tv Bloomberg Bottom Line Bloomberg October 20, 2014 2:00pm-3:01pm EDT
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>> i am mark crumpton and this is "bloomberg bottom line." to our viewers in the united states and those of you from around the world, we're full coverage of the stocks in the stories making headlines on this monday. stephanie ruhle joins us to excuse it just exclusive interviews, making --millard drexler. potential vaccine and serums to stop ebola.
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monitoring wall street after last week's roller coaster ride for stocks. we will get to those stories in just a moment. first, let's get you right to the top story that we are following. ibm shares plunged the most in the most in four years, struggling to transform fast enough to handle the shifted cloud computing. an earningsd forecast for 2014 and said it will provide an update on its projections in january. ditching a five-year plan to boost profit. the shares tumbled by dragging down the value of the stake held ibm's biggestett, shareholder. earlier, ibm announced an globalnt to pay foundries $1.5 billion to take over the chip manufacturing division. the deal is part of the ceos efforts to prioritize. apple reports earnings after the bell as the company enters the mobile payment arena. apple pay allows shoppers to buy products in stores using their iphones. the company has signed a banks
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and credit card issuers such as mastercard and visa. the new service will compete against paypal and square. texas health officials say about 120 people are now being monitored for possible infection with ebola because they may of the three people in dallas who have the disease. officials said 43 48 of the original watch list have passed the 21 day maximum incubation period for the viral disease and are now in the clear. among the 43 who are the when hoping to return to school. >> they were in contact with a person who had ebola, and the for them to get ebola has lapsed. it is over. they do not have ebola. their people who have been through an incredible ordeal and they are people who need our compassion, our respect, and our love. >> president obama's new ebola is expected to
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start work this week after being chosen on friday to coordinator government what response. earlier, bloomberg television spoke with michael brown who served as fema director under president george w. bush. really raises the question of, what authority does this so-called czar half and what can you really do and not do? i have to tell you, my concern is, any time you're in the midst of a crisis and you suddenly throw on an additional layer of bureaucracy, this is just how d.c. works, it becomes even more confused. the president has to step up and say, this is what he is going to be doing, this is his job description, so to speak. >> the world health organization has cleared nigeria and says it is ebola-free, meaning there have been no new cases over the last 42 days, which has doubled fornormal incubation period the virus. on tuesday, oscar pistorius will learn his fate as a judge is
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expected to announce the olympic runners sentence for killing reeva steenkamp. he could be sent to prison, given a suspended sentence and a fine, or receive no time behind bars for shooting stink at multiple times through a door in his home. u.s. safety regulators are warning owners of more than 4.7 million vehicles that have been recalled for air bag problems to get them repaired immediately. inflators can rupture in air bags, causing metal fragments to fly out when the bags are inflated in crashes. the inflators have led to multiple recalls from honda, toyota, nissan, mazda, gm, ford, chrysler, the him, and mitsubishi. that is a look at some of the top stories we are following at this hour. for more on ibm, i'm joined by david grossman. welcome to "bloomberg bottom line." thank you so much for your time today. david, bloomberg business week has an online story today
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entitled "ibm is even worse shape than it seems." is that your take as well? >> well, let's face it. there are a lot of issues that have been lingering around the stocks for a while. you have the predominately a group vision and other guidance for the year. of us thought, even though we thought it was coming down. that said, i would probably isolate two issues. forwould be slowing demand enterprise i.t., and that is something that has been identified by other larger players in the marketplace. it is a really unique to ibm, other than more exposure in emerging markets were transactional revenue is more significant than it is in the more mature markets. the other thing i would highlight is the software. software had been growing at 2, 3 times the corporate average and that is 2x the margins of
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the core business. that is important business to ibm, and that was definitely -- they admitted some was execution in some was structural. >> on a conference call today, the ceo said ibm is facing what she called unprecedented change in the tech industry, but that change has impacted everyone. why has ibm been so slow to adapt? say'm not sure that i would they have been slow to adapt, it's just a very big company that kind of doesn't turn as nimbly as a smaller enterprise. i feel they have responded, but it is a business that doesn't grow the top line that fast. that arer companies less profitable have a lot more flexibility, if you will, to mobilize around the technology
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because they're not held as a couple for as higher-margin as ibm. it just takes more time to filter through the system. >> i'm speaking on the phone with david grossman, joining us from san francisco. we are talking about ibm. david, that shift to cloud computing, the ability to make that pivot quickly, is that now the measuring stick for tech companies? >> it is one of them. there are several changes going on, but clearly, the moderation to cloud is one of them. they define the private clouds and i think remain probably the leading player in the public cloud. their new lower margin competitors like amazon and google and some of the others, fantasy got the right formula because they're competing -- they've got to figure out the right formula because they're competing. they bought a company called software a few years ago. i think they're actually doing some very progressive things related to hire and cloud.
