>> from the milken global conference in los angeles, this is a special edition of "market makers." >> good morning from sunny los angeles. this is the milken global conference, 2014. speakers and we are kicking off our morning with one of the best. of thes the ceo blackstone group group, the world's largest alternative asset manager. he makes a return appearance with us and i am talking about steve schwarzman. good morning to you. >> good morning, how are you? >> we are great, we are in l.a.. now,om where we sit right los angeles, it's sunny outside and it's a beautiful day and never buddy seems to be in good

spirits, it's hard to see anything going wrong in the world but there are definitely things going wrong in the world. how worried are you about russia? >> russia is a complicated thing. it's a complicated situation and it's an area where we don't seem to have much in the way of leverage and control. i don't know that the russians were sitting around waiting to take crimea. thewhen the root -- revolution happened, it was an opportunity for them and it's a natural sphere of influence for them. and they took it. there was nothing the west could do. the biggest structural problem in terms of dealing with this type of crisis is that the russians provide about 1/3 of the gas into europe. if that gas were reduced or turned off, it would have a very material impact. as you think about how to manage a crisis, with that in the

background, that is the problem. on the other hand, were the russians to do that, that would affect them financially adversely. it's a bit of a complicated sing-along with the ethnic russian issue and what is the russian agenda? is it to reassemble part of their empire that was liquidated in the 1990's? we will find out. >> is there an opportunity for you as an investor in any of this? >> with the concept of u.s. sanctions and european sanctions of different types, in the short term other than if you are a market operator which we buy assets on a longer-term basis as a rule in most of our businesses, it is time to watch. this could have a variety of outcomes from going back to more of a business as usual or lurch into another direction.

>> the russian government appointed you to an international advisory board a while ago. is that a position you still hold? >> yes, i am on that as is everyone else. whatnk the reason is that you are supposed to do in life is see how things evolve. has not government given full direction in terms of what one might do and this crisis could be resolved relatively quickly or it could lead to more difficulties. i think it is in the watch and wait category. >> this morning, the white house announced a new round of sanctions against seven individuals and 17 companies. you talked a couple of moments ago about the west not having a lot of leverage. is that about all we've got is sanctions? >> with you had your foreign policy experts using the

military is probably not particularly on the table. the ukrainian government is not able to match the russian armies. so you are dealing with the nonmilitary lands from the western perspective. you can keep escalating sanctions. is thatgest problem just u.s. sanctions alone do not do a lot because most of russia's business is with europe. the europeans are suitably more cautious because they are the group that will feel the brunt of any of the issues with gas access. situationy difficult for the white house to manage. and by that i mean, any white house. >> let's see what you are

focused on. it has been a great opportunity in the last year to sell. where is the opportunity for private equity guys like you to buy? >> we have had a great time buying things. the m and a business has been really depressed for years. it is way below historic levels. what is happening is some confidence is coming back on there are many reasons why there might be some confidence. we are finding that our companies themselves are increasing their earnings. it is in excess of the s&p 500 comfortably. as portfolio companies -- businesses do better, people are more confident in the ability to buy or sell. it does not surprise me at all with over $2 trillion of cash in the system, stock prices that are higher than they have been, as a buyer, you have more

currency and if you're business is starting to do well, you should feel comfortable about buying something. if there is nothing that anybody wants to sell you, it's hard. >> it seems like there is more of secondary buyouts like other private equity firms. can you make as much dough with those transactions? >> i know people talk about that but think about it differently -- when you buy a stock, did somebody own it before? indeed, they did. some people make a lot of money buying what i would call it used to stocks. those are all stocks. people don't think about it that way. we have done extremely well. we bought one company called gerseimer in europe from someone else. we fixed up a big plant that could never make money and we did in acquisition and we made six times profit. >> that works out. >> that's not so bad.

we know that the sec is taking a close look at the private equity industry. they have been taking a close look at fees. have they spent time examining and talking to blackstone? does the threat of regulation pose a risk to your business? >> we have been regulated since we went public and before that and so members of finra forth so we are used to this. this is nothing new. we have been through and sec audit and license my -- in life has moved on. what's most important is to always run your business in the most straightforward, open, transparent way. that is something we do. for people who have not had the

benefit that we have of going through the ipo process, having lawyers crawling all over us to make sure that everything was done well, -- >> it's the benefit of the meatgrinder. >> you can occasionally have something tasty come out of it. as long as you don't look at how it is made. isn't that what they say? we are in a position through this type of stuff but not everyone is. >> we hear the sec in particular is uncomfortable with some kinds of transaction fees and deal fees. do you think there is a risk that through some kind of pressure if not outright regulation force firms like you to do away with things like that? are arrangements

between ourselves and the buyers. these are the investors and they typically each have a law firm that is representing them. these are not like regular purchases. this is not like going into a store and buying a dress. these are very detailed negotiations. , whatou settle that happens is that there is a balance on each one of the terms in the agreement ar so that the final agreement, some side wins, some side loses, bus in agreement and it's fair. >> you are raising more money from retail investors. why are they the next target audience for you? >> retail investors are significantly underinvested in alternatives. the stuff we do, the alternative class, tends to make around 1000

basis points more than the stock market. if you were an investor, you would want to get some of that. >> you would have to have the stomach for it. >> there is no stomach issue. inlose virtually no money the individual investments in our funds. are all inhemselves the money. riskfect, there is not that has been an paraclete seen -- empirically seen at this point even going through the crisis. an average institution might ore 20% total alternatives 25%. the average individual investor so the average individual investor is being disadvantaged and left behind. they should really be able to take advantage of the things the institutions get. >> individual investors are

getting intoxicated by the excitement of tech. do you feel we are in a tech bubble? >> i think we were. i'm not an expert and i have been in the secure his business for a long time. payingr you have someone $19 billion for a company with no earnings, that never had earnings, this is a wake-up call. >> a wake-up call or a warning sign? >> you have to wake up to be warned. it's hard to do it while you are sleeping. logiceal may have its own but there are so many very high-priced businesses that make no money. we have lived this movie he for. >> it ended badly. >> and it ended badly. usually what happens in markets around the world when you either get superhigh valuations or you

