Transcripts For BLOOMBERG Market Makers 20141113

Good morning everybody. Here are watching market on Bloomberg Television. We are not going to waste time. We have a big gap this morning. We will take you to the top level business stories of the morning. Shares of walmart are rising. For the first time in almost two years store sales rose in the United States. It was not by much, just 1. 5 . That the ceo Doug Macmillan is making big promise in his turnaround plan. It is a match made in marketing heaven. Shrek and the transformers. The toymaker is in talks to buy dreamworks animation. Socks stream work stream work dreamworks stocks soaring. It is Warren Buffetts power play again. Buyingre hathaway is proctor and gambles duracell battery business. 4. 7shire will turnover billion dollars in shares. That is high energy. The house votes on the controversy over he stone pipeline. An impact on nets months Senate Runoff election in louisiana. Billlandrieu how end cassidy want keystone approved. Her rover want to show independence through Democratic Leaders who oppose keystone. The information we have gotten as they plan to pass a tomorrow, let me just say hallelujah. Hallelujah. T again, president obama may veto at keystone bill and there may not be enough votes to override the veto. There is one unders you one unders feuded heavyweight champion. Manages 81 billion in property investments. Equity Office Properties for about 39 billion and Hilton Worldwide for about 26, the men overseeing all of that is here today. He is blackstones global head of real estate and a front runner as the ceo. Lamp committed the committed philanthropist. It is good to be here. Is a true blackstone is the only place you have ever worked. I started out in college. I met my wife in college. I got my job coming out of college. You cant do anything else i guess. You are here to talk about real estate. Yesterday we had a gentleman mortons, rain , he has a view on the commercial property market. He thinks it is heading for disaster. You are seeing crazy numbers from real estate. You are seeing it from new york. You are seeing it in texas, in california. Itself. Always repeats i think it will repeat itself a little sooner this time. You can see it coming. You smell a crash in the real estate market. Absolutely i do. The numbers are crazy. We are clearly pass that stress face we were coming out of in the crisis. There is more capital in the space, more that in equity. The supply demand fundamentals in real estate are pretty good today. Across the u. S. We are building about what we have half of what we have extort late half of what we have historically. We have 200,000 jobs per month. You is not a formula that generally look at for disaster. What gets real estate in trouble is lots of cranes. Back to 2005, two thousand seven, lenders lending 95 . What i would say is the rate of growth Going Forward will not be as good as what we have seen in the past. Goodll still have fundamentals but the cap rates will move lower. If you think about it in a stock market context, what drives stock are understanding of multiples. We dont think multiples understand multiples will expand from here but we think occupancies cash flows. Enginee one of the two supporting you, that shall be to some growth but not the same growth you have seen over the last few years. Lets put up some of those cap rate charts. There was a time when the spread was negatively affect did and cap ratestes have come down. To about any industry, it is the same case and hotel. Its the same case and retail. A coast is coming on in now what is going on in a post crisis low, are cap rates likely to take up or . I would say cap rates tick upward from where we are now as you see higher Interest Rates. The Earnings Growth from the assets will more than offset that. Here is the other factor in the equation. I know you cannot talk about it but blackstone is raising a new fund. This fund is likely to be as large. 70 billionking about dollars to invest. Planning tens are of millions of dollars tens of millions of dollars into the real estate market. Where does all that money go . Than 30state is more trillion globally on the commercial side. The context of this overall industry it is not so large. If you looked at the debt today it is 95 billion dollars. There is a lot less debt capital on the market. What i can say is we are focused on the opportunistic part of the spectrum. Assets that need to be repositioned. We just bought a big office tower in new york. The kinds of things sovereign wealth funds are typically focused on. I think when we look at our competitive dynamic today there arent any me arent very many people who do what they do in scale. Towers,i look at those copy . Itel doesnt mean every asset class has the same supply demand fundamentals. If you have a lot of folks building 800,000 dollar apartments you can take a sector and overbuild it. In the Hotel Business in new york city, even though demand has been strong, there have been a lot of hotels added so revenue has grown slowly. It is very possible that the growth in value is not perfect. You can continue to see strength. What you gain from a lower price point in new york . By the standards of the rest of the United States it is a very expensive place to live. They want to travel here and work here and as a result of there is a lot of demand and it is hard to build new supply. Longterm places like new york and london are going to continue to do well. It will continue to spread out along manhattan. Crimes come down. But it isay positive often possible in the super segment we could see some softness with overbuilding. There are few companies or firms that can do Real Estate Investing on the scale blackstone cam. If you are going to be putting tens of billions of dollars to work you cannot do it 500 million at a time. The big game to be found . Around the world i think in europe, if you look at portugal and spain and italy there is still a fair amount of dislocation there, a lot of distress. We have been active in spanish housing. We created this huge platform. We thought us home prices had fallen. We inc. The same kind of opportunity exists in spain. That could be up 40 billion 40 billion euros space. In china in particular where there are a lot of headlines these days, that could be creating opportunity because the economy is still flowing but there are good things happening on the ground. We think the government may prioritize some of their government owned enterprises. U. S. , whenn the Interest Rates grow up you can see stock