Transcripts For BLOOMBERG Market Makers 20140529

Why do i want to get to the news feed . Hours. A fun next two top is news stories from around the world. They will accept payment in bitcoins. Has 14 million survivors subscribers. Is this in response to at t buying its main rival . Lost . 17e fitch per share, less than analysts estimated. The decline in sales slowed. Shares of abercrombie are rising today. The countrys largest Warehouse Club reported profits of 3 . Amestore sales rose 6 it is a takeover battle for hillshire brands brands. Pilgrims pride has offered to billion. Hire for 5. 6 i want to bring in senior markets correspondent and sausage enthusiast julie hyman. Why does everybody care about hillshire . Hobbits. Ire, like they live in the shire. Shire . About a 50lking bid coming from tyson to compete with the 45 per share bid coming from the brazilian conglomerate. It is all about protein. It is also about breakfast. I thought it was interesting within the tyson release, saying tyson wants to capture opportunities in this attractive wherestgrowing market, tyson doesnt have a lot of exposure. Whether you are talking about taco bell and the waffle taco or tyson trying to capture the protein heavy breakfast, thats where it seems to be going. This is crazy. This was a 35 stocks 10 days ago. It is now trading above the offer price. I would assume the investors buying into hillshire assume that kbs jbs will come back with a higher offer. I have never eaten a jimmy dean sausage. But it is selling. I know that you love the state fair corndogs. I do love corndogs. I do love a good corndog. Ofthere have been a lot other businesses talked about besides tyson. Hormel was talked about. Wh, which is the new name of the Chinese Company that bought smith foods. There are other bidders that could be out there. Hillshire agreed to buy pinnacle foods, the maker of birdseye frozen vegetables, so that it wouldnt be acquired. Most of the shareholders who have been speaking out on this have said they dont want hillshire to buy pinnacle. That deal looks like it is doa at the moment. Wait for it. Are these bids getting beefed up or are they full of bologna . I love it seriously. You should be doing a routine in the borst belt. Thank you. I will see you in the catskills. Julie hyman with the latest on hillshire brands. She is here all week, try the veal. [laughter] shorta bull on tesla and just about everything else. He is most definitely a contrarian, an investor who has run three number one ranked mutual funds. He is the chief investment strategist at his own research firm. He is with us for the very first time. Such a treat. A pleasure to have you. Tell us why you have this contrarian view of the market. Stocks were up 30 last year. We seem to be hitting new records every day. Why this view . The market has been rallying for about five years. The s p is above its highs of 2000. The big caps are flat. Yesterdays at the same level as march 24, yesterdays c lose was at the same level as march 24, 2000. They estimated the typical stock may follow will gain 25 over the next three to five years. The last time they had this reading over 25 estimates was in january, 19 99, just before an 80 decline in the smallcap indices over six years. Point,raise a very good and that is the value of history. Is it your sense that most people who are investing today either worn around or arent paying attention to the kinds of things that happened in the past either werent around or arent paying attention to the kinds of things that happened in the past . The market moves based on what happened six months ago. Six months ago, you had the highest people leveraged people say the market is no longer high sentiment. The comment does not the markets dont have a long memory. What i track, unlike other analysts, is the markets memory. If i see an indicator that tells me something significant, maybe the market will react three months from now. I keep that in my database for three months. That seems to defy what most people would call the efficient market theory, that every piece of information is priced in immediately. Why is that the case . Many people would say the financial crisis taught us the efficient market theory is bunk anyway. In order for the markets to move, people must act. People dont act into instan taneously based on news. Even if they see fundamental changing in that stock, it takes time for them emotionally to change their mind and sell the stock. Decisions amongst people. Give us a prescription. Somebody is opening their portfolio tomorrow. What should they be doing . Very cautious be on the stock market and the bond market. Ift of us are assuming stocks are doing poorly, bonds will do well. Historically, that is what happens, but this time is different. The Federal Reserve has lost control of the Interest Rate market. Two tumbles and a jump. If the fed reduces Interest Rates twice, the market rallies. They reduced Interest Rates in august, 2007, and september, 2007. The market declined as of october, 2007. The problem with the bond market , the fed has lost control, in my opinion, but the market remembers there has been a downgrade of the u. S. Bonds. Whenever there is a downgrade of a bond, the yields of the bond should go up. They havent been going up. Once you see weakness in the stock market, people recognize weakness in the economy. We require a higher rate of interest. How is it possible that the fed and presumably other Central Banks as well have lost control of Interest Rates when the folks who make it their business to invest in bonds, like rick said it is almost impossible he happens to be doing well, by the way. It is so difficult to invest because the Central Banks have so much control the markets. Deflationaryajor force in the economy. Where would rates be without the feds . I believe it would be 0 . I dont think that is doing anything to the economy. Rates are based on longterm views of the economy. We are expecting the United States to be able to pay down their debt. As the perception changes, yields should rise. Why do you like tesla in here . We do market profiling, stock profiling. History een only a only a handful of great Growth Stocks in history. Kodak was one. Cisco was one. In 1990, cisco was trading at 11 times sales. In november of this year, tesla was trading at 11 times sales. Cisco, was trading at 1 billion market cap, and peaked nine years later at 26 times sales. Will not gomean it higher. Value investors will wait until they ought to wait 15 years and theyll miss the big runup. It is a great car. Running theenius company. The stock profile matches historys greatest Growth Stocks. I love it. He is awesome. I told you so. 90 short and makes a bold case for tesla. Great to have you. He is the chief investment strategist. Coming up, golf tries to rebuild the buzz. We have some of the sports most sports most powerful executives. Plus, a 15 per hour minimum wage . Seattle may make it happen today. You are watching Market Makers on bloomberg television. We are streaming on your tablet, laptop, amazon fire tv, apple tv. Welcome back to Market Makers. Woman golfers may be spending more time on the course next year. There is a new womens tournament beginning in 2015 with a 3. 5 million with grabs. Llinon up for 650,000 men dropped out. I want to bring in the commissioner. 650,000 guys dropping out of golf what gives . The best thing you said is we are bringing women into the game in a very significant way. Today we announced the dream team of womens golf. Awareness. Bout nbc is a tv partner. Millined almost 1. 