This is "bloomberg surveillance." nine nations continue to search for the malaysian airline and russia hunkers down in the crimea and ukraine tests combat readiness and all those electronic toys, be careful, it it's a hacker nirvana.
Good morning, everyone, this is "bloomberg surveillance." it is tuesday, march 11. joining me is scarlet fu and adam johnson comes back they after day.
He is here once again.
It is a strange day today.
We will get right to it.
Overnight, the bank of japan kept its pledge to extend the monetary base.
Central banks around the world keep doing it in spite of the paper.
Economic data, we have small business optimism at 8:30 a.m. -- at 7:30 a.m.. they say2/3 of the jobs in this country come from small businesses.
It is the small-business pessimism index.
Maybe it is getting a little better.
The job openings are coming out about 10:00 along with wholesale inventory.
We have american eagle earnings and dick's sporting goods before the bell and after the bell, caesar's entered 10. this is significant -- three years ago today was the japanese to numbing just -- the japanese tsunami.
That's the news.
Let's do it data check.
Futures are -2 and the rest are nowhere.
The foreign exchange has a little bit of action with the japanese yen weakening.
I'm pay paying attention to the ruble which is a little bit weaker as we go to the presidents meeting with leader of ukraine tomorrow.
Brent crude is $108 .50 one cents.
We did not have to scour the papers too far.
On all the front pages, the lack of any sign of the missing malaysian jet was remarkable.
We still don't know anything for days after.
All the debris and oil slicks that people spotted turns out that was completely unrelated.
The search involves nine nations and has gone beyond the flightpath and now extends to the malaka strait.
Authorities are baffled.
We have descended on a quiet.
Here is the letter out overnight from malaysia airlines -- they don't know what to say.
Is it a crash?
They say they are even bringing the search area back overland.
There is also the mystery of the stolen passports, one of which was apparently used by an iranian and who was not connected with the terrorist group that wanted to move to germany.
Part of our military budget for tax the seas and skies.
-- protects the seas and skies.
There are vast areas of air and sea in the world that are not controlled.
An entire aircraft disappears?
F richardalkenrath has been with us so much.
He absolutely nailed of this yesterday, the idea of the passport issue.
At least one of the passport issues has been resolved.
We are trying to find out more area our second front-page story is back home because congress is looking into why general motors talk so long to recall cars with faulty ignition switches.
The house energy and commerce committee said it is launching an investigation and jim is recalling 1.6 million cars.
They have been linked to at least 13 deaths.
This is 2005-2006? yes, this is not an ignition switch in 2011? that's correct, the ignition switch that would hang off the steering column in the car, if you knocked it in a certain way, it would turn off.
This is when pushbutton ignition was new.
Imagine you are driving and your knee hits it and he is -- and it is not working.
This is the first major test for the new ceo of general motors.
Gm has a committee culture that impedes the flow of information from the engineering ranks to the corner office.
This will be her first test.
She came up through the engineering ranks with anyone can unite these different aspects of the company, presumably it would be her.
There is the ongoing crisis in ukraine.
The military of ukraine is testing combat readiness.
20,000 people may be mobilized to protect its borders.
Rush attached -- russia shows no signs of yielding.
There are 19,000 russian troops in crimea and that region will vote next sunday on whether to join russia.
The key distinction is in theory, there are 19,000 russian troops but they don't admit they are russian.
They have removed them russian insignia and have no identification.
They're just wearing the tease that looked curiously russian.
Many countries have said whatever vote comes out will not be recognized by international law.
This is as the u.s. and eu threaten sanctions.
And the new prime minister is coming to the white house tomorrow.
Those are the front-page stories.
Let's continue with the malaysia airlines mystery.
The former deputy director of the faa joins us.
When you look at the media coverage and the quiet over this crap, what would you focus on -- over this crash, what would you focus on?
The thing you need to focus on is this will take time but this will be found.
There is a large search area, it takes time to cover it.
There is activity -- two prongs of activity -- one is the search of the others looking at everything behind the scenes of this flight.
They are right now looking at any data available.
These aircraft typically send back position parameters.
I'm sure they are looking through those files to see if they can find any kind of anomaly.
Did you find it of interest that the pilots were of such an age, was that of interest to you?
Not much, these pilots -- the captain have a lot of time in the airplane.
It is not difficult to transition from one boeing airplane into another or even an airbus to a boeing.
It is not a highlight i would focus on.
One thing that everybody keeps making comparisons to is the air france crash of 2009. that was in deep waters in a remote location but this would be in shallow waters where presumably you would see signs of wreckage.
What is the biggest distinction?
It will make it much easier to find the black ox is -- the black ox is.
They have a pinger that sends out a signal.
That will be easier to do tech and that waters are in the hundreds of feet instead of the thousands of feet.
It increases the probability of finding this wreckage.
Isn't there some sort of homing device connected with the black box to find it?
There is, there is a signal that goes off.
It is called a pinger, it is a signal that will be met for a long.
It can be heard underwater from miles away.
There is a good chance that they will find that very soon.
It is unthinkable in that shallow water that they would not find the black ox is.
Thank you very much.
There are other events going on.
Gary kovac, known for an analysis of the internet and christopher barone is the best technical analyst on the street.
He and i strongly agree that the only way not to lose money is to look at the trends in the market.
Let's get a little bit from both of you.
Are you long or short right now or neutral?
I am long but i think we have to be very specific what stocks we own.
I don't think the market call is too relevant for the next couple of months.
We are getting for the end of the attractive season and into the spring months where things seem to be more difficult.
I think we need to focus on the areas of the market where trends are best like tech and health care and industrial.
Tech is the boom business.
