Im scarlet fu in for stephanie this week. We missed you yesterday. Tweet fromg in a stephanie. Actually, not between, but an update on her vacation. I hope shes having fun in florida. Weve had a good start so far. Maker of candy crush and has made its trading debut below its goal of 22. 50. Its ipo the midpoint of range. It gets almost 80 of its annual sales from candy crush. One of targets top executives will be grilled today. The retailers cfo will appear before a Senate Committee they will talk about opportunities to stop cyber thieves. Locklin looks to be Rupert Murdochs heir apparent. The appointment catapult them over younger brother james mahood will become coceo of his brother james, who will foxme coceo of the network. You have to know the gossip in order to urge the mechanics. Lets move on to what happened in Silicon Valley. Facebook is buying a Virtual RealityGaming Company called oculus. Virtual Company Worth 2 billion. Here is cory johnson joining us from san francisco. We talked about the deal being worth 2 billion, but only 400 million when of it only 400 million of it is in cash. The rest is in stock. Look at all of this cool stuff that zuckerberg can buy with his rising stock price. Doesnt mean it is overvalued at this level . It was only 400 million. But when you have 11. 5 billion in cash and assets. Certainly, having earned out incentives over the 3 billion, they definitely had an aggressive move here. Thatquire a business literally forget free revenue. That is a ridiculous phrase. It applies to instagram purchase. And it applies to this. They literally dont have a product in the market. Thisis facebook making oculus thing, whatever it is, is not just a game making platform, but it had form for computing. You are in the land of early adopters. Two people in Silicon Valley use these Virtual Reality headsets in a way that is more than Just New Technology . The concept of google glass, and with facebook with so many , and they were the onetime google thinkers, if you will. Think about all of the user of thence knowledge google glass six garment that they might get out of oculus. It is not just about the future of virtual experiences, but what they might learn from users and how they use this to inform facebook in other ways. What does this say about facebooks board, and its role or not in this acquisition . I read an account from oculuss ceo about the negotiations. Mark zuckerberg apparently said, what will it take to buy your company . He named a price and that was it. Where was the facebook board . I think the real question is, what kind of leeway has the board given him . And does the structure of the thek give Mark Zuckerberg power to run the board . It does from a voting standpoint if it were to come to that. But the board is full of highpowered people in Silicon Valley and beyond. What it might suggest is that they have given him a lot of heway to do this deal when thinks its necessary within certain parameters. A very long leash. Thank you, cory johnson. The fight over ukraine appears not to be letting up. Obama called rush a Regional Power that is acting not out of strength, but rather out of weakness. We are joined by our guest from the council on Foreign Relations. It is nice to have you here. Lets talk about what is going on in ukraine. But more importantly, the implications of what Vladimir Putin has done so far and the way the west has responded. Russia and of sanctions, we know from history that sanctions take a long time to work. We know this from the case of south africa. We should remind everybody that you wrote a book about this. I did. Change several years to policies. Sanctions after a week seems premature. If you look at the market, it down about 7. 5 . They only got about 10 performance pain. I think sanctions can work. They can go farther and do more. But we could not write them off here. Is it fair to say that part a prudent strategy is to wait breakdown of the multilateral solidarity . Obama and the congress cannot get behind some of this. We know that the british have ambivalence in the very least because of the way the oligarch in russia can play in the u. K. Economy. You take the city of london and the underwriting fees, these are legal fees because the rule of law allows them to sue each other in british court. These fees are about 100 million a year for russian parents sending their children to school. Are tougher sanctions than you think they are. The russian economy itself is pretty weak. And im of longer waiting game, they are going to lose. Got a declining population and inflation at seven percent. This is not a rising power. I think that in the longer term, they have feet of clay. I want to work motive into this along with the waiting game. Today,washington journal prudence challenge to the west means that while he has no apparent desire to recreate the soviet union, he is trying to create a fear of russia. There is no opportunity. He is playing along game. Does he have the patience to play this long game . The biggest failure of the u. S. Posture in the last month, its not that the russians took crimea. If you think about the United States at the peak of its international power, at the end thehe second world war, soviet union gobbled up the entire eastern europe. That is not a new thing. What is a new thing is that in those days, it created the world bank. It created an international symptom system that was like a. Forike a fourth multiplier u. S. Power. That is the contrast between modern United States and the u. S. In its heyday. Do you think ultimately he will see this shakeout as the rest of the economy suffers from sanctions and diplomatic isolation, etc. . But what about the other side . Companies, for example. The western economy is so predicated on globalization, access to markets, and the free ,ovement of goods and Services Including russia and ultimately china as well. Doesnt this situation expose fundamental weakness there . Toyou have to be willing incur some loss to your self if you want the sanctions to work. You have to put boots on the ground if youre going to war. In an economic war, there will be costs. True that the United States has joint ventures with russia. Its true that russia has integrated our financial system. If we try to cut them out, they will say, gee, guys, we will not pay your bank. What do you think about that . Said we are not paying you, that would be a big hit for the entire european banking system. And our credibility in the west depends on some ability to sustain ourselves. Has the west overplayed its hand on the interconnectedness . I think to some extent this is the way of the world and it is unstoppable. If we are saying we are interconnected and that solves everything, that would be a mistake. Say we are if they interconnected and we can use that interconnectedness, as has happened in iran with it sanctions, then they can stick end i think the economics are on our side to prevail. Sebastian is not just an expert on geopolitical policy, but also on hedge funds. He wrote the book. We will be right back after the short break. Also the maker