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Hard to join us today given market volatility when you look at what the markets have been like since June July the last month . What is going wrong stocks move up and down. Look I do think there's a huge amount of money that moves without regard to kind of long term economic fundamentals right. You have ETF you have leverage ETF you have high frequency trading you have all kinds of levered strategies that require delta hedging you know adjustments by the dealers based on movements and stock prices. You can't look through to see how much of that is really going on. There's no place you can look it up but it does seem to make having a big impact . You know stocks get pushed in a direction on the basis of a news story and they seem to know the movement seem to be exaggerated . So you know the question is almost a policy question whether this stuff is good for good for capital markets or not. And I think then you have the compounding effect of fear right. You own a stock it goes down it goes down more you know liquidity allows you the opportunity to to sell. And people do and very often they sell the opposite of what they should fear is not a word that we ever associate with you or your style of investing . But when you go through a cycle like this a market like this you start to think maybe you want to hedge. We hedge. But we hedge in different kinds of ways. We don't hedge by it's incredibly expensive because of volatility to hedge. Stock market movements we try to hedge that sort of extrinsic factors we can't control or shoot of black swan type events or things like that and then we try to invest in businesses that are extremely robust. So we not to worry about next quarter's GDP number or where interest rates are going to be tomorrow or the price of copper or the price of oil. We avoid businesses that have exposures to factors we can't control. So for you copper oil rates it's largely irrelevant really. Yeah. You mentioned going to have more or less Oreo cookies on the basis of the price of copper. Where interest rates are low etc. I would say Glencore is probably a little bit focused on this . They have to think about my hands and think about them. You mentioned ETF for the last few years we have seen prominent hedge fund managers specifically in the credit space criticize ETF and they have said when the market starts to turn the liquidity is really going to get tested and you are going to see ETF are just as dangerous as structured products were in 2006 2007 2008. But then what was it. August 14th when we saw the Dow take a dive. Credit spreads widened out. We didn't see anything happen to ETF ise. So are we wrong. Are they more bullet proof than we thought. You know I'm not an expert and probably the wrong person to ask but actually my recollection around August 14th is you had ETF weather issues in terms of pricing the underlying assets where they were trading a huge variance to their underlying components. So I think it's a sort of great instrument. I mean maybe it's a great instrument from a trading point of view. I'm not sure again it's when investors are not focused on long term business fundamentals and deciding what they buy and sell. I think it can lead to sort of anomalous outcomes. I think it's good for the long term fundamental investor but it's bad for the retail investor is going to get nervous watching their stocks move dramatically. I mentioned ETF only because when you turn to hedge funds hedge fund managers asking for two and 20. It's a lot and it's a lot specifically when they don't perform. So when you look at the current market environment and all these funds that are really getting smoked. Is it bad investments or is it that investors . Because when you look at private equity they look like heroes champions in the last five years. But private equity investors often mark to market they've got tenure money locked up and hedge fund managers are expected to provide their investors with quarterly monthly weekly sometimes daily liquidity. How can you possibly make good investments when you've got that kind of time horizon. I think it's a good point. Well first I would say the I've heard people say I prefer or I like my allocation to private equity cause it's less volatile than my hedge fund portfolio right. They could give that same money to hedge funds and just they keep it. Think about what a private equity is private equity is leveraged long only right. So the private equity truly mark to market on a daily basis it would it would be a multiple of the movements in the stock market. Right. But because private equity market the market sort of quarterly and there's a lot more flexibility in assigning values it looks like a much lower volatility strategy. You know hedge funds I don't blame the investors so much but you know if you think about it you know business the value of business is the present value of the cash you can take out of it over its life its life hopefully is 50 100 years. And you know prices are moving massively in the short term based on people's predictions of next quarter or a tweet that Hillary Clinton puts out how do or you know so that's people going to make investment decisions on adding or subtracting capital to a manager. I mean I invest in a tiny amount of money but with a few hedge fund managers that have