Ritholz. Very excited to have you here today. Im pretty excited about all of the interesting crosscurrents going on in the market. On the one hand, you have a group of very local bears talking about every pullback as it this is it, this is the top. And then on the other hand, there are some fairly relentless bowls who are just quiet relentless bulls who are just quietly eyeing stocks wer continuously. We will talk about that, but lets get to the newsfeed. Bank of america posted a First Quarter loss, a mere 6 billion in costs linked to mortgage disputes. Resolving issues over home loans and foreclosures have cost be of billion have cost bank of america more than 50 billion big ones. Shares have fallen three percent so far this morning. Ann shares of yahoo are trading higher today. Ceo Marissa Mayer can thank jerry yang. I say, alibaba is preparing to go public and it reported a 66 jump in their overall sales. Yahoo owns one fourth of the company. Company again and trading today, opening at 22. We cannot forget the ipo price was less than land. Amazing when you talk about how hot the ipo scene is. First to gothe public since the financial crisis. Every time we get information out of the fed, everyone reads the tea leaves. Are we over reading it . Are we over justifying the market to get ourselves comfortable . Cant we just say, market said markets down, some people win or lose . We always over justify the markets. We love a narrative. We are not especially comfortable with data and math. Week on a show that you girls are especially uncomfortable with math. Oh, really . What do you think about that . I think many people in the United States have an issue with the mask come and if you want with math, and if you want to be in finance, you have to be a strong comfort level. I know a lot of analysts and traders and i think the older people, andooks at i could give you a list of a dozen females who are comfortable with analysis. Based on the millions she makes, i think she gets it. I dont think that assumption holds true anymore. I love writing. You mentioned the noise earlier i love talking about the noise that creates this false narrative that allows investors to be comfortable even when they are completely and utterly wrong. All right, then how about Central Banks to get us comfortable by pumping money into this system, and allowing investors to forget that underneath it all, these economies are rotting piles of garbage . It depends on what your job is. Our job is to of people and make them feel ok . Ande a grad student at nyu scratcher beard and smoke close cigarettes, was this you in college . Are there pictures of that . Might my twitter picture is from college. Otherwise, your job is to say, what is the impact of qe on Asset Classes . And then deploy your actions appropriate lee. I love the guys screening about alan greenspan. On the other hand, when i suit up and go to the office, my job is not to be a think tank consultant. I have no clients with money to deploy. They dont want to hear a story. Just tell mew where the storms are. We wrote a piece a number of years ago called where sea. Nsters live and the idea is, if youre a captain of a ship, you cannot just raise against rage against the seas. Lets say, im in a could he analyst and i looked at grubhub and i actually did my homework and said, an Equity Analyst and i look at grubhub, and i actually did my homework and i say, i get it. If i dont know how they are going to make money, why would i buy that deal . Im a fundamental guy. And then everybody look like a chump when they are up in an hour. Where is the right place for those who do true fundamental analysis . In the Banking Department to help underwrite ipos. That is not an especially popular position on wall street, but fundamental analysts are not there to help investors make money. They are there to get deals moved forward and help the syndicate. Ask you think those who do fundamental analysis should be equity bankers . X no, i think no, i think those who do fundamental analysis are Investment Bankers. I think some investment anchors our salesmen. The idea is you have a bunch of 26 roles pumping out pitch books. And who is writing those its books . It is the fundamental analysis. They are contributing the data, the narrative to those pitch books. And the data on ipos, if you were to buy an equal amount of every ipo, its some big money. In leslieto bring picker to the come the conversation. Sawmoelis start trading, the First Investment company to start trading. But theyve had a hiccup getting there. What do you think about that . They left quite a bit of table,n that on the you might say. Companiesason is, such as the Investment Bank went to onetime payout partners. It encouraged Institutional Partners to buy into this idea and say, listen, i notice a rough market right now. We are willing to be some of this money on the table and take a onetime payout in order to get a successful ipo, in order to get a 12 pop on its first day. Is it really that rough of a market where in five percent of on the s p and weve had almost 60 ipos come out . But think about how particular banks make money. They dont have the underwriting capabilities that a big bank does. Can ken moelis compete with the big m a guys of the world . Left, theyve done between dollars theyve done a trillion dollar deal. His record is extraordinary. Do you think there was any reservation about his ties to herbalife . He is herbalifes banker. He was with other herbalife executives visiting with investors, talking to them saying, do you really want to go to the end of the earth with bill ackman . Do you think the investigation around herbalife has cause any potential investors to say, you know, maybe i will buy this in the secondary. I dont need to be the first in. Perhaps, and you have the story of the new York Attorney general investigation the other day. We dont have any of the details. For aent