tv Market Makers Bloomberg December 30, 2013 10:00am-12:01pm EST
headquarters, this is "market makers" with erik schatzker and stephanie ruhle. >> a deadly terror attack in russiae with the -- in with the winter olympics is weeks away. >> we sent out exclusively with gary gensler just days before he retires. >> washington is buzzing as congress works its way toward a tax on internet sales. we will dive into the details. >> good morning. it is monday here in new york city. you are watching "market maker " ." i am erik. >> i am scarlet fu. stephanie is out. on to the top news stories from around the world. the ceo of crocs is stepping
down without a replacement names. this comes as blackstone takes a $200 million stake in the shoemaker. sales have slumped in recent years. in france, a get more expensive to -- it just got more expensive to have a big paycheck. a tax of 75% above one million euros. he made it the sister pays at this campaign in 2012. they are selling off their snack will brands. buying a stake in the low-fat cookie. snackwell withne the granola business. go before theo sochi olympics. terrorism is already casting a dark shadow. russia is reeling from a pair of suicide bombings in the city of
volgograd. it was formally known as stalingrad and is 400 miles of sochi. less of the distance from new york to cleveland. to talk about sochi and security, we have the deputy director of the pressure program .n washington he specializes in the business of sports at smith college. why don't we begin with you? a connection can we draw between what we have seen over the past two days in volgograd and what will be taking place in sochi six weeks from now? >> there has been an insurgency that has been going on going back to the 1990s. this is the most recent manifestation. at the same time, the leader of islamist group of the
region has said he will try to prevent the olympics. he sees it as being a provocation on a territory he believes was stolen from its native muslim population in the 19th century. he is trying to take advantage of the opportunity of having the global media focus on what is going on in sochi to make a statement. volgograd asduced the former stalingrad. it is a major city to the caucuses. what is the significance of an attack on global grad? >> it is not in the caucuses itself. we do not hear so much about this in the west because most of the attack that have happened had an pretty small scale with in the caucuses, an area where there's not even a lot of russian media presence. it is pretty self-contained. it is not penetrate our
consciousness. by carrying this outside of the north caucasus, what the isrorists are trying to do show the anywhere -- people anywhere across russia are vulnerable. we're taking advantage of the media spotlight to really show -- they are taking advantage of the media spotlight to really show that they have a wider reach. olympics sadly are no stranger to terrorism. the pipe bomb for example in atlanta in 1996 comes to mind in the murders in munich. what do these attacks say to you to the sochik games and the success of the sochi game? the dark shadow that it casts over the games itself. issues in youro question. one is the risk to russia in
terms of public relations and economy. in that regard, the games have already been a massive failure. the other question is what about the safety of the visitors and the athletes? ishink that everybody terribly worried about that. you have the north caucuses region. you have separatist insurgent groups. and the have georgia separatist region or where there is an insurgency. putin does not seem like to cooperate and say to the united states and need your help with security. it is something they did do in athens back 10 years ago. i think it is a very serious question. i do not think anybody knows exactly what will happen. >> it appears based on what you say that vladimir putin has
already failed from keeping terrorism from taking over the agenda. at what point do the participating nations in your mind, how long is it going to be if we see another terrorist people decide to pull out, whether it be athletes or advertisers who do not want to be associated with games discarded by deadly terrorism? scarred by deadly terrorism? >> there is a lot a in these games. there's is a big investment from corporations and nbc. i think that people will wait until the last moment until they pull out. >> i want to bring you back into this conversation. when we look ahead, the security of the actual games will be
tight. it will be difficult for anyone to get in or out of the city before the games even begin. does that mean insurgents will try to disrupt the olympics by turning to suffer -- softer symboliclsewhere in a gesture? >> that is something to be concerned about. the russians have invested a lot of effort and prestige in seeing that the games go off successfully. part of that means securing sochi to the extent possible. it will be a very difficult target for insurgents to hit. rush is a very large country. you cannot lock down everything at once. it is quite likely you will see uptickech -- an elsewhere around the country as they try to get their message out even though the site of the games themselves is probably going to be too hard of a target. >> what more can you do?
putin do? >> that is a hard question. been an insurgency for 20 years. it has really infected the north and the deep whole economic problems. there are ethnic tensions. there is growing ethnic strife within russia as a whole between ages of the north caucuses and native russians. you have a whole host of se deep-seated problems. >> so she is situated at the level as nice and france. >> putin thinks so she can be
a year-round resort. -- thinks so she can be a year- sochi can be a resort.nd at everybody think this is good area. including his buddy who are calling from large subsidies on the federal government and asking the federal government to buy them out. it is very large. -- it is a very large question mark. only time will tell what finally happens. i do think a $60 billion investment for this is something that has already not paid off and has already -- only brought bad pr and publicity for the area.