We are focused on facebook and twitter ipo extravaganzas and you are focused on the doing of the privacy debate.
What are you focused on now?
Security which means many things, more than just privacy.
People don't know that they are so out there.
We talked about social media and we share a lot of our lives of our family and friends and our photos.
We are all out there and we don't have control of that data.
You spent more than 25 years in mobile software technology.
You were senior manager at skied base and you were there when john chen was there.
What can he do to turn around the company like blackberry?
P as an optimizer and will take a business and drive out the unnecessary costs and focus.
-- he is an optimizer.
He has an adept touch at seeing this.
I suspect and i see the exact same thing happening at -- as happened at sky base.
Here with the markets c in a basichurn, the ruble a little bit weaker on this week's events in ukraine and crimea.
Let's get to company news.
A new push from audi to catch bmw.
It will introduce 17 new or revamped models this year as it tries to gain ground on its rival.
It has an electric version of its sports car and the audi ceo says the sales in china should top half a million vehicles for the first time.
We will be so aching with -- you will speak with the ceo of audi in the next hour.
Meantime, bill ackman is set to launch another volley at herbalife.
He plans an afternoon presentation today focusing on them in china.
He says he will show how herbalife violated china's laws on direct selling and multilevel marketing.
Blackstone may bid for an auto parts maker.
Tpg t mob to the tune of 5.5 ilya and dollars.
Owners of gates and working for a sale of the company or an ipo and bids are due later this week.
This is a story for 2014, the idea of private equity coming in and competing with normal transactional mergers in an industry group.
We had an interview recently on industrial sell side.
The biggest problem is the black stones of the world.
They have a lot of cash to deploy.
If you are a financial buyer, you can so make the numbers work.
Coming up, we will discuss how teenagers aren't dumping abercrombie & fitch and american eagle for other brands.
What does this mean for retailers and their strategy and their stocks?
This is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com.
? good morning, everyone.
An important interview this afternoon -- peter cook will interview the senator from florida, marco rubio.
Look for that today at 2 p.m. on bloomberg television.
This is of quote bloomberg surveillance." let's get started on stores i don't go into.
Teen retailers have been underperforming the whole space which means once highflying stocks like american eagle and abercrombie & fitch an need to come up with a new strategy.
Fourth quarter earnings for urban outfitters have the smallest fourth-quarter gain in eight years.
The outlook is pretty cautious.
The company talked about earnings being cautious and did not give guidance, first order margin for the urban brands remain low.
It is more than urban outfitters?
They have anthropology and others but the urban brands they are focused on.
The company says it is testing pickups and stores and same-day shipping.
But that is not until the second half of 2015. that's a long time.
It seems like it is up and down.
Chris verrone is with those.
How do you buy dips>? the question is, what is the trend?
The problem i have with urban outfitters or abercrombie & fitch is the trends are not very good.
All the moving averages are downward sloping.
The long-term trend has rolled over so we are skeptical when we see earnings like that.
Gary kovacs, this goes to the security issue and retail is front and center like target.
Capturing both at the point of sale as well as through wi-fi, it is hard data.
Explained the wi-fi question.
We walk into a store and they're smart phones are looking for wi-fi signals and send a ping and stores use that to track where we walk through the aisle.
Are you kidding?
It is huge data.
The infrastructure is in place for these retailers to do more with technology but you have urban outfitters saying they are testing pickup in the store that will not happen until the second half of 2015. why is there a huge time lag?
We are add and we are the mtv generation.
From the stores, it's about targeting you before you get into the store.
That is what the data is all about.
They can tell through your mail and cookies and everything on your computer -- and you are a former abercrombie model previously -- maybe in a previous life.
Where are they in this?
This phone in theory is my offense of weapon but it might actually be my greatest weakness, right because this is a leaky device?
Every second where you go.
It follows you wherever you go.
There is more information that you are presenting.
How do i make it one way?
How do i make my phone so i take the information in but you cannot take it out?
There are tools to manage that.
As consumers, it is scary so we have to make it simple and there is a lot of technology where we have to educate the world.
American eagle outfitters will be reporting today at 8:00 a.m. they said fourth-quarter earnings would be at the lower end of its range.
What will happen with the ceo?
They have an interim ceo and the new one needs to come in and set a direction.
Isugs 18 retailer -- is uggs 18 retailer?
It is a must-have for the winter but not necessarily after that.
They expect first order profits to be well below and toward the low end of projections.
I'm avoiding retail.
What about walmart?
Even before the security stuff, target was still a week picture.
That just added to its problems.
We think there are sales here.
We go from abercrombie & fitch, neutral to buy.
We will get over there to the corner of 66 and 5th.
Coming up, we will talk about greed and envy behind the biggest wall street scandals and that brings our twitter question of the day -- this is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com.
? good morning, everyone, "bloomberg surveillance," market connie is facing his toughest grilling in parliament.
The bank of england mark carney is being questioned on bank rigging.
Officials were a aware of currency manipulation almost eight years ago.
The bank of japan is sticking with his record bond buying program.
They are expanding their base by 677 billion dollars annually and bracing for its first tax -- sales tax increase in 17 years and that could trigger the dq -- the deepest contraction in the economy since march of 2011's earthquake and that's why they will keep buying.
In sports, manhattan college is going to the ncaa term and for the first time.
They held off a late rally by their rival iona.
Their last trip was 2004. i was not aware of that.
They tipped the opening team and i lose right there.
Don't come to me on picks for the sweet 16. it is painful.
Out of crimea, the assembly posts a declaration of independence on that website.
Here is our morning must read.
I pick something from "the wall street journal." it has to do with income equality in the bay area.
