Transcripts For BLOOMBERG Market Makers 20150528

Singapore and brought, spacing california. Some of the worlds best known companies are pressing pressuring soccers governing body to fix the Corruption Scandal. Officials were arrested through the Justice Department says soccer officials receive millions in bribes meant to influence those who received media and marketing rights. Seth blatter has not been charged and he is up for reelection tomorrow. The governing body thinks fifa should take timeout. Convinced there is a strong need for a change to the leadership and strongly believe the congress should be postponed with a new president ial election to be organized within the next six months. Erik Loretta Lynch says the investigation continues. She says more arrests are expected. Olivia greece wants an agreement by sunday and a deal will be released soon. The ims wondering to come up with a list for more money and they disagree with greece saying a deal is not in fact very close. Greece needs money to pay back in imf loan last week. They say both sides will have to compromise. Both sides will have to move. Greece has got to get more serious and determined and clear on what reforms it will take. It will not be politically easy for its leadership but the europeans need to recognize there are limits to the degree of austerity that can be imposed. Olivia bloomberg was told the imf is the main obstacle to the agreement. Amazon will now offer free sameday delivery to amazon prime customers and 14 large u. S. Cities. Prime members pay 99 per year for discounts video streaming and it will now be free for over 44. They will have a choice of over one million products. An apple executive appears to suggest cars will be the next frontier. Apple wants to invest its cash. The Senior Vice President Jeff Williams said the car, the ultimate mobile device. Global report bloomberg reported apple destined to thousand 20, though the program could still be halted. Those are your top headlines. Erik the five things you need to us today, olivia, started off. Olivia the japanese yen falling to write over your versus the u. S. Dollar right now. This comes as the Federal Reserve prepares to raise Interest Rates. Driving record profits at japans Biggest Companies. We have seen in nikkei to 25, the benchmark in tokyo rally in 10 straight days, making it the longest gains. Erik we can ask ourselves why the japanese yen is weakening. They are taking money out of the country putting their money in u. S. Stocks. Think about how attractive a trade that is. You put your money in u. S. Equities and you just wait until the japanese yen weekends. Weakens. Olivia they rose by five. Erik number two, chinese shares , four months. The index climbed 6. 5 , in a lot of volatility in docs. Chris maguire on with us yesterday saying it is no longer time to expect that the unstoppable run will continue. Look at energy and gold. He is not suggesting every stock out there will drop 40 . Volatility will become the norm. So many stemcells become unbelievable runs. Olivia sounds to me what a lot of brokerages are trying to do his front run what they think regulators will do. Julie i want to talk more about the Big Semiconductor deal. Avago bought broadcom for 37 million dollars. It is their biggest acquisition ever. Avago will pay in cash and stocks. You can see broadcom is falling in the morning. It rose yesterday above the offering price and closed yesterday at 5716. Erik the former Lehman Brothers ceo is set to make one of his first public appearances since the financial crisis. Later today new york city. Matrix advisers, he is in the advisory bird business. The point being, he is no longer managing risk. Olivia the New York Post said the guerrilla is back in the jungle. I am trying figure out why he is choosing a penny stock conference to choose his big public appearance. Google is holding its annual conference for developers in San Francisco today. They will roll out new software. They are expected to talk about Virtual Reality. A lot of people are saying google is behind facebook and others in Virtual Reality. Google executives come in and make dramatic appearances. Sir gay parachuted in one year. I hear it will have fingerprints. Erik cory johnson is at the google conference and we will hear from him later in the morning. Indictments are spreading today. Are starting to appear in the rock solid support. It says it will reassess its sponsorship of the world cup. That is a big deal. Concerns were raised after a lead to corruption and fraud for international soccer. Meantime, seth blatter up and stay out of the public eye. The former u. K. Attorney general and currently comanaging partner of the law form law firm. Thank you for spending time with us here. I think we must start with seth blatter concerns have been raised. What will happen tomorrow . Will he hold the threshold told the vote as scheduled . What i am told by people inside is if he continues to stand, yes, he will be reelected. Erik what do say to that . If that were to happen tomorrow what would your response be . You know seth blatter and he sat on the independent i do p or we warned fifa that if they did not get their act together, something would happen like what has happened. The most humiliating thing of all yesterday, the number of senior people from their executive communities arrested in full sight of the media, tom moore humiliating could that be . They look at the moment as if they were sort of prepared to brazen that out it we said they ought to get their act together and we made recommendations. Some of which they did not get around to implementing early said, unless you have a mork we are an accountable and better government, ultimately someone will come from out side there the days of selfregulation from fifa look like they are over. Olivia you saw what seth blatter put out yesterday from your blue do you think there is a chance seth blatter did not know what was going on . These are allegations and we cannot assume they are necessarily true. Blatter has been there for a long time. It is hard to believe i suppose that he did not have a suspicion of something going on. It is not the only point. This all happen on his watch and you have got to ask the question, when these things happen on someones watch, is it right to keep that person in charge . Olivia you can say, did that cure it, or is corruption endemic to fifa . The onevote system means solidifying corruption in the system. Ways in which fifa uses a lot of money it is very supportive of football and developing come countries, it is a good thing they incurred soccer in those places it the but it does mean by giving out that, people doing the handouts by influence. It does not necessarily mean his corrupt. But it does mean he has influence and we look at the future you have got to see, how do you avoid information when there is undo in that way. Erik if money is the only thing that talks, how do you bring about change . They need to have been people in their country. You need term limits for people like sepp blatter. We did recommend and it was implemented come independent senior u. S. Prosecutor. Michael garcia a very important role. He reduced a report and we have never seen it. He said it was inaccurate and he resigned here one of the key recommendations we have made has been set aside. It is hard to see how from this position, fifa does recover unless it radically reforms itself and embraces change and completes accountability for his actions. Erik lord goldsmith, thank you very much. Olivia coming up, we will return to retail. A tough quarter for abercrombie fitch. Will it be enough to turn the struggling retailer around . Erik good morning, everybody. That is london, not new york city. How cold it is it is for degrees. I will take new york city 82 degrees any day of the week. It is time for your top stories everybody. The death toll for tests in oklahoma is climbing. 