there has been a lot of corruption and pollution in the black sea. local residents are claiming they cannot swim in the area anymore. >> we thank you very much. from smith college and a specialist in russia and eurasia. it was arty going to be challenging -- it was already going to be challenging to begin with. >> coming up, ours was a sit down with gary gensler. why he thinks the system is safer since he took the reins. >> the biggest alternative asset manager on the planet. we will hear from steve what 2014 holds for private equity. this is "market makers." you can watch all of our shows live and on-demand bloomberg
gary gensler is dazed and stepping down as the chairman of the cftc. he brought new transparency to the 400 trillion dollars derivatives market. he battled the banks. he is not making any apologies on his way out the door. he set down for an exclusive interview with peter cook. listen. like the feel financial system is safer today as a result of what has happened with the cftc? >> yes. markets are more transparent. you can see the pricing of each transaction that goes through. swaps were at the center of the crisis. i feel good about what they have achieved. regulatorsfinancial
have been upset because you have been the toughest of all of them. why is that? >> it is a different job. to makein washington is sure that markets work for the american public. 94% of the public does not work in finance. 6% (it few work in markets -- among the remaining 6%, if you work in -- he worked in swaps.work president roosevelt brought security in the 30s. that was part of our great economic growth. now president obama turned to congress and said how do we do the same in this other market? we have largely accomplished that.
>> what are you worried about as you leave a job mostly unfinished? wewe have a great staff but need more. we are right now about the size we were 20 years ago. when i hand over the reins at january 3, we will be 10 people more than we were 20 years ago. we need more people to cover this vast swaps market that is 12 times larger than what we have covered in the past. >> there's no sense that congress will open the floodgates. if anything it is harder to fund it. >> i will always stay optimistic. where we are right now makes no sense. we were handed a task by congress. it is a great team. the staff toe oversee the market. for anyone on wall street watching, if you want an underfunded regulator or something might blow up or do you want a well-funded regulator to help the brand of the
markets? i would go with a well-funded regulator. >> let's talk about some of the role makings over the last five years. the fact that you are already facing legal challenges, what does this tell you? >> i think we struck the right balance. we live in a great democracy. as he moved from congress to the -- as we move from congress to the other agencies, five or six go to the courts. we think we struck the right balance. particularly on the cross- border. think of it this way. aig blew up. 180 billion u.s. dollars had to go into it. do you need to know more? offshoreo cover the operations of u.s. financial institutions. >> are you confident in your legal position? >> i certainly am but i am also confident and democracy. to buttingot afraid
heads with your former colleagues or federal regulators . i heard the sec commissioner dan gallagher said at one point among european regulators gary gensler was like a curse word. are you ok with that? >> we are good friends. we used to commute together. we have laughed about it since he said those words. i am all right. good friends. >> you had to throw a few elbows along the way. >> i look at it this way. these are really important matters. is 400 trillion dollars in size. that is nearly $25 for every dollar in our economy. it is no doubt there will be differences of time. we were trying to bring transparency to the markets of that inevitably might take away a little bit of the advantage of wall street. thats the 8 million people lost their jobs that we had an eye on as well. we found compromise.
two thirds of our final rules were unanimous. unanimously.ether 85% were bipartisan. pretty good ratios for this town called washington. does washington -- wall street still might get the factor they are challenging? >> they will be advocates for the clients. i respect that. that is part of our democracy. they need to look out for their clients and their interest as well. at the same time, we have to look out more broadly to the american public and do what we do with that in mind. >> gary gensler officially set some on january 3. he does not know his next move. president obama nominated to the masses to replace him. we will watch that one. s losing the ceo be
for the last couple of weeks with her blackstone was the for a piper here transaction. continue to be publicly traded. there will be a lot less of them. they will take it from blackstone and repurchase some of the shares. what this amounts to is a vote of confidence. investors have been losing confidence because it has not been able to innovate away from what we're seeing right now. classic clogs are durable but are losing a following. also stepping down. any sense of what will happen then? like this was a prerequisite for blackstone making the investments. findre going to have to something very quickly.
they do not want a vacuum in leadership. blackstone will have a lot to say in who that person is. what blackstone is really betting on is asia. at the end of the day, about 40% of the revenues come from asia. they think they can get bigger and more important. the brand is still niche small, more of a lifestyle brand. a bit of aill desperation move for any company. it is not like they need the capital. they have $250 million in cash. this money is not going to fund anything but the repurchase of shares. >> not a liquidity play. troubled company. it was losing investor confidence. here is a good housekeeping seal
of approval that the company will be fine but it will take time to figure out what the next procedure -- strategic push will be. they're getting a dividend. have spoken to steve schwarzman. it is hard to do a traditional take out of a publicly traded company because valuations are so high. they are trying to find creative solutions to that. the return may be a little smaller but they will take it. >> that is the same dynamic [indiscernible] >> it is a little different. methane is doing something fairly unpopular when it comes to investors. ain is doing something fairly unpopular when it comes to investors. buyers are paying quite a bit of the premium. this is clearly a play on the housing market recovery and rising consumer confidence. that is probably what bain is
bloombergom headquarters in new york, this erikarket makers" with schatzker in stephanie ruhle. >> i am erik schatzker here with scarlet fu. private equity has an image problem beard know how much money buyout firms of may, the industry faces constant criticism. like the hundreds of millions of dollars paid out annually. lastlk to steve schwarzman month about the image problem. i think the private equity industry generally is relatively measurable in marketing themselves. thefact of the matter is
industry itself improves .ompanies there are returns that they are really are not going. they're going to the pension and universities and foundations which is where the returns go. is consistently doing the right things in society. it is to provide retirement benefits. are seeing discussions were pension funds are having trouble paying these benefits. our job is to make sure they earn a lots of money so that people who are the ultimate beneficiaries, those people that are hard-working people, that they have money. we do that by producing much higher returns. >> how is the lack of regulation on your industry helping.
