Transcripts For BLOOMBERG Street Smart With Trish Regan And

Momentum bailed. Tech stocks tumble. Pimcos bill gross will tell us all how to play it. He opens up to me about the future of his firm for the First Time Since Mohammed Ali Arian foster karcher. Ebay and icahn. Carl icahn is coming up. Has plenty to say about john donahoe, the ceo of ebay, and whether hes really ready to back off on his paypal spinoff plan. All that and more coming up for you on street smart. A massive selloff on the way. Of one points, loss point eight percent on the nasdaq rather, the s p. Nasdaq seeing the brunt of the loss, down almost three percent. Olivia sterns is watching the market for us right now. He tech selloff is back. All these stocks that were the biggest winners of 2013, today they are the ones selling off the most. These big internet companies, google, amazon, facebook all down three percent, four percent, five percent. Look at that. Its a perfect rally and selloff. All the gains from yesterday wiped out. Buybook was raised to a earlier today. Another sector that is really seeing losses today, the nasdaq biotech index. Sectorck leading the lower is a lexicon pharmaceuticals, those shares down more than seven percent. All the gains from yesterday wiped off today. Overall 18 loss since speaking earlier this year. Almost a bear market overall for biotech. I have write a, shares r iteaid, shares popped today. They came out with earnings that the analysts estimates. They said their Sales Forecast would come in ahead of expectations. Shares bucking the overall trend of the market and seeing a bit of a pop. Run itswoday rally has course. The tech selloff picks up. Investors are moving away from highflying momentum names in turn for value. Joining me right now with more on the selloff, bill gross, pimcos founder and chief investment officer. Bill, welcome. Its a good day to have you here. We are watching this major selloff on the nasdaq and big losses there on the dow and s p, this flight to quality as we see people move into the bond market. Is this something that you think could last . It is probably not a oneday thing. I dont think you can blame it on the u. S. Economy. We had jobless claims this morning close to cyclical lows. We are forecasting two percent to three percent economy. Related. Earnings related toly more outside the u. S. , to the potential for china to slow down in terms of their growth. And for the potential of japan to perhaps move back into a recession, based upon their increase in taxes over the past few weeks. It is a global influence, but certainly not centered within the u. S. At the moment. How is what the fed is doing or not doing affecting all of this . The expectation is that janet yellen and company will leave a rates low for the foreseeable future, but theyre continuing on with the paper program. Should that give Equity Investors reason for pause . The fed has influenced ,arkets for the past five years for a long time. Downhat qe is being phased and markets expect the fed to be done and over with it i the end of november, that is something in terms of potential tightening. The fed dismisses the fact that the taper is a tightening. Probably is equivalent to Something Like 100 basis points of hikes in terms of the fed funds. At 25 basis remain points. We are at the beginning of a tightening cycle. Its important to analyze exactly where they fed well be in terms of its neutral policy rating. Mean, where will they basis . A longer term where will fed funds stop if they begin to rise as the market is forecasting in june of 2015 . Pimco views it differently than the market. The market and other fed participants view a nominal poli cy rate of 4 at some point out there in the distant future as something that the economy could accept. We think it is much lower, and that places the emphasis on risk assets such as stocks that can benefit low interestrate environment can continue on . For how long . Not forever. The fed funds raised have to increase at some point. My guess is as good as any at mid2015. If the scope of that increase, will that increase behave like it has in the past, by 25 basis points, by 150 basis points per year. We do not think that is the pace that the fed will all finally decide on because that is the pace that is too much for the u. S. Economy. It is dependent upon cheap leverage and we think the fed basically stops at two percent as opposed to four percent, which fed participants indicated with their famous blue dots in the last month. What is the ata on that two percent . Eta on that two percent . If we begin in mid2015, there are perhaps 100 basis points a year. Mid2017. At that point, we will know more. We will know whether or not inflation is at two percent, plus or minus, whether growth is at two percent plus or minus, and whether that is the normalized policy rate. We think the participants in terms of the famous lou dots blue dots are looking to the past. The past was indicative of a, economy that was less levered. The future is indicative of a deal every type of economy that cannot really stand high real Interest Rates or high nominal rates. We think stocks are attractive at these levels. Two percent by mid2017. Theres a cover article coming out on you tomorrow in business week magazine. It looks at the behindthescenes drama of what was going on with you and mohamed ali. Alerien. There was talk of all kinds of drama. Do you think the media that that right . How would you characterize how you were treated by the media at that time . I think this whole past two months has been silly. Breaking news, gross gets mad once in a while. Not quite Lindsay Lohan or Chris Christie types of headlines. The Critical Link in terms of what you talk about and what the article talks about was, mohamed leaves because gross gets mad sometimes . The answer is no. Mohamed has not spoken up, and thats a mystery to us, and an extreme disappointment. We move on. We have a new structure and new deputy cio structure that we think is even better than what we had in the