of candy crush goes public. The stock is falling in its debut. You are watching Market Makers here on Bloomberg Television. Im Erik Schatzker and we are back with sebastian halaby. This time, talking about hedge funds, because he is the author of a terrific book. And we are also joined by a former fund manager who teaches about hedge funds at columbia university. Sebastian, here is what ive been wondering. Hedge funds have taken reputational beating over the past five years, largely because of what i would call an unsophisticated analysis of their performance, relative to the s p 500. It would have done much better in the s p 500 in the post crisis time frame than you would have investing in the average hedge fund. And heres what ive been wondering. New you documented in your book the history of one generation to the other, a class of great Hedge Fund Managers emerges and takes the mantle from the previous generation. Who are those people now . I guess, guys like seth had a fantastic record. There are people out there who have those technologies. Oute are two other people in long island that continued to do well. I think the point that people is that there will be an alpha to appear, but there is too much competition. Alpha is not finite. As you get new technology and you crunch the data, for example, there are new ways you can figure out how to make money and how to predict which companies will do well and which will do better. Following on that, what are hedge funds not doing . Where is the next place that they can leverage or take advantage of their leverage, their use of diverse instruments and their long lock up timeframe . Hedge funds are a strategy where you create freedom for the managers to go off and chased all those opportunities that you are talking about. And whether it is with the globalization of the markets that you can frame existing markets that did not exist several years ago, or whether it is within our own capital markets, or whether it is the banks that have been forced to withdraw from traditional businesses because of capital regulations and a changing environment around regulation of banks, all of those things mean that hedge funds the opportunity and they can move in with all of the small players. Its difficult to know what is going on with these guys. And that is why i think over time it has done well. Sebastian states that jim simons and his acolytes are running technologies. In your opinion, are these hedge as sorosagers as great once was, as standard bode miller Stan Druckenmiller and or as they proliferate there is more money to be made in the same trade, is it hard to be great . The challenges are still good, but the markets do not give you as long in front. The markets will arbitrage. Market its smarter . The market gets smarter and you have these three guys set up and running very quickly. The competition is there. We also see these incredibly talented people coming from places around the world you would not expect. Israel, stare Global Health is one of the top managers out there. Did 31 last year, 14 the year before. Guys you have never heard of. Israel is not hotbed of people spinning out of large funds come up and you still get the out of large funds, and you still get the independent guy as well as the modern version of the tiger cub. What exactly makes a Successful Hedge Fund investor manager . That [indiscernible] is it notoriety . Is the connections . In this case, experience. I think what it takes most of all his discipline. And a lot of work has been done on this. A genuine ability to think outside the box, not a desire to be seen like everyone else. You meet the real great, Larry Robbins in the more recent generation, home in london running the childrens investment fund. Guys that are independent thinkers. You need the independent thinker with the expertise to is not worried about the next person thinking hes wrong. Have said,ople would what are you doing . Are you trying to arbitrage the stuff . That is impossible. There are 10,000 textbooks that say cannot be done. The same thing would have been told to david shaw. That is tons of proof tells them that what they do everyday is an impossibility. Every author ive ever known asks himself, how would i have penned by book if i were to write a new addition . If you were thinking about more money than god right now, what would you add to that book echo add to that book . Sots only been since 2010, there is not that much because not that much has changed. If you dont like too big to fail banks, you better like hedge funds. Will saturate. You got to house the risk someplace. The council on Foreign Relations just recently updated the changing on banking. And the thinking in europe is to take speculators, those guys are moving more toward a securitized system. Because the banks are systemically unappealing. Sebastian is our guest host for the hour. Always great to see you. We will be hearing from the ceo of candy crush maker, king digital. It is 26 minutes past the hour, which means Bloomberg Television is on the market. Im on the floor of the New York Stock Exchange because today is the initial Public Offering of king digital. And candy crush is the game that king digital is responsible for. There are lots of candies Walking Around the floor of the New York Stock Exchange this morning. And lots of people wearing king digital tshirts as well. It is actually trading here right behind me and shares are a little bit lower than the 22. 50 offering right now. Ceo inbe talking to the just a few moments. Meanwhile, the backdrop, stocks overall are trading higher than expected. Expected reports on durable goods. Stay tuned for my interview of the ceo of king digital. We will be right back. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Hi there once again. Im Erik Schatzker. Im scarlet fu in 470 this week. She is off on vacation. A welldeserved i am scarlet fu in for stephanie this week. She is off on vacation. A welldeserved vacation. Yes. The maker of candy crush, king digital, is opening below its goal of 22. 50. It is down 11 right now. Julie hyman is on the market floor with the ceo. I am. And in case you did not get enough dancing candy, there are more. Scarlett was just mentioning the ipo. We are seeing the shares trade a little bit lower, but a lot of this was talked about in advance. The stock is actually priced at a bit of a discount compared to the other gaming peers. How did you determine that, and now that we are seeing the stock dropped, should it be priced a bit lower . Think the pricing decision has been a decision discussed with the banks. Y focus is not on the price our synergy is a longterm synergy. Synergy and a the longterm, we create shareholder value. We are an incredibly strong position. Mobile, thene in this is the place you need to be because it is the number one category within apps on mobile. 40 of time spent on mobile devices is on games. 70 on tablets is games. Consider how you can get to that degree. We have been around for 11 years. 