Transcripts For BLOOMBERG Market Makers 20140331

Top Hedge Fund Managers the final four picks last week. Which was the first bracketo logist . Good morning, you are watching Market Makers. Im Erik Schatzker. Im stephanie ruhle. You are back. I was not sure i would come back then i look at the calendar april 1 who better to celebrate april fools day . It is not april 1. I am the house full. I came back early so i can enjoy april fools day tomorrow. You were so excited. One day early. Lets get to the news because i am screwing things up. Business stories. Federal reserve chairman janet yellen says the Central Bank Must continue its easy money policies in order to stimulate the job market. In a speech she is making in chicago this morning, she says the extraordinary commitment is still needed and will be for some time. Tapering itstarted bond buying program, noting there is some improvement in hiring. Rocks are popping on the news. The dow industrials up 150 points. Stocks are popping this morning. At t buying back stock. San diego beat los angeles in baseballs opening night. Now we are set for opening day. There are 13 games are scheduled. The question, will the Boston Red Sox repeat as World Series Champions . They certainly will be trying. Me, everyone a bloomberg and obviously everybody on the markets today. We were all glued to 60 minutes. We saw Michael Lewis unveiled his latest book. Everyone is talking about it. Last night at midnight. Many people reading it in the wee hours. Like every Michael Lewis book, it is bound to change the way we look at wall street. Last time it was subprime bonds and credit default swaps, and this time an inside look at highfrequency trading. Here is Michael Lewis last night explaining what he found. To movensiders are able faster than you, they are able to see your order and play it against other orders and ways you dont understand. They are able to front run your order what do you mean front run . Identify your desire to buy shares in microsoft and buy them in front of you and sell them back to you at a higher price. It all happened in ofinitesimally small periods time. The speed advantage of the faster traders have is milliseconds. Sometimes fractions of milliseconds. But it is enough for them to identify what you are going to do and do it before you do it at your expense. The is the take away stock market is rigged. I want to bring in a partner and cofounder and cohead of equity trading. First of all, i will let you put the tap shoes on and do the i told you so. You have been ringing the bell for three years. We have been talking about 2005 issues probably since , 2007. It is nice to see a storyteller like Michael Lewis take such a complicated topic and bring it down for mom and dad to understand for minutes at home. Is bringing it down for mom and dad too much . For me, i struggle with the claim that this top market is rate. Why today it isnt so much more rigged when we had specialists 15 years ago . Paid 9dman sachs billion to buy kelloggs specialist unit, they were killing it. Do they have did they have a special advantageous if you were watching twitter as the show was airing, there was quite a bit of outrage among those invested in the status quo about that very term. What is a better word . I dont care what the word is. If you want to call it rigged, scams, extracted, extrapolated, taken away. The bottom line this is the best part. We read the book. We got an advance copy. Did you . Coe were cold located located. We spoke to Michael Lewis at length. Once people read the book, it is not an indictment and all about vilifying highfrequency trading. It is about this complex, crazy system of enablers set up with all of these conflicted interests to cater to this one class of trader. Michael lewis made the point in his interview on 60 minutes and i am sure goes at length about it on the book that the problem is the system. Necessarilyisnt that there are people taking advantage of the system. The problem is that emma like there is no perfect system. So wellcapitalized wealthy traders, and this case, highfrequency traders, will prey upon opportunities in Capital Markets. Like they have been doing for hundreds of years. I agree. Highfrequency trading is neither good, not bad. They are not doing gods work. They are not providing liquidity to everyone out of the goodness of their heart. In good times they will give you your pennies bred in bank of america for 100 shares. And at bad times, well, Different Things and unpredictable things happen in bad times. It is not about highfrequency trading, but it is about this system. The system is set up to insert the maximum number of intermediaries between natural buyers and natural sellers. When we say the stock market is rigged, the fingertips wanted at the invitation institutions, the Market Makers, the banks. When people say nobody has confidence in the banking system, less people have money in the equity markets. Who should they trust, the regulators . When i look at Morgan Stanleys speedway system some of the y think it is questionable . I think it is in their roles and what banks have done all the time is figure out what the roles are and push the envelope. That is an arbitrage opportunity. I agree. And the system is set up the big banks and the dark pools have an incentive to get the maximum number of participants and volume in their pool for profit so they can advertise. Highfrequency traders want to get in those pools and moved substantially off of these exchanges or in concert with the activity on the exchanges because Everyone Wants to talk to the order. Everybody wants to touch the juice. They wanted to touch the juice when goldman bought and they wanted to in 1982 and they want to touch the juice now. But this system is set up to perfectly and efficiently in an automated way make sure that they touch every bit of juice here click here is the devil advocate question. Is the devils advocate question. If the system is designed to facilitate the maximum number of intermediaries him a wise achieved purdue trade why is it cheaper to trade . It would be more expensive. From whose perspective . Everybody talks about the retail investor, mom and pop buying 100 shares of bank of america four times a year through their ameritrade account. Momandpop traded for eight bucks a share in 1998 on ameritrade. It is not about that retail investor. It is about the vast majority of Retail Investors that are in pension funds, t. Rowe price Capital Group how much janice, you name it, all of those big guys, when they have to buy a million shares and it goes into a broker or Bank Sponsored algorithm that splits up the