Transcripts For BLOOMBERG Market Makers 20150113

You are watching Market Makers on bloomberg television. I am Erik Schatzker. Ceo day. Brooks brothers is kind of an old dog. Here is the key. I took my dad shopping at Brooks Brothers a couple of months ago. Really . The new dockers. Kind of. I hope it is better than that. Lets take you to the top Global Business stories. The price of oil took another dive. This time, west texas intermediate felt 4 . Hello 45 before rebounding slightly. There may be pressure on prices tomorrow. A government report expected to show that u. S. Oil stockpiles have officially increased. A warning in greece about elections. The government says greece could stumble out of the euro by accident if the opposition syrz iza party wins. If the opposition wins because they do not have the knowledge and experience they have certain ideas of their own i think it is prudent for them to ask for an extension. It will give them some time to manage the negotiations and close the review. The greek election is this coming january 25. Polls showsyriza with a slightly. A victory for antiwall street democrats led by elizabeth warren. They have forced lazard banker Antonia Weiss to withdraw from consideration for treasury undersecretary. Instead, he will be a counselor to jacob lew. That is a job that does not require senate confirmation. Warren argued the administration does not need more wall street types. Tomorrow when Charlie Hebdo comes out, 3 million copies will be pretty. The normal run is about 60,000. The first issue since gunmen stormed the Charlie Hebdo offices. Shows the prophet mohammed holding a je susis charlie signed with the words all is forgiven. 5 down days on the s p 500 this would be a third of day. The magnitude of the advances and declines is what is noteworthy today if you measure it on the s p 500. 27 points. On the tao a gain of 275 points. All 30 stocks in the dow are rising. In point terms, the dow is a price weighted average visa leading the charge followed by Goldman Sachs and ibm. Ever the past two days weve seen a couple declines. The market is reversing. Just wanted make sure youre aware of what is happening. The drop in the price of oil trading around 45, does not appear to be weighing on equities the way it did yesterday. Metlife is suing the u. S. Government. That largest u. S. Licensure became the First Company to fight its designation as a systemically important financial institution. Asking a federal judge to overturn a 91 vote led by jack lew. It could backfire, suing the government can be like poking a stick at a sleeping bear. With us is the man holding the stick metlife chairman and ceo steven kandarian. Before we get into the risks, i want you to explain why it makes sense for your company to sue the government. A bold move. First of all, im a former federal regulator. I believe in strong regulation. We think theyve got this collarbone. We are appealing because we believe this is the right thing for our consumers, our stakeholders and when you think about our marketbased system that has created so much well for so many people it requires a level playing field. We have that with existing regulation. This would inject an unlevel playing field. A couple large insurers get called out for being systemically important. We believe this will lead to higher costs to consumers as we have to put up more capital, potentially and other kinds of prudential rules that constrain us. I understand why nobody would want to be caught systemically important. There are implications for liquidity, leveraging capital requirements. There are some companies whom regulators would say our systemically important. Like a big bank, j. P. Morgan or bank of america. Why are they wrong . Doddfrank late out the rules clearly as to what constitutes a systemic company. The banks are automatically considered systemic. Other than banks, they looked at the aig situation, not only an insurance company, it had a shadow Banking Group hanging off the Holding Company which got in trouble. The banking part of aig was what drove the problems, not the insurance part that remained liquid and solid throughout the crisis. Look at the analysis we have done. Our biggest interconnection to any large financial is deficient is less than 2 . Roughly 2 of their net worth. It is not big enough and connected enough to make us systemic. Why wouldnt prudential sue . I cannot answer. They had the samee opportunity. We cannot answer that. I can tell you that we look at this situation and say it is important for the regulators to take another look at the field. Doddfrank is you a clear path in terms of an appeal process. It is built into the law from congress. Congress anticipated that a Company Might be designated and disagree. The Public Policy implications are so dramatic. Congress provided this avenue to go to court and ask for review. Lets go to the sleeping bear analogy. I was emailing back and forth with a friend of mine who happens to work at another systemically important financial institution. He told me, unfortunately i cannot say what the institution as. You know it is a him. He is saying we just put our capital plan together in 2015. So many decisions we are making depend on how we think the regulators are going to react. It is purely a matter of anticipation and guesswork. The people on the fsoc, jack lew, janet yellen, the comptroller of the currency Richard Cordray of the cfpb, mary jo white, the cftc, this might have unintended consequences for metlife . As a former regulator, i ran an agency where people did not agree with decisions we came up with. They went to court in some cases. It is part of the way things work in washington. We are taking this action in a respectful way. I do not anticipate that the fed, which will be the ultimate regulator for men metlife will look at this as a way they would change the way they regulate. What is your total aum . Assets under management, 450 billion. At what size should regulators be concerned . Center dodd senator dodd said size is not the only factor. It is connectedness. Could it pose a threat to the Financial Stability of the u. S. . There is only a 2 maximum impact of any other financial institution. Anyone looking at your Balance Sheet would see that you have hundreds of billions dollars and derivatives. 11 billion of a credit default swap contract. I presume there are reasons for owning those instruments. Remember Warren Buffett looking at derivatives and calling them weapons of mass destruction. A it depends on how you use derivatives. If you are using derivatives to take risks, that is one question. We are using to to hedge risks. Many mention one thing. When the crisis ensued, we had a large book of derivatives with lehman brothers. What happened . We rewrote those derivatives. It cost us less than 20 million. That is one days profit at metlife. Would you be willing in the negotiation with the fsoc to give anything up in order to avoid the designation . I dont think that is the question. The question under doddfrank is if you do not think you are significant, you have the right to appeal. We are taking the right and the path given to us saying we think they got it wrong. Lets say it you lose. For those who want to invest in metlife, what is your business going to look like . What is it going to cost you . Before i took action in metlife, what is your business going to look like . As a regulator, i looked at the impact upon the company being regulated. Fsoc does not know the impact because the fed has not yet written the rules. I think it makes more sense to wait for the rules to be written. I cannot answer in terms of what does it mean to us because the rules are not yet written. Surely you can ballpark the impact, you