get very high valuations based on revenues and no profits, eventually there is a correction. i think we are in a stage where you have to be more alert to this then not alert. >> let me ask you about something i know is important to you. the program you started in china, schwartzman scholars, it was ambitious to begin with, $300 million, multiyear rho des-like scholar awareness -- as you look at things today, do you see yourself doing something like that somewhere else? could schwartzman scholars become bigger than what it already is? >> at the moment, -- did not think $300 million was enough. >> he is right, he is always right. we have increased the fund

raising to $350 million because it's more expensive. we are busy recruiting professors and building a building. condoleezza rice was just there yesterday and i got these anderful pictures of condi a hard hat walking around. she is one of our advisory directors and a terrific person. there is a bunch to do to get to the point where the big admissions process is modeled off of the rhodes with admissions panels and we will have students there in two years. my wife would not be in favor of an additional program in another particularly one that does not speak english as a first language. this has been a fascinating thing. here today, there is a famous professor i will spend time with in a private meeting to see if he would go to china. ♪and teach a course. e.

the problem is when you sleep. the business does not stop and the short and scholars is an overlay. it is turning out really wonderfully well. i am excited to see what it will be like when we have human beings from around the world. >> that means in the building is done, "market makers" is headed to china. >> i think you will have fun with that. >> thank you for being with us, stephen schwartzman at the milken global conference. we are taking a short break. >> when we come back, morgan stanley's executive vp joins us. ♪

welcome back to "market makers." we are at the milken global

conference with 600 speakers and eight we are here with a good one. >> it is the chief financial officer morgan stanley, the wall street firm that had a great first quarter. you cannot say that about everybody. good to see you and thank you for joining us. let's talk about where things stand on wall street right now. forcedstanley had a good -- a good first quarter relatively speaking. how does it feel? >> i think the trends we saw in the first quarter continue so there is another announcement of an mandate. m&a. them and i -- it's being driven by a number of things like cross order but also activist i tivoli and with this activity, you also see the follow-on financing at the video. that part feels good. on the trading side, the volumes we talked about during the first quarter with lower activity we continue to see that which

persists. >> why stay in the fixed income trading market? you think about high-yield mortgages, those are expensive business to be in and take a ton of capital and the top talent want to get paid a ton of money. why stay in those businesses at all? >> over the last couple of years, we did a bottoms up build. given the strength we have across our investment banking business, we wondered how we should size the business. it's expensive and there is a lot of capital and to have a vibrant institutional security system to drive return on equity as high, we need to be in fixed income. have $500 million in fixed income underwriting in our investment banking business. that supports what our clients want and drops to the bottom line. you need to have the distribution side of the business of there are many linkages. >> is that work mostly done like rightsizing the business and dedicating more capital?

are you operating from a position where morgan stanley is in the post regulatory world? >> we think we are pretty close. we have meaning leak reduced risk related assets. reducedve meaningfully risk related assets and made advances in technology. we were at the forefront of that in that sets us up well for the new regulatory environment so we are close. we have more work to do but we are getting there. >> when you say technology, it makes me think dark pools and high frequency trading. what is your response to all of this? >> we have been very early and vocal with regulators going back to 2009. there is a lot of a record about the importance of market structure and what can be done to improve markets with greater transparency and tighter governors. -- governance. it is one form of execution the

clients choose and is markets evolve, we've all but it's not a big driver of our business. >> are you concerned we will get more regulation that will affect you? if you go back to 2009, we were vocal with regulators about the kind of changes that would enhance the markets. we think transparency and governments around certain elements of this is important. -- governance. we have evolved over the last few years in equally markets -- in equity markets. >> are the markets there? >> we think they are. if you look at the u.s. equity market, it is the largest market, the most liquid market and fundamentally there can be some improvements. >> you mentioned there is still work to do to improve your profitability if you measure it by return on equity.

but your counterpart at goldman sachs, harvey schwartz said it would be a herculean task to raiseroe levels broadly speaking from where they are now. i take it you disagree? >> we very much disagree and we often talk about morgan stanley- specific tailwinds. the newest numerical driver is our bank. with the wealth management acquisition, we picked up a lot of deposits. deposits are at morgan stanley which is the 10th biggest bank in the u.s. that tailwind alone and just as we deploy those deposits into lending products and our wealth management clients is a big tailwind for us. we have some very specific morgan stanley tailwinds. >> the game plan is to be selling the commodities business. we heard this morning that there will be u.s. sanctions against

the ceo. will that affect your plans to sell his business? >> we are very much on track for closing in the second half of this year. it is subject to regulatory approval. it's the physical oil component within our overall commodity system. obviously it is subject to regulatory approval but from where you sit right now, with sanctions announced against russia, does that prove -- pose any risks in the second half? >> i cannot comment on the regulatory environment. our view is we continue to focus on closing the second half of this year. >> steve schwarzman was just here and we asked him whether he feels we are living in another tech bubble and he pointed to app byquisition of whats

facebook. when he says someone can pay them us for a business that has no profits, it should be a wake up call. david einhorn says we are living in a second tech bubble. if we were, and that bubble were to burst, it would be a terrible thing for your business particularly from the wealth management side. you look at valuations. this is part of your job so how do you feel about them? >> i think the difference if you go back to the late 1990's is we are seeing more substantial change in businesses and business models. for the most part, what you see is a scale to those businesses. anytime you have the opportunity to pick up that kind of customer base, it's transformative. do you need to be concerned about valuations? absolutely, that's our job and our role.

