Wilbur Ross, chairman of WL Ross & Co., spoke with Bloomberg Television’s Betty Liu and Cristina Alesci today about talks about investment strategy, Federal Reserve Chairman Janet Yellen’s congressional testimony and Charter’s takeover bid for Time Warner Inc (NYSE:TWX).
“I agree that the 1 percent is being picked on for political reasons,” Ross said when asked whether he agreed with Sam Zell’s comments about the 1%. “I think the right focus would be how do you help the lower classes elevate themselves. And I think what’s disappointing with all the rhetoric, they’re not doing anything to fix the educational system. Education is the way that people get out of the ghetto and into if not the 1 percent something close to it.”
The first London Value Investor Conference was held in April 2012 and it has since grown to become the largest gathering of Value Investors in Europe, bringing together some of the best investors every year. At this year’s conference, held on May 19th, Simon Brewer, the former CIO of Morgan Stanley and Senior Adviser to Read More
On Janet Yellen, and whether she will diverge much from Bernanke, he said “I don’t think so. And I don’t think she should. I think Bernanke will go down as one of the superior Federal Reserve chiefs that we’ve ever had.”
*FED SHOULD TAPER IN $5 BILLION MONTHLY INCREMENTS
*BERNANKE WILL GO DOWN AS ONE OF BEST FED CHIEFS
*LOOKING OUTSIDE U.S. FOR DEALS
*CHINESE HAVE DONE BEST JOB MANAGING EVOLVING ECONOMY
*TOP 1% BEING PICKED ON FOR POLITICAL PURPOSES
*`NO CHANCE’ OF NYC MAYOR SUCCEEDING IN RAISING INCOME TAX
*PUERTO RICO GOVERNMENT DOING EXACTLY RIGHT THING TO FIX ITSELF
BETTY LIU, HOST: Wilbur, you were just listening in on what Peter said were the highlights from her testimony. Is she on the right track? Should the Fed continue with this program?
WILBUR ROSS: I think it definitely should. What I’ve been advocating is pre-announce the longer-term program. Maybe cut it to $5 billion a month of taper. That would take it down over about a year and a quarter time period. And I think that the –
LIU: So in $5 billion increments.
ROSS: Yeah. They’ve been 210 (ph). I would do even more gradually to make it easier for the market to adjust.
LIU: But the markets, as we’ve seen, have been so volatile over the last several – several weeks even that even if you were to pre-announce, you would have to change if something dramatically changed in the global economy.
ROSS: Sure, sure, but I think if people knew it was going to be a very gradual glide path – and I’m glad to hear that she used that word, words about very small increments, very measured increments I think is the word that she used – that’s the right thing. But I think predictability is something of great value to Wall Street. So if there were a clear course laid out —
LIU: Then you would know where you could put your money.
ROSS: Yes, and then people could adjust. Because it’s very hard to adjust to uncertainty.
LIU: Well Peter mentioned the grilling that she might receive from Republican lawmakers on the committee. And some of those topics might include regulation. Perhaps Republican lawmakers will say we want you to peel back a bit on regulation, and we actually want you to take away that stimulus program even earlier. Would you agree on at least the first part?
ROSS: Well on the regulatory side, the big complaint that people have is with the Consumer Financial Protection Bureau. But as I understand it, while it’s housed at the Federal Reserve, the Federal Reserve really has no control over it. That’s an agency that really doesn’t report to anyone. It doesn’t report to Federal Reserve. It doesn’t report to the Congress. I think you’re going to find that there’ll be a lot of Republican questioning about that.
LIU: So maybe it’s misdirected, in your view?
ROSS: Well, that it’s maybe not under control. Normally a government agency, both its budget and its policies, are under some sort of control by a higher authority.
LIU: But do you have any – on a larger front, do you have any questions on Janet Yellen over regulation? Do you think she’ll diverge much from Bernanke on that?
ROSS: I don’t think so. And I don’t think she should. I think Bernanke will go down as one of the superior Federal Reserve chiefs that we’ve ever had. And indeed, I look forward to seeing more of him at Brookings. As you know, he’s joining Brookings. And I’m chair of the Economic Studies Council at Brookings.
