We will ask a top housing regulator. A stunning revelation in the big Insider Trading trial. The insider trader was kicked out of law school for faking his grace. Happy friday, you are watching Market Makers. Is the us this morning bestperforming hedge fund 2013, larry robbins. His returns are nothing short of extraordinary. Welcome and thank you for joining us. 2013, you were the man but guess who is the man today . My partner Erik Schatzker because january 10 is his birthday. I think it is far more important than the jobs number. Its myact that birthday makes something out of a day that otherwise would be a massive disappointment. The jobs report was horrible. The u. S. Economy added 74,000 jobs in december, lower than the most pessimistic economists view. Can i get ready for knowing its your birthday . I get to kiss you. Michael mckee is here to talk about jobs. The topline number is kind of noisy. It gets revised month after month. 74,000, is there anything in there that makes it look that are . Im figuring out how to top that. Dont kiss me. You have to realize that these numbers do get have a late resolve. March of this year, only 88 house and jobs. We had zero jobs reported and now it is 146,000 after revisions. This could change. The job creation numbers, there were zero jobs created in health care. That has been a strength of the economy. You have to wonder if that was maybe obamacare implements influence. Maybe employers held off and we will get a rebounded january. There was a big rise in temporary help. Maybe people were waiting to see what happens. Its not something to be overly concerned about yet. I rarely get this opportunity to give both of you a hard time but the good news in the number in terms of numbers was the jobless number, 6. 7 there was a country north of us where the jobless report number went up to 7. 2 . Passed canada officially in terms of having a better labor market. That is a noisy number because the Labor Participation rate explains why the jobless. 8 . Dropped 62 we saw a small improvement in december and that is gone now. What does that say about the strength of the u. S. Labor market . You have to ask why those people left the labor market. Normally, when the market starts to get better and we had several months of good jobs numbers, more people come in to the labor market. You wonder where those people went. Why did they leave the labor force . Are they going to come back and that is a question for the fed. The other fed problem is what do they do about their threshold . They said by 2016, we should be at 6. 5 and then they talk about raising rates. At whatever reason, we are 6. 7 , two years ahead of schedule. They have to revise this in some way or people will start ignoring it. Lets ask reverie lets ask larry robbins. Maybe the macro a connie does not mean as much to you. Made the Macro Economy does not mean as much to you. What does this say to you . I saw a report last night about sean peyton how to drown out the crowd noises and thats what people in the market need to do is drown out the crowd noise. There will be Economic Data that is noisy. The employment picture and the economy are getting a little better and the u. S. Economy will be a little stronger next year. And we sequestration have the headwinds of the payroll taxes so the economy will be a little stronger. Liquidity is ample and Interest Rates are low so that bodes well for the market. You are right in saying i am a stock guy rather than an economist but we think the economics and liquidity backdrop is sufficient that the stock figures could go up. He said to drown out the noise. To defend canada, we had the biggest weather impact in the u. S. Since 19 77. It was worse in the northern climes. Except that there, it is cold all the time. I have to give stephanie a hard time because she lost 20 to me on a bet on what the jobs number would be. Larry, you performed well next year so maybe stephanie needs a loan. If i lose 20 being an optimist, so be it. We will manage that 20 for you. Record, that could turn into a lot of money. Michael mckee, thank you so much. Larry, we need to introduce you properly. In case our viewers dont know why, he is a great stock ticker but that is an understatement. It is a skill you need to have when the market is up arty percent. Up 30 . At the rankings from Bloomberg Markets magazine, Glenview Opportunity Fund returned 84 in october and if that was not good enough, by the end of the year, he was up more than 100 . We have to talk about your business. How did you do it . The attention on me but i want to thank bloomberg for putting a picture of our team in the main article. There are 73 people at glenview. It is how did we do it. We have done it with a longterm approach. While everybody views hedge funds and shortterm trading, our top three winners last year, we have owned for five years or longer. The average duration of our top 20 holdings we have owned for four years or longer. Laster was extraordinary year not in terms of where we ended in valuation and where stocks ended but it was an extraordinary year from where things started. Things were extraordinary cheap and companies had too much cash and laster was a year where ever they came together. Largest holdings rocket last year. When you put those positions on five years ago, what did it look like the previous four years . Lets get at the patients your investors have. At glenview, we focus on defensive Oriented Companies looking for secular growth. Health care happens to be our Largest Holding because we are more comfortable betting on the demographics of the United States then the winds of the economy. We went through a 4. 