tv Lunch Money Bloomberg December 19, 2013 9:00pm-9:31pm EST
>> welcome to "lunch money" i am adam johnson. the fed chose confidence in the economy and starts to taper it economic stimulus. in tech, facebook and mark zuckerberg land to sell shares worth $4 billion. the crash test results are out. we will tell you who is the safest and who is not. and we had to the farm to find out what makes wide you -- wagyu beef different than the others. the past few weeks we have seen signs of the u.s. economy on the mend. growth has picked up. unemployment has dropped.
the treasury department exited its stake from general motors. congress passed a budget, and n y n the federal reserve are confident enough to taper the pace of their bond buying program. >> the committee decided to reduce the pace at which it is reducing the size of the federal reserve balance sheet. >> chairman bernanke, when should we expect to see additional tapering? >> a modest reduction reflects the belief that progress towards economic objectives will be sustained. if the incoming data supports the outlook for inflation, we will likely reduce the security purchases in further measured steps in future meetings. they thought its assessment of current conditions in the outlook which is informed by a range of indicators including measures of labor market conditions, financial conditions, and inflation pressures, the committee not anticipate it will be appropriate to maintain the current federal fund target well past the time that the unemployment rate declined to
below 6.5%, especially if projected inflation continues to run below its two percent goal. >> what changes will the fed face next year? >> this is about moving into the next phase of policy from purchases to promises. the promises of forward guidance are great in theory. in reality, it may end up being a lot more challenging for the fed to be successful. that is when the story for 2014 will be all about, does the fed have credibility with foreign guidance? easy when the economy is great and inflation is not falling. a much more challenging environment it the economy has been signaling recently, and it inflation data finally starts to find footing on the upper side. those front and yield curves may be a little more volatile than the fed hopes they would be. >> mr. chairman? >> we are certainly not giving up.
we maintained a highly accommodative policy. nothing we did today was meant to reduce accommodation. we will still buy assets at a high rate and increase our balance sheet and holding onto those assets. we strengthened our guidance to make clear we expect to keep rates low will be on the point of unappointed at 6.5%. >> if the economy continues to improve, when will qe taper off completely? >> will they ramp it up, what is clear here is the expectations, the fed is going to read your rate, it is all conditional on the path of the economy. right now, understand the environment we have been in for the last six weeks, economic data has consistently surprised to the upside. if you have the consistent performance along the lines of what they are forecasting here in terms of economic growth activity, you can see them step up to a 10 billion taper, but
they will be out of qe by the end of 2014, as long as the economy proceeds along this path. >> how might we view the fed's actions a few months from now? >> this is an economy with the normal growth at three percent come a rates near zero, and lots of bond buying. the taper does not change that. the balance sheet is still growing quickly. >> if you look at the level of issuance which is being taper, maybe you want to take that into account, too. >> is will go down in history books as the day when the direction of travel turned for fed policy and the easiest monetary policy anywhere on record in modern times began to start to be unwound, but that is one million miles from tightening monetary policy. the game plan at the moment is to cut by another 10 billion in january and then to keep going. that is not going to slow unless
things go wrong. they would pick up if things went well. the big test is what happened with economic data. strong numbers in the first quarter of next year and second quarter, we will see treasury yields break out of their ranges. 10-year moving to around 3.5%. that would be better for the risk markets and the dollar. >> many investors want to see clearer data and guided from the fed before jumping to conclusions about what we have heard so far. >> what the fed has told us is based on the current pace of removal of asset purchases, we will be in qe mode for most of next year.
there is a lot of celebration about this wonderful forward guidance from the fed and that has boosted risk appetite and cap equities strong. the words could become meaningless very quickly. the only real credible element of forward guidance is the action of the fed and the fact they are telling us quantitative easing is carrying on for most of 2014. that is the really important aspect. that is why at the bank of england, forward guidance is more difficult. they finished asset artist is last year. of course, short-term rates are going up and they are doing nothing about it. it will become data dependent. if you go up to 10 billion through to next year, and it is notable that there is an implicit bias in the speed of removal of quantitative easing, a bias toward speeding up. bernanke said if the economy improves -- we will speed up. if it disappoints, we will pause. he did not say we will restart. there is an implicit bias there.
in terms of inflation, there is a danger. any economist will tell you the inflation reading today is telling you where the economy was 18 months ago, maybe two years ago. there is a danger we make this a mistake that was made in 2003, 2004. ben bernanke had the name of helicopter ben. they actually cut rates in 2003, but the economic activity data was picking up. essentially, the concerns about deflation back then were wrong. but they should be looking at is the activity data, which to date, is picking up. >> looking at the overall economy, it is safe to say that it will take time to separate the fed fueled economic data from the numbers as they stand on their own. in other words, what is the economy look like without fed influence? >> the world did not end that we still have a jerryrigged economy .
while we see no sign of inflation, paul krugman has been right on that. i think there will always be some more ability than when there is a release of animal spirits, there will be a lot of cash to bid up a lot of assets. >> how confident is the fed in this economy? >> we might see the possibility where the fed is signaling its confidence in the economy and that confidence in the economy is helping to boost financial confidence and therefore financial assets. so far it has been the failures of the confidence in the fed and economy and therefore they needed the distortions to hold of asset prices. today we see a reverse of that. it is too early to say that is the trend for 2014 but that is certainly a major change in how we see the relationship between the fed's actions and financial market performance. >> looking forward to next year, what should investors inspect -- expect? >> there was a lot of fiscal consolidation in 2013.
the government probably subtracted 175 basis points from growth. next year, the number will be much smaller, perhaps 30 basis points. just from that factor alone, you should expect an increase in topline growth. the big question is, washington has to stay out of the way. this budget deal we got is good news from that perspective, but it is not put -- shooting ourselves in the foot. one risk is the backlash from that deal seems to leave some republican leaders to say we need to make an issue out of the debt limit again. that is not good news for the economy. >> facebook founder mark zuckerberg has a big tax liability this year, so this year the company is selling millions of shares. air asia just drops some heavy cash in a deal with boeing.
