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tv   Market Makers  Bloomberg  December 5, 2013 10:00am-12:01pm EST

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within the nasdaq. you're seeing a lot of rapid rotation here. it should outperform in two years and. .> thank you so much we are "on the markets" again in 30 minutes. >> pony up. ford's iconic muscle car gets a new look and goes global for the first time. will this mustang have the horsepower to drive sales in europe and asia? we ask alan mullally. truck titans. meet the hidden billionaire behind america's biggest moving business. find out how he was catapulted to the top of u-haul. bryant might be sidelined by an injury, but his new nike shoes tell a story. we will explain what those nine
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red lines are all about. >> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> good morning. it is thursday in new york city. you are watching "market makers." i am erik schatzker. >> i am stephanie ruhle. after a week and a half, you may not be excited about it. -- allquote mariah carey i want for christmas is new -- >> got a change the topic very quickly. -- got to change the topic very quickly. we have an unbelievable lineup. >> we are already getting calls saying that joe baratta is on, i want to cancel meetings. then we will be speaking with alan mullally. i will share the interview i had yesterday afternoon.
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>> let's not forget about bill gross. >> who can forget the bond king? for now, let's get to the newsfeed. it is the top business story from around the world. the u.s. economy grew faster in the thor quarter than first figures showed. up from the initial estimate of 2.8%. the biggest increase in inventory since 1998 is the reason. two low-fare carriers will benefit from the merger that is creating the new american airlines. southwest air and virgin america will gain flight slots at laguardia airport. settlement of a the justice department suit blocking their merger. night a record breaking for norman rockwell's painting.
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it sold for $46 million. it was the most ever for a painting. it was voted a reader favorite. i am not sure when it was voted a reader favorite. let's start with a blackstone to joe brought up. -- joe marotta. -- barata. we welcome joe for his first television interview. >> thank you for having me. seems sensible to talk about private equities, since that is what you do. why isn't it busier? fordoes it seem so hard people in your business to find things to buy? >> that is the perception i think.
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we are in a more normal private equity environment right now. i don't think it is slow, i wish it was busier. i think for it to get busier, we will need to see a large m&a cycle happen. we are seeing a lot less of that. we are buying more assets that each other own and selling stuff to each other. i would like to see more corporate m&a so we can see primary buyout activity. >> is it tough for you to buy businesses? if i was a company, i would not feel great about selling. >> i'm not sure. we are not clairvoyant. we are not smaller than anyone else. you are successful, though. >> we have been doing it for the last few years that we have been
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businesses that are not getting the attention they need and we intervene to find value than the previous owner cannot do. >> why aren't things like they were back in 2006, 2007? market conditions are awfully similar. open debtvery wide market, permissive terms for loans. it should add up to more than it is. >> there was a moment in time or the debt markets were exploding in terms of volume. importantly, the banks were lending enormous quantities of money and they were willing to bridge large buyouts. there's a point in time when we were looking at a hundred billion dollar lbo if you can believe it. that was an anomaly. market.ack to a normal there are similarities with regard to how heated the credit markets are beginning to get.
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it is a different environment. the banks are not underwriting the way they were. is notntum of leverage as big as it was in 2006, 2007. >> if we're going to see tightening of the standards, what is that going to do for your business? >> i am not upset about that. we are seeing the high yield bond market is hot because retail investors are looking for yield. >> is that not a sign of a bubble? do we want retail investors being hot on high-yield deals? the high-estors in yield bond market need to be focused on the credit step. i do not think you are focused -- at risk on capital loss. behink the lbo guys could affected. clearly, i do not understand
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the dynamics of your business as well as you will, but i am having trouble understanding how higher interest rates, which is where we are going, are going to be better for a business that relies on leverage? >> i do not think it is going to be better. >> it gets worse from here? >> as interest rates begin to normalize, the 10 year treasury is not going to stay at sub three percent for long. happens, exiting from the stimulus that the federal reserve is providing the markets, it is going to be bumpy and create volatility. what we're trying to do is not invest in companies where the stability of the -- credit markets staying like today is how we make a good return. we are doing investments with less leverage. we are buying growth companies, creating assets with no goodwill. we are billing -- building a
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liquefaction facility. we are creating that at cost. there is a good yield on that and is not predicated on a leverage office. -- offer. do you do to differentiate yourself? i feel like we talk about the big three, but those are your competitors. you need to be them. >> they are terrific firms and competitors. the world of private equity is big enough for all of us to succeed. we have a different strategy than those guys. we have a single global fund byre we can allocate capital sector, geography, where we see the best opportunities. we do not have regional funds. i think that is the strength of our business. bosses, they have said that private he equity returns are going to be lower? subscribe tore i
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that. we are doing growth equity. we're trying not to expose ourselves to just the cost of credit. we have a simple objective -- every time we invest the dollar, we want to return to and a half to our limited partners. we have been able to do it. in the last 12 months, we have sold $10 million worth of assets , sending money back to our lp's. we have been able to do it and i am committed to ensuring that we continue to do that. it will not be easy and it will not be in traditional high leveraged lbo's. we are doing a lot less of that than some of our competitors. thehat is a great segue to second half of our conversation. how long can the great times last? we're going to take a commercial
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break. we will continue with joe baratta. its muscle car to make it more appealing outside the u.s.. --are going to speaking with be speaking with alan mullally. >> detroit is back. he is making a big bet on general motors and he will tell us why. you're watching "market makers." we're streaming on your smart phone, your tablet, and ♪
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>> let's return to our conversation with jeoe baratta. we started off talking about buying, whether blackstone will be doing more of that. they are doing a lot of selling. valuation's are robust. how long can that last? >> i think it can last a while. the fundamentals of the u.s.
