Transcripts For BLOOMBERG Market Makers 20141212

Front door. Happy friday. This is Market Makers. Schatzker. I am i am scarlet fu. It is up to the senate in the Upper Chamber beginning debate on a 1. 1 trillion spending bill just hours after the house barely managed to pass it. It faced strong opposition from the left and right. Elizabeth warren and ted cruz have both threatened to block it. She is worried about a provision that rolls back part of the wall street reform bill and he was to block president obamas immigration plan. The senate has until saturday to avoid a Government Shutdown. Wholesale prices are falling. In november, Producer Price index was down 0. 2 , the strauch sharper than forecast. Economythe overall picks up steam. Oil cost is playing a big part. A data point the fed will be looking into when it meets next week. Pressure yet again this morning after the International Energy agency predicted demand will be weak and supply will be strong. The iaea is protecting what is a vicious circle or virtuous one, depending on your point of view. Lower oil prices are hurting countries like russia. Headed for the 10th weekly decline. Steve schwarzman says now is the best time in years to invest in energy. The blackstone chief executive said Oil Companies will need to restructure and raise capital after the plunging crude prices. Blackstone is grilli raising money for the Second Energy currently raising money for the Second Energy fund. Togreat time for blackstone be investing, by definition, then a terrible time for those who are selling. A closer look at the fallout from plunging oil prices, we turn to skip york. Skip, where is carnage going to be worse . I think where youre likely to see it will be in the or i willthat have say the regions that have the higher breakeven costs. Where it be the balkan will be the fringes, but still see activity in the core areas that have better economics. Along the operators base, the ones that arent as exposed or dont have a hedge, some more exposed to the stock price. And those firms that have high debt structures or a lot of debt on the books loss to be a bit will suffer more than the industry as a whole. In the an expert midstream and downstream. That go from enp in direction for the refinery, where else is there fallout . You could see a bit of the fallout with refiners as a knock on effect. Really, more on the demand side. As we see growth of oil demand of about 800,000 barrels a day, but if if a refinery runs dont keep pace, it might be harder for u. S. Refiners to place their access errols auto the export market and be able to clear those into the International Markets. That could put downward pressure on their economics and their Financial Results as well. Right now we are seeing conservation by some of the smaller players. Anything to save cash. What will be the catalyst for m a for actual consolidation . I think the catalyst for that is it goes back to the debt structure. The companies that have the higher breakeven costs on a development and on a financial basis, the lower prices will put them under stress. And the ones in the better performing areas that have worked that have the lower breakeven cost, can either grow production in the corridor i take some of their stunning financial strength and look for acquiring acreage from some of the weaker players. When you say growth production, why would anyone want to grow production in a 60 crude environment, even if you have a breakeven cost that is clearly,e margin, isnt as good as it was at 70 or 75 or 85. We dont know if and when prices may return there. That will be part of the challenging of the 2015 and even 2016 capital plan for some of these operators. You are right. My breakeven could be 50 a barrel and i met 60 barrel world. That margin is still possible. A lot of these companies have been telling a growth story. If they dont grow production, despite the fact that equity prices have already been under pressure, they fear they would be even under more pressure if they dont continue to show that volume growth. They have that incentive to keep continuing the growth story and try to tell the story that we are one of the stronger players and we can grow our production even at a low price environment. The challenge or the choice they have to make is, do they defer some of that better a great and wait for prices to rise to capture those higher margins in a Higher Oil Price environment . That every company will face a decision. Sounds like a lot of moving parts. I want to go broader. A lot of people are on the deathwatch for countries that are well producing countries. What does that mean for your midstream and downstream companies if there is an economic collapse in any of those countries . If you look at those countries, in particular the middle east or venezuela or russia, a lot of their product demand is met locally so a collapse in demand in those countries is likely going to be a greater impact on the local refiners in those areas where it might impact the nonlocal refiners refiners in the u. S. Or europe if those refineries and russia or the middle east continue to run hard to generate cash, they cant sell the product locally and so now you have even more product flowing into International Market where in a week demand world. Demand growth next year will be 900,000 barrels a day, would they see it as a bit weaker than that with just over 800,000 barrels a day . If you get that demand claps and some of those well dependent markets, you can see even more products flowing into the International Market and you have more barrels chasing less demand growth. Do you see any evidence of that so far . Is one offar, but it the key watch once. A couple of things were watching will be on the upstream side, watching the earnings calls starting in january. On the downstream side, watching we watch the technical factor of the crack spread, the difference between product andes in various markets crude acquisition in those markets. Us the Product Market is softening faster than the crude market and that will that would be bad news for the refiners in those markets. Explaining thee get dizzy on demand. What about supply gekko what about supply . Lets hypothetically say with 60 oil through next year. Does that mean come 2016, we may see u. S. Crude Oil Reduction begin to decline production begin to decline . A function ofe the decline curve. We think we get some price recovery in 2015 will average more in the mid70s. If you are below the 80, youre still going to see production the u. S. , especially in the front end of 2015 because of the wells that have already been drilled that are awaiting completion. That volume is coming to the market. Pricecoming at any because the wells have already been completed. The back half of 2015 is when you might see the reduction in the slowdown in the drilling. Growth slows. If you need to actually take barrels off the market, if we need not just the Production Growth but we actually need to stop reduction growth or have Production Growth decline. Now youre in a much lower price environment because the operating cost of an existing well a summit slower than the price environment were in today. Final question, does opec matter even if it does do something before its next reading and june meeting in june . It will always matter. Theyre