at wall street journal at large. thank you very much. ♪ ♪ >> wack to barron's roundtable, i'm jack otter, we begin with what 3 things investors should be thinking about right now,ow dropped 900 points in two days in response of worrisome economic signals but bounced back after decent job's number, ipo slides and investors start to do real man and "nuclear option", dropping submission to zero and sending brokerage's

table sinking, so jack, mr. market is depressive and proved it once again, this week. >> we start off the week with lousy manufacturing numbers and then you look at the markets, well, that's a good thing because now the fed is really going to cut rates and everyone says, bad news is good news and then you have, no, no, rates are too low. bad news and good news and maybe back news again. i think that's straight up good news. >> but you've done absolutely nothing to help figure out what the market is doing. >> they try to, you know, skew the numbers to the wrong take, i think we have more of what we've seen. manufacturing, we can put that off in the trade we are going on but the consumer economy is

larger and more important and to me it still looks strong, i uld expect that the market continues to move higher from here. >> what do you think the fed will do? >> you had better seen one more cut based on what people are expecting. that's iffy, chances starting to rise in the middle of the week, end to have week lower because the job's numbers seems good enough, you will certainly get one before tend of the year, maybe 2. >> and the important question you raised, though, doe lowering rates actually help from here or are rates so low that another quarter point will cause people to borrow? >> i don't know, this is unchartered territory. if we were coming from, you know, fund's rate where we were starting at 7% and going down to that 5% i would say that's highly stimulative, i don't know anyone who is looking to do piece of business and financing rate of 2 or 3%, give me another water point, not ready to do the deal yet.

>> do you think that argues for the responsibility falls on the federal government, it's time for fiscal stimulus, maybe the trade war were to end? >> they're spending a trillion dollars more than they are taking over the past year, i'm feeling a little overstimulated on the fiscal side, thank you very much, i don't know how much more you do when that's your starting point. >> so, al, you've been spending time looking at the unicorns, the stocks that joust -- just go down until the public started buying and then they started going straight down. >> unicorns worth more than a billion dollars and it's a funny ipo market because the problems all at the top end, uber, lyft, pelaton, 3 companies alone have lost investors $40 billion since ipo. it feels like it's terrible news, unbelievable, ipo market was be terrible, 60% of ipo's that have come to market have above offering price, it really

is bifurcated market. these giant companies that spent years and years private partly because of cheap money, they scared investors off, like you said in the intro, the cash burn, the profitability, the scale, the losses weren't going down, i think it's a good sign to some extent that investors -- very seems like outbreak of common sense, we are supposed to get a flight to nonsense with rates this low, we are supposed to be buying bitcoin but investors are selling stuff that's not generating cash and that's what they should be doing. >> and investors who have seem to be the private market investors, we couldn't get to its ipo, it was valued at 47 billion and they cut that by 60%, now worth allegedly 20 billion, again allegedly because they are not make any money and losses are scaling as

they grow. >> they rent you space for 100 bucks, you can't make money that way no matter how many cars you put out there. >> the strange grab for market share and we will make money down the road, in the case of uber and lyft they are difficult two-sided network with drivers and customers that aren't really loyal,@not clear what the pathway to profitability is. >> speaking of very cheap, lauren, the cover of barron's this week is broker's war, competitors quickly followed. >> it can't much cheaper than that unless you're talking about negative interest rates, there has basically been a lot of deflation in the brokerage business, fees have gone to zero as you note. others have followed scwabb. >> i'm worried for this robin hood that's supposed to be

coming public, free trade, schwabb price matched them at 3, if you're robin hood, maybe you sell green tights, i don't know what the business model but i'm concerned for them. >> how do you make money and everything is free? >> they have a big bank and they are making a loft -- lot of money in the banks and selling other products. >> that brings back to individual investors, if trades are free should i be trading all of the time? >> i hope not yet. >> they are getting paid on order flow, you should hold out for them to pay you to trade, your credit card pays you to spend, i want them to pay with a trade. >> maybe borrowing money in europe. >> maybe. [laughter] his or her can you make money in fast-changing economy, portfolio portfolio joins the roundtable,

first, barron's big interview with black stone ceo steven scw scwartzamann. >> in a funny way it's described as a negotiation but the negotiation is within china itself ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪

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jack: private equity investors have been masters of wall street universe in recent years, earlier i spoke with schwartzmann, what it takes, lessons of the pursuit of excellence.

