Transcripts For BLOOMBERG Market Makers 20140410

Market makers on Bloomberg Television. I am Erik Schatzker. I am Stephanie Ruhle. Im here at the nasdaq at the founder summit. This brings in great names like aero and oculus, and the bankers to represent them including Goldman Sachs and blackstone. P are hot. Is stephanie, looking forward to it all. On assignment not too far away in midtown manhattan this morning. In the meantime, the monthlong feud between ebay and carl icahn appears to be over. This will give him confidential access to the company, and he has withdrawn his demands for a paypal spinoff and 2 seats on the board. I spoke to ceo john donahoe in the morning, who characterizes this as a win for shareholders. I asked him, why give carl icahn anything at all. What he has done is seeing the potential in the opportunity in our company. So he is becoming a longterm shareholder, which i think is a winwin. And dave dorman is coming on as an independent director. An independent director that i respect and that carl respects. I think that this is a good addition to the board, and i think it will allow us to exercise the enormous opportunities in front of us. Icahn versus ebay, is this over . We bring in trish reagan, who has spent a lot of time on this, ebay and donahoe said this is an agreement, carl says this is a detaunte. Of this takes the fight out of the public arena. It seemed like we were getting this on a weekly or daily basis, we were Getting Press releases from both sides. Carl would tweet something, ebay would put out a press release, carl would Say Something else and ebay would come out with another press release. This was sort of a titfortat arrangement. And i think that the feeling eventually on both sides is that this is not healthy, this is not the right thing to do. Carl says he would like to see paypal be spun off. He will have these conversations with management, privately, as opposed in the public arena. When you say that they both came to the conclusion that it was best to take this out of the public domain, and i had the same thing from donahoe this morning, it leaves me wondering why. Carl icahn has never been afraid of a public fight and to wage a public campaign, in the case of dell, four months and months with no sign that he is tiring of the whole thing. Iswhat is interesting, eric, that ebay shows no signs of tiring. It was an interesting story to be covering because both sides were in it to win it. And you dont always see it. You might see an activist come out swinging but sometimes the company tries to get along, a little bit better, and this is a company and this is a ceo, john donahoe, who came up almost as hard. Might things have worked out differently if carl had made more money on the stock . We know that he started to build his position in early january when the shares were trading at about 52, and he has since accumulative more, so now he is a two percent stockholder, and a stock is at 54. 71. He may noteverage, have made much money or may have lost money. He may be thinking this is a better tactic. If you are working with management and fighting management in the public arena, maybe this will get you further. I think that he would like to see that paypal spinoff. But going after Marc Andreessen and other members of the board, at the end of the day it was decided that this was more of a distraction than getting to the end goal. I am just hypothesizing. He did bring up the important point of calling attention to this inherent conflict of interest that you often see. Lets talk for just a second before we wrap up about the message that this since to corporate america. Sins to corporate america. America. To corporate all that you have to do to a company is 8. 2 per 0. 82 of the stock. It is almost like he held ebay hostage and they had and they had to give up something. What happens when the next activist investor holds things holds them hostage, 0. 82 . Naturally, he doesnt look at it this way. Nobody held me hostage. But is in that kind of what carl icahn does . The flipside of that is that activists are performing a role that is needed in the market economy. Because they are getting in there and they are agitating and there is always the danger in any company and with any board that people get a little bit lazy and they kind of go along. There is certainly a danger. And then you have someone in there who says, i think it would make more sense to do this or do this, and is one thing for an analyst to do that. It is another thing for someone who owns part of the company, even if this is only. 85 . Healthy debates for the original company and the activism. They can get in there and do a little bit more and hopefully this is a good outcome. That is trish reagan, who will talk to carl icahn at 2 p. M. Here on Bloomberg Television. Get his side of the story on this truce with ebay. Has been taking off this year, but companies that are flying high might be in danger of crashing and burning. This is an apocalyptic scenario. Stephanie is the talking to ivan brockman, a man with more than 15 Years Experience advising companies in tech as well as an investment banker and an attorney. It is all yours. Ivan, welcome. All morning we have been talking about carl icahn and ebay. Activist investors seem like they are here to stay. You work with all of these companies. How do they pay for this . Stephanie, it has evolved over time. 10 years ago, the notion of activists in technology was a new phenomenon and now this is here to stay. Many of these activists do a terminus amount of homework before building their positions and when they build their position they want their ideas and their voices to be heard. I think in the boardrooms of technology companies, this has also evolved and there is more of an understanding of what the activists are trying to achieve, and there is more of a willingness overtime, perhaps not immediately at the announcement but over time, to have productive discussions and negotiations. Why do we need these activist investors . At some level any company that has been in business for a be stuck in at certain momentum, or a certain set of ways about doing business. On occasion the activists bring up good points that are hard for the companies, in some cases, to raise on their own when they are trying to be positive and constructive about the future outlook. Activists have the ability to get down to the nittygritty and say things that others may not be willing to say. The other criticism is valuations. When i think of blackrock and blackstone, a true value investor, why would you want to be somewhere where valuations are so overthetop through the roof right now. Website andat a say, 19, i am into that. I look at to have scum a one is the primary half and i can actually justify this on multiple metrics, on why this was a good deal for facebook. But as an investor, blackstone is emerging as an increasingly increasingly interested in technology, we have done so many transactions over the last two months of significant size, and i think there is an effort to continue to invest in technology. The valuations notwithstanding in some sectors of technology, will not necessarily be attractive to blackstone, per se, as an investor. But there are plenty of opportunities for companies that prospects,growth profitability prospects, and quite frankly want to partner with like stone. And you think Cyber Security is that special place right now. Why . At blackstone, we have a cross disciplinary set of capabilities and excellence, everything from our internet cable internal capabilities and capabilities across the Portfolio Companies, and in particular, the investors investors of Blackstone Capital on the