Transcripts For BLOOMBERG Bloomberg Surveillance 20140311

Pessimism index. Maybe it is getting a little better. The job openings are coming out about 10 00 along with wholesale inventory. Earningsmerican eagle and Dicks Sporting Goods before the bell and after the bell, caesars entered 10. This is significant three years ago today was the japanese the japanese tsunami. Thats the news. Lets do it data check. 2 and the rest are nowhere. The Foreign Exchange has a little bit of action with the japanese yen weakening. Paying attention to the ruble which is a little bit weaker as we go to the president s meeting with leader of ukraine tomorrow. 108. 50 ones cents. We did not have to scour the papers too far. On all the front pages, the lack of any sign of the missing malaysian jet was remarkable. We still dont know anything for days after. All the debris and oil slicks that people spotted turns out that was completely unrelated. The search involves nine nations and has gone beyond the flightpath and now extends to the malaka strait. Authorities are baffled. We have descended on a quiet. Here is the letter out overnight from Malaysia Airlines they dont know what to say. Is it a crash . They say they are even bringing the search area back overland. There is also the mystery of the stolen passports, one of which was apparently used by an iranian and who was not connected with the terrorist group that wanted to move to germany. Part of our military budget for tax the seas and skies. Protects the seas and skies. There are vast areas of air and sea in the world that are not controlled. An entire aircraft disappears . Has beenardalkenrath with us so much. He absolutely nailed of this yesterday, the idea of the passport issue. At least one of the passport issues has been resolved. We are trying to find out more area our second frontpage story is back home because congress is looking into why General Motors talk so long to recall cars with faulty ignition switches. The house energy and Commerce Committee said it is launching an investigation and jim is recalling 1. 6 million cars. They have been linked to at least 13 deaths. This is 20052006 . Yes, this is not an ignition switch in 2011 . Thats correct, the ignition switch that would hang off the steering column in the car, if you knocked it in a certain way, it would turn off. This is when pushbutton ignition was new. Imagine you are driving and your knee hits it and he is and it is not working. This is the first major test for the new ceo of General Motors. Gm has a Committee Culture that impedes the flow of information from the engineering ranks to the corner office. This will be her first test. She came up through the engineering ranks with anyone can unite these different aspects of the company, presumably it would be her. There is the ongoing crisis in ukraine. The military of ukraine is testing combat readiness. 20,000 people may be mobilized to protect its borders. Shows noched russia signs of yielding. There are 19,000 Russian Troops in crimea and that region will vote next sunday on whether to join russia. Is in key distinction theory, there are 19,000 Russian Troops but they dont admit they are russian. They have removed them russian insignia and have no identification. Theyre just wearing the tease that looked curiously russian. Many countries have said whatever vote comes out will not be recognized by international law. This is as the u. S. And eu threaten sanctions. And the new Prime Minister is coming to the white house tomorrow. Those are the frontpage stories. Lets continue with the Malaysia Airlines mystery. The former Deputy Director of the faa joins us. When you look at the Media Coverage and the quiet over this crap, what would you focus on over this crash, what would you focus on . The thing you need to focus on is this will take time but this will be found. There is a large search area, it takes time to cover it. There is activity two prongs of activity one is the search of the others looking at everything behind the scenes of this flight. They are right now looking at any data available. These aircraft typically send back position parameters. Im sure they are looking through those files to see if they can find any kind of anomaly. Did you find it of interest ant the pilots were of such age, was that of interest to you . Pilots thehese captain have a lot of time in the airplane. It is not difficult to transition from one boeing airplane into another or even an airbus to a boeing. Not a highlight i would focus on. Everybodyng that keeps making comparisons to is the air france crash of 2009. That was in deep waters in a remote location but this would be in Shallow Waters where presumably you would see signs of wreckage. What is the biggest distinction . It will make it much easier to find the black ox is the black ox is. They have a pinger that sends out a signal. That will be easier to do tech and that waters are in the hundreds of feet instead of the thousands of feet. It increases the probability of finding this wreckage. Ofisnt there some sort homing device connected with the black box to find it . There is, there is a signal that goes off. It is alled a pinger, signal that will be met for a long. Of time. It can be heard underwater from miles away. There is a good chance that they will find that very soon. It is unthinkable in that Shallow Water that they would not find the black ox is. Boxes. Thank you very much. There are other events going on. , known for an analysis of the internet and Christopher Barone is the best Technical Analyst on the street. He and i strongly agree that the only way not to lose money is to look at the trends in the market. Lets get a little bit from both of you. Are you long or short right now or neutral . I am long but i think we have to be very specific what stocks we own. I dont think the market call is too relevant for the next couple of months. We are getting for the end of the attractive season and into the spring months where things seem to be more difficult. I think we need to focus on the areas of the market where trends are best like tech and health care and industrial. Tech is the boom business. We are focused on facebook and twitter ipo extravaganzas and you are focused on the doing of the privacy debate. What are you focused on now . Security which means many things, more than just privacy. People dont know that they are so out there. We talked about social media and we share a lot of our lives of our family and friends and our photos. We are all out there and we dont have control of that data. You spent more than 25 years in mobile software technology. Manager at skied base and you were there when john chen was there. What can he do to turn around the company like blackberry . Willas an optimizer and take a business and drive out the unnecessary costs and focus. He is an optimizer. Seeingan adept touch at this. I suspect and i see the exact same thing happening at as happened at sky base. Here with the markets c in a basichurn, the ruble a little bit weaker on this weeks events in ukraine and crimea. Lets get to company news. Audi to catchfrom bmw. It will introduce 17 new or revamped models this year as it tries to gain ground on its rival. Ofhas an electric version its sports car and the audi ceo says the sales in china should top half a million vehicles for the first time. We will be so aching with you will speak with the ceo of audi in the next hour. Meantime, bill ackman is set to launch another volley at herbalife. He plans an afternoon presentation today focusing on them in china. He says he will show how herbalife violated chinas laws on direct selling and multilevel marketing. Blackstone may bid for an auto parts maker. To the tune of 5. 