11 more are missing. Swept away by floodwaters. It is now being called the worst coastal oil spill in california in a quarter century. The Pipeline Company has been ordered to finish cleanup. A 10 mile oil slick. Despicable. At war with each other, fitbit, accusing the company of stealing both its employees and trade secrets. Fitbit says it will fight the claim. The lawsuit comes just as fit it prepares to go public. Those for the moment are your top headlines and we will have more. Olivia abercrombie fitchs turnaround strategy has not pointed them in the right direction just yet. In early trading, shares are actually up about 5 . Joe is here, the ceo of Brooks Brothers in the warner coke group. Great to have you on set. Lets start with abercrombie fitch. The shares get a pop. We have got arthur martinez, the executive chairman acting as ceo. One of the first major steps he has taken. Do you think martinez has the right turnout strategy in place . I think he is out there looking for a ceo for the company. He has had a lot of governance experience and he understands the Retail Sector but his primary objective is to stabilize the ship and find a ceo to run the company. I think they are fighting uphill battle right now. Denham has slowed down dramatically and they are a denimbased company and with the explosion going on in athletic wear. Abercrombie and hollister are really planted firmly in denim. Ron at wise they have got issues and have got to figure out how to get the product right. That is the primary focus right now. Erik we will see how trading will play out today, but what is it that inspires this morning and i asked the question because just looking at financials, the Gross Margins are down operating expenses are up and the trends do not appear to be in the right direction. Quite all the metrics are down. If you look at the Company Earnings before interest tax depreciation, they are trading at 3. 3 times it is basically a good company, a company that is performing it will be trading at a time spirit their trading at a point 3. 3. It is a dramatic discount. Olivia they fell by just 8 . Class of is a rounding error. Olivia fair enough. At its core, should they take a cue from nike and everybody else . For them to change their product mix, it will take nine to 12 months. The supply chains are planned well in advance. They cannot convert 100 . There will be a portion of the inventory and im sure theyve artie done that. Erik the leisure brands they are all on a roll. It is not a fad did it is a chance. You walk around bloomberg youre not here yet in the offices but it is coming. Olivia we walk into the office in leggings. It has become normal. You look at how well the Sneaker Companies are doing and walking to the highpriced stores now and you see the most expensive footwear are high top speakers. Erik it has legs why . I think it is the casual lifestyle. Do you hit soul cycle first, go spending, exercise . It is a way of life. Erik why is tj maxx doing well, for example . They offer a significant discount, probably 50 less. It is appealing to the consumer. Olivia is there one retailer best positioned to go through all the changes right now . I think there are several to the dominant player market shares over 40 . They own the business. I think macys has done a great job of really eliminating much of the competition and that they are in a great position as well. Olivia thank you so much. Erik we will be back in two minutes. Stick around. Erik a ceo who has been killing it, private equity firm that invests in india. Welcome and good to see this morning. So quite a run. It was not a grand theft auto year, and yet, it was a good one. What is working . We had a year where everything is working. It is a grand theft auto european we lost we launched grand theft auto five for the new generation. It is an important franchise in most years but you are right, it was not an initial release. We also had our big wwe, nba, civilization, evolve, and of course grand theft auto five. Olivia how do you keep the momentum going . What is in the pipeline . That is always the challenge bell you are roaming as good as your next release. The pipeline looks interesting. In addition to our franchise coming out every year, basketball and wrestling entertainment, we have a new title from the company that brought us borderlands and we are excited about that and we will show it off at e3 and we think it will be really exciting. We never know until we launch it but that is something were focused on. Erik we have talked many times about the differences between the gaming industry and industry you once upon a time came from, the movie industry. Why have we not seen more convergence between the two . His avengers two can be 2 billion property globally, if not more, why dont we see console video games based on marvel videogame characters . Because we have, of course. Olivia they are not as big as grand theft auto. You have batman, a big title and they do a great job with that title. There are some examples. The question as well posed and i think the answer is all the intellectual property has to work for the medium in which it is launched. We are not in the lunchbox or with a sunblock sunglasses business p we make entertainment and it is in part incredibly complex and highly cinematic and difficult to make. That goes for in a mode a Motion Picture as well. Meet the audience really are. If you are derivative, you fail. That man is a great video game and a great movie, typically, but there are not too many examples to mortar cup Mortal Kombat is another good example olivia . Olivia why has there not been a huge grand theft auto blockbuster . It seems an obvious opportunity. We are not in the Motion Picture business. To license to someone who first of all would take the property out of our creative hands, and secondly, the Motion Picture business is not a great way to make money. We do not really like the risk in the business. We are very unlikely to produce and distribute Motion Pictures and to give other people the opportunity to do that with our intellectual property, we have done it on a selective basis. It seems highly unlikely we would do it with Important Properties like rent theft auto. Even the smallest crater flats would be a disaster. Olivia you do not watch ironman and think, i have got to do this . Im glad i do not do it anymore. Olivia how about Virtual Reality . I will be at the front of the line. Erik you will. The good news about our business is known else can develop our intellectual property. We have an opportunity to do a lot of homework to see what Consumers Want in an interactive experience and the jury is out and we do not know yet. We are doing a lot of quiet work to figure that out, but i think the consumer has to vote. When they vote, they will be there. Erik will kind of work . Do you work with a company like facebook to get access to a device so you can i would imagine conceptually, we want to make sure we are in the business. And yes, we are involved in trying to figure out. It remains to be seen whether you want a vision including a headset on to play multiple hours of video games. The reason i am at the front of the line, ive had a couple of products demoed and the experience is unbelievable. I had a roller coaster demo and it was not even very high quality. And you really felt like you were there. Erik let us pause for a moment and get out to julie hyman. Claims have just been reported and what do they say . Julie 280,000 was the amount of jobless claims. Filing for last week 270,000 was anticipated. Still below 300 thousand, which has been the case for quite some time, the marker a lot of economists have been looking at. The claims number is rising here, 2. 