Transcripts For BLOOMBERG In The Loop With Betty Liu 20140807

Going to have to find alternative ways of getting their items cheese, american chicken, nordic fish as Vladimir Putin poses imposes wide sanctions. How would that affect us here . Is it that significant . Scarlet fu has more. It is seen as not a major issue for the United States, partly because the headline sounds alarming, but the Economic Impact is perhaps less so. U. S. Agricultural exports to total are less than 1 of agricultural trade. Be exact. That is because russia has placed restrictions on food steps including pork, turkey, and beef, by imposing unjustified sanitary measures, from russian perspective, not u. S. Standards. A big plunge shortly after the financial crisis, but then a steady recovery since then. Of course, we have seen a big decline this year in 2014 as the russian sanctions took effect and the u. S. Responded to that. This is something to keep in mind. As for the europeans, it it might be more of a hit, particularly used in european farmers my see less of a market for their goods. Russia is doing all it can to strike back against u. S. And european sanctions on the heels of russia are posing perhaps airlines might the restricted from flying over siberian airspace. European airlines to asia. This is a series of moves designed by resident Vladimir Putin by president Vladimir Putin to push back against these against this latest round of sanctions. It may not impact u. S. Producers all that much, but could this lead to further sections on products that we export to russia that could really count . It could be a precursor to more. Vladimir putin will keep it in his back pocket as an option. For instance, it covers fruits, vegetables, dairy products, and cheese, but in terms of essentials and necessities wine and baby food would not be included. These are all things to keep in mind. Reaching, bute the essentials may not be part of it. Thank you so much, scarlet fu, our chief markets correspondent. It has been less than a month since germany took home the 2014 world cup trophy, but leaders at adidas may not be celebrating their own victory. , sharests gear maker have fallen 39 this quarter. For more, Bloomberg News reporter in london with much more. Ryan . Is still twofold. The slumping demand for their golf gear is a big issue, and they have an awful lot of exposure to russia, which until now has been a good thing. Hit as well. Ing those are the main two reasons. People do not want to buy their golf gets. And even though sales in russia are pretty strong, when they turn that back into euros because, of course, they are a german company, it has been hurting them. You reported extensively in russia. How is it affecting adidas bottom line, but also other European Companies . The ruble depreciation issue is a constant for all of the European Companies still importing their goods. European companies are now producing within russia, which is why you have to look at the food bank very carefully because just because it says heineken on the label does not mean it was brewed in the netherlands. It is probably brewed in russia, in fact. That is something to keep in mind. Depreciation of the ruble, and also the economic outlook. Russia has been stagnating in its economy for quite a while, and now sanctions are putting even more pressure on in addition to the political aspects that we got today. All that is trouble for European Companies in russia. Ryan chilcote in london. Thank you very much. Hour, and shaking this the fugitive former nsa contractor Edward Snowden. His lawyers said russia will let him stay there for another three years. His one permit his oneyear permit for asylum expired last year. The lawyer said Edward Snowden has a job and is studying russian. He also has the right to travel outside the country but still runs the risk of being arrested in countries that have ties with the u. S. Lets move on to sports. Less than half an hour from now, tiger woods tees off in the pga championship in louisville, kentucky. It was not certain he would play the tournament at all yesterday when he showed up for a practice round. Tiger woods with drew from the bridgestone invitational because his back was hurting. You saw the pictures of him clutching his back and having trouble putting his shoes on. He has not won a major title in six years. Earlier this week, i talked with one of his close friends, teammate noted the gay. Teammate notah begay. He does not need to regain the form that he had around 2000. He can still stay very competitive if he is maybe 80 to 85 of what he was because he has that much talent. Competitive, but would he win another major . Let me be clear. We are done. Those are the words of Rupert Murdoch, saying his decision to back away from a merger with time warner, he is resolute. You people believe Rupert Murdoch . You only have to believe part of what he says sometimes. The reason why there is some doubt as because he has said stuff like that before. When he tried to purge to when you try to pursue dow jones, he said the same thing. At the same time, you have to look at the record john malone tried to buy barry diller tried to bend the dv industry and it did not work. With time murdoch warner. We are seeing what might be the twilight of the media mogul. Really . Why is this . The tv market, the tv business has matured in a lot of ways. The tension, money, and people Silicon Valley Companies Like facebook, twitter, google, what have you are these guys past their prime . They are billionaires, but they are not past their prime. Get its deal, does done that does not fly anymore. What about the comments he made . The first thing they said on the Earnings Call said they were not talking about it. Challenge oft the proving to shareholders that we can do better than what Rupert Murdoch had offered. They are doing well, doing a good job, but at the same time, the tv market is maturing. He talked about international expansion, looking overseas for growth as well as the internet stock. Hbo signed a streaming video deal with amazon, worth 100 billion 100 million if not billions of dollars. We are not there yet either. Not beenll has approved, and now you have murdoch backing away from time warner. Are sort of crying out this is the age of the media mergers. Companies get bigger and bigger. Maybe that was kind of exaggerated. It was exaggerated. The paytv Companies Like comcast or Time Warner Cable, they are hitting a saturation point in terms of customers they can nab. Right now they are fighting each other to grab pieces of the other guys customer base. That is why a merger makes more sense with those guys. Whereas the core members like time warner and fox they have enough scale, enough consumers that they do not need to team up necessarily. That is true for now, but in the next few years they will have to produce shareholders so they can grow beyond that. Let me refer you one part of an interview i did yesterday a thing orwho knows two about media mergers. This is what he said how the Time Warner Cable deal affects the industry. People are watching the outcome, and there will be a potential for that to happen, but that clearly is an overarching issue that needs to get resolved. That deal is so much bigger than anything else that needs to get done, all others pale in comparison. The that that he is talking about his regular approval