5 ilya and dollars. Owners of gates and working for a sale of the company or an ipo and bids are due later this week. For 2014, thetory idea of private equity coming in and competing with normal transactional mergers in an industry group. We had an interview recently on industrial sell side. The biggest problem is the black stones of the world. They have a lot of cash to deploy. If you are a financial buyer, you can so make the numbers work. Coming up, we will discuss how teenagers arent dumping Abercrombie Fitch and American Eagle for other brands. What does this mean for retailers and their strategy and their stocks . This is bloomberg surveillance, on bloomberg television, streaming on your phone, your tablet, and bloomberg. Com. Everyone. Ng, an important interview this afternoon peter cook will interview the senator from florida, marco rubio. Look for that today at 2 p. M. On bloomberg television. This is of quote bloomberg surveillance. Lets get started on stores i dont go into. Retailers have been underperforming the whole space which means once highflying stocks like American Eagle and Abercrombie Fitch a need to come up with a new strategy. Fourth quarter earnings for have thefitters smallest fourthquarter gain in eight years. The outlook is pretty cautious. The company talked about earnings being cautious and did not give guidance, first order margin for the urban brands remain low. It is more than Urban Outfitters . They have anthropology and others but the urban brands they are focused on. Testingany says it is pickups and stores and sameday shipping. Secondt is not until the half of 2015. Thats a long time. It seems like it is up and down. Chris verrone is with those. How do you buy dips . The question is, what is the trend . The problem i have with Urban Outfitters or Abercrombie Fitch is the trends are not very good. All the moving averages are downward sloping. The longterm trend has rolled over so we are skeptical when we see earnings like that. Gary kovacs, this goes to the security issue and retail is front and center like target. Capturing both at the point of sale as well as through wifi, it is hard data. Explained the wifi question. We walk into a store and theyre smart phones are looking for wifi signals and send a ping and stores use that to track where we walk through the aisle. Are you kidding . It is huge data. The infrastructure is in place for these retailers to do more with technology but you have Urban Outfitters saying they are testing pickup in the store that will not happen until the second half of 2015. Why is there a huge time lag . We are add and we are the mtv generation. From the stores, its about targeting you before you get into the store. That is what the data is all about. They can tell through your mail and cookies and everything on your computer and you are a former abercrombie model previously maybe in a previous life. Where are they in this . Theory is my in offense of weapon but it might actually be my greatest weakness, right because this is a leaky device . Every second where you go. It follows you wherever you go. There is more information that you are presenting. How do i make it one way . How do i make my phone so i take the information in but you cannot take it out . There are tools to manage that. So wesumers, it is scary have to make it simple and there is a lot of technology where we have to educate the world. American eagle outfitters will be reporting today at 8 00 a. M. They said fourthquarter earnings would be at the lower end of its range. What will happen with the ceo . They have an interim ceo and the new one needs to come in and set a direction. Retailer is uggs 18 retailer . It is a musthave for the winter but not necessarily after that. They expect first order profits to be well below and toward the low end of projections. Im avoiding retail. What about walmart . Even before the security stuff, target was still a week picture. That just added to its problems. We think there are sales here. We go from Abercrombie Fitch, neutral to buy. We will get over there to the corner of 66 and 5th. Coming up, we will talk about greed and envy behind the biggest wall street scandals and that brings our twitter question of the day this is bloomberg surveillance, on bloomberg television, streaming on your phone, your tablet, and bloomberg. Com. Good morning, everyone, bloomberg surveillance, is facing hisie toughest grilling in parliament. The bank of england mark carney is being questioned on bank rigging. Oficials were aware currency manipulation almost eight years ago. The bank of japan is sticking with his record Bond Buying Program. They are expanding their base by 677 billion dollars annually and bracing for its first tax sales tax increase in 17 years and that could trigger the dq the deepest contraction in the economy since march of 2011s earthquake and thats why they will keep buying. In sports, Manhattan College is going to the ncaa term and for the first time. They held off a late rally by their rival iona. Was 2004. Trip i was not aware of that. They tipped the opening team and i lose right there. Dont come to me on picks for the sweet 16. It is painful. Out of crimea, the assembly posts a declaration of independence on that website. Here is our morning must read. I pick something from the wall street journal. It has to do with income equality in the bay area. That is clearly not the sentiment from a lot of people in the street on the street in the bay area. Is it a legitimate tension . Its legitimate. The google bus thing i dont get because the alternative is 5000 cars. We cannot park or drive. I dont want cars so the buses are good. Income inequality is real. Many people made a lot of money and its outside the areas where people live their lives. A family of four cannot afford the San Francisco 49ers football game. Thats right. We will be right back. Good morning, everyone, bloomberg surveillance. Some headlines out of interpol they say the two people traveling on this passports on the malaysian flight that has gone missing probably were not terrorists. Both men were traveling on stolen passports and work iranian. They were probably not terrorists but they were iranian. Vietnam is expanding the search for the missing plane further east. They will go farther out into the south china sea. We continue to monitor this. There is a lot press conference taking place now where they are reiterating that they are stumped and do not have any leads or any sign of the missing jet. The debris they found has no link. What they thought was a life raft was cable covered inmoss. It is what an it is one empty leave after another. We will follow this all morning. Lets do a data check. Its a quiet data check with futures 2. About something that everyone is discussing in technology, the internet of things. It makes everyday devices smarter like smart watches and smart cards and smart appliances. What about smarter malware. . Yourker could break into information. Avg is making a big bet on mobile security. Joining us as the ceo of the company, gary kovach, the former verroneozilla and chris is with us as well. More cities than people were connected to the internet. An opportunity for hackers and people who want to access your data and Security Companies like adt . 