enormous volatility. When I care about is are they investing in high quality businesses or are they following the strategy. And if volatility is an opportunity for the investor to add at a time when you think the prices are at variance to what the businesses are worth. You mentioned Hillary Clinton's tweet has this changed your view or your investment profile in the pharmaceutical space. No. You know I think it's actually a very interesting area. I think Bloomberg put out a piece on kind of drug pricing there was a cover story in The Journal today talked about I think the top 30 drugs the average price increase over the last several years is something like 60 percent average. So drug pricing is certainly something that has the potential it's polling well. I assume for Hillary Clinton so therefore this is something that becomes a campaign issue. But I think if you if you think about you know take a very big picture approach you we have the most innovative biopharma sort of industry in the world and the reason for that is that you can make a lot of money in drug business and those profits get redeployed into R.A. they get redeployed into buying successful biotechnology companies. The investors make money and they put more capital in and you get a self-fulfilling prophecy of more and more innovation. And you know that's a cycle that you know I think we want to continue. You know obviously if you're a consumer and you're always on your drug it goes up massively in price. That's something you're really sensitive to. But I think there's you know there's a lot of misinformation you know it's sort of the gross prices that are talked about in terms of where pharmaceutical companies Mark drugs or sell drugs are very few people of any pay. GROSS price you know all about Medicare Medicaid you know PBS and whatever your your health plan is you know these are negotiated transactions. Well ethics seems to be one of the central issues and clearly ethics is important to you when you look at Herbalife one of the reasons you've been going to stay on this crusade against Herbalife is because you think it is such an unethical company. But in terms of what we see we've seen in drug pricing I mean a hedge fund manager buying a company that sells a drug to patients who have HIV that is priced at seven dollars and he jacks it up to seven hundred dollars in your opinion. It's legal. He is exercising his right in the free markets it's a loophole. Is it ethical. Is it the right thing to do. That's not my favorite version of how to make money for sure. And you know obviously those kind of glaring examples are going to attract a lot of attention. You know there's been a lot of attention on valiant valiant guts dragged into the story in a very small part of villains business is sort of repricing drugs but even you know let's just sort of talk me one of the things Hillary Clinton spoke about in her health plan was a requirement that pharma companies spend a certain percentage of their revenues on D sort of this you know for spending on IBEX is not what valiant does . It's not what valiant dozen and valiant was criticized by Gretchen Morgenson in an article in The Times you mentioning all the competitive media make sure I don't get invited back. IBEX you know her point was well valiant not spending is only spending 3 percent of revenues in R D isn't this bad for America and the answer is no actually I think what's interesting about valiant is we think valiant has made a massive contribution to drug development more so than almost any other company. How so . Here's here's how you think about it. So whereas you've got to follow the money. All right. So what is valiant doesn't pay a dividend. So there's no cash leaving the system not buying back stock. Right. So they generate a lot of cash flow. Where does it go. Well they spend about 3 percent of revenues on Auntie. They spend money building plans to make pharmaceuticals . They pay their employees slept with me for a second. They compare that 3 percent on our D to other companies in their space. Okay. That's my point. So that so valiant believes that they are not good at drug development i.e. are really coming up with new molecules and taking them all the way to the approval process. That's a has been historically very low return business that their view is that they started biotechnology companies can much easier to recruit you know the top scientists you know today if you're a top scientist in the space and you want to make some money you can go work for Pfizer and you can make a few hundred thousand dollar bonus if you come up with the drug. Or alternatively you can get backed by a venture capitalist and you could form a company. You can discover a drug you can make a billion dollars. It's very analogous to what's happened in the technology space used to be that all the innovation in technology came from the big and the IBMs of the world the Westinghouse us of the world. And today you know even Google which is you think of as an innovative company I think most of Google's innovations and you think about the driverless cars the Google Glass. Most of our innovations are coming through acquisition. They're buying startups . They're buying companies that we're a very talented entrepreneur backed by venture capitalists built a business to a scale that Google wanted to acquire it valiant doing