>> this is "lunch money" on bloomberg television. you can also watch us streaming on your tablet, phone, and on bloomberg.com. mark zuckerberg and some additional rollers are planning to sell stock, about $4 billion worth. the sale is the curse that facebook has filed since its may 2012 ipo. so why the big sale? we asked someone with a lot of experience who also happens to be a former yahoo! board member. >> from the beginning, mark has control the company. right now, he has special shares just as the founders of google do and other people. it he is going to give those shares away, he certainly wants to convert them from the to a, so he maintains that super voting control.
in terms of price, it is a good moment to sell. every analyst has a buy on it at a much higher price. >> the average price target for the next year is above $60. right now at $55. is this an indication that those inside facebook do not see the stock going much higher? >> it may be just a moment. i think they have confidence in the business. facebook continues to be a growing phenomenon. >> is this really that big of a deal? >> cosmetics. i do not have the math, but if he is selling 27 million, is he offering company stock not to have the attention on his own shares? >> so why is facebook doing this now? >> there is a motto in silicon valley that you raise money when you can, not when you need. they are taking advantage of the moment where people think the
stock and company is doing great. it is striking that balance between what is going to be that overhang versus good moment to raise money. >> we toured the facebook hardware labs where engineers have come up with cool ways to maximize efficiency and even conserve energy. >> we are inside the facebook campus on the hardware lab, an unusual set up. they build and design their own servers and network equipment. the goal is to save money by making much more efficient data centers. by making more efficient equipment that they could buy. the lab the are in now is the electrical lab. this is where we do the circuit board level detail the work. we are running more than 20,000 servers per technician. so what are the common replacement items, and how can i do, and service on a box with my 10 fingers?
an easy example is getting rid of screws were accounts. >> normally there is a guide out there using screwdrivers and you can just pop it out. >> you got it. >> you guys have done things of such a high level, nobody had faced the problems that you did before, so you build something that suited your needs. it turns out you made the standards that others are now building on. >> designing out a dollar 50 out of the server, at scale, has an impact. >> this is a server in a vat of oil. why? >> this is how the facebook hacker culture applies to hardware. the team got together and said we have been hearing about oil immersion. let's see if we can make it work with an open commute server design. we bought some mineral oil from a veterinary supply store.
it is also a horse laxative and is also good for cooling servers. this is our of in room. we have people simulate everywhere were servers might go. the ovens here allow us to create a wide range of environmental conditions, including thermal events. >> you take an actual server and put it inside these ovens. >> we need to have our own test- ability. we understand our operating environment much better than our suppliers. everybody has ovens. most do not have this. >> between this and the other one, you have the noisiest operations. >> noisier than a software developing floor. >> christmas comes early this year for airbus. we will speak to the ceo on the air asia orders.
>> airbus gets an early christmas present. a $600 million order for 35 airplanes from air asia. rapid growth in the region made it possible. >> i have grown from two claimed -- two planes to 115 but our margins have increased dramatically every year. the easy part is buying planes. the hard part is making money
from the planes. the hardest part is to finance the planes. the most hard part is to fill the planes. so i think we have done it carefully, it is aggressive but well thought out. our major points are in asia. we still have hardly touched india. we have china, japan, korea, australia, the middle east. definitely, we want to come back to europe. massive opportunity to exploit europe, which is not far away. >> air asia focuses on long hauls. here is what this means for the company. >> this is a company that is really about cementing our key slots. it is much more about what is happening in the short-term economy. we have to plan long-term and make minutes now.
penetration rates relative to total passengers is still some 10%, especially for flights more than 10 hours -- four hours across the asia-pacific. where we started flying, we can reach rates of 35% to 60%. we want to make sure we are the ones bringing that gap, before anyone else does. >> last week airbus lost a bid from air canada, so this comes as a blow. >> it is a nice christmas gift with 25 orders. >> looking for a deal of your own? norwegian air shuttle plans to offer cheap flights.
>> norwegian air shuttle. it has been around since 2001 and is headed by this man. now he is trying to take the low-cost model long haul with cheaper flights to the u.s.. but how is he going to do that? >> first, you need the right tools to do it. you need the right aircraft. the only one we found it possible to do it with was with the dreamliner or the airbus 350. >> ryanair recently said that the 787 is too expensive to do long-haul. if he cannot do it, how can you? >> he can do it if he has access to the aircraft. we have already started with the dreamliner's. they are not easy to get a hold of. >> norwegian air shuttle is not the first to try no frail long- haul air flights. planes may now be more fuel- efficient but it is still no guarantee the business model is
>> the national hockey league strikes gold. is one reason the ceo is looking forward to the new year. us,t is an opportunity for we will tell some great stories around the players. hockey is also thriving in northern california. find out how the san jose sharks have become one of the coolest success stories. >> their fan base is very sophisticated. they hdiscretiony income that they can spend on hockey. , is the bowlotball half-empty or half-full? all