50 alien connected things today. We are on our way to 1 trillion and we are sharing way miller of our lives, our health and families. Its all captured somewhere. Many factors of the device will have to lace a priority on security. I think it is early and that has to happen. Consumers dont know yet what to demand. Do i demand better passwords them 1,2,3 . Bowtie. My favorite there are so many to choose from. The industry has failed. There are a lot of password manager programs. They have not made it simple enough. Why can it be simple to get a password that helps security . It was not a priority and people did not feel the pain. The majority of people hold their password in the notes field on their phones. It seems like Many Companies are going toward biometric so why has that not been incorporated into passwords . It is ended has but it is still relatively unreliable. Leaving somebodys and tired a to and their access to that which is unreliable in fairness, we have this finger thing on the terminal. Ands the only way in it has been working well for several years. Why arent more people doing it . We have a battery issue and the biometrics are power intensive. A mobile device, that sucks a lot of energy. Electronic devices might be new for the consumer but arent governments and municipalities already operating Smart Metering systems . What are the worst practices we can learn from them . The data is going on encrypted. Inot of the Smart Devices your car, a lot of the traffic applications on your phone or sending data on encrypted. Anybody can pick that up. Thats what we were saying about the phone being leaky. What if your Company Comes out with a new encryption software, how much battery juice will that take . We dont run on the device and brought it in the cloud. Its so it doesnt run down your battery. When you look at twitter and facebook and their success, what would be your advice to mr. Zuckerberg. . Data privacy and Consumer Privacy and Consumer Choice and transparency is critical. We often compromised. Where to have no idea go on facebook to tell people i dont want things to know, its ridiculous. If you dont want something about you to be public, dont post it. You mean the photos from this weekend . Everything on the basic level is free but any extra services will cost you . Correct. Should the social networks exercise a creamy a model . I think it will all go the advertising route. It works very effectively. Its a Destination Resort for security is not a Destination Resort. It starts with telephones thateing has a new phone is in theory impenetrable. What is your take . I think therell be the fringe end of the consumer spectrum that will need that. Is it fringe and consumer or military and business . You dont want your competitors to find out what you have coming. Security and privacy will be the distinctions and the competitive differentiators of the next three years. Thank you so much. Quickant to play a soundbite from charlie rose last night from with the man running softbank trying to buy two mobile. I need to become a heavyweight. I need to become a heavyweight fighter. That will not work. They will squish you. Right. this is so they can stay profitable and beef that. I want to make them fight back so they also become muscle instead of that. Its good competition . Its good for the united states. Is there a cartel among the cell phone providers . I dont think so. I think competition is good. I can go from one to the other. There really are only two major carriers, at t and verizon. That is more than half the service in this country. I dont actually long for Something Different for my cell phone provider. I have a good rate plan and eight a plan and roaming. It is all too expensive and i think more competition will bring that down. I think they are moving to data brokers and will deliver data. Once they get to that point, it will be who can most efficiently and less expensively deliver it. We are coming to a place where that will flush out. You can watch the full interview tonight on bloomberg television, charlie rose speaking to the man who runs softbank as they try to buy to you mobile at 8 00 tonight. How do the telephone charts look . Not very good. They are a down trend. Smaller companies are the opportunities. European telecom looks better like what you telecom. Telekom. Eutsche isnt that the parent of two mobile . Yes. Is that a theme that europe has not yet caught up to the u. S. . One of our big themes this years europe looks like the u. S. Did look this time last year. Belong in europe. Where only Getting Started with chart because coming up, we are in a Midterm Election year in the u. S. And Chris Verrrone has picked up a strong trend in the market going back to 1950. That is coming up. Morning,uesday everyone, bloomberg surveillance. Factory production and the u. K. Rose in january slightly more than forecast. It was up4 10 of one percent. The bank of japan is sticking with its record Bond Buying Program and plans to expand the Monetary Base by 677 billion dollars per year and is bracing for its first sales tax hike in 17 years and it could trigger the biggest contraction since march, 2011 when the earthquake happened. Colorado is raking in 2 million in taxes in january on marijuana. The tax hall is more than double what colorado was taking in from sales of medicinal marijuana. In the figure is right in line with what state officials estimated. Favorite charge guy . Maybe Chris Verrrone who looks at trends. I happen to agree with his mathematics. Lets get us started. This is a special edition of our single best chart and it has to do with u. S. Stocks. The u. S. Stock market behaves in Midterm Elections and it is fairly predictable. Since 1950, there is a pattern here. The premise is that seasonality matters especially during Midterm Election years. In this chart, we take a look at the average s p 500 trading pattern during Midterm Election years. What you typically see is januaryseptember is chopper he is choppy. The majority of gains are found in the Fourth Quarter and it is similar how we started out the year. The yellow line shows what we have done so far this year . Correct. We think we stay choppy through the summer. Look for the majority of this years gains in the Fourth Quarter, we think. Does that mean it is dead money in the second and Third Quarter . I think the stock calls become more important. Thats why we are focused on things Like Technology where there are so many names that were in purgatory for a decade and they are starting to wake up like oracle and qualcomm and texas instruments. These are names that have not done anything for 15 years. Does dan clifton, your colleague, the say about this . What has been useful is we have seen the blurred lines between sectors like defense and security and technology and health care. A lot of these names can be found in multiple sectors. The