know what is going to cost you. Depends on the rules. At one point the fed interpreted doddfrank to say you had to use bank rules. In unanimous consent in the house and senate, they passed a technical fix to say you can use insurance rules for insurance companies. All that says is you have flexibility. It does not say what the rules will be. Doddfrank says there has to be heightened prudential rules. No matter what the rules arent able put a couple of us at a disadvantage to the rest in the industry. Thank you for being here. A move by metlife to sue the u. S. Government over its designation as a systemically important financial institution. Steven kandarian, ceo of metlife. Is it a prescription for eli lillys health . The impact of obamacare with the ceo. Welcome back to Market Makers. Coming into 2015, everyone predicted volatility. That is what we are getting. The dow has moved 100 points in either direction every day this year. It has closed with a triple digit point move six out of eight days. The dow has erased losses for the last two days. Hired a gain of 235. Crude oil has stabilized and pared its decline. The 10 year yield reversing early moves. It is now higher as a result. This comes before the government sells its latest bond auction, the 10year note auction. Seven stocks are higher for everyone that is down on the new york stock exchange. The broadest rally since december 17. All 10 Industry Groups are higher in the s p 500. Technology shares gaining almost 2 on a slew of upgrades. San francisco is posting what could be called the super bowl for health care investors. Executives from the worlds Biggest Pharmaceutical Companies are at the Jp Morgan Health care conference. Eli lillys ceo John Lechleiter is one of them. He is in our San Francisco bureau along with our health care reporter. Why dont you get things started. Good morning. Dr. John lechleiter, we are talking to health care investors. Tons of excitement. People are trying to figure out what the next good looks like. A huge part of biotech is earlystage money. You work with Venture Capitalists as well. What is the attitude after a record year of m a, tons of ipos. From where you sit, where is the money going . As you mentioned, we have an entity where we come invest with we come invest we coinvest. We also have an entity that focuses on china. Ive had a chance to talk with venture investors. I think there is a general sense of optimism with the ipo situation being very positive in 2014. A lot of the investors were able to exit investments. The science, as ive been saying has never been more exciting. You are seeing more opportunities to invest. Where are your guys talking about putting their money. Weve seen a year in cancer and virology. You announced an agreement with bristolmyers and merck about cancer drugs. Where are your Venture Capital guys on the deal side . You are they meeting with and talking to that they are most excited about . If you look where lilly ventures has placed investment half are in oncology. The other half are split between antiinfect this cardiovascular some devices. Neuroscience is going to grow as we begin to understand better the factors around diseases like alzheimers. I also wanted to ask you, you have a big Animal Health business p weve seen bill ackman and pershing activists get involved. Theyve been known for train to force deals. Something the size of the zoetis, is that a kind of investment you might be interested in making . As we see some news potentially develop. We are not interested in zoetis, per se. We did complete our acquisition of Animal Health. We are interested in more deals in the Animal Health space. Our Animal Health portfolio. It would be on a smaller scale. With the novartis acquisition we are number two or number three in Animal Health. It enables us to get to a critical mass. Is zoetis too big . Zoetis. Is author of our radar screen is both our readers is off our radar. You are huge in d iabetes. You having to worry about cutting out some of your rivals . Is a dynamic area. In areas where payers feel you have drugs that are equivalent to one another there is more incentive. This is not new. Is it getting more aggressive . Is the dynamic changing or the attitude changing . You have some businesses like diabetes where we have seen this. You have discussion around hepatitis seat medicine. Keep in mind as the power of the payer increases you have the consumer. There is a tension. What is right for the patient at the end of the day versus what does a formulary want to decide to save money. We need to continue to differentiate our products and help physicians understand which drug is right for which patient. That is what we all want. One fast question. 2014 a record year for farm and biotech deals. 2015, are we going to see the same pace and flow of ipos and deals . Are things going to slow down . I think we are going to continue to see a big amount of deals in 2015. We are already seeing that with the announcement of shirenps. Some big Biotech Companies did not do much in the deal stee space. As far as lily is concerned, we are not interested in a large scale deal. We will look for licensing and m a to fill out spaces like diabetes, cancer that we are working in. Thank you. Thank you. Eli lillys ceo, John Lechleiter. We will be back in a few. You are watching Market Makers on bloomberg television. Coming up believe it or not earnings season is here. We will see what it may tell us about where to invest for the rest of the year. These things are not known for their fuel efficiency. How much the pentagon must be saving with the collapse in oil prices. Live from bloomberg headquarters in new york, this is Market Makers. With Erik Schatzker and stephanie ruhle. You are watching bloomberg television. This is Market Makers. Im Erik Schatzker. And stephanie ruhle. A strong performance. Dow s p and nasdaq are up by more than 1 . The start of earnings season. Investors want to know where to put their money. For a look at where the opportunities lie in 2015 chief Investment Officer at altegras advisors, offering Hedge Fund Strategies to the retail audience. Where are the best investments . I think the most interesting sector is the energy sector. Because there are choices. It is cheap. I think it is going to get cheaper. You can start making some choices. There are companies that have good Balance Sheets and very bad Balance Sheets. We are in the business of finding the good and the bad. It is almost a certainty that panicky investors have thrown the baby out with the bathwater when it comes to some of these Energy Stocks and maybe Energy Credits as well. The key is the horizon. How long are you going to have to hold this before oil turns around or everybody else comes to the same conclusion that it was oversold . Before you see Oil Turnaround i think it will be more than a year before you see oil prices we are stuck in the 40s or even the 30s. I think you are stuck in the 40s and 50s. We are producing a lot of oil. Everyone is saying they are cutting back but they are cutting back on new capex. If they are pumping into the ground already the variable cost is low. If you are prospecting for cheap oil stocks, where do you find them . Look at the Balance Sheet or forget about what they are producing and what their current revenues are. You look at how stronger Balance Sheet is. That is where you go. I would start with the majors. I would be involved with the integrateds now. Chevron, exxon mobil. This is a market share gain. They can continue to pump no matter what. They are sort of like saudi arabia. We, on balance, we are the market share loser in this. Weve got everybody cutting back. Saudi arabia is not cutting back. Russia is not coming back. Iran is not coming back. Anyone who needs the revenues is out there pumping. We are cutting back. How do you feel about technology . It has been a darling but valuations are crazy. Valuations are crazy in new tech. New tech. Old tech is intel, microsoft, cisco, that segment. They are not as expensive. What are those companies doing that is innovative . What is intel doing that has you excited . Intel is the most Important Company in the world, in my view. Why . Intel is the keeper of moores law. They are driving processing speeds. Intel is doing it. Theyve got the capital to do it and the technology. Without intel im not sure where any of the High Tech Companies would be. Really . You wouldnt be happy picking off the chip design side of intel and go with another company . And then on the foundry side comedy chipmakers who do not design their own ships, like tsmc those companies do what intel does, they do it separately. They are doing the last generation of what intel does. They are not doing the new generation. Intel is the largest Venture Capital company in the world as well. They put 10. 