Transcripts For BLOOMBERG Market Makers 20140814

Time for the news feed. The Worlds Largest retailer has cut its fullyear forecast. Walmart is blending slower traffic as supercenters and higher healthcare cost. They havent had increase in samestore sales in europe have. Economic recovery in europe has come to a standstill. In the secondgrow quarter. Meanwhile, the economies of both , promising toance build on the sinless program if the situation gets worse as Stimulus Program at the situation gets worse. Another night of violence in the was suburb. Demonstrators were protesting the shooting of an unarmed black teenager by police. Crowds through gasoline bombs and other objects that police. Police responded with tear gas and smoke bombs. Just close the books of its fiscal year and the numbers from the Worlds Largest maker of networking equipment increasingly from your story for multinationals, it is a challenging environment out there. The u. S. Continues to grow the revenue was down a doubledigit percentages in russia, china, and brazil. Ceo John Chambers is cutting ciscos workforce by 6000. Part of a strategy to reinvent the company. He is with us this morning. Good morning. Thank you for spending some more time with us on Bloomberg Television. You began yesterdays is a pleasure to be back with you. You began yesterdays Conference Call by saying youre pleased with ciscos performance. I want to know what you are with. The John Chambers i know cannot possibly be pleased with 0 Revenue Growth. Actually, i am very pleased with where we are. A year ago, we shared with the market, the market was changing rapidly, that emerging markets around the world getting soft. Everybody said you need to cisco. Fast forward, the changes we predicted occurred exactly as we said they would. We tell the market, heres what were going to do to get back on course. We had 2 down quarters, now we had a flat quarter. Were projecting growth for next quarter. We had record earning per share in the quarter and record earnings per share noncap on the year of two dollars six cents. I spoke to a large number of shareholders and a large number of the analyst last night. They believe we are managing the company strangely well. Understand, as he made these changes, were not cutting the workforce by 6000. The total headcount will not change in the course of the year. Were moving our company to where the growth is going to be. Areas like cloud, software, security. Our Cloud Business grew 37 this last court he does quarter. Our global commercial enterprise around the world grew 8 and 9 respectfully. In the u. S. It was on fire. He was Enterprise Business group 17 . U. S. Commercial business grew 16 . In germany and the u. K. , you saw similar type of numbers. Is working. Our shareholders get that. Were well on our way to reinventing cisco one more time. Whoohn, there are investors wonder why isnt cisco growing faster . Its not a facetious question because ciscos own Research Shows opal data traffic is growing at 60 and will continue to grow at least that pass for the next five years. There are more mobile devices in the world than there are people. Expanding,e businesses are migrating to the cloud. The fundamentals for ciscos strongercouldnt be and you see that reflected in the growth of other companies qualcomm. , facebook, theyre all benefiting from those things. Why isnt cisco benefiting more . First, it has to do with which markets your in. In the security market, i dont think anyone would disagree we are doing a very good job. In the router market, our market share has been remarkably level. In the high 50s, if you will, on the high end for the edges as well. Were going through transition. You will see a start to pick up market share. It has to do with which market your in. In terms of the enterprise numbers you talked about, selling the business. We dont sell to consumers. Very few people are keeping up with this. The majority of our competitors from three to five years ago are not tough competitors today. What you might have worried , we are beating almost all of those players very effectively today. I think in our market we are executing well. That is what our customers and i think our shareholders will say as well. What you stated the question, is cisco two big . Do they need to spin off underperforming assets, lower margin performing businesses, the lift between the growth and how you play . Value play . People that say that dont understand how we are structured. Moved and tied together our architectures. We combined products in a way that allow the customer to have lower operating cost and producer outcomes quicker. In short over the last three years removed from selling boxes to selling architectures which lower their cost and increase their ability to produce results quickly to moving to solutions and now selling outcomes. And that is about the transition we are currently going through. We are not reducing our headcount. Our headcount will be pretty flat this year. Were moving to the areas that are the growth areas. Lout, software, security were going to put the money behind that as we go forward. It is a tough decision to make as a leader but it is about investing for growth and managing your business well. You hit on a key point. You dont want people to think of cisco as a box maker anymore. But five years from now, what will we call your company . Will cisco be generating so much of its revenue from software that we will call it a Software Company . No him a five years from now you will cause the number one i. T. Company in the world if we do our job right for businesses, not for the consumer. That is not a market we are in. If you watch the transition, people who are softwareonly or hardware only, the way we will be the new challenges the way be the concepts of sdn, we will embrace Software Better than anyone else. Willmplementation of it achieve the goals in terms of programmability and flexibility throughout the network will stop then we will lead with applications which allow us to do that in the cloud, and the core of the network, and at the edge where others do not. Were probably going to become the number one Software Player and define networks but we will combine it with our hardware and architectures in ways others do not. Our goal, and well within our , i think it is well within our grasp. What kind of role might emanate or partnering lay in that goal m a or partnering play in that goal . You hit on a very important point. If youre going to innovate, you can move your business to where the growth is. Were in very good shape in our routing and switching products. I think the transition we made for that market is very, very good shape for us. Where youre going to go on partnering a storage comes together with the network with servers, to partner with an emc or net out or perhaps with other players ask a lot of sense. Keyisitions always played a role. Many of the headcount we have added over the last five years our headcount has been relatively flat. Ands very between 70000 77,000. We have moved into where the markets will be, where the growth is. He acquisitions the last 18 months like sourcefire that literally have helped us drive our security growth to 29 . The ability on things under our control with cloud to become the number one private cloud player. To light up and server markets where everybody thought it would be a commodity, we are at 32 growth in our Server Technology with ucs. Moved into number one position in u. S. With 41 market share on Blade Services versus the number two at 35 . Our key is, how do we use partnering, internal activation innovation to grow this and innovate quickly. At the same time, be a place where talent wants to be in this industry at cisco. John, i know you would like to see cisco shares trading at more than 11 times this fiscal years estimated earnings. To what degree are your m a opportunities constrained by your pe multiple . Thats a fair question. 