Im francine lacqua. We are getting breaking news out of italy. Possible qe next week in terms of that inflation figure that is due out any second. Weve already had a lot of macro news affecting the euro this morning. Though it actually hasnt affected the euro in terms of where the currency is trading. A little relief for mario draghi. The European Court of justice has given a favorable opinion on outright monetary transactions, seen as a precursor to the qe plan that many people believe draghi will announce next week. The court has said the omt plan is legal in principle. What can you tell us about this opinion . It seems like it is a green light. In principle, theres nothing behind me in announcing quantitative easing. It seems like the last potential major road brock roadblock has been lifted. The European Court of justice said it may be legal. The outright monetary transaction, which you can read as code for ecb when you look at what is going to happen with the market and mario draghi in berlin today told the newspaper that the ecb stands ready to buy sovereign bonds, the question becomes, is this 500 billion euros a ceiling . To what extent does the market hope that it is a floor when it may be a ceiling . And what restrictions might we have on quantitative easing . We will be reading through this more closely. It does say that some conditions may be required for omt even though it was never put into practice. Just what those conditions are and how that affects the ecb possibility to buy potentially unlimited bonds for whatever the total dollar figure is those are still the open questions. I see nothing but open space between mario draghi leaving berlin and heading back to frankfurt. This is an advisory, not the final ruling. Can we assume that this is the green light . We will have a four the sixmonth lag before we get the final ruling. When that 15judge panel does make their ruling in some cases, like the google case it does rivers it. But four to six months, if quantitative easing happens in the next eight days, that decision on the omt that is going to be at least four months after the ecb potentially starts purchasing sovereign debt. We get an announcement on january 22. That first purchase date may not be until later. It does seem like even if the full panel of the European Court of justice reverses its decision, you will have at least a several month grace period where the ecb could be buying bonds. Thank you so much, hans nichols. For more, lets welcome carlson, who joins us from frankfurt. This seems a green light. Are we confident that qe will go ahead and they wont be legally challenged . It looks likely that weve gotten staff approval. I think this is the green light. Nothing that can stop the ecb from announcing qe next week. This would have clearly complicated things. I think it is a big relief in frankfurt for the ecb. Nothing can stop them right now. Is this going to be i guess we are dealing with nuances. Nothing can stop the fact that we are likely to get qe from the ecb. Is there anything in this that vitamin can latch onto . Is there anything they can use to maybe limit the scale and scope of the qe that we are likely to get . Honestly, just browsing through the text, it looks like a green light on all aspects. They more or less give the green light to do whatever the ecb wants to do. This is what qe will be about. Qe will be about finding deflation. This is a severe issue for Monetary Policy. I think they got a big backing from the European Court of justice. It is a nonbinding opinion but advisory opinions such as these are usually followed by the court in majority. We also heard from mario draghi in the paper saying he has to do Monetary Policy for 19 countries, not one. This is directly addressed to germany. How much are we going to get in terms of qe from the ecb next week . Because weve had such a buildup to this it is going to be such a disappointment if we dont get it. I think there is no way out but to announce qe next week. The big question is will they put a number on qe . I doubt it. I think the ecb will refrain from attaching an exact number to the qe plans. What they will try to make clear is that the low Energy Prices are not for the rest of the eurozone, because in the rest of the eurozone, they are feeding through to deflationary risks. This is what the ecb has to find. It is making Monetary Policy for the entire euro zone. Lacks have we done have we done away with the issue of the ecb being super senior . Are they going to be buying debt on a level Playing Field . I think this is the big question. Looking at this nonbinding advice from the European Court of justice this morning, they also said the ecb should be just a normal market player which means there is no senior ready. Because of this opinion, do you think it will quell the noise that we heard from germany . Will it quell their fears or at least temper them a bit . I think it will temper the noise. Im afraid the noise will not go over. I think the noise will become louder after next week but with the backing of the European Court of justice, the ecb is in a very strong position. It will have to convince the germans. I think also Jens Weidmann will play a special role here in how he will communicate after the qe decision. Will there be risk sharing . Are we going to see the credit risk being subbed out or do you think we will see risk sharing across the union . Right now, it looks like no risk sharing would be the price the ecb is willing to pay to accommodate the germans. Banks will only buy or purchase National Government bonds. The question is whether markets will react. I think the biggest thing for the ecb will be to stress that this intention of increasing the Balance Sheet is the