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Speaker 1: Broadcasting live to New York, Koomberg to Washington, d C,

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Speaker 1: Bloomberg to Boston, Bloomberg twelve hundreds to San Francisco, Bloomberg

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Speaker 1: to the Country Series XM Channel one nineteen and around

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Speaker 1: the globe. The Bloomberg Radio Plus happened. Bloomberg dot Com.

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Speaker 1: This is Bloomberk Surveillance. Good morning on Wall Street at

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Speaker 1: Michael McKee along with Tom Keene. You got a note this, Uh,

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Speaker 1: you've probably heard the news Staples and Office Depot abandoning

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Speaker 1: their merger of federal judge last night, siding with the

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Speaker 1: Justice Department and I trust folks who challenged the combination

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Speaker 1: of those h office suppliers. It was a six point

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Speaker 1: three billion dollar deal. Now it's nothing, and you do

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Speaker 1: not want to be an Office Depot shareholder. This morning

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Speaker 1: in the pre market, shares down thirty seven percent, Staples

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Speaker 1: shares off by fourteen percent. Toyota Toyota says annual net

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Speaker 1: income is probably going to the line for the first

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Speaker 1: time in five years. They are blaming the yen currency

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Speaker 1: swings that spurred their record profits now posing stiff headwinds.

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Speaker 1: Toyota shares in Japan finishing down by three quarters of

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Speaker 1: a percentage point there down uh two point six percent

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Speaker 1: in pre market trading for the US eight r s

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Speaker 1: and Takata, the air bag people. They say they're gonna

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Speaker 1: make money this year, even though they're still potentially on

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Speaker 1: the hook for billions of dollars in costs related to

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Speaker 1: its defective air bags. They say they'll make thirteen billion

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Speaker 1: yen currency translation at the moment hundred nineteen point six

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Speaker 1: million dollars for their fiscal year that ends in March.

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Speaker 1: No concern about the ongoing concern question. They say they'll

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Speaker 1: take steps to save money if they need to. Let's

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Speaker 1: check in with Michael barn Now and get the latest

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Speaker 1: world at National Headlines. Mike, thank you very much. Bernie

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Speaker 1: Sanders won the West Virginia Democratic primary. However, Hillary Clinton

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Speaker 1: still has a commanding lead. Clinton's comments in March didn't

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Speaker 1: help her win support in the coal mining state. Clinton,

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Speaker 1: during a town hall in Ohio, said that we are

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Speaker 1: going to put a lot of coal miners and coal

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Speaker 1: companies out of business. Meanwhile, Vice President Joe Biden came

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Speaker 1: close to giving an endorsement to Clinton during an interview

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Speaker 1: with ABC News. I feel confident that Hillary will be

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Speaker 1: the nominee and I feel confident with me the next president.

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Speaker 1: Today maybe the last day in office for Brazilian President

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Speaker 1: Dilma Roussof After a long debate, the Brazilian Senate a

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Speaker 1: scheduled to vote to force Russof out and into an

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Speaker 1: impeachment trial. At least forty five people have been killed

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Speaker 1: dan in an attack and mostly she I neighborhood in Baghdad.

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Speaker 1: The Islamic Status Claim Responsibility. Global News twenty four hours

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Speaker 1: a day, empowered by our twenty four hundred journalists and

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Speaker 1: more than a hundred fifty news bureaus from around the world.

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Speaker 1: I'm Michael, bar Mike, Thank you, Michael. Now time for

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Speaker 1: the Landrover Parsippani Bloomberg NBC Sports Update with John Stesshaw alright, Mike,

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Speaker 1: Mets and Dodgers in l A. Dodgers scoring twice in

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Speaker 1: the first day, Mets with two of the second State

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Speaker 1: tied until Trace Thompson, whose brother Clay starts for Golden

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Speaker 1: State in the NBA, wanted for the Dodgers three to

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Speaker 1: a pinch hit walk off home runoff Hansel Roblez in

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Speaker 1: the bottom of the ninth Mets had only five singles

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Speaker 1: all night. Yankees made it four or five on the

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Speaker 1: home Stanley outscored Kansas City ten to seven despite three

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Speaker 1: home runs, but the Royals Lorenzo Caine, the last of

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Speaker 1: which came in the eighth inning to time the game.