defense stocks with everything going on in russia look fantastic. Is a good charge so it is the blurring of themes that is probably most relevant. In one of your reports several months ago, you have a republican portfolio and a democratic portfolio. How are those different . The republican names are starting to outperform. As we move into the summer and the election, we will keep an eye on that. It sounds good, Chris Verrone , our guest host for the hour. Thank you for your emails. A theme, theave third anniversary of their earthquake in fukushima, japan. Our number three photo is a man lighting bamboo candles to commemorate the victims of the magnitude nine earthquake and tsunami. It is incredible when you think were this, 18,000 people lost or dead. Look at all the debris as it floated in and completely displaced homes and boats and industry. If you recall, toyota was not able to produce black cars because it needed a certain pigment from a factory in japan near fukushima. No black cars for six months. The Ripple Effect of this whole event was incredible. Moving onto the number two photo a man walking through temporary housing on sunday, hundreds of thousands were left homeless. Criticismas a mans here on how the government mobilized against this. It seems they have gotten their act together a little bit. It is a reminder that tokyo is not japan. Three years later, people are still living in temporary housing itches amazing. Number one is a fishing vessel swept ashore by the tsunami following the earthquake and still sits there abandon. We have seen this photo over and over. There she says. Gary kovacs is with us from San Francisco. To me, San Francisco is way better prepared than they were a generation ago. I have been there 15 years ago and i look at those photos and it scares me. It makes the want to go home and look at my repaired kit. We learn from the oakland bay bridge and the time the football the baseball game was going on. After this, i bought one of those kits and put it in the back of my car and i travel around the bay with it. I dont want to get stuck. Its a huge area. After that happened, people said in your bedroom, take down any photos or anything framed above your bed because of theres an earthquake, it could fall. I had heavy clay pictures that weighed about 50 pounds and i took them off the wall. Interesting. Coming up, its only march but we are talking football. Freemarket economics, the Free Agency Signing period starts today at 4 p. M. And we will talk about it on bloomberg surveillance, on bloomberg television, streaming on your phone, your tablet, and bloomberg. Com. Focus onorning, the ukraine and a fractious crimea and tomorrow at the focus is on washington as the leader of ukraine will meet with the president of the united states. Symbolism will abound tomorrow at the white house. Our twitter question of the day has to do with the symbolism of wall street we will talk to robert avery of Bloomberg News and his new book in our next hour. He has seven of them. This is bloomberg surveillance. Lets get you some company news. Z building itsdiet war chest. It is getting a second round of funding. It raised as much as 100 million. It has been gearing up to challenge the Market Leader spotify. An allout price were could be looming in the Cell Phone Service sector. If he cannot buy t mobile, he will start a massive price war. He said buying t mobile would give sprint the skill to compete with at t and verizon wireless. He made those comments in an interview with charlie rose that airs tonight. Fuse is trying to buy the cable tv channel to the tune of 200 million. He plans to convert fuse into his existing cable Music Channel them a revolt tv. Have you ever watched it . I have not. I am not a diddy fan. There are not enough hours in the day to watch all the channels out there. Its not at the top of your list. What about football . Thats the only thing about daylight savings time, you are one hour closer to football season. Today Free Agency Starts at 4 p. M. If you are a free agent, this is your lucky day. We are joined by eugene lee. , an agent to the free agents. Know if there will be that much interest in santonio today. There will be a big market for younger guys. What are some of the names . You will have a lot of running backs, a lot of cornerbacks and defensive ends. The big names out there this year manziel. What is the correlation . Gary kovacs loves the 49ers. In nice hockey i have a better idea of future prospects. Is there any correlation here to success . Free agency is another mechanism that the league uses to ensure competitive balance. Doesnt work . Unpredictable element and teams wont know how a free agent will pan out until time shows how a player will play. It is that unpredictable element that ensures parity across the league. And if im uphis for free agency, i will play harder. The salary cap is 133 million per team. You say that is trying to preserve this sounds so broken. The average american makes 40,000 and a team is cap at 133 million . Does the system work . It does but it is relative. In baseball, the new york yankees there is a luxury tax in place but thats not a deterrent to the new york yankees who outspend every team in majorleague baseball. They spent 26 million and luxury tax last year. So the Kansas City Chiefs are in a more level Playing Field than the new york giants than the yankees are with the kansas city Baseball Team . It ensures small market teams what about the San Francisco 49ers . I need a name like diddty or something. Hockey tried this and many people tried it and i dont quite understand how the salary cap and the luxury tax works with these teams with a lot of broadcast rights. The yankees are in the layups perennially. How do you compete with that . Football seems to be the anomaly but i dont have how it works. You have the salary cap and the College Draft and you have the inherent unpredictability of free agency and you dont know how your dollar will play out. That ensures you have it seemed like green bay winning the super bowl in two thousand seven and next year you have new york. Tell the big players that they can continue to achieve after they get the big bucks . Will somebody deliver when they sign a megacontract . You have a good sense of their work ethic that a young man has. When he signs that the contract where he is set for life, he will not look at it like i am done. But it does happen. It does. They are doing with this in hockey doing nothing. I love free agency because a year or to perform a year or two, they perform. Scarlet fu is a free agent. Menenhall resigned at 26 because he went to two super bowl straight is that crazy . I give him a lot of credit and he has lots of interests off the field. He says he wants to write. Bank of virginia running us and you have a big day ahead. Thank you for joining us and you have a big day ahead. The forex report this morning we continue to look at the yen as a litmus taper a weaker yen over the last three days. Somecalm out there. The russian ruble wont go anywhere. Audi sees its return in 2014 and the audi ceo will be joining us in the next hour. This is bloomberg surveillance. Continue toons search for Malaysia Airlines mh 370. Down inunkers ukraine. Sins. Treet from our sinful headquarters in new york, a sinful tuesday, march 11. Joining me, scarlet fu and the sinful adam johnson. Our guest host is an angel, troy, partner at sky bridge capital. Brief us. That bank of japan maintaining record easing, keeping monetary easing at a pace of 670 7 billion a year. No tapering in japan. 