some of the lowest breakeven operating and developing costs and the world. They always have the ability to bring oil to the market. I think the key issue for opec will be on a country by country basis, how much pain is the government budgets feeling in each of these countries in these low oil price environments . You can see different reactions are different desires for policy changes in opec. Among the different members. Think the key is, they are still important, but the roles you might see them playing, you can see some disharmony and a lot of discussion even in advance of the next meeting. They dont just talk to each other in the vienna meetings, but on a constant basis. I think the market will be looking for signals coming from them even in advance of the meeting of where those pain points are for this various members. Given the factors that ever present risk of a saudi Production Cut less the fact that you and other people do expect some price recovery, at least here in u. S. Oil in 2015, doesnt make sense to you looking at the futures curve and using yesterdays numbers we dont see 70 until october 2018. Right. Is, this all comes down to what it is the balance between the demand growth in the supply in the nonopec supply growth. You see price curves weaker than what our outlook is, the consensus is demand growth will not be as strong or the supply responsibility response will be slower than what the mckinsey view anticipates. It just speaks to there is a great deal of uncertainty in the market. Everybody is looking for the next data point that will give them some clarity. Theres not going to be one Silver Bullet of information that tells us where the market has settled or we have hit a bottom. You will be taking data point after data point, report after report, and trying to melt that together into a coherent view. Skip, thank you very much, have a great weekend. Kip york we will be back in a couple of minutes here on Market Makers. Or speed bumps for uber. The headlines this week, none of them good. Does any of it really matter when your startup is light at 40 billion . s we could get worse. Despite all the bad pr, is is still winning . Ands bring in Olivia Sterns paul kedrosky. Lets have you set the scene. There is a lot going on starting with the pairs decision. In the next hour, we are expected to get a ruling from the highest commercial court in paris. The issue is with uber pop, the lowest branch of uber, the ridesharing. Looks a lot like lyft and allows anyone who drives a car to potentially become a driver. One euro is the base fare. Obviously, this is causing a lot of commotion in the very tightly regulated taxi and limousine industry in paris. It is in court. This does not affect the rest of uber. Is aoks likely uber reality it is here to stay in paris. The new economy minister said at a tech conference in paris last week, uber is a reality but you have to protect people, doesnt make sense to have a crazy driver without a license because one day well have an issue. In paris like the rest of the world, it is about background checks. And not just paris, san francisco, ella, spain, brazil, the netherlands. Starting in the u. S. This week, san francisco, los angeles , sued by district attorneys over claims that are making false promises about background checks. Also sued in portland for allegedly violating local laws. South america, declared illegal in rio. In europe and spain this week, they were told to cease operations completely. In the netherlands, uber pop. This wave of record trade backlash around the world. A lot has to do with googler uber pop. Been, go first and asked for permission rather than ask for permission. Paul kedrosky, familiar with the uber story and that of any other startups. Paul, maybe i am in the minority, but i listen to all of these things, let cities negative developments for uber, michael a nation is to say, who cares . Everympany is going for lost, he did say that, what is happening in paris and delhi, uber seems to be winning 10 times over. Degree, that is absolutely true. Think about it in the context of desk people forget ipos are as much marketing events as financial invents events. In a perverse sort of way, a lot of free publicity for uber. In many ways, were such a short attention span, we know uber much better thanlyft or anyone in the market, so there is a degree to which this is fantastic free marketing spend for the company. I think it has to medically help them grow and ripen new markets dramatically help them grow and rise in new markets. Is it fair to liken this growth anders attention to what were seeing with facebook in 2010 and 2011 before its ipo in 2012 . So many concerns over privacy. This dispute over the ownership. In these Big Questions about whether facebook would ever be able to go mobile and then monetize its user base with advertising. Last i checked, facebook is worth 220 million. Private desk privacy has been an issue, but does other columns are well in the review mirror. With the added wrinkle, imagine any of the cities that facebook was trying to enter in that period had Community Networks telly regulated in the cities they worked. We want to keep them safe for privacy reasons. That is exactly what you see play out here. Clocks all, i know is talking about regulatory issues and that is one thing, but you have the other angle, the case in new delhi, where uber responded by giving her a credit. As uber a Technology Company its name would suggest or just hitchhiking you pay for . It is both. It doesnt make it a bad business proposition when you build it on top of a platform of technology the way they have. I think it issued to some degree with this narrative that says, this case in delhi which is a tragedy, somehow indicative of a widespread problem within uber network . Theres a study done in london in 2013 and had to do in war with or with cabs. One of the most tightly regulated markets in the world with respect to ridesharing. Taxis, i should say. The key question is whether uber should acquire Higher Standards for local authorities . If city regulators put their stamp of approval on certain process for background check, it becomes a lot harder to blame uber. If you look at new york city, uber svs background checks are done to the official route in some cities. To see kind of stamps data plus could on this company . What can of stamps to see them putting on this company after david clough joined . One of the biggest problems the companies had is probably his charm, a fantastically breast tackles competitor brass knuckles competitor. Turning that around, especially dealing with regulators, is going to be hugely important. Theres a lot they can do. Theyre actually doing a better job of background checking that in many cases local governments are original taxi and 37 doing. Or regional Taxi Services have been doing. Then tell but think this is trough. To what degree do you think regulators in these various highly local markets and attention to what uber is dealing with elsewhere in the world . Is it purely local or is it some contagion, lets say . Oh, i think theres contagion by the contagion comes from this notion of regulatory capture, which is the taxi authorities protecting new yorks famously the diane prices as an example, protecting the asset they have in terms of owning