50 billion in cash. The majority is outside the u. S. , and personally. This is where our government has it wrong. The tax policies we have our inhibiting our ability to create jobs. I am proud to be an american company, but they are forcing companies to make decisions about growing their business outside the u. S. , which i think is a terrible mistake. In terms of cash availability, we have no problem using cash outside the u. S. In terms of acquisitions. Inside the u. S. , we dont have problems using cash or taking debt to do acquisitions. If youre to say our ideal scenario would be an instant replay of the last 18 months, all five acquisitions we have done in the last 18 months are doing as well or better than expected. We have been very public. One out of three acquisitions will fail. If i knew which one it was, i would not have done it. You have to be willing to take risks and ran to yourself and encourage to make the decisions we just made about realigning 6000 people. Butcutting the headcount, realigning 6000 people. Our expenses will be flat. This is about growth and investing for the future and doing it better than any of our other competitors. Name me one other that is making transitions we are making with the speed we are making. Main me one that is in 18 number where theyre one bastad number three in two. In other words, our market shares are undeniable. The best in the industry. When you combine these and architectures, which is why you dont break them apart, that play is working. Our peers who are individual boxes trying to sell boxes to a cio and we are telling the ceo how i can transform your business and drive up your productivity, that is a hand we are winning. That is what our teams are doing globally. John, always great to have you on Bloomberg Television. Much amazing to see how energy and passion you have after 20 years. Coming up, the side effects of the fighting in gaza. Hurting one of israels most lucrative industries. It is election day for Major League Baseball. Owners will decide on the next commissioner. Youll hear from former commissioner fay vincent and the 11 00 hour. Negotiations near standstill. The conflict is over five weeks old and visitors are avoiding israel in the thousands. The peak of tourist season in a devastating one of israels major industries. Indirect negotiations continue between israel and hamas and alleyways and markets of jerusalems old city, one consequence of the gaza conflict remains beyond dispute. Tourism here has been devastated. How many customers at the moment . Zero. My guide to the city runs a small touring company for those visiting jerusalem from near and far. During better times, his clientele ranges from couples to large groups from china. The latest run of conflict in gaza has infected the entire trade. One of israels largest economic drivers, tourism. We are talking about close to 4 million tourists coming to israel. You have an income of 6 billion a year. Which is very important for country like us. This year, said of the 4 million visitors to israel that operators expected, it is predicted that number will fall to 2. 8 million with farreaching effects. Airlines and hotels are affected from the transportation taxises, restaurants, drivers, travel agents. Almost everybody will be affected somehow. Jerusalems historic center, the bells toll for businesses that belong to both israelis and palestinians. Year, youhis time of would have people everywhere. Especially in the market. While Israeli Citizens demand answers from readers, many require assurances from their bosses. I have to show my employees that theyre working in a good place and i can provide them salaries and jobs. If im working, i dont tell them, go home. Israels government has promised to, say businesses that suffer losses because of the conflict. But for many, any loss of income is nothing compared to the loss of life. There are people suffering a lot more than us. If we could just have a few months of quiet, we can reach a state of atmosphere he can manage. We can manage. Joining me from jerusalem. It strikes me the conflict between hamas and israel is nothing new. These people have gone through this before. How does this compare to other conflicts in terms of tourism . Youre absolutely right. Many people i spoke to said this is something we are faced again and again over the years. A lot of tourism professionals have gone to this many, many times. This time and has been an extended conflict. The biggest concern is the uncertainty. It is not knowing whether this is going to run on for another few weeks or months. Theyre looking at numbers not just for this year, but for 2015. Typically, historically, does it take for tourism to rebound was a conflict like this settles down and resolves . The people who look at the industry here have told me they can be six months. It can be a year. Year less tourists this and expect that to remain a problem throw the rest of 2014. The big problem is planning for 2015. How do you go about knocking on doors around the world, saying come to israel, it is safe . Because you have to wonder if theyre going to offer more promotions which might end up hurting them in the end. Absolutely. The hotels, some of the more high end ones, have not kno cked down prices as well as airlines. Some of the small businesses, like the guy in the story, he was focused on showing people around the city, hes trying to develop new domestic customers and arrange things like scavenger hunts for israeli businesses. That is a whole new direction with him, so it is something he is struggling with, developing a new form of customer. Do these companies have no choice but to defend themselves fin for themselves or is there anything the government is trying to do or can do to help them . Use on the story there, i think theyre expecting to lose about 1. 5 billion across the industry. The government is in discussions with the association i spoke to the story and theyre talking about numbers like 29, 30 million, 40 million dollars. I have spoken to have said, we dont really want our government to subsidize us, to offer this in money. We want these. One solution to this conflict so we can make our own money for ourselves. Fairpoint. How quickly might businesses expect compensation from the government . Going to berobably the next couple of months according to the people ive spoken to. There a menu to figure out which kinds of businesses are deserving of this. The proof in terms of, can prove that suffered losses themselves and get their cpa involved to sign off on paperwork, so it is a bit of a process. Probably six, 7, 8 weeks. In the meantime, a lot of financial pain as well. Thank you so much for joining us from jerusalem. Coming up, it is no longer a bluechip resort. Why the lights going out in Atlantic City. Time for some markets. Lets talk about Berkshire Hathaway. This stock, the a class shares could just kind hast 200,000 for the first time. It doesnt split. One buffet continues to build on his fortune. Warren buffett continues to build on his fortune. Intrinsicof the value. 