Transcripts For BLOOMBERG Market Makers 20150312

Erik paying for romance. Eharmony says it is responsible for 600,000 marriages but you can hook up for free on t inder. Stephanie Erik Schatzker talking it up today. Welcome to Market Makers. Im stephanie ruhle. Erik im Erik Schatzker. Stephanie we are too old for the tuiinder generation. If you were younger would you do that . Erik i havent given it enough that. Stephanie eric is like let us get to the news. Most of the big wall street banks are rising today after passing the fed stress test. Goldman sachs, jp morgan, and Morgan Stanley seeing gains after submitting revised proposals they got the feds ok. All three will raise their dividends and repurchase stock. Bank of america pass conditionally and will have to resubmit its plan. It also authorized a 4 billion stock buyback. Citigroup won approval to raise its dividends and buyback 7. 8 billion in stock. Shares of Cloud Storage startup box are down 15 today. Box came up short in its first Earnings Report as a public opening. Sales beat analyst estimates but box lost more money than some analysts had forecasted. Shares of intel are down this morning. It has cut its outlook for the First Quarter revenue. Intel says the demand for business of Desktop Computers is weaker than expected. Plus there is lowerthanexpected inventory across the supply chain. Other Companies Look to pcs linked to pcs are also down including hewlettpackard and microsoft. Shoppers are keeping money in their wallets. Retail sales unexpectedly fell in february for the third month in a row. Bad weather get some of the blame. So does stagnant wages. Consumers appear to be holding onto savings from cheaper gas. Sales the client in nine of the 13 categories. Auto dealers and Building Supply stores. Were hurt. Alibaba is the newest investor in snapchat. It is investing 200 million in the mobile app at a 15 billion valuation. That would make snapchat the third most valuable start up behind uber. Snapchat users send more than 700 million messages a day. Remember, it is right creek it is Ryan Seacrests favorite medium. Boxing Floyd Mayweather versus Manny Pacquiao for the Welterweight Championship of the world. This is going to be the fight of the century. It is on may 2 at the mgm grand in vegas. At a news conference, mayweather did his best to add to the height. This is a fight that the world cannot miss. This is an unbelievable matchup. Actionpacked fight. Stephanie those who say they are five years too late for this fight may be wrong because the prize money is expected to be more than 200 million. Vegas bookies say mayweather is the favorite. I can only imagine how much the hotels and clubs will make. Erik what was the big lesson firm banks in this years stress test . Take your best swing. The fed doesnt mind if you miss. That is what we learned. To discuss his brian. It is a long list, gentlemen. You agree that is the Biggest Surprise that these three banks all submitted to the fed a request to return capital and raise dividends and buyback stocks but were told that is too aggressive and they need to dial it back . They got as much as they could in theory. Exactly. That is what you want to see. I would not get too bent out of shape about the mulligan or taking as a stigma because what investors want to see is the banks within reason are asking for as much capital return as they can get in the process is designed for that. Stephanie it is not a stigma. Is just like any other negotiation. You has for too much and look for the middle. The difference is the qualitative files. Go spend 100 million on a new tech system is pretty painful. The mulligan is i asked for 4 billion in reductions and i only get 3 billion. It is a negotiation. I was on a call that senior fed officials held with reporters and ask explicitly does the fred does the fed view this mulligan like a resubmission with any prejudice. There were told no him on the contrary, there is nothing wrong with it. Makes me wonder how they figure this out two years in a row and why other bank ceos have not been more aggressive with their capital requests. If i were a shareholder, that is why would be wanting them to do. Everybody should be resubmitting. Yes, but i think there is a caveat to that which is if you ask for aggressively too much, then you could be viewed as someone reckless. Theres a fine line. That want people shooting for the moon. They want this as a genuine difference of opinion what you write it to 5. 1 and they ride it to and they rounded to 4. 9. Erik would you expect to see more banks resubmitting next year on the basis of what we have learned these past two years . The obvious lesson would be to do that within reason. Stephanie what is your take away . What is your number one feeling about all this . One of the most of what in takeaways is when all is said and done especially for the banks that are not the very biggest or systemically important, the capital return that they are being allowed to give back is kind of creeping forward. We are getting to the point where they sold me take the place at the table as among the very largest producers of dividends for investors. I would echo that. The average payout ratio for the banks would cover 72 . The consensus comes in with 65 and the 25 or average is 75 . A little bit better than what the consensus was looking for and within spitting distance of what we thought was normal 10 or 15 years ago. Erik expect everyone with a payout ratio is. Total dividends plus buyback divided by earnings. You are going your bank modestly each year and you are able to pay out and keep the capital issue. Erik car companys are given the green light. Wall street banks are still being penalized. Why . The standard for the big banks is higher in terms of the amount of capital they have to hold and the process they have to produce to show they are doing the stress tests right. Erik why are they being checked twice . To have to hold my capital. We get that. Whether it is on the leverage ratio or the capital ratio. Banks have to have more capital than the small banks. Should and that the enough if you have lots of capital . Watch of ub was why should you be restricted . We are closest to the crisis when the banks that needed bailouts or came very close to needing bailouts which are very political. Stephanie let us talk about the losers. What is it mean for them . This was expected and it is not the first time. For deutsche it was expected that they would have to go through a couple of cycles before the u. S. Business is viewed and having place. Erik you know the firm well because you compete so directly with the likes of citigroup and j. P. Morgan and etc. In some of these core Investment Banking and Capital Markets businesses. What is a failure like that say about Deutsche Bank . Says they have to pay a lot more attention to controls and systems that the fed wants to see in place for their u. S. Businesses. Erik does that mean they are poorly run . Here is what i will say. I will say the nonus banks have had a tendency to view the u. S. Regulators as secondary or tertiary. They have played historically more by the rules of their home market. What the fed is saying again and again is that if you want to play in our Capital Markets in the United States, then you must play by our rules. Stephanie except if you are one of these