these tightly regulated marketplace and trying to prevent this new competitor from coming in. Hey cite oneoff story did you hear what authorities are doing in paris . That is the way to contagion spreads, telling these oneoff stories like quite honestly have nothing to do with anything. We thank you so much for your perspective, parker roski desk pocket roski and olivia we will be back after the short break. Stick around. Welcome back. Breaking news out of the u. K. All airspace over london is currently closed. Weve also heard from heathrow posting on twitter saying that a power outage at the National Air Transportation Safety Control center. Flies are currently expecting delays. All airspace over london closed. Welcome back to Market Makers. Scarlet, the u. S. Is finally getting the message on credit card security. Mitch and merchants face a key deadline, socalled chip and pin cards will require a lot of spending on upgrades by the merchants and also by the card issuers and that is a big for technologies. About this liability shift. Stepping up the technology to the consumer so your card numbers and information doesnt get stolen and you dont get defrauded. Exactly right. What will happen in october 2015 is if your card is used fraudulently by counterfeiting and if your Financial Institution has issued you a card with a chip, the Financial Institution will not anymore be responsible for the fraud. The fraud will shift to the merchants only if the merchant has not moved itself himself to the chip technology. Incentive pretty good for the merchants to upgrade. I keep hearing from people, at best, maybe, 50 of u. S. Merchants will have adopted the socalled emb terminals next year and most likely about 33 . The race is on. It will happen. The banks are fast issuing cards and merchants are very fastmoving to having pos terminals capable of accepting chip. There are though instances of fraud and fraudulent activity with Emv Technology but it doesnt prevent data breaches from happening, does it . That is true. When we talk about security, security is to be layered. Very strong layer is having chip technology. That is one layer of security. Your data could be stolen but may not be reused. Chip Technology Allows counterfeiting to come down. That is one element of the fraud. But it is significant. You have brought one of the new cards. This is what it looks like. It has a chip right here. On the back, it has a digital ly generated number. As we move to october 15, your card present transaction, in person transactions, will be secure. However, the chip will not help the transactions if you deal on the internet. On the internet, you need to provide new securities. What were introducing to the market is what is known as the code youre requested to enter changes based on time. Every 20 minutes, every 30 minutes, every hour the person will decide that. In other words, if you make a copy of the code or you still the code of someone, after an hour, you will not be a will to use it because it will be a new code. When erik is shopping for christmas presents and has this card, he still needs it next them to input the number. It is not just auto saved in any way. Very true with the dynamic cvv it will be the case, but how much security do you want . As much as possible. Another question that i know they dont like getting, wire we talking about cards at all . Five years from now, what everyone be using a smart phone . And why cant my smart phone or pc generate this random number i need to complete an online transaction . Why do i need to run to my bedroom, scramble for my wallet, draghi card out of my wallet, go back to the pc to complete the transaction . Cars a, we moved into few years back because we were absolutely convinced that they knows will disappear. Banknotes are still present. In the payment world, changes are slow. Im not saying in 10 years or 15 years we will not do everything with a mobile transaction or with other technology that is not even appeared on our radar postup im telling you are cards will be there in 10 years. Says were talking about changes taken Place Overall in your sector, what changes have you seen since the rollout of apple pay . Certainly, you have seen some kind of groundswell. Seen ant say we have groundswell. We love apple pay. I personally love apple pay. It is a convenience. Our job is to provide convenience to consumer and that is it additional choice. What we love about apple pay, it technology that was not very successful up to now. In canada, all the cars have cards with what did you hear that did you hear that . I heard. That card is also a tap card. As with apple pay, you can take this, as with other cards today absolutely. The point is giving choice. Thank you, martin. Thank you for being here. Up, using cheaper oil would be bad news for renewables. Not necessarily. The ceo of one of the worlds Top Solar Companies says that is not the case and he will explain what the relationship is. We will discuss right here on Market Makers. An updateto bring you to headline we brought moments ago. There is a closure of british airspace due to a power failure at the National Air Traffic service. This is the company that operates air Traffic Control in the u. K. Weve heard from airports including heathrow. It doesnt appear as though planes will be able to take off until 7 00 p. M. London time, that would be 2 00 p. M. Eastern. At the moment, we understand flights are still arriving at gatwick, but u. K. Airspace is closed to departing flights. You can imagine what an enormous headache this is creating at heathrow, one of the worlds busiest airports, if not the busiest. Furthermore, the flights bringing passengers to and from ,ondon to the city airports etc. We will bring you further updates as we know more. Everybody is talking about the oil market and the impact on the rest of the energy industry. Falling oil prices are reducing the cost of energy but at the cost of solar energy. We wonder, does the outlook for solar change in a world of 60 oil . Sean chu says, no way. Explain. Good morning. My understanding, people dont generate electricity using oil and that is why the falling cost of oil doesnt really impact that is correct. People dont burn oil for electricity. Gas is important. Nuclear, maybe hydroand coal. Electricity is number one. Also the cost of solar cells has been reduced so much due to technology. Basically semiconductors. It is not a Natural Resource product. The oil andw much gas price drop, even power utilities themselves, even if fuel costs reduce, i dont think local utility will reduce your electricity bill. That been the case, step back a little and talk about the biggest risks to our industry for next year. If it is not oil prices, could very well be new government resumes. There will be a lot of elections around the world. Second me new policy toward solar energy, especially when it comes to incentives and subsidies. May be. There can always be shortterm that doesnt change the longterm trend. The longterm trend is solars cost is going down and theres more awareness and acceptance of solar. Shawn and how far or how long until Solar Technology here in the United States is the marginal price center for electrical Power Generation . It really depends on where youre staying. For example, in the case of some Southern States like