5 from where million it was before. How much exposure do you have from womens golf . Think about the wnba. They are willing to take a loss to air their stuff. We think there is an audience and it is increasing. Nearly 100yearold organization, this is a major move for us in support of womens golf. We believe it is part of the critical future of the game. Womens pga championship will be a major golf championship. It will be a celebration of women on and off the course. Componentmoment is the leadership course. Who are the women taking of this game . It takes four to five hours and a ton of money. The game of golf is really changing. We are playing 6, 9 holes. You can post a usga handicap playing nine holes of golf. You are seeing more people come to the golf course and playing does not mean an entire round. On the lpga level, you are talking about the best in the world coming together and playing the game. More and more women are going to the golf course. Some of them playing six holes, nine holes, 18, 20 7 it doesnt matter. Enu are using losing more m than you are gaining women. That has to be a problem for the sport. I hardly play because of the Time Commitment required. We at the pga of america have a twopronged strategic approach to everything we do, to serve our 27,000 Members Around the country and to grow the game. We are dedicated to growing the game through traditional message methods, our get golf ready and pga junior programs, both of which have seen unprecedented growth in past two years, and also exploring nontraditional ways to grow the game. You dont have to play 18 holes. We have to give the golfing audience a 30 minute, 60 minute, 90 minute answer. What about a less expensive answer . It still cost you hundreds of thousands of dollars to be a true golfer and be a member of are really great club. The vast majority of golf rounds played in the United States are played on public golf courses. Even public off costs a heck of a lot more than buying a racket and going to my public tennis courts. But we feel that one of the mistakes in the industry is that golf is expensive. Granted, it can take time. It is a difficult sport. Professionals can help you get into the sport. In most instances, it is a very affordable activity. We need to do a better job as an industry in explaining that to our potential consumers. One of the things that might surprise you about the womens golf game, your expectation not to be think olympics. We have your expectation ought to be think olympics. There are 160 countries watching. In japan, the best female athlete in the world are playing on the lpga. In taiwan, china, korea, australia. Their best female athletes have gravitated to the lpga because they want to play against the best in the world and be the best in the world. When we have that event in 2015, it might feel like a local event , but the rest of the world will be paying attention because they are watching their heroes compete to be number one. What has changed in the womens game is it is no longer a tour that goes tour stop to stop. It is watched by millions of people around the world. Why cant we have more heroes whose names we know . Lets talk about mens golf, with the exception of tiger woods, arnold palmer, phil mickelson, it is hard for people to name golfers. You are playing into my hands. I have watched the last four or five years reporters ask american golfers how come american golfers arent doing better. There has been this incredible resurgence. Michelle wie, stacy lewis, paula creamer. The list of americans in the top 25 in the world, there are nine or 10 americans. That hasnt been the case for the last 10 or 15 years. There is a huge resurgence. They are creating heroes in the womens game. Women are watching and following the game. It is an exciting time for womens golf, especially as it relates to being an american golfer. Weve never had more strengths than weve had now. If you see the Corporate Support of this game, companies willing to make a sizable investment over a series of years in a broadcast partner like nbc is willing to step up to the plate and show the womens pga championship we see the potential, there is no question. But does golf need a kobe bryant or a lebron james, the role of tiger woods used to fill . Absolutely. International heroes are good for golf. You mentioned jack nicholas, arnold palmer, tiger woods, annika sorenstam. Great names. There are people who are emerging, people like jordan spieth, rory mcilroy. Rory is not sticking like tiger does. We had tiger since 1997 when he burst onto the spotlight. Rory mcilroy is 25. He is just Getting Started in golf. There is one last question we need to take a before we go. Are you really going to make the hole bigger . Part of our belief is we need to get as many people in golf as possible. If we need to try different formats to make the game more welcoming and more accessible to different people, we are going to try it. Are not trying to place replace what makes golf special, the rules and tradition of the game. Is in the game already different enough from what it used to be . Game already different enough from what it used to be . It is already a lot easier to play than it was 10 years ago. Every sport changes and develops. You could go to basketball, football, baseball, and look at how those games have developed. Golf should mean no different should be no different. Thank you both. We love having you on. Pete bevacqua. Up, workers around the country have demanded a 15 minimum wage, and they may be getting it in seattle. Born. Ing up, a star is the new formula, build a following on youtube, then signing a book contract . Plus, you can will talkme back, we about the city looking to raise the minimum wage to 15 per hour. It might actually happen today. This is Market Makers on bloomberg television. You are watching Market Makers. I am Erik Schatzker. Otherwise known as cranky carl. And i am stephanie ruhle. Can you believe i just said that . We are talking about the bond market rally that nobody predicted. Some of you predicted it. Can Central Banks keep stimulating Growth Without inflation . We have been following the trend in the sovereign market and in other bond markets. What explains this incredible rally . Everyone is looking for that one there is really no one explanation. There is a whole host of reasons that one explanation. There is really no won ask no one explanation. There is a whole host of reasons. In the u. S. , the economy shrank for the First Time Since 2011. Evidence the economy is accelerating like people thought it would. There is not the catalyst for rates to rise. 40 ons that justify 2. The 10year treasury . Lets put up a table that illustrates how big the move has been globally. Onjanuary, we were at 3 the treasury, 4 plus on everybody thought that yields would rise, wall street analysts pretty much universally thought that yields would rise substantially this year. They havent. They have all been wrong. People came in this year completely bearish. This is ever dense is evidence of a short squeeze. It is causing yields to go farther down. You have Central Banks holding a lot of treasuries. There isnt that much in circulation. Who is the seller . There are more buyers than there are sellers. You have the population getting older, people circulating into less risky assets. They want security. You have a lot of pressures. Can they stay this low for a long period of time . Can they go lower . Or are people going to get blown out by the end of the year . To me it is making me so upset i got sick. That is the main question for a lot of people. Is it potentially risky wager or is it betting on a new normal . Great to see you. It is a done deal. Apple has officially agreed to buy beats, the headphone and streaming company, for 3 billion. Business, ceoa tim cook is getting two of the music industrys top taste makers on staff. Lets bring in