Robert Shiller, a professor at Yale University and co-creator of the S&P/Case-Shiller index of property values, talks about the global economy and the U.S. housing market. He speaks with Tom Keene on Bloomberg Television’s “Surveillance” on the sidelines of the World Economic Forum in Davos, Switzerland. (Source: Bloomberg)
CNBC’s David Faber talks with Kyle Bass, Hayman Capital Management, about his critical view of the Japanese yen; and explains why he is now investing in subprime bonds.
google the ’55 lincoln futura. thanks, rick. the leading voice ahead of the housing crash has been critical of hyper government spending. he hate the japanese yen and is now going back to investing in sub prime bonds. he is with our own david favor downtown and he is kyle bass. thank you very much. of course, kyle bass a friend of yours and friend of mine. funny who you find hanging around town sometimes. kyle, nice to have you here at the new york stock exchange. nice to be here. let’s start off with japan. if there is any trade you have been most associated with, it is that japanese trade. the basic idea their gdp is out of control and getting worse. they have a plan now to reflight the economy. they are printing a lot of money. 2% is the inflation rate they want. why is that not going to help the japanese economy. many people think it will. i think if you study the situation deeply, you see that japanese debt is about 24 times central government tax revenues. when you get into that, when you sail into that zone of insolvency, nothing you can do can help, in my opinion. they would have imploded under their own weight a few years down the road. now they talk about targeting 2% inflation. they don’t realize it will force them to explode sooner. your criticism is well known, even to japanese ministers of finance, i would argue. first of all, when you think about a crisis, 99.9% of the people get it wrong. when you think about 20 years of the procycal cality, the owner ship of bonds of japan is the institutional community. they buy the bonds because they have 28 basis points of yield on the five-year and 70 on the ten. the only way invest on a bond like that is if they promise deflation. when they tell you they will target 2% deflation the swing will detonate the time bomb. you believe your time line has been moved up. correct. some say, kyle, you have been with david many times over the last three or four years. you guys have had theilar conversation. it hasn’t happened. why should i think it is ever going to happen? so we’ve had the conversation over the last two just to correct you. is that all it is? second of all, i say, when you think about the end of this 70-year debt super cycle, it would be naive of anyone to say they would predict it with any kind of precision. what i’m telling you is all of the component of the equation are in place for all of a sudden this to go off. all of a sudden. what does that mean? when it happens, when 20 years of the pro psychly cality of thought turns, it turns all at once. the end is strongest right before it breaks. interest rates are lowest right before they break. i think what you have to think about it is what causes the qualitative slip. the belief in the pir tis pants minds that this is an untenable situation. the clock started a few months ago. you perhaps would have said the same thing about italy when we watched italian bonds hit 7%. seems like that clock slowed down markedly. why wouldn’t the japanese do the same? and i don’t know if you agree with the argument that the clock slowed down. first of all, i didn’t say that about italy. today japan spends 50 percent on debt service. their rates cost them another 25 percent of revenue. 2 percent move in their rates and they detonate. but 70 basis points on ten-year. 2 percent is 200 basis points. multiples of what they pay on ten-year paper right now. you don’t have to look back very far to see that rate in japan very many years. very few people get this right. and if the japanese government is essentially been dismonest with the constituents in japan. i would advise everyone that lives in japan it spend their yen on something. look at transaction the soft bank did with sprint, 20 billion into sprint. there’s $32 billion worth of m & a and all buying western assets. if i were them, i would take every yen i had and buy a western asset. when the elites, corp rates and households realize they are in an untenable situation they will export the yen. the yen will collapse and then they lose control of rates. this is what is likely to happen going forward. when will we know the day is here? . what will be the tell? the tell is — and this is not for the cnbc audience, but when the swaps curve start pricing inflation, i think that’s it. any prediction? yeah, i think we started the clock. it’ll take a couple years. 