texas or southern california, the agreement at 40, 50 per megawatt hours. That is pretty much in line with the gas fired power stations. A solar panel under rooftop, we can always guarantee it will save your electricity cost. We were talking earlier how you can get away from the biggest weakness of seller, you cannot store the energy and there are cloudy days and nights. The thermometer i use that is solar powered, i can use it out under a sunny window for the entire day in a nighttime it doesnt work anymore. Are there any are we on the cusp of any breakthroughs when it comes to that technology . That is more the correct. We never said solar will provide 100 of your power. If people do consume a lot of power during the day. The air conditioner works during the day, not much at night, i guess. Shopping malls, people go to shopping malls in the day and not at night. A large part of electricity consumption is during the day. Some majore penetration of solar powers, not 100 , but into a high percentage. Grid. Xt will be on once solar gets too high percentage, people will require more storage. Cars. Electricity electric cars will also help. From what i understand, Canadian Solar is getting into the Solar Project of element. Thats right. We provide the package. Andhat about constructing owning and operating it as opposed to selling it to some utility . If we just give you a solar panel, you dont not into it, what to do with it, so i better provide you the whole system, which can generate power. Still, if i just give you a system, you have to pay. Justf i own it, then i generate electricity and give you a discount. And operatinging a solar system, i am providing shoretel asset service. So it benefits you. For me, my shareholder will get longterm, stable, protectable cash flow rather than just one time sale of the system. But what has happened with other companies in your industry is that shareholders have had trouble distinguishing between the advantages of the manufacturing and the advantages of the Solar Energy Producer that generates this stable, protectable cash flow. Are you going to migrate to that we havedivided model manufacturer on the one hand and the socalled yield co on the other . I think both are good and both are necessary. Strong manufacturer will bring a lowcost product and highefficiency to make the whole industry grow. You also need to go downstream Service Provider and Canadian Solar were doing both. Strong business on both sides. Will you spin off in the manner of an energy for example . That is a possibility, but i dont want you to quote me. That is my job. That, ido anything like will have to communicate to all my shareholders. All of your shareholders are watching right now. Thank you very much. Shawn qu with a cue for joining us. Thank you for joining us. Update and clarification on what is happening with flights in britain. It is london airspace that is flights, which is to say planes are not taking off from any of the regions airports. There are many if you were to look at an air Traffic Monitoring site, you will see all kinds of planes circling the london area. We understand a few flights are still lending and gatwick, but none are taking off. Would london airspace closed until at least 7 00 p. M. Local time, 2 00 p. M. Eastern time, those planes would be diverted perhaps north or elsewhere because this is what you would see if you went to flight 24 a perhaps some of the other sites that allow you to monitor air traffic above london. You can see all of these plays in the air. Those planes are on the ground, actually. It looks like heathrow. You can also see planes circling. Anything in the air will probably be diverted because they dont have infinite fuel supplies. The reason were covering this is because of the chaos it must be creating for travelers on the cusp of the weekend and one of the busiest dissenters of air traffic in the globe. We have a headline on the bloomberg terminal that says airspace is open, traffic fine being restricted Traffic Volume and restricted. Though supposedly the source of the problem. Some sort of power outage according to heathrow airport. It does seem based on tidbits of information we are getting as though the problem is being sorted out. And they will slowly let traffic come back again. We will keep you updated. In the meantime, a new startup may soon be boxing a bulk warehouses like costco in the corner. The new shopping app allows you to get your sherman 12 paper from the touch of your smartphone or tablet without leaving your house. Plus, no membership fees. The ceo of box joins us. Can you clarify for us what costco is to you . Is it a competitor, friend, enemy, supplier . Everyone thinks about book shopping in terms of costco. We dont see them as competition. Relatively friendly. The marys and, as we are done primary reason, as we have done research, the age demographic is totally different. The vast majority of our customers are between the ages 25 and 44 and the vast majority of our sales happens on a mobile device. When you look at wholesale club members in general, not just costco, about 60 of their members are boomers and seniors. We are totally different demographic. Costco spokesman said talks is one of the many experiments it is trying a mobile and letting box some of its merchandise and resell to customers. What happens when costco decides to do it themselves . We will be right here. Back on the show and seeing how things go. We are going off into her own business as well. We are carrying a lot of products. Right now about 60 plus percent of the items we carry in certain demographics you cant find at your local warehouse stores. Such as . The diapers we are bringing will be added in the next week or two. Stuff. Rry mrs. Meyers when you think about the audience, it is mainstream for them and that is what were try to do. If you did not have enough crumbs in your keyboard already exactly. For our age to my graphic, a lot of them have never been to a Warehouse Club yet or have never set foot come on, they grew up on it. I grew up on it. I feel like a dinosaur these days. Considering the age group that grew up on mobile devices and apps, they probably have never seen a box of 98 granola bars. That is what were trying to educate them on. These discount membership clubs, relative to other stores like target or even the traditional walmart have been doing great. What does that say that your business . Isit truly is not that it impervious to, but not so susceptible to the cycles. Saving money is something people like to do in good and bad economies. I think that is a telling for our business. You talk about being mobile and digital, but as we just saw, you need to have warehouses and Fulfillment Centers. You have a major bricks and mortar investment as well. Absolutely. There is been so much innovation on the logistics side of things, that we can concentrate our Fulfillment Centers in a few areas around the u. S. Even today, about 80 of our packages arrive in two days or less. In new york, youll get it overnight. It is all with free shipping, regular ground shipping. Talking about drygoods and not fresh food. All of this stuff you could find in the outer aisles of your typical Warehouse Clubs. No hard lines, no fresh lines just yet. Thank you for joining us with boxed. For the update on what