That is clearly not the sentiment from a lot of people in the street -- on the street in the bay area.
Is it a legitimate tension?
The google bus thing i don't get because the alternative is 5000 cars.
We cannot park or drive.
I don't want cars so the buses are good.
Income inequality is real.
Many people made a lot of money and it's outside the areas where people live their lives.
A family of four cannot afford the san francisco 49ers football game.
We will be right back.
? good morning, everyone," bloomberg surveillance." some headlines out of interpol -- they say the two people traveling on this: passports on the malaysian flight that has gone missing probably were not terrorists.
Both men were traveling on stolen passports and work iranian.
They were probably not terrorists but they were iranian.
Vietnam is expanding the search for the missing plane further east.
They will go farther out into the south china sea.
We continue to monitor this.
There is a lot press conference taking place now where they are reiterating that they are stumped and do not have any leads or any sign of the missing jet.
The debris they found has no link.
What they thought was a life raft was cable covered inmoss.
It is what an -- it is one empty leave after another.
We will follow this all morning.
Let's do a data check.
It's a quiet data check with futures -2. let's talk about something that everyone is discussing in technology, the internet of things.
It makes everyday devices smarter like smart watches and smart cards and smart appliances.
What about smarter malware.
? a hacker could break into your information.
Avg is making a big bet on mobile security.
Joining us as the ceo of the company, gary kovach, the former ceo of mozilla and chris verrone is with us as well.
More cities than people were connected to the internet.
That is an opportunity for hackers and people who want to access your data and security companies like adt?
There is 50 alien connected things today.
We are on our way to 1 trillion and we are sharing way miller of our lives, our health and families.
It's all captured somewhere.
Many factors of the device will have to lace a priority on security.
I think it is early and that has to happen.
Consumers don't know yet what to demand.
Do i demand better passwords them 1,2,3? it asks my favorite bowtie.
There are so many to choose from.
The industry has failed.
There are a lot of password manager programs.
They have not made it simple enough.
Why can it be simple to get a password that helps security?
It was not a priority and people did not feel the pain.
The majority of people hold their password in the notes field on their phones.
It seems like many companies are going toward biometric so why has that not been incorporated into passwords?
It is ended has but it is still relatively unreliable.
Leaving somebody's and tired a to and their access to that which is unreliable -- in fairness, we have this finger thing on the terminal.
That's the only way in and it has been working well for several years.
Why aren't more people doing it?
We have a battery issue and the biometrics are power intensive.
A mobile device, that sucks a lot of energy.
Electronic devices might be new for the consumer but aren't governments and municipalities already operating smart metering systems?
What are the worst practices we can learn from them?
The data is going on encrypted.
A lot of the smart devices in your car, a lot of the traffic applications on your phone or sending data on encrypted.
Anybody can pick that up.
That's what we were saying about the phone being leaky.
What if your company comes out with a new encryption software, how much battery juice will that take?
We don't run on the device and brought it in the cloud.
It's so it doesn't run down your battery.
When you look at twitter and facebook and their success, what would be your advice to mr.
? data privacy and consumer privacy and consumer choice and transparency is critical.
We often compromised.
When i have no idea where to go on facebook to tell people i don't want things to know, it's ridiculous.
If you don't want something about you to be public, don't post it.
You mean the photos from this weekend?
Everything on the basic level is free but any extra services will cost you?
Should the social networks exercise a creamy a model?
I think it will all go the advertising route.
It works very effectively.
It's a destination resort for it security is not a destination resort.
It starts with telephones/ boeing has a new phone that is in theory impenetrable.
What is your take?
I think there'll be the fringe end of the consumer spectrum that will need that.
Is it fringe and consumer or military and business?
You don't want your competitors to find out what you have coming.
Security and privacy will be the distinctions and the competitive differentiators of the next three years.
Thank you so much.
I want to play a quick soundbite from charlie rose last night from with the man running softbank trying to buy two mobile.
I need to become a heavyweight.
I need to become a heavyweight fighter.
That will not work.
They will squish you.
Right./ this is so they can stay profitable and beef that.
I want to make them fight back so they also become muscle instead of that.
It's good competition?
It's good for the united states.
Is there a cartel among the cell phone providers?
I don't think so.
I think competition is good.
I can go from one to the other.
There really are only two major carriers, at&t and verizon.
That is more than half the service in this country.
I don't actually long for something different for my cell phone provider.
I have a good rate plan and eight a plan and roaming.
It is all too expensive and i think more competition will bring that down.
I think they are moving to data brokers and will deliver data.
Once they get to that point, it will be who can most efficiently and less expensively deliver it.
We are coming to a place where that will flush out.
You can watch the full interview tonight on bloomberg television, charlie rose speaking to the man who runs softbank as they try to buy to you mobile at 8:00 tonight.
How do the telephone charts look?
Not very good.
They are a down trend.
Smaller companies are the opportunities.
European telecom looks better like what you telecom.
-- like deutsche telekom.
Isn't that the parent of two mobile?
Is that a theme that europe has not yet caught up to the u.s.? one of our big themes this year's europe looks like the u.s. did look this time last year.
Belong in europe.
Where only getting started with chart because coming up, we are in a midterm election year in the u.s. and chris verrrone has picked up a strong trend in the market going back to 1950. that is coming up.
? good tuesday morning, everyone," bloomberg surveillance." factory production and the u.k. rose in january slightly more than forecast.
It was up4/10 of one percent.
The bank of japan is sticking with its record bond buying program and plans to expand the monetary base by 677 billion dollars per year and is bracing for its first sales tax hike in 17 years and it could trigger the biggest contraction since march, 2011 when the earthquake happened.
Colorado is raking in $2 million in taxes in january on marijuana.