18 months to 24 monthes from now. something else, japanese and world investors have been focussing on investors from japan and china. south china seas. as someoneho studied japan carefully for a number of years, is that something you’re focused on? yes. first of all, there is an informal boycott by chinese soes. the japanese and chinese perspective, ping’s father fought in the second japan war. abe says he will put cabinet mesinkaku islands. these people won’t wake up and love each other again. 20% goes to china, that’s $340 billion. we think that number can be down 50% in the last quarter. and it is a secular change. they are going elsewhere to procure goodness china. japan’s gdp is falling at an alarming rate. the change in a dollar/yen won’t restore competitiveness? japan. the people buying japanese stongs are picking up a dime in front after bulldozer. think they need to be careful with what they are doing. brian, back to you at hq. i know you’ve been talking about japan, a huge trade for you. but you are also a proud american and proud texan. where are you investing in united states right now? so, anything that has to do with u.s. housing, we’re long. and that’s a basic way of saying that we have, you know, a huge position in the mortgage bonds that we bet against years ago. we own mortgage servicing rights, companies. we own companies that are providing private mortgage insurance to the conforming marketplace. anything that has to do with housing flattening out and getting a little bit better, we’re invested in. we are veryong u.s. cyclical recovering in housing and we are very afraid of what is going on in the village around the world. how much of the recovery is real? how much of the recovery is just fed injected hopium? look, there have been 24 housing busts since 1980. pete detrough, has taken 6 1/2 years. those associated with banking crises is 7 1/2. all housing peaked in ’06. we’re about at the time at which things decide to flatten out and turn. when you think about what the fed is doing, it is enabling congress, not necessarily turning the housing market around. however, i will jump in, absolutely. i think it is very bold what you are saying about japan. i would be very interested to know what you are saying about china. what is the your stance on the economy there? i don’t know which numbers to believe. we don’t have any positions in china. i don’t know what you own. i don’t know which numbers you are supposed to believe, the government’s numbers or real numbers and power numbers or the government’s official gdp number of 8. what we look at in china that worries me, they extended 50% almost three years in a row. that’s the u.s. lending $8 trillion into our economy every year for the last three years. nonforming loans are about 1% when historically they are 19. i think china is setting itself up for a big problem down the road. not today, but maybe a few years down the road. of course bringing it back it here in the states and wrapping it up, the u.s. is potentially setting itself up for a problem down the road not too far. we’re not japan. we’re not close to japan yet. but we may be in your opinion? yeah. i just think we are further down the road behind japan. we are spending 11% roughly, 10% on our central government fax revenue on interest. i was joking with you beforehand, around the office we make this analogy to what the republicans aeb democrats are doing. when the central bank is buying all the bonds, there is no consequence for central. i say where is the ten-year? i don’t see a bond crisis. can i jump back in? kyle, here is something i need to you do for me, all right. turn in the term bond eunuch. the bond vigilantes are gone. what they are doing is gone. right? there is no bond market that can be the vigilante to add the natural balance of the market. that’s right. what you are going to see is people start it really react in the currency markets to the republicans and democrats have hundred foot puts with 40 feet of break and 30 mile an hours of wind and they look at each other and say, good, good. well just move to the next hole. that’s why we are today and where we will be unless the bond markets call them out and the fed holds the bond market back. kyle, well leave it there. we appreciate your time and insights. thank you. thanks very much, david.
Bruce Greenwald on boring ugly stocks. He gives one example of this type of equity, Nestle. He thinks that their operating leverage allows them to grow revenue much quicker than other companies. He thinks that even if multiple does not grow, the company should return 10-11% and has very low risk. Previous videos of Bruce Greenwald can be found here Bruce Greenwald: China To Get Ugly, Europe Is Turning Into Japan.
