Transcripts For BLOOMBERG Market Makers 20140815

Friday . Are wearing white sneakers. Usually he wears shoes with matching shoelaces for his tie. But today you have sneakers on. That is how we know it is friday. There they are. There they are. Lets get to the stories from around the world. Chiquita is rejecting an unsolicited takeover bid. Chiquita will stick with its planned purchase of an average competitor price. Credit card data may have been stolen from june to july at supervalu. Car that wentc for a classic price. A 1962 ferrari sold for more than 38 million. That is the most a car has ever sold for at auction. No word so far on who bought it. That is a really good looking car. You have just gotten your roadmap and lesson plan. It is 13 f season, where we learn what Hedge Fund Managers bought and sold last quarter. Julie hyman has been digging through the filings. Mind our to wrap your around all of these buying and selling from Hedge Fund Managers. It is always interesting to start with apple and see what they are doing with this huge stock. Apple is really popular. Really popular even after all the debate of whether it is still worth it or what is going to happen with upcoming products or how the dividend is going. The stock did very well in the quarter. That helps when youre looking at whether you want to buy and sell it. You had a balance of managers buying and selling. Greenlight capital trimming its stake in apple. Einhorns firms are taking profit off the table. It might not be that you no longer believe in this investment, but you made some money and you want to take some profit cash to use elsewhere. The motivation is still unclear. It is aut is is snapshot of where they were at a certain point in time. If you are talking about Berkshire Hathaway, chances are, they are still in the stock. If youre looking at dan loeb or David Einhorn who are more ,imble and tend to trade more they might not even be in a particular stock anymore. Theyre more active on a daily basis. You see some of the decreases we have in the number of shares about which firms have cut their stakes. Comee flipside, you have adding. Funds it is much more relevant about certain firms buying than others. A lot of them are quantitative or algorithmic or computerdriven. Certainly if they are driven by quantitative strategies, the my be out of it already. Gannetticahns stake in called for activist investing that has not has already happened. Carl icahn is more of an emotional sort of guy when we hear from him. Annett Just Announced it is going to be spinning off its Publishing Business in a taxfree business. Ironically, that is exactly what carl icahn has been going to ask for. He said he was going to push for exactly this. He said he still wants to talk to the company. Gannett said they are happy to talk to him as they do with all of their shareholders, but they beat him to it. That stock is done well because of those plans. Talking earlier today, trying to figure out how much carl icahn has made on this trade because his stake is a combination of stock and call options. I took a few minutes to try to figure out if there is a way to price these options. Make ist i wanted to that these were overthecounter trades. This was a custom transaction that carl icahn built with some counterparty and that is really what is worth thinking about here. These options are so far in the money that whoever was on the other side of the trade just got royally screwed. He did very well without having to do very much of anything about putting pressure on the board. This was maybe some easier money in the spectrum for carl icahn. Youre going to stick with us because we are going to talk more about these 13 fs. It is so tempting to buy and the sell stocks by like the step fund Hedge Fund Managers. Your to walk us through his don steinberger. Don, why dont we start with the glass halffull . Howexplain explain to us an investor could use 13 fs to build a sound strategy that follows was some of the Hedge Fund Stars do. Justrst of all, it is not small investors focusing on 13 fs. It is also hedge funds. One of the hardest things is figuring out where theyre going to focus their time. Look at what their competitors are doing. Over the past 24 hours, 85 of hedge funds have issued a 13 f. They are all very busy analyzing what their competitors are doing. For small investors, there are a couple of strategies. One is holding the most commonly held stocks. There have been studies that show that the most commonly held stocks by how hedge funds outperform the s p 500, this is small and true of stocks. Another thing investors do is invest in best ideas. Hedge funds do not equally weights securities in the portfolio. They overweight the ideas that they have the highest conviction on and they think will generate the highest risk of returns. Some people will identify five or 10 hedge funds by their Top Five Holdings across all of those and rebalance each quarter. The final thing a call this the walmart approach to investing they identify hedge funds they really like and they just replicate with the 13 f has, same weighting, same stocks, and rebalance on a quarterly basis. Just because they have worked historically doesnt mean they will work going forward. Some managers have strategies that are based on these. What you have to think about is that the data is stale. The stock could have doubled in price over the past 45 days. Or the news has come out that the product they get most revenue from hertz children. You have to make sure you do not blindly invest in these companies. You have to make sure that you know what you are investing in. These also do not include shorts. When they put their portfolios together, they are putting together securities to offset one another and generate the highest risk and adjusted return. They dont include stocks trading outside the u. S. London,ck is traded in hong kong, tokyo, it is not going to be part of it. The Global Equity portfolio you will be missing a lot of the story if you just focus on 13 fs. Little bit to get a of an idea im a little bit of a cynic 10 hedge funds profit off of when they release their 13 fs . Of course they can. You can look at it two different ways. Can be really upset that they are giving away their intellectual capital or if theyre heavily followed, the stock can take a big pop right after it is released. It definitely it is a strategy that some are implementing. I guess one of the points that you made earlier had me thinking. The 13 fs to use follow what other