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Speaker 1: Yanks came right back with three in the bottom of

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Speaker 1: the eighth roll this Chapman got his first Yankee Savy

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Speaker 1: hit a hundred on the gun twelve different times, but

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Speaker 1: of a surprise in the NBA, Oklahoma City won Game

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Speaker 1: five at San Antonio one. The series is now three

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Speaker 1: two thunder, going back to Okay c for Game six tomorrow.

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Speaker 1: Steph Curry m v P again first ever win it unanimously.

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Speaker 1: Another postseason disappointment for the Washington Capital's best team in

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Speaker 1: hockey all year long. They were down three nothing last night.

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Speaker 1: Rallied to force overtime but lost four three. Pittsburgh wins

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Speaker 1: the series four to The Penguins will play Tampa Bay

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Speaker 1: in the East Finals. We at the Bloomberg NBC Sports Up.

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Speaker 1: I'm John Stans. Thank you John. We are keeping an

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Speaker 1: eye on, as I mentioned, the Office Depost Staples merger

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Speaker 1: that has now been called off. Office Depot shares down

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Speaker 1: thirty seven percent. Staples shares off sixtent in the pre market.

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Speaker 1: This is Bloomark s Avalance. I'm Michael McKee, along with

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Speaker 1: Tom Keane. Along with those office suppliers being down. General

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Speaker 1: futures are down, SMP features off by three points, two

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Speaker 1: tense stal futures off forty one. That's also a two

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Speaker 1: tense decline. Europe's down stock six hundred off by two points.

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Speaker 1: That translates into seven tenths on that index. Time now

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Speaker 1: for the Bloomberg n j I T STAM Report, brought

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Speaker 1: to you you by New Jersey Institute of Technology, investing more

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Speaker 1: than a hundred and ten million dollars a year and

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Speaker 1: applied research to solve problems and improve life. Learn more

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Speaker 1: at Stories of Innovation dot m j I T dot

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Speaker 1: E d U. Here is Bob Michael. Good morning. Here's

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Speaker 1: what's making news and science, technology, engineering, and math for investors.

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Speaker 1: Commplating proces spects for the smartphone market. After a shaky

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Speaker 1: earnings report from Apple, a series of disappointing earnings reports

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Speaker 1: from Asian suppliers just provided a few hints it's going

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Speaker 1: to get worse before it gets better. Earnings from three

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Speaker 1: suppliers that work behind the scenes to make devices sold

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Speaker 1: under the brands of better known customers suggest trouble ahead

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Speaker 1: for smartphone makers and other companies that once thrived on

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Speaker 1: mobile Mania. Europe's air Bus is working on developing a

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Speaker 1: launcher to send many satellites into orbit, according to people

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Speaker 1: familiar with the project, a move that would hit it

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Speaker 1: against the likes of Virgin Galactic and rocket Lab. That

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Speaker 1: whose France based company is working on a project to

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Speaker 1: build a commercial launcher for small satellites used for Earth exploration,

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Speaker 1: defense and security, weather forecasts, and Internet connections. And modern

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Speaker 1: science brings us something new, synthetic spider silk. Later this year,

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Speaker 1: outdoor gear retailer north Face will offer shoppers at its

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Speaker 1: store in a posh fashion district in Tokyo a special

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Speaker 1: environmentally friendly version of its existing Antarctica parka made out

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Speaker 1: of a super strong material that mimics the properties of

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Speaker 1: spider silk. Maker uses genetically altered micro organisms feeding them

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Speaker 1: sugar to mass produce the silk protein that shows up

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Speaker 1: in spider webs, then refines the stuff into flexible but

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Speaker 1: strong threat. That's this morning's Bloomberg and j I t

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Speaker 1: Stem report that north Face jacket by the way Mike

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Speaker 1: is going to sell for a thousand dollars, and I

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Speaker 1: guess I need to get one. They're calling it the

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Speaker 1: Moon park Oh yeah, that's if you name it after

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Speaker 1: you when they should be giving you one free. I'm

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Speaker 1: not impressed, though, because I saw Captain America over the

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Speaker 1: weekend and Spider Man explains that he invented that the

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Speaker 1: artificial silk um, So you know, I don't know if

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Speaker 1: they can claim credit for that's clearly Peter Parker's idea

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Speaker 1: royalty up baba, and thank you very much. We're talking

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Speaker 1: about how it is that you manage funds in an

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Speaker 1: environment like we have been experiencing this year with extraordinary

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Speaker 1: volatility and low volume at the same time. No Embarment

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Speaker 1: is a chief investment officer for Templeton's Global Equity group

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Speaker 1: up here from Nassau in the Bahamas. And I guess

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Speaker 1: it's at least at least you can walk outside there

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Speaker 1: and on a bad day and say, well, yeah, but

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Speaker 1: it's really nice out here. And even though we lost

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Speaker 1: money at let me just quickly ask you, because I

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Speaker 1: was looking this up um office depot getting killed on

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Speaker 1: this um on this Justice Department decision as of the

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Speaker 1: end of the year, Franklin owned a fair amount of

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Speaker 1: shares of it. Did you get out of that before this?