2 million per we will see if that is still remaining at the lowest since april of 2000, where the average had been holding. Also again, it is coming in a little higher than estimated but it is the 12th straight week we have seen below 300,000. It is the 12th straight week we have seen the number below 300000, which supports the idea we have seen in the other data that the job market in the u. S. Is improving. Erik strauss, you run a private equity firm. What does it feel like to you . It feels strong. We do not have a view of the entire company. Everyone fusses companies are having a largely good time of it now. The recovery, which felt very robust a year and a half ago is just beginning to be felt in the rest of the nation. I think it is early days in the recovery. It is not to say we do not have a bubble in certain sectors of the market. I think some pricing is very high in the tech side. I forget who coined the term irrational enthusiasm, but i think we have seen some of that. A market capitalization should be roughly 10 times stabilized and normalized earnings roughly, and it is hard to imagine some of these valuations will ever deliver valuation erik the market is 18 times. It is a great time finding really powerful opportunities. It is a bit more challenging though. Olivia thank you so much. We appreciate your time this might. I wonder how many of these videogames you actually know how to play. The answer would be zero. I really love the business. It is my third videogame company. I love the storytelling, the graphics, and what you can do with them. But i actually do not play video games. Olivia the ceo of take two media joining us. We will get to our top stories prayer we started singapore. A singaporebased company is behind the biggest acquisition ever in the semiconductor industry. It agreed to buy broadcom for 37 billion in stocks. The acquisition comes at a time when the chip industry has been consolidating. It is danger of and by the higher cost of design and production. U. S. Prosecutors want to know what role american banks played in the fifa Corruption Scandal and money involved in a two decade long bribery scheme passed through u. S. Banks including citigroup and jpmorgan. The ninth have not been accused of wrongdoing. 14 people have been charged in the case and nine of them are with fever. Their controversial president is not one of them. The innuendo and the labeling that bladder wears, there has never been anything put forward that said he is corrupt or that he took bribes. A lot of other people did that during his governance and that is where he is being labeled with this stuff now. For just about the rest of his life. Olivia bladder is up for reelection tomorrow. It has been urged the election be put off because of the scandal but it is expected to be put on still. Low income americans who have highspeed internet access. Wheeler will propose the four begin in a choice of subsidize phone service, broadband service, or a combination. They are to help millions of low income americans pay phone bills. Those are your top headlines at the hour. Erik we will talk about investing in european stocks. And why one says do not stop olivia european stocks are following this morning. Neil doing is the chief Investment Officer and he joins us here on set. Everybody is bullish on europe these days despite the fact there is so no resolution over greece, unemployment is still double digits across the eurozone, and it has already been a good run. Up at least 20 year to date. The euro will remain weak. Up about 25 this year where u. S. Earnings will be flat. For the first time they are nice outperform in the other way around. Europe will outperform. A lot of industry restructuring. This is part of an industrial policy from brussels. We think there is a lot of good dividend yields and investors in europe are master massively overweight in their own market. Olivia is this growth youre talking about a function of the punch bowl being back and there is still no topline growth because the fundamental economy is so weak . Europe, if we are lucky, will grow 1. 5 to 2 . That is fine. Europe does not expect a lot of growth in you look at the growth expectations in the u. S. , every year you are expecting to get back to five or 6 and you will be stuck at 2 like europe is. The evaluations are very different so we think the opportunity in europe, because expectations are so much more compelling. Erik people like to say that we have seen the movie before. We have, we saw it here. We put together a chart that shows how the s p 500 did for the first nine months of quantitative easing and how european stocks have done for the first five months of quantitative easing. They do not exactly track each other, but it shows you the trend is in the same direction. Why even think about fundamentals . Why not just say mario draghi wants me to buy stocks so why not buy stocks, just like ben bernanke wanted me to buy stocks . We are all nervous about the risks we are having to run to get any return. We have to urge the audience to look at valuations. To have an eye on the fundamentals. Erik so much of fundamental analysis was confounded because it was so distorted. Highly Leveraged Companies, under normal circumstances, a high degree of leverage and a high probability of default except in the equity world, highly Leveraged Companies were disproportionately rewarded during the qe cycle. On the same thing happen in europe . Probably is because that is part of the policy and we certainly expect mario draghi to stick to his word that he will be quantitatively easing through the next year. But i think the flip side of it is you have also got to remember that europe is almost unique in asset allocations. The average investor is 85 bonds, 50 equities. They are not 5050 like they are in the u. S. If you look at the cash in europe, it is over 2 trillion euros. You look at the negative yielding bonds, which rationally should be sold, another 3 trillion euros, in the market cap is a. 5 trillion euros. Any movement in europe to take a little more risk olivia why dont you like european banks right now . A lot of people say, they are finally wellcapitalized and are paying out big dividends. I question the last two assertions. If you look back in the history of the u. S. Sorting out banks they ended up between 12 and 15 of their balance sheet. Europe has written off 4 of the balance sheet. I think eurozone banks are hiding about one foot in euros, which they could only take when they could afford to, a. K. A. When they are profitable. I think what were seeing