Higher Gold Price Bets: Money Moves (07/15)


You spoke to a number of officials in jackson hole.

To good they are basically saying thank goodness we a couple of months to make a decision.

No one expects us to make one at the july meeting.

That is a separate topic.

They say if we have to wait till september we will get a couple of more reports.

A better idea of where the economy is going and whether or not this is a soft pass or whether we will be stuck at this level for a while.

The data today don’t look so good.

The good data dependent.

But that phrase.

Think you, michael mckee.

That is it.

— love that phrase.

Movey “money you are slow to money moves where we focus on alternative assets.

We will show you what investors baltimore nurse are doing.

— investors and entrepreneurs are doing.

We will be speaking with the protege of richard branson on how he discovers startups.

Less an infrastructure — and infrastructure that ring.

And a big media quest to create original content using hulu as a stake in the ground.

First up we are going to focus on hedge funds and goals.

Prices are higher for five of the past six sessions.

The most since 2011. our markets reporter, and commodity guru, alix steel is with us now.

Hedge funds are very happy.

Some analysts say this is just a blip.

Here is what went down, higher gold prices for a second week after ben bernanke took away that imminent threat of tapering.

He said highly accommodative monetary policy for the foreseeable future.

Maybe you want to buy gold as a protection head.

The recent rally means that gold reversed those losses mid- june when ben bernanke still hinted at tapering.

Speculators increased their long position by over four percent.

When you talk to your sources, to most people think the gains are here to stay?

Are they expecting a reversal?

I cannot find one analyst note that is not somewhat bearish on the metal.

A large portion of hedge funds are actually betting on lower prices and remember, gold is still down 23% on the year.

Yesterday, citigroup lowered its average forecast for 2014. there is an average of $11 45 cents per ounce.

Investors are going to keep buying stocks.

Gold is not caught in this vicious cycle.

Lack of confidence leads to etf selling.

That leads to more investor selling.

It is hard to get out of that cycle.

What about the demand for physical gold?

Can that be a savior in any way?


We are borrowing costs wreaking four and a half year highs.

China net imported 106 times of gold from hong kong — 106 tons of gold from hong kong.

That is something you haven’t heard in a very long time, the biggest retailer will sell more gold to investors than it would buy from them.

The fourth time since 12 — the first time since 2004. that is really crucial, leading banks of america — jewelry demand could be strong enough to offset investor flow.

Thank you very much, alix steel with the very latest on gold.

From hedge funds trader positions in gold — the story was — he is the former goldman sachs reader accused of leading investors in order to sell mortgage related securities.

His high-profile trial is starting today in lower manhattan.

Su keenan has the very latest.

The sec has a lot at stake in this fraud case.

It is the first major case in their — under the new sec chairman.

It is about mortgage securities, the heart of the thousand eight financial crisis.

— of the 2008 financial crisis.

Keep it moving.

I am looking forward to — excuse me.

Clocks one of the things that makes this case very fascinating is the e-mails in which the former trader call himself a fabulous fab, being the only survivor left.

Traders also say the fact that his trades to the government were intended to fail.

Boxes of documentation with conflicts trades are wheeled in.

Nine people have been picked for the jury, including a female it takes couple crease.

— including a female episcopal priest.

How soon will he be taking the stand?

Possibly fairly soon.

Right now opening arguments are underway.

There will be a break around 4:30 a.m. — around 4:30 p.m.. this fraud case includes marketing of goldman, tied to hold — tied to home mortgages.

A key question in this case, did he tell investors and did they know who was on the other side of the trade?

Tourre handed little red riding hood an invitation to grandmas house without telling them the invitation was sent by the big bad wolf.

Su keenan with the latest latest on that former goldman sachs trader.

When we come back, a venture capitalist who cofounded a firm and is running his own, she will tell us what he is investing in right now and what how difficult it was for him to raise his fund.

We are going to show you how networks are upping the ante to compete with hulu, amazon, and netflix.

That is up ahead here on “money moves.” welcome back to money moves, streaming all day long on your tablet, phone, and bloomberg.com.

We are following hewlett-packard right now.

The stocks are higher.

Hp has added three new directors, including former ceos from mcdonald’s and liberty media.

It is all part of the turnaround effort by meg whitman.

Hp shares are up 84 % . we are going to stay in technology.

My next guest cofounded aol ventures.

Prior to that he was in the burton group.

He is now independent, running his own firm.

Mike, welcome to money moves.

