Transcripts For BLOOMBERG Market Makers 20131218

The driver seat heads for a collision. This is Market Makers. It is a wednesday in new york city. I am Erik Schatzker. Will be with us. She is on her way down to the New York Stock Exchange this morning. We will begin with a big shakeup in the sports and media industry. William morris and silver lake are buying img. You could call it the jewel in the crown. Lets mix it up. Lets start with ari emanuel. Img he coceo of excuse me, wme. What did he say . If you thought he was a big deal before, he is an even bigger deal today. He is very confident. Ari has brought together two agencies in the past. He has taken on a bigger fish by buying William Morris back in 2009. He feels very confident about his ability to combine these very people centered businesses. The issue with this one is that there are so many other competent infectors because he is buying a business that its very different from his business. Is a media rights business a licensing business, a College Sports business. That is something that is new for him. At the same time, he is bringing more leverage on to the business. He has to manage that site as well. There are about 2 billion of debt with the combined companies. Img we are working for this guy . They dont know what the culture clash will be like. Img is an international business. There was a certain way one conducts himself at the club when doing business. It is not exactly the hollywood, look at me way. It they wonder how that will play in the college business, in gainesville, in auburn, alabama. Will William Morriss culture play well with the clients that img has . What is the best approach for him to take . Leave well enough alone . Let those guys do their business . That would be the Warren Buffett way. There are the reason why. We like what you are doing, so let them do what they do. That is one approach. The problem is we dont know what the strategy is yet. Even the people working the deal said it is bold, innovative, now lets see if they can carry through on the strategy. The answer from the folks working on the deal is, i dont think they forgot the strategy get. There was a stark lack of detail throughout the entire project. It is always going to be much more important for them to articulate that to their internal agents. You want to keep the guys around it to the College Sports business. Do they stick around . Are they happy . Here is the nugget. George pine built the college business. A handshakehad agreement to become the ceo of the combined company had cbc won the auction. Has no such arraignment arrangement with William Morris. That is a big question. Lookup people understand what we talk about. People think about Roger Federer when they think of img. An athlete who is a client. You alluded to the sports business. Lets give people an idea what is img do . How does it make money in this business . What might wme bring to the table that makes it a Better Business . One of the things they have done very well is that they have managed to bring big sponsors to local sports. They have nationalized College Sports. They have been able to bring big ,oney, by selling merchandise by selling radio rights, media rights these are big contracts and their longterm contracts. Where, on the agency side of the business, the average sports contract is maybe 10 years. For img woods was nice and Roger Federer they dont make a lot of money. Most people dont get that. It is nice, it is a gem, it doesnt really pay the bills. You have the college division, you have international. India, deals with cricket academies, basketball academies. They have the mercedes fashion week. Brady. They are about creating content and licensing the content out. The truth of the matter is that there is something wrong with the sports business because it is not perform as well as anticipated and that is why they did not get as much for this business as some people might have hoped. It was a loss that they added back into their profit numbers that the buyers were very skeptical of. From the img standpoint, they said it is a onetime thing and that is why we added it back in. You are talking about sophisticated financial plers taking a look at your books. It was obvious from day one. I talk to somebody yesterday bought imghe guy who for 800 million a few years ago and was hoping to turn it into a huge business. He said that teddy would have taken it off the market and waited. That is what is so interested with aeg. The trustees of the estate wanted to unload. That is the most frustrating thing. There is a person running the processor did not own the business. That was a potential copycatting factor. Thank you very much. Talking about wme buying img to create the worlds biggest Talent Agency and much more. Tag. Billion price ford says 2014 will be less profitable. Why the Balance Sheet is being weighed down with the cost of bringing a Record Number of new cars and trucks to market. Forecast is for 7 billion to 8 billion in pretax profit. 5. 5 a bignged move for ford. Jamie, lets up to put this into perspective. How bad is this news . The way forward is spitting it, it kind of wants to think it is good because it has to do with all of the rollout of these great cars. It is not that bad of news. When ford goes out to make an announcement and things have been going so well in the Auto Industry like they have, peoples hopes get up. It put out a release yesterday that said they will update the street. It may be a big dividend increase. Maybe they will raise their outlook for 2013 middecade. Instead, they put up a sign that said there will be a lot of cost around launching these vehicles. ,ooling cost in the factory selling old models a low price , investmentrowth story. The earnings will not be there next year, as great as they are this year. He will have to wait a couple more years for things to keep growing further him to get close to that 8 million target for Global Annual sales. Why didnt more people see this coming . Aresell side analysts broadly speaking bullish on ford. There is only one person with a cell. It is not like the Auto Industry is rocket science. I guess what i am trying to say is do we believe the spin . There are two parts to it. Having to do a little mind reading here. What is the street expecting and what are they receiving . Two things to think about ford has had the industry is so taut right now that a lot of launches, beginning the manufacturing of these vehicles those are bars if you didnt recognize them. Unfortunately, we just lost jamie butters. We will be back with more on the ford story. That is a big development. Ford shares dropping. 5. 