prices tradeoff. They say should i hold onto my we have capital tied up for a long period of time. We are going to continue the conversation after this commercial break. He is the global head of real estate at the blackstone group. John chambers have cut back their spending. We will ask what this means for the longterm outlook. You are watching market the blackstoney group. It has been a few to a tough few years. The Company Forecasts profit and revenue that came up short of analyst estimates. The company is trying to have it the ship to softwarebased networking from hardware. With us this mornings John Chambers, the chairman and ceo of cisco system. Let me ask you this question great to be with you. Why is it growth is so persistently tough to find . Let me just make you a couple of comments for your regarding comments. Us. As a record quarter for if you watch what we done as a company we over achieved our on Revenue Growth and gross margins. We put to bed completely the are breaking we away from our small and large competitors. We forecast a quarter of 7 growth, which are often forecasting negative growth. If you watch the u. S. As an example, our business grew by 12 . We are on fire in the areas of security, 25 . We took back our positive growth. And we did it with great gross margins. If you watch where we are growing at 17 , whether it is security or setting the pace, we are doing very well in a digital world. Where do you find growth, digitization of countries . We are on the lead on that. The points on the quarter shows the market confidence, even when we did not we did not give guidance. We do it at a quarter at a time. To new expectations at a higher growth level were not about what was giving on what was going on. I feel very good about growth prospects. Im a very solid i am in a very solid position for the future. If it is the digitization of countries, one would think that is important to you. It is. The march to develop markets are actually growing faster. He look at a chance the large developing markets are actually growing faster. We are going to partner with players and cities like hamburg. Netanyahu in israel. President francis as well. If i were going to bet on emerging markets i would bet on india. Presentt matter if his inof his present opinion south korea, we are act in vote. People used to come to six come to cisco. Concerns what happens if cisco goes the way of ibm. It is a very fair question. Lets point out what we did 3. 5 years ago. We made a decision to transform our company. We reorganized engineering, sales, etc. We saw the market changes coming. If you are always selling a or a surferrouter or story, youre not going to be successful. Marketgrowing in that and we became the number one player in late servers in the u. S. In just four years. Think about convergence. Think about what hp may be starting on. We are seeing the results of market share. I think the market isnt giving us credit for that. You know that over the past decade the company has spent a whole lot of money, more than 100 ilion dollars on stock buybacks and 30 billion on dividends. You are close to one hundred billion dollars of authorized stock buyback. 16 billion of cap. Those numbers sidebyside i would say the ibm story looks like the cisco story. I am not going to compare myself to first hour m a story was dramatically different than what you said. Acquisitions,ix all the way up to 700 billion over the last 24 months. Secondly if you watch what we have done during the last four we have grown our revenue by 4 billion and increased our expenses by 61 million. That is one cent per dollar Revenue Growth. No one comes within a factor of 50 of that. We moved in the growth areas that are in the future. No one would disagree cisco is in the leadership and driving position. In terms of Software Capabilities we embraced that. Away at a growth rate that is four times that then the nearest startup competitor that made a lot of noise in the marketplace. We moved into areas such as switching and routing. We are different in every way so them some of the traditional ip players. I will take the bet. John chambers is the chairman and ceo of cisco systems. The company that makes the transformers want to make a big move into hollywood. When they come back as an 6 8 switch back when we come back, who is the man who will succeed Steve Schwarzman . We will speak with him. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and Stephanie Ruhle. We are back. I am Erik Schatzker. We back with jonathan gray, blackstones global head of real estate. People think of you as the guy in the real estate space. Is there someone you look to saying you would like to have that guys skills . You mean besides lebron james . There are a lot of Great Investors around the world. Everyone looks at Warren Buffett as the person who is shown himself to have the best agler between cycles, good and bad. Everyone wants to have a track record to look at businesses over a long time spans to create value for their investors. We all strive to be like warren in that way. Have greats investors. Real estate has Great Investors that have been doing this for a long time. Modernly created the industry with the companies he is taken public. Steve ross is another pioneer in the business, creating value. These are people i look up to. What are the hallmarks of real estate genius . Atthe hallmarks are looking the world in a different way, having conviction, and doing something. Things were atn the bottom in the early 1990s with sam when things were at the bottom in the early 1990s he built a real estate empire. When people are able to see things differently and act on conviction, that is impressive. Is there something you are seeing differently . There are different sect theres. For instance, and india John Chambers was talking about it is a market everyone has hated. We waited five years to make our First Investment. We have build in less than 100 a foot. We were literally the only folks buying in the market. We have built up 30 million square feet. We are doing it in scale, that makes sense. A lot of investors focus on diversification, which is good that does not generate outside returns. You have to find something you believe then, and a managing team to execute, and go all in. Your public shareholders have had to learn to live with that stocks traded at a low multiple. It is the same story if it is carlyle, or apollo management. It is a cluster between eight times trailing earnings and 13 times. It is a different story for the two euro prices for the tea for