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Speaker 1: That would be another part of Franklin's and not our group.

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Speaker 1: I'm not sure exactly where they stand right now in

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Speaker 1: terms of the ownership. Is it frustrating when stuff like

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Speaker 1: that happens, when you think you have a good play

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Speaker 1: and then and what economists call the exogenous event happens. Yeah.

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Speaker 1: We I mean, we've definitely owned ones where we thought

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Speaker 1: the merger was going through and it didn't. We make

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Speaker 1: sure that we like the two companies, or at least

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Speaker 1: the one that we own, just in case that happens.

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Speaker 1: And but it's a much quicker and easier way to

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Speaker 1: to make some profits than you know, waiting a long

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Speaker 1: term out and h and seeing the thing fall apart

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Speaker 1: and having to start all over again. This has been

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Speaker 1: an exogenous year. UM active managers, according to the data

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Speaker 1: archives have put together in the first quarter, UH fell

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Speaker 1: behind benchmarks by the most in years. What do you

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Speaker 1: do in that situation? What do you tell your clients?

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Speaker 1: We keep on double checking, triple checking what we do

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Speaker 1: over and over again. I mean, we've always done that

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Speaker 1: and that was something that John Templeton always did, so

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Speaker 1: it's remained flexible. Check what you're doing, um, but there

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Speaker 1: are some underpinnings that we have being value managers that

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Speaker 1: we stick to and then you just have to ride

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Speaker 1: out some of these times. I mean, it tends to

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Speaker 1: not go on forever. But this particular run has been

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Speaker 1: a long and in terms of value under performing, and

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Speaker 1: it's been a it's been an original run, norm I

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Speaker 1: think what is so important to understand is the originality

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Speaker 1: of of where we are and dealing with outflows and

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Speaker 1: inflows and the rest of it. Within that you've made

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Speaker 1: a bet on the banks, and some people that like

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Speaker 1: the banks, they don't like the banks. But so much

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Speaker 1: of it, getting back to sir John's work, is just

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Speaker 1: the understanding that book value will increase. What is your

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Speaker 1: confidence that the banks you've chosen will see growing book value.

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Speaker 1: I mean we have a mix of banks, so we

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Speaker 1: here banks in both the US and in Europe. Within Europe,

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Speaker 1: which is the bigger of the bets. As you said,

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Speaker 1: the valuations are unbelievably cheap. We're back to two thousand

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Speaker 1: and eight two eleven type levels, levels that you hadn't

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Speaker 1: really seen before. Uh, and you've seen basically the balance

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Speaker 1: sheets being reconstituted so that the governments have forced them

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Speaker 1: to raise capital. So they're in good shape and terms

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Speaker 1: of the balance sheets. And then as you say, it's

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Speaker 1: a question of growth, and we are seeing growth starting

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Speaker 1: to come back. They're fighting a bit of a wall

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Speaker 1: in terms of the negative interest rates. Do you have

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Speaker 1: confidence at the European banks will clear markets and see

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Speaker 1: increasing book value? They are starting? I mean there's a

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Speaker 1: couple of things going on. One is the underlying loan

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Speaker 1: businesses which are sort of slowly chugging along. You've seen

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Speaker 1: long growth pick up in Europe. The other part is

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Speaker 1: a restructuring on the investment bank side, and you know

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Speaker 1: that's been sort of death by a thousand cuts and

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Speaker 1: they are a long ways along and sort of fixing

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Speaker 1: fixed income businesses, etcetera. But that's really been more of

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Speaker 1: the headwind for a lot of the banks than actually

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Speaker 1: the underlying businesses. This is a joint Mike. This means

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Speaker 1: it will be in the Bahamas the third week of January.

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Speaker 1: Wouldn't like that here in our studios. He's with Templeton Franklin.