banks like Deutsche Bank, you make a lot of money in the United States so should you not Pay Attention to the regulators . I think more and more we will see that. Erik if we look past the big banks and their competitors like Deutsche Bank into some of the companies you cover more closely , what are the biggest lessons to take away . You are back to normal on payout ratios. Your dividends are lower and your buybacks are bigger so there is a little bit of a mix defense. If i look at company is like capital one, they are at normal levels. Those that have one foot and one half and the other foot and the other half is a wells fargo. Are the a big bank are they a big bank . Or are they just a big version of pmc . You kind of see it in the results. They have a payout ratio of about 70 , so they are not as high as some of the other peers i mentioned. If you look at the one wrinkle it is that the c car you have slr ratios and a million fed pronouncements and none of that matters because it is really c car that is your limiting factor. Erik why does the fed seem to like the ideas of buybacks with a dividends buybacks more than dividends . Buybacks are seen as more of an ongoing commitment. A bank sends a signal by stopping there dividend it is viewed as a much more important signal. Erik with a relax the rules next year will they relax the rules next year . Several of the banks, not the big megabanks, but the regional have crept above the 30 payout ratio space based on the actions yesterday. Erik thank you so much. Great to have you here. Stephanie when we return intels ripple effects. Because its outlook and any company in the pc supply chain is stealing is feeling the pain. Erik taking aim at childrens place. Someone is asking for big changes at the kids apparel retailer. Erik how about we bring you up to speed on the top stories of the morning . Economic data coming in worse than expected as bad weather is getting the blame. That is what happened with retail sales which fell for the Third Straight month in february. Lower gains in wages and auto dealers and supply stores were hit the hardest. Fullyear profit was higher than expected at bmw. They said earnings rose 14 in 2014 on record sales. Among the big sellers as the two series compact van and the ubiquitous x five suv x5 suv. They will introduce new or revamped models this year. In ferguson, missouri, two Police Officers were shot and wounded. The wounds are described as serious. This took place during protests right after fergusons police chief resigned. No one is in custody at but it appears the officers were targeted. This evening, the only shots we were aware of where the shots taken from across the street. As the officers were standing there, they were shot because it were Police Officers. Erik riots broke out last summer after a Police Officer shot an unarmed black teenager. s police chief is the latest leave after a Justice Department report concluded that city leaders fostered racism. Stephanie . Lisicki to the tech world intel shares are falling. The Worlds Largest chipmaker says demand from corporate customers is weakening and it is being hit hard by European Economic woes. The pc business has been steadily declining since 2011. This is one more sign of this decline continuing. Bloomberg west editor at large cory johnson is in san francisco. You are not surprised by this announcement from are you announcement, are you . I was a little surprised. They were predicting a strong year for pc sales. Last her, there was an interesting bump in sales greatly to the benefit of intel and hewlettpackard where we saw microsoft xp went off service. A lot of companies ran out and bought more pcs. To happen in the middle of the year and even late into the year and led to a boost in sales for those companies. Intel felt that would continue. We still see a rise in personal sales but not corporations. This morning, they are telling us they are were wrong. That is the reason for the downgrade. Erik can we conclude or infer from this intel news that the pc refresh cycle is over . It sure looks like that. They are apparently sticking to their belief that personal computers and sales of consumers will pick up at the end of this year. That onetime bump we saw with the xp expiration did not expand to mediumsized businesses and it looks like it is over. That is something of a shock certainly to intel. Erik if that is the case, i am looking at what is happening in the s p 500 semiconductor index. The next worst performer today is the maker of the graphics cards for pcs. As far as i know, mostly pcs. That should be getting hit harder, shouldnt it . Intel says their server business was still strong. It take a lot of criticism for missing the boom in mobile. They have the benefit of people using information on the cloud with every phone and tablet and every pc going to cloud. They are hitting servers driven by intel. Pc business will help a lot of companies hurt a lot of companies. Businesses are really leapfrogging the upgrade cycle across phones and tablets and pcs. They are still buying new pcs but at a much slower pace with much longer refreshes in between. Stephanie if you are intel what can you possibly due to defend yourself against that . What they are really looking out for intel is looking very far down the road and trying to think about the markets to be in. If you are in santa clara or portland or arizona, one of the intel factories plants, the conversation is about putting chips and everything in different kinds of chips. Is a much lower margin chips. They already have over a billion dollars in annual revenues from the internet of his business of things business. Digital create massive amounts of data consumed by intel chips on servers. The pc is a waypoint in between. Erik i am beginning to wonder whether the market is doubting intels explanation for this. Obviously, and so will not sell as much as it initially hope for, but whether the market is doubting this idea that the refresh cycle is over. Pcs are going to be crushed, then you a package of beginning crushed also but it is not. It just makes me wonder. What have seen this before with a company saying there is a big trend taking place in the next with our performance but over time it turns out theirs is very a symptomatically. Intel was alone among the companies adjusting a stronger beginning of the year in pc sales. Maybe they are catching up to the pack. That is also a black eye to the new member of Management Team there. This is the first time this is happened in their tenure. Erik thank you. Stephanie good job today. Nice analysis. You did good today. Thanks. Stephanie everyones in a while i like that guy, cory johnson. Erik coming up, boiling down matters of the heart to an algorithm. You will hear from the founder of eharmony. Erik here is what is coming up on Market Makers. Childrens place shares are up after an investor demands changes. Stephanie the online marketplace for love, eharmony. We believe in the power of hi, im matt mccoy. How long have you had your Car Insurance . I ask because i had mine for over 20 years, before i switched and saved hundreds with the aarp Auto Insurance program from the hartford. I had done a lot of comparison shopping. The rate was like half of what i was paying. 