5 billion dollars to work in Venture Capital. They have venture setups all over the world. They are in touch with what is going on. And they are driving from 14 nanometers and nine nanometers. Other companies cannot do that. Isnt moores law going away . I was at a meeting two years ago. In this meeting they said i want everyone to understand we have absolute visibility on moores law for the next 10 years. For the next 10 years processing speeds are 64 times what they are today. He says we believed we could go beyond that but we have absolute visibility. Do you think all technology is a buy . Hewlettpackard trading at 10 times forward earnings, intel at 17 times forward earnings. Cisco has not found it screws. Found its groove. Those companies are cheap. They had earnings. That is a good point. They actually have a earnings as opposed to new technology. At those prices this is where you want to be. You would rather own microsoft and intel or apple . Apple is its own story. The problem with apple is they have done a great job innovating. They continue to have some elements of innovation. But this Technology Capability is existing all over the world. I do not think one company, be it apple samsung or any other company, has the ability to stay ahead of the game. Everybody is out there moving ahead quickly. Apple, to some extent, is living off the past. Hold on. You do not think hewlettpackard and cisco live off the past but you think apple does . Apple is in the business of having to create new products to sustain itself. Neither intel nor cisco in particular are in the business of having to create new products. They are creating new technology which everybody else has been using. Umag rep question for you. You are offering People Hedge Fund like strategies. One of the popular Hedge Fund Strategies last year it was being that law bnet long in the stock market but having a hedge and treasuries. Do you think you need the treasury hedge if you are investing in equities . A problem with the treasury hedge, the hedge can go against you. Of course. It did not last year. Now we are at slightly similar rates slower rates. How would you hedge. Long risk in the equity market what is the best way to hedge . Two tayways, i would look at the credit spectrum because i think we are going to see some major accidents there. When does occur it will affect the equity markets. We have looked at a lot of taylor risk managers. Tail risk managers. They are taking specific bets on accidents, whether that is brazil oil. Oil is already happening. I think we are at the beginning. Thank you for joining us. Chief Investment Officer at all takers advisers alktegris advisors. More about oil when we get back. Nobody has a fuel bill like the u. S. Military. There are some smiles at the pentagon with oil trading at 45. Congress has ordered the pentagon to cut costs. Defense officials are looking at an unexpected windfall cheaper fuel. More on what could happen to all the cash. The pentagon spends more than anybody else on fuel. They are the biggest buyer of the Refined Products in the world. A huge fire on the open market. They do not buy crude. This is still a very big deal even for an agency that has a budget of 530 billion. We are talking about about 2 billion in savings. It buys Refined Products for planes tanks, and ships. A giant player accounted for 1. 5 of u. S. Petroleum consumption and 8 of the jet fuel market. The air force consuming more than any other service. This fiscal year the department projected it would consume 91. 5 Million Barrels. The original price tag was 14. 2 billion. If Oil Prices Hold at 50 a barrel, the bill for the pentagon could fall to 12. 2 billion dollars. That is how you get the 2 billion in savings. It could be bigger and that is real money at the pentagon. What are they going to do with those savings . They are being very cautious. They know little prices could turn in the other direction. They are not banking on prices remaining at these levels. They are keeping the savings in their buying account, the fund they use to pay for this. The comptroller says the money could be redirected to other pressing needs. It is a good problem to have. I am confident that something will come along that will require me to use some of this asset to pay for some other problem that comes up. This is not a bad way to be relatively early in the fiscal year. They have some limitations on where they can spend the savings. A major reprogramming would need congressional approval. This is a big deal for them. Savings they had not anticipated and money that can be used in other places. Lets talk about the pentagons view of oil in the future. Does the pentagon hedge . Do they look in the future and say oil is at 45, Refined Products etc. Are trading at x now, why dont we lock in this 4 times a year under the current program. They are resetting the prices they charge to the Services Based on the market. Looking forward to the future they are limited. They have to follow what the office of management and budget has banked as the baseline for oil prices. For the government for fiscal year 2016 is 70 a barrel. That is the number they are sticking with for next year. 78 a barrel. Based on where we are today that would be too high and could force another opportunity for more savings. That is pretty remarkable. I am looking at the curve right now on futures. You cannot find a price next year about 50, no matter how about 50, no matter how far you try. When omb sets that number, they are setting it for the department of transportation and every aspect of the federal government. For their baseline budgeting that number could already be inflated. Peter cook at the pentagon, saving a great deal of money. 2 billion on cheap fuel. When we return, almost 2 centuries old and going strong. This aint your daddys Brooks Brothers. We will be speaking to the ceo. Welcome back to Market Makers. Hundreds of top fashion executives gathered in new york city. Last night julie hyman sat down with Brooks Brothers ceo and chairman claudio del vecchio to discuss how the brand is staying relevant while fast fashion is getting hotter. We are more than lifestyle brand. It is more lifestyle. We are classic. We are more classic than traditional. We are authentic. We still have some iconic products for us and a lot of people that copy us. Our buttondown oxford shirts are probably the most copied product. We try to innovate. We always see ourselves as a tremendous innovator. Starting in 1818 and we keep going. What are some new things you are excited about . Maybe 100 years ago it was more about design. Today it is more about the quality and the components of making beautiful things. Not as aggressive in trying a new shape of a jacket but the construction of a jacket there is major evolution there. The material we use in the jacket, theres evolution there. The jacket might look the same but it is more comfortable. Im curious about expansion into other categories. I know you have a fleece line, a little more casual. The goal is to account for a quarter of sales of them the next two years or so. The womens line, with the hiring of zach pozen, you are trying to expand that. How important are those going to be Going Forward . Very important. We always have a goal to serve the whole family. Womens is in the last 50 years more important. 