Transcripts For BLOOMBERG Street Smart 20150429

Salesforce is working with Financial Advisors to field takeover offers. We want to get straight to it. Cory johnson in San Francisco what more can you tell us . Corey some Financial Advisors have been consulted with by salesforce after they received an acquisition offer. We do not know who the acquisition offers from and what bankers they have consulted with good but we have multiple sources with that. Furthermore, we see reaction the stock market shares of salesforce went bonkers as soon as we put our story out on the number terminal and continued to rise until the stock was halted just because of the volatility. The stock is up 12 . Salesforce is a very expensive stock by just about any standard. If we look at earningspershare , based on a pe basis, after acquisitions, it has not generated any catcher many years except for last year. But they have done a lot of acquisitions and their Main Business of licensing out soccer by the seat has helped them grow revenue substantially. Alix why do you think now is the opportune time to takeover offers when the stock is at a record high . Cory it has set many records as a high. I am a blastempty kind of guy. But i think i am a glass antikind of god. But i think they want more. In the cloud for all of its issues, its architect in the cell software, some cannot get close enough to the cloud and that may be the source of their interest in salesforce. Alix thanks so much for that breaking news. We have less than an hour to the close of trading. I want to go to julie hyman who is looking at the action on the street. Really saw the market come back from the lows of the session. Julie it has been reasonably steady and in a reasonably tight range, even after the fed statement coming out. Seeing more of a dip and then coming back up again. The selloff sort of being touched off this morning once we got the First Quarter gdp numbers that showed a lower revision than had been estimated at 2. 5 growth in the First Quarter. But many economists seem to be looking forward. We have seen benchmark oil prices at a fourmonth i. That was after fourmonth high. That was after them and for the First Time Since november. That perhaps raising some hopes that we are seeing a little alleviation of the glut. Gold future an the dollar going lower after the fed. Looks like they are taking the feds word when its as transitory and we will see higher rate sometime this year. Alix talking about the fed and their latest policy statement, llc makers acknowledging policymakers acknowledging weakness. It leaves open the question for when the fed may start raising Interest Rates. Peter cook is at the fed with more. Is june still on the table for a liftoff . Peter looking at this statement out today from the fed, it is safe to say that june is still on the table, but maybe less likely than we thought heading into this. The expectation was at the that the liftoff would happen later in the year. The statement itself technology is the weakness in the economy. The economy grows a slow in the winter months. Although growth and output in employment slowed during the first order, the committee expects Economic Activity will expand at a market at a modest pace. They think this lowdown is temporary, that these will see improvement. The reality is that right now we are not seeing improvement. Some people still give june on the table but still think the whole picture is heading down the line. Alix i am joined by my guests. Lets kick it off where peter left off. What is your prediction for the rate hike and what does todays meeting different at . Michael going no saturday night movie going. I think the fed is likely to be going in september. June, while not off the table, does not have a lot of probability right now. I would say that, if anything, given that the data has disappointed the downside and the risks are still skewed in that direction, there is still a chance they that does not change until december. Carl i have been in the september camp all along. Looking at this mornings gdp numbers, it certainly brings some doubt. It looks like what we saw last year at this time when the economy was expected to grow 1 in the first order. We got a fraction of that. Then it was a reduced to a 2 contraction. My concern is, while this looks like a repeat of last year, the sequel is never quite as good. We are not going to see the midyear surge like we did last year grind 4. 5 and 5 growth. A lot of the leading indicators are telling us we are getting off to a soft start in the First Quarter. Spending is not going to bounce back to the same degree as well. Within todays gdp report, a very big inventory bill. Even though Industrial Production slowed last quarter we still had inventories piling up. That tells us factories will continue to pull back going into the Second Quarter. Economists have been holding back to hopes for 3 growth in the current quarter. I think those forecasts need to be cut. Alix you heard what the fed said today. You get what carl is saying about the potential weakness for the rest of the year. What happened to the markets today . We have a 10year yield actually rise. Why . Lincoln it is clear that september is going to be the date. June is too soon and december gets into the holiday period. Traditionally, they have never hiked in the hot in the holiday period. They need to do one hiked before we get into next years election cycle and september is the place to do it. She has given herself and the committee a huge amount of space to say they can make one hike and not start a 25basis point premeeting progression like to have done in the past. But still wait well into the First Quarter or even into the Second Quarter 26 when they will do another rate hike which is in the middle of the election cycle. And then be done for all of 2016 given the structural weakness we have seen come out of this beginning of the Second Quarter. And as carl rightly says, the economic numbers, the trajectory we are seeing is nowhere know the kind of 3. 5 to four point 4 surge we are looking for. Alix why are yields down . Lincoln they are artificially suppressed by banks and funding needs. You are actually slowing down in terms of Economic Activity and banks are loaning based on Economic Activity. They dont actually have to go out and purchase collaterally. There are two structural issues on who the lenders are and institutional liabilities that need to be met given the kind of buying we have seen. You would think that those liabilities have been met for some time to come. So we will continue to see pockets, large moves like we saw today. Alix more volatility as we go forward. Talking about the gdp we saw today and then what happens down the road q2 estimates have not been coming down that much. And estimates for q1 have strongly diverged. What is the payback you are seeing . Or do you agree with carl that we are not going to get it . Michael we brought down our own forecast for q2. We were looking for a stronger rebound. The fed side, the consumer fundamentals are still pretty good. I think that is probably right. We see improvement on Balance Sheets. The labor market has been strengthening at ap good trend pace, and consumer confidence, while coming down recently, is back towards precrisis levels. But i dont they we will get quite the bounce we had hoped. Or maybe a bounce with a lag. The fed is still counting on the idea that the drop in Energy Prices will ultimately be a similars for the economy. But it now might not be in q3 and q4. If you look at the dock slot, the official speeches, they very much put emphasis on doing what is right for the economy. I dont think the election cycle or yearend will play a big role on when the fed goes. Alix no doubt this conversation will continue over the next few months. Thank you so much. Though this an interview with twitters ceo, dick costolo, and his take on the companys performance last quarter. In the next hour, Erik Schatzker sits down with bill gross. His thoughts on the fed, what he is buying, what he is potentially shortening. You dont want to miss out. Alix welcome back. Twitter shares are falling today. Investors are still reacting