our senior west coast correspondent, jon erlichman. He is in l. A. With that story. To dr. Dre and jimmie going have apple id cards and swipe in at 8 30 . Maybe not 8 30, but they will have the id cards, for sure. There are two important parts of the story. He cultural fit if you think about why they started beats. Sound got the worst grade. Interpreted,ately when dr. Dre would talk about his kids listening through earbuds and not getting the experience that he would spend working on in the studio that that was a shot at apple. If you look at the comments they were making a few years back, they were saying apple was a company that was just as interested in sound because of their dominance with itunes. Jimmy i have been jimmy io vine was asked if he was moving to cupertino. He said, ive been going there 10 times the last 10 years. There are already strong ties between these companies. How might jimmy iovinea nd jimmy iovine and dr. Dre change things at apple . Ofl they have the same kind influence on apple that tim cook had for Different Reasons . I think the story that we watch from this point on is going to be the really interesting one. These are two people who, long ago, said people do not want to pay for music anymore. It is clear they would rather rip it off the internet. Even before they launched this is production the subscription program, they said that is where we are likely to be. You can market big names with less money. You start to think about how some of the ways apple is going to be marketing music through the different streaming options they have going forward. And then the unknown. They were thinking about the listening experience in your living room. We spoke to an apple executive who thinks there is something alreadyh are working on that we dont know about, which maybe will give us an aha in a few months. It is hard to say. Apple has so much cash, this is a bet they can afford to make. Im sure dr. Dre and jimmy will be throwing a fantastic celebratory party. You need to get yourself invited to it. Isntis a safe assumption, it . That they will be throwing a big bash . I think it is a safe it shou ld be a safe bet that he gets a ticket to it. I dont think there will be tickets. There will be a vip list. Jon, get on it. Seattle is making a bid to increase its minimum wage to 15. She is here with us and has the story. Hi, hi, erik. Seattle and a big day for the fast food worker strike. Seattle has a vote planned. They are considering a plan that would raise the sediment the city minimum wage up to 15 per hour to be phased in over seven years, at which point the wage would be inflation adjusted. The proposal is expected to pass almost unanimously. There isnt much mystery. In seattle, 102,000 workers, about 1 3 of the working population, makes 15 peor less. Proponents of the increase say that the increase would put about half 1 billion extra into 500 millionbout extra into workers pockets. It is something we will all be watching. Plenty ofhere is momentum in this minimum wage fight. Are there local, seattlebased businesses saying this could put us out of business . There are certainly naysayers. One thing that is unique about seattle is that the mayor one of the things he pledged when he was running for office was an increase of the minimum wage. Instead of coming out immediately with a proposal of his own, he put together a working group of 24 people, people from the business community, people from unions, labor groups, and had them work out their differences. Theyve been working on this for four months, many months. Way fired figured out a to phase this in to make the 15 wage a possibility. There are always naysayers with these types of things. Seattle is a good working example of how potentially other cities and states should approach these issues. Todays vote is evidence of that. Doing have any idea what Corporate Leaders in the city of seattle have to say with about this . People like howard schultz, for example . I dont know what starbucks has to say on the issue. They claim they pay above the minimum wage, that they do their part to keep the economy going. There are many interested parties. It is not expected to take that much of a hold nationwide, of course. Congress is having a hard time getting 10. 10 an hour passed. Debate, you an would have to call it a battle. Thanks very much, the latest on the minimum wage, likely going to 15 in seattle. A big jump. We will be back with more Market Makers in just a few. Coming up, the changing face of publishing. This is a potential bestseller . Youtube. Will come back to Market Makers welcome back to Market Makers. Have millions of followers and now they are getting their own book deals. They are launching keywords press. Will internet fame translate into higher book sales . Good morning. When i think about these youtube stars, i dont necessarily think of them as bookworms or great writers, nor do i think of their audience as such. They are all storytellers. They have a great following because people like their voices and like what they are saying and the lessons they are teaching them. The energy with which they tell their stories. We feel that because they have such a great platform and it is such there is a big opportunity for them to tell stories in another medium, particularly with books. Why books . Lets just analogize for a moment. John welling john lennon was a great storyteller, but he didnt write many books. Diddy er, jayz, where are the books . Jayzs book was fantastic. They are not writers. It is not a natural form, but it is an opportunity to see whether there is a book market there for them to embrace. What happens when they go out in public . They get thousands of people to have their photos taken, to talk to them. They want to know more and more about them. In the culture we live in now, ing a cultural cache are they going to be riding their life stories or are they going to write similar to what their content to be writing their life stories or are they going to write similar to what their content is . Rm, jumping out of elevators and cars how does that translate into books . There is humor. Cameras on for six entire months. What was that experience like . Telling their life stories. Telling their inspirational advice. They will also crowd source some of their content to talk to their fans. This is a new approach to publishing. It does sound as though you are going to need to be creative. Absolutely. Do these people have writing talent . Are they going to write their own books or are they going to be ghostwritten . It will be a combination of both things. Dawson has already sent in his first essay, which is fantastic. Theyre all of these voices. There are all of these voices. There is nothing to say that youtube isnt the place where stories can originate. Is this also a way for you to find a new audience . Youtube enthusiasts might not be at barnes noble. Is this a way to get them in the store . Absolutely. It keeps books in the cultural conversation. It allows people youtubers to interact with their fans, which they dont now in a physical form. It is all through the screen. What are your expectations for this initiative . How many books could you sell . I dont know. You could sell as little as 10,000. I published a book 10,000 isnt bad for a hardcover. Then you can go from there. It is a global initiative. I published a book called the weret some years ago and have sold nearly 30 million copies of that worldwide. It can be done if you get the right cultural touch points and if you can communicate it. How do you market to these people . Is the marketing done over youtube . Is that how you get them to amazon or to your local bookstore . Thats going to be a large part of it. That is the x