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Speaker 1: Templetons will continue futures negative for Bloomberg Surveillance, Bloomberg Avalance

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Speaker 1: bought you by National Realty Returns on Cash and Rented

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Speaker 1: real Estate five n R I a dot net global

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Speaker 1: business news twenty four hours a day at Bloomberg dot com,

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Speaker 1: the Radio plus Mobile Act and on your radio is

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Speaker 1: a Bloomberg Business Flash and I'm Karin Moscow. This updates

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Speaker 1: brought to you by American Arbitration Association. Business disputes are inevitable,

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Speaker 1: resolve faster with the American Arbitration Association, the global leader

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Speaker 1: in alternative dispute resolution for over eighty five years. Learn

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Speaker 1: more at a d r dot org. Staples and Office

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Speaker 1: Depot abandoning their merger after a federal judge sided with

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Speaker 1: US antitrust officials who challenged the combination of the two

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Speaker 1: largest office suppliers, saying it would create an unrivaled giant

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Speaker 1: for watching shares of the two retailers. This morning, Office

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Speaker 1: Depot down at thirty six and a half percent, Staples

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Speaker 1: down sixteen and a half percent in early trading. European

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Speaker 1: equity is also falling for the first time in three days,

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Speaker 1: and US DOT index futures are declining as banks and

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Speaker 1: energy producers slide shares of raw material companies are rallying

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Speaker 1: as metal prices climb. We checked the markets every fifteen

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Speaker 1: minutes throughout the trading day on Bloomberg SNP EMNY futures

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Speaker 1: down four points down, EUNY futures down forty five nasdac

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Speaker 1: EMUNI futures down nine. The decks in Germany's down eight

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Speaker 1: tenths percent. Ten year Treasury little change yield one point

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Speaker 1: seven five percent. Niemex screwede oil up to tens percent

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Speaker 1: or nine cents to forty four seventy four. A barrel

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Speaker 1: comes gold up one point one percent or thirteen dollars

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Speaker 1: sixty cents at twelve seventy eight forty announced the euro

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Speaker 1: at dollar thirteen ninety seven the N one oh eight

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Speaker 1: point seven zero. Walt Disney is down five point two

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Speaker 1: percent this morning after posting profit that missed estimates and

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Speaker 1: said it will shut down its Infinity video game division.

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Speaker 1: That's a Bloomberg business flash, Tom and Mike Karen, thanks

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Speaker 1: so much. Look for hag On going to the goal.

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Speaker 1: Maglin gets to it goes around here, corner to castle

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Speaker 1: and the slot turny shop. I had like go No

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Speaker 1: nobody it's Ober but got one. That's game and overtime

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Speaker 1: at the six thirty till Mark and might he's a gentleman, Elvis.

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Speaker 1: I just left the building and all the President's rope

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Speaker 1: man good, but umta together again. There it is a

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Speaker 1: call from Pittsburgh. A great game, Michael McKee. It was

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Speaker 1: great how the Capitals came back. I mean, for our

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Speaker 1: global audience, this was an extraordinary sports event. Well, you're

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Speaker 1: not going to make anybody in Washington feel better about

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Speaker 1: that at this point. They just know that once again

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Speaker 1: they lose in the second round, and once again it's

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Speaker 1: so the Pittsburgh Penguins, who are their tormentors for those

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Speaker 1: from Nassau, Bahamas who are going what from Toronto? Us

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Speaker 1: from this? He had The maple leafs are so bad

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Speaker 1: he had to move them. He was that. One of

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Speaker 1: the great perks of living in the Bahamas is the

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Speaker 1: cable system was set up by a Canadian. He can

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Speaker 1: watch all the games. Yeah, he doesn't have to worry. Well,

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Speaker 1: there it is, but it was great sport. Of course,

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Speaker 1: Pittsburgh moves on. Mr. Everybody in the hockey world's thoughts

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Speaker 1: go out to the great Russian. Mr. Ovechkin, who deserves

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Speaker 1: to do better baseball season, So they're in norms. That

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Speaker 1: does speak to the great shock of the last year,

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Speaker 1: which is commodities. Of course, Canada, your Canada hugely commodities

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Speaker 1: and Sir John Templeton years ago doing an awful lot

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Speaker 1: in commodities. Can you be long commodities? I think you

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Speaker 1: have to be selective. So you know, energy we like

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Speaker 1: and we think that part of the solution there is

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Speaker 1: just the lack of copex because of the cash flow

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Speaker 1: do appearing um with combined with the decline rates in

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Speaker 1: the fields fixes the problem much sooner than problems in

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Speaker 1: areas like iron Ore, where you've had an awful lot

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Speaker 1: of supply and there is no decline rate and it

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Speaker 1: just takes an awful lot longer for some demand to

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Speaker 1: catch up with the supply overhang. So we're we own

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Speaker 1: a number of the commodity stocks, doing a lot of

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Speaker 1: the energy stocks, and we're being quite selective. You don't

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Speaker 1: uh dashing it out, I mean you buy and hold.