advisory side. Landscaperveyed the and we know all the players and we think there are great values to be had there as well as a platform to be built. Recently we invested in a Company Called we see a lot of smaller Tech Startups ought knocking on your door and saying, i am ready to sell. You have to start thinking, this is a mom this is the moment. Is your phone ringing off of the hook . It is very busy and the activity level is at a fever pitch. But not all companies are created equal. There is inherent value in accumulating more than half a billion users, and not all companies have that level of Critical Mass. We look to growth and Critical Mass and we look to, if not nearterm profitability, longterm profitability prospects. Is the market looking at these companies with enough of a critical eye . When i look at the ipo market it just seems that every deal that is just so hot is a tech company. That makes you wonder, are we in 1999 again . We are not in 1999, that is the environment where every company went up, and had very little ability to go down even with bad news. There is a differentiation between the winners, and if not the losers, those who are not growing as quickly. In theview as healthy market, is, even with the recent selloff, some sold off more than others and others stayed down. If the generally healthy market is making the call as the best he wants to make for longterm profitability. We are finally seeing facebook made it make big acquisitions. Is this why Companies Like apple but have so much cash on the balance sheet, is the facebook activity egging other guys say, i need to start spending . When we look at facebook and apple and twitter, oracle and all the others, they are competitors are some level for the same assets, the same companies that will provide them with growth in the future. And so the voracious appetite of some Companies Like facebook actually creates a little bit of pressure in the discussion. For you, this is a Company Everyone likes to talk about, where do you stand on snapchat . Tremendous value. I look to my children as a good barometer for what is happening. My children are on snapchat. This is an Important Message to me. Instagram bute on they are not on facebook classic. I look at what apps and innovative ways of communicating that my kids in the current generation are using. For what will have breakout growth. Someone who is using facebook classic, this girl. Thank you so much. Eric, i will send it back to you in the studios. Here we are at the founder summit. That was a good interview with ivan brockman. Stephanie, we will see you shortly. We have imf managing director Christine Lagarde coming up next. Tom keene will be speaking with her in a few minutes. And Ally Financial raise more than 2 billion for the ipo. I will be speaking with the ceo, Michael Carpenter later on this hour. Ou are watching Market Makers on Bloomberg Television, streaming on your mobile device and on tv and on apple tv and fire tv. Live from bloomberg headquarters in new york, this with erik makers schatzker and Stephanie Ruhle. You are watching Market Makers on Bloomberg Television, i am Erik Schatzker. The u. S. Recession is in the rearview mirror, and europe and even japan is taking measures, you could say that the developing world is getting its act together. But the emerging markets are newly vulnerable, that is what they are talking about, in washington this week. This is where we find our own tom keene. Tom, talk to me about the mood in washington. What have you started to hear since you landed yesterday . Always, interesting, as at the World Bank Meetings and we will talk about the spring meeting, with us right now is the president of the world bank. Many americans know him as the president of dartmouth college. From the faculty lounges of dartmouth, let me first talk about the extreme poverty. Why do you look at extreme poverty versus so much of the worlds challenges that you know of . The fact of the matter is that there are so many people dayng under one dollar per and for them up most of the world that is just as bad as it sounds. It is very difficult to live under one dollar per day. We had to focus our efforts to try to help these people and lift them out of poverty. What is your biggest surprise, as you parachute into this huge infrastructure bureaucracy, from a policy standpoint, what has been your best practice that you have learned. Of the great thing is that we have 1000 economists, 2000 phds, one of the most brilliant groups of staff that i have ever seen. The great thing is these guys are here because they are passionate about fighting poverty. I would not guess that coming in. This whole Movement Really comes from the staff. These are folks who could have made a lot more money on wall street, or anywhere doing their work, but they are here because they want to do something about corporate what percentage of americans get a Home Mortgage Home Mortgage at a little bank. You have to reframe the message. You do this with huge criticism. The Financial Times i guess that they they minced no words about it, after two years on your watch, they want you to step up on your reform. Do you feel an urgency to reform . The issue was they were reforming too fast. I came to this institution and we realized that the world was changing tremendously. All of the foreign aid this is 125 billion. This may sound like a lot but africa needs 100 billion per year for infrastructure, almost 5 trillion over the next five years. The potential development is small but the key to develop the future is to bring all of the public money that we have together, with the private sector, to these developed economies. The reason we are going through all of these changes, is that we now have to be fit for purpose for the future. We believe we are getting there. I want you to go over to New Hampshire and across the Connecticut River to white river junction, one of those famous diners and you have to sell the world bank to americans. How do you sell your institution to the average american . First of all, american jobs depend on how well the developing world is doing. Than 50 of all exports to the United States go to the developing world, to create thriving economies where there are consumers, and people are interested in american goods. This is critical for more than half of the american economy. Remember the raging Party Debates with my parents over finance, and the rest of it. That is not the modern world bank, you call that the solution bank, define that for the viewers. What is the task for any country. They have to be competitive. I have to invest in their people so future growth will happen. And so we work with 140 countries, we work with them on just that problem. How can they grow their economy in a way that is in crude is inclusive. What we have found is there is there are huge amounts of society, withany political instability and what have we learned from that . And there is a drag on growth. If you dont have enough opportunity for everyone to participate in the market this is a drag on growth. You have to invest in people. We know greater house Greater Health outcome drives growth. And you are a fund hedge reese hedge fund researcher. If you are with Warren Buffett right now, what would you say is the number one issue the world bank needs help with . I talk with bill all the time about these issues. They are very focused. The ceo of microsoft . Definitely not. I did not know about this. Bill and i talk all the time. What he is doing is investing in the upstream research. What he knows is that we can build systems on the ground, the Health System that will deliver those new vaccines and those new drugs. The common thing is