404 is the average amount folks save when they switch to the aarp Auto Insurance program from the hartford. You know, it makes me wonder why everyone 50 and over hasnt switched. [ female announcer ] how much could you save . If youre age 50 or over call now to request your free quote. Customers also appreciate lifetime renewability. Its the hartfords promise not to drop you, even if youre in an accident. [ female announcer ] save 404 on average and get lifetime renewability. Youve got to consider it. Youve got to consider it. Live from bloomberg headquarters in new york this is Market Makers with Erik Schatzker and stephanie ruhle. Erik good morning once again. I am Erik Schatzker. Stephanie im stephanie ruhle. Erik let us turn our attention to the bulletin for the top business stories of the morning. Shares of shake shack are falling after its first Earnings Report as a Public Company the burger chain sales failed to live up to expectations. For the revenues be estimates but the predicted sales would only grow in the low single digits. Shares have more than doubled since the companys ipo in january. Lumber liquidators is struggling in the wake of the devastating 60 minutes or or. Sales falling short of estimates. 60 minutes reported Lumber Liquidators laminate flooring had high rates of from aldehyde. The company says it stands behind its product and falls within also to regulations. Higher claims in the previous two weeks were probably caused by employers temporarily dismissing workers because of severe winter weather. Car sharing service lyft has new and emission has new ammunition against uber. A committee has invested 300,000 in a new rounds of funding that gives a value of more than two and a half billion dollars. United technologies plan to either sell or spin off the aircraft helicopter unit. They make the black hawk military helicopters and helicopters that carried the president. The unit has 7. 5 billion in sales last year but United Technologies ceo Gregory Hayes says it just doesnt fit with the rest of the companys product portfolio. United technologies includes jet engines and elevators. Global art sales set a record last year. They totaled 54 billion collectors. Drove up prices for modern porsche for a contemporary artist. 1. 1 million apiece for many sales. Stephanie person a Little Something you know we love to talk about in the business media, the latest activist target. To hedge funds wrote to the board last night demanding changes for childrens place. They wrotew the believe the board lacks oversight required to address the deteriorating operating and financial performance. They also believe the childrens place market leading position would be of interest to potential strategic and financial buyers. The committee reported Fourth Quarter earnings which included a 3. 7 gain in samestore sales and shares are up more than 5 this morning. Let us bring in one of the authors of that long letter. Jonathan desk and is a ceo on the calendar management. What is the story . You touched on the key issues but this is a very good company. And has a great brand and alien market share position. It has just been mismanaged. If you look at the ebita, it has been deteriorating. The cost of them 156 million. Margins have been down every year since she has been ceo. For hundred 80 basis points in total including 200 this year. It is not like it is slowing down, it is accelerating to the downside. Inventory returns have gone from five times to three times which is about 100 million or 120 million in cash traded on the Balance Sheet that is tied up in inventory. If they can back up to five times or eight times, American Eagle said they were 10 times inventory turned last week there would be a lot of cash. It is a company that has a great brand and we really think it has been mismanaged. With think there is a tremendous amount of low hanging fruit. Stephanie things are messy one she joined. When she joined. Her predecessor left on unusual circumstances. What is aborted to note is she did inherit a very stable business. The number for market share player. You think about abercrombie or something im a but they own fractions of market shepherd. This is one of the dominant players in childrens apparel. She inherited a Healthy Company despite what happened with the ceo that came before her. They started off with a tremendous amount of cash flow and it was a stable business. They should have thrown from there. Unfortunately, we havent executed. Erik the facts do speak for themselves. Given the companys track record, what is the board continue to reward her so well . Stephanie that is a big paycheck she is getting. I dont know. I really dont. It is one of the things that makes this so compelling to us. She has underperformed at an operating basis rather dramatically. Compensation has been egregious. She made 35 million in the last three years. Stephanie that is a lot of content gemmas cotton pajamas. In 2013, they made changes and she still made 6 million. She made just about with the carter ceo did with evenebitda down. That is an egregious amount of money for not performing. Stephanie how do you compare them to gymboree . It is not public so it is tougher to get information. Jim paris has stubbed its toes gymboree has stubbed its toes. It actually had positive last quarter. One of their biggest problems is the ceo left shorter after bain did the acquisition. It is hard to get perfect insight into what has been happening because it is a private company, but gymboree has been growing. The have significantly outperformed. Erik is the real problem at childrens place with the management and ceo or is it with the board . I ask this because i think i know the answer. You suggest the best route here maybe the sale of the committee which adjusts this board cannot fix this which suggests this board cannot fix this. It is hard to tell what goes on behind closed doors of a board meeting. If you look at their failure to execute and deliver and manage working cap, it speaks to a lack of oversight. That looks like there are metrics that maybe they are tracking that they should be tracking and maybe metrics they should be tracking that they are not. If you look at the turnover amongst the executives, it is significant. We highlight the turnover in our letter. Erik there is always a question we should ask that i suspect viewers would want to ask. Stephanie why dont you ask it . Erik how do you know better . You are on the outside and are not running the company. There are lots of activists we met that have a lot of confidence. Where you so confident you know better why are you so confident you know better . I dont like to think i know better. The numbers speak for themselves. Myself and my team have done this for a long time. I am a Consumer Retail specialists. I have had in term operating roles. But i think this is a standard activist playbook. Our letter is long, but it is detailed. There is a lot of low hanging fruit here. People can understand these opportunities and understand how the company can improve itself. Stephanie we should buy them. There is a number of companies that would be a logical fit. Scale matters so much in our business right now. If you look at what happened with the International Players that come to the u. S. Whether it is h m or forever 21, it is a global scale that is giving these guys the leverage to fix costs and deliver such incredible price points. Scale