factor. You also get emails. I got an email from a youtuber. If you subscribe to a channel, they communicate with you in other ways. Good luck. I love the idea. I know my kids love you too. Thank you so much love youtube. Thank you so much. , coming up on Market Makers we are not in Silicon Valley anymore. Wait until you see where two of the valleys biggest names put their data centers. Big data has a new home. Facebook and apple are putting down some roots, not where you might think, though. The internet giants are building in oregon. We went to see the newest see newestlle, oregons, neighbors. Prineville has become a new spoke in the information highway. Updates are stored on servers in vast buildings like this known as data centers. This is facebooks most Efficient Data Center to date. Inis in prineville, due large part to the climate of central oregon. Air intake room. We call it the penthouse. We are in the high desert. Whether it is hot or cold, it is very dry air. On a cold day, the area is directly. E area on a warm day, it is filtered first. In prineville, the natural dry air cuts costs. They monitor and replace problematic servers in this naturally airconditioned environment. Prineville moving to it was definitely a shock. And now apple is coming to town, building a facility just up the road from facebook. There was another big incentive for both facebook and apple. We told them we could give on the years of taxfree improvements they put on the land. We have people in our community who say to us we gave it away. Say, no, we didnt when it becomes a taxable entity in 15 years, they are not only paying taxes on the land but on a huge facility. Those tax revenues may eventually run into the millions of dollars in this town that is still in need of a boost. The mayor hopes this kickstart will help revitalize prineville and serve an example to other small towns. Looking good in his jumper in the high oregon desert. He is here with us now to talk more about what drew apple and facebook to oregon. The mayor. She explained that tax breaks had a lot to do with it. How competitive is it . What other cities were outbid or outcompeted . There are data centers popping up all over the place, north carolina, iowa, even northern sweden. The middleman they go to these small towns and say, i have a client who is looking for this business. Can you do it . They didnt know it was facebook until the day they broke ground. Really . Fascinating. There are all sorts of things. Shovel ready landy. Flat, no trees . Ready to go. Fiber lines. What is the Economic Impact for this town . For the state of oregon, it is pretty significant. The big boost comes from construction. Than 570has had more million in capital spending. The town itself, over the course of a year, there are maybe 56 million the big struggle is they are getting these huge tax deferrals. And applers, facebook arent paying any money in terms of paying local taxes. And they are filled with computers. They dont employ that many people. A it is 120 people but in town of 9000 people it is skilled work. People are doing well at it. I love it. Great story. Thank you. That is bloombergs willem marx. Inrket makers will be back a couple of minutes. Another terrific hour of television coming your way. Duke behavior economist will join us for a whole hour. Stay with us. You are watching Market Makers on bloomberg tv. I promise it is going to be worth it. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. When getting a Competitive Edge in wall street cheating on your diet. What does it take to get people to eat healthy . And stepping out on your significant other. We will talk to the founder of a website that connects cheaters. Welcome to a very special hour of Market Makers. I am stephanie ruhle. We told you it was going to be a good one. Im Erik Schatzker. All about cheating. Where do we begin . We will ask about what makes us do the things we do, whether it is ethical choices at work or deciding whether we need that second donut. We have a special guest joining us, a duke behavioral economist. He is a bestselling author who has done some eyeopening research into human behavior. Help us understand what is this work you are doing. I am interested in behavioral economics in general, all the ways in which people misbehave or behave in ways that are not good for us. As you know, i started doing this research after i was badly burned many years ago. I was in the hospital for about three years. I observed lots of irrational behaviors in the hospital. One of the first things that bothered me was the question of how you remove bandages from burn patients. I was 70 of my body was burned. They had to take the bandages off. How do you do that . Do you rip them off quickly . Minimize the time, but every second will be very painful. Or take a long time, but every second is not that painful . The nurses had their own theory. They thought the ripping approach was the right approach. Most people say, yes, do it quickly. Get it over fast. My nurses had some intuition about how they used to wax their legs. I think that is where the theory came from. When i started doing experiments on this, it turned out this was the wrong intuition. The nurses were doing what they thought was right, but was wrong every day for every patient. Is question more generally what are the cases in which we have intuition that misleads us and gets us to do things that are not in the interest in the best interest of ourselves, our clients, our society. We will get into that a lot more. Sit tight. We need to get to the newsfeed. Are you not excited . That is a fascinating story and a great place to begin. I should tell you that when people give other people complements, compliments, they really like the complements, even if they are insincere. When i say how do i look and he doesnt even turn around and he says great terrible. At least pretend. We will talk about some of the top business stories, make sure you are aware of what is going on out there. There is a battle for hillshire brands. Tyson foods made a 6. 8 billion offer. Stephanies favored corndogs. Stock is trading well above the 50 offer price at the moment, 52. 87. 52. 27. Ket expects the market expects someone else to come in and bid. Companies made fewer investments and added to inventories at a slower pace. Another sign the labor market is getting stronger, more current information. There were fewer firsttime claims for jobless benefits last week than economists had estimated, the lowest level in 6 1 2 years. Looking at these very recent weekly jobless figures, perhaps a little more encouraging. Now lets get back to the study of human behavior. Is highfrequency trading a form of cheating . We have our guest host for the hour, duke behavioral economist kevin. Ely, and lets start with you. When we talked about hft, everything was about speed and getting an edge. Is it ok to get an edge . Sure. This is a competitive marketplace. Everybody is trying to get an edge. It is about making money and whatever that takes. There will be some big bad people in indy in any industry. Of course it is ok to get an edge. That is why this is a capitalist society. That is what we do. I think that raises perhaps the most important question of all when it comes to cheating. Is it impossible to get the incentives right in the Financial Services industry . You try, but the people who are motivated by money will always find another way. I think it is important to ask what are peoples really incentives and are people trying to do everything im inclined to believe yes. You can ask about the potential of cheating and not getting away with it. We have been here in the studio for a while. I didnt see you take anything. I took water. If you think