>> they come in and look at what you are doing. we are not unregulated. they have capital requirements. >> we do not have that. we do not take deposits. do not have that obligation to outsiders in the same sense. as it worked out, ironically, the companies for the most part got in trouble in the financial crisis. they were the most highly regulated. the ones that did not like ourselves as an industry almost had no significant problems. i think we have to be careful
about how we look and think about these things. >> oftentimes people look at private equity in the abstract. on your a growing focus retail investors. how is that working? >> we basically offer the same type of products. we have had very rapid growth in that area. in the last year we have raised about $7 billion from retail investors -- >> how small do they have to be? when i think of people who just opened up account so they can buy apple stock suddenly they can invest in blackstone? >> they can buy our stock which is separate. we usually have some restrictions of size. there have been changes in the laws to break in some very small pieces, i think to $50,000. we do not specialize in that kind of size. we have grown up from roughly
$600 million a year in two thousand nine from retail to 7 billion. --s is one of the massive retail to $7 billion. a large institution would be 15%. sometimes 20%. averageally this has for firms like ours. somewhere around the bases for the stock market. if you get an extra 10% concern you would want to put more money in these types of projects. products. retail investors are typically portfolio.of their it makes sense.
>> do they need to get comfortable with liquidity? >> illiquidity is not a bad thing. overrated because the premium and turns of returns -- in terms of returns is so much higher. no one need 100% liquidity typically. >> how often do have to explain that to people? in 2008 all people cared about was liquidity. do you have to explain this over and over? >> you do. investors do not always do the right thing for themselves. when the advantages of being type ofp in our investment is that you can take investments that go down abnormally in times like that and stay in them so they go up. hilton is one example of that type of approach. many investments are like that.
people tend to panic near bottoms and to be overly enthusiastic at tops. is make surer them that does not happen. >> that was the blackstone ceo steve schwarzman talking to me and stephanie. earlier i said that was last month. i am rd living in 2014. it was earlier this month. over how much of an investment banker he looks like with his clothes. >> he grew up with lehman brothers in the 1980s. there were a of thoughts there. private equity image problems what it means to repeal to the retail investor which is a big growth opportunity for firms like blackstone. what they have rd done making the general partnership public. making thedone general partnership public.
what he needs people to understand is the idea that liquidity is overrated. because you can earn more money over time, it is worth trading the right to be able to share your -- sell your shares every day. to be patient. >> i suppose that might be the case. people have long memories of the financial crisis and cannot get past that point. >> that is the thing. do you need to cash out or do you want to cash out? even though iton was uncomfortable and isn't doing very nicely. >> a piece of mind counts for a lot. are doing very nicely. >> a piece of my counts for a lot. we will explain who it hurts a new it helps. one of the best of the year pictures from our bloomberg photo team. this is from the top of the
zach, welcome back. why south dakota? >> they have customized their trust laws to make it so rich families from other states can set up trusts in south dakota and get these benefits. for south dakota it is economic development. they give work to their local law firms and trust officers. >> i cannot imagine we're talking about that many firms or officers. let's forget about that for a moment. how does it work? protectsomebody else for generations effectively the bulk of their assets? forever pretty much. >> the whole trick is you want to get the laws of south dakota to apply to your trust spirit all you have to do is have a south dakota trustee which you can hire one. if you're one of the rich families you can even set up your own trust company in south dakota just for you by renting some office space.
you have to have a little office and a desk in a telephone. that will give you the benefit of south dakota law. >> into the mechanics of it. by making you get , what do you get in return? >> let's say you live in new york and are exposed to new york state on top of federal. let's say your beneficiaries are in new york. if you set up a south dakota trust, a can earn the income tax-free because there is no income tax in south dakota. that is one benefit. the others you can set up a trust you could only set up in certain trusts -- states that will allow you to get around the federal tax. i haven't to be super wealthy. unfortunately, that is not the case. i happen to set up one of these
trusts in south dakota. how much money will it save me overtime questionnaire dashed over time? -- over time? your nest eggrs might grow to 1.9 billion dollars in south dakota. that same exact trust would only be worth about a quarter of that if it was in new york. >> really. availedow who has himself or herself? >> a lot of the wealthiest families have set of south dakota trust families. in a family in chicago has set up a south dakota trust. the wrigley family has set up a south dakota trust. the people who run monster beverage have. >> of the way it works, the assets are held in trust. if you or i are a beneficiary,
the assetsnjoy only the income. >> it all depends. the laws that up to be extremely flexible. in the trusts can operate however they want. liquidated,sets are then i will have to pay tax unless i live in south dakota. you mayture generations have to pay some personal income tax. thank you very much. peculiarities of south dakota law and how they benefit the wealthy. >> d.c. lawmakers will ease the tax burden on digital products. there's a bipartisan effort underway. mel mattingly is joining now. what is the goal? >> the basic idea for supporters of this bill is to try to cut down on duplicate of taxes. when it comes to these goods and
services, companies and officials have been faced with a patchwork of state and federal tax law. it has proven very problematic on both ends. --are seeing nomar smith lamar smith to streamline things a bit. defining exactly what digital goods are and limiting taxation to the state where the text -- customer is registered. say you're in virginia and die to purchase the new beyonce album. it comes from a retailer in california. the computer server is located in texas. there is a chance that all three states could try and claim jurisdiction. this has caused major head. -- headaches for online retailers. lawmakers are trying to create a better defined how these products are treated. >> just to clarify. when we talk about digital goods, we're not talking about in tangiblethes but