for Time Warner Cable. Will their choice in cable be limited . Know, after this merger. There are other concerns about i amband penetration and sure they will want to extract some kind of concessions out of comcast to improve the deal, but it looks like they will probably let it go. But you agree that this approval is probably why we are not seeing other deals announced, right . The other sort of nuance around the failed fox time warner bid is that some folks are looking at length how lets look at how regulators look before we say yes or no on this. That is a factor. Rate to see you this morning. Coming up, the ceo of evercore partners, Ralph Schlosstein joining me. We will talk about congress and tax inversions. The controversial deal that lets sole u. S. Avoid paying taxes. Lawmakers say it is time for a change. Here is a look at Bloomberg Top headlines. Nestle plans to spend almost 9 billion buying back shares. Of sister lindabased maker kit kat bars and espresso and the switzerlandbased maker of kit kat bars and espresso coffee. Hawaii is preparing for two hurricanes. The storms are threatening to bring rain, flash floods, and mudslides to the island during one of its busiest months for tourism. It will be the first hurricane to hit hawaii in over a decade. When these is selling all its reportede wendys secondquarter revenue that beat analyst estimates, but earnings missed by a penny. They are known for square hamburgers and the frosty. It remains confident in its longterm outlook. And on a totally different subject. Boutique firmking ever corps is used to putting details together for clients, but just days ago it was the one making a purchase on its own. Evercore is buying isi, the economic Stock Research and Trading House founded by the same economist, ed hyman. Looking at what this deal does ceo ralphore is schlosstein. Thank you, betty. We have never talked about your own m a. Here is a deal that you have done. What is the overarching goal here for isi and yourself . First of all, this is about our clients and serving them better. The large corporations, their ceos and boards of directors care about those two things in interacting with wall street. Their Corporate Strategy and the m a transactions that execute that strategy, and their stock. This allows us to be deeply relevant and have lots of intellectual content and servo mob of those matters. It also allows us and serve them on those matters. To do businessus with the largest Institutional Investors in the world. Those pools of capital with activism and governance issues are increasingly important to our clients, and we want to be the firm the goto firm for that. So this is not a goal toward being a fullservice firm. Absolutely not. I think i have been on here 100 if not 1000 times saying that evercore will only be in businesses where we use our ideas, our intellectual capital, and our relationships come in and we are the only source of revenue and were the only source of revenue is seized. Agency equity business. There is a good reason why we do not want to be in those Balance Sheet businesses. First and foremost, we do not want to ever be in a position of a potential conflict of interest with our clients. If you own stock, if you own bonds, and youre trying to advise someone, you have a financial stake very often. We do not ever want to be and you do not want to model yourself on that. Modelingnot want to be our cell phone that. Second of all, i like sleeping at night. I dont like waking up at 2 00 in the morning wondering what some whale, whether some mammal, whether it is a whale or a guppy, is doing with you are still a boutique firm, right . We are still in Advisory Firm. I think we have outgrown boutique at this point. Our goal is very simple. Be the most elite Advisory Firm in the world. The stock did not react positively to this at all. Some people say it seemed like a very contrary and play. Why is evercore going into Equity Research, equity trading . In a business where they seem where they have seen declines and commissions are coming down . The same thing is happening in the Equity Research business that is happening in m a. The independent firms are gaining market share at the expense of the large firms. So even though equity commissions have declined over the last three or four years, isis revenues have actually grown. Very similar to the experience that we have had. M a has been basically flat. Rapid gainer of revenue and mind share of our clients. We are big believers in the independent business model, no complex, no Balance Sheet model. And we think that you can achieve growth in those businesses, even if the general market is not growing a lot. Even if it seems like it is stuck. One other point we believe this acquisition will actually ournce the growth rate in advisory business. How . Two ways number one, raising Equity Capital for clients. Our business grew from 6 million in revenues in 2012 to 25 million last year. Million to 35 million. Second, what people do not realize is this will enhance our ability to recruit the top bankers. The top bankers wants to be of service to their clients. Prefer a place with m a and equities. We will talk more about this. A lot of questions for you. Ralph schlosstein, president and ceo of Investment Bank evercore with me. Not everybody has given up on Atlantic City. The casino has postponed its bankruptcy auction for a week because he received multiple offers. What is going on on that front. Also, taco bell goes upscale. We will show you a new concept restaurant aimed at taking away customers from chipotle. You are watching in the loop live on Bloomberg Television, streaming on your phone. Im betty liu. Are slightlys higher at this moment. In about five minutes we will get jobless claims for this thursday. We will see where the job market is headed. Equity futures up by half a percent. We are on the markets again in 30 minutes. President obama reiterated his call to congress yesterday saying that it should to work it should work to stop u. S. Corporations from transferring their headquarters to foreign takeover targets so they can lower their taxes. He calls it unpatriotic. The debate over the tax inversions, which has been raging from the c suite to wall street and now from washington. I spoke to a number of ceos, some who exclusively offer their perspective on this kind of deal making. It is not something i spend any time thinking about, to be honest with you. It has not been on our radar, because if you have, as we do, domestic source income, it is a nonissue. Competence of tax reform. It does not make a lot of sense that you pay a high tax rate on foreign earnings and the same high tax rate when they come back to the United States. You should have one tax rate for all the unitary earnings of a corporation. The United States position is you are going to pay income tax on all your products wherever they are sold or made in the world, and we will give you a credit to taxes paid in those countries. What if they do not pay any taxes, you will have to pay us. It is antigrowth program. Nobody else does this. Once you Start Talking about taxes, for a company like ours that is focused on a fastgrowing marketplace, our focus has to be on our consumers and customers, and i think taxes is an output of what your core business is. The rhetoric around this, recognizing that these countries can which