every country in the world has a problem with the health care system. Costs are too high in the city. Russia and brazil and every single one. Finance ministers are talking about the incredible cost in the cities and at the same time they can get care into the outer area. What will the world bank it do to fix that . We are putting the other team that we believe will be the best in the world to decrease the number of possibles that you build and focus on primary care, making sure you get it out there, primary care is the key, here and out there. Do you support the Affordable Care act, is america doing it right with obamacare . For me, i have worked my whole life with improving access to care. This is an important part of increasing access to care. There are other things of altering to tackle inequality in price. These are the things we have to tackle. But for me, having worked my whole life on care, how can we not like something that improves access . I dont know the inner workings of this bank, i suggest 120 of 100 viewers dont know the inner workings. How will you boost the morale of arguably the safest office space that appears in washington . Dartmouth hockey is not going to get it done. Think about how this organization has not been through major change since 1997. In order to update the institutions, for the purpose of the new world, we bring in public and private sector work unlike like it has ever happened before. Multilateral brecker sees do not like change. We are going through that change and that is not such a surprise to me. Everyone will understand that we built an organization here, just to tackle the future, which is that everyone will have more access to knowledge, and we will be much better at organizing the knowledge our knowledge and delivering it to the country. We have to be much better at delivering public and private together, and we have to go through the process of being leaner. All of this makes people nervous to have been working here for years. They will get over it and we will be ready to go soon. One last question, what do you and Christine Lagarde talk about together, traffic on 8th street . . Hat do you talk about we talk about the ukraine and latin america and what they are doing. The theme is that she is taking the imf in what i think is an extremely promising direction. She said things like inequality has everything to do with Global Financial stability. Climate change has everything to do with Global Financial stability so we will think about that and talk about that. This is working extremely well for us and this is a good working relationship. We go in and help with the educational systems and Health Care Systems and this is a combination, and she has been a tremendously positive force, not only in the imf but with the finance minister. Dr. , thank you for joining us. Terrific stuff. These give my regards to dr. Kim, president of the world bank. We are 26 minutes past the hour, and time for bloombergs on the markets. I begin with ebay, they have reached a truce with carl icahn. He wanted a spinoff of paypal and a seat on the board. He is getting a new board seat and no spinoff and the stock is trading down. That bath and it on the chin. Right,st cannot get it following the most in three months after forecasting firstquarter profits which fell way short of analysts estimates. Market makers 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 on Bloomberg Television, i am Erik Schatzker and stephanie is on assignment. You will see her again in a few short minutes. We have the second half of a one from tom keene, he kim, thee to jim yong president of the imf and now he space to Christine Lagarde, the managing director. Thank you so much. I was speaking to the finance minister of canada this afternoon. Madame lagarde is the international monitor. Happy birthday, 70. Lovely, the 70th anniversary of the imf. Mandate . Our i would hope that before the end of this calendar year, we complete the reform of the imf, we make it more credible, and capable of jumping on urgent issues like the ukraine, for instance, without financing. Within that, i guess the solution is the support of your partner, the United States of america. Mes, andinancial ti there was a panel with mr. Truman, someone argue, from the g20, they are scathing about congress being responsible. What do you need from republicans and democrats . I need the United States of america, my main shareholder, to exercise their leadership in the institution. The imf is in a situation like the ukraine, where we can send a team right away, they are experts who have been doing Crisis Management for decades. Issues, identify the and put together a package for anyone between 14 and 18 billion which is a big 14 billion and 18 billion which is a big chunk of money. Why do we do that . Because the numbers are behind it and they have an interest around the world. To do that we have to have the entire membership supporting us and saying, yes, the imf should do this, with the full support of their main shareholder, the u. S. You are one of two people in the world who have a unique desire, in washington and from your time in chicago. What would you say to isolationist america, to want to push away from International Affairs . What would you say to the americans who do not want to engage with the imf . I was born in france, they were devastated by two successive world wars. When the United States withdraws, everybody loses. U. S. Engages on exercises in legitimate leadership, things improve around the world. They do exercise that leadership. Spoken to mr. Putin about the ukraine, and about what the imf would like to do to help the people of the ukraine. Has beenraine program high on the agenda, high on the radar screen, and we have been spending a lot of time and effort and people on the ground. We have kept the board very much informed, informally, of course, about the situation, and we have overwhelming support for the entire from the entire membership on these efforts we are taking. I have not spoken to him personally, but he is in the room i look at the work of the imf , and social media and all of that, about Christine Lagarde and some of this is about keynesian economics. The potential gdp. To help create gdp. Do you have in your mind with potential Economic Growth in the United States should be over the matter of china or france . The Research Department is doing that work so i cannot give you by decimal exactly what the potential outsource is, but it is clear to me and not just to the imf but many other players around the world that there is a real significant potential to be brought in and the fact that the g20 is focusing on two Percentage Points over five years, endorsed around the table, does not show that everything is around the table but there is available there are available resources and there is room to actually create jobs and expand. And in the best going forward. That is what i hope the finance ministers and Central Bank Governors will start to focus on on the next few days. How to do this better. We saw that was some of the tone of the speech 10 months or one year ago. Lets update that. What do you need right now from the u. S. As a locomotive for Economic Growth . First of all, the country has made significant inroads in terms of growth. You say that right on the cover. This is what you want from chateau lagarde. Strengthens. 2. 