really matters. There will be a lot of other retailers that do what childrens place does that could get better scale and do better. You are a coupon shopper. Stephanie totally. The committee has a shared platform model where they have a number of programs that use the same backend. They own justice and childrens place would be the next. Stephanie it is like a tween store. There are plenty of players who like to get into this space. For financial buyers, this makes a lot of sense. If you look at what other deals took place in my experience, they will not take a hard to fix merchandising problem with too many net tops and not enough wovens, but working capital is with a understand. The volatility is very low. It should be attractive to a private equity fund. Stephanie jon bascom things you wont know what the tops you wont know woven tops. Thank you so much. Erik we will be back and talking about Burlington Coat factory. Stephanie maybe a little century 21. Stephanie welcome back to Market Makers. It is time to bring you uptodate on the top stories of the morning. Americans statement out last month. Retail sales fell last month. At that is the third drop in a row. Record cold temperatures in the northeast and midwest did not help, neither did sluggish wage hikes. Yahoo and abc are expanding their programming relationship to include a daily Good Morning America segment featuring yahoo personalities. There will be whiter dissolution of abc clips and programming from yahoos global news anchor katie couric. Hillary clintons plans to use personal email drew concerns. President bill clinton worried adding her account would make it a target for hacking. They did not know she would use it for official messages. Erik we are more than an hour into the trading day. We will go to scarlet fu who has a look at some of the early action on wall street. Early action is recovery from a twoday fall off. Banks are notable contributors here after they passed the stress test and got the ok to buy back shares and boost their dividends. Rather off day for the u. S. Dollar. It now off by 6 10 of 1 , the biggest drop in a month. Some speculate the federal hold off now on a june Interest Rate increase. Let us get to shake shack falling as much as 10 , the biggest slide since its lifting. The company warned it is not sustainable longterm and that pace will slow this quarter to the low signal digits. Box tumbling to a fiveweek low even as its sales top analyst estimates. It is hard to gauge how eps stacked up against the consensus because of a mass mistake. Have to Analysts Covering the company used a large number outstanding and catalytic the eps. The completed not realize this until it was too late. And update on how the shares of intel are trading. It is at its lowest since october since cutting its Sales Forecast because of weaker than anticipated demand for corporate computers. You can see the smaller rival also tumbling by more than 4 . Microsoft getting hit because not as many small and mediumsized upgraded copies upgraded their systems. You are saying weigh on hewlettpackard as wellt. Barclays downgraded it from overweight citing the effects of the stronger dollar and weaker euro. Erik the point you are making about box is crazy. The analysts used the wrong numbers. The company did not notice . Stephanie i dont understand. Is at the analysts that made the mistake or did the company that the wrong guy . Sounds i could company gave the wrong that its because how could those analysts make the same error . Erik shame on everybody. They had numbers that were all over the place. Erik thank you so much, scarlet fu. Stephanie math is hard. Online matchmaking. We will meet the man who got it down to a science. The founder of eharmony. Stephanie welcome back to Market Makers. Love knows no bounds, especially geographic ones. The harmony is making sure of that. The online Global Dating site plans on adding four new sites to its portfolio every year. Will International Expansion help tight the heartstrings of the lovelorn . You know him from the commercials he is the founder and ceo of eharmony and he joins us now from los angeles. Neil, you are responsible for how many marriages . We think it is well over one million. The on that, we have about one million couples who live together and are not married yet. Altogether, that would come to 4 Million People and we are proud of that. Our divorce rate is low. Stephanie these 4 Million People all are from the United States . They are all over the world. The heavy majority would be in the United States. Stephanie what is so special about what eharmony has . There are so many of these sites out there right now. What is in your special sauce . You have an exhaustive questionnaire. When i looked at it, i kind of want to do it just to see who i would end up with. What goes into your rationale . When we started, i was director of research of a graduate school. We went at it pretty empirically. I was also a psychologist for 40 years, so we know a lot about the clinical aspects of it. We try to do a very careful job of matching. We are very thorough. People used to complain about how many questions our questionnaire had, which was about 400. It is now down to the high to hundreds. It is a lot of questions but we are thorough. Erik there are alternatives to eharmony. Some of the other platforms but how much of a competitive threat does a wouldbe disruptor like tinder pose to eharmony . We think that is in a totally different business than us. It they are hookups that they focus on. We think it encourages people to start thinking about the kind of mate they would want to have for a lifetime. We are in a different business. We are trying to help people have a marriage like the one my wife and i have of 55 years. My folks had 70 years. We want people to be together for the rest of their lives. That is different than a hookup site. Match and eharmony tend to be more serious. Stephanie would you say tinde hurts the overall brand of whatr Online Dating marketplaces because they are so sexfocused . Tinder has not taken any market share from us but has taken 30 of the market share from every other major site. With think that is because we have branded ourselves so carefully with over 1 billion of advertising. We branded ourselves as a site that is serious and wants a longterm result. Erik when i go into that business . You are good at the matchmaking business, so why not go into the hook up business . Who better to draw the distinction between them and separate the products then you . Stephanie they are nextdoor neighbors. With think people tend to marry the people they go out with. We dont want people going out with somebody on such flimsy grounds as tinder uses. We have 29 different variables we make sure our matched before we will give the name out of a person to go with. We dont want to get in on such a superficial level. We are looking all the time at the probability that 90 of the people are going to get married at some point. Stephanie neil, we have to leave it there. Thank you so much for joining us. He is the founder of eharmony. Announcer live from bloomberg World Headquarters in new york this is Market Makers with Erik Shatzker and stephanie ruhle. Stephanie the greenback is at a 12 year high against the euro and it may start slowing down the u. S. Economy. Erik its like it its reputation took a hit lumbar liquidators trying to recover after the report on 60 minutes. Stephanie and a new report looks at the riskiest places on earth. Welcome to the second hour of Market Makers. Im stephanie ruhle. Erik im Erik Schatzker here in new york city. Stephanie we have to the top news stories of the morning. Shoppers are keeping their money in their wallets. Retail sales unexpectedly fell in february for a third month in a row. Sorry, valentines. Bad weather is getting some of the blame, but so do stagnant wages. Sales declined in nine of the 13 overall categories. Auto dealers and Building Supply categories were hurt the most. Most of the wall street banks are rising today after passing the stress tests. Goldman sachs, jpmorgan and Morgan Stanley are seeing a rise after they got the feds aok. Bankamerica did pass, but conditionally and will have to resubmit its plans but it also authorized a 4 billion stock buyback. Citigroup won approval to raise its dividend and buyback a whopping 7. 