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tv   Studio 1.0  Bloomberg  February 20, 2016 3:00pm-3:31pm EST

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shery: coming up on "bloomberg best," the stories that shape d the week in business around the world. china's currency remains a hot topic. a production freeze interrupts the oil route, but for how long? >> i would like to stay in the market. that is it. shery: and the fed weighs in latest set of minutes. >> they said let's wait and see what happens. sherry: earnings season continues with a pain for some, joy for others. john: you are right, we crushed it.
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shery: while european banks cope with an ongoing nightmare. >> it is good news in banking. >> the good news it is hard to see it getting worse. sherry: and some of the biggest names in business shoot from the hip. >> in silicon valley, they are in their own world. sen. sanders: this is a litmus test. howard: they are scaring the hell out of people. shery: plus, conversations with highflying executives at the singapore airshow. it is all straight ahead on "bloomberg best." ♪ hello. i am shery ahn. welcome to "bloomberg best," a weekly look at the most important business news , analysis, and interviews from bloomberg television around the world. let's begin with a day by day review of the week's top headlines. on monday, trading resumed in china following the lunar new year holiday amid new concerns over the stability of the yuan.
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>> a day of dramatic headlines with china dominating the news. the pboc governor broke his long silence. what did he say? what was significant about it? enda: i would not call it officially new. he said we are not engaged in competitive currency devaluation. but the fact that he said at all is quite interesting. it should have some clarity for investors. he has got his key message out of it, that we are not going to push the currency down just to find restore export competitiveness. we do expect volatility along the way. we can only take him at his word, but there is a central message coming out of china that it is not about competitive devaluation. shery: that is what a lot of asset managers said, the fact that he said anything at all was a sign of support. we also saw the sign of report in the yuan fixed rate today. stephen: that is right, this poor set of data that we got
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today on the trade front hints that it does not make too much sense for china to maintain a strong currency. trade data suggests that they would kind of like a weaker one. francine: the energy ministers met,ssia and saudi arabia and the meeting ended less than an hour ago. so we have an agreement between saudi, russia, and two other opec countries to freeze production. what does it mean? the markets were disappointed. they wanted a cut. javier: it was too much for the first meeting of these two countries, at least publicly, in eight months. think about where we were only three months ago, where we are today. it is a massive seachange in the situation. three months ago, saudi arabia and russia were fighting for market share. they were trying to undercut moscow. moscow was trying to do the same in china. over that, both countries were fighting a proxy war in syria. today in doha, the ministers of
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both countries -- i do not think they keep the subset, but they really reach a preliminary agreement. they slowed production, and i think that is quite significant. francine: they have a floor, they have a price they do not want the threshold to be below, and that is $30. javier: what that is indicating, saudi arabia arerabi trying to control the market, is that you try to bring the price below $30, it will bring a collapse. trying to understand what is going on behind the scene. brendan: transcripts show policymakers expressed concern following commodity prices. risks in the u.s. economy. joining us from washington is bloomberg economics editor mike mckee. mike, there has been a residence reticence on the part of the fed for them to say what the risks are. they keep hunting. do you read any more understanding out of this
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document on where they see the risks are and whether the balances are negative or positive? mike: we know where the risks are from the fed minutes, brendan, but we do not know how big those risks are or whether they will actually come to pass. remember, this was back in january. it has been a month. since that time, janet yellen already has testified again on capitol hill about a lot of this stuff. the fed officials were struggling to understand the implications of falling oil prices, a stronger dollar, chinese growth, and volatile financial markets all at a time when consumer spending was hanging in and the labor market was remaining strong. in general, the minutes say, many saw all those developments as increasing the downside risk to the economy, although they really had no framework for how bad those risks would be. here is a key quote -- a number of participants noted the large magnitude of changes in domestic financial market conditions was difficult to reconcile with incoming information on u.s. economic development.