It is in its eggnog ural year.

Congratulations on that.

I know you raised $33 million in your first fun.

We talk about all of the money that is around our fine city.

Was it easier or harder to raise that ready 3 million than you anticipated gekko i think it was more challenging.

We had those major brands behind us we had a new major brands behind us.

It was pretty hard.

We have five main partners in this fund.

I wanted that from an independent firm, get myself off the ground.

And you make investments, what is the size you are hoping to make?

Clacks i invest money into the business.

It tends to be half $1 million on average and very focused on a particular area.

I noticed something you mentioned in the past was something that was called internet natives, the next generation of technologists are now the cto’s, the chief technology officers, the chief media officer’s. even a big corporate tech or non-tech company, how does this change the way you are investing?

I think there is a gigantic transformation happening over the next 10 years.

You have this notion of the native person who grew up on facebook and twitter.

Now they are in charge.

They are just changing the way they think about buying technology solutions.

Much better user experiences.

They take a literal translation of what they do in the consumer, day-to-day , into their workplace.

They want tools and services that are competitively easier.

That brings up an interesting point.

I think in general when there is a user interface for enterprise business, that is to say software that serves companies versus software’s that serves people, there clearly is a lag.

What is the lag time in your it mind?

We have seen them file 10 years behind in terms of their product cycle.

And our business is driving the innovation and now becoming big companies, largely because they provide a better user experience.

We think it is a five to 10 year play here.

It is not sort of a one to two year thing.

We were talking about the difference of enterprise exactly.

It is finding the next oracle’s. disrupting the traditional spend that has been happening over the past 10 to 15 years.

You need to look for mafias or drinking buddies.

Normally the next generation from these larger companies are people who work together.

I think definitively that is very approachable and open in sort of more innovative ways of investing.

I am probably a better thought partner for entrepreneurs.

We do very few things for them.

I focus a lot on customer growth and getting them early traction with a bunch of companies.

You mentioned the valley.

I know when you were at aol you seemed to split your time half and half on each coast.

Is that the plan?


You are seeing much more innovation coming out of the valley.

Traditionally you have the bigger companies, they are allowing their employees to leave and go on and start these next-generation technologies.

We do not have that as definitively in new york.

I have a sincere interest in seeing it grow and seeing enterprise software do better.

There is more endemic businesses.

Financial services, one we are in right now.

Really good to see you.

Thank you for coming in.

We do want to bring you up-to- date, if you are a junk food fanatic you probably think this is news you can use.

Twinkies are back but a baby smaller than you remember.

The new owners of hostess have a leaner operating costs now that they are no longer using unionized workers.

The cakes may be smaller.

The boxes are going to hit the shell — the shelves.

Just ahead, porsche dealers sinking big bucks in the u.s.. and what hulu means for amazon, netflix, cable tv — hulu stands alone with its three owners.

Bloomberg is reporting that time warner cable may be interested in the online streaming site.

Here is david thanks take on hulu’s competitive position compared to amazon and netflix.

In the longer term, they should definitely be more scared.

Be it netflix or amazon — netflix or amazon was trying to move into that space of defining television.

That is going to be much tougher for them with the existing players owning hulu.

He says david is wrong.

He is the publisher of rolling stone magazine.

He is a managing partner at media tech capital.

Always good to see you.

There is a lot of different opinions out there about hulu.

What is your stance?

Let us roll back to the beginning of hulu.

Never in the history of media has a group of competitors ever had any success in doing anything, facing a new technology challenge.

Any of the owners of hulu, whether it is nbc, comcast, abc, disney, or 21st century — they could have overwhelmed netflix if they wanted.

What about coordination?

You try to pick a restaurant with two other friends and it is a nightmare.

You do not want to give their content over to somebody else.

Movie studios could do the same thing.

The studio should have said we could do that ourselves.

There is no magic streaming technology.

There are hundreds of technologies that provide the distribution technology.

Hulu had two problems from the get-go.

They could not decide which content they wanted to get into.

When they tried to sell at a second time and first time, the buyers said they have to guarantee this is going to be good content or they will not be able to pay.

Do you think they would like hulu go for the right price?

And oh.

— no.

Why would they give that content to a cable company?

They are getting hundreds of millions of dollars.

Why would they give it to a cable company?

There is apple, google, a lot of tech companies that have a lot of money.

They are all looking hard at the streaming space.

Apple tv is eventually going to get into it.

Similarly you have intel with efforts to put that on the box.