30, Small Business optimism report. At 10 00 a. M. , the jewels job openings. Before the bell, American Eagle and Dicks Sporting Goods earnings. One item of note, today is the third anniversary of the japanese earthquake answered on a. Japanese earthquake and tsunami. Congress looking into why General Motors took so long to recall cars with faulty ignition switches. The problem affected one point 6 million vehicles. Consumer complaints they back to 2004. This is the first major test for gms new ceo mary barbara. Bill ackman launching another volley at herbalife. Presentationb today focusing on herbalife in china. He says he will show how herbalife violated chinese laws. Blackstone may bid for an auto parts maker. Ates global owners of gates have been working on a sale of the company or in initial public offering. Bid is due later this week. Good morning, bloomberg surveillance. Truly is with us. A partner at sky bridge capital. Skye bridge does not necessarily manage money. They look for the best places to manage money, the fund of funds industry. Troy is a lead on finding out where to go. It is harder now. With riskfree where it is and liquidity with the bull market. Think there is ample opportunities and equity part of thingsket structure for like mna, spinoffs. Are they true hedge funds or are they event driven efforts looking for the next m a transaction . The majority are long bias. Their sensitivity is well below 1 because they have out of the money puts is there enough jargon for you . Their beta. What do you mean by their beta sensitivity. They markets are up 10 , should be up less than 10 for their they are quieter. They have less volatility. Back andl icahns forth with ebay event driven . Carl is an activist focus on value creation. We focus on managers like dan guys likehn paulson, Barry Rosenstein focused on creating value for underlying investors. Noise attention to the they make. Plan for valuea creation spinning off a nonperforming asset or using your Balance Sheet more efficiently. Corporate management is more receptive to that because they are trying to figure out how to pay shareholders. Unlike past cycles where it was more confrontational. It is take mr. Icahn out, more conciliatory and everyone is trying to find a winwin. Your mortgage exposure way back, it was 72 a year ago, now it is 38 . Market,is stage of a all spread products are much tighter. You have less upside and more downside. You have less carry. If the economy improves, you will not make as much money. As the economy improves, those spreads are going to widen and rates will go up. You do not want to be widespread products. They will not necessarily widen. The yield are not going to go down but the return is not as attractive. You do not have as much upside cap sure if the economy continues to improve. This and theget to latter part of the hour. Structure of the hedge funds you invest in going to change . It has been changing since the Third Quarter of 2011. That was a watershed moment for the hedge fund industry. Until then, the industry had been resistant to fee discounts. Managers have been far more open to providing reasonable fee discounts. 20 , 1 and2 and 15 . Is this a function of the fact that so many hedge funds lag last year, they were up 8 ursus the s p 30. The industry has lagged. Institutions have gotten smarter at using buying power to reduce fee discounts. Troy gayeski with us. Our top story this morning, the crash, the incident of Malaysia Airlines flight 370. Still no wreckage to be found. Comments out of Malaysia Airlines and interpol over the issue of passports. The legendaryl is executive at american airlines. Crandall joins us by phone. Bob crandall, we remember flight 191 in chicago may of 1979. How does a company handle this . How do you speak to the families of the passengers . Obviously you cannot say very much. Fact thatause of the the history of aviation incidents teaches us not to speculate. As these things happen it is almost always true that in the is differentured than anything would have in the end,he is different than anything anyone speculative. All you can do is make sure the family has a decent place to stay. And express sympathy and condolences. There is really not anything else to do. Of sayingin terms anything about the incident itself, the only sensible thing to say is we do not know. We will find out, but we do not know. Do you distinguish between mechanic quality and safety . The actualship of physical airlines between what the Major Airlines do and what we see from a lot of smaller and more distant airlines . An odd question. You do not want to say that theines that are Meeting International standard are not safe. They are safe. Other hand, there are obvious differences in terms of the death of physical and Human Resources that Different Airlines in terms of the humanof physical and resources that Different Airlines bring to bear. I dont know there is any evidence that this is related to failure on part of the airline. The airline that disappeared 77 has a boeing 7 stellar safety record. Travel toicials have asia. What level discussions are taking place between boeing and Malaysian Airlines given that there is such a mystery. The chief executives of both companies are directly involved. Matter ofmething a great concern. Lots of peoples lives involved. Of concern about the airplane and aviation safety in general. Very important to keep in mind this is one that hasin an industry built an extraordinary safety record. It is an incident about which we know nothing. The wreckage, they will find the wreckage, when the wreckage is reconstructed, we will know what happened. It may well be many months before those things occur. Seconds, twaout 30 flight 800, pan am flight 103, both of those were not able to survive. What does malaysias ceo need to do . The ceo needs to make absolutely sure that every kind of every inquiry that can be made is being made. That is all he can do. Thank you so much, bob crandall. Program and former ceo of american airlines. A lot more coming up on bloomberg surveillance. Including bob ivry with his new book the seven sins of wall street. What is wall streets biggest sin . Between s bsurveillance. Good morning, bloomberg surveillance. This matters now to troy gayeski kybridge capital. The u. S. Is the global locomotive. Emerging markets are not worth the risk. You are front and center on this when you allocate money out front hedge funds for your clients. You are u. S. Centric. We think opportunities in terms of how the ability of outcome are far better. We were talking about equity, that is a strategy where we do not think markets need to go up. If they go down, which we do not anticipate, you have far less downside. If you look at buying emergingmarket stocks, you are hoping that at some point there is a bottom end mentality. Flow everybody into the philippines. Is difficult to predict and timeout. I am fascinated how you and your clients, how do you fold use of cash into a win, win . Our view is to be fully invested. Crisis, wee is a tend to balance some of our more equity centric exposures with cash flow exposures, typically in Mortgage Backed securities or highyield bonds. You have him a poor markets are where you have a month markets are flat and you can provide a modest return. Is the bond play that the price will go up as the yield comes down . The Main Hedge Fund play is thats bred will tighten further or stay unchanged. As the economy progresses, spreads should tighten further. You still have positive carry along those lines. We do not talk about spreads on tuesday. Back to equities, is there a cycl sector thats attractive . People are focused on wireless spectrum. They get the pop and there is merger activity. Been invested, this is more speculative, in biotech and health care. There would a variety of acquisitions. The violations have started to run away from corporate events. Clients wanto your to make a year . 