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>> last week, you wrote a note that said it is possible for ibm to reach its five-year plan to include -- increase profits but you are skeptical about the plane's usefulness. why? $20 epsnk it was the roadmap that was established back in 2010. clearly, the environment has changed quite a bit. we have gone through some pretty significant economic swings, as you mentioned, there's a lot of significant technology swings. so the relevance of the roadmap today versus what it was five years ago has diminished. >> david, ibm also announced today it has reached an agreement to pay global foundries $1.5 billion to take over the chip manufacturing division. this is part of ginni rometty's strategy. is the timing right for this move or should it have happened earlier? >> i'm sure they would have
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liked to have had it happen earlier, but it just did not get done, for whatever reason. i don't know the answer to that question. i think it was important. it was consuming cash flow. it was a distraction. it wasn't core to the business anymore. statistically, longer-term, the right move. >> we have about 80 seconds left. ibm shares have fallen almost 3% this year through last week. when will we start to see a turnaround? >> i think a lot depends on what happens next year. there knock when a comment on the outlook until january. -- they are not going to comment on the outlook until january. kind of stabilize earnings and cash flow next year, and i think that creates a base for which the stock continues to perform in 2015. ondavid grossman, joining us
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>> drug manufacturers are jumping at the chance to find treatments and profits in the global fight against ebola. beeny holliday has following that story. what drugs act or have a shot at treating this virus? >> there are a few. come to his around the world are scrambling to join this race to find a cure for ebola, but there are few -- three main companies that are driving the conversation. one is developed tkm ebola. one has zmapp. dofovir.other has brinci
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those are the three drugs the people are talking about. they have been used in the u.s. on an external basis. two of those three that of actually been proven effective zmapp.eys, tkm-ebola and . they are difficult to manufacture. we have already exhausted our supply of zmapp. tkm-ebola is very limited. there are trying to scale up the drug so they can be used on an external basis and we can roll out these human trials and, hopefully, head on a path toward approval by fda and use them around the world. >> what about vaccines? are we anywhere close? >> another good question. countries around the world are really interested in finding a vaccine. everyone from china to russia. the vaccines are looking to be most promising right now are ones being made by the u.s. in
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partnership with glaxosmithkline, actually the human trials have started. canada announced today it was shipping experiment vaccines to the world health organization in geneva, and is my possibly be used in africa. vaccines are definitely in the pipeline. again, it is a global interest. governments, countries, everyone is time to get a piece of this pie. vaccines may not be ready until well into 2015 or even 2016. so it is tough to tell right now. we will have to wait until we see the results from the human trials. >> shelby holliday joining us from the newsroom. thank you so much. hong kong because shooters and students are scheduled to meet in an effort to end three weeks of demonstrations. jon huntsman is now chairman of the atlantic council and joins us from washington. governor, welcome back to "bloomberg bottom line."