2011und out in april of when we launched our first game on social networks that it would take one of the games we have developed before as the one level on the game, then we proposed this game with many more levels. It has very broad appeal. We are profiting from 11 years of work. We pick and choose the best games from there. Range covers a very wide of different genres. We have clickers, card games, etc. When you talk about the longterm and you talk about the portfolio of so many games, as we all know, there is one that is the most popular of all of those games. Candy crush. About 70 ofor your revenue, according to your filing. Right. And you talk about the longterm, as you well know, people are fickle. Their allegiance switches from game to game. What will be the next big hit from you guys . It is very interesting what you just said, because it is very true. There are games that pop up out of nowhere and people try them and they are done. ,f you look at the top grossing those which matter, those are very stable. To give you an example, in the last few years there were only three new games that were in the top of the charts. And we have two of those three. Android had three new games that came in and we have two of those three. Facebook only had one new game that came in the top three and it was a king game. It became a Top Grossing Game in 11 days on android. We only have two and a half games really available. We think this means success. A guess from the games that you have as to what could be the big the next big hit from you guys . Candy crush has seen incredible success. We have 100 million players now playing it every day. The target is to build a portfolio game. We want a portfolio of games where we retain the user, and number two, monetize. We Just Launched in january, a short time ago. Numbers of at the players, i think it is working out. We have continually grown our user base. I believe what we are doing is right. Alas question, very important question, what level are you on on canada cash candy crush . Level 98, i believe, of the new game. Us. Hank you for joining we appreciate your time. To you in the studio. Thank you, julie hyman. King digital is off its lows of by 10. 7 , trading at 20. 10 per share. When we come back, we will be talking to the mayor of el paso. He is in new york city to make his pitch to investors and businesses to rejuvenate his little western town. This is Bloomberg Television. Im Erik Schatzker. From mexico is an important issue to america, but even more important to our next guest, the mayor of el paso. Inis the sixth largest city texas. That is why hes here in new york city, making his pitch to business investors. Thank you for joining us. About el paso. Interesting, at the very least, that you should be here in new york city making a pitch. What is your pitch . To look asoming here psychic consultants. We are talking about our city. We have invested 473 Million Dollars in ourselves, which is our lifeline. The city of el paso voted to invest in quality of life. So when we do attract companies and people to come and live in our city, that we will have things of value to our community. ,ome of the multipurpose arena a childrens museum, a multicultural purpose center. We have a stateoftheart stadium opening up. If you talk about one of the greatest things to impact el troopse had about 9000 in 2009 and today we have about 30,000. We are opening up a hospital, 1. 1 billion invested into the facility and it will be open by 2017. People talk about the challenges facing the American Economy. The mexican economy faces challenges of its own. But the mexican president seems to be making some big strides, winning some concessions from congress. Exitingxtent that the economy thrives, to what degree does that help you code how helpful is that too el paso . To what degree does that help . How helpful is that too el paso . Talk to us about the relationship between mexico and el paso. But that is a great question. A great question. As they prosper and start getting bigger, it creates more business for el paso, but also for the u. S. You have almost 100 billion in trade across the border annually. And it is not only for el paso, but the whole United States. Crosses through our area and it is important that we continue to prosper and grow as our economy grows. Sebastian, we talked earlier about geopolitics. There is a steeped relationship between mexico and america. To what degree do you think prospects for america and Immigration Reform are important for the American Economy . To the American Economy, very important. You need to standardize and regularized the way you take in for their energy and skill for the economy. We mentioned that russia has feet of clay. Part of the reason is that the population will decline one in 10 in the next 70 years. By contrast, the u. S. Has a growing population, and some of that is to do with immigration. That is why we are not japan, not italy. Want to bring in the schools, you want to bring in the people. Sort of Immigration Reform is important. Immigration is clearly an enormous opportunity for a country like america. , thehere are challenges kind of economic challenges that we need to talk about here in america. Or on the east coast we are so used to talk about the kind of precipitation that we have been getting all winter long. It tends to cloud the discussion around water. Water is a critical resource. When you look north into the mountains of new mexico, the source of your freshwater, what do you see . It cannot be good. El paso has a diesel plant that is one of the largest in the country. That has been a big part of our water source. One of the big sources is the. Eltdown of from colorado the snowpack right now is 50 . That sounds frightening to me. We have to be proactive. That is why when you see the plant that we do have, we have become proactive. We are looking forward. About your manufacturing plants in el paso, because one of the Big Questions for the American Economy right now is whether you can have a manufacturing renaissance. We have many Business Leaders talking about how outsourcing is out of fashion. You have usmade cars and so forth. There are exported abroad. There is a bit of a sentiment around u. S. Manufacturing. Do you see that in el paso . Absolutely. Inhave about 100,000 jobs manufacturing. Youre right, the outsourcing is coming back. That has been a positive sign for us and the United States. Is that a potential source of friction . The mexicans want the jobs just as badly as el paso once the jobs. Wants the jobs. It is important that we work together. It is in interesting that you see that comeback right on the border. Backu see Companies Moving onto your side . Is that clear . We do have the free trade zone in el paso, which makes a big difference. One of the things i wanted to ask you about is how do i put it . Relative to the rest of texas, how do you draw attention to a city like yours when there often, a thriving tech austen, a thriving tech community, dallas with its grip on the oil industry . How does el paso stand out in the crowd . The people of el paso are making a large investment. Thing. Quality of life 473 million to