.oods, content, and video >> precisely. it is music. it is video. it is things of that nature. there is a broader push supports a bite amazon on internet sales tax trying to create more of a federal streamlined version on that. it is a more targeted approach. that is what the are going after, hoping it will increase the odds that it makes it through. >> what are the odds right now that this will be addressed and ?ake it through >> anytime you have legislation in the current congress, it is not going to be easy to move it through. here is a couple of things. it has bipartisan support in the house. houseve a senior republican and democrat on board. another big thing under the radar that is happening right now, musical chairs in the senate. ron wyden is in place to take over as the chairman of the
senate finance committee if max -- max baucus becomes ambassador to china. it comes to him if he wants to move this. importante in an position. >> it before we run, does anybody have any idea how much money can be raised and for whom if the situation were to be sorted out? >> the cbo scored a version of this bill in 2012 that started moving through. this is the big roadblock. they said it would cost $3 billion if they put this into place. association of governors stood up and said absolutely not. you're not taking that away from us. that was the big roadblock. they are trying to tighten definitions a bit, hoping if they do not come on board the states will drop their strenuous objections. to >> thank you so much. phil mattingly, our white house
>> 2013 was a big year for google. google glass was all the rage. in a rare interview, eric schmidt gives us his predictions for the new year. >> i am the executive chairman of google. the biggest change for consumers is everyone will have a smart phone. the fact that so many people are connected to a supercomputer means a whole new generation of applications around education, social life, those kinds of things. the trend has been that mobile
was winning. it has now won. moving to this new architecture of very fast. biggest disruptor is machine intelligence, the ability to find people that talk specifically to them, that rank them. it changes every business globally. the biggest disruption we do not know what will happen is probably in the genetics area. the ability to have personal genetic records and to start gathering all the gene place wouldnto yield discoveries in cancer treatment and diagnostics. unfathomably important. at google, the biggest mistake i made was not anticipating the rise of the social networking phenomenon. not a mistake we will make again. in our defense, we were busy working on many other things. we should have been in that area. i take responsibility for that.
we are hiring globally. we see strong growth all around the world. it is all green from the standpoint of the year. google benefits from transitions from traditional industries and even when things are tough in the country, because we have a return on investment, it is smarter to move your advertising from others to google. we win no matter whether the industries are in good shape or not. people need our services. we are proud of that. how smart are we? how clever are we? we want to do that as best as we can. did that interview with the google glass on. it would have brought out so much more. >> i wish you would talk more about it. >> it was such a rage early on and then it died. >> it will be commercially available in 2014. would you wear one? >> of god no.
>> what if they build it into regular glasses. >> i do not wear glasses. >> there are no lenses and those red glasses. it is approaching 56 minutes past the hour. we are a minute away. time for on the market. we will show you what is happening with the broad indices. there is a little change. we have economic data for home sales. a little disappointing. we are two days away from the end of the year. >> let's face it. everyone has already clocked in at least 45%. does happen.essing it does not appear to be happening right now. >> let's look at some individual names making news. crockett store -- kroc is josh cs is soaring 16%. they're playing a big role in
who management will be next. >> $350 million. let's look at disney. raised that guggenheim securities. it is one of the best performers in the standard & poor's five hundred today. it is up almost 53% for the year. washe next hour, netflix the s&p 500 best-performing stock of 2013. it still is. we still have a couple of days left. can a keep soaring in the new year? that is the question we will ask. >> of barbara joins us to talk inut netflix's prospects 2014. we will be back with more "market makers." ♪
>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> dividends of on demand. netflix has stellar stock performance. can this produce a sequel in 2014? lawyer, the business needs attorneys to fly through red tape. the man who is starting the first drug law practice. >> the leaders and washington who are sure to shape the political landscape. this is "market makers," 11:00 in new york city.
>> i am scarlet fu, stephanie is off today. i am waiting for her tweet. >> we will see that. time for the newsfeed feed, top business stories from around the world. upls fargo is going to pony $.5 billion to resolve claims over mortgages it sold fannie mae. they reached a deal with freddie mac earlier in the year over similar loans. the bank says it has the funds set aside. two suicide bombs, one at a train station and the other on a trolleybus, killed more than 30 people in the russian city of volgograd. this happened just a few hundred miles from the site of the olympic games. under print and says the government will seal off sochi to disrupt any plots. a fire at a switch workshop -- a fire at a swatch workshop could impact the entire swiss watch
industry. no one was harmed. swatch is the largest supplier swiss watch industry and has been a target of competition regulators. was one for the record books when it comes to stocks. biggest gains versus bonds, most added to s&p 500 value. the s&p will and the year of almost 30%. julie hyman has been compiling statistics and joins us. this is as much about a love affair with treasury's ending as it is with people moving to stocks. not quite asd, demonically as people thought it would. let's talk about a stock and the relationship between stocks and bonds. the gap you mentioned between stock performance and bond performance -- treasury performance. percentage 32 points, widest since 1978 and may record. 500 going in the s&p
up this year. it gained momentum as the year went on. there were more skeptics at the beginning of 2013. end, they had given up. it was hard to find a bear. >> the volume -- a lot of people this a great unloved equity market rally, a lot of fuel were not involved -- a lot of people were involved. >> people were involved. >> do fund flows back that up? 160 $2 million going into $162al funds and etf's -- billion going into mutual funds and etf's. ecs asinvestors can buy well. it is not clear, when all is said and done, how much retail investors were benefiting from that. we know that $67 billion went out of the bond market.