the t. Rowe price es of the world. Toi expect alternative firms move further into Asset Management, and Asset Management firms will move more alternative. There will be some convergence. Is at the way to fix the problem in your opinion . The alternative eyes the traditional asset manager to get asset premium . David. Sagree with i think there will be convergence in valuation multiples, not in the business model. When we look at these companies, we say, today we are growing at twice the rate of the traditional asset managers. We havent a percent yield. The traditional managers are at 2 , and we are trading at half the multiple. Too. At seems odd to david in real estate, the Factory Outlet centers, 10 or 15 years ago traded at half the multiple of traditional centers. They continue to perform, the multiples converged over time. As people understand companies and see how powerful they are in raising sticky capital, the margins of these companies, investors will say these are special businesses and franchises. We should only spains longterm. You will we should own these things long term. Why has there been a disconnect . Shareholders understand blackrock more than you . Part was timing. We report at a different time. We ipo would just before the ed justal meet ipo before the financial crisis. If people see the steady dividend performance, they will get more comfortable. It is a matter of time. We have to focus on executing d business, an and delivering great returns. You started at blackstone in 1992. It has expanded into credit and real estate. And into a number of other businesses. You are about to spin off your divisor he and him for structuring business. Where might blackstone go next . I will start with the spinoff. It was like to families living in a house who have outgrown the house. Our Investment Business and at kayseri business had grown so oure the idea of having Investment Business and our restructuring business had grown so large. We wanted to separate the business. We brought in a worldclass to grownt leader the business. The market will say this is a special business hidden inside the investment firm. The Spinoff Company has a bright future. In terms of blackstone Going Forward, it is a big world. We are big in the u. S. And europe. We are expanding in asia. There is opportunity and latin america to do more. There are alternative Asset Classes Like Technology and infrastructure. We are in energy, but other natural resources. There are places to go with our firm, because we have the confidence of our investors and a rigorous investment process. This firm has been made successful because we have grown in assets and people. The basic principles have stayed the same. Pcesere do you think are going . If you deliver for investors they are calm about the compensation. Across our firm in the different , realclasses, hedge funds estate, private equity, we have delivered. At some point, steve switchman is going to retire at ceo. Schwarzman is going to retire at ceo. What happens . You, all this talent that is still very young and presumably very ambitious. I start by saying Steve Schwarzman who runs the firm and they both love their jobs and have no plans to change what they are doing. That is why i say eventually. About of the nice things blackstone, because we have other larger businesses, we are not a one trick pony, we have a lot of talent with a lot of experience. Time, i plays out over dont know. I think it will work out, because there is enough opportunity in blackstone, there is a sense of pride of being part of blackstone. The culture is very special. People have stayed for a long time. Down the road, even with a transition, there will be a lot of continuity at the firm. Is there one Real Estate Asset that you look at and want to own . Things we cant hold onto forever. I would love to own gm building in new york. I wish we had stepped up when we had opportunities. You have a whole burning in your pocket when the waldorf is sold . They will redeploy that capital. The company has been performing well. The best thing about the cell of that asset is the buyer will reinvest a lot of capital. You started at blackstone with a bachelors degree and became the global head . Could that happen again . Definitely. When you look at a firm like ours, the idea of people who care a lot, and work hard, there is an opportunity to move quickly. Remainirm like ours to successful, we have to make those opportunities for young people. This guy loves the american dream, for sure. Jonathan gray of the blackstone group. We will talk about hasbro going hollywood. Company is in talks to buy dreamworks animation. Welcome back, i am Stephanie Ruhle with Erik Schatzker. Hasbro eyes a major step into entertainment. The toy maker is in talks to buy dreamworks animation. They want more than 30 a share. We need bloomberg intelligence. People who areo thrilled about the strategy and outcome. Those are my sons. Talk to me about this more. From the dreamworks perspective, the ceo and founder deal. Do some he is a standalone studio in a consolidating media market lace. Media marketplace. The Company Stock goes up if it is a hit and goes down if the movie is a flop. He is been trying to diversify by getting into merchandise and television production. He is a long way from being disney, the most diversified media company. It is hard to call hasbro the natural acquirer. Im getting there. Business, isovie hasbro the natural inquirer because they had a right to many of the toys. It is a similar market lace marketplace. Hasbro has had a fair amount of success licensing some of their products. Even asformers is not kids movie. It is pg13. The transformer products are massive with ages kid with kids ages three to 30. Had a lot of success taking their stories to the Silver Screen and are feeling confident. So confident theyre willing to potentially buy their own studio and own the full value chain. Not just a licensing revenue they get him a big studio. But, movies are hard. Flight is hasbro need to know the moviemaking business . They are buying the entity. Im thinking to myself, if you look back over history, a lot of people would take a deal like this and say everyone comes in to hollywood. The japanese conglomerates of the 1980s or hedge funds. They recognize it is a tough business to make a consistent profit in. If your hasbro you are probably confident in your ability to do this business. Kids walking into guardians of the galaxy with full gear. They understand how to put it all together. But guardians of the galaxy does not