order into thousands of people throughout the day, and that point, those child orders touch everybody. Everybody wants to touch those child orders because they are predictable, they are slow, they signal. Is trading cheaper . Is looking at the spread a suitable concept to judge trading . I question that. Theo you believe iex are crusaders of honesty of truth . They have virtue one of the biggest customers and that is the biggest hft guy out there . It shows it is not just about hft. Ronan, we worked with donald at instanet and they were ryanairs tie in years p ioneers. Whowonderful group of alum mated as ceos of exchanges. I am most proud of donald because i remember as a kid at instanet. Ronan, when they were laying out their vision, planning to adopt a free market , once we got past fbombs, we were floored. They are trustworthy and you come away liking them, coming away saying they have a profit motive but they will create a clean system that invites all topped the players in on a level playing field. We have been a supporter and we were among the first brokers to sign up. Our clients enjoy we do not trade on our own behalf. Meaty ts enjoy large without the typical aversions why do you think goldman change their tune . For the first several months of iex, goldman wanted nothing to do with them. The timing seems a little questionable. A week for the claim comes out, a week before Michael Lewis possible that the paint oldman and the dark hole in a negative light, they get into bed with iex. Doesnt that seem weird . However, once you read boys, this is not something that happened two weeks ago. They got on board well over a year ago. It was a change. The two gentlemen really in charge of Capital Markets really get and are buying in that the market first and foremost has to take care of the owners of the market, the longterm investors above the renters. If there is a marketbased solution, and it is iex, is there anything to complain about anymore . I am feeling pretty good. I will tell you why. When we first started our crusade all of these issues, the unwanted touching in alleyways nobody likes him at the touching. I promise you that. Nothing to do with apple to market. I need to go. [laughter] have been talking about all these issues, i remember the first time we went down to the sec to talk about them and ice i came back so jazzed. Mr. Smith goes to washington, we are going to see change. And then washington happened. So we became quite jaded. Been of all, things have coming in the free market very positive for longterm investors. All of those things, they are being addressed. Iex market solution, we are feeling pretty good. You have to join us can. We will be talking about this almost all month. [laughter] thank you so much for joining us. A big weekend at michigan. For michigan and the book came out. Huge. My son congratulations, billy. Themis and cofounder at trading. We will have new York Attorney general Eric Schneiderman. Dont miss it. And tune into Market Makers on wednesday. Michael lewis himself will be our guest host for the entire hour. More revelations of this weekend about the faulty General Motors ignition switch that led to at least a dozen deaths over the past decade. Newly released document said the company decided not to fix the problem all the way back in 2005. The reason . It was too expensive. Our auto reporter matt miller is here. We also have sally greene there sally greenberg. Matt. Begin with you, more details on what is called damning documents. It looks absolutely awful and i am sure for mary barra it is a horrible as well but not nearly as bad as it is for the families of people who died. In the case where General Motors solve the problem backing 2001 open anin 2001 and investigation in 2004 and decided a fix was too expensive. You have to ask yourself, if someone thought, wait, it is too expensive, we would rather let someone died . Worthensive that it is the cost of lives . That is just par rubble. Obviously, it is going to be really difficult. But there are so many moving parts. The old gm, prebankruptcy and bankruptcy wipes away all the possible claims of previous events. And frankly, i think General Motors has a different culture. We will see now, but i think mary barra represent a different culture than the old gm as well. Jump in theou to conversation here. We are talking about General Motors. National Highway Transportation Safety Administration to be part of this investigation as well . Thats right. It really is deja vu all over again. We see this pattern repeated did we saw in 2000 when we had the ford explorers rolling over and congress was all over that and they gave the national highway Traffic Safety administration, the federal Agency Charged with protecting us as consumers they gave them a lot more power. A parable, fatal incident or series of incidents, companies are supposed to report in five days. If there are very grave injuries, then there are criminal penalties. We are not seeing any of that happening now. We have a twofold problem. We have companies not reporting because i do not think there is enough teeth in the law, and the we have federal agencies not reacting quickly to protect consumers. Thank you for correcting me a to begin with. Secondly, how much blame can we lay at the feet of regulators at at general begins motors . The General Motors is not reporting to knit the nhtsa investigations in at least two situations related to this ignition problem. They looked into it twice and said forget about it, no big deal. It is not like they didnt know. They knew in 2007 and also in 2009. Sally, maybe you can help answer the question that raisins, whether General Motors was not forthcoming enough with the situation. Enougha did not have information, is it the fault of regulators not identifying the severity and gravity of the problem, or did they not have enough information to begin with . Ofnhtsa get a lot information from consumers. They are also supposed to get information from the manufacturer. So they had a lot of information. As matt pointed out, they decided to do nothing. They sat on their hands. The problem i experienced as a consumer advocate is it is very hard to get the agency to take the kind of action that needs to be taken to protect consumers. This is not the first time. We need a culture change there. General motors needs a culture change. We are very hopeful the comments mary barra has made indicate they are going to take lives lost, people losing loved ones in terrible accidents, very seriously, and make a change that cost them 10 do you agree with matt that mary can be part of the new culture change . She is old