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tv   Bloomberg Best  Bloomberg  December 17, 2016 12:00pm-1:01pm EST

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>> coming up on "bloomberg best", the stories that shaped the week in business around the world. the dot plot thickens, more to come. >> they took a small step beyond being data dependent. >> the oil outlook brightens the outlook for food. -- for crude. there is a change in the garden goldman sachs. >> goldman sachs is making this move from a position of strength. donald trump continues to construct his cabinet. unconventional picks have sparked conversation. >> if you are going to be president, you should have the
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best people sitting around the table. >> some of the sharpest minds in business share insights on the markets. >> i am probably more comfortable with shorter duration assets. i think the worries are in chinese credit growth. >> there is over exuberance about how well people are doing. >> it is all straight ahead on "bloomberg best". vonnie: hello and welcome. i am vonnie quinn. this is "bloomberg best". mostweekly review of the important business news, analysis, and interviews on bloomberg television around the world. let's start with a day by day look at the top headlines. it began with a note of optimism for oil. >> opec has sealed its first output cuts with independent producers in 15 years. andministers met in vienna
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agree to reduce output by 1.2 million barrels a day. saudi arabia signaled it is ready to cut production more than expected, promising a reduction of 450,000 barrels per day. russia and other non-opec nations pledge to cut production by 558,000 barrels a day by january. >> the situation is different as we go country by country, but i was pleasantly surprised to see so many companies respond why the invitation to participate to help to stabilize the market. the big highlight that we have to highlight -- 2 highlights. one was russia and non-opec producers committing to reduce production. some of the reductions in production were happening in any case because of natural declines. i think the other big highlight, and the unexpected one, was saudi arabia saying it is ready
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to cut production and go below 10 million barrels a day. they are not saying they will do it, but they are prepared to do it. >> i am a cynic. looking further down the line into 2017 and beyond, why would this agreement work? none of them previously had worked. the only way it will work is if the saudis are determined and will take a great deal of pain, a disproportionate amount of pain. i am not convinced they will do that. >> they want more for their oil. they have said they will carry out what they say they will do. they will cut supply, and the price of oil will come up. you will be at $60 a barrel within 30 days. >> reportedly president-elect donald trump is close to naming his secretary of state, and the front runner comes from the world of big oil. yesterday mr. trump tweeted the , "whether i chose him or not
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for state, rex tillerson is a world-class player and dealmaker. stay tuned." what you make of this possible nomination? is it likely, and what would it mean for the state benchmark >> he knows the details of the places he operates. he has run a big organization. he has met globally with leaders. all that is clearly to the good. he has not had the public-sector experience. do you remember what happened to paul o'neill, it's not exactly a bureaucratic success. >> rex tillerson, the foundation shake and quake with this nomination. he is an impressive guy, but when we saw michael jordan go from basketball to baseball, you can be great in one area and not
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necessarily great in even a somewhat related area. we will have to see. >> the confirmation process will be very important. mr. tillerson has relationships with mr. putin that we want to know more about. >> do not have someone in there that has experienced that could be a threatening figure to the nation? i want someone as secretary of state who has experience with the global diplomacy. mr. tillerson brings business experience, not diplomatic or government experience that would be very helpful. the targetprize, range for federal funds moves up a quarter percentage to between point 50 and 75 basis points. that decision, unanimous. the real news is the movement and the dot plot. median projected appropriate policy path next year is 1.4% next year, which would mean three rate hikes in 2017, not two. >> do you buy into three rate increases? >> if inflation continues to
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move higher, because the short-term real rate won't increase much, if at all. i would doubt the ability of any central bank, the fed, to raise interest rates three times a year for the next several years, because the global economy and the u.s. economy is relatively highly levered, and housing will begin to reflect that. >> i think the fed took a small step beyond being just data dependent. you should walk back this notion of high pressure. people said, wait a minute. are we not just seeing a slight lead higher expectation for rate hikes, but in addition this , could be a fed that could be tighter than otherwise. it wasn't so much the statement as the press conference. >> as expected, the bank of
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england keeping its key interest rate at 25 basis points. also keeping its purchase plan , at 435 billion pounds, the vote was 9-0, so a unanimous vote. illustrate the dilemma mr. carney faces. they think they will have higher inflation and they expect slower growth. >> at the november meeting that , boe made this shift from an easing bias to a neutral stance, basically saying they have a limited tolerance for above target inflation. sterling has risen 6.5%, and the boe acknowledged that and said again could mean less of an overshoot above its 2% target. that does not mean it's willing to look through inflation. limited tolerance was still mentioned. >> yesterday, bloomberg reported that verizon was taking a hard look at its deal for yahoo!. verizonibility was
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taking $1 billion off of the purchase price. is that realistic? at this point, might verizon want to take the opportunity to get out of the deal and go hunting for bigger game? >> the hacking scandal is a real problem for yahoo!. if nothing else, it will give verizon a chance to come back to the negotiating table, and look long and hard at the books of yahoo! to determine if yahoo! is seeing any decline in the user base, which would drive profitability and value for the company. it might be difficult for verizon to walk away. that may still be on the table. what is more likely is that verizon will be able to come back and renegotiate the terms of the deal, including price. >> take us through the options at this point. what are the realistic options for verizon? >> the most likely is they extract their pound of flesh and reduce the price.