5 year period where correlations in the stock market were very high. All stocks traded on Macro Economic fears and systemic fears. Even though the Underlying Companies were doing quite well, the stock price reacted to events in europe and the Mortgage Market and anything but what happened in those real economies praise stocks got cheap but we got positive performance in those for. 5 years. There were definitely some coiled spring summit led to low bell uh in and companies hoarded capital. They took the excess capital and deployed it and thats what led to some Phenomenal Growth last year. If you are prepared to wait that long, you are clearly somebody who has the courage of his convictions. Ended thered year with a lot of confidence. The fund was 100 net long and your Glenview Fund was not late longer. Was slightly longer. How confident are you this time . As we enter the new year, our portfolios are long, about 14 times this years earnings, trading under 12 times. We dont have a crystal ball as to whether the economy in the second half of this year will be phenomenal or week. We know the companies that were sitting with cash, earning zero or companies with excess debt capacity, even though we have seen a rise in Interest Rates, the average investmentgrade company can access debt at 2. 5 . Even your average highyield company can access that after taxes at 4. 5 . There is a significant amount of wonderful cash deployment opportunities. If we look at our Largest Holdings, one of our largest winners, bought another one of our Large Holdings and they bought that company for 14 times this years earnings which sounds like an entry point. It is not like an m a valuation. These Companies Making significant capital deployment, it is like taking lebron james sitting on the bench and bringing him to the game. Of course you will do better when you take your most valuable asset of cash and put it in. In 2013, the media loves to talk about activist and vectors. Investors. We know bill acton had a hard time with, that some of his positions but dan loeb did not turn return what you did. You call yourself a suggestiveist. We have a tremendous amount of respect for the rest of the hedge fund community. A lot of us are free riders on their work. The concept of active investing used to be thought of as somebody with actively trading around their positions. Active investing has to involve active ownership. As shareholders, even though we are part of a relatively in each of us owns a minority position, we have to actively engage the boards and management in the Critical Issues of the day. How are they position, have how are they deploying capital and their longterm capital allocations. We have always done that in a way which we call suggestiveism. You do your work on the back of it . The passive, Investment Community states behind the good work of those active investors. One can be active in front of the cameras. Carl icahn and dan loeb are at taking thatd frontline approach. We have chosen to partner with their management teams and boards and find situations where we can help that the margin with suggestions which we call suggestiveism. it was unique in 2013 where the hma board refused to engage in any sort of productive dialogue. We had to take error suggestions directly to fellow shareholders. We want to know more when we come back. We will take a quick break but we are speaking to larry robbins. We will also talk about new mortgage rules that take effect today. We will explain what they mean to you and what they mean to mortgage lending in the Mortgage Market. Of the top officials from the Financial Protection Bureau will be here. This is Market Makers, on Bloomberg Television, streaming on your phone, your tablet, and bloomberg. Com. You are watching Market Makers. There is word that the president will nominate stan fisher, former governor of the bank of israel as well as former treasury undersecretary leo brainard to the Federal Reserve and will renominate Jerome Powell to serve on the governors of the Federal Reserve. Peter cook is in d. C. With more. Hadhese are the names that been most closely associated with these vacant positions at the Federal Reserve. Jay powell will continue on as a fed governor. The name that really has generated the most interest is stanley fischer. He was governor of the bank of israel and is an interesting choice. , given his history and his close ties to janet yellen and his prominence within the world of International Central banking taking on the number two job. Has been one of the lead players in the administration on International Issues and it is quite likely she would take on the same role if confirmed by the u. S. Senate and this role at the Federal Reserve. It is a different role for her. Had a lot of experience in terms of budget issues and has worked in the private equity world. Streeted with wall expressed on these are three familiar faces to people in washington. They are the folks that the president is sending up to complement the vacancies at the Federal Reserve board. This will be the team sitting around the table with janet yellen as she carries out her duties as chairman going forward. Icks one of these tax p as interest. There is something missing there is no one with Community Banking experience and that might be one criticism. Thank you very much. Lets return to our conversation with larry robbins. He had the Top Performing hedge funds of 2013. Its a teamclear effort at glenview and im sure your colleagues appreciate that. The team is the super bowl of hedge funds. Policy, you are a stock picker and value guide do you believe you can operate in a way where your relative performance is fairly effective on Monetary Policy . Everything is affected by modes by men by Monetary Policy. It is a difficult environment for a fundamental longshort hedge fund operator. There is a substantial risk of systemic crash. That is a remote possibility always. It moved into the four front of people thinking. There is talk about what will be the effect of tapering in 2014 and 2015 in the markets. We saw that the equity markets rallied strongly even though since may 1, Interest Rates doubled. The fed has made its decision clear. They already have a 4 trillion Balance Sheet. Tapering will peak at 4. 