school gm. She has said a lot of very positive things that we hadnt heard before from heads of companies, heads of car companies. She said something went terribly wrong. We applaud that. She is saying we are going to get to the bottom of this. And she is talking about pulling together a 3 billion fund. Bailed out, they got all their liabilities wiped away. That is unconscionable, since they knew there were many problems in preceding years. It is very important they put together a fund, given they got a bailout that gave them liability waivers. An outsideed up investigation, which hopefully has a little more weight than the kind Chris Christie open. She put a Vice President in charge of safety. But i wonder, sally, what you think about what the government knew. And before him steve ran away in there as a representative of the majority ratner r even were in there as a representative of the Majority Shareholder. It is not just chat on the factory floor. The guy who is running the Majority Shareholder stake must know about that, right . I think the important thing is we have to get this to raw agency, which is charged with a looking at all of these thelaints, to step up to plate and say weve got reports of 20 terrible injuries, five or six deaths. We have to listen to consumers. They have to stop ignoring information that is on the table, taking up a much more minor claims, and listening to consumers and consumer advocate. And by the way, plaintiff attorneys often know a lot of information. That information has to get out to the public. There is a possible fix. Legislation offered that would make the agency put this information into the public andin, so that you or i news associations like bloomberg can get access to the information and we are not relying on bureaucracies that may be slow to act, that may have a revolving door problem, to take the kind of action consumers expect and deserve. Salad, i am afraid we have to run. Sally greenberg, executive director of the National Consumers league, and their own matt miller. We will be right back right here on Market Makers. Coming up, new York Attorney general Eric Schneiderman. You are just going to have to keep watching. He is going to be here. We will be back in two minutes. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. You are watching Market Makers. I am Erik Schatzker. And i am stephanie ruhle. It is not april fools day. I cant wait. It is march 31. This is the last day for individuals who do not get insurance to sign up for coverage. This morning, however a Technical Glitch temporarily affected healthcare. Gov. Megan hughes what happens . It seems almost too perfect. Remember Software Glitches, october when that was all we were talking about . I can tell you from the health and Human Services perspective, they say they extended regular maintenance, that was what this was extended regular maintenance . They found a Software Glitch and they did know this last week the system was going to be incredibly stressed. They have been getting more than one million visitors a day. This is part of their regularly scheduled maintenance. They found a Software Glitch. I touched base with them at around 8 30 this morning. They said it would be running smoothly. We did try to get it running ourselves at the Virginia Exchange and we were put in a line, which they are expecting a lot out as well. That is part of the reason the president and health and Human Services would badly like to hit that 7 million number. Does the glitch this morning jeopardize that target . It is hard to say at this point how big a deal this glitch is. If everything is running 9 00 at nine clock a. M. , how bad that is. Keep in mind even during the glitch, they said people who left their email addresses would be contacted. That is why they have done this they do not want to say the are extension, but if you in line tonight, if you have tried to reach them in any way, you will still be able to sign up beyond the deadline at midnight tonight. They anticipate hitting that number. Thank you. That is our megan hughes in washington. Tonight at midnight is the official deadline for signing up for healthcare. Gov. While we are waiting for those results, we have some numbers. One state already stands out. To the north of us connecticut. Are offering marketing and Health Care Expertise to other states, of course for a price. This is a capital market. Our own Olivia Sterns visited to see how the system is working. You can find everything you ever wanted. There is a right aid doughnuts dunkin anuts and theres even obamacare store. Thats right. Access helps, which has had more storehan almost any other isthe country. Connecticut not the only state to set up their own health your chance, but they are the only one to set up shop. People say they are believed to have their questions answered face to face. Ceo. Is the aret least 350 people raising me and roll button right now. Our average is 211. Just google analytics. Thats exactly right. As per the stores, he credits apple. We are trying to model a lot of what we do after apple. We are trying to have an annual cycle of new production introduction. We see ourselves as a private startup. Visitors to our store have purchased. Our close ratio is 70 . He is marketing the services to other states, pitching it as an. Welcome to Market Makers. I am Erik Schatzker. Tesla ceo elon musk may have no love for Chris Christie, but with andrew cuomo it is a new story. On a dealme together to let tesla keep its five stores in the states. Our anchor betty liu here. I have a mixed reaction to this announcement, right . On one side, you can say elon musk in terms of being able to keep his doors operating in new york, and he may be able to offer even more, but he has been so opposed to the auto dealer franchised network. At they go against democratic principles, a monopoly, dont consumers and he is compromising here. He is compromising. If you read between the lines, guys, look, he is a billionaire, a genius, and a smart businessman. Eventually tesla will have to sell their cars through auto dealers. If they want to get to be levels of hundreds of thousands of cars come a he cant handle it all with his own stores. He has to go through auto dealers. Like the apple store . Best buy. All over the place. It is a fair question. Maybe he is betting the User Experience User Experience, we are likening it to apple. People will go to the tesla store just like they go to the apple store. I was not entirely wrong. We will see. Have you gone to a tesla store. I know you have the resources to buy a tesla. Not only has he been to a tesla store, he came home salivating. It is amazing. It is completely unlike a typical auto showroom. Much like the apple store and electronics. Lets look at the other big project on elons radar, the gigafactory. 