demand for bonds -- for treasuries -- remains higher than it did pre-financial crisis. you are still talking about foreign buyers. people will have to have fixed income in their portfolios who are still buying treasuries, even with lackluster returns. >> outside of equities and treasuries, there is gold, awful. >> gold has been so fascinated. you have the biggest decline since 1981. what you had is the same phenomenon. the beginning of the year, people were still talking doom and gloom for stocks and the global economy. this is where they were putting their money. it did not turn out so well. was a dismal year as the u.s. economy did start to improve. as you saw the dollar start to improve. the fundamentals were not there for gold. by the end of the year, you really soft light. -- saw flight. >> let's talk about standout
stocks. >> you tend to see some rotation. if you look at the three worst performers from 2012 -- best buy, hewlett-packard, pitney bowes -- they were in the top 15 for this year. up 239%.up %239 -- you saw a more dramatic rotation than you tend to see most years. best0 stocks - -best -- s&p 500 stocks, netflix, micron technology. materials.om you had coal stocks were underperformers. you see a rotation, if you have the global economy doing better, could some of these commodities stocks do better? it is possible. if you tend to see the
underlying commodities -- >> look for that global macro recovery story. julie hyman with the 2013 winners and losers. >> let's talk a little bit more about netflix. this year.he s&p 500 mark mahaney is an analyst at rbc capital markets. he has an outperform rating on netflix. he has a $440 price target. after such annk extraordinary year of 300%, metals can keep running? -- netflix can keep running? skepticism andll short interests. we think about 3 or 4 pending catalysts. improved in profitability and any international markets except canada. we think it will and it will be positive for the stock. there is skepticism that they can do more oh it -- were original content. if they can do that, that is
positive. finally, if they can continue to lower churn on the core property, which they are doing because of original content. that will cause the stock to move higher. a comparison to hbo. there is focus on how dimensio -- how domestic subscribers of netflix surpassed hbo. differents a very business models on hbo. netflix has exclusive rights for the first two years for original series. after that, if it wants to keep showing that, it has to pay. that puts at risk, does not? -- doesn't it? >> sure. there is competitive risk. hbo and amazon. the contentage costs? this company is spending $3 billion a year, that is going to continue to rise. if they continue to add subs, 5
million to 7 million paid subscribers, there is not a content acquisition cost problem. if they do not, there is a problem. we have never had a subscription service with 40 million subscribers worldwide like netflix has today. we think that goes to 60 million over the next three years to four years. if we are wrong, we are wrong on the stock. content acquisition costs becomes a challenge for netflix, the company will presumably want to pass that onto the customers by raising prices. biggestn represents the threat to netflix, is not going to be impossible? jeff bezos has proven he does not care about margins. >> i may disagree with you on that. i think jeff bezos cares about margins. i think we will see a recovery and thus. there is a free competitor. what we know through survey work is that satisfaction and netflix continues to rise. of the is still at one
best values in america, the best deal in america after the happy meal. you get unlimited content and you are not paying per view. i will argue that point aggressively. i think netflix has pricing power. that is the final catalyst we will see in the next two years. if netflix shows it can get more than a dollars per month, -- more than eight dollars per month, stock is higher. has pricing power, where would it be? there have been suggestions netflix might offer a family package where children's programming is additional rather than raising prices across the board. >> i agree with one of your points. i don't think there will be a naked increase. i don't think we will wake up and see that it has gone to $8.99. there is an ability to tear pricing.- to tier
there are different content packages, different axis packages they can offer to people. what we found in survey work was that 7% of u.s. subs have signed up for the $11.99 a month plan where you can get three people or four people streaming. college, theyin can use that netflix account. you are finding more people signing up for that. that is the implicit pricing power netflix has. youark, we are grateful to for taking time to share your thoughts. analyst at rbc capital markets. he thinks netflix can continue running to $440 from $360. >> taking into your genetics has never been easier. the ceo who is staking his claim on getting consumers access to their dna. >> drone the drone -- the drone
>> time for some top tech and media headlines. "ironman three" leaves hollywood to a blockbuster. ticket sales are up to $10.8 billion, eight numeral one percent increase over last year's record box office. 1% increase over last year's record box office. eight new year's day change on netflix. and "titanic" will be
purged from the on demand offerings. a representative said the company routinely adds and deletes titles. "the wolf of wall street" might move onto television. a studio is shopping a reality show starring the real-life character in the center of the movie. it would feature him stepping in to help people who have hit rock bottom. >> genetic testing has never been cheaper or easier or more controversial. last month, the fda ordered 23andme to start marketing their main product because of the risk customers would endanger their own health. another player in the generic testing business. we have the ceo here.