in europe, negative Interest Rates means a disastrous margin for banks. Looking forward, there is very little profitability and very few of them have died yet, so the competition remains, and were also running with a new theme which is is mr. Straw option. The industry that is the most unpopular offers the least Customer Satisfaction is capable of being disrupted the most is banks. Olivia we believe it there kneeled wayne. Much more to come. Up next, we will talk to economists on challenges in the eurozone and greece. Erik the g7 finance bankers meeting is underway in germany per what makes this different is the participation of a number of superstar economists. Among them, the chairman good morning. Good morning to you guys. Erik why is it you and a number of other economists, larry summers, are participating for the first time in a g7 summit in this nature. Is it because they have run out of good ideas . Nouriel no i think they have good ideas but there has been a Great Initiative in germany to have inputs from people who are not just academic but are like myself and others, who have had that past experience. One policy makers get together, there is a certain lingo and arguments. Sometimes having food for thought from outside as important discussions and issues of growth. Erik what is the best good idea you have heard so far . Nouriel were in a new mediocre were growth recovery is endemic. You have to work on the line. Countries have to do structural reform to in greece increase productivity growth. It is also a labor market, there is an issue of lack of demand. You have to boost demand and there is a debate ongoing in the policy community on whether that boost and demand should be mostly through monetary policies that have become increasingly unconventional like quantitive easing and guidance, or whether there is also room for a fiscal policy. Maybe the pace of Fiscal Consolidation was Interest Rates to do the kind of investment in infrastructure it needed in the economy, and therefore there is an ongoing discussion of policy. The idea that while unconventional policy would have to continue as you have low growth and high employment and low inflation, there is also room for the right type of fiscal policy but there are a lot of views. Olivia where are we on greece . Publicly, they said they are close to a deal with imf. Others say that is not true. What is the conversations . How close is greece to striking a deal . Nouriel the greeks are not here because of g7. They will be discussing the two sides are moving in the right or action. First of all, those can be narrowed and both sides realize that if there was a greek accident a misstatement, there would be significant damage first of all for greece, but also the risk of contagion for the rest of the world. It is geopolitical and it is very important that you have to address. I see a sense of something moving in the right direction. I expect in june to make sure that 1. 6 billion is what will be paid and hopefully by the end of june, there can be agreement on that come on structure reform , and the condition for closing the Second Program and the basis for a Third Program that greece needs. I am positive are at least going in the right direction. Erik why shouldnt greece just put capital controls in right now . The bailout money is no longer giving greece time to reform and restructure its economy. It is financing capital outflows in the form of other investments. Stop that from happening, and then it was demonstrated you could take them off at some point. Nouriel for now, there has been stabilization of the policies going in the right direction. I think only if there were an accident. If there is a misstatement, the same day a deposit freeze, capital control, and then enough money to pay in wages, they might have to issue ious. Those will be essential in the beginning. So conditional on the progress occurring. And conditional to be sound for the imf for the time being rather than decisions like capital controls and freezes, and a lot of Collateral Damage not just financially, but also economics can be prevented. We are not yet at the stage where that could be upper is a should all. It will also be a freeze, but everybody realizes at the beginning of a greek accident that there is a lot of other Collateral Damage. Potentially containing also the financial market. The Global Financial market where you have a correction not just in greek and eurozone equities, but also eurozone equities and other financial consequences nobody wants. Keep on negotiating find a compromise. It is good for greece and the eurozone. Erik thank you for joining us this morning. Olivia he mentioned the possibility of greek ious, and i would sooner take moyock monopoly money first. Olivia will move on to the top deals today. 37 billion dollars. 17 billion of that would be in cash on the other 20 billion would be in stocks. The deal is expected to close in the First Quarter of 2016. Joining us to discuss is the Senior Analyst at sanford bernstein. Thank you so much for joining us this morning. Talk to me about that price. It is interesting in particular because it is smaller than the broadcom sales. They did 4. 9 billion dollars in sales. Broadcom did 8. 4 billion last year. Is this a steel . I do not know, their sales are lower. The enterprise value was actually higher. It is a way of paying more for a unit of the revenue stream and the profits they have. Olivia there has been so much consolidation in the industry. Did broadcom have to do a deal here or did it really have a clear future as a Standalone Company . I have been a big fan of broadcom and they have done a to of work in the last year or two in terms of rationalizing portfolios, improving cash flow and cash return and in general putting in much larger focus on Value Creation for shareholders. They had good capture of value. If you are a shareholder, youre getting rewarded for a lot of that right up front. I do not think he had to do this deal, but if the deals on the table, it is a good thing. Erik what is the next leg in this consolidation we are seeing . Is it enough the vacant are we going to see Something Different . We could have a long conversation. In general, we have seen a lot of deals and we have been in a bit of a wave here. What is different now versus historically is a lot of these have been large deals and a lot of them have been very focused on scale in costs energies rather than blindly going after growth or technology. Semiconductors not growing at 20 anymore and the industry starts to get more mature and you start to see this sorts of things. One reason it is driving value now is you are betting on revenue synergies to drive a deal and that is always very uncertain versus if you think you could take out 715 million in costs, you probably could. Erik if qualcomm does not opt for the path and it does not look like it will, might qualcomm become a consolidator in semis . I think a split for qualcomm is a nonstarter. I do not think that will happen. They may need to do something transformative. The problem is there are not Many Companies out there that are big enough to move the needle. Potentially another, they are getting taken out. There are probably smaller ones they could deal with in a move for growth in technology but they will not do that anytime soon. Erik thank you. Stacy rascgon. We will be back. Announcer live from bloomberg