hedge funds ,re doing in trading strategies doesnt that create a serious possibility for overcrowded trades . No doubt. There are hedge fund names that are commonly held across managers. One of the things investors are doing is focusing on what the top named hedge funds hold. If the Hedge Fund Manager holds too many of the commonly held ares, a lot of investors getting out of those hedge funds. You dont want to allocate to exposure th luger loser exposure. When you are taking a look , whatwhat is excluded about if they are still building a position . Talk about how they can stay dark on that. What they do is they fill out a form with the fdic and they say we are building up this position, we would like permission to excluded until we reach a full position. You will not see every single security and someones portfolio until the security is fully built out. That is the thing about activists. They start small and plan to invest more in it and they do not want to let everyone know. Based on your experience and the data you have studied, does it make more sense to follow an individual manager, to study how time, orperforms over does it make more time to go with a strategy built on aggregate data, the net purchased by hedge funds, or net sales by hedge funds . Or basket of stocks . I think the more knowledge you have, the better. There are programs out there that aggregate this information and you can do scenario analysis. You can see where your performances over time by investing in longs of various hedge funds, punching them together. I would do as much analysis as you can. Everybody has their opinion on what strategy works better. The strategy i prefer to focus on is the best ideas. I think hedge funds overweight the ideas that they are most confident in. I would focus on their biggest weightings. Thank you so much. Great to see you this morning. Have a great weekend. My pleasure. Cheers. Coming up, coax monster deal, betting big on the future of monster deal, betting big on the future. You will hear from the ceo of pemex coming up. Itsocacola is pumping up business with a 17 stake in monster beverage. The deal tightens the bond between the two companies. They will share marketing, production, and distribution. Bill chappell joins us now. Bill, you have a bye on both these stocks. Who do you think this is better for . It is better for monster. From the size and scale and what it does in the nearterm. It really transforms the market. It transforms their profitability overseas. It validates their market in the u. S. By having coke make this investment and invest behind the Energy Drink Category for the longterm. I think they are the big winner. Coke will see a lot of benefits over the next few years. Problems of lot of its own. People are drinking less soft drinks. It seems that what kind of desperation can learn about this from coke . Maybe you can look at it the other way. If coke was fully desperate, if they really need something, they probably would have bought the whole thing. Billion acquisition price, they can do that. It shows that they want a put option, they see the Energy Market is here to stay in the u. S. For a long period of time. ,aving a Strong Partnership they are also getting rid of thatof the Energy Brands have not been growing overseas and market helps them focus on their brands that need extra help. Is it fair to describe this as a capitulation of sorts . They could not figure the Energy Drinks business out. Could say know if you capitulation because it was really never a nonstarter. Fulls like nos and throttle were good brands in certain markets. They were never that big. Even those brands in the u. S. Were less than 10 total share. They have always partnered with monster. It was a realization that monster was not going away. It was just not a good use of their time and resources to bet on a bunch of small horses when they could bet on this big course. But surely cocacola with all of its marketing and advertising muscle could have made something of those lesser brands if it wanted to or not. I clearly dont understand energy junks well enough to know what the magic Energy Drinks well enough to know what the magic of monster is. Unfortunately, im not in the target demographic either. [laughter] i think the issue is that it is millenials. 20 years ago, 30 years ago, after you played basketball, you are grabbing a coke. Today, youre grabbing a monster. Dollars how many no matter how many dollars, you cannot make a brand overnight. That is a monster has done over the past decade and that is what coke is investing in. With that comes regulatory risk. Links to somehow questionable deaths . There are investigations going on. His coke taking on needless risk by diversifying . I think that is part of the reason why it is structured this way. They could have bought the whole thing. By keeping it as a Standalone Company where they are just a partner in a 15 20 owner, it lets them keep that up they at bay. The big part of this transaction is coke taking total distribution rights in the u. S. Right now, they distribute 50 of monsters business in the u. S. Coke does not see it as a longterm issue. What does that do to cokes bottom line . , they the core business have not quantified it. It will help it some. It would help it more if they bought the whole thing. The real interesting part is that coke eventually is going to spin out or do something with the bottling business. They bought that for five years ago in the u. S. To fix it. They will spin that out in the next few years. Gives the bottling business 100 rights to monster. ,t enhances the spin out value which enhances the total coke worth. Bachus done the road a little bit. A monsterlso building internationally walk us down the road a little bit. They are also building a monster internationally. Out monster internationally. I think it is a put option. Internationally, if you look at monster, they have in the u. S. Probably a 35 market share. Internationally, it ranges from 0 to maybe a size 20 . By partnering with coke, by being the only energy drink in their bag, it is going to supercharge bad. By coke using the distribution, the manufacturing, the scale, this could be a lot more profitable, a lot faster. Re are some companies countries, monster has no presence in china. It barely has a presence in india. That is going to change shortly. Arehe ponds are puns aplenty. Supercharged. The price of Airline Tickets are heading in the same direction as the aircraft. Straight up. Time for on the markets. Carson block has come out railing against the stock, accusing it of massive fraud. The ceo is resigning. Citing Family Reasons. We are still waiting for annual reports. Part of the reason why carson block is saying there is something seriously wrong with the company. Bethe Family Reason could his wife saying, get out of the company. [laughter] lets talk about applied materials. This is the Worlds Largest manufacturer of semiconductor equipment. Companies like intel use it to make chips. Sales may top analyst estimates. It is a range of approximately point 2 billion 2. 