50 years is more history than most other womens lines out there. A very important investment with zac posen. Its the test kept secret in the market. We are the oldest. But Brooks Brothers is a mens brand for most people. Women do not even walk into the womens department, they do not even see it. They are coming to spend money for their husbands. His collection is not coming out until next year is there anything you can tell us about what you are hoping for from the womens line. It has been growing nicely. The fastestgrowing part of our collection. We would love to keep that evolution. If we can create a little more traffic and get more people to be aware that we have that product i think we will be very successful. You mentioned that you have been longtime innovators and have a lot of imitators. Is there anything about the newer crop of competitors that you think is more unique . I think of Companies Like bonobos or even suit supply. A relatively reasonable price point. How concerned about those . Competitors . When i see those things, i blame ourselves. We make better suits shirts than anyone else, they just copy us. Most people that do that, their price is higher in the quality is lower. We have to be better marketers. We have to be better at making people understand that just because we are almost 20 years old, we are not old because we are good actually, we are good. Are you putting more into marketing . Yes. Weve spent more than double what we normally spent traditionally. We are confident that we have the product. Julie hyman is with us. Fashion is about desire and enthusiasm. It does not really make me want to go to Brooks Brothers. He is a softspoken guy. He seems to believe in the product. He talked about the materials that they are using. The quality of the works which appeared that is what he was emphasizing. He was not terribly enthusiastic. He said they did ok for the holidays. One of the things i asked him about was their sales strategy. Across apparel in particular we saw a modest promotions and they a lot of discounts. Brooks brothers, which you may not think traditionally of discount suits, he in particular we said they did do some promotion. But it was not necessarily worth it. The Brooks Brothers customers are coming in and shopping regardless of whether there are discounts. They did not necessarily drive traffic. If you think about how they shop at Brooks Brothers, i go to Brooks Brothers and buy my sons navy blazers. I think there are a lot of people who wait for the semiannual sale. I think the company has an image problem. If im walking through the Atlanta Airport and i see a Brooks Brothers and theyre trying to sell me three shirts for 100, that does not feel like the Brooks Brothers at madison and 44th. That is a great point. They have a womenswear line, i do not know what it looks like. I said who is your customer, who do you want your customer to be. He said we do not have a set age or demographic that we are looking for. Later he talked about the average male customer is over 50. Maybe they have an image problem or marketing problem. Maybe in his head it is clear what the image of the company is they are not getting it out there. That is a problem. We will see if different marketing spend is going to help at all. Thank you for joining us. Julie hyman. Market makers well be back in a moment. When we return keystone. Does congress have enough votes to get the controversial pipeline built . Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Showdown on keystone. Its not just washington that has a stake in all this. We speak to the ceo of the company that wants to build a controversial pipeline. Glaxosmithkline sure need to pick me up. Stock tanked last year, we find it with a turnaround strategy is all about. Calling her a fashion icon doesnt even start to tell her story. We hear from diane lane furstenberg. Welcome to the second hour of Market Makers, im stephanie ruhle. Lets get you started with the top Global Business stories of the morning. Metlife is going to court over the governments designation that is simply too big to fail. That label brings with it quite a bit of issues and guidelines from regulators. Plus, metlife says the extra costs are exorbitant. Earlier on Market Makers, we start we talked with steven a. Kandarian. Is important to the ref to take a look to the rest of the field. Doddfrank gives you a clear path in terms of an appeal process. Its built into the law from congress. Congress might have anticipated that there were Public Policy implications. They provided the avenue for a review. Metlife is one of the four founding corporations on the too big to fail list. Another sign the labor market is getting stronger job openings climbed in november to their highest levels in almost 14 years. They were almost 5 million jobs waiting to be filled. And president obama is set to meet with the congressional leadership right about now. Its the first meeting theyve had since republicans formally took over the senate last week. The gop already controlled the house, House Speaker john boehner says he is willing to work with the president , but warns that he may not want to make so many veto threats. And amazon is doubling down on tv, two days after winning the Golden Globes best comedy for transparent. Woody allen has won four oscars and in true woody allen deadpanned stall, he made a statement saying you dont he doesnt know how he got into this, and he suspects amazon will regret it. For the first time, there appear to be enough votes in the senate to approve the keystone xl pipeline, but not enough votes to override the veto. Transcanada has been waiting for six years for clearance to build the pipeline. Transcanada ceo is with us this morning from calgary. You must be feeling better about your prospects. You had it favorable ruling in a nebraska court. You have had the house passed the keystone bill yet again, and now it seems as though the senate controlled by the republican party, is going to pass a bill of its own. Are the chances of keystone Going Forward today better than 50 . For sure. Keystone, in my view, is going to happen. Its just a matter of when. You need to build a pipeline from growing production sources in canada and United States to those markets in the gulf coast. We have a clear environmental report that says it has no impact on the environment. Its time to get on with the decision. Why do we need keystone . It seems like there is a glut of oil. That exactly is the issue. Production in canada has grown about one Million Barrels a day since we made our application. Production in the u. S. Has grown by 2 Million Barrels a day. All of that oil is moving by rail to market. We didnt stop moving because the pipeline has been delayed. Its necessary now to move that growth production in a more safe and reliable way. Does oil at these levels and five dollars for debbie ti and of course, the stuff coming out of the oil sands in canada trades at a significant discount. Are those prices in any way a threat to your project . Again, no. The reason those prices