the same thing. And by enabling entrepreneurs and venture capitalists to monetize their products you know there's a recent example I'm sure you find examples of comedy called Sprout and sprout God female sex . It's a for women with this is the problem you don't have apparently. But why is this women with hypo hypo not hyper but hypersexual disorder again problem. Right now I feel that hyper let's say let's keep it that way Stephanie Man on TV but but the point is this this is a drug that you know hundreds of millions of dollars are spent developing and the first company that actually developed a molecule failed to get the drug approved was sold to this company sprout. They invested tens of millions of dollars ultimately getting the drug approved in the FDA. And the moment they got it approved vine bought the drug. So the investors who invested in sprout the people put up capital to get this drug approved. Now they receive the return of their capital they've received a return on their capital . They've made money that attracts capital to the startup you know new drug biotechnology space. And that process leads to more drug development and it's getting done by talented entrepreneurs talented scientists who would rather work for the startup than being the big bureaucracy of a massive pharmaceutical company . So by in spending 40 billion dollars over the last six years buying when you buy a drug company you're just buying a portfolio of products or even in some cases just a product value takes that drug. They're very good at marketing they're very good at Nasdaq distribution sales and they run a very efficient business model. They're making a massive contribution to drug development now if you if you regulate prices. If you say you can't charge market for a drug that's going to reduce the profit that's going to reduce the cash they have to buy the next drug company that's going to reduce the returns the entrepreneur the scientists the startup can receive starting a drug company. So it's you know there is look I think again the egregious 50 to 1 mark up of some old drug that was acquired but you know even you know I don't want I don't defend that kind of behavior but I do think it's important we don't this doesn't lead to regulation that basically cuts back on innovation. Does this change your view on valiant in any way at the Ise conference you viewed it as a smaller version of Berkshire. It's a very different kind of what I would. The point I was making was it's a quote unquote platform company. It's very different kind of company in Berkshire Hathaway but it's a business where value has a competitive advantage in running one of the most efficient pharma companies in the sector. This is a sector that is not known for efficiently managed businesses. Mike Pearson is extremely shareholder friendly very focused on cost control very disciplined about investing capital. And that gives him a competitive advantage. He ends up being the high bidder for many companies and products because when he layers that product onto his call it his business his operating model he can more efficiently extract profit from that from that product that leads to again more profits for entrepreneurs and more more returns for investors who invest in the space that leads to more innovation and this is if you talk to you we've done some philanthropic stuff on the cancer research side. What people will tell you is basically sort of the Human Genome Project . The fact that we can personalized medicine and we can design drugs to deal with some you know you might you don't. But some people have genetic defects and you can address some of those those issues with drugs that that's leading to some miraculous cures for hepatitis C. perhaps narcissism perhaps I saw that myself. OK. I hear you. There's probably a drug for it. You know does this change your position. So clearly the stock has gotten smoked. Have you added on. We've not but we have a very big position of valiant and this is if I had to pick one stock in our 10 stocks that we own that is perhaps the most undervalued I would say it's valiant today it's probably the most attractive from a risk reward perspective over the next year or so. So as you've written the stock down and you're holding onto this position. We have seen many other investors obviously lose a ton of money. Right. What do you think about the fact that we're seeing so many guys sell that haven't done the fundamental work you have. They basically just tracked you and you know in your draft they've risen it up with you and now they're just duking it out. Happy to see it. Glad to see these guys go down. I don't know who's buying and selling in any particular day but you know I think there are lots of different ways to make money. I don't. We do what we do other people do what do they. It's fine. Well what can you do with Valiant . The value act couldn't well value ise still meaningful shareholder valiant and we're not trying. This is a case I guess maybe I could help dealing with PR but they are not good at PR and perhaps government relations and that's something they need to know. They went from being a very small pharma company to being a very big pharma company fairly quickly and their bit of what I call an outsider company. But you know every major drug company Pfizer Biogen you know is guilty of raising prices fairly