improve the quality of life for the citizens of el paso. 30,000 troops. We have 80,000 veterans in el paso right now, so we have a one of thed i things you have built with his quality of life is some kind of digital war . Digital wall . The digital wall is the first of its kind in the United States. It will be interactive in other parts of the world. We have a smaller wall that we will take around to schools and other areas to interact to be part of it. What it does. W what do you do with an interactive wall . You talk to other parts of the world. Download some of their stuff and interact with other parts of the world. It is really neat, and you will see that start to grow as the time comes. As you have oculus and other things of that sort in the news, i guess this is right in there. Inc. You for joining us. For joining us. He is the mayor of el paso, texas. When we come back, im dying to know what he thinks about bitcoin. Stick around. You are watching Market Makers on Bloomberg Television. Our guest is sebastian mulally. By. Sebastian mala tell me about bitcoin. It is nuts. It is the craziest thing ive seen. If you think about money, what is money . It has always historically been ander a metal like gold there is a limited amount of it, or it is backed by the credit of a serious government with a record and not having inflation. Invent the to craziest scenario for money, you would say that someone abroad created some code on the internet and says, trust me, this is money. You should use it. Soont get why people are incredulous about this. As weu know about know, that there is a very anachronistic view of what money is and you are just not with it, sebastian. Ok, so im not with it, but i do know history may be better than they do. Was thistime there issue in money was in the 19th century free banking. And there was a financial crisis every five minutes. A centraly we created bank and unified the currency. We had one currency nationwide and we got rid of that stupid system. Later, 100 or so years we have this. Thereing said that, is mistrust out there for the system that people want to use these currencies with crazy characteristics . Shouldnt government be paying more attention . There is a lesson here, too. That is right. There is a question of the credibility of the central bank. Are frustratede with the status quo. I dont get why they think the other thing is better. This is not the solution, in other words. Yes. Is in this beyond the frustration with the central bank and currencies . The frustration with friends. This is with rent. It is not like mastercard and visa have a godgiven right to charge you for the pleasure of doing what you are doing. In the case of federally regulated institutions like banks, they are supposed to be providing you a service of value. Do you think rent is part of the problem . That is true. One good thing about bitcoin and this type of ideas that the electronic Payment System could be more efficient for consumers will stop for consumers. Am American Express and mastercard and visa are too powerful. Dont think that originating new money or this Digital Mining is the solution. Government institutions are the irs for instance, saying that it is treating it as property and not currency. Institutions are codifying something about bitcoin. It may just move ahead regardless of how debtors there are out there. Peoplere all kinds of creating etfs where you can invest in bitcoin. I can see this bandwagon taking off and moving. It is symptomatic. I see it symptomatic mainly of frustration with currency, and also all Things Digital are cool. The other thing that is going on is this idea of crowd sourced funding. But he is fed up with regular banks. Witherybody is fed up regular banks. You go to a website and you lend money. It is even worse than that. You give money away. Essentially. Traditional banking has its problems, but the function for credit analysis were you try to figure out whether someone is credit worthy, some of these websites, just forget that. I buy a service and i know what it is and im getting a digital book or a real one, it doesnt matter. Im getting something i can see. But money is different. It depends on credibility. From thes a hangover financial crisis . Yes. A distrust for institutions . Yes. The history of the central bank will 08 is that it once more, we are worrying about deflation. Why hasnt had bigger success in places where the financial crisis was not as keenly felt as here in the u. S. . You are in a country like china that is capital controls and you want to tip money out without the government stopping you, then bitcoin has an attraction. And if not bitcoin, Something Else. Yes. But that does not mean that it is a sensible way for most people in other countries to try to have a nest egg will stop those guys who did the facebook now have any tf that they are planning. You should get them on the show and ask them. Great to have you here. Godr of more money than and other books. It is 56 minutes past the hour and the s p 500 is higher for a second day. Shares are the best performers. Durable goods rose more than 2. 2 . Higher andies are that means yields are coming down. 2. 72 on the 10 year. And the australian dollar, we are highlighting it because it is at a war month against the u. S. Dollar. Fourmonth high against the u. S. Dollar. We will be back with more Market Makers after this. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Is this the future . Mark zuckerberg says the Virtual Reality company will change the way we interact with the world around us, so he bought it for 2 billion, a company that has barely started making a product. We will tell you about the future of murdochs two companies. See hotelsu could and restaurants in outer space. This is Market Makers here on Bloomberg Television. Im Erik Schatzker. I am scarlet fu. That was a great conversation with sebastian mallaby. People accuse him of being anachronistic. He is just old school. He was saying that bitcoin is crazy. Thes get you to the news, top business stories from around the world. James bullard says the fed has not committed to a specific month to end its bond buying. Little bit of ambiguity over when the program will end. His comments came after fed chair janet yellen said last week that costs could start rising around six months after the feds purchases end. The deadline for signing up obamacare has been extended for lastminute enrollees. People who start the process but do not finish it by march 31 will be granted a grace period. Fore who do not sign up health care will have to pick penalty of up to as much as 1 o of their income. The l. A. Dodgers have passed the yankees. The yankees are second with a payroll of just 204 million. This is one time i am glad i can say we are not number one. Venturing into Virtual Reality. Late yesterday, a bombshell of a announcement, buying oculus for 2 billion in stock. It is a Gaming Company, but Mark Zuckerberg says it is the future of social communications. Why would zuckerberg want a company like oculus . Here is david kirkpatrick, a bloomberg contributing