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if things were so bad, why was the data coming in ok on the labor market in particular, brendan? they did not know, so as you say, they punted. they said let's wait and see what happens. alix: walmart stock is falling in today's session, nearly point, nearly one wiping out its for 2016. the world's largest retailer lowering its annual sales forecast to "relatively flat." walmart is the biggest laggard in the dow today. shannon: investors can ask themselves, no growth next year when we knocked out currency. profit declining, so why walmart at this point? we were talking yesterday about the stock performance. the stock had been doing really great this year. people kind of looked at it as the flight to safety, the safe haven. if there is a recession, an assumption that people will trade down to walmart, and we have seen wages going up at the bottom end with minimum wage increases. i think today is a reminder that there are still issues with this
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company. this company is not growing. why have your money in walmart rather than amazon? alix: shannon, you and i were talking yesterday, if e-commerce continues to decline, someone will have to answer to that with 8% e-commerce growth in the fourth quarter. what do they do about that? shannon: they are blaming outside markets. brazil, china, the u.k. -- which they are seeing increased competition there. there is always some reason. amazon -- fourth quarter retail sales are up 20%. something they have to do, they have to spend in that area. it is really expensive. they spent almost $1 billion online last year. they will spend almost $1 billion more this year. david: breaking news today -- yahoo!'s board has formed an independent committee to explore strategic options. it also says that separating its alibaba stakes is critical. there is an independent committee that does not include melissa myers. they hired heavy hitters.
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tom: they want to show the market that they are taking very seriously this desire for them to find a buyer. the concern was that marissa mayer in management and the board were on two separate pages. the concern for the buyer is marissa and management are not behind the idea of a sale. they are committed to working on yahoo! what the board meetings show is that we really want to make this thing work. david: two days ago, they were shutting down their verticals, they are laying off people, shutting down offices. the board might think, wait a minute, we are thinking about selling it. not retooling it. christine: if you are thinking about selling it, it is not to say we are desperate, find a buyer, it is we have other options, right? we have an alternative to a negotiated agreement. so isn't that a thing to think about? tom: she has also that to think about morale among the staff. you have to retain people to run the business. no matter where marissa goes
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when this deal goes down, you need to keep the trains running. the more you're talking about look, we're going to close down shop, and up in the hands of private equity, verizon, whoever it is, the more people are going to be like -- well, what are we doing here? shery: later in the program, we will focus on two sectors very much in the news this week for different reasons. there is plenty of optimism around global aviation at the singapore airshow. the outlooks are not so sunny for european banks. coming up on "bloomberg best," a roundup of company news from around the world. ♪
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shery: welcome back to "bloomberg best." i am shery ahn. the commodities crunch forces a mining giant to scale back while an upstart wireless carrier promises to keep growing.
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those are just a couple of the most interesting company stories we covered this week on bloomberg television. here is a look back at a busy five days. emily: a watershed moment in a long simmering debate between silicon valley and washington. apple is rejecting a court order to help investigators unlock the iphone of one of the shooters in the san bernardino terrorist attacks. ceo tim cook framed it as a chilling attack on civil liberties. what do we know now, and how does this play out? chris: the government has come to apple with a court order trying to compel them to give them the ability to unlock an iphone. apple is pushing back. there is no sign that any side of is going to stand down. this will be a legal case that will play out for a while. greg: i think apple should resist the order. it would set a precedent. it would mean the fbi could go
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to apple and demand that apple unlock any phone, no matter what operating system it had. it would go then to apple and say well, if you can give us access to phones, how about computers, and then it would go to other providers and demand the same thing. emily: cyrus, you disagree. explain. cyrus: i do not agree with giving blanket access to the technologies, as my two cohorts have stated, but i do believe that given the situations that we are dealing with today, i think apple should participate in the process. that would require the government to change their rules as it relates to how they investigate situations, who is involved in that, but i do think apple should be directly involved in that and not have to be compelled to give up the keys to the kingdom, if you will. shery: softbank is surging, up nearly 14% after saying it is ready to shore up its share price and spend a record amount
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buying back stock. this to be worth almost $4.5 billion. how does this compare with their own past purchases as well as with others? pavel: that is right, at $500 500 billion yen, it would be worth about 14% of the company's outstanding shares. if you do a comparison, softbank's biggest rival in japan has announced a $350 350 billion yen buyback earlier this month. for softbank shareholders, this could not come soon enough. the stock has been clobbered this year, falling 28% yesterday before the buyback announcement. this puts the company's market value below the sum of the values of its shareholders, which includes sprint, alibaba, supercell, as well as yahoo! japan. one thing that helps the investment is it will not borrow more money to pay for the buyback. it is good news because the company is already $100 billion in debt.