aggressively. And the model in the US is you know you develop a molecule you get a patent for 20 years you spent 10 years getting it approved and then you've got a 10 year window where you can make again assuming you get approved 95 percent of drugs end up not being approved and you waste billions of dollars on drugs not being approved and then the ones that do get approved. This is you've got a 10 11 12 year window in which you make your your profit but it's not it's it's only a windfall profit. If you look at this particular drug that got approved it got sold. It's not a windfall if you look at the 95 percent of the other drugs you've lost all your money. So the reason why we have a system which is with that enables you to earn a monopolistic profit until the generics come in and the patent goes away is to encourage people to invest in the sector and I think that part's worked really well. Did there need to be. Are there some because there's some dysfunction in drug pricing. I'm sure there is. Have you considered your investment approach. But with smaller companies where you could put less money to work but have the same kind of impact. Sure . But with us I'd like to keep life simple. We're not poor because I acting as a simple guy. I'm very I think simple basic simple. We haven't talk about Nelson Peltz for a moment here . Yesterday when we saw him take a stake in G.E. What do you think . Well we spent an enormous amount of time working on it actually did earlier this month and in the midst of it G.E. announced their real estate transaction and actually the history of Blackstone Blackstone. So we think we think I think Nelson is correct. I think the direction GS is heading is correct. I mean G is actually an extremely well operated company but it's a company that has been an absolute failure in terms of the way they've allocated capital. So if you look at these venture into acquiring NBC and then their eventual exit their entrance into the oil and gas industry I mean they've not done a good job with the capital they've generated from their kind of the core businesses that Nikkei G. And if all they had done is stuck to you know power plants and and you know airplane engines and kind of the core G businesses and bought back stock and pay dividends you know the stock would've been up you know multiples over the last 20 years instead what they've done is they've used the cash flows and the growth and value of their business that comes from the core businesses to make a series of acquisitions that have turned out very poorly. And I think you know gee my my understanding is in order to make it up in the ranks you sort of have to kind of show your stuff by doing deals. And it's really the deal making part of G.E. that's been the problem not the way the businesses are run it's one of the great places you know a lot of very talented CEOs have come out of G GS kind of one of the best training programs for running a business. I think it's been a terrible place to learn how to invest money. So you did a lot of work on G.E.. Now Nelson has stepped in and taken a stake here. Will you be next. Probably not. I mean we we decided it wasn't cheap enough at the time it's going lower . And look I think it can be a fine investment. I think Nelson's onto something and I think jeez appears to have gotten religion . I mean they're getting out of the they've got very little value from being in the finance business and it restricted their ability to use their balance sheet otherwise and cause all kinds of regulatory oversight and other issues. So now you know Jeff Immelt I think was handled very very highly valued company at the time became CEO. And so you know when you're taking on the CEO job make sure your stock's not overvalued. You give a view on what we've just seen happen with DuPont. I mean a very public proxy fight it looks like. Alan Coleman won right. And alas that's not the case. NELSON wins again. She won the battle lost the war. I think if she had welcomed him in she would still be CEO of the company and she could work in partnership with Nelson to help make it a more successful company. But since she fought to the death. I'm not close enough to DuPont. But my sense is it looks to me like the board lost confidence based on yet another earnings guide down and perhaps commitments and promises were made when they won the proxy contest that were not lived up to very shortly thereafter and it makes Nelson look right and her look wrong and perhaps the board decided to pull the plug. That's that's what it looks like from the outside. She did clearly did not work with Nelson . Are you working with him or on the same page at least as it relates to Mondelez. Sure. You know working with him I would say we're we're both big shareholders. He's on the board. He has access to information. We don't have but I think our thesis is is fairly similar. I think he sees the same operating margin improvement potential. I think he sees the same business quality potential that we see. It doesn't give you pause that some people believe Hines looks great. There's huge potential but the possibilities are already priced in. When you see a deal announced people are so bold you are super positive on 3G . When you when you see 3G at a deal the market loves it. But we haven't actually seen the results since we haven't. Does that not give you