about the potential we have to steal every day you go to a restaurant. Ive been doing this for a while. I asked is it possible, is it easy to eat in this restaurant and escape without paying. They always give me good advice. Just wait for a good big party to come in. Almost nobody is doing it. If you look at people, we are often good. We do live we behave well. We cheat not because of being afraid of being caught. We cheat when we can rationalize the behavior as being good. What the market is doing in many cases im guessing you teach your kids to be nice people. Maybe i am naive. Inherentlypeople are good and that carries over into the Financial Markets as well. The vast majority are people trying to make their living, trying to figure out how to do a better job of doing it. But the moment you give them a theory about why what they are doing is actually ok, all of a sudden come a they can behave sudden, they of a can behave better. They were making money in a computer simulation. The bank was not doing very well. , there are these things called revenue enhancements. These are ways to mistreat your customers but get a little extra income. The question is which of those do you want to adopt and which not. Some people were told the goal of your bank is to maximize shareholder value. These people were much more willing to take to screw their customers. It seems that is what happens. In the moment you say everybody else is doing it and my obligation is to your to doolder and they need everything to maximize revenue, you can do things that you wouldnt find moral outside of the system, but the system makes you think didnt you have a front row seat to this . Stephanie work that Deutsche Bank stephanie worked at Deutsche Bank. People were creating cdos. Weapons of financial mass distraction. But they were actual good products. People did not believe they were doing something bad because they were amongst a sea of other people are facing the same thing. It wasnt like they were picking up the computer and walking out the door. Everybody was doing it. Certainly. They were helping investors make money. There are a lot of ways to do that. We are safer today in the markets. Retail and Institutional Investors are safer than they ever have been. Wider. Were much there was a much larger information difference between the retail guy and what the guys on the floor were seeing. We are all online. We have Realtime Data to our desktops. We know what the price of the stock is to the penny. You can trade electronically for a penny or less per share today. It is dramatically better than it was in the past. We need to separate what is fair and unfair from what is cheating and not cheating. You can say what is about gaining advantage. If somebody has more money and they can build an Office Closer to the exchange, is this really fair . It is kind of interesting to think about free markets. I did not grow up in the u. S. The u. S. Has a kind of split life. When we think about the stock market, we say it is all free, all caps alyssum, and so on, but then all capitalism, and so on. But then we have sports. It is regulated. If you took what is going on in sports and say do the same thing in a capitalist system we let the good company only s. E the best ceo sport is about competition. It creates incredible structure. We dont believe in sports that the free market is going to solve everything. But in the Financial Markets, we somehow believe that. We look to blame the system when the market goes against us. Maybe stocks are weapons of mass destruction when the market moves against you. Fairdont like the word when we talk about capital markets. It is capitalism. As long as we are all following the rules and we know what the rules are, everybody is in the business hold on a second. Rulessay we all know the basically means that the rules are created magically in a fair way. But what if you could create the rules . Would you also agree that now the rules are fair because you created them and the person who has the most money can create the rules that serve them the best . It is not fair that my neighbors lawn looks better than mine but it is not your neighbor. It is the founder of jpmorgan, the founder of Blue Mountain get to sit on the committee and my mom and dad dont. It aint fair. Have anssionals will information advantage over nonprofessionals in any business. You understand the journalism business better than i do. The ceo of the market will understand better than your mom and dad. And he can work the system to his advantage. That is assuming people are inherently bad. It is not assuming people are inherently bad. It is assuming people have the ability to be biased. It is about my ability to buy you a sandwich and beer and, from that moment on, to look for you to look at life from my expense my perspective. You can buy people very cheaply. It means you can have a simple interaction with somebody, all of a sudden, they like you better. To say that lobbying is institutionalized bribery . I think it is. In an interesting way, because people dont see themselves being bought. If i paid you a bribe, you and i would know that some money passed through it. You would somehow recognize it. But in lobbying case, as with some other incentives in the financial market, people dont see themselves being influenced. , when somebodyck starts lobbying you and you say do i really look at life from their perspective because im being bribed, no, you dont see that. Because of that, it is a bit more toxic in terms of its influence. We talk about banks and lobbying. There are also asked at managers and corporations and Pension Funds in washington there are also Asset Managers and corporations and Pension Funds in washington lobbying for investors. That is your mom and dad. Think there is a voice it is the way washington works. The statement you made is that the moment the rules are set everything is moral. I want you to recognize the fact you did not have any key role in how the rules are being set. If i play monopoly and decide what the rules are, we cannot possibly say monopoly is fair because of that. It is an interesting question of at what level do you look at your self you are in this business. You cannot possibly see life outside of your perspective. I dont think you are lying. Id dont think you have bad intentions. But i think you are in that world and you see the world from that perspective. And i appreciate that, the complexity in these markets is over the top. It is amazing. I wouldnt inspect expect the Retail Investor to understand the intricacies. You would hope they would have an Investment Advisor or broker who will steer them in the right direction and help them make good decisions to get the returns they need. Should we talk about the financial incentives for Investment Advisers . Is that where we want to go . Ammo we need to take a break. We need to take a break. Kevin mcpartland and dan ariely. We will talk about the psychology of giving. What charities can do to encourage donations . Plus, the ceo of snapchat gets tripped up by some racy emails he wrote during his college days. We will be back in a couple of minutes. You are watching Market Makers on bloomberg television. I am Erik Schatzker with stephanie ruhle. What is the best way to encourage more giving . Question weway are posing to our guest host of the hour, dan arielle he. Dan ariely. Carol has doubled the size of the fund she leads. Given that this is your business and youve had some success and that was during the financial crisis. What is the best way to get people to give more . Some made some decisions, were internal, some were external. It had to be easy for you to give. It didnt have to be six clicks, it had to be one. It didnt have to be