Transcripts For BLOOMBERG Market Makers 20141112

Behind the rain forest cafe and gumpegum trip bubba shrimp. We are clearly going to have a great morning, we have breaking news on one of my favorite subjects, activist investing. A big update, the drug Company Behind botox and those implants, people with knowledge of the matter say that the drugmaker activist are in town to buy the company for 60 billion, higher than a hostile offer from another pharmaceutical company, valiant. The bid, of course, is backed by bill ackman. Either way. Ll wins this is true. Look at what is happening with activist shares. They have a high stock price, rising, but of course we want to show you what is happening with allergan. It would be a 60 billion deal under discussion here. We have to draw a distinction, activist is a drug company, ergan look at the stock, both of them today, bill ackman remember, he has come out aggressively against Senior Management at allergan. Now that he has to change his hat and simply be an allergan guy, how does he feel about their management . Also point out that there are some very interesting players already. Dan loeb is there, longtime capital. There is geocapital from blue ridge, for example. A number of hedge funds with fairly large positions perhaps betting on this potential outcome over the future of allergan. We heard from dan loeb several weeks ago about his biggest physicians and what he was most excited about, he made no mention of this. This is true. I think that Larry Robbins might be in activis as well. He did very good this year. The hedge fund run by john a former Julian Robertson golden child, i want to say it is a fund of 7 billion dollars or 8 billion, but hes never done any fundraising. Dont you love of friends of the family fund . A longterm mostly equity guy. You have got a strong line up there. Checked, i do not see glenview among the largest holders of activist. I may have gotten that wrong. In the meantime, i want to bring least theate, at latest information about the fines and penalties that regulators are levying against some of the largest banks over allegations of manipulating the foreign currency market. The office of the comptroller of the currencies has Just Announced its own fines, 350 million against citigroup. 200 50 million against bank of america. 300 50 million against jpmorgan. These bags were found to fail in identifying Foreign Exchange as well as employee misconduct. They are issuing orders, as you would expect from a regulator, requiring that these are regulated and corrected with more oversight inside of the banks in line with what we have commissionthe crtc and the Financial Conduct Authority in britain that announced their own fines earlier today against five global banks, among them rbs and ubs in addition to citigroup. To give somet credit to our Bloomberg News team in london, who crushed it in terms of reporting this. Back in the middle of 2013 bloomberg reporters in london the currencys off rigging, affectively reporting for the first time that this was going on. We knew that there was manipulation of other benchmarks. Today, 3. 3 billion in fines, and now these additional fines from the office of the comptroller of currency. To explain is here where this investigation may go next. What agehen you read see what they public published today, it really puts things into context. They are similar to the libor chat logs with some really unpleasant conversations. Particularly about clients and their plans on how they were rigging the market, just laying it out there in archived chats. Probably some Lessons Learned for Foreign Exchange traders around the world, but this has been a long time coming. These are substantial fines and when you add up all the regulators many of these banks to 1 billion. Up we are still waiting to see what the department of justice and Federal Reserve has to levy against these banks and potentially more. I picked up one excerpt. Read it. It is so good. But you might have to censor it a bit. This one happens to be clean, right . This was an exchange between two traders trying to manipulate the price of the euro dollar. The bank not identified says to begin with, they are exchanging confidential information about client orders, infraction number one. Number two, colluding to manipulate the fix. When you say join forces, ding ding, how do you not know that that is collusion . Anyone who says hate the game, not the player, are you kidding me . You work at two different banks and you said to join forces, to gang up. The big challenge of this investigation is everyone getting their heads around it, including these global regulators. Fx is a largely unregulated market. It does not have the same rules and regulations that all of the Security Market has. It really doesnt even have a regulator. A lot of these traders kind of thought that they were not doing anything wrong. They just were not in that mindset. Hold on, hold on. It becomes the industry norm. That is a key point. You get a lot of wrongdoing, but i dont know that they are necessarily connecting the dots that may be exchanging confidential client information could be in infraction that leads to billions in fines. It would appear that these guys took it one step further, talking about a cartel, talking about the conditions under which other traders would be allowed into the club and holding probations, threatening them. Hold on, im sorry. Ofple who just paid millions dollars per year, gosh darn it, simply dont know any better . Of course they know better. But you may know better than me, you worked inside the bank, deutsche bank, which we have not heard from today. You see this time and again. Downnt this how things go in the foreign currency markets for generations . Youou see this and then just see it is ok for everyone to do this and all of a sudden everyone finds out what is going on and regulators around the world are like 08. How about everything i learned to do i learned in kindergarten . If someone jumps off her bridge, dont follow them. If you work at a bank, Better Business practice your Senior Management should be coming you never chat should you and another Investment Bank be communicating about client information and ganging up together . Sorry, charlie. That is why a lot of the banks it will be interesting to see what the fed has to say about this failure to supervise to become very relevant, it is a lot of what the banks could be in trouble for, failure to supervise employees doing this very thing. When you take the series 25, all about being a supervisor, you know you are studying for the test. You want to take it to be a manager and get paid like a manager, but guess what . You have to take the downside risk. Except if the guy at your desk. Or a woman. Of women are clean