shorted stocks while. Why does an ipo bloom in the First Quarter generally, and then things slow down . Do we think we are going to have a slowdown in q2 . I think a lot of it has to do with momentum. If you look at the stock market, things are ok. If you look at those true momentum stocks, the amazons of the world, the facebook, those are the ones that were the hardest hit. And then you can extrapolate that two of the ipo companies, which investors can also use to see the overall index. It makes it really difficult to sell hard ipo stories. And they may not have the track record a 30yearold company has. Think about the great track does have. Oelis that would make me scratch my head. He is and asked kicker. Can we say that . We just did. The one thing im aware of is, its a different feel, a different headspace when you are effectively taking partners out of their equity position. Saying if im a potential investor i dont want to buy a new company with the fuel of one that im cashing out . It is essentially the difference between twitter saying, we are going public, so we will have more operating cash and be able to hire and acquire and do all that fun stuff versus and again, go back 20 to 30 years ago. All of the people were partnerships. When they became publicly traded, a lot of things changed. I dont doubt that there are endowments and hedge funds that are bought out by the guy trying to get rich. And at this point, they are saying, we are not giving you money to expand the business, but giving you money to buy a six house and the second yards. Why do we want to be invited to a part of that . I want to be invited to a party. That is a very different Public Offering then, hey, we think we could use this money , anday facebook did continues to use their currency to make acquisitions, whether you think they are pricey or not. That is the advantage of a tech Company Going public, taking that money and leveraging it, versus cashing out. Check in withwill you later, because everyone is following how this Mullis Moelis deal is trading. Back, the man who had front row seats during a highspeed trading meltdown. We will talk about all of this noise around hft. And we will go behind the scenes of tumbler. How the microblogging platform tries to keep its startup after being bought by yahoo . Welcome back. Im Stephanie Ruhle. No one knows the risks of highspeed trading that are then tom joyce. In august, 2012, joyce was running Knight Capital when the computers flooded the market with unintended trades. The result, Knight Capital lost 450 million in one single day to mow which nearly drove it in one single day, which nearly drove into bankruptcy. Tom joyce is with us today. Laste we get into it, the time we spoke, you were leading the charge at Knight Capital. What are you up to now . It has been 10 months now, and outside a fair amount of average golf, i have been involved with three companies. Withas come out effectively, a new model on a new groupon. The College Students like it so much that we are going to try to go after the entire universe. That is a completely different route than what you have been doing for the past 20 years. Is any of this because you want to get away from the trading business and you dont see great opportunity anymore . Know, one of the things im involved with right now is a Company Called clear pull those up it is a Management System that is actually part of called clear pool. It is a Management System that is xray part of a daytrading firm. System. Of a daytrading they used so many algorithms to avoid toxic flow that the industry started saying they liked to use some of that. They spin off so they spun off a group that will be an execution Management System. A little bit of the new stuff and a little bit of the old stuff. Lets talk about the book. Highfrequency trading has been in focus for the better part of the year. What is your initial reaction . My reaction to that romance novel . Novel, i like that. The one word that comes to mind is salacious. He wrote a story about a group of investors that he did not particularly like. He could have easily written a salacious novel about i dont know baseball . Baseball, the oil industry, the markets of the 80s. It was a book written largely for entertainment. He obviously has of you, has iview, which is fine, but dont understand why he had to be so irresponsible as to call the u. S. Equity markets rigged. This, clearly, is a book unencumbered by the facts. If you look at any not any, but the vast majority of Academic Studies that have been done on the u. S. Equity markets and if you look at the execution quality of the equity markets, particularly for the Retail Investor now mind you, the Institutional Investors are the big boys. They have staffs of traders sitting there watching the market. But particularly the execution polity for the Retail Investor has never been better. The spreads are as tight as theyve ever been. Execution costs are as low as theyve ever been. Iscall the market rigged completely responsible. If i was a member or on staff at the sec, who i believe has done quite a fine job in terms of monitoring and developing the u. S. Equity markets, i would be close to vitriolic over this. Really . So you have to take the position, we will hold off on the sec discussion. That is another three hours. That aside, the moderate antihft market argument is about the institutions that are the retirement accounts, pension that, 401k, iras, etc. Blackrock or schwab or anybody goes to put an order in for a full new a few million shares. The hfts get taken out in advance stop they get to buy that ahead of that and flip it to them. Liquidity. T creating they are just attacks on the transaction. Trading in a zerosum game. Do you think the specialists are better . That is a whole different, conversation about specialists and the corrupt system there with and highfrequency. Rading the specialists are obligated to