good morning, everyone. this thursday in new york city. you are watching bloomberg television. i am erik schatzker. >> i am stepping in today for stephanie ruhle. see the resemblance? time now for the new speed. top business stories or around the world. twitter. at cfoame to the company as and moved to coo in 2012. retail sales rose .3% of a percent in may, less than forecast. still on the upside. revised figures show april sales were much larger than first report. is co-coo of bnp paribas stepping down in the midst of the investigation. he will leave at his own request. askedp bank regulator that he be dismissed. authorities want bnp paribas to pay as much as $10 billion to settle claims of illegal dealings with iraq and sudan. big implication overseas. this could affect oil prices around the globe. al qaeda has seized control of the second largest city in moving closer to baghdad i the day. here is how this is playing out in the oil markets. you can see the response. in a moment you will hear from an investor who remains bullish. first, hans nichols brings us up to speed on what is happening. the latest is u.s. warplanes made from northern iraq. that gives you an indication of how serious, how desperate the situation may be there. that comes from the iraqi oil minister in vienna for an oil meeting. we do not have that independently confirmed from the pentagon or u.s. government officials. here are the cities that have fallen -- hussein's hometown. the oil city has always been a ivided city, arabs, kurds, that appears to be in the hands of kurdish forces. the very fact that the militia is working the kurds hand-in-hand and talking and having close court a nation with the arab government in baghdad is a significant sign. it gives you a sense of just how serious it is. of course we do not need to know how serious but the oil -- with the oil market showing a great reaction. up up 2.5%. brent up a little higher than wti, which is traded in new york. here is a statement from the militants. this comes from a website that militants frequently use. we have not been able to confirm this ourselves. here is what he says, march to baghdad, we have to set scores there. do not let them catch their breath, be sure that victory comes from god. i suspect that when the pentagon briefs later today you will get a lot more information on what the u.s. plans to do, and i know phil mattingly will be knocking on doors at the white house trying to get a sense as well. >> phil will pick that up right now. i do want to point out, there is word that in recent weeks the iraqi government reached out to the united states for help to contain the militants, possibly with the use of airstrikes. phil mattingly is our white house correspondent and joins us from washington this morning. what are you hearing there? are not getting any confirmation that any bombing is imminent. to your point, what we do know is a request was made from the prime minister's government. it has not been responded to yet. what i heard from u.s. officials last night and this morning is they believed the situation is very grave and are watching it very closely, but in terms of actual actions taken, nothing has been laid out. what we have been told, increase training, definitely more equipment in the works. airstrikes a possibility, as our increased intelligence capabilities and thrown use as well are things floating around between the pentagon and white house. the key thing is the administration is very wary of q in anyback into ira way, shape or form. the ability to remove troops and the u.s. from the situation is considered a strong point of his foreign-policy. i think the problem, and you hear it a lot on capitol hill in talking to republican staffers engaged in the issue is when the president remove troops from there, there was no stability force left due to an inability to lock in an agreement with iraq, therefore it, the u.s. is in a poor position even as the government request more support. the city seemsof to have taken much of the world by surprise. given the iraqi government reached out to the u.s. in recent weeks, i have to imagine it was not a surprise to the president, not a surprise to the state department. is the reason we did not hear anything because of that posture, the president so relax and to put iraq back on the agenda gekko >? >> i think in part. when the administration has these conversations behind the scenes with anybody him and especially with what is going on iraq, it is not something they want to announce to the world. i think while the administration may have been aware this is coming, the speed with which this group has moved through iraq, i think has caught everyone off guard. i think you should see capitol hill, because that is often where you get the clearest picture of what everyone is thinking, people are stunned. they are stunned at how fast this has moved, and the concern is the administration does not have a lot of contingency plans to move on iraq. people involved with the administration they clearly have things on the table they are working through that they want to move on quickly. how quickly is the big question. the iraqis think something is coming quick and in a big way. we have not heard that from the administration yet. what we do know is on the table if they move likely, that will make a major difference as the situation continues to more or less implode. >> we know the militants have their eyes squarely set on baghdad. phil mattingly, white house correspondent in washington. we also heard from hans nichols. >> let's bring in a man with money at stake with what happens in iraq. portfolio manager of the iraqi investment partners fund. welcome to the show. you see what has happened this week. how concerned are you right now? >> no doubt these are very serious events. we will talk about markets in the second. in terms of politics, it is important to remember who these people are. they are still part of the french of the suni side. fringe of the sunni side. they really do not have a chance of holding this and any long-term way. still very significant they have been able to do this spectacular raid. is 15% to remember iraq sunni and these people represent a tiny percent of that minority. the really bigger things on the mind of markets, we will get into it in a moment, but the markets in iraq have not responded as catastrophically as it looks. >> if these people are such players, why are people taking this so seriously? >> it is spectacular what they have achieved. >> so why can't come out from counting more? -- why them out from achieving more? >> remember and even recent history how resilient it has been. al qaeda lost just five years ago. the main reason they lost is because they had no popularity among the broader iraqi public. >> surely you are more concerned. if this is such a small party that they can take the second biggest city in the country with such ease, isn't there a bigger concern about the people who run the country in the institutions they're meant to keep it stable? >> there is huge concern about that. a great question. it is a much more reflection of those things. the current government has been especiallyvisive, with the sunnis. it has managed the economy very badly. i think those are the bigger implications. remember we had elections april 30, very recently. the government formation process is still going on. to me, the biggest implications of this -- this time will receive, the implications for the government formation process , will he stay or fall are much more important for the long-term. >> let's talk about markets. we have seen a reaction two days after it happened in the oil market. the risk here is