5 is enough. Especially if you are the ceo around whom there is so much speculation. Lets take time out for the newsfeed. These are the top business stories from around the world. Ben bernanke and other policymakers are wrapping up one ay meetings. St twod will the fed start backing off its easy money policy . A News Conference at 2 30 eastern time. Government is selling off assets to help finance their bailout. Paulson is not commenting. Sold forng tickets the second biggest Lottery Jackpot in american history. They will split a prize of 636 million. Tickets were sold in san jose, california and atlanta, georgia. If no winners were drawn last night, the jackpot could have had a billion dollars. We will be back in a couple of minutes talking about going public. With stephanie ruhle. Amc makes its trading debut this morning. Abouteater chain raised 330 million in its ipo. Stephanie is down with the amc president on the floor of the New York Stock Exchange. Take it away. Big night at the movies, big day at the movies, Erik Schatzker. I am here with ceo, jerry lopez. Thank you, stephanie. We have seen a bunch of ceos price at the top of their range. You took the lowlands of the range. Why . Betterhought it would be to allow the stock to come up based on demand. We are happy. At 18 it is trading above 19 at the moment. Giving investors pretty quick return. We thought it would work out that way. It is better when it works out the way that you thought. What will you do with all the money . We will retire some debt. We will continue to invest in the business. Have been in a pretty and extensive Capital Investment plan for the last couple of years. Invest inntinue to the Customer Experience in every one of our buildings. Is that going to raise ticket prices . It depends a lot on where you are on what part of the country you live in. The inflation in ticket prices is less than the rate of inflation over any period of time you want to look at. Good value to be a proposition for couples and families for entertainment. The idea is delivering value. Some of the experiences are more expensive to deliver. They will be higherpriced. Some are not. Moderate according to experience and supply and demand in every market. It is still a pretty good Value Proposition to come to the movies versus just about anything else. Infor the most part, you are new york and l. A. Do you plan to expand . We will expand in the markets we are in. We are also in chicago, kansas city our home base. We are all over the u. S. Three dozen states. We tend to be the number one or number two player in 20 of those 24 markets. Do you feel the heat to need to expand more . Regal has gotten a lot bigger than you have. And they do very well with their circuit. They have about a 20 share of the business. We have about an 18 share of the business. We like ours. We will execute against our ideas and our plan. How about your positioning against the movie studios . Who has the upper hand . I dont think it is so much about the upper hand of lower hand. We only each other. I need their movies, clearly. It is the number one people come to the theater is to enjoy a movie. The work that we do also helps them. The ultimate value of any movie is driven by the theatrical exit success or lack thereof. It is an art form. It is exciting. We love being in the movie business. At the end of the day, we need to studios and the studios need us. Who has more control . Are to say. They control the movies. They have the production and marketing budgets. We control the exhibition experience. We control how you enjoy the movie. They are the producers and we are the retailers. It is no different than the retail and vendor experience in so many other industries. This not really about control, it is about how to we maximize the opportunity for both of us. Would you like less big releases to give them more time in the theaters or cranking them out . I think the business is in great shape. We had a recordsetting year in 2012. 2013 looks to be every bit as good. We want a steady supply of movies. We want the studios to put out any as many movies as they can. We have plenty of bandwidth. Plenty of capacity. We have more of the 24 and 30 screen buildings than anybody. The more movies that come out, the better they are. How important is china . We are u. S. Based. Your own by a Chinese Company that just took us public. Our business is u. S. Based. You were the movie guy. What was your number one movie of 2013 . Personally, there were a lot of good ones. Gravity was a special movie, i thought. It right story come a superbly , superblytight story filmed you had to enjoy it in 3d. There you have it. I continue to stand alone with despicable me 2. Thanks. Congratulations. Stephanie, see you up here in midtown soon. , the boom inback farmland may be coming to an end. Corn prices is down 40 . Living off the fat of the land that was the reality for many farmers over the last couple of years. 800,000 combines. Is in peril. On the biggest worker worry facing farmers in the coming year. The worry is what will the trickledown be to the land. What will their land be worth . Crop land value is up 13 this year. Those two catalysts were really record high corn prices and low Interest Rates. Real asset traits that has held up. You need the cropland to get a loan from the bank. It is your collateral. If that decreases in value, it is more difficult to get a loan. Thatw certain can we be persistently low corn prices will translate into lower land value . There are two schools of thought. On the pessimistic side, it is possible that Farmland Values could fall as much as 30 over the next three years. I talked to one indiana farmer about what corn prices and land meant to him. Regardless of what grain prices are, if you bought an acre of land for six or 7,000 per acre, the volatility of that comes back to the markets. Meaning that this farmland is but theterm bet, volatility is still very difficult to deal with. Weakening demand in china. Will the ethanol mandate go away . Farmers are feeling the pain. There are some old timers out there or people who have run family farms for generations to feel like they have seen this movie before, back in 1980. It was really painful back in 1982. Use a crop value just completely deteriorate. Why wouldnt the same thing happen again . The target rate is still very low. It doubled back in the 1980s. As long as it stays low, that might help the real estate value. I was speaking to Capital Economics and we were talking about what farmers and up doing with the land theyre not very leveraged this time around. They were back then. Not a lot of people bought farm at the top. Their debt is somewhat protected if they do see a deterioration. Owner,ou are a farmland you have to be concerned. Especially if you are looking to sell. Thank you very much. When we come back, want to be a crash test dummy . Live from bloomberg thisuarters in new york, is Market Makers with Erik Schatzker and stephanie ruhle. If you have an enormous fortune to pass on to your heirs , 40 of it will go to the government in an estate