Transcripts For BLOOMBERG Market Makers 20150311

And it will cost them millions of dollars. Welcome to Market Makers. I am stephanie ruhle. My partner, Erik Schatzker, will be here shortly. Lets take you to the bulletin the top business stories of the morning. We havent seen the dollar this strong against the euro in almost a dozen years. It is now approaching parity. Earlier today, the euro crashed through the 106 bubble and the dollar is up 11 this year, 22 since last june. The stronger dollar will hold down inflation and consumers will see lower prices on important imported products. Bond guru on the west coast has a message for the fed raise rates at your own risk. Even janet yellen may make the same mistake as counterparts in europe, raising too soon and then having to cut again. In an investor presentation, he also predicted that gold could climb 20 this year, and he says you should not bet against the strong u. S. Dollar. Airlines in the u. S. Are expected to have a great spring break. The trade Group Airlines for america says that march through april spring travel will be the best for domestic carriers since 2007. The forecast calls for the number of Airline Travelers to rise 2 . As a whole, the Airline Industry has posted a profit for five straight years. And shes back. This is a woman who helped develop credit default swaps two decades ago at j. P. Morgan. Now she will be in charge of a bitcoin startup that wants to overhaul the way traded assets are settled and recorded. She has been named ceo of Digital Asset holdings. The company will use its Virtual Currencies for settlement and record of stocks, mortgages, and the loans. There is a report out that iraqi troops may have made major gains in their offensive against the islamic state. The Associated Press says that iraqi soldiers and Shiite Militia allies have entered the city of tikrit one of the largest cities held by isis forces. The u. S. Led coalition is not taking part in the assault and u. S. Authorities are not happy about the presence of shiite forces and Iranian Military advisers. We have got to move on to this rate hike. The debate is heating up. We know what Jeffrey Gundlach things about the fed but lets hear from the cio of fundamental fixed income at blackrock. Rick, Jeff Gundlach calling the fed a blockade . What do you blockhead . What do you think . Rick the economy is moving ahead aggressively. We have created 2 million jobs in the last seven months. That is a quarter of the city of new york. You look at the top 10 market Cap Companies in the s p 500. You have functionally just recreated all the employment. The economy is doing well, 2 million jobs, gdp approaching 4 over the Fourth Quarter basis. The reason why it is an epic window is what the ecb is doing is they are keeping rates in down for the u. S. , and you have a window where at the long end of the curve which is really what affects the economy the long end of the curve it will be held on because rates in europe and japan are sitting at zero. Stephanie what about the fact that rates are low . If you raise rates too soon, what do that due to the market . What about the consequence of leaving them so low for so long . Rick when people say there was no cost to keeping the rates at zero, that is not true. You are functionally taking subsidizing borrowers through savers, hurting savers, and creating distortion on where they have to invest. There is a nocost dude doing it. There is a real cost to doing it. There was a benefit to thinking through things pragmatically. At this rate of employment acceleration, what we are saying is that if you move the funds rate to 1 the stock market will get concerned and go down and you will retrace 4 or 5 potentially but at the end of the day it is not a big deal. Stephanie you mentioned the ecb before. They started their highly anticipated Bond Buying Program on monday. Rick i think it is extraordinary in terms of the size. When you think about the developed world it has been deleveraging, and the european issuance, which has been low and trending lower, the amount that you are taking out of the marketplace is just incredible. It continues to pressure yields down and gets to the point about why european equities are rallying. You are taking this amazing subsidy and sending it right to equity holders. Stephanie lets talk mechanics. They are looking to take out 1. 2 trillion. Is there enough liquidity . Are there enough bonds with sellers, holders willing to sell . Rick great question and, quite frankly a question i asked him as every day. Countries are going to issue long dated bonds and there are banks that have been extremely well encouraged to sell into this. It is a very big number, though. It is one thing when we are trying to evaluate in march, but you get to june, july, august that will be hard. Stephanie do you think there are holders out there who will say, no, i will sit on my hands . Rick they are going they dont want to lose that yield and they will sit on it. Simultaneously, it is important the european economy will show better data. Stephanie why . Rick first of all, these rates are extraordinary. Energy has been an amazing boon to the european economy. And you have a currency that is working extraordinarily i looked at the german data recently. It is incredibly powerful. Have this confluence of events that will lift the european economy. The data will be pretty strong. You question what ecb is going to do i think it will be in addition dynamic. Stephanie you are not worried about greece . Rick i am worried about greece. Germany has taken a very hard line, and as you get into particularly may and june, you will have election issues and a number of people i think greece staying in will be a tricky dynamic. Stephanie you dont think they should . Rick so i think it is very hard to grow that economy without depreciating the currency. If you were to dra chmatize the economy, that ultimately may be the decision that they make. It will be an interesting dynamic. Greece you put it aside today, but it will come to the four again and there will be a vibrant discussion about it is time to leave. Stephanie you think they should leave . Rick so i think there is a mechanism by which they could that could be done in a way that doesnt disrupt the entire european system stephanie for real . Rick absolutely. Stephanie i feel like everything about greece disrupts the whole system. Rick part of the reason why germany has drawn the line in the sand and part of the reason why it ultimately makes sense to move on so it does not disrupt the bigger paradigm in europe. Stephanie you are looking at the measure that blackrock has put together here, the yellen curve, or the yellen index. What is that . Rick the markets always love to be simply stick about focusing on the Unemployment Rate or the payroll number. There is a series of metrics, including job openings, vacancy rates, etc. We use a broad metric to broad set of metrics to look at what is really influencing the decision. The reason why we think it is so profound today stephanie there it is right up on the screen. What does that tell us . Rick back to levels in 2005 2006, 2007, where it is so clear we dont have to be at the zero funds rate and not only is it extremely high relative to where we have been, but there is another series of metrics that