have u. S. Operations are going to be paying taxes anyway. Some of the rhetoric has gotten overheated, and it is a larger issue about what the u. S. Corporate tax reform looks like. What is best for the corporation, but what is also best for the United States . Bringing those dollars back into the United States where they can support american jobs and businesses, i personally think is the right thing to do. I wish they would change the law and adopt what is uniform around the rest of the world, and we would not have any of this nonsense. They would doh something, that seems to be what these guys are saying. We bring back in Ralph Schlosstein, the president and ceo of evercore partners. ,ou advised some of these deals and how do you feel about the ofsident calling these kinds deals unpatriotic . First of all, two points. Number one, every ceo knows that the most important thing to isating shareholder value running a real shareholderenhancing value business. Second border point or a residual, basically. After you have done a great job, what goes to your shareholders and what goes to the government . A really noncompetitive Corporate Tax system in this country. First of all, the stated rate is too hi. It is one of the highest if not the highest in the major industrialized countries. Depressant, aob job killer, and we need to fix it. The second problem is that our Corporate Tax system is ridiculously complex. It has swiss cheese holes in it. We encourage this, that im a and for everyone of these things , we offer a tax break here or there. So businesses that generate income from services pay higher taxes than those that generate income from production. But, ralph this needs to be fixed. You are close to the president , so what do you say to him . The president has come out strongly for comprehensive Corporate Tax reform. This is one of these said situations. You have the leadership in both houses of congress, the senate, which is democratically controlled right now, the house which is republicancontrolled. Comprehensiveor Corporate Tax reform. They probably agree on 85 or 90 of what is the right thing to do. Unfortunately, they do not want to Work Together right now. Yous this a situation where are separating politics from business . You support the president , but he has come out in criticism of deals that you have advised on, which are supporting ceos. They say, you know what, i am going to move out of this country because i do not like the tax system. Verse of all, we were on the fence. Astrazeneca. I do think that this is a defensive situation that requires a comprehensive treatment, not a bandaid. It may be that for the time being we are better off with a patch, but generally taxes reduce infections elsewhere. What thebout government is saying about climax . Clawbacks. Ut fan of not a big punishing companies. The job of a ceo is to maximize shareholder value. I will tell you a little vignette and we are not looking at this at all. My corporate view and government view a line here. I dont like the idea of making transactions purely for tax reasons because i dont think they create longterm shareholder value. But you look at our business, we pay about 38 , 37 tax rate. Of the money that we make pretax, 63 goes to our shareholders. 37 goes to the government. One of our competitors happens to be domiciled in bermuda. Rate. Ay a 23 tax to thethem, 77 goes shareholders and 23 to the government. If you do simple math, the ratio and 77, their shareholders are getting 20 to 25 more of the economic of every dollar that we produce for our shareholders. That is not a good answer. What would be a fair tax rate . I would say in the middle to high 20s, getting rid of all of the swiss cheese loopholes and having corporations pay a uniform rate across the globe but much lower. Could you ever imagine yourself in bermuda . I could imagine visiting. I dont think this company has much in bermuda either, obviously. Rough last night, who by the way made his first couplet Ralph Schlosstein, who by the way made his first economics editor mike mckee has a breakdown of economic numbers. Tolooking for positive news trade on jobless claims fall by 14,000 to 289,000. This is important because we saw tom fall a couple weeks ago this level, but that is during the period when auto plants are shut down for retooling. According to the labor department, that probably did not have an effect, so this could be a real number. We will have to see next week, but the Immediate Reaction of bond and equity markets bond yields have gone up because it suggests a much stronger labor market than we maybe even thought. Because the moving average has fallen to the lowest since february of 2006. It does appear companies are starting to look to add to the labor force, and certainly they are cutting way back on the number of people they are letting go. It could be a bright spot or a continuing bright spot. Lets switch over to what is going on in europe. In the ecb we saw that they kept Interest Rates at record lows. Reo druggie speaking live right now. What are you focused on, reo mario draghi speaking live right now. They do not have a whole lot they can do. They will start the Lending Program in september but they are not ready to go yet. Mario draghi is not expected to announce that yet. They will accelerate in buying assets, as the fed did. There is not a whole lot the ecb can do, but they face this problem of extraordinarily low inflation. 4 last month, and the instability caused by the against russia. Will go back to whatever fraser took a couple of weeks ago to calm the markets and keep things on track there. We are monitoring the ecb press conference, where mario draghi is speaking. We will bring you the headlines. You can watch it on our bloomberg tvplus ipad on the live event channel. Also coming up donald trump taking action against casinos that there his name. And soccer star rinaldo is putting his money where his mouth is. What he is doing in a very strange video which we will show you later. We will be back. Casino inersey Atlantic City has been the auction will be postponed for a week to analyze multiple purchase offers a receive. Also happening on the strip, donald trump suing to force bearing hissinos name to improve conditions or remove his name altogether. Julie hyman is here. And trish regan is here because she spoke with donald trump one month ago, right . About a week and a half ago. Julie, we first start with rebel revel. Revel opened in 2012, and it immediately we had sandy. That is when the first bankruptcy happened. And then of course there is the declining purchases of Atlantic City more broadly, and it has been tougher for casinos to make it there. Ironically enough, i realize my husband stayed there under couple of stayed there a couple of years ago when he went there for a concert. They were not getting enough traffic and that was a problem. The mayor of Atlantic City says that he thinks that revel could touch 100 million or 200 million in this auction. Good that considered a offer . I think anything is considered a good offer at this point. This is a city that has been so troubled for so many years, and you go all the way back even to the 1920s during their heyday, they were struggling to get more visitors to come to Atlantic City and stay beyond the traditional labor day mark. That is when they came up with the miss america