they will never get back toward 6 million barrels per day, because why on earth would you want to invest in infrastructure with this kind of instability right now you go with someone like you that has money exposed to what is happening, how concerned are you that this is it and there will be no growth in this country? >> oil is a great place to start. as we saw free beasley, -- prev iously, oil is in the north and basra in the south. both of these places are untouched by all of this and will remain untouched. purely kurdish in the north and shiites in the south, this violence tends to happen in the mixed areas. has moved 2.5% up over the past week. the iraqi equity market was down 4.5% yesterday, the big day. the euro bond, the biggest global barometer of faith in the countries found this -- sound yielding a little under seven percent. it was 10% only three years ago. oil fields are safe him and the country has been through worse even than this and stuck together. >> are the pipeline safe? the pipelines are at risk because they run through the regions you are talking about. the oil fields may not be there, but the pipelines are. if you cannot get the oil out of the country, what is point in producing? that is the concern. >> grade-point come and jonathan. -- great point. >> you can see it right there. the pipeline going into turkey. that is the big risk, the pipeline. >> northern pipeline, nerds and -- northern oil, 15%. southern, 85%. that is the key point. the northern part will always be exposed. iraq will always be violence unfortunately. disruptedine has been a lot in the north already. it is already the second reducer in opec. and only growing. the big story is in the south. on youentioned earlier are responsible for $5 million and a rack. -- in iraq. how much money can you afford to spend on the situation right now? >> describing it to the public or looking at it? of my time.ll it is critical. the heartre often of of emerging market investment, but at the same time, we are invested in a small number of companies, and proving they can make real money in terrible times. >> what do they do? classic emerging market plays, consumer goods. one of theler, top three cell phone companies listed on the local exchange. our favorites are the banks, another classic leverage play on gdp growth in emerging markets and frontier market scenarios. >> thank you very much. we will have to leave it there. from iraq investment herders. >> an investigation into bnp itsbas may have claimed first high-level casualty, and we will find out if others are likely to follow. >> plus, taking it to the limit. that is what you do in an ironman triathlon. we will speak to the ceo. > this is " market makers" streaming on television, bloomberg.com and you can find us on apple tv and amazon fire. ♪ way. the top executive has tha stepped down. what does this mean for the fine? >> it is hard to see where this will fall. this could give them more leverage over the banks. i want to $10 billion. i want a couple more senior executives out of here, or they will reel it back a little bit. we will give you a little bit more digestible of a fine. these are moving negotiations. things come up. sick -- they are seeking an unprecedented big fine on this. that we do know. not likely it will be too much smaller than the $10 billion. we're still waiting to see what is happening with this bank. >> thank you for bringing us up to speed with the latest on bnp paribas. coming up, stores are wondering where the shoppers went last month. they sure did not go to the mall. ♪ >> we are approaching -- do it.an 26 minutes past the hour, time for bloomberg on the markets. u.s. airlines taking and on the chin today. delta and southwest are the worst performers on the s&p 500. let's have a look at lululemo n. stops wearing see-through yoga pants and look what happens to the stock. down 15%. you are aware of the scandal, the all too sheer yoga pants recalled as i said. the fallout is beginning to have an impact on the company. they have cut the full-year earnings forecast to 1.71 to 1.76. previously they had seen earnings of as much as 1.90 per share. also trying to expand into international markets, and that plan is not paying out as well as investors had hoped. lemon getting press today, down almost 15%. >> i refuse to get excited. four-day record high close. going in a straight line, right here? >> there you have it, consumers holding on to mark -- wallets. why retail sales this -- missed estimates last month. weree place and brazil watching the world cup is not a priority. this is "market makers" streaming on bloomberg television, bloomberg.com, apple tv and amazon. ♪ --live from blue merck bloomberg headquarters in new york, this is " market makers" with erik schatzker in stephanie ruhle. >> i am erik schatzker, and as you will see, stephanie ruhle not here today. >> better looking, a little quieter maybe. >> you need to step up your game. >> turn the volume up a little bit. i think you probably turned it down a little bit. you might have to tune it up for me. -- turn it up for me. have seen jonathan before. bloomberg tv london. >> if you get up very early you will see me. hours, or if living in a lake, maybe as you go to bed. anything better than watching the eveningro in after a few cocktails? on a day when retail sales name and disappointingly low, taking a close look at online shopping. will it be a shot in the arm for the industry or not perhaps? what is clear, the e-commerce experience still has a long way to go. julie hyman is here with more. click through rates are part of the problem, right? >> fourth fiscal retailer -- physical retailer on the conversion rate. getting someone to actually buy something. the online cash register or physical cash register. the conversion rate is lower than the store. 70% do not end up fighting it. several reasons why. or a stir has done research and says about a third of them did all the way to the checkout and then see the shipping cost. this.ay we will not do 30% say they are just not ready to purchase or whatever reason. talkedto a consultant -- the phone rings or it the baby cries, just do not feel like you can do it at that time. compare prices. he also said there are simple things that it has taken a long time for e-commerce sites to figure out. for example, when you check out, do not ask me a million questions. do not ask me to sign up if i wanted -- do not ask me to sign up for the newsletter. do not ask me if i wanted you the product on multiple pages. >> it is missing it used to be about price. only cared about making sure they have a lower price than the retail store come and now they have relied they need to get the click rate down. i have seen this with airliners to get the click rate from around 20 to around 10. >> the fewer steps the better. the different layers you have to thoseough, the more of him the less likely you are to make the purchase. less about price and more about having a uniform experience between the physical and online retailer, for example. in other words, a lot of times the selection in stores is not the same as the selection online. neiman marcus making on -- working on making the selection more uniform. other retailers like j.crew that have stuff available exclusively online. >> you will get that. yes. >> do you have any sense who does this right? >> j.crew is one. walmart comes up frequently as having a very strong e-commerce platform. if you look at the site, it is nothing special, but i think it is more a matter of -- >> is walmart's store anything special? -- hows more have they they integrated it. in other words, you may browse on your phone and buy it in the store. you may buy it