are at those levels is because production has grown, supply has grown, the need for transportation is greater. I expect concepcion will grow as well. You need to move their product reliably between two places. Transcanada and the Keystone Pipeline it doesnt influence how much is produced we just have to get it to market safely. Its just a pipeline, not the first one, not the last one. Just a safe and reliable means of moving production from the source to use. There is cheap production and is expensive production. The stuff coming out of the ground in alberta isnt cheap to produce, relative to what it costs some of the other operators in north america. Do you worry about the future of the oilsands with crude this cheap . You and i both know that some operators there are making some pretty tough decisions about whether to spend money Going Forward. Some of them are cutting back. No question, producers across the globe are looking at their costs and looking at what they can do. To be clear, there isnt a glut of oil in the United States. The United States still imports about it me on thursday 8 Million Barrels every day, from across the world. The world cant produce enough oil to meet those needs at 50 a barrel. People take a longerterm view of things the oilsands production will continue to grow. The growth might slow down, as a result of the cutbacks are talked about. Make no mistake, this is an economic source of oil that the world is going to demand for many decades yet to come. You said the keystone would ship around 800,000 barrels a day. With that estimate still hold up with oil prices between 40 and 50 . Absolutely. The transportation contracts that are in place no one has reneged on those contracts. With increased production, what we can do for producers is take their barrels that are currently moving on rail at about two times the cost keystone, they will migrate right away to moving on keystone at about half the cost of what it is today. Saving the money for producers today, in this price environment, is extremely important. We have a waiting list of folks that want on the pipeline, its 100 sold out. It has been that way for 6. 5 years. The marketplace wants this pipeline to happen. And more so now at low oil prices. Russ you have an option if keystone doesnt get approved. Do you want to build this pipeline to the east coast of canada the pipeline that is called energy east . What happens to that project if you do get approval for two stone . Keystone. . Production is moving by alternate means. There is enough investment in the oilsands today we will probably see about another one Million Barrels a day production just based on the investment is already in the ground. Keystone needs to get built, and we need other alternatives out of western canada. If you dont build those alternative pipelines, both keystone and energy east will see an increase in rail traffic. Weve seen that move exponentially from zero to probably about two or 300 and 300,000 300,000 barrels a day. We need to build efficient pipelines. This isnt rocket science. There are 2. 5 million miles of pipe in north america. This shouldnt be such a big deal. Russ, i have to ask you i sense a lot of confidence about the prospect for the oilsands. No one wants negative cash flow. These are longterm Capital Projects and they will continue whether oil is trading below 50. Even these major operators, with as much money invested, are going to have to question the sense the logic of producing at a loss if oil stays this low for much longer. I think thats the question what is the cash cost of operation . I suggest is lower than 50 a barrel. That investment has already been made. They will continue to expand. If you think about investment today, that investment would be 3, 4, five years before that production came on. If you were a major operator like exxon mobil youre not looking at todays prices, you were looking at the prices of crude oil in 2020. The single biggest cost of their operation is the cost of building that those facilities. In this environment, i would suggest those wellcapitalized entities weve seen it before. When we first made the keystone avenue location, the price of oil was 40 a barrel. We saw producers like that take advantage of lower construction costs, get the facilities built. Those facilities will be in place not for the first the next three years, but the next 50 years. Thats the kind of outlook they take. They have to have a longterm view, and so do you. Where do you think oil will be five years from now . Good question. Im not an economic forecaster. I think you take a look at all the forecast out there and there is consensus that the price will be higher than they are today. Marginal production has to come off, and we can see demand across the growth the globe is continuing to increase in places like the third world, the developing world, where energy is a major input to economic growth. You look at the gross the growth in places like india and china, it continues to grow. The more the world will have to produce more and more oil. You have been saying keystone will not be a problem in terms of is it going to cause more Carbon Emissions. You are going to drill the oil anyways. Do you think that Climate Change is caused for manmade reasons . No i think, clearly on that issue, the state department has issued its opinion. Which basically says the oil is a single pipeline it doesnt impact consumption or refining, nor does it impact production. Its just an efficient means of transportation. If you dont build a pipeline we moved by rail or by barge. All of those things use hydrocarbon to transport as fuel. Emissions will actually increase. What im saying is, we have already been to that issue. The state department has clearly said that the building of the Keystone Pipeline wont have an impact on emissions. It shouldnt be an issue. Environmental issues that need to be discussed, but certainly discuss again over the building of the transportation efficient transportation infrastructure is in the right place to have that conversation. Do you believe personally that Global Warming and Climate Change exist . I think its clear that ghds , coming from Carbon Emissions are a greenhouse gas. It does create a warming effect. But as i said, those are social and political issues that need to be addressed, and the pipeline isnt the place to address them. This is an efficient means of transportation that reduces emissions. Irrespective of views on that fund on that front, those have to be debated and sorted out. Holding him in a billiondollar Infrastructure Investment doesnt seem to me to make logical sense in that conversation. Thank you, russ girling, the ceo transcanada, hoping for a favorable decision from the white house. When we return, getting glaxo kleinsmith back in gear. They come awfully lacks they come off a bad 2014. First, bloomberg. Last year was a rough one for pharmaceuticals but Companies Like glaxosmithkline are dusting themselves off and aiming higher. Through armstrong has been in San Francisco, but we are with david redfern. Glaxo has to put in a better performance in 2015 that i did in 2014, at least from an investors point of view, the company is already on its way from a strategic standpoint, what are your priorities. Good morning. 