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the other option is to walk away from the deal. that would have to show discipline from rising management if they walked. the other thing is to create some sort of legal entity where they can put aol and yahoo! into that entity to try create a firewall around an unbelievable amount of liability. you don't know how big the infection is here. this is pretty ugly. vonnie: later in the program, we dig deeper into donald trump's cabinet nominees. will their business credentials translate to success in washington? plus, a new task force addresses the financial risk of climate change. up next, more of the weeks top -- of the week's top business news with an italian bank taking bold steps to put itself on sounder footing. >> this is a comprehensive plan to make the bank leaner and maybe meaner. >> this is bloomberg. ♪
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>> this is "bloomberg best". i am vonnie quinn. let's continue our global tour of the week's top business stories in italy, where a major bank unveiled a plan to boost profitability. >> italy's biggest bank has announced plans to raise 13 billion euros in a rights offer and cut jobs by 2019. why does the bank need to do this? we have been tracking the woes of the italian banking sector extensively. we are seeing a comprehensive plan to de-risk the bank. we saw asset plans with unicredit selling pioneer asset management. that is the asset sale front.
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downwill also try to write a lot of the nonperforming loans, increased coverage ratio, letting go of 6500 positions in the bank, adding to 14,000 net jobs to be terminated. this is a comprehensive plan to make the bank leaner and maybe meaner. >> talk about the capital, where is that going? >> it will quickly disappear. they laid out 12.2 billion euros in one-off charges in the fourth quarter. a lot of that is provisions for bad loans. they're trying to get a number of loans off their books, so they are writing goes down. this capital will be used up this capital will be used up pretty quickly. it is to reset the bank, get a lot of the bad stuff off the table, and start over with growth. >> goldman sachs has promoted cfo harvey schwartz and david solomon as copresidents to replace gary cohen.
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quite a bench at goldman sachs. at the same time, it is steady as she goes, isn't it? >> goldman sachs is making this move from a position of strength. their mantra from early in the decade was live to fight another day. goldman's revenues have not grown, but they have preserve d the franchise. the key to the franchise is serving clients well. you have 2 co-ceo of those. one that has done a lot with client, david solomon and the , other doing a lot with the trading side, harvey schwartz. who, for the past two years, has been the cfo. >> is this a great time to take over? they've come off a lean period where they have weathered well. or, is it a bad time? stocks, the only place to go is down? >> this is a fantastic time.