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economy are strong. sentiment is positive. earnings have been growing. the federal reserve is accommodated. i think it will last as long as the fed keeps money pumping into credit markets. our view on selling is that when we are done driving value through the companies and we have operating initiatives and we do cap x project -- projects and the markets are in a good spot, we begin the process to sell. i don't understand equity markets as well as a market- based guy. >> you don't feel the equity markets look choppy? >> the markets are open. we will access them. we have done five ipo's this year and they have traded above the offer price. on the pe multiple basis, the markets are not overvalued.
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it depends on earnings growth and interest rates. my personal opinion is the markets cannot continue to compound at 20%. could they compound another few years at 8% to 10%? certainly. >> what about taxes? don't other aspects of tax reform like closing loopholes and changing the deductibility -- aren't they much more important for your business? >> that would be a material negative to our business. >> are you afraid of tax reform? >> no. the market will adjust. our business will go on. it is happen in places like germany and denmark. happened in places like germany and denmark. it will not be catastrophic for our business. would it be good? no, it would not be good, but i do not see it happening. it is an underpinning of the
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economy. achievea good way to that. >> let's talk about what you are doing in europe. you move from london to the u.s. 18 months ago. is that giving us a signal that the opportunities are here. no, i was 11 years in london and i wanted to raise my kids as americans. there are great opportunities in europe, but the u.s. is relatively more attractive because in your up you will have more volatility and lower growth. return -- youter ought to earn a better return in europe then the united states . being very selective. we have a terrific pipeline in europe, but we have a heavier -- higher cost of capital. >> does that make the u.s. the best place to be doing private equity? returned $10.5
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billion to our investors this year. 75% of that is from deals we have done post crisis in the united states. we are making 2.8 times our money on those investments. >> what is keeping you up at night? what are you worried about? >> i worry about a lot. our fundamental task in our firm is to protect our limited partner's capital. the thing i worry about is when we make an investment, it is a 10 year horizon. i worry that five years from now when we sell this company, the next buyers going to have less access to capital and it will cost more and he will pay me a lower -- >> you need a bid to -- a bigger margin of safety. >> yes, or we are doing different kinds of things. been -- fore has more than a decade.
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what is a going to be like when somebody else's running the form -- firm? collectionthe best of investors as any firm in the world. does, retire before steve to be honest with you. if that were to happen, john or whoever would do a great job. the firm would not skip a beat. >> thank you. joe baratta runs a pirate -- -- the private equity business that blackstone. when we come back, we're going to be trading places. -- will alan mullally give up the car business to run microsoft? we speak to him next on marketing." ♪ -- "market makers." ♪
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>> ford is going global with its iconic mustang. they unveiled the revamp sports car today. it boasts a sleeker look and smaller engine. matt miller is with ford ceo, alan mullally, right now. this is a great moment for you. you love alan, you love ford. take it away. >> i have been waiting for this a long time. i have to get breaking news out of the way. we have headlines crossing that , ford, that edsel you are going to stay at the company. >> no change to the plan. if they are smart at
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microsoft, they are offering you a half of the -- offering you half of the gates foundation to come over there. what should gates be looking for in a ceo. >> i would love to talk about fortinet new mustang. >> let's get to the car. so many amazing changes. the old mustang was made right before you came to ford. what do you think was the most important directive you gave them when they were designing this new car. >> the mustang is a proof point of the one ford a plan that we put into place. that was to provide everybody affordable car. we're sitting here in new york at the world's fair and we introduced the first mustang.
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it was a great sports car and had two plus two seating, rearwheel drive, it was very utility. it was a great driving car. europe. uld not get in i always wondered why. >> our vehicles will serve all markets around the world now. drive, right-hand drive, meet all of the requirements around the world so everyone can enjoy the mustang. >> i thought of this as your one ford plan. it can be sold around the world. boostr legacy has been to fuel efficiency without losing power. talk to me about the four- cylinder engine that provides more power than the v6. talked about our ego boost engines. one of the options, three different powertrains. one option will be a were, in- line cylinder ego boost engine
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-- eco-boost engine. how many do you expect to sell overseas? one of your competitors said it is pulling its chevy brand out of europe. you are making this push now. how many mustangs do you want to sell? >> we will share a thought -- >> you sold a million in the first year, you have sold about 10 million altogether. thee are excited about response. this is what the world has wanted for years. now we can deliver this mustang around the world. somebody said the mustang has been let out of the corral. >> you are an engineer. people were falling all over themselves about the live axle, the one poll that connected the
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two wills -- wheels. the mustang was the last car to do that. now it is independent rear suspension. that is like water cooling a porsche. not only do we have the new independent rear suspension, but we also have the new front end suspension. you can select the ride in the performance that you really want to have. you can change that to meet your desire for that day. >> there are about 30 engineering prototypes out there. 14 or 15 for the unveiling. have you driven one? >> i have. it is exhilarating. the idea was the freedom and personalization. you can get the car you want and can afford it and appreciate a great drive. of the first me mustang buyer ever. a 22-year-old teacher.