here, right . The guy running your desk has been doing this, the guy before him has been doing this with black it doesnt matter. Not in principle, but in has been doing this it doesnt matter. Not in principle, but it does. They brought this up two years ago at regulatory meetings in england. Real shift to be a in saying ok, this is what you can do, this is what you cannot do in the Foreign Exchange market, although it is obvious to most people that this is unacceptable behavior. Apparently it was not obvious to these guys. The Justice Department is investigating some Serious Fraud in the u. K. The Justice Department could be doing the deferred prosecution route. Bringing criminal charges against individuals. Thats the other thing, individuals are not in the clear , those settlements will be pursued separately. There could be one or dozens of individual traders in trouble for this. The chance of providing authorities and investigators with good evidence is there. That is in no . If you are the manager of that person, just as your manager letting go and his manager let it go . Sorry. Hey, i will always agree with you guys. Lets remind everyone that news is that the top of the hour, the office of the , dropping fines on jpmorgan and bank of america, a new name this morning, the total now is almost four point 3 billion in fines and penalties for rigging the market. View fromme back, the the kitchen and what the economy looks like when you fire everyone from busboys to executives. Including mornings at the racehorse cafe. Plus, serious money for a hilarious route hilarious website. That is what will ferrell wants. Welcome back to Market Makers. Back to the breaking news we got at the top of the hour, a bloomberg exclusive, people with knowledge of the matter say that rival drugmaker say it for me . Davis octavius actavis. Backed by bill ackman, allergans biggest shareholder. A complicated situation that goes back months and months, with bill ackman coming after allergan. Actavise along the way, got interested. They had been looking at a company for a while. It was like they were running a threeway situation. A beauty contest. There you go. Along the way they got up out by astrazenecah after fell apart look at them and thought that it was their inversion deal. Anyway, they have been in talks for quite some time. Over the last couple of days we have picked up on a lot of progress. They are less than 5 of the asking price apart. Seeking the 205 range. 205 per share at 215. Is looking if they are willing to be bought, why would they be so opposed to valiant . That is 180 dollars per share. It is simply a lower offer than what they are negotiating right now. But there is also the fact that it just seems like a spiritual issue that they have with valiant, they see it as a company that would got rmb, if you will. Their reputation amongst other companies is not great. They are seen as a company where all they are they got and they pillage. However, actavis will have to do something creative. Even without the additional premium they are 31 times estimated earnings. It is going to be hard to make this deal if creative. They at . What are 80 . 90 . Before they even get to a deal . Itself,an issue by because bill ackman, months and months ago, accumulated his position in allergan and you will probably see institutional and arbitrage investors coming after him because they have lost that downside. Talk smacker him, about them . What can they really do . To court, right . Can they . There was a ruling from last week and we misread, it said that bill ackman would be able to vote his shares if there was a proxy fight. But the judge really opened up the idea for institutional and angry investors to come after him. He said that there were serious issues let me rephrase, serious questions and about how he went about accumulation. Thehey wondered about legality of it . Exactly. There may or may not have been a loophole. The judge left the issue open. In some ways i think he has opened the door for investors to come after him. I dont disagree, im just saying that every time i bet against a bill, he takes my head, smashes it into the ground, and twists it and i remember you are right, i was wrong. Matter,r a laughing funny or die is looking for a bigtime buyer. The comedy site, funny or die, is looking to cash in, evaluating options, including a possible sign that possible sale. One of the most popular shows on there is between two ferns. Likes my guest today is bradley pitts. Hout my guest today is bradley pitts. How old were you when you lost your virginity . I will tell you about when i lost mine. I would not like to hear that. What is a site like that really worth . Is find out from alex sherman. It has brought the awkward silence into American Comedy at all levels. There are no more commercials in punchlines today, there is just that awkward silence. It killed the sitcom. The office did it all the time. It worth . Between 100 million and 300 million, which is part of the reason why some of these digital websites are so theoretically mediale to the legacy companies. At t and disney have both recently made investments in digital media. You can get these things on the cheap, but this is what young people are watching. As this slow migration of ad dollars goes from tv hold on, there are advertisements . Advertisements, there are also shorts, other short form digital videos made in conjunction with sponsors. Theoretically, gm could be a part of one of these things. We saw it a little bit with Jerry Seinfeld and his comedians and cars getting coffee done in conjunction with acura. That is the way we are going here. Done inrs for videos conjunction with sponsors. Isnt it much cheaper than actually buying a big platform . Hugely. I think that is part of the motivation for why these Companies Want to sell now. They see an appetite out there for legacy Media Companies that think of themselves do i want to spend 5 billion on a Legacy Media Company where sure, it is much higher, but that the nearterm moneymaker that i have to pony up . A shot on a to take smaller digital Media Company that the radically that theoretically the lack have younger that theoretically have younger viewers and stars that love doing it. Exactly. Started hisell website with adam mckay. Are they the only guys who stand to take out well here . Are there other agile backers . There are three cofounders, and in addition hbo owns a small percentage, time warner owns about 12 . Sequoia was in a handful of venture capital. Lets pretend you are a focus group. Are you more likely to watch a funny or die video van must see tv on a thursday night . You mean a sitcom . Absolutely. Without dollars it makes a lot of sense. Agreed. The problem right now is that there is not really good measurement for how many people are using these ads and then acting on them. Isnt that the case for advertisers forever . But it is pushing down the valuation on the site. There are counteracting forces here that slowly are trickling upwards. Maker was bought for 500 million by disney. Billionia has 2. 