2 billion. It is in the process of buying one of its largest rivals, tokyo electron. Once that happens, applied will have 30 of the market share. They are firing on all cylinders, you could say with that. Trying to turn boxing into a real knockout. You will love this. 1 live from bloomberg headquarters in new york, this is market makers. With Erik Schatzker and stephanie ruhle. It is friday in new york city. Im alix steel in for stephanie ruhle. Mexicos state owned Energy Company pemex is preparing for the end of its monopoly on the countrys energy sector. Bloombergs Olivia Sterns spoke to the 38yearold charged with guiding the company transition. Here is what he had to say. We have many types of players approaching us to partner with deep waters, shallow waters, shale plates. Come on, name a few. There are dozens and hundreds of companies we have met over the last year and we look forward to landing some Business Opportunities that are profitable for mexico, for our partners, and for the company and the next year. Is already public you have been in talks with chevron. How are those talks going . Have mous with all the Major International oil companies. Areously, the majors interested mostly to invest in the deep waters of the gulf of mexico. X, we have had exploratory success. Withve been very efficient our exploratory wells. But we do not necessarily have the expertise to develop those projects and bring them into production in a relatively quick period of time. Done up onnies have the northern side of the gulf of mexico, the american side, and these are players suitable for us to work with on this. Joins us now. Ns it is interesting when i think about the possibility of mexican oil. Where do they wind up selling it . It used to be the u. S. We are pumping so much of our own oil now. It is still going to sell to the u. S. They are a net exporter. Here is what he had to say. He is not too concerned. We have unique infrastructure that allows us to export our own crude from the gulf of mexico to the pacific like no other country in the americas. We are utilizing and increasing infrastructure more and more to export to china. We are not concerned about that. We believe that the synergies coming from the north American Energy revolution are great for great for the united states, and great for canada. The oil mexico is producing is a much heavier crude. We need a mix. We are not in direct competition. He says he is pulling oil out of the ground for 20 a barrel. That is very cheap. 20 per barrel . He makes 80 per barrel . Decline rate for existing wells is so extreme. We are down to 1990 levels. Despite the fact that they have been pouring more into investment and exploration every year. They have a significant deficit of infrastructure, pipelines, and defining capacity refining capacity. He said those are big Business Opportunities for foreign companies, oil services to come in there. He is talking about exporting, going big, going global, going asia. That requires a lot of money. Billion to start really ramping up production, considering that they report revenues as about 100 20 billion. How are they going to do that . 120 billion. How are they going to do that . They are hoping to get some outside money. The need for an money, foreign expertise. It is going to be an enormous challenge. He is only 38 years old. He is a close friend of the president. He has no experience in the oil industry. He has been tapped with this task of turning around an ocean liner, trying to transform this bloated statement operably and all of its tension liabilities, 180,000 people and staff, and turning it into a profitable company. He is very excited about it. It is going to be a very fascinating decade. , theythey get it right have to award about 100 contracts, they have to ensure it is transparent and fair, if they get it right, it really will be a huge tailwind for the. Exican economy i was very fascinated. Phone ins now from the houston is Oil Consultant christopher robards. Good to have you on the perspective. You just are the ceo say that they plan to partners exxon and chevron and shell and bp. Do you believe that is in the cards . Good morning. Thanks for having me. Absolutely. I think it is in the cards. Ceo and thosemex in leadership are all saying the right things to encourage foreigners to look at this as an investment opportunity. What about oil services i wonder . They are so deep in the country already. 35 of the market share is an oil services. Is this a banner just bigger opportunity for that sector . It is one that is very fragmented. There are opportunities for large integrated service already are well established in mexico and have good market share across various lines in the oilfield market. A ton of opportunities for smaller and mediumsized companies. There are mediumsized u. S. Companies on a mediumsized Canadian Companies currently operating in the mexican market right now. There are lots of opportunities for ellie what does everyone to get into this market right now. For everyone to get into this market right now. The oil coming from the shale boom is lighter crude and the stuff coming out of mexico deepwater drilling is going to be heavier oil. There is also heavier oil coming from canada. If it is not humming by pipeline, it is coming by whatever the case may be. Is it possible that certain refineries the deal with heavier grades are going to be oversupplied . I would have to look at the numbers. But there are a lot of refineries on the gulf coast that are geared toward the heavier crude, whether from mexico or venezuela. The light oil that has been coming out of the shale places has been causing havoc within the refining market. Differentials have been created between the light oil some heavy oils. Oils. Ht oils and heavy i think there is room for oil to come into the market. I dont know exact way what is too much. A lot of refineries have spent time diversifying back into heavy oil. They have said, please