tv Bloomberg Bottom Line Bloomberg May 7, 2015 2:00pm-3:01pm EDT
mark: from bloomberg world headquarters in new york, this is "bottom line" and i'm mark crumpton. to our viewers here in the united states and to those of you joining us from around the world, welcome. we have full coverage of the stocks and stories making headlines on this thursday. let's begin with a look at the jobs market. the labor department reported u.s. jobless claims under the lowest levels in 18 years. the small business sector is contributing to that strength. it creates two out of every
three new jobs in the u.s. each year. maria contreras-sweet is the administrator of the u.s. small business administration. she joins me in studio. good to see you again. the april employment report is out tomorrow. what role does or should small business have in job creation in this country? >> right now we are experiencing small businesses creating two out of every three and that jobs and employment half of the workforce. they are contributing to this 61 months of consecutive job growth them have experienced in the country. cory: you are traveling --mark: you are traveling the country this week. what are small business owners tell you about their success and 80 do they see -- do they see the government as a hindrance or a help? >> they are funding the global economy is available to them. we will be adding 2 billion
middle-class consumers and they want to benefit from that. so we are talking trade these days. mark: what are their major concerns? >> there is a small business woman who sells gluten free dog food and the terrace were respecting her business. mark: do they understand the interconnectedness, that when they do business, it is not just in the u.s., we are talking about cross borders? >> i just left san antonio, where women there were connecting with women in el salvador. that is but we are heartened by. sba's export product will be strengthened because we are getting the word out that those loans are 90% guaranteed. mark: let's talk about millenial entrepreneurs. are you finding a lot of them cannot get financing either because of their age, or because they have a great idea but they are burdened with student loan debt? >> they are burdened, and i know
that is a top priority of the president why he is looking to create a program where they can get a free college community -- education so that they can moon the tools of their craft. we are partnering with growth accelerators incubators, those job accelerators across america. and what we're doing here in new york is we are teaming up with one of our champions of change who will help us get the word out about the products and services available is the focus. mark: you were in brooklyn today looking at a business that you had visited a couple months ago. what do things look like now two months down the road? >> these business partners came in, they struggle to get a loan they were turned down time after time after they were introduced to an sba guarantee. they were able to start their first restaurant. today, we were able to have a nice meal at their second
restaurant and they asked us about a third. mark: what do you offer that perhaps the private sector does not? as you say, these folks were turned down for a loan, and then they go to the sba, and they say they can help. what is the difference? >> the u.s. government is the uncle sam to those that do not have a rich uncle. in most instances, we can guarantee 75% of the loan getting bankers to say yes more frequently and allowing capital that would otherwise be sitting on the sidelines to be deployed. mark: congress is working with the white house on trade legislation. many labor unions, liberal groups say expanded trade hurts american jobs, they bring up next to come in which they say was hurtful to u.s. jobs. is cheap labor right now one of the main concerns that perhaps it exploits labor around the world and many of the trade
unions do not want to be a part of it? >> we learned a lot of lessons from nafta. this is the first trade agreement that has been introduced with an sme chapter. the president and i just traveled to the summit of the americas in panama. those heads of state said that they had entered into 200 trade agreements which the u.s. was not a part of. so they are treating, and this is going to china. if we do not raise our standards environmental and labor standards, then china will win. we need to pass the transpacific partnership today. mark: there was a report last month that cited numbers from the institute of women's policy showing the number of female small business owners is on the rise and minority women are making huge strides. why is this and what are the challenges they still face?
>> one of the challenges is they did not know where to go to counseling centers. we now have several centers across the country. they also said that our loans were expensive. we have loans zero down and $150,000. we put on a new program that allows them to go to our website, answer a few questions, and now bankers compete for them. so it puts the business person in a very strong position. mark: maria contreras-sweet administrator for the small business association, great to see you. the seventh annual salt conference is underway in las vegas, hosted by skybridge capital. the event provides participants the opportunity to connect with global leaders and connect with industry peers. erik schatzker and stephanie ruhle
are there, joined by greg
fleming. good afternoon. erik: good afternoon and thank you. great to see you here. you have a lot of financial advisors here. the businesses that you oversee, wealth management and investment management have grown as a percentage of morgan stanley's revenue and profit, much more so than at other firms. that has created a business model for morgan stanley. what are the strengths and weaknesses of that business model as we look at the future of rising rates, questions about economic growth in the developed world, doubts about inflation? >> when you look at the businesses wealth and investment management, there are huge strengths. we are coming out of the crisis. regulators have not allocated more capital to those
businesses. those businesses are the-based
client-driven a very good part of an organization like morgan stanley. the morgan stanley business model is a very conscious model to take the ballast of wealth and investment management on one side and have it work alongside the institutional securities business which has more volatility but more upside in better markets. those two alongside each other we think, creates a unique model or morgan stanley, which the market is beginning to appreciate. stephanie: it was without a doubt morgan stanley who sat with us and said this is what we are doing. people raise their eyebrows but you are right. erik: that is the upside. is there a downside? >> like wealth management, we are the industry leader, we have a large-scale business, 16000 financial advisors, $2 trillion
in assets we are managing. when you look at a business like that, that is a very good business to have as part of a firm like morgan stanley. hard for me to say that there is a problem with that. erik: why is the firm allocating more capital to institutional securities? >> investment management and wealth management are lower capital to start off with. the firm, from the standpoint of a fixed-income trading business the team that call on color her has they are pulling capital out of that business. the capital that the firm's allocating in both direction is a reflection of the underlying business as opposed to a conscious strategy to pull wealth out of this area. stephanie: you said that you want morgan stanley investment management to have $5 billion by 2016. amazing goal. will you get there?
