Transcripts For BLOOMBERG Market Makers 20140709

My favorite store, im not so sure about that. But it is one of my favorite stories. There is a deal that should keep this company out of bankruptcy. A person familiar with the matter says investor standard general will give American Apparel 25 Million Dollars to pay off the 10 million loan and in exchange get to overhaul the board. Julie hyman has been on the story for weeks now, in part because there is such a captivating figure at the center of the American Apparel story, the ousted ceo. It is fascinating because of him even though he is not involved, especially in this current situation, in the current phase of the news. 25 million is coming from standard general. Standard general is one of the companys the guest investors, recently struck a deal with charney whereas whereby it lent him money to increase the state in American Apparel to 43 , but they would essentially have control of that. He could not vote without the approval of standard general. Are they his ally here . He is their ally because they helped him increase his stake, but they did not full that they did not put full support behind him because it is not clear if he were returned to the company. Standard general has the last laugh. Standard general will be able to appoint three directors to the board. One will be a person from standard general, two others will be outside people, and the other two will be chosen mutually by the existing board and bystander general. There are two directors that will remain on the board. So standard general effectively takes control. Well, 25 Million Dollars and controlling half of the company as well through dov charney. It is a little bit complicated. Have what control does he at this point . It is unclear because he did own 27 of the company beforehand, so it looks like that is still solely his. He increased his stake with the help of standard general. So what is the likelihood he comes back . That is what is very unclear at this point. Could he be a director on the board . Idont know if he would dont know if that would happen. So, what, he is going to sit on the board and poke holes and twist and say we have problems . This is Something Like we talked about yesterday on street smart, the idea that could he be chairman but not ceo. In the cases where you have a controversial founder who has been just the chairman, it has not been a successful situation. The chairman has been active in some folks opinions, interfering with the operations of the company. It is difficult to see any kind of situation where he could be a little bit involved and not entirely involved. This given this guys personality, hes either all in or out. When he is out, hes out there toling the newest competitor American Apparel. I do not see him as a trusted senior advisor. One thing is clear. American apparel lives to see another day here. There is no default on the loan and the company it should be clear that the loan from line capital is not the only loan to the company. It also has other loans outstanding. Line 10 million loan from to give there is a larger loan from capital one as well, now mattting, mostly done by townsend and Susan Burchfield from bloomberg, their reporting shown that Everyone Wants to be repaid, right . We are still talking about a company that has 250 stores around the country, they be selling less stuff but is still selling stuff. Julie hyman with the latest on American Apparel and the unclear future of dov charney. Time to take you to the newsfeeds, the top business stories from around the world. Citigroup is close to selling to settling that investigation. The New York Times says the bank could pay as much as 7 billion. Prosecutors say citigroup misled investors about the quality of bonds backed by mortgages. Forget the fact that those buyers were qualified institutional buyers. They be they should have known what they were getting into. Erik is rolling his eyes. Theers of the jury says aratnam is raj he was found not guilty of conspiracy. It was the prosecutors first loss in april that has led to 85 convictions. Israel may be on the verge of launching a ground offensive into gaza. The government has now called up 40,000 reservists, and Palestinian Militants have launched rockets against israels largest city. The second richest man in the world, carlos slim, it is breaking up his mobile phone and pile, empire, bowing to pressure from the government saying that he controls too much of the Mexican Telecom market. 70 of the wireless market, 80 of the landline market. Those are the numbers. Pretty hard to believe, but they are what else carlos slims fortune. Patricia leah is covering that for us from mexico city. Matthewrgs editor miller. What is happening on the ground in mexico . We know that carlos slim has been under pressure from the Mexican Congress for some time, but what finally drove him to make the decision that American Mobile needs to be broken up . The bill was just approved by the congress this morning, and the board announced last night that it approved the plan to sell mexican assets. American mobile executives have been weighing their options for a while. Yearsuld be to resist for it would pose a threat to their revenue. The second is, what kind of structural options make sense . They decided to break up their assets. Given how much power carlos slim wields by virtue of his wealth and influence in mexico, is it amazing that this actually came to pass . I think so. I was estimating that this would happen, but it is analysts were estimating that this would happen, but it is surprising. In a year when this comes to movil will not have to share its infrastructure. In the end, i think it is a smart move for american movil because the parts may be valuable, more valuable than the whole thing. Its not try for carlos slim, still with a fortune of 71. 5 billion. Should we make friends . More than half of his fortune is american movil. About half of that is based on the american business. If you look about if you look at his fortune, about a quarter of it is based on the stuff that they will spin off. This is what turned him from from alionaire super billionaire into a mere billionaire. Intoom a mere billionaire a super billionaire. I like that, super billionaire. What does it look like he has in cash versus assets . Maybe 5 billion in cash. Doubly a couple of billion dollars in leverage. Most of his fortune is based in public lands security. Would you mind walking us through exactly what carlos slim , american movil is doing . We talk about a breakup. Is he giving assets away to anybody . Does he maintain any kind of arms length control over that part of the business . His goal is to go under 50 of the market. So it is unclear. They have not specified. They say they will sell the telephone towers. But it is unclear what assets they are going to save. All we know is they are going to sell just one operator instead of several. A is an operator that will be new independent operator, so it will not be the operators we have seen in mexico. Is it possible for him to take part in the american movil business and spin it off to American Mobiles public shareholders . It could be. Itd been so vague and there are so few diesels so far. We think there are independent operators that could be a Big International