at home and pick it up in the store. walmart has done well with the in-store pickup option. that has been an area of growth. the retailers that seem to be the most successful are those that get it, that even if you're not going to buy in online and you can do the research successfully online and then go to the store to buy it. something completely unavailable to the amazon customer for example. >> exactly. that is an area when you look at something like apparel where a physical retailer may have an edge over an online retailer. >> are we moving to an area where it is just the experience and nothing else and does not have to make money? >> remember her you are speaking to hear. julie knows what a high street is. matter.nk it does you see a lot of the stores, particularly apple, just trying to develop an experience. does not matter if you buy it there or in stores. buy it,ares where you that is the bottom line. yes, the idea that the retailer has to have a good experience. look at urban outfitters. there is a hair salon and it. >> amazing i have not been there yet. >> restaurants in stores becoming more and more common because it is the whole idea of the lifestyle brand them that you want to build the experience you are referring to. you want to build a relationship. that is something that is not new, you want the customer to have a relationship with your brand, and it does not end up where you end up giving your money to the company, just that you do and you have the loyalty. jonathan, clearly a regular customer at the hair salon. >> i do not know the number on the clippers. >> i have been it for about a week and have seen so many commercials to get your hair back into this sort of thing. message to the men of america, you do not need hair. men do not need hair. here is the saying, men care about losing their hair touch more about women caring about men losing hair. that is my philosophy about such things. >> thank you very much. >> we really went off on a tangent. >> i would not say reservations at definitely went on a tangent. julie hyman with retail conversion. the brazil you will not see all watching the world cup. i saw it. people living here saying building the soccer stadium force them into this refugee camp. -- forced them into this refugee camp. ♪ >> brazil spends more than $10 billion to host the world cup, which kicks off that 4:00 eastern today, but the real cost of the tournament is much harder to see, especially from here. i traveled to brazil insult a refugee camp insights help all well to get a look -- inside são paulo to get a look. brazil's men 365 million dollars to build this new stadium -- $365 million dollars to build this new stadium, but not far away there is this. so tell me, what is going on here? >> [speaking foreign language] >> elena claims her brent doubled overnight from about $200 per month to $400, too poor to pay and with nowhere else to go, she came here. here at theple were beginning, and how many people are here now? >> [speaking foreign language] squatting onll this land. the residents say they are part of the homeless workers movement. may be nothing more than plastic sheeting but like an a a number address. the squatters are trying to shame the government into building more affordable housing. city officials estimate more than 230,000 emily sneed shelter, and yet, they plan to build only 55,000 new homes over the next two years. the people here call this tent city new palestine. aren't the living conditions difficult? you worried it will come to the point that it is too dangerous to live here? >>[speaking foreign language] water has to be brought in, and there is no electricity. communal kitchens and out donated food. entire families eat and sleep in the same room. how is it on the children? >> [speaking foreign language] >> on the night of the inaugural stadium, ae new torrential downpour halted play for almost half an hour. a minor inconvenience for fans, a disaster for residents of the tent city. >> [speaking foreign-language] >> the squatters staged a protest outside the são paulo stadium a week before the world cup, exposure they hope will drive the brazilian government to act faster. >> how long are you prepared to stay? [speaking foreign-language] you really have to see it to believe it that this could be happening inside the city as well be a são paulo is, and believe me it is wealthy. have been there for years. there is a structure, a way of doing business inside. there are even druglords in such a make money inside them. there is nothing about that that is appealing. on stadiums.n the price tag for the world cup is north of $10 billion, and the people of result asking what is in it for us? these guys have been pushed out of the city where house prices are rocketing. that means they have to spend more money to get to work. bus fares went higher last month. people went to the streets and protest it. the theory is the summer we get a repeat of last year. , i am a soccerar fan. we can't wait for the world cup, but you have to look at the whole picture. the same that is going on in qatar right now. human rights violations. finally people are starting to take notice. this is thepaid? full story, not just about whether a tournament can be held and who ends up hoisting the cup. more to it than that. comes in and makes a lot of money and what is the legacy of the world cup? >> we need to take a quick break. when we come back, we will be talking about couch potatoes. those of you who may be watching the world cup, and those of you who may have something else to think about. in a moment, speaking with the ceo who will try to get you off the couch and do this. ironman triathlon. ♪ >> breaking news for you coming out of washington. it all has to do with eric cantor's surprising loss. going now to peter cook. that eric news is now cantor is stepping down, who will step or were to replace him? in the past few minutes we have learned texas republican ensurlingan jim and will not run. that leaves the competition to kevin mccarthy, majority whip in the house of representatives. he is from california and seen as a close ally of eric cantor. he is seen as the front runner. his contender will be pets -- pete sessions of texas, another conservative and someone believes a red state republican needs to have a seat at the leadership table. that is the competition. a week on today house republicans will vote on this. if mccarthy wins come it opens up his current spot. there will be competition for that. what is important is this is a very important job. he will serve out the remainder of his term, and then in november to publicans will pick the leadership or the next congress. he could see a battle at that time. kevin mccarthy, i am told by several members, the clear front runner. he reportedly told donors last night he feels comfortable that he is the leader in the position and quite likely to win in a weeks time. looking at the leadership ranks quickly if he is elected. >> we will hear more about this in the next hour when john boehner is scheduled to make remarks. correspondent,se peter cook. what does it mean to be an ironman? swim for 2.4 miles, bike 112 miles and then run a full marathon? . it is the uber achievement for the world elite. they are gaining in popularity. we are asking, can ironman continue to out muscle its competitors? here with the answer, someone who thinks about it every day, the ceo of ironman. i remember when the triathlon took off. mid-1990's phenomenal growth for triathlons. the sport continues to draw people, but it does have competition. how do you keep them? >> i think we have to continue to capture the imagination of athletes. ironman is the hardest