shows the momentum of the index, meaning the fed has to move when the momentum is with the economy. I. E. We havent had the number we will start to decelerate. Both of them are suggesting that it is so clear that the fed is ready to go. Stephanie so you think june. Rick so listen, i think we err on the side of june. No matter when it is, there will be very deliberate in terms of how they do it. Stephanie whether it is june or september, how much does it affect the way black rock actually invests or allocates capital . To me, june, september, whats the big difference . We know they are doing it. Rick it is not that big a difference. It is at the front end of the yield curve, but i would say that is more nuanced and more tactics. I think there are three metrics were three ways that the fed thinks about it. The time you start, the pace and the destination. Timing is not that important as long as you are in the zone. The case will be very deliberate. The destination is lower than it has been historically. Markets could be disrupted for a shorter period of time. It is not crazy to have a nearterm rebalance in terms of where markets move to, but at the end of the date it will be a great opportunity. We hope the markets overreact in the near term in terms of the fed moving. It is not that daunting a prospect. Stephanie all right, schatzkertino has arrived ladies. Erik i have to sit in the dun chairc . Excellent. This is great. Distortions if the markets are potentially distorted because of all this im going to stand up. How distorted our prices . Rick clearly prices are being distorted in europe, distorted in japan erik how do you invest with confidence, if it is not a real price rick thats a great question. Stephanie erik, you were really relaxed moments ago. You walked in with guns blazing. Rick two categories, one being in the rental department, and one being in the court investment hold. There is money to be made in europe alongside italy b onds. That being said, 60 billion a month is going to drive them even lower. You have to write some distortions for a period of time and look at what are your core holds. Core holds for going to continue to do well and are more in what i would argue a state of equilibrium versus this incredible distortion being created intentional but distorted. Erik you have to have patience. Rick you have to have patience in the things that are your core holds and the tactical. Stephanie can you be tactical, given how big you are . Rick 100 . We have a series looking at different parts of the marketplace and where we think the most efficient expressions are, and a lot of these markets are incredibly deep, so you can move around. They may not locally be deep if everybody is time to go one way, but if you have a longterm thought process around what you are trying to do, be tactical around you from expressions, you could really do it. Stephanie rick, thank you so much. And even erik got to join. When we return, the dollar is soaring, almost out of 12year high against the euro. We will see how long before American Consumers reap the benefits. Plus, a blockbuster Court Decision rocks the music world. We will talk to the winning lawyer in that case involving the hit song blurred lines. Erik you are watching Market Makers. Time to bring you up to speed. Chinas economy is already running behind the government target. Investment and retail sales growth missed estimates in january. The twomonth factory output reading shows the slowest start to the year since 2009. Analysts surveyed by bloomberg forecast that the Chinese Central Bank will try to boost the economy by cutting rates again. New Jersey Governor Chris Christie christie may have to raise rail and bus fares for the first time in five years. The new Jersey Transit is expected to run and 80 million deficit could christy may boost fares to fill that gap. In the past few years chr has beenistie christie has been using money he saved by killing a real project and that money is all gone. They stopped two armored vans on a highway and made off with almost 2 million worth of jewels. No one was injured. Last year a lone gunman stole 136 million of jewelry from a hotel. Stephanie lots of handwringing about the effect of a strong dollar on corporate profits, but consumers are poised to benefit but it will mean lower prices. Senior markets correspondent julie hyman has been looking in to it. What exactly does this mean . The strong dollar means cheaper goods and services . Julie yes, because a lot of the stuff we buy is made another laces. In other places. The cost of the currencies is lower for these various companies as they are making these things abroad. If you think of the many things we buy clothing, automobiles, in some cases electronics a lot of it is made abroad. Fed researchers in a 2011 paper found that 14 of the entire goods and services in the u. S. Economy comes from abroad. Youre talking about a chunk. If you are looking at just goes it would be erik much higher. Julie and with services as well. Declines for seven straight months in import costs coming into this country. It makes sense, then, that that would feed through to us. A more than 20 surge in the u. S. Dollar since last june. Stephanie what kind of copies are getting hit the worst here . Those who arent hedged . Julie it not necessarily, is that getting hit the worst could if you are an apparel manager, you are saving money by making stuff overseas. Are you going to pass through those savings to your contenders . 2stephanie heck no. Julie well, we have already seen a drop in apparel costs and you may think that it is because they want people to buy the stock. There is not a lot of Pricing Power with retailers right now. And there is Huge Customer appetite for discounts. With these manufacturers whether they are electronics on clothing, if they are saving money on the backend economists say they will be passing on at least some of that savings to u. S. Consumers and therefore keeping a lid on inflation. A narrative was over the past several months that because oil prices were low, that was keeping a little inflation. It was also giving the fed more running room before it would have to raise rates or be able to raise rates, depending on how you look at it. And now economists say the narrative is sort of that oil prices the decline in oil prices, has been replaced to some degree by the action we have seen in the dollar and again, a lid on inflation or even disinflation happening because of this Consumer Price increase. Decreased. Erik do we know which copies of benefiting the most . Julie we dontof it we which companies are benefiting the most a week and a strap relate because most electronics and we can extrapolate because most electronics and Apparel Companies are making stuff abroad. I was talking to an Apparel Industry Association for another story and they pointed out that 97 of the apparel we buy in this country is made in other places. We know this anecdotally even if we dont know the actual numbers. It makes sense that anyone who is making apparel right now is going to be spending less to make that clothing. Erik point of the problem though, especially when it comes to technology and electronics, has to be that there hasnt been nearly as Much Movement in the chinese yuan against the dollar as there has been, say, in the