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instead, softbank withdrawing its cash holdings as well as asset sales to pay for the acquisition. guy: anglo's $5.6 billion loss, that is full-year earnings, and they announced a massive overhaul to operation. rating was cut to junk yesterday by moody's. what do you think investors are convinced about the strategy update that we have seen this morning? jesse: it seems the plan outline -- what we saw this morning, a complete exit from iron ore, coal. they want to focus on consumer-driven materials that will benefit from long-term growth trends of the economy evolves. it is quite a significant change of strategy exit. i think a lot of exits have the outlook for those commodities much worse than other commodities we are talking about. guy: you are getting out of bulk, you are focusing on consumer. some would call this a fire
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sale. is that your description? mark: i think it is stripping back to the core, rebuilding the base, making sure we are fit to go forward in the most positive way we can. we have in making changes of the last 10 years that have been incremental. i think it was time for a bold step out. we have been working on that strategy over the last couple of years, and i think in this market, the opportunity is there to reset and start with a very different looking portfolio and making some bold moves. brendan: corporate bond sales are seeing the slowest start to a year since since 2005. apple and other tech companies are leading the resurgence in offerings. what is going on? lisa: there are concerns about global turmoil, global growth, and finally you are starting to see the safest, most respected companies come to market -- apple, comcast, ibm, toyota. these are the fortress balance
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sheet-type companies coming out with real big issuances and saying, you know what, let's take advantage. yields are still pretty low. brendan: like the adage in home finance -- you can only get a mortgage when you do not need one. lisa: you raise such an interesting point. apple -- what does apple need more money for? they have got $38 billion in cash in short term. that is on the balance sheet available to apple. they have got $78 billion in annual revenue. $56 billion in debt is pretty miniscule in the scheme of things, so they are piling it on in my mind as we look at this. it has been an all but closure of capital markets to higher risk companies that persists. the pace is the slowest since 2003 for this period this year. you are seeing the issuance of safer debt. for what? apple is going to use this to buyback shares, do this, do that -- who knows, who cares, right? people will give them their money. the tech industry is notoriously fickle, and people are not getting paid all that much, but
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this is perceived as safety. emily: groupon shares surging for a second straight day after a significant investment by alibaba. the stock has jumped some 83% in just two days. those shares are down about 50% over the last 12 months. what in the world can alibaba do for groupon that justifies a huge stock jump like this? gil: it is really what groupon can do for alibaba. if you think about alibaba, there is a strategical and a tactical imperative. remember, alibaba is a company that thinks in decades. jack ma famoulsy says he wants them to be around for three centuries. that is how he sees entry into the u.s. market, a long-term imperative. what he is doing now is planting --, lyft, snapchat , he has planted to learn about the u.s. market, is that when
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the invasion is ready, they will be prepared. emily: how optimistic are you about groupon's long-term future? gil: there is a realization that they are not going to 0 because alibaba took a stake. especially if you are thinking about betting against groupon. brendan: t-mobile reported rising profit and predicted as many as 3.4 million new subscribers this year. stephanie: dare i say -- you crushed it. how did you do it? tell me -- what are you doing inside of this company? john: you are right -- we crushed it. we added 8.3 million customers in 2015. we had 108% of all the postpaid phone growth in the industry. let me give you an idea what that means. in 2015, t-mobile added 3.5 million postpaid phones drivers subscribers. at&t, verizon, and sprint together -- -269,000. stephanie: are you making money doing it? you started this price war a couple of years ago, so it is great for consumers, but how
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about you? john: the model is working. what does that mean? that subscriber growth is leading to revenue growth. service revenue is up 11.7% year-over-year. the ebitda growth -- we grew 32%. adjusted cash flow in q4 was up 800% year-over-year, so the model is working. we're doing it by solving customer pain points. it sounds cliché, but the uncarrier stands for fixing what was a stupid, broken, arrogant industry for the most important thing in most people's lives. ♪
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shery: you are watching "bloomberg best." i am shery ahn. last week, troubles at deutsche
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bank raised serious questions of the health of one of europe's largest initial institutions. this week, is there a crisis brewing in european banking? it is a topic that sparked debate throughout the week on bloomberg television. manus: since the fall of lehman brothers in september 2008, each eight of europe's biggest banks have mass layoffs, billions and lost hundreds of billions of market value. >> senior writer for bloomberg news ed robinson has written about what he has called europe's banking nightmare. define a banking crisis, if you could. it certainly feels nerve-racking, covering it on a day-to-day basis. edward: in the short-term term, at least a banking crisis. you saw 10% plunges in deutsche uisse, etdit s al. you saw massive defaults webster. we saw a lot of fear in the
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market, but i would argue that that is a kind of short-term feel, that was last week -- in the long-term, what we are seeing is the next chapter in a transformation of this industry. i like to look back to last may 21st, when deutsche bank stockholders, you know, up to 40% of them basically gave a vote of no confidence to the co-ceo's at that time. what that did is basically said the strategy of trying to preserve the core of your investment bank and the way that existed even before and immediately after the crash, that is just not going to work in this environment anymore. there is something more radical that has to be done. that is what the market was basically saying to european banks at that time. >> we see some of the leadership changes to reflect that, haven't we? edward: yeah, and what we saw last week, the restructuring seemed to go on and on. we seem to be cycling in. this is like mark three for deutsche bank or mark two for for credit suisse. investors are out of patience.