what we also see in technology is the power of the global reach. we want to see a more solid earnings stream. >> is it easier to justify those earnings today rather than back in the 1990's? >> yes. >> you mentioned earlier that activism is a good thing or is helping to propel the m&a market in situations like valiant. >> it happened without a bank ing involves a that's not a good thing for bankers. >> what do you say about that? in m&as a pick up activity. activism has been motivating more activity and one of the other very important elements we see when you look at overall m&a activity is acquired stock is

going up so acquirers are being rewarded by their shareholders are making strategic deals that are smart. go, less than a month ago you said it is an embarrassment how few women are running companies today. how did we get to this place? why is that the case? it in context -- 50 years ago with the civil rights act and 50 years later, only 50% of ceo's in fortune five companies are women. we can call it an embarrassment or an opportunity to improve. one of the most interesting pieces of analysis coming out is one that shows the correlation between greater diversity of senior-level or a board and innovation of performance. if we can tie it to the business case, hopefully that's more of a catalyst print >> sallie krawcheck just said we think we are moving backwards. >> i think we are slowly moving forward and to continue to move important that

you have systems that go deep into organizations and develop succession planning and make it part of the business case. i hate to say it but were out of time but thank you so much. ♪

the specialack to edition of "market makers." we will take you back to the milken conference in just a few moments. we want to bring you some of the other big stories on this monday morning. the u.s. conference date and with russia, the u.s. is imposing sanctions today on the vladimir putin regime and they did obama says not take the opportunity to avert a crisis in ukraine. >> the goal changes the calculus with respect to how the current actions he is gauging in in ukraine could have an adverse impact on the russian economy

over the long haul and to encourage him to actually walk the walk and not just talk the talk when it comes to diplomatically resolving the crisis in ukraine. >> a harder line being drawn there. phil mattingly is traveling with the president and joins me now on the phone. we're looking at sanctions on seven more individuals, 17 companies, give us the details. >> these are a lot like what we saw in the first round of sanctions, expanding them that. the 17 companies are linked to individuals in the vladimir putin and her circle. they will be subject to asset freezes and the individuals will be subject to asset freezes and visa and. b --ans. of president and chairman the management of the board of neft is one of the leading petroleum top and is in russia. grtoup - nd volga

they are targeting individuals and companies that are close enough to president putin to maybe have an impact. everybody is trying to figure out if that will walk him back a bit. >> what is the effect on u.s. companies? --garet stanley is trying to morgan stanley time to sell part of its business to rosneft. >> administration officials especially treasury and commerce have been working and speaking with u.s. companies over the last couple of weeks leading into where the sanctions are. the bigger concern on the u.s. side from the administration officials has been where the european companies are on this. u.s. officials feel like u.s. companies are at least insulated enough the sanctions will not have a massive impact on their business. when it comes to european companies, they know this is problematic. the more expensive the sanctions

cap, the more of a direct hit they get on their bottom line and that is the concern. >> have you heard more details about economic sanctions in certain areas of the economy? that seems to be the next big thing. the threshold that administration officials has been agreed upon internationally is if troops massed at the border of eastern ukraine, the 40,000 russian soldiers that are they're doing exercises cross that border on the winds of become a legitimate military invasion as opposed to what we see now. to whattion goes back we are talking about and that's european officials might say they are on board for sectoral sanctions but their exposure here is massively different than what the united states is facing. u.s. officials are aware that if sectoral sanctions become a real thing, it will be not not like this. they will be different countries who can go further than others. the u.s. is clearly leading the look at the you

energy sectors, everyone will not be in the same boat and that concerns u.s. officials should they reach the point where they have to bring out sectoral sanctions. >> and looking at the eu to see what they will accomplish, thank you so much. bank of america is suspending an increase in dividend and a $4 billion bear back debt share buyback. they said they made a mistake its capital planning and incorrectly adjusted for losses unstructured notes issued by its merrill lynch unit. the fed says that bank of america has to submit a plan within 30 days. comcast is taking another step to take over time warner. it agrees to divest almost 4 million subscribers to charter communications, reducing its market share. regulators have been concerned that time warner cable deal would make comcast to powerful in the market. in paris, general electric ceo

is trying to save the proposed takeover of the french company. french officials have urged him to consider a rival offer from siemens. france does not oppose the ge bi d. many more deals to tell you about. what would be one of the largest takeovers ever in the pharmaceutical industry? pfizer is confirming that they are making an offer to bid astrazeneca. it will continue its pursuit. what does pfizer see in astrazeneca? >> pfizer sees a whole lot. of not doing huge deals, megamergers seem to be back. this would be a monster. as far as i can tell, the pfizer strategy is talking about

splitting it into three business units. it has a bunch of drugs that are little bit older and going off patent and it sees similarities. they've got a cholesterol pill -- these three businesses should be cancer, vaccines and consumer? >> and then there will be the established product as this and another one with inflammation and immunology. it will be three big drug companies inside pfizer. see want to take what they it astrazeneca imagine up with those three units inside the company. they look at the cancer type light in some of their primary care drugs and they see nice little ways to put those into the different buckets they are creating. >> does that mean a potential breakup could still be intact? >> that's what they are saying. they say this does not change the strategy. $100 billion is a lot to take in. >> especially when both companies are losing patent rejection. >> that's where they think they

can put these older drugs in and put those and sell them in emerging markets and middle market companies. $100 billion merger will be disruptive to just about any company's operations. pfizer says we have done this before and we will do it again. >> what part of this has to do with taxes? >> pfizer pays one of the highest tax rates in the pharmaceutical industry in the highest 20's. this is an opportunity for them to say we will do this merger with astrazeneca and use this as an opportunity to re-domicile this company and the lower u.k. with a lower tax rate. it would be one of the biggest companies ever to leave the u.s. for tax reasons. you have to wonder what the u.s. government will do. >> they will stand to use a lot of that lose a lot of money. pfizer already has a good tax advantage situation where it manages not to pay a lot of u.s. taxes. -- all farmer also the

the pharmaceutical companies do this. they think would they can make this happen. congress and the white house are doubly going to have something to say about this. >> you would think. thank you so much. up, it's the first test for the new nba commissioner and what will he do about donald sterling and his controversial remarks? ♪

welcome back to "market makers." we are live from the milken institute global conference. >> the hits keep on coming. with us right now is the deputy managing director of the international monetary fund, dr.shu min.