8 billion in stocks. It failed the tests last year but mike corbetts job seems to be safe. Shares of Cloud Storage service box is getting hit are getting hit today. Box posted a bigger loss than estimated. Is their First Financial report since going public in january. A have been engaged with a price war and trying to take customers away from michaels from microsoft and google. Lumbar liquidators is fighting back after the brutal 60 minutes report and shares are up 11 today. The companys ceo says its company its products are safe. Still, their First Quarter sales fell short of analyst estimates. 60 minutes reported their laminate flooring made in china contains large quantities of cancercausing from aldehyde. Cancer causing formaldehyde. With only 12 of households having a negative view of lumbar liquidators. Approximately 8 of consumers say they would not consider buying from us at this time. We have brought in Additional Resources to assist us in responding. Stephanie lumbar liquidators says it will pay for safety testing of the laminate flooring. Irans Supreme Leader likes that letter from republican senators about as much as president obama does. Ayatollah khomeini suggests the u. S. Has questions on whether it can follow through with any deal at all. These jet omen the senators have openly announced that wednesday at when the Current Administration is no longer in office, the deal america is agreeing with you will be null and void. This is the ultimate degree of the collapse of political ethics. Stephanie those talks are set to resume on sunday. The ayatollah would have the final say in any iranian decision. And in pro basketball, we know how often the referees get it wrong. The nba says referees make the wrong call or no call at all 14 of the time in the last two minutes of the game. The league started releasing reports on how judges call close games. When you look at when refs blow the whistle, they are right about 96 of the time. They are only human. Erik youve probably heard the conventional wisdom about the strong dollar bad for businesses and good for consumers. But is it so easy to sort out the pluses and minuses . What will it mean for the feds next rate move . Lets ask a currency strategist from a cori. Where should we start . The consumer in the u. S. Who is going to benefit from a strong dollar environment. Keep in mind u. S. Consumers by a lot of things that are imported and foreignexchange is our prices. When prices move around, people win and people lose, but whatever you are going to buy is cheaper. The u. S. Consumer will be the winner overall. Erik how about the other side . If the consumer is the winner it means people can buy stuff for less and they might spend more. How much of a tail wind that going to give the economy . Its going to be an important tailwind. You saw a retail sales this morning were a bit week. Lets say three months in a row we have had weak retail sales. But we had weak retail sales in 2013 that were also due to the weather. Theres a lot of evidence in the data that is weatherrelated. Lets not the carried away by the week numbers. The strong dollar will be part of the story, low gas prices will be part of the story, and the fed is not going to hesitate about raising rates sometime this year. Stephanie i still dont understand who is the loser. If the u. S. Consumer is the winner, those who dont earn income in dollars are the losers. You could make the case that they are not winning as much by the gasoline price decline because in dollar terms or local currency terms, it has not come down as much. Consumers in any countries who have seen their currencies depreciate are going to lose out. There is another big loser out there companies abroad who have borrowed in dollars and earn revenues in their own currency. Stephanie what kind of companies . Weve had a large increase in the last few years of Foreign Companies who have are a lot of money and dollars. Now this debt is sitting on their Balance Sheet and any to service this at by paying their creditors in dollars and those dollars are getting more expensive. Erik there is another argument he made about Dollar Strength and what it means for the fed. If you take the increasingly low cost of importing goods price in dollars plus the cheap gas we are currently seeing oil down 50 from its highs it allows the fed to stay lower for longer. It might. I dont think its going to delay the fed hike. It might result in a situation where the ultimate fed funds rate is lower than it might have been. Erik so a hike but not by as much . Are they going to wait longer before hiking the second time . Incident terminating at 3. 5 we will probably terminate at about 2 . There will be some longlasting effect from the disinflation we might see from the stronger dollar. But the fed is going to see this as a normalization. We have abnormally low Interest Rates even considering whats happening with the dollar. Stephanie is the fed paying attention to those unintended consequences . It is and they are treating it as temporary, treating it as a relative price change. Stephanie temporary . It has been so low for so long. Unless the dollar goes lower and stops appreciating, you could make the case that the last year as temporary. But this is important because the fed is not necessarily looking at the shortterm when it considers whether it raises rates are not. It is looking at the medium term and asking whether we are on a trajectory to get on the inflation target. Erik do you think on the whole, investors understand deeply and thoroughly enough the impact of Dollar Strength other currency weakness has on u. S. Corporate . No, i dont think the consumer is sophisticated enough in this country to understand corporate Balance Sheets. Stephanie not consumer, investor. Professional investors understand. Stephanie consumers dont care. They just want cheap stuff. Investors are knowledgeable about these issues but most u. S. Companies do not are lebron do not borrow abroad. From the perspective of investors looking at Foreign Companies, this is relevant. Erik this is bad for multinationals. Its bad for multinationals operating in the u. S. What he is referring to is Something Like Procter Gamble that sells a lot of products abroad and produces a lot of products abroad. If not completely a situation where they are forced to see their