from the premature earlys release yesterday and a weaker 2015 sales forecast. What is next . Dick costolo is in San Francisco with brad stone. Brad thanks for joining us. Yesterday not the most glorious day in twitters 20months as a public company. What went wrong particularly from a revenue standpoint . Costello we have a great advertising business. We had a slight miss due to direct response ads. Brad define that. Costello costolo i am looking to reach this many people with this kind of message. Where a direct response ad is more i want to achieve this kind of a jet to of objective. I want people to click on my website link and fill out a form. Our direct business didnt scale as fast as we thought it would based on what we have seen over the last year of growth. That is what we are working on. Brad is that a factor of a new advertisers out of the platform or getting the advertisers to stick around . Costolo i think it is a combination of a couple of different things. Demand for deck demand for direct response ads. But i would not overemphasize this. Some of it was due to moving some of our direct response advertisers from what you might consider cpe pricing, cost per engagement, where there is cost for any engagement for a tweet or a retreat, to what we call cpx pricing, which is cost per objective. I only want to pay for when people click on it. So its a much higher bar. It is a much higher marketing funnel. Of course, you want to see the bids grow over time as they start to get better. Thats what we hope will happen. Broad you acquired a company to help with that. Was it a response to the softness on the platform . Costolo we have had a relationship with folks at telepratart. I knew josh and worked with him at google. He and his cofounder were getting started. Adam bain who leads our sales efforts, they have all been working with a know the folks at telepart well. It is a company, specifically with retailers and ecommerce folks, we plan on bringing them into twitter and leveraging their expertise and the other verticals in which we work. Brad perhaps on stabilizing for the stock was how it was reported. People probably know right now that results get out a little bit early. What happened and how do you avoid it happening again . Costolo we currently outsource our ir our website to a thirdparty. The third party knows your financials in advance of them being ready to be posted before market is. Only when we give you market close. Only when we give you the signal and x, y z. It makes you think about the reason for outsourcing things is because people have competencies that you dont particularly have, because they do it across a scale of companies. If that doesnt work, that is to be revisited. Brad some of the negativity we saw was on the was around the forecast for the Second Quarter. Where is the and you give 80 coming in where is the ambiguity coming in . Costolo in q1, we saw user growth from a combination of Growth Initiatives and seasonal growth new devices perhaps, etc. , and organic growth. We are not seeing the same kinds of trends in the beginning of q2 that we saw in q1 and we wanted to let everybody know about that. Brad we have been trying to let people know the story of your new products. Trying to expand the appeal of twitter. When do we start seeing results and a little bit of boost on momentum on the user growth side . Costolo i think everybody in the company would like these things to work wonderfully right outofthebox. The reality of Software Development is your large something and you iterate on it and it gets to a much better place sometime down the road. Our advertising targeting is something when we first launched it a few years ago did not work spectacularly well and has gotten germans the debtor. Gotten tremendously better. Brad i was reading a series of tweets from a venture capitalist arguing that twitters biggest problem is helping people kind of tune their feed. Tuning your feed, helping people get over that initial hump where twitter really becomes valuable. He was saying that out rhythms do that he s was saying that algorithms do that. Costolo what you really need to do is x. When i think of instant timeline, which is solving the how do i use twitter . Instead of seeing a blank screen, now you see a collection of tweets that we have algorithmically generated for you. We love that strategy. We really believe in the product. We like the engagement we are seeing with the first launch of it. I am confident we will do that. I do think there is a place for humandriven cure ration of moments, events i think there is a place for that. I think that works out for logged out users. Tonight ago, when baltimore unfolded, there were people live broadcasting that on periscope. So you felt immersive lee in the streets on what was happening on the streets of baltimore. There were local authorities on twitter, religious officials people on the street talking about what was happening. When you think about manually curating experiences and show people quickly, this is why and how you get value for twitter, i think there is a place for manual curation. And it serves logged, logout, and syndicated. Brad lets talk about periscope. One million users in 10 days. That is incredible. How big does it scale . How do you get it be on that group of journalists, people inclined towards exhibitionism to a broad used case . Costolo we are all really seeing crossovers from other talent platforms, which i think is great, and was one of our hypotheses when we bought the company before it launched. One of my favorite things about pairs go up as you have these prelunch hypotheses about what is going to happen, how things will unfold, and it is all happening. For example we thought when we bought the company that there would be all these use cases for it that we cannot even unmanaged yet and we are we cannot even imagine yet and we are already seeing them. We are starting to collaborate online using periscope. That kind of course that kind of crossover is great for us. When you think about those in conjunction with niche our service business, that really helps online video to build a career. You have a great ecosystem of assets that you can build audience for across the twitter ecosystem. I think the future of native mobile video is massive and we love the way we are positioned now with these assets. Brad it really did feel the past few months you were building a lot of momentum. Then credibility with wall street, some great product announcements, a great analyst a day was yesterday a setback . Do you feel like you and your team lost some credibility . Costolo i think we have been very forthright on all of our calls and our time with investors about what is happening, what we are doing and how we think about things over the longterm. You have to have a longterm plan and stay focused and execute against that longterm plan. If you start trying to constantly over correct for what we have to do this crazy thing the next few weeks that will take us off our longterm plan that will get us to tuesday, i just think that is where you lose your way. As people inside the Company Search you feel you are not focused on the longterm not focused on a Strategic Plan for the company, that is no way to run a business. We have a strategy. We are sticking to the strategy. We like the strategy. Everyone from made to the board to my Leadership Team is all behind it and focused on the same things. And we just have to keep investing in it. Brad do you feel any pressure as ceo costolo of course. Anyone who tells you, a ceo of a company with any number of investors, either private or public, saying that they do not feel pressure, they are lying to you. Brad what about job security . Costolo know you have a you have an entire company of people who are looking to you to lead them and you want them you want to be successful and you want to rally everyone together and articulate the motivation for why you want you have to be successful and show them those efforts are paying off. That is where the pressure comes from. Brad last question, yesterday, other than the leak that sounds like it was out of your control, is there anything you would have done