20 . Realistic over a full market cycle, our target is 6 to our target is 10 . Troy gayeski with Skybridge Capital. Is hisrica, that opinion. Coming up, General Motors and a real challenge for their newly minted ceo. This is bloomberg surveillance. Morning, bloomberg surveillance. I am tom keene. Futures 1, dow futures, 7. Our guest host is troy gayeski of Skybridge Capital. Figuring out what to do with wall street in 2014. Adam johnson has top headlines. Factory production in the year kerry rose in january, output was up. 4 . Was the expectation. Industrial production rose one percent, slightly lower than forecast. Moving over to colorado, 2 million in taxes in january. Colorado double what was taking in her mind from sales of medicinal marijuana. Whatllion is in line with they estimated for tax revenue. Ceremonies in japan march the third anniversary of the deadly earthquake and tsunami that left almost 19,000 people dead or missing. It triggered the meltdown of nuclear plants. Rebuilding has been slow due to shortages of workers and editorials. Shinzo abe has vowed to boost recovery efforts. I say i go to japan you go to ginza. It is ridiculous, there is a whole another japan that we saw a window into with physician the. With fukushima. You realize how long it takes to come back from this devastation. Water is justf getting over to our Pacific Coast three years later. Shocking. Scarlet has an important book. A rhetorical question. Is america a question of haves and havenots . Vry makes a case in the seven sins of wall street. Though he talks about he joins us to talk about wall streets moral code. This is an angry book. Of indignation. Six years after the crisis, what is the newest outrage . A system that has really solidified as banks are the economy. Helpe government wants to the economy, it helps the banks. The rest of us i am speaking broadly. There are exceptions. What the bailouts did it made the government beholden to the banks. Not the other way around, oddly enough. Wet we have now is whenever have a crisis or some sort of financial or economic problem, the banks to help them the rest of us will have to fend for ourselves. Finger atnt the people and institutions. Who committed the biggest sin . Pick up the Federal Reserve. The Federal Reserve has a lot of power. Mostly unaccountable. Of course, there is the Humphrey Hawkins or the twice a year they have the is this the same Federal Reserve as 2006 or their have there been enough changes . The Federal Reserve is now the world economy. It has become the worlds central bank. On too many responsibilities. You begin with a budweiser and a shot of jack daniels. There is a small club, it is a dive on 60th street on wall street. Take us, you begin to figure out these seven cents. Sins. Seven two blocks away. Mark pittman is no longer with us but was my partner in a lot of investigative stories. It was close to the train, we would go there and we really tried to get behind all the lack of transparency that the fed, the government, and the banks were trying to draw a curtain during that time. How much were they borrowing . We never really knew. The Federal Reserve loaned to the banks during the crisis was astronomically bigger than tarp, which was the treasury program. Trillion is9, 7. 77 what the fed had lent, spent, or guaranteed to help banks. Why is that a sin . Sin, what camea afterwards is that the bailouts never ended. We have qe, Interest Rates are close to zero. This is a bank bailout that has never ended. Youro are the heroes in book . You identify whistleblowers at citibank. What about people in government or the industry . I am a big fan of neil he was the tarp investigator for a while. He was the watchdog. I am a fan of Sherrod Brown in the senate and elizabeth warren. Jamie dimon . I dont think that is the word for it. Do you look at the new bankers of wall street as being less sinful . Lessons are some learned after six years. Citigroup has got the right idea. Morgan stanley has got the right idea. I do not think it ever got through to Goldman Sachs or jpmorgan. Heroes, you do have some heroes. You do not have enough. Come back andto talk about the concentration of capital. That is a major concern, concentration of deposits. The seven sins of wall street. Part of our twitter question today. What is wall streets biggest sin. Tweet us bsurveillance. What is wall streets biggest sin . Watching bloomberg surveillance. Bob ivry identifies seven of them. Competition between german automakers revving up. We will tell you who is winning next. This is bloomberg surveillance. I am scarlet fu with tom keene and adam johnson. Some company news starting with alibaba. Buying a stake in china vision buying a stake in china vision media group, giving the Commerce Company access to tv dramas and films. Chinese retailing website j. D. Com might launch its u. S. Ipo by july according to people with the knowledge of the matter. Tencent holdings is taking up stake in j. D. Com. In mobiler looming phone service. Softbanks president vows if regulators let his sprint unit i tmobile he will start a price war. Masayoshi son says it would give sprint the scale to compete with Market Leaders at t and verizon. That is todays company news. Theress gets involved house energy and Congress Committee will investigate General Motors and mary bar ra. Explaining why it took more than a decade to recall 1. 