Dan Primack, Fortune senior editor, weighs in on a potential buyout of the tech giant, and why he believes Dell’s numbers are just too big to get a deal done. Richard LeFrak, The LeFrak Organization president, and Wilbur Ross, WL Ross & Co. chairman & CEO, also discuss.
want to put on that. you have about $11 billion that you said in cash, but you’ve got to bring some of that and repatriate it back. you don’t know if there’s going to be a tax holiday. plus $5 billion in debt, almost $5 billion in debt on the books so you kind of have to cut that out, so it’s kind of $6 billion in net cash. what would be the equity check? and what would be the amount of money they have to raise in terms of financing from the bank? i think you’re probably talking total equity between six and eight. some would be michael dell’s, he’d roll over 3. so maybe between 4 billion and 5 billion dollars in equity or cash the private equity firms would have to raise, get from their coinvestors, et cetera. we have wilbur ross here on the set. i should ask wilbur since this is your business. 20 plus billion dollar buyout transaction, does this make sense to you? well, i think the quantity of cash is there. whether the numbers work, i think, is the other question. but, for example, the european — the fact they’ve got a lot of cash offshore, you could just as well do euro/dollar bond issue or something of that suit. i don’t think that’s the big hurdle. the big hurdle is would the lbo leverage sponsors and equity sponsors buy into the theory that it was really going to turn around quickly. remember this is a company whose earnings have been in kind of free-fall. dan, what kind of check did you say the banks would have to write in terms of financing? the banks would probably have to write a check of around $15 billion. and as wilbur says, the cash is there. this is a very good credit environment. but that is a huge amount of financing for an lbo. in fact we haven’t seen something like that since the financial crisis, and you’re not buying into a great road story here. you’re not buying into energy. you’re buying into dell. basically the banks would be asked to do a bet on the personal computer market. dan, the second piece of this, as i think about it, though, is this idea that you’re actually going back to the club deal, right? you’re having two firms club up, and now with something that was, almost, i thought it was now a relic of the 2007, ’06, ’05 and people were no longer going to do that, at best, they were going to partner potentially with their own limited partners like the pension funds but not necessarily together to fund themselves. yeah, and it’s particularly interesting that tpg is involved in this. one of the biggest private equity firms in the world but they might have some troubles fund-raising next time out. their performance hasn’t been good the last two funds. one of the things they’ve been telling their own investors getting ready for a fund raise later this year is we haven’t been doing club deals. out of their current fund they haven’t done a single club deal. i know they’re talked about with best buy. but this would be, you know, not violating that because they didn’t make a pledge but that’s kind of been a good talking point for them that they’d lose in part of this. becky had mentioned i think it was pisani who was talking about whether you could break up dell into two different companies. he was quoting tony — and whether you break up the company and then they take one piece of it private and leave one out public. it’s a possibility. you know, it’s a possibilit it’s not usually what the private equity firms do with something like this and the big question would be where does michael dell go now? which piece does he get? which piece does he run? so, if we’re all waking up this morning, trying to make sense of this, you’re cautioning people that this is not happening? if you’re handicapping this is that a 50/50 not happening or 90-10 not happening? i think it’s kind of an 80/20 not happening. i mean in the end getting done. you know, actually getting finance, getting closed, actually happening. really happening. you want to wager? i think it’s 50/50. lefrak you have views on this? you mean the dell guys coming back? maybe we could pay them stock, i don’t know. i didn’t think about that. if that’s part of this deal, 80/20 it happens if the dell guy comes back. okay we’re going to leave it there, dan. thank you for helping us sort through some of this. we’ll see where this goes and i’m sure we’ll talk to you again about it if it does move forward. 50/50. thanks, dan. fed chairman ben bernanke
Bill Gross, PIMCO Co-CIO, offers his reaction to the tax deal that averted the “fiscal cliff.” The video and a computer generated transcript can be found below:
