there i marinate this is boom boston and these are some of the stories that we're tracking for you today. first up billionaire hedge fund manager bill ackman just wrapped up his latest presentation on the shortcomings of nutritional supplement producer level life so what did you say and why is he calling this presentation the most important of his career we look into it coming right up then francis coppola is on the program that madame called plus the down with me earlier to discuss financial warfare pretty helpful stuff at the moment and inveighs big deal edward harrison and i are discussing subprime auto credit risk and the straw that breaks the camel's back it all starts right now.

another day another tile added to the rich mosaic that is the bill ackman herbalife saga tuesday morning billionaire hedge fund manager bill ackman declared loudly and to anyone who would listen that yet again he believes herbalife is a pyramid scheme the pershing square capital boss gave what he called the most important presentation of his career to hundreds of folks gathered at the conference in midtown manhattan for more than a year and has been loudly shorting herbalife a nutritional supplement company that he believes is a pyramid scheme his presentation tuesday focused on the company's so-called nutrition clubs but did act means bark prove worse than his bite as herbalife c.f.o. john de simone said it what see yes this did and that during our presentation herbalife stocks surged fifth. percent and while the two hundred fifty plus live presentation

was very decked out with detail there wasn't any major bombshell in it now the biggest take away it was that akon believes the company is skirting labor laws with its nutrition clubs going to ledges that herbalife has fictitious customers and a fictitious business opportunity he called herbalife a fraud perpetrated by a senior management and members of its founders circles chairman's club and president's team conceived designed and executed to exploit the poor ackman said that pershing square spent fifty million dollars on the investigation in claims that herbalife targets the poorest of the poor he then shared some slides based on documents that from a whistleblower at the company he also showed in the numbers of mcdonald's and herbalife nutrition clubs in queens new york and he pointed out that while the mcdonalds are spread out the nutrition clubs are all piled on top of one another the ackermann herbalife saga has been going on for more than a year and a half in late two thousand and twelve ackman publicly declared that he was short

herbalife after revealing his bet however a number of fund managers most notably carl icahn is now but he again piled on by going along the stock after restructuring most of his short to options stands to gain two billion dollars of the company fails so far however it has ripped up millions in paper losses on his bet so will his latest public disparagement help him collect on his position certainly not today. the macro economy us is looking more robust and the fed is trying to figure out when the right moment will be to start raising rates of course this is an extremely

extremely difficult process raising rates too late might require the fed to act aggressively raising rates too early might push us back into recession never good now to get a better handle on some of these issues i spoke earlier to francis coppola an expert in banking and financial risk management she shares her thoughts on banking finance and economics at the blog coppola comments dot com now before we discussed monetary policy i first wanted to get her perspective on financial warfare and sanctions i asked her if she could explain how sanctions constitute financial warfare here's what she had to say. well these days the financial system is immensely important not only to banks and to of new people and so it was but also to governments so one of the ways of i guess expressing displeasure that stop short of blowing people up is actually to make it very difficult for them to use a financial system and that's pretty much what i mean by sanctions as financial wolf. so you know from reading it it i take away that you felt then that the u.s.

had already prepared the ground for more extensive attacks on russia's fragile economy so where do you see the sanctions issue heading and what kind of economic impact do you think that will have. well i think the u.s. is probably going to do more sanctions and i think they will be financial ones basically because they are very effective i mean you only have to look at what happened even just with these the what they've done so far which is minimal really the ruble fell the fell. that doesn't sound too terrible and you realize that the currency falling and the stock market falling has knock on effects into the real economy it's causes problems for the price of goods it has effect effects on people and it sounds terrible to say this but actually one of the purposes of sanctions is to impact ordinary people in the hopes that they will there will be some feedback to the government about changing their ways really. do you see

any knock on effects in the european union oh yes. germany particularly and italy and france do have extensive trading links with russia so diseased to europe . sanctions will affect the ability of countries in companies in the european union to transact with russia there's no doubt about that and therefore we could expect that there would be an impact on the european economy as well. it will affect those countries in particular and here is and syrup as a whole i think now according to central banks the global economy is still fragile and this is why they are keeping rates at record lows right now but given central banks reaction function in past economic cycles do we run the risk of responding too late. we do i wrote about this recently i looked at the firm see minutes going

back to nine hundred fifty four and discovered that every recession they had raised rates too late and then too much after each recession so we all run the risk of leaving it too late and then panicking the raising them too much and that's because lunch policy takes time to feed into really canonic effects but the f o m c and the central banks in other countries to have to make decisions on a month by month basis based upon backward looking indicators so quite often they're making decisions about what's going to happen going forward and what effect them under policy is having based upon what's just happened which may be nothing because they only did it last month it's quite a problem actually trying to judge when to raise rates and by how much now when central banks begin raising rates they usually continue to do so so is it possible that raising rates to wait means having to be more aggressive since the mere act of starting to do employ this rate hike regime increases credit demand as it's