>> one of the themes that we run through the show is disruption as we think even though it's a buzz word now actually the market hasn't fully priced in some of the changes. so you made a recent deal to buy what about 60 million square feet of warehouse space for $5.9 billion, sounds like a purchase but in fact you see changes valuable. >> it's the amazon spread and it will spread wide and spread deep and what it's going to do is disrupt regular retail stores, so we basically sold the malls that we owned and what we decided is that the best way to play this in our real estate business was to buy warehouses, so we started buying in 2010,ic we've been the largest buyer in the world since that time, could be second in certain markets, and it's been enormous success.

>> so are you lease to go amazon in. >> yes. >> you are jeff bezos' landlord? >> in some cases and other digital types of companies. >> i want to ask you again about the -- not the wework so much as some of the other unicorn that is have come to market and frankly after ipo day the stocks have just gone down. going forward, do you see problems in the ipo market, how are the public markets going to react to what's going on in your business? >> two types of sardines for trading and sardines for eating, what happens is venture capital industry has been trading sardines, you know, you start a company one price, you go into the next round, the next round, every time you go and pay more, your old investment is worth more, this is like a wonderful thing until the price gets so high, that when you open the can and -- and need to have eating

sardines which are fed to uninvolved investors in the public markets that they look at this and say that price that you've all traded among each other and that's just too high and that's the problem you're having now. >> you have big investments in asia, you have personally a big presence there with your china scholars program, how do you see the trade war playing out, i hear that you may know somebody in the white house, are you giving any advice as to how to handle a trade war? >> it is true that relationship between china and the west generally including the united states in terms of open borders and equality of tariffs is not there. china is becoming very big. on the one hand they think they are poor still because they have $10,000 per capita income and the u.s. is around 60.

in that sense they are right. in the aggregate, however, their economy is -- is very, very much the second biggest economy to the u.s. and they're growing at a rate that's at least doubled, sometimes tripled the u.s. so there's going to have to be some rebalancing between china and the united states and the rest of the world and the question is how fast will that happen and -- and how profound will those changes be? >> you're a deal-maker, in your book you write a lot on how you went to deals and odds against you and you came out and won, if you're sitting down with china right now, what would you do for give and take to make a deal happen? >> this is all in the chinese side. the u.s. can't negotiate if nobody puts anything on the table and so the funny way, this is described as a negotiation,

but the negotiation is very much, i think, within china itself. >> do you think there are changes meanwhile on these shores that we should be making on the u.s. economy to better position ourselves to compete with china long-term? >> well, i think our biggest issue in a funny way even though it's not an immediate one is education. i was in china meeting with one of the top 2 or 3 people in their country and he was describe to go me how -- how they're making a change so that every child in china will get computer science, education. i would guess that the number of u.s. students who are getting computer science education and primary and secondary schools maybe 5%, they would be 100%. jack: how would you fix the problem with teachers not teaching what the students will need to know if the future? >> we need to get the best teachers we can and one way to do that is -- is to make

teachers tax exempt, only occupation in society and what you get from that is the teachers themselves will have a much higher wage but secondly, the occupation of teaching would have a new status in the united states, there are many countries around the world where being a teacher is a high prestige and occupation. >> thanks very much, steve, appreciate it. >> coming up the panel comes back to roundtable with what you can do this week to improve your portfolio, first david gets seat at the table, that's in the case .

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♪ ♪ ♪ jack: welcome back in money has been pouring into passive funds as investors abandon stock pickers who try to beat the market, largely because most stock pickers can't beat the market. but our next guest has been crushing the indexes, joining me now manager of capital appreciation fund david, thanks for joining the roundtable, david. >> my pleasure to be here, thank you. >> we just heard that steven is selling malls, buying warehouses because he wants to own the beneficiaries of disruption and not the victims, that's very much your philosophy of investing as well, can you tell us about it. >> sure, absolutely true. the strategy that i managed, probably the biggest structural that we have in portfolio is companies that are being disrupted and becoming a larger and larger part of the universe, the idea of secular disruption when i became portfolio manager in 2006 was really isolated like kodak or newspapers, retail a little bit but today is large