editor. You have so much faith in Mark Zuckerberg. Is there a point at which zuckerberg will shake your faith in his ability to make good decisions and good acquisitions . We saw 19 billion dropped on whats app . , now 2 billion on oculus. Im not sure if faith is the right word. Being my confidence on impressed by him, on his track record, which continues to be astonishingly good. With oculus, it is a very surprising move. I dont think anybody is going to say they saw it coming. The way to think of this is to get your mind out of the hardware mindset. We have a Virtual Reality pair of glasses which arent even on the market yet, an interesting aspect in itself. Think of it as software. Just like all Great Hardware products, it is really a container for software. For oculus is is a platform developing very immersive ganmes now but future, interactive experiences later. If you have a platform upon which software can be built by others, you have the holy grail. If that played out, it could be a very valuable thing for facebook. A lot of us dont know much about what the oculus device really is. Brad tos testt outo the headset and find out when it might hitne store shelves we sent brad to test out the headset and find out when it might hit store shelves. My enemies. I am firing my machine guns. That is crazy. The maker of the oculus rift headset is making a big promise that a Virtual Reality will finally feel real. What if Virtual Reality were perfect and we could have an experience of this fidelity with full body language, full presence, feeling like we are in the same space, like the matrix, except matrix, everybody realizes we are in it . This was your personal hobby, your passion. Now you are the cofounder of a company that just raised 75 million, moving toward a commercial product, and you get to live your passion. It is great. It is pretty great to work with people who are a lot smarter at what they do. One of the people he is working with is a gaming entrepreneur. I was skeptical about virtual react reality because i grew up in the 1980s and 1990s. There was a lot of expectation and excitement around it, but it wasnt ready. Now it is there. This really has the potential to change the world and works. Oculus has a new technology called positional tracking. When the player leans forward in the headset, his virtual character leans forward as well and sees the Digital World with a new perspective. We are finally able to deliver on the promise of synthetic, 3d environments which are nearly photorealistic, which was never possible before. Unlike previous systems, im not feeling any nausea. It is almost like i am there. The buzz around oculus has brought out competition. Sony Just Announced morpheus. But executives at oculus are not worried. I think that we have proven there is a market. I am a huge sony fan. I hope they take it seriously and deliver something great and it just makes vr that much bigger of an industry. Both companies have hurdles ahead of them. It is not clear whether the Biggest SoftwareGaming Developers will embrace the technology, and there are no release dates. One will consumers buy oculus when will consumers buy oculus rift . When it is ready. Mark zuckerberg spent 2 bil lion, 400 million in cash, the rest in stock. What are the downsides of this purchase for facebook . Is there one . I think the downside is distraction. Facebook is at a scale where it has t to look at this issue of management and clarity of focus, make sure they are sticking to their guns. Facebook, like all big companies, is not quite as tightly run of a ship as it used to be. They have whatsapp, instagram, wills, all of which they let run as freestanding entities, which is smart because they dont have to manage them in a handson way. Zuckerberg cost own attention zuckerbergs own attention risks getting distracted by this. I want to bring Cristina Alesci into the conversation. She knows the hallmark of an invisible and of an adviser is to not take any advice at all. Not take any outside advice before pulling the trigger. That has to do with the sheer ability of it to finance its own deals. Mark zuckerberg recognizes he has an incredible resource. It is a richly valued stock. A lot of this is being financed by that. The whats app deal was mostly in stock as well the whatsapp deal was mostly in stock as well. Is treating these investments almost like a venture capitalist would treat its investments. He is not doing a kind of diligence. That is probably because a lot of these companies are in a fairly early stages, despite the huge valuations we are seeing. These are companies that may not be generating profits. Oculus doesnt even have a product it can sell yet. What do diligence is there really to be done . Companies spend millions of onlars and months and weeks due diligence. Zuckerberg is like, four days, that is all it takes. Here are the terms. The lawyers will draw it up to he has a powerful person in dealmaking at his side, the cfo, who has gotten some very big responsibilities. Mark trusts him. That helps the deals get done a lot faster. How is it that Mark Zuckerberg is right and John Chambers is wrong . For 20 years, John Chambers, the ceo of cisco, has been educating us on the difficulty of doing technology acquisitions. Chambers is a notoriously tough negotiator, whittles companies down time and time again. Even though chambers and cisco do a lot of acquisitions, he is very careful about the decisions that he makes and the companies he alternately buys. Seems as though zuckerberg just buys what seems to fascinate him here it seems as though zuckerberg just buys what seems to fascinate him. I think zuckerberg has made a lot of excellent acquisitions, too. Basically, the pace of change in technology, particularly Internet Technology has gotten so rapid that if you are going to stay in the game, you have to take big risks. The world is changing faster than anybody, even Mark Zuckerberg, can fully grasp. Who is he going to get advice from on this deal . He is as good an analyst as anybody. I used to cover Telecom Equipment back in the late 1990s. Ive heard the ceos at nortel and lucent talk about the fact that you need to use your Corporate Treasury as the r d department. Things were moving so fast that you had to spend the money on r d. You couldnt develop it internally. Where is lucent . Owned by a french company, shadow of itself. Nortel is bankrupt. They had trouble selling off the patent portfolio. Is that the future for facebook . Nobody has a crystal ball. Honestly, for them, it isnt even that expensive. Keepis also a key thing to in mind. These people have a piece e of 100 up he have a p e of 100. The stock is sound money. Doesnt cost is found money. It doesnt cost them anything. When is there going to be a time like this . When are the markets going to be rallying like this . From the Investment Bankers perspective, dealing with a highprofile, big Company Comes with its downside. Lets not forget, the company has a lot of leverage. They can chisel down a lot of the fees on these deals. As they did with their ipo. Sometimes it is more