pageant, to try and get people to stay beyond labor day. They have always struggled, but no more so now no more so than now. You look at the onslaught of gambling in every state around the country, so who needs to go to Atlantic City to gamble . You can go to pennsylvania. You do not need to go to Atlantic City anymore. And it is not pleasant visiting there. I grew up in philadelphia, so we used to go to Atlantic City because it was so close. But it is not a pleasant place. Contrast, was designed to be a destination. Contrast, wasby designed to be a destination. You can kind of understand. It now like,ing at alright, this is a place that is obviously destined for failure, and god for bid the trump name be associated with that. What is he saying . He is trying to get out. He wants his name taken off the buildings. He announced this just yesterday. I spoke to him a week and a half ago and asked him what he thought of having his name on the buildings. Here is what he had to say. I left Atlantic City eight years ago, having been involved. My name is on the buildings, and it is one of those things. But Atlantic City is a very sad situation. Too much competition. Your nameregret that is on the buildings . Atlantic city is a place i really loved. But a lot of people say when i left, that is when it went bad. About Online Gaming . Online gaming was supposed to be the new salvation because new jersey at first only limited licenses for Online Gaming to the existing casinos in Atlantic City. It was supposed to help their business. If you listen to projections at the beginning, they were high as 500 million, some said it was more than 1 billion. Instead, we are looking at a run rate per month of 10 million, at muchthe total smaller. I talked to an analyst yesterday, and he said there are s that are notnt accepted. Even though they have done a lot of advertising, there is not a lot of awareness of what is being offered. Finally, maybe the market is not that big here. In europe you have a large market for online gambling. Maybe in the u. S. It is just not there as much. Exactly. One thing Atlantic City is trying to do, they are trying to turn it more into a convention area. Breaking ground on you know, but, look, they have an uphill battle in front of them. The reputation of Atlantic City itself is one thing that will be tough to overcome. There is not a whole lot to do there. There is the boardwalk and then the rest of the city. And it is going to get worse because there are a thousand jobs that will be lost between now and the end of september as a result of some of the casino closures. Thank you. Julie hyman, senior markets correspondent. And trish regan. Do not miss trish regan in the players. Atck it out online bloomberg. Com video because we are all about gambling here. Coming up, the taco wars are heating up. What taco bell is doing to take on the competition. And one mans trash is another mans treasure. As sprint walked away from tmobile, who is looking to buy the company . Stay in the loop. Nvy. All it chipotle ane vanessa one gives us a taste of what taco bell has cooked up. Is the best of america in a taco. You will not find ground beef, the reader shells, or paper wrappers either. The middle one is called the southern squealer. It is a pulled pork taco. On the bottom there is a sweet taste and we cover it with pulled pork. Featuring 10 tacos the hot chick is a twist on buffalo wings. The 1 or, that is a Maine Lobster roll. Not my first rodeo features tested risk it. This is a hawaii style mahimahi. Company opens in california. We have tried to create a look and the feel is important to the experience because u. S. Taco is about a dining experience, and just as important as the food is the environment. You will not find food at the Huntington Beach shopper it Huntington Beach shopper. Shop. Huntington beach opening a higherend kfc location dubbed kfc 11. And it is sandwich restaurant in arlington, texas. It hopes u. S. Taco company will take taco bells success and Quick Service to another level. There is another large that it is a fastgrowing place in the category. We thought we could present an unique concept. I am hungry. Vanessa wong is the associated editor for bloomberg businessweek. Did you try the tacos . I did, and they are absolutely not what you would expect to come from the same kitchens as taco bell, so they are that is a good thing . I would say it is a good thing. They basically scooped out all the normal fixings in the taco the ground beef and cheese and replace them with american food. American food inside a taco. They are putting hawaiian pork,ahi in there, pulled buffalo wings. Very edgy not only in the food but the space and the way they designed it and decorated it. So why do they want to get into the casual area . Is the fastestgrowing part of the Restaurant Industry at the moment, which has suffered as consumers kind of watch their spending more carefully. So fast casual basically is the spot between traditional quick and a fast, cheap sitdown casual restaurant. So it is higherquality food than the traditional but with lower prices and no weight service as you would see in a sitdown restaurant. And you mentioned others like kfc, doing the same thing. What about expanding the u. S. Taco brantford taco bell . There is no timetable right now for expansion. They are scouting locations for a second restaurant, and i think the first location opens next monday so they are trying to get their footing before they expand any further. But yum brands is experimenting with other fast casual concepts. Novak hass ceo david said they will experiment with other concepts and perhaps bring them in to their existing concepts kfc, taco bell, pizza hut or possibly expand them into new restaurants. All right, vanessa, thank you so much. Richer thanhe 1 of we thought. We will talk about where they may be hiding their wealth. And Rupert Murdoch says he is done trying to buy time warner. We will see what the collapse in the deal means for media consolidation. It is time for todays bloomberg big number 10 billion. That is how much nike paid cer star run although rinaldo. He has signed on with another models facial fitness. The company says the product will keep your smile bright just like rinaldos. It is 56 minutes past the hour, meaning Bloomberg Television is on the markets. Equity futures are higher, and they have gone a little bit higher after jobless claims came in. A surprise decline down to below the 300,000 level for jobless claims. We are on the markets again in 30 minutes. Also coming up, dont touch that dial. Radio broadcaster Cumulus Media is in the midst of a transformation. We will ask the ceo how that is going. We are 30 minutes away from the opening bell. You are in the loop. Equity futures indicate stocks will open slightly higher. The labor market is getting stronger. The monthly initial jobless claims hit an 8. 