come along every year or every quarter for every studio. Thet was a great hit for disney studios. But they also had the lone ranger. They had the heads and the mrs. Hitsd the they had the and the misses. Paul, thank you. Paul sweeney of bloomberg intelligence. We have the man with the answers. The ceo of mccormick. What is the next flavor craze . Knows. Ck often they have been spiced t they have been spicing things up years. Five alan wilson is the ceo of mccormick and company. People may not know that mccormicks famously predicted the rise of chipotle in 2003. You have an annual flavor forecast. What are the hottest flavorings of the future . Spice l pumpkin pie we called Pumpkin Spice as a trend five years ago, now it is in everything. We are seeing a move to smokey and hot and spicy. We just introduced a dry so atcha a dry srir seasoning. We are seeing chilies from indian, and a lot of people like cilantro. What is the Science Behind calling these trends . We work with people in the industry. Chefs are on the forefront. We talked to consumers, and we use our teams around the world. We are seeing what things are developing. Last year we called brazilian. Which was right on as we went into the world cup and are going into the olympics. Your company is dependent on emerging markets. Companies like india and in tanisha. How is like india and indonesia. How is Economic Growth in those countries affecting the spice market . Economic growth fuels demand for a scarce resource, then you have habitat loss. We see it as a positive trend because it is creating consumers. 20 of our business is in emerging markets. We see that as a positive. Pressure on agriculture. We are looking at new places to source constantly, and new ways of sourcing and growing. , we have a yields Global Sourcing team that works with farmers to raise their yields. We can grow twice as much product on half the land to improve the life of the farmer, they are economy, and improve our costs. The mostspices are squeezed because of challenges of production and the increase of demand . Cu farmersm 500,000 umin farmers in india. None are plantations. The largest are the kneller and madagascar are the kne are vanilla in madagascar. What about Climate Change . We dont see it having a shortterm impact, that every year we are dealing with political or weather events that changed the dynamics. How much of a challenge is the fda . How much of an issue are they for you . As a category leader, and from the founding of the company, we are founded on the basis of taste and trust. We set the standards for the industry. Positive work with the fda helping them understand how to look at our products. What to look for as things are being imported. A lot of people raise an eyebrow on the organic label. Moreal draws and even arched eyebrow because it is not fda regulated like organic. What should be done about the world natural . We are going products out of the ground. I would like to see a common definition. Leaving it open is what is creating confusion. Whatever it is, like crystal light natural iced tea . Synthetic also into flavorings. You promote the Health Benefits of herbs and spices. You also manufacture flavorings in the worst foods we eat. There is room for both indulgences and health and wellness. I start my day with oatmeal and cinnamon and natural fruit, but i may finish my day with ice cream. Everyone has to have balance. What is your favorite mccormick spice . Cinnamon. It is the happy spice. It invokes memories. People have emotion and passion for flavor. It invokes lots of emotions. Cinnamon is mine, i use it every day. He is the ceo of mccormick. Market makers will be back in two minutes. Live from bloomberg World Headquarters in new york, this is Market Makers with Erik Shatzker and Stephanie Ruhle. Turning around this hasnt happened at walmart in almost two years. Sales in the u. S. Actually rose. Something tolo has tweet about. He has promised to revamp twitter and keep investors happy. And Risky Business your poor health may be a danger to your companys physical fitness. Well will show you one firm trying to make a difference. Back. E im Stephanie Ruhle. Im Erik Schatzker. We start the hour with the bulletin the top stories in business and finance around the world. Transformers and turtles made the difference for viacom. Two blockbusters from Paramount Pictures was the reason. And the latest transformers movie. Films the biggest grossing this year. Darden is canceling its poison pill measure earlier than planned. It was meant to prevent takeovers. The entire board was swept out after a fight with starboard capital. They have been revamping their chairmanship under jeff smith who happens to be the ceo. A surprise in the labor market firsttime claims and Unemployment Benefits rose last week. Recent reports had the number at a 14 year low, still claims were under 300,000. President obama is in myanmar, where he called for a transition to civilian rule. They were ruled by a military dictatorship of four shifting to a semicivilian government two years ago. Sales slumped over after six quarters of sales slump at a walmart, they may be on a turnaround pass. U. S. Samestore sales increased. 5 . The ceo has said sales are his top priority for the Worlds Largest retailer, but they still may have a tough road ahead will stop julie hyman covers walmart and has the latest. Sales increases relatively significant. It looks like analysts are viewing this as stabilization at walmart. The increase coming sooner than anticipated as mcmillan tries to push for a turnaround. 5 increase in samestore sales,. 2 was made up by an increase in ecommerce sale. A lot of this is the online push they have been emphasizing. The performance at neighborhood markets, just their Grocery Store format, was up 5. 5 . Beenrmance there has consistently stronger than what we have seen at the supercenters overall. Walmart also brought down the upper end of the earnings forecast for the full year, so that is something to keep an eye on. What are we hearing about the Holiday Season . Walmart just introduce their big black friday push, trying to extend the holiday for several days. They say they are cautiously optimistic going into the holiday. Words used. E one thing that is helping walmart has to be the lower gasoline prices. At the margin, that is likely going to help. That is something that could be a benefit. One thing i am curious about is walmarts tax rate. They reported a tax rate of 31. 