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>> gayle white. and she still has it. participating in the launching dear board. jobwas 22,. a job -- got a as a teacher. the salesman took her to the back, took the cloth off the car, and that was a 1965 mustang. he sold it to her and she drove it away two days before the vehicle went on sale. mustang,riving in this people were stopping her. the police wanted to see it. kids wanted to see it. she said she felt like a movie star. married a sailor, he restored the car. it is a fantastic story. i was talking to one of the designers and said it was the most important car since the model t and he said what about the f1 50? >> that is the point.
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we look at this lineup now, the siesta, the taurus, the mustang, the ranger, that family from ford, when you walk in, it covers all of the market segments from smallest to largest. the mustang is right in the member of that family. >> what you think about your valuation? kyle bass was talking about the investment he made in gm. timese trading at 4.4 ebitda. what are you think? >> ford has come a long way since the one ford plan. bestfocus on making the cars and trucks in the world, growing revenue, growing .fficiency >> when can i get the keys? >> we will be able to fit you
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into one next fall. of your choice, automatic, six feet? six speed. it is sacrilegious to buy this car in an automatic. i like the gray. fall, can youxt tell me that you're still been a be in the ceo seat next fall? you always tell me in the past that i am going to stay at least until the end of 2014. >> there is no change in the plan. >> i hope you will be with me next fall and i picked up the new mustang. -- when i pick up the new mustang. an americanng is icon and has global passion. >> it is a story. eric, stephanie, back to you. a that is matt miller with
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man you should recognize by now. alan mullally. they talked about the new mustang. it looks pretty hot. i am not a car guy. also talked about the race for ceo at microsoft. candidate, is he not? that he from edsel ford is not leaving. >> it will be interesting how the mustang sailor -- cells -- sells overseas. -- think about what sells. you cannot say ford mustang is not an iconic american symbol. >> that does not look like a german car. had the chance to sit down with another man who has a lot to say about autos.
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kyle bass. in the half $1 billion subprime market before the housing collapse. he has a big bet on japan has not played out yet, but now he has a big bet on gm. rise expecting shares to 40% in the next 18 months. i spoke with him about his and thenvestment government's diminishing role in the company and how it is affecting their outlook. >> i think the u.s. government has been selling gm for a long time and i think they are almost out. there were prohibitions put on gm's management by the u.s. governmentking a motors and it is about to be general motors again. it is a fascinating time and catalytic time to be investing in gm. i think it will release management to be able to put in place in set of plans --
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incentive plans and do something that is shareholder friendly. >> you don't think up 40% in 18 months is a lofty goal? you think it is possible? >> i think it is probable. i think the first 25% is something that will happen more and he near-term -- in the near rm and the rest in the next year or two. >> the government could be out of government motor. >> they will be out. >> they have been out of u.s. angst. does that give you positive sentiment? >> you look at aig and some of the other big stakes they had in you look at the past performance of the u.s. government exiting things, their
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one year price post is in the triple digits. >> do you think it is an interesting time to invest in financials? am i do not. -- >> i do not. where leverages from a corporate and household perspective, banks are not lending. they will make secured loans. they are doing very little on secured. i don't think the banks are going to have tremendous -- again. they are not going to lever themselves to big our wheeze once again. -- big roe's again. i don't think there is anything interesting going on in angst. >-- banks. >> how about european banks? >> there are 3.5 times more
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levered and they do not have a way to recapitalize. you have industrial production rolling over for the last year and you are up after a big turnaround in the qe induced ip turnaround from q1 of 09. -- of 2009. i think the european bank equity is something that is a tenuous security today. it is a great place to be hedged . we like vodafone, but i don't like euro bank. fannie and freddie, we are seeing bruce berkowitz in the game. it is almost ludicrous to think the government is going to want to enter into anything where hedge fund managers went out and homeowners lose. is that a fair assessment? >> we modeled out the gse
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preferred. slightld model out increases in the gc, so when you look at what happened to fannie and freddie, they were unfairly penalize compared to the banks. when fannie and freddie were taken down, they were required to provision for the full cycle. fannie and freddie ended up using -- losing 320 basis points in their portfolios. they lost more than all of their money. if you were to raise the gse up gfee, you could model out that these would be good. after meeting with everyone that i could meet with, i decided i
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did not want to be involved because it is not going to be your fundamental analysis that wins this game. it is going to be how you handle the politics. i have no clue how to handicap politics. i do not know how it ends up. if it were a poor financial investment, i would be in. why did you get involved with --? for a longw jcpenney time. the interesting thing about them is they had about 400 -- 4.5 billion in debt. time, they had 13 billion of sales and they were making a billion and a half in eva -- eb itda. if new management could stabilize the business, the equity could move up from much lower levels. what we got wrong in jcpenney was that it was driven by perception. the vendors are much like the
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depositors at bank's. vendors, theyhe raise money. based upon our view of their asset-based revolver and their asset -- access to liquidity and their maximum drawdown for their inventory, we thought they had enough money to get through holiday 2014 and in the end, vendors changed their terms and we were wrong. we learned a lesson in perception changing quickly. and inyou still involved what capacity? we spoke a couple of months ago. where are you in the capital structure? position where we are long in the credit. in the equity, we do not own any more equity. in the nextave more
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hour. you're going to want to hear his take on herbalife. two weeks ago when i sat down with stan druckenmiller, he was saying it is good to be a pig. that really is the way that kyle runs his business. it is not necessarily diversified. you want to invest in a hedge fund manager that knows his stuff. that is what kyle does. he takes big bets. he does not necessarily win, but the kind of resources, he is not trading. he is investing. >> even a guy who makes half $1 trillion on subprime can get some things wrong now and then. j.c. penney, he was just talking about it. i do not understand how he got the perception thing wrong. in and got taught the
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same lesson. >> you are right. >> they don't get it right all the time. >> they do not. another guy who did very well in subprime, but kyle bass knows who -- how to sell out a room. he is a great speaker and is extraordinarily smart. one piling on the trade simply following carl icahn. he has some distributors working for him now. >> when we come back, we will be talking about kobe bryant's dream team. if he could pick for teammates, who would they be? wouldn't you like to know? we will find out what we come back on "market makers." ♪
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>> you are watching "market makers." i am erik schatzker. we have seen them. maybe you have used one. the orange and white you hell -- trucks.-- u-haul he is a hidden billionaire just billionaire our reporters. we do not even have a photo of this guy. who is the man who made a killing on rental vans? shoen, we have been watching him. amerco.s owned by >> we knew he existed.