6 million vehicles for faulty ignitions. Linked to 13 deaths. Joining us now on the telephone is jeffrey of Bloomberg News detroit. This is something gm would not want to see. There is a lot of ancient history here. Why is it a 2014 issue . In ouruse it came out 2014 recall. As you look at the timeline it was clear that in 2004 they knew something was going on. There is a sensitivity to this kind of thing after the toyota recall. Any sense an automaker did not react quickly, which gm has admitted and apologized for already, is a sign of further involvement. Driving ahild is 2006, 1 hundred thousand mile gm sedan, should they be driving it . They should not have a bunch of stuff on their key ring at the very least. Ignitionsry sensitive which. It does not happen in every car. The incidence is very low. After 13 people have died it is the kind of thing you do not want to continue. The interesting thing is that there are not hearings very often on recalls. There have only been a couple in recent history. Recalls happen all the time. There are millions every year. For congress to get involved is not regular. About atureau wrote the heart of the slow response was a Committee Culture that impeded the flow of response from the ranks to the corner office. What is on mary barras to do list to fix the to culture that got in the way of the recall . The list ofen on the last three ceos of gm. They have been trying to cut through the culture and change the way they are thinking. Toyota had to look at the same thing after their big rec all. Bureaucracy,t of engineers like to look at data and think about things. They like to study them and act once they know all the facts. In this case, it took them too long to knew all the facts. Now we have to figure out why. Andhe u. S. Government taxpayers bailed out gm several years ago. What is that relationship now . In terms of at dotted or official line. No government ownership left in the automaker. Mary barra took over as the government got out. An independent General Motors. Everyone remembers the bailout. There is a sense taxpayers bailed them out so they have extra responsibility to the country. They have been fourth comp they have been forthcoming. They brought in an investigator who did the Lehman Brothers probe. It was a fairly heavy hitter, a guy who comes in when you have a big issue. Asjeff green from detroit maryborough goes to washington with General Motors. This is something you have been looking at. Whether it is a battery on a dreamliner or an ignition switch. Sometimes what appears to be a complex problem there is an easy solution. Like the battery six at boeing, where you needed insulation around the battery. But still, people lost lives. She is going to get grilled. After taking government money and not telling the public and people lost their lives. To 2004. S back that is the most stunning part. Data, data. Economicwhole lot of data. Wholesale inventory at 10 00 a. M. That is usually not a major consequence. It is a january number, a lagging indicator. Futures lower, down by less than one point. A littlecks rebound, bit of a give back following the plunge after the chinese export drop. The 10 year at 2. 78 . We are on his usual media and your digital space, we are on the ipad and lumbar tv plus. Itunes and android. I am tom keene with scarlet fu and adam johnson. An important interview. Number oneing the spot from bmw, selling more lecturing vehicles in the world of thefirst two months year than anyone else. Rupert stadler joins us from audi headquarters in germany. Congratulations, dr. Stadler. How important were sales of suvs and china to overtake bmw as number one . Do not exaggerate. It is a very good story to have a good ramp up in the new year. January and february was really good. We had an increase of more than 9 . We always try to figure out what will happen in 2020. And not what we will achieve in two months. All the markets are performing very well. In europe we had positive growth rates. In the u. S. It is flat at the moment though we have seen good growth during this year. In china we are performing well. Overall, we are quite happy. Iswe admire a ceo who always trying to guide rather than taking immediate credit. How essential is the a3, the new compact car in pushing out a forward . This is an integral part of our growth strategy. Now starting in europe. We will bring the car to the u. S. In the summer. We decided years ago to go with in china for local production. We will see growth rates with the a3. Overall, we believe that the premium segment in the contact area will grow. When you look at audi, mercedes, bmw, it is cutthroat competition. What is the number one determinant for the jive are . When someone walks into an audi showroom, what is the number one thing that matters in luxury cars . I would say that there is a strong competition within mercedes, bmw, and audi. This type of competition makes us Even Stronger in the premium world. Nearly 8 of the premium business is done by the german industry. Or a customer comes to the dealership, what should he recognize . With audi, audi is the most progressive brand. We have the most emotional product with the highest type of quality we can offer. The customers tell us that we are the number one. Not as telling the public that we are going to be. About stadler, you talked how competition in the premium segment is more intense. I want to ask you about Pricing Power in china. First is Pricing Power in the u. S. Versus Pricing Power in the u. S. Audi is premium brand number one when it comes to volume in europe. It is premium brand number one in china. We are aiming for the next pattern of growth in the u. S. As far as i see it, the future of alley in the u. S. , there is a big growth potential. The brand is in a really good position. We bring a lot of emotional products to the u. S. We believe that we can grow further. Dr. Rupert stadler, ceo of audi, thank you for joining us. Troy gayeski with us of Skybridge Capital. The aspirational nature of making money. What is a cool car . A maserati . I am more of a bmw seven series guy. Right now, a 550. Bmw 550 . Guy. U are a value you want a nice guy but you have got to go value. Me theati roared by other day. Rear wheel drive is not the most practical in the northeast. Do you not drive teslas . Morell be right back with movers on bloomberg surveillance. Good morning, bloomberg surveillance. I am tom keene. A quiet data day. Serious events in ukraine and the malaysian crash incident continues. The search for the plane. I am tom keene. Adam johnson and scarlet fu. Joining us now is betty liu. Guests oneresting this morning. John katzman to this john catsamatidis, the billionaire red owns the green apple chain. He is a clinton supporter but a republican. He wants to put his money for the clintons and against the tea party. He feels they are so divisive and he wants to put his billions against the tea party. On another side, i love this guys name. L. A. Chef who will talk about the healthy food trend. We have the story about paneras sprout bagels. How is that going to go over with the American Consumer . Tom . I need to be healthy. Jack daniels, budweiser. I thought it was jack daniels with a bud chaser. Betty liu, thank you so much. In the loop is 8 00 a. M. Veryname we do not see often, fuel cell shares climbing in the premarket. Resultsl reported yesterday and is on track for closing multiple orders, confidence is high. Projects are awaiting regulatory approval. One of the biggest fuelcell manufacturers. A viable source of electricity with Natural Gas Prices coming down. Charlie rose spoke with the softbank see you last night. Softbank is the japanese phone company trying to take over tmobile. Tmobile is not moving, but prices are moving. Here is what the softbank ceo says about the price war. Three heavyweight fight. You like that. Have a realike to fight. Not a pseudo fight. A real fight. If i can have a real fight, i will go in a massive price were. Your pattern. When you get a stay cold you undersell everybody. You are willing to prose bowl profit to gain market share. Exactly, i want to be number one. Classic japanese strategy. That is what they did in the 1980s and 1990s, buy market sh are. Fascinating. Watch charlie rose tonight. We