one-day endurance event in the world. for anyone, but it is an enormous commitment, huge accomplishment. to require sacrifice, and people who want to embrace the challenge of repairing -- preparing and racing. >> who wants to do that? i do not know if people can't fathom the amount of training and commitment it takes us to swim 2.4 miles alone competitively am a little moan bike for more than a century and run a marathon. >> the key point you used was athlete. for it.ys live if i want to get a group of friends together to do tough mother, maybe i have not done any training we will go out and have fun. -- tough mudder. >> it is a huge difference. if you go to any of the ironman races anywhere in the world, you will see people in their 70's. >> but most of them look like this. wealthy, not quite middle-aged and well-educated. absolutely. and they are deeply engaged in the pursuit and accomplishment. it is an achievement -- >> bucket list type of thing, right? >> it is. people sacrifice and work enormously hard and take it serious week, and the type of people who do that generally in their lives tend to be successful. >> it does not just take amendment, it takes dough. just the cycling part will require spending several thousand dollars on the frame, the wheels. that may not make you competitive with the folks that are writing even better bikes -- riding even better bikes. >> you can spend as much as you want on anything. you can do ironman on a $1000 bike or $20,000 bike. are accessedle with performance. if you can shave seconds off by spending more money on the equipment, you will. >> they do. >> you have seen the sign of intel quick the people sign up for this. are these first-timers or d.c. a lot of repeaters -- do you see a lot of repeaters? >> we see a lot of repeaters. most of the people have done shorter distance races, often with us. on average people who race do a race and a half with us each year. we have a lot of new people because a lot of people who stay with us for the lifestyle and because of what it does for them. >> how is this a business? how does ironman generate revenue? you are owned by a private equity, private -- providence equity owns ironman. >> we have been owned by providence for just over five years now. we have had great support from them integrate her donorship. our revenue and the just over half comes from ashley registration fees, sponsorship, and licensing and merchandising business and media and other strains. the core of the business is around athletes registering for and competing in races. >> when you look at competition, how easy is it for me to go and start an ironman? >> it is easy to start it. getting someone to sign up for it is a different story. of the 40 largest in the world, 37 are ours. one race in germany, two races in japan, and other than that it is pretty much ironman branded. >> how many have you done? >> 3 full. >> and you lived to tell the tale. do are you marketing to? how you broaden the appeal so it is less rich, less white, more inclusive him a more international? >> international is something we spend a huge amount of time on. we have more than half of the races, two thirds are outside north america. we put the 2013 version of ironman brazil on sale last week . sold out in 16 minutes. that race is 80% brazilians. a race in south africa is mostly south africans. >> thank you for coming. ceo of ironman. we return in two minutes. ♪ >> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> amazon, the world biggest online real tale -- retailer is getting into music, but running into road locks. whether it isk at worth the price. >> boehner put his spin on it. house speaker takes questions about the shocking loss of his number two, eric cantor. good morning once again. you are watching "market makers" on bloomberg television. >> i am sitting in for stephanie ruhle today. >> replacing? >> well. are you going to create some kind of storm? >> i'm looking for controversy. >> you will get it. >> we welcome jonathan ferro. iraq, militant forces affiliated with an offshoot are now just 80 miles away from baghdad. those fighters captured the second-largest city, muscle -- mosul, earlier this week. -- top executive at b&b parvati is stepping down -- bnp are ibaka is stepping down. he's leaving at his own request. he is retiring. bnp faces a fine of as much as $10 billion for by leading u.s. sanctions against iran and sudan . and here in manhattan, apartment rents have hit a five-year high. the median meant to grant him a ismonthly mean rent in may forcing would-be buyers into the rental market. we are going to go across to the atlantic, because in the past weeks, spanish yields have dropped below here in the u.s. yes, really. we want to talk with that deputy chief investment officer at pimco. andrew, spanish yields have come back a bit since then. but 10 we expect it to stay around these levels? -- can we expected to stay around these levels? and if i look at france, can we expect -- upfront, can we expect spanish yields to go lower you -- to go lower? >> i think you can. german yields are at about 1.4%, so well below u.s. treasuries. in spain, it is spread over germany. you have had this tightening helped by the ecb action last week. and i think probably, spain can continue to grind tight a little bit. france trends very tight to germany and would not expected to go anywhere too much. but we have very low inflation in europe, which is keeping yields down, possibly more from the ecb. we have a divergent passing in europe compared to the u.s. >> i looked at the ecb last week and the biggest things they did are some -- is maybe something they did not do. they have talked about a quantitative easing program. the second one was a new long-term financing operation, a targeted operation. but those things have not been implement it yet. does the plan remain the plan? and does the new funding program, what is the take-up of the banks going to be? how effective will those things be in the second half of this year? cleared the board, they also cut rates. i think they have -- they are kind of done, i think. draghi was clear that they can do more in terms of asset purchases. inflation remains very low, then asset purchases will be the next thing. not just a smaller scale program, but a bigger scale program, and it could be qe. the european situation is different from the u.s.. banks are more important in terms of lending. the politics of europe means that the ecb is trying to focus on doing funding to the banks rather than outright purchase of assets. i think it is going to be fair to say that because of our forecast not changing much, it will help the bank. europeanou want to buy bank assets. they are attractive. they are being targeted by the ecb. but as is the case with the u.k. when they had the similar scheme, we should not expect this to have a big macroeconomic impact by the lending channel. >> andrew, people associate pimco with the new normal. your firm now has the new slogan "the new neutral" going by your caught -- your colleague, -- coined by your colleague, rich clara come i believe. that pimco applied the new neutral to all developed banks, thend central u.s., europe, and japan? >> it is not the new neutral. in the u.s., we think the terminal rate over time is going to be lower than in past cycles, and it could be -- well be something like two percent nominal real to real. because the economy is still long-term trying to get over the impact of the 2008 a national crisis. in the european case, the ecb is going to be on hold for a very , longer than in the u.s., longer than in the u.k. when they do eventually raise rates, expect them to have very low rates as well. the