5 dollars at this point. We are getting up to Cable Company levels. If it gets sold, to say a major studio company, will they still be able to attract the kinds of people like at judd apatow and james franco . Presumably come in part because it is will ferrells place. Theoretically, thats true. Any legacy would involve keeping the people there. Having you over to dinner at his really big house. Thank you, alex. We will be back with more. You are watching Market Makers here on bloomberg television. It is 10 30 a. M. In new york city. I am Erik Schatzker. I am stephanie ruhle. What questions are weighing on the minds of businesses . Who better to ask then Tilman Fertitta. Welcome. You were just saying we were showing waldorfastoria and the major price it sold for. Knowsusinessman, one who consumers, what you think about that . It is a crazy number. The contract was signed a few weeks ago. Ipo. They are doing an an old rule of thumb you take what you are paying for it. That means you are charging 1300 and nine. You might get that some nights, but the numbers do not work. The average daily rate are not 1300. It is not. The average rate and what they are selling for, it is unbelievable. We talk about the crash coming, and it probably is coming when you see silly things like that one point million three 1. 3 million that just does not work. Function of the amount of capital pouring into is thatate these a function of the amount of capital pouring into real estate and these have to get bid up . Is what is happening, probably in new york more than anywhere else, but you see it in texas, california. Repeats itself, as we know, and i think he will repeat itself sooner this time. Use melee crash in the realist you smell a crash in the real estate market. I do. It will be 1986 all over again . It did not come back until 1996 in texas. Oil came down. Last night in new york city, you opened up a highend restaurant. Why, if you think a crash is coming . You have to keep going. [laughter] you sound like chuck prince. It is a great, highend concept, and it will hurt when it crashes. Everyone wants them right now. Comps at higherend restaurants are better today than ever. Sales and volume does not seem to be a problem for anybody right now. There seems to be a problem with cost structure. You know, it is so funny i know you know this. I had a dinner at your good friend rich handlers house and bernanke was there and he said there is no inflation. Go buy something whether it is the drugstore, the broom and mop store. There is inflation rate of everywhere. You see it in your business . I have so many different so i buybusinesses, things everything is more expensive. Think about yourself. You go to the store to buy something for your kids, everything is more expensive right now. You say you have no problem on the revenue side, but on the cost side. 100 . Why not raise prices . We are. If you are traveling, you pay more for a hotel room, a pot of coffee delivered to your room. There is huge inflation going on right now. Why is it masked by official statistics, do you think . Know. O not i asked ben bernanke about adding he said my advisors are telling me to leave. I have to go. [laughter] you are getting. T did you think keating you are kidding. What did you think of him . Check out one million items a month and they come up with inflation or deflation. I told him they need to find a new school. For him to say there is not inflation is just not believable. The consumer out there watching this show will tell you everything they pay for is more expensive today. When you look at the unemployment number and people are saying things are great, it is only 5. 8 , are you saying hogwash people cannot afford much . Or 50se people under 60 looking for a job and find a job to do can find a job if they want to go to work. People are hiring. Are you hiring . Absolutely. If minimum wage gets increased, what will that do to your business . It is amazing. There is a minimum wage increase in california in july. Just for me, it was a 3 million increase a year. When somebody goes someplace and says why am i having to pay 40 or 20 for aor 18 piece of chicken, it is so today. Ve to do business do you have reservations about passing those costs to the consumer . You have to. I have a problem where you do not have a tip credit. You have a waiter that makes 200, 300 a night, but you do not use the tip credit. Of all of your business, where are you most actively hiring what is growing the fastest, where do you need new people . Right now, i will hire 2000 people in lake charles, louisiana, which is not easy because im opening up an 800 million casino in three weeks. There are not people in louisiana who need jobs . There are. We are hiring 2000 people. Outside of those oneall things everywhere. We are opening restaurants every single month. Other casinos are holding ground. We have overbilled the casino business. That is why nobody is doing great numbers. The numbers are not growing and gaining anymore because we have saturated the market, but everywhere we are hiring because we are still building. I think companies are. I think all companies, right now, are hiring. They are all growing revenues. Things are going well. What has the Affordable Care act done to your business . What has it done to my business . It will cost the consumer one dollar to two dollars more an entree. Really . Yes. And first of all, it is not good. It is a bad system. I appreciate the president saying everyone in the country should have health care, that they do not even know. They change the rules every single month. They did not let it go into place until after the election because they were scared it would kill democrats. They kill themselves anyway. [laughter] but, it is it will cost us millions upon millions of dollars, and it is not even a good system, and we are still trying to figure it out. I have 60,000 employees, and we cannot figure it out yet. So, in principle, you do not object the idea that more people should have insurance, and it is it isy it is done being done. You are in the United States of america. Everyone should get health care, but it is not the way it should be set up. We are struggling with rolling it out and how we will do it. It is so different. There are so many different options. It is tough. You will find the employee or employer. It is tough. We will take a quick break. Well be back with Tilman Fertitta talking about his Golden Nugget casino and the state of Atlantic City. Thanks for staying with us. Its returned to our conversation with Tilman Fertitta, not just a successful restaurant tour, but a burgeoning gambling mogul. It makes us think of Atlantic City. You are in Atlantic City. Absolutely. What is amazing what is interesting is as soon as i leave here i am going to a luncheon, a small meeting of talk to of us to governor christie about the cost structure of Atlantic City. What people do not realize about Atlantic City is it is still a 2. 