329has a market value of billion dollars, the fifth most valuable company in america. Beenrt of the success has investment in the railway system, huge part of business has been transporting oil as well. Over 200,000 per share. Most people dont buy the a class shares, they buy the b clusters and theyre getting expensive at about 133. Im looking at coal. Look at this. A stock whose shares are actually up in the retail sector. It actually beat on earnings even the revenue came in light, were down, com sales even though it gave no forecast for the rest of the year. At the end of the day, looking at income at zero percent but that is after quarter after quarter after quarter of decline. At the end of the day, theyre stemming their profit loss. Sales were only down about 1 . I guess less bad. Sort of good. Coming up, Atlantic City craps out. Wayacebook has found a new to track your shopping habits. Advertisers may actually be pleased. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Makers. S market on Bloomberg Television. Im Erik Schatzker. Im alix steel in for a stephanie ruhle. The last time i was in Atlantic City was when i was eight years old. Governor Chris Christie announced he would commission a the gamingxamine and anno town. Only wayon has found to beat the odds. He does not live far from Atlantic City. He explains why it is not his playground of choice. There was a time when Atlantic City was desperate for business and they were over pitching some of the games. Beganantic city casinos calling don johnson. Offering 50,000 in free bets to get him in the door. Good hes were so suspected it was in worse shape than any other gambling city in the country. Vegas has a Critical Mass and a huge convention business. Major Cross Marketing. The Cross Marketing strategy that keeps las vegas strong also steals business from Atlantic City. Vegas casinos anxious to go profits outside the strip are picking small, regional casinos throughout the country. States hungry for tax dollars are embracing these casinos. Call it a winwin. It is going to generate hundreds of millions of dollars in revenue. Lets do gaming right and lets take the first steps this year. For Atlantic City, new, titian new competition means big losses. Casinos are siphoning players in profits from the boardwalk. Atlantic city is losing too much of its business now. Theres too much competition and the surrounding space. It started with delaware. Pennsylvania put a lot of pressure on them. New york has gaming now. It is just a matter of time before it is going to back to go being a beach town goes back to being a be town. A beach town. If we look at Chris Christie and the summit he is proposing, what is the reality he can do something about this . You know, you bring up a very good point. This is an area that is extremely challenged right now. Its economy has relied so heavily, so entirely on gaming. They had that basically as a monopoly for a while on the east coast. An excerpt heard in from the documentary, don johnson and others talking about how you dont need to come to Atlantic City and the boardwalk to gamble anymore. You can do it in your backyard or even online. That thislly meant economy has struggled. It is not getting any better anytime soon. You have three major casinos all announcing they are closing. Those jobs are being lost. Roughly 8000 of them. Those are pretty big implications for the area economy. When you talk to the people there, the owners, the workers in the casinos, the owners of the shops, what do they want to see . What do they need . They need investment that is diversified. You cannot be relying entirely on the casino business. You need to create a tourist destination. This is a beautiful area. Graffiti, the topography that you are looking at here. You are right here the pure geography him of the topography that you are looking at here. You are right here on the beach. Once you move one block beyond this and you get behind the boardwalk, you see have challenged Atlantic City is. There is a lot of poverty, a lot of crime. They need investment in education, and they need a source of income for the people that is not entirely dependent on the casinos. This is part of a Chris Christie and his group are going to try to address. To that point, realistically, what can they do . One of the casinos closing next 7. 5 of thets for tax base in Atlantic City, disappearing in the space of a day in september. It cost 2. 6 billion to build it. Diversifye going to the economy, they will have to build something else. What could it be . Who will make the investment . They need to arrest dollars. Tourist dollars. You have to somehow capitalize perhaps on the actual landscape itself. The fact that you are on the ocean. A number of people said, it is a beautiful piece of property. This boardwalk area. Perhaps you can do that. You need to create more entertainment venues. Bring in bigger, better artists that are having concerts. Some of this has been tried. For whatever reason, Atlantic City has just always struggled with a little bit of a seedier reputation and it has made a challenging to bring people here for a typical family vacation. Thanks so much. Live all day from Atlantic City, i run trish regan. Our own trish regan. Aboutding out everything the generation. They posted all on social media. Hearingou sick about about millenials . Every industry is searching for ways to win them over. The earliest members of that generation are in their early 30s. It is time to look ahead to the next generation. These are the kids born in the 2000s. They dont remember bill clinton or where they were on 9 11. What you need to know about this important generation. You call them post generation. Why and who are these kids . A the bar on naming generation is low. I want to be the guy who names the generation. Because when we think about defining generations, quite often they are defined by things that happen while they are growing up. With post, i think the herb and summon a seismic changes just before they have come on the scene that they will redefine what it means to be an adolescent. I think their worldview was going to be entirely different post obama, post 9 11. Why . I have a very difficult time imagining more seismic shifts occurring during their adolescence. It is dangerous to say that nothing big is going to happen. But the been so many big shifts, dont ask dont tell is done, samesex marriage is a foregone conclusion, marijuana is largely legal, we have an africanamerican president , we may end up with a first woman president. Computing is ubiquitous. Our worldview is global. Im raising my eyebrows. It feels that way to every generation, doesnt it . People were watching blackandwhite tv when i grow up and a used rotary dials on the telephone. We were living in a cold war. There was america and the soviet union. During my lifetime, the smartphone come along, right . The berlin wall fell. These to type on typewriters. People watch tv and i hope lots of them are watching the show, but it but they also watch on the tablet or computer. It would be crazy to think that nothing big is going to happen. I think the magnitude of things that have happened are big enough that they will have to work to redefine them. If you look in millenials, millenials look at the roadmap of adult life and they did not reject it. They applied a road trip mentality to it. We are still going to get married and do that stuff, were just going to take our time and have some fun in the car. Are going to look at institutions like religion and marriage and question whether or not they should partake in them. Is in it too early to name them . Arent they really young . They are not even adolescents at this point. 