common factor is very low leverage. it will be hard for the u.s. to policy rates going much above zero in terms of real terms, two percent nominal probably, without this impacting gross -- growth. there is the common factor with the new normal. and the u.s. is scaling back its own qe. sometime in the second half of next year or into 2016 they are likely to start hiking rates, which in the european case, as i said, will be much longer. implication, so to speak, will be that eventually the -- you might expect the hero to start weakening against the dollar. >> andrew, i'm going to jump in. we get a lot of comments on the central banks at the moment. in the u.k. as well. the ecb, all of them are saying that when rate rises come, they will be gradual and slow. but if they lead the first hike -- leave the first hike to the last possible moment, that is a pledge they cannot keep. and here in the u.s., inflation is not 1.5%. you hear evil talking about it already been two percent and heading north. -- you hear people talking about it already being two percent and heading north. how is that pledge of having gradual rate reichs -- rate hikes next year, can they deliver that? >> i think they can. had similarengland views in terms of policy rates. they will be rate independent, but our view is the date on the growth side and the inflation side. it is going to mean that they don't have to raise rates much more than 2.7% in the terminal rate. all thisr, you have stimulus in the u.s. system and it has still been hard to generate growth. the housing market ground to a halt. -- it is hard to get above trend growth. as they get back into qe, ourtually high rates, and view is that the economy will not be able to withstand the old-fashioned hiking cycle. the new neutral will be a lower rate, reflecting the leverage in the economy and the dependency of the economy in a way on low rates to stay there. and the common stance going to have the same impact on prices that fed policy and qe at on -- had on stock prices? >> if you look at the nonsense of last week's and the level of italian or spanish peripheral risk, or the level of the bank credit more generally, i think the market is pricing in pretty good probability that they eventually do have the large-scale asset purchases on the credit side or the qe side, the government bond side. i think a lot of the risk is priced in. >> the reason i ask, andrew -- and pardon me for interrupting, but i see that there is a 50 percentage point cap -- gap theeen the performance of s&p 500 and the market in 2009 and the performance of the stock 600 since then. maintains this accommodative stance while the fed begin slowly to pull back, will that gap neroli? -- narrow? >> it could. remember, the ecb has also benefited from the u.s. fed programs. part of what the europeans are doing is addressing very low only half a percent and they think it is going to go lower. and they do not want eventual hikes in the u.s.-european rates to move up in symphony. that could be another part of the objective. in terms of equities, we are broadly neutral between the u.s. and european equities. it is a stock picker's market rather than being a bit trade to do there. on the credit side, we think european banks, and some of the peripheral banks in particular, or lower down in the capital 'sructure, tier one coco are very attractive because the ecb will be targeting them. >> we got to leave it there. thank you very much. makers," up on "market books, albums, and now streaming music, amazon try to compete with the likes of pandora, spotify, and even apple. >> house speaker john boehner hold a news conference minutes from now. you can bet he will have something to say about eric cantor's loss in the primary tuesday night. >> you are watching "market makers" on bloomberg television. ♪ >> time now for some of "bloomberg west" top tech and media headlines. it is the biggest departure since last year. gunny -- ali rowghani resigned. rose to the highest in two years. one reason, sports fans ramping up for the winter lyrics and the world cup. sony said its tv sales have made money this year for the first time in more than a decade. imagine that. google wants to be a player in the energy business. it is developing software and hardware that would help utilities deliver electricity more efficiently. this year, google spent more aan $3 billion to's -- to buy smart thermostat company. >> amazon prime is much more than just free shipping. today, amazon added a music streaming service for members. it sounds great, unless you're looking for the sounds of lady gaga and many other artists. to reach anot able deal with universal music. universal is the latest to stand up to amazon. greg joins us. amazon has had quite the pullback this year, greg. the company seems to be trying to do something about it, including strong-arming the warmer -- chef, time time warner over home video, and now music streaming. is that we want to see a complex we want to see them -- is that what you want to see? iswhat we want to see improving the relationships. the whole point of amazon is to get there revenues up. if they can get up to 2 billion next year, then they -- than their revenues will kick in. >> can they do it if all of those amazon prime users want to listen to lady gaga? they claim to be the one-stop shop. the only place you need to go. it isn't if everything you want is not there. >> you can still get lady gaga, but not for free. amazon has 21 million items on prime. they are up to about 30 million paid members in the u.s. and a 5 million people that have had that for five years, they spent $2000 a year with prime. if they can get millions of households to spend $2000 a year, they can get there. it is about enhancing that relationship. >> how do you put a valuation on this company? at 36 timesding realized earnings. that is huge. , intoe going into this music to make no money. it is unprofitable. they don't seem to be in a rush to make a profit themselves. at what point do you say, a lot of this is priced in? cap is $5r market billion, so something is priced in. but with the extra it will be about eight the lien dollars. even with either., they have shown their -- with ebitda, they have shown their cap x is great. what the market is telling you is, if you look beyond just the reported eps, there is a lot more cash flow generation. and membership stream with revenue can be quite sticky if you get prime membership to continue to grow. it to be a weekly shop for most people. >> eight billion dollars of it. -- of ebitda next year. compared to what? >> 6 million and change. something like that. but what does it matter to their customers? is there operating leverage their? their gross margins have grown in the past couple of years. part of that is the move from three to first party. >> but the value investor would say, no, that is wrong. the key is not growing gross margins, but net margins, or operating margins. margins are very skinny. >> i would not expect a value manager to find amazon on a lot of their screens based on current results. >> it is not exactlyebitda, but an operating margin is not far off. this is a pretty chart. >> what they have now are 39 million prime members, and that is what they have been working to get versus two years ago. >> at what point did you look at the immense effort that some of my jeff bezos has put in? is there a point at which you say this company has become over 10 from trying to do too much? >> absolutely, not everything they are doing -- overextended from trying to do too much? >> absolutely, everything they are doing, not every thing is going to work. posco has margins that are less than three percent. yet the