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>> no photos of this guy. reporters found out that off the balance sheet, there was a series of transactions that one on for decades where he was buying the self storage business from the company. >> you might see a u-haul storage center, that is not amerco business, hoen if only bloomberg finance something like that for you or me. the way heabout consolidated his grip on the company. there was a suicide involved, a murder. it is not like the family gets along with each other. tortured past. the father had four or five wives and children with most of
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them. there are factions of siblings. >> four or five wives in suggestion. not in southern utah. a three of the brothers had proxy battle in 1986, houston thefather out -- ousted father out of the company. the father tried to start a casino in las vegas, it did not go well and he ended up driving himself into a pole. that is the suicide. how does the murder fit into it? lawne of his sisters in gets murdered and that raises accusations against siblings. it turns out a convicted rapist testified that he committed the crime. it resulted in a couple of defamation lost. >> raise tension but between --
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between the family. this parent company is killing it. had a fantastic year. stock is up about 75% this year. it would back in time, public in the 1990's. he has a couple of other brothers that are major shareholders. they have all done well. >> i hope you and the rest of the team works on getting a photo of him. it is frustrating to talk about a guy we cannot even see. shoenm, it no more. the taleryant weaves of his leg injury into his of shoes. that is next on "market makers." we are streaming on your phone, tablet, and ♪
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>> welcome back to "market
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makers." i am stephanie ruhle. when he is not following me on juster, kobe bryant announced his ninth name speaker for nike. it is a high top. john erlichman caught up with to talk abouta all things on and off the courts. is still playing all-star ball when it comes to business. extraordinary guy. what he have to say? this is very much a stephanie ruhle story. you hit the floor at staples center to check out what they do. he is incredibly competitive. we think private equity players and hedge fund managers are competitive, they have nothing on kobe.
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issues are generally very strong performers for nike, along with michael jordan shoes. i asked kobe what his dream pickup team would be and here's what he said. >> myself. bill russell. kareem abdul-jabbar. larry bird. no jordan on that list. this was a day to talk about issues, and obviously there is new technology making its way into the world of sneakers. 3-d printing technology, digital manufacturing is helping to change the look and feel of shoes. i asked him if he would be using these new shoes when he was expected to be playing for the first time since his injury on friday night. here's what he had to say. --i'll probably be able probably be wearing them. you're going to need to -- i
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did not hear all of the players and as you mentioned earlier, .ast year i got on the court i am thinking i should've been named in that. my skills were ridiculous. who did he name? >> bill russell, cream abdul kareem abdul- -- jabbar, magic, and larry bird. about beinghe talk a businessman? he said he doesn't want to get necessarily be a team owner. he is one of the first basketball players that win big in china. so many others have followed. if you want to be a business person after your playing career, that has to start for you and your link career. you interviewed mark ark or --
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ofker, he does not go to all these events. he said kobe is a tough customer. what he in, he knows wants. he wants to test limits. he almost has a steve jobs like mentality. executive of my own brand. that is a little taste and flavor in terms of what we might continue to see from kobe once he is done on the courts. >> kobe bryant is not endorsing a product. he is this product. this is a different type of partnership then you saw 10 or 15 years ago when athletes had items with their names on them. >> he is very involved. he thinks about the presentation, every bit of it. >> thank u so much. so we have to end on a high note. john, thank you so much.
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are going to give you much more of that interview with the one and only black mama tomorrow. you're not going to want to miss it. >> it is not often a wall street titan occurs -- shows up on the cover of time magazine. is the central player in a story we have talked a lot about. --l icahn is the which is richest man on wall street. he may also be the most entertaining financier on the planet. ofuess that is a matter debate. he is doing his best to be entertaining. he stirs the pot again with apple. style isvestment entertaining. he does not have a massive staff. an extraordinary businessman. he is not afraid to make enemies.