headquarters in new york. This is Market Makers, with Erik Schatzker and stephanie ruhle. Erik good morning. Youre watching Market Makers at our new time. Im Erik Schatzker. Olivia im olivia sterns. Erik following news this morning about the biggest ever take over in the Semi Conductor industry. A Avago Technologies of singapore of breed agreed to by broadcom. Avago is paying 17 billion in cash, the remaining 20 billion comes in stock. Broadcom mix wireless chips. Makes wireless chips. Avago says the deal will boost its cash flow and earnings per share. Broadcom stock rose 22 when word of these talks got out. The president of the San Francisco fed says Interest Rates probably will rise later this year. John williams said the u. S. Economy is rebounding from a week First Quarter and is approaching goals set by the central bank. Janet yellen said she expects rates to rise this year if the economy needs her expectations. Soccer ruling body is facing pressure to clean up its act. Officials are bringing reactions from world cup sponsors including coke and visa. Officials took millions in bribes in return for media and market rights. There are no charges against f ifas president. He is up for reelection tomorrow. It would be his fifth term. His management was not free of corruption. If you give away tv rights for one dollar to an ally in exchange of votes, maybe it is not corruption but it is serious mismanagement. Erik the red says the investigation is far from over. She expects Loretta Lynch says the investigation is far from over. She expects more arrests. Olivia the yen hit a 12 year low against the dollar today. The weaker yen is boosting export revenues for japans Biggest Companies and that has sparked the longest rally since 1988. Japans benchmark index has risen for 10 straight sessions. France and germany are warning greece it is time to get serious about its debt crisis. We did not just cut and paste that headline. Finance ministers are meeting in dresden, germany today, denying claims that a bailout deal is near. Rick officials said they are close to an agreement. The country needs more money by next week to pay back an imf loan. One prominent Economist Says there will be dire consequences if the crisis is not resolved soon. It could lead to a story that is destabilizing and runs on other financial institutions. The original greek story should not have involved italy, spain and portugal but it did because of assumptions people were making. Olivia the European Central bank agrees saying eurozone bond deals bond yields could rise. Erik u. S. Oil is holding at its lowest level in a month. About 57 per barrel. Next week, opec meets indiana so we may get another meet in vienna so we may get another surprise. Michael cohen is head of commodity commodities research. I have not heard one person say, speculate that opec is going to do anything interesting. Michael you have two things going on at the meeting next week. What they will say in initial communique and what the journalists will last the ministers that are gathered. We may get sparks of excitement from what they tell the journalists after the meeting. In terms of the communique and their policy we do not expect anything to change. Theyre going to roll over that quota, 30 Million Barrels per day. What you have is a situation where they have seen their market share increase. They are out to make sure there are no longer subsidizing all the expensive producers and what you have is a situation where their market share is increased. Their policy from november is working, why should they cut . What weve seen from the saudi minister from the last month demanded strong. Demand is strong. Erik has market share increase for opec yet . There is still shale oil being pumped. Oil being pumped out of heartland in alberta. That is the marginal production that is supposed to be affected by the decision to hold the quote a stable. Michael briggs are down 50 . Where going to see a slowdown in Production Growth in the United States. We will probably level off in terms of overlong overall production on a month by month basis. We could be in a situation where we see a year on year decline. The policy is working. Russia prospered a growth is up rush upon Production Growth is up. This price policy keeping prices and letting the market determine the price level is having an impact on investors. The other important thing is that reality is setting in. You are seeing statements from big oil producers, statements from countries, saying we think it is a lower for longer environment. That perception that we are in this environment is going to lead to the calendar year 2016 flattening out. Our view is that we stay in this 60 to 70 range longer. Olivia if you like what is moving the oil markets these days is inventory reports that are coming out. Updates on what is happening. Where are we in terms of flushing out all that oil . We keep seeing inventories going down. On the other hand, there is story this morning saying the tanker market is booming. Michael two different markets. Wti and the coastal grades in the United States and what is going on in brent and other global grades. Globally those are balances indicate we are exceeding demand by 1. 5 barrels per day. We are seeing the last two months the situation where we have had trouble clearing off the west africa crude barrels. All of this is taking longer because we have that situation of oversupply. In the United States refineries are running at a greater than 90 utilization. U. S. Crude production is leveling off and we are emptying cushing and all of that extra crude that has built up into the gulf coast to be run through refineries and produced as product. Erik we have some breaking news. Peter Teva Pharmaceuticals julie Teva Pharmaceuticals has agreed to pay 1. 2 billion with the u. S. Federal trade commission. It resolves claims that have to do with tevas acquisition of cell salon. Teva will make 1. 2 billion available to compensate purchasers including pharmacies and insurers who overpaid for the sleep disordered drug provig il. That is according to the ftc. Erik thank you very much. Michael , one last question with so many people now coming to the same conclusions that will supply, how do you get people to take notice what youre saying . What does it take to get attention from your client . Michael that is a good question. We tried to do is indicate heart of the market that people are not paying attention to parts of the market that people are not paying attention to. We are looking at what the chinese Corruption Case means for Oil Production in china and oil demand. We take a different perspective and we try to make sure we are looking at all the different agencies to add value and say, here is what you need to Pay Attention to in the next month for the oil price. Erik good of you to join us. Michael cohen, head of Energy Commodities research at barclays. Olivia still ahead, executives apparel companies, we will tell you about which u. S. Financial firms could be involved in the scandal. Erik the governing body for soccer is holding a News Conference in zurich. It has to do with the fifa scandal that broke yesterday. Mark barton is on the phone with us today. Why isnt ua so uefa boycotting the vote . Mark im in the hotel with this News Conference is taking place. The news that just developed here is uefa will not be casting the vote for the president tomorrow. Earlier