stock and the company -- costco has margins that are less than three percent. yet the stock in the company is a great performer. get like cosco in the next few years, then they will get back on stream where it was. rose has been out of favor this year. >> why is jeff dave those -- jeff bezos so obsessed with the film and cap of the reason amazon is not making more money as he is spending billions of dollars to build up fulfillment centers across the u.s. and around the world. for more people to shop amazon, do they really need to get the stuff out faster? flex i do believe they have to -- >> i do believe they have to get the film and right. >> is that so much more important than the business? >> they're getting about two percent of market share with retail sales. replicate, let's say, a wal-mart back end in terms of distributional centers without the 200 billion dollars in store assets and all that goes along with that, that is a net win in terms of assets. down, get those prime members and keep them happy and service levels high. that is how you get the repeat customer for the >> you raise the right point about the scale of walmart. walmart is trying to use its stores and superstores to almost reverse engineer the amazon model. what if they are successful? what if they can use those stores as for film and centers and get stuff to people faster than amazon is able to do it until bezos builds that up? >> the neat thing about retail is that it is so big. or trillion dollars. -- $4 trillion. you can have the company like walmart that has the biggest ever and has less than 10% share. if they get the model right and the best assortment and the best service to the customer, then they can't both win. it is not like walmart has to die as -- than they can both win. it is not like walmart has to die as a result. >> [indiscernible] we look at amazon as a retailer. retailer, evenny if amazon goes to china, there are a lot of local tastes and preferences that you need to understand about your customer. that will be a big hurdle for them to do. you never say it is impossible, but china is a very different market than the u.s. and it works in both ways. >> thank you very much. great to have you. >> great to be here. $330.zon is trading at he thinks it can go to $430. lot --ng up, brazil has lots at stake for the world cup. a growing number of brazilians say it is not worth the cost. ♪ >> we are approaching 26 minutes past the hour. it is time for on the markets. we are looking at one thing only. $112 a barrel, high for the year. the concern is in stability in a country that reduce his 3 million barrels of oil per day. up ifey get that supply instability continues? >> and will and militants reach baghdad? >> exactly. >> we are just moments away from john boehner's news conference. stick around. ♪ >> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and 70 role. >> you are watching 40 market -- "market makers" and i'm erik schatzker. >> i'm in for stephanie ruhle. >> i missed you yesterday. you left me all alone. >> where was i? >> a shrug of the shoulder. we are anticipating john boehner in moments. he remains the number one in the house. but his number two has resigned his role as house majority leader. eric cantor lost his primary race in virginia just a couple of days ago. peter cook is in d.c. standing by on capitol hill. let's talk about the race for cantor's job. how is it shaping up? >> it has been a busy morning on capitol hill. you can see lawmakers talking privately amongst themselves. the house republicans over how this is going to shake out. race to replace eric cantor is most likely going to go to one of his closest allies and the number three republican in the house, kevin mccarthy of california. i spoke to someone close to mccarthy knew feels they have the support shaping up to claim that job, at least through november. of course, we have the midterm elections, that is what we are talking about with cantor stepping down at the end of july. who is his competition at this point? it is down to pete sessions of texas, conservative out of texas who chairs the house rules committee. he helped with the roof in victories in the house in 2010. this is someone very well known in the conference as well, but not someone immediately in a leadership position right now. his argument is that more conservatives need to have a seat at the table. a red state republican needs to have a seat at the readership table. everyone i'm talking likencluding lawmakers, the one from illinois who said he feels mccarthy has this locked up. the formal election will take place >> thursday. >> how does wall street feel about that? >> kevin mccarthy is someone well known to the business community. he is a pro-business republican, someone seen as close to the chamber of commerce. this is someone who, had eric cantor not lost on tuesday night, kevin mccarthy was supposed to be attending that goldman sachs energy conference in new york on wednesday morning. he canceled that appearance because of what happened to eric cantor, because of everything surrounding his own political future. he is someone well known in the business community and raises a lot of money in the business community. and certainly someone that a lot of people in the business committee would be comfortable in that position -- comfortable with in that position. >> the tea party is going to want a seat at the table. does that mean a tea party representative will end up with mccarthy's position, the party with? whip? party >> if mccarthy steps up and the width position opened -- whip position opens up, you have someone for that. the conservative from louisiana, veryairs a coalition of conservative, particularly fiscal reserve if -- conservative republicans. and then you have another from indiana saying he will throw his hat in the ring. is what we will see if he sessions does not step into that -- pete sessions does not that into that position. he could ask for a seat at the table, jeb hensarling. a lot of people are watching. does he by his time for the november election echoed that is where the real battle will be. >> why isn't anyone raising paul ryan's name? spoken with people close to him. he said he's not running for any leadership position right now. he wants to focus on his work in the budget committee. you have to or member that it -- remember that in the next congress, paul ryan will be the chairman of the ways and means morettee, arguably powerful so that is where his target is right now. at least those close to him. amber -- you have to remember that if you run for presidency, it is hard to do when you are in a leadership position. john boehner is not endorsing anyone. >> thank you for setting the table for us. yetou can see, he has not stepped to the podium. we will take you there as soon as he does. in the meantime, time to talk about the world cup, because the opening kickoff is at 4:00 p.m. this afternoon. the pitch for the world cup is always the same full stop host one of the world's biggest sporting events, the olympics for example, or the world cup, and you'll get an economic bonanza in return. but if you were to look at south africa, or sochi where stadiums are empty, why should it be any different for brazil? i took a look at the true cost of the world cup. >> brazil is one unhappy country. four months, people have been taking to the streets in protests, some of them violent. they want education, health care, housing. what they don't want is the world cup. schools or have good good hospitals. people are complaining about their salaries. we have a lot of problems. it is a waste of money. there is lots of money. brazil is the industrial and agricultural heart