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now we think revenues grow, and we increased our estimates since election to over 15%, and we think the stock price hits an all-time high over the next six-12 months. great time to take over. redstone withdrew from the two companies. shares fell as the merger plans dissolved. surprise was this? it seemed to like full steam ahead, then -- >> i guess it is a bit of surprise. we picked up that less -- that les was reluctant. he wanted control of the redstone -- he wanted to know he could run these combined companies which are big and would need a lot of work, that he could do it without interference. our sense is that she was reluctant. the reason the announcement came
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out this because she, her lawyers, her side, wanted to make it look like they were out front and the reason the deal fell apart. you have these dueling visions. what is his vision? what happens to paramount? >> the two main things is he will have to clean it up, so there will be some restructuring and job cuts, and he will push more into international viewing, a place where they might be owed -- might be able to boost themselves and return profitability. both companies feel pretty good where they are. >> two japanese companies have seen their stock drop today after being targeted by short-sellers. a pretty active session, what has been happening? >> an interesting morning in tokyo in terms of activist short-sellers. we had a report by a local activist short researcher just 30 minutes before the market
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opened on a large, but not maybe too well known company called questioning the accounting, the earnings outlook, the auditor. about an hour later, we saw a report on the japanese company, and he's gone quite big, a blue-chip japanese company run by a billionaire. again, questioning accounts and asking whether the organic growth is really there for the company. stocks fell quite a lot. not as much as the other one, but almost 6%, then trimmed the losses by 2%. >> alphabet announcing it is separating its self driving car business into a new unit called waymo in the alphabet family. john krafcik made the
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announcement. selfhave been developing driving technology for six years. how does this change things for the self driving car unit itself? a they will probably have commercial product soon. they have been talking about "graduating," a term they use for a stand-alone business. google parent is figuring out the logistics and what it takes to build these stand-alone companies. >> shares in sterling have soared after a consortium offered as much is $5.5 billion for a takeover. >> what are the details? >> >> this has been brought by the pacific consortium, 30% share for morgan stanley, kkr, and macquarie group taking up 10%. the consortium is offering $40 to $45 per share.
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that is $5.5 billion. they would sell their wagering and gaming business. the investors would get cash and a stake in that new business. that would be valued between $ $1.60 perllar 66 -- share. 1the consortium will hang on to the lotteries part of that business, which generates two thirds of revenue. >> where does that leave the bed made by tabcorp. >> this offer was made in october, $4.5 billion, which it was valued as not as appealing. there is now two bids on the table and illustrates how attractive the space is. >> billionaire rupert murdoch may finally get what he has wanted for years, complete control of sky. 21st century fox has agreed to take over the european broadcaster for $14.6 billion.
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no premium to the preliminary offer. what is going on? >> i don't think anybody would expect it at this time. going forward, fox would need to get 75% of the rest of the shareholders to approve the deal. we reported a couple of days ago that they are open to bumping if they have to. i'm sure fox would prefer to get the deal done at the offer they made, but they are open to bumping, and they might need to. not anything major, not several dollars or pounds, i just think you will see a 2%, 3%, 4% bump if necessary. >> sanofi in talks to buy a swiss drugmaker. that is according to people familiar with the matter. they say a deal could be announced as early as next week. we are hearing this news after j&j walked away from talks. i want to kick off with a chart that is here, very simple.
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it shows how a number of drugmakers have eyed actelion for years. obviously, this is an appealing target. does it look like this potential deal has the material to perhaps be successful finally? >> it sounds like the negotiations are very advanced. sanofi is excited to get this deal done. to cross the finish line. whether they reach an agreement, anything is still possible. the management is very demanding. they almost reached an agreement with the j&j. let's see what happens with sanofi.
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vonnie: you are watching "bloomberg best".
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i am vonnie quinn. a climate change task force set in motion by g-20 leaders released its recommendations this week, designed to address climatel risks posed by change and develop climate change financial risk disclosures that companies can use on a voluntary basis. the task force is chaired by michael bloomberg, the founder and majority owner of bloomberg. the parent of bloomberg news. he was joined by mark carney in an exclusive interview with bloomberg's francine lacqua. >> g-20 leaders asked for this task force. they asked for the private sector to find a solution. michael has led the work of the private sector. the solution is by the market, for the market. the expectation is voluntary adoption. u.s. in$3 trillion private capital.