Medications Company like at t. It is unclear. Patricia, thank you very much. Laya covering the story. Matt miller, carlos slim is a creative, crafty, smart man. Does he take the situation and work it to his advantage in a different way . Bet against a guy who became the richest person in the world. Dont to unwind this, but be surprised if he still controls pieces of those businesses. Suddenlynot going to lose the government ties he has. That will not evaporate overnight. No. Matt, thank you very much. Rajoming up, the brother of ranaratnam wont be joining him in prison. Plus, putting limits on the fed. That is what some in Congress Want to do. The potential impact of a new house bill. You are watching Market Makers. I am Erik Schatzker with stephanie ruhle. Attorneys perfect record is no more. After 85 convictions on Insider Trading markets, he is now 851. Juries acquitted Rengan Rajaratnam on conspiracy charges. Hes the kid brother of raj rajaratnam, the most wellknown Hedge Fund Manager jailed in years. The former prosecutor is with us here as is bloomberg businessweeks sheelah kolhatkar. It did not weigh it it did not look like the case was going well into the verdict. Are you surprised that your former boss lost the case . Thank you for inviting me. Every time the federal government brings a case like this, they believe in their case, they put all their resources to find it. All their resources behind it. Here with all the evidence of re raj, theing to government said it was there were difficulties the government had to overcome. Like what . Where was the mistake . Sometimes you do not pick your cases or the facts, but the government did not have a cooperating witness during any particular witness who took the witness stand and said rengan in aatnam was involved conspiracy with us. No witness testified to that. Joe kumars testimony was hurtful to the government, and that was the governments own witness. They had too much heavy reliance on the wire calls. Third, there was a lot of contemporary evidence. What contemporary evidence . Thatmails, phone records, an were completely inconsistent with the government case. You try to draw the sting, you bring that up to the jury and explain why it is still consistent with the governments case. Here there were inconsistencies that the government did not bring them out themselves and the defense was able to say i am bringing it to your attention, showing you why it is inconsistent. The judge did not like the case from the beginning. The case got narrowed from the start. Seven charges down to one. At the very end, the jury feels that and the jury knows that the government opened with three counts, ended up with one. It hurts the government. The judge did not allow specific trades relating to clearwire to be talked about. The case looks to be a route looks to be about raj, not rengan. They did them are margaret will job of they did a remarkable to an he never spoke analyst that he called to testify. Is he getting sloppy here . We have been talking about his record for so long, it makes you wonder. Thana little bit worse 850, or is it law a lot worse than it looks . Right now there is some gloating going on among hedge fund folks. There is some sense of the government has overreached, and perhaps they went too far in pushing these cases. There is another camp that was critical of this perfect record he had, and said that perhaps they are not taking enough risk with the cases they are bringing, and perhaps the jury stackeds unfairly against wall street defendants because it is impossible for the government to lose. Why . 1 , and they uber immediately will say the guy has got to be guilty. There is a Strong Defense theres a strong sense in the wall street world that you cannot win in front of a new york city jury. The sense of resentment for the 1 will in fact any trial that happens, and in fact that did seem to be happening until yesterday. Did that help you as a prosecutor . We have talked about this before. The prosecutor feels they have the wind at the back, postfinancial crisis. He will do not like financial crime. Any evidence of it, they are ready to convict somebody. We talked about this before. Rengan rajaratnam certainly had to be viewed as a wealthy wall street type of person, acquitted. Juries will look at the evidence. The government cannot count on this notion that all wall street ors will be viewed that badly. Every case has to be looked at based on its own facts. In this case the facts when against the government. Why did it take so long to try this case . Raj rajaratnam has been in jail for a couple of years, right . Rengan rajaratnam was not charged with raj rajaratnam. Isnt that weird . Chargegovernment did not gupta at the same time as raj rajaratnam. There are cases in which they continue to investigate, learn new facts, and treat additional charges. What is he going to do now . You double down and say i am not going to let one loss get to me . There are other cases ca . It time to focus on something other than Insider Trading. I dont think this will stop the u. S. Attorneys office or curtail them from investigating Insider Trading, sending out grand jury subpoenas to investigate, work with their counterparts at the sec to investigate. It will not stop the fbi from having a successful and Urgent Program on Insider Trading. What he will do, just like other cases, it will cause prosecutors to take a step back when it ppies. To downstream ti also that this big string of cases is definitely winding down, and this investigation really started in 2006. Someone involved people forget that. It has been going on for a long time. They did not charge Stephen Cohen with anything. A lot of these cases that remain are tying up threads that were never resolved. So we are in a different phase of the novel. I am sure there will be more Insider Trading cases in the future, but this is the winding down of the making of the thriller album. They are going to continue to put resources into it. The fbi will continue to put resources into it. Federal prosecutors will not be deterred from investigating. Maybe they will be deterred a little bit from charging a downstream tippy. We will have to see what is said, writing a lot of guidance to people about whether or not the downstream tippy needs to know the insider or the preacher of the duty that would or the woulder of the duty that reap the benefit. I love the two of them, but gan would have been a good you cannot think of two better people. I am just saying, as much as i may have beenan the good one. Sheelah kolhatkar of bloomberg businessweek. Coming up, shaking up the vatican bank. What francis asks after a dramatic drop in profits. When we come back, happy 100th birthday, Federal Reserve. Some republicans in congress think you need a major renovation process. Blood from wireless pressure monitors to smart watches. What is different about this fitness tracker. Live from bloomberg headquarters in new york, this erikarket makers with schatzker and stephanie ruhle. You are watching Market Makers on bloomberg television. I am Erik Schatzker. Im stephanie ruhle. The Federal Reserve is under fire on the eve of the feds 100th birthday, some House Republicans are pushing a bill to give lawmakers more oversight over the central bank. Tomorrow, economic and policy