5 billion. 5 billion. Think about the jobs that will be created. Look at the map. Nevada, new mexico, arizona, and texas. Twoona was one of the states that out right hand tesla from selling in the first place. Will he use the leverage he has with the factories to overturn those bands . Who knows . The auto dealers are digging their heels in for a fight. I think this will be a bigger deal, maybe as big a deal as the model s. This is going to transform the electric car industry, period. Buyou will be able to batteries cheaper. Right. It will double the amount of lithium ion batteries on the market. It will double the commodities market. It could turn out when i was on a Conference Call a few weeks ago, this factory was the only thing that analysts were interested analysts were interested in. It is a game changer. Huge game changer. You know elon musk. He likes to be the disruptor. Elon musk never met a challenge thank you, betty liu, the latest on elon musk and tesla. And betty, i should add that you thedoing a special show on 16th . We will bring you an indepth look at the escalated battle between tesla and the auto dealers. Coming up, this nba guy moving from hardwood to hollywood. Dunk. Actly a slam he wants to take it to hollywood. Welcome back to Market Makers. Stephanie ruhle with Erik Schatzker. He is hoping that he could make it beyond the basketball court. The agency is trying to help. Relatively it Relativity Media is known for movies and tv shows, but they are moving to sports. Jon erlichman sat down with him and his agent. Tell us. He wants to go hollywood . He is going the way of Shaquille Oneal . Yes, we will see. Obviously you alluded to the priority is to help the knicks went. Mix knowo follow the that he is into high fashion, writes kids books. You can do things like that when you work with firms like relativity that have a lot of different options for athletes they represent. I did ask him first what do you like more, being in front of the camera or behind the camera . Here is what he said. I am a behind the camera guy. It is a great opportunity for me to get involved. It probably would not have been not involved with relativity. He has a lot of ideas, hip ideas. See the mix,you they were already producing it, they were chasing it down the et. At for you, you are looking at places you should be investing, building on your career, what you think about the film business . You do not want to do too much. With the help of relativity, we do a great job of that. The time. All i will say, hey, here is a project we are working on. It is pretty cool. Look at the script. See if you like it. Really, blackbird, which is the movie we did together, which comes out in november, he was a partner with us and reduced. Produced. We are really careful. We do not want guys investing ally and taking any risk at of not being successful. Sometimes you get into digital shorts. Sometimes you team up with other members of the relativity family. [laughter] what is the goal of Something Like that . If the word out, have some fun, show a different side of yourself . Yes, just to show your acting skills, kind of a humorous approach. Know my answer here. I love it. Models amare trying to himself after Magic Johnson . Magic johnson is the guy who got it right. That hefinitely said was impressed by magic. Who isnt . Exactly. Could there be models of very successful athletes building their brands and ventures away from the court . With a guy like amare, he is only hurting one years old, but he came into the league. He was 18. He is only 31 years old. You get good advice. You get bad advice. I think a lot of Young Players are thinking about that. Magic was the one to say, you have to think about this now, not when youre playing days are done. Thinking about his next chapter. A great sure need season. Jon erlichman covering the entertainment bait entertainment heat as it coincides with business. And sports. I want to stay with sports. Today we need to check in and see how the wall street leaders that on their final four picks. None of them were perfect. Got anyone no one got all final four correct. Two in fact, correct . A jamie dimon picked duke. Einhorn, howard marks they picked two correct. They did ok. As for you and i . I think we did pretty well given the number of upsets in the tournament. Got wasnd i, all we florida right. That was not that hard. [laughter] considering who they are. Not one single participant picked connecticut or kentucky to advance this far. Did not pick his teams. His 10yearold dead. Are guys who understand risk management. They understand the winners in the market. We have more winners. Stay with us, everybody. Market makers returns with new York Attorney general Eric Schneiderman. He will be with us in a future minute. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Are the markets rigged . That is what Michael Lewis says. We will talk frequency trading with the man who investigated it, the one and only new York Attorney general, Eric Schneiderman. Media companies are soaring. Are they overpriced or is it still time to buy . Generation cane. The former news anchor who says his startup will make you smarter a lot sooner. Welcome to Market Makers. I am stephanie ruhle. And i am Erik Schatzker, everybody. Michael lewis of the stock kets are written against rigged against ordinary traders. Complicated stuff. Michael lewis simplifies it, makes it so easy to understand in his new book flash voice. Streethat people on the are talking about. Here is what he had to say on 60 minutes. The stock markets are rigged. The most iconic global Capital Markets are rigged. By whom . By big banks and highfrequency traders. Two weeks ago new York Attorney general Eric Schneiderman said he was looking highfrequency traders and the changes they work with. Here it he is here with us this morning. Would you agree with Michael Lewiss characterization that the stock market is rigged . I know you described it in the past as on fair. There is a difference between unfair and rigged. I would not be as hyperbolic as that. We looked at the use of information that did not fit into traditional categories of Insider Trading, but because of these algorithmic highfrequency computers they could use information that before was useless. Thomson reuters was the best example, because we learned that in addition to releasing this information, they gave a twosecond edge to Customers Using highfrequency, which a decade ago would have been