14 max . Generational theory a soft science. They are young. Derby that goes on in the media is a lot of fun. You are more likely to wear a beret than a lab coat when you come up with the name. Howe liked il named the millenials. He got lucky. This is a generation that literally directs, stage managers, and gets final cut on the way they project their lives and the post those things. I liked the dualness of the word. They post things. You like the pun. Im not above a pun. There is nothing new under the sun. I do buy into that. Are posters. Posting has always been a part of life. But the posting happened in a bubble. We did not have the global audience that these guys have. I also think these guys look at all content. There was not the separation of church and state from advertising and content. Is competition with one another. As a result, and the business i am in, we are not making ads and spots rather than creating experiences. It is all about advertising. One of the reasons that we label things is because we like to conceptualize, right . We like to figure out who it is we are marketing to and how to drive behavior. How do these kids behave . That is different to the way millenials behave. Diversity is not a social movement. It is the operating reality. One out of every two babies born are nonwhite under five. I have two post generation suns. I look at the way they live. They have a much more global context. Youtube is global, twitter is global, instagram is global. Any content they identify with, they are not bound by geography, they are not bound by religion or ethnicity. I can go and get what they want. They can go and get what they want. Millenials were wildly optimistic. Then they got hit by the recession. This generation, if you look at some of the early numbers, the Quantitative Research over time, 1215yearolds are significantly less optimistic than they were at the beginning of the millennial generation. They are forged by the recession. As well as gen x parents. Theyre not about that selfesteem parenting. What does it do to the Retail Market . People will pay 200 for a pair of sneakers on their smartphone. How does that trickle down . Retail marketing is interesting. Their disposable income is 40 per week come and give or take. That is a lot for 14. It is a matter of perspective. Here in manhattan, that will get you a cheeseburger. Generation that is exposed to celebrity lifestyles and upscale brand experiences. The categories they are able to trade up then, like fast food or when you get to the legal drinking age, the alcohol category, where they are able to trade up and do something suggestive, they are more savvy and more on top of that. Therell so trading down in other categories. Here is a generation that may not be all about luxury cars anymore because they would rather spread the money around in experiences. Is that mean that the kardashians our last post jen ben millenial . Post gen then millenial . Im hoping so. I think they are a millennial phenomenon. Are there some younger sheehan we have not seen . Young kardashians we have not seen . I hope this forecast the demise of Kim Kardashians tv show. [laughter] coming up, facebook is keeping tabs on you. A new tool for tracking mobile users may make mobile ads more expensive. You are watching Market Makers. Im Erik Schatzker here with alix steel. Ads. All about mobile paul, facebooks mobile ads could be the holy grail. They are not yet. Facebook is not charges much for a mobile ad as it does for desktop at. To this new tracking feature be the way to get there . Yes. The problem is fundamentally that it is difficult to make the connection between being exposed on a mobile lab and taking action on that ad. It is much more difficult to actually do anything about an ad you see on mobile. Was that their ad that cause you to go into a store or go to your desktop and make a purchase . To bridge that gap and make the connection and allow facebook to charge more for the mobile ad. Thek, because that is question i have. Im not sure how much insight you have into the engineering and mechanics of this tracking feature. How can facebook lets say i am running a company and they put a mobile lab into, on facebook and it appears in peoples newsfeeds and somebody clicks on that ad and then subsequently makes a purchase somehow how does facebook know that the purchase was made . Facebook cannot know whether i buy something on amazon for example. Yes, it can in a sense. Here is how it sort of works. Facebook has the luxury of having you log in. They have a lot more information about what you actually do. Not just these little euphemistic bits of technology that are used to keep in and what you are doing, but they have much more finegrained information using your login presence on facebook. If you combine that with bits of and Little Information they post to your computer, they have an idea what exactly you are doing, what ads you are exposed to, and what action you took as a Facebook User on another machine. Your login information will provide information about what other things you do. Just because im i look at an avenue mobile phone and i might buy it on my desktop, why should the mobile phone and get the credit . The way the Advertising Industry works. You take credit for everything you expose people to. If they buy something come you say, it was me, it was me, it was me. Advertisersis that have no idea whatsoever right now. So often, people change during the day. Making a connection, however tenuous between what you are exposed to as a login Facebook User and then what action you took on desktop, there is more information. That is one of the big complaints in one of the reasons why they were relatively thinking mobile ads were less expensive. Sorts of privacy concerns for many people. Why . Shouldnt i expect facebook has done all kinds of things to upset people when it comes to privacy. Uldnt i expect facebook knowing how important mobile ads are to facebook, shouldnt i expect facebook to be doing this and perhaps even more, so long as nobody knows who i am . So long as the data are anonymous and aggregated, isnt that ok . A point. There is that old Silicon Valley adage that if you are not paying for product, you are the product. You are not paying for facebook, so i must be the product. Not much whenly they buy me in so me to an advertiser. That should be my expectation. At the same time, all of this aggregated metadata about my activities and purchases is all well and good in isolation, but the risk is you can build a finegrained picture of me and then we start worrying about other forms of data that are escaping or data leaks or other intrusions. It becomes an incredibly granular picture of everything about me and what i am doing. It is this idea of how data leaks out and in intentional and unintentional ways. It is one of the risks you place take when you stay logged into a social service all day long. Your best guess as to what facebook and make off of this. How much more are there mobile ads going to be worth . It is obviously some impossible to know this early. I was reading a story yesterday and they were talking about the expectations. 