we must begin our conversation today with russia. ev was shotf karki today and there are new sanctions announced against russia. how could de-stabilizing could these events be not just for the global economy but for the european uncertain recovery? >> it's pretty serious. it does not only impact on central europe but also far into central asia. countries are really concerned and anxiety is heating up. russian groceries are slowing down. we may further it adjust them down. there is a global impact. if the whole thing is collate some the commodity side, it will have a profound impact on the financial markets as well. >> are we headed for a new cold

war? help toy to provide ukraine to stabilize the situation. when we talk about political situations, ukraine has a pretty serious economic and international crisis. the aim is to stabilize the ukrainian economy as much as we can. the $18critics say billion aid package to the ukraine from the imf could be restricted because of you think about the restrictions added to it, it could be a negative to the ukrainian economy. >> they need money that's true but they need reform. i need a more tightened fiscal policy. we have to help them not only give them money to balance their payments but help them to move forward in terms of economic reforms. directorsmanaging

global policy published this month, there is a reference made to the risk of new turmoil in europe. where might that turmoil come from? will it come from rush or somewhere else? >> and europe, we are concerned about a few things like the russian-ukraine process. we cannot assume that everything will be contained. there are new sanctions on the table. do is put our arms around the ukraine so their economic situation is stabilized. we are concerned for all european countries as well. this into a bring deflationary situation. >> what is the greatest threat to the global economy right now? the type that's the top issue

is the u.s. tapering. emerging markets have been stabilized in the past few months which is good. the market has been very quiet. how the u.s. moves out its quantitative easing wallace he is still a bit of a concern. paper is still not clear. what happens after tapering? when will the fed raise interest rates? expendingthey stop their balances or will they move act? put theirhey financial stability issues into the macro situation? those are also the issues that we need to see. >> there are questions about contributions and government spending. our larry summers and paul krugman write that now is not the time for fiscal consolidation in the united states? >> the u.s. needs both sides.

in the long term, the u.s. needs credible fiscal consolidation policy. u.s.e short term, the needs investments to pick up. we should start with the private sector because it is sitting on a pile of money. if you look at the u.s. economy, it is not too bad for the projections. this is a big issue. housing still continues to recover which is good but you are looking for the supply side to wake up. >> thank you so much. great to see you. >> thank you for joining us. >> he is the deputy managing director of the international money fund. >> we will be back to talk with

barry sternlick. >> we will talk scandal and the l.a. clippers in los angeles. ♪

>> welcome back. controversycourt may have the l.a. clippers in some hot water. allegedly, team honored donald sterling made some racist comments in a taped conversation to his girlfriend. it is not confirmed that it was him. just yesterday, the team silently protested by wearing their warm-up jerseys inside out. they were not route to work for mr. sterling. i want to bring in the ceo of sports impact and he joins us from st. louis. clearly, everyone in the world of sports and media is talking about this headline. what could this mean for mr. sterling? it's a very delicate and interesting situation.

we have to confirm it is his voice but once the nba does that, adam silver, the new commissioner undoubtedly will ban sterling from participating in any of the postseason games and it's possible he could take away day to day operations from the team in the short term. >> how important is it for the clippers and the team and the nba as a leak to respond to these allegations quickly and decisively? what is the risk of both sides do not? >> i don't think that will be an issue. i think they will respond. the next playoff game for the clippers against golden state is tomorrow night. i have no doubt that the nba will put out a statement either later today or tomorrow. is that to understand in baseball, baseball dealt with a series of comments by mzarge

ott and suspended her multiple times which led her to eventually sell the team. i think that is the endgame. there is a lot of legalities that have to be worked out. the owners will have to tread lightly here. knowing donald sterling, what is his track record? what could he do here? >> if he's smart, he should stay out of dodge and does not show his face. he is a pariah and i don't know if he will be ever to show his face at the staples center again. he is a former lawyer. if the nba and that the commissioner use within the best forcest of basketball to donald sterling to sell the franchise, who knows what tricks he could have up his sleeve? would the audiotape be admissible in court because he was not aware that he was being recorded.

>> even if it's not admissible in court, his team is ashamed. people -- are furious with him. what does this do for clippers recruiting? who wants to work for a guy like that? >> it's horrible, i agree. in the court of public opinion, this guy is toast. he is yesterday's news. unfortunately, you got the legal side of things. i believe adam silver and the other nba owners can have a huge impact on this. if they collectively get together and say we need this guy out of the league, that will help adam silver's case to eventually force sterling to sell. it hurts everything. it hurts their season-ticket holders and it hurts corporate sponsors. they will get a lot of backlash, no question. should the team be speaking

with a louder voice? would it have helped the situation of the clippers boycotted a playoff game or golden state decided that they need to send a message to the team by refusing to play? >> i think the action they took yesterday was there silent protest and that was the right way to proceed. they don't want to let donald sterling dictate their enjoyment of a postseason run. historically speaking, the clippers are one of the worst franchises in the nba and the last few seasons, they have had some success on the court. they have to stand strong and they are not going to let this gentleman and his perverse views spoil what could be a run into the postseason that is unprecedented for the franchise. >> i think you are being generous saying gentlemen. let's say sterling is not forced out and he hangs on

tenaciously, what do the players do? the players are under contract. andcoach came out yesterday said i'm under contract, too, but i don't know if i want to play for this gentle man down the role. that's another implication of this entire situation. i thought it was interesting that not only was he at the golden state game but later that night am a he took a private jet to the portland game and adam silver is forming a consensus. it will not happen in two days because there are too many legal ramifications. i believe what will happen as you will see him suspended indefinitely and after the season is over, adam silver would have a chance to speak with the owners in greater context and try to formulate a plan to get sterling out of the nba. >> thank you so much.