they called for the election to be postponed. They today announced that they will not the boycotting the election but they will be throwing their weight behind the main challenger, the only champ danger the only challenger. I spoke to the head of the Dutch Football Association who, until a week ago was another challenger but he stepped down to throw his weight behind prince aly behind platani. Mr. Von pronk himself in january asked latter to step down and bladder refused. Blatter refused. Erik we will let you get back to the coverage. Olivia according to the u. S. Justice department the bribery scheme pass through citigroup and jpmorgan are the banks involved. That is the question for Harry Geithner who covers the financial industry and joins us now with more. Carrie geithner who covers the financial industry enjoins us with more. It looks like the banks are running key pieces of evidence in this case. If you look through the indictment, which i encourage everybody to do, it shows clearly how much of this money was put into specific accounts around the world. A lot of those are jpmorgan accounts, walkover your accounts. Walkoverchovia accounts. The nearest Justice Department has jurisdiction to read it is a great way for them to build up the evidence. Although this case is everchanging and complicated we are not expecting blowback on the banks. It looks like they are offering key pieces of evidence. Erik what about know your client rules . Suspicion of corruption is hardly a new thing. At fifa people have been named in press reports for years. Some of these banks have a good idea who might the conducting engaged in fraud or money laundering. Keri for a bank, if they follow their own compliance programs suspicious activity reports it even on people accused of being corrupt, unless it is some fullblown criminal, theyre really not doing anything wrong. They are filing all paperwork. These are International Executives that are part of what we now know as an elected criminal organization. It is not like a mexican criminal cartel. It is not like a mexican drug cartel. It very well could of been the paperwork was filed. And looks like it is ok. As i said, it is unfolding and to be seen. Erik up next, the hottest growing market in i. T. A copy such as google and amazon, potential buyers despicably such as google potential buyer . Olivia the rise in Cyber Threats has led to increased security spending and that is helping Companies Like palo alto network. It reported a 55 increase in revenue. Chairman president and ceo Mark Mclachlan joins us from california. Thank you for joining us. Tremendous growth for the quarter. I think what your investors want to know is, when does the growth start to slow . Mark we are in a large market. Security spending trunk. Security spending trunk. Delivering a platform that helps organizations deal with cyber attacks. We think there is a long runway in front of us. We have become a single digit market share. We think there is a lot of growth in front of us. Olivia are you looking at acquisitions to add more security functionality. . Weve had the ceo of fire i come out and say he sees more consolidation. What do you think . Mark i think it is possible from a palo alto perspective. We have created an integrated platform so a lot of the capabilities organizations are looking for are native to one platform. We have done small acquisitions in order to help us address yesterday we announced the acquisition of a country called a Company Called serosecure. We continue to look at things like that. Erik what about the other way around . Have you had any conversations with Larger Companies that might like to acquire palo alto because of its Growth Profile and the fact that is in the hottest sector in tech . Mark we think about the Market Opportunity with 20 billion addressable market, high sickle digit market share high single digit market share. We are creating a lot of shareholder value. We think we have the opportunity to do that on our own going forward. Olivia most of your revenue is derived from competitive displacement as opposed to refreshing captive installed base. How competitive is the landscape . Mark it is seriously competitive market and we are aware of that. We are executing well almost 100 of our sales are displacement sales for new logos. That shows the platform. Erik how about challenges you have faced in scaling up to meet the demand of your product . Mark scaling well is something we think about all the time. When youre growing as fast as we are, there is a lot of challenges and opportunity with that. We spend a lot of time making sure we can execute well into the future. Erik thank you for spending time with us this morning. Mark maclachlan, chairman and ceo of palo alto network. Olivia an big interview this afternoon on bloomberg tv. You will hear from james blurtin that interview coming up at 3 00 p. M. Eastern time. Erik youre watching Market Makers. We are a few minutes away from the open bell. Eric takahashi is a Senior Vice President at Franklin Templeton. Tracy alloways executive editor with bloomberg markets. What is moving the markets today . Tracy chinese stocks got slammed today. Im sure youve been talking about it but it is really pretty genetic. Shanghai index closed 6. 5 . We had intraday moves that were more dramatic and a bunch of stocks hit their circuit breakers. This was a big deal. Erik yet not much carryover to futures. Tracy i think one of the reasons is no one is quite sure about the catalyst for the move. Arrogant reports about a few brokerages there have been reports about a few brokerages cutting back on margin lending. We know the alley the rally has been fueled olivia i heard stories saying the brokerages were trying to get ahead of what regulators were going to do. I also saw a story saying a unit of chinas sovereign wealth on stole the big position in banks and that got investors nervous. Tracy there is a rumor that banks might have to start telling regulators about stock portfolios. Franklin everybody is looking for the next canary in the coal mine that will trigger risk assets. It is been a big driver on the courtside in terms of highyield. Over the past several years you have had issues with a couple of companies with a has been brought allegations and crackdown by the government. We think there could be some volatility given the run up we have had. Erik what is next . Tracy the yen is moving. Now that it slows against the u. S. Dollar that is helping push of japanese stocks this morning. Eric from a fixed income perspective we have been negative on the yen. He did qe and what is going on in the u. S. Rates are likely to rise sometime in the next two months as well as Economic Growth favoring the u. S. Versus japan. Erik do you see yen weakness driving demand in u. S. Yields . Eric ethic if you look at japanese investors you have seen a fair amount of money flowing in. In europe you have seen qe youve seen the same trend. Erik looking for income with a find it area. Eric you are starting to see some pickup in japan. It has been working to the extent they want it to work. Tracy it is going to be greece for the next two months. Olivia were starting off greece with the opening bell. Tracy the European Central bank had its Financial Stability report out today and they are talking about the contagion risk saying that if greece cannot reach a deal this will have a negative impact on the eurozone. Erik i question the idea that greece that what is happening in greece is changing the direction of markets today. Tracy investors are fixated on it. Olivia i think you have seen decoupling. This trade we saw from 2010 to 2013 of the core of europes sovereign trading in opposite direction of the periphery. If you look at spanish yields your seeing spanish yields creep up. They had a big election. The banks might be i see signs of great crisis 2. 