7 billion gaping gaming market. Asxi, mississippi, looked at a big market, is only a 1 billion gaming market. You can have to casinos that do the same amount of business and the one in Atlantic City barely makes money. Why cant you make money . Why are these casinos shutting down . It is 100 the cost structure. Unions . Fees to the gaming divisions, all of these different agencies you have to support their. It is amazing. You have the Atlantic City alliance, the cr dna, this, that, property taxes you can do the same revenue and in biloxi, you have an 18 margin and in Atlantic City you have a 1 margin. Carl icahn says he does not want to put more money in unless Union Contracts are broken. Do you agree . 100 . Good luck trying to break a union contract. Expert than the choices the whole town but then the choice is the whole town has to go under. Work or have no job . That is not how unions inc. Wake up. It is. 14. It is 2014. D what could the better christie do . Governor christie do . Explained it to him, he seemed to get it. Him being whom . Governor christie. Understand the details. Everybody needs to be slashed. The Union Companies need to be slashed. Everyone of these agencies the sacred cows if you do not do it, you will lose more. If this does not happen, what will you do . Will you be the next person to pull out of Atlantic City . No. Golden nugget is profitable. Golden nugget is profitable this year and the only reason it is profitable is because we have lost other casinos. So, the shakeout is working. Towhat happens is you go Atlantic City, and if you do not make money, you do not have deferred maintenance. An oldwants to go to property. The Golden Nugget is brandnew. It was redone. People discovered it was the nicest property. But if youre not prepared to pull out, you do not have the kind of leverage, right, at the table with Chris Christie that you might otherwise . If you do not do something, i the next guy out of dodge. It easily could be. All you need to take is a little bit of a bigger dip in revenue and those little bitty profits. Business in had a 35 years that all of a sudden you are writing out checks for 1 million a month. Own my company. I was writing out checks for 1 million a month to support Atlantic City. One year ago you could have bought a casino for 10 of what i had in it hurt i was done. At some point you in it. I was done. At some point you say i am over it. How did you turn the corner . More people realized how nice the Golden Nugget was and you lost four casinos. You got lucky. Lucky because of stronger survive a little longer. And you have a cafe inside of trump. Fate . S the faith the boardwalk is really slow right now and it is struggling. You have lost properties along the boardwalk. It is tough. Hopefully it will make it, but i do not know that it will. It is tough in Atlantic City. The problem is, it is kind of like a battle. When Atlantic City opened up, you are hereby yourself here, all of these armies that surround you. Philadelphia, parts of new york, maryland. What has happened is you do not have to drive very far to get to a casino in america anymore, and that is a problem with gaming. You can do huge dollars, but the cost structure and lack of revenue does not save you. Before we go, you built your entire business in the 1980s, some of it using credit cards. [laughter] could you do that today, start the kind of businesses you built in the current framework we are living under . Again, thet once cost structure is more expensive. I built my second restaurant and it cost 350,000 and i was using credit cards to finish it, you were able to do things for a lot less back then. I guess some little local restaurant or in new york when you got to the end, they could plot a credit card, but it costs so much pull out a credit card, but it cost so much to build anything today. Tilman fertitta, thank you for coming. Tilman fertitta, thank you so much. Your mustacheis shaving profits at harrys, the Razor Company . We will see what executives mberk of the movee movement. R and that means that everywhere are growing their mustaches to raise awareness for prostate cancer, but harryfaced dudes are not good for the business. His to cut through the leather is ceo jeff rader. Isnt this bad news . Dudes everywhere are not shaving. Not at all. Mber you have to shave, just not your mustache. We are not about to have a manscapping conversation. What are you talking about . Shaving around your mustache. Harry is a shaving brand. We launched 18 months ago. Quality shaving cream that we sell for a fraction of the price of what the big brands charge for their products. Before we get there, what is a fraction. A bottle of july fusion will cost me 15. Most will say fiveblade cartridge for four dollars, and we solve ours for two dollars or less. Half the price. How can you afford to do this last time you were here you are opening up a factor in factory in germany. Factory int our own germany we grind our own steel, and sell directly to customers. We have a efficient Business Model so we can pass along the savings. You were going to get to why you decided to partner up with move. Here has to be a movember there has to be a story behind it. These issues on mens health are not spoken about freely and i got a chance to meet the members of movember and we were blown away by their mission. They have raised over 5 million , andpport mens issues without their mission was noble and we wanted to be part of it in whatever way we could. You are contributing directly, a percentage of sales how does it work . A bunch of things. We made a razor away give away to anyone who raise over 25 for the Movember Foundation ahead of november 1, and so that on our website and five dollars of every purchase went to the Movember Foundation and has sold out quickly. That was exciting. The whole team is participating in movember and raising funds. Doesnt actually prove to be a business does it actually prove to be a Business Opportunity now that styling of mustaches have gone mainstream for movember . What does it mean for you . Anwe view it much more as opportunity to use our brand to support the organization and less for business. Yeah, we still think you have to shave during the month of movember. It is about mustaches, not full beards. Correct some