differently . Costolo we closely talk about how we are communicating with investors in the market about a product and what is happening. I was supportive and 100 behind and led the way on how we did that and i think we made the right decisions. Brad dick costolo, ceo of her thanks for joining us. Alix thank you so much for bringing us that great interview with twitter ceo dick costolo. Furthermore, i am here with paul sweeney. We heard dick costolo say he is not feeling pressure from the board. He feels like he is aligned with the board. Do you feel there will be external pressure to sell twitter . Paul i dont excel. There is i dont think so. We have seen turnover and management. There is almost a 30 decline on the stock on this news. The pressure has increased in the last 24 hours. He was right then it is time for this company to execute. I think the next quarter or two will be critical to develop some momentum that they were able to develop over the next couple the last couple of quarters. They have lost momentum. It is clear. Can they start to build some of that credibility and momentum back in the stock with the Shareholder Base . Alix how do they do that . Paul it is execution and top line. User growth and conversion to revenue. Users and revenue. It is still a topline story. They faltered on the revenue guidance in the Second Quarter. That is what that is why investors are pushing the stock down. Alix so the next couple of quarters is key on the future of twitter and what is meant to happen. Salesforce is said to be working with bankers on fielding takeover offers. H Financial Advisors to help field takeover offers. Bloomberg broke this story. Joining me now is cory johnson and out sherman. Alex, salesforce. Com is a very important stock. Who could be a potential buyer . Alex it would be the biggest attack acquisition of all time if the deal goes through. You are counting on one hand more or less. It could be oracle. It could be microsoft. It could be s. A. P. Those are the three conveys a come to mind to begin with that have the firepower that would be able to buy salesforce, which just keeps growing and growing. Huge sales growth. And now they add even more to the market cap because the stock is up today. So it is a big deal when you tap on a premium. Alix does salesforce even want to sell itself . Cori what we understand as they have been approached. They would have to hire bankers. There are a lot of buyers out there. In these days of effectively zero Interest Rates, anything is possible in the magic of credit. Salesforce only has their plans to run themselves as an individual company. But it has not been a business that generates a lot of Free Cash Flow. Before that, they needed negative Free Cash Flow as a result of doing so may acquisitions to do that business. They have expensive plans to build offices here in San Francisco. That doesnt mean that someone else does not see this as a likely acquisition. Consistent sales of shares of salesforce, that is not an indication that he knows what everyone else wants to do with his company. Alix alex, you mentioned some potential acquirers, those big enough to do that. What kind of regulatory concerns might there be in tying up this huge behemoth like salesforce . Alex it is a legitimate question. Im sure before they agreed to anything, they would look at regulatory issues hard. There isnt all that much precedent for something of this size. But the world of Cloud Computing is really large these days. It certainly isnt obvious to me that something would be declined. But definitely there would be a big eyebrow raised among regulators taking a look at this. Alix we will continue following the story as it unfolds. We have more breaking news for you. This now regarding new jersey governor chris christie. Julie hyman has more on that. Julie regarding a former ally of his, david while stain, he is the ally who ordered International Traffic jams near the George Washington bridge. Apparently, he is scheduled to plead guilty to criminal charges tomorrow. He is said to appear in federal court in new york in newark. Jurors have been hearing secret testimony for months. So david wilestein. Will be pleading guilty to criminal charges relating to the socalled bridgegate. Alix thank you so much. All eyes on japanese Prime Minister shinzo abe today, addressing a joint session of congress. The week long trip has highlighted how the u. S. And japan can create a stronger bond in asia to counteract the growing influence of china. Part of that conversation Transpacific Partnership trade agreement. Abe u. S. Japan negotiations the goal is near. Let us bring the tpp to a successful conclusion through our joint leadership. Alix president obama yesterday reiterating his own pledge to defend japan in the wake of a territorial dispute. Pres. Obama we share a concern about chinas Land Reclamation priorities in the south china sea. Alix here to break down the stakes for japan, the u. S. And all of asia is time or like. Is tom or lick. Thank you for being here. What is the significance of japan and the u. S. That move continually closer together while china moves further away . What does that mean for the region . Tom the Bigger Picture for japan and the United States is some striking diplomatic successes that china has enjoyed in the last few months. In particular, the launch of the Asian Infrastructure investment bank, which is a chinese initiative. It has rapidly gain support from around 57 countries, most asian countries, some european countries. What it does is positioned china at the center of influence of asian developments. That really raises the stakes for japan and the United States on the tpp program. What it means is that tpp stops being a nice to have and starts being a musthave as japan and the United States tried to demonstrate their continued relevance for the have and starts being a musthave as japan and the United States tried to demonstrate their continued relevance for the economic region. Alix is the u. S. And japan behind the curve here . Tom if you look at the trajectory of the three economies it is very clear who is good to have more money to throw around in the region in the years ahead. Japans economy continuing to struggle to escape from decades of deflation. The United States only now coming out of the impact of the financial crisis. Meanwhile, china continues to record growth rates of 7 , 7. 5 a year. Most people expect that to continue for a few more years at least. And with that change and economic bounds comes a change in the balance of influence in the region. Alix by china has to work really hard to keep that growth rate up. The central bank has to go into overdrive to support that. What kind of Silver Bullet does the bank of china the peoples bank of china have to continue that growth . Tom what you are seeing at the moment is the peoples bank of china adopting an all of the above strategy. There are some troubling signs on growth right now. We sigh slowdown in the First Quarter. Some of the highfrequency data from the start of the second order has also been week. And the central bank of china is really stepping up its efforts to combat that. We had rate cuts at the end of last year and the force the First Quarter of 2015. What we are hearing about now, this is news reports rumors rather than a official announcement. But what we are hearing about is something similar to the ecbs ltr a program. The peoples bank of china offering chinas commercial banks the opportunity to swap their nonperforming assets for cheap credit. Give us your nonperforming assets as collateral. We will give you cheap credit which you can use to spur a new brand of lending to get the economy going again. Alix what is the impact of this expanded Balance Sheet of the peoples bank of china on gdp . Does it actually have the ability to lift it up . Tom it depends on the magnitude. And the peoples bank of china plays its cards pretty close to its chest. Alix the white line is the pboc Balance Sheet as a continues to grow. And then it continues to slow down in chinese growth, the yellow line. Tom the peoples bank of china is putting its bounce she to work in the service of supporting