make a market. We saw in may, 2010, we know that the option is just not playing as exists. The question is, im in computerized trading and allowing technology to narrows reds, and there are many technology. What i dont understand is how you allow an hft to sniff out an order from blackrock and just put a tax on it. There is a lot of crazy stuff in the book. When you pull that out, that tax complaint. Et of his there are a lot of stories in the book about things like that. But if you know anything about highfrequency trading and by the way, ive never been involved with the firm that was not involved with highfrequency trading. Knight capital never did highfrequency trades. Day,d 3 million trades a virtually all of them on behalf of the Retail Investor. In the spread Networks Story he alked about, we were never spread network. I personally have never been involved with highfrequency trading. When knightly, capital was bought, i got out of dodge. I dont want you to think im affiliated with it. Buy big share block. They buy small ones. Ifhe is trying to sniff out someone is front running it, guess what, it is illegal. It is illegal to front run with you do it quickly or slowly. People who are front running other orders, those rogues have to be dialed back in and prosecuted. Sayother thing that people about highfrequency trading is that they get an informational advantage. There are two ways to look at that. One is, if i and the information at the exactu both same time what the information is and stephanie figures out a way to analyze it and profit from it faster than you, too bad. She found an edge. There are always people smarter than you, stronger than you. Which is me, im smarter. If i whisper in your ear, this is what is going to happen, and then i tell you isnt that what happened in the exchanges . It certainly happened in the special exchanges. Thank you. Were private clubs and the inefficiencies of that system, especially in hindsight now that we know what computers can do was kind of remarkable. Giving exchanges are mostfavorednation status in terms of informational access to certain of their clients, then shame on them. And that should be investigated, too. But on a level playing field, just because a highfrequency trader spent eight years getting his phd in physics and can process the information faster than you can, i dont think that its unfair. Michael makes them sound like the they are these white knights, these crusaders on wall street. Roaddly, i kind of hit the last july. Think idx was ruled out im a little stale on some of this stuff. But frankie, if idx but frankly, if idx builds a better model, god bless him. Idx is a dark pool. To me how goldman, for example, who had their own dark pool, why would they start why wouldhis they start doing business with idx . Are they an investor . I dont believe so, but they are now a partner and they use iex. That is a dark pool and goldman has their own dark pool, arent they in their own lunch . They could be. I dont know any of the new crowd over at goldman sachs. You would have to ask goldman sachs. But it seems logical what you said, they seem to be walking away from their own thing and embracing someone elses thing. You work with regulars for decades. If you were the sec, what would your sponsor be to michael lewiss claims . Frankie, i would be a bit vitriolic about it, because by regulation of the market, he slamming the sec. I would say, there is no way are the u. S. Equity markets rigged. They are the finest in the world. I did not say they were perfect. We need to look at where there are informational advantages. Those who weret apparently frontrunning orders. And then we will look at new changes that can be instituted moreke the exchanges efficient. What about things like quote stuffing and spoofing and jamming in 10 million orders and canceling them immediately . I would say, in the last few years, when you feel like you go to do a trade eta, almost every time it feels like it goes right up in your mush. Spreads arerow illusory. You get 20 shares of something on a 2000 share order, and then the offer just runs away from you. Would you impose an improvement in liquidity supposedly, an improvement in liquidity and spread is not what it appears to be the i had that happened when buying shares and by the time i hit go, the price is different than quoted. I think everybodys experience is different. If i were the sec, i would stand up in the markets. But thank you, tom joyce. Live from bloomberg headquarters in new york, this is Market Makers with air shafts are and Stephanie RuhleErik Schatzker and 70 rule. Welcome back. Erik schatzker is off this week. Is my guest post today. I hope you are excited to be with me. Matt miller is at the auto show. If you are at the auto show, what is the one car, the one maker you would be the most hot on . I would actually ask bmw why i cannot get a six series with a stick anymore. He is interviewing a board member from bmw. Carmakers from around the world are gathering to show off their latest models. This is the matt miller super bowl. He is there right now. Matt, you better deal with berries issue. He wants a six series with a manual transmission. I hear you. The six series is a bigger car than the others that they have on offer, but i will ask them. A real pleasure having you here. I just checked out the cards you have here and there are some amazing ones. ,ur guest host, Barry Ritholtz once a six series with a manual transmission. Can you make it happen . Anything can happen. But the paddle shift is more than normal. The endave been driving series lately. Absolutely. A nice, matt keller, the car looks superb. The drive, performance, everything you would be you would expect from a highperformance vehicle. I highly recommend anyone in the new york area to come by and check it out. Lets talk about some of the other cars you are debuting. You have a convertible that is squarely