Microsoft is doing the same thing with the xbox right now.

There are perk — there are partners out there who can make hundreds of millions of dollars for the content owners.

You are seeing the three owners of hulu are not going to sell.

I think they are going to drift along.

They have 4 million theoretical survivors.

The rest of them are for free.

It is not a profitable at surprise — profitable enterprise.

They have enough to make or break even next year, not by new content.

The winner in hulu is probably the equity partners.

Private equity investors bought providence out last year.

They made a small profit.

Look at cbs, he did not join hulu.

He is selling cbs content to netflix and amazon, making tens of millions of dollars without being part of hulu.

Hulu is struggling to keep it alive.

As far as howell we deal with old media, it sounds like what you’re saying is that — it is all about content.

It is not about the networks.

Hundreds of millions of dollars put into building up nbc, abc, and fox.

People do not want to buy the networks.

They want to buy the programs and the programs are what is selling.

That is what netflix is buying and hulu is buying.

I think if you ask any person who is 10 years old or younger, they do not even know the difference between a network cable or what they see on an ipad.

It is a little bit of a joke.

A pretty strong soundbite.

It sounds like cbs is the strongest.

Where do you see where we are now?

I think this has been the most creative and most successful in generating revenue out of his content.

Where cbs goes — any one of the major networks can set up a viable competitor to netflix.

They all have movie studios under their umbrellas.

Why aren’t they selling that content?

There is one big answer, because they are making — they are making so much money that they do not want to give that revenue up.

We will see what happens with that when we talk with companies such as ariel.

It is always good to see you.

Thank you so much.

Porter been there with media tech capital partners.

A quick check on the markets.

You have the dow and the sp 500 and the nasdaq higher across the board.

You can see that there.

As far as the groups that are really gaining the most, we can give you a quick break down here and just show you which ones are in fact moving.

You have utilities, financials, industrials, materials.

These are the strongest groups.

Of the 10 major industry groups in the sp 500 there are eight higher, to lower.

The only one holding back gains include consumer discretionary stocks and also telecom service of –.com service stocks.

— telecom services stocks.

We have three new board members and of coarse follows the company’s april meeting.

26 past the hour, time to take you out to the newsroom, bloomberg on the market.

Thank you.

We do see stocks rise to some degree today on the outlook for potential fed tapering.

We had weaker than estimated economic data in terms of retail sales this morning.

In terms of individual movers, we are watching the best performer at the sp 500. it is the company first solar.

And boeing rising after a uk investigator saying that the fire on the runway at heathrow was not related to recent battery problems the company has had.

Finally, alexi on falling after surging friday on the news — that is for bloomberg on the market, we will be right back.

Welcome back to money moves.

We turn our focus to alternative assets, places investors are putting their money outside of traditional stocks and bonds.

We are going to bring you out the newsroom.

We want to bring you — adam.

Thank you.

The acquittal of george zimmerman in the murder trial of terror a von martin — of trayvon martin has caused calls for a review of federal prosecution.

President obama says the jury has spoken and the governor of florida says the justice system is doing its job.

We have a lot of checks and balances.

The federal government gets to make a decision on whether they want to pursue something.

They will make that on their own.

We have a system in our country that works.

Citigroup profits surged 42% in the second quarter on stock trading revenue and efforts to scale back unwanted investments.

Michael corbat has higher sows and’s of workers and cut off in some countries after taken over last october.

Here is one for you, porsche franchises in the u.s. seem to sell gold for its — it is the most acquired franchises by publicly traded groups since porsche has gone from two-door sports car to suvs and sedans it has heightened the interest in dealerships.

The model celebrates its 50th anniversary this year.

And the twitter-sphere lou up over shark nato.

— over sharknado.

It generated 7 million comments but only one million viewers.

We will go behind the scenes with the director and also the actress tara reid.

We are looking forward to it.

Even though it is july, retailers are focused on the back-to-school season.

Second only to the holidays it is the most important time of the year.

Former ceo ron johnson mason decisions that do not really help the company.

The new ceo has been at the helm since april.

I sat down with betsy schumacher.

She runs the canada division.

I asked her about the change in leadership and the retailer’s newest store within a store concept.

[no audio] customers have been coming in since we launched online.

They have been coming in with photos.

I think we are going to see some exciting traffic from this.

The you think that joe fresh kids is going to be able to drive back-to-school traffic?

I it is a great news story.

It is great fashion and we are talking about it right now.