growth. Last year, we had around 2 trillion yuan expansion and the pboc claim on domestic institutions. So you had the loan from the central bank to the commercial bank. That is a 3 range of chinas gdp. If they expand the program, we could be looking at the same or a larger impact. Alix they have a lot more room to run than the boj in the u. S. As well. Their Balance Sheet is well below that here and japan. Tom i think it is a different game in Monetary Policy in china relative to japan and the United States. Central banks around the world europe, the u. S. , japan, they hit the lower bound. So they use conventional Monetary Policy. It has completely disappeared. China is a long way from that. So theres leveraging the Balance Sheet in greater ways. The central government, local government that taken together still 60 of gdp. What that means, relative to japan or the United States china also a has boost. Alix i read all your stuff. Thank you so much for joining us. Ben bernanke has another new job. Its the second in two weeks. Find out where he is working now. Alix ben bernanke has yet another new job. He is joining pimco as senior advisor. This is his second consulting agreement in as many weeks. So he works for citadel as well as pimco. How does that work . Mary that is a confusing thing for a lot of people. Is there a cross pollination risk here . Im sure the contracts are written very precisely and there is a lot of terminology and language saying, no, you cannot transfer information. Ostensibly, one would think they have guarded against that risk but it does have a little bit of optics problem. Alix it looks a little fishy. What would he be doing their . Mary clients, meeting with clients, talking with clients. Its kind of like a shiny toy you try out. Look at this new cool name we can get on board. They are using it for their investment strategy. They had him come in for their forums. And especially when Interest Rates are in the direction and risk, that is what they are talking about all the time. The most concentration of interestrate risks may be in the world. So having beens perspective on what the fed my do or where it is going, that will be huge for them. Alix does he have an inside track on the fed . Mary i met sure that they keep in touch regularly. Im not sure they have staffers that talk to both of them. I dont know if there is kind of an ongoing dialogue. I would think that he would have to step back. I think he would recuse himself from that because of the kind of conflicts. A little too early on the fear on the information, what would be ok sharing. Alix how much is he making . Mary for each speaking engagement, he gets 200,000 arjuna 50,000, if he is doing four forums a year, that is an easy million. For this kind of name, they are willing to pay out. So i would assume it is pretty high. Alix seven figures, two jobs, maybe more, who knows . Coming up, great quarter come on guys. Why analysts are so quick to congratulate companies on quarter earnings even if they do not deserve it. Alix here are the top stories we are watching. Twitter shares tumbling after a premature release of their earnings yesterday. Earlier, dick costolo told Bloomberg Businessweek what went wrong with the release. Costolo we currently outsource our ir, our website to a third party. The day you send the thirdparty your financials in advance of them being ready to post with explicit extractions explicit instructions only when we give you the signal and ask why, z and that is not what happened. That is unfortunate. It makes you think that the reason for outsourcing things is that companies have competencies that you dont necessarily half. And that may need to be revisited. Alix a Software Glitch used by pilots for saying to down dozens of flights for a second day. American pilots have been using ipads as navigation charts for the past two years. Buffalo wild wings will not be showing saturday night fight between Floyd Meriwether and Manny Pacquiao. It is an comfortable with the cost which is about 5,100 per restaurant. A percent of locations plan to show the site and will charge a 20 cover. We are kneedeep into earnings season. It has been a great quarter guys, at least that is what analysts have been telling them in conference calls. A great quarter, a great finish. Questec you for taking questions and for an outstanding quarter. That was a very good quarter. Everybody hates when analysts say that but it is definitely warranted. Alix drew armstrong dug into why analysts say these things. What is the pattern we have seen . And then the relationship to the s p and performance of stocks . Drew none. This is one of these things that analysts say to companies. Great quarter, guys. Fantastic quarter. We thought it would be really fun to look at how does the Broader Market do when there is a lot of positive sentiment. So we looked around seven years worth of data on how many Times Companies were told it was a great quarter and how the market performed in the corresponding quarter. And what you find is the top quarter we had ever was in the First Quarter of 2008. That was the First Quarter ever for great quarters, guys. Then the s p lost half of its valley. Alix what are we seeing right now . Drew we just finished up the worst quarter of great quarter guys. In 2014, we have 19 great quarter, guys. Quote is that it leading indicator something . Im not sure. Alix great story, drew. Coming up next on street smart, we have janice capitals bill gross. You do not want to miss it. The globe. We are moments away from the closing bell. Investors looking for clues from the fed. Data showing the economy rarely grew in the last quarter. We want to get right to julie hyman at the breaking news desk. It has been kind of a rocky day for stocks. Julie somewhat rocky, although the range was relatively tight. We have not seen a huge swing after the fed came out. That is because we did not have anything that was that shocking to investors. Talking about the risks to the economy are still somewhat transitory. This is on the heels today getting a firstquarter gdp revision that came in much worse than economists had predicted with the gain of only. 2 . All of that said, interesting that there was not more of a decline today. It seems as though many investors are still convinced that the fed is going to be raising rates later this year. If you look at where stocks finished out in the session, we are seeing all three averages trading lower. It is a pretty broadbased selloff. Energy is the only group higher in todays session. We are seeing some more action when you look at some of the other asset classes. The dollar, for example, a sharper decline there. The dollar finishing at its lowest level since figure 25th on this prediction that the fed will still be raising rates sometime this year. Gold prices also selling off in the wake of the fed statement. Alix thank you so much. Joining me now is Lisa Abramowicz and atul lele. Did i say that right . Atul yes. Alix the terrible gdp number, what do you think we will see in the rest of the year . Will we see a snapback in gdp or will we have to see economists revise their forecast downward . Atul we are bullish for a few reasons. The consumer out look is very soft. We are looking at Industrial Production which right now is midcycle. And we are going to continue to see Capital Investment grind higher. So we are more positive. Alix is that why the bond market made no sense today . You would think that you would have the terrible gdp number and a terrible step back that user up on the 10year. Lease and there is a lot of confusion on the bond world. People are saying lisa there is a lot of confusion on the bond world. And then treasury yields fall off. People had all sorts of different series but it was a different day. A lot of people wanted to say just because. Karl i think that lisa is onto something, some kind of global value trade. It was not what was forecast given the Macro Economic data in the last two weeks. So it is really confounding alix but you dont agree that we will see a snapback in the back half of the year. Atu l it will be on the soft spy. We are not seen the Forward Momentum in the economy that