8 . When you are dealing with a battleship like walmart, that is material. Even if you back out the effect of taxes, their earnings still beat by about a penny. Thats not a whole lot. I did ask Charles Holly about that tax change and he did not give a lot of specifics as to why it was lower. They are still guiding for a tax rate of 32 tough 34 . But the company is not providing a lot of specific then it becomes a whole lot of smoke and mirrors. And we should ask an expert. He happened to have one here. Were going to take a deeper of toomeythe chairman incorporated. Walmart . Its all about revenue and gross. This is the first time in two years that they have had positive come store sales. Helping to drive the columns is a big deal. They have momentum. This is all about momentum and revenue. They were up a point, down the penny, it doesnt really matter. Had they lost momentum three years ago . Yes. What has changed the economy has gotten better for starters. The economy was struggling and all of those factors, the increase in taxes a year ago also created problems, so they have lots of different issues. That is why they were rewarded. They do get a lot of leverage gas prices. Sams club was selling gas for 2. 62 a gallon in texas. They report their revenue with and without fuel, so that helps will stop because they sell fuel. One of the things that has held walmart back has been the stalking and staffing issue. You go into a store and yes you want the lowest prices, but you want a good store experience. You on Customer Experience and you want the thing you want to buy to be on the shelf will stop walmart has said it is investing more in that. Those are the two things in terms of the strategy for the Holiday Season. One of them was the fact of Customer Service and that was going to be a significant difference. The second thing was with meeting prices. Online, they will not be undersold. Customer service and the lowest prices while at the same time making dough . Not necessarily lowest, matching prices. Best buy did that last christmas and made a huge difference in their business. Best buy will sell at the same price and walmart will sell at the same price should give you a reason to shop there. One thing was that tax rate that you mentioned. This has to do with where you earn your money. So inaries by quarter, the more Business Done outside the u. S. Will dramatically and if exit dramatically. Why shouldnt any quality retail be able to increase revenue in the face of gdp growth . You think that would be obvious the skeptics on the doubters say what is the big deal about a. 5 increase . Its about where the consumers are spending their money. On that, whenk macys reported the other day, one of the interesting comments they made was they dont sell a lot of the stuff people are spending a lot of money on right now cars, health care, electronics. If the flow of spending is going toward these other bigticket things and you dont have those things in your store, you are not taking that share of gdp, for example. Why our customers shopping and what do they want to buy . There are no great fashion trends out right now and that is inhibiting growth. You make it sound like the movie industry. There are a couple of good things you have the athletic wear concept. Athleisure. You guys be to kevin from under armour all the time, get nike and foot locker, lululemon is coming back again, all of those companies are doing well and everyone else is trying to minute minnick that. Minnick that. Why wear jeans when you can wear leggings . And its much less expensive. Designer jeans are 150 versus leggings, how much do they cost question mark of 40 or 50. Then there is the weather, which everyone has spoken about. We have had a very warm october and that killed q3 for many retailers. 40 average in the mall was off of everything in the store. How do you feel about retailers being open on thanksgiving . Eric and i have very strong these on it. I took a i cook the turkey in my house. We like to spend our time with family that day and i think what retailers are doing is spreading the hours over a longer time so they can Better Service the consumer. That is helpful, but the pie is only as big as it is and is being divided in pieces over four or five days. Do you believe a retailer like cosco will be penalized by the investor or the consumer by not being open on thanksgiving . Not at all. And why on earth does everyone else open on thanksgiving . I think its about the competition for those stores that are open. The league by itself. What is sams club doing . Sams club is going to be open. Are doing fine, to great day for our employees, take the day off. There is one mall considering fining retailers inside the mall if they were not open. Trend see that to be a customer thats horrible. There are very few retailers not involve that are not open the that that are not open today. How about good old jcpenney . Their earnings were better than expected, dramatically better than expected, so you would think their share price would have gone north. In fact because of the slight , they got revenue clobbered and are down 9 this morning. You take walmart which revenue is not so good, macys had very d, positive earnings, the but weaker on the revenue side, they did not fall as much. Macys andu take their disappointing revenue, walmart is mildly surprising on the upside and jcpenney, a bit of a disappointment, what does it spell for the Holiday Season . Where there is a believe someone will do well in q4, theyre getting rewarded. If theres a belief they wont, they are being penalized. Any time forre is believe, its christmas. We have to ask you about radioshack. Batteries have a life this morning. Its a great place to go if you need an obscure battery. If one comes out of a clock, radioshack has a. Able to buyont be on thanksgiving. And you wont be able to buy it much longer there the way they are running. Thats a tough story. But you have to come back in december. Thank you. Coming up, it seems like jeff bezos, his head is in the cloud. That might be good news for amazon investors. How do you prevent corporate sickness . Start by keeping your employees healthy. This is Market Makers. Amazons Cloud Business is exploding, and growing twice as fast as the rest of the company and generating 5 billion in annual sales will stop more importantly, it has become the rover beal college dorm of the internet with customers ranging from the cia to netflix. Place for them to roll out new services for cloud coverage. Cory johnson is in las vegas right now. Amazon has been losing some of its glow. The company cant seem to make spendingd jeff bezos spree the cloud seems to be a silver lining, why do we see it for what it is . Because its under the hood. I think what is happening with Amazon Web Services is the single most Important Development in all of technology and maybe for the last decade. What has happened in amazon is that amazon is taking over the entire World Technology and technology is being offered as a service. People are turning to amazon more than anyone else to do it. Its under the hood and amazon doesnt tell us how big the businesses. Its such a secretive is that they dont break it out in their 10k. Analysts on the street are guessing about the size. One fantastic analyst at some numbers to it saying that amazon probably has 3. 