bring it. I spoke to analysts and they said if the pipeline does go ahead, if the Keystone Pipeline is built, that is bad news for mexico. You a question about the potential competitiveness of pemex. On the one hand, emilio has to run this business as a competitive entity and on the other hand he has to prop up Mexican Government which has a third of its budget from the company. Tohe really going to be able make this formal monopoly nimble and Cost Effective and competitive . It will not be an easy journey. It is going to be challenging and there will be political obstacles and economic obstacles and cultural obstacles within pemex. Has looked very closely at some of the other south american countries that have embarked on similar types of reform efforts. Brazil is a great example. They created a more competitive environment. They have really performed amazingly over the last 1020 years. There certainly is a lot of opportunity for pemex to do the same thing. Wrapping it up here. The impact on u. S. Oil companies. Were do you think the biggest opportunity is going to be . Where is the real money going to come in . There was a lot of money going to be invested on the deepwater side. But the projects move very slowly. That will be 510 years off. Onshore, there are lots of opportunities, whether it is the shale in some of the unconventional plays, as well as some of the more conventional fields further south. There are a ton of opportunities to spend. It will all take some time. So forill be a year or the profits to go through. There will be a few years of exploration. They want to make geological sense of what they are looking at and what they purchase. Then ramping up to commercial production will take a few years. It is going to be a long road. I think there will be a lot of opportunities. For 50oil gets invested years or so. They are longerterm. Thank you so much for joining us. Olivia sterns, thank you so much as well. Coming up on market makers, give the people what they want. That is not a split decision. This is market makers. , there arent enough knockouts in boxing. That explains why the sport is not popular anymore. Big knockout boxing plans to change that. No ropes, no corners, no judges. Nowhere to hide. More knockouts. Big knockout boxing debuts tomorrow on payperview. Welcome to bloomberg television. The way i interpret what i just said is that the problem with boxing is that there isnt enough brain damage. Is that what we are talking about . Not enough danger . No. First of all, big knockout boxing is not a replacement for traditional boxing. It is a new take on an old sport. Biggest difference is that there are no ropes, no corners. It is fought in a pit. A 17 foot circle. It rewards fighters for being aggressive and defensive and coming forward. Offensive and coming forward. It creates a lot more action. In practice, how was it going to be different . Darnell, maybe you want to explain what goes on in the ring that is different than what goes on in a conventional boxing ring. The difference between being you donting have no ropes, you cant lean on the ropes. The movement you are trying to do is very limited. It is more action than trying to take your sweet time and try to show boat, have fun. This is all serious. There is no games with the sport. One thing i had an opportunity to do was spar. It is a lot more fun to look on the outside than being in there. You cant really sit there. You cant say i want to take a break or hold on, timeout. Youve got to fight. Intenseds are more because it is less than what i used to do. It is two minutes. But without a rope. You can get boxed in and it is about like to the death at the end of the day. You, bruce. Or why . Why diversifying into this type of boxing . What does that say about regular boxing . I think conventional boxing is really healthy right now. This is just a new take. Thatesearch is all shown the customers want more combat sports. This is an attempt to create a new product. Are you trying to get new customers . Or are you trying to steal boxing viewers . I think that the rising tide will lift all boats. Kb in theroom for b landscape. People said that mma was going to kill off boxing. But there is room for both of them. Has killed off boxing, hasnt it . Near the droidre used to be when i was a kid. Ali, vendor field, mike tyson. There hasnt been a star of the mixed martial arts since ultimate fighting came on the scene. You have mayweather and Manny Pacquiao doing great numbers. You have hbo and showtime still doing great ratings. I think boxing is doing just fine. Fairpoint. What i am wondering about big knockout boxing is can you enter the National Consciousness in a way that muhammad ali did . It is a new sport. We are going to take it slow. This is our debut payperview event. We grow an audience by having customers satisfied and telling other people to go see it. With guys like this. Whenw long does it take you are introducing a new sport to really take off. It really shouldnt take much longer of all to adjust. But once you have excited fighters, that is what draws the crowd. You have excited fighters, exciting bouts. You have to make sure that what you are paying for is what youre going to get. You cant just sit there and expect to watch something. It is a type of people that main may look at boxing may look at a very differently. You still have exciting fighters that put on a good show. I was only half joking at the beginning about the brand image stuff. Brain damage stuff. Bkbs own press states more knockouts. Are you not afraid of what might happen to you when you step into the pit . I been doing boxing for so long. Ive got used to being in the ring with warriors. I dont really worry about it. Im not really having met on my conscience. Men the best man win. I just try to go in there and do what i know how to do best. This port is fought with traditional eight ounce and 10 ounce boxing gloves. It is the same impact you would get in the regular boxing ring. Is it safer than mma . I dont know about safer. Know that it is basically the same rules and same equipment as a regular boxing match. The rounds are shorter. The fights are shorter. There is probably a little bit less impact over the long haul. The action happens tomorrow in las vegas. Im sure it is going to be exciting. Gentlemen, thank you very much. Thank you. Thank you. Looks pretty intense. I think there is going to be serious blood after one of those fights. Coming up, trying to do some math. Fewer planes equals fewer seats and that means higher airfares around. It is a friday in august. It is a busy day in the skies. Passengers are trying to get to the beach. Airfares are set to rise. Scarlet fu joins us with the painful news. Say it aint so. It is happening. Best fuel prices have stayed low. Demand is rising. You prices have stayed low. Demand is rising. Fuel prices have stayed low. Demand is rising. Global airfares are set to rise in 2015. Canou break it down, you see that latin america will see the biggest increase of 3. 