of south america. according to the world bank, gdp per capita tripled from 2004 through 2012. but brazil still ranked 85th on the u.n.'s human development index, behind russia, libya, and venezuela. hostinge of the cities the world cup are at best ambivalent about the event. we invested a lot of money. >> we will return to our coverage of the world cup, but right now, house speaker john boehner is taking the podium. let your ears or marks. his remarks.ear >> i look forward to leading the efforts over's the summer. future, let me share with you what i told the members yesterday. this is a time for unity. this is the time to focus on what we all know is true. that the president's policies have failed the american people. cannot gettration our economy back to real growth. he continues to endanger our troops and citizens with his failed foreign policies. at this point, the administration cannot even provide basic services to our veterans. the -- the elected congress not -- the powerwill to stop the president, but the will to do so. we will act on to more jobs bills that will help small businesses continue to grow. unfortunately, senate democrats continue to sit on their hands, and failing to act on the dozens of jobs bills that are sitting there. and guess what, so long as the come -- the mayor can people continue to ask the question "where are the jobs?" we will continue to focus on this one issue. on tuesday that the transfer of five hardened terrorists has meant -- made americans less safe. i stand back -- stand by that. saiddent obama recently absolutely. this exchange will encourage our enemies and increase the risks to our military personnel serving around the globe. argue thewould opposite, i think, are incredibly naïve. one of them, -- one of the citizens greatest protections is knowing that the united states does not negotiate with terrorists. that issue has been compromised now. america is willing to make deals with terrorists. that is the new obama doctrine. back in january, i urge the president to get engaged with what is going on in a rack -- in iraq. some ofk, we have seen its biggest cities overrun with terrorists. it continues to have serious consequences for iraq and american interests in the region. administration's failed policies in serious, libya, and egypt, and its failure to implement a broader strategy for the middle east is having a direct impact on the situation in iraq. the united states has and will continue to have vital national interests in iraq. but the progress made there is clearly in jeopardy. the president celebrated our exit from iraq as a hallmark of our foreign-policy agenda. our focus should be instead on completing our mission successfully. i would urge the president once again to get engaged before it is too late. >> [inaudible] >> i will let the political pundits describe and figure out what happened in that election. every election is different. i have been through primary process myself. you have to understand, the american people are being squeezed by obama's policies. the economy is not growing. incomes are not growing. we are not creating enough jobs. seeswo thirds of america no increase in wages, but food prices are going up, gas prices are going up, and health insurance costs are going up. there is a lot of frustration that is out there. they look to washington and wonder why we cannot resolve these issues. they are hard to resolve when you have a president who will not engage. >> [inaudible] were there certain things you felt you had to do? i ran my racee -- in a way i felt i should run my race. it, do yourtant is think, for unity in your conference to have a red state republican at the table? members will the make the decision. we will do it next week. some argue it was too soon and some that it was too long. but it is important to resolve this issue in a fair amount of time so that we can do the work that we were elected to do. and the members will make a decision about who the next majority leader is. >> you talked about how important it was to have eric cantor at your site. would you like having kevin mccarthy at your side? >> i have worked with all other 434 members of congress before. that were raised about immigration, a lot of people are saying that your conference will not move out of fear of what happened to mr. cantor. >> let me just first developed the first thing. i don't believe the premise of your question. the issue is immigration reform has not changed. the president continues to ignore laws that he signed into law, violating his open office. he did it again with the release of these taliban fighters. the president again yesterday that every time he does this, he makes it harder to gain the trust of our members to do the big things that need to be done around here. >> are you worried about immigration being issue in 2016? >> the president will have to demonstrate he can be trusted to implement a law the way it was passed. [inaudible] was a bithl swap naïve. the president has signed off on the metric of national security. they were naïve? >> they are dead wrong on this issue. releasing the five evil, negotiating with terrorists is -- the five people, negotiating with terrorists is something we do not do. now we have violated that as a result. >> what message do you believe voters were trying to send washington in this election in virginia? was it a message at all? to analyze what happened in this election. they are all different. i'm sure at some point, people will get a handle on what really happened. >> but surely, you must have a takeaway on dealing with issues like immigration. asc cantor can be granted supporting amnesty. how can your hearty move forward -- your party move forward on this? >> we do not know that was the issue in the election. iraq, do you think the u.s. should be launching airstrikes? and if not, what should we do? >> what we should do is provide the equipment and technical assistance that the iraqis would -- have been asking for. i don't know the details about the airstrikes, enough to comment whether we should or shouldn't. but it is not like we have not seen this problem coming for over a year. it is not like we have not seen over the last five or six months these terrorists moving in and taking control of western iraq. now they have taken control of mosul. they are 100 miles from baghdad will stop and what is the president doing? taking a nap. >> so much for the press conference. that was house speaker john boehner speaking to reporters. some of the focus was the loss of house majority leader eric cantor. theker brynner made statement that it will be filled in short order. peter cook was also monitoring the news conference. any surprises that john boehner did his best to steal -- steer the conversation toward iraq and within thehe crisis republican party? and how successful was he a >> not particularly successful and no surprises. he will stay neutral for the moment. and he did his best, as you heard, trying to tear the immigration issue -- to steer it away from the immigration issue with him at -- with eric cantor in this race. given the rift that is clearly there between more conservative factions of the party and centrist factions of the party, he's got a battle on his hands. but he has his own hold on the leadership gavel. there will be a challenge down the road, no matter what people say. whether it amounts to a formal challenge to him holding onto the speaker's gavel in november, that will be a real question. there is still a question as to whether or not he will choose to run for speaker again. big spectrum too, but that is still an open question. -- they expect him to, but that is still an open question. much