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>> people would argue with the business idea. he has built and investing business, but has he built -- most people think of businesses as places that employ people, make services and products. you cannot tell me that carl had teams of research analysts, he is a businessman more than he is an analyst. >> he may be an investor more than a businessman. >> there you go. >> i love that he does meetings in his own apartment. >> carl treated -- tweeted yesterday time features a piece
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on activism. hope i like what i read. >> hope he likes what he hears. they come to him. he does not need to travel. >> we do not have much time left. it is time for "on the markets. co. -- on the markets." american stocks is led by the s&p 500. bestllar general, the performer on the s&p 500 today. they be profits estimates. who doesn't like a good dollar general store it? -- story. bill gross will be live with me and stephanie. we will be asking him about jobs. he has some things he wants to say about detroit, bankruptcy. stay with us. we will be back. ♪
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>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> bill gross in the danger zone. he says investors are all playing the same dangerous game. he will explain in a moment. >> the rise and fall of blackberry. the story of how the one-time king of the smartphones blewett. as told by people who work there. >> is the offer suitable? theph a bank may respond to takeover offer from men's wearhouse. >> you are watching "market
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makers," i am erik schatzker. >> i am stephanie role. the top business stories. apple on the verge of a deal with the world's largest mobile carrier. china mobile will start service on its four g wireless network. that clears the way for china mobile to offer the iphone to 59 million 7 subscribers. more than two times as many people as live in the u.s.. maybe former citigroup ceo panditand it -- vikram is helping to fund a startup in peer to peer lending. p or to peer lending involves individuals making loans or parts of once directly. the super bowl is a sellout for advertisers. ads for the game in february sold for as much as $4 million
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for a 30 seconds bought, up from $3.8 million last season. >> another great guest. pimco.oss, co-ceo at a great voice to have as we look towards jobs day tomorrow. ben bernanke's second to last fed day in two weeks. thank you for joining us. what are you expecting tomorrow? ofsomething in the order 200,000 plus or minus, a good report. we had the adp report on wednesday, which suggested that type of number, as well as initial claims that came out today. they suggested a robust number. >> how does a good job summer fit into your view of the economy and ultimately how the fed under janet yellen is going to respond to changing conditions? >> it may allow them to begin to
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mentally talk -- it may allow them to begin to talk about tapering and even tapering. december is up for grabs. fedfed once out -- the wants out. many hawks and even some dust, bill dudley of the new york fed ind there is no risk quantitative easing from credit risk. there is risk from the standpoint of our balance sheet. if interest rates rise, we may be at risk from the standpoint of capital losses as opposed to capital gains. out and they need to replace it with a forward that allowsicy investors to be confident that things are not going to change -- change so much . >> why are you so certain they
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want now? it should not last forever, do you perceive they are concerned about the asset valuations that quantitative easing has driven? or are they concerned about the fact that it is not working so well anymore? >> both, erik. earlier suggested that certain asset markets were bubbly. that may be due to quantitative easing. there is no doubt that stock prices are high. high yield bond yields are low. all asset prices, bonds, stocks, alternative assets, all of them are basically mispriced, artificially elevated. the fed knows that ed wants to diminish that affect to the extent that they can. do inhey are going to times of transition is reduce quantitative easing at some point at the end of 2014. if they can and if
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the economy response. to then use forward guidance maintain a policy for 25 basis points for a long time. >> if they are artificially elevated, how do you invest knowing there is not true phenomenal growth to give reasons to the high levels in the equity markets? investorsnot long, say i just want to get out. >> the fed, in terms of tapering and a learning -- and eliminating quantitative easing would expect a handoff from the public to the private sector. that promotescity a 2% to 3% real growth rate. they would expect consistently a 2 to 3% number that would allow private investors and the stock market to continue growth absent their stimulation through qe.
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that is what the fed is hoping for. we have our doubts. but we think if they make this transition to policy guidance going forward, a consistent and low policy rate of 25 basis points will take the place of quantitative easing in part. >> are you concerned that leverage could creep back in,. in the credit markets, defaults are at a low rate and people are searching for yields. could cbo' -- could cdo's come back, is it looking like 2007? coming back. turns on bank loans are being eased at a significant pace. we have seen in the stock market margin data, moving higher from record levels. spreads are tight. that pricescations
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are artificially high and spreads artificially low. the problem going forward is, can the fed promote real growth at 2% plus on a consistent basis. if they can, the spreads are not attractive but are maintainable. they cannot, if growth in the u.s. and on a global basis comes lower as opposed to stable or higher, risk spreads are at risk . marketsrage within the might begin to deliver. -- de-lever. in which youures operate with total return fund limit your options. you have written that your front end loaded when it comes to maturity and duration. you are looking for volatility and betting on credit. do anything you
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want, how would you express your view? short the stock market? what might you do? >> you mentioned a few of them. our view is that future returns and bonds 3% to 4% and stocks 5% to 6%. those are not attractive relative to history and this year. not enough, erik, to promote pension funds. chicago and detroit in those cities. we need something higher than 3% to 5% on a total basis. basically, we would stay at the front end. down at annd rolls attractive rate. a five year treasury at 160 becomes a four year treasury at 120. it promotes capital gain. you can combine that with some
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relatively safe credit and produce those 3% to 4% types of returns in the bond market. market,tock attractive pe's, high dividend yielding, companies that are buying back stock with a 5% to a 2% to 3% growth world. you mentioned -- >> you mentioned detroit. approval to try to turn the city around under bankruptcy protection. it is hard enough to turn a company around in 18 months, can they turn around a city? not in 18 months. y citydepends upon -- an depends upon the reinitiation of investment and the creation of jobs. the promotion of the internal economy, which they have lost over the past 20 years to 30
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years with the auto industry. jobs have disappeared to south of the mason-dixon line. detroit is not the only city, but it is the largest and most recent example of municipal bankruptcy. the bankruptcy judge ruled that contractights are rights and subject to haircut like bondholders. other cities have not set that same example. stockton, california has paid bondholders one cent on the dollar and pensioners have fared better. there is no doubt that in whether it is detroit or stockton or chicago or the state of illinois or entities, that they all are behind the eight ball in terms of having promised too much and delivering too little in terms of total returns. it will be difficult for them absent a lot of risk to produce seven percent to eight percent returns. withank you for sharing
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us. great to get your views, especially the day before the jobs number. the bond cain, bill gross of pimco. back, how thee blackberry go from first to worst? business week that the answer by talking to people who were there. the wild ride is coming right up. >> they can talk to people who are still on the right, -- on the ride. more from the interview with kyle bass, a ride on the herbalife bandwagon. this is "market makers care go ♪
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>> welcome back to "market makers." move over, america. schumer's jeffrey katzenberg -- dream work's jeffrey katzenberg says the u.s. will not be the world's biggest movie market.