The tax hall is more than double what colorado was taking in from sales of medicinal marijuana.
In the figure is right in line with what state officials estimated.
Who is my favorite charge guy?
Maybe chris verrrone who looks at trends.
I happen to agree with his mathematics.
Let's get us started.
This is a special edition of our single best chart and it has to do with u.s. stocks.
This is how the u.s. stock market behaves in midterm elections and it is fairly predictable.
Since 1950, there is a pattern here.
The premise is that seasonality matters especially during midterm election years.
In this chart, we take a look at the average s&p 500 trading pattern during midterm election years.
What you typically see is january-september is chopper he -- is choppy.
The majority of gains are found in the fourth quarter and it is similar how we started out the year.
The yellow line shows what we have done so far this year?
We think we stay choppy through the summer.
Look for the majority of this year's gains in the fourth quarter, we think.
Does that mean it is dead money in the second and third quarter?
I think the stock calls become more important.
That's why we are focused on things like technology where there are so many names that were in purgatory for a decade and they are starting to wake up like oracle and qualcomm and texas instruments.
These are names that have not done anything for 15 years.
What does dan clifton, your colleague, the say about this?
What has been useful is we have seen the blurred lines between sectors like defense and security and technology and health care.
A lot of these names can be found in multiple sectors.
The defense stocks with everything going on in russia look fantastic.
Utx is a good charge so it is the blurring of themes that is probably most relevant.
In one of your reports several months ago, you have a republican portfolio and a democratic portfolio.
How are those different?
The republican names are starting to outperform.
As we move into the summer and the election, we will keep an eye on that.
It sounds good, chris verrone , our guest host for the hour.
Thank you for your e-mails.
Today we have a theme, the third anniversary of their earthquake in fukushima, japan.
Our number three photo is a man lighting bamboo candles to commemorate the victims of the magnitude nine earthquake and tsunami.
It is incredible when you think about this, 18,000 people were lost or dead.
Look at all the debris as it floated in and completely displaced homes and boats and industry.
If you recall, toyota was not able to produce black cars because it needed a certain pigment from a factory in japan near fukushima.
No black cars for six months.
The ripple effect of this whole event was incredible.
Moving onto the number two photo -- a man walking through temporary housing on sunday, hundreds of thousands were left homeless.
There was a man's criticism here on how the government mobilized against this.
It seems they have gotten their act together a little bit.
It is a reminder that tokyo is not japan.
Three years later, people are still living in temporary housing itches amazing.
Number one is a fishing vessel -- it was swept ashore by the tsunami following the earthquake and still sits there abandon.
We have seen this photo over and over.
There she says.
Gary kovacs is with us from san francisco.
To me, san francisco is way better prepared than they were a generation ago.
I have been there 15 years ago and i look at those photos and it scares me.
It makes the want to go home and look at my repaired kit.
We learn from the oakland bay bridge and the time the football -- the baseball game was going on.
After this, i bought one of those kits and put it in the back of my car and i travel around the bay with it.
I don't want to get stuck.
It's a huge area.
After that happened, people said in your bedroom, take down any photos or anything framed above your bed because of there's an earthquake, it could fall.
I had heavy clay pictures that weighed about 50 pounds and i took them off the wall.
Coming up, it's only march but we are talking football.
Free-market economics, the free agency signing period starts today at 4 p.m. and we will talk about it on "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com.
? this morning, the focus on ukraine and a fractious crimea and tomorrow at the focus is on washington as the leader of ukraine will meet with the president of the united states.
Symbolism will abound tomorrow at the white house.
Our twitter question of the day has to do with the symbolism of wall street -- we will talk to robert avery of bloomberg news and his new book in our next hour.
He has seven of them.
This is "bloomberg surveillance." let's get you some company news.
We start with dietz building its war chest.
It is getting a second round of funding.
It raised as much as $100 million.
It has been gearing up to challenge the market leader spotify.
An all-out price were could be looming in the cell phone service sector.
Softbank says if he cannot buy t mobile, he will start a massive price war.
He said buying t mobile would give sprint the skill to compete with at&t and verizon wireless.
He made those comments in an interview with charlie rose that airs tonight.
Diddy is trying to buy the fuse cable tv channel to the tune of $200 million.
He plans to convert fuse into his existing cable music channel them a revolt tv.
Have you ever watched it?
I have not.
I am not a diddy fan.
There are not enough hours in the day to watch all the channels out there.
It's not at the top of your list.
What about football?
That's the only thing about daylight savings time, you are one hour closer to football season.
Today, free agency starts today at 4 p.m. if you are a free agent, this is your lucky day.
We are joined by eugene lee.
, an agent to the free agents.
I don't know if there will be that much interest in santonio today.
There will be a big market for younger guys.
What are some of the names?
You will have a lot of running backs, a lot of cornerbacks and defensive ends.
The big names out there this year -- manziel.
What is the correlation?
Gary kovacs loves the 49ers.
In nice hockey i have a better idea of future prospects.
Is there any correlation here to success?
Free agency is another mechanism that the league uses to ensure competitive balance.
There is an unpredictable element and teams won't know how a free agent will pan out until time shows how a player will play.
It is that unpredictable element that ensures parity across the league.
I look at this and if i'm up for free agency, i will play harder.
The salary cap is $133 million per team.
You say that is trying to preserve -- this sounds so broken.
The average american makes $40,000 and a team is cap at $133 million?
Does the system work?
It does but it is relative.
In baseball, the new york yankees -- there is a luxury tax in place but that's not a deterrent to the new york yankees who outspend every team in major-league baseball.
They spent $26 million and luxury tax last year.