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you have $20 trillion today endorsing these recommendations of private capital, so it's that demand. this is the report that is filling the demand to help make the market work much better. >> capitalism will make this work because the investors, the employees, and the customers of companies want to know what they are doing from an environmental perspective. whether they want social investing or impact investing or whatever you care about, if you're going to make bets, they have to have information. so, it would be difficult for companies to say i will not contribute. the implication is, what you hiding? >> the election of donald trump means there is less sympathy to this kind of guidance. does it impact -- >> it is hard to argue that trump can cut back what the federal government in america has been doing to address the
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possibility of real serious climate change. they have done nothing, almost nothing. the president has tried a handful of things with executive action, but fundamentally all of the efforts to reduce greenhouse gases, and there has been enormous progress. we have a chance of making our 2021 goals in spite of federal governments and state governments. it has been done at the city government level, but mainly by private sector, companies and individuals who have adjusted their behavior to try to minimize climate damage and adjusted their business models and their living models as well to what happens in the worst case. >> the new administration can not deter companies? >> they can make it worse i suppose, but you were not bring -- but you are not going to bring back coal jobs. the world is stopping burning coal. you can subsidize the coal industry, but not to the extent
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you will get people to turn around. if you live downwind from a coal-fired power plant, forget about 2050. your kids and you right now are having your body damaged, and people are starting to realize that. the same thing has happened with smoking, sugar drinks. the public is a lot smarter than , i think elected officials have , given them credit. they read about this stuff and say that it makes some sense to behave in a slightly different way, modify our behavior to protect ourselves. vonnie: still ahead on "bloomberg best", president-elect donald trump is stocking his cabinet with ceos, and many nominees have ties to big oil. we explore the pros and cons of this approach. next, the state of the markets from some very heavy hitters. they are not sugarcoating what they see. in a sad place. low growth, a broken banking
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system. this is bloomberg. ♪ . .
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♪ >> welcome back to "bloomberg best". i am vonnie quinn. with new political leadership in the u.s. and the effects of brexit, it is pivotal for economies and financial markets, so what should investors expect? it is a topic we examined in a number of interviews this week on bloomberg television. starting with blackstone's schwarzman grade. -- jonathan gray. >> tell me what you expect from the trip administration. -- administration. >> i think there is going to be a business focus, a push to
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accelerate growth. i think we will see a reduction of taxes, corporate and individual taxes. i think we will see fiscal stimulus around infrastructure, and a pullback of regulatory issues, and i think when you look at that, that is likely to lead to higher growth going forward. the challenge for investors is what does it mean around the deficits, what does it mean around inflation, interest rates? the same question when you think about trade. you see it playing out in the stock market today. the stock market is enthused about the growth story, but in the bond market, people are getting nervous about inflation and interest rates. >> how has this changed the calculus, if you will, inside the meetings where you and your colleagues and others that blackstone make these investment decisions? what are you doing differently today than 6-8 weeks ago? >> we had been in the lower for longer environment, low rates,
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low growth, low inflation. we were beginning to see a tech up in terms of wages -- tick up in terms of wages. if growth is higher and interest rates are higher, it does have an impact. i am probably more comfortable with shorter duration assets, apartments and hotels. i am more nervous about owning a 20 year lease. >> rise in cash flows, but also the potential to charge higher rents? >> exactly. it is beyond that. it is what will the energy
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sector look like. we have seen the banks rally because they may not taste the same restrictions as before. i don't think anybody has a crystal ball, but a lot of us will be focusing on this as we look forward on how to deploy capital. >> what is the tenor in the last four weeks since the election? >> it has been a pickup in volumes in equities and also a rotation. the rotation has been out of defensives into cyclicals. we have seen some energy companies, and we have seen infrastructure, companies that people think will have an infrastructure angle. >> banking and infrastructure, but oil, energy, or energy policy will be so different that it will change demand?
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>> a lot of expectations about the president-elect and his policies, regulations, financial services, pharmaceutical companies, energy companies, and people are re-rating them. >> the selloff in the fang stocks is one of the other characterizations when you look at the s&p and the 50 basis point difference. the initial speculation was maybe trump would go after social media, tax amazon, or regulate netflix and youtube. >> technology traded down, but it was rational initially. technology companies have the highest percentage of foreign trade in terms of exports, so when you look at potentially trump coming in and having a
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protectionist policy, there was some fear over retaliation in some areas, so a lot of the big global tech companies got hit. there is a lot of anticipation about the large private technology companies coming in 2017. if you think about the size of those companies and ipo's, investors are thinking about positioning. >> what is the biggest risk to 2017? monetary policy does not deliver or the banking sector? >> the way monetary policy is evolving is working. i think we are in a gentle tightening phase, even the ecb reducing the amount of qe somewhat. on the whole, that is quite good from a banking perspective because the yield curve is rising.