>> we are on track. the investment manager business receives less attention sometimes than most management because of its size. it is a big part of morgan stanley. but we have really good investment performance in most parts of investment management. if you manage money well or your clients you tend to get more money from the existing clients and new clients. we feel we are on track for that target. it was a stretch target but we are at over $400 billion today. erik: you had investment management on the one hand, the brokerage business on the other hand. in your last earnings call, you set a target of fourth quarter this year, you think you can get to a range of 22% to 25% pretax margin. you were at 21. how aggressive do you feel right now? 25 is the holy grail.
can you get there with certainty by the end of the year? >> when you set a target, if you are doing it in a legitimate way, it is not something that you can say with you that you will get there. we were at 22% at the end of the first quarter. we feel there is some upside for us on the margin equation. one thing that we are increasingly ballengee -- balancing is growing earnings. one thing that we were pushing within wealth management was growth. we want to expand the margins and we think we can and we think we can take that range higher, but we are also focused on growth. that is a mantra within our wealth management business. stephanie: or the wealth management business, obviously the equity markets are important. let me get signals from janet yellen nest hawks are overvalued, what does that mean to you? >> i think that was interpreted differently by different people. it was not the same as alan
greenspan saying irrational exuberance. stephanie:erik: an amazing buying experience. >> my view is the american economy is getting better. i said this earlier. this business cycle in the u.s. in particular has several years to run. if that happens, it is hard to predict where the markets will go, but it will be a favorable environment for us to run our wealth management investment management businesses in. erik: there is a persistent lack of female talent in the lower and upper echelons of wall street. what does it mean to morgan stanley to lose a woman -- your chief financial officer -- of her stature? >> first of all, it is great that she is going to a company as great as google.
on the west coast, stanford graduate, so this is something she is happy with after having done a great job at morgan stanley. we have a whole group of talented senior executives within the firm moving along but we have a push for us and across financial services industry to be more representative of the world we are operating in and have more women at senior levels and throughout the businesses. for example, wealth management within 10 years, two thirds of the personal wealth in the u.s. will be managed primarily by women. most of the industry, management and financial advisors, are men. erik: so in 10 years, how many will be female? >> a greater number than today and we are making a big push for it. think it is a great business for women to work in. our women who are financial advisors do a terrific job. they are known as terrific financial advisors.
it is a business where women will be in much more than they had been over the past few decades. stephanie: now you have said that on tv, on the record. five years from now, i will be playing it for you. >> it is a big push, i want you to replay it. it is a challenge to reflect the world in which we operate. if two thirds of the world's wealth is managed by women, they will not insist on it e-mail advisor, but they want a firm that has a good representation. stephanie: ruth left one of the most senior positions in the organization, could have been ceo. now that she is not in that seat, are you going to put a woman there so that one day we could possibly see a woman ceo? >> certainly within morgan stanley and hopefully more broadly across financial services, women are increasingly
operating at higher and higher levels. james gorman, our chairman and ceo has this push. the push on women will create more opportunities to have those roles. stephanie: that is the president of morgan stanley wealth management. stephanie: i know we spent too much time, but erik set me up. mark: thank you. up next, good news on college cost. tuition fees continue to escalate but the weight on federal student loans will be heading lower soon. ♪
the challenger is the labour party's ed miliband. that is about all we can report because we are seen in the u.k. k and are subject to strict british lost on what we can report until the polls close at 5:00 new york time. yelp shares surge 13% after the wall street journal reported they are reporting a sale. the company is said to be working with investment bankers and has been in touch with potential buyers. shares of the company were halted after the report and jumped to $43 after trading resumed. andrew cuomo is raising wages for fast food workers bypassing the state lawmakers. the move follows struck by employees of mcdonald's and other companies demanding a $15 hourly wage. the current minimum wage is $8.75 an hour. the new minimum wage will not be known until a board makes a recommendation to the labor commissioner who can implement the new wage without lawmaker approval.