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>> great to be back with you. >> sir, the protesters what more to say choosing hong kong's leaders in a direct election, and that is scheduled for 2017. is there any chance the chinese government will relent to the students demands? >> i don't think the chinese are incentivized anytime soon to create a greater model for democracy in hong kong. but they are also not incentivized anytime soon to see street demonstrations that might cast a shadow of doubt on the confidence in the viability of hong kong. because it is a thriving generator of gnp for them. gdp for them. certainly, not what it was back in 1997 when they took it over, but a strong special at taunus region so they don't want to see a fail. so they're going to have to find some middle ground in terms of finding compromises. what that looks like would be in a buddy's gas. the discussions with the students will pick up probably tonight our time and they will have to find some middle ground
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in terms of how the slate of candidates for the chief executive position will ultimately be determined. >> governor, what is at stake both politically and economically for china? is a great concern to the chinese leadership right now. they want to mistake tranquility because without that, they can't grow economically. when you look at the political stakes, i would have to say the biggest issue for them longer-term would be taiwan. kind of the unwritten story here is how they are interpreting this in taiwan. yet remember when they floated this one country, two systems concept in the late 1980's and early 1990's, he at taiwan in my more than hong kong. with elections looming next year, at least at the municipal level and presidential elections in 2016 in taiwan, they are going to be debating this issue with respect to how hong kong is treated and whether or not china is seen to be living up to their
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commitments. and that is going to have real implications of a short-term and long-term, in taiwan. >> what we're really talking about here, i believe it is free speech, has the united states into much of a passive observer? >> well, we have be who we are, and we have got certain values associated with our namebrand in the world. i would say, this is an issue we are recognized and respected for. and our voice has not been heard, in my opinion. >> whitey suppose that is? >-- why do you suppose that is? >> the stakes are credibly high in sensitive when july with china. you have to find the right balance between speaking out on issues we feel deeply and passionate about and the ability to get business done in china, where they tend to draw back sometimes, at least with respect to certain other economic and political initiatives, if we are saying the wrong thing. >> governor, you're the former
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u.s. ambassador to china. how did you find that balance? >> well, you can't hide from who we are and what we stand for. that is printable number one. printable number two is, we typically don't do a very good job in outlining our national interests with the national interest of china. we tend to focus only on the areas of disagreement and diversions. we forget there's a lot that we actually share in common, whether it is peace and security in the east asia region, whether it is increasingly korean peninsula, whether it is afghanistan post 2015 when the nato troops are all out, whether it is disease like we're seeing with ebola, for example. there's a lot that would bring us together under extraordinary circumstances like we face today, and we don't do a good enough job in aligning our interests. i would say we're going to have to work on that. >> president obama is scheduled to visit china next month. what is at the top of the
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economic agenda for the president and for chinese leader ship? >> i was a top of the agenda from a regional and multilateral standpoint would be the transpacific partnership, which is being negotiated. they probably have had 20 plus rounds of trade discussion so far including 12 nationstates of the pacific, 40% of the world's gdp. it is a big, big deal. that is probably number one. i would say number two, at least i hope, is a bilateral investment treaty between the u.s. and china, which would make ther and warned her stood rules of the road -- and more understood the rules of the road here in the u.s. and certainly improve our ability to make investments longer-term in china. chinese central committee, the ruling party of the commonest party, is holding its plenary session in beijing. are these sessions geared toward change, perhaps giving local jurisdictions more say?
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or do the talks reinforce the status quo? >> they started the fourth plenary of the 18th party congress today and that will play out over the next many days. it will be part of the leadership's broad-based and ambitious attempt at reform. there's an economic reform and a political reform part, which is sort of less apparent to most people. he is going to talk about rule of law over the next couple of days. what that means beyond just the political stability angle and how it affects investment and how it affects business and commercial ties, will have to see over the next little while. suffice it to say, this round of discussions for the party is extremely important and will definitely play into the leadership agenda. >> jon huntsman, served as u.s. ambassador to china now chairman of the atlantic council joining us from washington. governor, always a pleasure to have you on and get your expertise. on the check in with
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>> it is 26 minutes past the are bloomberg television is on the market. >> by and large, if you take a look at the s&p 500 and the nasdaq, consistently been in the green. the one downside to all of this is the dow off by about 1/10 of 1%. i want to show you some of the individual movers in today's session. matt, look at steve shares trading at a new 52-week low. the footwear and excessive -- accessory cutting profit outlook. we're tracking shares of sears. offeringlanning an
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welcome back to the second half-hour of "bloomberg bottom line." i am mark crumpton. the two day robin hood investors conference is underway here in manhattan. the conference features insight from top investors, policymakers, and innovators. my colleague stephanie ruhle is there and she has an excuse of interview with mickey drexler, chairman and ceo of j.crew. thank you so much. mickey, you have to tell us. what does retail feel like right now? what is the vibe? >> i think the vibe is
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challenging, a little difficult, get me the best deal, and you have to be more creative and be more strategic and you just have to deliver more than your competitors deliver. >> is it just about offering sales? gap is offering 75% off. it is hard not to go in. >> it depends on if you like the goods or not. we are not in the customer looking for a deal business. it is challenging. that is not our business. but it does create a certain environment. >> how can you afford not to be in a business? ralph look at brands like lauren, coach, i feel like i by moore and an alum off from them than i do in the retail stores. businesss a long-term and job for me. we move forward as we see the market demands.