So the kansas city chiefs are in a more level playing field than the new york giants than the yankees are with the kansas city baseball team?
It ensures small market teams -- what about the san francisco 49ers?
I need a name like diddty or something.
Hockey tried this and many people tried it and i don't quite understand how the salary cap and the luxury tax works with these teams with a lot of broadcast rights.
The yankees are in the lay-ups perennially.
How do you compete with that?
Football seems to be the anomaly but i don't have how it works.
You have the salary cap and the college draft and you have the inherent unpredictability of free agency and you don't know how your dollar will play out.
That ensures you have it seemed like green bay winning the super bowl in two thousand seven and next year you have new york.
Can you tell the big players that they can continue to achieve after they get the big bucks?
Will somebody deliver when they sign a mega-contract?
You have a good sense of their work ethic that a young man has.
When he signs that the contract where he is set for life, he will not look at it like i am done.
But it does happen.
They are doing with this in hockey doing nothing.
I love free agency because a year or to perform -- a year or two, they perform.
Scarlet fu is a free agent.
Rashad menenhall resigned at 26 because he went to two super bowl straight is that crazy?
I give him a lot of credit and he has lots of interests off the field.
He says he wants to write.
Bank of virginia running us and you have a big day ahead.
-- thank you for joining us and you have a big day ahead.
The forex report this morning -- we continue to look at the yen as a litmus taper -- a weaker yen over the last three days.
It shows somecalm out there.
The russian ruble won't go anywhere.
Audi sees its return in 2014 on sales, 8-10% and the audi ceo will be joining us in the next hour.
? this is "bloomberg surveillance." nine nations continue to search for malaysia airlines' mh 370. russia hunkers down in ukraine.
Wall street sins.
Live from our sinful headquarters in new york, a sinful tuesday, march 11. joining me, scarlet fu and the sinful adam johnson.
Our guest host is an angel, troy, partner at sky bridge capital.
That bank of japan maintaining record easing, keeping monetary easing at a pace of 670 7 billion a year.
No tapering in japan.
7:30, small business optimism report.
At 10:00 a.m., the jewels job openings.
Before the bell, american eagle and dick's sporting goods earnings.
One item of note, today is the third anniversary of the japanese earthquake answered on a. -- japanese earthquake and tsunami.
Congress looking into why general motors took so long to recall cars with faulty ignition switches.
The problem affected one point 6 million vehicles.
Consumer complaints they back to 2004. this is the first major test for gm's new ceo mary barbara.
Bill ackman launching another volley at herbalife.
Planning a web presentation today focusing on herbalife in china.
He says he will show how herbalife violated chinese laws.
Blackstone may bid for an auto parts maker.
Owners of gates have been working on a sale of the company or in initial public offering.
Bid is due later this week.
Good morning, "bloomberg surveillance." truly is with us.
A partner at sky bridge capital.
Skye bridge does not necessarily manage money.
They look for the best places to manage money, the fund of funds industry.
Troy is a lead on finding out where to go.
It is harder now.
With risk-free where it is and liquidity -- with the bull market.
We still think there is ample opportunities and equity part of the market structure for things like mna, spinoffs.
Are they true hedge funds or are they event driven efforts looking for the next m&a transaction?
The majority are long bias.
Their sensitivity is well below 1 because they have out of the money puts -- is there enough jargon for you?
What do you mean by their beta sensitivity.
If markets are up 10%, they should be up less than 10% for their -- they are quieter.
They have less volatility.
Is carl icahn's back and forth with ebay event driven?
Carl is an activist focus on value creation.
We focus on managers like dan loeb or john paulson, guys like barry rosenstein focused on creating value for underlying investors.
Pay attention to the noise they make.
It is about a plan for value creation -- spinning off a nonperforming asset or using your balance sheet more efficiently.
Corporate management is more receptive to that because they are trying to figure out how to pay shareholders.
Unlike past cycles where it was more confrontational.
If you take mr.
Icahn out, it is more conciliatory and everyone is trying to find a win-win.
You cut your mortgage exposure way back, it was 72% a year ago, now it is 38%. at this stage of a market, all spread products are much tighter.
You have less upside and more downside.
You have less carry.
If the economy improves, you will not make as much money.
As the economy improves, those spreads are going to widen and rates will go up.
You do not want to be widespread products.
They will not necessarily widen.
The yield are not going to go down but the return is not as attractive.
You do not have as much upside cap sure if the economy continues to improve.
I want to get to this and the latter part of the hour.
Is the fee structure of the hedge funds you invest in going to change?
It has been changing since the third quarter of 2011. that was a watershed moment for the hedge fund industry.
Until then, the industry had been resistant to fee discounts.
Managers have been far more open to providing reasonable fee discounts.
Instead of 2% and 20%, 1% and 15%. is this a function of the fact that so many hedge funds lag last year, they were up 8% ursus the s&p 30. in general the industry has lagged.
Institutions have gotten smarter at using buying power to reduce fee discounts.
Troy gayeski with us.
Our top story this morning, the crash, the incident of malaysia airlines flight 370 . still no wreckage to be found.
Comments out of malaysia airlines and interpol over the issue of passports.
Robert crandall is the legendary executive at american airlines.
Mr crandall joins us by phone.
Bob crandall, we remember flight 191 in chicago may of 1979. how does a company handle this?
How do you speak to the families of the passengers?
Obviously you cannot say very much.
Simply because of the fact that the history of aviation incidents teaches us not to speculate.
As these things happen it is almost always true that in the end, what occured is different than anything would have especially the -- in the end, what occurred is different than anything anyone speculative.
All you can do is make sure the family has a decent place to stay.
And express sympathy and condolences.