5 year low. Saysresident mario draghi political risks could hurt economic recovery. Bank of america expected to pay a record settlement in the mortgage bond investigation. The penalty, as much as 17 billion. Sprints decision to drop its bid for tmobile has opened new windows of opportunity in the mobile world. One of those looking to take advantage, dish chairman and billionaire charlie ergen, who signaled yesterday that his company could be interested in buying tmobile. I would like to welcome Bloomberg News alex sherman, who has been following this story closely. Charlie ergen has said before that if sprint is not an play we may be interested. That is right, so this is not new in the sense of his interest. What is new is that as spring has pulled out back in may, charlie said we would like to buy tmobile, but there is no way we can compete with the finance of softbank. We are not going to get into a bidding war with my facade. That already happened once when buy it eventually. Charlie may be learned his lesson there and said we are not going to do that again there. Now with sprint out of the picture, dish is the largest is the mostgoal Logical Company to buy it. Probably for sense dish to own at least the majority of the control of tmobile. There is more synergy, both of these countries being in the same country. And dish has a grand plan for mobile. If you look at charlie ergen, he thinks the future of his company is in mobile distribution. Chances are he will want a lot of control on how the Global Network those forward. But he seemed to say also that nothing was going to happen until after november, right . Correct, after the spectrum option. Exactly. Options off the dish,um, at t, verizon, sprint they are all likely to participate in some fashion because they all need more spectrum going forward. That is how you keep your network fast. The question of front of charlie is, does he want to own tmobile or do a partnership with sprint . He spoke very highly of sprint there is aew ceo, so potential of doing some kind of hosting agreement with sprint there. If you read between the lines, he likes the Sprint Network better than tmobile. That would make sense since he tried to buy sprint two years ago. We had the ceo of Liberty Media on yesterday. He has been talking about, yes, there will be more consolidation among Cable Operators. Comcast, that, look, people have to get approved before we start seeing more of this in the pipeline. I think a lot of people are watching the outcome of that, but i think there will still be. E the potential that is an overarching issue. The deal is so much bigger than anything else that will get the. All others pale in comparison. Do you think one set of deals approved regulators, that we will see more mergers and acquisitions here . Themthink we will see particularly in the space that greg is hinting at, which is cable distribution. Inerty took a 27 stake charter, and john malone was upfront in saying he wanted to make charter into this horizontal acquisition machine. They are targeting Time Warner Cable, and comcast came up on the and and sold them to charter on a conditional deal on the backend. Greg is suggesting that after that deal is approved, all the other smaller Cable Operators they might start rolling up into a larger charter. That is the speculation. That charter will go one by one the seventh,f eighth, the ninth, the 10th largest cable operator in the u. S. Hes probably right from its content standpoint that a lot of these Companies Like scripps or amc or stars probably will get maybe the wait until Regulatory Approval until the bigger deals, but i would have said that before fox made its bid for time warner, so who knows . It is such an interesting game in the media and telecom world. Our Bloomberg News reported. Bank of america will be the latest firm to agree to a multimillion Dollar Settlement with the Justice Department over crisis era loans. This is the biggest fine yet to be levy. Bloomberg Weiss Bloomberg White House Correspondent joins us. What is different about the settlement and the ones we have heard of with j. P. Morgan and citigroup . Number, betty. It is enormous at 9 billion. A tentative deal has been reached, according to officials, billion to 17 million will be the total. To the hard cash paid Justice Department, nine billion dollars. Compare that to jpmorgans 13 billion settlement or citigroups 7 billion settlement. You have another 5 billion added onto this. No question about it. The largest settlement the Justice Department has ever gotten, particularly when it comes to crisis era loans. Bank of america has had to come way up from their original offers. While it still could fall apart, it looks like they are just about there. It sounds like the number that is staggering here. Anybodyne thing bring close to resolving these negotiations . What has been interesting about the negotiations between doj and bank of america is the stop and start nature. Bank of america was unwilling to go above some of their initial offers several times throughout the process. At one point negotiations completely broke down. The Justice Department claims they were close or officials claim they were close to filing suit against bank of america, but there seems to be a breakthrough on july 30. There was a call between attorney general eric holder and banks ceo. An, the bank of america brought their offer up, and that set the tone for what appears to be a solid breakthrough. Doubt an active area for u. S. Prosecutors, so who is their next target . What is next . We know for a fact there are definitely other banks in the pipeline. Attorney general eric holders top negotiator has made it clear that others on the crisis, their loans will be considered on the civil side of things. First, they have to finish the bank of america deal out. It is august and a lot of people are going away, so that adds difficulty. A crucial part of the deal is finishing up and agreeing upon the statement of facts. They are not there yet. Once that happens, they will move forward. Phil mattingly, our White House Correspondent. Moving and shaking this hour, juniper networkss chief executive officer Robin Denholm has been named to the board of tesla motors. Cofounder elon musk wants to boost production to 100,000 cars per year, and denholm has experience in the business. Earlier she worked for tesla investor toyota. At tesla she will be in charge of the audit committee. Bloomberg businessweek takes a look at the backlash over wealth disparity. We will ask Michael Fertik to weighin. One company we are watching this morning is Cumulus Media. They reported secondquarter results yesterday that fell short of estimates as it continued to absorb its acrid sharesition of fell nearly 10 on the news. They are down 40 so far this year. What is behind the decline and the outlook for the company . Lou dickie is the chairman and ceo of Cumulus Media and joins what are investors missing here . I think a lot of the advertising stocks have been under pressure over the summer. There was a slow in everett rising and you see that reported from a number of companies. That is all starting to change as we see the back half of the year improving. What is improving in the back half . Add conditions are getting better. You are seeing more demand. Demand was pretty tepid. It was a tough winter that led to a spring and early summer where advertising demand, particularly in the radio space, was pretty light. You say also that your results were affected by the absorption of westwood one, right . How many quarters do you expect that to last before you start getting cleaner numbers . Westwood one and closed at the end of last year. Westwood one is a content business that was part of our plan to, as we transform into an interesting Media Business built on a foundation of broadcast radio assets, westwood one makes us one of