatility. What were trying to do is not invest in companies where the stability of the credit markets staying like today is how we make a good return. We are doing investments with less leverage. We are buying growth companies, creating assets with no goodwill. We are billing building a liquefaction facility. We are creating that at cost. There is a good yield on that and is not predicated on a leverage office. Offer. Do you do to differentiate yourself . I feel like we talk about the big three, but those are your competitors. You need to be them. They are terrific firms and competitors. The world of private equity is big enough for all of us to succeed. We have a different strategy than those guys. We have a single global fund byre we can allocate capital sector, geography, where we see the best opportunities. We do not have regional funds. I think that is the strength of our business. Bosses, they have said that private he equity returns are going to be lower . Subscribe tore i that. We are doing growth equity. Were trying not to expose ourselves to just the cost of credit. We have a simple objective every time we invest the dollar, we want to return to and a half to our limited partners. We have been able to do it. In the last 12 months, we have sold 10 million worth of assets , sending money back to our lps. We have been able to do it and i am committed to ensuring that we continue to do that. It will not be easy and it will not be in traditional high leveraged lbos. We are doing a lot less of that than some of our competitors. Thehat is a great segue to second half of our conversation. How long can the great times last . Were going to take a commercial break. We will continue with joe baratta. Its muscle car to make it more appealing outside the u. S. Are going to speaking with be speaking with Alan Mullally. Detroit is back. He is making a big bet on General Motors and he will tell us why. Youre watching Market Makers. Were streaming on your smart phone, your tablet, and bloomberg. Com. Lets return to our conversation with jeoe baratta. We started off talking about buying, whether blackstone will be doing more of that. They are doing a lot of selling. Valuations are robust. How long can that last . I think it can last a while. The fundamentals of the u. S. Economy are strong. Sentiment is positive. Earnings have been growing. The Federal Reserve is accommodated. I think it will last as long as the fed keeps money pumping into credit markets. Our view on selling is that when we are done driving value through the companies and we have operating initiatives and we do cap x project projects and the markets are in a good spot, we begin the process to sell. I dont understand equity markets as well as a market based guy. You dont feel the equity markets look choppy . The markets are open. We will access them. We have done five ipos this year and they have traded above the offer price. On the pe multiple basis, the markets are not overvalued. It depends on Earnings Growth and Interest Rates. My personal opinion is the markets cannot continue to compound at 20 . Could they compound another few years at 8 to 10 . Certainly. What about taxes . Dont other aspects of tax reform like closing loopholes and changing the deductibility arent they much more important for your business . That would be a material negative to our business. Are you afraid of tax reform . No. The market will adjust. Our business will go on. It is happen in places like germany and denmark. Happened in places like germany and denmark. It will not be catastrophic for our business. Would it be good . No, it would not be good, but i do not see it happening. It is an underpinning of the economy. Achievea good way to that. Lets talk about what you are doing in europe. You move from london to the u. S. 18 months ago. Is that giving us a signal that the opportunities are here. No, i was 11 years in london and i wanted to raise my kids as americans. There are great opportunities in europe, but the u. S. Is relatively more attractive because in your up you will have more volatility and lower growth. Return youter ought to earn a better return in europe then the united states. Being very selective. We have a terrific pipeline in europe, but we have a heavier higher cost of capital. Does that make the u. S. The best place to be doing private equity . Returned 10. 5 billion to our investors this year. 75 of that is from deals we have done post crisis in the united states. We are making 2. 8 times our money on those investments. What is keeping you up at night . What are you worried about . I worry about a lot. Our fundamental task in our firm is to protect our limited partners capital. The thing i worry about is when we make an investment, it is a 10 year horizon. I worry that five years from now when we sell this company, the next buyers going to have less access to capital and it will cost more and he will pay me a lower you need a bid to a bigger margin of safety. Yes, or we are doing different kinds of things. Been fore has more than a decade. What is a going to be like when somebody elses running the form firm . Collectionthe best of investors as any firm in the world. Does, retire before steve to be honest with you. If that were to happen, john or whoever would do a great job. The firm would not skip a beat. Thank you. Joe baratta runs a pirate the private equity business that blackstone. When we come back, were going to be trading places. Will Alan Mullally give up the car business to run microsoft . We speak to him next on marketing. Market makers. Ford is going global with its iconic mustang. They unveiled the revamp sports car today. It boasts a sleeker look and smaller engine. Matt miller is with ford ceo, Alan Mullally, right now. This is a great moment for you. You love alan, you love ford. Take it away. I have been waiting for this a long time. I have to get breaking news out of the way. We have headlines crossing that , ford, that edsel you are going to stay at the company. No change to the plan. If they are smart at microsoft, they are offering you a half of the offering you half of the Gates Foundation to come over there. What should gates be looking for in a ceo. I would love to talk about fortinet new mustang. Lets get to the car. So many amazing changes. The old mustang was made right before you came to ford. What do you think was the most important directive you gave them when they were designing this new car. The mustang is a proof point of the one ford a plan that we put into place. That was to provide everybody affordable car. Were sitting here in new york at the worlds fair and we introduced the first mustang. It was a great sports car and had two plus two seating, rearwheel drive, it was very utility. It was a great driving car. Europe. Uld