5 trillion and people think 5 trillion is a psychological level so the fed has a couple of tools. They have the quantitative easing and the 75 billion dollars of purchases per month as well as the ability to keep short rates lower longer. You will get language about short rates lower longer to counterbalance the fact that they need to taper. Has 4000 withho a 5,000 credit limit, they are nearing the end. Lets talk about Affordable Health care. How is that affecting you in 2014 . Last year, health care was our largest sector and largest winner and our largest sector entering this year. We are hanging on. Hospitals have gotten the most attention. Life Science Companies were a large contributor last year, not hospital companies, but we are excited about hospitals in the coming years as we are of anything. On december 31, there was as many as 60 million americans without insurance and while it has then a painful and slow rollout of the Affordable Care act, on january 1, couple of Million People signed up and another 7 Million People will be eligible under Medicaid Expansion for additional insurance coverage. Those people who walk into a hospital that previously had no insurance and paid for cents on the dollar of cost to deliver, they will be able to reimburse those hospitals. If you have insurance, you are more than likely to use the system. The roll out has been plagued with difficulties. We think the concept of universal coverage is inevitable. Once that train has left the station, we think progress will continue. In 2006 when they rolled up the rollout was horrible and drug stores in january of 2006 did not know what they were supposed to accept people because the paperwork was not done. The parallels are similar. We just have to get the kinks out . We have to accept the fact that society made the decision that everyone should get universal health care and how we pay for it and the terms of that will be subject to tinkering and debate. I think the fundamental premise that there should be access to health care is there. That benefits hospitals in particular. They are best able to serve those customers. You mentioned you are entering this year with your portfolio 14 times this year. Your strategy, your value approach rocls when there is multiple expansion in the market. How do you think things will play out similarly this year . Our multiple to not expand that high. It is not like we were fortunate enough to have twitter and netflix. I think there is a bifurcation of valuations. 50, i dontw nifty want to call it a bubble, but we are seeing a reflated valuation among small class that small caps. We dont need multiple expansion in order to achieve attractive returns. We think our companies are likely to grow earnings in 2014 and 2015 on the strength of this d plumb and we talked about. Employment wel talked about. Individual stocks can climb the ladder of valuation as the market becomes less concerned. We think hospitals are way down because people are concerned about the poor start to the Affordable Care act. In other instances, one of our Largest Holdings, monsanto, people are worried about the low price of corn and the delayed planting season. Those type of things that way the multiples are generally transitory. Even if we dont get multiple expansion in the market, the specific stories on the long side should enjoy what we think is multiple restoration. It should go back to a fair representation. Benefitid not have the of being involved with twitter and netflix but tech stocks have been on a tear. Do you get tempted to dip in . One of our largest winners last year was a xerox. Had 85 return last year so we will take it. If it requires somebody to have isision as to way the market going to evolve, there are people who are very good at that. Are certaine there companies that fit our profile and the Technology Bucket that have access in our largest theng there is cfc Computer Science corporation where they came in and effectuate it one of the most powerful turnarounds. Coming into a situation where people thought the Balance Sheet was stretched. There is excess n they are buying back 10 of their stock and we think that margin growth and d plumb and will accelerate in the coming years. We are talking a lot about the stocks that you like. You are a longshort guy. Yourdegree do you expect portfolio to be a factor in 2014 . We generated between five and 10 a between the two portfolios. These are on the shorts so it does we were pleased it was a classic pic and i think that opportunity set will continue to provide elf on the short side. Is easiest time to short when there is contracting economy and contracting liquidity. We dont have either one right now. You can no question invest on the long side. We are tried to construct a portfolio where there is relative losers and winners. We dont publicly talk about our