I took a look at the traffic numbers from the second quarter to the third quarter.

It seems the second quarter and earlier, there was a big drop- off.

It was it was down 16 % quarter on quarter.

The last quarter, let us say it was decreased.

There was a drop-off of six or seven percent.

What do you think is going right and as somebody who is top of the children’s department, what are you doing to help that effort?

There are a few things.

The first one starts with the product and our product offering is possibly the best it can be.

Also, from a promotional standpoint, our customer told us he wanted to be promotional.

They wanted to see the fab you, come in and see it, and we have been investing at both through our marketing and in-store marketing.

When you mention the discounting, we know that ron johnson took it away.

Now jcpenney seems to like it is having to fight a little bit from behind and offering deeper discounts than it would have arguably.

Have the original coupons — then they would have, arguably, had the original coupons been kept in place.

It has been highly promotional this year and highly promotional in this timeframe.

One we think about it from a jcpenney standpoint, for us we are at our heritage.

We know our customer wants us to be promotional.

That is the way we think about it.

We have been talking about some of the things jcpenney has been doing right to win back its customers.

What other efforts do you think are paying off and help you get a little bit of the traffic back?

The other thing the customer told us is they are finding it very difficult to shop.

We have taken a lot of cash threats out through the year.

They found things they wanted to buy but they just could not execute the stale.

— the sale.

We added some portable stations in our store, making it easier to find a place to check out.

They told us they were very confused because we moved things around on the floor.

We added a lot of directional signage into the store.

They can come in, see where to go, and — and make it easier for them to see where they are going.

When we come back, how to invest in some of the biggest infrastructure projects in china and the united states.

More on that subject in just a few minutes.

Welcome back to money moves on bloomberg television, streaming all day long on your tablet.

Earlier we have new gdp data from china, wrote slow to 7.5% in the fourth quarter.

Our next guest says infrastructure development is still a top priority.

Michael underhill is here now.

He is cofounder of capital innovations, and asset firm that focuses on infrastructure, timber, agriculture, and other assets as well.

The firm has $1 billion under management.

Always great to see you.

If the average investor does want to make it that, put some money to work on infrastructure in china, what is the best way to do it yet — do it?

It is such a challenge and opportunity.

You have erect investment — you have direct investment.

A company likegsh — a company like gsh — you look at chinese new year, roughly 76 million people wrote the railroads –rode the r — rode the railroads in china.

What about here in the united states?

Lex we have publicly traded stocks.

You have not only transportation but energy.

When you look at energy dependency in the united states and the ability to invest in energy infrastructure it is phenomenal and exciting.

You see master them and attend partnerships — master limited partnerships.

They had $30 billion of equity that was issued.

Mutual funds, exchange traded funds, institutional investors are spending were times in the partnerships.

We are on track to do 34 billion dollars, more than a 10% growth.

You mentioned some of the energy opportunities.

Are there one or two that are sticking out in your mind?

When you can get some flexibility , having a dominance, names like — great name, core capital growth.

The yield is tied to that insulation — two that inflation.

When you look at a world where people are trying to postulate what is better, or by rail or by pipeline — oil by rail or pipeline, they purchased stations and facilities so they can actually participate in the dynamics.

You have seen oil by rail car increase by 67%. it is a great play for the individual investor.

I know you are looking at infrastructure.

Also agriculture, feeding the world, what kinds of opportunities are you looking for in that context?

We look at things like essential services.

Fuel is the infrastructure.

If you look at things like food and agriculture, population demographics and growth, not only in emerging markets but in shifting dietary patterns — the growing middle class, many people want to eat meat.

That has been a shift in a lot of places.


It is not just china, india, or brazil.

If you look at the consumption patterns, protein output has increased by 75%. the best way to increase crop yields by 75% growth metrics you need are delighted, potash and nitrogen-based fertilizers.

You look at free cash flow, you look at the ability to address some of the issues.

This year we are having record cold and record wet weather.

We are seeing the heat in new york and elsewhere in the united states.

Analyzer is the single best way to increase crop yield.

You mentioned feeding the world and obviously we are on a national team.

What about housing?

We are talking about bigger picture view on the u.s. housing recovery?

How do you invest for it?

When you see companies out there, friends like steve schwarzman of lack stone — he is the biggest landlord.

They are one of two or three by the equity that you have 115 million residential homes.

We are trending toward one million plus in housing starts.

The remodeling market, existing home sales, those prices are up.