that is a look at our top stories this hour. coming up, we will talk about some good news for students. loan rates are on track to drop when the reset in july. at 2:30 p.m., the ceo of clearing and quality hotels will join me to discuss how the company plans to attract millenial travelers. and then at 2:40, i will speak to the peruvian finance minister on his plans to boost growth. ♪
student loans will be lower when they reset on july 1. how are they set? >> congress sets them. two years ago, they decided to send them based on the 10-year treasury note. that option will happen next week. the way it works is the base of the rate is tied to the yield and we will know the number next wednesday. congress decided to add a certain premium for each of the different types of loans. we can see them on the screen. we will get an understanding of what that will be next week. for the current year, the most popular loan the undergraduate stafford loan is 4.66. you can see what they add on. the plus loan has the highest amount. three point 6% for graduates. stafford loan. a little over 2% or the undergrad. mark: why such a big add-on? >> right now it is tied to the
market and it had not been for years. the plus loans for graduates and parents have the highest rate. perhaps this could be the riskiest borrowers. we do not know what was behind the logic. mark: does this apply to all federal loans? >> good question. only to those that are issued in next school year starting july 1. mark: if you got on before then you are out of luck? >> exactly right. mark: borrowers, how are they doing paying off these loans? is it getting any easier, is the student loan debt still spiraling out of control? >> the overall number of outstanding debt, 1.2, $1.3 trillion. that continues to rise partly because the new cohort every year takes out loans to pay her college. and as we have talked about
before, students are having a harder time repaying. they are in deferment or in these income-based payment programs. their balances may actually be going up. the new york fed cannot with some numbers a few weeks ago that said 30% of borrowers are current and there balances are going down. that was a pretty start number to show the health of how people are paying down their loans. mark: you can see the story on bloomberg.com. before we started this segment she said there was good news for a change. choice hotels international. i will speak to the ceo stephen joyce on the company's better-than-expected first-quarter revenues and get an outlook for the rest of 2015. stay with us. ♪
mark: welcome back to the second half hour of "bottom line." now let's check in with choice hotels international. they reported a 10% rise in the first quarter revenue over last year. resident and ceo stephen joyce is with me. welcome back. it is good to have you. where is your strength coming from, where would you like to see improvement? >> broadly, things are positive. 10% increase is huge for the industry.
about 150 basis points over the competition which means we are gaining share which makes it even more fun. revenue per available room, sort of like cops sales. we think that those numbers will continue to build. we think summer will be strong. employment is a big factor or us. we represent the 99%. those folks are going back to work and they are going to have a couple of trips this summer. we have a promotion now where you can get a gift card if you buy a meal while you are out. we still have free breakfast, free parking and free wi-fi, which is what makes us the value play. business is really good. customers are excited and we are getting big demand growth. nice thing for the hotel business is there has not been a huge growth in supply. mark: you said on the conference call yesterday that bookings on
mobile have increased 58% over the corner versus the same period year ago. >> we are putting our money in mobile. we are thinking in a few years that it will all be mobile. tabs, yes. nobody is looking on desktop anymore. the reality is, it is small reel tape -- real estate, so you need books. we think we are one of the better sites out there. you can book a hotel room in three clicks. mark: so they are booking with you rather than with one of the traveling sites. >> they will look at price points and then come back to us. mark: does your industry pay enough attention to what customers want? >> probably not. one question i get a lot of our are there too many brands out there? the reality is, brands are
supposed to be segmented and people are supposed to know what it is. without having big distribution everyone knows what comfort inn is. but a lot of these businesses do not have a lot of hotels where they are traveling, so there is confusion of what is out there. the reality is, we are in a position where brands mean something and it should represent something different. mark: is that why you are rebranding, repositioning right now? >> we saw we waited a little bit too long with sleep and comfort and we have reinvigorated both of them, separated them in terms of look and feel and the services you get and it is also separated by price point. mark: has social media made it easier or harder to keep tabs on customer preferences? >> easier. they will participate in dialogues with us. our new campaign -- social media