tax. But the law happens to be full of loopholes. One particular loophole is so effective and popular that it has cost the government about 100 billion in taxes since the year 2000. It is your job to cover a growing industry tax avoidance isnt it . Thats right. Lets talk about this particular loophole. It is called a grat t. It stands for grant or retained annuity trust. A complicated tax maneuver. It was created by congress to close a loophole that had existed back in the 1980s. The way they created it created an even bigger loophole. Lets explain to people how it works. We cooked up a piece of animation to explain how it works. You want to give a gift to your heirs. We are using Sheldon Adelson as an example. If you give it directly, you have to pay a tax. You give it to a trust and then you have the trust give all the money back to you. , ife it is in the trust your assets happen to go up in value, all that extra gets to go to your heirs. Because there is no cost to doing these things, you can do it again and again until some of them go up and you can transfer it to your heirs. There are billions of dollars at stake here. His fortune is worth more than 30 billion. He has managed to pass half of it without paying taxes using these methods. How much is he saved . Billion 2. 8 those are conservative calculations. We make those calculations on the basis of what . I would assume they would like to shield as much of this from the public eye. Tax returns are all private. You can see it because he did all these transactions whith as company stock. You can reconstruct how he did it by putting the money into these trusts and taking this out again. Who else is involved . Lloyd blankfein, the ceo of goldman sachs. Availed himself of this provision. Mark zuckerberg of facebook. Charlie ergen from. Dish. Ralph lauren. 100 billion. How did we come up with that . Every year, the estate and gift tax system rates is about 14 billion. Since 2000, the guy who set up this technique estimates his technique has cost the government more than 100 billion dollars. No one really knows for sure. That is about a third of all the estate and gift taxes collected during that time. He is a lawyer and an accountant . He invented the original loophole in the 1980s. He saw the error in what they had done and took them to court and proved that there was an even bigger loophole. Here is what i want to know most. How does this guy feel about this frankensteins monster that he helped create . He is a tax lawyer. [laughter] no one is doing anything illegal here. Do tax lawyers feel good about the things that they design a tax avoidance scheme that is legal and which it would appear dozens of extraordinarily wealthy americans are availing themselves of . Any morenot his fault than Sheldon Adelson possible. It is congress who created these rules. They are living by them. There are two kinds of people watching this. People who say, i got to get in on that action and people who feel outraged. Lets talk about the outrage folk. President obama has proposed narrowing this loophole. That has gone nowhere in congress. Frankly, obama has not done much to push it either. Thehanks for bringing us story. The growing industry of tax avoidance. He is the man who covers it. When we come back, we will be talking about Holiday Shopping. It is almost over. One week before christmas. The numbers a suggest you have not done enough gift buying it. What can you expect this weekend when you hit the streets . Our retailers going to have to discount merchandise in a big way come december 26 . If you missed any of our interviews, you can watch them all on apple tv a brandnew experience. Live on apple tv. You are watching Market Makers. I am Erik Schatzker. Stephanie is on her way back from the New York Stock Exchange. Is last minute retail rush underway. There are just seven days until christmas. Moreush might be a bit frantic this year than normal. According to research, you have been procrastinating. It less than half of all Holiday Shopping has been completed. N is back iran Market Makers. What is going on here on Market Makers. What is going on . The real key this year is that nothing new and exciting. Items people are coveting are things that have been on the market before. The consumer is saying that i dont need anything new because it isnt there at the consumer is saying, i dont know what to get people. The thing that amazed me more than anything is i ask people what are they getting . Or what do they want for guests . They are asking me what they should be getting. You can put the blame on anybody you want there, but at the end of the day people have to find things that appeal to them and appeal to the people they are buying for. Is there anything hot . There are the new consoles and in the videogame business. Some new and innovative broody products beauty products. The hot items are the accessories for the electronics. Basically because you cant think of anything else to buy. Boring. You write a blog. Had aght your latest post number of provocative points. I want to start with this one. Look for deals to be emailed, texted, shared, and even on air with special hours and special savings. Retailers will be looking to sell out before christmas, rather than sell off after christmas. Started . Already it is incredible to see how many emails consumers are getting with offers of twoday sales, loyalty packages. It is going to start today, where the retailer looks at the weekend, saw that they did not make the numbers they wanted to get they will start to put in the special sales. But for the deals to get even more aggressive than retailers planned on doing for the last seven days to the holidays. How did retailers miscalculate . Coming out of the recession there was a lot of excess inventory and consumers got the used to the idea that there would be fantastic deals between black friday and christmas. There were supposed to be better Inventory Management so the retailers would not have to do that anymore. To recognize that this is not across the board. The excess inventory is either weather related coldweather items weather weather was sluggish and getting cold now it is cold everywhere and so things are starting to kick into gear. Their heavily inventoried in that. I do want to carry those items too far past the holidays because there is no place for them to get rid of them. They are going to try to promote them a read of the desk ahead of the holiday, rather than the back end of the holiday. Retailers have also done with the new extended hours and the less holidays between things going and christmas it allowed the retailers to it is an excuse. How many more relatives or less relatives do you have to buy gifts for because there are more or less days . You dont. Can you buy your gifts on sale . Nervous andt very started to promote aggressively. The consumer is getting spoiled