japanese yen. If you are and a laconic manufacturer like panasonic or yamaha and Electronics Many fracture like panasonic or yamaha making goods in japan and selling them here, your profit in u. S. Dollars is much greater. Julie yes, it does depend us erik but if you are apple making iphones in china you dont make as much. Julie or making apparel in india or bangladesh or vietnam you have to take into account what we have seen with different currencies in this country. Stephanie julie, thank you for bringing it breaking it down for us. Erik when we come back, Hillary Clinton tries to end the controversy over personal email account. Most analysts say that yesterdays News Conference left as me questions unanswered as answered. Stephanie a lot more to cover today, erik. Stress test today round two. Will Goldman Sachs get a better grade than in the past . As long as they pass, does it matter what great they get . Erik well, yes, because of the capital return to shareholders. They do not the wall street banks did not do particularly well in the first round last week and it is up to the fed to decide qualitatively if they are good enough provide tax. Stephanie it is a big win for the children of the late saul singer marvin gaye. A copyright case is likely to rock the Music Industry. We will speak to a gaye family lawyer about their win over Pharrell Williams and robin thicke. Erik 7. 4 million. Stephanie i thought the hot video hot girl in the video shouldve gotten the money. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Erik good morning, everybody. You are watching Market Makers. I am Erik Schatzker. Stephanie i am stephanie ruhle. We have breaking news on the oil markets. Scarlet fu is in the newsroom. Scarlet we have up bill of 4. 5 Million Barrels for the week ending march 6, slightly smaller than what analysts had been looking for. They were expecting a buildup of 4. 5 9 Million Barrels. The prior week we got a blockbuster number, 10. 3 Million Barrels, the biggest increase since 2001 using the overall level the highest since 1982 basically as far back as bloomberg data goes. If you look at how well prices are trading right now, this is the intraday, and the like a n reaction to that build, that pretty much in line build a drop off compared to the previous week. Crude oil is trading at 47. 76 a barrel. Stephanie thank you, scarlet for giving us the latest. Erik u. S. Banks get their annual report cards from the Federal Reserve with the second round of stress test results. The stakes as you may be aware, are especially high for citigroup ceo michael corbat. His job is on the line. Goldman sachs just barely past the first round of tests last week so will regulators give Lloyd Blankfein the green light to racist dividend or buy back stock . With us is Intelligence Analyst alison grimes. The fed looks at five measures of capital adequacy and on one of those measures, goldman barely cleared the bar. Allison but they did do well in other measures and depending on what is in a capital plan, they may have additional tier one issuance and if that is the case, depending on what they have factored in, all hope is not lost for a buyback. Erik meaning what, selling back preferred stock . Alison they could do prefer although they are maxed out on that bucket. However, they could do cheaper subordinated debt. Stephanie was it a surprise that goldman did so poorly last week . Im not sure that lloyd has as much job risk as michael corbat. Erik no, i wasnt suggesting as such. Alison they had the biggest decline versus last years results on the quantitative basis but still, if you look at where citigroup stacks up according to its peers, it has the capacity for buyback and they may have preferred issuance factored into their plan, which is something they have indicated. Erik when citigroup failed last year it was because of this qualitative assessment, the examination the fed does, risk management, internal processes, and the like. Alison and i think that is the tougher part four investors. Everyone is skittish about who might fail on the qualitative basis. Citi was a big surprise last year. This year investors know that there is more of a possibility so what might not be such a shock. Erik i have a question stephanie that worked out. That is a good thing. Erik good that i have this job. Figured it out finally. It is tough for investors to figure out the methodology behind the feds qualitative assessment, what it is going to look at, what it finds, because many of these things arent available to investors. But the quantitative assessment is something that investors and banks themselves can replicate. What i find surprising is that you have to year after year, the banks continue to do such a lousy job of approximating the fed stress tests. They are way more optimistic about the health of their own Balance Sheet then the fed is. When they run their own models they get much better numbers than the fed does. Alison you are probably thinking of goldman because their estimates are so far off of what the fed has, but if you look at bank of america, they were pretty close and next the more conservative than the fed. Erik well, but they are an outlier. Wall street banks on the whole are more optimistic. Why is that so persistently the case . Alison welcome i think stephanie not good at math that could be it. Erik and if that is the case you want to be afraid. Alison and the feds process changes every year. There is a difference in the way that banks estimate those variables. That is why the banks have asked for more clarity on the process, more clarity in terms of specifically how they look at things. They have gotten a little bit better but stephanie how much does it cost to the banks to prepare for the test . Erik alison citigroup greater number of 180 million stephanie where do these than 180 million . Alison people, models, trying to figure out the process communicating with the fed. Erik if there is going to be a big surprise today, where do they find it . Alison press for for processing deutsche bank, even though they had great capital levels. I think the big question mark might be bank of america. You have seen speculation about a pretty standard disclosure that they made in the annual report that still has gotten people worried, again, because it is the march madness, will the fed try to fail one big bank and could that be the bank . Erik the foreign banks, or at least the u. S. Bank that fail when they fail, what does that mean, practically speaking . Alison practically speaking they are not able to pay dividends. Erik the fed says ok, you can remit those profits home could all right, alison, thank you. Stephanie when we return Hillary Clintons defense on those emails, we will find out if it flies with the people who count, the voters. Stephanie welcome back to Market Makers. I am stephanie ruhle. Apple will officially be added to the Dow Jones Industrial average next week. What would have happened if apple had become part of the index in february 2008 instead of bank of america . We crunched the numbers for you. The bottom line shows the real trajectory of the doubt dow while the top line shows what it would have looked like if apple was there. Shares of apple have risen sevenfold since 2008. Apple shares hit 700 bucks before being split last year. Dow is price weighted