LIU: So what do you have planned for him?
ROSS: He’s not reporting to me. He’s a little like the consumer financial agency. He’s unto himself.
LIU: We are back with my guest host this hour, billionaire investor and deal maker Wilbur Ross. He’s known for acquiring assets all over the world. And speaking about deals, we’ve got some breaking news, Cristina Alesci, on Charter Communications, Inc. (NASDAQ:CHTR) making yet another move in its deal to acquire Time Warner Cable Inc (NYSE:TWC).
CRISTINA ALESCI: Yeah, this deal got even more hostile. It was hostile from the get go because obviously Time Warner wants a much higher price from Charter Communications, Inc. (NASDAQ:CHTR) and there’s a big gap between what the seller is wiling to pay here. So this is their attempt to go directly to shareholders and say, hey, if you want a deal done, elect a new slate of directors that we back, obviously that will back a deal – will back the acquisition from Charter Communications, Inc. (NASDAQ:CHTR). So this just —
LIU: They proposed a whole slate of independent directors for Time Warner Cable Inc (NYSE:TWC).
ALESCI: Yeah. So this is – this is more evidence of further deal – further risk taking in the deal market, right? We’ve seen a lot of cross-border deals this year. We’ve seen now a hostile deal – a very hostile deal. Traditionally when the deal market isn’t hot you’re not going to see those kinds of risky moves that companies are going to make.
LIU: That’s absolutely true. Wilbur, would you agree with that?
ROSS: Yeah, I do. Generally when you have a strong stock market you see more deals, both friendly deals and hostile deals, because the acquirers have their animal juices coming up.
LIU: They feel like they’ve got the wind at their back.
ROSS: And so even if they’re using cash instead of paper, they feel better about it. It’s a more expensive kind of activity.
LIU: But if – if the deal environment is so healthy then, then why do we have so many companies with billions and trillions of dollars on their balance sheet?
ROSS: Well, I think that’s for a different reason. Some of it is our primitive tax laws that don’t permit them to bring it back without paying —
LIU: Isn’t that just an excuse, Wilbur?
ROSS: Pardon me?
LIU: Isn’t that just an excuse?
ROSS: I don’t think so. I think it’s real. If the government said for one year for a 1 percent or a 2 or a 10, some small tax, you could bring it back, that money would be back here in 10 minutes. I don’t have any doubt about that. The other thing though is that the growth is not so much in the US. Growth is in other countries. And naturally you’re going to be investing capital where the most growth and most rate of return comes. So it isn’t just the tax thing, but I think that’s yet another problem on top.
LIU: Another hindrance.
ALESCI: We also haven’t seen a lot of – as many deals as some would want or as we saw pre-crisis because of the fact that companies are choosing to use their cash a little bit differently, whether it be buybacks or issuing dividends. So they’re actually exploring ways outside of traditional deal making to pacify the institutional investors.
ROSS: Well not just pacify. It makes sense if you have excess cash, probably your most risk less return is buying back your own stock. What business do you –
ALESCI: Yeah, but companies tend to buy back their own stock when it peaks or at a high, and that reduces the return of those buybacks. That’s the issue that some researchers have found with buybacks.
ROSS: Well, you can research your way to indecision on anything.
ALESCI: That’s true.
ROSS: But I do think that for many corporations buying back their – like Apple, they didn’t agree with Carl Icahn about paying the big special dividend, but they are buying back stock like (inaudible).
LIU: Yeah, to the point that he’s actually kind of satisfied with it now.
ROSS: Well $400 million profit should be satisfying to him.
LIU: Wilbur, in terms of deals for you, you’re looking where?
ROSS: Well we’re continuing to look outside the US for the most part.
ROSS: Lately though we’ve been doing more IPOs than we have anything – IPOs and secondaries simply because some of our funds are getting pretty mature. Markets are in reasonable shape, so we’ve been making some realizations of gains.
LIU: I know you’ve been big on the energy industry.
LIU: Liquified natural gas. You’ve talked about this many times actually on our program about consolidation in that group.
ROSS: Well, you’re seeing it.