because they are starting to expect that. How much of the slowness can be contributed to the weather attributed to the weather . The canadian, i think that storms were not particularly bad. Year, we have a snowstorm somewhere in the country. If you are a national retailer, it is a bad excuse. Key is use it. The real that retailers are spoiling the consumer in this sense. Just as rewarding them much by shopping them online and giving the consumer a good reason to stay home and shop. Online will be the darling when we look back. And those that are selling in stores and online. Heres another quote from your blog. It is hard to discount your way to growth and very easy to bore the consumer into maintaining mediocre holiday sales. Who out there is being genuinely innovative . It is really hard to find. I have been trying to go around and say who is bringing new and exciting products to the marketplace . Etailers are very cautious you brought up the recession. The cautiousness that retailers have it is up to manufacturers and retailers to figure out what are we going to do to get the consumer excited in 2014 . What some of the retailers and some of the manufacturers have done, they have gone from selling new product in the middle of the year two closer to the holiday season. It look at the cell phone business. They are not hot as a category by accident. It is because they keep bringing new product to market. Ofwe started with the idea shoppers starting to panic. Are the retailers panicking . Manufacturers . Levelsilers, inventory are pretty much in line. They are not panicking. They are managing their inventory. It was a difference between panic everything in the store is 75 off that is panic but when they say 50 off on select categories, that is Inventory Management. Thank you so much. Be busy between now and christmas and probably between christmas and new years as well. When we come back, new crash tests for cars with a socalled crash avoidance system. One of my colleagues turned herself into a crash test dummy. Top safety pick. The coveted title carmakers fight for every year. The new list will be released tomorrow. Technology designed to prevent car crashes from happening. Megan hughes went to the testing site to check it all out. This was a highly participatory thing that you got involved with. Talk to us about how it all works. I did get to drive the car. It is a safety group. They are nonprofit, but sponsored by the insurance industry. They have a vested interest in this new technology. Preventnology helps to crashes. We went to see how it all works. Forhe Insurance Institute Highway Safety and moral virginia, engineers ready a mazda cx five. Ready, set, crash. The dummy did well today. All of the injury measures were in the good zone. Carse mazda and all of the are competing to be in the one of the top safety picks. Of theselook at one cars that is mangled and say, that is not a top safety pick . You can look to see if where the driver is sitting is intact. See how the wheel is back where your legs would normally be, this is not good. [laughter] this year, the institute which is funded by auto insurers, has added a new tech. It trades in demings for people dummies for people. Should i warn the driver of the impending collision . Should i fire the brakes because we are about to crash . We put the automatic breaks to the test. And proximity. D it is a warning. A warning. Did you break . You did not break. Then it is my turn. Has that little car ever been dinged . Drive 25 Miles Per Hour straight into the back of the car. This is very counterintuitive. The brakes kick in just in time. The subaru passed. Engineers are also testing avoid movingcan pedestrians. Will have robots in our blind spot and see how the system does. Limited modelsly are equipped with the technology. Drivers have to pay. It could lessen the impact of a third of deadly crashes. That is bang for your buck. There are lots of great insights. Not going to like the label, but i think you are the crash test dummy there. But i was driving. In my task was to not Pay Attention to the thing in front of me. So a real dummy in that case. [laughter] im just having fun with you. What was most surprising . You were sitting in the driver seat, the passenger seat. What was it like . It is counterintuitive. Your goal in the test is to run straight into something. It slows down a little bit before it stops. You can see me kind of jolt forward there. It starts beeping. There are things to give you a heads up that you were about to run into something. I think it could be pretty useful, especially they are also working on some things in your blind spot. When you start veering into other lanes. To give you different kinds of indicators, different kinds of warnings. To slow down before necessarily hitting the brakes. Different systems for different models. That was a subaru we were looking at. I happen to think you were appropriately test dressed to be a crash test dummy. What is it about lipstick, dresses on crash test dummies . The ones in the first part there, they put them in makeup. Say they have read makeup on the left side of the dummys face. After the crash, vacancy that the left side of the face at the airbag, did it hit the dashboard . It is all part of the science. For the pedestrian dummy, they said it was unusual that that dummy was not in clothes. Sometimes they will dress the dummy in all black, and a flow we dress. Just to see how the sensors react. Whether it reacts differently when it is a piece of clothing that is moving. To see how it works in a real world environment. It sounds funny, but it is all about the science. Thanks very much. Megan hughes with us from washington. In the spirit of origin the new black orange is the new and 60 is the new 30, which echoed grade inflation. Average atis the new harvard. It has become the trend across the nation with colleges and universities. Teachers chart is with of college record. The average grade point average is steadily going up since 1930. You of college record. The average grade point average is steadily going up since 1930. You see the big leg up around 1960. That was during the vietnam war. If you failed, you would get drafted. It leveled off after that and then it started to head north again after the 1980s. According to researchers, it is approach tohe new education. Getting kids into graduate school programs, studentbased evaluations that kids had to fill out at the end of the semester. What about the whole psychological element . That everyone gets a trophy . That is part of it too. One teachers assistant used to give out higher grades because she did not want to do with all of the complaining. People fall justified complaining about the grades. Writing is a gem is very subjective. Exam is very subjective. She didnt want to deal with that. Are there pockets of guilty parties . Private schools are much more guilty of delivering higher grades than students deserve. The grade inflation is much more you get what you pay for. In Public Schools to mow with a wider pool of applicants are actually fairer . There more fair. Students at private schools would say theyre that much better. They would argue that case. Southern schools are much more stingy than those in the rest of the country. Science and Technology Schools are much more harsher than arts schools. Thank you. The story on grade inflation. We are coming back in a couple of minutes. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Fedex did not deliver. The largest Cargo Airlines misses estimates and customers find cheaper off since. Powers of virtual currency. What happened to the man who created bitcoin . Nobody is talking. Trolls. N patent pitting the biggest names in tech against one another. City, i am new york Erik Schatzker. I am stephanie ruhle. Back from the New York Stock Exchange. Amc ipo day. I like going down there. It is not what it once was. It was once the headquarters of american capitalism. Could not be a day on Market Makers without a grinch. I took the subway back. We have to sit on that. You took the subway . It was fantastic. I did not have a metro card. We made it. A big wiin. A big win. Shares of the theater chain amc are up as much as 8 on the first day of trading. I just talked to the ceo, they race about 332 million in last nights ipo. The chain is controlled by the secondlargest man and china. He told me he is going to use a lot of ipo proceeds to retire debt. Contest forthe Talent Agency img worldwide. Silver lake and the William Morris endeavor agency have agreed to by img for about two point 4 billion. William morris represents actors like matt damon. Include peyton manning. The fbi says a student at sovard email bomb threats he could get out of taking a final exam. This led to the evacuation of four harvard buildings on monday during finals. The student faces up to five years in prison and a 0. 25 million fine. Worse than bombing a final. No pun intended. Stephanie, look. You are just back from the nyse. Abuse. Ready taking you have been saving it for a whole hour. Good reasons some to talk. His long goodbye is in full swing. Today is his final News Conference as chairman of the fed and possibly his last policy meeting. Some big news could come out. The central bank may decide to the 85 million a month it has been buying and bonds. Most economists think the fed will wait. That point, it will be janet yellen. Taking a closer look at todays meeting. Peter cook is with us. Of course, this is a significant moment. Ernankenankes ben b is getting set to leave after nearly eight years. Does he lead the pressure on janet yellen to begin tapering or does he get it started today . That is a big question going into the meeting. He said one thing one thing we know ever since he got there, it has not been boring. He has had one of the most controversial stints as a fed chairman, he will go out in the same way. All eyes on ben bernanke, par for the course of the last 7 years. Lets talk about the pre crisis ben bernanke and the postcrisis ben bernanke. People look at those individuals differently. Why . I could tell you why. Lets give peter a chance. This was a guy who got the baton from Alan Greenspan in 2005 and 2006 without any storm clouds. Everyone thought this was smooth and he would be able to coast along on a goldilocks economy that was happening. It did not work out. Students of the Great Depression, the expert on the Great Depression found himself confronted with much the same thing. He had to invent new rules and new tools for the Federal Reserve. That has been controversial. Those decisions we do not know how the full legacy will be measured. We have not seen the wind down of the risk factors that everyone knows are out there. Looking back, critics in washington as well as supporters who say they are thankful ben bernanke was in the job if for no other reason that he provided a cool hand. In terms of how he led the fed and made decisions, controversial as they may be, people in washington are thankful he was there. Served to goe best out quietly . When i think about Alan Greenspan taking a victory lap, people said he looks like a full for doing it. Should ben bernanke just go out quietly through the side door . I think ben bernanke is one of these guys every indication is he will look at the Economic Data that is out there. There is political pressure on him as well. We know what we are getting with janet yellen, very consistent in terms of policy. Are they making the decision jointly, will she share the gavel today . Hard to imagine, paul volcker did not do that, he deferred to the sitting chairman. The next time, he doubled Interest Rates at his first meeting. Hard to imagine a big break that ben bernanke feels the need to do something dramatic. Still chairman, even after, ben bernanke knows that he owns this. He is the guy who collectively thethe the fed ms. Took crisis for a liquidity crisis. He was the right man at the right time to undertake these bold experiments to prevent a second Great Depression. Now, he is the guy whose final chapter has not been written and may not be for years until we see how the fed comes out of this. Erik, he knowledges that. He was acting with hundreds anniversary of the Federal Reserve the other day. Greenspan, volcker, yellen were ther. Were there. He said history will judge me over time, not right now. The recovery i hope to achieve has not happened and it will not happen on his watch by january 31. He knows the jury is out. Legacy question on ben bernanke in times of Crisis Management has been answered, but the economic progress that he hoped to gain we do not have a grade. You will be at the press conference, what are you going to ask . I cannot give it away, i have money of questions. What do you want to ask . I want to know where he is going on vacation. He has had a stressful period. Who would want a nice endorsement . This is someone who has earned time off after the last eight years. Maybe he goes back to academia. Rumors about him becoming a candidate to be the next commissioner of baseball. Would that be the right job . Maybe he will go back to the new Jersey School board. He and Mary Jo White can sit around talking baseball. A huge yankees fan, peter knows this. Mary jo white he is a big nationals fan. Of my favorite memories of ben bernanke i have seen him at national scams. Nationals games. Nobody sitting around him knows who he is. Only the bloomberg people know who he was. Erik knows. Kids were sitting with paul volcker at a lacrosse game, no idea who he was but a guy with a bag of popcorn. Whether ben bernanke goes to disney world or not, no ride can top the ride he has been on. You are so right. Peter, you will be back at 2 00 p. M. Along with tom keene and Michael Mckee for live coverage of the fed policy statement and Ben Bernankes final press conference. Talking about fedex, they reported earnings this morning that fell short of expectations. Where is the weakness, what is walk what is wrong with fedex . Julie hyman is here. What went wrong . We should point out that net income rose by 14 , it was not as big an increase as had been estimated. There was the timing of the holiday season. We had a late thing skimming, cyber monday sale in december. It is fiscal thirdquarter instead of second quarter. It is confusing why analysts would not have realized that. Fedex gets a benefit from Online Shopping. It is the company set expenses were higher because it did a wrap up it did maintenance of vehicles in advance. The executive on the call said their business is peakier now. Now it is even more concentrated because of Online Shopping and Shopping Habits on the part of consumers. Even though there is so much Online Shopping, it is not fedex reaping benefits . Fedex, ups, companies reap benefits. You have to point out the to pointe you have out the perspective. It is still not the majority of the business. Corporate business is a big part. In terms of the balance between ground business, people are choosing ground as a lowercost option. People say we do not need that package overnight, we can pay less and wait. The is happening on individual and on the corporate level. In times of Online Shopping, fred smith making the prediction on the call that Online Shopping will not even get to 10 of overall shop until 2017. That represents a ramp up fedex will benefit from, but a small percentage of the overall shopping environment. Thank you, julie hyman of bloomberg news. Erik, i do a ton of Online Shopping but i never pay for fedex. Go, your problem is right here. When we come back, we are going to be talking about the big deal in the media and sports businesses. Ing acquired by William Morris endeavor. With us is bob, he has been dealing with img. Former president of Madison Square garden. Putting it in perspective. Coming back to the 12 days of bitcoin. The man who came up with bitcoin has disappeared. This is a Market Makers. You can watch all our interviews on demand on apple tv. Welcome back to Market Makers. It is a mega deal in the sports and entertainment business. And williamver lake morris buying img worldwide. They represent stars like taylor swift. 2. 4 billion. The former president of Madison Square garden and a consultant in the sports and entertainment industry. 2. 4 billion, is that the right number . It is a fair number. Their profits last year were 180, that isnd pretty fair for the entertainment business. The sailor came up a little short. To that point, some people think wme and silver lake got a good deal. It would have been taken off the after the College Sports numbers came in weaker. The College Sports business was down 20 million or 30 million and brought it down. That is way they did not get the number. Why are College Sports numbers down . Maybe they overpaid for the product. It is a longterm deal. The market was not as strong. How many years have you know that img . 30 years. What do you know what do they do well, what does William Morris one in img . Img has a Big International products they produce throughout the world. We were talking about this stop it is not about the stars like peyton manning. It is if you think you can get them into contact. Look at the into contact. Ionto content. Business, William Morris will be able to keep that revenue stream inhouse. That is very exciting. What are the kinds of artists, you cannot turn any artist into a product . Do you feel that some of these artists have a goal of being a brand and there is too much . It is a certain percentage and sports, entertainment, and fashion that you will be able to create content. Now that img is a management company, you might be able to get them in and have some ownership, which William Morris cannot do under california law. They can put talent in a product but cannot have equity in a product. That is interesting. What will he do for imgs tv business . It has have moved away, been dormant. Look at the reality shows that are on american television, img does not produce any. William morris is going to be able to get img back in the production business, put some of their talent in and create some equity for them and the productions which most which William Morris could not do. But that is an opportunity that is an opportunity, what is a challenge . A cultural challenge. Is there a huge Cultural Divide . One is hollywood and what is sports. There is crossover. But they have not been in that business, img has not been in talent representation. It will take time. Is ari emanuel taking a page from jayzs book . Athe really takes a look this and sees there will be incredible opportunities for representation, sponsorship, and content. I would not be surprised to see img get back into the teen talent the team talent representation. Forstmann move them out of that. How powerful does this make aris endeavor . More challenges for caa. More impact to deal and more difficulty in the sports business. Cao is still very powerful. There will be challenges on the television and if William Morris can get img entertainment up and running and create content. Between wma and silver lake, they are spending a fair amount of money. They will have to spend more to make this a success . That is usually the case. There can be incremental acquisitions they look at. I think there may be some content that they want to get into, they will have to write a check. There will be future checks coming as far as owning this product. As a powerful, Global Entertainment and sports rick entertainment and sports conglomerate it has potential. If you were silver lake as a private equity firm, you are looking at realizing a return in 5 years to 7 years. Img was sold x years ago for 750 million. Didnt think they would get 3x back. And how many years . It can be done, it depends on how they can create content and get equity into contact into content. , partner atwski innovative sports and entertainment. Yuskon we come back, mark of Morgan Creek Capital Management will be with us. Finding out what smart people think is going to happen looking ahead to 2014. Welcome back to Market Makers, some people buy timeshares, the worlds richest man bought a resort in mexico. Cascade investments is buying the four seasons resort near Puerto Bayerische near puerto vallerta. Gates and saudi arabias prince waleed on a state and four seasons. The chief Investment Officer at gates firm says cascade has a longterm positive view on mexico and its economy. That is the latin america report. Beautiful place, bill gates could not do better than the four seasons. Puerto vallarta. 26 minutes past the hour, time for on the markets. Bitcoin is tumbling. Why . Chinas Largest Bitcoin Exchange stopped accepting deposits. According to the Bitcoin Exchange in japan, it is as low as 4. 55. Just a few weeks ago, it was 1200. Matt miller paid 800. Taking a dive. What other markets does bitcoin get shut out of . That is what is happening in china. The chinese have strict currency controls, capital controls. The chinese perceive bitcoin as being a way to circumvent those controls and are clamping down. It happened in europe as well. We ares a good day, about to be joined mark yusko. Dont miss it. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Welcome back to Market Makers here i am Erik Schatzker. Our next guest is bidding on gambling. He thinks fixed income watch out. Capital, hen creek runs 7 billion in hedge funds and private equity. Recently in the mutual fund. The jewel fixed income. Why be concerned . Were in ars, we treasury bull market and Interest Rates kept going down. It ended at zero. The only way is up. Ade . Not bet on that tr you can in a floating rate instruments. That is why floatingrate bond funds have been soaring. People putting money their unconstrained bond levered loan funds. You areby enclosing buying floatingrate interest. If you own a fixedrate security and Interest Rates rise, u. K. Capital losses. Capital losses. The bond mutual funds saw a reduction. Saw redemption. You are not locked into a bond fund, you can move capital to whatever you feel is most attractive. Game at thee of the end of 2013 with a possibility the fed will make a decision to taper today. Fixedetting against income securities, fixed rate securities look attractive for do you have to wait . Has been very attractive the last part of this year to bet against treasuries. To of things that are short treasuries and make money while Interest Rates rose and bond prices went down. From here it is more mixed. Part of our reason is, when we launched our mutual fund in august, we are allowed to have 30 or 40 in fixed income. But we chose to have no fixed income. Why . We did not want to lose money in bonds if Interest Rates rose. What is fixed income mean to you . There are treasury bonds, the there are corporate bonds, more risky. Then there are high yield. No mortgages . Can be interesting, commercial mortgagebacked securities, residential mortgagebacked securities, subprime bonds. They got really cheap and you are supposed to buy them. Traditional fixed income is risky. Traditional like treasuries. Corporate bonds. Jim grant was at our conference a couple weeks ago. He talked about going short corporate bonds. Not just not buying them. People who have gotten short credit are getting carried out. Not necessarily credit. This is not a bet on credit spreads. This is a bet on the fact that at low Interest Rates, companies have issued too much debt. Patsy, 20mple of billion of Additional Debt to buy back stock. Pepsi. This could be dangerous for bond holders from this point forward. The secret to the guy who founded bridgewaters success. That is the secret of his success. One of the others was a levered bet on lower Interest Rates. Why not reverse the trade and make a levered bet on higher treasury rate . A Rising Rates Fund would be a great idea. We have been talking about it. I talked to john paulson about this exact idea a month and half ago. He said if you are going to onrt a new fund, started what i see to be the biggest trend in the next 10 years, normalization. It is not an explosion, it is a normalization. Rates have been held down you had stan . Miller you had Stan Druckenmiller. The fed has artificially held rates down, raising asset prices. Trophy real estate, stocks. We saw that in the taper tantrum in may. Pricesd of taper, asset fell. Bond prices, equity prices commodity prices. Why do you like casinos . Organic growth. Organic and casinos in the same sentence . Fair point. Growth if you are going to buy equity, you want growth. Where is their growth today in a place like macau . Worlds population lives within a fivehour flight of macau, versus 10 to las vegas. People like to gamble. It is part of their nature. In asian cultures, it is a bigger thing. Gaming in macau, it is a duly insulated trade. Good, moreomy gets people game and you do not make as much on each individual gambler, but you make more because of growth. If the economy gets bad and china, the high end Consumers Want to get their money out of the country and they go to macau to move it out. They make more money than the average gambler. Do you think it helps to like gambling to understand gambling . No. I do not think you have to like it. At the end of the day, i do not really understand it. I do not look like you are not a gambler i do not. You are not a gambler. That just means you know how much you lose. You gamble on stocks. Is notated investment gambling. Putting your money down on red or black where you have no control, that is gambling. If you buy general orders if you buy general motors. Kyle bass love it. It, they cleaned up their Balance Sheet and bankruptcy, they got rid of the government stock overhang, the constant selling pressure. There is a recovery in the trucking business. Go to north dakota and see how many pickup trucks are being sold. They have got a lot in a lock in the pickup truck market. For the first time in history i can remember, 50 years, gm and ford are coming out with really nice cars. You actually want to own them. You can make some of the same statements about the airline industry. Why dont you Like Airlines . I said soar. That was a typo. Sour. Airlines turned out to be a trade. Thank you, david tepper. I love harry, the great boom ahead. Harry dent is a seer. One of the crowd asked me your favorite idea. I said we do longshort hedge funds. Up longshort hedge fund is 21 even though everyone thinks hedge funds are having a tough year. Up 21 . My best idea i do not pick stocks at that time, we were not in mutual funds. I said airlines. Everybody said, that is a terrible business, it is destroyed capital. It had. Past tense. When you get consolidation, when the top 2 groups or 3 groups schedule 80 put control 80 , they get pricing power. what a one percent 21 up. Investors are getting used to hedge fund returning 6 . Will we see funds closing . Investors have to be pulling out money if they are only giving back 3 or 4 . So, but the think Hedge Fund Industry set a record for inflows in the third quarter. Because of what Sandra Miller Stan Druckenmiller said. It is institutions putting money in because they hate fixed income. You want low volatility arbitrage strategies, those hedge funds are growing. People are getting frustrated with longshort guys, 30 net with 8 return. Bias andt with a long the movement into mutual funds, that is where it is going. I think you meant to say he loves gm because he is excited about mary barra. I will retweet that. Mark yusko, ceo at morgan creek cap it off. Is the 12 days of bitcoin. Where is the creator . More when we come back, you are watching Market Makers on bloomberg tv. Welcome back to Market Makers, the battle lines have been john in silicon valley. Some of the biggest names in tech are on opposing sides. There is a fight over patent trolls. Neil richardson nela r ichardson is a senior economist at bloomberg government. What exactly is a patent troll and why are they controversial . What they are are these companies that buy up patents and go after all kinds of Different Companies and businesses saying that they violated certain patent restrictions. This is a big problem that has taken off in the last 2 years. It affects all types of businesses, from startups to banks. The industry is in lockstep behind it. Reforming patent trolls, reining them in. There is divide in the Tech Industry. Because Tech Companies want control . They will get patents on anything. There is a divide between those who own a lot of patents and those who do not and want to innovate. A couple weeks ago, the house passed regulation to rein in patent trolls. It had widespread bipartisan support. That is crazy. In patentt in reining trolls. That was because a major provision was taken out. Byt provision was opposed ibm and microsoft. That would allow companies to challenge the validity of this is a low quality patents should be thrown out. That provision was taken away. The senate may put that provision back in there. That would divide the Tech Industry into the Old Established an young startups. H startups, what do they hope to get . This problem of patent trolls, anybody related to a Software Technology is at risk by a patent troll. These legal fees are enormous, it is better to settle than fight. What they would like is to get some help from the u. S. Government to set boundaries. Not just about setting boundaries, it is about not having unintended consequences. Those boundaries are going to be pushed by ibm and microsoft to make sure your major revenue stream is not threatened by attempts to rein in patent trolls. Protect disruptive innovators. Nela richardson in d. C. Is on a quest, 12 days of bitcoin. Looking for the missing creator. It is the 12 days of bitcoin on Bloomberg Television. They day 8. Matt miller has been finding ways to buy, spend, and trade the currency. One of the mysteries there are several mysteries. The biggest, who is behind it . The socalled founder, satoshi nakamoto. The ben bernanke of bitcoin. One of the most fascinating aspects of the story. I use that term loosely, it could have been a woman or a group. A figure. Known as satoshi nakamoto. He wrote a paper published in 2008 about it. He then released the first version of bitcoin, 0. 1 in 2009. By 2010, he had posted about 100 times on the boards about it. He handed the day to day business of developing it over to gavin andresen, who some people speculate maybe satoshi nakamoto. He said he will move on. He went off the grid. Does the mystery and anonymity of all this give you pause in how valid bitcoin is. It does not make me feel good. It is a question i put to very sober to Barry Silbert the other day. Thought,im what he he said hessen, has knows who the guy is . No, we dont have a clue. He said it does not bother me at all. Lets talk about what happened to that point overnight. To bitcoin overnight. It got crushed, china is tightening controls. It is no longer allowing btc china, which has become the biggest Bitcoin Exchange in the world, to accept deposits. You can only sell them. It is not clear how long you will be able to. People are doing that as quickly as they can. I cannot wait for day 9. Neither can i. Bitcoin2 days of continues. Thank you, matt miller. That is it for todays Market Makers. Tomorrow is really big, the day after Ben Bernankes News Conference. Jim grant is joining us. He has been a big critic of ben bernanke. We will dissect everything that happens today. It is 56 past the hour, Bloomberg Television is taking you on the markets. Back to the newsroom with garlic phil. Take it away. Time for our options inside, cracking down on derivatives. A cleanat herbalife, bill of health and a reality of books. The company says it is up to date on sec filing. Joining me now is Baycrest Partners anshul agarwal. The backdrop is bill ackmans bet against the company, he caused it a paramedic scheme and says he is holding that this is a pyramid scheme. You have to factor that in. At the same time, if you look at it, the market has spoken. The auditors have spoken. Stock has rallied back to pre concerns of the parent scheme the pyramid scheme. The ackman trade is behind us. Not a factor. I will not say nonfactor because he holds interest in the stock. Although he covered part of it. What we are looking at is what somebody can do Going Forward and how to profit from that in a smart way. Think about it this way, trying to get some fat profits from skinny shakes. Looking at some modest gains for herbalife. Littlestrategy is a complicated. Looking at february options. The reason we wanted february is because it gives our earnings in february. We want to look to february 18 strike call, 6. We cheapen the call in half, sell for 3. The pricether cheapen of the call spread by selling another february 100 call for 1. 50. Is reduced from six dollars to 1. 50. 8. 50, arofit would be payout. Nice 5. 51 the risk is if the stock goes too high, you lose money. Betweenx payout is stock from 90 to 100. 100 dollars is still 33 away. Beyond 100, the trade loses one by one. We get to a second breakeven 8. 50, we give back the entire game. The on that, we lose money. These options expire in february. Our life reports todays before herbalife reports two days before these expire, would you look to sell before hand . If the stock starts to rally quickly right now between now and january expiration, there are some things you have to do because the 90 and 100 strike call will have value that we worry about, we would chip away at buying back 100 strike call. It is an actively managed position, we are selling to calls in buying one. With an extra call option potential unlimited risk to the upside. The reason i am bullish is because the Company Share buybacks. That was put on hold because the Financial Statements not being clean. There is a possibility of pe expansion. Providingw skin is growth. Would you expect an announcement on a buyback . No timeframe, it could be soon. Anshul agarwal of Baycrest Partners with his recommendation on herbalife. On the market again in 30 minutes. Lunch money is coming up next. Money,me to lunch where we tied together the best stories, interviews, and businesses. In in bernanke preparing to give his final News Conference. Ofipo, we hear from the ceo ipo,. Aising an create an agency in hollywood. Women creating making their mark in hollywood. The only handmade chocolate here in london