There is really not anything else to do.
The -- and in terms of saying anything about the incident itself, the only sensible thing to say is we do not know.
We will find out, but we do not know.
Do you distinguish between mechanic quality and safety?
And stewardship of the actual physical airlines between what the major airlines do and what we see from a lot of smaller and more distant airlines?
Tom, that is an odd question.
You do not want to say that airlines that are meeting the international standard are not safe.
They are safe.
On the other hand, there are obvious differences in terms of the death of physical and human resources that different airlines -- in terms of the depth of physical and human resources that different airlines bring to bear.
I don't know there is any evidence that this is related to failure on part of the airline.
The airline that disappeared with the boeing 777 has a stellar safety record.
Boeing officials have travel to asia.
What level discussions are taking place between boeing and malaysian airlines given that there is such a mystery.
The chief executives of both companies are directly involved.
This is something -- a matter of great concern.
Lots of people's lives involved.
Of course a lot of concern about the airplane and aviation safety in general.
I think it is very important to keep in mind this is one incident in an industry that has built an extraordinary safety record.
It is an incident about which we know nothing.
When we find the wreckage, they will find the wreckage, when the wreckage is reconstructed, we will know what happened.
It may well be many months before those things occur.
We have about 30 seconds, twa flight 800, pan am flight 103, both of those were not able to survive.
What does malaysia's ceo need to do?
The ceo needs to make absolutely sure that every kind of -- every inquiry that can be made is being made.
That is all he can do.
Thank you so much, bob crandall.
Friend of the program and former ceo of american airlines.
A lot more coming up on "bloomberg surveillance." including bob ivry with his new book "the seven sins of wall street." what is wall street's biggest sin?
Between s @bsurveillance.
? good morning, "bloomberg surveillance." this matters now to troy gayeski , skybridge capital.
The u.s. is the global locomotive.
Emerging markets are not worth the risk.
You are front and center on this when you allocate money out front hedge funds for your clients.
You are u.s. centric.
We think opportunities in terms of how the ability of outcome are far better.
We were talking about equity, that is a strategy where we do not think markets need to go up.
If they go down, which we do not anticipate, you have far less downside.
If you look at buying emerging-market stocks, you are hoping that at some point there is a bottom end -- it is a flow mentality.
Everybody into the philippines.
Is difficult to predict and timeout.
Use of cash, i am fascinated how you and your clients, how do you fold use of cash into a win, win?
Our view is to be fully invested.
Unless there is a crisis, we tend to balance some of our more equity centric exposures with cash flow exposures, typically in mortgage backed securities or high-yield bonds.
You have him a poor markets are flat, -- you have a month where markets are flat and you can provide a modest return.
Is the bond play that the price will go up as the yield comes down?
The main hedge fund play is that's bred will tighten further or stay unchanged.
As the economy progresses, spreads should tighten further.
You still have positive carry along those lines.
We do not talk about spreads on tuesday.
Back to equities, is there a cycle sector that's attractive?
People are focused on wireless spectrum.
They get the pop and there is merger activity.
Some have been invested, this is more speculative, in biotech and health care.
There would a variety of acquisitions.
The violations have started to run away from corporate events.
How much do your clients want to make a year?
20%? 20% is not realistic over a full market cycle, our target is 62 10% -- our target is 6% to 10%. troy gayeski with skybridge capital.
Buy america, that is his opinion.
Coming up, general motors and a real challenge for their newly minted ceo.
This is "bloomberg surveillance." ? good morning, "bloomberg surveillance." i am tom keene.
Futures -1, dow futures, -7. our guest host is troy gayeski of skybridge capital.
Figuring out what to do with wall street in 2014. adam johnson has top headlines.
Factory production in the year kerry rose in january, output was up .4%. .3% was the expectation.
Industrial production rose one percent, slightly lower than forecast.
Moving over to colorado, $2 million in taxes in january.
More than double what colorado was taking in her mind from sales of medicinal marijuana.
$2 million is in line with what they estimated for tax revenue.
Ceremonies in japan march the third anniversary of the deadly earthquake and tsunami that left almost 19,000 people dead or missing.
It triggered the meltdown of nuclear plants.
Rebuilding has been slow due to shortages of workers and editorials.
Shinzo abe has vowed to boost recovery efforts.
Boeing -- i say i go to japan -- you go to ginza.
It is ridiculous, there is a whole another japan that we saw a window into with physician the.
-- with fukushima.
You realize how long it takes to come back from this devastation.
That flow of water is just getting over to our pacific coast three years later.
Scarlet has an important book.
A rhetorical question.
Is america a question of haves and have-nots?
Bob ivry makes a case in "the seven sins of wall street.
Though he talks about -- he joins us to talk about wall street's moral code.
This is an angry book.
There is a tone of indignation.
Six years after the crisis, what is the newest outrage?
We have a system that has really solidified as banks are the economy.
If the government wants to help the economy, it helps the banks.
The rest of us -- i am speaking broadly.
There are exceptions.
What the bailouts did -- it made the government beholden to the banks.
Not the other way around, oddly enough.
What we have now is whenever we have a crisis or some sort of financial or economic problem, the banks to help them the rest of us will have to fend for ourselves.
You point the finger at people and institutions.
Who committed the biggest sin?
I like to pick up the federal reserve.
The federal reserve has a lot of power.
Of course, there is the humphrey hawkins or the twice a year they have the -- is this the same federal reserve as 2006 or their have there been enough changes?
Certainly the federal reserve is now the world economy.
It has become the world's central bank.
Taking on too many responsibilities.
You begin with a budweiser and a shot of jack daniels.
There is a small club, it is a dive on 60th street on wall street.