2015 i think is going to be an important year for glaxosmithkline. We have a number of strategic goals. First and foremost is completing a major threepart transaction. Its critical for us, it enables us to create one of the leading Consumer Health care businesses. Also, it really consolidates our picture we bring new products and so forth. We realize a great value for our oncology business we are very much on track with that transaction. We hope to complete this in the first half of this year. Thats the first thing. Secondly, its very important to us that we continue to make Good Progress with our new launches. We are excited, particularly in hiv with our launch of new medicines for hiv. We are rolling out across the world, Building Momentum on that is critical. Its also year we need to make some progress in the spirit three. We have access to those products over the last year. We are going for greater access. Can i interrupt for a moment to go back, the oncology portfolio that you sold, or that you are selling to novartis was just one of a number of assets that were trading hands among a fairly familiar cast of characters, novartis glaxosmithkline, merck, eli lilly is that going to continue in 2015 and 2016, this reshaping of the pharmaceutical portfolio and these deals between a very small number of firms in an effort to try and increasingly focus on the areas where clearly they feel they have the best advantage. Is difficult to predict the future all i can say is its a deal that made a lot of sense for us. Enable both companies to really focus on what they do best, in our case, consumer and vaccines, and novartis with oncology. I think its a deal thats been very well received by shareholders and investors. And certainly, a number of other Countries Companies looking at these types of assets where they can maximize their capabilities. Its a very complicated and tough field. Its taken a huge amount of effort and manhours and lawyers and so forth we are still in the process of trying to complete the deal. Or making Good Progress. These things arent easy, but if you can pull them off, were close to doing that, what makes it so difficult . Is difficult when you are carving out aspects assets. Theres a lot of segregation work to be done with a lot of complexity on how you strip out authorizations, i. T. Systems, you have people issues. Theres a lot of planning the needs to happen. There are also big businesses Global Businesses you have to deal with. A number of jurisdictions all around the world. There are a lot of complexities. That we are great progress were right on track to close this deal. You mentioned your hiv drugs. Where you stand on the ipo where do you stand on the ipo . We announced the potential ipo with q3 results. We are in the urging early stages of that planning. We see this as an event happening sometime in 16. Quite a lot of work to do to get the Company Really in great shape. That would be one of the things to see in 2015, and we watch the ipo sometime in 16. I dont know what role of any taxes will have the development of this new antibiotic agent that was discovered recently, or at least was discovery was announced a few days ago. It sounds like its a fascinating not just discovery but an agent with a huge potential. The question i have is to what degree does a drug its not a drug yet, but the potential does that have to shape the pharmaceutical industry . I dont than we are directly involved with that, albeit we do have a serious antibiotic Research Effort and we are working hard in that area. Clearly, drugs likike that have significant commercial potential. More importantly, there is a very big unmet medical need for. X to cope with resistance. This looks like an exciting development. We are focusing antibiotics, we are also focusing on viruses. The vaccine effort as well, particularly with things like ebola. Antibiotic research is critical this is great news. David, thank you. David redfern is the chief Strategy Officer at glaxosmithkline. 1wood return, president obama and the friendly opposition. Lets see if there is going to be any honeymoon between the white house and the new congress. , li na. Probably not. Stay with us, youre watching bloomberg tv. President obama is meeting with the white house. The meeting started a few minutes ago. Here he is talking to reporters about 10 minutes ago. Next week, i had a chance to talk to him. I want to thank the speaker, and leader mcconnell as well as mr. Reid and nancy pelosi. First of all, some of these folks i havent seen. I havent had an opportunity to wish them happy new year. To the speaker, i just want to point out i said there were going to be things we agree on having a College Football playoff is clearly something we can agree on. When i came into office, i think it turned out pretty well particularly for ohio. I want to congratulate the Ohio State Buckeyes for their outstanding victory. And commend organ as well for fielding a great commend or i want to talk to the leadership about how we can keep the progress going that we are seeing, particularly in our economy. The latest job report indicates that the recovery continues to move in a robust fashion. We have now created 58 straight months of privatesector job growth. About 11 million jobs created in the private sector, Unemployment Rate has come down faster than any time in several decades. We are seeing the strongest job growth overall as well manufacturing since the 1990s. We are producing more energy than ever before, the deficit has been cut by two thirds, and we are finally starting to see some Movement Last year in which is going up. Wages going up, at a time when families are enjoying lower gas prices. We are in a position to make sure that 2015 is an Even Stronger year. Relative to our competitors, we are holding much better cards. The key is for us to work as a team to make sure we build on this process. Obviously, there are disagreements around the table on a whole range of issues. But there are areas where we can agree. That is where we will focus. Just a site a few examples just to cite a few examples, we are talking about Cyber Security. With the sony attack that took place, with the twitter account that was packed by islamist jihadists advisers yesterday it just goes to show how much more work we need to do, both plugged it public and private sector to strengthen our Cyber Security and make sure that familys Bank Accounts are safe. To make sure publican for structure is safe. I talked to the speaker and Mitch Mcconnell about this, we agree this is an area we can work hard together to get legislation done and make sure that we are much more effective in protecting the American People from these kinds of cyber attacks. I think there will be opportunities for us to Work Together on trade, there will be opportunities for us to Work Together on simple find the tax system and making sure that everyone is paying their fair share. There will be opportunities rest us to streamline government so it is more responsible. On each of these issues i will be listening to everyone around this table, and im hopeful that with the spirit of cooperation and putting america first, we can be in a position so at the end of this year we can look back and say we are that much better off than we were when we started the year. I just want to thank everyone for being here started the year. I want to thank everyone for being here. I am very much looking forward to not just this discussion, but some real collaboration over the course of the next several months. All right . Thank you very much, everyone. Peter cook is back with us now. Lets be honest, was this just another photo op so that everyone can sing to my eye and talk about working together with College Football . Lets get real, what was it . This was a photo opportunity to kick off the new year maybe some real substantive discussions once the reporters left the room, but by and large nothing will be changed. The town has been set over the last couple of days with five president ial veto threats against republican legislation and a new effort by the house of representatives to roll back executive orders. You have got keystone on the floor, trying to bypass