experts will be on capitol hill to testify at the House Financial Services committee hearing. Good morning to you. Number ofwould do a things including subjecting the fed to greater congressional oversight. It would put some policymaking limits on the fed. You have for several years argued for many things, including more transparency from the fed, and a number of other reforms. Why do you favor this bill . Let me also say that i think the bill is quite modest. The requirement in the bill that the fed published this sort of rule in no way requires that this it doesnt require certain specifications, it just says that the fed needs to be more transparent about what it is doing. We would like to see the fed be around another 100 years, let it be a little more successful than the first hundred years because the first hundred years had its ups and downs. It has some things that nobody would be necessarily proud of its Monetary Policy. I would say for instance, you have doubled the number of times that the fed chair appeared before congress. Instead of two times, it is four. Now there will be more public appearances, more input. Does that. Agency so much of the stuff costbenefit analysis is required and most agencies do that. More transparency. To me, you can certainly argue that maybe the bill tries to nudge the fed in a certain direction or other, but there is nothing requiring the fed to raise Interest Rates. But we know that the republican congressman in this case congressmen in this are smart enough to do that. There are perhaps some that would like to limit the feds ability to raise Interest Rates or force it to raise Interest Rates. But, mark, i read the bill this morning and i am looking at hang on a second . What it talks about is a directed policy rule. I will walk people through this quickly. Theres complicated language. The coefficients of the alice he ruled, i dont want to get into the details, but it requires the fed to report to congress after a policy decision within 48 hours. The gao would then have to approve the reporting on the policy directive rule within another 48 hours, and if the gao were not satisfied, the chairman of the fed would have to explain himself to congress within a period of seven days. That is more than just transparency. Lets parse some of that out. What gao has to approve is that the fed actually reported the rule. It is not that the gao has to say this rule is the right rule, that it is going to work, that it makes sense, it is just that gao has to approve, that this is a policy rule the Federal Reserve is using. They certainly have a model of the economy. What this is requiring is at the Federal Reserve make that model public. That they share it with the rest of us. Which to me, again, allows the rest of us to test it, to look at the assumptions, check if it makes sense or not. It does not dictate a certain type of rule, does not dictate the coefficients, the parameters. Why force the fed chairman or chair in this case with janet congress instify at seven days . Why isnt transparency enough . Gao approval, and having to report to congress at least creates more transparency than today. It certainly does, and i get the point that do you need to drag the fed chair up. What the bill is trying to achieve is that hopefully that is a threat that never has to exercise. That the fed publishes a rule, publishes the rules it is using now. Thatng on a second hopefully would not have to be exercised . Congressmen, whether a house or the senate, whether in the house or a member of the senate the fed chairman will be called up before Congress Every time there is a policy decision. Well, they can do that now. Going to beays grandstanding. It is washington. I would argue that some grandstanding is appropriate and needed, but we are certainly never going to have none. I am not sure i agree with you on the grandstanding point, that this gets to a bigger question in the bigger debate over the politicization of the fed. To use your verb, drag the fed chair before congress sounds like politicization. I would agree, but i would pushback. You havelready three out of five members of the board who served in the Clinton White house. This is a board that is explicitly political. Board that is very experienced in matters of policymaking. If those were not the board members, who would you choose . You could have a variety of people. Despite the fact that i did not agree with the Peter Diamond nomination, he is somebody who spent his career in academia. He did not have a problem with this revolving door. There is somehow less it is somehow an assertion that you should if you have a revolving door between economic advisers in the fed, i am more worried about the lack of independence between the Federal Reserve and the executive branch. I think this rebalance his that. This is not even their responsibility. I think that is a great point. At is a point we are discussing. Arc, one other question i have for you is, why subject the fed to these calls for transparency now . You worked for senator Richard Shelby for many years. He was chairman of the senate approvedommittee, wholeheartedly the appointment of ben bernanke as fed chair. He has introduced this resolution of that revolution of transparency. But during the period that senator shelby was chairman of the Senate Banking committee, i dont recall any more calls of transparency from alan greenspan. I do think that greenspan and bernanke deserve credit for more transparency with the fed. Moving in the direction of transparency. I would say, however one of the sections of the bill requires the fed to report international negotiations. Senator shelby pushed back tremendously against the fed getting good leverage requirements because some of those negotiations are not seeing the light of day. If you want to ask why we did not hold the fed to the table every day, it is because we were trying to solve other problems such as fannie mae and other agencies. Is the fed the only problem in the Financial System . Not at all. It is hard to choose where to start given the number of problems in the system. I think the question is, it has been 100 years. It makes sense in the broader sense to take a look at the fed. One last question, and i wish we did not have to wrap it up because this is fascinating. Rulesbased policymaking sounds great, but you know where we would have been with the taylor rule three years ago. We would have had negative Interest Rates of 2. 