well, the market likes washington’s tax deal, but does pimco’s bill gross? after all, it does little to nothing to address debt anddeficit levels, and that could eventually impact bonds in a bigway. bill joins us now from pimco headquarters in california, and, bill, your reaction? welcome back, sir. thank you very much. thanks for having me. well, kelly, you know, i think that this rally is really a rally emanating from japan and actually from the fed in terms of its new qe policies. to suggest that it’s a fiscal cliff avoid type of rally i think is a misconception because, you know, basically the central banks are in the process of writing lots of checks, hundred of billions of dollars worth of checks. the fed just today is instituting a new program and so, you know, what we see is central bank check writing asopposed to fiscal cliff avoidance. actually the — the economy and the investment markets are being affected negatively by this package. well, in one of my takes, bill, is that we’reunderestimating the importance of the capital gains rate andthe dividend rate which will now at the top end be only 20%, notthe 40% that had been feared. that a bigositive for investors out there, doesn’t it? well, i think it does. you know, to be fair, the market never really anticipated that it would go all the way up, and the rate is actually 23.5% because of, you know, some additional overlays on top of it. right. so capital gains taxes aregoing from 15 to 23.5, and that’s not a positive. but let’s not be grinchy about all of this. we like higher stock prices and higher bond prices as ll, but ultimately you come to a point really where, you know, the government in terms of this current package, you know, hasn’t addressed spending but has addressed taxation which, you know, experts about a 1.5%,what we call, economists call a fiscal drag on the economy. that means instead of, you know, perhaps 3% growth for 2013 we’regoing to see 1.5%, and that’s a pretty low rate ofwth forcorporate profits to do well. bill, we also are now just two months away to what is shaping up to be an epic fight over the debt ceiling. how concerned are you about that, and how do you expect that to play out? very concerned. there’s really three roadblocks here, kelly, you know. there’s the continuing budgetresolution which means they have to come up with a budget in the next few months and look forward. there’s the sequestration that has to be addressed in the next several months, and then there’s the debt ceiling. one, two, three, the republicans are going to hammer at the administration in terms of what they want in terms of lower spending, as opposed to higher taxes, and so, you know, to my way of thinking, you know, that proves the dysfunctionality really of government on a continuing basis.one of the problems that we’ve seen here in the past month, inthe past several years has been this dysfunctionality whichcaused moody’s and standard & poor’s to, you know, begin tolower their quality ratings, and so the government is not insound hands or in common sensical hands going forward. i think investors should be concerned. bill, but i wonder if we’regetting confused here, confusing the issue to some extentincluding the ratings firms, because they are downgrading onthe inability to really come reach a deal, but they are also saying it’s because we can’t reach a dole that lowers debt levels or at least stabilizes them long term. no one seems to be focusing on the real issue that either the fiscal cliff is ahat is getting lost in all of this which is growth. if we don’t have growth in place, all of the long-term projections look significantly weaker. i think that’s the magic elixir, in the u.s. as well as in the peripherals in euroland. you need growth to basically bail yourself out of asituation, and i think in terms of the rating services, what isreally critical is not what the ratings services say, but it’s what investors do. the whole world has been watching here.someone should ask where are the bond market vigilantes, where are the stock market and cuigilantes? what we’re continuing to witness in 2013 is a dysfunctional government dealing with a dysfunctional sglugt where do you think those bond vigilantes went? they were so influential in the 1980s, and here we are sitting and talking to the guy that is the most influential guy arguably in the whole bond market. where are your peers out there to have some say in this whole proses?let’s be fair about this. the vigilantes have been superceded by the fed. i mean, the fed buys, believe it or not, 80% of everything that the treasury issues now. they are buying $1 trillion worth of bonds and mortgages a year. 85 billion a month and so, youknow, what can the vigilantes do, you know, relative to the fed?right. there’s hardly any bonds for the vigilantes to buy, so not todenigrate our responsibility in all this because i think what avigilante should do in the bond market is sell long-term debt asopposed to intermediate term bent because it’s the next longtestimony debt affected by the higher check writing. we all know we have a dysfunctional congress and you’re unifying very few people who were satisfied with the tax portion of the deal, whether you’re a democrat or republican, especially on both ends of the spectrum so in your view what’s a dysfunctional congress going able to do about spending when we come to the debt ceiling discussion in a couple months? they have to attack entitlements, let’s be fair about this. entitlements going forward are about 45% of the current budget and incrngly, as the boomers get older, bill, you know, it will take up a larger and larger portion of our budget, and so entitlements have to beattacked. that is medicare. that is medicare. that is social youknow, to the extent that there’s some adjustments coming in terms of the inflation base measurement going forward interms of social security, fine. to the extent that they can helphealth care in terms of reing its expenses, fine. but we have a $64 trillion entitlement that isn’t being addressed and at some point that aaa rating has to be at risk despite what moody’s just said. bill gross, thank you so much for your time. thank you.