part of the universe is being disrupted by secular charges, if you will. >> can you give us an example of secular challenge? >> i hate to do it at fox, cable network business, great business, you raised your prices, mid to high digits every year, you're taking share ad budget, today amazon, netflix disrupted that business and to the point where great companies are not viable companies today. >> david, what share of the s&p 500 would you say is for disruption or already disrupted? >> when we start doing the analysis 2 years ago 20% of the s&p 500, today 20% of s&p 50 has some degree of secular disruption negatively affecting business model. >> david, i tend to be a value investor, member of the value

tribe and you know value has been in the dog house seemingly forever. >> last decade. >> is the disruption a problem, is reversion, the low-price stocks, low price for a reason or can they come back? >> i would say two things, one, you know, value investment worked really well for the last years, you bought a stock, out of favor, low price and it recovered over multiyear period of time, needed money, repeat that over and over again, the challenge today if you're a retailer, you're an energy company, cable network, you may not be reverting anymore, your business is more difficult year after year, so i think if you look at value universe has two different groups, if you will, kind of like exposed companies and secularly challenged companies and i think the industrial, they've always had, that investing will still work

in those areas, the secular challenged companies far less likely continuing to work. china discrepancy between returns of exposed companies and those secularly challenged companies over the last 3 to 4 years, when i talk to a value manager, i always say bet on risk as opposed to secular risk. jack: you think can come back is ge. >> jack, i would say there's 3 things i'm look for, right, i want to invest with exceptional management, buy exceptional businesses but there has to be arbitrage, has to be some opportunity to create value for shareholders. jack: something you understand and the market doesn't? >> exactly. 19 years today, new ceo of ge, he's turned business after business. i have a lot of confidence in larry's ability to turn power of capital of business.

85% of the value of ge is really in the aerospace business, phenomenal business, the healthcare business above average business, so 85% of the enterprise of the company are really good businesses that get very little air time today and then the arbitrage opportunity, right, so i'm investing on ge not for a quarter for next year, i'm making a call on what earnings power, 20, 23, 24, i think this is a stock that could easily double in that period of time, there's another arbitrage too though, the arbitrage is complexity, this is a complex theme and a lot of people don't want to invest with a lot of uncertainty, we love uncertainty. jack: thank you very much so much. shots as roundtable guests give ideas, stay right there.

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♪ >> jack, you made it crystal clear that you're sick of pmi's, all the macro stuff is giving you a headache, you're looking this week in street wise column at fundamentals of the stocks? >> the fundamental, the theme for third-quarter earnings would be let's get this over with, the numbers are not going to be great, better than expected but not great. 3.7% decline year over year for earnings, that's not going to be the real number, analysts do this, show case showdown on the price is right game show, they get as close as they can but make sure not to go too high so companies can beat estimates and they will, i bet you will see flat earnings for the fourth quarter and return to better

growth in the fourth quarter, next year they are saying maybe 10% growth, i'm not going to bet on that yet, usually they start off too high, but you might see 5%, 5% would be good compared to what we are getting. jack: earning season gets very crowded, a couple of companies that you're looking at? >> netflix, you know, this is a make or break quarter for netflix, they have been iffy about subscriber growth, they need to have a big subscriber number here because people are losing patiences with companies burning cash and the streaming field is getting very crowded going forward. >> and expensive. in barron's tradition we want you to go make next move, lauren, al, give us one actionable idea, al. >> i'm a value investor, people should look at american airlines, trades less than 5 times half earnings, i think the stock can work when the they go

away. jack: gas is cheap. >> i like blue chip that is have dividends, kellogg, 3%. jack: lauren, great ideas, that does it for this edition of barron's's roundtable, thanks fr watching see you next week >> my jaw hit the ground. e wathe rolls-royce, the bentley, pickup trucks, camaros. >> harvesting gems from junk. >> dad would take the car down to literally the bare bones and then restore them and make them these beautiful pieces of art. >> wow.sparks are flying. >> here's one of the starsw rig. >> his heirs hope to reap a fortune. >> yes! yes! yes! [ door creaks ] [ wind howls ] [ thunder rumbles ] [ bird caws ] ♪