the president s authority of that object. A lot of words here, stephanie. Not a lot of action. One views of news, the discussion of Cyber Security has clearly moved higher on the radar for the president. Does it say anything that the president chose specifically to mention tax reform and chose the words streamlining the government . Does it say anything about the approach or the attitude that he will take in dealing with Republican Leadership . I dont think so, eric. I did not hear anything new in that area i would make the case that maybe the most important person on the tax reform fight with this president was not in the room today, paul ryan having his first hearing today on the subject of the economy, he gave his own thoughts about making the tax code simpler, fairer, and flatter, in his words. Now that he is not running for president he has the time and the ability to focus on this issue and perhaps work with this president to provide political cover for republicans. I think it is a win for the republicans that he is not running for president. Was it a surprise at all that he took his hat out of the ring . I dont think so. The sense that we got here in washington was that his heart was not in it, he has young kids and was not ready to go through it again and was looking forward to the chance to run the ways and Means Committee and get some serious tax reform done, something that would leave a legacy. Again, if there is any more important player or as equal to Mitch Mcconnell and john boehner, it is going to be paul ryan. He has the ability to deliver something the president wants and bring the republicans along for the ride. Thank you so much, peter, for kind of breaking our hearts in terms of this come by on moment. Eric and i were thinking that it was happening. They will be splitting Grilled Cheese sandwiches and tomato soup. Only if College Football season continues. Yes, all right. When we return, how did the big banks do in the Fourth Quarter . We will be finding out, starting tomorrow. How about a sneak peak . There is no generation gap in the diane von furstenberg designs. They are just as fresh as when she started, over 40 years ago . That simple little black dress. 2014 would have been a big year for the biggest u. S. Banks if it was not for 30 billion in legal costs. That is what investors will be watching when jpmorgan and wells fargo kickoff earnings tomorrow. I want to bring in our finance reporter, michael moore. What should we expect . More of that, in terms of legal costs. Citigroup has already announced 2. 7 billion in legal costs. And then people will look at how the trading did in the Fourth Quarter. Bank said that they needed more and more volatility, and then they got it in the Fourth Quarter but it might not have been the right kind of volatility. Jpmorgan was among the banks to say that the Fourth Quarter was not panning out well. Right. It looked like it was down from one year earlier. We will see how december did but it is not looking great on the trading side. Why is it that the volatility, which used to be the friend of firms like jpmorgan and Goldman Sachs is not such a friend any longer . Part of that is that they do not have the proprietary groups that can step in when things are volatile. Your average trading desk cannot take positions anymore so when things get volatile and liquidity dries up, all they can be is an order taker. An agent. And when clients are worried about that volatility or liquidity drying up, when they are worried that they may not be able to transact, they step back and are not as active. Or maybe, Erik Schatzker some of it could have to do with the talent drain. If you think about seasoned traders on the streets they dont work at banks anymore. They work at hedge funds and for asset managers. The people in those seats are trade facilitators, not necessarily the men and women who know how to trade these markets. Right, and they probably do not have as long of a leash. Earnings by their nature are backward looking, still important, but many investors look forward to the Conference Calls that each of these firms is going to hold. Have you got a sense of what the Investment Community the people that own the stocks want to hear . Whether they are going to get what they want . They want to hear about insurance rate sensitivity and what those rates mean for the banks. All the banks will tell you that it is good for them, but to what degree will they be able to hold onto deposits in order to benefit from higher Interest Rates . The other thing is cap overturned. That is what they want to hear about. They may not get to just yet, but they want some indication of how aggressive the banks are in trying to return capital and whether regulators will let them return the excess capital that they have. Are there still the same broadly speaking, profitability issues hanging over the industry . Of course there are. But that is the question, right . Holding more capital makes you less profitable but have people gotten over the idea that it is going to be limited to whatever the return on equity is at 14 . Or is there still that sort of tension between the investor and the ceo as to what is reasonable and what is possible . What if there is still that tension. And there is that tension of even if they can get to the target. Investors, i think, would love to see 20 from jpmorgan, but they will take 14 with jpmorgan at 10 right now. They want to see them get to the targets before they start raising them. Oil prices . In the near term that may be mixed. I think that the commodity desk will benefit from it. The commodity desk has been complaining about that. Now there is a lot more reason to hedge right now. I think that it may help in the near term. It may be offset by the credit desk. You have seen the highyield market take a hit. And then and the longerterm i think it depends on how long oil stays the slow. If oil stays the slow for a time, some of the leveraged lending you may have some credit issues there. It depends on how much the banks were able to upload. Are Goldman Sachs and Morgan Stanley still disproportionately exposed . Yes. Among the banks they are definitely the biggest at risk. Especially since jpmorgan got part of their physical commodities. Here we have the loan book there is a lot more added there in energy. With some of the regional banks in texas having a much larger percentage so there will definitely be some outliers on that front, but in terms of the trading goldman and Morgan Stanley are still the biggest. Morgan stanley is still trying to get rid of their merchant is ms. , but a lot of that fell through because of congressional sanctions, so they are looking for a buyer. Might be time for a call to ensure the ratio again. Your weekend is completely focused on Bank Earnings . Yes. And you have been focused on important dates, right . I just learned yesterday that social media was kiss a ginger day, and you know what happened to me . Nothing. I have red hair. Remember on monday when i was wishing him a happy birthday . Life that was yesterday. And yesterday was kiss a ginger day. I kiss you back, remember . Price you did not wish me happy kiss a ginger day. I think the whole hashtag thing needs to go the way of the 20th century. Why . How else will you say it . We will be talking with diane von furstenberg about her fashion and her reality show. The woman, the icon. Hashtag what . Welcome back to Market Makers. Last night i had the chance to sit down with Fashion Designer and reality to Reality Television star, diane von furstenberg. We live in a whole new world. The world today is so different than it was three years ago, you know . The social media has made it entirely different. Last year it was all about the