Transcripts For CNBC Power Lunch 20170314 : vimarsana.com

CNBC Power Lunch March 14, 2017

Youre in new york. Are you okay there. They asked us to step outside for the beginning of the show but said no. I left my cowboy hat ott home so i couldnt possibly do it. Also you dont want to get assaulted by the tickle me elmos tackle me elmo. Theyre doing a whole show fromout side. Im Michelle Carusocabrera along with melissa lee. The wind behind us late winter blizzard is continuing to pack a punch, 72 million from West Virginia up to maine impacted by the storm. More than 6,000 Flights Canceled and the Weather Channel putting the hardest hit area from the storm here, dingmans ferry, pennsylvania. 24 inches of snow. Wow, we will have the latest on the storm straight ahead. First a check on the action on wall street. Stocks, theyre lower across the board, energy is certainly the biggest drive in todays session as crude oil touches its lowest level since november. 47. 32 a barrel. Fed kick off a twoday meeting and yield on tenyear treasury, 2. 6 , just a bit below right now. The worst of the storm missing new york city but the northeast is getting walloped. Lets get to angie with the latest on the path of the storm. Yeah, continuing to keep an eye on this storm. Many especially new york city, d. C. , not hit the hardest but inland seeing heavy stuff. Lets take a look outside. You can see times square. Still busy, busier than you would expect but we are still dealing with a whole lot of travel delays. Im going to get to that. Windwise is the big story for folks along the coast. You can see were talking about 33mileperhour wind gusts for philadelphia, new york city, montauk, 40. The worst of the winds not even here yet especially as the system moves up the east coast and well continue to be watching areas of portland, maine, to deal with strong winds and also more snow. So, those areas inland, albany, dealing with heavy snowfall and that accumulation. Now, as far as what our radar looks like right now, you can see rain and sleet line continuing to affect the coastal areas dealing with flood. Big picture for those of you that may be headed out and mr. , i know travel has been rough. I want to show you whats going on with that. We have our Metro North Railroad service is suspended. Since noon and we continue to see that going on all the way into the afternoon hours. You see the subway express Service Suspended and goes on. If youre planning on traveling keeping an update on those will be a good idea. Hold on. Youre from miami, right . I am. Here you go. I think i think it looks better on me, what do you think . Of course, it does. Well send it back over to you. Definitely better on you, angie. No offense, brian. As we said the storm not as bad as first thought here in new york city but surrounding areas are still getting hit hard. Nbcs blake mccoy standing by in ridgewood, new jersey, with the latest. Blake. Hi there. It is still snowing. I know the snow was a bust for you in the city but out here inland a little we have seen a lot of snow. Take a look. The plows out all day working to make the roads passable but the people have not. Everyone stayed home today. Kids are home from school. I know a lot of traders live out this way, northern new jersey. Theyre all home, as well. You like numbers at cnbc. Lets see what we can do with this ruler. Oh, its about 6 inches. About halfway up the ruler here in northern new jersey. Even more as you go further inland. You may be able to hear the snowplows, though, i think this will be pretty much cleared out as far as the roads are concerned tomorrow and weve seen the new Jersey Transit trains still running despite the weather. Guys. Our thanks to you from ridgewood, new jersey, not far from where we are seated inside right now. Travel disruptions across the country as a result of this winter storm, lets go to phil lebeau live at chicagos ohare with delays there. Hi, phil. Tyler, the cancellations continue for most of the northeast. This map because this will give you some perspective on just how few flights are either taking off or getting in on a typical day if there was no storm, youd see a ton of little airplanes flying into those major airports in new york, boston, philadelphia, today were only seeing a handful right now. Here are the numbers in terms of the number of canceled flights. More than 5900 Flights Canceled today according to flight aware. As for tomorrow, itll be 814 flights at this moment. That number could increase over the next couple of hours as Airlines Continue to adjust their schedules. Thats why the airports are virtually empty. The good news is that by tomorrow afternoon, we should see some normalcy returning in terms of the flight schedules and then you should see all the airlines back up to really full service by the middle of thursday. If not thursday morning. You know whats ironic about it, were coming off a record low for Flight Cancellations in the u. S. That was last year. And really we havent had any bad storms this winter so as much as this is a pain for those people traveling to the northeast, really it has not been a bad winter for the airlines and for travelers going that way. Back to you. Yeah, its great context, a lot being impacted but not that up. Phil, thank you very much. Now lets bring in seth kaplan at airline weekly. An important point he made, seth, which is, yeah, this stinks and theres people stuck at airports and for a couple of days will be snarled up, but the last two winters have been pretty mild overall in the northeast. How do you think its going to net out for the airlines, a big blow or does the rest of the year being a little bit more mild make it okay . It mitigates it no question. This kind of makes this look more like a typical winter as opposed to an uncharacteristically easy one. When you add it up. Numbers, something, i dont know. A quarter billion dollars, 250 million net impact for the industry. A lot of money but the kind of thing where, hey, wti goes up or down by a couple of bucks a barrel. An industry, 35 billion in revenue this quarter so, yeah, not a devastating impact even if a material one perhaps and nothing all that much worse than a lot of others. Is there one airline