Detroit Files for Bankruptcy: Taking Stock (07/19)

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July 19 (Bloomberg) -- On today's "Taking Stock," Pimm Fox helps you to think like a professional investor and discover the next "big thing." (Source: Bloomberg)

This is "taking stock" for friday, july 19, 2000 13. i'm pimm fox.

The choice files for the largest municipal bankruptcy in this nation's capital three.

-- detroit files for the largest municipal anchored see in this nation's history.

Also a heat wave slamming the northeast.

We will talk to an executive sure to cool you down.

And it is friday so my producers will once again try to stop me with the mystery guest.

Let's check out the stockmarket action.

The dow jones lower, the s&p 500 added to 93 on the close and the nasdaq was down 23. the 10-year, two point 48% -- 2.48%. let's go to my radio cohost carol massar.

Carol?

: has been accused of failing to stop insider trading in -- insider trading in his company.

Microsoft stock falling the most in four years.

It fell by the biggest margin in at least a decade.

The results were also hurt by a $9 million write-down of surface tablet inventory.

Ge reporting second-quarter earnings beat analyst estimates.

It also confirmed is forecast for 2014 with margin expansion in industrial revenue growth.

Back to you.

Thank you very much, carol massar.

The motor city.

The city taking the dramatic step of filing or bankruptcy as it faces eight teen billion dollars in debt -- $18 billion in debt.

Or does it?

Here to explain what is going on, we have a partner from fox rothschild.

He has been working at cities avoiding bankruptcy.

Also our reporter who covers detroit.

And we have achieved just chief investment officer with more than $2 million in management.

Filing this petition for bankruptcy -- that it violated the state constitution, ordered it withdrawn.

Can that really happen?

I don't think anyone has experience with something like this.

The michigan judges free to do what she wants.

However i think the governor's response was he was not going to do it.

Certainly kevin orr, who filed the petition, the special administrator for the city, is not going to do it.

The case is in bankruptcy court.

They beat them to the punch by filing five minutes before she was supposed to go to a hearing.

This will be another chapter in that discussion.

Keys, give us a sense of what is going on with detroit and this bankruptcy.

I think people are very confused and worried about how this will play out.

The legal drama is not as bad as everybody taking the severe haircut in this case.

Click the bankruptcy of detroit's. they filed today.

We do not know if the judge will have an effect on the petition itself.

This has been a long time humming, hasn't it?

Yes.

And in my opinion, it is 40 years coming.

They had these difficulties in the 1960's. they are coming up on the 40th anniversary of what they call the 12th street riot.

That's a waste -- that took lace july 23, 1967. they just have not been competitive for so long and with the demise of gm finally and the only finance or possible being the federal, it really talks about how blighted it has become.

And yet, if you look around detroit, there are some very good areas and vibrant areas around the rim of detroit.

I wonder if you can talk about this notion of detroit as a city, but go north.

The surrounding areas -- it is not all blight, is it?

No.

oh, my goodness, no.

Detroit is surrounded by suburbs.

There are the two detroit's. there is the auto industry, which is surging right now, and detroit the city which is on its knees areas -- on its knees.

I want to bring in our guest from fitch ratings.

You have some experience with municipal budgets.

The city of new york previously.

Can you give us an idea of what do you think is going on behind the scenes right now with the city administration and the emergency manager?

That would be hard to guess.

I wish i were a fly on the wall.

There are times you have to figure out how to manage the revenues with the expenditures.

They are coming up fairly far short.

They have to figure out what that number is of the resources they have to pay some of those expenses including long-term viability is.

-- long-term by a -- long-term viability is.

General municipal bonds?

They leverage of property tax in an unlimited amount.

And keith naugh ton, are they going to continue to pay the debt on those bonds?

I think that depends on what kevin orr can negotiate.

Matthew sweet, you have the negotiations for the city of richmond, keeping them out of in group c. what do you think is going on with the various negotiating partners right now?

This is a tough negotiation to have.

The numbers are extraordinary.

You are talking about $18 billion in debt that needs to be addressed.

As i said, they need to figure out a way to live within their means, to find a way to take the revenue they have and match it to the obligations have, which includes paying off debt, keeping the city going, addressing the health, safety, and welfare of the residents.

And hopefully they can reinvent it in the 20th century.

The negotiation would be tough, but it is an important decision to have.

Amy, does this presage strains on additional municipalities in the knighted states?

I don't think so.

We said that there would be continued cases of bankruptcy.

Every bankruptcy we get, we get that question and we continue to say no.

It has been a very limited number of bankruptcies.