that's pat rich, the ceo of sports impact. >> when we come back, another great our from the milken global conference in los angeles. markadanazio owns the milwaukee brewers and will be here. he happens to be a very large manager of assets. much more from milken in los angeles. ♪

>> live from the milken global conference in los angeles, this is a special edition of "market makers." >> welcome back. we are joining you from l.a. live for the milken global conference. >> with us now is a man who started working for mike milken back in 1985. >> so he was two years old. >> is now owner of the milwaukee brewers baseball club and runs a $16 billion credit investing firm called crescent capital and his name is mark aten masi oka great to see you. -- mark attanasio. >> good morning. >> a lot has happened since

1985. it is worth talking about what it was like working in the bond market for michael milken in 1985 and what it is like today. >> good question. >> one of the great things about working with mike in 1985 was you felt like you are in the sample of the universe britt high-yield finance was booming than come it was a new area but inming and that meant that 1985, there was $14 billion of finance. or new issues. today, last week, the biggest deal, the biggest cross border deal was $21 billion in one deal. it's a little bit of a change. the other change is we have a lot of transactions in the mid-1980's with 15-20% yield. it was five percent per quarter in coupons. they had some four percent

coupons. >> what does that mean that we've gone from a world of 20% coupons to four percent coupons and we got from a world of $14 billion of issuance of a single year to $21 billion issuance in a single deal? >> i hope they say it is progress. the market is over $1 trillion. it has matured. i think it's a sign of the maturity of the market. >> what is the center of the universe now? 1986 -- itlk about is the heart and soul of high finance, what is most exciting now? yourself by the way how many concentric circles you had. if you move closer, you are doing better. i'm not sure -- it's a global business now. french-based cable and and sone service company

it's a global business. there is no center anymore. >> what are you most excited about? >> dare i say this? the dodgersg that can get the best record in baseball. there are great opportunities in markets to provide capital to middle market companies. the banks are getting regulated out so as investors, we can fill that gap. we can raise capital for companies and help them grow and provide jobs and provide better returns for our investors. >> is it only a matter of time before you get regulated? could you be next? tends to swing in both directions. did not have enough regulation into the last financial crisis and now there is a little bit more. there is regulation on things

like structured finance is and that would concern me because the banks, forgetting middle-market, upper middle market companies cannot make loans anymore and that capital is coming from structured vehicles and accounting regulations. is good reasons why you want to be in the lending business. there are yields and those loans and that's what your investors want most. ne of what investors are demanding and the substance of what investors are demanding has changed a lot in the last five years? >> yes, there has been a real focus now on making sure you can invest your money. everyone is very focused on -- >> what were they saying five years ago? >> five years ago, even though they were looking to make an investment, they wondered how fast they could get their money back and they did not want to put it all about it once. -- all out at once.

corporate endowments and university endowments were lacking cash. now everyone is flush with cash so they want you to invest their money as quickly as they can. >> you had an interest last year in buying preferred stock. what you think now? >> we are focused on direct lending now. we find you can create an advantage for your clients by taking liquidity risk. anything we can do directly -- as we move through the credit cycle, while we have a low default ratio now, we are looking at going more senior and making -- instead of being lower in the capital structure, being higher. >> do you have enough opportunities in the middle market lending space? kkr seems to be dominating there. >> because we are smaller, we like to think we are more nimble. we are able to do transactions that are smaller in size than have tobecause we don't put out or deployed as much capital. our pipelines are pretty robust

right now. >> what about liquidity? five years ago is what everybody was interested in. make sure what you are investing in his liquid and they can get their money back quickly. do people -- do people care about that today? said liquidityn is overrated. >> that's easy for him to say. >> liquidity is overrated insofar as where the market -- there is no liquidity anywhere. you can get a yield advantage. several hundred basis points on comparable transactions, buying a less liquid bond or making a less liquid note loan and that the difference between five percent and 8-10%. >> what is your take on emerging markets? we like to focus better on companies in the united states as we are based here. i try toake loans --

assess companies management teams and how they are positioned. it's harder to do that in the emerging markets. for us, we pretty much stay in the u.s. and europe. to put on your brewers cap for a moment. let's ask the first question about basketball. the scandal is unfolding around the clippers. the league is addressing this the right way? certainlyam silver is walking through the steps in the right way. he is walking a tightrope. in this twitter age where everyone wants instant results, you still have to have some kind of due process. is it the owner's voice on that tape or was it spliced? he needs to do that but that may be unpopular.

there will be a lot of pressure to make a decision quickly and he has to make the right decision. he is absolutely doing all the right things. >> as a team owner needs to fill a stadium, you understand what is needed to get fans the i and the team. what does this mean for the clippers? >> this is not a good thing. fabric of the the community and our community is a melting pot like any in the country. i have been at several clipper games. it's great. there are folks from all walks of life. >> especially when they are winning. >> i think it's hard everybody. it's the players and the coaches but it's hard on the fans. >> what about baseball? i know well how well his team is doing. selig is in his last year as major league commissioner. how difficult will it be for baseball to replace him? >> it will be very difficult to replace him.

he has championed so many changes. if that has been a renaissance in baseball, it has taken place under his stewardship. it not sure how we will do but we will have to do it because it's the national pastime and it's so important. >> is that a fantasy gig for you? >> maybe when i'm 70. >> but you would like to do it? >> i think every owner at some point -- one of the things that struck me about baseball is the passion the individual owners have for the sport. there are probably two dozen of us who are not corporate owners were quite passionate about baseball and live and die -- we all watch every one of our games. it's crazy. >> do you ever meet anybody who sits in the uecker seats for? one dollar uecker --a bobo uecker day where you could get a

seat for four dollars. >> me and laverne and shirley and you, i love it. >> great seeing you. >> congratulations. crescentthe ceo of capital and the owner of the milwaukee brewers. >> we will be back with more "market makers." ♪

>> welcome back. are a live from los angeles at the milken global conference, 2014. >> we are now joined by one of our favorites, barry sternlicht, the chairman and ceo of starwood. >> just one of your favorites?