that would be more affected than others . Yeah, you know, if anything jetblue as a percentage of its revenue, more northeast focused airline. So when you see all those cancellations places like newark, jfk, laguardia, boston, you know, as a percentage of overall business that will be more jetblue than anybody else. Again, thats always the case so nothing terribly unusual for a winter storm but something, that, yeah, if youre jetblue for than alaska or southwest, lets say. Sometimes it does snow in the northeast during winter. That has happened but this is a pain in the butt for people all over the country, last question, tell our audience, this is also key even if youre watching in phoenix, why do i care, so many flights go through new york, correct, that if we get disrupted in the in the new york area it screws up people that have nothing to do with the storm, does it not because flights cant get through . Yeah, by definition youve got, you know, if youre in atlanta, Busiest Airport in the world and lots of flights are canceled up in the northeast guess where a lot of those are coming to and from. Thats despite the fact that airlines nowadays do a better job of trying to set things up so that you dont have the impact cascade through the system as much so a flight nowadays from atlanta to los angeles, lets say, is less likely to be impacted as in the old days. Try to make sure that airplane wasnt coming from the northeast. But, yeah, you know, were talking about a corridor with thousands and thousands of flights, you know, so some of those flights are going to and from airports. Another reason to petition management to move cnbcs headquarters to san diego. Le seth kaplan, thank you. A total botch job. Big ackmans big valeant bomb started with botox. Well explain and take you through the anatomy of what many are calling the worst trade maybe ever. Plus, if this late season blizzard has you criming of warmer climes, we have you covered with the ceo of Norwegian Cruise Line coming up. All that and more straight ahead on power lunch. So what else is new . Hows your mother . Umm. Shes doing good. She needs more care though. She wants to stay in her house. I dont know even where to start with that. First, lets take a look at your Financial Plan and see what we can do. Ok, so weve got. Well listen. Well talk. Well plan. Baird. Experience exciting offers on sales event is here. Our most elevated suvs ever. Get up to 2,500 customer cash on select 2017 models for these terms. Experience amazing at your lexus dealer. Welcome whack to power lunch. Im melissa lee. Valeant down over 11 after bill ackman revealed he was exiting his stake in the company. Heres meg with what it means and why his fund finally decided to pull the plug. Hey, its been quite the saga for big ackman and val. A story that began with botox. We have to take this back a couple of years because, of course, the sort of marriage between these two entities began when ackman teamed up with valeant in valeants attempt to take over allergan being the maker of botox. When that didnt end up working out allergan instead was sold to activist that changed its maim. And then he decided to invest in valeant and continue that. It was early 2015, february 2015 that Pershing Square started acquiring its stake. We have a time line of their involvement so it was february of 2015 he started to make that invest investment. Then in march pershing disclosed that in valeant. About a 5 stake worth about 3. 3 billion. Then, of course, later that year was when we started to see trouble stirring the valeant. Citroen put out a short report asking if it was the pharmaceutical enron causing controversy and causing it to start its fall. Then in march of 2016 pershing got more involved adding streiff fraid in and ackman joined later and mike pearson stepped down and joe papa joins as ceo in may 2016 in an appointment orchestrated by pershings bill ackman and hoping they would turn around. In january 1017 at the Investor Conference valeant announced they had made some asset sales worth 12. 1 billion and investors thought that would be the beginning of a turnaround thats been promised for so long then, of course, march 13th was yesterday and david faber announced that valeant was exiting causing shares to fall quite a bit. As folks steck late maybe there isnt a turnaround to come here at valeant. Guys. Melissa, back to you. We spoke to andrew and asked about valeant after this news came out that ackman exited the position and what he thought about the stock and he said he still thought it could go bankrupt. Whats the credit situation look like right now because bmo makes a good point. At this point his exit underscores a point that perhaps the turnaround is going to have many, many more challenges than we anticipated and take much longer than anticipated as well. That is a key concern of a lot of folks that im hearing from, as well. The company has 30 billion worth of debt. It has been kind of refinancing some of that trying to push out things, make it a little looser in terms of being able to meet all of its obligations there but the key concern is that the company its business wont be able to support its obligations and that is a concern that im hearing a lot today. All right. Meg, thank you. Meg tirrell. So 4 billion on a single trade, is this going to go down as the worst trade ever . And what are the ripple effects for the future of activist investors. Lets bring in bethany and Herb Greenberg parter in Pacific Square research. Herb, weve seen hedge funds go bust bigger than 4 billion but on a single trade have we ever seen a loss this big on a single trade that you can recall . I dont know. I have no idea. I know that this was a trade when it occurred the first time some of us looked and didnt understand and i think there are a lot of lessons from this and one of the lessons is, you know, activist names and short selling names are sometimes the same and end up in the same place because they hit the same screens but sometimes im always surprised why people dont do the same level of work on the activist side that say the shorts did. Sometimes they can pull it out. In this case, you could see even back in 2014 there were some significant issues