We have known detroit has been having severe difficulties for quite some time.

It was not really a surprise to us they filed for bankruptcy and we do not see a lot of others on the horizon.

An isolated case, maybe.

Can you describe what services, if any, will be affected by this bankruptcy filing?

And how will this affect the ability of the city to deliver daily necessities to the citizens?

It has not been great.

It takes the police 58 minutes to respond, on average, to a call.

The services have been horrible.

They can only improve from here.

Keys, maybe speak a little bit also about the potential -- keith, maybe speak a little bit also about the potential racial implication.

In those riots in detroit, 43 people were killed.

Is there a racial component to the negotiation process?

This is a very racially divided region.

It has been for decades.

That is always an issue when you talk about detroit, how you deal with that.

Right now, i think it is about trying to bring the whole region up.

You cannot have a healthy metro area with a rotted core.

7 -- governor rick snyder brought in kevin orr.

Is there anything he as an individual can do or is it just about knocking heads together and changing his position on feigning interest on that debt?

It is a simple math equation.

You cannot get blood from a stone.

I do worry about the bond market more generally.

Did meredith whitney's prescience come to pass?

We just got a blurb on our handheld that bloomberg reported the charges for the city of miami on fraud.

Municipal bond fraud.

If the investors get the idea there are more problems coming after we had a horrible second quarter with a rate spike and a quick erosion of the net asset value, they may not wait around.

They may say, look, i'm going to get out.

And the problem of the structure is it is really driven by retail sentiment for the most part and even institutions are proxies for retail investors for the most part as well.

I worry about the liquidity underneath.

If everybody is selling, who is going to buy?

's around.

We are going to use -- stick around.

We are going to speak further to stanley crouch.

Coming up on "taking stock," michigan governor rick snyder does not seem to understand when it comes to saving detroit -- at least from one person's point of view.

It is friday, so it means and even institutions are proxies for retail investors for the most part as well.

I worry about the liquidity underneath.

If everybody is it is time for the first mystery test clip.

My first guest's company took a cue from cleopatra.

? how will bankruptcy filings affect detroit's poorest residents?

For perspective, i would like to invite peter hammer, a professor at wayne state law school in detroit.

Also with me, stanley crouch of ages capital.

He is a chief investment officer.

Peter hammer, you said before you came on, this might be a good thing?

A group c is not always bad.

People who do not understand bankruptcy do not understand that.

Detroit cannot move forward without retiring its long-term debt.

That will be an important any solution.

My major point is the second point, which is if you look at isolation and not look at the region you're missing the big picture.

Keith naughton, come in on this.

This is a regional issue as much as having to do with the city of detroit?

Absolutely.

There are only two auto factories in the city of detroit . in the broader region, there's all sorts of auto unemployment.

It is not just what goes on in the city limits of detroit.

You have this whole economic area.

Keith, can you give us an example of the organizations, the businesses that come to detroit?

We know that whole foods is opening a location there.

Yes, whole foods is coming in.

There are many other businesses besides the famous auto companies.

Quicken loans.

At little caesar's pizza owned by the owner of the detroit tigers.

You do have thriving business in this region that can be built upon.

Peter hammer, i wonder if you can talk about the historic applications and race in the issues related to detroit?

You can't understand detroit without understanding racism.

For me, the biggest illustration are the two major counties and detroit.

You have the executive saying that it cannot affect the bond rating because they have no connection to detroit.

They have no connection does this is the most segregated city by race and by wealth in the country.

If you have that degree of economic and racial segregation, you will not have it healthy regional economy.

Quick stanley, i wonder if you can talk about the investment potential -- stanley, i wonder if you can talk about the investment potential for detroit?

I have a lot of history with the droid.

When i was in my previous life, i worked with a lot of charter schools in the city.

Putting in a unit that brands neighborhoods -- the people of detroit are very caring, especially about their young people and they are very seriously challenged.

Some of the kids -- some of the schools we did, 90% of the kids qualified for school lunch.

Some did not have apparent in the home home.

They are really challenged kids.

If we do not do that, we can build more jail beds on the other side, because that is the alternative.

It is also able to have these revivals.

We have these neighborhoods that king gets -- that can get revitalized.

There is a lot going on in this economic region.

Peter, should governor rick snyder do anything other than what he has already done is to mark -- don?

Absolutely.

I challenged him at the meeting -- why are you knocking heads in oakland county and macomb county to say, get your heads together?

You cannot be segregated.

What is the likelihood that that will happen, peter hammer?

Not the highest.

It is a republican-controlled state.

If you do not have a bus or a car, you're not going to get to the job.