5 . Western europe, prices will increase about 1 . North america, 2. 5 increase. Isscount carriers southwest still discount . I dont even know anymore. We dont have enough seats. The base price bothers me less than all the additional atoms we have to pay. I have to pay for a blanket. Are you kidding me . You can think of it that way or you can think of it is unbundling the costs and only paying for what you want. If you dont want a blanket or a pillow, the airline has stripped that out. Also pay extra for a movie on delta. Even if you add some of those costs, not all of them, not the food, not the blanket, not the extra legroom, but if you do add the fuel surcharges and you add in the luggage fees that airlines are almost universally charging, flying is still cheap. It is still cheaper. On a relative basis. On an inflationadjusted basis as well. Since 1980, you have seen a steady decline. Adjustedthe inflation price of flying is down 39 since 1980. Granted, since 2005, domestic airfares and annoying fees that alix cannot stand are up 13 . So i should be happy i am flying now im not 35 years ago. When was the last time you went to the airport . You have to haul the thing from the scale to the conveyor belt. It is such a pain. Thank you so much for bringing us this bad news. [laughter] we will be back in a couple of minutes. What Berkshire Hathaway will look like once Berkshire Hathaway Warren Buffett is no longer there. Live from bloomberg headquarters in new york, this is market makers, with Erik Schatzker and stephanie ruhle. Berkshire after buffett, what the company will invest in after its founder is gone. Betting big on saudi arabia. Why, and much more. Eating bacon may give more than if that is how you vote. Good morning on friday. Happy friday. All i am going to think about as they can. That looks good. Is time for the newsfeed. The top business stories around the world. The russian convoy has not crossed the ukrainian border. Russia says the convoys have food, water, and medicines for civilians trapped by the fighting. Another sign manufacturing is helping boost the economy, Factory Production increased in july. Auto production rose by the most in five years. Cashing in on the dispute between amazon and disney. At can preorder movies walmart for 40 off. Amazon has been blocking preorders of some disney films. I know what i will be doing this weekend. One of the most eclectic stock pickers you will ever meet. Burbank, of Passport Capital, is back with us. Thank you for coming. Happen to be in new york. We are delighted. It feels like San Francisco. I dont think anyone ever sees john without the best. It has been sometime. It makes sense to take a step back and tell us how you feel about Market Conditions now. Crisis, it has been hard to predict what is going to happen. The fed and economist have protected a cyclical upturn. The fed did more than it imagined it would do in terms of quantitative easing, etc. A lot of factors are at play that were never at play before. Our strategy and philosophy is to invest in things that had never happened before. You are starting to hear more of the rhetoric. I think fisher was willing to raise rates and, in shortterm, address monetary policy, whereas yellen wants to believe there is a cyclical upturn. The data does not say it is a traditional upturn. Francisco, where, after the crisis, San Francisco had the fastest recovery in its history, which is interesting. You see the separation of the kinds of jobs. We have a twotear society. It is a result of progress. Its result is the increase of technology. Not only robotics, but of greater efficiency of information, big data. All of this is ahead of us. Differentlyuture than a lot of the country does. It looks very good. Very optimistic. It is not evenly spread the way most economic upturns used to happen. Like we believe in the secular future of many different assets and companies. We do not believe in a cyclical upturn. Long certain things we think are increasingly getting better, but not bullish on the overall economy. The overall economy, how will it grows, fix our shorts more than it does our longs. Saudi is a big change from whatever happened before. Lot of change. A very anomalous. High gdp, you think a lot of change, low gdp, you think not much change. Much of the changes degrading gdp. You get the change, but it is not a benefit where you spend cutbacks and grow the economy. The financial crisis had an effect on sentiment and behavior among corporates in the u. S. Corporate governance is at an alltime high in the united states. You think about where it was and the attitudes were in 2007 and go back to 2000 when we started, incredible progress. I am bullish on u. S. Companies and many different sectors. I am bearish about liquidity. We are in a tightening environment where we have that liquidity in the market. Strange environment. If liquidity is an issue. Liquidity is an issue, what will happen if there is a market. It could fall fast. A size and investment rate with alternatives in bonds yielding so little we do not know what will happen. There is the possibility of a more in 1987, dislocation, that does not reflect economic distress. Could the markets in 2007 where you presume of valuation the rise and the steepness of the rise in equities and seven years later, you presume a fall, i do not see the weak economy. It is not that great. China has been overspending to keep its growth. Economy wheretier the highend is doing well. The bottom percent of the labor force is not growing. It is a different environment. Is under 1 germany on the 10 year. Spain has the same 10 year rate as the u. S. Does. How do you make sense of this . We have heard that sovereign wealth funds are ongoing constant buyers for the s p. Since Mario Draghis comments, the s p has acted like a credit spread. Has traded with volatility up into the reich, along with credit. It hasst spread traded with volatility up into ,he rick rack the right along with credit. Our fun, we are using puts because of the low