could General Electric ceo jeff in else had a better year than his shareholders did. His compensation youre just about 37 million. Ge shares fell. He will not see all of that increase right away. Ge raised his base pay 8 to almost 4 million. The company said it was because of his unprecedented efforts to reshape the ge portfolio. In pro football, it was a day to cash in and for teams to start making trades. In one of the biggest deals, the new england quarterback will return to the first team he played for, the new york jets. The jets will pay him 70 million for five years, one of the nfls highestpaid quarterbacks. St. Louis and philadelphia swap quarterbacks. Erik now to the controversy over Hillary Clintons emails. She answered questions from the press yesterday about why she decided to use personal email for official business while serving as secretary of state which theoretically would allow her to keep some correspondence from becoming part of the official record. Hillary clinton when i got to work as secretary of state, i opted for convenience to use my personal email account, which was allowed by the state department because i thought it would be easier to carry just one device for my work and for my personal emails instead of two. Looking back, it would have been better if i recently used a second email account and carried a second phone, but at the time, this didnt seem like an issue. Erik with us now from washington, Bloomberg View columnist Mark Margaret carlson. Tell me what you think about hillarys explanation. Margaret convenience seems like a bad word for the license to use because they are often doing things for their convenience and the harm of the general public. The idea of having two phones, which so many people do, and in addition, hillary has hot and cold running a as aides and does not seem the type to not ask the aide to carry the extra phone. I dont think the explanation was all that good stuff all that good stephanie we were dead broke . Margaret well, yeah, sort of. It is one explanation. It seems to fly with her base the people that are probably never going to leave her. But she said about the public, you know, i gave unprecedented she used the word unprecedented access to might emails. In fact, it is not in the least bit unprecedented because it usually goes in the other direction, and 30 thousand emails were deleted by her on the grounds that they were personal. Stephanie lets just imagine this happen to someone in corporate america. Everyones favorite industry, banking. If jamie dimon if while they were investigating the london whale scandal, it turned out he was using his personal email address rather than jpmorgan correspondence, people would have asked for that guys head. They would have demanded he be fired. Why is Hillary Clinton treated differently . Margaret because the clintons play by their own rules. Remember her whitewater press conference . Oh, im exposing everything. She never drops below a positive favorability rating because she is possibly the first female president , and she has a very strong following. They blame a lot of this on the press. Whereas if it is jamie dimon and the banks they dont blame it on the press. The banks are not very popular and they are not up for election. Erik well her current following isnt going to get her elected president of the united states. It is not enough people. She has to persuade if you swing voters at least that she will be president ial material. Based on what you have seen from Hillary Clinton the last few days margaret, is she president ial material . Margaret well this is our first look at her in a long time. She hasnt had a press conference. I dont approve of it, necessarily, but i do give her something which is she stands up there, she spews this stuff out, she acts like she believes it, she goes from a nixonian lawyerly stance to the heart tugging, oh, these emails were about chelseas wedding and my mothers funeral, and charges forward. Stephanie just because she does a great job defending herself, we should give her credit . Many are saying this reminds them of bill clinton when he was dancing around the definition of the word is. Margaret i shouldnt have said nixonian, i should have said clintonian. Im just saying they have done it a number of times and they get away with it. She left that white house and went on to be senator of new york. That is kind of unprecedented, to use her word. And then secretary of state. In some ways, despite everything we know and how much most of us dont want to live through the clinton years again, she doesnt somehow managed to barrel through. She does somehow manage to barrel through. Erik all right, margaret, we will be checking back with you on the clintons for many times in the months and years to come. Stephanie blast from the past a jury says pharrell and robin thicke took too much from a 1970s song for their own hit. Stephanie welcome back to Market Makers. I am stephanie ruhle. It is not deja vu a jury says you have heard robin thicke and pharrells blurred lines before. They said that they must pay the marvin gaye family millions for copying the classic got to give it up. Do they sound similar to you . Stephanie they do. The gayes state joins us now from los angeles to discuss the case. How did this fight begin . Guest the fight began this is a misconception, the jury was allowed to hear this, but the fight began because Pharrell Williams and robin thicke suit the gaye family for having the temerity to question whether blurred lines copied got to give it up. They started this fight. We finished it, but they started it. Stephanie if they hadnt started the fight, would you have come in . Richard we were trying to work things out. I think they got advice that i dont think was very good advice that if they filed a lawsuit the gaye family would not have the wherewithal or the ability to fight the Financial Resources to fight. But they made a bad bet. Erik if i got this straight that the jury had to come to his decision by reading sheet music . Couldnt hear the entirety of the songs in question . Richard yes and no. On the one hand, Pharrell Williams and his legal team tried this case in the press by saying they did not copy got to give it up that it was just a copy of a genre or era. But they fought tooth and nail to prevent the jury from hearing the actual song, and the court made a ruling it is a rather complicated decision, i will try to boil it down as well as i can because this song, got to give it up was created before 1978, you cannot file the recording. You have to file written notation. The claim was limited to those elements that you could find in the notation filed at the copyright office. There were certain elements that we could not move forward on and certain that we could get what the court held was that to play the full recording would allow the jury to be exposed to what the court found were not protectable elements. What we had to do was prepare very focused audio clips of the protected elements and compare those against the same elements in blurred lines stephanie richard, what could this mean for the broader Music Industry specifically hiphop, which relies heavily on splicing music from decades ago . Richard i dont think it has any effect. If they copy, they have to get a license, they always had to get a