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we have a very successful factory value business. if retailers want to create by only doing price and cheap, long-term will tell the story. how many retailers are not around over the last 20 years? it is about product. it is about quality and connecting with the customer. yes, it is challenging right now. >> is it a risk only look at other companies like gap and target and jcpenney bring in ceos that are not industry insiders? at the end of the day, you are a man who truly knows the product. does it surprise you other companies are going in a different direction? >> i think retail is an art and science. >> how? >> you better have creative, or if you don't differentiate your product, move forward and design it well or have something that is not available and you just building on price, you're eventually going to lose because someone will sell it for
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cheaper. i can't comment on what they do. the boards of directors might have a perspective, but to me, ands all about product execution, sourcing and customer service. but isn't the first thing a customer buys the goods? >> thin is the cheap way to do it black in his collaborations? h&m to target, it is about getting this high-end designer december 2 product. -- to sell a cheap product. >> i'm not sure i understand that game. i'm not sure it is long-term. then again, that is just my personal opinion. >> why does j.crew need to sell me a barber jacket when you get some your own jacket and i would buy it because it is j.crew? >> collaborations, depends on what a collaboration is. we're fine with a lot of our designers. barber, for example, is a great brand. you cannot do a barber jacket. we don't sell a lot, but we go
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after what our customers will like and what we think they will like, which enhances our own assortments. there are things a brand will do authentically much better than we could ever do, particularly, in men's clothes. talks what does you are customer want? collection as per your in another level in the last couple of years in terms of editorial and stier -- style and desire. >> collection is about this big in the company. this ino put perspective. we want to have high-quality products with good taste and good value. into ourf you walk stores today, you will find that. at the reality is, sales, sales, sales. from the better stores to the non-better stores, everyone is screening it. at that is what we do. vuittonu look at louis who never goes on sale in say, that is i you do it, deliver the product and you choose the price? >> i am so jealous. that is a 100, 200-year old
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brand that is had high integrity for a couple hundred years. you might add chanel. and a few others. >> you know who else loves louis vuitton? asia. >> asia might not be as much in love. we have two stores in hong kong, and so far, so good. we're very pleased. lane crawford also sells our goods. it is tiny. it is early days. building a business is a forever thing. time will tell. >> you built your business from a catalog. how important is that catalog business today? >> the actual business is minimum. >> really. >> it used to be 100%. we started as a catalog company with a wonderful feeling for the products. stores open in 1983. 80% plus ander going higher of the catalog customer goes online.
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guide in hopesle people on how to dress and also gives a good sense of us, more so than perhaps our online site. >> as the retail industry struggles, do you look at bricks and mortar and say, i see less and less people in malls and i don't want to be there? >> no. everything in life is a balance. i see less and less people in malls over the last six months or year. we don't have too many stores, so i'm pretty happy. but it is a challenge. i think the mall seems to be more compelling and exciting in every department store is a mall in every mall is a mall. i think that is an issue. where is it different jet in product? it is about differentiating product. >> the way consumers are shopping now, demanding sales, are they killing product? because it is making her marchers more and more narrow. >> that might be life. i don't think any consumer can kill a product. i think the retailer has to have pride and integrity in what they
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do. there are enough of us left out there, maybe much less than playing the price game. it is what we do. it is hard, but nothing is ever been easy. >> does this fast fashion affect you in the way? >> if you want clothing that don't last a long time, and you want to be of the moment and you want a designer look, from what i hear, you might go there. it is not going to be in her wardrobe year from today. i think they know that. they're good at what they do. we make clothing we want people to keep and never throw out. >> isn't that hard? i find my j.crew jeans and i keep them for 15 years. >> thank you, ma'am. i like that. it is a balance. you're is the one area not in that you could see yourself getting into in the next few years? >> what we thought about being in was the active professional business, the yoga or under armour kind of business, but we're not getting in because we don't have the expertise to do