not get in i always wondered why. Our vehicles will serve all markets around the world now. Drive, righthand drive, meet all of the requirements around the world so everyone can enjoy the mustang. I thought of this as your one ford plan. It can be sold around the world. Boostr legacy has been to fuel efficiency without losing power. Talk to me about the four cylinder engine that provides more power than the v6. Talked about our ego boost engines. One of the options, three different powertrains. One option will be a were, in line cylinder ego boost engine ecoboost engine. How many do you expect to sell overseas . One of your competitors said it is pulling its chevy brand out of europe. You are making this push now. How many mustangs do you want to sell . We will share a thought you sold a million in the first year, you have sold about 10 million altogether. Thee are excited about response. This is what the world has wanted for years. Now we can deliver this mustang around the world. Somebody said the mustang has been let out of the corral. You are an engineer. People were falling all over themselves about the live axle, the one poll that connected the two wills wheels. The mustang was the last car to do that. Now it is independent rear suspension. That is like water cooling a porsche. Not only do we have the new independent rear suspension, but we also have the new front end suspension. You can select the ride in the performance that you really want to have. You can change that to meet your desire for that day. There are about 30 engineering prototypes out there. 14 or 15 for the unveiling. Have you driven one . I have. It is exhilarating. The idea was the freedom and personalization. You can get the car you want and can afford it and appreciate a great drive. Of the first me mustang buyer ever. A 22yearold teacher. Gayle white. And she still has it. Participating in the launching dear board. Jobwas 22,. A job got a as a teacher. The salesman took her to the back, took the cloth off the car, and that was a 1965 mustang. He sold it to her and she drove it away two days before the vehicle went on sale. Mustang,riving in this people were stopping her. The Police Wanted to see it. Kids wanted to see it. She said she felt like a movie star. Married a sailor, he restored the car. It is a fantastic story. I was talking to one of the designers and said it was the most important car since the model t and he said what about the f1 50 . That is the point. We look at this lineup now, the siesta, the taurus, the mustang, the ranger, that family from ford, when you walk in, it covers all of the Market Segments from smallest to largest. The mustang is right in the member of that family. What you think about your valuation . Kyle bass was talking about the investment he made in gm. Timese trading at 4. 4 ebitda. What are you think . Ford has come a long way since the one ford plan. Bestfocus on making the cars and trucks in the world, growing revenue, growing. Fficiency when can i get the keys . We will be able to fit you into one next fall. Of your choice, automatic, six feet . Six speed. It is sacrilegious to buy this car in an automatic. I like the gray. Fall, can youxt tell me that youre still been a be in the ceo seat next fall . You always tell me in the past that i am going to stay at least until the end of 2014. There is no change in the plan. I hope you will be with me next fall and i picked up the new mustang. When i pick up the new mustang. An americanng is icon and has global passion. It is a story. Eric, stephanie, back to you. A that is matt miller with man you should recognize by now. Alan mullally. They talked about the new mustang. It looks pretty hot. I am not a car guy. Also talked about the race for ceo at microsoft. Candidate, is he not . That he from edsel ford is not leaving. It will be interesting how the mustang sailor cells sells overseas. Think about what sells. You cannot say ford mustang is not an iconic american symbol. That does not look like a german car. Had the chance to sit down with another man who has a lot to say about autos. Kyle bass. In the half 1 billion subprime market before the housing collapse. He has a big bet on japan has not played out yet, but now he has a big bet on gm. Rise expecting shares to 40 in the next 18 months. I spoke with him about his and thenvestment governments diminishing role in the company and how it is affecting their outlook. I think the u. S. Government has been selling gm for a long time and i think they are almost out. There were prohibitions put on gms management by the u. S. Governmentking a motors and it is about to be General Motors again. It is a fascinating time and catalytic time to be investing in gm. I think it will release management to be able to put in place in set of plans incentive plans and do something that is shareholder friendly. You dont think up 40 in 18 months is a lofty goal . You think it is possible . I think it is probable. I think the first 25 is something that will happen more and he nearterm in the near rm and the rest in the next year or two. The government could be out of government motor. They will be out. They have been out of u. S. Angst. Does that give you positive sentiment . You look at aig and some of the other big stakes they had in you look at the past performance of the u. S. Government exiting things, their one year price post is in the triple digits. Do you think it is an interesting time to invest in financials . Am i do not. I do not. Where leverages from a corporate and household perspective, banks are not lending. They will make secured loans. They are doing very little on secured. I dont think the banks are going to have tremendous again. They are not going to lever themselves to big our wheeze once again. Big roes again. I dont think there is anything interesting going on in angst. Banks. How about European Banks . There are 3. 5 times more levered and they do not have a way to recapitalize. You have Industrial Production rolling over for the last year and you are up after a big turnaround in the qe induced ip turnaround from q1 of 09. Of 2009. I think the European Bank equity is something that is a tenuous security today. It is a great place to be hedged. We like vodafone, but i dont like euro bank. Fannie and freddie, we are seeing Bruce Berkowitz in the game. It is almost ludicrous to think the government is going to want to enter into anything where Hedge Fund Managers went out and homeowners lose. Is that a Fair Assessment . We modeled out the gse preferred. Slightld model out increases in the gc, so when you look at what happened to fannie and freddie, they were unfairly penalize compared to the banks. When fannie and freddie were taken down, they were required to provision for the full cycle. Fannie and freddi