cost increase. Keep in mind that there are a lot of companies in the u. S. That produce in the u. S. And import commodities from abroad. Their margins are going to go up. There are winners and losers everywhere you look in this dollar story. Erik currency volatility often coincides with greater demand for hedging. Has that played out already . Ask it has played out. One of the reasons we see a stronger dollars because Foreign Companies especially the ones i mentioned who have been borrowing and dollars are very much afraid their Debt Service Cost is going to go up. So they are hedging and thats part of what has been drawing the dollar higher. It is absolutely a selffulfilling prophecy. His is one of the financial stresses that causes more volatility in the markets. Erik good to have you here. Stephanie when we return lumbar liquidators trying to rebound after the 60 minutes report on the safety of its floors. Its floors. It ceo is flashing Sales Estimates that says his products are 100 absolutely safe. Erik it is time to bring you an update on the top stories of the morning. Shares at intel are down about 4 . The worlds biggest computer chipmaker cut its outlook for First Quarter revenue, saying its demand for business for Desktop Computers is weaker than expected. Companies that do a lot of business in the pc industry taking a big hit including micra chef including microsoft. Shake shack down in his first report as a public of the. They failed to live up to public expectations reporting revenue that was higher than expected but samestore sales do not grow very quickly. The shares have more than doubled since shake shack ipo did in general. No one has been arrested yet for the shooting of two Police Officers in ferguson, missouri. The two were wounded outside a protest. The protesters gathered after the police chief quit. He was the latest to resign after a Justice Department report found systemic problems in its police force. You will recall protests were sparked across the nation. Stephanie our products are safe thats what the ceo of Lumber Liquidators said just a few minutes ago. A report on 60 minutes reported they were selling products with high levels of from aldehyde. The company slashed its firstquarter projection. Investors are finding something to like because shares are rising for the Third Straight day. My guest has a buy rating on the stock. They were in full damage control mode. They came out and said were going to offer tests to people worried about from aldehyde in their home they would actually consider replacing the flooring at about 3000 or 4000 per customer. That seems like a decent move. They did say their sales have fallen off since the report. Can they sue anyone if they offer these tests if the ceo proves to be right and that company has gotten a complete beating after that report came out, what can they do . I guess there is always a legal remedy. They have countersued some of those that feel the 60 minutes report. Another thing they noticed is that they pointed out over and and over again that this is fueled by shortsellers. Erik the stock is rising today a little more than 10 after this conference call. But it has taken an enormous hit. How do you feel about it . Right around this level, we upgraded it only to watch a drop another 10 before rebounding aggressively. The reason we felt the whole thing was way overdone was we could not come up with a scenario where there is a contingent liability. We did so much work around formaldehyde and we felt they were compliant. Formaldehyde and the process with these floors is that they off gas and all of that formaldehyde leaves very quickly. The testing is a genius move because its possible there will not be a lot of impact as a result from the floors because after a few days or a few weeks, all of that formaldehyde in there is often asked out of the flooring and out of your house. As an environmental engineer told me, theres a difficult method to prevent any damage at all, and that would be to walk over and open a window when you put in flooring. Erik just to research about this we use a formaldehyde you done a 10 of work on formaldehyde a ton of work on formaldehyde are you saying 60 minutes is wrong . Theyd did a test that has nothing to do with compliance. It has to do with enforcement. Ive never been able to get an answer to this what is the correct levels or result from a deconstructive test versus a Third Party Certified test of the fiberboard. What i mean by that is the test they did is a very different test of a certification or compliance test. I dont know if the results are the same and the winds had an answer to that question because its a very different test. Stephanie do we know how they compare to their competition . On the 60 minutes call they did some similar tests and came out better and compliant. I think home depot and lowes are Great Companies but there are 70 questions about the differences in the tests that it was hard to take much from it. It was obvious and the more i dug into it that there was an agenda there and it was very onesided. Even the tom sullivan interview which got hand which got panned it was edited from 45 minutes down to three minutes. A lot of his main points did not make it in there. There are too many questions in the tests to compare them very effectively, particularly as it would relate to anything regarding the court of law. You could always do something from the propaganda standpoint. Erik the 60 minutes was quote tests might be accurate but if they are not the test use for safety certification, we are talking apples and oranges. They seem to have done a good job of muddying the waters. The other interesting thing they talked about on the calls is that formaldehyde is a naturally occurring chemical. Its in animals plants daily things like shampoo. Formaldehyde levels in a home can be from a different things. Erik arsenic is safe in small quantities to. Some investors speculated they would just pull out of china. Erik would that be a good idea . We will see what happens. This is less than two weeks since this happened. This is their first salvo in First Defense of this. If they are going to do it, they will probably do it in a methodical manner. I think they want to see what happens with their customers. When you look through their presentation, there are two or three items like calls to their safety number after spiking dramatically have come close back to last year. The same with visits to the safety website. Returns are not quite back to where they were yearoveryear but they want to get a sense of stabilization. I think the testing thing is a very good first step for them to give their customers comfort. Im sure as people come in a envoys different kinds of concerns, they are trying to deal with that asbestos possible. Stephanie what kind of cash does this company have other Balance Sheet . Can a afford to pull out of china . I think their liquidity is good. They have no debt, but a company the size, their liquidity is 20 million or 30 million. They are going into their peak season. When people do Something Like this, they tend to do it in their christmas season, which is what they are going into right now. They could do a fair amount but i dont want to mention other companies, but this is not like a big Multinational Company with billions of dollars in cash that