somewhere where you had to go somewhere, even something as simple as trickortreat for unicef. You could drop your change into the coinstore machine. We did some things that made giving easy. We made an internal change where we were going to treat the donor as a customer. We created a Customer Care center. When you call, you dont get person to you get a talk to. And we are galvanizing are message under a heading with emotional attachment. We were going to get out there and be where you were as opposed to making you come where we are. What is the best way to get the average american to open his or her wallet . They are two important and very distinct aspects of giving. The first one is what you call the identifiable victim effect. You remember little baby jessica . Many years ago, 20 years ago, got stuck in a well. Really terrible story. She got more coverage than rwanda. Why do we remember her name . Because she was a single victim. When you describe problems to people and you say here is one kid who is suffering, hungry, so on, our heart goes out to them. We are willing to donate. If you say here are 10 million kids in africa who are suffering, that number, that size becomes abstract. It shrinks peoples emotions and gets us to give less. Here is the worst one. If you describe the little girl who is suffering and so on, then you say, by the way, she is not alone, there are 10 million people, that sounds like the right way to go, but no. Numbers and statistics get us thinking in a different way and get us to care much less. There is a beautiful book summarizing some of the research. Lled happy money they describe all kinds of ways in which people dont understand the value of giving. We ask people what makes you happy. People usually think it is buying stuff. It turns out that giving money away makes people happier than they expected. If you take people and you say, here is a starbucks gift certificate, go ahead and buy coffee, they get happy for a little bit. If you say here is a starbucks gift certificate, go and give it to somebody else, nevertheless, people are much happier and for longer. Something else happens. In particular, with corporate social responsibility, i think people miss tremendous response tremendous opportunity. You might be a big company that gives money away. But imagine if they in that empower their own employees but imagine if they empowered their own employees to decide where the money would go. What is it about big, giant, glamorous Charity Balls that make people want to give . And i am sitting at them eating my Chicken Dinner with an invitation that cost 18, i think it is in poor taste. But what is it about the format that incentivizes people . I think it depends on the format. Some of what you are saying, i agree with. There are stories of individual children. We want to identify with a person. The struggle of the charity between do i show you despair or optimism, do i show you ways to solve it or do i show you the problem there is the integrity of how much i show you. I hope that our events you walk in and you know what it meant you are at. It is not just a ball. Whatt you to understand unicef is. The decor will tell you that, the stuff on the table will tell you that, the program. Usually, one person has bought the table and you are a guest. What is the polite thing to do . You are going to make a gift. For the charity, that works phenomenally well. But i also hope it is an evening where we capture your heart, so that when you walked out, you come back, not because somebody else invited you. There is the idea of social truth. Youou go to a big room, realize, my goodness, all of these people are giving. They might not all be giving, but you think this is a big social movement. One piece of advice for these fundraisers, i think you should not serve food. You should tell people i think you should serve food. Pump the smell into the room. Tople can feel what it feels be hungry. We have a unicef experience where we have people understand and experience some of the things children can go through. They do raise money. Question for you. It is my understanding that one of the things that many charitable organizations struggle with is getting people to be repeat donors. They do it once and then they dont go back to the well. How do you get people to give repeatedly . Part of it is simplicity. What is the simple action . The reality is the tremendous effects of having to do two clicks rather than one longterm, it is much easier. We did a study recently where we looked at how many people need to be in this organization for you to want to follow in terms of getting longterm organizations. We found the sweet spot was 75 . You believe most of the people in the Organization Want to give you money and most people are willing to sign up under those conditions for longterm giving. But the other thing is that you want to make it part of a bigger mission. When you get a particular request, you give because you want to ease your discomfort. If you ask yourself the question of what kind of person you are, at that level, you will feel connected to one charity or another. That would be more likely to sit staring to sustain a longterm relationship. Two things. Kids instinctively get the idea that it feels better to give. We can get children to trickortreat for unicef or to say i will give up my allowance for this because they truly understand that pleasure. I think we lose that as we get older. Why . I dont know why. But the other piece you have to take into consideration around peoples gifts first person gets caught by the cause, i want to help the children. Then they do their research, especially if they are a big donor. They get the charitable ratings and they see how much goes to the cause, what is the overhead. Now they narrow it down to three or four charities. Then it becomes they give to a person. Is what youde of it do internally in the organization, hire the brightest and the best and keep them. What a great conversation. Thank you very much. Really nice to have you. President and ceo of the u. S. Fund for unicef and author of a new book, i believe in zero. Dan ariely, behavioral economist from Duke University, staying here for the hour. Coming up, making healthy choices. Why some problem some people have no problem eating Healthy Foods and others cannot pass up the fat. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Welcome back to Market Makers, i am stephanie ruhle. I am Erik Schatzker. Continuing our conversation, a dual obesity has quadrupled over the last 30 years. Health costs related to obesity have swelled to over 100 90 billion a year. How do we stop the trend. I want to bring in our guest host, Duke University behavioral economist dan ariely. And then the founder of grocery shop, a support group for low fighting against obesity. Why do you believe an Educational Group will fight the obesity epidemic that is worse than ever . Education is the beginning. The core of our program is support on a longterm basis. For six months families go through a program that is educational and about group and emotional support. After that six months, they continue on for years participating in the program. It seems reasonable. It is hard to say anything bad about education. In the domain of food, education does not seem to have any success. Think about what happens in new york. There was a thought that if we only put calorie labeling on food people would start eating healthy. Then there was a regulation on that and fast food places started posting calorie information and very little happened. Why . Was aof all, none of this surprise. Nobody walked into mcdonalds and said i had no idea, no he told me before. The second thing is that calorie information is very hard