is happening in british airspace. The skies over london are open, but severely restricted. That is the word were getting from british authorities. There was a problem at the National Air Traffic service. It remains a problem, but no are near as bad as we thought even just a few minutes ago. They were then was that london airspace was closed that no airplanes were taking off. It does sound as if they are sorting it out and things are improving, that maybe know near as many travelers will be stranded at airports like heathrow and gatwick on a friday evening as might otherwise have been the case. Face it. Talking about delays rippling through for hours on end. Scarlet, it is going to suck. No question about it. It is going to suck. Breaking news. Stay with us. Welcome to the second hour of Market Makers. We have breaking news this morning, london. The computer failure has thrown airports in the london area in disarray. Briefly closed but it is now open but severely restricted. We will check in with our london bureau. Give us the latest. Is that airspace is now open. This was announced in a tweet by nats, who controls u. K. Airspace. They said we were restricting volume to does capability within the system. We are told that airspace is now open. About less than half an hour after we were told a technical fault said that all of the airspace was closed. We were told that the computer failure may lead to closures until this evening, 7 00 this evening, but it appears it has been cleared up sooner than expected. Do we know anything about this computer failure, is it being seen as suspicious, is a fairly standard and just untimely . It seems at the moment the latter. We have not heard anything to say otherwise. Just named as a computer failure. As soon as we heard about it, nats said that the Incident Response team had been mobilized. Butpace is back open now, the effect on flights was pretty immediate. We heard flights out of heathrow were experiencing delays, in fact, more than 20 of departure flights, a little less for incoming flights, 13 . Airport, all flights experiencing delays due to a power outage. Affect but itiate looks like it has been cleared up. We will see if things get back to normal just as quickly. Thank you for the update. As we discussed, there will be reverberations if you have a flight out of london later today. Power of the ipad. Lets take you to the bulletin, these are our top stories in business and finance at the hour. The American Consumer is feeling good this holiday season. The university of Michigan Confidence index hit and eightyear high. Punching gas prices probably helped, as did job growth. Great timing for retailers because they would love to see customers flocking to the mall this holiday season. Stocks, however, trading in the red. Senate. W up to the the Upper Chamber begins debate on the spending bill hours after the house barely managed to pass the legislation. It faces strong opposition from both the left and right. Democratic senator Elizabeth Warren and ted cruz have both threatened to block the bill. Warren is concerned about a provision that rolls back doddfrank. The budget touse block the president immigration plan. The senate has a plan until saturday to avoid a Government Shutdown. Oil is under pressure yet again this morning rating with a 58 handle. The International Agency predicted that supply will be strong. Oil prices are hurting the economies of producing countries including russia, for example, and that means less demand for crude in places like russia, iran, venezuela. Time warner chief jeff bevis is talking about more mega media mergers. He suggests cbs and viacom could be looking for partners and they may want to get together themselves. That would be back to the future for these companies, who slip from each other in 2006. Both remain controlled by sumner redstone. The spendingned bill. Democrats may have lost the battle but they are still hoping to win the war. The fight over an appeal of an attacker provision of the doddfrank act could be called cause of the Elizabeth Warren part of the party. We were concerned that the story would be the dispute between the republicans, infighting between the tea party and the leadership. Now it looks like the fighting is happening in the democratic party. It is a white house that is trying to get the possibility of a Government Shutdown off the table against democrats led by Elizabeth Warren that want to stand and fight. What youre seeing because of theses, the areas where parts of the party disagree wall street is a prime example of this is coming to the forefront now. With democrats moving into the minority in congress, you will see lawmakers willing to challenge the president and the white house and really pursue this antiwall street strain that has flared up in the past couple of days. What does this mean for hillary clinton, who has not announced yet but presumably will be announcing . Game you look at the long for a senator like Elizabeth Warren a lot of people on the liberal side of the party warned her to run for president. She has said no and said she would support hillary clinton. But if you look at the long game , her push is to make whoever the candidate is moved to the left, not the center. Do not play to the new democrats of the bill clinton era but to push them or to the left. When you see Elizabeth Warren take hold of the debate like she has done in the past 48 hours, you recognize the power that she has to make the shift and the potential impact she could have on the president ial race. Is this a preview of what you can expect in the democratic and Republican Party and also how things are likely to play out over sitting members of congress over the next two years . You have the progressives gaining strength in the democratic party, the libertarian wing gaining strength in the Republican Party, and in the primaries, everyone will have to gravitate to the extremes . That is a good way to look at it. So much is left to be fleshed out. How congress interacts with the white house with republicans in control, there is a lot to see how that will work. When you look at the primary process of what is coming up, you side with the republicans in ends012 elections, the far of the party are generally what work well in the primary process. The libertarian side or even the republican train of the tea party. They have not said anything about this derivative spending provision. They are not weighing in on wall street which seems to be a mainstream issue. Im interested to see whether ,he antiwall street strain whether the republicans attempt to coopt that. Elizabeth warren yesterday came out and called on republicans to join her in this issue. We have not heard from her office today but she may do a similar thing. Watching how the republicans react will be constructive on how these things play out, going forward. Politics makes for strange bedfellows. Elizabeth warren, nancy pelosi, and ted cruz on one side. Who wouldve thought . Originalxs latest marco polo hits the screens today. Orl it be game of thrones Something Else . Another newas series premiering today, its most ambitious effort yet. Marco polo is now streaming to netflixs 53 million customers. Of 93 million for 10 episodes, it is not cheap. Paul sweeney is here. Cory johnson is here as well. The reviews call it a disappointment, something that does not exactly build on the game of thrones formula. How big of a deal is this for netflix . Is this crucial for their bottom line . Lets be clear, they have had two hits but they have done ,bout a dozen original series Everything Else has been a flop. This is a 90 million bet for netflix. I think it represents the kind of commitment they are making to content. On the movie side, it is getting more difficult and expensive, so they are paying more for worse and worse movies come in terms of box office access. The success of the streaming is not based on the things that are in netflix right now. In a separate section of the quarterly filings, you could find their contingencies and offbalance commitments of a minimum of 7. 