irrelevant. It creates a problem. Thetopped that practice of twosecond edge. We are looking to see if there is any other eli gaudi you legality. Do you believe that there is il legality . That is why there is an investigation. Are the ones at fault the sec . They have conducted a number of studies and concluded there is no wrongdoing. Could this be a case of hate the game, not the player . The sec has been looking at this. I have been in touch with the sec. The commissioner spoke very forcefully last week about it. They need to change the regulatory structure. We have 60, more than 60 private and public exchanges interlinked. And in this race for speed, they try to use the milliseconds of advantage they have over other traders to front run the markets and i could manager of the cracks in the system. The sec needs to look at new regulations, in my view. They need to put some speed bumps in just to take away the arms race that needs to take chances for everybody to speed, but could have also but it was the sec who created this system that has the backs in it. It when i was , they had way more control and could look at so much information. They could control bidask. More fairys it looks than it was 15 years ago. No, i dont think so. It is good to look at High Frequency. Range and there are those folks try to take advantage of things to run the system. If you can get information and Michael Lewis talks about this dumping a lot of, i think microsoft used as an example, and to know a few seconds before people can execute the trades, not even seconds, milliseconds. The race for speed is inherently dangerous, because that leads people to take more and more chances to try to get advantage. General, youey describe it as an arms race. Is it by definition dangerous . I ask this question does in just about every other industry in america, we celebrate technological advance, we celebrate the use of technology to build better mousetraps, except, it would seem, in the Equity Capital market. Lewis says from his perspective and he is not the attorney general of the great state of new york but from what he can tell it is legal. I think he is probably referring to federal law. System here. Ferent a look at new york to be little different, mark eccentrics. We have speed limits and airbags. We celebrate technology, but you theyancel a credit card if get stolen. What we propose is in the way of speed bumps. This is a new conversation. I support this idea frequent batch auctions. You of all of the trades up for one second, and then it is allocated by price. Not whoever got in a few seconds earlier at a lower price. That is the way to do it. There is another exchange, iex . Yes. I am a fan of the markets. But i think michael is right. We have lost a lot of credibility. A lot of investors do not have confidence in the market and we need to regulate them to restore that confidence. Have the regulators lost credibility . The regulators may have and on their face. You are the regulators may face. Gg on their are you making them look like a fool . Is Michael Lewis making them look like a full . I dont think so. I have been in touch with the sec. They are taking a hard look at it. There is a lot that can be done by the exchanges. Location,king at coal extra bandwidth, highspeed switches that creates dust a tiny extra advantage for some traders. Their responsibility. The users of these computers bear responsibility. I will be looking at new york laws and im sure my federal counterparts will be doing that as well. I understand you are using the martin act. Awfully that is my legislation. That is an awfully powerful legislation. This goes back to the 1920s and it is broader to the federal securities law, and i am looking at people exploiting cracks in the system, only four unfair advantages. I do not care if people are buying and selling what if you are exploiting cracks in the system, but it is legal . I give my kids rules every single day. They are always looking for cracks to get around them. If they do, foolish on my part to do it. Are the Morgan Stanley as of the world, are they at fault because they did not look for the cracks . Thats a very good point. There are some things that may now be legal, that should be illegal. We are shining a light on this area. To their credit, the firms we have confronted with this reuters, rocket wire, they have acknowledged this is the right thing. That it needs to be addressed in the right way. This poses risks to everyone. Opportunity to cooperate with new jersey, given that so much of the trading that takes place happens on the other side of the hudson river, these centers run by nasdaq and the new york stock exchange, for example . We are in touch with our federal and state counterparts. I cant comment too much on the details. You mentioned that the martin act predates federal securities law. Does that create an opportunity to enforce these issues in a way that those regulators could not, even if they tried . In some cases. We have different standards of proof, and the martin act is a broader antifraud statute. It does not have the same requirements as the federal statute, but in substance it is the same thing we are looking for. We are looking to restore confidence in the markets. We want to make sure that no one is able to front run some mechanism and no one thought of these rules drafted 5, 10, 15 years ago. The Thomson Reuters deal opened a lot of eyes. A lot of people did not realize that two seconds was enough to move the markets. Since they shut that down, the markets are not moving when they release the Consumer Confidence studies anymore. We have got to get this right. Are you getting the cooperation . We are talking to a lot of people and people are coming forward with interesting ideas. Things we can do differently in terms of smart regulation . Whether were talking about implementing the volcker rule or dodd frank, it seems there are robots and to the regulators are not arms, do not have the skill set or the funding. Regulate funding to these entities . What is happening in washington is ok. I wish it was faster. What is happening in washington is opaque. This is the way that the market is set up. We are living in an era, taking a breath where the nostalgic world of traders scrawling on pieces of paper, gone, never coming back. Some folks in washington are moving faster than others, but i look forward to working with my federal and state counterparts. When we say the nostalgic feel of specialists scribbling papers, is it fair to say that they will have some pretty unfair advantages . The old rulesre actually work pretty well. This is way below way before the old rules. This is why we call it Insider Trading 2. 