5 . That does not sound like he makes a lot of sense. Furthermore, if the fed had been subjected, if we had passed a bill like this and we are showing everybody what the fed policymaking come in the fed funds target under the taylor rule would look like. Deeply negative in 2009, 2010, and 2011. If we had passed a bill like this back in 2000 seven, subjecting the fed to rulesbased policymaking, where would the fed have been in 2008 and 2009 when and bernanke had to pull rabbits out of his hat to keep the economy from going off a cliff . Mind the safety valve for the fed to say Market Conditions justify us deviating. But we also have to keep in mind rulesbased policy cuts go both ways. It would have suggested that when the crisis hit in late 2007, 2008, you would have had looser Monetary Policy than you did at that time. You wouldve had tighter Monetary Policy in 2003, 2004, hopefully would have avoided the housing bubble. One of the criticisms i would have on the bill, there is a tremendous amount of flux ability to the fed. The fed can determine potential gdp and all these things and there are lively debates about these things. Panacea, not a perfect, but we have to recognize that discretion, no matter how many phds and respect we have for the and respect we have for the experts, this is about taking the worst that world, not about the king the optimal. A little less not about picking the optimal. A little less discretion would give us better Monetary Policy in the future. Mark, great conversation. Thank you for joining us. Mark calabria from the cato institute. He will be stepping before the House Financial Services committee tomorrow, talking about reforming the fed. Coming up, how the vatican is just like wall street. When profits plunge, someone has got to take the fall. Stay with us. You are watching Market Makers on bloomberg television. And him and him Market Makersto in the loo. Andrew fry is covering this story from rome. First of all, what is the vatican bank even doing . The vatican bank takes care of its faithful, the clergy, and religious organizations, dividing financial transactions, a lot of money transfers around the world, and savings. It stores the money away like any kind of deposit taking institution. It seems like a very small bank. How is it creating such a big problem here . I tell you, it is all about transparency. For many years it did not abide by standard practices as far as transparency and compliance, so did had a lot of they not have the standard of disclosure you needed to have, and that wrought the attention of the authorities. There has been a moneylaundering investigation going on. A senior cleric was caught last year trying to bring 20 Million Euros from switzerland into italy. That case is still pending. Basically it was blackeye after francis feltd pope he needed to do something. How does this fit in overall with Pope Franciss reformation of the Catholic Church . It is coherent. He wants to bring the bank more toward international standards, and he wants to set an example of good conduct. A forchurchreate you need a kind of vanilla bank that has an open door policy. At the same time he is facing the same problems he had with other bigticket items, and that is basically imposing his will to the outside as well as transforming the clergy from the inside, which has proved a difficult task, especially for his predecessor, benedict or a andrew, has there been any acknowledgment from the church or senior members of the clergy about the kind of scandal that the vatican has that the vatican bank, that is, has found itself involved in over the years, and any sort of open effort to try to move it past what sucked it into that sort of ass . There has been in the knowledge meant. A guy named George Powell is an australian cardinal, and francis brought him in in the early part of his pontificate. He said we want to move on and he said scandal, we want to create transparency. There are a couple of open questions going on, some transactions that had to be written down in 2013 that have been the object of a little bit of judicial investigation. That is all going to play out. But he held the line against francis right held that right hit there are going to be consequences of the people found out the of wrongdoing will have to pay. Yet another scandal in the Catholic Church. From theye joining us vatican in rome. We will be speaking with the ceo of with things i am Erik Schatzker, here on Market Makers with stephanie ruhle. It has not been much room for fashion in fitness monitoring, has there you go the clunky smart watches are pretty much universally unsightly. Withingshy paris based is creating one in style. It monitors your sleep and calculates calories. Herewith a sneak peak for us ceo from the the company, cedric. Tell us why you see the opportunity for a stylish smart watch. Thanks a lot for welcoming me. We have been creating simple connected Health Devices to help us monitor and improve daily health. In todays markets, there is not to track their health but without giving up their watch. So we have found that trackers are not that wearable. So we created the first of its kind, swissmade watch that happens to get all of the transfers and get connected to a smartphone but without giving up the simplicity of a true watch. It has a oneyear battery life, it is waterproof, what you would expect again from wearing a watch. With a new feature and services to get you motivated in being more active. But without having we grated in your but 390 . That is more than double that most of the smart watches out there. Who is your consumer . We have to look at who we are looking at. Highendatch with french labor, using a highend boutique making it waterproof. It is all the assets that i am not doubting how well the watch made. I am asking, who is the consumer . Who is going to spend that kind of money . Current watch wearers, smart watch wearers are spending a fraction of that. Yes indeed. We are looking at people who are willing to spend a couple of hundred bucks on having a stylish device and to see values on wearing something that is highly focused highly fitness focused people who are not only cedric, where is your market . Withings has some good looking scales. The reason i am not familiar with your product is that withings does not have that much of the name in america. I have to imagine you want to sell the watch here. How do you get people to buy it . How do you get people to know about it . Indeed we are putting a lot of effort on being better known in the u. S. Today most of our channels are Consumer Tech channels, so you can find our product in upper , and we are looking into this new fusion between fashion and technology, and we have seen withr in limited attempt collaboration with designer and tech companies, we really see that in the future we will see more Smart Technology integrated into everyday life products, so expect to see our product more into general channels, including of course watched channels because we think it is a very good smart watch, not just a gimmick of a watch. We will see most watches integrating this type of technology, and not only focused to tech oriented channels. How many months away is it . So our product will be hitting the market in the fall season, so expect it in three months from now. In the next 18 months, there will be a trend of getting all these markets out of again the tech world into more lifestyle and products. I have to give you this, it looks a hell of a lot better than a garment. I cannot wait to see it in person. Thank you, cedric. It is approaching 56 past the hour, meaning it is time for bloomberg to take you on the markets. Matt miller . Stoxx influx here after after 1 e influx here gains yesterday, still minimal. Adding 35 points to the Dow Jones Industrial average, the nasdaq adding back half a percent. 1 yesterday. Take a look at the stocks we are checking out today. We are looking at some u. S. Small caps. We are also looking at alcoa moving higher, kicking off earnings season with better than expected results. Shiftingnum producer its focus to manufacturing auto and aerospace components. Take a look at alcoa there. Take a look at the green arrows on your screen. We will take a quick break, and when we come back, more Market Makers to come. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Game showtime. Deal or no deal . We will see who is likely to have m a on the menu. Dispute to resolve a with publishing by going directly to the authors. Youtube, the company that gets online video so well that disney spent half 1 billion to buy it. Welcome back to Market Makers. We will begin this hour with the newsfeed. These are the top business stories from around the world. An investment investor has put a lifeline for American Apparel. American apparel will get 25 million from standard general, and that will let the company pay off a loan. Get threeeneral will seats on American Apparels board. Says that years of losses in europe are coming to an end. The automaker is forecasting a smaller loss this year than last and a return to profitability in 2015. Fords sales in europe are up more than six percent this year. Brazils crushing defeat to germany in the world cup may be felt far beyond the stadium. Ubs says the loss will likely hurt the reelection chances of president dilma rousseff. Losing by a lot more than six goals. If youre looking for media mogul or tektite in this week, you will not find them in their offices. They are at the annual sun valley summit. Our senior west coast correspondent is lucky enough to be there. You arechman, yesterday in washington state, standing andide the first weed store now you are river rafting with Warren Buffett. What gives, brother . I should have brought them samples from washington or seattle. That wouldve made White Water Rafting more enjoyable. [laughter] it is always a wild experience here at sun valley. You has so many highprofile people in a very casual setting. Dont get me wrong, theres massive security everywhere. But just this morning alone, to see people like Sheryl Sandberg and reed hastings, bob iger, the casually Walking Around you get the idea of the power players who are here. In terms of who we spoke to so far, some of the more interesting comments have come from the billionaire barry diller, who is the backer of the aereo startup service, which just had a major loss at the supreme court. Here is a brief soundbite from barry diller. What do you think about aereo . I think we fought the good fight. We may getmments more from barry diller as the week progresses. Those were interesting comments, in the context of where areo stands right now. Itself has not said they are throwing in the towel. They have suggests that despite that big loss at the supreme court, they are figuring out next options. When your big backer says we fought the big fight, it suggests new throwing in the towel. Are there any new attendees this year we have not seen before that speak to what is important now in the world of media . Yeah. Of techee a number ceos that are coming here more frequently. I believe the ceo of shutter stock is one example. What allen and company does, these days they have two conferences. This is the big one. They also have one in arizona, where they have a lot of younger tech ceos gathering. They do presentations there, and eventually some of them make their way here. They need to do that, because otherwise you have a lot of aging media executives here and not enough of a new generation of technology players. Now you have a pretty interesting mix of people. Maybe we will see some deal activity. Certainly last year people thought we would see the sale of hulu, and the owners of hulu decided not to sell. The reason they were all gathered at sun valley, the owners including disney and fox could actually talk about why they did not necessarily want to sell the business and get on the same page and make news or no news. Besides the conference, besides meetings, what is it actually like their . There . Do you have White Water Rafting with les moonves . What happens . Sense thatget the you have a bit of a divided line between traditional media and tech. They are different worlds, and some of the mix and some of them dont. Executives the media who have been coming here for a long time, is a way to catch up. Sometimes they do White Water Rafting. Sometimes the gulf. Late at night they do some drinking, and sometimes that is where the bigger conversations come from. The randomness of doing different stuff at different times is where these deal discussions to come out of. We ran into the former ceo of disney last year. He is well known for running into Warren Buffett in the parking lot one year, and that eventually led to the sale of abc Capital Cities to disney. Thank you, john. Paul sweeney is here. He runs Bloomberg Industries and is a Senior Analyst covering media. Jon points out that a lot of the attention is on the younger, more at Vanguard Tech guys. Those older media execs still have big wallets with which to spend. Do people look at sun valley is the place where deals are born . What kinds of deals might be born there this year . One of the things we will probably see is a lot of people in the content side of the business will have to have conversations this year. What we have seen over the last several months is a lot of consolidation. If you are a content producer, a Cable Network, you need to step back and say, it looks like the distributors have up their leverage as we go through our who are we talking about . Some of the Smaller Cable Networks trade networks, like amc. Are of these companies that fully profitable in and of themselves, but as they step back and think about who their quote unquote partners are on the distribution side, they recognize the balance of power might be getting out of whack. Jowly media titans are they intoxicated by these young hipsters . Later we will be seeing the ceo of maker studios. The smartest guy out there by selling short form video to millenial said disney. Inthese icons believe whatsapp . If i am bob iger les moonves, i need to protect my existing ecosystem, where i get paid by the distributors and subscribers and advertisers. At the same time, i also have to lay out some bets on the transformation of media towards a more digital business. I have to go out there and make the bet here and hopefully i wont make a bad bet like news corp. Did with myspace years ago. At disney buying maker studios for upwards of 1 billion. That is a bet from bob iger and disney saying, we know our consumers are consuming our content and other video content away from the traditional Cable Network broadcasting we need to be there. That may not prove to be a great deal. 950 million if you include all the earn outs is a lot of money for a profit challenged businesslike maker. About myspace, it is hard to criticize Rupert Murdoch for doing the myspace deal. Myspace could have been a facebook. He made a bad and he lost. In retrospect, he had the right idea. These Media Companies certainly have the right capital to place a lot of bets out here. The stocks have done great over the last four and a half, five years. They are returning a lot of cash to shareholders. Despite that, they are still making bets on digital. An example would be netflix. That is a friend and not a foe for most of these Media Companies. A year ago, we were not really sure. People could look at like aereo, what a miss for