0 greek crisis 2. 0. Erik lets take you out to julie hyman in the newsroom. Julie we have got a decline in stocks out of the gate. The nasdaq yesterday closed at a record. We had a dramatic couple of days after the long holiday weekend. A big drop for stocks are you yesterday, recovering most of those declines. That is what were setting up for today costs ashen. Todays session. We have that deal in the chip industry. Avago agreeing to buy broadcom for 37 billion. Avago has been inquisitive in the past. There are other deals in this industry so we will be watching other chipmakers as well today on speculation about further consolidation within the semiconductor industry. You can see broadcom shares are actually falling because there was a report yesterday that this deal was coming and the shares spiked above the offer price. Abercrombie fitch. Still looking for a new ceo after Mike Jeffries stepped down. The models there might have put their shirts back on but shoppers are not necessarily coming back to the stores. The shares are trading higher. Even though the loss of the company was wider than estimated . 53 versus the . 35 estimate. The company says constable comparable sales trends are improving. Costco as well. One of the out performers within retail. The shares are trading down by 1. 3 because even though a lot of its numbers look better than competitors revenue slightly missed what analysts had been anticipating. Olivia costco employees still have their shorts on have their shirts on. Thank you julie. Erik eric takaha, what the city . What do you see . Eric could the fall rate start to rise up . We do not see it. If you look at the percentage of distress names as wel lastcycle is the ability to refinance at low rates even the leverage has picked up. Interest costs are actually low. Liquidity is strong so we do not see a lot of triggers over the nearterm to see that fall rise that fall rate rise up. Erik what if when we get that first rate hike, janet yellen and the other members say this is not just the first, you will see another and we feel good about the direction of the economy . If that is the case, if the language is bullish, theres going to be a selloff in fixed income and it will hit highyield hard. Eric theres a fixation with the fed funds rate traffic is misplaced. Which i think is misplaced. Shortterm it impacts offloads to mutual funds but longer turn adjustments 10 to spreads 10 to cushion you from a rate hike. I think it is different from 2013. In this case i think it is very well forecast. Olivia it matters what the path of the hike is. What is that path you anticipate . Eric at this point, based on the data, is it likely they raised on time in september . Yes. Olivia where do we and 2016 . Eric it does not impact our strategy at all. The big question is, at the end of the year, what is the outlook for 2016 . Erik you make the point that we have seen how highyield performs in periods of rising Interest Rates. What we have not seen is how highyield performs in a bond fair market because highyield did not exist the last time we had a bond bear market prior to 1980. What do you think is going to happen if we enter a prolonged bond bear market that is the mirror image of the 30 year bond bull market that is kind of coming to an end . Eric we are starting from levels of 2 on the tenure. If youre thinking about going to 3 i think you can perform relatively well. If youre saying rates are going up to 6 that would be impactful to the highyield market. The probability of that, given where inflation is, we do not see it or it if you look globally in terms of whether drivers for rates are olivia there was a lot of volatility in highyield energy. Eric we have been bullish. It sold off dramatically with the drop in oil. Erik how quickly did you go back in . Eric we have been in since the second half of last year. We started buying in prior to the big drop in the fourth quarter. Erik he suffered market loss for a couple of months. Eric the nature of highyield is it is somewhat liquid asset class at times. When there is panic if you have a longerterm yield, you can take advantage. Erik do you worry about how fixed income assets are going to perform whenever we had that next market dislocation . Eric a lot of focus about brokerdeals and the pullback in inventory and that is true. What were found is during periods of stress, you have new buyer step in. Hedge funds, distressed players, those that can trade between equities and credit. Sometimes you have more violence but you have liquidity. If you need to sell, you can sell. The key is, can you have enough liquidity cushion in your account so that you can take advantage of those opportunities and sell them in the market is profiting. Erik the Senior Vice President at Franklin Templeton mr. Highyield with us this morning. Olivia at 3 00 p. M. Eastern youre going to want to turn into an interview we have got with james bullard. The fed president will be speaking to us the st. Louis that president will be speaking with us. You dont want to miss it. Olivia need a job . China is hiring in the u. S. According to a new report chinese firms directly employed more than 80,000 workers in america and that number could quadruple over the next five years. Stephen portlands stephen portlands found it carlyle asia and ran Lehman Brothers in asia for many years. Great to have you on set. What kind of jobs are the chinese creating . Stephen all sorts of jobs. Jobs of the energy area, manufacturing jobs. We are seeing it across the entire United States. We are seeing it in the automotive hearts area, were seeing it in california, we are seeing it in the south in manufacturing. It is quite broad. With the increase is going to be very significant. Olivia what is the reception . Is it what we saw happen in the 1980s with japanese investors coming in . We just had a Chinese Insurance Company by the waldorf and nobody passed out. Stephen i think there is a dichotomy. The local levels are receptive. The governors, the mayors all say this is fabulous. Youre creating jobs in areas where people may not have jobs so it is a positive. On the federal level, there are National Security concerns so they are much less receptive. When you talk to folks in congress, theyre less receptive. The executive branch is trying to foster and increased foreign investment. It is kind of a dichotomy. Erik do you expect that we will see more crossborder m a Chinese Companies buying American Companies . Stephen absolutely. For a variety of reasons. The day before yesterday the imf said the chinese currency is basically fairly valuable. Erik a matter of debate. Stephen it is political debate. I think economist will say their us is a percentage of gdp is 102 , within the norms of international trade. The valuation of the currency, when you had a undervalued currency, you do not want to invest abroad because youre going to lose on currency. That has changed. The companies have