a signal to borrowers to lock in their rates now. there is a risk and in fact again we've tended to see that in the past when they have started to raise rates they've often raised them quite a lot quite quickly which has quite quite aggressive effects on the economy to be fair the last time we went into a tight tightening cycle which was in two thousand and four they didn't do that they raised them very very gradually over a period of about two years the problem was they raised a bit too much and then held in too high. but they did actually raise in very very gradually so an effect on the economy was gentler me to go back to ninety ninety four where they raised some very fast there was there was a huge spike in and nobody wants a repeat of that. what do you make of rule based approaches to monetary policy like the tell all. this is a live one of the moment isn't it i think rules rules economic rules like that are

useful basis upon which. economists can make judgments about where the thing the economy is going what they should be doing but i wouldn't like to see a particular rule rigidly locked in you masturbate this rule at all times i think if we had a debate with the total surge in two thousand and eight. we might be in a much worse shape now than we are so i would like to see a position where. if. members and other central bank policymakers can't make their own judgments based upon their own information. frances why should we rely on monetary policy as a way to steer the economy at all since it's only impact on the real economy is through interest credit and financial asset channels. this is interesting as some people think we should only use muncher policy and some people think that you should combine it with fiscal policy my only view my own view is policy has

limitations and a lot of people have said that it has difficulty gaining traction. because we cannot create stone anymore it very easily but i also think it has quite serious distributional problems we've seen that with q.e. where it's really just raised prices for the rich there is a trickle down effects to the real economy but it's perhaps nowhere near as effective as a fiscal stimulus would have been as indeed we had in two thousand and nine so myself i don't think munchie policy should be the only thing we use i think we need a partnership between monetary and fiscal and back for dental these days as well given that we have will be banking system given how much our suppresses local one property prices have risen in this economic cycle are you at all worried about household debt i'm always worried about household debt. in very some country to country i mean the u.k. where i think household debt is a huge problem is something like one hundred forty percent of g.d.p.

and that's existing debts and yet our house prices haven't fall in the way that they did in the us and we're trying to encourage people to borrow more to be able to afford houses i think it's a huge worry i think we have to find some way of enabling people to get their balance sheets under control for me the way to do that actually is perhaps some kind of debt forgiveness and i know that people have talked about this but more important in the u.k. is to get people's incomes up we've had six years of stagnating. wages and falling really incomes that's a real risk with indebted households is that they've just become on an affordable after well. and that was francis coppola founding editor of coppola comment dot com . time now for a very quick break but stick around because when we return anthony randolph goes on the program mr endows i sat down with me to discuss what effect popped asset bubbles will have on state and municipal finances then in today's big deal edward

harrison is back and he and i are discussing credit risks plus remember you can see all sidelines petered in today show on you tube you tube dot com slash boom bust r t's and i want to pollute who live dot com excuse me who are dot com slash live dots there it is and we're going to break here are a look at some your closing numbers of the bell stick around.

and try to. be pulling out of. your life or if you're preaching everybody. oh well. you know a lot like that i. think. sometimes nothing. is. it's not just he still can still be. john if you see the stage if you look at the. speech on the.

right. search string. and i think that you're. on our reporters there. they want to take this country back to the middle ages a public event. for that and that you know they derive their ability to very very rigid interpretation of look at a country like egypt for example sound very high poverty the reason there's like also the i think is because the religion calls the boundaries and the board and that's the kind of suppression if you look at the liberal let's say of a country like turkey it was ninety nine percent muslim. because of the.

welcome back now also published on the outer about farm simply isolated to wall street and your t.d. ameritrade account miscible and state governments also depend on the stock market to meet their pension liabilities for their workers so on asa bubbles pop some local governments can find themselves in some very hot water i asked anthony randolph director of economic research at the reason foundation. what he thinks the effect of pop asset bubbles will have on state a miserable finances and pension plans here's what he had to say. well that is there's probably like six or seven questions actually that are all wrapped up in there because each probably has something that's a little bit different but one of the biggest issues let's just take the last one

you mentioned for pensions is that in order to hit their investment targets and hitting their best in targets is required to their assets and liabilities stay in line which is not had not been the case for state municipal pensions in order to do that they've had to expand out the risk portfolio. of all their assets and so you now have instead of the old way that pension public pension systems were they were largely invested in long term bonds that mature to the same time that people were retiring so that they could actually pay out these promised pension benefits with the assets they had available as they have a much more widely diversified portfolio which again sounds great for the individual investor when you talk about pension funds that means that you're going to have. all these funds that are now scrambling for where about twenty five percent of their investments are is they're going to get no yield from that means that they're going to have to shuffle what amounts to across the whole country