LIU: Well you are seeing it, although that his a highly regulated industry. And I’m kind of surprised, Wilbur, for someone who hates regulation why you’d want to be in that industry.
ROSS: No, no, no. I think regulations are necessary but you need sane regulations, not extreme regulations. So I’m not a – I don’t think business world should be just a knife fight and a free for all. There should be some rules.
LIU: Well speaking about regulation and about the involvement of government in the energy industry, one of the big things is how to make the US energy independent. So here you’ve got this whole battle over the Keystone Pipeline. We talked with Tom Steyer, the billionaire investor who is trying to stop this pipeline from being built. What’s your position on this?
ROSS: It doesn’t help us directly. We have on investments in the Canadian Oil Sands. And in fact we’d be better off in our shipping if it were to go out to China because then it would go on —
LIU: Right, because you’re invested in marine transport, right. Okay.
ROSS: But having said all that, I think it’s silly to block the pipeline on the theory that it is going to save pollution. That oil is going to be extracted. It’s going to be consumed. The only question is whether it will be consumed in the US or in China or in Japan.
LIU: But are you as convinced it’s going to be a jobs creator as Republicans say it will be?
ROSS: Well for sure it creates a lot of construction jobs, number one. Number two, oil is not undifferentiated product, nor are the refineries. Certain refineries need the heavy oil, the high sulfur oil, which is what comes from Canada. Others need the low sulfur oil that comes from the Bakken. So you can’t paint with too broad a brush.
LIU: Wilbur, do you agree with – with Blankfein who says that as we lift poorer countries out of poverty and they – countries go from being producers to consumers we’re going to have to deal with a great deal of emerging market volatility?
ROSS: I think so. Remember, that’s a major shift in an economy to go from investment and export based to consumer based. So we shouldn’t expect that it’ll be seamless. It’s a very, very radical shift to make. But I think the Chinese especially have done the best job managing their economy of any economy in the world. Think about it. The Asian flu in the late ‘90s didn’t really bother them. The financial crisis didn’t really bother them. They’ve escaped an awful lot of traps that everybody else fell into.
LIU: But they’re at this – they’re at this really critical – critical inflection point right now where they are going from being major producers to now major consumers in the global economy.
ROSS: Well they’re still major producers. What’s starting to happen – for example, we’re in the denim business in China. Originally our factory was set up to do exports. Now it’s mainly serving the local consumer market. So the factories are still there. It’s just that instead of export driven they’re domestically driven.
LIU: Wilbur, one of the things that – Sam Zell was on with us last week, a fellow billionaire and entrepreneur. And one of the things he said was that this whole focus though on – on poorer countries and on the world’s poor and income inequality makes him feel that the rich are now being picked on and picked on unfairly. And Wilbur, I want to play for you part of what Sam Zell said about this in an our interview.
SAM ZELL: The 1 percent are being pummeled because it’s politically convenient to do so. The problem is that the world and this country should not talk about envy of the 1 percent. They should talk about emulating the 1 percent. The 1 percent work harder. The 1 percent are much bigger factors in all forms of our society.
LIU: Do you agree with his sentiment?
ROSS: Well, I agree that the 1 percent is being picked on for political reasons. I think the right focus would be how do you help the lower classes elevate themselves. And I think what’s disappointing with all the rhetoric, they’re not doing anything to fix the educational system. Education is the way that people get out of the ghetto and into if not the 1 percent something close to it.
LIU: Well, and then you have here in New York City the mayor, Bill De Blasio, who wants to tax the 1 percent to pay for that very same education you’re talking about.
ROSS: It’ll never happen. I don’t think Governor Cuomo is any chance of him letting it happen. Governor Cuomo is trying very hard to promote jobs and build up the state. And the mayor of New York, whatever speeches he may give, cannot raise income taxes without the state legislature.
LIU: But in your view it’s not going to happen, but do you think it’s the right thing to do or you think it’s the wrong thing to do?
ROSS: No. I think in a budget as big as New York City’s budget the idea that you can’t find $500 million not well spent and put that into pre-K is ridiculous.