Take us, you begin to figure out these seven cents.
-- seven sins.
Two blocks away.
Mark pittman is no longer with us but was my partner in a lot of investigative stories.
It was close to the train, we would go there and we really tried to get behind all the lack of transparency that the fed, the government, and the banks were trying to draw a curtain during that time.
How much were they borrowing?
We never really knew.
What the federal reserve loaned to the banks during the crisis was astronomically bigger than tarp, which was the treasury program.
In march 2009, $7.77 trillion is what the fed had lent, spent, or guaranteed to help banks.
Why is that a sin?
That is not a sin, what came afterwards is that the bailouts never ended.
We have qe, interest rates are close to zero.
This is a bank bailout that has never ended.
Who are the heroes in your book?
You identify whistleblowers at citibank.
What about people in government or the industry?
I am a big fan of neil baranowski, he was the tarp investigator for a while.
He was the watchdog.
I am a fan of sherrod brown in the senate and elizabeth warren.
I don't think that is the word for it.
Do you look at the new bankers of wall street as being less sinful?
There are some lessons learned after six years.
Citigroup has got the right idea.
Morgan stanley has got the right idea.
I do not think it ever got through to goldman sachs or jpmorgan.
As far as heroes, you do have some heroes.
You do not have enough.
I want you to come back and talk about the concentration of capital.
That is a major concern, concentration of deposits.
"the seven sins of wall street." part of our twitter question today.
What is wall street's biggest sin.
Tweet us @bsurveillance.
What is wall street's biggest sin?
Watching "bloomberg surveillance." bob ivry identifies seven of them.
Competition between german automakers revving up.
We will tell you who is winning next.
? this is "bloomberg surveillance." i am scarlet fu with tom keene and adam johnson.
Some company news starting with alibaba.
Buying a stake in china vision committee -- buying a stake in china vision media group, giving the commerce company access to tv dramas and films.
Chinese retailing website j.d..com might launch its u.s. ipo by july according to people with the knowledge of the matter.
Tencent holdings is taking up stake in j.d.com.
A price war looming in mobile phone service.
Softbank's president vows if regulators let his sprint unit i t-mobile he will start a price war.
Masayoshi son says it would give sprint the scale to compete with market leaders at&t and verizon.
That is today's company news.
Congress gets involved -- the house energy and congress committee will investigate general motors and mary bar ra.
Explaining why it took more than a decade to recall 1.6 million vehicles for faulty ignitions.
Linked to 13 deaths.
Joining us now on the telephone is jeffrey of bloomberg news detroit.
This is something gm would not want to see.
There is a lot of ancient history here.
Why is it a 2014 issue?
Because it came out in our 2014 recall.
As you look at the timeline it was clear that in 2004 they knew something was going on.
There is a sensitivity to this kind of thing after the toyota recall.
Any sense an automaker did not react quickly, which gm has admitted and apologized for already, is a sign of further involvement.
If my child is driving a 2006, 1 hundred thousand mile gm sedan, should they be driving it?
They should not have a bunch of stuff on their key ring at the very least.
It is a very sensitive ignitions which.
It does not happen in every car.
The incidence is very low.
After 13 people have died it is the kind of thing you do not want to continue.
The interesting thing is that there are not hearings very often on recalls.
There have only been a couple in recent history.
Recalls happen all the time.
There are millions every year.
For congress to get involved is not regular.
Your bureau wrote about at the heart of the slow response was a committee culture that impeded the flow of response from the ranks to the corner office.
What is on mary barra's to do list to fix the to culture that got in the way of the recall?
It has been on the list of the last three ceos of gm.
They have been trying to cut through the culture and change the way they are thinking.
Toyota had to look at the same thing after their big rec all.
There is a lot of bureaucracy, engineers like to look at data and think about things.
They like to study them and act once they know all the facts.
In this case, it took them too long to knew all the facts.
Now we have to figure out why.
The u.s. government and taxpayers bailed out gm several years ago.
What is that relationship now?
Nothing left in terms of a dotted or official line.
No government ownership left in the automaker.
Mary barra took over as the government got out.
An independent general motors.
Everyone remembers the bailout.
There is a sense taxpayers bailed them out so they have extra responsibility to the country.
They have been fourth comp -- they have been forthcoming.
They brought in an investigator who did the lehman brothers probe.
It was a fairly heavy hitter, a guy who comes in when you have a big issue.
Jeff green from detroit as maryborough goes to washington with general motors.
This is something you have been looking at.
Whether it is a battery on a dreamliner or an ignition switch.
Sometimes what appears to be a complex problem there is an easy solution.
Like the battery six at boeing, where you needed insulation around the battery.
But still, people lost lives.
She is going to get grilled.
After taking government money and not telling the public and people lost their lives.
It goes back to 2004. that is the most stunning part.
Not a whole lot of economic data.
Wholesale inventory at 10:00 a.m. that is usually not a major consequence.
It is a january number, a lagging indicator.
Futures lower, down by less than one point.
Asian stocks rebound, a little bit of a give back following the plunge after the chinese export drop.
The 10 year at 2.78%. we are on his usual media and your digital space, we are on the ipad and lumbar tv plus.
Itunes and android.
I am tom keene with scarlet fu and adam johnson.
An important interview.
Audi taking the number one spot from bmw, selling more lecturing vehicles in the world in the first two months of the year than anyone else.
Rupert stadler joins us from audi headquarters in germany.
How important were sales of suvs and china to overtake bmw as number one?
Please do not exaggerate.
It is a very good story to have a good ramp up in the new year.
January and february was really good.
We had an increase of more than 9%. we always try to figure out what will happen in 2020. and not what we will achieve in two months.