it sounds easy enough. you spit in a two and send it to a company and get your results back. how is what you do different? 23andme team, they are great. i think what they are trying to do is amazing. one of the things we saw was a reaction that already had infrastructure in place. doctors and the congress of , clinicals, the fda laboratory amendments. they kind of did not follow guidelines that you need to follow when you offer a diagnostic service. so you can prove it is validated and medically relevant. we partner with laboratories and physicians in the field. we offer a test through doctors. the idea is that interpreting the test requires a health care professional who has been trained. >> when i spoke to the ceo of ordere before the fda
came down, this was a discussion point. information can be dangerous. would it not be better left to doctors to tell you what to read in the results of your genetic sequencing? know, her belief is that information empowers people and people are smart enough to do with it what they want. tell us about your experience. why do you believe it is better in the hands of a doctor that people will make better decisions? a subset of consumers who can order these directly, yes, this is useful. people who may have biology experience -- >> like you. >> like myself, i ordered the test in 2008. >> 23andme? >> absolutely. it is inspiring to see what is
possible now. for your average person with limited to no genetics training, you can get told that you hold an innocuous mutation and make a life altering change. there is a degree that exists, it is a two-year program for helping people deal with genetic information. how do you deal with insurance companies? that has to come up when anybody looks into genetic testing? >> the standard of care is your two big lots, lab core and quest diagnostics. >> these are the companies the insurance companies goes to? network is an in provision. >> your doctor orders lab work and they go to the labs. >> we are out of network. the insurance companies are not
going to give us a full reimbursement for our tests. fortunately, we are able to use new technologies and it is cheaper to offer our tests. we don't have to worry about the piece of the margin we are missing. like to be able to work with insurance companies if you could? is there a hope? lab core have exclusive contracts. you even need to wait -- you either need to wait for them to expire or show purchasing power. >> does the aca offer anything? >> i have not heard how it is going to impact the diagnostic area. >> can go to the point you are making about people and injuring their own health -- people endangering their own health. after been examples of people making -- being inspired by angelina jolie.
on the basis of limited genetic information, going out and having a double mastectomy or something like that? there wasan article, a case where they ordered a brca screen, the genes for inherited breast cancer. physician misinterpreted the reports and a mastectomy was order. the variance in the genes did not have a clinical significance. the genomic technologies are so far advanced, we are seeing an influx of information that is surpassing some of our medical providers' knowledge. >> the doctor does not necessarily -- not every doctor is going to make all the right decisions. are going counselors to be of rising importance in this industry. >> how -- going back to the conversation with ann of
23andme, she saw millions of people signing up for these services. the you share that? >> eventually i think everyone should get their genome tested. we will see a time when all 6 billion bases of your dna will be tested. it is like cord blood thinking. -- banking. you get it done at the beginning of your life, the doctors can interrogate what is needed. >> how far in the future? >> 5 years, 10 years. x, ceo of recombine, a genetic testing company. it can help you and your doctor make decisions about your health. >> coming up on "market makers," power players to watch next year in washington. al hunt names names. ♪
>> we are approaching 26 minutes past the hour. it is time for bloomberg to go "on the markets" once again. let's begin with twitter. >> remember the plunge on friday? twitter extending that, off by 5% today. a 13% drop on friday after the stock had gained for the month. it is still up by 1/2. analysts are downgrading, questioning how far how fast the stock is climbing with unchanged fundamentals. genetics getting hammered 16%, a provider of
genetic testing that has to do with breast cancer. we were just talking about genetic sequencing with adam of recombine. this has nothing to do with recombine. the u.s. has proposed cutting reimbursements for the diagnostic services provided by marriott. -- myriad. >> piper jaffray in lowering its estimate for that as well. 10 year yield ended last year at 3%. 3%.ast week at making a little bit of a comeback, yield down to 2.97%. >> thank you very much for joining me. liu"n the loop with betty at 12:00 p.m. on bloomberg radio. >> one-week come back, just me talking about drones. they have got lawyers. we will talk to the lawyer leading the first group specializing in unmanned
>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> amazon shocked the world on cyber monday when jeff bezos say he is working on delivery by drone. would pick ofaft your packages from a warehouse and fly them to your doorstep. jeff bezos believes this could be the reality in five years. this being america, where there is innovation a lawyer cannot be far behind. decided torm has start a practice in the uses of unmanned aircraft systems, commercial drone. brendan is here with me on
"market makers." i am calling you the drone lawyer. welcome. >> thank you. >> let's say i am in a business and i want to use drones. i'd buy one or build one, what can i do and what can't i do? >> there is ambiguity right now. no regulation for unmanned aircraft systems. that is dish -- something the faa has been passed with. >> shouldn't you be able to do anything? >> that is an argument. >> but that isn't the case? >> we have taken a position in a case that that is the case. the contours of this case. what your client wants and the argument you are making. >> he is one of the world's best-known radio control commercial drone pilots.