8 billion right now. If the income keeps on coming make those pilots with the subscribers, but they do not have the Free Cash Flow generation that they would be building otherwise. You see earnings, but unlike other media business, netflix has a good income statement, but at the end of the day, the Free Cash Flow is not there. I am looking a bloomberg data right now, some estimates, i have to assume they are analyst estimates to cover the stock, and they suggest they will have their free cash. They will have in excess of 200 million cash flow. See in his business is that Free Cash Flow number is always a couple of quarters away. They continue to push that number out. Number that investors are focused on, but it will be. Paul sweeney, when i heard that they were making marco i heard british accents, lots of action, sex, taking part in china. It has all the ingredients. How critical is it to keep International Rights . Up until this point they have not own their original content, so that means they are limited in ways they can monetize their markets around the world. A little bit different here with marco polo. They are spending the big money on their balance sheet, but in return for fully financing it, they get most of the International Rights. Its a big piece of business for them, something they were used to drive subscriber growth. They will be making marketing pushes to drive subscriber growth. They need the subscribers to generate the revenue to support these projects. Say orange is the new cardsand house of have held them to make their money back . We dont really know how many people are watching these individual shows since they dont subscribe to nielsen, but we see in the quarter after they release a big quarterly production, we see a jump in subscribers. The company tends to attribute that to their new shows. I think the shows are important as promotional vehicles to drive subscriber growth around the world. Cory, if shows like marco cost 90 million to develop and this is increasingly the game that they are in, does it begin to look more like a studio and suffer from the problems that someone like dreamworks is having . When i looked at this a few thought as netflix thought, content costs are going up, we are in bidding wars against hbo and showtime and amazon. Thought, content costs are going up, we are in bidding wars against hbo and showtime and amazon. But what is interesting is the movie business is going away as well. The content distribution deals for streaming that the studios are signing up on the way from amazon a lot of people like to talk about disney and the deal forthcoming with amazon but it is not all the movies. It may not be the big bit disney movies. There was an interesting comment in the last time prince call, from the guy that runs content for netflix. He says the theater business is not great for netflix because they have to wait so long to get the movies. I think he said in the current be model, netflix will not able to deliver movies in 10 months. In some cases, they could wait nine years before that movie shows up on netflix. Netflix suddenly has to do all of their own content, a much riskier business. Paul sweeney, how does it feel look at all of this . This is a big competitor for hbo. Years, hbo has0 doubled down on their original programming, so now they have a competitor in the business. Johnson,weeney, cory thank you for your take on what Networks Netflix is doing with marco polo. Maybe Action Figures next. Back, Vladimir Putin sent a man to prison for 10 years. Now he is hoping to lead the opposition while living in exile. Interview with him. You are watching Market Makers. Mikhail khodorkovsky was once russias biggest russias richest man. He has been serving a 10year sentence and is now in exile, perhaps russias most famous dissident. Ryan chilcote caught up with him in zurich, asking him about the chances of change back at home. Putinhink the chances of truly losing power are about 50 50 in the next 10 years. When i cannot say. A lot of people in the west say the collapse of the oil will create problems for him and speed his departure, do you agree with that . The decline in oil prices and western sanctions, individual sanctions against the putin entourage means that he has far less room to room maneuver financially which creates difficulties for him. As a result, the cost of any mistakes he may make could be critical. At the same time, i would not count on the regime being toppled only as the result of mistakes in the economy. You need something more. What . You need a black swan event. Ryan chilcote is with us from london. The thing that surprises us most is to hear him say there is only a 50 50 chance that putin will somehow be forced out of office in the next decade. Perhaps even more extraordinary than that, he says even when putin leaves, there is only a 5050 chance that what happens next is better than Vladimir Putin. He gave himself a one in four chance, sort of plotting a revolution there in zurich, creating a democratic government in russia in the next 10 years. What does he say about putins popularity in russia . The polls suggest that the Approval Rating is somewhere around 80 . He said, what do you expect when it is a totalitarian state. He does not believe the polls. He does recognize that putin gained popularity when russia intervened in ukraine, crimea or, in the east of the country, however, he thinks the popularity that he gained from those moves which he believes putin did intentionally to distract away from problems back at home that that euphoria will subside over time as russians recognize the economic pain they will have to go through as a result of it. What is Mikhail Khodorkovsky doing now in zurich . What does he do in switzerland day in, day out . He spends a lot of time with his family, something he did not do much before. He still has a hundred million dollars. It is not like he is on the streets. He did not want to be filmed on the streets because he did not want to draw attention to himself. He spends time traveling around europe and is essentially putins number one opponent in exile. He said he spent about five years making about how to overthrow putin. It clearly takes up a lot of it is tension. Any sense of what he would do about crimea if he were to find himself in Vladimir Putins plac e . Crimea,ng specific to other than this is something that putin did to distract russians from their problems at home. The best thing that the russian president could do now is step down, because that is the only way that he will live through