barry diller. Its not. Hes not going from flying first class to coach, thats for sure. A lot of these Media Companies can afford to put the bets out there. They will certainly pay off in a big way. We will see what happens with some of these deals we have seen over the last couple of weeks. You mentioned the maker deal. More of these companies that produce content for youtube. A lot of these companies are the subject of speculation. To shareholders want to see ceos like eiger doing deals like maker . A billion dollars is a lot of money. Very careful. O be Media Investors have become very accustomed over the last five or six years to paid back a lot of cash through dividends. They do not want to see that gravy train and. They recognize that certain investments need to be made. Thank you so much for giving us the latest. Try alwaysways tight at sun valley. Staff members at the conference are keeping a close eye out for drones that could photograph, harass, or harm these media moguls. Commenting for, the record the faa does point out the commercial use of drones like for news photography is prohibited. You have a lot of drone enthusiasts out there. Im a joint enthusiast. So is drone enthusiast. So is jeff bezos. That amazons latest move will not be a best seller. Targeting millenials, the digital Video Company gets one of youtubes biggest producers. Now owned by disney. This is Market Makers. Hear stories and interviews at bloomberg. Com tv and on bloomberg tv plus on your tablet and streaming on your apple tv and amazon fire. If youre asking the question, what media and Technology Company is hitting on all fronts, bloomberg. Welcome back to Market Makers. It is time for some bloomberg west headlines. Global spending on advertising is on the rise. According to a survey by emarketer, media spending will increase 5. 7 this year, double the pace of 2015. More money being spent on digital and mobile marketing. A whole new medium. The world cup, germany trouncing brazil. Than 35 million tweets were sent out about the match. That is the most ever for a sporting event. There is nothing magical about the long lines at universal studios. The new harry potter attraction in orlando, in some cases fans of the teenage wizard waited more than seven hours to get on a ride. Is escalating the battle between two rivals in orlando. Disneys Magic Kingdom and seaworld. Seven hours . If you are willing to wait in line for seven hours, you deserve it . It to waitrely worth in line seven hours for anything. Seven hours for a harry potter ride . You could read through the brooks in that time books in that time. Amazon in its battle with a book publisher. The two companies have not been able to agree on ebook pricing. Squeeze on,ut a blocking orders of some of its most popular books. Amazon has tried an end run. What is happening . What is amazon trying to do . They are ramping up the pressure on the publisher. It is negotiating how much of a cut it gets from ebooks. It is taking the deal directly to the authors and saying, we are on your side and will pay you the full proceeds from all sales of ebooks. Lets cut the publishers out right out of the middle of the picture. Does amazon have complete control here . They have a very strong hand here. The biggest growth in publishing is on the digital side. We were talking about the steps from bloomberg west. Everybody wants to read ebooks on their kindle, smartphone. They are not buying books as much anymore. You are seeing revenue drop as far as physical books. That is where amazon has a huge share of the market. They have a lot of negotiating power. Where do all the authors stand on this . Its hard for the authors to see amazon as the friend here. Its a very complicated relationship. They are the 800 pound gorilla that has turned their Business Model on its head. Book pricing has changed dramatically, largely as a result of the impact amazon has had. Amazon is giving them great exposure. If everybody wants to read a book on their kindle and smartphone, where are they going to get it . Amazon. You need to be on amazons side here. Its tough not to be. Enemy or friend me frenemy, im not sure. You never say the word frenemy. [laughter] a lot of people say the publishing world needs to be dragged into the 21stcentury First Century and they are cheering amazon on in that regard, without killing publishers altogether. Isnt amazons strategy a little bit risky, inasmuch publishers still play a role, right . They have a bunch of editors who receive manuscripts, read through them and decide who will be the next great author, then make that book available. That, in gets rid of dont know where the future books come from. They can be the rainmaker. Publishers are the ones who back the authors. Authors aree saying, we cannot give the proceeds directly to amazon. We owe our publishers money. They have given us an advance. They are in a tight position. Some of them. On the other hand, you have to look at what is happening in publishing. How much is the publisher doing for me as the author . Theres a lot of doubters out there who are saying, im not getting a lot of marketing. I have to go and do my own marketing. What is my publisher doing for me . That business has been in place for ages. The fact that they are suddenly going to [indiscernible] the publisher, that is hard for others. Hard fork it is readers to mac. We kind of need the publishing world to weed out all the people who think they have the worlds next greatest novel we want to read the books that the publishers are publishing, that they are vetting. They are this important gobetween and they are helping to determine who the best authors are. We trust them. The ones that Michael Lewis writes. And then they make hollywood movies based on them, stephanie. Tom, thank you. Tom giles what is your current job . Managing editor for u. S. Company news. There you go. Hes got a big job. Coming up, the score was 71. It wasnt really that close. After that shocking game between germany and brazil, we will see what to expect from todays world cup match. The Brazilian National team lost 71 against germany at the world cup. This was all happening in brazil, on its own soil. Brazilian fans. Germany going bananas on the right. What are the chances of Something Like this happening today with argentina squaring off against the netherlands . Eric chemi is back. If i had said here yesterday and said the score will be 71, it would have seemed completely ridiculous. Goldman sachs predicted brazil would win the whole thing. Of ourvast majority terminal bracket competition, for example. Just the fact that result lost theil lost by so much chance of it being this extreme was one in 20,000. That is the problem with these extreme scores. You did talk about the unpredictability of soccer matches. We saw spain get trounced by the netherlands in almost the very first match second match of the tournament. Lets talk about todays game. What are the chances . Who is predicted to win . Argentina. I dont even know what to say anymore because of scores like this. What are the odds of argentina winning . 