license, and this is just the copying of a song that they should have licensed. It is Copyright Infringement. It is no different than any other Copyright Infringement claim, despite the claim that this is a copy of a genre or era. It is not. It is a copy of a song and they shouldve gotten a license. Erik what would you have charged . What would your clients have charged for the license before the fact . Richard we put out evidence nancy stern, who works for quincy jones music and has her own company, she does this all day long, every day, clear thousands of uses like this. She testified that before the song was released, blurred lines, a license would have been about a 50 share of blurred lines and that is what the jury found. Erik ok, so pretty close. Richard pretty close. Stephanie couldnt this have been avoided . When tom petty and his team came knocking on sam smiths door sam smith said sorry and turned the money over right away. Now we know some of Robin Thickes very dirty laundry. Richard we approached them, and how do they respond . They file a lawsuit and either they are wishing they had. Cannot. Erik what do you do now . More precisely, what does marvin gayes estate do now . Richard an injunction preventing the sale and distribution of blurred lines. For us to be able to share the proceeds going forward, we asked the court to enjoin the further sale and his division erik do you anticipate that robin thicke and pharrell at the very least, not to mention the record company, will enter into negotiations to prevent that injunction . Have you heard anything to that effect from their site . Richard that is generally what happens, that the person gets the injunction and the parties negotiate how the proceeds will be divided going forward. That is the whole point of the injunction. Stephanie well congratulations. That is a really big win. Gaye estate family attorney richard busch. I still maintain that the person who should have gotten the money was the really good looking girl in the video. Erik what about the radio . Come on. Anyway stephanie have you seen the video . She makes it. Erik we will talk about the tv drama that has the recent lebanese to what is happening in the world of computer crime yuri similarities to what is happening in the world of computer crime. Live from bloomberg headquarters in new york this is Market Makers. Stephanie when hackers attack. The fbi ramps up its defense against cyber crooks. Erik going on the defense. The demand for companies that can defeat Cyber Threats is soaring. Stephanie you didnt think csi was going to be left out of this . The tv franchise now has a spin off against cybercrime. We will be speaking with the executive producer. Welcome to cyber hour here on Market Makers. Erik we are dedicating this entire hour to Cyber Security, which has become one of the biggest threats of our age. Individual criminals and nationstates or hacking into companies and governments to steal Sensitive Information. We have seen attacks on jpmorgan, target, home depot sony anthem the list goes on and on. We have terrific guests to help us walk through all of it. In addition Jordan Robertson is here. Jordan thanks for having me. Lets take you to the bulletin stephanie lets take you to the bulletin. The dollar is inching closer and closer to parity. The dollar is up 11 this year. It is up 22 since last year. The stronger dollar will hold down inflation here. Consumers said she should see lower prices on imports. Stocks are barely in the green today after yesterdays major selloff. The worst may be yet to come according to deutsche bank. David beyond go bianco talked about his forecast earlier. David i think the full drop from the high will be 5 to 9 . It is back to the mid1900s as investors internalize that the fed is going to hike, which we think is appropriate. The labor market will continue to tighten. The Dollar Strength is going to pretty much prevent any Earnings Growth out of the s p in 2015. Stephanie but he says the drop may be shortlived. He is forecasting the s p to end the year at 2150. Well, the jolly green giant may be getting a new home. There is a report that General Mills may sell its green giant frozen vegetables. Reuters said it is working with an investment bank. Green giant makes more than 160 products. It generates revenue of about 700 million. The largest u. S. Banks are stressed today. They get their second report card in two weeks. Goldman sachs barely passed the first test. It is hoping for a stronger results from the second one. Citigroup flunked out right last year. The ceo needs the bank to pass or his job could be in jeopardy. There is more fallout from that fraternity controversy at the university of oklahoma. The school has expelled two students seen in the video leading Fraternity Brothers singing a racist chant. One of the former frat members has apologized in an email saying the incident was probably fueled by alcohol. Are you kidding me, dude . The parents of another said their son made a horrible mistake he will have to live with forever. Erik it has been a while since you heard about the last big corporate hack and that is no accident. For to Many Companies failed to report cyberattacks. They might be too embarrassed afraid of litigation, or afraid of what might happen to stocks or they just dont trust the government. With us is the special agent in charge of cyber at the fbis new york office. Welcome. I cant sam surprised to hear that Companies Failed to report. Cant say i am surprised to hear that Companies Fail to report. We find out they have been hacked by people who find out about the fact that all of this customer information is available on the black market. Is it possible that a hack on the scale of a sony might be going unreported . It is interesting that some of the companies are finding out from the media or the government that they have been hacked. When they discover they are hack they are not reporting for various reasons. We want to break down the barriers and improve communications. It is absolutely critical that we have the information to address the threat. Jordan we reported on the jpmorgan breach that one of the things the bank wanted was a National Security exemption letter. How common is that for companies to ask for exemptions from disclosing . Stephanie what is that . Agent taddeo under certain state laws, there are exemptions to the requirement. Stephanie mean they did not want to report . Agent taddeo in general, a state law often requires that Companies Report certain types of breaches with certain exemptions. One of the exemptions is if there is a Law Enforcement need to keep the breach quiet keep a close hold so we can investigate. In most cases that is not necessary and it is very rare that we issue a hold harmless letter so that they do not have to disclose it. Without referring to a particular investigation i would say it is a rare thing. Jordan it are thing to be asked for and to grant. Agent taddeo both are rare. We would have to show an investigative need. If the adversary is still on a network and we want to monitor the adversary on the network we would like to keep that information from the public so the adversary does not so we are not telegraphing to the adversary what we are doing and what we are watching. Stephanie if these companies seem to be understaffed