5 to 10 improvement. Great to see you this morning and thanks for spending time with us. Our contributing editor in san diego, paul kedrosky. It is time for bloombergs on the markets. Here is scarlet fu. Hey there. In terms of stock market action, we are seeing a buildup, a continuation of recent gains after the s p 500 fell to a twomonth low last week. The s p is up. We are in the thick of earning season for retailers. Walmart cut its fullyear earnings forecast. It has not posted an increase in comparable sales in six quarters. Kohls is up by more than 3 . Its revenue and samestore sales beat estimates. Rose 2 . Arable sales that could lead to positive numbers in coming quarters. Gotide of equities, we also jobless claims numbers this morning. Unexpectedly large increase in jobless claims. We were anticipating that. In terms of the impact on the markets, treasuries are pushing yields lower. The 10 year yield is below 2. 39 . How low can those yields go . I continue to wonder. That is their scarlet fu. Market makers is coming back to you in a couple of minutes. On the way, Major League Baseball meets to pick a new commissioner. We speak with the former commissioner of baseball. I cant wait for that one. From bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Ofwalmart cant get out load year. Sales are still slow going. Or all it be a homerun strikeout . Major League Baseball is picking a new commissioner. We will talk to former commissioner fay vincent. Customize pizza. We will take you to the new hot chain that lets customers designed around high. Pie. Esign their opwwn i have a feeling i will want pizza for lunch. Ok. Customized pizza. Have it your way. These are the top business stories from around the world. The treasury currently owns 16 of ally financial. Madeovernment has already back its 17 billion investment. Anything further is gravy. sares of Warren Buffett Berkshire Hathaway have topped 200,000. Another way of owning berkshire is the b class stock which is about 133. Jobless benefits at the highest in six weeks. Employers are holding onto workers to keep up with demand. If you dont have a job, you have less money to spend at walmart. They cut their profit forecast after sales failed to rise for the sixth straight quarter. Julie hyman has been working hard all morning. Monday percent of walmarts customers are on government assistance. Is that what we can 20 of walmarts customers are on government assistance. Is that what we can blame . It has been a problem for the past several quarters. The concert going to improve to some extent when you get past it. But yes, that continues to hurt people. It continues to hurt people if they do have a job. The wages are not going up. If you were talking about the low income consumer, when i talked to the company this morning, they said it is not better, it is not worse. It is pretty much the same. That is part of what is to blame here. Did notther side, sales go down, they stayed unchanged. Stock is not really done anything, to your point. It has not done much, because people are getting used to this underperformance by walmart. The company also blames their forecast cut in terms of profit forecast on a higher tax rate. The higher range of what they had estimated and higher healthcare costs. We are hearing that from a lot of companies now. It is interesting that it is still surprising that more people are enrolling for health care than they anticipated. There is still healthcare inflation and that is part of the issue. How much do walmarts results have to do with weakness in the u. S. Retail industry . Troubles that the u. S. Consumer confronts . Much of it has to do with what is going on outside that space . States is the united doing fine. That is an area of strength. International sales rose. That is actually doing better than the u. S. Business. Still relatively strong. Sales are up 24 during this quarter. Thelover, the company cut ecommerce forecast. However, the company cut the ecommerce forecast. That is still relatively rapid growth for a company of its size. I tried to pin down ahead of the Ecommerce Division on exactly why this of the slowdown and he said, we are still outpacing sears, but he did not have a lot of precision as to why they are cutting the forecast. They are spending more on ecommerce. Did they say when i might see a return on an investment . They are seeing the return. They are seeing these increases in the mid20s. They have made a lot of acquisitions. In a big variety of different small startups. They have about 12 other people out in Silicon Valley as a result of these various acquisitions. It sounds like theyre going to continue to be inquisitive on that front. When you take a look at walmart and the other companies you have seen report and the retail space, what stands out for walmart that they are confronting . The size is a big problem. The size of the stores and the size of the company and how nimble it can be. The walmart ceo has tried to be relatively aggressive in opening Smaller Stores. The Neighborhood Market stores saw about a 5. 6 increase in sales during the quarter. A very sharp contrast to what they are seeing at the supercenters. He has said that the walmart is going to open more Smaller Stores than larger stores. He is trying to capitalize on the waning demand of people to do these stock cups. Stock ups people are doing more frequent trips to the supermarket and buying less. You are going to stick around for more walmart insights. Thanks for the update. What is it going to take to turn around the Worlds Largest retailer . Scott, the underperform suggests that you do not see a turnaround anytime soon. What should they be doing . Or is a doing everything it should and it is just going to take time . It is diagnosing the problem. What is walmarts main problem . Huge retailer. If the economy is not growing that fast, it is going to be hard to grow. Walmart led with price. It was the price leader. That advantage in the u. S. Is diminished quite a bit. It is hard to get people into your stores if youre not better on price. Until the company we think addresses that issue and reestablishes the price cap, it is going to be hard to drive the traffic are. Higher. The traffic going instead . Kroger is a great example. We have an outperform rating for them. They compete against walmart more than anybody in the u. S. There was a perfect example of where it is going. Other walmarts prices compare with amazon . How do walmart prices compare with amazon . That is a great question. Amazon is a lot more rational when it comes to consumer pricing. Walmart tends to price very low on consumable and if you are going to order one box of cheerios. Pricing tends to below, but trying to get one box of cereal to the consumers is expensive. Buton is more expensive, more rational. What would be the longterm solution . Do you literally need to close all of the