to work on. This also applies to financial literacy. When you teach people about finance, the chance it will improve their Financial Life is low. If you know something in principle it is different from acting on it. You have been at this for about a year . Yeah. A year is not that long of a period of time. Is your experience mirror the challenge dan suggests . Education is sort of a drop in the bucket. We are trying to help families create different habits over time and create an oasis in the middle of what is really a toxic food environment. Education issaying the beginning and if you come into our program we are going to create the space that as a group we can change over time and hopefully change the norms of , at least on at smallscale, for those families for a while. There are lots of things to do. Think about the architecture of the kitchen. To you have rotting fruits and vegetables in your refrigerator right now . My guess is yes, most people do. It is really just had designed. It is the lowest drawer, is opa que. Center,were front and not hidden and then the unhealthy food was away, people would eat. I want to get more radical. It is true that it is difficult to encourage people to do things that are better for them. Is it not better the libertarians are going to hate me. Is it not better to legislate or ban it. Fig about cigarettes. Ask sam. Wouldve been better to ban junk food . I say this having just spent a week in brazil, where i expected to see, as i saw in latin america when i lived there, everybodyke in smoking. Brazil banned cigarettes in Public Places and there are fewer people smoking in brazil than new york city, i can hardly believe it. Sam . Lex i completely agree, it will be wonderful to ban it. It is a deep and justice that kids grow up eating in school for lunch what is effectively fast food. We need to change what is in the schools and we need to change the fact that there is a kfc and a taco bell on every corner in southcentral los angeles. And the reality of the political environment is that is not happening near term. While that progress is happening, hopefully over time, families are dying. People are having their feet and the tainted and they are died early. High bloodilies have pressure and diabetes. Were trying to say we want to create a space. It is possible to get healthy. It is so difficult in this world but it is possible. If you are willing to do it, we want to provide you full support. Dan, why am i donating money to cancer resources why im why am i dan, donating money to Cancer Research when i am drinking a diet coke . Theyre doing such a good job connecting you to the cause. I am feeding myself the problem. Is a complex problem and we can fill nice mcdonalds it is a complex problem and weaken villain eyes mcdonalds. We do not see whole foods in bad neighborhoods selling food people cant afford. Kroger could sell food and i bad neighborhood. We have made good food expensive and unhealthy food cheap as a society. In terms of legislating, the longer i study decisionmaking, the longer i think people are incapable of making good decisions. The decision between now and later is where we fail all the time. People overeat and understated and do not exercise. The question about how can i think about being 70 and do something now that is going to be good for me in the long term is not something in the human range of thinking. Those are the cases where we really need to help people not be tempted. Nobody is arguing about texting and driving. Nobody is saying it is the same thing. It is incredibly dangerous. With cigarettes, we villain eyes Secondhand Smoke. Secondhand smoke if somebody is in a bar it is dangerous. Mostly Secondhand Smoke is a small problem but we villain eyes smokers. Through that, we got public. Pinion through overeating, people are killing themselves. The rest ofkilling us by raising health care costs. We do not feel so bad about it yet but we do need to think about it. It is a public problem. People who are basically becoming obese are not just suffering themselves, everybody is suffering as well. Doing something with regulation under the condition we could do better healthy food is the right move. Sam, do you have a final point. What have you learned the most . Learned that obesity is an issue of a toxic food environment. It is an issue of value and how you value yourself. It is so hard for everybody, but especially low income families, to eat healthy. They really need support. Sam, thank you for joining us. Ounder of grocery shift staying with us is Duke University behavioral economist dan ariely. What will we be talking about . Infidelity in the digital age. The ceo of the cheaters website Ashley Madison. Maybe the old saying is right. Cheaters never win. What about people who help others cheat . Looks like they do pretty well. The selfproclaimed king of infidelity, the ceo of Ashley Madison, noel biderman. Website says life is short, have an affair. Also with us is Duke Universitys dan ariely. Noel, you are saying do not blame Ashley Madison, it is a marketplace. Ande here to connect buyers sellers. Dont you think you promote cheating and make it more accessible for those thinking about it . I dont know if it needs promotion. We do a good job of pursuing it. I try to perfect the affair. It does have collateral jim edge it does have collateral damage. A Single Person on a dating site has no interest in an affair, bringing to likeminded people together is the key. Dan, is noel improving the world . If you buy somebody a beer they will start liking you more. Noel has bought me a really good dinner at some point in toronto. How could you not like him . I have some bias. He gave us lots of data to look at some of the questions Ashley Madison has. Were doing a movie on dishonesty. We interviewed Insider Trading and accounting frauds and people that create markets. Brought lots of interesting questions to the table in this case. The question of how long should marriages last. Back to this issue of is he creating a marketplace . He providing as service. We talked about good, bad, what is fair and unfair. It is only dishonest if you live to your husband or wife. There is no question that this is a market for dishonesty. This is not the market where it is always providing a mechanism for people to have open marriages. This is not eharmony. There is a lot of dishonesty on eharmony. If you think about open marriages, nobody is lying to their spouse. In this environment, people are lying. There is a question of whether this is encouraging more of this behavior or not. I suspect it is. I suspect it is encouraging behavior because it seems more socially acceptable. You go and there is a big site and you think lots people are part of it. If i remember the number, it was like 20 5 million members. That is a lot of numbers and that gives you social proof. Everyone else is doing it must be ok. The question that interests me is whether his increasing happiness. One of the people we interviewed for the movie, she is a user of one of the sites. She sat in her mind, her real life with her her regular husband. That relationship is incredibly dysfunctional. Wow. Not representative of everybody. Do you know what the best predictor of the ratio of men and women on Ashley Madison. In some places there are more men than women. What predicts . I dont know. In salaries. In places where men have more power, there are more men than women. As salaries become more equal the number of men and women become more similar. Which tells you that women, one of the barriers for women with black outfit is the driver one of the barriers for women alpha is the driver. So do you look for income equality when you are marketing for Ashley Madison . Absolutely. We