or unprepared for the hacks, does your office have the right amount of funding and staffing to get what you need done . Agent taddeo funding and staffing is always a challenge. It is a big challenge for the fbi, as well. As we build capacity, we find that the threat is going as fast or faster than our capacity to address it. Stephanie do you have any expertise, even . It seems it is a fast moving target. Agent taddeo it is difficult to keep up with. The threat activity is changing. We are seeing more sophisticated actors enter the landscape area did the expertise is rare. It is difficult to hire train and retain. We are competing with the private sector and other Government Agencies. We think we have a lot to offer in terms of professional satisfaction. We still have a hard time finding the right people and keeping the right people. Erik what does it mean practically if you cannot keep up with the growing threat . Does it mean that crooks are getting away . Agent taddeo it does mean that. If we are not paying more attention to this problem, we will see the threat increase and our ability to increase not keeping pace. It is undeniable that the number of breaches is going up and the sophistication level is going up. Despite our best efforts, we are constantly surprised by new and innovative ways to affect these networks. Jordan i have heard breach investigations described as they can be a hostage situation in many cases. We reported there were delays in jpmorgan turning over data related to its breach to the fbi and we had one person tell us that the situations can often devolve into what amounts to a hostage situation over data. Agent taddeo that is a good point. The question really should be how does the private sector work with the government when they have a breach . The fbi and secret service have done a great job changing tactics so we have the least negative impact on a company when we show what. If there is Sensitive Information on a network we are very sensitive to those needs and we will work around that. We can compartmentalize the information we need and take only what is necessary for the investigation. In that sense, we are listening very carefully to what the private sector requires in order to break down the various cooperations. Jordan i wanted to ask you about attribution. You have a lot of ex military folks inside private sector corporations now who have a lot of experience in attributing attacks on government networks. We reported that the jpmorgan senior Cyber Security leadership believe this was a russian statesponsored attack. How often do you see that . Are you seeing a lot more of that now . Senior military folks inside companies attributing information without access to the resources that the fbi has . Agent taddeo that is not a trend i am noticing or something that we would be tracking. There is a lot of cyber talent out there. If they have a certain viewpoint we dont see that and i have not seen that. Erik in the case of jpmorgan hackers got alarmingly far into the company networks. What we have not seen thus far is an attack on Financial Markets themselves. What does the fbi know . How close have hackers, whether they be criminals or nationstates trying to disrupt this countrys economy, come to penetrating and messing with the integrity of americas Financial Markets . Agent taddeo we have seen some activity that is troubling. General clapper disclosed that iran was behind the attack on the sands hotel in las vegas. Another nationstate trying to create annoyance and also an attack that was to struct of the nature. I think we would be well served to prepare for an attack that has an impact that may shake some of the continents levels. Erik stock market, bond market, currency markets . Agent taddeo those are very well protected systems and it would be extremely hard. Erik we thought jpmorgan was well protected, too. Agent taddeo i agree. We are always surprised. Most of these Payment Systems and Trading Systems are closed systems. The biggest that is when you are open to the internet and when you are open to a thirdparty vendor. If you have a closed network that you can monitor and protect intrusions or keep an eye on better because it is not connected by email or otherwise , it is easier to protect the system. That is what most of our infrastructure is composed of. But we have to actually be very vigilant about it. Stephanie what has been the most shocking hack . Agent taddeo the sony hack has really changed the way many of us think about it. That had three very scary elements. There was the theft of intellectual property, which we can understand from a financial point of view. Of the extortion that came after and the destructive nature of the attack really came after changed the mindset. When you have a sovereign state conducting an attack against a private network with that much impact, it really did raise some concern. The administration came out publicly and the fbi came out publicly and we are concerned about that activity. Jordan is the amount of Security Technology that is inside private Sector Technology companies, does that help or hurt . There is a lot of data generated by a lot of different vendors. Agent taddeo part of the challenge in these investigations is the complexity of the networks. Many of the folks we visit after an attack do not know what is connected to the network, they do not know their network has knowledge in, they do not know who was on their network. Some Cyber Security technology plans to address that, but no protection is perfect. It requires continuous monitoring. The notion that you can protect your perimeter is falling by the wayside. The best organizations out there are monitoring. They are detecting what is on their network before it becomes a major impact. Erik for you, the bottom line is you Want Companies to feel comfortable contacting you . Agent taddeo thats right. We are working with companies. We want them to call us. We want to be part of their plan. Erik thank you. Good of you to join us. Stephanie that is a tough job. Who are you going to call to fight off cyber crooks . We will be speaking to the ceo of one Security Company offering from the surge in hacks. Erik cyber crime has become a gold mine for the people behind the csi television franchise. We will meet the executive producer of the newest spinoff. Stephanie welcome back to Market Makers. Companies Like Palo Alto Networks are there to provide security services. Take a look at how quickly revenue is growing. More than 50 in each of the past two years, after more than doubling in the two years before that. Shares have more than tripled since its 2012 ipo. Here to give insight is the ceo who is with us from san francisco. Mark, clearly you have had a great run and the threat of Cyber Attacks is not going anywhere, but Many Companies are still not working with the next generation Cyber Security Companies Like yours. Why not . Mark i think it is a traditional mindset. If you have grown up on a technology, a Legacy Technology and you are completely trained on that and invested in that, it is difficult to think about the next generation and how to get there. The forward leaning companies are going to nextgeneration technology. Jordan one of the things i want to talk with you about is the increased automation that you guys are