can take a 200 million hit and move on. They have a good cash position talents sheet for the company they are but they have to be more pragmatic about how they go about it. Stephanie thank you both. Erik we will be back in two minutes to talk about shake shack. Stephanie from formaldehyde to shake shack. Announcer live from bloomberg World Headquarters in new york this is Market Makers with Erik Shatzker and stephanie ruhle. Stephanie welcome to Market Makers. Im stephanie ruhle. Erik once again, the best part of the show is the commercial break. Lets talk about theres matt miller. Stephanie your hair looks great today. Erik two hours into the trading day lets take you back to scarlet fu. Scarlet the dow is at the best levels of the session with only two members down intel and microsoft, on intels revised forecast. You can see volatility easing after it rose above 17 yesterday. In europe, they are about to enter the final hour of trading. The tech center is the worst performing while health care are leading health care is leading the gains. The biggest tanks the big u. S. Banks passed the stress tests and can now have dividends and buy back shares. Its a rare day when the dollar weakens the dollar index rose above 100 before giving up some ground. The euro broke below the 1. 05 level. Youre seeing a rally which according to some people was a long time coming. Treasuries are gaining because they look more tractive than european sovereign debt. The unexpected drop in retail sales having some people say the fed cannot possibly expect to raise Interest Rates in june. There are talks that teva once to mylan. Erik stocks at session highs. Stephanie its almost lunchtime. Lets talk about burgers. Shake shack feeling the burn shares fell after its first Earnings Report failed to live up to investors expectations. The stock, which has more than doubled since its january ipo is not looking so good for investors not so tasty, one might say. Bloombergs matt miller joins us now. What did investors learn . I need to just bow for a moment Erik Schatzker, the day this company ipod said guess what they make great burgers, but this valuation makes no sense. They cant possibly grow at a pace that would be in line with where this stock is trading. Matt and nearly all of the gains we always say all of the gains in shake shack came on the very first day of trading. Its a 1. 6 billion, 1. 7 billion company now. That means each investor thinks each store is worth 26 million. Stephanie stephanie a store stephanie a store with 11 menu items. Matt one of the big problem is food costs have gone up. These costs and paper costs are high. Apron in food costs are up 32 . Meanwhile, the burger costs 4. 95. Its delicious. What an incredible deal, but if you look at the inflation cost of the burger for years ago, it was 4. 97. So they havent moved the needle on their item when prices have gone up. Stephanie their prices one of the reasons people want to go there. Matt less than five dollars is a good price for a burger. And have Growth Prospects they want to put 10 restaurants in japan and 10 restaurants in the u. S. This year. Erik heres the problem four shake shack to grow into the kind of company it was to grow into, which is well in excess of 10 times current rate run sales they have to do two things not just expand internationally, they have to continue generating organic growth at the restaurant theyve already got. That is the same store Sales Problem we have uncovered. If you cannot generate meaningful samestore sales growth and are stuck in the low single digits, your Growth Strategy is predicated entirely on expansion. Weve all seen what happens to companies that expand too fast. Standards slip, there are inconsistencies, its difficult to get the supply chain. Stephanie look what happened with c wonder. Matt part of the problem shake shack is a very new york centric restaurant. I dont think people realize how small this company is. Because of all of the hoopla we made about the ipo, you may not have noticed they only had 118 million in sales last year. Erik now they are running at about 133. Matt mcdonalds has that much in sales in 39 hours. Im not making that number up. Erik i worked it out earlier because theyre burgers are so delicious and they make such a big deal about their ipo and people who got the syndicate on the first day made such a killing swapping out the stock we think its a Much Bigger Company that it is. Erik 1. 6 billion is nothing to sneeze at for a burger chain of this size. Matt to scale up their business would be very difficult and they realize they dont want to hurt the brand. They are not raising prices right now, but they are hoping they can raise prices in the future. Erik look at the challenge mcdonalds faces meeting tastes in some a different geographies. Thats the kind of challenge shake shack is just beginning to walk into. These are among the more difficult things mcdonalds has to navigate worldwide. Stephanie whats the right answer . Universally, people love shake shack. The ipo made sense, but it was just too expensive . Erik or that the stock is too expensive now. Matt the valuation on this stock is when i goes beyond the number of people who go you know who danny meyer is. You want to be able to sell to a huge market and only a small group of people who this guy is. You have to do a lot more expansion. Erik anybody paying this much has to ask him or herself as to ask how is it this company is going to grow into this valuation . Do you believe they are going to execute perfectly every step of the way . This is not a tech stock. This is a company that sells burgers and is pretty much priced to perfection. Matt even though shares are down a little bit, less than 4 even more after hours, so it looked like investors were disappointed with this report, the stock is still higher than it closed on monday. I just want to add one thing c wonder was such a great store. Stephanie i agree. Matt its the Perfect Store for buying monogram a bull preppie things. Stephanie so often you end up in that preppy monogram universe and its 600. There you go. I just want to say shake shack burgers are cooked to perfection, and just not sure their stock is priced to perfection. I could be a tv writer. Bloombergs own matt miller. While you were under the weather on monday, matt did a really good job. He stepped in and stepped up. Erik when we come back, another company that just issued its firstquarter report since going public, investors are hammering Cloud Storage company box. Stephanie stay with us. Weve got more to cover. You are watching bloomberg tv. Erik less than two months after its ipo, box the Cloud Storage company, is facing the reality of what it means to be public. Shares of the stock are getting pummeled today. Down almost 15 . Box reported Quarterly Earnings for the First Time Since its ipo. Cory johnson has been following this company. Seriously, did this come down to analysts getting the number of outstanding shares wrong . Cory i know stephanie gets upset when their when there is math on your show. Math is hard the company came out with earnings and lost a ton of money. On an earnings per share basis with they lost on a gap basis was 2. 