volatility. Say here isible to what is going to happen. We are in a situation no one predicted and we have never confronted. The fed is going to be a tightening. I think fisher is going to lead a tightening effort that yellen may not have wanted. Could that be the catalyst for a change in direction . It could be. We had the ecb. Fascinated by the point you made, when it comes, it could look more like 1987 than what we saw transpire in 2008. Back to the late 1990s in the equity market. Part of the highfrequency trading, from running of traders , we are in a different situation than we were in before. Liquidity illiquidity can work both ways. The equity that spread between growing earnings of equities and credit is pretty fat. We want to be long in the things we think we have growth of earnings, but we want to be prudent in recognizing that when there is a signal to sell, there will not be a lot of buying. Doddfrank, etc. , has removed liquidity from being a provider. Sell sidemoved the from being ay provider. We will come back to some of these themes. We will talk about some of the things you are investing in and some of the things you are not. John burbank of Passport Capital is here with us for the hour on market makers. Up, yahoo is thinking small. It is making it easier for Small Businesses to sell online. About politics for strange bedfellows. It makes for an usual conversations around the dinner table. Baconversus cal versus kale. On yourg tv plus tablet. We are streaming on your apple tv and amazon fire. It is time for bloomberg west. Hasabas film business uncovered possible accounting flaws and will not publish results on time. They are expected to go public next month. Samsung is buying into the internet. They are buying smart things, a smart a company that makes devices to control devices in your home remotely. Sales of videogame hardware and software rose 16 . Consoles led the increase. Sony says its playstation 4 is beating Microsoft Xbox one. New titles will be released for the holiday season. Yahoo is giving ecommerce platform a makeover. They announced yahoo stores. It helps Small Business owners set up shop online. Here to talk about that is the head of yahoo Small Business. Paul kedrosky also joins us. Around for well over 10 years. Why revamp it now . Especially with so much competition. Small business has been around for 15 years. We have more than a million and a half Small Business customers. We thought this was the time to give it an upgrade. What we have done is simplified it for new people who have never sold online and get them up and running in two minutes. Upload a product, get it live, customers can buy it on the mobile phone. What has changed it is a mobilefirst economy. We want to be ready for it. Have ecommerce merchants ready for it. More and more people want to sell their wares online. We are going to help them. Most importantly, we want to give our Small Businesses a tool that you would get in an offline world. Will bel businesses able to see people come into their store online, be able to interact with them, talk with them, make sales. Have realized the number one problem that Small Businesses have is not getting online. Has become that easier. It is finding customers. We give them all the tools and services you would need to grow your business. It, but build and grow it. Advertising services from yahoo and products from google, facebook, amazon, all built into one system. I may be stealing this question, but why did it take so long . When you start something 15 years back, looking back from now, you realize it was a time when internet was just darting. There was nothing the internet was just starting. This is as good a time as any. I will speak for some of the yahoo shareholders and say now may be as good a time as any, but earlier would have been better because rivals, like etsy has come on the scene. Almosts claimed to do 1. 4 billion of ecommerce last year. That is volume, in theory. Volume, in theory, that you could have had. When someone starting their entrepreneurial journey, they might have started with etsy. There comes a time when the association you have as a buyer from these marketplaces is with the marketplace, not with the Small Business themselves. You mention etsy, but you would be hardpressed to name a specific seller that you work with or that you love. Growth are you seeing . I am familiar with shopify. They are saying there up to 15,000 accounts. I have to imagine you have not seen that kind of growth in the last few years. What are you targeting . Fromu have public members them and us. We have 1. 5 million and a half paying customers today and they have their own numbers. The proof in the pudding is in the eating. Ify helps other businesses starting out, but when they are ready to graduate, we are happy to help them grow. Tens of millions of dollars in rough merchandise value on our platform. If you look at the top thousand in the u. S. , there are more yahoo stores than any other competing platform. What about the gross numbers . I would love to share some of the numbers with you, but my pr people are sitting here. Oh, darn. The numbers you see across yahoo that we publish quarterly , that should give you an indication of how well we might be doing. Where does this rank in marissas top endeavors for yahoo . Small businesses have been around for 15 years and there is a reason that we continue to get investment. We acquire two Companies Last year, one of them fairly large. What we intend to invest in this business and grow it. We talked about the growth rate of etsy and spotify. Presumably, they will not switch and come to you guys. To saystrategy is not ok, if you want to work with yahoo , you have to start a journey at yahoo . Tify,u start on etsy or spo no problem. We will still help you grow. Comey would they want to to you . They already have their business platform set up and it is working. The proof of the pudding, these are the things that affect you when you hit spikes. If you look at monday of last year, we were the most stable platform of all. Why does that matter . If most of your sales come in one quarter and a lot of them on one day, it is important for you to be in a platform that will not go down. I am not saying other people do not go down, but our metrics are better than everyone elses. That is why they might want to switch. Than not, historically against you, was not that you stayed up when others went down, but it was ugly like a soviet office building. Yahoo stores had not changed much in