will generate job gains like we have been seeing over the last month we get that in two weeks time and this is also low. And when tom, it was down about 100 points, and you sought stocks vacillating for a fourth a, the really trying to look for some kind of direction. Within the s p you had nine out of the 10 sectors of finishing off by about eight points, and the dollar suffered its worst they in two weeks, so for a look at the days biggest equity movers, lets get to our senior markets reporter julie hyman. Julie . Julie we have to talk about another type of mover. And we saw what happened with oil, because that had more to do with the inventory report that happened this morning, that actually showed a little bit of a shifting, maybe a little bit of alleviation of the glut that we were seeing and because of that, we saw oil really surge. This search after those numbers came out, the stockpiles falling for the First Time Since november. And we thought airlines get hit during todays session, so a broad swath of the airlines falling quite sharply. Check out spirit. Delta on the list, american airlines, really across the board. The drop that we saw in the various airlines so that would be the big equity mover tied into the big commodity mover in todays session, alix. Alix julie, thank you for the deep dive into the markets. Erik schatzker is standing by with bill gross. Erik, take it away. Erik thank you very much alix, and i live in waiting a long time to come and visit bill gross here at newport beach. We got a fed statement. Any surprises for you in the fed statement . Bill gross they spoke about transitory inflation. We had a gdp number today. Erik kind of a hideous gdp number. Bill gross it was really hideous, a negative number, and i do not think the statement suggests a difference in terms of their attitude going for it. Hopefully going higher, and they think real gdp is in a 2 to 3 , so they will sit and wait until we get there. Erik so what conclusions do you draw about the timing of a rate increase . Bill gross some say if we get a strong report, perhaps it is back on, but i think it is off and they simply want to get off the dime. They want to prevent they can get out of bed and stand on two legs. This means an increase perhaps in september and from that point forward, that is a key and how quickly will they move back to what we know as a new neutral. Erik and what would that be . Bill gross to my thinking, it would be 2 nominal. The old standard was basically a 4 nominal rate and a 2 real rate and some of the fed numbers, a lot of those dots the blue dots they suggest that is still the number. I hesitate. Erik so as far as june is concerned, you do not read anything into the fomc removing that from the previous two a statement an increase in the fed funds target seeing unlikely at the next meeting . Hell gross i dont think so. They had a transition four or five times in terms of the language. And this is with inflation. Erik do you think it is important for janet yellen and are callings to get out of bed and stand on their own two feet . Bill gross i think low Interest Rates can have negatives as far as as well as positives. The fed has always sense that the lower the rate the better in terms of stability economy capital markets, stocks the slowdown in terms of wealth, etc. Etc. , but at some point when the rates are so low, you basically promote a situation in which business models, pension funds, Insurance Companies banks cannot earn what they are supposed to earn, so at some point, capitalism at the margin not totally, but at the margin against to break down, so i think it is important to move back to a semblance of that. Erik no zombies in a capitalistic economy. Bill gross there are always zombies. A real modern economy that has experience a high level of debt with 0 Interest Rate for a long time and as we know, not doing very well. Erik bill, ben bernanke is going to work as an advisor to your former colleague. Why is that a good thing for pimco . Bill gross well, when i was with pimco, we hooked up with alan greenspan, and he came for four or five years every quarter, and we had discussions, and i think it is a good move from that standpoint, and it is obviously not a it is a Public Relations effort. Erik it is a Public Relations expert . Bill gross of course, being able to hook up with an bernanke. That is one of the reasons we did it with alan greenspan, but we found that there were some very positive benefits. Erik what kind of value can a former pred fed chairman revived . Bill gross well he can provide, and she can provide, a sense of what the fed thinks in terms of how they approach a forwardlooking problem, such as inflation too low, or the real economy too low, and so that is helpful. And that does not mean a buy in. But at least you know what they are thinking. And it is always good to not fight the fed but to put on a coffee mug long ago to be there. Erik so you would hire him, if you could . Bill gross i have moved on in terms of my personal experience, and i am more than glad to read his weekly blogs and get information and spend the rest of my time in the markets. Erik is it right, bill, for a former public official, and lets recognize that there are few Public Officials who have held as much power, speaking at 250,000 a shot and presumably millions more with that dignity just signed on with with pimco and the other one at citadel . Bill gross well, i think it is the acceptable standard. Fed chairman right books. Politicians write books sometimes before they are elected, a lot of times afterwards. Politicians move on to k street in terms of lobby land and so whether it is right or not, in our view, in terms of the existing ethic that they should do that. Erik it sounds like you have sort of a lukewarm feeling about it. Bill gross well, i have a lukewarm feeling about politicians, and i can really sing on that one. Erik what motivated you to tweet about liquidity in the bond market today. Bill gross the lack of liquidity is very visible, if only by watching markets move tick by tic relative to what it has done. Erik you observe these phenomenon in on the run treasuries. Bill gross i do. Erik because you hear people talking about the potential of liquidity event in the treasury market less so. Bill gross i think that is true. It is no doubt the treasuries are the most liquid credit interest meant instrument in the world. You can still observe the difference and, of course other periods of time in financial history where liquidity has been at risk. I an not suggesting now is one of those points, but usually, erik, where systems become highly leveraged, and where it has to be deleverage if only at the margin then you can observe that. Erik you mentioned lehman brothers. That was the last liquidity event. There is a minor one in october of last year. Would it take less now to trigger a major liquidity event that it did in 2008 . Bill gross it depends on what less means and what you apply it to. I think lehman was a function, to any considerable extent with Interest Rates that are too high, and, of course, with banks and other institutions with not enough capital. We have changed to a certain extent, but if they proceeded without caution in terms of raising Interest Rates and found that the real Interest Rate to find that it was too high much like we found in 2006 and 2007 then yes, that is what happens to these economies. There are butterflies. Out there and sometimes there are Interest Rate butterflies, and sometimes there are other butterflies, like china, situations that one might not even imagine, but if you are levered erik we are levered. Bill gross we are very leverage. The world is levered and we are under the assumption that we are dealing delevered, but the world as a whole has continued to lever, and certainly china by 50 to 100 of gdp over the past four or five years. And there are these low Interest Rates. High debt, low Interest Rates can be very pacifying but you have potential problems. Erik what is riskier . Deleverage that the ecb or the bank of japan is creating or what you were just talking about, wof china is creating . Bill gross Central Banks can always write