8 for the u. S. , and it has to be a continuation of steady, gradual communication articulated with what i call normalization of monetary policy. On there has to be a focus the right investments. Whether they are publicly funded or privately funded. This competence this country infrastructure investment. I want to congratulate you on your london speech. You quote an english economist, tonlet crawley of dow abbey, who did not know at the television if the telephone was a device of torture. How does a stodgy institute institution like the imf deal with the cacophony of the new world . Work on those levels, we have to be informed almost instantly thanks to excellent channels of information, like yours, and also, we need to be mindful of the longterm trend. What are the other trends on the horizon, how are we dealing with Environmental Issues and how are we dealing with Women Joining the workforce . Things that are not just related things of today, but what will matter for the economy and society in the next 510 years . We need to operate at both levels. Question, this is the delicate question, defining the news. How urgent is it to Christine Lagarde that we move the allocation of votes and all of that, how do we move that over to asia and other issues away from europe . How urgent is that in april 2014 . First of all the europeans have made progress into shifting tariffs from traditional europe to other countries. Way has been troubled. And when i look at this, for instance, there is a growing representation of all Staff Members from asia, and developing countries, who will continue to do that. Targets,ery strict fixing madame lagarde, thank you for joining us with bloomberg. Back to Erik Schatzker in new york. That is anchored tom keene with Christine Lagarde, managing director of the imf. Coming up next, the government came to the rescue during the financial crisis and now Ally Financial is back on their feet. We will hear from the ceo, Michael Carpenter. We will hear from him next. Ally financial is the new york stock exchanges newest private company. This used to be the finance arm of General Motors and it was rescued in the 2008 bailout. But ally went public last night. At a stake of 17 in the ipo is at 25 per share. Less than they wanted and this morning the stock is trading down slightly. Joining us on the floor is the ceo, Michael Carpenter. Thank you for being here, it is nice to have you on Market Makers on Bloomberg Television this morning. Pricing, it is tricky taking a Government Owned Company public. You cannot afford to leave money on the table because that is taxpayer money. Are you satisfied, and i have to assume that you are, that the of the stock is trading lower this morning you got as much as you could in the ipo. That the stock is trading lower this morning got as much as you could in the ipo. We wanted to billion dollars for the company and they got 17. 7 billion back already, and this is a home run for the american taxpayer. In addition to that in the supportedcrisis, ally gm and chrysler, financing 87 of their deals. For thea real win american taxpayer in my view. Thanks to your heritage at in the autois lending business and this is very strong right now but eventually, the auto lending cycle is going to turn. At that time, how does ally g row . In our case we are actually theuely positioned, we see stock continuing to be pretty strong for the next two or three years, the average car is 11 years old and financing is very inexpensive. But as we go forward, our strategy is completely focused on the dealer, and helping the dealer do business, if this is used cars or leased cars, we dont care. We are very well positioned and frankly, the more we separate ourselves from the government, the more opportunities we will have. Dipping your toe in the subprime market went subprime mortgages is what brought this company to the brink of death . We have always been in subprime. This is a company that in 100 years has never lost money and subprime is a manageable 10 of this, and the underwriting standards have not changed during the economic cycle. If you want to think about risk to the business, think about unemployment, unemployment is doing a little better. Mike, will you consider getting back into home lending . We have seen that movie, and the way i would describe it, we settled the contingent mortgage servicer, andhe came back to a very complex bankruptcy, that cost us about 3 billion. And it cost some of the major banks of the day 60 million. We have seen that movie and have other opportunities. What do they see outside of auto lending . Are you going to get into credit cards, it seems natural for a bank that takes deposits like yours. We have been so busy turning the company around but we have not recently capitalized on the fantastic opportunities we have with ally bank. One is a franchise number rated by money magazine three years in a row and we have an opportunity in that area, as have notuto loans, we had time to spend on that. Cars are something that you take a close look at. You see opportunities in that area, is there any way to elaborate . I dont think this is where we are likely to go. This is a very private thing with significant economies of scale where would you grow outside of auto lending . I dont want to speculate at the moment. We think that there are on d of opportunities in our business today, and i think this is important, what we are selling investors in the ally story is not a growth story, this is about an enhancement story. These are two great franchises, and roe is simply too low and we have a clear threepoint plan to get through this. We are solely focused on creating shareholder value, and this threepoint plan in the next 1824 months is going to thanate a lot more value the subprime. You criticize the fed over the stress just stress test, after you were still under government control. How do you get away with that . I have a habit of speaking my mind. Not think the analysis that was used made a lot of sense. The assumptions that they made in the Floor Planning business, in the recession would be seven times what they actually were in the great recession. And that obviously was hugely capital and so we made our play. Is inress test process its early days. There is still a lot of development to be done. And we have a very constructive relationship with our regulators, overall. Mike, quickly, it has been a while since you were in citigroup but you were at that bank for almost a decade and you know michael corbett, the current ceo. Where you said, having just brought ally back to the corporate market, are you surprised by the challenges he faces over there and the length of time it has taken to get that place locks down . From my perspective this is a locked down . From my perspective that is a wonderful franchise and i think michael is a tremendous leader, this is a company that suffered a regulatory surprise recently. But he is absolutely the right leader, and he is doing a great job. But this is a big, complex institution. All right. Michael carpenter, the ceo of Ally Financial, who brought the company back to the Public Market after its rescue under tarp. We take you back to nasdaq, stephanie talks to the man who created one of the in the world and turn this into a billiondollar company. Stick around. Folks, you may have noticed Stephanie Ruhle is not here this morning. She is spending some time at the founders summit, which is taking place at the nasdaq. This is an invitationonly crowd, with some of the top ceos as well as their backers, the venture capitalists. Right now she is with the man behind it all, patty cosgrave. That is why i am here. First, patty, i have to congratulate you. Three years ago this was an idea. You said, how about a conference in dublin . Take me from three years ago until today. You have the hottest people in tech and d. C. Here. This is incredible. Three and a half years ago i was in my bedroom and i had an idea, most of the most Disruptive Technology and the world behind