huge doors and have a do over . I think you have to get back to what made you a Great Company to begin with. People drove by other retailers to get up to the supercenter. The income is a 0 as it is. They made some money and it is not growing. They made their business by being a lowcost guy in the United States. That is the got people into the stores. They have to reestablish that and it is going to cost them a lot of money. Supercenters are still quite profitable, most of them. They talk about the bottom 10 is being be underperforming stores. They have been asked, why dont you shut down the stores . They do close some stores every year, but they dont tell us why they dont shut them all. The very important point you are bringing up is that the company is questioning the supercenters. Talks about the Biggest Stores being too big. Unfortunately, their entire asset base is supercenters. They got themselves in a little bit of a box. I remember when Doug Macmillan was named the ceo. Ecommerce atands walmart better than Doug Macmillan and he is as good as anybody in retail globally. Ive been left wondering why hasnt walmarts online strategy been more of a success . Is it because the growth theyre getting online is just the cannibalization of sales that they would have had in their physical stores . Cannibalization is part of it. You have to think about your ecommerce business in relation to the other assets you have. Consumer a bull ecommerce is still an consumerable unprovene is still a business. It has not scared off amazon. Yes and no. Amazon has started to get more rational. We are concerned that the chase of revenue dollars at walmart, the 25 Revenue Growth at walmart, is going to hurt the prophet and cannibalize the supercenters. It does not necessarily her to follow the ecommerce businesses, see hurt to follow the ecommerce businesses, see what is working. Google express is another one. What about the pink elephant in the room. Inventory. Manage inventory . Not very well right now. Theyre coming in below expectations. Had to do that better . In some ways, it is good inventory up. They took so much labor out of their stores. The way walmart distributes, you need the labor in the stores to get the stuff from the back room to the shelves. We want to watch that. It may be a little bit of a good thing as the stores are under stock. Withhave been wondering all of the Technology Acquisitions they are making why they are making why they have not gotten better inventory through technology. Data, right . For walmart in particular which have been relatively aggressive in making acquisitions, why not buy some of these data companies, Inventory Management companies. Great point. The other concern with ecommerce is siphoning off investment from where they should be putting it. They are going to open their third for foam and center for ecommerce. We feel it there behind in their Logistics Fulfillment center for ecommerce. We feel like there behind in their logistics. Is sucking off some of the investment they should be making into their logistics. Right now, they are old school the way they distribute. They rely a lot on the Labor Industry percentage to get from the back room to the shelves. It is amazing the range of challenges that walmart faces and then you think, they are that big, so perhaps it is no surprise. Thank you very great to have you here. , a vote that may determine the future of Major League Baseball. Team owners for today on a new commissioner. We will talk to the former commissioner fay vincent. Stranded. Thousands of barrels of oil a floating in tankers off the u. S. Coast. Nobody seems to be able to agree on who owns the crude. Market makers. See interviews on bloomberg. Com. Streaming on Apple Television or amazon fire. Major League Baseball is getting ready for a new leader. Commissioner bud selig is stepping down after 20 years at the helm. Overseeing lucrative tv contracts, maintaining labor fees and trying to share Revenue Growth are part of the new gig for the man on the job. Job . Ould anybody want this dealing with all of these wealthy team owners is surely no easy task. Lets put that question to former Major League Baseball commissioner fay vincent. From 1989 until mighty 92. Welcome back to Bloomberg Television. Why would anybody want this job . Greathink it is a testimony to baseball. Well love baseball. I was the deputy. I think that is the explanation. We both love the game. Now, they are paying the commission of 50 million or so per your. It is not exactly chump change. True. Answeris 50 million to to 30 billion us. Who would want to be doing that . The record speaks for itself. The line is out the door. I think the game is so magical. Most. Emember the times playing baseball, trying to play it well, how frustrating it is. On a brightaseball sunny day, standing out there, trying to catch a ball or throw. It captivates us all at a young age, im sure. Getow competitive is it to to this position . What is the lobbying like today behind the scenes before the vote . I have no idea. My guess is that it is intense. Every situation is different. Bart giamatti died and i was the deputy. Lobbying, nolly no great effort at that time. They turned to me because they wanted some continuity. I think they will turn to rob manfred, the deputy. I think they will try to have as much continuity as possible. But im wrong a lot and i dont want you to judge me just by that. [laughter] fay, what you think it is that the Selection Process was not able to produce a viable outside candidate . I think they have produced those fellas. I think what is at work is the owners saying to themselves that this business has grown exponentially, we are doing absolutely well, it is a golden goose. I think what they are really saying is that they want to listen to but. They want to let him have a major say in who was his successor. Have stayed ins tied with somebody who is already been inside. Sports are doing so well. The amount of money generated is so enormous. Being adventuresome and trying to change and make major disruptions in continuity just doesnt make sense. Nevertheless, there are going to be some key issues the next commissioner will face, like trying to attract younger people to the game, going toward developers and things like this. In your view, what is the biggest problem . Think one is performanceenhancing drugs. It is a threat to all sports. A threat to all us linux. That is a major concern to all athletics. That is a major concern. Keeping the value of the sports programming at the high levels is a very big challenge. There are problems in los angeles and houston on most levels. One has to get along as the owners with the union. The union controls baseball. Bud hasrtest thing done is that we do have not had a repeat of the big disruption in 1994 when baseball thruway the world series. Through a way the world series. Those are the big challenges. But i remind you that baseball has grown exponentially. The profits and cash are enormous. I think there is every reason to believe that baseball will stay on this course. Well, clearly performanceenhancing drugs would be an issue for either candidate, either of the top two candidates. Seems to address the second point that you made and man fred seems to address the third point. Porton . More the revenue side of the Labor Relations . Moree Labor