people need help trying to figure out which mustache to some people need help trying to figure out which mustache to grow. Movember helps. They have a list of styles. What someone referred to as the trucker, others might call the handlebar, or where i come from, the hockey star. Why that as opposed to the boxcar or the rock star . I am in a discovery phase right now. Last year i grew a pretty normal mustache. This year i thought i would try something different. It is an opportunity to see what might look best on your. Right now, what is the most popular mustache out there . I like the whisk. It takes a lot of maintenance. Good for your business. Notood to know that its anywhere to grow a mustache it would be a pencilbeen good to know that if stephanie were to grow a mustache, it would be a pencilthin mustache. I like the rockstar. We have a barbershop in new york where we sell amazing drumming products including beard and mustache oil could quickly do you say you think did you say you think i have a mustache . No, if you were to grow it. Thank you. Were back in a couple of minutes. Live, from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. 60 billion for botox . That is what activists will be paying for allergen. Me needs therapy. Sales were down at the Biggest Department store chain. Danger at sea. Pirates cost shippers 100 billion a year. Welcome to Market Makers. We are going to begin with the bulletin of top stories. The hammer came down today on banks. Over rigging the currency markets. Regulators find six banks a total of 4. 3 billion. Several of the banks face criminal investigation. Jpmorgan and citigroup or find more than a billion dollars each. Bank of america faces a 250 million penalty. We may be on the verge of a huge takeover in the medical industry. Is in the talks to buy the maker of botox. This is a bloomberg scoop. There was a gap of about 3 billion between what they want to pay and what allergan is asking for. Valiant pharmaceuticals has the backing of the largest shareholder. In the banking industry. Bb t has agreed to buy susquehanna bank. Premium. 39 bb t also bought a bank in texas branches. Republicans pushing back on the Climate Change deal between the United States and china. They made the announcement in beijing. China has agreed to cut Carbon Emissions and the president obama agreed to deeper carbon cuts here. This is a major milestone. It shows what is possible when we Work Together on an urgent global challenge. By making this announcement together, we hope to encourage all Major Economies to be ambitious. All countries, developing and developed, to work across some of the old divides so we can have a Global Climate agreement next year. John boehner says the president is on a crusade against affordable energy. Mitch mcconnell says the president s emission goals are unrealistic. Macys is another story today. They posted a big gain and profit. Sales were down and they are cutting forecast. Julie hyman has more on macys. Not seem to mind the cut in forecast. Why . I am surprised at the shares are up today. What is going on . Analyst say expectations were low on the part of investors. That is part of it. The other part of it is profit was up 23 . It beat estimates. Notooks like that came from discounting as much, holding the line on some of the prices so that growth margin was not hit too badly. Companys cfo said talked about moving some of the earnings. It may be because people had expected a little worse. Macys sold off hard during that blip in the middle of october. It down 12 , way more than the rest of the market. They have not bounced back. Here is the opportunity. Certain amount of confidence in macys, which has been a standout in the retail industry. It is viewed as a great executor operationally. Keeps its inventory levels in check. It has Good Customer Service and good systems for running its stores. That could be part of it. A little bit of forgiveness. The company says its comparable sales rise. If you take out the effect of license to businesses, you will get a 1. 8 to 2. 8 gain. Sea change. F a yes, you have the overall weaknesses. Cfo also says a lot of the stuff that is hot right now is stuff that we do not sell. Cars, electronics. Things you are not going to buy at a macys. There is not that much they can do about that. They can only control what they can control. These partnerships they have with Jessica Simpson andpd diddy, is that an issue . It does not seem to be an issue. We are talking more about the Stores Within the stores. Reasons been one of the people go to macys. It seems to be driving some incremental traffic. It is thenot think Ryan Seacrest collection . Think again. This afternoon, jcpenney reports. The turnaround continues . We shall see. For jcpenney, the stakes are higher than they are for macys because it has been doing worse. You still have the comparisons that are going to look relatively positive. A headline has just crossed. Clearly radioshack management has been reading my tweets. They are doing an aboutface. They were going to be open on thanksgiving, they are changing course, backtracking on their thanksgiving hours. They are going to open later. They will not be open between noon and 5 00, like they said before. They will be open from 5 00 p. M. And later. A lot of retailers will be open on thanksgiving day. Costco will be closed, but you are looking at macys, opening two hours earlier than last year. Walmart, they are going to be open for the duration. It will have sales events at various times. I have a huge hate for stores open on walmart on the call when it talked about its plan a huge hate on. Last week, we learned he did not groove on halloween and now he has a hate on thanksgiving. They get traffic on these the demand is there. It sucks for the workers, no question. The demand is there. They get people in the store shopping. Let us return to the allergan story. Actavis is in the talk to buy the makers of botox. Allergan willing to talk to them when they are fending off valiant . Olivia sterns is here to explain. Allergan has a hate on for bill ackman. He will win either way. He will win bigger if valiant comes through. Why do they oppose him . For one, do they think bill ackman cares about creating the next greatest generation of botox . Will he come with a valiant who has the reputation for being a roll up shop. They would rather go to activities, where they think they would be a more constructive fit for their business. I take this has come in with a higher bid. Valiant has said they would come back. That is where activist currently is. Allergan would rather sell to activist than to valiant. We have been doing this dance for the last dose, once. What is active us all about. It is a generic company. They have been on an acquisition