All the markets are performing very well.
In europe we had positive growth rates.
In the u.s. it is flat at the moment though we have seen good growth during this year.
In china we are performing well.
Overall, we are quite happy.
We admire a ceo who is always trying to guide rather than taking immediate credit.
How essential is the a3, the new compact car in pushing out a forward?
This is an integral part of our growth strategy.
The audi a3 is now starting in europe.
We will bring the car to the u.s. in the summer.
We decided years ago to go with the audi a3 in china for local production.
We will see growth rates with the a3. overall, we believe that the premium segment in the contact area will grow.
stadler, when you look at audi, mercedes, bmw, it is cutthroat competition.
What is the number one determinant for the jive are?
When someone walks into an audi showroom, what is the number one thing that matters in luxury cars?
I would say that there is a strong competition within mercedes, bmw, and audi.
This type of competition makes us even stronger in the premium world.
Nearly 8% of the premium business is done by the german industry.
When a dealer or a customer comes to the dealership, what should he recognize?
With audi, audi is the most progressive brand.
We have the most emotional product with the highest type of quality we can offer.
The customers tell us that we are the number one.
Not as telling the public that we are going to be.
stadler, you talked about how competition in the premium segment is more intense.
I want to ask you about pricing power in china.
First is pricing power in the u.s.. -- versus pricing power in the u.s. audi is premium brand number one when it comes to volume in europe.
It is premium brand number one in china.
We are aiming for the next pattern of growth in the u.s. as far as i see it, the future of alley in the u.s., there is a big growth potential.
The brand is in a really good position.
We bring a lot of emotional products to the u.s. we believe that we can grow further.
rupert stadler, ceo of audi, thank you for joining us.
Troy gayeski with us of skybridge capital.
The aspirational nature of making money.
What is a cool car?
I am more of a bmw seven series guy.
Right now, a 550. bmw 550? you are a value guy.
You want a nice guy but you have got to go value.
A maserati roared by me the other day.
Rear wheel drive is not the most practical in the northeast.
Do you not drive teslas?
We will be right back with more movers on "bloomberg surveillance." ? good morning, "bloomberg surveillance." i am tom keene.
A quiet data day.
Serious events in ukraine and crimea, the malaysian crash incident continues.
The search for the plane.
I am tom keene.
Adam johnson and scarlet fu.
Joining us now is betty liu.
Two interesting guests on this morning.
John katzman to this -- john catsamatidis, the billionaire who owns the greenred apple chain.
He is a clinton supporter but a republican.
He wants to put his money for the clintons and against the tea party.
He feels they are so divisive and he wants to put his billions against the tea party.
On another side, i love this guy's name.
Hans, an l.a. chef who will talk about the healthy food trend.
We have the story about panera's sprout bagels.
How is that going to go over with the american consumer?
I need to be healthy.
Jack daniels, budweiser.
I thought it was jack daniels with a bud chaser.
Betty liu, thank you so much.
"in the loop" is 8:00 a.m. a name we do not see very often, fuel cell shares climbing in the premarket.
Fuel cell reported results yesterday and is on track for closing multiple orders, confidence is high.
Projects are awaiting regulatory approval.
One of the biggest fuel-cell manufacturers.
It has become a viable source of electricity with natural gas prices coming down.
Charlie rose spoke with the softbank see you last night.
Softbank is the japanese phone company trying to take over t-mobile.
T-mobile is not moving, but prices are moving.
Here is what the softbank ceo says about the price war.
Three heavyweight fight.
You like that.
I would like to have a real fight.
Not a pseudo fight.
A real fight.
If i can have a real fight, i will go in a massive price were.
That is your pattern.
When you get a stay cold you undersell everybody.
You are willing to prose bowl profit to gain market share.
Exactly, i want to be number one.
Classic japanese strategy.
That is what they did in the 1980's and 1990's, buy market sh are.
Watch charlie rose tonight.
We will be back to talk about hedge funds with troy gayeski.
? good morning.
He writes the investment world listens.
Jim o'neill will join us tomorrow.
Former chairman at goldman sachs writing for bloomberg few.
Check out bloomberg video.
The 7:00 a.m. hour.
This is "bloomberg surveillance," i am scarlet fu with tom keene and adam johnson.
Our guest host is troy gayeski of skybridge capital.
Beats is building its war chest.
The service from dr.
Dre raised a second round of funding from original investors.
As much as $100 million according to people with knowledge.
Beats has been gearing up to challenge spotify.
Zte is entering china's game console market.
Teaming up with online gaming developers to build a console that will be available later this month.
This comes after china lifted a 14 year ban on game consoles.
Diddy trying to buy the fuse table channel.
He is offering $200 million according to people with knowledge.
He plans to convert fuse into his existing cable music channel, revolt tv.
It is the company news.
That was a great channel.
You watched it?
People probably think bowtie and conservative guy, you are very plugged in.
Just call him mr.
I am clueless, tom is pretty good.
I love ellie goulding's new album.
[laughter] futures of hedge funds with troy gayeski of skybridge capital.
Important if you are saying maybe i ought to go into a hedge fund.
Skybridge capital allocated out to make the right investment for their clients in the hedge fund space.
There is an undercurrent here of letting smaller investors into the hedge fund world.
That sounds like the dumbest idea.
Why should a large institution have access to some of the smartest managers, one would argue, to make a lot of money.
Someone who can invest $25,000 cannot access that.
The idea with regulation is to protect people from making mistakes.
Hedge funds tend to be lower volatility and lower risk.
You get to the size of the portfolio and size of the fund, it is too much for six guys in a room?
If you bring in retail you have a lot of billion-dollar hedge funds.