advantageous for a banker to go to Middle America where an unknown Company Values their advice and they can charge them a ridiculous fee on a 500 million deal. It is not necessarily the size of the m a fee. The Companies Know that. If you are a big fortune 500 company, for every deal that is announced, you are looking at 25 of them. You have bankers working on 25 deals. Those guys are never going to get paid for those deals. David is author of the facebook effect. Giving us his take on facebooks purchase of oculus for 2 billion. Terrific perspective. Few people understand the way Mark Zuckerberg things as well as david. Bird murdoch picks his air bird murdoch picks his Rupert Murdoch picks his heir. We will talk about the outer space ambitions of Richard Branson. He says were denver says Virgin Galactic is only the beginning. You are watching Market Makers. On bloomberg. Com, you can find all of our interviews live and on demand. Rupert murdoch seems to have picked his successor, locklin lachlan. He will be the cochairman along with his 83yearold father, which laces him above his younger brother, james, who never which places him above his younger brother, james. We will talk to one of the top murdochologists out there. Media correspondent for npr. It is a little bit convoluted here. Start us off with explaining why lachlan is back in. I thought he was out. He left the company in 2005 to start his own investment company. Now he is back in. This is something Rupert Murdoch wanted for a long time. He has always wanted these succession games to pick his Adult Children against each other to pit his Adult Children against each other. Lachlan left because there had been these backroom machinations. He had been fighting the top guy under Rupert Murdoch, who has since left and been replaced. And also roger, the powerful chairman of fox news. These issues havent resolved themselves. Roger is more important and more powerful. Yet lachlan, who is had immediately who has had a middling record, has come back into the fold after the companies have been split. Is it possible those who say james has been the victim dont quite see things the right way, through ruperts eyes . This was perhaps his final along to, along, to sow seeds of discord and his family, d iscord in his family. I dont think anyone should be considered a victim. Both of them are miniature parts of a family trust that controls billions. Murdoch has always been of the belief, you throw the kids in the deep end of the pool and see who swims and who survives. When lachlan decided to go to australia and make a life with his australian wife, to identify himself as australian, to set himself up independently of his father did that impress his father . Not at all. The hacking scandal exploded james opportunity. They are brothers. They do love each other. At the same time, very much dynastic competition and Family Dynamics at work. Is this the sun that rupert a sign that rupert will take more of a back seat and let lachlan take more of the shots . This is rupert signaling that there is a future beyond himself, although he essentially believes himself to be immortal. His mother lived past 100 years. Until her death, he would always say, well, my mother is still alive, ive got many years ahead of me. He for real he really felt he would run the company in perpetuity, but has to signal there is a future ahead. An author for vanity fair wrote, murdoch doesnt care who succeeds him as long as his name is murdoch. He built on his fathers company, a single, smaller newspaper, in a forgotten city, into what is most clearly the into what is the most clearly influential operation in englishspeaking world. Why not the eldest sister . There is prudence by his first marriage. She took herself out of these corporate games long ago. Elisabeth murdoch is older than the two boys. He doesnt believe and promote gender in primogeniture when it comes to women. She has proven it having proven that capable and savvy Media Executive she has proven a savvy and capable Media Executive. Her fathers third marriage unraveled with allegations that Wendy Murdoch had been involved with tony blair, the foreign prime minister. Chasm between Elizabeth Murdoch and her father. Withere does chase fit in all of this . He effectively runs the company. Is murdoch at risk of losing this talented executive by lining up his sons . It seems unlikely chase would continue once murdoch relinquishes his hold on the company as chairman. He has had a good ride. He can go as long as rupert goes. He said he would not work for james murdoch, two executives that ive spoken to. And i dont think he has any more interest in doing so with whoe lachlan, somebody has not proven to wall street or investors back home that he has the magic touch that his father has shown that times. What we know about his character as an individual and, more importantly, his abilities as a businessman . He is seen as somewhat warmer come a friendlier than his brother he is seen as a somewhat warmer, friendlier touch than his brother. If you told me james was coming to be a Management Investments ine radio and television. He has not had a great run commercially. He has done something some Things Digitally that will some say will pan out. This split was designed to appeal to lachlan, to say, look, it is australianbased. He turned it down. I guess a year later, it seems as though he wants to be back at the head of the table. He tried to get out and they pulled him back in. Thank you so much, reading the tea leaves of the murdoch empire. When we come back, Richard Branson wants to send you to outer space. We will talk about the latest with Virgin Galactic. Lots of great stuff coming on Market Makers, including Richard Branson. Scarlet fu wont be here for it. I have to head off to radio until tomorrow. Couplell be back in a minutes. Emily chang spoke to Richard Branson and she will be here to tell us all about it. Will live from bloomberg headquarters in new york, this is Market Makers. Im Erik Schatzker. From music to airlines to outer space, Richard Branson has pushed the boundaries across a host of industries. Emily chang caught up with branson in san francisco. Sir richard has his eyes on the stars these days. What did he tell you about Virgin Galactic . This has been a decade dream in the making for him. He has said this will be the year of Virgin Galactic, this will be the year the first flight takes off, taking passengers into space. The last time we spoke to him about a month and a half ago, he said that would happen and not less than a handful of months. When i spoke to him yesterday, he said not too many months from now. Rocketst passenger jet ship he is terrified of timelines. We did talk a bit more about his bigger vision of future first base. Space. Future for it is a fascinating future and vision. We want enable as many people as possible to become astronauts , to be able to go from one country to another at a fraction of the time then it currently takes than it currently takes, to have hotels in space, to do wonderful things. To create massive arrays of satellites