spree. They do not have the same reputation for slashing rmb. You have seen a consolidation in the Animal Health care industry. What iot of shares am hearing is the plan b for bill ackman. If he does not get valiant to ackman, it is to get valiant to buy. That is why you had a big pop in shares. That would be very interesting. That is what they thought they loved botox, but they love antibiotics for towels. T would be very antibiotics for cows. They may want to get into Animal Health. You heard mike pearson earlier on say he is interested in Animal Health. They could force the sale to eli lilly. Either way, bill ackman wins because he is building up a significant stake. Thehat do people say about potential fit between valiant or actavis and allergan . To alex earlier this morning. Valiant would rather by allergan. It is a more constructive deal to buy a power dan because there is more synergy. Generatingth cash businesses. They would have to take on more debt to buy one than the other. We are throwing a new name in the mix, herbalife . Free advice for you if you are watching. Thank you for breaking it down. Olivia sterns on the latest. The end of quantitative easing is going to play out around the globe. A chance for the democrats or is it a big waste of time . Welcome back. The final chapter of quantitative easing has yet to be written. Broadly speaking, it has been a success. No inflation here in the United States and it rescued the economy and financial markets. To raised gets ready rates, what will the next chapter mean in the United States and abroad . As you look into the economy, what do you see. The fed is contemplating a change with respect to Monetary Policy. Most particularly, in fixed income, we have seen it in the Corporate Bond market. When that happens, how are the last few chapters going to read . If you view quantitative easing as a success do you . We do not. We think it was necessary in 2008 and 2009. Last several years, this idea that you can live with an artificially low rate structure and this is going read the conditions for enduring growth does not make a whole lot of sense. You have a business and it owns a bunch of factories. It is all good if the business determines that it can repurchase shares. If you are a household, it is a nice thing to live in a larger and more comfortable surrounding. Labor ornot make your your salary or your wages go any higher. Essentially, the thrust of what the fed has been doing has been encouraging credit creation. That does make the appearance of things better. We question whether or not this is laying the foundations for a durable period of growth. I love the word artificial. In theaid were not market, had not been in the market, where would the sevenyear be right now . Where were the 10 year be instead of 2. 35. Higher. Everyone ishat struggling with. The effect of Monetary Policy. Be theseld these rates be . Lets take one giant step backwards at what qe has been about. Why the fed has stayed with her for a long time. Said,of all, the said has you do not need to worry about extraordinary measures. We implement this during a crisis, but it is ok. The reason it is ok is because inflation is low. Was inflation low back in 2008 . Havent we had significant financial deleveraging . Backdrop, tothe say that Monetary Policy is not excessively loose, just because inflation is low is not a misnomer. When you have excessive growth of credit and an excess of marginal loans being created, you have a problem. Go to the higher rate structure, it is going to crowd out some of the marginal borrowers. It is not because you are trying to slow the economy or hurt borrowers. Prices do what prices are supposed to do. They are supposed to make sure resources are being allocated in the most efficient way. Do some crystal ball gazing for us. If the fed has enough courage to carry through and do what they say they are going to do, and i think they have an inordinate amount of confidence that they can move rates, if they actually start tightening in the middle of next year, you will probably see the tenure back at 3 . Part of the reason high yields spread as well is a factor of two things. One would be that you have ly low spreads. Default rates isnt it hard to risk high yields and we have no defaults. You get some positive carry an instant gratification. When you are an investor, you are supposed to think intertemporal he. Youre starting to play a game of chicken. You can invest in the asset class, get the current benefit instead of the current benefit going to manifest itself or there is payback in the form of a haircut or a decline in price. You may wish you had done something else. Rising,u see rates market yields rising with them, everything is going to sell off. What do you own . What wee defensive with are doing in respect to interest rates. I can answer that part of the question. Maybe i want to highlight one predicate of what you are putting forward. What we are saying is there has been artificially excess of credit in the market. We can do this the easy way or the hard way. The easy way, even though it does not look that way is for the feds to raise rates and start to reduce the access to credits in the market. The goody no, let times roll, let credit be accessible until when . Until it is not. Cycles are not bugs of markets. They are features. They are always present. What are we doing about it . We are focusing on shorter longer. Es and we are towards higher credit quality. We are also continuing to emphasize the leveraged securities. Great to get your thoughts. Of the ccw group. Welcome back. It is time for a little on the markets. This stock is you could call is surging. 8 as up quite a lot. It is a watchmaker. Burchre selling tory watches which may explain why their earnings were so good. Ales up profit up even more than that. Still, 900 million of watches in the space of a quarter. That is that for fossil. We will be back in two minutes talking about the new congress. Welcome back to Market Makers. Lawmakers are back in congress this morning. Isnt that exciting . However, republicans are going to control the upper and lower houses next year. Lets take a look at the priorities. Chiefe bloombergs washington correspondent, peter cook, with us from capitol hill. Lets start with the democrats to do list. The first thing we want is to get a tax extension done. All of the expiring tax provisions from this year need to be retro retroactively extended. I also think that the appointment of the attorney general, they are starting to say that they are running out time on that. There was a push to get that attorney general pick through before the republican takeover. There will also be a push to allow states to tax internet sales. John boehner has been opposed to it, but finally, while