looking at a lot of people might not know about the Security Industry that so much of it has historically been done by people writing antivirus signatures. These are hundreds and possibly thousands of people creating the protections that shield computers. Palo alto has a different approach. Mark our approach is prevention oriented. You have to have detection and prevention. If you are just relying on post action that is a very people intensive way to think about things. If that is what you are doing, you are dead for sure. There is no way to keep up with the bad guys with a people intensive approach. Our approaches been to take detention detection and prevention capabilities and apply them at every point to succeed. We can use technology to drive down the number of successful attacks. Jordan you dont have people writing the antivirus signature. You have computers doing that increasingly, right . Mark we do. In any situation, it is people, process, and technology. The world has to rely more and more on technology, not the people in the process. Technology is leverage a bowl. Erik how closely correlated are your sales where the delta in your sales with the revelations of hacks target, home depot jpmorgan, sony . Mark what we have seen across the board is there was a lot of attention on Cyber Security when you get these wellpublicized attacks. That is not heard business. We have seen over the last two years people stepping back from that and taking a thoughtful, strategical approach to security, not a kneejerk panic bind. We have seen that change fairly dramatically. It does not hurt us, but people just dont rush out and make large purchases for something as core as our technology. They are being much more thoughtful. Stephanie what are the ctos and cios most concerned about . Mark making sure that they know with their Current Situation is from a threat perspective and making sure that they can stand in front of their boards and their customers and say, we are doing everything reasonably possible to stop this. All of those companies are example of folks are used to run things differently and they had to think about it as a strategic change. Erik you say people are not so reactive to the kinds of hacks we have seen at many major american corporations but how willing are they to spend the kind of money . Is there still a reluctance to spend on the kinds of equipment that your Company Provides or do you find that those wallets are opening up faster . How hard of a cell is it . Mark sure. Security is a very important part of an i. T. Budget and it is growing over time, but it is not doubling. It shows the thoughtfulness aspect of how you are going to spend those budgets. Theyre in board rooms and they are talking about this in every Board Meeting and a lot of boards say, if i doubled your budget, what i be safer . That is not the proper way to think about it. Twice as much on Legacy Technology is not the answer. It is how the money is applied into nextgeneration technology. Stephanie thank you so much for joining us this morning. The ceo of palo alto networks. Erik we will be back in a couple of minutes. Erik coming up. American spies have their eyes on your iphone. We will see what they are really after. Stephanie the sun never sets on csi. The shows are seen in 100 71 countries. The newest one is all about cybercrime. Live from bloomberg headquarters in new york, this is Market Makers. Stephanie welcome back. Erik im Erik Schatzker. Stephanie before we get back to this special cyber day, lets look at the markets. We are two hours into the trading day and stocks are trying to bounce back after yesterdays nasty selloff. Our chief markets correspondent is looking at the action. Scar tell me you are seeing green . Scarlet green in terms of how the dollar is performing in terms of the euro. The euro hit a low of 1. 0557. It is the pace of decline that is the most surprising. 1. 0529 at the current moment. The euro is at a record low. Another etf allows you to short the euro basically bet on further weakness, that is trading at a record high. The volume has picked up in both of these etfs. For the short euro etf 1. 5 times the threemonth average. Here in new york, it is nearing lunchtime. I am thinking chicken salad. Maybe not. Chicken producers are tumbling after a suspected case of bird flu found in arkansas. A tyson spokesman did say no flocks grown for the company have been diagnosed with bird flu, but it does not appear to be stemming the decline right now. Stephanie no wings for us for lunch today. Thanks, scar. Erik have you seen the report that the cia may have been trying to crack into your ipad and iphone for years . There were leaked documents from Edward Snowden that cited this. Cory johnson has been following the story and is with us from san francisco. What is it that they have reported . Cory it is a really fantastic story. They based this on some documents from Edward Snowden. The cia has a multiyear effort to try to hack the iphone in a couple of interesting ways. One of those interesting ways was to try to create a false version of the authoring software for other apps. Any app developer using apples Development Tools would actually be building new apps that create a backdoor into the apple ios. It was very clever and seditious even. We dont know if it actually worked. It was a very clever way and a longterm effort by the cia to get into the iphone. Erik did it work . Cory we dont know. These documents are snapshots in time. There was an annual gathering of these hackers working for the cia and the nsa and in europe that they had spent years working on this. There are spells goal was to defeat the strong commercial security systems. They spent 35 million in 2012 and had 200 people working on that fulltime. Imagine a big Trading Floor working aroundtheclock the clock trying to hack into apple devices, so the cia can scoop up whatever they want, whenever they want. It is interesting. Jordan one of the things i dont understand is why the cia would invest this amount of money and this amount of time that the cia can require from the nsa . The nsa is great at hacking. Was this a parallel operation . Cory it looks like there was some cooperation. There was mention of london working on it with them. There were suggestions that the nsa was involved. There were parallel projects going on with a were trying to break the private encryption key for all of the semi conductors in the iphone. This goes back to the time of the iphone 3 was cutting edge. There was also the suggestion that apple was in some way aware of attempts like this because they changed very dramatically the way they kept information and gathered information essentially scrambling the information once it left the phone so that apple would never be in possession of it so that they themselves would not be hacked by the nsa, syria, or black hat hackers. Erik how was it possible that the nsa is able to hack so successfully . They can hire whoever they want. Jordan Government Agencies being on these things every day all day. They are able to pick precise targets. They want to break the encryption scheme on apples phones. If that is what they decide to focus in on, they have endless resources. Erik more and less than apple. Jordan any company could do more. But the Intelligence Agency can bang on these