Keith, is there an irony that you have automobiles at the center of detroit trail history, but as peter hammer says, there is not even a bus route in the county?

Yes, that is very ironic.

Also, there is the issue of crime in the city of detroit.

The slow response time by police.

The murder rate is at a 40-year high.

These are things keeping people and businesses away from me city.

They need to return to a level of staffing in policing that kept these issues at bay.

Keith naughton, joining us from our blue burn -- our bloomberg detroit bureau.

Coming up, we will speak more with stan crouch of ages capital.

Also the sec suing david: for failing to prevent insider trading.

And yes, it is friday.

Time for the mystery guest clue.

The company uses the dead sea for dead cells.

? the securities and exchange commission suing stephen cohen.

With me, stanley crouch, the chief investment officer of ages -- aegis capital.

Stanley, this has been an ongoing investigation and one that previously stephen collin has paid -- what?

$640 million to the sec previously?

Yes, and a number of his former employees have been formally charged.

Matthew martoma.

Yes.

It is strange to me to read what was the fine for?

Normally, you would get full releases or your counsel would get full releases.

You would not admit or deny guilt the standard plea sort of thing.

And also from the reading of it, you are not accusing him of insider trading.

It is basic 101 failure to supervise allegation.

Where does this leave the sec if they do something criminal on the backside of it?

The sec is filing a civil case?

Does this change the way that people perceive the way hedge funds operate?

For the past few years they have been underperforming and charging huge fees.

The other thing it does is it has this idea of the very off the cuff and ostentatious life style.

Steve cohen has a real pr problem.

He either has terrible advice or he does not listen to people.

To just go out and do the overtly garish things he has done, it is probably one of the most famous things in the world -- that's right.

He bought a $45 million place in the hamptons and pay the highest rates ever for a apartment.

Those sorts of things -- look at detroit.

Those folks.

The last thing people want to hear is that.

And the other thing is, it is a lack of confidence for investors going forward if they believe the game is rigged.

If you were too big to bail, you pay the money and get away.

Stanley, stay with me.

We will talk about on the markets right now.

The dow jones industrial average losing or points.

The s&p 500, a gain of 200 62 .92 on the close.

The nasdaq fell 11%. coming up next on "taking stock, " we will talk to the head of a company that makes cool products.

? this is "taking stock" on bloomberg.

For headlines let's go right to mark crumpton.

Mark?

The securities and exchange commission filed an action against steve cohen.

The regulator claims that he failed to prevent insider trading by not properly supervising his managers.

The sec has -- sac has responded by saying that he acted appropriately and they will fight the charges.

President obama addressed the shooting death of trayvon martin since -- for the first time since george zimmerman was acquitted.

When trayvon was first shot, i said this could have been my son.

Another way of saying that is, trayvon could have been me.

35 years ago.

The president went on to say he is considering a federal review of state and local laws including florida's stand your ground statute.

As temperatures soared across the united states in new york, the city it a power usage record at 2 p.m. this afternoon.

They touched 13,000 200 megawatts on the fifth af swell tree and heat waves -- sweltering heat waves.

Tonight on "bottom line," we will look at detroit's bankruptcy with bloomberg editor alex rosen's who will tell us why we need something similar to europe's marshall plan.

That is tonight at 7:00 eastern.

Hope to see you then.

Back to you.

The heat wave -- sounds like a good time to talk about cooling off.

I am joined by the founder of the company called big adfan.

Still with me, stan crouch.

Stan, i know you want one of these fans.

But sony about the company based in lexington, kentucky.

We started in 1999. we had only six employees.

It was difficult to sell the fan because it was so different, out of the ordinary.

Over the years, we have added more and more people.

We have grown 30%. we have moved her on agricultural markets to the industrial market to the commercial market and finally the residential market.

We have close to 420 employees.

We have several locations in lexington.

And we have several officers all around the world.

What is the technology behind these fans?

What makes them different?

The big thing is they are very, very large.

The largest fan we make is a 24 foot band.

It is pretty big.

We use it to horsepower motor.

The amount of air generated by that fan can fill a room that is 40 x 40 feet.

Actually larger than that.

It moves a lot of air.

Moves it very, very slowly and with very small input of energy.

Described the customers you have for the fans -- for example industrial, agricultural industries.

We started selling fans to the dairy industry because of cool town -- a cool cow is a happy gal.

Of cool cow eats more and produces more milk.

From that we moved into the industrial market because there is an awful lot of industrial facilities that do not have any cooling at all.

What we replaced in those facilities were small pedestal type fans.

It was very obvious that those take a lot of real estate when you get right down to it.