a long time. That was the problem, not the resilience. Absolutely. I will take all of your knocks on our past and hope that you wish us for the future. The new version is quite a bit nicer looking. That was my point. Not so much to knock it, but to say it is clear you recognize the problem. That is the issue, not so much the resilience. The issue, for us, it is important to upgrade, but the biggest change that we have made in the stores is not actually the fact that it looks prettier. We have integrated Marketing Tools and services you need to grow and that is something no one else has. If youother platform, start with yahoo stores, within a few minutes, it takes two minutes to go live. After two minutes, two more minutes and you can set up shopping. We upload your products to itgle, we will do whatever takes to make you successful. That is something that we have developed a yahoo that no one else has. To answer your question, what is it that others are playing catchup. The answer is, we are leapfrogging, by going where the product is, in our Customer Acquisition and retention. I just need to ask a question. Yesterdaycement trumpets the importance of Search Engine optimization. I get that. I think people understand why it is important. Is Search Engine optimization only on yahoo s engine or also on google and bing . On google and being. Our customers are not yahoo customers. They want to be successful across the board. Engines,hat is across u. S. , internationally. We are here to support them. We will work with whoever we need to work with. Thank you so much, our roundtable. Always, paul kedrosky, bloomberg editor. Talk about Warren Buffetts plans for Berkshire Hathaway. We are following in buffets footsteps. What Berkshire Hathaway will be like when the new ceo is in charge. You have heard the saying you are what you eat. A study shows that is true when you are talking about politics. And somehow, we are talking bacon and kale in the same sentence. I am excited. Live from bloomberg headquarters in new york, this is market makers, with Erik Schatzker and stephanie ruhle. It is friday in new york city. I am Erik Schatzker. I am alix steel. Hathaway and its latest filing with the securities and Exchange Commission revealed a new stake in Charter Communications in a bigger holder in a bigger holding in verizon. That says something about Warren Buffett, but does not tell us about what is going on behind the scenes. Here to give us some insight is larry cunningham. He is a law professor at George Washington university. Atgot to talk to insiders berkshire and john burbank is still here. Someone who has studied Warren Buffett. Larry, what is going on behind the scenes of berkshire. We define about the things about berkshire does. They have moved away from stock positions and buying minority stakes in Public Companies to buying 100 of companies. 20 years ago, 80 of the company was in common stocks. Today, it is the other way around. Operating companies are more of the business. Managers are running the inpanies and they could step and take over leadership if something were to happen to warren. They never do it in a hostile way. They have forsworn every one of their acquisitions. When we talk about succession and Berkshire Hathaway it seems more involved and intense then jpmorgan. Why is that. More complicated company. Personnel parts are the easiest. Ones job will bes late into three. A cio will be in charge of investments and the board will be in charge of maintaining Cultural Values. Those are important but they are far less than the Cultural Values baked into to the company that will help sustain it. Bethe chairman is going to buffet, isnt it . He would like it to be a member of the buffet family. Howard said, Berkshire Hathaway been my dads lifes work and it means a great deal for me to sustain it. As far as the Succession Plan is concerned, it is hard to pick a more probable succession. Affectwould that Succession Plans . He owns 34 of the voting power. I think there is a common misunderstanding that there will be a cliff from having a Controlling Shareholder to not having a Controlling Shareholder. Shares will be distributed over a period of 10 to 12 years. It will take 10 to 12 years for that transition to occur. All of the other leadership will get the range and sustain it. Give away all to of the stocks of there will not be so . Virtually all of it. Virtually all of that will be transferred to the Gates Foundation and other family foundations. What have you learned is studying Warren Buffett . Many things. Anyone invested interested in investing certainly will turn to Warren Buffett. It is about what you are investing in, who you are investing in. He is like to say if you were born in bangladesh, i would not have worked out. It was happenstance for the u. S. Of as a was not thought society. He looks quite brilliant by doing that. Of active because investing. An investor is under study for his brilliance. Warren buffett has been welldocumented. This is different. This is interesting. It has gotten more complicated and complex. Is about the management rather than the stock picking. The two most important bowers baked into all of these companies is permanence and autonomy. If it was the only asset, they are familyowned. Sold are has never subsidiary they do not own. That is a sense of permanence that you dont often see. You think the Investment Strategy would be different if Warren Buffett were 50 . Used to buy more common stocks. He would be happy to own small pieces of Large Companies and sell them. It is probably more will the successor the brilliant. He accomplishes things by not doing things. He has a personality and a brilliance and theyve got on the u. S. And the consumer part of the economy. I am impressed if i am not impressed with the tax avoidance part, but i am impressed everyone knows the value system of berkshire. Are there more challenging scenarios and Corporate America right now . I think they will address it as best as possible. It is one of the easiest transitions. It is all longterm. Ort term. He has been chosen by buffet, these people. It will have a long leash, i would say. Thank you. We will be back in two minutes. John burbank is our guest host for the hour. I promised you we would talk about saudi arabia because it is one of johns big bets. Funds, not flagship an easy place to invest. This with usme of a couple of years ago. One you feel so good about the for saudi arabia when they Just Announced it has already been priced into the market. We were invested before the market opened and it did quite wel the next couple of years think there is about 40 billion of passive index money that will come in by 2017. Attentions to not pay to saudi are vanishing. You have a number of things to Pay Attention to. They are a big market. The economy is growing almost 5 . Earnings growth is going to average 20 next couple of years, dividends over the next 12 months is 3. 