the president s priorities . Hes talking about an executive order on immigration that i think will generate a lot of attention in december. You think that keystone is on the agenda . Down for so long. Mary landrieu is running in december, the chairwoman of the energy committee. Landrieu. Elp mary i suspect that they will be able to complete and get a vote on keystone. But it is something worth watching. And it is a question of whether or not the democrats will take credit for it. They have more than 60 votes in the senate. On what issues are you hearing the republicans are willing to work with the democrats, who still control congress for the next few weeks . There is not a long list of issues. They want to get a couple of them done if for no other reason than to give themselves an open Playing Field for next year. They need to get the spending bill done by december 11 to keep the government operating. The big question is is that a temporary spending bill or longerterm bill . Something to provide certainty for the next year or so . The reason it is it . Is because of the immigration issue. It is hanging over Congress Like a cloud. Republicans in the hallway are telling me that it is poisoning every other issue here. Not only this lameduck session, but two years to come. Mentioned earlier the possibility that the democrats may try to move forward with Loretto Lynch as the nominee to replace eric holder as attorney general. How much progress are they likely to make with that between now and the changeover in january . Process is really extensive. The question is, did the white house know that they would appoint her before they publicly announced her and started the process in congress . If they are not able to get it done then it is unlikely that they will get that nomination through. I think there is a lot of planning going on on the republican circles about how they are going to handle the nomination. Democrats obviously one of fast process to get her through, but it seems like they are running out of time just because the announcement was delayed. Do you agree . There is a thought here on capitol hill where most of the democrats i am talking to expect this confirmation battle to take place next year and to some extent they want to have it with the new republicancontrolled senate. If they take on a person they see as qualified to be the next attorney general, their message is going to be have at it, it would ultimately benefit if she faces a real public challenge from republicans. What issues confronting congress right now does the Business Community and the Investment Community need to be most concerned about . Thats right. First i would say the tax extenders is an important issue. When you go through thirdquarter earnings calls they talk about the extension of the redevelopment tax credit and appreciation. Some republicans are saying we should let these benefits expire , but that is not the view of the house or Senate Republican leadership. The second is called terrorism Risk Insurance at the vix that expires this year. You need at least at temporary extension. There is a fight over whether you do it for a year or do it temporarily to reform it next year. Obviously just making sure that there is no Government Shutdown is a very important issue to the Business Community. Say to watch the negotiations on the transpacific partnership. They are making tremendous progress with our trading partners in asia. Congressrepublican helps you to get there. They could cloud the ability for the republicans to make it past that trading agreement next year. Those of the big issues for the Business Community going into the lameduck. There are going to be a number of key senior players that really matter to the Business World in the next senate. Absolutely. I cannot emphasize how important that is here in washington. If you control the gavel, you control so much. They are literally going to flip upside down in terms of their priorities overnight. Half. N point, james in the Senate Environment committee. This is their biggest critic in the entire debate. He is a skeptic and he has written a book called the greatest hoax. He has already taken a shot at the president s new deal with china, calling it a charade. That is just a taste of things to come. The quantitative easing programs, a true budget hawk, he could arguably big be the biggest thorn in the president s side over the next two years. Gentlemen, thank you very much. That was Peter Cook Cook and of course, dan clifton, the head of policy reacher at strategic. We will be back in just a moment. If you are just catching up to the news right now, six of the biggest banks in the world are paying a total of almost or . 3 billion to settle allegations that they rigged the Foreign Exchange markets. In particular in what is called a fixing, the setting of Foreign Exchange rates for eurodollar or japanese yen or the british pound sterling. That happened at 4 00 in the afternoon london time, every day. A 5. 3 dollar trillion market, highly unregulated. This is some pretty nefarious goingson. We shared some of those just to put it in context. There have been so many massive fines, many are just rolling their eyes and saying that the regulators and the department of justice are just doing what they can, but in this case . When you read the logs and the chat rooms. You have to roll your eyes. That share one. This is an excerpt of a chat between a jpmorgan trader and another traitor. You know what . Before we get there, this is worth sharing with you, it includes quotes from a conversation between traders. This is a cftc administrative order complaint. It sounds so mobbed up, its crazy. We aree traders that speaking of work at these banks, at competing banks. Under no circumstance should the bankers at these competing firms be in any kind of chat together. It is called collusion. If you look at the way that firms like millennium with all those teams those teams are not even allowed to speak to each other within the same organization for fears that they could be colluding. It is extraordinary that you would see bankers excuse me, traders from different banks, they are there just so that banks dont have to interface with each other. The fact that they are colluding is bad business. Draw one other distinction between what goes on in a hedge fund and what goes on in the bank. Hedge funds are investors. They can do whatever they think is right and legal to make money for their investors. Banks are supposed to be trusted institutions. When you look at an advertisement or a bank and it customers first, clients matter, how can this be the case when this Monkey Business is going on . I invite you to read and download some of these orders against the various banks. Draw your own conclusions, dont take