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he was interviewed last night. >> five years from now, china will be the number one movie market in the world. 10 million in america today, 3.5 billion this year. in five years, they will surpass many of these ways purely on the numbers. >> watch more of that interview on aïoli say my kids are not interested in bloomberg. i always say my kids are not interested in bloomberg. they are interested in the movies he makes. >> here is something you are interested in. champagne and strawberries, magazine spreads, those are some of the trappings of blackberry's rise. brings youeek" stories of the ascent and descent of the company. from dozens of current and former employees. felix of business week is here.
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what is the biggest take away? you must check this issue out. >> we experimented with an oral history format to tell the whole story. a story inhistory is other people's words. >> we talked to all different people in different roles of the company throughout the years. all the excitement of how crazy it was to be on that ride when the company was exploding and then how sad it was for people to watch the things slip away quickly. >> i loved. you spoke to a former employee, this was the best quote regarding justin bieber. me 200,000 dollars and 20 devices and i am your brand ambassador." out of the room. they said "this kid is a fad, he is not going to last.
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havingas blackberry their finger on the polls, they missed it. when you compare it to apple or samsung says jay-z might know what is going on. blackberry missed it. >> it was really a marketing story in many ways. if you go back to the early days of the company, when they had this breakthrough and creed of the first blackberry, the company was a tiny startup and -- and created the first blackberry, the company was a tiny startup and canada. they gave it to ceo's and people were like i will take 5000 of them for everyone in my company. cannot trash the marketing department, they were the guys who came up with the idea of putting the desktop manager on people's computers to allow you to do remote e-mail. >> it was just a strategy,
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working with top people at companies. then it became a status symbol. in the early days, most people did not have smart phones. >> lots of tech companies are founded by nerd engineers. what could other companies learn from blackberry? >> they did not listen to the people on the frontlines. when iphone came out, the people in the company did not think it was going to affect them. everyone we spoke to out there in the field, talking to carriers and consumers and clients, they saw it early. this is a serious threat, we are seeing -- >> those warnings were ignored. to startave got marketing to consumers, the market is shifting to a consumer device. we cannot just continue to deal with carriers and people at the top of companies. that was ignored. that was the moment blackberry could have done it over again.
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if they had listened to the warnings and been more aggressive, they could have stayed off problems. >> thank you for the insight, felix of liberal business week. -- of wennberg businessweek -- businessweek. the story of blackberry's rise and fall. >> you cannot read it on your blackberry. when we come back, it is up to banks, is men's wearhouse a good fit yakov ♪
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>> welcome back to "market makers." hedge fund manager kyle bass
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that argentina's restructured bonds. he said the reward was bigger than the risk. i spoke with kyle yesterday. has ruledeals court that the bonds he owns cannot be paid in full and less argentina also pays holders of the company's default and debt. >> when we enter these bonds, they were trading around $.55 on the dollar, today they are $.73. back then, i thought in a court ruling, the supreme court decided not to take the case. we had five to seven points of downside from 55. the upside is power. when i think about the asymmetry of risk reward, it was kind of down 10% or up 50%, it was a five to one that. >> one of the owners of that paullted argentine debt, singer. kyle bass likes his position a lot more than -- likes his
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position more than singer's. ande is a very shrewd man he makes money for his investors. it is not -- it is not kyl versus paul, i am just opining on what i think the court case will do. i think he has a larger chance of losing. >> that is today's latin america report. >> a takeover dance that dates almost two months. jos. a bank has gone from hunter to hunted. considering a buyout from men's wearhouse. released third- quarter results this morning. they are gearing up for a conference call underway. cristina alesci has been listening in. any news? >> those are erik's stores. >> it is only going to get bigger and better. they have avoided the question
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so far. we are just getting into the analysts' questions. it is likely the executive a lot to avoid this. investors are betting on the deal coming together. we have seen the stock price, on both sides -- stock price come up on both sides. the results of a poet jos. a bank -- the results today put even betterin an position. men's wearhouse is in a weaker position. it is easier for them to be the they do not have a ceo. they miss earnings last quarter and they have an activist investor who has been publicly prodding them to do something. in the sense that why do these results matter? it makes jos. a bank look even better. >> could jos. a bank look better? >> jos. a bank shares keep going
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up in a down market. why? >> investors anticipate some kind of battle between these two. maybe men's wearhouse will come back, jos. a bank will come with a bid. investors.verlapping the activist i just mentioned is a stockholder in both of these. >> like david tepper, you can win either way. hedging bets. eminent capital wants to see something happen. be agitating for it. this has already gotten ugly between the two companies. can it get uglier? can they go directly to shareholders, can jos. a bank the aggressive in that way? they go unlikely that directly to shareholders. it isave a poison pill, very hard to get around that.