twitter or facebook, they never get time to hang out with each other. So i tracked these guys down, and i said, do you want to come pub crawl in dublin . Dorsey,e here from jack to the creator of youtube and the creator of skype, and over the last three years 150 of these guys from china and russia magicalpe spend three days in dublin, going from pub crawls to dinner. In the last few years the conference has gotten crowded, every magazine and start up has wanted to do this. What risk do you run that you are over relying on this . There is a german this amount of conferences, in 2010 when we bankers andad the the side event, that anyone could buy a ticket to. 400 people showed up to hear from the guy behind twitter, jack dorsey, and three years later that had grown to 10,500 flew awayst of whom from flew in from 97 countries around the world. I dont know, if this is getting a bit frothy. Do you think that this is . I hope not. I think hardware and software are disrupting the world at a pace we have never seen before, so 20 years ago when people went to a Technology Conference, that conference focused on the computer and the terminal sitting inside an office. Now my grandmother is on her third ipad, 87 years of age, and technology is affecting everybody. It is creating more customers and more opportunities. You dont feel that innovation is getting a little bit overused, it seems that everyone with a dot com or disrupter Everyone Wants to buy tickets to what they are selling and skeptics are stunning to say, we will always have disruptors. This is very interesting. One month ago, 50 of the companies in Silicon Valley we said that they are silly. True for any company in the world but for all of those silly companies, you sometimes get a good company. And the difference now and 15 years ago is that a starter Company Requires so little two guysit requires and then ipad, and they can get going and if it does not work out, the cost of failure is not as high as it was 15 years ago. One of the big changes i am seeing is that you see companies emerging from croatia and finland and think about europe, the biggest gains right now in the app store and on google play are from european companies, two of them from helsinki. This is just mind blowing. You are changing your game and getting into the business conferencing to me is a very analog and antiquated business. Ien i came into conferencing, had a background in software but not in conferencing. I was very struck by the first few years, all of these Exhibition Companies were run without any technology whatsoever. They just invited people and everyone mattered, there was no hardware or software changing or improving that experience. You go to an event and you want to extract value. You dont have to meet the right people but with 10,000 people in the room, how do you find the right people . That is part of the reason we have gone from 400 people to essentially the Fastest Growing Technology Conference in the world. Paddy, we will leave it there. We have extraordinaire people here today. What company or what person are you most excited to hear about . The cr of oculus is incredibly exciting. So does everyone else right now. We will be back, you are watching bloomberg tv. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and Stephanie Ruhle. Bubbling over growing concerns stocks are over valued. Your home is getting smaller. The internet of things lets you control appliances from your smart phone. We will talk to the entrepreneur who wants to be the leader in this game. Disrupt, the man who shook up the iwear business, and now he is trying to disrupt the razor industry, the warby parker founder. I am Erik Schatzker alone and bloomberg world headquarters. You are not alone. I am across town at the nasdaq because today is the the f. Ounders summit, bringing together some of the smartest names in tech. I am here with the cofounder of harrys, who and was tommy i needed a shave. Definitely not. I cannot wait for your conversation. We will bring you the news feed a federal judge has approved a settlement in the Biggest Hedge Fund Insider Trading scheme ever. The deal calls for steve cohens sac capital to plead guilty and they will pay 1. 8 billion in penalties, and it ends sac role as a public money manager. A deal has been reached with carl icahn and ebay. Carl icahn will drop the proposal to split off payment units. In return, ebay will name another independent director and give carl icahn confidential access to executives and directors. Mary jo white has responded to Michael Lewis and his new book lash boys. The contention that the stock market is rigged and she says the allegations are not new. We are taking a close look at the world of tech and we bring you one of the top voices in venture capital, jeff clavier. He was an early investor in. Com ands including fab some Portfolio Companies were acquired by twitter, facebook, and yahoo . Great to have you for the hour here at thank you for having me. I say we are focused, but what is at the top of your mind as a tech investor . We focus on software as a service, the infrastructure of our portfolio. Then we look at brandnew platforms that could be glasses, what is happening in the home was connected devices. We are looking at infrastructure under the bitcoin to see how we can use that. We do investments that we call munchak moon shots. It bit seemed insane, and years later not so insane. Percent of the market. We will get you one. I am on a losing side of the train. Trade. Cited ats paddy comment about Silicon Valley that half of the country are doing crazy things, but even in a world of crazy things, amazing stuff can,. Is that how you look at the world . If you that the probability of success, it is very low, but if it works the returns can be monsters. That is how we think about packing also mounted turnovers bankrate the ideas we have backingunced it yet off some entrepreneurs who have amazing i greece ideas. We are going to see where we can go to commercialize. If it works, the ramifications are massive. In building a portfolio, this is what people want to know how many moon shots can you afford to have . Companies,have 50 10 of them will be moon shots. We diversify in the way we build the portfolio. We have complex construction would we cover different sectors, different types of geographies, different profiles of entrepreneurs. That is fascinating. The the remaining 90 industries that you are in, which do you consider to be the riskiest and which are the surest bets . The consumer is where you can have the things that take us extremely quickly but drop extremely quickly as well. The viability can be extreme. B is much more predictable. Today, sandisk fired for that filed for an ipo. Filed for an ipo. You look at those companies, 10, 20, 30, 100 million revenue over a period of five years, they are more croblematic than those bto that are in favor and then disappear because the next big thing replaces them. Stick around. Jeff clavier will be with us for the full hour. You will hear a lot more from him. Lets take you back to the nasdaq where we find Stephanie Ruhle. Jeff clavier says businessto business, if not a sure thing, it is a simpler, smarter that consumer, andto we are about to talk to a guy who is all about the consumer. He told me you needed i needed a closer shave. Legs. Legs. The last time you joined us you made a major investment in a factory. With theyou doing factor . We are a brand of highquality razors that we sell directly to our consumers, giving guys the best possible shaving experience at a great price. We sell for half the price of the leading brand. Bic forever. D our father will probably use that for the rest of his life. Maybe