You move the fan to the ceiling, move the air over a huge area, you keep it cool on the floor.

Increases productivity.

120 $5 million?

$125 million is where we project this year.

What is the goal?

Do you want to sell $1 billion worth of fans?

Yes.

I tell you what, i do not know if weekends sell $1 billion worth of hands.

I do think our company can grow to that point.

Privately held?

We are privately held.

And we want to maintain that.

The way to keep the company and build that unity that you need to continue is important, and you can't do it as easily with a publicly held firm.

Because it is quarter by quarter.

It is difficult.

Sure.

I was very impressed by the aesthetic.

I had never seen one.

And seeing it on the us play is great it looks good.

It looks very integrated in the interior.

It looks super luxe.

I would imagine it is very energy-efficient for the whole system.

That is less low -- he is looking to butter you up.

Yeah, yeah, yeah.

And on the flipside, -- and on the flipside, i would imagine the same thing goes for the war.

You can get that rotation.

The thing i would like to ask you come at too, though is, how do you manufacture domestically?

It looks like you have created a seriously good job and homegrown.

When you think about what we do, we manufacture up wrought up that is very well engineered.

It has to be.

It is virtually impossible to do that overseas.

I'm not saying they can't do it overseas.

But the amount of energy from our perspective to ensure that is monumental.

We have to have people over there to do that.

You must be a very popular guy with the heat wave on the east coast.

We are.

We are more and more popular.

The commercial fans are used inc.

Or space is of course.

But when you raise the velocity of the air moving past her body, you can increase, bump up your thermostat by five or six degrees.

That is a big deal.

Thank you for joining us.

Carey smith.

I also want to thank stan crouch , the managing director of aegis capital.

Coming up, how does sports help maintain the morale of the people in detroit?

We will bring you more on the role that sports lays next.

And time for the third clue.

He is a master of minerals.

? this is "taking stock" on bloomberg.

I'm pimm fox.

First a look at what wall street has on the agenda for next week.

Let's go to carol massar.

Tokyo, japan will release its core consumer price index for the month of june.

And a group of 20 central bank governors and finance ministers in europe are completing their two-day meeting in moscow.

Next week, there will be voting on the buyout of dell.

Also, the earnings or -- the earnings will continue throughout the week.

We will get earnings from facebook and apple as well as ford, boeing, and gm.

For more on what to look forward to, had to bloomberg.com.

Thank you, carol massar.

I want to welcome through sharp.

He is the author of "a life of challenge," a book about the former detroit mayor dave bing.

Describe the role that the detroit lions and detroit tigers play in the current economy of the city.

They play an important role, pimm.

Despite the fact that the detroit economy has had more valleys and peaks, both of those teams do a very good job in the penance.

The detroit lions -- no matter how bad they play, they still do a pretty good job of selling out their home games.

Sports plays a role.

It helps people forget economic struggles the city has endured for quite some time.

Drew sharp, what about stadiums for downtown detroit?

The stadiums would help.

Right now there will be a new hockey arena for the detroit red wings that will place the old, dilapidated joe louis arena.

A lot of people are saying it is time to invest in the new stadium.

You have political leaders , corporate leaders like a roger penske, the head of quicken loans, the owner of the tigers in the red wings -- they say it is more important now for sports to take a bigger role to show the rest of the country that detroit is open for business.

Even though the perception of the city has gotten worse with the new status of declared bankruptcy.

Quick scan the city of detroit -- can people in the city of detroit afford these games or do people come out from outside the city?

It is more in the suburban pocket.

What detroit has done, they have created an oasis.

The conservative part of downtown, where the sports stadiums are.

People from all walks of life can come and feel safe and be entertained.

I have long maintained that downtown detroit is probably be safe as of the city, because what police resources are there, they do use them in those areas.

I do think that is part of the plan that people are going to use to bring detroit back.

Start with that sports infrastructure, use it as a magnet to bring people and attract business.

Again, sports does play a role.

I think more so with detroit than any other city.

Thank you, drew sharp from the detroit free press.

Now let's focus on my mystery guest.

The guest is a mystery to me, but luckily our producers have provided us a few clues.

My guess though company took a cue from cleopatra, my guest's company is a master of minerals.

Thanks for joining us.

Talking about minerals and the dead sea area do you have something to do with cosmetics or a mud bath?

Yes.

Do you have to do with mining the minerals using the dead sea?

Wreck sometimes.

-- sometimes.

Do you have a line of products for rejuvenating skin?

Yes.

Do you have your own brand?

No.

do you sell other brands ingredients?