trillions of dollars into other assets simply because of a pop bubble that means that you're going to see price fluctuations in assets all across the country in ways that would otherwise exist except for the bubble so i don't know i don't want to sit here and say that i can tell you exactly what's going to happen other than it's going to be mis allocation it's only it's going to be money flowing into assets only because. as factors instead of what's going on in those in those particular assets and that's going to create financial instability that's going to be problematic now can you tell us a little bit about the phoenix pension reform act. yeah so the phoenix pension reform act is one of a few sort of attempts that have been engaged by municipalities this this year to try and deal with unfunded liabilities and. the risk that is inherent in any defined benefit pension system another similar type of initiative is in ventura county and we know about probably detroit's which has made some changes to its

pension system from a sort of the position of the emergency manager in detroit just sort of saying this what we're going to do in putting it to a vote what phoenix and ventura county are doing is they're putting it to the voters they're saying we need to change the way that the pension system for our city employees are in case ventura county county employees is structured and the way that they want to do it is they want change from a defined benefit plan which requires. it requires that the state of the city invest money at a way that it's going to get a large return and pay off these pension benefits and they failed to do so so badly that the city is now one point five billion dollars in debt because of its failure to adequately match its investment strategy and its growth of its assets with the pension benefits of its promise says we don't want to get ourselves any further in that hole we want to put new employees into a defined contribution plan and

a defined contribution is also a pension but it's a pension where each individual employee has control over the risk of their own investment their own retirement just like anybody else in the private sector there are states that have done something similar to this alaska and michigan being too big examples rhode island did a hybrid of this san diego essentially did exactly what the city of phoenix is trying to do and it's trying to basically looking at the way that it's gotten itself into trouble with the the way. it's invested it's pensions and it said we need a completely new approach and that new approach is in allowing for the taxpayers to no longer have to bear investment risk and to say to our city workers we want you to be just like any other citizens of the city and bear the responsibility for your retirement now are there any other menace of all reform efforts that you are looking at today. as i mentioned ventura county is one where they're doing

something very very similar to what a scribe in phoenix some of the things that i personally have been looking at is. states that actually made these kinds of reforms a few decades ago to kind of look at what happened and i mentioned michigan is one of them and if you look at the example of michigan what you see is they had one of their pension systems for most of their state workers that they made a major change to and they didn't change their pension system for teachers and we saw over a fifteen year period that as the system that they made these reforms to by essentially taking the risk off of the taxpayers and putting and saying you as state workers need to be responsible for your retirement risk in the same way that anybody the private sector is still going to contribute to a four one k. account centrally but you have to you have to bear that risk just like anybody else we saw that the the rate the cost of the state was much higher from the non reform

system but what we also saw was that states do this really funny thing which is they think short term just like any other politicians and group of politicians and sometimes they don't even properly fund their pension systems at just the basic most responsible level in the basic most responsible level is looking at any particular year you say we've promised x. amount of pension benefits and these we need to save why i'm out and the state of michigan looked at that number and they said we're not going to pay the total amount every year and what they did was that built up a lot of pension debt and looking at michigan we began to look at some other states we find that states all across the country have been doing this and if you were to total up all states across the country you're looking at not just billions but try really ends of dollars in pension debt of states that simply are not saving the right amount of money. that they that their own accountants their own actuaries

tell them we need to say this x. amount of money each year they're not saving it because they figure oh well we'll just catch up in the future we'll just change our investment strategy in the future we'll be able to make up for this but the then the problem is you wind up with an equity bubble where you're depending on the growth of the stock market we were just talking about the savior in the future when that bubble pops it's not going to be there now is to try to canary in a coal mine or is it so unique that it's not relevant to other municipalities. detroit is not so unique that it's not relevant but the one thing that should be pointed out of detroit is that they didn't go bankrupt because of their pension system detroit. has a lot of pension problems but they wound up have to do a lot of defaulting because of the amount of debt that the city had and the amount of debt that the city had was relayed to the fact that they didn't have any they didn't have a wealth match between the amount of money that they're spending and the revenue that they're bringing in because the city because they couldn't collect tax revenue because they basically maxed out the types of taxes that they could otherwise

charge that was driving even more people out of the city and so just didn't have the revenue to match what it was spending that's normally bad for everybody to happen and for the city of detroit and they looked at their finances so we needed to fall on a particular set of bonds and this happened last year and then they were looking at their pension system and they said well we've got a couple billion dollars of risk and this is going to hit us now on the road so we need to make changes right now. that was anthony randolph director of economic research at the reason foundation time now for today's big deal. i mean. mr edward harrison i'm so happy to have you mr yesterday and today we are discussing the big deal some prime autos credit risk and the straw