checks for themselves, and, in fact, they do this on an annual basis. People would be amazed at the fed and the ecb and the bank of japan, basically taking the interest they earn in the case of the fed, 4 trillion, and they give it right back to the treasury, and so what does it mean . It basically means the treasury is issuing debt for free and that the fed is absolving them of any potential interest cost for the next 20 or 30 years. Erik you tweeted last week that shorting the bonds was the trial of a lifetime. Are you still sure . Bill gross it was very interesting. The situation, i think expressing a lack of liquidity and the fact that investors are banking on mario draghi to buy or perhaps when he or the ecb does not buy, they look around. Erik given the commitment he has made, are you surprised . Bill gross only when i suggested it was the short of a lifetime certain Interest Rates would go higher, sort of a keynesian type of thing, but in the long run we are all gunners, but i think it was a remarkable shortterm move. Just explaining in real quickly, the german 30year bund about 30 five basis points, and typically over a long period of time, that 75 basis points bonds go up and down so much. If that is the case, if it is only a 75 basis points based on volatility, that means in germany they are expecting the policy rate to be zero for the next 30 years. And even a commonsensical person on the street could say, that doesnt sound right. Erik what traits are working for you right now . What trades are working for you right now . Bill gross dealing weekly markets are volatile. Markets are always volatile. And the question is, how volatile will it be, and today was an example for my case and when you still have the acb and the ranks of japan writing 60 billion, 60 billion euros, and in the case of japan doing their own thing, that tempers volatility, and that is my vet. As long as they are writing checks my best bet, in addition to shorting of the german bund is to say things are not point to change much, but you are not going to hear that. Erik what, if anything, have you given up on . What did not work . Bill gross i had something recently that did not work, and we see trades that we anticipate that the fed is going to move and it is flat, and i got caught up a little too early there, and i lost some money. Erik the janus fund is pretty hot right now. Bill gross it makes my evenings a lot more palatable. Erik bill, thank you very much and it is a pleasure to be here with you. Newport beach california, and alix, i will send it alix thank you, erik, for that interview with bill gross. Julie, the stock is down sharply after hours. Julie you can see that on my bloomberg terminal behind me the drop in the afterhours. This stand around 13 . What is behind it. They came out with an unexpected loss, at least unexpected by analysts. Analysts had been predicting a gain, and earnings per share so that is part of the problem. And it is below what they had been anticipating. Alix thank you, julie. Lots more coming up on street smart, and we will get more reaction to bill grosss interview on the other side of this break, and former new york giant tiki barber will join me with how players can prepare a financial playbook. Alix bill grosss comments and we have some guests, including atul lele lisa abramowics, and carl riccadonna. Is this reflected in the gdp forecast we have now . Carl i think we cannot cast judgment about whether we had entered the new paradigm until the economy has normalized. The Unemployment Rate has not crossed back to its neutral level, so we are still an economy which in many ways is in a lingering recovery from the recession. We are still at this very sluggish pace, and there is a case to be made that the economy has downshifted on a permanent basis. Alix and this is the only thing stabilizing. Do you agree with that statement . Lisa i think it could have repercussions. Can that cause volatility . I think we should not expect this time around what we saw in 1994, which was when the fed aggressively increased rates some 300 basis points in one year causing enormous capital outflow. Bill dudley said last week that in this case we dont think we should see disruptive outflows so i do think we can expect something a little more tame from that perspective. Alix atul what do you think about the low rate keeping zombies alive . There was another reason why there were some of the issuesat japan. U there were issues with japan. Atul therell be repercussions of the carry trade and sensitive assets, assets that rely on funds. That involves higher credit, and most important, they world will be expecting an emerging market crisis. Alix along with what kathyrn is saying, no, it is more calm. Atul it has been fueled by cheap u. S. And witty, and youre seeing a huge amount of debt up. We can argue about september. This basically ripped out the floor of funding from all of these. Kathryn if you do expect something more aggressive than what i expect, i do agree of the new normal. I think the inflation rate are lower. It is displacing low and even higher skilled labor, but i think the fed will ultimately only increase the federal funds rate to 2. 5 , and i think youll start seeing a flattening of the yield curve. It will go higher, but longer term, it will be held down by lower Inflation Expectations the slow growth story which i think was corroborated by dated today, which was good for emerging markets so it becomes all the more enticing especially because Interest Rates in the u. S. In the developed world have remained very low for a long time. Carl this gives hope. Alix lisa, bill gross talking about the law lack of volatility. Lisa people are scratching their heads. In fairness, the idea here is it takes smaller to raise to move the needle in this 12. 5 trillion dollar market. The biggest debt market in the whole world. There is data that shows that while the volume is outstanding the market has more than tripled or almost tripled since 2007, and it has actually declined, so if there is a massive move, people will be fumbling through this much smaller exit. Carl i think there is a clue. We saw the dollar backing off as well and maybe all of this capital inflows started to reverse course ever so slightly given that they will move more slowly, and also that they will perform not quite as well in a slow growth environment. The stock market, in particular. Alix thank you all for your input. Atul lele and kathryn, you are sticking with me, and lisa and carl always a pleasure. Lots more street smart after this break. Stay with us. Alix welcome back toalix stre et smart. I am alix steel. Julie hyman, on this set day, what is going on . Julie i want to point out what we are seeing with yelp, their shares down sharply after market hours after the company came out with earnings, and in particular coming out with a loss in the First Quarter, where analysts had predicted a gain for the company, and also a secondquarter forecast low what had been anticipated. Below what had been anticipated. The number of users declined. It is not clear if it happened again, because it is a slightly different metrics. We will continue to follow that. And salesforce, they were working with Financial Advisors to help field takeover offers, and that is after it was approached by a potential acquire were acquirer so we will continue to monitor that story to see if there is, indeed, eventually a deal. Also in the afterhours shutterfly, ifo to sharing website coming out with a secondquarter revenue forecast that is below analysts estimates. Earlier, we actually saw the shares higher, because even though the forecasts were below estimates, it looks like its firstquarter estimates had a narrower loss than had been expected, and finally, i want to talk about the company that made that famous or infamous game involving kim kardashian, if you recall where if you can put yourself in her shoes, and now they have a new partnership. Britney spears is the latest person who will have the opportunity to sort of roleplay as in her games, and also, i should mention bloomberg also came out with earnings its forecast short of estimates, but really be Britney Spears