61 for argentina versus 39. The voting is much more in favor of argentina. People like to go for the favorites, and people vote for them much more. Most people on the argentine camp buy in vast majority. I have been in the argentine camp with my bracket from the beginning. Its doing worse now that brazil lost. Stephanie is number one in a tiny eightmember sub selection. It doesnt matter. Im still number one in that country. Eric, what you are going to be doing at 4 00 as well eric chemi coming up. Disney bets on youtube will be speaking live f bloomberg headquarters in new york, this isrom Market Makers. Welcome back to Market Makers. Im stephanie ruhle. Im Erik Schatzker. The youtube universe is not only drawing in millions of millenial eyeballs, it is attracting serious cash for media behemoths. You will remember the disney spent almost 1 billion on maker studios, one of the biggest names in short form video. What happens when big media meets internet celebrity . I cannot announce your last name. That, the ceo of maker. Welcome. Disney. Why did this make sense . This is not the First Company you have sold to disney. Where do you see the marriage . If you see what happened in the last few years, there is an emergence of a whole new industry from short form video content. Short for video is growing at a doubledigit rate. Is it a real moneymaker . But i think about these betweens getting paid zillions of dollars to make these little videos, how long can that last . It can only grow from here. Youtube today generates more than one billion views per month andiewers per month, billions of brand value. There are hundreds of thousands of creators all over the world. 55,000 creators in our network generating six and a half billion monthly views. And is a very large reach, this would translate to dollars. Its up to you to turn maker into something other than a 950 million option for disney, right . How do you do that . I have seen the numbers around your business. The economics of mcns are tough. 45 goes to google. If you have a popular content mostor like cutie pie, the popular guy on youtube, he takes the rest of the economics. You have only a sliver left. How do you turn that into something that is not just a billiondollar option . Arehe numbers you quoted not exactly right. What is more important is to realize that you take maker , withoutithout a reach scale, and you combine it with disneys assets with some of the most successful franchises in media history. That combination creates a player in this new and emerging industry. You have got a business, disney has a business where do they converge . What you see has brought massive growth of short form video advertising. If you speak to analysts, they will tell you in the youtube sphere they should translate to tens of billions of dollars in a few short years. As an advertiser, you look for engagement, and measurement, all of which are not very effective on television. It is much more effective online. Shortn i want to watch form video, whether i like it or not, im watching those advertisements. When i watch television, im watching hbo or showtime, i never see ads. Company isuying your a huge validation of that business. Do you expect to see other big Media Companies take a look at other short form video producers out there . Is this the beginning of a trend . Our minds, short form is here to stay and it has only become a more mainstream kind of business. The trends now affecting Consumer Behavior is a shift from linear, Traditional Television into online in general and short form in particular. It is happening everywhere. Anyone who has kids in the audience knows exactly what im talking about. Lots of research was done. Take a few data points. Kids 12 to 17 watch a third less and about half of that is 55 to 65. They watch less as they are younger. One way to improve the economics of the business, for you or anybody else, is to migrate viewers away from youtube, right . U2 takes a big slice of the pie. You have got maker tv. How do you turn youtube into a marketing channel that will drive traffic . Youtube has done a phenomenal in building the Worlds Largest video distribution platform. But they charge a high price for that. Probablye will forever remain our largest distributor. In addition to that, we have our own premium platform to distribute our own content. We feature our 23 vertical variety of offering we have in the marketplace that will combine the best of major networks, our original content, and soon disney franchises as well. What are you doing to get eyeballs there . That is the art. We process over 2 billion rows of data every day. This is the science. The combination of art and science, understanding the audience, being expert and specializing in reaching and islam makes us unique. Unique. What makes us the hope that you can take the subscribers on youtube there will be a windowing approach, the way we distribute our content. But its important to say that maker tv is not in competition with youtube. These two platforms coexist. Coopetition . What do you expect disney to bring to the table for your company now . Ride devoted to cutie pie, maybe . Disney is an amazing company. I have admired for years the work the bob iger did and lead this organization to become a pioneer and innovator not just in traditional media. We expect to be able to work with innovations to bring the best of disney, whole category of franchises from star wars to marvel, espn, abc think all the great things disney has into short form video. The starnow has wars franchise, perhaps the most valuable franchise the planet has ever seen. Content creators at maker previously wanted to do a spoof on star wars and put it on youtube, you get a takedown order, right, from lucas. Do your people have the freedom to experiment with disney characters . We intend to embrace the disney franchises throughout network. Our creators say this is a fine line to walk, right . This is happening in many cases what is generated i our own creators by our own creators [indiscernible] are there more rules and restrictions around what your content creators can do . When i think about all the short form video my kids have watched, lego videos on youtube, a lot of it accidentally ends up pretty inappropriate. Now that you have mother disney over you, does that limit what you can do . We dont expect that to limit. Is to inspire expression and drive creativity. The tools and the assets to create a great content. We want them to focus on what they do really well. Facility andthe the environment and the tools and the product to make that happen. Are you concerned that some of the talent that has come to maker might be a bit reluctant now that you are part of big media . That our people are very excited to work with disney, we are seeing a rush to join us. Earlier that disney validated the space. Its much more than that. Its a combination of the largest player in the youtube ecosystem. On one side. The worlds preeminent media enterprise with these great assets on the other. You create a combination, in arms of the ability to drive whole evolution in the short term video industry. You sit on top of makers. Are insideow you mother disney. What could be next for you . Company, is a great and the way we have engaged with the Different Division so far, we are still in the honeymoon nothingbut it has been but great so far. We are really excited to work with disney and believe good things will happen. You are highly incentivized, right . They require you to do two things