overarching goal. I think it should be of lesser importance whether it will be with or without risksharing. I think markets will react positively to a nonrisk sharing qe version. Thank you so much for that carsten brzeski. Heres what else is on our radar. Copper prices have dropped on speculation that demand for Raw Materials wont be enough to eliminate a supply gap. Other Industrial Metals also fell. In his annual policy address has said that hong kong must follow chinas law that candidates for chief executive should be vetted by a nominating committee. It was his first major address after almost three months of prodemocracy protests. President obama has unveiled new Cyber Security measures in the wake of a hacking at any pictures and pentagon central command. The proposals would allow increased sharing of cyber threat information, require companies to notify consumers, and criminalize the sale of financial data. Obama says that effective Cyber Security requires cooperation. Neither the government nor the private sector can defend the nation alone. It has to be a shared mission. Government and industry working handinhand as partners. Love him or hate him activist investor bill ackman now runs the worlds top hedge fund. That brings us to our twitter question. Does activism work in europe . Let us know what you think. Join the conversation. Welcome back to the pulse. We are live on bloomberg tv and radio. 2014, a rough year for hedge funds with firms on average returning just 2 . Some of the passive funds did a little better than that but that wasnt the case for bill ackman. He went from managing 11. 5 billion to more than 18 billion last year. That put his hedge fund at the top of bloombergs annual rankings. Bill, great to have you on the program. Give us a sense you have 18 billion now what is the next thing on your list . We are looking for very high quality companies, usually very Large Businesses dominant, simple, Predictable Companies that has the note around them. Moat around them. Things that protect the business from new entrants. That is what we are looking for. We are looking for a business like that that has lost its way. Perhaps they have not allocated capital effectively. They might have Hidden Assets that are misunderstood. We can buy a large stake and help make the business more successful. The question everybody is asking is, what is bill ackman doing on this side of the pond wearing a suit and tie . Good question. We took a Company Public here Pershing Square holdings. No one knows it actually exists even though it has almost 7 billion of capital. I think it was the largest ipo in europe last year. I would call it the bestkept secret. If i said, we have an Investment Holding company with an 11year record and compounding equity at 23 and you can buy at a discount, people would say there must be something wrong. Pershing Square Holdings today trades at a 10 discount to book value. It is part of a group of funds that have earned 20 for a long time. I have a great piece of pr advice. By a big company in the u. K. Make a bang, go after it, and people will know instantly. Is that something you are thinking about . We did look at tesco. Weve had our difficulties with retail and a lot of structural changes make that more difficult. We look occasionally at companies in the u. K. When did you look at tesco . In the last six months . Yes. Did you bring up Warren Buffett . No but he is probably giving up for a good reason. We were a shareholder of cadbury prior to the crash. Other than that, weve done nothing here. Weve not been active in any way here. In the break you said there is plenty of opportunity at home. Do opportunities exist over here . This is a timeconsuming strategy. You find yourself in a proxy contest. The vast majority of what we do we end up in a consensual arrangement. If it goes otherwise, it gets complicated. You have to spend your life away from home. That causes us to focus more on what is close to home. You know the directors better . You get a feel for the business better . It seems like opportunities in the u. K. May be more right. More rife. I would say we have the benefit of a very favorable governance environment. Directors are more in tune to what their shareholders have to say. We have much Larger Companies generally. Very big, liquid stocks. And of course, it is a shorter plane ride to go visit headquarters. That is probably the biggest driver for us. We focus on the s p 500, canada to some extent. That is where we spend our time. Do you think there are opportunities for activism over here . When i talked to Money Managers these guys want to come over the states and influence management by the company dont take stakes is there a different attitude over here . Im not sure. I would say what is interesting is, large cap private equity in the u. S. Is almost a business thats disappeared. The reason i think is because of shareholder activism. If you are a shareholder, your alternative was to sell the stock or hope that private equity would show up. What has changed is we will buy a percent or 10 of the business. After we own it, any value created goes to the shareholders. The value a private Equity Investor can create can also be created in the public market. We think many of the techniques used by private equity no reason why the public shareholder shouldnt benefit. Why shell out a 20 premium and leave a multiple on the table . [indiscernible] we are investing in that management, and we put our money here in good faith. Why should a guy owning 10 of the business that is the argument that gets articulated here. We only step into situations where a business underperf orms its potential. If you think about the ownership of corporate america, it is not that