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"work is bank says underway on considering the men's wearhouse bid." >> thank you cristina alesci. ♪
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>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> you know, bassler his date b -- you know kyle bass for his japan.subprime and he is making a bet on herbalife. carl bass is in. are those that follow and those that do the work. loeb wasg in, dnan early. >> he was out? was that an investment or a
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trade? >> it was an investment when he bought it in the 20's. a particular short seller started in the end of december. had an abnormally large negative effect on the equity. this business is one that is fascinating. it generates cash flows with no debt and is growing. when you have-- this large cohort of the unemployed that may be unemployable forever, this kind of new normal of the natural unemployment rate in the world. you look at these countries with 50% youth unemployment, there is an interesting percentage of young people entering these mlm businesses, that might be where this growth is coming from. from a timing perspective, this played into something that fit into our macro ideology. it is interesting.
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i think that we are catalyst driven investors. in this case, the catalyst is coming in the next 60 days. they will have their three-year audit redone. insiderhe auditors was trading on their equity, there were not allegations of improper audits. you have a riyadh it being done. they will be able to access -- a re-audit being they can borrow 2.5 times ebitda were free cash flow at libor plus 300 or plus 400, maybe even 250. they will be able to buy back more stock. see theiro not audited financials in the next few months, will that change? >> it will. they have said it will be done by year end. >> january 2, let's say they don't. it happens? >> that depends how i am
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positioned going into january 2. you can hedge yourself pretty easily and cap your downside, leaving some upside. herbalife,hink about you say everybody does their work. carl icahn started going long herbalife the day and unnamed investor one short. -- went short. is it a time when -- nobody is betting against carl icahn. so many peopleat want to follow great investors like you. do you see smaller managers doing less work and just following big guys? >> every small manager that are friends of mine do enormous work. i do not see people not doing a lot of work. i do not see myself as a great investor. ijust try to win more than lose. there are guys doing much better than we are. firms that are doing much better
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in the last couple of years. we have a great process and we will prevail over time. i do not know anyone that does not do a lot of work. they end up getting caught, the markets catch them if they do not work. if you have not done the work i position at it moves against you, your emotions take over. then you lose everything. >> is it hard to do well? lesstors are giving you unless time. investors want their return and they want it tomorrow. how does that affect the way you sleep at night? >> the bigger investors, whether the pensions or the big family offices or the bigger institutional investors, they gave you plenty of time. it is the smaller, more fickle groups that look for returns month to month or quarter to quarter. i am ok with them leaving.
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if they are going to leave because we have a that six-month stretch, that is one thing. if we change our risk management ideology and violate the ideology that we have given our investors, they should leave. if they understand what we are doing in there that fickle, they should leave. i think we have a great -- that is the attitude you have to take as a manager. if not, you will had yourself into no return. >> we will be back with more in a moment from kyle bass. i asked him about one scenario. we spoke to macro advisor david. kickoffrket makers ♪
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taper at the end of my interview with kyle bass, we
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were joined by steve who is writing a book that features kyle. i asked if the end of easy money is keeping them awake? trying to people are buy as much equity as they can. when you look at the hedge fund and real money community, everybody has moved to that side of the bow. macro is more important than ever. to have exposure to managers that help bail them out if things go wrong. >> is it a mistake that everyone wants to go long equities. could we be in a bubble? >> i do not think it is a mistake. most of the time, i am a contrarian. we will bee, i think at zero lower bound for a long time. they will continue to print and equities are the natural place funds toons and hedge congregate around. i think equities -- and equities aren't interesting place to be. -- are an interesting place to
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be. >> how worried are you about inflation? >> in which domicile? each country has inflation. in the u.s., we see it as rented luxury. haspeople at the top of qe seen the most inflation. it has made the rich richer and it has probably heard the middle class. >> besides being long equities, what is the best place to be into 2014? >> everyone has moved to that side of a -- of the boat. ago, i said equities going to hit all-time highs. that isre piling in, the trade for 2014. i'm not saying it is wrong, but we all know that diversification is having multiple, uncorrelated
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bets. a lot of hedge funds have one bet on, they are long u.s. equities and that is it. >> what do you think about diversification? stan jonathan miller said great manager should make -- stan druckenmiller said great managers should make a that and stick with it. if you are going to hedge, why should you get 2 and 20. people, he has done some interesting things. he is one of the best investors in the world. when you talk about investing with someone -- your investors have to know you are willing to do these things and what your risk parameters are. as long as they're comfortable comparable with those beforehand, you're able to make these larger investments when the time comes. are thethat those
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investors that differentiate themselves over time from those that are not willing to do things like that. >> within equities, are there sectors you are afraid of? >> there are sectors that are on investable. -- uninvestible. outside of pure financial reasons, we do not have any expertise in many areas. we have a deep expertise in others. drobny.bass and steve kyle knows about tapering, it isnot effecting the way he investing. the difference between long-term investors and traders. people in and out of the markets arevery concerned and who sensitive to those price fluctuations. kyle bass put on a japan trade two years ago.