4 billion in revenue for Amazon Web Services last year, which is bigger than their five biggest competitors combined, including microsoft, google and others. Its an enormous business changing the Way Technology works. How are their customers different this year . Where is the big change . All, there was this initial run of Startup Companies saying i can start a company and notimousine service have to build up a technical infrastructure. Servers,ave to buy would have to have hundreds of you have people saw the ceo from cocacola i dont have to have an i. T. Department, i can move this to the amazon cloud and have the latest in technology and have it when i need it and not pay for it when i dont. If Amazon Web Services is hospitable and the growing at twice the pace of the rest of the company but is not fully valued because it is area inside this behemoth, why didnt jeff bezos the right thing for shareholders . When has he ever made that a priority . I think thats the point. I dont think jeff bezos things about creating a company for shareholders. I think you thinking of creating a giant company. A sense of howg disruptive it is because so many businesses are built up to support Amazon Web Services and amazon today it is at its conference will say all of our partners in the encryption business, we have a new product that has its own encryption answer your out of business and we are cutting the price or giving it away for free. They have had 44 price cuts in this business since 2008 will stop they are going lower and lower even when no one is pressuring them to do that and google is trying to catch up. They are cutting margins because they want to be big first and profitable later, if ever. Do you think you will ever turn the corner and change strategies or he simply doesnt need to . Its a philosophical question that i dont have the answer to. I read brad stones wonderful book about jeff bezos and the answer is not there. Theres no indication hes going to jack up the prices, create operating margins or Profit Margins that are not there and then take profits for himself or shareholders. He seems to want to grow a giant business better barely profitable. You can see margins of plus 1 , 1. 5 , just barely profitable so that they can grow their business and it seems to be the focus. It is a 75 billion business. I was with some people last night you know the business who would not tell me the numbers him about numbers were being flown around and the numbers were as high as 9 billion for trying to run the cut prices of they can run into the break even business. They wanted to be big first and profit i dont know when. Coast west editoratlarge, cory johnson, reporting from las vegas. He will have more on Amazon Web Services threat today, including an interview with the cloud chief and chief technology officer. Cory johnson in las vegas good idea . We will find out tomorrow. Its not just a perk Companies Find keeping their employees healthy is good for the bottom line. Welcome back. We are approaching 26 past the hour. Time for on the markets. I need to tell you the story about Procter Gamble and Warren Buffetts berkshire hathaway. Procter gamble is selling the duracell battery business to berkshire hathaway. The structure of this transaction, it could only be a Warren Buffett deal. 4. 7 billion dollars in Procter Gamble stock. Hes been a Procter Gamble investors since they bought gillette a few years ago. In return, he is getting duracell was 1. 7 billion in cash stop effectively 3 billion and buffet ends up with duracell. And finance with batteries. Right down simple, the middle. We will be back with more. Live from bloomberg World Headquarters in new york, this is Market Makers with Erik Shatzker and Stephanie Ruhle. Welcome back. Weve got a show to do. Indeed we do. Americans are in bad shape according to the institute of medicine. We live shorter lives and have Poorer Health impaired to other highly developed countries. Poor health is at risk to business and members of the northeast Business Group are trying to protect against it. Jeremy novell is the medical director of the northeast group and easier to explain why. People are out sick too many days and not getting any work done . That start with a compelling fax despite spending more on health care than any other ourly developed nation, population is sicker, lives shorter lives. That matters a lot to business. Thats because the spending is happening on the back and develop equation and not on the front and. Thats one of the opportunities. Had we moved that forward and invest in health and employees. How . The first one is taking Health Seriously as a Business Opportunity in the work lace and some for and provide the support and tools in the workplace. We lead more stressedout lives and have poor sleep habits. Big Companies Take that seriously. We are starting to see results in the leadingedge companies but we are at the beginning of the jury journey. How about small and Mediumsized Companies . Its potentially more expensive problem for them. It is as pervasive for Smaller Companies and there are things they can do as far as giving people the tools and support they need. But it doesnt have to just happened the workplace. I have a question for you this is something that has been on my mind. Tots the best way incentivize these things . This is a good question. Should you force people to pay a percentage of the service should you make employees coverage percentage of the insurance cost, and should you subsidize them or perhaps should you pay employees for being unhealthyif you are doesnt that seem massively complicated . How big of a Human Resources . Epartment the need if you find the incentive, the cost goes way down. That is a longterm plan. It is an important issue to separate Health Insurance cost from health. But to your point, there are things we can