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that. we are getting into businesses that we will be more ambitious and aggressive about it and invest more, but we are pretty satisfied with the breadth of our product but now it is a matter of the correct expansion, correct design, and quality. i say quality because that is really important. and luxury today, just in on the streets of any city in the world. i'm not sure what scares are not anymore. >> when you walk through the streets in europe and it is j.crew-less, would you look at the economic climate there, do you not see her stopping there for some time? >> we have four stores in the u.k. and our opening two stores in paris next spring. we are tiny. i think it is always nice to get into a business where your tiny and you have almost no way to go but up. the world is over stored and over garmented, but we will see who else except profits in who gets returns on investment and time will tell. >> you are a true fashion man,
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industry icon. do you look at last week that market volatility, deep attention at all? fashion't call myself a man. i'm a businessman who likes style and quality. you have to try to read trades and connect the docs --.. if you look at the environment and feeling today, this is personal to me, it is. like you wake up everyday saying, this is great. we have ebola, a big market, all of this stuff going on. factnk the mood does in affect every consumer. i don't think it is the happiest moments of the world, but that is the way i think. >> does it affect your day-to-day? au can't answer there is j.crew ipo coming, but when these markets, if they seem frozen, will it affect you in the next year? >> when you have my job, yet to be happy everyday. >> are you? >> outside i am. inside, you yourself alive when there are challenges. i go to work every day and you
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have to be optimistic and try to do better every day. anyone who runs any business needs to continue to do better the next day. i'm very excited. if i weren't, i should not do what i do. >> mickey, it is an honor and a pleasure. say wecht and, i know we like working for my clue or, i think i may have found the next best better work for. mickey drexler, ceo of j.crew. but thank you so much. -- >> thank you so much. still ahead, starwood capital group barry sternlicht shares his blueprint. he will join stephanie ruhle in a moment. ♪
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least a decade. the country hasn't sold debt since defaulting on a record $95 billion in 2001. it will take offers on the to your local securities beginning wednesday. the bonds will be nominated in dollars and pay holders in pesos. that sale will close on october 28. that is roulette in america report for this monday. we will have more on what the biggest investors are betting on investing in real estate. we will start with barry sternlicht joining us from the robin hood investors conference here in new york when we continue in a moment. ♪
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bullish on the property business. fast forward. how about today? -- and thetions make market make us feel pretty good. i have to say for real estate, it is interesting. if rates stay lower longer, it is quite valuable. if rates rise because of economic growth, which people thought the u.s. is growing and rates will rise again, then rent goes up and were living in a pretty good spot for the property markets right now. i would say the spread between yields on property and the borrowing costs of those properties are still at historic highs. i am fairly sanguine on the property sector them although, i think the days earning 30% under r gone away -- at least in the u.s. -- for a while. >> when you see the waldorf hotel sell for $1.95 billion, what do you think? >> i think many things. i think of a few things i would like to sell.
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i think it shows you the chinese are quite serious about diversifying and getting investments outside of china. ithink was most interesting, was a chinese company and chinese insurance company. typically, the chinese invest behind other people, either managers like myself or other aney managers or even behind list developer providing capital grievant bank of china providing a development loan. it was interesting they were headlining it. probably one of the most important assets in new york city you could buy. they paid honest 33 times cash flow -- almost 33 times cash flow. it needs a ton of money to tak reduced. i think it bodes well for new york city in the major markets in general because we're seeing more and more interest in the u.s. from the chinese as perhaps the russians pull back because maybe they're not supposed to be investing here right now while
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putin examines survey kick counts. >-- their bank accounts. >> do you have a thought on china? the chinese consumer, has not been allowed to invest outside china, so if his home is falling in value or he borrowed money from his uncle, cousins, and farmers friends to buy a house and it is chopping in value, i wonder what that does to the overall chinese economy? i think china will struggle and my general feeling is, the property markets, the greatest risk was rates rising with china weakening, brazil week and europe going nowhere fast, i don't see rates going anywhere lower longer come is basically are seen for a while. >> when the ecb does an asset review of these european banks, are they going to be forced to start to sell these loan portfolios, these real estate assets they've been sitting on the basically have been priced too high the last fears? >> absolutely.