maybe 21 favorites today. >> what are you most excited to talk about? at the conference, i was asked to do it. i meet interesting people and had an entrance to dinner last night with hank paulson which is unusual. i like to hear what is going on. i like to hear what people are thinking and especially now, the world is at an odd inflection we are at a winter induced lowell and will roar forward or which -- or are we in a period of long growth? i think we are in a long slow growth. i think it is propelled by waves of capital. there is a lot of money sloshing around in it reminds me of 2006. it is everywhere. there is a lot of money chasing property in europe today in the

u.s., two and we have a lot of clients that want to buy core real estate in the united states. they are throwing in the towel on caution. they have decided that everything is better than bonds everywhere. property is a good place to move some money. i think you see that in the stock market with profit to valuations because there is fewer places to put money. >> fewer people understand real estate risks better than you. help these people understand why it is not necessarily good inc. to be moving to a liquid investments like properties? >> because he wants to buy a cheap. >> correct. i think property is fine. are we spoiled by trying to achieve 15-20% return? maybe we should be aiming for 10% when yields are 5.5%. traditionally, we have seen higher returns.

. it depends what market you are in but some markets, they are built differently. investing in small places is different than london and new york. feelsarch for a yield like 2006 -- >> does that mean that 2016 might feel like 2008 all over again? >> i like the tree shaking. i like the market reeling and dropping 100 points. i like keeping fear in the market and keeping people paying attention because it's good for discipline. they remember the fear factor. one of the problems for real estate today is you go back five years and you no longer pick up the crisis and now everything looks good. investment cycles don't work like that. they are lumpy like camels. [laughter] pay attention here --

>> a big lumpy comp. hump. >> the property market at all of this is driven by the debt market. the debt markets are the first thing where you lose your discipline. i was just reading a report from moody's how loan to values are creeping up. you are not anywhere near the with or the mess you had free credit in 2006. you are certainly coming out of that. >> because there is so much money sloshing around, doesn't make you more inclined to sell them by? >> both, we just have to pick. for sponsors like us, we have to add that i do. we cannot just buy a static asset and hold it. center ore a shopping or atwant to re-landscape another floor to an office building, we have to add real

estate value. that's ok, that's fair. my job is to make sure we have the talent to do that. it is kind of fun for me because you have to get smarter. before it was being in the ocean. you could not miss anything. i want to keep your viewers awake. >> you are. if things are going to be low and slow as far as the global economy is concerned, how is it possible the hotel business is doing as well as it is and for how much longer can that continue? goldilocksn a good year for real estate. demand has come back into the hotel space. companies have gotten much muchr pricing systems, better understanding of their own inventory so they can raise prices faster and occupant since his wet up and prices are now going up. the corporate group for travel

is nowhere near what used to be. i think company still are sitting on their pocketbooks. you see it in capital spending and corporate travel but the transient business has been good. in places like new york, they are softening. there is a lot of supply in new york hotels. the new york hotel market is softening a little bit. >> is that supply and demand or is there something else going on? >> i think so. i think it's a little bit of supply. we are coming out of the four scored her which is a nothing quarter in new york city. it will be interesting to see what happens in the next three months in new york city. it has been the worst-performing major market in the u.s. this year to date. >> does that concern you because you have a big project in brooklyn right now. ? >> that is one of four projects in new york. it will be better than anything else on the market so i am not worried about it. it's a green hotel overlooking the hudson river. -- the east river. >> that would be really tall to

overlook the hudson river. >> you can see the statue of liberty. >> it's a great project we are doing with toll brothers. we have another one at 1414 5th avenue. we have south beach opening which is not new york and we have the baccarat hotel. blackstone, you are an investment in single-family homes. why'd you take so much heat for being in the single family home market? >> they kept everyone from doing it. put our toe3s in. i did not think we would have in a risk. we focused on florida and texas and california and stayed out of some of the wild markets like phoenix and las vegas. you see property prices going down because the investors got so aggressive in those markets. beyond the natural price point. you couldnot think

actually manage this business in scale. i think that's where investors were mistaken. they believe this was a business that did not need to be rolled up. there are more single-family homes rented in the united states than apartments. it has been a mom and dad business. our job will be to prove that it can be done efficiently to scale. one thing that is better than apartments is the margins are about the same. the length of the lease is longer. we get two years typically from a family and apartments turnover faster. capital costs are higher but adjusting for turnover, they are not. >> is there more investing to be done there? >> it has gotten harder and you have to pick your markets and certain market your shut out of. -- who will run for president, who will be the next republican candidate? >> eriki. >> he's canadian, he can't.

>> how about you? >> i can be a senator. i like chris christie. he needs to pull through his toll gate issue. isn't that a cookie? >> bank of virginia running as, barry sternlicht, unfiltered. we will be back in a few, stay with us. ♪

>> it's time for bloomberg's "on the markets." the u.s. markets are losing some of their earlier danes. the nasdaq is slipping into negative territory. shaking offas been

the worst decline in two weeks it's on friday but not managing to maintain that. the s&p 500 is losing steam and picking up steam to the downside in financials and materials and consumer discretionary. telecom is still positive, up by about one percent. the individual stock want to highlight is amazon. it is continuing to get pummeled after friday's 10% loss. the spending spree in amazon continues and it looks like investors seem to care. the investors that the company is looking at an investment loss. of the biggest losers in the s&p 500 is newmont mining. two companies are agreeing on a proposed spinoff of company mines. companies have been hit by local prices and high cost leading them to try to find other solutions.