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Speaker 1: So you must be thinking in energy that the disruption

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Speaker 1: we've seen over last year is a one time thing

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Speaker 1: and that once prices normalize, uh, they're gonna stay that way.

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Speaker 1: We're not going to see this kind of wild swing

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Speaker 1: for some time. I mean, I think we're going to

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Speaker 1: continue to see swings and energy prices, but we'll have

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Speaker 1: an opportunity, we think, for the stocks to rally as

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Speaker 1: energy prices go back up, and that will be our

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Speaker 1: exit points. So you know, some some areas you may

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Speaker 1: be holding a stock for five ten years. I'm going

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Speaker 1: to guess with energy it'll be shorter than that. Um.

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Speaker 1: But you know, energy prices, UM, they're starting to pick

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Speaker 1: up already, and we think they probably somewhere in the

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Speaker 1: six eighty range would be sort of equilibrium where you're

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Speaker 1: basically getting returned to the marginal producer on the capitol

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Speaker 1: being put in. What else? What else do you like? Well,

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Speaker 1: let me ask you, since Franklin Templet is known for

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Speaker 1: its work around the world, what countries, if any, stand

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Speaker 1: out at this point. You know, we tend to come

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Speaker 1: at it from the stock perspective, so, um, we're not

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Speaker 1: really looking at it from, hey, we really like this

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Speaker 1: country or justlike this country. Having said that, the US,

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Speaker 1: even though it's by far the largest country position in

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Speaker 1: the portfolio, we're quite underway and that's just a question

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Speaker 1: of when you look at the evaluations overall, it's more

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Speaker 1: difficult to find stocks in the US and in places

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Speaker 1: like Europe where people clearly are are not too happy

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Speaker 1: about what's going on, and that that tends to be

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Speaker 1: the opera tunity. Um so we you know, we own

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Speaker 1: a lot of healthcare stock to you own a lot

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Speaker 1: of energy stocks. We own disproportionately more in Europe than

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Speaker 1: we would in the U S. When you look at

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Speaker 1: the underlying businesses, the European companies are very similar to

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Speaker 1: the U S companies in terms of what they're doing

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Speaker 1: and where the earnings are coming from, et cetera. But

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Speaker 1: they traded discounts, so that makes sense to us. We

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Speaker 1: have norm in our lives four or five incredibly formative meetings.

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Speaker 1: I had one of those when I was maybe twenty three,

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Speaker 1: maybe twenty four with a guy named John Templeton and Toronto,

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Speaker 1: set up by John Gelberyth, the wonderful John Gilworth, and

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Speaker 1: Sir John emphasized them, as he did through all of

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Speaker 1: his career, that you can be dead on but everybody

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Speaker 1: will catch up with your fad. Everybody will catch up

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Speaker 1: with the theme where it becomes consensus and then fails.

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Speaker 1: What's the theme now that Sir John would be most

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Speaker 1: concerned about. I think it's the tmt ish type nature

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Speaker 1: of you know, the fangs, etcetera. I think he would

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Speaker 1: look at that is really worrisome. I think bonds, fixed

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Speaker 1: income he would look at as as something that's sort

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Speaker 1: of run its scores about the cult of dividend growth.

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Speaker 1: And the staples and those types of stocks in the

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Speaker 1: market as well. I mean they're you know, utilities, staples

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Speaker 1: tend to be trading as bond proxies, So I think

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Speaker 1: that would fall into that bond category that worry um.