that could transform things. Exciting days ahead. Richard branson is nothing if not ambitious. Rocketsd about launching satellites into space that could he has also talked about rockets launching satellites into space that could track global warming. With each of the test launches, they are gathering new data. Giving all going towards it to the faa and getting to the thet where they can get ultimate commercial license that they need. Celebrities more passengers are continuing to sign on. The winkle bosse the winkle tickets to goght into space. They bought their tickets with bitcoin. Ashton kutcher, justin bieber, people from 58 countries around the world which is one of the points they like to sell. In the past, people from u. S. , russia, and china went to space. Of the people who signed on our women. The Virgin Galactic folks are very excited about that who signed on are women. The Virgin Galactic folks are very excited about that. They say it is going to happen this year. Branson is nothing if not ambitious, certainly optimistic. Does he see himself competing with the likes of jeff asus and elon musk jeff bezos and elon musk . At some point, wont they be colliding with each other . He doesnt talk about it like that. He talks about it like everyone working together. This is a business for him. This is a businessman. We were there talking about the war on drugs. He is the commissioner for the Global Commission on drug policy , talking about the war on drugs, which he claims has failed. He says if that was a business, he would have shut it down after a year. At heart, he is a businessman. In terms of the hold up and why it has taken so long to get to this point, they still dont have the license they need to take passengers into space. They have an experimental but they dont have the commercial license they need. They are continuing to work on that. They are moving operations to their base in the mojave desert. Tooat some point in not many months, we should expect to see him launching. We will have more from Richard Branson on bloomberg west. Thank you for bringing us your interview with Richard Branson, emily chang. If you havent signed up for obamacare yet, you are in luck. They have extended the deadline yet another time. We will be speaking to our own political columnist, al hunt, about it when we return. Find out what it means for the state of the Democratic Party and if it means anything for november, 2014. You are watching Market Makers on Bloomberg Television. I am Erik Schatzker. The deadline to enroll in obamacare is march 31, except its not. Once again, the administration has extended the deadline to sign up. This is for those who began the process but are unable to complete it in time. Our washington correspondent, megan hughes, is with us. Who doesnt qualify for this extension . How difficult is it to prove that you tried to sign up but could not do it in time . It is an honor system. Basically you just need to try to need to say that you tried to sign up. If you say that you ran into problems, you get this extension. Politicalnvenient cover and a way for the administration to try to get a few more maybe even another Million People, one would hope, if you are president obama, signed up before it is too late. It is a preemptive political stripe. If there were going to be technical problems. There has been this big white house push within the past few weeks to try to get more people and rolled. Hhs is in is reporting there has been a surge. This is in case that surge created some kind of crash. There hasnt been one in quite some time. This gives them a little bit of cover for that as well. The administration exposes itself to allegations that it is just delaying the individual mandate and the this was inevitable because obamacare doesnt work. Is there a strategy to fend off such criticism . We havent heard the official word for the from the white house or hhs. We will probably be hearing more about that later today. I think the bottom line is that we are going to hear their goal is to get as many people enrolled as possible. They are going to hit their latest goal to get 6 million enrolled by the end of march. The original goal was 7 million. They downsized that a little bit. This willritics certainly add fuel to the fire. We have seen the laundry list of delays and extensions. This is one deadline that the white house was really firm on. Secretary saville yes secretary sebelius was asked directly, will this be extended, and she said a very firm no. There were other and roman deadlines that were pushed back in december other enrollment deadlines that were pushed back in december. This is adding fuel to the fire as far as the deadlines being pushed back. Washingtonu, our correspondent, megan hughes, adding more fuel to the fire in the debate of a debate against obamacare. Al hunt joining us from washington, the host of Political Capital. Go there is this political calculus the white house does every time it faces Political Capital. There is this political calculus the white house does. To provide aer little bit of a cushion, of a delay if there was going to be another breakdown in the signup process. I think there probably is a surge going on right now, in part because the administration might belatedly has started to do the kind of marketing they should have done. I think barack obama was smart to go having lebron james pitch it, thats the audience you want to reach. If the system breaks down, that is a disaster. I think it is better for them that they are doing it, but they will pay a price. What kind of price . How many more times can the administration extend the deadline for obamacare enrollment before it really begins to cost something politically . I think that is exactly the point. There have been endless extensions, it seems. In part because congress refused to fix some of the flaws in the original proposal, but that is another matter. I think that is one problem. Theres a sense among the republicans that this is a program that just cant shoot straight. Insurers start to think that people are going to wait until they get sick and then they sign up and they are going to be able to get away with that, that might resort result in higher premiums. Those are the worries. If there are no more extensions, are the five months between now roughly five months, six months between now and november going to be enough time between now and november going to be enough time for this to die down and not be as much of an issue in the midterms as it would be if that election were to be held today . Die down, but not end. If there are 7 Million People signed up by this fall or more than that, if 30 of them are young people, that may neutralize the issue to a large extent in november. But those are some big ifs. They certainly are. I dont think this conversation is over. We will have to talk about it again. Great to see you, al hunt, host of Political Capital politi cfaal capital. When we come back, Something Else to do with health care generation of body parts. We will talk to a company that grows organs, the real deal. Stick