he takes videos of landscapes and cities around the world. a couple years ago, he was flying at the university of virginia to do commercial video. the faa took exception to his flight and alleged it was reckless and is attempting to find him. we are defending the case and have moved to dismiss the case on the basis that there is no regulation concerning model aircraft or unmanned systems. -- a regulation is going to come. will it come in a form that will allow your client, amazon, and anyone else who wants to get into the drone business the ability to fly these unmanned aircraft? >> i hope so. this is the next big tech revolution. this is like eating at the dawn of the internet. >> drones equals internet? >> i believe so. >> that is a big claim. >> this technology is not its own industry, it will
revolutionize industries across the country. i hope the regulations that come are minimally onerous and do not shut down benefits. if it is going to be revolutionary, tell us what you envision. you are trying to build a practice on what you think is going to happen. what is it going to be beyond jeff bezos' vision for cookbook delivery by drone. >> really everything. environmental uses, search-and-rescue. environmental uses such as infrastructure inspection, pipelines. hollywood moviemaking. any commercial activity that could take place at low level altitudes is going to be impacted. >> what other kinds of businesses are looking for legal counsel right now on the use of drones commercially? >> we have been contacted by a --iety of institutions educational institutions, robotics, alternative energy companies. a company is working on a first
responder system to provide emergency response quicker than vehicles. it is a whole range of industries and academic institutions. >> what does it mean that the faa has approved test site for drones that just happened today. >> they are proving test sites for high altitude drones. the question is whether they are permitted to fly smaller systems. >> this is where they are going to be. a number ofe been states vying for test sites so they can integrate this with commercial aircraft. >> that is an commercial airspace where jets and other planes fly. most of the value in this technology is at the lower levels, you are not rising above treetops. you can do so much with a system that weighs a few pounds. >> your firm has a practice in unmanned aircraft systems. how did you become the drone lawyer? >> i have been building and
flying my own drones as a hobby for the last 20 years. i have been following legal issues. we had this first case that came to us. we are testing the faa's commercial policy with respect to technology. >> do you expect to work with amazon in this case? are they doing it on their own, do they have a team of lawyers? >> there have been so many companies and investors that has approached us. a goes well beyond the aviation issues that the faa is grappling with at test sites. you had issues of privacy law. it is property law and air rights, what can you do in the airspace that is privately owned about your backyard? if it is commercial utility, can you exploit it or does it belong to the faa? rights it like minimal -- like mineral rights. >> thank you for joining us, brandon with kramer levin.
predicting that drones are going to be as big as the internet was over the previous 20 years. next up, al hunt joining us. three people who could to find the year ahead in politics. as we head to the commercial, have a look at this picture. one of the best of the year from our photo team. mark carney walking with purpose back in july. the first day running the bank of england. ♪
>> you are watching "market makers," i am erik schatzker. a gate everyone in washington will be watching, november 5. americans head to the polls for the midterm elections. ofs will determine the fate president obama's final two years in office. which power players should we be watching in the lead up to that
election? bloomberg view columnist and "political capital" host al hunt joining me from washington. looking ahead to next year. tell me who i should be watching. with tedstart out cruz. he forced the government shutdown last october. most republicans thought it was a disaster. it made him the darling of the right wing. iowa and south carolina catapulting him into the presidential race in 2016. what you do on the debt ceiling, will he try to force another showdown? >> what is he going to do in february is important. s tedd cruz serious -- i cruz serious about rescinding his canadian citizenship? iowa,it helps him win south carolina, and new hampshire, he will do it. >> everybody is wondering -- not whether he remains a canadian,
whether he needs to have any real accomplishments to gain political traction. can he do it on the strength of hot air alone? >> could you imagine someone being elected president who has only been a 1 term senator with no legislative achievements. [laughter] held any other statewide office. that is unthinkable. i was telling president obama back. -- that. >> from ted cruz to another republican who has a few account attachments. paul ryan. is paul ryan going to make waves in 2014? his head his hand and and help craft a mini deal, one we were talking about on the budget. ryan -- two levels. one will be immigration. he is the republican point person on citizenship and
legalization. two reasons that is important. you only get a bill -- a bipartisan bill in the house if he can pull a compromise together. it also enables him to inherit the other part of that, the compassionate part. very closely. also, within a couple months, we will know whether he makes it clear he wants to be chairman of the house ways and means committee next year. i think he will, that means he will not run for president. >> but will he find out -- ok. if that is the case and he runs for ways and means, we will not find out from paul ryan how high his political ambitions run yet. right? as young as you are, he could run in 2032. he has lots of time. >> he is almost exactly as young as i am. let's talk about ron wyden. democrats retiring as
point man on taxes and tax reform. any chance ron wyden is going to be more successful? >> he is a very interesting guy. he is a liberal reformer but he has always worked across the aisle. particularly on health care, including with paul ryan. he is a big advocate of the 1986 style tax reform, broadening the base and lowering the rate. i don't see that going anywhere. i think ron wyden will be an interesting, not always predictable chairman of the finance committee and the senate. >> one thing is not going to change in 2014, the popularity of congress, politicians in general with the american public. to the degree that everybody in america hates washington, washington has to find some people to hate of its own. they tend to pick on dan snyder. redskins have gone and fired their coach.
is everything going to improve for the redskins in 2014? --dan snyder love sclerotic leonardotterati, dicaprio is not available. he will look for a coach who will be best for robert griffin iii, the future of the franchise. he might look for an offense of coordinator from a place like the seahawks. i have a dark horse. if he is looking for someone charismatic, smart, knows how to handle men, i have a candidate. coach ruhle. >> you must be talking about stephanie ruhle. >> boy when she looked terrific and that blazer. native and aon skin fanatic. thank you very much al hunt, host of "political capital." with who to watch in 2014. next up on "market makers," high
>> the hacker a economy is alive and well. breach further than the of target's debit and credit card system. some of that information made its way to the black market. jon erlichman has more on this so-called digital underground. talking about a very sophisticated world. >> definitely. gone are the days where somebody picks your pocket and goes on a shopping spree. compare it to what happens with hackers, you would prefer that. whatf the dangers with hackers are doing, they know where your data is going.