our word for it. All right, coming up we are talking about pirates. We will be speaking to the man who teaches shippers how to be safe on the high seas. To tom hanks film, shining a spotlight on to the issue of modernday private piracy. Criminals hijacking crews and demanding a ransom for their safe return. A risk that shipping companies have been dealing with for years and dealing with the threat to cost billions each year. The president of Nexus Consulting is a Security Firm that helps Companies Deal with the threat of piracy. He is a former u. S. Marine with us from washington. How brave is the threat of piracy today compared with, say, the timeframe around the captain phillips kidnapping . I would say it is more prevalent. On a global scale, definitely the incidences have increased over the past two years. We have locked down somali piracy, but we still have nigeria and Southeast Asia heating up. It was getting a lot of before theven captain phillips incident. Why dont we hear more about nigerian piracy . A lot of reason. One, the term piracy is a legal term. It does not, in essence, take effect until 12 local miles off the coast. A lot of the activity that happens in west africa is within territorial waters and is deemed a crime at sea. There is a lot of government collusion, really it is a risk of doing business there. Due tomuch is lost piracy disruption each year . Hot 100 million in losses and expenses. 100 billion . Thats right. Who is paying for that . We all are, really. Up,price of gasoline goes the cost of a tv at walmart goes up. The questions that everyone ultimately comes to, watching a film like captain phillips or thinking about piracy why dont these larger ships, at the least, arm themselves . The good news is that they have. It has probably been about three years now and i would say about 70 of the east africa transiting vessels have it on themselves. We have seen a reduction to absolutely zero incidences of hijacking of our last two years. The biggest problem, really, is the logistical component. Nigeria just does not allow commercial vessels to be armed. Ice, so they are left at the mercy of the pirates. Parenthesis pirates in parenthesis. Pirates,tially partially government regulatory authorities. Are you saying that the Nigerian Government is in cahoots . Any directhave evidence at this point in time, but i would say that they certainly make it difficult to protect themselves and the commercial vessels. The ability to move it is 30 million in black market oil annually. There are far too many variables for them to not be involved. What is happening to commercial shipping insurance rates . They have gone through the right through the roof. Kidnapping and ransom used to be ofbe 500, now it is upwards 75,000 may be for the 30 day transit for a particular vessel. They have gone through the roof. What do you do . What is your job, exactly . Twoputt former military folks on commercial vessels with thearms in order to prevent pirates from approaching and getting on the vessel. Much of the if i am not mistaken some of what is happening in and around the area where tankers exit the persian part those waters are in released by the u. S. Navy, are they not . They are. In that neck of the woods we have the fifth fleet coming out of bahrain. There is a finite amount of ships, a couple of combined Multinational Task force is working in the gulf of aden. A quote from an admiral when we first started in one, we are talking about million square miles of ocean and they just dont have the assets to patrol the entire area. Looking into the future, how is this going to evolve . Piracy springing up quickly in other parts of the world . Absolutely. Governments are weak where there is porous activities. Where there is nefarious activity going on. And willll exist bloom. Good to see you this morning, kevin. Advises companies on piracy. We will be back in a moment. Say goodbye, but that is it for Market Makers. We will be back tomorrow. Who will be with us . Jonathan gray, he runs the Worlds Largest real estate investor, blackstone. Many people think he has the the one who be writes the whole ship. Great fun fact about him, he has had the same work phone number his entire career and he has only ever worked at blackstone. I like that. Do you remember your first work phone number . No. He does, hes only had one. Bloomberg television is taking you on the markets. Here is scarlet fu. Time for a mixture right now, putting the Dow Jones Industrial on the average after disappointing data around growth overseas. Right now you can see the nasdaq is slightly higher, moving 17 points. Joining us now for todays options, a derivative strategist. Over the last couple of days there were not big gains yet, but the vix continues to come down. Are the days of going to 20, 26 behind us . Or is there still volatility at the end of the year . I think that i have come here every wednesday for the last quarter, however many months, using the expression winners and losers, and that is what we continue to see. You have sectors like energy getting hurt, but then you have more money in the pockets for the consumers, retailers, those stocks faring rather well. You had it earlier with amazon going up quite a bit in earnings to cover their losses. Retailing stocks are doing well. We continue to see some positive momentum going forward. That is certainly what is happening right now. You mentioned macys, shares are up right now by two dollars . 56. Profit, buto post a if it is the top line that brings the bottom line, what do you see in your options activities . Over the last week or so there were some questions added. People were buying in last week. Today we remain active more from the closing standpoint, rallying the stocks. It is less challenging than the rather favorable markdown conditions. The bottom line is Getting Better than the expectation. It may perhaps set the tone as well for the days to come. Looking at the bloomberg terminal, checking on the history, Cisco Systems has a tendency to beat estimates. Are you counting on that in your strategy . Trap. Me it is a value let me explain great quickly. Sale,at 2. 5 times the they are buying stocks at a record pace. My strategy strategy there is rather neutral. I would say about . 22. 4. 5 is the average. This is a really good way to do that tonight. Shares are trading lower now. Thank you so much. We will be back on the market once again in 30 minutes. Money clip is next. Clip, wheremoney we gather together the best stories, interviews, and videos in business news. A christmas blitz, walmart turns black friday into a fiveday affair. Obamacare on the line, a Supreme Court hearing as the republicans challenge the Controversial Health care law. 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