until he finds out about harrys. What is your Value Proposition . We want to give high quality. Thats why we bought this factory. The magic is in the way you grind a steal. Of our own blades. We design them, and that we sell direct to customers for half of the price. How can you afford to do that . The best quality price at half of the price, as a consumer, i love the idea, but as an investor, i would say all of this money, research and development, half the price, where will i make dough . If you think about how much it costs, it is kind of crazy, four dollars, it seems like a lot to us. We thought there was a huge is. Up markup, and there second, we have an efficient Business Model because we own the factory, sell on our website. We can be really efficient with our resources and our ability to get products to customers. Therefore we can pass on value to them. Maybe we are not as profitable as the leading brand, but we give some of that back to the customer. We make money, they feel like they have a good deal, and we have an honest contract, and we hope people can get behind that. Last week, you are selling lawnmowers. I understand, just a different level of trimming the grass, tightening up your game, where is your connection. Germanengineered push lawmakers. Are they branded . We work with another brand that makes great lawnmowers. How did it go . We sold them for one day, april 1, and they sold out. How many were there . We sold 10. All right, we sold out all 10 of them. Still, 10 of a new product that is a much different product in a higher category, we got a kick out of it. Will you sell more . We are thinking of grooming products. You have some coming out. We are launching a new line of razors for the spring and the summer, with different colored handles, and i will leave it to anyones imagination. What colors they might be. Anotherwe will launch suite of shaving products, shaving cream and aftershave, things we are incredibly exciting for. We want to deliver the most amazing shaving experience possible, that is really comfortable and helps them get a great experience and that is why we want to launch other product products. That means investing more money. What is the biggest risk you face right now . Great russian. Question. For us, the biggest risk is the product that we launch does not meet what customers want. What is exciting is we have direct relationships with lots of customers. How do you get them benchmark and get them . Have them come to harrys. Com, and we tell them that we love them. You love hairy people. [laughter] we tell them we are here for them, we discuss what they want, what they want in their products, and what we can do better. That is how we limit risk. Razors. W i know youre now maybe i need to know your lawnmowers. Jeff rader. Are nohatzker, you stranger to looking sharp. To mow,not have a lawn but i have a beard and needs regular shaving. Gillette, sorry. They and earnings are starting to roll out tomorrow. That is one the parade begins. We will tell you what to look for when we are joined by Credit Suisse top analyst here you are watching Market Makers analyst. You are watching Market Makers , live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. First. Bloomberg. I am Erik Schatzker, and this is Market Makers, on Bloomberg Television. 2013 was a great year to be a bank investor. 2014, not so much. Well find out what the rest of the year looks like when jpmorgan kicks off earnings. The top analyst at Credit Suisse. Headwinds about the they are facing. Mortgagor donations are down. Ding revenues are down mortgage originations are down. Trading revenues are down. There is a leverage provision passed by the fed. Which of those is the toughest . Anything that is revenuedriven will be the toughest. Capital is the least tough. That is not really changing the earnings picture. Mortgageage, the environment, those are the toughest. You have pointed out consistently and you have been right, Revenue Growth is challenging, and a lot of what the banks will have to generate comes from expense management. How much more can these banks squeezed out of operating expenses because they have been tightening for several years already . That is true, but there have been environmental costs that are relatively high legacy costs from the mortgage crisis, legal costs they are not abating rapidly, but they will over the next year or two. In the short run, they have to tighten the screws on a daytoday basis, but over a year or two, there will be some tailwinds as the costs do a big. Obeid. Sitting next to me is jeff clavier, the founder of softtech. He wanted to be asking your a question, you want to make sure you knew it was coming from. I wanted to know what you think about the competition start ups have, things like lending club, for example. , but theynot scaled will compete with bank activities. Any thoughts on that . Sure. Over the years there have been many different what one would think of as shadow banks, and these are yet another breed. Some will be successful. Some will be less successful. They are part of the general trend. I would say that is my basic view. Moreu want to explore in detail, we probably could do that. Marginal competition around the edges, but i do not think it changes the nature of the business. It is not fundamentally change the nature of the business, but just to followup on that thought, moshe orenbuch, where do larger banks need to be paying the most attention when it comes to nonbank lending or shadow lending . It would be unwise to not Pay Attention anywhere, i would say, but the Mortgage Market is the largest market, and fannie and freddie have a mandate to shrink, so thinking about a way to direct that business to a Bank Balance Sheet is good from a bank and Public Policy perspective. Last year at this time so much attention was on jpmorgan. Jamie dimon was trying to preserve his role as chairman and ceo, and a few short weeks later he was successful at the annual meeting. This week the focus has shifted to citigroup. How much pressure should Michael Corbat be under . He should be under a fair amount. They have been lagging in capital return. The 10 any always said target was contingent on being able to return capital, but once they got to the decision we would have liked to have seen more aggressiveness in dealing with things that are in their control here is our plan to improve the numerator or net incomes, make that better until we get to the form point where the fed will allow us to return more capital. We would like to see more of that. Do you put the how should i put this Vikram Pandit was blamed for many of citigroups troubles, including the first failures of the fed stress test, and the current ceo mike corbett was put in place by the chairman of the board, mike oneill. Given that Michael Corbat is man, do youills have to look at the board . I think that is a fair observation. The fed has consistently raised the bar on large banks. Elements of that are appropriate. It is difficult to understand how citigroup was able to not fail the test qualitatively in 2013, but fail it in 2014. That is a tough thing to figure out. The board has to look at that. They brought in jean mcquaid, who has a long history of the Banking Industry and interacting with regulators, but they need to take more steps. It was just yesterday, moshe ceosch, then jp morgan jimmy duncan put out his annual letter. He tends to be jamie dimon put out his annual letter. He tends to be candid. One thing caught my eye the case for the universal bank. Generate 15gan billion of additional revenue every year by combining additional businesses and saves 3 billion a year in shared expenses. Do you buy the math . I