around. What happens if you lose an organ to injury or disease . Imagine if you could buy a new one right out of a laboratory. Science fiction not anymore. Here to explain how it works and where the science is going is the ceo of Harvard Apparatus regenerative technology. His Company Makes labgrown organs. It sounds like science fiction, but you have brought the kit here to prove it is reality. What is that . It is medical reality. This right here is the scaffold we used to regenerate the trachea. That is this part of your throat right here from your adams apple down into part of the chest. For a patient who has trachea cancer or injury from a car accident or something, it can be fatal. There are no cells on that one. Before we put it into the body, we put cells from the patients body on it. We take the bioreactor and add the patients cells to the implant for about two days before the implant. It is porous. The cells growth throughout, the surgeon takes the old one out. Your company is on the vanguard of science that people believe will ultimately lead to regrown livers, kidneys, lungs, ears, all kinds of things. How far away are we from that . This has already been put into human patients. It is medical reality. It is no longer science fiction. There are other collaborations we have been working on. There are the human heart, the esophagus am of the tube that goes from your mouth to your stomach, the small intestine, and the human lungs. What are the challenges . Surely rejection has to be one of them. You would be using my own cells in an effort to mitigate or minimize rejection. Eliminate is the correct word. None of the patients who have had the therapy have taken him you knows the immunosuppressive drugs. That is what they would have to take. There is no rejection of these cells because it is your own cells. It is your own bone marrow cells that go onto the scaffold. You have eight patients. How many are still living . Six out of eight are still alive. Are the two who are not still alive was it something to do with this . No. It is compassionateuse protocol. These patients are very sick at the time they are treated. This is a lastditch effort to try to save their lives. What is standing between your way and fda approval . Clinical trials. We just started the process with the fda. How long will it take . I know companies are loath to try and make predictions about what how long things will take with the fda. Some have been slapped on the wrist. Four years. No one can predict. Because there is science involved in going through clinical trials. That is our estimate for when we would be fda approved. After this, i think esophagus will be similar will be the next one. It is similar to the trachea. Different design types of scaffold, but that is what i think you will see com ing. You mentioned the lungs and heart. Lung regeneration transplant has been done in animals by one of our collaborators. It has been published in journals, but it is not ready for humans yet. How long do you think he will be before we are talking as a matter of regular discourse how long doll bea you think it will be before we are talking as a matter of regular discourse about these organs . For the more complex organs, i think it will take longer, perhaps another five years. But for the fairly singular simple, tubular organ, i think it is just a few years away. Very nice to see you. Apparatus harvard regenerative technology. They make laboratorygrown regenerative trachea is. Tracheas. We are living in the future. That is going to do it for Market Makers. Tomorrow, we will talk about the new conference and when she thinks High School Players should skip college altogether. The hour. Inutes past time for Bloomberg Televisions on the markets. Here is julie hyman. Intoving straight derivatives. Stocks are trading higher with the s p on track for another record close potentially. The vix is falling again. Joining me now with a closer look at vix is an equity derivatives strategist. Have seen stocks go up, volatility remains pretty contained. It is interesting that stocks have climbed with this sort of backdrop of complacency, as it were. What do you make of it . This complacency is not limited to stocks. There is a spectrum of asset classes, whether it is vix or stocks or gold or 10year Interest Rate volatility index. All of the quality measures are at really low levels right now those volatility measures are at really low levels right now. It seems like we might be at the start of the period we saw about 10 years ago, where volatility remained sub dude across the classes for a sustained period remained sub dude remained subdued across the classes for a sustained period. Is the rally going to keep going . At least any pullbacks will be shallow. If you look at the longterm picture, then there might be a greater pull back be greater pullbacks. In the shortterm, it seems like we are going to chug along just fine. I want to talk about one sector where we have news today, facebook buying oculus for about 2 billion. The overall stock is down today, what kind of actions are we seeing in the options . Nothing specific as relates to this purchase. It seems like the market is liking it, but not really much. Aroundck has come down 15 from the highs that it had earlier this month, around 72. 5 levels. The options in the stock are flow based. People are just rating options. And lets talk about your trade, also. You are looking at airlines broadly, in particular southwest airlines, which had been the best in class in the past year, had been the best in class, in the past year has faltered. Ed has had a nice run since september of last year it has had a nice run since september of last year. It has one of the best sustained cycles. Companies have gone through bankruptcies and emerged and all that. Southwest has stayed strong and been profitable. If you look at southwest as a premier domestic airline, it is going to benefit from u. S. Economic recovery, which is going to continue, we expect. If anything, there might be positive surprises to gdp in the u. S. Thats our view. And the oil prices are still contained and the Oil Volatility is also pretty low, which means that southwest can hedge its fuel costs, which is almost 1 2 of 1 3 of the operating costs. They are all tracking very nicely. We were talking during the break. You are not doing a butterfly or any complicated strategy. This was pretty basic. It is pretty basic. Because of the run up in the stock, i think from now onwards, it is better to play the stock using options. If you are long on the stock, i say cut some of that exposure and replace it. Around he call is thank you very much. We will have more in 30 minutes. Lunch money is next. Welcome to lunch money where we tied together the best stories, video, and business news. Im adam johnson. Heres what weve got today. Candy crush, the maker of the cap had a rough day on its first day on the stock market. And the Federal Reserve tells secrets. This is a bloomberg exclusive. And in motors, we will show you how the ford builds its pale selling truck, the ford f1 50. Its awesome