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you have got to have a lot of conviction. >> we are going to be talking about one of the fastest growing sectors, mobile payments. the government wants to make sure it is regulated. should you be fearful? ♪
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watching "market makers." mobile payments are hot. the u.s. mobile payment market make logical to more than $40 billion in the next three years. paypal invented this business, but google is a player and other companies are blazing the trail. one problem -- nobody in washington has figured out how to regulate it. nela wristers and an economist at bloomberg government -- richardson isnela an analyst at bloomberg government. you moderated a panel on capitol hill. what did you learn? this little device could revolutionize the way we do banking. therings together two of most regulated industries -- banking and telecom. right now, about six or seven
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regulators have oversight over mobile payments. from the banking to the federal trade commission's, fcc, and consumer finance protection agency. but there are regulatory gaps. are studying this issue. whenever a regular studies an issue, roles -- rules are likely to follow. not coming from banks, it is coming from tech startups. how did they manage that? >> that is what makes this so hard to regulate. there are some things interested in working with existing credit card networks. there are different business models. we had different players. we have tech firms interested, google, apple. we have alternative payment systems, paypal. then we have app developers in their garage creating apps that
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will change banking. this is disruptive banking right here on your iphone. nela, don't mastercard and visa and american express and discover constitute a precedent for this kind of thing? too, are technology companies. they are not banks. is a mobile payments the same thing? appliesegulation depending on what function you served in the payment system. whether you are a credit card network or a phone carrier like verizon or you are a brick-and- mortar bank. all of these different business models are trying to get into this game. they are trying to claim ownership of the emerging retail business in terms of how to get that one merchant to sign on in an exclusive contract. through google wallet or an app.
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credit card companies are innovating, they are trying to out innovate google. they are working with banks. >> who is pushing for regulation? >> the regulators. they are concerned about three things. that consumers' data, financial data is kept private. they are worried about fraud. what happens when fraudulent activity happens. do consumers have recourse? they are worried about securities. mobile to mobile transfers are a great way to money launder. it could lead to funding of terrorism. the treasury in the financial crimes network is interested in mobile payments. this touches a lot of spheres. regulation will surely follow any innovation in the sector. >> why not regulate? what is the argument against regulation? i am asking you for the real
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argument, not what you hear from the mobile payment companies that dave is going to constrain growth. that say it is going to constrain growth. thehat is exactly what industry said yesterday. with the regulators are saying is that this is to nascent of an industry for us to have a footprint. we need to let the industry decide the winners and losers of these various models and then go in and regulate. they are stepping back but they are keeping on top of these innovations. they are content to let the industry do or die, that is not going to last. >> do you think that's a good idea? >> i wonder. what i'm afraid of is that regulation -- innovation could move around and develop around the gaps in regulation. what is not being regulated,
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let's innovate in this patent set of banking. -- let's innovate in this space instead of banking. >> then it would be like banking, maneuvering around and taking advantage of gaps. nela, we have got to go. ♪
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>> that is going to do it for "market makers." a great show, bill gross, kyle bass.
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tomorrow.ts better the ceo of the country's second- biggest pension fund will be with us. he is very unhappy with the private equity firm that he invested in. >> cerberus. the firm still has not sold a gunmaker link to the new town -- the newtown school shooting. >> cerberus, which makes the ithmaster rifles used said was looking to divest that company and get rid of it. it still has not happened. chris is not happy. >> we will find out more. it is 50 six past the hour, bloomberg is going to take you on the markets. scarlet fu has more. today's options inside. five below reports after the bell.
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big poster earning swings expected. we have jerod with his recommended trade. set the scene, like so many other industries in america, retail is bifurcated. well,gh end is doing the low and sees plenty of traffic, the middle. where does five below fit in? to lump retailers together. five below is uniquely positioned. it does not just sell clothing. have struggled this year. five below is different, they have low-priced goods that are cool. i like their relevancy. there hip, you could compare them to urban outfitters without clothing. the hip culture. that is where five below stands. at 70 times earnings and 50 times forward earnings, they are not cheap. they have upside, they are growing at 200% per year. they have a cheaper price point
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and appeal to teenagers and anyone looking for a cool deal. >> looking for a good deal. the stock trading at around 50. it hit a high of 54 in november, a low of 39 in september. what is for strategy? i was looking at the way to stocks behaved of earnings in the past. the last earnings report, they blew it out. the stock rally. here is what i am looking at. i think they will beat. expectations are hovering around five cents. i am buying the december 45 call, sell the 50 call, you can do that for $3.15. the markets are expecting about a 7% move that will equate to about $3.50 of earnings. rade can spend less, my t reduces my risk greater than the potential volatility in the market. this spread is a five dollar widespread, i can make $1.85,
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and 85% return. >> that makes sense. how much of this is tied to the earnings report tomorrow versus the overall trend for retailers during this holiday shopping season? >> i have been breaking out individual stocks. what i have gotten away from islam think everything as a sector. five below is more of a fundamental play. i own this, full disclosure. there is a fundamental basis. i am looking for earnings to be a catalyst to move the stock higher. i think your guidance will be stable if not raised. that is why i am making the call today ahead of the report. >> quick look, five below has been a publicly traded company for one .5 years. we have five quarters of historical data. is that enough for you to feel comfortable with historical volatility numbers we have? >> the limited data is something
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to consider. when options market makers are assigning volatility, it is -- not arbitrary, but limited. i have a good picture but not the best thing that i want to see. for me, that many quarters and the fact that they be 62% -- they beat over the past four quarters gives me confidence. thehank you, jared with options in sight. on the market again in 30 minutes. "lunch money" is up next. ♪
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i welcome to "lunch money." am adam johnson. let's take a look at the menu. fort goes global with the new mustang. what is the roadmap for alan mulally? york's losers face off. it is a hard sell. alanrld, china -- greenspan says bitcoin has a bubble written all over it. and two kings of rock -- their stuff is on the block.


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