do to incentivize employees. No one overeat sore misses out on sleep because they want to be unhealthy. They are responding to other factors. The first step is giving them insight into other things they can do. Should we incentivize them to do good things or punish them for doing bad things . Positive incentives work better, but not just financial. Can we give people an aspirational vision of being healthy . Of the issues be American Companies as opposed to european companies, we are asking our employees to work more hours in a week, we have less vacation . Employees in france are taking the month of august off. Is that why they are so healthy . Is something we should look at the stop the acceleration of emails, the expectation that you are on honey 47 and you are on demand all the time. The expectation that you are on demand 24 7. You have to change the habits and one way to do that is to people a positive sense of what success looks like and after the encounter successful change, walk around the block. Eat slightly healthier food at lunch. You dont have to change your diet for a whole year. Start with small, incremental steps, and that is where we are making good strides. Your adjunct faculty you are adjunct faculty at harvard. What have they done about taking looking atach to health of a company question mark we have done a lot is far as looking at healthy eating, good self habits and Better Health all stop tricky part is how do you take that Academic Research and make it real in the businesses of america. That is where the northeast Business Group tries to focus on practical applications. The good news is academia is paying attention. Im also on the faculty at Harvard Med School for the center of primary care. One of the most important changes in health care now as we are starting to understand if you want health, you to focus on the person and not the os. Thats where these behavior changes start and you give people a sense that you are not in it alone and working with a health care team. Is there a company you can point to that is doing it right . Of them are members. Give us some names. The challenge of giving you a single name is that all of our other members get upset. It is very touchyfeely. Its hard to look at an investment bank. Theres nothing wrong with naming somebody who is doing it right when you connect knowledge there are others doing it right also. One company that is a member, ibm, is doing something i think that deserves a lot of attention, which is to better partner with the Health Care Delivery system, particularly primary care, and understand going to a primary care team, not just a doctor but a team that can embrace your needs to live a healthier life and give you the tools and support is the way to go. Has been a leader but there are other companies doing it. Want to take a walk around the block and eat a salad. Thank you so much. Coming up, the future of twitter or twitter of the future it cost alone knows the difference between the two and has to come up with answers for both. Costa low atwitter held its First Investment day as a Public Company and dick costolo revealed a number of changes he hopes will revitalize the microblogging site. My guess has spent a lot of time with the founders of the company for his book. Im looking at the analyst to attend the investors day and who have written to their clients about what they saw and heard from the likes of dick costolo and the new cfo. There response seems to be overwhelmingly that twitter says a lot of good things but now they have to do those things. Can they do those things . The stock is up and i did not expect that to happen. Why didnt you expect to expect the stock to go up . Because expectations were so low question mark twitter has had a difficult time growing its user base. Users as4 million over a to facebooks billion users. While twitter has been unbelievable with their revenue, they are on track for 450 million in revenue, give or take all stop the company has had a hard time convincing lay people to signup up for the service and actually use it. What dick costolo laid out get ifwas we dont we dont get all the users we are expecting, we have these other ways to reach people. Hang able to embed tweets in news articles where billions of people will see them, new thirdparty apps they are exploiting a are exploring. Feel like anat aboutface . The last time we heard from dick costolo was a few weeks ago and his sole focus was increasing the user base. Thus the lord two weeks, weve got other alternatives. You said in your book that management is schizophrenic will stop her that is one of the you said in your book that management is schizophrenic. This to my eyes is a bigger problem than the user growth problem. From book, i talk about day one, literally the day twitter started in march of 2006, it was a freeforall. There were fights between the cofounder and between the cofounders and one by one they have pushed each other out. Since the company went public, there has been a lot of turmoil. The cfo and chief product officer i think what dick showlo needs to do to investors he is series is take control of that issue within the company. Fax has anyone from Senior Management apologized . When the book came out they said i cant imagine you are painting this kind of picture there is only been more Senior Management departures. Every time there is a Senior Management departure, i end up selling more books because people want to know with the culture of the company is. When the book first came out, there were people that did not know it was all true. All the people in the book, the founders, the executives, none of them have denied it and a lot of them have said it is incredibly accurate and true. This is an example of a company that has had a tremendous amount of turmoil and you cant hide from that. Make a highspeed lefthand turn with me. And heard that amazon hachette have resolved their publishing dispute. Their horns or locks and amazon was making it difficult for them it hardbooks and making for people to get books in advance and slowing deliveries. Im sharing this breaking news with the audience and want to ask you if you have any views on the dispute . I was trying to find out to see whether your book was published by them, but you must sympathize with the other authors if you notice hands are tied. I have some good friends that are authors for hachette. Brad stone, who wrote the book on amazon was stuck in that situation and Stephen Colbert and people like that. It has been a difficult situation. The Publishing Industry