0. You would not have information on what the market says for two seconds. You were the only one who knew it. That was what you are not allowed to trade on it. Are you saying some people got away with it . Ok, some people got away with it. At but we had a set of laws. Thank you so much. I think we can all agree that more evidence in the equity market is a good thing. He is the attorney general of the state of new york, Eric Schneiderman. Into our showtune on wednesday. Michael lewis themselves himself, the author of the new book flash boys will be our guest for the entire hour. Jeff bauman says look at all of these small and midcap companies. They need our support. Market makers streaming on your phone, your tablet, and bloomberg. Com. All of our watch good stuff on apple tv. Welcome to Market Makers. I am Erik Schatzker. With stephanie ruhle. The golden age of television is upon us. More people than ever are tuning in to their favorite shows not just on tv though ipads. Content is king. What does that mean for the distributors in the cable providers as viewing expands beyond traditional tv . Lets talk to and author of a new study that shows Media Companies have come back stronger than ever after the financial crisis. Good to see you. It is the golden age of content. That is the title of your report. Where does it go though . Is it going to be as good for the likes of, say, comcast well, maybe comcast is a bad example. Or a Satellite Company like dish . Universals the nbc lobby world . We have seen a shift in Bargaining Power from the distributors to the providers of content, the cable networks. There is more viewing on ondemand platforms that you get online as well as you can watch on your smart phone and tablet, as well as increased Competition Among distributors. Back in the golden age of the 1980s, the cable providers were essentially the sole providers of these big bundles. Satellitead the providers and then the telcos at t, verizon. That benefits the cable networks. Boosting the value of content here . Everyone loves to talk house of bad bricking true detective. If you look at them, not only do you have these secular things, these are Great Companies to begin with. Is mylo ladies alltime favorite show. As they grow, most of them look at the bottom line and they do not have to invest in new factories or anything, so that they do not have to return the value to shareholders, which is what we have seen for the last five years. Right now the content providers are playing the game purposely. They have the cable distributors in the Satellite Tv Company to give you the stuff you want and need right now and then they hulus tonetflixes and run back catalog content. How long does that last for . At some point doesnt it become dog eat dog and the people who want to cut the cord end up demanding more and that will end up hurting the traditional distributors . I think that is the big risk. Cord cutting. There are only five or 6 million broadband households. That is what you need to cut the cord. You need high speed. You need access to the internet, absolutely. We have not seen that. Total paytv subscribers have been flat for around the last five years. That is a risk for the industry overall, certainly. Even though there is a risk and people are paying less, they are consuming more . When i think about how much news we get from all different outlets right now, it is significantly more than a few years ago. You are absolutely right. 2013, Television Consumption in ls household or capita u. S. Household per capita reached an alltime high. Netflixs not include viewing, which i think streams five hours of Television Content q3. T into three just in hulu, amazonude prime. Just in the subway alone when you watch people watching Television Programs on their phone, you just were not doing that five years ago. Absolutely. They are is a huge increase in demand for Television Content. One of the reasons this is such a great time to be a broadcast company is because of retransmission fees. That case before the Supreme Court involving aereo. What if aereo wins . Is that the case that killed the goose that lays the golden egg . Becomes wins, that threatens cable. Sure, you can cut the cord and get netflix, but that really only has library content. It is tough to bundle a package that would supplant table. Is legal you get the four main broadcasters provided they remain rock asterisk. We will get to that in a second. But youre absolutely right. Replace,ould almost potentially replace the cable bundle. Again, i think that is the big risk to aereo. It will not happen overnight. If they win, it is not like the blows up. Le but it is a longterm risk. We love to overplay bench watching. Bench watching does anyone actually watch house of cards on valentines . It is just a better way to watch tv. To lock yourself in your room for seven straight hours to watch tv . It is certainly popular. Netflix says and watching accounts for 40 , 50 of their viewing. The consumers they are looking at are watching individual shows. There is substantially more engagement with each one of their shows, which is what you get that rabid enthusiasm for things like house of cards, breaking bad. It is true. Saturday night, someone told me that they were jealous of me that i had never seen the shows and they would love to lock themselves in their house and watch them for eight hours straight. And i thought, you are tragic. They really bond with these characters. Mediatt harriss is the and entertainment analyst that gabelli and company. It is the golden age of media. Thank you for not calling me out on the subway. I was sure when i said, people on the subway made in america. A company that sends its manufacturing offshore. We have that coming up on Market Makers, right here on bloomberg television. It is 26 minutes past the hour, so time for bloombergs on the markets. Bringnie, we should everyone up to speed. Janet yellen has been making headlines. In dgs. Look at the indices. The market likes it. Saying, i will walk you through. I care about the American People and not just the markets. 