the end of his life. Have a great weekend. We will be talking about where all the ad money is going next year when we come back. Do we have some breaking news coming out of london. That theow saying airspace over london has been returned to open status. Returning to normal functioning. There will be hundreds of flights suffering severe delays. About an hour ago we learned that airspace was closed but officially it was due to a computer glitch at a local about that was built for 2 billion. They had suffered several glitches in the past, including a major 15 months after it opened. This type of thing has happened sayre and u. K. Authorities they are trying to get air trapping back to normal but you can expect some pretty severe delays if you are traveling through london. Relatively good news. Thank you. Lets move on from the situation in the u. K. Airspace to what is happening in the Advertising Market here in america. The shift of Digital Advertising is well underway. In 2017, digital ad spending tv spending. Vincent letan is g. These are some fascinating predictions. Lets begin with 2015. What is the ad market going to look like here in america and globally, and how does that how to the 40 14th does that compare to 2014 . We think next year ad spending will grow by 8. 4 , in line with what we said six months ago. Roughly 5 . It is a slowdown compared to 2014. In the u. S. , we think it will be 2. 7 compared to 4 this year. But a big caveat, we have to take into account the nonrecurring even year boosters which are strong in the u. S. , the midterm elections, the terminal winter olympics. Those will boost. If we factor that in, we are on par with the same kind of underlying growth that we had this year. Obviously, lagging behind Global Growth because there are some parts of the world that are growing faster than the u. S. The Global Growth in as is slowing down from that share. Do you see a reduction in pricing . It is driven by pricing in many markets. In the u. S. , one of the reasons we have reduced our forecast for 2015 is we have seen this year the Pricing Power of television is eroding somewhat. We have seen a soft matter market, we see the market down in volume, growing less than usual in terms of inflation. We factor that in and we think down the road it will have an impact on the growth rate of revenues. Local television also had a rough year this year. More fundamentally, an acceleration in the shifting of andalls for Digital Media the shift of ad dollars, too, to some extent. What are some of the biggest questions facing the chief marketing officer at an s p 500 company today . Its interesting you mention them. What has happened in the last 18 months is that mainstream companies in big verticals such pg, pharmaceuticals, suddenly they are accelerating their shift from traditional to digital. And it is now affecting television. Previously some money was shifting from print to digital. Bigreason is, those brandoriented verticals are starting to embrace Digital Opportunities more than ever because they feel they can do it safely. On the basis of that, you predict digital ad spending, in the United States, is going to match or overtake Television Ad spending in 2017. This is the global picture in 2019. Correct. In 2014, 14 market that have reached that point where digital is equal or bigger than television in terms of ad revenues. The u. K. Is the highest in the world with 47 of total ad dollars that would Digital Media next year. The reason why the u. S. Is somewhat lagging behind the most in fact,markets is, not that digital is smaller, but tv is smaller in europe. If chief marketing officers know that tv is eroding, why are they still overspending on this medium . Is it a generational thing . Tv has held its market share very well. In the last five years, despite the growth of digital, tv have stayed around 40 . In some countries it is near 60 . Becauseill very strong of its efficiency in terms of branding, but now Digital Media, in addition to being very efficient when it comes to driving traffic and activating, marketing, digital is also being used for brand campaigns now. How do you capture the money being spent on native advertising . We dont. It is not something that is clearly defined today. My definition would be whatever is not a standard format, not a Standard Banner format, for instance. In the u. S. , we follow but a trade organizations say in terms of historical numbers. It is not a category of they capture today. Formats will be the last type of media that will not be affected by what we call the most ofatic rise, i. E. Digital being transacted on a automatic basis. That is a very big trend happening today. Will be withising the most premium ad formats. We will probably stay away with that. If we dont know the numbers, how can we measure how quickly it is growing . I think it is growing but from a super low base. Thank you, vincent. We have a lot more Market Makers coming up on Bloomberg Television. Getting close to lunchtime so we will be discussing food. It is a sea of red when it comes to equities. Oil and gold is lower as well as u. S. Stocks. Olivia sterns has the latest. Lower ands are moving oil is heading south and the numbers coming out of china are looking weaker. Texas crude falling below 60 a barrel for the First Time Since july 2009. Continuing to fall today, 3 . 10 for the week. That is really stoking concerns about strength of the global economy. I mentioned data coming from china. Factory production numbers showing a slowdown worse than forecast. That is also adding some fuel to the selloff. At one point, the dow was off by 222 points. We had some good news about the American Consumer earlier today. There you can see the dow is off by 196 points. The university of Michigan Consumer Confidence Survey came in at 93. 8, an incredible number , even higher than the highest estimate. As we mentioned, it is almost noon which means lunchtime approaches. It is time to talk about food. Open restaurant chain is to breathe life into the fast food business. Kitchen just first east coast location here in new york city. The fast casual restaurant chain offers everything from burgers to sell it and nothing more than 600 calories. Yfe kitchenl restaurants is here. We may as well talk about the kind of food you have available. What can you serve for less than 600 calories . There are a range of items. We are set up as a lifestyle restaurant that is designed to sell and great tasting nutritious food at affordable prices off of a shopinspired menu. No french fries . We have sweet potato fries and an intense panel of what makes up the menu but it basically comes down to two things. It has to taste great and has to be made of wholesome foods. We have a grass fed burger, fish tacos, and our signature dish, on friday chicken. It is a fun play of Fried Chicken from a basically baked. Healthy in the lowcalorie sense. Where are the ingredients sourced, what kind of standards or you maintain, do you use frozen food, etc. . Our standards are pretty simple. We design a dish based on what we think it will taste like and it must taste great. Then we back up and we say, ok, we want to go organic when possible, local, sustainable foods. We strive to be gmlfree any otherbut like restaurant start up, we are on the journey to do all these things, but