Relations is porton, then rob manfred is the man for the job. They are hard to separate, arent they . I think what really this election is about is whether the owners are going to try to be tougher on the union. Werner is trying to suggest baseball should be that way. Turning hard on the union has always been a mistake. The union is too powerful. Every time in the past baseball has wrestled with the union, it has lost. I think that is a very important lesson for todays vote. If you had a vote to cast, who would you vote for . I think i would vote for rob manfred. I would vote for the expertise buds union side and for program. I think it would be a mistake to have bud selig and rob manfred go out the door and try to replace them. Thank you very much for joining us here. The former commissioner of Major League Baseball, fay vincent. We may find out as soon as today who the successor is a bud selig. Coming up, bloomberg takes the highways to the danger zone. Adam johnson flies with the air force thunderbirds. Beautiful day in Atlantic City. It almost seems like an almost beach town. You can see the bright blue sky. After years of sliding gambling revenue, it is down to just eight casinos. Dont miss our coverage Atlantic City lights out. All day today on Bloomberg Television. Be sure to watch trish regans interview of donald trump. He wants his name scrubbed off all the buildings. It is time for some top tech and media headlines. Chipswants to sell more for mobile phones. Shares of intel are up 31 this year. Twitter is reviewing its policies after Robin Williams daughter was sent abusive messages after his death. Novo needs to close a couple of deals. The chinese computer makers agreed to buy ibms lowend server unit. The pentagon and other Government Agencies use those servers. Coming up, putting the rescue mission on hold. The situation in iraq peers to be a little better than expected. Plus, call this mystical pizza. A chain that lets you customize your own pie. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Schatzker. President obama will deliver a statement and this comes as the pentagon might not launch a rescue mission for refugees trapped on a mountain in iraq. What do you think we will hear from the president . Big news yesterday. We went from u. S. Forces being involved in an extraction to it being very unlikely that they will be at all. The other issue is what is going on in missouri right now. Racial tensions in a very inflamed situations. You have seen the president weigh in on these types of situations in the past. Think we will hear something from the president offering other types of aid to refugees if there is no direct involvement. U. S. Officials finally got their own assessment of what is going on on mount sinjar. They have been going off of estimates of tens of thousands of refugees being up there. Saw around 4000 and 5000. It is a lot of individuals. But they feel like the aid that they have been dropping, hundreds of thousands of meals, theons of water, as well as kurdish gains and the u. S. Air strikes has broken the siege. We feel like these are positive. Ains brokenness each but certainly not the resolve of the islamic state. Where does the United States now turn in the tension . This all hinges when you talk about a longerterm plan hinges on what happens in baghdad politically. Right now the Administration Working very closely with the Prime Minister designate in a 30 day process of trying to form a coalition government. The truth of the matter is, nothing moves forward in terms of comprehensive program. Is the primary focus right now. You will see continued humanitarian aid. For the time being you will see the shift really hard into baghdad. One thing at issue is oil. North of thed country where the kurds are. The kurds given where you might imagine it can lay claim to the oil produced in the region. That has resulted in the very serious situation. Alex will help explain why there are two oil tankers full of crude floating off the coast of the United States. Go to the jersey shore and have an oculars you may be able to see it. It cannot get to the u. S. To sell the oil. The buyers no longer want it anymore. This is kurdish oil. Jersey wasered topped from a field in turkey. There is also oil, about one million terrells off the coast of texas and has been since the end of july. That runs through a pipe line. That is very different. Iraq a government is very upset about the oil being pumped through the pipelines. You can transport like 50,000 barrels per day. These four other vessels you are looking at on the map are the other kurdish oil vessel stranded all over the world because no one will buy it. If you buy it, you will upset the iraqi government. This was pumped through the pipeline. We heard them go to the u. S. Government to say seize the oil for us and the u. S. Actually said yes. Now there are some new questions over the future of the iraqi leadership, it only gets more complicated because you do not know who you are negotiating with. You really want the u. S. Involved interpreting the constitution . They said any oil pumped as our oil. The kurds say it is our oil. Go back pay to Oil Companies and needs the money, need to sell it. The Financial Times reporting today that turkey has been asking the u. S. To allow the oil sale to go through saying they really need the money. They had to fight the islamic militants, please help get the cash especially when you have them smuggling out money anyway and are making money off of it to begin with. You raise a fair question, do we want to interpret the iraqi constitution . Probably not, but we have done crazier things. A slam dunks pizza an investment. You will find out none other investor than lebron. James ando lebron Maria Shriver have in common . One. Ut a love of pizza for this lets diners customize their pie. Opening nearly 25 locations in the past year. Here to talk about the business of pizza is the president. Great to see you joining us from los angeles. How hard is it to customize go seems a fast way to very difficult. That is really how we have changed the game for pizza. Guess come in, to go down the line and we can serve them in about two minutes. And consider the sauce cheese and proteins and vegetables that goes into our gasfired oven. And about two to three minutes youre calling your name for your perfect pizza. Take . Soundsoes it like you want to be deborah rito chipotle of pizza. How long does it take . We do admire chipotle. It sounds like you want to be of pizza. O chipotle that enables is pizza is now something you can have for lunch, a highquality heat the for lunch. Historically pizza has been a dinner product and we have the way it is delivered to our guest. The admiration you have described chipotle leads me to believe you are not competing with dominos or pizza hut. Who are you after . We are competing for the stomach of the guests. What is important is because were so fast and the quality is so high, we are competing for those going out to lunch. Just happens to be a great product for lunch and dinner. The midday snack for students and millennial, the date night attraction is there. High quality so and fresh and fast it works through all day. What is your price points . We sell a 15 pizza for 7. 