This portends a broader-based economic recovery.

Not only a monetary company that companies that are benefiting from it.

They are playing on the house and growth with lumber, timber, and other products.

They are shipping to china and japan.

Japan is that stimulated economy.

They are consuming wood products and creating a wealth effect.

It is pretty hard to invest directly in timber.

You are giving us a way to do it through public stock.

Otherwise it is pretty hard to pull off.

When you look at it it is the liquidity.

Are you willing to take the liquidity risk?

Jan that are you willing to take a concentration risk?

You are concentrated by specie, by geography — by specie i mean spruce, pine, eucalyptus — it is very well diversified as opposed to a single equity play.

Lex always glad to see you.

We are happy for the ideas.

Michael underhill joining us there.

When we come back, expanding your investment vocab with bob’s buzzword of the day.

It is coming your way in just those minutes — in just two minutes.

Time for our daily buzz word.

One investment term to improve your vocabulary, bob rice is here from tangent capital partners.

Convertible arbitrage.

You cannot believe we have not done this yet.

Explain the strategy.

It is such a classic.

First we have to start with what a convertible on is.

A convertible bond is an important part of u.s. history.

These are the things that finance the railroad expansion in the 1800s. they are like a regular bond except for one very cool feature, that is in other thousand dollar bond.

You as a holder can say instead of a thousand you can demand a predetermined number that was in the stock when you bought it.

If the stock price goes up, then obviously i benefit.

It has a huge upside.

Investors like that part of it.

The companies like it as well.

Because they are conveying that benefit the investor they are able to lower the interest rates they would have to otherwise pay on the bonds.

Units the issue the stock down the road, it is going to be at a higher price than today’s stocks.

Where does it get interesting.

It is a win — win so far option value is really hard to price appropriately and especially on original issuance of these illiquid bonds.

A lot of times that option price is probably the inherent price — the inherent price is probably higher than the price of the bond.

What arbitrage does is the by the bond and then they sell and offsetting amount that the company stocks.

For example that person would not really care which direction at stock goes.

The idea is they have captured the extra value that they believe the option has.

It doesn’t matter if it goes up or down.

Of course it is much more complicated than that because you have to look at — you have income from the bond.

The value of the option does bounce around in that is the basic idea of convertible arbitrage.

And funds that are using the strategy, how do they perform?


This is one of the reasons it is important to know about the strategy because it performs very well.

It has been one of the best- performing strategy over the last 10 to 15 years.

In a real panic these things do not do well.

In just a normal selloffs they do quite well.

You cannot shoo away the black swans with it.

Otherwise it is a good strategy for investors to take a serious look at.

There it is.

Bob rice we thank you as always.

Remember, if you have an idea for bob’s next buzzword, you can go ahead and tweak it to him — tweak it to him@bobrice3. the day ‘s major market moving headlines straight ahead.

Tomorrow better and angel investor joanne wilson, where she sees the most promising tech companies and why angels are looking to invest in more women entrepreneurs.

Also the evolution of hedge funds treated simon lack will join me.

He will tell me about the changes that he is pushing for in the industry.

All of that coming your way tomorrow on “money moves .” time to get you caught up on the markets.

Our senior market correspondent julie hyman has the latest.

We are seeing stocks at the highs of the session.

Not anything like a runaway gains today but we are seeing the sp and dow at records.

That is on the back of some mixed economic eta.

Enough for the fed to keep going with its stimulus are you take a look at what is going on with metals and commodities today.

Copper is lower after china said gdp grew 7.5% last quarter.

Oil is spilling all over the place because the fixed economic report says at the moment we are seeing a gain for oil.

And gold is up for the fifth time in six sessions on the outlook that the fed will keep stimulus going.

Gold is gaining to some extent.

We are talking telecom in today ‘s sector report.

The battle for bandwidth continues.

Att purchase — that you will give them 5 million new customers as well as more airways.

For more on what this means, let us bring in cristina alesci.

Why does this make sense for att? what is attractive about leaf wireless?

It is about getting more spectrum.

Att and the rest of them want to be able to provide consumers with more data, faster data, it seems like that is where the future lies for these companies.

Att, for the most part, has been behind the ball.

If you remember about a year ago they tried to buy t-mobile to fix that problem, to get more spectrum.

The government shut down its regulatory visas and now it is going after the smaller players in an attempt to catch up and it is also ending up having to pay up as a result.

Speaking of paying up, if you

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