looked at australia. Female prime minister, the wealthiest woman in the world lives in australia. Universities have a greater. Emale population we thought that was a great marketplace. The more we remove the speed bumps we put in front of female infidelity we do not paint them with scarlet letters and take away their children. Those are things we used to do. The more we give them the Economic Freedom that if their relationship did break down they can still take care of themselves and their family, the more likely they are to be unfaithful. What about how is the economy affected. Does a down market mean more people want to play . In aat ends up happening down market is a few things. Divorce becomes tricky. You might not be able to value your home and move on, pay a divorce attorney. People are still technically married but they have lost the connection. They look to pursue outside relationships. Majority of marital discord does tend to center around home economics. Need your partner the most, you have lost your job, get them always the most. You sometimes look for comfort and the arms of another. We are not o a recession proof business, almost a recession growth business. Stigmatizingned adultery has a negative effect on women. About banning Something Like Ashley Madison . Singapore said no thank you. What effect does that have . No thank you to Ashley Madison, they have no problem having prostitutes . For me, the question is really about happiness and how do we get people to be happy in the long term. If you think about junk food, junk food gives shortterm happiness at the extent of longterm misery. I think there is a bad tradeoff. If you showed somebody and said this is a decision somebody else is doing, is this the right decision . Fidelity is much more complex. Lots of people are in relationships and they are in thato happiness aspect of life. Should they stay in this relationship or not . Possibilityis one with lots of costs. Stepping out of the relationship is another possibility. Heres the thing about honesty. Honesty, most things in life it is a tradeoff with other values. It is hard to figure out how you trade off honesty with other values. Look great in that dress, that is a trade off of honesty. But honey you look great in that dress is from a voice you cannot hear anymore. Noel, is one of the draws of Ashley Madison that high you get when the email comes through . For those living in the monotony of monogamy, they missed that high. Ashley madison provides that. You are right on the money. We did research with the university of california, they were looking at what is motivating women to increased rates of infidelity. That is what is driving this. Male infidelity has been in existence. It is female infidelity that has gone handinhand with internet growth. It is being an object of desire, women want to rekindle that notion they felt when they were being proposed to end with their life was really great. It does not happen anymore. When you sign up for Ashley Madison, it does not matter where you live or how much you weigh or how old you are, meeting people is part of that. In your research, maybe men want to sleep around. Women is it about desire, do they actually want to have sex with other people or do they just want to be wanted . They do want intimacy but they use the word passion a lot more than the word sex. Something. Sex plus it starts with being an object of desire and tends to end up in a bed. Sign upemale users saying they just want to have something digital. They change that. It becomes an entry point. Connect with somebody that does seem to understand you and wants to Pay Attention to you, you are willing to take that to the next level. Dan. Oel, do you encourage your customers to be honest with spouses . Be aline dating tends to dishonest place. Ashley madison is one of the war on us places. They are taking a huge risk as it is and they do not want to meet somebody and have it blow up in their face. It is ironic. You are telling your spouse you are not getting high anymore. Thank you for staying with us, ceo of Ashley Madison, noel biderman. Dan, we have 30 seconds. No, we will be back in a few. Dan ariely, behavioral economist from Duke University. Amazing hour on market with dan ariely from Duke University. I would like you to try and wrap up everything we have done. How does it hang together Financial Markets, healthy eating, adultery. Inone of the biggest lessons behavioral economics is that we think we make decisions but if i put you in one environment versus the other then you will make different decisions. That is true for Financial Markets and charity and food and it is true for infidelity. You can imagine these environments. What does it tell us about human nature . Wequestions how much freedom have and how much free will we have to some degree. It also says that we have free will and how we design the environment. How we decide to design the stock market and how we think about charities and infidelity and the food. If i covered your desk with doughnuts every morning, the odds you will be healthy at the end of the year is low. Our ability is to design the world. We need to understand our limitations so the world would be a better place. Charity, Global Markets my dream show. Thank you for joining us. Dan ariely at Duke University. That wraps us up for the day. 56 past the hour, bloomberg is on the markets. Heres alix steel. Time for todays options inside. Joining me for a take on the Market Action is mark, director of trading at swan wealth advisors. Eems to keep setting highs, what is your read as an options guy . The vix is depressed at around 11 3 4 now. Major look at the other indexes, the nasdaq 100 and 2000 ly the rest especially the russell 2000, the picture is not as result. If you look at the rvx, the russell 2000 volatility index that has remained elevated the spread between vix and rvx. How unusualk about that is, does one wind up playing catchup . If you look at the spread x, is usuallynd rv about two or three points. Five is why, we are at six. 25. Either the s p has to give away some games or the rvx has to have a nice rally. My bet might be able to both. At this point, with negative news out today, i think s p volatility is due for some kind of intermediate pop. People should take you vantage of that. The weaker read on firstquarter gdp . Exactly. All the news kind of stinks and we reached alltime highs. Rates continue to get lover. Rates continue to get lower. That will stop. Was the tray . We have moved 45 trades in the last week. With three straddle weeks to expire on the s p 500 for about 35 right now. That is hard for me to pass up. I profit at expiration anywhere and 19 50 cents. I think there is a strong chance the s p makes a run back towards 18. 70 in the nearterm. If you look at the overall market, with the s p at alltime at depressed vix levels, if i am carrying a long equity portfolio, it is silly not to be looking at a portfolio using s p 500 options in july, august, even in the back months. 19. 15 is the was straddle your buying . Correct. Was there any point at the vix was higher you would not make the trade . Starts tothe vix move, i do not think it is going to 20. It will move to 14 or 14. 5 kind anywhere above 12. 5 i would be out of this trade. Thank you so much, on the markets again in 30 minutes. Money clip is next. Welcome to money clip. We tie together the best stories, interviews, and video in business news. Around the world, not just china. An iranian that were tried to hack u. S. Lawmakers for three years. On good sam wants you to join the cyber command. Edward snowden says he was serving his country. Nation. S in in company, a brooklyn tai lor lets out the waistline. Google threat, self driving cars