the largest Audio Content players in the space. Oneacquisition of westwood was the end of last year, so rationalizing contracts, product lines, and integrating the asset take about four quarters for it completely to become an integrated business. Here is the challenge, and this is why youre transforming your company from a pure play radio to now tv. You have also been in magazines, you are in digital. Keter just came out with some numbers where they show the share of advertising for radio is going to decline down to about 7 by 2018. The share of digital will be more than 30 . It will be 37 by 2018. That will outpace the share of ads in television. Digital will be far and above the biggest place where advertisers are going to go. But radio continues to shrink, and people say that the reason they are shrinking is not just that viewers are leaving. Also that digital share digital is taking you to share away from radio. You are seeing a shift to digital, no doubt about it. Advertising of country is about 185 ilion dollars. The digital shift 185 billion. The digital shift has been underway for quite some time, but you are seeing an equilibrium. So it been pretty flat, is different from what you are seeing on the print side, particularly newspaper, on gross area that is why as we look at our business, we think about our business as a foundation of broadcast assets. And then to build a very interesting business on top of that and stack floors, if you will. That is why we have westwood one we have bill nash. That we have built nash. Our advertisers saying that when we buy ad space, we wanted on multiple platforms . That is really the way they want to go now. Seeingeasingly you are that, and espn was a harbinger of that. What you guys are doing and bloomberg is the same thing. It is radio, television, digital, print, and events. Forrtisers are looking multiple ways to engage with their target audience, so that is frankly what we are doing with nash. It is 90 Million People in the u. S. That are Country Music fans, and we are building multiplatform on the channel proxy brantford country in that space. We are getting terrific interest from advertisers and large proxy brand for country in that space. We are getting terrific interest from advertisers in that space. Gettingg up, the rich richer. The 1 proves to be even more wealthy than we thought. Top 1 is literally rich beyond measure. The wealth of the super affluent is going uncounted. The findings add fuel to the raging debate over global inequality. Joining us now is Olivia Sterns, looking into the findings, and Bloomberg News editor matt miller joins us. You on thist with confirmation for a lot of people that a lot of the wealth is not counted. Basically the story is that we have been lowballing the ultrawealthy around the world. The reason is because their fortunes span continents. Any of them are in various access various assets and they are hard to measure. The top 1 also deliberately puts money into offshore accounts and are not responding to questioners about how much cash they have. What is also interesting, if you look at who is courting the most wealth and keeping it offshore in terms of share of wealth, it is the gulf countries and russia in terms of overall volume. Your job is to dig out that data and that money from these billionaires. Thats right. One of the ways you do it, you do not just hold off shore accounts, you move your entire company. We are talking about large private companies. One way to stay under the radar is to put your money into a Charitable Foundation ikeas founder does that. Dieter schwarz, who owns one of the largest discount read Discount Retail fortunes in germany, is able to elude the wealth hunters by holding it into these special entities that do not necessarily just point to him. You find most of the hidden are in Boring Industries . For a reporter like myself or the people who work with me, a boring industry like potatoes or food or manufacturing not talking tech or those industries tend to be more ripe for hidden wealth than tech, where you have swoons of reporters. Are spending it more flamboyantly. Tech has a wonderful reputation for saying something is worth far more than it actually is. Portions appear to be in traded companies, so it is easier for matt to measure. It is more transparent. It is also more deluges it is more diluted. To Olivia Sterns and matthew g. Miller very we are a few minutes away from the opening bill. That from the opening bell. Stocks you will not want to miss, right after this break. Welcome back. You are in the loop. Bloomberg television is on the markets, and we want to give you the latest in futures in the final moments before the opening bell. We saw jobless claims come in about half an hour ago excuse me, an hour ago. An 8. 5 year low for jobless claims. The markets again in 30 minutes. Lets count down to the opening with the top 10. These are the only stories you need to know today. Julie hyman joins me, and our markets reporter, Olivia Sterns, as well. 11 Al Corporation zones carnivAl Corporation owns 11 cruise lines. The firm cited valuation improving trend in expectation for yield improvement. Number nine is viacom, despite eating behind the biggest movie of the summer this despite being behind the ,iggest movie of the summer m talks Office Revenue dropped more than it had anticipated. Number eight is when these is wendys. They reaffirm the 2014 earnings and remains confident in its longterm outlook. It also announced it is selling off canadian operations to franchisees. Remount and staying in food and beverage. Makers of home coffee machines and cake up pods and k cup pods revenue fell short. Number six is the Parent Company of ann taylor, cutting their outlook for the Second Quarter. Per limoneira revenue fell short of estimates and sales slumped. Beforell report results the bell on august 22. No surprise when you have so many choices now. Overretailed country. We keep talking about the hourglass retail where there is a lot of action in luxury and a lot of action in the dollar store. Julie is our dollar store person. Fedexs number five. The Delivery Company stock was added to a focused list of citigroup. Fedexs favor. In sandsbling las vegas saying the recent selloff creates a buying opportunity. Down 22 so far since reaching a high. Its lowest level since october of last year. And windstream reporting a . 65 drop in secondquarter profit, missing analyst estimates. Windstream said the progress they made in the first half of the year has positioned the company well for the rest of the year. Number two, duke energy. Secondquarter earnings surged 80 . Said its International Energy business ledger for performance led to performance in the quarter. Bank of america close to reaching a record settlement with the Justice Department to end the mortgage bond investigation. That penalty as much as 17 billion. Far surpassing what j. P. Morgan and citigroup had to pay, all according to a person familiar with the matter. There is the opening bell on thursday. Markets are betting on a rate hike at some point in the u. S. I want to show you guys a chart of the day at bloomberg. There has been, interestingly enough, despite the talk of an interestrate hike, any gains in Hourly Earnings or private rages and salaries up only about 2 for both in just the last month. This is all according to some analysis by credit suisse. Researchers there say we may not see Interest Rates rise until the jobless rate falls below 5. 