cannot trace the 15 billion, but i know it is a large number, and jpmorgan clearly does the best job of any bank in actually achieving that. He has a better handle on those numbers than we do, so i would take that from him and accepted it, but i would say absolutely. They are the ones that are the standard bearer for the effectiveness of the universal bank. Moshe orenbuch, i am looking at your coverage universe, and wondering to myself, which make do you believe is most strongly positioned heading into this challenging year with the factors that we cited, driving mortgage production, interest arjun impression who stands out . Jpmorgan stands out because her execution has been because they are execution has been strong. They have had better flexibility on their cost structure than some of their peers. As we go through the year, i am hopeful citigroup will also be in that position as we get closer to the point when they can start return capital and where there are emerging market franchises drive better Revenue Growth and u. S. Peers. , thank you. Nbuch he will be a busy man tomorrow morning when wells fargo and jpmorgan reported earnings. Coming up, one year ago, we were not even talking about it. The internet of things. Now we expect our smartphone to do it all for us at home. Will bevier and i talking about the internet of things and Stephanie Ruhle will will be back from the nasdaq. It is 26 minutes past the hour. Bloomberg is on the markets. Your attention back to ebay. The stock is trading down, even after ebay reached a truce with carl icahn, who wanted a spinoff with paypal. The stock has been bouncing around in a threedollarrange since the beginning of the year. Carl icahn wanted not just the spinoff, but two seats on the board. To ebay has agreed to is appoint an independent director and give carl icahn confidential access. Live from bloomberg headquarters in new york, this is Market Makers. I am eric schatz care. Welcome back. It is nothing short of a Home Revolution thanks to the internet of things. Everyn now control appliance, lock, and light in your home with the push of a button. You can do it from anywhere in the world. Stephanie is that the founders summit. Thank you. Everybody seems to love the internet of things. Think that its in 19 trillion business. Google is in the game. How big do you think it is going to be . It is the Biggest Technology event over the next 10 years. If you are a user of things, you will be tested by the internet of things. Had you compete with google, facebook, cisco . Place you have a real when you were founded two years ago . In our case, we are building the easiest way to make your home into a smart home. An open platform. We hope of being focused, we will have a big play. What do you think is the most interesting product on your platform . I get excited about the everyday come a practical use cases. Security. It is simple to connect up your home and know what is going on anywhere. Whether you have lung kids or youre concerned about security or you have an elderly parent living at home longer, the simple applications are most exciting to me. What am i not going to be able to live without five years from now . Saying, we going to be i cant believe i used to black . Blank . It will feel ridiculous that your home is not connected to you at all times. The idea that you do not know if somebody is in your home right now is going to feel crazy. In five years, you will feel like, of course i have a connection to my front door, of course i know if there are people in the house, of course i will know if i forgot to close the garage door. Your you putting out of business . Babysitters . Caregivers . Traditional security . It will be very disruptive to a lot of industries. I look at big spaces such as insurance. Home services markets. Things like that. Is aboutance industry actuarial risk. If you have perfect information coming out of the world, you can decrease risk. The revenues will either chase down the risk level or they need to come up with new services. Beot of industries will impacted. New spaces, new opportunities are being created. Where do you think you have the best opportunity for growth . What is it . It is something that can touch every part of the economy. The easiest way to make your home a smart home. Printed to the massmarket consumer. Bring it to the massmarket consumer. We see the Tipping Point happening now. The growth in the company indicates. Canless than 100 you connect up your home. It is becoming so easy that anybody with a smart phone can do it. When you see someone like nest cell at such a great level, do you want to put a sign out front and say, i am for sale . You assess these things as they come. This is my fourth startup. We are in it for the long haul. We think there is an opportunity to build up a massive, household name company. We want to do this on our own. Really . Would you want to go public . We are a ways away from that. It ever allows us to have the biggest impact on the most number of people. What is your biggest hurdle right now . Consumer awareness. It is not competition. Most people do not realize how simple it is to know if your front door was open when you were not at home without having 30 or 50 per month and a big service provider. It is awareness of how simple it has become. How important for you is the elder care audience . Would you are offering could keep people in their homes, living independently for five or 10 years. Absolutely. It is a major problem for the country and the world. It is one of the simplest applications of this technology. What we see happening is a lot of the children of parents or starting to get to that age, where they are on the edge, they could live at home independently for 510 more years, there are it a simple Application Center platforms where the children will install it in the home, the grandmother gets up in the middle of the night she does not make it back into the bedroom the children will get a notification and someone can take an action. The peace of mind that comes through bake is sick basic awareness. Do you have the manpower to fulfill all of these plans . Are you hiring . We are hiring. We are very well backed in the space. I think we are the leading start up in the category. As an open platform, we have more than 5000 developers and designers building things right now. There is a network forming around the things we are doing. What is the number one job you want to fill . What do you have the most demand for . Engineers . Sales . Lots of continued engineering talent. It is a Big Technology problem were solving. Congratulations. Who doesnt love this . Erik, back to you. We are talking smart things here at the founders conference. We are doing the internet of things here at bloomberg headquarters. Here. Under of softech is they have some investments that you might describe as internet of things. Lets begin with a big picture question. How much of a believer should i or anybody else be in this internet of things . John chambers wants us to believe it is in 19 trillion opportunity. Definitely several tens of billions of dollars of opportunities will be created. I have been an investor in this space since six years ago. It is wearable computing. It goes back to your smart phone. Internet of things and connected devices alltime back to your smart phone. That is that you control your thermostat, get the number of steps you did, unlock your smart lock. All of this is enabled by the smartphone. People forget that it only makes sense to build in terms of things, devices, companies once we had an easy way to control that. If you had to have a specific Remote Control that you would carry with you, it would never work. The