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i think the worries are elsewhere. i think the worries are still in chinese credit growth. things are still moving forward. there is growth in the economy, but at the expense of a large expansion of credit, something we have to keep an eye on. >> on china, what is your biggest concern? renminbi going down, outflows accelerating, and reserves going down, how do you fix this? >> the chinese are taking various measures to reduce the outflows, whether preventing people from using their credit cards in hong kong or whatever. there are micro measures going on, but in due course, we are going to have to acknowledge that credit is too high, and they will probably have to raise
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rates. >> two of your rivals, j.p. morgan and bank of america comment last week indicated they were having a solid quarter in trading. how are things going for morgan stanley? >> things are going fine. i think there is over exuberance about how people are doing. underlying flows have picked up since the election, but only marginally up on the year. we are getting a share of that, particularly fixed income, but i don't think this is a significant pickup and activity. >> you return from europe. what did you pick up there? >> europe is a sad place, low growth, broken banking system. 80% of lending and continental europe is inverse the u.s., where we have fibrin capital markets. where banks are not capitalized or have not gotten rid of nonperforming loans, they are a drain on liquidity for the
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economy. there is some real sense of result, particularly in italy, to result the banking issues. clients want to buy into the sector and see a way ahead, so you are seeing a repair of the bank balance sheets. the downside is that probably because of brexit you won't see development from capital markets for a while. >> what worries you now about brexit? >> just the uncertainty. you can model almost every option that you think might happen. the sooner there is some clarity and direction of travel and what the ambition is means you can discard some options and prosecute other ones. for clients, staff, they've can begin to plan their affairs and
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it can be business as usual. the sooner we get to clarity -- >> what kind of clarity? or example, a buffer. mark carney was working on some transitional agreement. with that be helpful for banks? >> when you think of the regulatory reforms we have been through, when the reforms are finalize, there is two years of implementation so people can collect information and presented, so it is difficult to think that something as significant as changing the relationship with europe that you can say on day zero we are moving from that system, and on day one you can accommodate everything that has changed within your system and so on, so there has to be some transition,
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and again, in terms of the planning, if there isn't a belief that there will be some transition, you have to plan for the fact that there might be none. ♪
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vonnie: you are watching "bloomberg best". donald trump put fort key cap meant nominations this week. he is building a team with considerable expertise in business, but not in government. let's look back at some of the choices he made this week, and the vigorous debate. >> trump's cabinet is starting to look more like a board room than a cabinet. rex tillerson is a likely secretary of state nomination. wilbur ross, commerce secretary. have you ever seen anything like this with this injection of
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senior business leadership in washington? they may be watching right now. >> there is no doubt that it is a different group of people coming in to run the government. we will see what happens. they are successful business people. being successful in business does not mean you will be successful in government. sometimes they do well, and sometimes they outdo as well. >> you have the cabinet looking like a c suite, the corporate tax rate lower. they will do well. is that the correct linkage? >> in the euphoria postelection, everyone is happy for who won the election. they look like they would do well in government, but you
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don't know. when i worked in the carter administration several hundred years ago, carter had a democratic congress and we thought we would get all these things through congress. it turned out the democrats in congress have their own ideas. it may turn out the republicans in congress have their own ideas as well. >> someone comes along and says i'm going to create an administration like an all-star see sweet, do you see this as a positive? >> it is hard to see it as a negative. there were a lot of people who were career politicians in the past administration, organizing, nothing to do with job creation or the people in charge of defense to not have military backgrounds per se.
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doesn't it make sense to have someone in charge of the nsa or other organization to have spent their career in security? >> you are talking about wwe. >> it created jobs, entertainment industry, but here is a woman who was successful in the private sector, try to run for senate, but could not win. grading jobs for small business is important to growth, as you know. >> president to is coming together. rick perry considered friendly to the oil industry will be nominated as energy secretary. >> big oil is dominating this, whether strategy or coincidence, but it is pretty amazing how many people from the energy sector are going to run this government. >> you have the most senior u.s.
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oilmen as the most senior u.s. diplomat, and people will ask what that means for u.s. foreign-policy. you have these other appointments, mostly taxes, an oil-rich state. you have rick perry at energy, the former attorney of oklahoma at the epa, and the oil friendly guy into rear. it means probably a lot less regulation. >> we probably have some problems we need to fix. these guys probably understand those problems. maybe what we are talking about is changed regulation. >> there will be our lot of regulatory change, that is for sure. they back coproduction -- coal production, want to see pipelines built. i think it will be a much more friendly environment for the oil
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and gas industry. the real question will rex tillerson's experience at exxon and russia translate into a changed relationship with russia for the u.s.. >> the rhetoric is that all of a sudden you will get land opening up, new regulations for oil, oil flooding the markets in the u.s., if that is the correct story. >> i don't think that is. what we have in the united states is that oil markets are driven by supply and demand, as opposed to opec that might make a decision on cutting supply because they are national producers and have the ability to control it. in the united states, you have producers who are responding specifically because they can make a profit or not.