5 , which is a long way away from what the job market pays. I want to bring in a Global Market strategist at j. P. Morgan funds. James, would you agree . Everyone seems to think we will get an Interest Rate hike soon. We will get one probably in the middle of next year, but wage pressure starts to form after the markets tighten. You do not have to get the 5. 5 necessarily. Fact that wehe fell to 6. 2 over the past five years, pressure is building up in the economy. When do you think we will hit 5. 5 . That is a good question. We have been falling by about 8 per year. By the end of next year we could hit that rate. If that is the case and the fed is behind the curve, either they will keep it for longer and there is the concern. They will tighten sooner, more likely. Earlier than the end of next year . Maybe between march and june of next year. That is when they will have to tighten. They will be finished with the process in october. It would be odd that they would sit on their hands for 10 months before they start to raise rates. A that is not going to be problem for the equity markets. It is because the economy is expanding. Are you on the same page . I generally am. They willed has only raise rates if the economy is improving. Those are situations where the market is doing both. Themarket may be down in course of a week, but over the course of three months, everything is improving at the same time. Ofont think the initiation the cycle necessarily spells doom. You are expecting to see a rise in volatility, but with all the geopolitical risk ukraine, israel, russia it has not given this extraordinary level of forward guidance. Why do you think the economy will now pick up . It is a question of where the fed will guide us after october. I do think you are right because of forward guidance, the future will be dampened. But the where we are right now, we are not even close to the historical average of lower volatility. We have gone up in the last few weeks, but we were so well below come as you say. The average is closer to 20. Thatu told me back in 2011 these would be the headlines today, i would think volatility would be much higher. With all the deals are going on, the Second Quarter of this quarter, we had over 1 trillion in deals. It did not go over. Is, to whatto you extent do you think this is constructive . A lot of people are saying the mergers and acquisitions we are seeing right now is a response to a sluggish recovery, a bid to get topline growth. Instead of using the cash for capex, what they are doing is doing share buybacks, paying a bigger dividends, and buying up other Companies Instead of investing. My interpretation is they have a ton of cash on the Balance Sheet. Either you can invest in yourself, which takes a long time, or you can buy a company today and merge and have that accretive growth almost immediately. I do think this is good for the economy, the stock market. Cash holdings are simply too hi. We hope that translates into capex down the line because Companies Want to see organic growth. Jimbi we had jim bianco on yesterday. Continue at the same level in the next six months, that is a bad sign. That starts to mean we may see a peak in the stock market. We have come from low levels of day. The thing about the last few years, every january you get reports that this is the m a. Finally it is happening. Isthe same time again, cash at record levels. Something needs to be done about that. Given the low volatility, that is what is different in here, james . Taken over five years for Consumer Confidence to come back. That translates into higher corporate confidence. Over the past several years we have been concerned about a doubledip recession or excesses in the market. We are finally at a point where we are seeing unemployment ticked down to a 6 or 7 level. Over the gop will go up, and i think that is getting confidence. Corporations should be taking advantage of this while they can. Are we anywhere near a peak right now . I dont think so, based on valuations. I know people say that a lot. I think we are probably in the middle part of the market cycle. But if you look at earnings, the reason the market is up so much is because Earnings Growth has been tremendous over the last few years. Every earnings cycle last year posted a record earnings season, and we are seeing another posted today. Especially in places like small cap stops. , thank you. M enough, news that coming up, news that Russian Hackers data. Silicon valley twentysomethings are they making the world a better place . Judge just a joke on mike s serious, Silicon Valley . In this issue of boomer business week, we look at the issue. Issue of in this bloomberg businessweek, we look at the issue. Michael for to join this. Michael fertik joins us. Maybe you have occupy Silicon Valley now with people attacking the google buses and talking about high rent now. But is this idea about you have this arrogant tech broke, the guy building these companies or the girl building these copies, that you need that in order to change the world . That is a good question. By a friendrticle of mine. I disclose that. He asked me about this article a couple of months ago, just gearing up on it. He covers a lot of ground in the article, talking about programming the fugitive culture of Silicon Valley kind of frat house bros, the arrogance of the entrepreneur and if that is a desirable quality. Rent is going up. It covers a lot of ground. There is a nuance he is trying to map out, which it takes a certain kind of person to do a certain kind of thing in Silicon Valley. There is a liberal a terry and politics, an ideology that says anything is possible, we can do anything. Entrepreneurship and the stuff we do in Silicon Valley is not silly is not physically hard inbut it is certain ways. Most people think what you will do is dreamy or dumb or flaky or far out, so you have to have a certain amount of arrogance or tofidence or conviction continue to overcome obstacles. Every company, venture, has ups and downs. That is not unique to Silicon Valley. But in the early chrysalis days of a startup, it is even more seismic, personal, heart wrenching, heartbreaking. What he called arrogant may be more confidence than other parts of the piece. It is, michael. So if there are risks, do we jeopardize the usefulness if we start asking Silicon Valley to hold a mirror to themselves . That is a fair question. One thing philip one thing Silicon Valley is not good at is irony. We are a little less religiously sincere about itself. Change the world, make the world a better place. And everything we do is dripping with righteousness. Ofif we have more of a sense humor about ourselves, we would be better off. You can meet someone in Silicon Valley who will in all sincerity say yesterday he was swimming with the dolphins and yesterday he came up with a revolutionary idea about how to deliver frozen yogurt to your house. There are people here, most of us come into our trying to do something more remarkable that is free of the burdens of the past. Americans are good at the future. Silicon valley is especially good at the future. The compressed air on the front of the tip of the spear of the american economy. So burdening what we do with, whether it is the mirror or