Transcripts For BLOOMBERG Market Makers 20131219

I am filling in for Erik Schatzker today. He is off today. You know why . We are breaking economic news. November existing home sales are officially out. Our economics editor, Michael Mckee, it is at his desk cranking away with the headlines. That news and we do not know why. Right now we see existing home sales fell on the month by 4. 3 . The worst performance of the year. A lot of people may attribute this, and it is a good that it is through to the fed that pushed morgan rach up Mortgage Rates up. Two or three months ago when rates were higher, we have also had some bad rather bad weather. The final reason is that this is not the prime selling season. People drop off as you go into the winter and get closer to the holidays. People are buying less homes than they do in the summer. It is not good news for single which are condos, down. Inventories not particularly good news, either, at this point. We will take a quick look here. Inventory falling. Not as much for sale, but not helping out. Tom is already assigned grinch of the day, so we cannot let you steal his thunder. Our economics editor Michael Mckee with breaking news. 1200 an ounce. Showsnder 1200, really every move in the economy affects these markets. Michael hansen, the senior u. S. Economist, tank of america, Merrill Lynch bank of america, Merrill Lynch. Go to you first, peter. We will go to michael on housing news. This is a chairman with a jumble of economics to deal with. How do you rate ben bernanke off the tape or yesterday and then the view forward . Where does he stand . I think ben bernanke has done an outstanding job. Financial under great uncertainty. He used financial policy to great effect. A clears been transition for the next fed chair, and ben bernanke has taken on tapering. He has made it clear that the policy is going to continue. There is the macro view. Michael hansen, bring it down to the micro view. This is the dilemma that chairman yellen will have as we go back and forth, good and bad days. Thats right. The reason the fed tapered as they acknowledge that given what they were looking for in the labor market, it was good enough to get them to start moving. There is a lot of we have had some wobbles in the Housing Market in particular. Much of that is due to Interest Rates. As we go forward, the rates will be rising. Michael, you speak to investors every day. We love taper talk. How much do investors actually care . On the one hand, the markets are giving it a lot of intention a lot of attention. We need more clarity about what the fed will do what the fed will do going forward. They got that from ben bernanke yesterday. Arco when you look at this cautious view that was correct from bank of america, Merrill Lynch, have you brought up your view recently . Is there more optimism at your shop . Wehave not been low have not been below consensus for the last couple of years. For next year we are thinking with the smaller fiscal drag, with some signs of some of the tailwinds with the economy picking up, including housing, we are a bit more optimistic. We expect 2. 6 next year in growth versus 1. 7 this year. We know how much quantitative easing has helped the markets. How about america . How about regular people out there . What has he done for them . You have to remember if we had not had quantitative easing, there would have been more evident effect on the labor market. Forwardquestion going is, will we start to see investment pick up, private investment on the part of firms . That will be the key driving forward. We have e call hansen, 35,000 feet, bank of america. Are you ok . What is the irish phrase for gesundheit . I dont know. Guinness. Your view is New York University buying everything south and north of washington square. What do you observe in manhattan that you can bring to the American Economy . Eggs are getting better, arent they . Is in port and that we have a tale of two economies right now. It is important that we have a tale of two economies right now. Our mbas continue to get jobs easily. Are you up to 70,000 a year in tuition are you up to 70,000 a year in tuition . About 50,000 a year for mbas. How does that compare to other mbas . We are right around the median. Columbia Journalism School how much do you think that is . A lot. 60 grand. Have gotten your phd in economics if you are shelling out 50 grand a year . That depends on the opportunity cost. You said that like an economist. Is your show, im sorry. I am so thrilled that you are here. I asked tom if he would hold my hand the whole show today and he said no. Michael, the fact that there is positive momentum, that there is real growth, is that enough to belong in 2014 . I think there is a lot more upside and optimism and inventor Investor Sentiment that there has been. You see an emphasis on the Headwinds Holding Back growth, at now the tail wind is picking up. We are optimistic on the stock market this year going forward. Michael, your firm has led the way out of doubledigit housing recovery. You have some smart detailed notes. How much does housing go up next year . , ort a singledigit world with taper can we get some more enthusiasm in the market . Arco obviously we want to keep an i on how recess the Housing Market is. That is the question here. We had some strong housing numbers. Increase, looking for slower increase. We are still going to add a good point for in gdp a good. 4 gdp. Do you think we will continue to taper the First Quarter of next year . Follow ak the fed will datadriven policy. I think the really important thing that we have learned in the last few months is that we are going to get a continuity policy, and we have a new leader of the fed that will continue to be datadriven. Think, michael . I think we learned yesterday that the fed is starting to acknowledge that inflation is persistently lower than they have been looking for, and that is starting to become a concern. There is this scenario, the risk that the taper takes a pause at some point early next year because the Inflation Numbers will come in softer at times. Congratulations, michael, on your 2013 work. Michael hanson from bank of america. We will continue with phil henry in a bit. It is time for the top business stories from around the world. Facebook ceo Mark Zuckerberg, he and the company are selling shares in an offering valued at 3. 9 billion. He is selling a portion of the shares being offered and says he will use the money to help pay his taxes. Beforeck was up 108 today and it fell at the open. Investment bankers and traders at citigroup are probably going to get bonuses that are a little changed from last year, or less. 5 or 10 may earn less than a year ago. And her she is expect and hershey is expanding in china, valued at 600 million. The company is buying shanghais golden monkey food. Ready, tom . It sounds pretty sweet. The top headlines. What is the real value of an mba degree . There are lots of questions about that. The more microeconomics and an mba degree, the better you go. Of course you would say that. You left economics. The it the Insider Trading have consequent had consequences for steve cohen. Good morning. Market makers worldwide. Tom keene in for Erik Schatzker. Stephanie ruhle is here as well. Should i get an mba or a cfa . You could definitely get an mba. The other question, is it worth the money . We have phil henry in with a truly global perspective. A college dean. There is his book, turnaround third world lessons from first world growth. That so manyigor programs do not have. What do you say to a person who wants to go to sturm and says i really want to do a group project, i do not want to do equations. I want to have fun. How do you respond . An orlive in an and, not world. Collaborative group project. That was a Market Makers shameless plug. The real value, Career Opportunities. When i think about people going back to get their mbas, is it because schools have the ability to rock up all the biggest and best companies and give those students Career Opportunities . Is that the real value . Studentsnly 96 of our have fulltime job offers, and starting composition for students upon graduation is about 140 thousand dollars. So, yes, big opportunities, but it is also about learning. It is about coming to stern worlde the future of the an example would become you want to go into finance, inc. Of the opportunities cities present. 2. 9 billion people around the world are moving into cities. Think about all that will mean for Economic Growth around the world. And,will not let you pick i will let you pick or. If i had to wake up and say this is what i want my students to do, would you pick finance or tech . The trend is to work tech, but the stock for finance will continue to be high. Look at the development of the curricula and the idea of kids coming in, who is your best entering candidate . I thought it starts with how well liberal arts students can be due within mba curricula. At your door, they are ready to run, but the liberal arts students can do surprisingly well, can they . Absolutely. Students well prepared in finance and economics, that is great. Philosophy majors who are critical thinkers, people who understand how to look at their world, see problems, and use the tools to create value, that is what we are looking for. That is what the world is looking for. It is application season right now. What is your flow and what is the demographic . A veryba degree is still valuable degree. We are still largely seeing students who are roughly 27 years old looking to have a transformational you have not introduced the word of 2013, disruptive, the word of 2012, or the idea of leadership. Overused phrases. How do you teach leadership versus other schools that are leadership, leadership china, google, facebook, apple . The thing about leadership is show as well as help people to lead. We believe our students, when they come into our schools, give them the opportunity to work with classmates on real problems. Give us an example of a real problem. Urbanization. Students paul romer is at stern. We are working with him on the teachingion project, how to lay grids for further expansion. Do they know how do they know who he is . Tom is doing bring up an amazing point. Paul romer is one of the leading macroeconomists. He has now turned his attention to one of the biggest problems and opportunities facing the world, rapid urbanization, particularly in the emerging world. Whoalking about leadership, do they know who paul romer is . Is there any argument to be made that mise that these millennials have too much arrogance. I want to be a leader, i want to be this. Back in my day, i did not ask do i want to work for the man, it was, god, i hope he gives me a job. Here is what i tell our students. Have a 30,000 foot respective on the world and the ready to roll up your sleeves. That is the key. I want to greg gradually i want to congratulate you on bringing the word rigor into the mba program. One of our Staff Members here are at stern. It is like your kids and homework. It is like, yeah. I can barely get through second grade spanish. How do you keep the students scrappy . They might have great opportunities, but how do they leave stern, get into the workforce, and realize it is about tenacity . Those are different skill sets. You have to remember and why you is the definition of tenacity. It is in our dna. Katie is in social media. Tell me about the bars around nyu. Is it enough of the social life around nyu . There is no question there is a lot to do outside of the classroom. Rigor and relevance. This is when all of the banks have firstround interviews at nyu. Do the students want to spend the summer at investment banks . As i said, there are big opportunities in the investment world. Finance is not going anywhere. The key is finance and something else. Is there a bank they want to work at most . Number one pick, do they want to work in at blackstone, goldman . They want to work at great firms. I want that answer. I had to try. His entourage is over there with a cue card saying do not answer that question. Thank you so much. They are my original sponsor on bloomberg. The first time i ever said a sponsor, it was nyu stern. That was just after prohibition. That is my hood. She just has to ask. You can take her to the carlyle. Peter, thank you so much. When we come back, hope this does not meet mean in and Darden Restaurants makes a big move with red lobster. We will have that next on Market Makers. If you missed any of our interviews, you can watch bloomberg on apple tv. Live streaming and ondemand videos. Looking for the video. Back with more in two. Welcome back to Market Makers. Stephanie ruhle joined by tom keene today. Lets head to on the markets. Darden restaurants will be separating the red lobster restaurant business. Those who love the shrimp bonanzas, the allyoucaneat crab legs, they seem to be worried. Almost 7 on the day. Gold is the story, no question about that. Gold is down, down. That barely explains how it has been crushed, under 1200. There is the 20, 30year chart of gold. That is an ugly bear market charts. Gold down until otherwise we note. Story as we begin next year. When we come back, you know i love talking about hedge funds. Guilty as charged. The verdict is in in the massive Insider Trading case, once again about hedgetions Fund Billionaire steve cohen. Also, the original blue chip investment. We will look at casinos, all that coming up on Market Makers. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and Stephanie Ruhle. Welcome back to Market Makers. I am Stephanie Ruhle. All tom keene wants for christmas it is something ups cannot deliver. Look at you. Om has an extraordinary twitter following, and he wants even more. Ourlet fu will deliver twitter following. They are bigger than you realize. Tom, the twitter king at bloomberg media. How many twitter followers do you have . 12. 40,000, tom, and i know you every i know you know every single one. We have a chart that shows just how important the number of twitter followers you have our. What is interesting is this is a distribution chart that is skewed to the left. The number ofis followers for active twitter accounts. Active twitter accounts are people who have posted within the past 30 days. Fewer than 10 followers. Those are active users . Yes, over 20 of active users. Help us understand what an active user is. There are tons of people in the financial industry that use twitter, that follow people. Icahn, billcarl greg, and they are not active twitter users. I dont agree with that. The link, the guy at arizona te that came up with this the link is the key thing. You have the two groups, the people on twitter and everyone else following. Is something we are all getting used to. Interestingly enough, you guys are really big deals because how many twitter followers do you have . Not that many, 13,000. Withu are in the top 1 13,000. Tom keene, by the way, with his 45,000 followers,. 1 . Follow moree users people than follow i dont know why they follow tom. He does not Pay Attention to stuff and is tweeting as we speak. In 2014, do you think we will see people follow less . On instagram,that i took out a lot of people i did not enjoy following. The key right now is twitter i think is holding, and this debate over where facebook is where mr. Zuckerberg is selling stock. Talking ierberg am surrounded, folks. Sorry, this is our zone. Help me here, please. Is on the way. The major deal here is the digital overload we are getting through facebook, and i do agree a huge deal for next year is how facebook does with all the overlook. Do you let your kids look at this stuff . I do not, but in 2014 more people in the Business Community asked me who should i follow. Help peopleould understand, these are the more valuable people for you to follow. Those do not mean people who are promoted. I would love to know the answer. What kind of pickup do people promoted on twitter get . To me, someone who is promoted does not feel authentic to me. I am going to promote Stephanie Ruhle right now. Here it is. As we go, i am playing the new Instagram Video of Stephanie Ruhle. It is out right now. E. U can see that sruhl up, you would wish you had invested in casino stocks at the start of the year. We will make up that here on Market Makers. Good morning. How about this . Seven to 20, that is what we get in this casino business. We have a great group to speak to on the casinos. A full house. Very good. Oh, my word, you are just gaming our guest is with us from isi. Richard hightower is also with us. This is really special. Ryan miller is with us as well. Our coke i want to take us to make cal for a moment. He says it is a winning bet, whether it is positive Economic Growth or negative. Take a look. If youre going to buy equity, you want growth. Where is their gross today, particularly in a place like mac au. 50 of the World Population lives within a flight there. Is it a winning trade, no matter what happens in the at it, the way we look a lot of the gaming names that we cover are not really have a hasof exposure to it, it been a fantastic year for them because a lot of the Free Cash Flow generated out of macau has gone to debt, and that is fabulous. I agree. In the gaming space, you have stocks with exposure to macau and stocks without exposure to macau. Who is your favorite, richard . We would recommend las vegas sands. Here gray great hair except me. It used to be highly protectable cash flow. In your world, richard, are the cash flows as predictable as they have always been . Thereuming the revenue is , the cash flows lockstep. Pretty much. We are at a point where cash flows, profits, are going to be growing at a greater pace than revenue because of what we call operating leverage in the business. After a certain point in revenue, the profits kick in. How do you feel about the casinos popping up, whether it is in cleveland, delaware, boston . Could one say it is getting saturated . I was there the day they opened the horseshoe casino in cleveland. To me it did not feel like a booming business. Is good,ental growth but at a certain point you face economic saturation. The risk that comes with that is cannibalization where you have new casinos stealing business from existing casinos. I agree with brian. It is not an open secret at this point. Every jurisdiction that legalizes, you have a neighboring jurisdiction fighting for the same business because they do not want tax dollars going away. Let me start with you the number one question that i have, and that is it has been a great year. Question how do you stay on board the companies that you follow . 2014, the going into payroll tax cut will be a positive one for the consumers overall. In las vegas you have a strong convention and event calendar, and that will help. Richard, will that follow through on the good year we have had . I think so. We have seen las vegas improved for 2014 as opposed to 2013. Visit properties, work for my room. I do not have a lot of fun. Is knowns a city that for casinos that has never been a lot of fun. Atlantic city. Is it ever going to find winning combinations . That is the trouble with atlantic city. Its business has been cut in half over the last five years, and that leads into new jersey going for online gaming. They are thinking the original model we have is not working, so we need to generate some incremental business with something new. Online gaming puts people on opposite sides. This is a hot topic. Where are we going in 2014 . A lot of states will see new ay numbers come out fairly decent start. Living on the border of new a lot of penetration will begin starting next year. Skepticsof people are because Sheldon Adelson has said for moral reasons he does not like online gaming. Is he talking his book . I dont think he is. He has the capacity to do it. I think he makes the point but there is a fundamental difference between getting out of your house, going to a casino, doing it that way versus staying at home. It is ok that those little old ladies are rolling up in wheelchairs and hitting the slots . When we are talking moral, where is the line . At home they just see what you are doing but they cannot look at you as you are doing it. That is a big difference. 40 at theon lottery. He is actually playing bingo at a Church Saturday night. Day,e mega thing the other does that affect your business . Is that such a big deal that there is a 24hour period where revenues go down because everybody is at the local drugstore . I do think when people get into lotteries so maybe the expanding lottery numbers are good for the business you get into, i can gamble, i can win money. Do the europeans do this better than us . The european models are different. The brickandmortar casinos are far smaller than in the u. S. People recognize harris or the a. Or got a or the borgat that is monte carlo. You cannot really compare monte carlo to a casino in cleveland. How is Sports Betting doing . It is not really a big business segment for our companies, but the online poker and other casino gaming is becoming a big part of the business. Betting on giants this year has been successful . Not so much. Betting on the giants, the new york knicks, or the brooklyn nets, losing across the board. I am fascinated by the predictability of the cash flows given all the other issues out there. Tosounds like tom and i need take a road trip. Where would you go . Vegas . If you want to get your finger on the pulse of gambling, you say vegas. Vegas is the destination marketing. A Human Interest question for you three, the number one place to stay in vegas. The venetian. Next year, Caesars Palace given that you will see the link open to you. A shout out to deutsche bank. Sorry, Erik Schatzker, circus circus is his favorite. I guess we do have to take a road trip. You can see the dam below you, the hoover dam or whatever. Thanks to our guests. This is great. From ubs, Richard Hightower joining us. And brian. When we come back, we are talking gambling, i am talking hedge funds. Insider trading verdict is in. Back. Keene might like economics, i love hedge funds. Prosecutors and victor the biggest fish in the longrunning Insider Trading probe. Michael steinberg. He is one of steve cohens closest invite closest advisers. The conviction could actually open up new avenues for pursuing cohen himself. Here from bloomberg businessweek. She spent most of the past month inside of the courtroom. And the former Hedge Fund Manager who now teaches at the lumbee Business School and knows hedge funds better than anyone. At columbia Business School and knows hedge funds better than anyone. Sheila, lets start with you. High drama in the courtroom. Michael steinberg himself fainted. Give us a sense of the tone. You could not have made this scene up. The moment jurors were handing over the envelope to the judges clerk, there was a scream in the courtroom and poor mr. Steinberg from a woman or a man . A woman. I am not sure if it was his wife or one of his female friends, the courtroom packed with anxious a soap opera. It really was quite gripping. Steinberg sort of hunched over, and for a moment it was not clear what happened. He fainted. The judges were saying is he ok, rubbing hiswere back. At that point, did the judge have the envelope . It was not like the jurors could go back and say maybe he was a nice guy. That to reporters. No, the verdict had already been handed over to had already been handed over. He gol he appeal, or will to jail . He can and will appeal, and there is a small chance that he could have some more positive results on his appeal this on some legal technicalities. Did you believe it when he passed out . It was very cinematic, but it seemed very sincere. I thought it was interesting because there will is another sac Portfolio Manager who was charged. He fainted when the fbi approached him on his lawn. Maybe all these guys are thinking about their wolf of wall street, and they want Martin Scorsese to do their story. How does this affect steve cohen . The person it is more negative four is mark toma. It seemed indirect versus direct, inferences. He is. Nd them who he is an analyst working for the health care fund, and he is accused of being involved in the trade that was an Insider Trading on some medical care stocks. Arch coal many people say that he is a sketchy guy, that he changed his name twice. He did not have a stellar record. To the 81 directly yearold doctor who tells him the Clinical Trials are not going well. Entirely different thing then inferences from an email, which were enough to get these task cohen is in better shape. Insider trading what we are talking about here this is squishy, squishy. So some taxpayer with a bunch of kids is going to jail because of indirect inferences . Exactly, which is vastly worse. Explained. Well, there is a legal question that is a bit unresolved in the Insider Trading laws because there is debate going on about how much information the person who traded on these tips had to have the originalnefit leaker from the Company Received in exchange for leaking information. Is very competition stuff. Apparently the steinberg jury was struggling with this based on the notes they were sending out. Our code to we know the makeup of the jury . There were two accountants on the jury. 12 people in total, nine of them women. Some of them have been interviewed, and it seems like they tried to do the right thing, but it is clear from the questions they were sending out to the judge during deliberation that they did not fully understand the complexities. I want to talk about this what this means for steve funneling money, but could steinberg still flip . Flip. Eone could always lets get a sense of what this means for steve cohen and wall street. Brokerage,best prime the best allocation, got meetings with any company whether or not they were having a roadshow. How do you think the heads of equity divisions, ceos, and banks, feel about him today . He moves and he moves the book quickly, pays pull pays full fees, and he will get all the access he wants. The question is, does he go to jail . To toms point, this is a fine area where they go after this guy. 88zero for prosecutions, there is something a little odd about that. When we look at his continuing on from that, in his case, in some of the emails come a should we tell steve about this . I will put it that i have some second hand information of interest. They knew not to feed him this stuff. They knew not to feed him in plain english. That does not mean they were looking to feed him in their own code. I agree, but you have to crack that code in front of a jury of 12 angry men. About how these guys are ripping off the little guy, and he becomes a class warfare thing. What he just said, where does that end up on appeal . I am fascinated with the idea that if somebody gets rangers tickets they may go to jail. That is what this comes down to. Now i think you are simplifying it. But we have no more time to talk about it. Carson block. Ack, we will not even tell you what he is talking about. Live from bloomberg headquarters in new york, this is Market Makers. The short seller has targeted companies he thinks are cooking the books so what he is focused on . We will speak to carson block in just a moment. The controversial james grant will join us and we will talk about the latest fed move. We will test drive the ferrari of lenders to find out why it is one of the years musthave gifts. Welcome to Market Makers. Tom keene is with me. I hope you are not thinking about getting a 700 blender. I already own it. K do you make yourale juice drinks . Yes, you feel guilty when you know you can buy one for 100 and you get one for 700, you better be making soup. The top business stories from around the world the secret service is investigating who gained unauthorized access to about 40 million target credit and debit cards. The Security Breach occurred at the start of the Holiday Shopping season and target has resulted issue, they say and the secret Service Investigation is underway. The toyota camry is back in the good graces of consumer reports. The magazine had taken it off its recommended list last year when it got pork marks in a crash test. The new camry has a stronger frame and a better rating. Consumer reports now is recommending it again. Camry is expected to be the bestselling car in the u. S. For the 12th year in a row. Getting off that list did not hurt that much. Americas bestknown athlete diplomat is back in north korea. Former nba star Dennis Rodman has returned for more socalled basketball diplomacy. He is accompanied by a camera crew. He will help train a north korean hoops team and has called the north Korean Leader of very good guy. Sureuestion is, im not he thinks who is a good guy. You wonder about second and third order effects. Sensitivities across economics, finance, and journalism. It is the last act of ben bernanke when he leaves office in six weeks after eight of the most tumultuous years coming in early in 2006. That was quite an event yesterday at 2 00 p. M. Jim grant has been one of the most forceful critics of bernanke and the fed. He has read every line of the Interest Rate observer. Wonderful to have you here. You created fireworks recently. Lets get to the moment chairman did bernanke and chairman yellen begin to turn the Aircraft Carrier yesterday . They became slightly less easy but they remain very easy indeed. What do you mean by that . The central bank materializes 80 though you and dollars 80 billion from thin air, dollars that did not exist until the fed tapped him into their computer screen or it it will henceforth materialize 10 billion less per month but will make new dollars at a rate of 70 billion per month which is in it self and unheard of feat of prestidigitation. I want to show a clip of ben bernanke and his explosive tie on this subject. We are certainly not giving up. We intend to maintain a highly accommodative policy, nothing we did today was intended to reduce the combination. We will still be buying assets at a high rate and increasing and holding onto those assets and her guidance today, we strengthened it to make weird that we expected keep rates low ofl beyond the point unemployment at 6. 5 . Review why you are such a forceful critic of this central bank. Because i want to be a forceful supporter of this wonderful social contrivance called the price system, free market capitalism. Nobody invented it yet it is the great servant of all of us. It determines all human effort and makes the store shelves full. Somehow this meshes into the economy. The fed is in the business of interpol is in itself between consumers and suppliers and prices. It is in the business of price control. They dont call it that but the fed manipulates Interest Rates, the stock market. Time andits christmas one has been over indulging in brownies and cookies and one suspects one gains 20 pounds. Stepping on the government scale and looking into the government furnished mirror, one sees that one is thinner than possible. The fed has changed the perception of things. It has not changed the things themselves. Can you give them credit yesterday that it began to pull away from all a great have been massive distortions . This is a nontaper taper. Said theyhey also will stay at zero not forever but beyond forever, figuratively speaking. Do you think Forward Guidance is complete nonsense . They are living out the adage that talk is cheap. Talk is story of this the fed the leaves and we are meant to agree that the fed can see into the future and approve that future before it happens. Saw theyhe fed that were taken by surprise by the greatest financial event in the history of mankind. I have proved to my readers that i cannot see into the future. The fed can see into the future because they can manipulate it. And influence but they cannot control. They were taken as much by surprise as mere mortals are. You asked why i cannot get off the back of the fed. If the fed would only buy into the proposition that capitalism is a not bad system of human organization, i would give the fed at least two cheers. We decided in 1912 we needed this operation. 1197 per ounce in the 10 year yield at 2. 93. Those are price mechanisms. They are part of our pricing system. And marketeconomy giving a vote of confidence to what our central bankers are doing. When do we see higher Interest Rates . When do we see gold returned to an advance . We have seen higher Interest Rates this past year, almost double. Gold compounds may. It will not do what i tell it to do. It is not listening to you. No, i have been dead wrong and it has gone up 12 years in a row. The value of the dollar in terms of gold is an expression of the market places confidence in this institution of managed currency. I cannot imagine why people so widely credit the fed and the central bank what the fed could and should do theoretically. 2014, the clock starts in a few weeks. If you were janet yellen, what would you be doing specifically . On reflection, i decided that i am not in favor of the institution of price control and we are going to try to experiment. We will try to let prices seek their own level. Bond markette the to an exercise and adventure in price discovery, not price administration. We have thought it over and we are out of the price of ministers and business and the stock market is no longer stocks. Gov. Should they administer prices in august, 2007. There are places where the central bank has to step in. It has been six years. Question before the house is this an Economic System founded on the price system or is it one founded on government control . Thats it. Link this you to discussion of economics, bonds, and gold into the equity markets. How do you link this discussion . Let me try this next year i will not be an authority. Compared to us you are. As the stocks, companies have been on a huge repurchase campaign. There are immense amounts of stocks the higher the market goes, the more stock these companies by. You suppose that the companies would prefer to buy low and sell high. They seem to want to buy high and higher. This, to make him is one of the unintended consequences of this distortion. They say stocks are the new safe haven because there is no income anywhere else. Is the fed going to be to blame yes. We have these investors searching for yield and got back into risky assets, are we going to be able to say it was not the banks fault for pushing investors into sophisticated products, it was the fed . In ordinary Financial Advisor or stockbroker must follow the sec dicta unsuitability. It is a big concept in financial advice. Like little old ladies on fixed income. The chairman of the federal in reserve means well but is inviting everybody into the stock market and everyone has followed him. Look at what is happening in biotech. It is onward and upward without regard to earnings. Stanley fischer is the great pragmatic type. Can he wring some of the jim grant cautioned into the debate . On form, he is much like janet yellen. He is the preceptor to ben bernanke himself. Stanley fischer is the leader of this tribe of price administrators. Andan the bank of israel bought equities and is in the forefront of this experimentation. To me, central tanking is one of lifenly walks of secondary where there has been net retrogression of the past wondered here it 100 years. Jim grant, thank you so much. Always controversial. Controversy, i officially have a crush on jim grant. When we come back, facebook voting for billion dollars worth of shares on the market and find out what they will do with this money. Thats coming up next. Good morning everyone , Market Makers worldwide. Mr. Zuckerberg is making a secondary offering of 9. 3 billion. It is to move shares out the door3. Now toernst joins us talk about facebook. Is pretty much as expected, the stock is down two percent. I guess there is no real surprise here. It speaks of a success of the initial public offering. Were you surprised at the timing of this transaction . My first reaction in looking at it was the company decided to the some shares alongside market for tax purposes. The stock is up 100 year to date, over 40 from its ipo price. Like any Portfolio Manager, when you have a position thats up, it makes sense to take part in the market and trim some position. The company itself is selling one percent. They dont need the money. They had 10. 2 billion dollars in cash at the end of the last quarter. In the first three quarters, they bought around 3 billion worth of assets of companies but only 184 million of that was in stock. About 1 billion per quarter in precash flow. Capex was around 300 million so they dont need the money but it is prudent after a run they have had. With the stock trading at 50 it makes0x ibida, sense. What case those that make to investors what case does that make to investors . If i own facebook, i would think i should get out. It is not necessarily that you should get out entirely. A lot of Portfolio Managers are looking at their names in technology and asking if these multiples can be sustained. Facebook continues to grow. They are adding users and new ad product. Ibida which is cheap compared to twitter. That gets very much like bubble math where we justify these height multiples with other high multiples and at a certain point in time, it will be harder for facebook to grow. I think they will grow ibida around 50 this year, maybe 25 next year but that is a deceleration in growth rate. What is the appetite in the market in the open market to buy the shares . Side, if you are invested in technology and growth and you ask where else you can put your money relative to twitter, facebook looks attractive and it looks like it is a platform that is here to stay. There is probably more they can do with it and it is still integral to the internet. The flipside to that question is if you dont own facebook, what else will you do with your capital . There is not a lot been pure growth. We think apple could look attractive in 2014 because this year, earnings declined. We will start to see earnings actually regrow in the coming year. That Second Derivative is usually a Good Opportunity for stocks. As you look at the revenue persistency of these different companies, there is some real doubts about the future of facebook certainly within the united states. There are questionable video feeds in the newsfeeds and the competitors nipping at their feet what is your belief in their revenue persistency . I think the platform will be persistent. I look at the other Little Things including twitter nipping i the feet of facebook and say facebook could easily do all those things. Those companies cannot do everything face but does. Facebook is your presence. It has a presence on the internet and they turned the internet upside down before you went to home pages and then you go to facebook to find out information. That, onep side to criticism i have for these companies is outside of their initial inception, there really has not in any innovation. What does facebook due to generate revenue . They have display ads that run every so often in your newsfeed. They are currently pictures and they are moving to video but we have had that on the internet since it started. It is hardly an innovation. It is not like what google has done in processing all this information and making the information useful to you and getting paid, not by you, but every time you use it. When you click of a number to call or a location on a map research results, they keep making that business more useful to you. At the moment, facebook does not get more useful to you, more just more useful to advertisers. That is a big concept that these companies are just display advertising. There is not a lot of innovation in what they do. Thank you so much. User am not a facebook that the company likes. The ads mean nothing to me. It is used for x boyfriend searches. Do you use it to stalk ex boyfriends . I think this is a huge deal for next year. Is, i see less use on facebook. Stick around, in a few minutes, we will speak to carson block. Welcome back. In brazil, the worlds best seller of regional jet planes may be a victim of its own success. That is the latin american report. It is likely to see as Profit Margins squeezed in the next three years because two 2013 has been so successful. It sold 327 commuter jets this year in the u. S. Alone, the source of 80 of its revenue. That is left the market saturated with planes. Embraer may find it hard to buy new buyers until 2018 so that company may have to offer discounts on older models so its factories can keep busy. That is todays latin american report. Going, get the market 26 minutes past the hour and we look across stocks, bonds, currencies and commodities. Gold is the story, down 40. 1200, jimves way to grant moments ago says he simply does not understand gold. If he cannot understand it, i cannot but i can understand lions gate, the home of the hunger games. It announced its first dividend of five cents per share. It is up over 80 this year. You have been looking forward to this coming up a conversation with muddy waters carson block on china and things going south, all of that coming up on Market Makers. And we must talk about the vuitamix. Nder, the live from bloomberg headquarters in new york, this is Market Makers. Welcome back. Short seller person block is back with us exclusively this morning. Back in october, he was here and accused chinese mobile service ofviders are nq mobile inflating their numbers. Hes taking aim at the company again and asking the firm to submit to an external audit and is willing to fund it. I want to find out exactly what you are at doing today. He for we get to that, we need to dissect what is new. In four different reports, you have made your point on nq. Respond,een the stock help us understand what you are saying and doing that is new. Underway now, what is is the coverup bynq. That is not unexpected. As part of that coverup, possibly the Company Announced its independent directors have formed a committee to investigate our conclusions into the company. We have seen this process before with a lot of Chinese Companies that have been accused of fraud. There were a number we were not involved in so the fraud allegations seemed to be proved out but the independent committees that investigated came back with reports that largely exonerated the companies. Shareholders then went on to lose billions of dollars when the companys did blow up after the ic reports. What is it about this independent investigation it does not smell right to you . Independental, director committees are not effective ways of investigating possible wrongdoing in companies. The in the best of circumstances, it is professionally embarrassing if a person was a director of a company that ended up engaging in wrongdoing. Your kind of turning yourself in , in the best case scenario, as a director who was clueless. In the chinese context, we think that a lot of the independent directors are actually in on these frauds. Caseis particularly the with directors who do not have a real connection to the united states. As you know, people who look for share price are thepinata of society. What is distinctive at the revenue line about the auditors . Are you suggesting this is company malfeasance or is it their accountants getting it wrong . Who are their accountants . Coopers oraterhouse the chinese affiliate is the auditor in this case. How have they responded to your allegations . In general, auditors dont public your respond dont publicly respond to these type of allegations. They will conduct their audit and whats important to understand here far and away, investors do not get this before i started this business, i did not understand this either. Audits are not safeguards against fraud. Auditors are not looking for fraud. You think Deloitte Touche is doing their job . They are checking the boxes but thats all an audit is supposed to do. Audits are not supposed to look for fraud. I think auditors, especially in has itse, i think pwc head in the sand if they cannot see this is a fraud. The way it is set up with auditors, the professional standards are what determines an auditor will be liable for negligence or not, the professional standards ask goal page auditors from any liability if a client has resented forced documents to them during the process of the audit. In other words, in the case of a fraud which will be based on forged documents, auditors are not liable if they have received forged documents. You dont trust this company and you believe it is a fraudulent organization. Was there any independent group they could have put up that would have pasture standard . Did in thing that they every independent committee in the world does that raises suspicion is they go out and hire a law firm first. That means that the entire investigation is covered by Attorney Client privilege. If you have these directors that is supposed to be independent and unbiased, why do you shield all of this in attorneyclient religion . Itt that enables them to do allows the company to issue a press release saying there was no evidence found to support the allegations. That is the issue. Which agencies at the federal or state level have insisted have assisted you in your inquiries . They are listed in the Cayman Islands and are out of beijing, you will not get help there. Are there state or federal regulators as suspect as you are . Its our general practice not to comment on any conversations with regulators. But there is something unique and important about nq mobile that makes me more optimistic that regulators can take action against it. It is easier than a company may be 30 fraud on the top light, nq reports about 10 of its revenue from overseas. That means outside of china. What that enables the regulators to do they will get no cooperation on the china side. China is a firewall. The revenue recognition line, i remember the memorex deal of a couple of decades ago where they literally were driving bricks around in trucks. What is your specific allegation on the revenue recognition line . Is this a question of when we price a given unit sale . It is a question of actual pricing . Is it a question of manufacturing dynamics from the point of entry to the point of sale . Its actually much worse and much less sophisticated than that. It is creating sham counterparties that are reportedly its customers and you have contracts, sales contracts, invoices but you have extremely high accounts receivable. Historically, nq has had accounts receivable of 200 days. They brought that down some but there is always a little bit of cash with every fraud. You have direct evidence of these allegations . Yes, we put together a pretty lengthy report. Us, this is a slamdunk case. I will not ask you about memorex or any deals from a couple of decades ago. , you havederstand this offer that you are willing to pay for an independent audit, have you ever done this with any other company you have gone after . We have never offered to have an independent cpa firm evaluate an investigation. What we have done one other case is witholam, we offered to have it debt rated by one of the big ratings agency. Did they take you up on it . No, they didnt. Would you say this is a sincere offering or a publicity stunt . It is a sincere offer. They just have to say yes and we will do this. It is not free. This will cost us money. If this investigation is being conducted in good faith, there is no reason for the company not to accept the offer. Maybe its a christmas gift. It is always great to have you on. He is the director of research at muddy waters. Have a great holiday. In a moment, we will the to the sentence or to the senator investigating bitcoin. We will pay to the Senate Homeland Security Committee member next on Market Makers. Good morning, everyone. I am not Erik Schatzker. The dow is 13 and gold is on the move on what we saw yesterday afternoon with the fed. We have bitcoin on the brain. Everyone is talking about the future of bitcoin. One of the major wildcards d igirati is washington, regulation of the socalled Virtual Currency. You know where i stand on this. The Senate Homeland Security Division held its first ever hearing on bitcoin. He is from delaware and is senator tom carper and spoke to peter cook. Senator carper is like me, hes never seen a it going in his life, what did he say . He is at least a member of congress trying to find out more about it. He admits he does not have all the knowledge on this Virtual Currency but he certainly knows more than most members of congress and has been doing some fact checking. He held that hearing to try to get more information because he sees the potential erol from that coin, the fact that it has been used to buy an illicit goods anonymously by folks on the internet and yet he also sees the potential good from bitcoin as a medium of exchange , a possibilityd for big business in the united states. He told me that he has not yet decided whether there is a need for greater regulation. Virtual currencies are not knowing away. If they are going to be a reality, we have to figure out how to let them exist and do good, do more good than bad and how to deal with the bad. This goes on and on but i want to know if every buddy in washington is looking at the underlying economics and the price of bitcoin . Are they having fun talking to Silicon Valley types about the efficiency of the product . What is most intriguing is many people dont know where to categorize this in terms of regulation. Is it a currency . Under federal government rules it is not. Is it a security . There are more questions than answers and tom carper is now arguably the most important person in washington when it comes to bitcoin because he is the only person leading in terms of trying to determine what proper role washington should lie. You can be sure that those in the bitcoin business are starting to knock on his door on a more regular basis. The fact that even tom carper cannot get his head around what it is come it doesnt that give you pause as to how legitimate this is . A gives tom carper pause. Staff to go his back to not only hear from the regulators they heard from earlier but to ask every single corner of the u. S. Government, even some in the private sector, a full report on what the future holds for bitcoin. And what role washington should fly. He does not say hands off entirely. He says he needs to know more. He is concerned about the arrows and whether this is something legitimate. Interesting, we are staring at each other because it is the medium of idiocy. I just dont get it. Thank you so much. It is not matt miller giving us the latest on the 12 days of bitcoin. Dont give me a bitcoin for christmas. I would not know what to do with it. I know what coal is. You cant put coal in a vitamix and it comes out as a fantastic smoothie. I never got the rubiks cube either. How about this . Blender ands a overpriced, stephanie has won at the summer place, all of that is next on Market Makers. Welcome back. This one is for me vitamix blenders have become a runaway hit with the company reporting a 52 sales spike since last year alone. It is the for ra of the blenders but could it be this years big holiday gift . Maybe if you have 700. We crunch the numbers. Thats a bit of a tease if you saw people make soup. You have to buy the 700 addition to get the soup factor. At a 700 price point, people feel guilty. There is something about feeling unworthy of getting a blender the costs that much because you can buy a good one for 150. Is it worth it . That likesomebody margaritas and smoothies, you put your stuff in and it jams up. Isnt the major thing to crush ice . Blenders, you go through them within a year so maybe you have to buy three or four blenders. I have run through quite a few. My husband bought me a vitamix earlier this year. Erik schatzker has one. People on our floor drink the smoothies. They do. What is in that . It is all green vegetables. Tom keene might need a vitamix. We will be back with more. That is it for todays edition of Market Makers. Great having you, tom keene. What do you have tomorrow on surveillance. We will have bruce ratner with us. Well talk commercial real estate and basketball. You can talk aboutbey oonce. You are going to see beyonce . I will see her at the berkeley center. Therrow i will speak to trans canada ceo. They will be responsible for building the Keystone Pipeline of president obama gives them the grounds to do it. Or now, it is time we are on the markets with scarlet fu. It is 56 minute past the hour. We are working on our options. Shares of boston scienc tific have doubled this year. We will check in with alanknuckman at the cme. He has a bullish outlook. As a am looking at bsx medical momentum stock. You can see a significant stairstep from six, 8, 10. Im looking at the stock to get to 14 per share and playing it by use and in the money call option. It has five minutes for development and it will act much like the stock in a 10 level is where it broke above in july and never looked back. That is a solid support level to use as the right to buy a 10. That optional cost two dollars. The breakeven is . 50 higher and you got five months for good things to happen. There was a big options trade in bsx last week. Do we see this often with his name . People use the Options Market if they have a high probability or good insight whether they think a stock will do well. The play we saw was for february 13 calls. Someone bought more than 30,000 of those calls and the open interest is 60,000 cause. Someone thinks they know something and they look for the stock to get to 13. My target is 14. If it does, that 10 strike for may will more than double on that 20 move in the stock of it gets to 14. This is a stock substitution strategy. Why not just go long on the underlying . There has to be risks involved in buying options. I can put in a stop loss at half or if the stock gets underneath 10, i can get out of it. Its much better from my perspective for use of capital. If youre going to buy the shares, you have to put the price of the shares or buy on margin. You have limited risk on this, 200 per option is your maximum risk. You know what your worstcase scenario is going in and it ties up less capital. How much technically driven is the stock bsx than other stocks in the medical device sector . It has been a strong sector and outpaced the s p 500. It is a momentum play and a technical play and it is a low risk play counting on some people who are more into the market than i am as far as using the Options Market to position themselves in a big way. Smart money options players have an upside objective and i will piggyback on this. I will look for the stairstep to continue higher or it the next step is 14. Why give it soy, much time to play out . That is a lot of time for things to go wrong. You want more time than you need. Usually options people by less than they need. I have five months for good things to happen as opposed to buying a couple of months. Thank you so much. That is a bullish trade strategy on bsx. 14 is his call and we are on the markets again in 30 minutes and lunch money is up next. Welcome to lunch money i am adam johnson. The fed chose confidence in the economy and starts to taper it economic stimulus. In tech, facebook and Mark Zuckerberg land to sell shares worth 4 billion. The crash test results are out. We will tell you who is the safest and who is not. And we had to the farm to find out what makes wide you wagyu beef different than the others. Seenast few weeks we have signs of the u. S