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. Erikjoined by my partner schatzker. I have to tell you erik, it is also to be back. It is awesome to have you. Manufactureart to in the u. S. Again. Everyone loves these stories. We have been profiling some of those companies and today we , al look at kohler 146yearold company that makes toilets and bathtubs. We will look at why despite higher wages they are still manufacturing here. We have a mission. And that is to improve a level anyoneious living for and everyone who comes in contact with our products. Have a son who is president of this company. He thinks im getting too old. Our company has a long history of pride in American Made products. Products are made here and will continue to be made here. The kohler family is keeping it here because the work ethic is it has been year for 150 years. When it says made in wisconsin, that means something. Youre getting the best. Our biggest markets are in the united states. And they are served primarily by the factories in the united states. All of those plants that we have regionse make for the where we start to locate. This is the original kohler pottery. What we do is manufacture everything from toilets and urinals to kitchen sinks to rid in this facility we make about 100 different products every day, 30 different colors, for atut 20,000 different skus any point in time. Were slain is made from different plays coming from the kentucky porcelain is made from different clays coming from virginia area. The color gives it this smooth, glossy surface. The pieces ready to go in the kiln right away. The kiln is a 100yard tunnel. Is 250the tunnel degrees. After it is fired, the porcelain is one piece, with no spaces, no anything. Over the past 20 years we have invested a lot in this facility, robots. W kilns, new we are refurbishing this almost entirely, and that is how this pottery at a high wage level will be able to compete with virtually anywhere else in the world. Tour. Let i loved that actually. I could tell. View does not love a good toilet . And a Great American company. You are canadian. Im into it. Toilet tour. Anyway, a wall street take on highfrequency trading and whether the stock market is raids. More excitingn, than toilets. All right, he wins. Welcome back to Market Makers. I am stephanie ruhle. Lewis. Talking about him all day. He says that stock markets are rigged against regular investors due to a highfrequency trading. I want to bring in the head of a firm that knows the impact of High Frequency trading very well. Jeff solomon, the ceo of callan andcompany cowen company. What you think . I do not think the stock market is rigged. Certain investors have advantages over others. We have seen that speed sometimes trumps price or price discovery. What were talking about is the inequity over who gets price first. Ight is it different from what we had 15 years ago . Compare it to when we were living in specialist days versus is better . H no system is perfect. There are some attributes better about today. You see a much more efficient market, certainly for a large. And certain markets are better for Market Makers and slower markets. This makes the case that one size does not fit all. If you look at small cap markets, where we spend a lot of our time, we think small cap markets required wider increments and slower trading. To havet necessary speed in order to win. The difference between market and an hft is pennies per share. If you are doing market analysis, in the long run it should not matter if you are 25. 02 . At 25. 01 or but that is not what is happening. If you have indicated you want to buy the stock, there are people who get that information ahead of your i ordered coming to the floor and they cant run that price up they can run the price up. What is critical is the ability to accumulate shares, particularly for the institutional market. If we can set up a market where we have bids and offers lineup off ramprete in and where you can see the market depth, that is what effectively creates good solid fundamental in and selling. Real price discovery. We used to have that under the old regime. Right . I am not suggesting we go back to the old exchange structure. But we should be able to acknowledge that for smallcap stocks in particular, it was very beneficial to have discrete increments and buyers who care about fundamental price discovery rather than speed. Theyat do you think that should do . We recommend from the Equity Capital task force, we have recommended five and commence. We would like to see trading at bid,e at occur at the the offer, or the middle. We think doing this we will get fundamental wires and sellers to queue up and show some depth to the is going back to 16 . No, it is going back to a time off discrete increments. If i say to you, were going to meet in manhattan and i say lets meet at the corner of 53rd and the , lets say to rid right now people are trying to ex. T between 53rd and l we can have 20 price points. What happens today, there is no effective way to cluster too many and commence. What has the explosion of hft done to these markets . Do people not want to trade them anymore . Particularly for the Institutional Investments with serpas, they are focusing their attention on the companies that have volume. As that the only place they can find research and liquidity. When we talk about changing the Market Structure for small caps, we are talking about two percent for less than 150 million on smallcap. Used to be like . I hesitate to say in the golden , because we established there is no such thing. If a preponderance of this trading happens today, what was it like 15 years ago . Whose solendividuals job was to foster liquidity and smallcap names, and today you do not have that. There is no traditional specialist in the new york stock exchange. Doesnt the etf have something to do with that . Of tradehe unbundling commissions of something to do with that . Yeah, for small caps that are trading you have to bring back fundamental buyers and sellers in discrete increments. If you do that, you can bring back some of the good attributes of the old structure without going back to the negative aspects of that market. Are they we go iex, the crusaders for truth and justice that Michael Lewis claims they are . What i heard and that these yesterday what i heard yesterday was trust is a valued asset. That is absolutely true. We spend a lot of time asking that was not my question. What do you think of iex . I like iex. They are offering an interesting service. Thank you so much. Cowen andon who runs company. Coming up next a former tv anchor has a better way. Thats coming up. Welcome to Market Makers. I am Erik Schatzker. Silicon valley is in investing in the news business. Not talking about newspapers or tv. No, tech investors are putting their money behind and then started by the former nbc news anchor. He is announcing another round of financing from a top european media company. He is with us. Welcome. Who is investing in your startup . We are really pleased to have axel springer, which is one of the largest Media Companies and all of europe. Ozy joining a really good group of people across silicon valley. What is your game plan . There are so many news and Media Outlets. Why do we need another . You do not need another. 