firmer now, particularly in light of cantor's loss, but as you point out, much has yet to be written on that subject. our chief correspondent, peter cook. we now return our attention to the world cup. today is the day of the opening kickoff. resilience want brazil to win, -- brazilians want brazil to win, of course they do. takes brazil as its favorite. jorge mariscal is here with us. an event like the world cup on a tell us yourmy, thoughts. brazil is a country that lives and dies for soccer, but there has been weak support for the world cup itself. myself and i saw it with my own two eyes. i could gears they believe the lack of enthusiasm and fervor from the national team in brazil relative to what people have seen in the past. >> it is the result of many years of mismanagement. -- not ofthe a team the team, but the economy. >> yes, the team has done quite well. but the country has been mismanaged. hastwo years in a row it grown less than two percent. it continues to be one of the fragile five economies in the world. clearly, there is a different story when you look at the economy. >> we talk a lot about the impact of the world cup, but as you say, this is an economy that has faced hikes in the basis points of over 300 points in the past year. inflation is going up. and it all goes up to the election as well. how pivotal are these games for brazil? >> they are very important. she is very close to the threshold of popularity where she may not be reelected. some people in the streets of the brazil -- of brazil could actually tipped the vote against her. >> i asked the question of so many people in brazil. if the national team loses, does that mean she loses? and the answer was, as much as i might like her to lose, universally know. nobody seems to believe that. do you get the sense that the probabilities are increasing? >> normally, i think that would be correct. politics would not be affected by the games. but she is so close to that populard, with 30% of vote. the polls yesterday shows she is almost at that threshold. anything that could tilt it marginally could affect the outcome. >> the biggest voices we heard oft summer were not the fans the confederation cup. when you look at this world cup that begins today, how concerned are you about that? >> we are concerned. it will clearly be disruptive for the games, for the movement of people around the different cities. closet think we are very to a very violent situation. it is a political struggle that we are witnessing. the opposition is organizing against the incumbent and they will take the window of the world cup, but window it offers to show the world what they've got. mistakewas the biggest ecowas at the decision originally by lula to hold the games -- the biggest mistake? was it the decision originally by lula to hold the games in a place where no one had seen things like this? was at the cost? >> i think it was the mismanagement in the economy overall. price controls, subsidies, overreaching government in many areas of society where there -- they should not be. provide are not able to enough employment and growth for this country. >> people do not realize how powerful politicians are in brazil. i was there, i found the surprising, many people told me, if you don't -- if you want to get rich, don't go into business. go into politics. before you go, who are you picking to win? >> brazil. and who will they -- >> and will they play in the final? >> argentina. >> and no one else has a chance? >> they have a chance. marisol -- mariscal is with us. we will be right back. ♪ >> that is going to do it for market makers today. i would like to take the opportunity to thank michael linker, jonathan ferro. -- my coanchor, jonathan ferro. you did not bring the garden state accent with you. that is one of stephanie's wonderful qualities. >> i'm slightly scared of 70. but that is a wise attitude. of>> i'm slightly scared stephanie. >> that is a wise attitude. ofh us tomorrow, the ceo entertainment with the ringling brothers. and so will his daughter be with us. >> it is 56 past the hour and bloomberg television is taking on the markets. >> i'm going to take it from here. u.s. stocks are in retreat mode after a batch of reports showed an increase in jobless claims and smaller than anticipated games -- gains in retail sales. we wanted to know what this means for the options market. scott bauer joined us for today's options insight. he joins us from cboe. been veryatility has low. the vix has come up a little bit, but still below 12 right now. is that prompting in -- prompting investors to buy more of a hedge, or perhaps replace equity holdings? >> i have not really seen the upside call buying, but what i am seeing is a lot of protective buying, downside put buying, especially in the s&p 500 options market. the call side is saying, in the vix, we are seeing some call buyers. if we do see a downdraft in the market, then the vix will rise and the calls come into play. we are seeing more protective positions rather than opening positions. which i think is very prudent at this point. >> especially given the uneven economic data we got this morning. on individual company news, we are taking a look at nokia. and the price target was raised from nine dollars to $11 by rbc. what is the option straight on nokia today? >> it is pretty stable. this area from eight dollars to $10 has provided significant resistance in the past few months. if you look year to date, the stock has been pretty combustible almost. it is up almost 2.5 times. i think we hold here for quite a while. i am not nearly as bullish in the near-term on this stock. we have to wait to see what the transition is from the three g lte. at as their main driver right now. 4gfrom the three g to the lte. that is their main driver right now. we could see some significant distance. >> especially right -- especially that we are right where we were at the start of the year. but get to some other traits. starbucks is going to allow their customers to charge their mobile phones on these wireless charging mats, but your trade has nothing to do with this. >> not at all. that is another added benefit of going to starbucks. it is another reason to get people in the door. but my trade is technically in area.3.50 that is where you want to be in the long-term. starbucks for the second time this year has come up and raise their guidance. these guys put their money where their mouth is. i want to buy a call spread. i will not buy a naked option long, but the july $75.80 call spread. starbucks to be up five percent to 10% in the next four to six weeks. if we get there, i could be a four to one winner on this trade. in other words, this spread could go to five dollars. my risk is maxed out at one dollar. i think that, again, the guidance they have provided for the second time this year, this positive, upward guidance, i think starbucks is a fantastic company. they put their money where their mouth is. they step forward in the press and say, our sales will be higher internationally. we are growing at record rates. that is where it is. >> you are looking to profit off a potential move past $80. it is a place we have not seen starbucks is late last year, 2013. scott barat, thank you for joining us. we will be back on the market in 30 minutes. johnsonlip" with adam is up next. have a great rest of the day. ♪ >> welcome to "money clip," where we tie together the stories, interviews, video and business news. i am adam johnson. game on with goggles -- the ceo of oculus shows this is the vision. not everyone is excited about the world cup. the darker side of result's -- brazil's massive undertaking. linn energy. reinventing the private jet industry