past. Any sense of why he did not speak up . Does this get at some of the issues that you guys were dealing with internally . Think so. Ont its a mystery to us. He simply said he was not the man to take the company forward. He constantly repeated that without explaining it. He did not say that he did not have the qualifications. He did not say he had lost interest. He simply said he was not the person. Thats a mystery. The additional mystery is the fact that he has not spoken up. I would say, come on, mohamed. Tell us why. The furor over the past few months really are quite exaggerated. Its not indicative of what this company is, what this company was, and what this company will be in terms of our future structure. But how does that make you feel, knowing this is a guy you work alongside and was a trusted partner, your cocio, the idea that he leaves and doesnt say anything . Quite an extremely disappointed. I thought i knew him better. Pimco and the executive committee hired him twice. 1990s. Him in the late he was working with various markets. We hired him again to do the orcio and ceo about six seven years ago. We hired him to be my successor. Does that make me mad . Yes, that makes me mad. Does that make me disillusioned . Not really. Have a future that is probably now better than what we had in the past. We have an Investment Committee that is stocked with market it is equity,er corporate bonds, diversified income. These are people with morningstar manager of the year awards. This is a different type of , thaty that is inclusive hopefully gross response to in ands of allowing discussion allowing potential this agreement Going Forward so that when you come up with our famous alpha generation for portfolios Going Forward. Give me one chance here to mention something. We have an ad coming up. It basically talks about the total return plan and says, 25 years, 31 billion. Over the last 25 years, the total returns in addition to market rewards has rewarded investors by 31 billion, over 1 billion a year in terms of extra returns. Thats the foundation of this company, and thats the foundation of where were Going Forward. I will be here for a long time. We have a new structure in terms of the Investment Committee and our deputy cios. We have a new ceo. The company is Going Forward. You want to move forward. I understand. At some point, we all retire. You will retire someday. What happens to pimco, the firm that you started in 1971, the firm that you have built what happens when you do retire . Hope it ispoint, i some point in the distant future. Hes 80 years old and still plugging away. If dan foss can do it, i can do it. In the meantime, were developing talent. We have deputy cios. There are six of them, and additional people that can fill the slots Going Forward. Its not quite a combination of jamie dimon, but its something where we are developing talent for the future. It is gross and deputy cios and the whole staff of pimco that basically works from the tops down and works from the bottoms up and produces alpha in terms of the total return fund it, comes in at 1 billion per year in terms of extra rewards. They say you are tough to work for, tough to work with. You mentioned in this article that some people have referred to you as a dictator. Why is there that perception of you . To give you an honest answer. I think that came from disillusioned ex pimco people, pimco people that have been ander retired or laid off, thats their personal impression. Whats my impression, what is the author plus impression of this article in terms of the bloomberg story coming out i think a leader has to be forceful at times, has to be dynamic at times. To allow for inclusiveness, allow for discussion to promote and elevate the best ideas. Have i done that in the past . Perhaps not perfectly. I would point to the pimco record. If i had not done it in the past, if we had not done it right in the past for the past 35 years, where would chew trillion dollars 2 trillion have come from . Axe can bes with an critical of may, but were going to do better Going Forward. Tell me about the relationship you had with mohamed. Do you think it was a mistake to put so much emphasis on one other person . You now have six different deputies. Does it help to diversify the Management Structure . I think it does Going Forward. There was a point when i was 63 or 64. My ex ceo Bill Thompson was 63 or 64. We thought it was our duty to write a will, find our successors Going Forward. Thats the obligation of all leaders, cios and ceos. Business, im still around for six years, im still talking too fast i have some life left in may. Was it too early to bring in one person . It probably was. To have a platform of six or more in terms of potential successors . I would say thats a better plan. Will these be the guys traveling for you, talking to clients . Thats a lot of what mohamed did, right . He did it, and he did it well. He was a frequent traveler, 30 was0 of his time traveling. He visited with important clients on a global basis. Ceo should do, and he did that very well. Needs to be more at home as opposed to out there on a global basis. That was the role i fulfilled and the role that hopefully we will focus on Going Forward, stayathome to manage alpha, promote results as opposed to constant circling the globe and promoting other things. Seendont know if you have the title of this article. Its very much tongueincheek. Theres a picture of you, its a quote from you am i really such a jerk . I know you are not a jerk. We all know you are not a jerk. Thisou have got to fight perception right now, in part because of what happened. Is there anything you would change in terms of how this unfolded . Of course. I spoke in the article to the fact that Something Like this over the past two or three months causes one or should cause one to reexamine yourself , the Michael Jackson man in the mirror in this particular case. Are you the person you thought you were, or are you the person that others thought you were . What is your answer to that . For the most part, im the person i thought i was. That inwilling to say this environment, in this new dcios,on, with our that its important to be less of a strong leader and then more of an inclusive type of leader. I look in the mirror, and i like my hair. Its nice and thick. Can it be changed . Can it be a different style . Of course it can. Thats what im trying to do. What would you change about yourself, besides your hair . [laughter] it a littleaper bit. It is true that at certain points, i have raised my voice. Is that a bad thing . Its not all of the time. Quite frankly, you dont get a pearl unless you have a grain of sand within that oyster. A little bit of sand, a little bit of temper, a little bit of noise, a think its incumbent upon a leader to promote that. But its not a lot. Im examining myself from that standpoint. Bill gross, we certainly appreciate you joining us here today. I hope you are there for a very long time. Thank you, trish. Pimco founder and chief investment officer. You can read that fall article on newsstands tomorrow in business week. Coming up next, he even and ebay and carl icahn. Does icahn think hes getting enough in return . Just want to check the markets. The nasdaq gaining hit hard here, more than three percent. You have got investors bailing on those big momentum names right now. Quick look at the dow here. We are off one point, nearly six percent. Markets really getting hit hard right now as we head into the final halfhour of trading. A leak in the very Encryption Software meant to keep us safe from hackers has sent the internet abuzz and has companies racing to shore up their websites. Security firm responsible for exposing one of chinas hackers by units has released a new report on the 2014 cyber threat to escape landscape. Year thanter off this we were last, or not . The takeaway, modestly improved. The analysis derived from its own cases and hundreds of clients was compiled before we learned of the heart bleed bug. The findings speak to the cyber challenges, made all the more evident by recent discoveries like heart bleed. Organizations are discovering compromises surer than before. Out in are still hanging victims networks, a whopping 229 days last year, before they were discovered. Organizations are still having a hard time detecting when they have been compromised. In 2013, only a third of companies discovered they had been breached on their own. One thing that has not changed, Financial Services still the top industry targeted. Threats to media and entertainment picked up last year. That theicture was list of targets has increased and the Playing Field has grown. Cyber threats are playing a bigger role in conflict right now. Theyre not just financial anymore as for his motives, right . Right. Is term political hacktivism about smaller groups getting political influence. Chemes are not that sophisticated. We see a lot of phishing emails with links to malware. They infiltrated more than 40 organizations last year. Mandy and warns that any company, especially media can become political collateral in these hack attacks. Individuals are probably most responsible with phishing scams. Any findings on that front . One thing that was interesting was that 44 of phishing phshing emails impersonating her i. T. Department. Wednesdays are a good day to be alert. Thank you so much. We will continue watching this major selloff in tech. We will be back. We first saw toyotas concept car at the auto show and now it has arrived in washington to be introduced. Leota invited members of congress and Phil Mattingly to take iroad for a test drive. Heres what he found. Part motorcycle, part golf cart, part futuristic podmobile, this car was enough to pull a handful of u. S. Lawmakers away from the business of legislating for a test drive. Why . Mytoyota has a big plant in district in southwest indiana and princeton and i wanted to see what the iroad can do. I think theres opportunity for it. I was fascinated with it. Caraybe iroad, the concept that they debuted at the geneva auto show. It is powered by lithiumion battery, giving it 30 miles per charge. It tops out at 28 miles per hour. It is not yet approved for u. S. Roads. It is being pitched as the perfect car for city dwellers. We see these cars fitting into a Transportation Network that can be shared between users and play a role between mass transportation. Why washington . When you have a new technology and you are considering whether to take it to u. S. Roads, might as well show it off to the nations decisionmakers . Uses a set of Onboard Computers to counterbalance centrifugal force when the vehicle turns. We are testing to see what public reaction is and what people think of this, is there a market for such a vehicle in the united states. How did the show go over . Compared to some floor debates, android hearings way more exciting. Wow. Thats slick. Phil mattingly joining me right now from washington, and matt miller writer with me on set in the studio. Is this Company Really trying to curry favor with lawmakers . I kind of need it right now they kind of need it right now. No question about it. It works both ways. You heard from the congressman, theres a kod a manufacturer in his district. What you see from lawmakers is they are lobbying these companies to try to bring jobs into their district. It works both ways. Everybody gets to have fun too. Miller, 6 million vehicles being recalled. This is almost triple the size of what we are seeing for gm. What is at stake for this company right now . They also recalled 7 million vehicles last year and 10 million in 2010. General motors has also recalled about 7 million this year. They all recall they both these two companies recall the most cars this year. General motors has a record of all time. To segue for a moment, all these recalls nausea recalls does it have to do with the legal implication . When mary barra came into her job as ceo, and she decided to do all the recalls she could as soon as possible, which is probably the best decision on her part. Toyo