5 . I would much rather own a 3. 5 growing dividend than spain. Not you areas not allowed to invest until late 2008 and no one cared. They had a double crash. They had a massive top in 2005. It crashed. The financial crisis crashed it again. Unlike feds around the world, saudi got difficult. You did not see the big move up in equities that have been that happened. Market stopped having any correlation to the s p. It allowed the kingdom to reinvest a tremendous amount of capital. To saudi, you will say where is all the wealth. It is not that easy to see. In 2009, there were hardly any large buildings. To want to understand the middle east, having invested all over the world. The marginal supplier of oil really has relevance. I want to understand more about what is going to happen. It led to the market being open and realized there were technical reasons to keep people out. It felt like a story from the 1990s. T was 20 years later this was not addicted that the market would open now. It was predicted that it would happen a next couple of years. They are indicating it will be the first half of next year. The risk is much better than riley. The currency is tied to the dollar. If we have a tightening scenario where the dollar rallies, saudi is not hurt by that. Athave been negative broadly em. We have been negative em for the last couple of years. We are positive on saudi. I think a middle east is the fastest changing place in the world. It is a low base, but it is changing. Qatarve to have gone to or abu dhabi, or saudi. The politics of kale and bacon. What you eat may say a lot on how you vote. We will be right back. Food and politics can go handinhand. If you look at mentions of kale versus baking, it looks like a voting map. What is the deal here . This is data from brand watch. Of mentionatio between bacon and kale. If you look at the ratio of how kale compares, it looks like a political map. This map is only through june. I got data for the last several months. The vast majority of states the 13for romney, 11 of top the bacon states were romney. Were obama. E states this is one of those things where you could say what happens when you mix them together. It is stereotypical. Can mix them together. That is the future of harmony and peace. They are the ones who can bridge both ways across the aisle. I would think the bacon states did not even know that kale was running. There might not be a competitor over there. It is interesting. If you can understand your consumers order voters, if campaigns want to figure out who vote likely to there is potentially political intelligence in that data. Who eats kale versus bacon at this table . Kale, 10 bacon. The bacon goes a long way. 100 bacon for me. Bowlful of kale yesterday. Kale, with baby, definitely bacon. What about the baby . We will see. Fascinating. It was good to have you on that interesting story. Thank you for nursing out with us thank you for nerding out owith us on that. 800,000 your seed investment was money you made trading shares . I only had 25,000 at that moment. I got friends and family money together. You turned 25,000 into a hedge fund that has almost 4 billion in assets. It has taken time. Thank you. Great to have you here. John burbank of Passport Capital. We will be back. Money clip is up next. We are going to have some fun on the show. One country, three ways. Germany, 10 year yield dips below 1 . We will talk about that. Gdp went negative. Declined by. 20 . Leading the talks in brussels as the eu tries to figure out what to do in ukraine. Germany three ways on the show today. We hear about how the , tryinging is happening to warm businesses up to the fact that they might lose money. Merkelfact that angela speaks russian and is quite close to vladimir putin. She has been the link for the west. A lot happening between germany and russia behind the scenes. Doi have a better way to germany three ways. Are those three types of beer . I will go with number three. That will be happy hour starting at 3 00 p. M. Buddies an email from who want to go over for oktoberfest. Anyway, a lot happening in germany. Action every day with adam johnson. On monday, we will be bugging out. Intoe crossed the divide cricket flour. Have yourselves a great weekend. 56 past the hour. We are on the markets. Scarlet fu has more. We are drive diving into derivatives. Is the chief options strategist for. Since ukraine it is a reversal of the reversal. We got above the midpoint of the selloff. 19. 48 is the level. That is the midpoint of the alltime high. We pushed above it. The nasdaq made new highs in the ndx. Positive. People taking chips off the table. Lets keep an eye on the midpoint on a weekly basis. Looking at the vix, we see a bounce. We were below 12. This is the first time we have been below . 12 august 1. July 24, the last time the spx made a high. Good perspective. We are watching jcpenney. He reported a narrower loss for the second quarter. The stock opened higher, but it is trading lower. That is another example of people taking. They had a run of 10. We have been trading between eight dollars and 10 for the last six months or so. To stock has gone from five 10 in february. I am positive, leaning on the midpoint. The option action has been mixed right now. We are seeing some selling of the january five dollar put. Buying of theome nine dollar puts for january. 87 puts 87 . This is happening before the market turned lower. You have an options trade on williams company. Crude oil has not seen a lot of action. It is starting to bounce. Wmd, the stock is trading between 54 and 60. The stock has cap been gone. It is a strong momentum play. By the january in the money call for five dollars 52. 5 call. We are on the markets again in 30 minutes. Welcome to money clip. I am adam johnson. In companies, the old joined the new. Coke grabbing monster beverage. And around the world a crisis escalates and ukraine targets Russian Military vehicles as it says those vehicles crossed into their territory. Major League Baseball names a new commissioner and he has a lot to do. The most expensive car ever sold in a public