those are the philosophies that we have built around. The owners and creators of the company formally worked at mcdonalds, two former executives. Carlisle companies also has a background in the wendys franchises. What did you learn from these restaurant that you brought over to lyfe kitchen, either to avoid or take on . Hospitalityeen in for over 40 years and we have a great passion for that in the industry. Systems,earned efficiencies, how to be able to execute a very complicated menu and yet have great taste but a service time between seven and 10 minutes. A source ofe friction among the family members who are franchisees on the wendysefficiencies, how too execute a very complicated menu and yet side and the others . No, we are all foodies and we love great tasting food. There are differences between the brands. The great thing about what we are doing is we are saying with lyfe kitchen, this is how we live our lifestyle and we believe there is a huge demand for that in america. We learned about systems, when other fast food operators expanded their menu, it expanded the time it took to get out to customers. You have a diverse menu but you are trying to get the food out quickly. Is that more difficult with Healthy Foods . It depends on how you implement the systems. We have two great executive shifts chefs. One of the things that we immediately tried to do was to create balance within the menu but we are also a company that believes, like the seasons, menus should change. If we cannot get fresh and organic strawberries, we may switch over to blackberries. So does that mean you have to limit your selection on the menu at any given time . We change our menu because we are not going to put something out there that is not the precious that it possibly could be. You are in the franchise business. You want to franchise to owner operators. We just opened up our 14th restaurant. Who is the candidate for a franchise, how do you make that grade . That is a great question. In 2015, we are focused on opening up corporate restaurant primarily and then looking at franchising in 2016 as we prove that our economic model and a track attract high caliber partners. We will be back with chance carlisle. Lunchtime is coming. Right after the break. We have spent the break talking about frying chickens in duck fat but that is not what lyfe kitchen is about. Chance carlisle and his kitchens, and executive chef. Are talking about great food for less than 600 calories. And you brought some samples. People say that you cannot do a great dessert. Why dont you tell them about these terrific desserts . Life with out dessert is pretty bad. It reminds us of the sweetness of life. All of the desserts are under 210 calories. This one is 206 calories. This is dairy free with a touch of agave. Seeds, and we prove it in pomegranate seeds. Best healthy the dessert in america. And you used to cook for oprah. 10 years, i still do. I just did a party in montecito. I served this dessert. My background is cooking for celebrities, from president s to talk show hosts. Super are eating four foods in a desert. The food taste great, wont people, anyway . That is one of the things with our menus. Is there magic around 600 calories, or is it more about how we package and serve the food and do we look at a higher calorie ceiling . Right now we are just focus on our core dishes. That is delicious. You are not lying. Have type two diabetes, i dont want to preach to people, but you should have healthy food every day but you should still have some great taste. Have type two diabetes, i dont want to preach to people, on that note, thank you very much. That is it for Market Makers. The hours 56 past which means Bloomberg Television is on the markets. Lets take a look at stocks. We have a lower end to the week. Energy stocks are lower, material stocks the worst performer in the averages as we continue to see Energy Prices slide. Are not makers experiencing Pricing Power as we see energy costs decline. Lets get a look at what is happening in the Options Market and how its interpreting all of this. We are joined by the chief at bull chartgist options. Good to see you. We are seeing another spike up in the mix, almost two levels result in october when we had that selloff. What are we seeing in terms of the Predictive Power of options, in terms of where we see stocks going from here . The stock market is still up 10 on the year. What we saw in october was a big spike. 50 increase in the vix this year alone since the highs on friday. Volatility. Right now we are at a level near the 21. 25 level. The Halfway Point of that spike that you alluded to last friday. Thats interesting to watch on a weekly basis but a lot of action on the calls today. In addition to oil, which has you on investors minds, do think this volatility also has to do with the fed meeting, do you think eggs will quiet down after that . Im not sure, but its interesting that the Energy Sector only comprises 8 of the s p. You would think there would be more positives. There are only so many stocks impacted by the price of crude is negatively. By now there is a tone of nervousness. Of earningse end season. Looking at the vix, 80 of the action in calls. Yesterday was unique in the fact that we were higher in the vix and in stocks. Usually that does not happen. I am looking for some disconnect. If the market make some new loves and the is at a high, and we see some divergence, that could affect things at the bottom. Is rebounding by 5 , upgraded and jpmorgan. It was a valuation call. This thing trades at more than 100 times earnings and 60 times estimated earnings and yet the valuation is looking attractive right now. How is the Options Market playing it . Fundamentals dont really matter when you have lamented stocks. Momentum stocks. It is a matter of not being on the wrong side of the market. This had gone from 28 to 98. 63, where we are now, is about the midpoint of the year. We are down 18 in the last month but still up 100 year to date. It is one of the more active options and they are seeing a Pretty Healthy mix of calls are people, so there looking to see if they can break back above that 63 level. I think there might be more reward to the upside in the nearterm. Lets turn to las vegas sands. I believe you have a trade on it. Like many casino stocks, some negative headlines coming out of the cow macau. You are pretty bullish. 50 is an important midpoint. This stock has gone from 15 to 88, so im looking at the midpoint. Seven,rading at about six dollars in the money. Down 25 year to date. I want to put my money on the house. I am looking for this to have somewhat of a rebound. 70 is the target. So i think a lot of the downside is over and a lot of these gaming stocks should rebound. Lets look at the wealth effect. We will see if the house wins in this case. Thank you. We are on the markets again in 30 minutes. Money clip is next. Welcome to money clip, where we tie together the stories, videos, and interviews in business news. It has been a bad week for uber but investors and riders are still buying in. Oil prices ring a plunged to the oil markets. Says a khodorkovsky revolution is coming. And how one Police Department didnt it wrong for so long but is now doing it right. And in todays wild card, what could be better than a room of burt reynolds