pause. We have so in 2010 3G acquired Burger King and I know the guys well and and follow that story closely and then in 2012 we made a deal to merge a company we controlled which was a cash shell with Burger King. We took that business public and in the first 20 months of ownership. Burger King continue to have kind of negative same store sales under their leadership but they took a number of very important steps . Number one they sold off stores to the franchisees to put the stores in the hands of the best operators. Number two they redesigned the re imaging program so they could redesign the Burger King box for less than half the cost and also a third of the cost of what the previous management had figured the cost renovate the stores. They made it economical for the franchisees to renovate their stores. They arranged a loan program for them to borrow money to do it. All of a sudden the franchisees started investing in the stores. They started focusing on innovation they simplified the menu. They improved the marketing message. They started being smart about social networks and right around the 20 month period time the sales trajectory started to turn. They also changed the way they grew the business by partnering with the best private equity firms globally. I'll finish the story in a second but if you look at it took a company. They also took a huge amount of costs out initially and a lot of people were shocked that they could take a third of the overhead out of the business in the first 90 days of owning it. So that skepticism was well they're kind of cutting you know cutting into the bone. The reality is Burger King is I think the fast as the highest same store sales performance. The best things for sales performance of any major fast food company. The stores are cleaner nicer. They have the best innovation and the best marketing and they're crushing McDonald's. And you know it's a pretty good case study that now you go into five years owning it. So Heintz in 18 months they cut a lot of costs. Sales were down slightly but what I think you'll see is a more efficient more profitable better business . I think you can see it's the same thing at Kraft. They're not just cost cutters. They're really smart about talent recruitment incentives cost control capital allocation and they're changing. They set a new bar in the really the food space and companies are either going to have to meet that standard on their own or they're gonna be acquired by 3G and we're gonna have one owner of the food industry and possibly the beverage industry and possibly we'll certainly you know we've got a big presence in the beer industry. So what do you think will happen here with us being Miller and embedded. I don't know. I don't know enough to know how you believe in 3-D. I believe if they were to acquire the company they'll run it better than it was run before. All right we've got to talk Fannie and Freddie big today right. What's your take. So there's a research firm. I don't know the name of it. I'm not a subscriber but apparently they put out a piece today saying that confirmed by multiple sources in the Obama administration that there's a bit of a rethink about Fannie and Freddie and whether you know I think you know after the crisis you know the view was Fannie and Freddie have to be shut down. Here we are seven years after the crisis. Fannie and Freddie are probably a more important fixture in the housing finance system than they were pre crisis more dominant private capital has not shown up any kind of material way. Banks are not owning any holding onto mortgages which they shouldn't again banks finance with deposits should hold 30 year people fixed rate mortgage instruments and so I think people realize they're here to stay. And the question is how to deal with them. I think the piece said also that Yvonne man station is concerned that if the next administration is Republican ministrations there won't be anything to protect affordable housing kind of going forward . And Fannie and Freddie have been kind of the bedrock behind affordable housing affordable housing finance and the opportunity is you've got what is a private company shareholders still own 20 percent of a company the private shareholders the government owns 80 percent. The government has lent money to the company which has been more than paid back. And so there is an opportunity for a settlement with the shareholders where there's a there's plenty of room between what the business is worth and where the stock trades to give a nice chunk of value to people were interested in affordable housing to protect the taxpayer to rebuild the capital. We just need someone to sit down negotiate with and so who knows. You know I don't I can't speak to the accuracy of this report but if if common sense prevails there is an opportunity to resolve Fannie and Freddie in a way that minimizes risk the taxpayer and maximizes profit to the taxpayer. I have to use my time judiciously Herbalife anything new to tell us lots of new stuff none I can report . Great. And there you go. That works. All right. Predictions for next year 2016 prediction. Tell me something I haven't heard the big idea. What are you looking at. What are you thinking about. Please be the only person to tell me it's not the pope. It's not as everyone else but I have the equivalent in politics. So my view is