thing is what is grabbing my attention. Alix, are you dying to pretend to be britney . Alix there are people that i might want to emulate that i would buy the game four, which i will not reveal. At a changing of the guard at the Worlds Largest Parcel Delivery company, ups, after spending 38 years with the company, he will step down and matt miller spoke with him yesterday after Quarterly Results as well as about his time at ups. Mr. Kuehn we saw very good, solid growth. Exports around the world, over 6 , and the u. S. Business showed solid revenue growth, so it was a good quarter for us. Matt what do you do to hedge, if anything, against these kinds of currency swings . Mr. Kuehn we have a pretty good program, and we are not trying to guess the market. We are trying to call her in the results, so sometimes we will sell a way some of the upside to help fund protecting on the downside, and fortunately, last year, we did take a couple of longterm positions, hedging the pound and the euro, so actually, we are fairly well hedged through the end of 2016, at least for our major currencies. Matt what do you do and overseas markets, where you need to adjust to meet the change in currencies . I mean, do you lack the pricing power, or do you not want to raise prices there . Mr. Kuehn every day, we have a billion transactions that go from one country to another, so it is a very complex process and we do have to be nimble. In some cases, we have locks amounts in currencies, and we just accordingly. It is something we have to watch. Probably more significant is that these currency change have economic trade blows, so we are really a barometer. In the last couple of quarters, we have seen, not surprisingly, the european exports become more robust with the low euro making those more value, so we have seen very strong growth in exports from europe to the u. S. , double digit. Matt let me ask you about your forecast. You reaffirmed it, so i guess it is unchanged. The currency effects will balance each other out, or how does that work . Mr. Kuehn yes, pretty well. In nonhedged currencies, that is going to add about 20 million of headwind for the rest of the year, but the momentum of the business is good enough that we still feel confident that we can stay well within our guidance range, even with those changes. Plus you never know where the fuel and currency are going to go for the rest of the year. Matt as the cfo, youre going to step down. How has the transition gone . What have you done to prepare richard for the position . Mr. Kuehn well, richard and i have worked together for over 20 years, so we go back a long ways. Yes experience in our domestic and other businesses and has been my right arm man for some time, and so he is very wellprepared, certainly getting to know the street and participating in earnings and media interviews. It is a little bit of a new skill, so we will be going out and doing quite a number of investor meetings. Were going to do some press venues just to get him familiar with it. Alix thank you so much, matt miller and kurt kuehn from ups. Reporter from dow jones defects in the key components of the apple watch, something called the tactic engine it has to do with vibrations and sensing vibrations as you tap it in the watch. We do not have more details, but we will continue to try to figure out what is going on with that. We also want to bring you some breaking news from baidu, the chinese company. 1. 22. The estimate was a dollars 16. 1. 16. Its revenue for online revenue down from its fourth quarter, so watching those i do shares, as well, in the afterhours. Alix . Alix julie, thank you. We do have some news on greece. Moodys is downgrading them to caa2. So they are downgrading greeces bond ratings to below. A guest joins us. What is your reaction to this . It is basically a default category, expecting perhaps the may 1 and may 15 approximate payment to not be made to the imf, so will be content is there will be an 11th hour consensus agreed upon, but it seems they are really coming up against a wall here. Greece really is having a time coming up with this. Alix with this downgrade, with that affect your confidence that a deal could get done . Kathryn they are probably expecting a higher probability of default, but the fault alix what is a real default for greece . Kathryn the debt servicing for greece is already extremely low. It would really hurt its financial system, even more so than it already is. I think it moves raise to come to a conclusion and find what it needs to do to continue to pay its debt. More than they have done. Alix what if greece cannot pay the pension funds, which are due at the end of the month . Is that a default . Kathryn a default as a lack of payment to the imf internally or internationally. I think they would go with the domestic payment. However i think at this point, the government is trying to move more towards coming to some agreement with the multilateral rather than having to really push the economy even further down the tube. Alix we saw the finance minister kind of sidelined in the negotiations. What does that tell you about the urgency . Kathryn midi more towards a market friendly talk and coming to an agreement with the imf because maybe they are moving away from the leftist regime. I have heard a potential referendum or putting a vote for the maintenance of the euro, and that would likely get the thumbs up from greece. If that is the case, then alix i think it would give them the green light to take out the more leftist guys from the administration and come to reductions to payments for the pensioners whatever it needs to be to continue the financing going. Alix thank you very much, and just to reiterate, the greek on rating has been cut by moodys, and then we have Kathryn Rooney vera there. And coming up, tiki barber joins me to discuss the upcoming draft. Alix this week, former College Athletes will become millionaires in an instant. I caught up with former secondround pick out of virginia tiki barber, and during his career, he was a threetime pro bowler with the giants and went on to be in the ring up on her. According to him, a lot has changed in the last decade. Tiki barber a lot has changed since i was drafted in 1997. Social media is exploding about this kid or that did, and a lot of kids go into the draft, and interestingly, a couple of kids have opted out, including the top two kids, but for me, it is mindboggling. You are a 19, 20 21yearold kid, and your life is changing forever. You are starting that walk that you have anticipated in dreams about but you alix have no idea where you are going. Alix but you have no idea where you are going. Alix do you say, this is the team i want to play for . Dq barber there are some in the pit middle to late around to is happy to make a team and trying to prove himself, so my so much hangs on what they think about you. The problem is you do not know. They will tell you, we really like you. Alix i worked in tv. I get it. You are obviously not going to be drafted this year, but what are you doing with it . Tiki barber my company is dry a draft party with a current punter for the giants. We will have a good time with him. We also have started a product. It launched about late january which is a look at all talent their ad placements, their pr work, what they do in the community, what are their real skills outside of sports, and we put it in a database, and when we started, we were a b company, and we have completely transformed we like to say pivoted, to a b2b company, where we understand how to book talent and the price you can do it at. Alix how did you get here . We have heard about how difficult it is for players once they hang up their cleats, and one out of six players were broke within years of their retirement. Tiki barber it is interesting. About 18 years ago when i came out, it was not as popular to leave early, so for me, it was, first of all, getting a College Degree in understanding i was going to use that down the line and my career could be three years or 10 years, and secondly a little bit of luck, the question you were going to ask about, where are you point to be drafted, i was drafted in new