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70% of equity is going to europe. you're seeing the banks, in the periphery, at least, so loans and begin to do with a did not have to do three or four years ago, which is market or loans to market. as long as they were paying, they could pretend they were not 100% loads of value. some of these loans are so underwater. we just had a deal in spain. it hither equity capital. today, because of the ltr open the other programs that support reviews arehe coming, they're actively looking to unload assets and many of us are spending a lot of time. we have 50 people in london right now. we keep hiring. we are very busy over there. i was just in sweden and norway last thursday and friday. >> you see this as a buying opportunity while europe is leading a people are desperately trying to sell? >> there's a lot of capital. sharp capital once to be in
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europe. taken together, the largest economy in the world and it is not going away. you have to figure out what to buy and where to buy it. we bought mostly in the periphery of europe. , a., ireland, the nordic tiny bit in spain, and eastern europe. >> fannie and freddie potentially loosening standards. are you afraid? are we getting back to the 2006 party where everyone can buy a house? >> i think the credit markets have gotten ahead of the real world again. i go by to the fact that crazy men are still driving the bus. the rating agencies, nothing happened to them and the crisis. go theratings go, so capital markets. send guys driving the bus. i just hope they don't drive it off the cliff again. >> berry, always great to talk to. barry sternlicht, wearing a really smart paul smith jacket, i might add. chairman of robin hood starwood, barry sternlicht. >> stay with us.
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>> get the latest headlines at the top of the hour. that does it for this edition of "bloomberg bottom line." i am mark crumpton reporting from new york. thank you for joining us. on the markets is next. we will see you tomorrow. ♪ >> bloomberg television is on the markets. let's get you caught up on where stocks are currently trading. third day of gains for the s&p and nasdaq, not the case for the dow, off by about 1/10 of 1%, being driven lower by ibm's after ditched its five-year profit will. small caps, take a look, advancing.
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rising the most in about two weeks. looks like pretty much the u.s. markets are stabilizing today. october is on track to be the worst month for the market so far this year. with global equities losing $3.3 trillion in value through last thursday. question? is it time to go bargain hunting? maybe not. trial stein joins in with why investors are still keeping their money on the sidelines. charles, why are they keeping their cash put? >> i think a lot of these people would say what happened over the last few weeks is a good start, but it is not enough. them are in the camp that stocks are significantly overvalued, or at least they were significantly overvalued, and being down 5% or 6% or whatever we are in october, starts getting closer to good value. but we are not there yet. >> in your conversations with
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managers, and sounds like things are still expensive, but is the world becoming a little more reasonable? >> yes>>, or reasonable. but there is a lot of these people. i think their little uncomfortable giving up your number. they would probably like to see prices down another 10% or 15% before a lot of these guys jump in. we have been straight up since march 2009. multiples have grown a lot faster than earnings have. i think a lot of these people would like to see a really nice correction, which would be unpleasant for the rest of us, but attractive for them. >> what kind of correction are we talking about? if you look at the small caps space, how much to those prices have to go down before investors say, i'm going to scoop up these names? >> it is different, but i talked to one guy i have been talking to over the years that runs a fund that has 75% of its money
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in cash, which is awfully extreme. he is been managing small caps along time. in 2007, he was heavily in cash because he said the stocks were expensive. you would like to see them come down another 30% to 50%. that is pretty scary to the rest of us. to him, that would bring him back to something like normal. >> on the flipside, what is the scenario for that investors? >> the debt investors seem to be a little more optimistic. we had a selloff in junk bonds and credit in general. i think a lot of them are saying, look, the u.s. economy is still a pretty good shape. we're not going to have a lot of defaults. this isn't a bad time to come and take advantage of some higher yields and wider spreads. for them, it is a very different picture them for some of these equity guys. >> charles, we will leave it there. thank you for your insight. stay tuned because "street smart is up next. ♪
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>> welcome everyone to the most important hour of the session. we have 60 minutes to go to the close of the session. stocks are mixed right now thanks to ibm. is down, nasdaq and s&p are firmly in the green. ceo is here to talk about how to please investors and turnaround companies. into smart home technology. i want to take a look at the trap stories we are
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