No.

you produce cosmetics i could drive on a retail shelf?

Yes.

Click there is a brand.

Ahava.

That is it.

About the company, but i do not know who you are.

I am the ceo.

We are going to learn more about how to rejuvenate yourself.

At mystery guest no longer.

We're going to about getting beautiful next.

? this is "taking stock," and i am pimm fox.

I'm your with today's mystery guest, a mystery no longer.

This is elana drell-szyfer, chief executive of ahava.

Describe the depth and breadth of what the company is doing.

We are a company that uses a proprietary blend of dead sea minerals in all of our skincare buttocks.

We have a line of skincare for women and a lot -- in all of our skincare products.

We have a line of skincare for women and a line for men as well.

What distinguishes the composition of the ahava products versus those with other companies?

We have our own proprietary blend from the dead sea.

We extract the minerals.

They go through a solar isolation process.

The calibration of the minerals is unique to us.

We have found a clinically proven it rehydrates the scan, protects from -- rehydrates the skin, protects it.

It will protect the skin from the sun.

It started with mud, correct?

It is an amazing story.

We still have an r&d facility -- it was started by the conglomeration of three different communities and they used to see tourists come to the dead sea and take mud and tupperware and want to take it home with them.

They would say, why don't we start a brand and make it easy for people to do that?

That is exactly how it started.

Now we have a full range of skincare.

It is not easy to get this distributed, is it?

What kinds of challenges?

It is definitely difficult for smaller brands to make inroads in the market today.

It's a very competitive market.

At for 20 years i worked for l'oreal and i also work for estee lauder.

Hopefully i'm helping to bring a little expertise into the u.s. market.

What kind of marketing initiatives are different that you've have seen over the years?

Certainly the dominance of e- commerce and working with the internet as a way to raise awareness as well as sell directly to the consumer, especially when you're trying to gain distribution is extremely helpful.

We have our own sites in the u.s. and work with a lot of internet retailers who treat us with the same type of democracy as any other brand.

That has been very old.

-- that has been very helpful.

What about the packaging?

Do you have to go through all the iterations to get that right?

Three years ago in order to be a global brand, we took a brand that was 25 years old and redress that.

We formulated all of our products to be more natural, have less of the footprints in harming the environment.

We did all of our packaging, our boxing materials to be more modern and compete on a global scale.

All of that costs money, doesn't it?

It does cost money.

Have you keep that going?

One of the biggest ways people know about our brands around the world, people go to the dead sea, visit the dead sea for its amazing curative robberies and visit -- curative properties and visit our store, which is at the dead sea.

We have 10 freestanding stores in israel.

One of the ways to gain exposure is from tourists coming to the dead sea and bring us home with them.

What about investors?

We would never turn anyone down, that's for sure.

We are a privately held company, but we definitely are always looking for the right type of investor to grow with us.

As you well know, skincare is one of the fastest-growing -- it is the fastest growing category and cosmetics.

What about the demographics?

Men versus women, old versus young?

The demographics are primarily female.

The men's market has been growing significantly over the past several years.

The past three it has grown double digit.

The market is mainly a female market and him are is similar to the demographic distribution.

A woman aged 35 to 60, people interested in looking younger and more beautiful everyday.

What about the price points?

How carefully do you have to calibrate that to the competition?

Rice is something people are very conscious off today.

-- price is something people are very conscious off today.

You are willing to pay more for something that is high-quality and there is no one who questions the quality of our product.

Yes, price is a very big factor.

We watch it very closely.

Outdid difficult is it to get celebrities to use your products to boost popularity?

We are a brand hash first of all there are a lot of celebrities who uses and we are very grateful to them.

For a brand like us, we have an authentic story which is really about a very famous place, and probably our biggest celebrity is cleopatra with the first dead sea spa.

We believe in our ingredients to speak for us as opposed to using a face or famous face to sell our product.

What about using the products and promotions and movies, things like that?

Putting them in the hospitality industry?

Public relations exposure is one of the biggest areas we focus on, so we focus a great deal -- and magazine articles.

We have full page article on mary claire this month.

Internet placement, blog placement.

Amenities programs.

And of course we would be happy to be in a movie.

Thank you very much for being here at "taking stock." elana drell-szyfer, chief executive of ahava north america.

Thank you for being here.

Just to review the dow jones industrial average.

Following -- falling four points.

The s&p 500 was down 23. take a look at ge's stock.

It was up or percent.

The company reported second order earnings that beat analyst estimates.

Thanks for taking stock.

I'm pimm fox.

Good night.

? .

This text has been automatically generated. It may not be 100% accurate.

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