LIU: Wilbur, you were talking – just on that other point, you were saying look, there needs to be some policy changes. There needs to be help for – for those who are disadvantaged and who are trying to work their way – their way up. The Democrats have said we’ve offered some solutions. We’ve offered extending jobless benefits for instance. Also, they believe the Affordable Care Act allows Americans not to be job locked anymore, that they can go on to become whoever they want to be without worrying about health insurance.
ROSS: Well that’s not exactly what they said. Nancy Pelosi said the greatest thing about the Affordable Care Act is that it means people don’t have to have jobs. I don’t think it’s a legitimate choice for an able-bodied adult to say I can choose whether or not I want to work and I can choose if I just wished to be a permanent burden on society.
LIU: But this – she would disagree with this because she was asked that question, right? She was asked that question at a press conference last week and here’s the quote from her in response to a reporter’s question about whether, as you say, this allows people to just not have a job. And she said, “We want people to have the freedom to be a writer, to be a photographer, to make music, to point, to start a business, to actually release the entrepreneurship of America because people would no longer be job locked by their policies but have the freedom to follow their passion.” What’s wrong with that, Wilbur?
ROSS: There’s nothing wrong with people following their passion, but she didn’t really answer the question. The question really is did she say and did she mean the best thing was that now you can choose not to have a job. Thirty-seven percent of working age Americans neither have a job or want one. Neither have –
LIU: Where do you get that from?
ROSS: The labor force participation. It’s published all the time. Only 63 percent of Americans regardless themselves as being in the labor force.
LIU: But do you not believe though Wilbur that there are people in this economy who are looking for a job who are not able to find a job?
ROSS: Sure there are. And it gets back to education. We’re moving into an economic period and a technological period where strong arms is not enough. You have to have a certain degree of education. The school systems are failing. They’re not teaching high school physics. They’re not teaching high school math anymore. That’s hurting those students.
LIU: But that’s talking about the younger generation. What do we do about the current generation?
ROSS: The younger generation is where the most severe unemployment is. The unemployment statistics are far worse for the people 25 and under than they are for the older people.
LIU: Well that’s true, Wilbur, but – yes, there is double-digit unemployment rates among the young, but what I mean is that for those who are now of current working age, more senior middle aged, do you not believe that there – that there are some instances where they are job locked?
ROSS: There are – well I don’t know about job locked being the right thing. I think there are jobs they are locked out of because they too are not properly prepared for it. And I think the sad thing is they’ve removed the basic requirements for retraining from the long-term unemployment payments.
LIU: Well speaking about unemployment, a high unemployment rate is going on in Puerto Rico right now and they are going through an economic crisis. You are a large stakeholder in Assured Guaranty, which guarantee loans – a large number of them – in Puerto Rico. So are you worried about the situation there? How worried should we be?
ROSS: Well, I think the Puerto Rican government is doing exactly what it should be doing. It raised taxes because its budget was woefully out of balance. It’s dealt (ph) back on the big pensions they have. They have a severely underfunded pension plan. It’s putting the lid on government employment. It’s fixing itself. And I think it’s in some ways following the same playbook that Ireland did. It’s unfortunate that strong medicine is needed, but they have to regain access to the public debt markets just like Ireland did. And I think they will.
LIU: Well, do you – but at the time that they will, will it be before or after a bailout?
ROSS: Well I think that right now they’re pretty liquid. And I believe that they’re getting proposals quite regularly from investment banking firms not as to whether or not they can get access but what’s the best way to get access. So I would bet within the next six months you’ll see them reenter the public market.
LIU: Reenter the public market. Okay. So possibly then staving off – staving off a bailout. But let’s say we get to that point though. Should it be the IMF to provide something like this or the US government?
ROSS: Well when you think about it, US government is the largest financier of the IMF. We’ve for a long time been. Wouldn’t it be weird to bail out Greece and Ireland and Portugal and other peripheral countries in Europe and let Puerto Rico go down? It makes no sense to me. Puerto Rico is – sure, it’s a part of the US, but it’s a territory. It’s not the same as a state. And for example what’s not available to it would be going bankrupt. There’s no mechanical way for Puerto Rico to go bankrupt. So it’s a strange situation.