is great, but the best way to connect is to do it in person. 85% of people out there say it is true. in our new campaign, which has some great music to it, we are trying to tell people, social media is great, if you want to close the deal, be there. mark: one of the teams being discussed in london are hotel chains willing to take risks in the digital age could see returns on their investment. how much risk are you taking? >> we are spending all of our money on the business. we spend money in advertising in tv but the bulk of our dollars are going into the distribution environment because it is disruptive. amazon is getting to the business. when i started 20 years ago
amazon was not a competitor. the reality is, there is huge peril for those who do not pay attention but also huge opportunity for those that do. one of the things we pride ourselves on is we have been first in a lot of things. we have a connected card with -- car with ford. our website has a number of firsts in it as well. we are starting to -- trying to stay out in front because if you don't you have big risks. mark: what travel trends are you expecting this year? >> we think it will be a big season. consumer confidence continues to grow. the economy will pick back up this is what we're seeing in jobs will concede to be created an industry will not only be record-setting for the summer but for the next several years probably through 18 because of the supply-demand balance. we have a huge hiring surge right now in our washington
year as declining revenue from copper and gold exports have slowed growth and interest rates ranging from construction to retail. sir, welcome for your time today. alonso: thank you for having me. mark: you recently told the world bank that you expect the peruvian economy to expand to close to 4% this year. are you concerned upon we are seeing in commodity prices could jeopardize that growth? alonso: i think we had it in our forecast. it is still filtering through the economy but we took measures since last year. i think we will be ok, between 3.5 and 4.5. the central forecast is about 4%. mark: in 2015, peru announced a series of tax changes to facilitate the construction of housings and buildings. always good politically, trying
to lift those in poverty up to the middle class. is it enough to help the country's overall economy and will it lead to increased infrastructure spending, which peru needs at this time? alonso: we have conducted two types of measures. one in the short-term and others in the medium-term. we have conducted measures you mentioned in terms of the tax side. income taxes were lower for both corporations and household and several other tax measures. most importantly, we have introduced countercyclical fiscal policies. we have introduced more spending from the budget within the fiscal responsibility law. now the task is to execute that spending. mark: that is interesting because that seems counter to what we are hearing in europe and greece where it is not so much about spending but austerity measures. how do you balance the two?
alonso: we are a sovereign country, a debt to gdp ratio of about 23%. we are basically almost a zero. country. we have been running surpluses for the past few years. that we will be going into moderate deficits, so we have the fiscal backing to run countercyclical fiscal policy. mark: our investors encouraged? alonso: i think they are. carew's story of growth over the past decade has been based on private investment. we have a private investment ratio of about 27%. 21% is private investment. we have the country with the highest fdi in the region. mark: you have said infrastructure deficit is equal to or percent of gdp.
you'll need partnerships in the public and private sectors to narrow the deficit. what are the risks in those partnerships and does peru have enough funds at this time to financing for structure projects? alonso: we have been very aggressive in launching awards. clearly establishing the rules for the public which ones go to the private sector. we have to do this over the medium-term, with a medium-term view. specifically because we have to check our fiscal constraints. we are aggressive but we do not want to take excessive risks. we are launching products in several areas. mark: the central bank is trying to keep the sol from depreciating to quickly. you are using an arsenal of instruments to keep that from happening. is the government helping in the fight against depreciation? alonso: no, monetary policy and
exchange rate policy -- mark: you will leave that in their domain? alonso: yes, basically, what you want to do is avoid undershooting or overshooting the currency. mark: before you go, any thoughts on making changes to import terrace for food staples like corn, sugar? alonso: we have a price range mechanisms that we have cap recently because we believe in free trade. we believe it was in order to set cap. that was the main idea. we are accelerating again. leading indicators are pointing to march, april. we are on a good track. mark: alonso segura the finance minister of peru. thank you for joining me. still ahead, whole foods troubles.