Michael Bloomberg and run for president. I'm serious and Michael Bloomberg Vonnie Quinn win . I mean are you. Yes. And so here's my. I'm not going to know about the Bloomberg conference I'm probably not supposed to say this would limit conference building ise you know I say what I think. Why do you think this. I think number one he's by far the most qualified candidate. He's done. He didn't exceptional job as mayor of New York. He's you know a first class person who tells the truth. He says what he thinks and I think he . But he's very you know he's pragmatic so he's not going to run if he thinks he can't win. And I think the the events in the run for presidency on the Republican side and on the Hillary Clinton side create an opening for Mike Bloomberg in a way that there hasn't been an opening before. Right now Mike Bloomberg I think believed you once said you know I can't become president who wants to vote for a billionaire. We still have a billionaire who's in first place and I think this billionaire frankly has more money. Not but that's a standard but . But let's put it this way. I mean every millionaire even Trump I think might if Mike ran. I think Trump might say Hey Mike . I'd love to have you run the country. Do believe and also I think Hillary is not I think proven to be a strong candidate . And I think you have weakness on the Democratic side. I think there's really not a credible Democratic candidate. I think you have disarray on the Republican side that creates the opportune for Mike Bloomberg and I think the country is ready for a a business oriented philanthropic commercial honest straight talking got her wit to run for office and I think the stock market is up 10 percent or 5 percent today announced 10 percent when he wins. And I think that's the best weathervane of how people would vote for his candidacy. I have heard anyone else say it but I think it's true. You know you think it's true or you would just like it to be true because when people talk about why they liked Donald Trump and they start to describe him when they're describing him or what they perceive him to be those words are actually the kind of words you would use to describe Mike not necessarily Donald. Well I would say the following people say they like Trump is a straight talker right. People say they like Trump because he's proven to be successful in business and United States is the biggest business in the world. We need a businessman running the country an entrepreneur he's an entrepreneur and so on all those now people have other things to say about Trump they don't like. I don't think Bloomberg has any of those negative attributes so it's all the best of Trump without the worst of Trump. I mean that to me is a winner . This is a great idea. Like it would be a great idea if George Clooney would have chosen to marry me. But he didn't. What makes you think it was the hypersexual. It must have been said what. What is it that makes you think like I. I'd like Mike to run. What makes you think there's any chance he actually will . You'll have to have the desire to do that. And you know what it's like in your position as a private citizen. But who is really outspoken. I think I can put myself in his place. I have some sense of what it's like to be Mike Bloomberg Mike Bloomberg has a kind of everywhere wear an enormous amount over the course of his life. OK. And here he is he's 70 you want or whatever he is 72 years old. He's in great shape. He's made a major contribution but he doesn't want his last contract. You know the answer is it's because you're going to die. And when you're approaching some point you're gonna die. You say look life's too short. I've got to have to go for that kind of guy and he can spend his life as a philanthropist. But what I can tell you from philanthropy is the return on investment is not nearly as high. He wants to have the greatest single impact he can have on the world in a philanthropic way or you know if you you know when he's 90 100 looking back to a day or so before he dies you'll regret not running. It's sort of like argument for having a third child right. You know when you're nine years old looking back you're not going to regret having the third child you might regret not having it this is his. This is his chance and this window is now or never. And so I think he's gonna do the calculus and he's going to say you know what this makes sense. And I'm sure he's already doing the calculus and you would support him. I would support him I would do everything in my power to get this guy elected and I would. And I would recruit massive numbers of people in but he does it also doesn't need money right. The other thing that's interesting that people like Trump is like. He doesn't know anything anyone . Right. Or at least they may say that cause he's rich . Bloomberg best the same way. He's completely independent. You know it's just one quarter's dividend to run to run for president. That's what it costs . Are you already supporting any candidates. No I'm not. I'm supporting Bloomberg for president all the way. It's really cheap. You want to write a check all the points you're making are fantastic. Does this mean that you think when you look at yourself your own life that something you could potentially want to do in the next 10 20 years. Sure that might do it first and I'll become the favorite .