coming up next, we'll go back to beverly hills or more from the milken conference. will be dr. doom economist, nouriel roubini. ♪

you are watching "market makers," a special edition from the milken conference in los angeles. guess who was with us? he wants went -- he wants went by the nickname dr. doom. he is nouriel roubini, the cochairman and founder -- >> he spends 80% of his time on the road. >> let's go global. most now, it was seen to people like this situation that is unfolding in ukraine as a concerns pressure presents the single biggest risk but maybe it isn't. share with us your view of

what's happening there and how you think it will unfold and whether we are missing something bigger. ,> among the local terrorists the ones coming from ukraine are the most important. there is the beginning of a new cold war between the west and russia. this cold war could actually become as heated as possible if easternestabilize the province of ukraine. war, itbecame a real could be a situation where the supply of gas to europe may be cut off from russia. the european economy is recovering from a recession and that could take the eurozone into recession. 1-10 scale, how concerned are you that things could get catastrophic there? >> today i would say the risk is around 7 and rising. the situation is one in which russia seems to be very aggressive in ukraine and they want to take over ukraine and

therefore an escalation is likely to occur. >> in what form? you talked about the possibility that this could become a hot war. i guess that means the use of force on both sides? >> yes. >> that assumes that nato will act. >> let's put it this way, suppose russia is going to de-stabilize and invade eastern province of ukraine, two things will happen. the west will have to become more severe. could limit the supply of gas to western europe but it secondly, if nato is not going to have a military information, they will have to provide military support to the government in kiev and that means the war could ask of a -- escalate for quite a while. from a financial market point of it could affect the financial market in the eurozone. >> could escalate for quite a while?

if vladimir putin was to exercise force in a big way, he can and there's really nobody capable of responding to it other than the united states. >> even if he wanted to use , he is not going to invade all of ukraine. you don't know for how long a military conflict of this sort will continue especially if the u.s. and europe were supporting the government militarily inkiev. this is not my baseline but there is a downside risk that this will happen. remain lingering for a while and investors may become worry. >> what about the impact on the european economy? >> the eurozone is recovering and there is the beginning of an economic recovery but it is fragile. the last thing the eurozone can afford and needs is another increase in from an

gas prices or cut off of supply from russia. that would tip the european economy back into recession. >> given the scenario just painted, does it make sense that spain is selling on that record low yields? given the additional of easing monetary policy, given the beginning of an economic recovery of a banking union, it's not surprising that the risk of the euro zone has receded. investors are coming back into the eurozone. this could be a shock coming from the ukraine. withu recently came out the six largest risks facing the global economy. what are you most concerned about? >> leaving aside ukraine, the other big risk is the one coming from china. i spent many days in beijing last week.

while the consensus believes china will have a soft landing, growth of about seven percent, my reading of the data is that because of the buildup of leverage and the need to rebalance the economy from fixed investment and consumption to slow down, the credit growth may be .5% next year. it's not a truly hard landing. there is a much rougher landing than the 7.5 are sent than consensus expects. why aren't more people talking about the unexploded bombs in the chinese shadow banking system? >> people have started to talk about it. you have a huge amount of bad assets. now the chinese authorities are telling us they want to crack down on the moral hazard coming

from the shadow banking system and they want to let some institutions fail but without insurance and no guarantees. you could have a run against the banking system and that would be the beginning of the unraveling of the chinese financial system. underestimate the effect on the financial system if you are serious about cracking down on this rather than imposing market discipline. what is most comparable to what china may face? was 37% there of gdp that was excessive in turkey. fixed investment was already something like 42% of gdp. it went all the way to 50%. no country in the world can be so provocative that you can take

half of your gdp. hard landing of that fixed investment in the financial -- inment and profit private or public debt is what china is facing today. >> you think the fed may raise rates too quickly. is janet yellen doing a good job? >> she is but while she is on the dovish side, there are now the fmoc as a collegial democracy. there are two new members that are confirmed and four of them are gone. tomorrow have to come in and likely the new members are not as dovish as janet yellen. members, thereng

are three new hawks. the head of the cleveland fed used to be head of the philly fed so there is a shift toward less dovish composition. hike sooner rather and faster. othert about the challenge that confronts the fed, reversing unconventional monetary policy and tricking the balance sheet how do you expect the fed given the dynamics of the fmo city to handle that situation? >> it's a bit of a delicate situation. either they exit sooner too fast and there is a hard landing on the economy or way too long an act to late because the economy is still weak and him unemployment is high. it will take them 3-4 years to

normalize from 0-4. now, the riskfrom is still just as bad and could form an asset bubble. it could lead to a crash. the risk is that the fed exits too little too late and we will re-create the same type of bubble we saw a few years ago >> followed by a bust and the crash. >>i want to end on a high note. you spent the last several months in asia, africa, south america and the u.s. where is there a bright spot? where have you been pleasantly surprised? >> overall, the global economy is recovering. the average advanced economy will grow two percent this year. be less than that in japan and the eurozone. it has been good for many emerging markets but on average, five percent is good.

there are a whole bunch of risks like china and ukraine and russia and what the fed will do is another one. there is a recovery which is the positive but there is a number of risks. >> he just won't end on a high note. dr. doom comes back to us. >> dr. realist. >> keeping it real. >> when we come back, steve tannenbaum will be with us. makers,"s "market special edition live from the milken conference. ♪

>> welcome back to "market makers," special edition live from the milken conference. steve joined by tannenbaum, the founder and ceo of golden tree asset management. the last time we spoke and we talked about high yield to stress and student loans. we have to talk about russia.

clearly, it's in the news but many investors have said they do not want to touch it. they cannot understand and don't feel comfortable with the rule of law but you feel differently? >> it certainly can go a bad way. there is certainly a clear scenario where things get worse and it would not be a good investment. we feel it is quite attractive as an entry point. before there was the g7, there was the g-8. russia and the g-8 have the best statistic from debt to gdp with about 15%. the next closest was canada in the mid-30's. russia as a country is starting with very good statistics. when you look at the themes we , thatnteresting like gas trades in the mid to low 400s and that's the largest gas company in the world. that trades around 140 basis points or so wide to the

sovereign. to put this in perspective, we cannot find any oil company that is even close toward this trade. most of the companies we see trade tight or very close to the sovereign and we think this is the most important company in russia. we feel we have a little bit of value there. >> can you trust the system? said it's a 7i on a 1-10 scale. it is priced as if it's a 10 so it is overestimated where it is. up, it looks it like one of the best credits in the world trading in the mid-400s.