matured. Erik it is less a matter of what the imf thinks and more a matter of what chinese copies think. Best Chinese Companies think. Chinese companies think. Stephen politics in washington is such that they may not agree but i think, economist think this is fairly valuable. It is a great market. We are open and fair. Still the largest market in the world. The chinese want to be here and build their brands. What we see among the japaneses global brands. Everybody know sony. Can you name a chinese brand . Erik volvo. Stephen volvo is coming into the United States with a 500 billion investment which is not 5 million 500 Million Investment which is not part of our portfolio yet. Erik how difficult is it to track . Stephen very difficult. You have to do it through a combination of phoning companies, following the media looking at filings. Some of them are announcing it but some of these are nasdaq listed. Olivia lenovo is another example. Stephen that is west South Carolina is one of the leaders because lenovo has lots of jobs in South Carolina and texas. The message it conveys is is a real benefit to the american government. We are creating jobs in america. The focus is so much in washington on the negative aspect that this is a way to say olivia they are building islands of the middle of the ocean. That is kind of creepy. Stephen that is a different discussion. Olivia stephen orlins, great to have you here. Nebraska is shutting down its death chamber. The first conservative state to abolish in a decade to abolish capital punishment. Executions are now banned in 19 states and the district of columbia. Marine pilots are putting the joint Strike Fighter through its paces, making operational flights for a half dozen at 35 from Aircraft Carrier of the virginia coast. The jet has been delayed. The pentagon will buy 2500 for a cool 400 billion. The founder of pandora envisions ways to expand the site. He tells news, weather and traffic reports could be added to the surf service. Think there will always be people who want to buy people and own it and a large number of people who want to listen to music without advertising. I think there will be a larger audience that will pay to transact with an artist to make it connected. Olivia you can see more of bloombergs interview with the founder of pandora tonight at 7 30 eastern time on studio 1. 0 with emily chang. Those are your top headlines. Erik lets take you to julie hyman. Julie some of the movers here as we get out of the gate. General motors today, a callout for Morgan Stanley upgraded the stock to equal weight. It is trading at 36. Shares are going higher. It might have to do the commentary surrounding this. Morgan stanley says the buybacks and dividend raises not resulted in share gain. Morgan stanley says gm might consider a more radical move saying a make a deal perhaps. That is sending shares higher. This is one of the winners. Expresss comparable sales up 7 last quarter. Shares of 8 . Take a look at go pro those shares trading at a fourmonth high. The company ceo spoke at a conference saying the company is developing a drone and what is called a six camera spherical array which will help to record video and pictures for potential virtual realities. That would be an interesting new product. A check on helmet caps off done for the year. A check on how midcaps have done for the year. I am not the only one watching midcaps. An old friend of ours or old enemy depending on who you are and wall street is going to be appearing at the market amid cap conference. The former ceo of Lehman Brothers. Olivia i like midcap stocks. I was trying to figure out why dick fuld wants to make his big reappearance at a penny stock conference. I like the New York Posts take on it, the guerrilla in the jungle. The guerrilla back in the jungle the goldrilla back in the jungle. Erik he spoke at a college that is not the same thing as getting up in front of the podium and talking to a bunch of investors. Is there redemption after the financial crisis . Will be back. Olivia googles Developers Congress kicks off in San Francisco. You are looking at the bay bridge. In previous years this conference as seen larry page hold an impromptu q and a session. What can we expect . Who better to ask than cory johnson . What are you expecting today . Cory you can see people lining up. The doors to not open for another 45 minutes. The big event the differences between that big mobile operating system apple and google. A new version of their operating system, a new photo app that spun off of google plus, some iterations on their car software , plans for a potential cardboard virtualreality device. When you compare google to apple, it is like comparing say and orange to an apple. Google is not really good at making big announcements. They release things and talk about things in many phases. There is not a lot of drama built around an event like this. The point for having such a big event to announce a big product for products that of already been announced. It is Something Like 5500 people or more gathered in San Francisco to do some business, to learn and hear a little about what might be coming in the future. Erik are you getting any sense from developers as to what the next big thing for google might be . Even if it does not come in a big announcement, what is going to be the next android . The next search . Google experiments in so many places and comes up with a lot of products that do not get traction. Cory i think that is googles style to throw a lot of things against the wall and see what sticks. To be fair, the news from this conference is not going to happen for quite a while as people are just showing up. It does not kick off for another few hours. We will only know from the carpet bombing of press releases that starts to happen this morning. In terms of big movement, they talked about virtualreality at this event last year. Maybe they will do more this year. The android stuff, just yesterday the first car with android in the dashboard. It is the kind of thing were Big Development can happen in the future. Olivia how about android m . Cory there are not any sort of major project changes as this new release of Android Software set forth promises it is going to work more seamlessly. One of things about android, there are so many different versions that the flagship android 6. 0 m software is one version of that. There will be so many flavors offered that what any individual has could be different from device to device. Olivia i heard there would be fingerprint detection now standard. Im looking forward to that. Cory on some devices. Olivia i know you have a long day ahead of you. Cory will be covering the google conference. Stay tuned. Erik that is going to do it for Market Makers. We will be back tomorrow from a 00 to 10 00. From 8 00 to 10 00 with tony bartel. Stephanie will be back i think, so thank you very much. Olivia bloomberg tv market day is up next with erik. Olivia it is 10 00 a. M. In new york. Erik Avago Technologies line find broadcom buying broadcom. Betty the site is the only one threatening to pull its sponsorship. Why are so Many Companies staying so quiet . Erik after years of delays and billions of dollars in costs, lockheed martins f 35 jets may be combat ready. 2 good morning im betty liu betty good morning, im betty liu. Erik im sure its im Erik Schatzker. Betty julie hyman is in the newsroom with headlines