that we didnt even know were going to go down the road that this one ended up going. Sure, bethany, what does this mean for other activist investors . Are they looking at it saying there but for the grace of god go i or are they saying, he blew it. I would never make the mistakes that guy made . Well, i dont actually think this is a comment on activist investing. What ackman did was a betrayal of his traditional investing style. He didnt take an activist stake and a biten down company instead he took a passive stake in a highflying company in a very pricey stock. He became an activist only after the company hit the skids then went on the board and so had he invested at that point i still think it would have been a mistake but not nearly the magnitude it is. The comment is a different one, the group think that so prevalent in the Hedge Fund Industry today. Have all these guys, mostly guys paid tens of millions of dollars for doing independent Due Diligence and research and being iconoclastic and thinking differently and there they all were invested in this company. It was a hedge fund motel. I mean, this is almost along the lines of the sun edison where we saw all these guys pile into the same exact trade and follow it down because for some reason they were emotionally attached to this trade so thats what it sounded like, herb, when scott walker talked to bill ackman all the statements bill was saying it sounded like he was looking back thinking i wish i had sold earlier. He was really attached to this trade. Well, i think as david said theyre all human but in this case the case is i come back, ill always come back, why they should have seen it coming and the hedge fund hotels, when im involved in a situation where were researching and i see a bunch of hedge funds on the other side you get nervous sometimes but i think they there is a group think. I think bethany is exactly right. As much as people talk about doing, you know, their independent work, i see a lot of comfort in numbers. Even today. Is it that . Long and short. Or is sometimes their pride. They cant admit that its wrong at some point its going to go right and theyll be proven right in their heads. Emotions are real. A couple of questions here for either herb or bethany. There were a lot of hedge funds that were in valeant at one time. Wasnt just pershing as i recall. The initial history was that he got into the valeant orbit, so to speak, as a result of a position he took presumably in concert one way or another with valeant with respect to allergan and didnt he correct me if im wrong here, didnt he have a profit in this stock . Yep. Before he had a big loss. Yep. Its a really important point. He actually had about a 2 billion profit on the allergan trade and that allergan trade is a very controversial thing in and of itself still being litigated and may be a precursor to this. You do something borderline sleazy maybe get your head handed to you. He could have walked away from this. What i see again to come back to my initial point it was a betrayal of ackmans investing style. This wasnt activist investing. This was exactly the opposite. You know, herb, hey by the way, can i say one thing . If you had seen if you look back in time and said the moment you knew this was going to turn, couldnt you have said the day that jeff at value act who was the original i dont know if you want to call it Value Investor passed the baton to ackman, ackman went on the board. Ackman took some of the shares, at that point you almost wonder was he the smart seller . Another aspect which i think michelle touched on and you touched on the gamblers fallacy. Ill lose and every time i lose ill keep doubling down because eventually ill win and since i doubled every time ill get back all my losses. Eventually you walk away bankrupt and having to pawn your watch. The point with ackman because hes investing not with his own money other peoples money. Shouldnt somebody have said you cannot do this . Where were his investors saying stop or give me my money back. You shouldnt keep doubling down on a losing bet. Walk away. Can we back up on that point because herb and bethany, want to respond . I want to back up. Look, back to this idea this is the big huge disaster of a trade. Some 90 billion of investors money lost while hedge funds not just ackman but plenty of others from paulson to viking Capital Management collected tens of millions of dollars in fees from their investors on the way up. Bore none of the consequences personally financially as investors lost 90 billion and leaving behind a legacy for patients of jacked up drug prices that the most Vulnerable People in our population can now no longer afford the medicines they need to stay alive. Appallingly ugly story. I wonder if we stumbled across the reason why ackman stuck with this trade for so long. When you bring up the original questions about allergan. He should be sued for insider trading. He knew what they would do with allergan and kept saying, no, im in this for a bigger thick, this is a longerterm trade. Im sticking with valeant. Did he have to stick with valeant to make that other trade look cleaner . I suppose. I dont think so. I think he could have walked away from the allergan trade. Maybe that was a part of it, though. Its a really interesting thesis. Maybe he had to be and maybe he became convinced in the sort of glory valeants business model. There was a great moment on cnbc you guys have which was bill ackman going on cnbc after he accumulated his enormous take in valeant and saying about jims analysis and remember james, a prominent skeptical of valeant and saying, oh, yeah, ive gone through all of jims analysis and hes just wrong. A great moment in history and a great moment in tv and it shows that people just dont always do their homework. They get it wrong. I was thinking because im always thinking of you, lets say bill ackman is right about he herb herbalife. Does the entire model through etfs passive investing make it harder to be a bill ackman on the short side because even if youre right, if everyone is buying index funds this stock may be a piece of whatever and its going to go higher just because e

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