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>> if we see less regulation, less onerous climate regulation, will they change their longer-term business plan and model on those things? >> no, because what they are fundamentally looking at over the longer term is what kind of profitability do they have. if regulation is imposing significant costs that affects their competitiveness, that could be an issue. today, for example, the area of production most likely to come back into production quickly is more unconventional production, shale gas, shale oil, particularly because ironically the decision by opec and non-opec producers to cut supply, which is going to bring the price of oil back into a range where the average price of production is once again competitive. >> the cabinet will test the theory. >> give me an example of why there is so much more
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difficulty? how much harder is it? >> you could take over almost any major company today with a relatively small team and you have the board with you, and you can make changes in that company. in government, it is different. so much of it is directed by the policies of congress and the oversight by congress despite the fact the republicans control all that, unless they have something else, the congress will roll over and agree with everything he proposes and every limitation on them vis-à-vis's these agencies. they implement the policies and the laws the commerce and the president agreed to. that is the difficult challenge for these people who are used to going into a company like wilbur ross taking over a company that is distressed and being able to make fundamental change quickly. it is not the way it works.
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>> if you were going to be a president, you should have the best people sitting around the table. i think it is a mistake for the american public to constantly told if you work for an oil company, a bank, that that automatically makes you bad. you want the best team. i think it is a good thing because a lot of these people who are patriots who want to help the country. they will not try to help their former company. these are people with deep knowledge who will hopefully do a great job. >> do you think now when you look at that shift in terms of wall street that this is a bit of a reset moment for the industry more broadly in terms of what the american people are expecting or likely to see? >> i think it is a reset moment for business in retreat. 145 million people work in america, 125 million work for private enterprise, 20 million work for government.
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we hold them in high regard, firemen, sanitation, police, and teachers. i think business is a huge positive development for society, and for years it has been beaten down, so i think it is a good reset. ♪
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>> i am just taking a quick look at what is going on with the bloomberg screen, a function that is an old favorite of mine, the h as function, i'm buying the bloomberg dollar index and selling the euro index. if i take it down to a one-day trade, the spread is blowing out. vonnie: there are 30,000 functions on the bloomberg, and we always enjoy showing you our favorites on bloomberg television. maybe they will become your favorites? quic for fast insight into timely topics.
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this week, driverless cars. ♪ >> the thought of cars without drivers is both exciting and terrifying. there is now little doubt that robots will one day be behind the wheel, hope for the elderly, disabled, and bad drivers. car companies like bmw are pouring billions into developing vehicles that use sensors to react to traffic and people. they've added features like hands-free driving and self parking cars. a driverless feature is so appealing that it is not just automakers. google has logged over 2 million miles testing its cars. the guys who make iphones are involved too.
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it is also a technology that saves lives. currently driver error is blamed and 94% of crashes. globally, one .2 million people die every year on the roads. here is the argument. this speed of invention is overtaking the ability to regulate. the first car capable of talking to each other will be driving soon, but the rules of the road have yet to be finalized. vehicles being tested came under scrutiny after a fatal tesla accident. there is also a major ethical and i limit. -- ethical dilemma. the question of liability can also disrupt the insurance industry.
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the big automakers see a changing dynamic between vehicles and human. they see autonomous pods replacing the family car in the driveway, reducing pollution, easing traffic, and saving lives along the way. ♪ >> that was just one of the many quic takes on the bloomberg. you can also find them on with all the latest deals and business analysis 24 hours a day. that is all for "bloomberg best" this week. thank you for watching. this is bloomberg. ♪
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♪ mr. buffett: he said, what do i do with this money? i said, investing it is about assigning the right use for the money. i did not want to go to college. i want omaha, i thought -- i had $175,000. i thought that was all i would need to let the rest of my life. david: did you ever run into that guy again? mr. buffett: he needs protection now. david: when you had your first annual meeting, how many showed up at that? any advice to a young investor who would like to emulate you? >> would you fix your tie, please? david: most people would not recognize me if my tie was not fixed. let's leave it this way. ♪


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