i were thinking about what is most likely to happen, russia will ask its oil company to pay its gas bills over the sovereign. it is an export, they will need to have a different system than that domestic debt. >> have you already put money in their? >> yes, >> what about ukrainian sovereign debt? >> we feel that is a much different situation. we are on the sidelines and with think it's impossible to analyze. if you look at russia, it's a strong credit in a difficult environment. if you look at the ukraine, they're a lousy credit in a tough environment where you need support and external support to justify a lot of the levels. >> everyone looking at the

situation in ukraine and how the west is responding in what kind of countermeasures russia may take talked about the possibility that russia will turn off the gas supply to europe. bethey do that, that would -- disastrous, would that not give you pause? >> its price dan. i'm sure it will trade down that day. we believe there is a lot of value there and asset coverage. it is money good and it will be a very good entry point. >> let's go broader in the credit market. where else in credit do you see opportunity? howard marks told us last week that if you want to make money come you have to find a good asset class and go against the grain and be bold. >> like russia. let's go a couple of other places. assets are still cheap and asset backed that go like private student loans offer tremendous value.

we think they are about 100 basis points cheap. the stats continue to improve. another area of value would be municipals. munisically, some of the like hospital municipals are also attractive. be last one which iac would loans. if you look at the spread you are getting versus what we think are the default rate, you're getting a pretty healthy positive spread. >> you like puerto rico? >> i like the bonds. you can have your cake and eat it too. at can get the rapbonds about $.60 on the dollar so you have a lot of and civil protection. it is wrapped by the monolines so it puerto rico default, you still have the support of the monolines.

when you read about a settlement from the bigs like jpmorgan, the beneficiary of that debt are the monolines. the settlements increase the ability of the mono lines to support other situations like puerto rico. constructive quite on the broad theme of the monoline. >> what about real estate finance on the commercial or residential side? >> it is very situational. you probably have a tailwind so it is probably relatively attractive but we are not seeing the value we saw in 2009 on a relative standpoint today. >> do you feel the high yield and credit markets in general are simply getting too crowded? we talked about a new issue that was 20 times over, doesn't that sound crazy to you? it does as a former salesman.

>> if you knew that something was going to trade up like when google went public and that was an option so that might not be the best example -- >> and maybe facebook which people were wrong about. >> facebook was a little but yout but you do -- know it's trading up and people are looking for a bid and liquid credit with zero spreads print i don't necessarily view that as a proxy. what tends to her credit markets the most is a bad economy. between poor underwriting and a bad economy, is usually a bad economy that hurts credit markets more. i believe you probably have another 24-36 months before you have a material pickup in defaults.

here, irting point don't think it's a great entry point in high yield relative to some of the other asset classes. it's more of a value standpoint -- i can't believe the credit was so bad -- generically. what was liquidity like them at a time when you have more assets than ever and more people want to be in the credit market. how do you get anything done? >> is easy to sell and harder to buy. i like that. thank you so much for joining us. stevehere we get to tannenbaum but it is worth the, founder and ceo of golden tree. >> so much more when we return from the milken global conference. we will talk about the future of

the car and the former ceo of barclays is prospecting for banking deals in africa. ♪

its 56 past their which means

bloomberg television is "on the markets." stocks are rising today but they are mixed right now amid a flurry of dealing to the offsetting concerns about rising tension in ukraine. joining me today is jimstreuger. the nasdaq is lower. investors are focused on what we are hearing out of russia and the u.s. is upping sanctions, what do you think is driving the options market now? >> indecision reigns broadly in the market. you see that in the options market as well. peoplelook at the vxx, are positioned with long volatility. >> why are there so few bears? >> it is showing up in long volatility and spdrs.

ukraine, we saw a graph this morning on five-year credit default swaps and russia which are breaking out to new highs since this rises began. you can have the x possession -- you can have the sense thatthe xpf is still below its crisis i. debt crisis high. -- below its crisis high. we would be actively added hedges to portfolios here. >> you heard from a bunch of big tech company earnings last week. what does the option market tell you about social media shares? >> there is a focus for everyone and last week we trekked 13 of the highest volatility stocks toward the end of the week. of those, 11 saw their shares trade lower following earnings.

facebook had a solid report on the stock traded down five percent. in the latter half of the week, netflix on monday and the stock was up seven percent and now down their team percent for the rest of the week. this week, the focus will shift a little bit on twitter which will be up tomorrow and yelp and akamai later this week. sentiment might be derived for how these momentum names act. >> does twitter have the same kind of implied volatility as facebook? >> it's about 15% for twitter which moved down after it reported its first public earnings. this is just its second quarter as a public company. there is still plenty of volatility embedded in those shares. >> the bar is very high after facebook posted a great set of results and then the stock fell. that's a lot for twitter to live up to tomorrow. another name intact isakamai

technology. is a name with more tangible valuation. our analyst covers the name and it's been a classic beat and ra ise and the high revenue above company projections and we want to belong into earnings. 50% more salest people over the last year and that should convert this quarter and going forward. we want to be very simple, not too cute come into earnings. we want to buy june 57 .5 calls at about $1.20. the wrist is the premium you pay for that position. aboutr breakeven is 58.50. this is a 13% implied jump. why are you so confident? >> it is back to fundamentals. yelp and netflix are

names of incredibly high valuations and our valuation on akamai trades up toward their team times. unlike these other highly volatile names come you're talking about a stock where you have historical valuation. >> even though it has seen a big selloff, it still up about nine percent year to date. thank you for joining us and we will be "on the markets" again in 30 minutes. " lunch money" is coming up next. ♪

>> live from bloomberg headquarters in new york, this is market makers with erik schatzker -- will come back everybody. we are live at the milken conference. click the last two hours were so good we decided to stay with you for one more. let's have a recap. the first person we sat down with was team schwartzman. concernedople is