5. But how do you make money off of . Hat taco lac we do quite well. We are built around high quality and speed. Taking a page from the great leaders in the industry, chipotle being one of them, starbucks as well, we focus on simplicity and high quality audits. The gasfired oven has changed the game for how we can deliver it in three minutes. A lot ofmplies unique workers to turn over the volume and implies you will have to pay quality high ingredients which leads me to the question of what is your we have taken pizza back to its roots. They are a little bit lighter with fresher ingredients. Result we have people who have to make it down the line. We are able to achieve very good margins and margins that are typical in the fast food is missed. Secret to your finding Good Real Estate . That in so many cases explains the success or failure of a fast food restaurant. The think the secret is success we have had so far. Landlord looking for retailers that bring a lot of guests. Many of the restaurants we are serving a taking 800,000 to 100,000 per day. That is good revenue for us. To 10,000 per day. It is good for the guess that have a variety of options to choose from as they look to dine. You mentioned the chipotle model and how much you admire that in some ways but chipotle is getting into your business. They are launching a new pizza endeavor. What are you doing to protect yourself . We are continuing to grow and stay focused on high food quality. Chipotle validates this is a hot, great category. We will continue to operate the way we do. We see chipotle. They have been into our restaurants and we certainly look at how they operate and validates or the consumer what a fort revolutionary product technology. We mentioned Maria Shriver are investors. S does having them as investors do anything for you . Obviously they are great partners that. Ive us a lots of pr everywhere lebron has gone he is either built a winner or been part of a winner. We are helping to create the best and leading brand. Is celebrity money better than venture money . That is a great question. We think so. Partnersainly are good with us and look forward to working with them over the next several years. Interesting. He really appreciate it. Pizza. Ts of blaze more after this short break. Stick around. The most prestigious brand in the watch industry. It can demand extraordinary prices. Bloomberg took a look at five of the highest ever sold at auction. Have you ever seen a watchmaker do his job it . It is fascinating. Truly an art and amazing business. You understand working seeing how they work how i cannot always be done by machine. Adam johnson joining us. A very different kind of becauselip today president obama speaking. Admittedly we do not know what say. Tirely he is going to two obvious situations, the riots and missouri, sparked by the policeman who shot the youth and what is happening in iraq. Chuck hagel saying a very different situation than what they originally thought. 5000 stranded compared to the original 20. Takingot know if questions either. This highlights how difficult it is to pick up on right now of issues. Acophony the one thing thats admittedly , how is theing with intelligence so far off . We thought there were 20,000 people and now only 4000 to 5000 . On the one hand, that is good news. Means we do not have to go in there with boots on the ground and risk more american lives but you wonder why the information was so far off . Very good point. I will point out the information that what has been going on has been dreadfully wrong. We did not see it in the first place. Came in andden they beheading people. Shocking. We look forward to what the president is going to say. President obama scheduled for 12 15. We will be right back in just two minutes. That wraps it up for Market Makers. I really interesting show. John cisco. Pizza. Interesting to hear the point of view about who will win the commissioner. Shouldhinks rob manfred be the next commissioner of Major League Baseball. The key difference, he is not an owner and may not as a result majornough support from League Baseballs owners. We will see how that plays out. Tomorrows show 13 at the time. The quarterly filings hedge funds have to make with the fcc showing what they are buying and selling. Taking a close look at dan loebs burma. Digging through to find out what the activist is buying and selling. You will know more tomorrow. Always looking for it with buying the gold etf. 56 past hour. That means Bloomberg Television is on the markets. Scarlet who has more. U. S. Stocks continued to build on racing games, adding distance from the twomonth low in the s p 500 last week. Were in the thick of retail earnings season. Walmart and coles reporting this morning. Geopolitical tensions seem to be waning a bit. Joining us is the lead options strategist. Below 13 from vix above 17 august 1. Back to complacency . Not white to the complacent levels. Spikes ask back, the 17 whenever long lived in the past, and certainly the fact that things did not get worse and calm down a little bit, volume is about a third of what it was when we were really heading down last week. A lot of retail earnings season and we will get to a name in a moment that very much a summer field where things are quiet. What will be the catalyst that you and other options traders are looking for . I think it will be depending on the headlines until further notice. Certainly earnings season winding down. Expected. Gs have been i think were in a trading range upside on the s p. 1900 to the downside. The grange, no change for the foreseeable future. One retail name your keeping and i on is jcpenney. Certainly struggling. Expected to post another loss am even as comparable sales may increase by as much as 5. 8 . What kind of options activities are you seeing . Thick activity. 13,000 of the august 8 putts. 10,009. 5 putts. 2000 of the 910 strike calls. 9. 5 puts. Of the i think it is more what they talk about as far as guidance on the actual numbers this quarter. Guidance is key. Jcpenney typically a number that gets a lot of option volume . It will always given what has happened the past year in terms of earnings near the earnings announcement. This is typical. Couple days leading up to earnings, big volume. Speculators perhaps putting on a position one way or another in the movement of the stock. One company not reporting earnings but you have a trade on is tesla. The stock trading roundabout alltime high. Tell us what you have in mind . I have a position on the stock. Yesterday an alltime high. Back and closed almost near the lows of the day on the stock. It is the most overbought reading it has been in a long time and the fact that implied volatility, the price of the options is really the cheapest ever, i am favoring a contrarian play. I think we will have a show shortterm pullback. Selling the august money to put. I think tesla may have gotten ahead of itself here. Sentiment. Thank you so much. We will be back on the markets again in 30 minutes. Welcome to money clip where we tie together the best interviews and stories. Were off to Atlantic City where casinos are going bankrupt and revenues are falling and donald trump says he knows why. Other Tech Companies are growing. John chambers will make his case. Colgate chemistry. The products even though it contains a chemical linked to cancer in animals. Going back to Atlantic City. Its not all bad news. There are stories of success