history and what the brand is. It is very important to remember who you are, right . So, i think i did this yet did this last year. Now it is like ok, how do we deal with the new generation . The base of the product is there, but it changes in the delivery. The delivery is so different. But the product is you, you are the brand. Why do you need a Brand Ambassador . Because i am an old woman. I am the founder. I could be the grand, wise oracle behind it, but there is, you know there is different. There is the 35yearold woman, the 45yearold woman, the 20yearold woman. What is the brand . It is already all about driving with solutions. So, anyway, this year that is what i am focusing on. Now that you have created the show and have a Brand Ambassador, are you tapping into a demographic you did not have before . The show definitely opened a whole new generation of really young girls. Really young girls. It is very funny, it is very funny, because you should always have the daughters come back to the brand with their mother. You know . And i am old enough that i have seen many generations, because i was really young when i started and at the end i realized that every few decades or whatever it is the daughters who are supposed to bring back their mother. Anyway, right now that is what i am working on. That is my blueprint. What was your experience doing the show . Until then everything you put out there was so carefully curated and when you do a show like that, you just put it out there. Well, nothing was curated, thats the truth. The only way i was going to do the show was if everything was real and everything was true. And thats what it is. Everyone loved it. Are you going to do it again . Probably. We will see. We are talking about it now. In order to be relevant in fashion at this point you have to be a celebrity, a personality, a lifestyle. Dvf is not about the clothes at all anymore. It is funny, i was doing social media before there was any social media. In a weird way, when i was 205i was doing personal appearances. I was doing this, i was a young european princess with a bunch of an expensive dresses bunch of an expensive dresses that no one could figure out. And it is not true, in some cases the brand is the brand and it is very much a great brand. I think that everybody is different. How do you balance the creative and the business side . You want to create so much but at the end of the day it is about the bottom line. Consumers today want cheaper and cheaper products. I dont know about cheaper and cheaper. First of all i always was as inexpensive as possible with great quality and great design always. That has always been my niche and i will never change that. But, my product is not destructible. You could find 30yearold dresses on ebay for the price of what you buy one now. Talking about creativity in business i think that you have to be creative and business. And as long as you stay focused on what the consumer is that is why i need that youth. I think that i strangely enough i know much more than people would think i do. Or that even i but it is important to have the pulse. When you look at the retail landscape and what is happening in fashion even if it is not happening and dvf in dvf there is sort of a race to the bottom my comes to consumer markdown. Is this terrible for fashion . It is terrible it is not just for fashion, is that there is so much of everything all the time. You have to deliver a great product. One of my resolutions for the year is to do less and do better. There you go, the one and only dvf. It is interesting, her perspective of being in social media before but remember, she created a lifestyle brand. She was a young princess and the european jet style crowd and people said what are these dresses, i would want them. If she designed mens clothing, what would it look like . [long pause] she does not design i know, thats the point. I would love to see you in a wrap dress. Sunday. All right, Market Makers will be back in two. That is going to be it for Market Makers, today. Tomorrow . On the calendar. This guy is on the road, but i will be talking about mccormick and its, bubba gump shrimp schmitts, bubba gump shrimp we will be talking to the ceo of those companies. Louver television is taking you on the markets. Here is our markets correspondent, scarlet fu. We have a broadbased market rally on our hands according to the percentage gain in the dow and the s p. If you look at the s p 500, all 10 Industry Groups are higher and all 30 members are up for the year. This despite the fact that oil is at a fresh sixyear low. Joining me now as kevin kelly the chief Investment Officer at capital partners. Heavy u. S. Investment stocks recovered . I think that what you need to do is take a look back at the last earnings cycle, when it started. We saw volatility really peaking. You are seeing that right now 18 to 20 based off of earnings guidance. We dont really know where that is going to go and that is based off of the three es, including europe and energy. There are a lot of earnings in the domestic news that we could be focused on, but the european situation will not be resolved until the 22nd. When people are looking at europe it is based off of forecast. What they are going to do is be an exit out of greece. How were those sales last quarter . How are they guiding this quarter . Especially based on the dollar getting stronger. Lets talk about the companies that will be giving out numbers soon. Best buy is in the news because of an upgrade from Goldman Sachs. They are talking about positive holiday sales number numbers. There is a big seasonal factor, which you could see with the iphone 6. And forte tvs are looking to be the next upgrade. 3d tvs did not take off, but forte tvs were very 4k tvs were very positive. Does it support the bullish sentiment . There was two times the sentiment alone, but that will be for this quarter, so it is nearterm. Maybe down the road nearterm is a different story. Higher for a second day after a Biotech Company announced preliminary results . They announced that they did preliminary results, forecasting out to see sales double by that. It is based on a yearoveryear encore established drugs with 3 pipeline. What you want to do is give in to what you can do with options and volatility, buying the july 120 call for around 13 and that will incorporate two more earnings cycles to see how they develop. This is even though the company officially reports the results of the 29th you expect the momentum to carry through . Because they will give guidance on their pipeline drugs , oral inhibitors in these injections will continue to grow and forecast out, going into the 2020 earnings and sales. When you look at earnings season coming up how big of a is the stronger dollar . Especially with those multinationals and overseas sales, will that not be a major headline . It will, and what you want to look at is how that is going to impact the full year. They are going to get some short term, but if they are not guiding for the full year, that means uncertainty with lower pe based on that. It is not so much what they say, but what they do not say that you will be focused on. Exactly, that will lead to uncertainty. Thank you so much for joining us, kevin kelly. Money clip is up next. We have had a gain of 1. 2 on the dow industrials. The s p gained almost 20 points. The nasdaq was up by 1. 4 . Welcome to money clip, where we bring together the best news and interviews. The rundown the germans are coming. Motors, power, speed luxury. The little volkswagen car that could grab big headlines at the International Auto show in detroit. Around the world . The accidental exit, the greek finance minister seized trouble and the end to austerity opposi