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get a plan, we know it will take years to execute this plan, and all of a sudden, you have that process going on, and then of course when china slows down in august and the markets start to get turbulent, that throws fuel on the fire. >> to what extent has this been crafted by regulators? this sort of perpetual crisis. we are still dealing with the changing regulation imposed on the market post lehman brothers. collapse. edward: it is constructive to compare europe to the u.s. in that regard. in the u.s., banks were clearly kicking and screaming about dodd-frank. manus: they got rid of their toxic assets day one, didn't they? edward: it happened really fast. they took their losses early. dodd-frank passed in 2010, started to impose, implement rules and regs. they have gotten back to business. the universal bank seems to be alive and well in the u.s. look at j.p. morgan chase's record earnings last year. jonathan: it is really good news in banking.
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>> i think the good news is that is hard to see it getting worse. bill: a lot of the reality about banks is known. it is the fact that we have contagion risks to come. we have a ridiculous situation where banks are having to pay to deposit money with the ecb, and the result of that is they will charge more to lend to their customers, which suggests the amount of customers borrowing in an already depressed europe. so we will see mpl's already higher than they should be and will get worse. we have the potential shock -- coming in from market events. i go along about these weapons of financial mass destruction, the at1 bonds. we will see something occur they are in italy. i think there is a good chance we will see other cocoa bonds. kick in. that will generate a wave of negativity. at the end of the first quarter, we will see a lot of holders of these bonds who wake up they are no longer price at par but some of them all the way down into
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the 70's, and they have to sell them. so you get a wave of selling hitting the market, and that will contagion a bank process further. the question -- is this separate between banks and buybacks? no, it is not. jonathan: it was all about distance to trigger. there's very little danger any of these will be triggered. the point is now is the coupon covered, and will it be honored? clearly, deutsche bank, the liquidity coverage ratios, and nsfr -- massive liquidity, so in the short term, i do not see it a cap because we are nowhere near the triggers. guy: martin wolf writing in the "financial times" talking about the banking sector. they are undoubtedly right to do so. erik nielsen, the banking sector
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has been battered -- unduly so or rightly so? erik: unduly so, but there is barely smoke if there is no fire. the issue is, as martin says correctly in the "ft," financial institutions are complex animals, and we have been burdened by a whole lot of new cost, business, regulation -- the natural change we have to go through and what have you, and then we have a flat yield curve. you follow short and then longer, as my daughter points out, but the curve has been flat for 5, 6 years. guy: the possibility of further negative rates seen as a real possibility. we are bashing the banks at the time we need them to do better work. erik: that is right, and it is a problem. alix: european banks trade for less than their book value, something that may be appealing
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to activist investors, but they are nowhere to be found. lionel, you had an article about this out today. why are activists shunning european banks? lionel: it seems like it would be an attractive trade for them given that you could maybe be involved in push management, make some tough decisions that they have not taken yet. the problem is that activist investors are not really sure who is in control of the european banks -- is it the regulator? is it the european central bank? even if you have directors on board, will you have the regulators and other shareholders on board as well? there are so many complexities and difficulties with pushing banks in a particular direction that for now they are staying away. alix: can you compare the activism in u.s. banks versus european banks? lionel: i think there is more activism in the u.s. in general. again, the european issues are far more complex. we have a lot of countries involved, a lot of different
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regulators, and a lot of strategic issues that have not been worked out with the same aggressiveness. we have balance sheets that need to be cleaned up, business lines that need to be sorted out, and again, even though you would think this would attract aggressive investors, there are so many unknowns and so many future losses that could hit these banks that activists are, in europe, staying away. alix: part of what we hear when european banks are at risk is oh, no worries, mario draghi has your back, the ecb will help you, there is a lot of liquidity. in terms of profitability, mario draghi cannot help them with that. chris: you're right. it was fascinating last week on the day deutsche bank was plunging, lloyd blankfein was speaking at a conference, and his words were, the european banks have access to ample amounts of funding, and he was more worried about the counterparts, the suggestion of that, the share price performance. european banks in most cases have got a long, long way to go until they actually get way


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