12 will find the same stories day after day. If someone could promise you that they could look ahead by three or six months, show you what is going to happen not another profile on Marissa Mayer , not that shes not great. But a profile on the next Marissa Mayer. Do you truly believe that i take it you do, do you truly believe, and i take it you do, that no one is doing that right now . There are lots of news organizations looking into the future to catch the next rising star. People do do it occasionally. They do not make it the main part of their offering. Not in a broadway. Occasionally you will see a specific publication like wired has Done Technology for years. We know music magazines look at the next big band. I would love to discover the next elon musk. I will love to get the kind of story that Michael Lewis talked about that you guys were just discussing on your show, but not a day ahead of time or a month ahead of time, but consistently, 3, 6, 12 months before i will watch it on another network, read it in my classic paper, etc. There is no place to go. We are really excited. Axel springer seems to be getting excited about ozy as well. I think thatwis we are crushing it on Michael Lewis. . Could you do different alternately we would talk about that three or six months earlier. We did. Michael had this embargo and and under wraps. Business insider said it was coming six months ago. Do you have a relationship with of thehael lewises world that no one else has . If that is the case, why would you not do it on abc or in the . That is a Good Opportunity for me to clarify. Instead of looking at the next generation of Michael Lewises isnt everyone interested in doing that . I dont think everyone is did really . I challenge you there. I thank you for challenging me. Here is what i would say to you on that. I would say most Media Outlets we know are looking to hire the same group of people, to cover the same group of 25 stories. If you and i went on the web and looked on, call it 15 sites, they will have the same stories. They may have different headlines. A will have the same stories. Not all computers have to look the same. It is the same argument elon musk is making a tesla. Why does every car have to look the same . Carlos, i have to ask you an important question. Who is going to pay for it . How do you make money . Great question. There are multiple Revenue Streams beyond advertising. Certainly advertising is the one people are thinking about, but i think there is a subscription opportunity. We see movement in that direction. I think you look at what fortune has managed to build and what a quartering, almost billion dollars of revenue. We think there are meaningful opportunities. Thell right, carlos, former anchor who has not forgotten how to count down from 60. The founder of ozy joining us from san francisco. Much more. You are watching Market Makers on bloomberg television. That will do it for Market Makers today. Whenre to join us tomorrow the ceo of marriotts choices. A great time to be in the hotel market. Now it is 50 six of the hour, so time for on the markets. Lets go to the newsroom for more. We are talking about todays options insights. The purity is trading higher after fed chair janet yellen said that the fed would be extending support for some time. Here to discuss this is the derivatives strategist at him km partners. This is the last day of the First Quarter. We made it. The indexes are mixed right now. Extent doo to what you see mixed performance and options as well . Our read on a lot of options mechanisms are similarly neutral. If you look at a lot of spiders spdrs. Not a lot of significant bias in the options market. If you look at the significant risk factor russia continues to unwind. The volatility continues to come in. Also, janet yellen made it through her first fomc meeting a couple weeks ago relatively unscathed. We have a quiet week here and we see that and the options market. Janet yellens comments about how policy remains accommodative time, is thatsome a change in direction . I dont think so. The market was higher on those headlines and has and come in a little bit. Optionsooking at the market in the First Quarter. We have this in bed and floor under 15 for the fix. We do not know what that is about. Certainly people are watching that. Month lag is this 2 between volatility events. The last one was the beginning of february, two months ago exactly. We also see that there is risk in the short term and that is something we would like to hedge against. What might qualify as a volatility event . Something very similar to what we saw in february. If you look back to december 2012, that is when we date the beginning of this low volatility regime. It has been almost every two months the market gets finished. , those areto 2007 pretty benign events. We see people pulling back. All right, be on the watch out for that. We are also keeping an eye on General Motors because Ceo Mary Barra will be headed to capitol hill to testify about ignition switch problems that have been linked to 13 deaths. What do trading ngm options tell you . G. M. Options are interesting. Last week, an alltime high. All ratio continues to climb. There is clearly embedded risk in g. M. , particularly if you compare to ford which is much more benign activity on the option side. Bestperforming last year, ranked 21st in the First Quarter it has been effective. It has performed extremely well. It is economically sensitive. There really has been lagging performance there the last few months. Exactly. Tell us your trade on for then. What we like is positioning ford relative to tm g been buying through 16 straight calls. To them, they call about . 40. A nice, relatively inexpensive way to get Long Exposure in mores and the autos broadly. We see your chart on the upside is fairly large want to get to the break even point. Unlimited upside and . 41 is all that you pay on those calls. All right, the option straight of the day. We are on the markets once again in 30 minutes. Lunch money with adam johnson is up next. Wax welcome to lunch money where we tied together the best stories and business news. Take a look at the menu in motors, make it 2. 6 million gm widening its recall. Jeep the chief dignity for near full in washington. Talk about an earful Chris Christie, the governor of new jersey says the facts speak for themselves. In turkey, the Prime Minister may have a beef with social media, but can still win the elections. One