mark: the u.s. senate has voted to let congress review any nuclear deal with iran. the agreement does not include provisions on by senators marco rubio and ted cruz who are both 2016 republican presidential candidates. the bill will now go to a republican-led house where speaker boehner has said congress should have a chance to block any agreement that president obama's administration reaches with the islamic republic. u.s. attorney general loretta lynch will decide soon whether to open a full-scale investigation of the baltimore police force. in her first appeared before a congressional panel since her confirmation two weeks ago attorney general lynch told the senate appropriations committee about her response to baltimore mayor stephanie rawlings blake
request for a civil rights investigation. >> we are currently in the process of considering the request from city officials and community and police leaders for an investigation into whether the baltimore city police department engaged in a pattern or practice of civil rights violations. i intend to have a decision in the coming days. mark: alibaba is getting a new ceo, daniel zhang who had been the chief operating officer. he helped to turn the company single day shopping promotion into its diggers -- biggest sales day. he replaces jonathan lu, who will remain as vice-chairman. shares are up about 7.75%. coming up, scarlet fu will have more on today's market movers with the sheer. at 3:00 p.m., more from the salt conference -- conference. and then alix steel will look at investor reaction to alibaba's
new ceo. whole foods is branching out beyond its namesake stores. the grocery chain plans to open lower-priced stores to target millenial's and they will not be called whole foods. our senior market corresponded julie hyman is here. what is going on with this? julie: and they are opening of the stores but are not giving us much details. they give us some buzzwords last night in the statement on the conference call talking about value, technology, targeting the millennial's. it looks like this will essentially be a smaller, lower cost version of whole foods which is interesting because as you know whole foods is known as a premium grocer that does charge in some cases higher prices. although if you remember last year i did a pricing survey of whole foods versus some of the other grocery stores in the area and found they were more competitive than some may have
guessed. nonetheless, they feel the millennial customer needs to be appealed to in a different way. mark: do we know what the new store could be called? julie: we are not getting many details, we hear they are negotiating leases and doors should start to open next year and open rapidly but we are guessing as to the names. the company has trademarked several names, whether it is for products or services or whatever. 365 is the name of their in-house storebrand. daily shop. clever egg. matt miller was not a fan of that one. small batch, and greenlight. mark: why does whole foods need to do this? julie: if you look at the stock today, it is down sharply. this announcement also said that
it's sales are decelerate to some degree. comparable sales were up 3.6%. analysts were expecting 5%. it also represents a slowdown from the prior quarter. there is a lot more competition in this space than there was before. you have some of the other natural grocers like sprouts but you also have the big ones like kroger's getting into organic, walmart getting into organic which speaks to the need from consumers to have more low-cost food in this area. also some cannibalization. whole foods starts to ramp up its store openings, in some areas, maybe a little too close together, so people are switching from one store to another closer store. mark: julie hyman with the latest on whole foods, thank you. stay with us. scarlet fu will have a check on the market movers on the other side of the break. "bottom line" on bloomberg television continues in just a
final hour of u.s. trading, stocks have been up and down. things finally settled and that is higher. treasuries being pushed lower. that came only after the 10 year reached almost 2.31%. the vti closing and session lows, below $59 a barrel at the moment. the countdown to tomorrow's big jobs report is on. they blow up number could cause janet yellen to raise rates in september. which companies will benefit from a rate hike? with me now is the head of green capitals microstrategy team. what are streeters pricing in? >> we are pricing in a bit of weakness. on the back of the adp, we saw treasuries try to rally and they did not. the number is 220. i think the real whisper is 180 to 200.
we can get back to 250 pretty quickly. if we had a big number, showing wage inflation, the market is positioned once again. and we have had extreme volatility. the german mooned went to 77 basis points, back to 55. scarlet: it's been all over the place and financials will benefit if the fed moves rates. how do regional banks fairre? >> we have been focusing more on regionals. we are not ready to sin doubt the buy signal. we want to see some price weakness in equities before we buy, but we like them a lot. we think they will benefit from a rising rate environment. more importantly, they cover the market sector that everyone wants. everyone wants do middle-market lending. they have an attractive customer base and now they have the potential to raise dividends and
become a yield play. scarlet: are they done cutting costs and repairing the balance sheet? >> i think they are. they did not have the big problems like the bigger banks so you think you can see some earnings gain coming from them. scarlet: so no legal and regulatory overhang. let's get back to the macro environment. in terms of looking for leading indicators, treasuries moved first following the selloff in europe. starting to see a poke into the credit space. when you equities get their turn? >> we will see. what i'm watching closely in credit -- this is maybe a bit technical. let's say a bond comes in at 200 basis points and everyone says it should be at 175, but it only goes to 195. so you have this weird market where the new issues are cheaper than a secondary. in the secondary market will weaken, and that is when it will hit equities. when companies realize it is
hard to issue debt, that is money will see the next play for equities. scarlet: where is everyone going, selling update treasuries and bonds? >> some of it is going to the front end and some of it is going to europe. you are also seeing a big flow into clo's. anything that is floating rate is attractive right now. scarlet: floating rate over a fixed rate. thank you for joining us. of course, keep it here on bloomberg television. "street smart" is next with alix steel. ♪
>> welcome to the most important hour of the session. i'm an steel and this is street smart. stocks are rising as investors weighed in on tomorrow's jobs report. yahoo!, a rebound in technology shares. posting is best advanced and's october after a new ceo was named. we are counting get -- counting down to earnings. street smart starts now. ♪ alix: