tv Bloomberg West Bloomberg August 11, 2016 11:00pm-12:01am EDT
mark: you are watching bloomberg west. let us start with a check of your first word news. hillary clinton says donald trump spoke only of failure, poverty, and crime. today, at a manufacturing company in michigan, mrs. clinton said he has not offered any credible solutions to america's economic challenges. >> when it comes to creating jobs, i would argue it is not even close. even conservative experts say donald trump's agenda will pull our economy back into recession. mark: donald trump has added seven women to his economic advisory council. the council previously consisted of only men.
it includes diane hendrix. the chairwoman and owner of abc supply. darlene jordan. executive director of the j r jordan family. betsy mccoy. former new york lieutenant governor. brook rollins, president and c.e.o. of texas public policy foundation. there has been no claim of responsibility following twin bombings in thailand leaving one person dead and 20 others injured. the explosions occurred in a popular seaside resort. global news, 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. loomberg west is next. emily: this is bloomberg
west. coming up, a millennium milestone. in the market, all three major u.s. indices closing at record highs. this is the first time this century. we will break down the historic day. diversification at alibaba is starting to pay off. we will hear from the company's cofounder about its push into cloud and media streaming. and a new connection unveiled between dnc hacks and those targeting george soros and a four-star nato general. to name a few. first to our lead, for the first time since 1999, the s&p 500, the dow jones industrial, and the nasdaq rose simultaneously closing at records high. all three benchmarks advancing off surprisinglyrosy earnings reports. alibaba leading the comeback. a surge in cloud computing ervices. joining me to discuss, cory johnson.
it is interesting, revenue rising. the biggest jump since the ipo while at the same time profits dropped considerably. cory: it is a great big business growing at a rapid pace. growth is slowing down in the -- there are signs of weakness if you want to look for those things. sales are there. they are breaking out more than they have in the past. ultimately, gross margins jumped out at me. they are in decline year-over-year. for a bunch of quarters in a row here. that is disconcerting. they want to be more rofitable. emily: what about user growth in particular because there is so much skepticism about the chinese consumer. how is that impacting alibaba? cory: is this about a slowdown in the chinese economy or the aw of large numbers? both numbers are up but both
are growing at a slow pace. they are pushing the boundaries of how much they can grow. you can see in the numbers the growth just isn't there the way it was in the early days. emily: as you mentioned, they broke out revenues differently this time. they have been investigated. they are making different kinds f financial disclosures. what more did we learn that we did not know last time? cory: they only broke out in two different metrics. analysts would like to have seen a lot more information especially about the shipping platform. there has been an investigation. they admitted a few weeks ago -- maybe a month ago, june -- butno new data about that. it is an area of concern. we do not know where the investigation is going but it is ongoing by the sec. it is a mystery. 47% of this unit. we don't know how they're accounting for it and how it affects their regular results.
no update from the company. emily: i did speak with joe tsai about that so we will hear shortly his answer to how that investigation is going. is there anything else of concern or bright spots worth oting? cory: a lot of the numbers are slowing down though it is still growing and it is still massively big. we still do not have a sense of what is happening internationally for alibaba yet and whether that growth will help them or if it remains a chinese company. emily: jack ma has said he wants to get to 50% of revenue from international and 50% from china. thank you so much. i did speak with alibaba cofounder and executive vice chair, joe tsai after the company reported earnings. i asked him about the m&a strategy and if there are any megadeals in the cards. joe: if you look at our core
operations, $2.5 billion of operating income in our core business -- that operating income is growing at 38% year on year. if you look at our eps, it is growing at 33% growth. it is robust. we did consolidate the operations of two of these elements and even despite consolidating these losses, we generating 61% operatingmargin in our commerce business. it means that we have the uxury and the resources to invest very aggressively into new businesses like digital entertainment and our new innovation initiatives such as internet cars. we feel very comfortable with our margins. we feel that we have a lot of resources and cash flow to invest in new growth.
emily: speaking of yahoo!, going through a sale of its core business. has yahoo! discussed with alibaba what it plans to do ith the shares it holds? joe: what they need to do is they need to figure out what to do with the alibaba shares. they could also do nothing. but we are going to be fairly reactive when it comes to that. we will leave it to the yahoo! board to decide what they want to do with the alibaba hares. the important thing for your viewers to know is that if yahoo sold, yahoo would incur a huge tax liability. that doesn't solve the problem even if we are invited to acquire the shares of what they call the remain co because we wouldn't be able to cancel hose shares legally. and we end up inheriting that big tax liability.
it will be a very difficult question for us. emily: alibaba has been very acquisitive in the past, more than $24 billion in deals in the last year. microsoft, linked in, softbank. how open is alibaba to really big deals? joe: when you have 61% operating margin in your business, you'll have to think about how to smartly use that extra cash flow, that margin, to invest for future growth. when it comes to our m&a strategy, we will be very disciplined about it. we have set ourselves several important criteria including growth in our user base, improving our customer experience, and also expanding in our categories. if you look at the large acquisition and investments we have made over the last year, they all fall very consistently into those principles.
e acquired yoku because we wanted to get into digital entertainment. we partnered and invested with the largest electronics retailer in china because we want to execute with them and on the channel strategy to own the electronics retail space in china. these are examples of acquisitions that we have done. we are open to large deals. we are open to small deals. the important thing is that they stay consistent with our m&a principles. emily: you guys made a big investment in a company called quick see to be paid over two funding rounds. according to reports, alibaba stopped paying. what happened there and how do other companies know that you're not going to do this to them? oe: we have actually fully
paid our investment into that company. the fact is, by far, we are the largest capital provider to that company to the tune of over one hundred million dollars and we have paid on time. we have fully paid up. i think what you have seen is a report regarding a contract where there is some technology that the company was supposed to develop for us and the fact of the matter is, for the china market, it is a very different market and for the kind of products the company was trying to develop, it was very ifficult to gain traction. but, by no means, was there any kind of dispute. we have a very good relationship with that company. we are supporting the entrepreneurs that are running that business and that is the approach we take when we invest in market in the u.s. we want to back entrepreneurs.
high confidence is a phrase that intelligence agencies use to signal near certainty. nancy pelosi called it electronic watergate. bloomberg is the first to report a connection between these hackings and a handful of other hacks including that of a our-star nato general. we have the details. reat reporting, michael. what exactly did you learn. michael: it looks like the investigators probed the dnc hack. they are coming across earlier iterations where the same russian hackers had taken information and tried to introduce it into the debate in the u.s. seed media stories with it. they had found a certain website. it went up in june. before the wikileaks dump of e-mails. before 2.0 which tried to feed some of the information to the media.
it showed that they had hacked a number of other targets including a top u.s. four-star general who had been involved, he was the chief military commander of nato, involved -- some hacks with the soros philanthropy. the open society foundation. they had gotten into an internal network communication for soros. they put out all of this information onto that website. even though it claims to be a site developed by american activists,all of the information tends to be associated with some sort of russian foreign policy interest. they did an effective job seeding that out to the military. they ad a facebook and twitter account. they did have one story on the four-star general in talking to colin powell and his complaints about the obama administration. an early iteration of these hacks. it suggests these guys have a lot of material and more is to come.
emily: one thing you point out is that if russia is behind this, it is clear that russian hackers are not just trying to influence the election but trying to get secret information about the obama administration policy. how does this compare to patterns we have seen from russian hackers in the past? is this more egregious or invasive than what we have seen before? michael: the russian hackers involved in this are associated with russian intelligence agencies. this is probably what they do for their day job all the time. they are probably trying to collect information all the time. where they crossed into new territory is they decided to take information that they have hacked from these accounts and figure out ways to make it public and influence the debate, influence the u.s. presidential election in november. it is called an information operation.
we have never seen anything at this scale or where the stakes like the u.s. presidential election were at risk. they've crossed into new territory in a big way. emily: because of this happening so publicly, what are the diplomatic implications? we are in the middle of a heated presidential election and any action might depend on the results of that election but beyond that, what is russia saying publicly about what we are finding here? michael: russia is denying any role in it. wikileaks, which received this giant trove of dnc e-mails, and posted it on their site in this very convenient searchable form which generated a lot of these stories, julian assange has also said there is no evidence that russia was behind that leak. in a strange twist, wikileaks put out a 20,000 dollar reward earlier this week for information leading to the suspect in the death of a dnc staffer who was killed tragically here in washington
who was walking home from a night out one night and was shot three times. the implication seems to be that wikileaks was suggesting that the e-mails didn't come from russia at all but came from perhaps this killed dnc staffer which has another twist implying that the democrats were possibly trying to get rid of this guy as a result. none of that seems to be substantiated by evidence. all of the evidence about the hack points directly to russia. the fbi has high confidence that this is a russian hack. i think the evidence is in that direction. emily: it remains to be seen if we will see more information leaked out as a result of this. michael rielly, thank you so much for that update. how deep an impact has brexit already had on lending in the u.k. we will hear from the biggest start up of lending when we return. this is bloomberg.
emily: biggest decision to leave the eu is making it harder for the p2p lending business to attract investors. funding circle says one part of the transition will not be as hard. the company holds individual licenses in each of the eu countries it operates in. it is more prepared to weather regulatory changes. we sat down with meekings. james: it is a platform so people can lend money directly to businesses across the world. the eu referendum has some mpact on that. i think for us as a business, we are extremely well capitalized. we are in a good position to weather a timeframe of economic uncertainty.
more businesses are coming to us who previously would have gone to the banks as a result of the eu referendum. it is fresh. there could be a greater need for alternatives such as our latform. adam: brexit has thrown that into some uncertainty. are you thinking of moving your base of operation? to be able to maintain access to that market? james: funding circle -- we have offices across europe including london and berlin as our main centers. those give us access. in terms of the actual regulations, we have to abide by the regulations in every country we are in. we do not run it as a passport or our activity. the eu referendum result does
not make a difference to how we behave in different countries. adam: since you have launched in 2010, the global economy has been relatively strong. how will that change if the conomy swings? you have had a low number of defaults. are you forecasting there will be more defaults? james: no one takes -- more seriously than us. it is paramount to us. clearly, we have only been in business since 2010 but the businesses that we lend to have been around longer. they are an average of eight years old. clearly, we can model what happens to those businesses vertime. in our credit assessment process,we look at macro drivers like unemployment. and we assign businesses with different wristbands. those classifications may change and the models may change as you enter a timeframe
of economic uncertainty. adam: lending club and other pier-to-pier network has gone through a period of time. the stocks have collapsed after internal controls. how does it affect your business? does it change what you rely on to fund the loans you're making? james: it has been a challenging year. for all business. we have worries about the chinese economy and the lending culture challenges. and the referendum. at the lending club -- our challenges are isolated. in the u.k., we have a dedicated framework. for us, we are seeing institutional investors being more aware and asking us more questions about our risk framework which is quite right. they have been reassured with the answers we get them. adam: it was reported last week
that one of your chicago investors, a u.s. fund, and a hicago investor says the results were coming in below expectations. a morgan stanley report showed that some other funds were seeing some trigger losses. the market depends on using technology to mitigate risk and minimize these sorts of things - why has this not worked? james: every large investor in our u.s. business has earned a return of 7% which is in line with our expectations. we want to be clear on that. in the u.k., we are giving returns of over 7% as well. when you compare those to other investments at the moment, we think it is an attractive asset class and in line with expectations. some of the comments are not quite right. we are here to correct
those. adam:>> are you seeing a change in behavior? are you having a harder time drawing in investors as a result of the different challenges that you are talking about which might include the banks or the hedge fund? is there still a strong appetite for this investment vehicle? james: we have got multiple types of investors queuing up at the door. what has happened is that as we are going through the eu referendum, we have to have frameworks and the time to get these investors on board is taking longer. emily: that was funding circle founder and director james meekings with adam. coming up, with more drones comes more accidents. we are learning about the growing need for drone insurance. with an on demand industry veteran next. this is bloomberg.
the hang seng index is poised to rise for a second week surging 14% in the past month the biggest gainer among major benchmarks. earlier the s&p, dow, and nasdaq all closed with records for the first time since 1999 helped by a bounce in crude prices. china's recent economic stablization faltered in july as factory output and retail sales and investment all slowed. industrial production rose 6% from a year earlier. retail sales increased. all three readings fell short of economists' estimates. japan takes another step to
reestablishing its nuclear industries switching on the reactor under new safety rules enacted after the fukushima disaster. the company is expecting power to flow from the facility in three days. court challenges threaten the reactor operations in other cities. shikoku is leading gains today among asian utilities. global news 24 hours a day fired by more than 2500 journalists and analysts. this is bloomberg. back to the markets now. coming back after a mountain day and after the lunch break as well. how are things looking? >> a fresh edge. we are seeing pretty strong gains coming through from the tokyo session. of course we are getting a slightly weaker yen today. the nikkei 225 as it comes into the afternoon session up by 0.7%. we are seeing some of the currency sensitive stocks doing particularly well in that session.
elsewhere around the region really trying to digest the eaning behind the china danger every metric missing expectations and what does it say about the china stablization story we've been telling over the past few months? we're seeing that impact sentiment with sydney stocks. a quarter of 1% well off the session highs. new zealand stocks topping an all-time record high earlier on up by a quarter of 1%. now elsewhere in the region shanghai is holding steady at about a quarter of 1%. quite a lot of information coming through from the national bureau of statistics. along with that data saying downward pressure continues when it comes to the chinese economy and they are dedicated to the structural reforms reducing over capacity in particular the problems with the over capacity issues. the s.o.e. is suffering the most in terms of the declining growth rate. as you say, here in hong kong outside of 0.7%. the sort of record beating rally that we're seeing for a second week. just quickly this is also
really supporting sentiment ere in the region with brent crude coming off some of the losss we saw in the immediate aftermath of the china data coming out. the dollar holding steady. right now that's how we look ere in asia. emily: think of the drone crash that stopped the u.s. open or decorated the white house lawn last year. the cofounder of the halo is addressing this issue and offers hourly drone insurance for up to a million dollars of liability coverage with the click of an app. now we need on demand drone
insurance? how many people are buying this and who are they? >> tons of people are buying it. it exceeds expectations even by halo standards. let me put it in context. drones are the democratization just like cars. so what we're seeing here is the birth of an industry both on the commercial and on the recreational side. what we're trying to do is lay down a fabric for insurance that makes sense for this industry right now. emily: what does it cover? does it cover me? the drone? invasion ofjay: it covers damage to privacy? property, injury to people, and then there is even a $10,000 of accidental invasion of privacy cover. emily: regulations are catching up with reality but what are the laws right now? most people are flying without insurance. is that legal?
jay: on the personal side, most people are flying without insurance but that is mainly because there has been no insurance product that would get them a million dollars of insurance for $10. on the commercial side, there had been other products but they were very expensive. sometimes the same prices as manned aircraft and required an annual commitment. on the commercial side, we are seeing a big insurance market out there but people want more. an on demand so they get paid only when -- they get paid insurance only when they get paid. emily: tell me how the business model works. it is an hourly service. how do you quantify that liability? jay: what do you mean by uantify liability?
emily: how do you figure out how much insurance you need? jay: if you are a commercial operator, you will know because your clients will request it. if you are a personal user, in america, $1 million is a pretty good amount that covers you against pretty much anything that could go wrong with your drone. that is why we chose those numbers. remember, we have the flexibility and will in the near future be adding options so one can select a lower or higher limit or a smaller or larger area or even a smaller or larger time. emily: how much does it cost? >> it starts at $10 an hour but it is variable based on hazards in your area. if you were based near a school, and the drone could fall on school students, or if ou are near a stadium, the price would be higher. emily: how many accidents are there? ay: we do not really know.
i will tell you a story. the coroner of the first declared death of a car victim -- very famously said -- i am sure this will never happen again. and of course it did millions of times. this is an inevitable fact that you have flying lawnmowers, flying at close proximity to people and to property and then you have very many of them throughout the world. basically, there have been very few aviation accidents but many people say we need insurance for planes. emily: you cofounded halo which just merged with my taxi and became a part of daimler. what have you learned from the on-demand car? jay: great question.
the most important thing that i learned is to listen intensely to your community. we only launched on monday. the response has been unbelievably euphoric on the part of our users who are trying to invest in our financing rounds and suggest features that might be useful to us. and trying to recruit all of their friends to use the service. we are trying to harness that to make sure that the product is not just great but superb. and that it will be something that people will want to refer on and grow. emily: jay bregman, you have given me an education. thank you so much for joining us. >> thank you. we are also watching fatalities from crashes of small private planes that has fallen to the lowest level in decades. down nearly 18% since 2010. better technology is credited. pilots have much better weather
information than in recent years. aviation regulators have also made it easier to add new technology to planes that warn pilots when they are about to ose control. the chinese tech conglomerate plans to build a $1.8 billion factory to make internet connected cars. the production hub will be utside of hung jo. it is part of a larger theme park. it is partnered with saturday's future to produce electric vehicles in las vegas. coming up, one company working to disrupt the education world and announcing its largest expansion yet. we're talking general assembly. that is next. this is bloomberg.
>> pokemon go may have broken records for its popularity but the sheer act of playing in certain countries means players are now breaking the law. several nations around the world have already taken action to crack down on the craze following data breaches and mugging and even deaths. several nations are taking action to crack down on the craze. data breaches. muggings. injuries. iran has completely banned pokemon go in the country while germany and even the u.s. are putting new rules into place. here to discuss is our legal reporter. this is so fascinating because we are seeing this technology roll out in real-time and challenge regulations in real-time and our behavior in real-time. s there something to this? are these countries
overreacting or will we see more follow suit? >> it is a natural reaction. we have unproven technology. we have not seen augmented technology especially in game form. a lot of them are untested. look at the countries raising concerns. iran. china. russia. the israeli military. the u.s. military. they are all concerned about security. they do not want someone to be using this app at the wrong place in the wrong time and there be a breach in ecurity. obviously no proof yet but there is worry. emily: there have been some serious cases associated with pokemon go whether or not pokemon go was actually responsible. muggings. traffic accidents. multiple deaths worldwide. every situation is different. but is the company that makes this game responsible? do they have any liability? >> we have not seen any litigation yet but it is an interesting question. e also need to find out if
this company is putting this into the hands of people that cannot use this technology. it is not dissimilar to what we've seen from tesla. people are using that technology for the first time and when you use autopilot and if you get into a car accident, who is liable? people can explore their communities in ways that they have never done before and if they fall off a cliff, if they get into a car accident, who is liable? privacy lawyers are saying that it will be tough to hold the company responsible because of heir terms and conditions. emily: every situation is different but should there be pokémon off a cliff or in the middle of the road or in a potentially dangerous place or neighborhood? are these things the company needs to think about? >> the company will say, fine but you are the parents of a child who is playing pokémon.
if you are worried that there is a pokémon next to a lake in your neighborhood, don't let your kid go out. it will be so interesting to see this argument made in court. the company will say -- you are adults. behave like one. emily: what about the data? he way pokémon go brings users in is atypical. >> that is also a good question. it could be that for augmented technology apps, this is the first time that someone is really collecting the data to the volume they have because of how popular the app is. we have to look at the terms and conditions to see why do you need all of this data for someone to play pokémon? if an app or service is free, then you, the user, is the product. when that happens, you have to wonder what they want to do with that data.
if it is to monetize it, the question is what do they plan to do in the future. will they sell that data? if they do, then potentially you could see litigation. emily: are regulators in the u.s. looking into pokemon o? >> we have been trying to find out for a while. there are some private firms that have asked them to look into it. al franken has asked them. emily: advertising seems to be an obvious form of monetization. there is a mcdonald's. right there. will that cause issues or is that a straightforward use of our information? >> if the vendor is on board and you have agreed to it by approving those terms and conditions that no one ever reads, then privacy lawyers say it will be tough to litigate that but we shall see. emily: such a fascinating
story. thank you so much. turning now to education and disruption in education. general assembly is broadening its horizons. jeff bezos is announcing the largest expansion to date adding 10 campuses in the u.s. and canada. and acquisition of toronto-based bitmaker. its first move into canada. general assembly cofounder and ceo jay shorts is joining us now. general assembly offers online and off-line classes to help people develop certain skills they need for jobs. i am curious -- we have people like peter thiel who says you do not need to go to college and i will pay you not to. what is your philosophy on how much education we need? jay: we have focused on the graduate school part of the higher education ecosystem because we think that ecosystem
is represented by individuals who are choosing and they are the consumers who are making the choice to get education. when you get down to the ndergraduate and the college level, i think there are a lot of ideas that are interesting out there about where college might go in the next 20-25 years but we do not see ourselves and general assembly as being a replacement to undergraduate institutions. we would like to be a complement to those systems and be a bridge between those institutions and the real world. emily: i don't know what peter thiel would think about graduate education but i imagine he would say it is even more useless than a college education. how would you respond? jay: graduate education is an investment. like any investment, you have to put something up front in terms of time and money. and there is a return. some forms of education may not
meet the threshold of a good return on investment. we design general assembly from the idea that -- can we reduce the denominator by making our courses shorter in length and less expensive in terms of money but also increase the denominator by making the skills we teach more relevant. we can actually increase the roi by an order of magnitude. emily: what courses are most in demand? jay: when we started it was all about coding. we taught ruby on rails classes. what we have seen over the last few years is while coding is still in demand, the growth has been overtaken by courses in data analytics, data science. these are the skills that employers are super hungry for
and those skills are in such high demand and the courses and the demand for them have exploded. emily: so much is changing in ai and automation and jobs are changing. what skills will be the most in emand? in five to 10 years and how do you guys prepare for that? jay: we are typically looking 2-3 years out and trying to understand the skills that will be in demand then. we are going through a massive secular shift. there is a lot of talk about ai and robots, but the reality is the employers that we talked to are at the beginning of their journey of the digital transformation. a lot of companies are still implementing cloud technology and trying to figure out how to use data to better inform their marketing decisions. there is a long road ahead of companies needing talent around
data, web development, global development, digital marketing, product management. these skills will be in demand or sometime. emily: ceo and cofounder of general assembly. we will keep our eye on you uys. every weekend, we will bring you a sample of our best interviews and this saturday do not miss our conversation with the disney c.e.o. on the billion dollar streaming deal. the best of west is this weekend on bloomberg. this is bloomberg.
so proud of the team we have built and the work we have done. he founded google ventures in 2009. i spoke to him in april about the early days of the firm and how he became ceo. >> there was no checkbook given. what should we do in venture? i spent six months thinking about different models and how it might work. part of my job was we hired a recruiting firm to find the head of google ventures. it was not going to be me. as i interviewed people for that role, i discovered that we were talking to people who didn't know anything. no one knows anything. no one knows about google. and it does not seem like they have any special knowledge about these technology companies. and so i volunteered and said i would like to give it a try. emily: i did speak to him personally and he did say it was his decision to leave. it was time to move on and start something new.
the managing partner will succeed him as head of the group. speaking of revolving door, arianna huffington says she is stepping down as editor in chief for 11 years of the huffington post. she is turning her attention to thrive global. i asked her about the difficulties of starting a new business. >> if you start a new business, three quarters of them do not succeed. you have to be comfortable with failure. i was brought up by a mother in a one-bedroom apartment who kept saying to me -- failure is not the opposite of success. it is a stepping stone to success. she always made me feel that it is ok to try anything and fail along the way. when i wanted to go to cambridge for example and everyone said i would not do well, i don't speak english.
we don't have money. and she said -- let us find a way for you to get to cambridge. we knew it was unlikely and i would probably fail but that did not stop us from trying. emily: the huffington post was acquired by aol for $350 million in 2011. it is now part of verizon. it is time to find out who is having the best day ever. n video. nvidia. the $32 billion chip maker is on the rise. it is adding to its recent gains. it is the top-performing snp stock in recent years. it specializes in games. and graphics processors. that does it for this edition of "bloomberg west." tomorrow, we will focus on new technology. and virtual reality. a new company has raised a fresh $80 million in funding. that is all today from san francisco. this is bloomberg. ♪ ?c+sv
>> noon in hong kong. factory output in retail sales as well as investment all slowing down. it does highlight problems for beijing. may risky it undermining financial stability or even curb expansion with the economy there. the deal valuing a film distributor at one and a half million dollars. they declined to