it is going to the black market. when you look at the target data breach and the fact that millions of cards are in focus. the reason that hackers are going after such volume is because on the black market, a single card does not have a lot of value, maybe three dollars based on some estimates from dell security. they have done some number crunching. as soon as they can add sensitive data to that, your date of birth, name on the card, all of a sudden you are giving people who buy these cards more information that they can potentially use to get around security walls put up when you are using a car. then you take those numbers and you multiply them by the millions of potential cards on the black market. you're talking about serious amounts of money. a lot of sophistication. >> what happens when one of these cards and that sensitive information makes it into the black market? is it just a simple case of
racking up as much spending as possible as quickly as possible before the company or the bank recognizes what is going on and puts a provision in place? >> a lot of times, the buyers of these cards are just as sophisticated as people attending the event selling it. it is -- obtaining the data and selling it. it is acquiring a credit card, shipping that money to a gift goods,ere you buy actual whatever. then use lsl. tying to avoid leaving an easy trail for authorities. while we might use our credit cards to buy stuff, when people buy cars on the black market, they don't use their own cards, they use wire transfers or even reports of bitcoin being used on the black market. clearly, if increased surveillance of credit cards becomes the norm -- we already
thought it was until we saw what happened at target. we will be beneficiaries. what about the companies that could benefit? are there any? topeople have been trying piece this together. the last couple weeks, you have heard about smart card technology. hackers.t can fool there are large european companies. g&d, thatberthur, have been playing for this technology in a long time. this has been adopted in a big way in europe. less so in the u.s. the question becomes, do recent examples like target create that much more of a push so that the feels and mastercard's that they have to bring in more technology which can be costly. adopt that in the u.s. companies have been trying to push this for a long time. >> i just came back from canada,
and why. then we will look ahead to the big movies we should be watching out for in 2014. lastre to tune in on the day of the year. 56 minutes past the hour, bloomberg television is "on the markets." here is julie hyman. >> thank you. we have been looking back at the year 2013. it has been a near record year for the equity markets. 29% sinceid to return january. what is in store for stocks next year? whether you think the bull run is tiring or you want safety next year, jim had fewer options insight on how to hedge your profile you with derivatives. the people trying to hedge in 2013 who may be thought the equity rally is getting tired, volatility is going to take up, they were disappointed. >> they were. we want to frame this in a longer-term context as you
talked about. it was a year of low volatility. when people think about the volatility, they go right to the a short-term basis. if you scan back and look at the history of volatility cycles, they are fairly long and correlated with underlying economic cycles, 5.5 years in length. for 2014, that means it could be very similar to 2013. structurally low volatility. about hedging, hedging fatigue will take in. -- kick in. people will tire of paying premiums and watching it melt away. >> from what i have been hearing from equities strategists, as though the first announcement of tapering went pretty well, as the fed starts to do tapering and we get fits and starts and recovery, it could be rocky for equities. you would think that would be accompanied by higher
volatility. >> that is relative. if you look at 2013, there were six volatility events in vix terms. a low was about 11 and change. on the high side, yesterday we saw 23. vixs likely to be a cap in terms for a number of years. historically, the cycles are about 5.5 years in length. >> we are about a year into it. what do you for hedging? use the vix, abandoned that? cboe came out with a 9-day vix and soon will have weekly options trading. investors will be attracted to that product. trade short-term volatility. what we are recommending to our clients is to localize hedges. as opposed to going into spdr's or iwm, hedging volatility length raddatz, they are the
hottest places to go. >> that is a broad -- volatility length product. >> that is a broad. >> last week, we talked about twitter. twitter has come in pretty hard. that is a great example. if you are hedged at the index level, it would provide no protection. an environment where we could see increasing momentum at the single stock level to come in as a long stockholder in twitter, sell some upside calls. we're looking at 72.5 or 75 calls a week ago. to buy downside protection makes sense. >> you are talking around this idea of callers. explain how one would do that on twitter or whatever. >> you are along a stock and when to sell a covered call. you are selling a call higher. if the stock gets above that level at expiration you hand over your long stock.
the premium you pocket by selling that you turn around and spread.er a put or put you want to do that for zero cost. if the stock remains in that range between the put in a call, it is costless. it is opportunity cost. if twitter had gone to 90, you would have given up the spread between the 75 call and that 90 level. given the move in the stock, a small price to pay to have protection. >> thank you so much, more "on the markets" in 30 minutes. ♪
>> welcome to "lunch money" on bloomberg television, where we tie together the best stories, interviews, and video in business news. i am matt miller come in for adam johnson. let's look at the menu. in socks, could it be the best year ever? that shows noy signs of abating. big machines hard at work. we will show you the biggest earth crunching equipment on the planet. a nation, the regulator gary gensler gives his final word on the new roles for wall street. in fashion, one hot hoodie, is it the greatest