york, and ice that my time here and got to meet all kinds of different businessmen and entrepreneurs, so that rubbed off on me. And more important, i think i had a mind towards what is next, edit is hard, because when you are a player, all you are thinking about is i have to win this game, i have to perform this year, otherwise, i am not going to get a contract, but it is getting easier and easier, because guys are realizing that they have a few years to make money in football, but they will have many more years to figure out what the rest of your life is about. Alix concussions happen very prevalent, and the nfl is selling with players for potentially 1 billion. Do you think that is enough . Tiki barber i think the understanding is starting to get there. You have to understand that when i started playing, or even when i finished playing, i had a concussion, and i came back into the game four plays later. It has changed significantly. It is much more prevalent with the awareness around the league guys understanding there are longterm repercussions for the pounding that you take. At the same time, i think the nfl is doing all that they cant, because there are guys who come from lower socioeconomic backgrounds, and this is getting them out, and they realize if they selfreport, they may not have a job the next year, so it is a very difficult proposition, and i think the leg league and the Players Union is doing their best. This that youre talking about is very, very important because there are some guys, not mrs. Ehrlich the future guys, but the older guys who are having significant issues with cognitive issues and other physical elements for helping to build this into the soontobe 15 billion business that the nfl is. Alix tiki barber. We do have some information and peter cook has more. What is going on . Peter this is a followup on the statement. The Federal Reserve today at 4 00 conducted a test of its teleconference capabilities with reporters. This is important for anyone keeping track of the fed and when the central bank may decide to raise straight because it all stems from a conversation i had with janet yellen, when i asked her to confirm if the fed was repaired to raise rates at any meeting going forward, not just meetings where she had a scheduled news conference, and her response is every meeting is live, and she said they have the capability at the fed to have a teleconference to update reporters and the world, if you will, as do exactly what they were doing. The test of this teleconference system was, indeed, to show in part they could do something at any meeting going forward, including have a scheduled janet yellen news conference, but i should note that the fed said this is simply a technical test, not an indication of any fomc action to come, but if anyone was wondering whether or not july could be on the table, this is one way to show that indeed the fed is preparing for that potential, at least down the road. Alix and a huge change from when the fed did not even do press conferences. Chief washington correspondent come peter cook, thank you. And we have a brick or a coming out of apple. Julie hyman at our news desk has the details. Julie there is an issue with the apple watch, which has apparently caused them to limit supply of the new device. There are a lot of hope spent on the apple watch and how big a device it could be. The issue is said to be in the tactic engine of the watch. We were talking about this earlier. It essentially mimics the sensation of being tapped on the wrist so that seems like a pretty important feature, component of the watch, so not clear. We have not heard from apple. We have not heard about what it is doing to address the situation, but again, a defect in a key component of the apple watch, forcing the company to limit supply of the device and, alix, as i said, one analyst said this could be the bestselling product for apple in the first 12 months. It is unclear at this point what the real demand is going to be. Alix we are not seeing a ton of movement in the stock. It seems to be the early adopters who have to have the apple product. Then there are those that wait until these kinks, which happen pretty much across all of their products in some kind of capacity get worked out. Julie yes, you will remember the situation with the antenna on one of the earlier versions of the iphone which they had to do with. This is not entirely unusual that this kind of thing has happened and as you say, it is sort of part of the process when you come out with not just a new product, a new iteration of the product, a new product entirely for this company, so it is not shocking that this kind of thing would happen. It is interesting when it is talking about forcing apple to limit supply of the new device, because, again, this raises questions about what is the demand. Is it limiting to the point it will constrain sales, or was it already seeing more supply that it had demand . We do not have the answer to that question. Alix so we will take that in stride when we get any kind of demand figures out of that. Julie hyman, thank you. Coming up next, what do kevin hart and bill hicks have in common . Theyre work is being made available through a new platform. Details on the other side of this break. Club of america and a ride. Giving a clear piece of advice, do not bet against warren buffett. Hbo and showtime asked a judge to knock out the unauthorized streaming of the upcoming fight comment expected to be the most lucrative boxing fight in history. Revenue from the las vegas fight is generated largely from a review and ticket sales, which could exceed 300 million. And who live hulu is looking for a hit, and it may have found one. It has struck a deal to show reruns of seinfeld. Variety says they are paying about 1 million per episode. Well, staying on comedy in the digital world, when it comes to being discovered comedians have another ally in the digital sphere, comedy dynamics, created to support anyone who once to be funny. Comedy dynamics is a producer and distributor of comedy specials, primarily comedy, so we make a lot of comedy and we sell it. You can see our work on netflix, comedy central, hbo, showtime. You name it. Is this new comers you end up attracting . Across the board, so we work with people on the way up. We work with very established people, and some you may not have heard of, so it is across the board. Our mainly for lack of a better expression, it is not really a rule, but it is all about polity, so if there is a comedian who has a voice, and he or she believes in what they are talking about, and obviously they are very funny, we will do everything we can to be in business with them. Alix what do you do with kevin hart . Brian there are several artists that he loves, so we are supporting the shows for him. It is money, relationships, and reputation. All of these costs hundreds of thousands of dollars to make, so on the low end, it is probably somewhere between 100 and a quarter million dollars, and in some cases, it is seven figures. If i did not have my other business i would not have an able to get into it, and in terms of competition i would not go so far to say we dont have any competitors. There are definite times when we are trying to get something and we do not get it, but there is no company i would say always beats us. If you times we have not gotten a special, every single one of those has been a separate, different company. Alix and you recently acquired an iconic show. Brian we are releasing everything digitally. Hulu roku android playstation, you name it, and then in august, we are releasing the entire catalog in a box set so a beautiful box set. Alix a special thanks to brian with comedy dynamics breed that is it for street smart, and tomorrow, Manny Pacquiao will be on the show. Dont miss it. John i am john heilemann. Mark and i am mark halperin. You might want to consider a certain tv show. With all due respect. On the show, baltimore, but first, hillary clinton. She had her campaign in a video where she did not say much about anything. She then did some smallscale event in New Hampshire that many thought were equally un, but today for the first time, she