that breaks the camel's back severed we talked about this yesterday but you weren't here so i want to get your thoughts on the subject oh yeah so my thought basically is that asset bubbles are definitely starting to be formed you know when you use the term bubble you know i don't really like to use the term bubble be close to froth you know you can't really say that it's a bubble until it in the afternoon at the time would seem somewhat reasonable but there are definitely stretches in terms of valuation in the equity side and also on the risk for bonds that's where the problem really laws when you have debt and that gets written down so the problem with my perspective is that ultimately someone's going to be left holding the bag and the real question is whether or not the economy has recovered sufficiently to be able to take the associated with that and the longer the fed holds off on the laws in economic policy the worse it's going to

be now yes right we really focused on subprime auto so you know obviously bubbles are good and subprime autos are good but this size that's the thing that gets made the size isn't as large a subprime mortgage crisis that we're that we saw so can you explain to me you think it's pretty detrimental and i think that it's bad but there's worse things out there you know talk to me what why do you think it's about so when you think back to what happened in two thousand. seven two thousand and eight. number one the subprime auto market or the subprime mortgage market really wasn't that huge it was fairly large you look at fannie and freddie they have balance sheets of five billion five trillion but those are all prime mortgages and what we're talking about in terms of sub problem is a very small subsegment of the mortgage market overall then when you look and you see all of the other countries that were involved in the credit crisis in some fashion what you see is a larger credit bubble so it's not you know subprime mortgages were only

a symptom of the problem it was a it was the locus of the thing that created the whole problem similarly you can say the same thing could happen with auto subprime today the real question is is it large enough and are we systemically fragile enough that we could have a similar kind of problem today that we had in two thousand and one that is the real question is it large enough and you know no one really buys a car thinking it's going to go up in value generally know that it's a horrible investment that you needed to get around or to get your job or whatever but house you buy with the hopes that it will it will return on its it will be a good return on investment so i think that's intrinsically different now with that's why i think this is so permissions because when you think about it these people are actually taking on average more than the in the value of the car ok you have a previous loan and you roll that up in the various other fees into the loan and in some of these cases we're talking about twenty percent rates on the loan that are

implicitly involved you're talking about people who are borrowing two hundred percent of the value of the car i mean and then there's there's fraud and papers just like we saw with the mortgages i think you know the fact that you're looking at a depreciating asset against these makes it even worse in terms of the recovery value for the for the bartender remember these loans are being packaged into derivative instruments into asset backed securities and so recovery value is going to be a huge. in terms of those securities actually having value especially since those securities are actually being rated at investment grade in exactly the same way that we saw securities being rated investment grade that were using mortgages before two thousand and eight that here's my question what other risky areas in particular are you looking at right now so we're thinking leverage loans and high yield in particular and you can look at a number of different areas globally in terms of house prices sweden is the u.k.

specifically in london is another all these markets are local. would have been called by now problems and in particular my focus is deaf in the debt markets because that's where you have problems when you leave the whole slate of debt behind the assets fall in value and then you have to take credit right. and you know if the banks can survive that kind of thing they may not be we saw in japan in one thousand seventy one thousand nine hundred seventy eight exactly the same problem and thank you as always i'm sure this is the last time we'll talk about this but that's all for now all the time we have but we love hearing from you please check out our facebook page and please tweet us. at and it's from all of us here at the best thank you for watching the scene.

we profit very large very attractive and now very globally recognized source of oil for the world into the world's cheapest and best petroleum deposits have been going down we have to use more energy to get this energy industries grow like a cancer it should be a square. kilometers where. whole area is slated for the play of her drinking water that's our wildlife service fishery. this is the end game when it takes. to make. the bottles and. that's where. we chill ourselves. you know in july of two thousand and eight just weeks before the collapse of lehman

brothers took down the financial markets with the bank and before tarp and served. george w. bush was caught on camera at a fundraiser saying quote there is no question about it wall street. the question is how long will it take to stop and not try to do all those fancy financial instruments. drunk is code for. the party was just getting started. badgering him playing the blame game the u.s. state department claims it has all the evidence it needs to lay blame on russia for the downing of the malaysian airliner but it won't disclose what is washington hiding. she agreed lumbered sure to mccurry was able to build a most sophisticated. routine at least doesn't sound anything too much mission

to teach music creation why it should care about humans and. this is why you should care only on the. u.s. intelligence side is no direct link between russia and the downing of the malaysian airline crying they insisted we shall stand by and it is. hard evidence. seventeen's flight data recorders head to the u.k. to be decoded is investigators begin identifying passengers bodies saying they're satisfied with the probe progress so far. the u.s. and european media keep pressing the blame for the crash on russia of brushing off all evidence the contrary is propaganda claiming they voice the whole world and its claims and counterclaims can feel me with a burning tragedy the e.u. draws up further sanctions against russia.