which are not necessarily dont necessarily work well with each other. You have got to drive revenue growth, and they want to see profits. How do you continue the growth maker has seen at the same time as doing it profitably . We are completely aligned. What disney would like us to do and our objectives is one and the same. We are looking to transform a space, and lead a whole evolution. It is still early. Some degree, economics are still behind the reach. But this will catch up very soon. We are looking to continue to akerngthen and position m to work with creators to give them the tools and the ability to inspire creativity. Congratulations on the deal, and god knows. My kids love short form video. Thank you for joining us. The ceo of maker studios. For buildingused highways and bridges is running out of money. Will both parties agree on a new plan to keep you on the road . If congress does not act soon, road and bridge construction in america could grind to a screeching halt. We are talking about the Highway Trust Fund, the funds that pay for Infrastructure Projects all over the country. To argue overinue what to do about it. There is one potential compromise on the table. Peter cook has been with us on capitol hill for more. John boehner is involved here. What did he have to say about it . Backing toving his this compromise that comes from the house ways and means chairman dave camp. It is a republican proposal in the house. Is the are talking about big crisis confronting congress now, the big issue on the table this summer, what to do about the Highway Trust Fund. If they dont get some sort of fix, you could have highway projects grinding to a halt across the country as soon as august. The president and lawmakers have been talking about a longterm solution. That is what the Business Community has been lobbying for. We are talking about a temporary 10 billion passage that would kick the can down the road to may 31 of next year. Dave camp would pay for it by pension plan changes, boosting customs user fees, as well as 1 billion from a leaking underground storage tank fund. Today i asked Speaker Boehner about the proposal and he gave it his backing. Have ad chairman camp really solid build to help pay for the shortfall in the Highway Trust Fund for the next eight or nine months. It is a solid piece of legislation. We are looking forward to the committee marking it up next week and it will be on the floor of the house next week. This is controversial. Republicans think it is a solid piece of legislation. It corker yesterday called disgraceful and said it is generational theft, and asks others in the future to foot the bill right now. Plan with this camp boehners backing looks like the plan to beat. Can we go back to the numbers you showed us a minute ago . Billion like only 3. 5 constitutes real new money. The rest of it is congressional accounting, which is to say, borrowing or changing the way you calculate a few things. It is all gimmicks and budget movements. Before. Een done these are all things the democrats and republicans have voted for before. That is why he suggests this is the only bipartisan proposal out there. It is moving money around. A longterm solution is what is needed here it needed. I know you spent a lot of time looking into this Highway Trust Fund issue, including inspecting some bridges on your own. Give people a sense of how long it is going to take for the impact to be felt if the trust fund runs out of money. Init will be felt right away august, at least according to the department of transportation. Dry, new fund runs projects will grind to a halt. You will not get projects across the country. It will be felt across the country. This is the one source of funding for federal highway projects across the country. Thank you for a much. If theres a compromise, lets hope it passes. Breaking news. The mayor of new orleans during Hurricane Katrina was sentenced for0 years in prison bribery, moneylaundering, and other corruption that stand his two terms in office. He was accused of accepting free vacations, truckloads of free durant for his family business, granite for his family business. We are back in two to minutes. That will be it for todays Market Makers. Tomorrow, peter cook will bring us an interview with senator rob portman, talking about congresss to do list between now and the election. As we just heard, there could be a fight over that highway bill. Peter will also be talking to senator portman about immigration and overhauling the tax code. It is 56 past the hour. Bloomberg television is taking you on the markets. Matt miller has more. Thanks very much for that. Stocks are gaining a little bit of ground falling following the biggest twoday selloff since may. Investors are awaiting the latest fed meeting minutes. Todaysjoin us for options inside or you can join us for fed coverage at 2 00 p. M. Joining me now, equity derivatives strategist at baycrest partners. First i want to talk about volatility. It has been so low. This span ofeen short swing since 1995, 50 six days until yesterday of less than one percent on the s p. What about the vix . Are they cheap at these levels . What do you think about the vix . As we have been hearing more and more, that lo does not necessarily mean cheap. Things are low on volatility space across all asset classes. Is people not really going out actively to buy volatility. Yesterday when six was shooting up slightly with markets selling off, we saw a couple of smart players taking advantage of that. They still left a few bullets to themselves. [indiscernible] there would have been more of a selling off of fix futures and options. You and i were talking about it earlier. If you dont need the protection, it is expensive no matter what the price is. You spent money you dont need to, right . Low does not necessarily mean cheap. Where do you see us going here . Ahead of the fed minutes. People are really paying attention. People are paying attention for sure. I find it very difficult to know what the surprise would be. Fully to a full extent what the other fed numbers are. It is likely we will not see much of a surprise. People are actively watching this. Russellave play on the 2000, the Ishares Russell 2000 etf. Iwm is your take her. Ticker. One thing that is reasonably high is the skew. Lower denominated strikes, 80 , 90 strike options are actually quite high. With a strike price being lower than it is now. Moving down. If you want to buy protection down five percent you by 95 strike. Further,nt to buy even volatility is higher. The premium you will pay is lower. What is that i have is called a foot three. You are buying a closer. [indiscernible] i want to catch two fomc meetings. At least there will be some bid to those options. 2014 options the and sell two options against them. I want to sell the 107 strike put. I am buying one option and selling two options. It costs me a dollar and the best Case Scenario is if i do get a selloff and i get almost six to one payout if we do get a sellout. Anshul agarwal, thank you. To money clip where we tied together the best stories and videos in business news. I am adam johnson. Citigroup next in the multibillion dollar sentiment line for the 2008 financial versus leftber versus halo. World, motors, big machines, air, land, and sea. And finally in