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Speaker 1: You know, so there are definitely things going on in

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Speaker 1: the markets that that he would worry about. The the

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Speaker 1: folks on our stocks team put together, whether they're using

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Speaker 1: some make up American data um a uh an interesting

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Speaker 1: chart that shows that basically the only people buying stocks

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Speaker 1: these days or companies buying back their own shares, which

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Speaker 1: if a company thinks it's undervalued, would fit into your

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Speaker 1: your category. Um, do you look at is that one

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Speaker 1: of the things that you would screen for is somebody

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Speaker 1: who's got a buyback program in place or does that

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Speaker 1: worry you because they can't make money and so they

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Speaker 1: fall back on this. That's a difficult one. So I

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Speaker 1: mean we look for cash flow, so we we like

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Speaker 1: companies that generate cash and that you know, to some

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Speaker 1: extent ends up in the dividend. But the other way

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Speaker 1: they return the cash to shareholders if not buying things,

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Speaker 1: they're returning it by his share buy backs. And you know,

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Speaker 1: if you have a company that's buying shares back that

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Speaker 1: you know, if we're looking at it saying this is

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Speaker 1: more a company we would sell because of valuation than

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Speaker 1: them buying it back, isn't necessarily a good way to

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Speaker 1: return capital to the shareholders. So you know, every situation

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Speaker 1: is something different. But you know, a lot of the

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Speaker 1: growth nowadays in the markets is you know, companies are

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Speaker 1: very profitable, they returning cash and they're doing it that way,

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Speaker 1: so you get earnings growth out of it. So you

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Speaker 1: know the market tends to be paying for that. Is

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Speaker 1: Europe a value trap or is there uncommon value they're

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Speaker 1: given them the politics of Brexit and all the rest

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Speaker 1: of it. I'm hand on heart hoping that it's not

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Speaker 1: a value trap. You put your money where your Europe is.

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Speaker 1: Europe is. I think there are areas in Europe that

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Speaker 1: are you know, it's all about growth, So it's about

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Speaker 1: is Europe going to come back and grow? And we

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Speaker 1: we think that the earnings are depressed and that they

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Speaker 1: have more potential to grow earnings overall than you know,

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Speaker 1: the US for instance, UM from a lower base, but

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Speaker 1: there are definitely areas, you know, within banking, so we

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Speaker 1: own banks, but there's areas within banking that we would

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Speaker 1: stay away from. UM. You know, we own lots of

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Speaker 1: healthcare and energy stocks, but we don't own all of them,

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Speaker 1: so we think some of them are are fairly valued UM.

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Speaker 1: But overall there are a lot of good values there

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Speaker 1: and a lot of companies that aren't just European in

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Speaker 1: terms of where they're they're doing business. What is the

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Speaker 1: new THEATA for for investors? My guess is with financial

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Speaker 1: repression with new terminal value with new potential GDP, that

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Speaker 1: the old idea of a three year view of five

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Speaker 1: year view has to become a five year and seven

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Speaker 1: year view. Is the new long term a longer term? Yeah?

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Speaker 1: And I mean the debate that we have is, you know,

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Speaker 1: what's the right sort target in terms of return expectation?

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Speaker 1: And I think that falls into the same same question. Uh.

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Speaker 1: And you know, we we tend to look for stocks

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Speaker 1: that we think can double over five years, so very

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Speaker 1: much kind of buy things at half of what they're

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Speaker 1: worth type of approach. Uh. And the question is is

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Speaker 1: that too ambitious in an environment where where economic growth

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Speaker 1: is uh is much lower. And the conclusion we come

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Speaker 1: to is is probably be a bit ambitious, but you

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Speaker 1: still want to, you know, go for good absolute return.

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Speaker 1: I'm sure you've got to eat things to do in

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Speaker 1: New York. Thank you so much for coming. Thank you. No.

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Speaker 1: In bersement with Franklin Templeton the Bahamas, we might point

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Speaker 1: out which is where John Templeton set up his camp

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Speaker 1: for it seems like half a century, not quite that one.

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Speaker 1: But nevertheless, how how are the Bahamas doing? Quickly? Struggling

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Speaker 1: a little bit. There's a large hotel complex that hasn't

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Speaker 1: been finished that was supposed to be sort of the

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Speaker 1: engine of growth, and there's still they're still fighting about it.

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Speaker 1: It's in foreclosure and we're hoping and it gets finished,

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Speaker 1: but not yet. Norm thank you so much, Mike. What

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Speaker 1: do you have? Uh? No, I'm just I'm just trying

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Speaker 1: to figure out what it will cost us to get

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Speaker 1: to the Bahamas. I like that. Very good, very good.

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Speaker 1: What we think is cheap our boss may now, well

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Speaker 1: you know Jet Blue? Where are you? Michael McKee and

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Speaker 1: Tom Keane bonus round another hour of Bloomberg's surveillance futures

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Speaker 1: negative for