different. The black rocks, fidelitys, vanguards. I think investors are looking for returns. The kind of changes we make to businesses are not ones that create shortterm value. They create enduring value. No plans to come to the u. K. Not yet. But you did look at tesco. Weeded. We diod. You are invested in 3g right . Those are people i have enormous respect for. That is a tiny part of my the vast majority of my investments are in Pershing Square. We have an investment with 3g. We own Restaurant Brands international. Before christmas, you mentioned something about mcdonalds needing to get shaken out. Is it something you are looking at . We are a burger king shareholder. Burger king is taking significant share away from mcdonalds. I think it would be unlikely for us to be competing against ourselves. Mcdonalds stock is not cheap. Because there is a strong Balance Sheet, it pays almost a 4 dividend yield, that supports the stock price. It is not as interesting because the dividend supports a value that i think is maybe not justified. Weigh in on the opportunities in front of you. How much do you think about the macro backdrop right now . Copper down massively. Treasuries below 2 . People wondering whether the fed raises rates this year. When you look at the economic story, what signals are you getting . Im very bullish for most industries, and for the economy. You have an unusual time where unemployment is heading down to the mid5 range. You have gdp growing at a pretty nice clip. You have longterm Interest Rates that are very low. It is ideal for most of corporate america. If youve got exposure to the Energy Sector, you make drill bits, it is probably not a good time. I think if Energy Prices were up, people would be complaining about the implications. It is a huge boon to the american consumer. That sees through to asset prices in particular. I think it is a very positive factor. The reason for some market disruption is more because of Portfolio Managers having Energy Exposure being forced to reduce overall risk. I think that creates interesting opportunities for businesses that benefit by the lower Energy Prices. Will there be opportunities in the Energy Sector is that an area you will be looking at . Theres going to be a lot of moving parts. My guess is that opportunities will appear. Im not sure that we will pursue them. We look at macro factors to determine which we like businesses where Energy Prices can go up and down and it wont have a Material Impact on the companies we own. We look for resilient businesses. Getting back to Pershing Square holdings, perhaps that is why Pershing Square holdings is trading at a discount. Can i give you a pitch . I think it is one of the cheaper stocks out there. If you look and it is cheap because people havent realized the potential . We took the business public a little more than a quarter of the stock was bought by event driven hedge funds. October, very difficult for those funds. Most of those investors are exiting. You look at the universe of companies in the world that have earned 23 on equity, there are about 300. You can type in figure this out on bloomberg, in fact. They traded an average of 2. 7, 2. 8 times book value. You also had a great 2014. How are you going to do that in 2015 . Are you looking at similar returns in 2015 . You will have to be pretty aggressive. It is hard to predict shortterm performance. But we are not traders. We begin the year with 70 of the portfolio in investments that we are likely to own over the course of the year and 30 that is being acquired by activists. We are going to have a large amount of cash that we take in when this transaction closes. I think a big driver of returns will be what we do with that capital. We are scouring north america for a place to put that capital. Big names . The focus is large companies. Cocacola, pepsi . Im not a fan of cocacola and pepsi. I dont like sugar. I think it is bad for children and bad for people. I dont like the fake sugar either. I dont like the product. I like to invest in things where i like the product. Do you feel that the beat is on the other foot when you have to explain why this company is worth more . It is an interesting spot. We have an obligation to the investors for them to get the benefit of what they purchased area what they purchased. As Pershing Square holdings becomes a more publicly known entity, regulations in the u. S. Prohibited us. You cant take a hedge fund public. We had a choice of london or answered him. Our first choice was the london stock exchange. They said, you are a fund. All the other funds are 700 million market cap. We are on the list with unilever. The theory was, people are going to think about us more. It is an Investment Holding company. Do you feel that you are you are a guy that spends his time explaining to people why there is value in a business. How hard is it to explain to people why there is value in this business . We raised 2. 7 billion in capital. Now im in the u. K. What is the feedback you are getting . Feedback has been very favorable. Most people dont know the entity exists. Because they are not doing their work properly properly . I blame it on us. I cant go on bloomberg in the united they can talk about pershing holdings. I think the u. S. Has favorable tailwinds from an economic point of view. For an investor who can only invest in european stocks, this is an interesting way to invest through a publicly listed u. S. Investors that can only invest in europe buying u. S. Exposure. In europe, buying u. S. Exposure, this is one of the few ways to do it. You can invest in shareholder activism. It is quite transparent. Going back to the oil price, are you concerned about Canadian Pacific . We think the energy price going d