regulations, may not be the right approach, but certainly we are the people who want to get into the fight and mix it up and create new things. It requires a different kind of personality. A much more there was one example of the calledyoin the piece in a piece called yo. The only thing the app does is it sends the word yo to peoples phones. You could look at that on one hand and say when is the ridiculousness going to end and why are we funding Companies Like that. But later in the piece it mentions how this app is being used by militants in other parts of the world who are sending messages ofyo places they should not go because there may be a tax there may be attacks there. Lets connect those dots. That is new and we will bring to people, which does one thing and that is to send the word to people. But there is another element, one that venture capitalists took umbrage with a criticism of. This is what is annoying about the Silicon Valley response. Venture capital the kind feedback the lexicon calling i just thought it was obnoxious and dumb. That is the kind of moment where Silicon Valley does not have a good sense of irony about themselves. Isont particularly think it important, but it may be successful and useful. But we dont have to elevate it to something that is that it is a matter of religious and scientific significance. It is a map it is an app. We dont have to elevate it to the level of curing cancer. Curing cancer with an app called yo. Michael fertik, thank you. Back in two minutes. Time for the global outlook. We reported yesterday a gang of Russian Hackers has gained access to a billion sets of usernames and passwords. The question is, what do they do with all that information . For more inset, we are joined by trend micro chief security tom kellerman. We have not heard that they have sold any of this data, or at least a lot of it. Why not . Because there is a lot of the data out there. Supply and demand. There is a tremendous amount of stolen credentials and credit cards and debit cards that are for sale in a robust economy that exists in eastern europe. We have been hemorrhaging sensitive u. S. Information for decades now since 1995, and what we need to appreciate is security needs to be improved. Absolutely, because this latest attack, what this company has found, is that it is by far the biggest amount of data that has been gathered . It seems that way, but from my perspective, the numbers might yield little bit overblown. It could be a realization of multiple attacks over the past four months as we suffered a significant breach with the phenomenon where many websites were essentially leaking passwords over the past four months due to vulnerability. What do Companies Need to do, tom . Seeost Companies Need to security as being a functionality of their business, not a risk. Essentially Companies Need to embrace the fact that their websites will be attacked, will be penetrated. They need to test them for vulnerability. They need to move away from passwords or provide that option to consumers, and they need Protection Systems that allow you to understand when someone is already in your house. We have the bolt on the doors, the alarms, but you have to have someone come of this system in the house that acts like a rottweiler. How much of that spend is that going to be of your overall cost . I imagine that will keep going up. Lets talk about that. Realistically you have shared . 98 on the dollar for ecommerce and eufinance. Of that, how much is being reinvested in security . Less than 6 . Less than 6 of the i. T. Budget out there is being spent on it. Much of it . Hink how what should that number be, tom . Realistically, it should be between 12 and 15 . For an organization that has been attacked before, it should reach near 18 to 20 . What is the biggest thing a company can do to protect themselves . First and foremost, it they need to understand when they have been customized. The deploying every protection will be fundamental. As you migrate to the cloud, invest inyou need to nextgeneration Security Technology to protect yourself in that environment. Tom, thank you for joining us. Security officer Tom Kellermann joining us. That does it for today. Tomorrow, we will speak about the state of recovering luxury property. Are we gaining any value . That is tomorrow on in the loop. It is 56 past the hour. Im matt miller. Lets take a quick look 30 minutes into the trading day where the indexes are trading. You see green across the board and the s p and the dow, both. 33 of 1 . Somejobs numbers today and not discouraging news from the ecb. Treasuries here the yield on the twoyear moving up, and the yield on the 10 year and the 30 year and the 20 year not moving down. It is a story we will focus on longerterm. Investors are so sure that treasury yields will rise this year, they are boasting bets against the note, even though though wagers have been big losers so far. Remember, if the price goes down, the yield goes up. It keeps getting inflows. Joining me to try to figure out why buyers still try this test still find this trade appealing thanks for joining us. Why is this that such a big loser . It did not seem there was anywhere to go but up for yields. So far this year, Treasury Bonds mature in 15 or more years have gained 14 . Everybody going at the end of last year was convinced they would lose a lot of money, yet it has gained and gained. This one fund is a proshares trust, tbt. Fund. Billion dollar it has received 1. 1 billion inflow so far this year. It is down 7. 7 in the past month alone. Etf,se it is a leveraged it can give a bigger swing than a regular one, right . It is twice the inverse relationship to 20year or longer treasuries. How come investors continued to pile into the etfs, continue to make this bearish bid . They dont believe the rallies. They think the rally will die and pretty soon. By bloombergrveyed expected 30 year treasury note will go up to almost 4 by yearend. And it was down today . This is a pretty big move. If that were to happen, this would be a good trade to be in. But it is not happening. Overseas, today is interesting because german yields went negative. Is there any sign that this that is going to pay off in the u. S. Going to payt is off in the u. S. . What is the thinking . The Federal Reserve is paying its exist ready from the stimulate from the stimulus. They may raise Interest Rates by the end of the year. What is the economic backup . Up, isinflation ticking the economy accelerating . Third of all, you have so much cash around the world from the stimulus program, the ecb is expected to announce today what they will be doing and discussing how to accelerate stimulus parameters overseas, which will continue to fuel and suppress yields globally. It is not just in the specific they will go to look for yields elsewhere. Exactly. An interesting story that keeps on giving. Keep bringing us this story. We are on the markets again in 30 minutes. Market makers is up next. From bloomberg World Headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Paying the price bank of america will be hit with a record penalty to settle the case over toxic mortgage bonds. As much as 17 billion. Investors get the picture, snatching up fine wine, stocks and looking for alternatives to stocks and bonds. Equinox is buying luxury gyms from coast to coast. We talked to the ceo. Is Market Makers