will be back to talk about hedge funds with troy gayeski. Good morning. He writes the investment world listens. Jim oneill will join us tomorrow. Former chairman at Goldman Sachs writing for bloomberg few. Check out bloomberg video. Hour. 00 a. M. This is bloomberg surveillance, i am scarlet fu with tom keene and adam johnson. Our guest host is troy gayeski of Skybridge Capital. Some headlines. Is building its war chest. The service from dr. Dre raised a second round of funding from original investors. As much as 100 million according to people with knowledge. Beats has been gearing up to challenge spotify. Entering chinas game console market. Teaming up with Online Gaming to build a console that will be available later this month. This comes after china lifted a 14 year ban on game consoles. Fuse trying to buy the table channel. He is offering 200 million according to people with knowledge. Intoans to convert fuse his existing cable Music Channel, revolt tv. It is the company news. That was a great channel. You watched it . People probably think bowtie and conservative guy, you are very plugged in. Just call him mr. Pop culture. I am clueless, tom is pretty good. I love Ellie Gouldings new album. [laughter] futures of hedge funds with troy gayeski of Skybridge Capital. Important if you are saying maybe i ought to go into a hedge fund. Skybridge capital allocated out to make the right investment for their clients in the hedge fund space. Undercurrent here of letting smaller investors into the hedge fund world. That sounds like the dumbest idea. Is it . Why should a Large Institution have access to some of the smartest managers, one would argue, to make a lot of money. Someone who can invest 25,000 cannot access that. The idea with regulation is to protect people from making mistakes. Hedge funds tend to be lower volatility and lower risk. Of theget to the size portfolio and size of the fund, it is too much for six guys in a room . If you bring in retail you have a lot of billiondollar hedge funds. If you areot have 20 billion, it is harder to make money than 10 billion. No doubt that size will hurt. You are not talking about penetration rates in retail that are 10 or 15 . It is a tiny sliver in terms of credit and investors and ultrahigh net worth. It will still be a niche exposure. You look atds, if returns last year, they are not living up to the promise. The average hedge fund returned less than 10 . Equities only was less than 10 . The s p is up 30 . Why should the small guy went to go to hedge funds . If you look at the small market if you look at a full question the we wisdom of products that just track the average hedge fund. If you talk to the guys with the best strategy always have guys who say i am the smartest guy in the room, give me your money. You are trying to compound withal better than bonds lower risk than equities. In a bull market, equities will outperform hedge funds. Over a full market cycle, what is cash yielding to that . Yielding today . Is hedge funds can be up 1 , ma ybe 6 . 6 is great, you wonder how you make 15 . Doubledigit returns are something everyone is looking for. Sky ridge Skybridge Capital is known for the conference as tom mentioned. It was during the time when investors were not too keen on hedge funds. It was the death of the crisis. Our Founding Partner and his colleague were in the midst of the crisis in 2008. We were focused on hedge funds. That was a time where las vegas in particular was getting beaten up. Companies were getting blasted for visiting las vegas. We are pretty good at marketing and branding, lets go to vegas and meet with the governor and try to launch a hedge fund conference. From that, we are approaching our sixth conference. Over 2000 attendees. It has been a great place where politicians, Monetary Policy experts, hedge fund managers, and entertainers likcan come and give crossfertilization. Crossfertilization . We are cross fertilizing. Nothing genetically modified. What have you learned about hedge funds doing fund to fund . Beatll be up on people up on fund to fund . What have you learned . Side, the folks that do well over the longest are incredibly driven an incredibly competitive. A lot of them are very wealthy already, guys like john paulson or dan loeb. They are not doing it to make more money. They are doing it because they are competitive. They are addicted to it. To the drive of outperforming the next guy. On a daily and hourly basis. If you are too focused on the day today, youre going to go crazy. If you look at how they measure being successful, it is how well they outperform the next guy. Troy gayeski, thank you so much. The agenda. To focusing on stories that will shape the news. I am focused on the Malaysian Airlines jet still missing four days after he disappeared. No new information. All the leaves, whether the oil spill in water or debris spotted by different planes, turned out to be nothing. Great withdall was american airlines. Earlier, john and what he said about pilots moving from airline to airline, from a 777 to an airbus. The systems are so standardized. We should not be concerned about the age spread about those two pilots. We should not be concerned about the stolen passports, one was an iranian seeking asylum. We are trying to bring you guests who are qualified to talk about it. It is so sad, they called it an incident. Because they do not know what else to call it, so sad for families. The ukrainian Prime Minister Arseniy Yatsenyuk will be meeting with president obama at the white house tomorrow. Arseniy yatsenyuk was a member of parliament 10 days ago and is now the Prime Minister. The symbolism is huge. The idea of russia taking in and ukraine moving troops around. My agenda is retail sales. Thursday. Retail sales is an important consumer barometer, something to think about. About how healthy the u. S. Consumer is. Our twitter question of the day. We had bob ivry, author of seven sins of wall street. Response, in difference to hardships. There is. Using the government to become too big to fail. Failureisgood. Appropriating the American Dream in the name of profits. Greed is not good. That is too harsh, they are important. Banks matter. They extend credit to the broader economy. Compare the u. S. To europe, the u. S. Is at 3 and europe is at 1 come our Banking System is healthy, europes is not. As bob ivry said, it is a question of transparency. Distinction between small banks making loans to people and the money center banks. Thank you to everybody. Of skybridgeki capital. Thank you so much. Bloomberg surveillance on radio continues, in the loop is next on bloomberg television. In our live from bloomberg world headquarters. Here is ligety top headlines. Barack obama is a manhattan for a fundraiser. Theyre going to have more on that. An interview with the republican fundraiser but clinton supporter. That is straight ahead. The search for the malaysian airliner has extended farther west of the plight flight path. One of the few stolen passports was from iran. The passenger was an asylum seeker. He is ready to start a mass price war in the u. S. If realtors let sprint by tmobile. This is after a Game Changing mood in the move in the u. S. He is facing the toughest testimony. About the banks role in the currency manipulation scandal. Ur