fact that you have this device with you all the time enables this. Is the building enthusiasm for the internet of things one Security Breach away from massive disappointment . We spend a lot of time figuring out what sort of attacks we are going to get. Block will authenticate with the smartphone and it will open the lock. I want you to give people a better explanation or a better idea of what it is were talking about. I do not know if they are familiar with smart lock. Smart lock is still in preproduction. To change the back of the lock in your house on your front door or on your back door, if you want to you remove the two screws that hold the deadbolt, you put the smart lock in, it has batteries. You can control it with your smart phone. Once you have authenticated your smart phone on the lock, you will be able to have the lock recognize that you are in the periphery and either open the door or close the door for you. I can invite you to come to my place and send you a code that allows you to unlock the door. Which is the bigger opportunity . The internet of things in the Consumer World or in the Business World . I think that they are two bath of opportunities. Massive opportunities. A lot of the Similar Solutions are there. The ceo of blackberry was. Ere yesterday and participated they do not want to be known as a handset anymore. Aey are trying to build device to device hub, a piece of software that manages interoperability with devices of any kind, not just blackberries, but also on ios, android, and many of the customized operating systems that you find in the enterprise world. Is that a sound idea . It sounds like a complete departure from the blackberry i know of. Pains thatbiggest the enterprise has to deal with is the bring your own device. If an employee accesses the Company Email on a personal problem,hat is there a presents real problems. There is a multibillion dollar opportunity there. Well is a can manage everything, i dont know. We will continue in just a couple of minutes. He is the founder of softtech. He and i will return in a couple of minutes. This is Market Makers. I am here with the founder of softtech. Valuations are they really whatsapp and oculus are getting all of the attention. What did they say about valuations in tech . Valuations in tech are bubbly. Generally, not this is expensive, but not completely crazy. Oculus are the exception. The use paper. They use paper. Some paper. You figure out whether facebook is overpriced or not. If you look at what is going on today in the value, we see a lot of transactions. Evaluation of 900 million is valuation of a 900 million is pretty hot for a company that has not figured out how to go to mass market. When it comes to valuing Tech Companies today, how important or not our profits . As companies prepare to go the company filed this is that the point they are investing heavily in marketing. When you look at software as a service company, you know you will poor marketing into marketing pour money into marketing. You have to invest money in marketing to get revenues later. I think i would be a buyer. From a venture capitalist point of view, it is great to see well maybe not great give theluations prospect of attractive exits. Yes and no. They give you good markups along the way. That is on paper. What matters is what you get when you exit. We will see. It has been a good environment. We do not want that to go away. Is there a potential conflict between what the founders want to do with their companies, like p, andunder of whatsap what the venture capitalists want to do . We bond with the founder. We will never try to tell the founder, it is too early for you to exit, to sell the company. I want to stay in because i want to make more money. You do that once. Then your reputation is ruined. What gets a several thousand opportunities coming to us every year is the reputation on the markets. Just go with the founder. The market keeps you honest. Thank you so much. Of softtech venture capital. That is going to do it for Market Makers. Alexander. Ason how do you build a new career telling everybody you or somebody else . Bloomberg television is on the markets. Lets get you caught up where stocks are trading. They are selling off after two days of gains. Nasdaq is the biggest loser. Shedding big tech names and biotech stocks. Joining me for todays options in sight is max breyer. About how there is this huge spread between volatility on the nasdaq and voluntarily on the s p. What is driving this . What is normally a stable relationship has become unbalanced a bit. What is driving it is this big selloff in the growth year nasdaq related names. We have internet stocks, biotech stocks exploding in volatility and driving the nasdaq fall, as well. Facebook, big name is down again today. It is one of the stocks getting hit hard in the past couple of days. Their earnings are out in the past few weeks. There is a fundamental story to facebook. Then it is caught up in this whole gross correction. It had a great 2013. It is in a bit of a down draft because of the correlation between the highgrowth names. Had an 18 move last quarter. An 11 move this quarter. That is a pretty huge move. Implied volatility. What other stocks move like that . Not many. You are talking about a 150 billion market cap name. That is a lot of wealth being created or destroyed. It has still been a good year even if we have seen a bit of a correction recently. You are watching what is going on overseas. An etf attracting emerging markets. What do you expect to see play out in emerging markets . What we saw in january was volatility based on the fed potentially raising Interest Rates. The cycle will play out in an Interest Rate hike at some point. There was volatility because that is that event will lead to some kind of growth tightening in emerging markets. Has subsided and the options have become a lot cheaper. In our view, we do not think that has gone away completely. The tapering is process unfolds, the emerging markets will resume the volatility. I am looking at centering and Options Strategy around the fomc data. The traitor like in particular is the may 2 40 half put trade i like in particular is the may 2 half put. 40. 50 put. If we have are resumption of the january volatility, a 10 correction in the emerging markets would make that trade substantially possible. The risk is the premium. In theu can lose is . 45 event that it does not break strike. Have you been surprised about the Market Reaction to the fed minutes in the last couple of days . It seemed like there was big reaction when janet yellen said six months and then we saw the minutes and there was a correction in the yield curve. The message has changed at each step of the way. Six months was the target for an Interest Rate rise. She pulled back from those comments. She has become a little more dovish. That has created volatility itself. The Interest Rate curve is flattening. That has different repercussions for different parts of the Capital Market spectrum. It is going to be a very interesting process to see how growth targets play out versus the feds game plan for the tightening cycle. Thank you so much for your time and your outlook. Once again, a quick check on the markets. By 76 points. N the s p is off 16 points. The nasdaq down by about 77 points. On the markets. We will be back in 30 minutes. Lunch money welcome to where we tied together the best visit news. Vampire internet bug. Why hardly is freaking out consumers and companies. Leota Getting Congress to play together with cars. Cherry blossoms are coming out of washington and that means Christine Lagarde is in town for the imf spring meetings. With frenchpeaking law henri pinot