has always wanted to slow the growth of ebooks because they want to maintain their physical print books. Amazon has served as an Incredible Service to people, to book readers by forcing the industry to do that. At the same time, amazon has done things that are not copacetic as far as pushing hachette to change pricing. To hear that they have finally come to an agreement, its exciting for all different sides, especially from the and amazon. Hette, on amazon right now and the kindle version is cheaper than the paperback and hardback. It is fascinating. When my book went on sale, it hit the bestseller list for ebooks instantly. That is because this is the tech audience and an audience of readers. The book is written like a murder mystery without the murder, of course. The ebook sales were through the roof on amazon and ibooks. It is an Incredible Company that does incredible things. I am a voracious reader and read a couple of books per week and the fact that we can sit in the living room and buy a new book without having to leave is something i dont think publishers would have ever been able to pull off. These are two industries that need each other and to hear they have come to an agreement is promising. How much less money do you make if it is going ebook rather than a traditional route . Ebooks are much less expensive to buy. That stuff goes through my publisher and thankfully i dont have to worry about that. It is true publishers make more money when i sell physical books, but the reality is it doesnt cost them anything once the book is done for them to create an ebook and sell it. They dont have to worry about trucks, paper, gas and bookstores. They have to pay barnes noble when they want my book in the front of the store and that doesnt happen when you have a digital book. It has been fascinating that no one expect it is a whole genre of people saying im not even going to make im not going to go to a publisher, going to put my book on amazon and apple and sell it directly. There are people who have turned down half 1 million book deals from publishers because i just want to ask a quick question to read to weave the narratives together. If you had to that on one company to be a tech behemoth five years now, is it twitter were amazon . I think it will be both. I think twitter is in the news every single day, responsible for some form of news related event and i think amazon is the everythings the store where you buy your books and toilet paper and everything. A lot of that news is not positive. Newsen twitter is in the who was arom target nobody and became a celebrity from twitter what you will start to see to tie these two together is when i tweet about it but, you can buy that directly from amazon within twitter and those are two things that will go together seamlessly. Playing with us on amazon. That was breaking news. Amazon resolving its dispute with Publishing Company hachette. Athave confirmed that here bloomberg. Who better to be speaking to than a bestselling author and the tech world . Indeed. As is the case every day, all good things must come to an end. Thats going to do it for Market Makers. Awesome day. It was a great day. Spices . Nt like talking tomorrow, the two of us will be in washington for the bloomberg year ahead conference. Lots of baby names. Big names. It is 56 past the hour, and that means Bloomberg Television is taking you on the markets all stopped julie hyman has more. Stocks are rising today they were rising and now we have had a little step back. We have had some corporate deals and better than estimated earnings. Loyal following on signs opec is not likely to cut output. The s p has been flirting with the negative. Writing is today is a managing director at equity armor investments. And joining us from dan is joining us from chicago. You have had over the past few days this drift higher, but incremental increases each day are pretty small. Exactly. We look atthe way it, the market has experienced an upside crashed. It wired and when higher in a shorter time than it has gone down. I think its adjusting to some of the news and information out there and trying to get a valuation level consistent with whats going on in the marketplace. I want to turn to retail because we are seeing a little more action. Res of jcpenney today posting a drop in word quarter sales, bringing to a shrieking halt the momentum jcpenney had. What do you see in terms of options . Pretty interesting. Disappointing news coming out with Earnings Announcement and now we see jcpenney pushing down for the seven dollar level. Huge activity in the puts across the board. Huge volume in the seven dollar 6. 50 put. N the possibility of a slip below seven, you might see a go back down to six dollars. The outlook was week or so you see huge plays for a possible down move where you see options being very active today. The stock is right around seven. That would be quite a setback. Lets broaden out the retail picture. Walmart, macys and we get nordstrom after the close. Youre looking broadly at retailer at retail, using the spider etf. It sounds like you are not super positive on the post holiday landscape. Talk me through that. Retailsee a mixed bag in across the board. Ultimately, mixed across the board and the etf, you see it break into new highs here. But i think its a little bit ahead of itself and expectations for the Holiday Season are probably a little frothy. Seasonally, you see it show some weakness at the end of december into january, so im looking to play into that possibility, pushing back into 90. That for about 1. 10 and that gives you some nice protection into january with the possibility of a pullback off of the size. Reward relationship. Define your risk and protect for a pullback will stop what do you think the risk is that we get good results from the Holiday Season and you see more legs on the xrt . Define your risk with the put spread so you only lose what you paid for it, which is relatively cheap. Possibility. We have retail sales tomorrow and that could influence the space moving into december as well. Seasonally, you see some weakness with the xrt. Thank you so much. Usreciate you talking through the Options Strategy of retail. Money clip is next. Welcome to money clip. Im olivia sterns. Organ stanley is paying up jim gorman says he is cutting competitive checks for top bankers. In motors, time to go golfing. Compactend picks the vw as its car of the year. Says it is ready to defend itself. Russia denies that tanks and troops are crossing the border. Blackstones had a real estat