64. When they went public, there were a bunch of funky things that happened to the share accounts. There were lawrence and shares that were converted back into common shares. That caused the share account to do a funny jiggle in the first report. Apparently, some of the analysts had them wrong. The bottom line was the share count of a handful of analysts was dramatically different than the rest. The average of the estimate was not at all like what it might have in through the meeting of the estimate. They missed the average and beat the median of the estimates, so for those who only compare earnings per share, it looked like a mess. Erik i know you have built and run dozens if not hundreds of models in your time. How often does this happen . This is a Public Company. A Public Company with a high profile ipo. Cory Building Models is kind of a pain. Because of these very issues. Indeed, have a model on box and my earningspershare are a mess because you never know how they are supposed to work. When a Company Reports a quarter, its maddening to fill in your model and get things to date the way the company has done it. Then the company tries to pull a fast one on you. This is what the cfo should have done before the Earnings Call called analysts and say i looked at your note and where did you get that number and that is what usually happens. Stephanie could this be a sign that we are in a tech bubble universe where a relatively in may sure company run by people who dont have a time of experience in this space have a hot ipo, the First Quarter we see as a Public Company, this kind of oversight . Im not sure we would see this from a mature company. It seems silly to me. Cory i agree and i like the ceo quite a bit. The first funding came from winning in online poker. He raised 20,000 dollars from winning online poker and attend a bootstrap this company. They got their capital enters in a beer soaked party where somebody introduced into a venture capitalist. Stephanie that is totally rad and someone should write a book about it but should someone cory these are risk factors. Erik i dont know the company that well but the ceo is 29 years old and doesnt have any previous experience at another company. This is where their bankers should be helping them out and frankly if some analysts has numbers are very different, that analyst might want to run it by the company as well. Box has issues besides this. Its the most heavily shorted stock on the stock exchange. 39 . The problem with this business is they are spending 88 of sales going into marketing and that is the best it has ever been in the quarter they just reported. Theyre not just paying people to be customers the money they spend on marketing leads to a longterm customer. This quarter did not do that. Stephanie feels like a bubble. Erik youre going to talk to aaron leavy . Cory on our late edition of bloomberg west. Hes a super smart guy and im looking forward to talking to him. Erik that is a cory johnson, west coast editor at large. Stephanie superstar cory johnson. Time to bring you uptodate on the top stories of the morning. Firsttime claims for unemployment and if its fell more than forecast last week. They are now below 300,000 again. Thats a number more consistent with an improving labor market. The last couple of weeks, jobless numbers may have been inflated by employers temporarily dismissing workers due to bad weather. Car sharing service lyft has some new ammunition in its fight against uber. Japans largest Income Company has invested 300 million in lyft valuing the company at 2. 5 billion. A say the money will be used to take market share away from uber in the United States. And an Economic Indicator few would be happy about the average cost of a wedding in the United States has just hit a five year high. It is now more than 31,000. That is crazy. Up 3 in one year. Thats the most expensive cost to get hitched since 2009. The size of the average guest list has shrunk to 100 36 people, the lowest on record. Weddings cost a lot of money. Heres your recommendation below poor dont get married. Market makers will be back in just a moment. Stephanie lets just review Cloud Storage, formaldehyde matchmaking and greasy hamburgers. Weve covered all. I thought it was a pretty good show. Thats going to be it for today. We really did cover a lot of ground. Erik tomorrow, another exciting show nfl contracts. Weve been hearing about them this weekend we will see why the money may not be as good as seems. Why Baseball Players make so much more. Stephanie have a really long season. Erik they are talking about shortening the season. Stephanie talk about shortening the game. Its too long. 56 after the hour. Bloomberg takes you on the markets. Scarlet it is 56 and is past the hour and a means bloomberg is on the markets. Heres really is trading day u. S. Stocks bouncing back from two days of losses, the worst today slumped since january. An unexpected drop in retail sales leading many to think the Federal Reserve can possibly begin raising Interest Rates in june. The dollar weakening for a change, with the dollar index falling below 100. It had gone past of the 100 bubble this morning but we see a short rally in the euro trading the dollar euro. Joining me for todays options inside is the senior equities to riveter derivative trader at b moe capital. Is its Bank Stress Test thats having an effect . Having people are really starting to look at the dollar. Theres a question whether the fed is going to bring up Dollar Strength in their statement next week. If they do it might be viewed as a dovish comment. I think people are starting to hang their hats in this on this story. Scarlet what is the underlying trend for equities . Did fridays job report change that . I think it is up. I think the market is prone to some pullbacks and consolidation. Earnings were pretty solid last quarter to the extent the fed is going to raise 25, i dont think its a huge headwind. Scarlet so it is a by the dip scenario. Lets take a look at intel. Is revising its Sales Forecast through the year. Its seen as a bellwether. What kind of interest the that generate . It might have been an override her or someone taking the position that intels upside is somewhat limited. Theres some sentiment being expressed. Scarlet its certainly have having some reverberations. The etf that tracks housing, theres a lot of home data points coming out, what is your strategy . We will get the homebuilders index and Housing Starts building permits, Earnings Reports from two big homebuilders as well as the fomc meetings. We think its way too low. I like lying some downside in getting some protection on the possibility rates could go higher post fomc meeting. It looks like a cheap way to get some protection going into that slew of events next week. Scarlet so this is very short. You dont want to go out any further than that . This is an event driven trade where you are paying as low a premium as possible. Scarlet you are not looking to call the fed three months out . Thats a fools game. Scarlet thank you for joining us. Money clip is up next on bloomberg television. Pimm welcome to money clip where we tie together the best stories, best video all in the news. Citigroup leads the way after the Federal Reserves stress test. The chief executive stakes his job on getting an a. And lumber liquid every lumbar liquidators shares rise in value but the company says it will take a hit from the 60 minutes report. And Howard Sterns story f bombs and all