products every day. Stephanie why is the cia doing this . Jordan that is what was surprising about this report area and this report. There is some overlap and some cooperation. It is unusual to see a spy agency doing it. Cory there was a reorganization at the cia announced this week to focus more on Cyber Security experts. There is a longterm battle going on in the cia about human intelligence versus signal intelligence. It is this constant pendulum at the cia about how information will be gathered and what is more valuable. The signal information guys seem to be winning the battle right now with the reorganization at the cia. It is worth noting that u. S. Businesses have been really hurt by this. Whether it is microsoft or amazon or cisco, all of these companies are talking about how difficult it is to sell their products overseas because those customers dont trust them because American Products might be being hacked by the u. S. Government. Erik thank you. Cory johnson, r bloomberg west editor at large. Stephanie when we return like the famous show law and order, it is a john of that is ripped from todays headlines drama that is ripped from the headlines. Stephanie welcome back. Cyber security is not just fodder for nerdy misfits and white hat hackers. It is now in prime time. Csi cyber is the latest spinoff of the wildly successful series. Check out a clip. This is a rendering over the roller coaster. Over 100 failsafes designed to stop the roller coaster. All installed for one ultimate purpose. Prevent a crash. Which, in this case, did not happen. All the failsafes failed at the same time. That is not possible. There is no such thing as a coincidence. Somebody breached the computer and compromise to the code. An accomplice to murder. Stephanie how does cbs make code and spyware sexy . It sounds impossible to me. Lets ask the producer. Anthony, you are the man who created the csi monster that it is why ace cyber spinoff . Anthony essentially we were looking at the next generation of crime five years before today. What is the future of our franchise and the future of crime . The time is now. All over the world w cannot pick up a newspaper or news app without reading some sort of a distraction cyber crime is the crime of 2. 0, of tomorrow. Jordan how have you guys try to balance what is realistic and what is happening in the hacking world presently versus what you need to do to make the show compelling entertaining . The episode i looked at talked about hacking baby monitors. That happens a lot. Then the babies are sold underground on the black market. How do you strike the balance . Erik the selling of the baby has not happened. Jordan not to my knowledge. Hacking has happened. The selling has not. Anthony the theme of our series this year is, it could happen to you. It could happen to you especially on your smartphone device. We knew that this was a show about things that started online, live online and play out in the real world. We want them wanted to do it in a very Jerry Bruckheimer television slick kind of way. We will have a high level of entertainment and edutainment. Erik why not try to hume or closely to reality . The sony case was made for hollywood in one way more than one way. You have north korea effectively linking internal emails to journalists around the globe. You have an incredibly high executive producer who has to resign. It does not get better than that. Anthony obviously, sony is our business and we are sensitive to those involved in the scandal. We did not want to go there as a franchise. There are plenty of other Great Stories to tell and a lot of things happening on twitter, as of late. Season two could be, it could happen to us. There are plenty of stories out there. Our job is to make sure it is entertainment, make sure it is accurate make sure we really depict the future of crime. Stephanie when you first proposed a cybercrime to cbs execs, they did not bite area what happens now . Anthony the funny part about that as they did pitch them a cybercrime as a pilot three years ago and i remember the blood draining from their faces. They could not believe that you would actually intercept keystrokes and that your phone could be compromised and could delete money out of your virtual bank account. They did not want to hear that. Now is the time. We are ahead of our time, which was our job. It is the cross pollination between Human Behavior and where technology intersect. Jordan you guys did a lot of research with the three agencies. You talked with the nsa and the cia. Tell us about that. Anthony that was awesome. When i was down there five years ago, the nsa was like him a please tell the public 1, 2, 3 things. Dont use password for password. Do your updates. Please practice proper network hygiene. That was the big message five years ago. They definitely need our help to get the word out that it is going to be a dangerous crime and it is the wild west in terms of what could happen to us. Erik do you figure that some of the plot lines that you come up with are going to end up foretelling reality as opposed to reflecting reality . Anthony here is the thing. Everything that we get on the internet, we have a lot of great researchers on the we have entrails and to all of the cia and fbi and dod. Obviously, our job is to entertain, not to give ideas. These things are not easy to do. There are hackers who can pull off those things. It can happen to you, but you would have to be a sophisticated hacker to pull it off. This is our world. We dont hide from reality. Our job is to tell really Great Stories that are relevant and current and feasible and that is what we have done for 13 times, this season. Stephanie are you worried about passing off north korea when you create storylines . Anthony no. We dont take political stances on our show. We are not worried about north korea or any other faction. It is good, clean fun at csi. Our franchise has been around since 2000. We have had a bazillion dead bodies on the franchise, but we are not here to do stories that may rub people the wrong way or rub other countries or make judgment. We are here to do good television. Stephanie thank you for joining us. Good luck. You can watch csi cyber on cbs at 10 00 p. M. On wednesday. We know you are all doing every day at 10 00 a. M. Erik we are still in the middle of the show that started off at 10 00 a. M. Stephanie yes, we are. Erik planes will be a little more crowded over the next couple of months. March through april spring travel will be the best for domestic carriers since 2007. Number of Airline Travelers could rise by 2 as a whole. The u. S. Airline industry has posted a profit for five straight years. This will not be a popular move in new jersey. Governor chris misty may have to Chris Christie may have to raise bus and rail transit fares. He may boost fares 15 to 20 to fill the gap. He has been growing down the more than 1 billion he saved by killing the hudson ritz and hudson river rail development. And that money is almost gone. It sounds like someone has been watching latenight movies about jewel heist. 15 Armed Robbers stopped to armored vans on the highway and made off with almost 10 million in jewels. Nobody was injured. Burnedout vehicles were found nearby. A lone gunman stole 136 million in jewelry. We are taking a short break. Stephanie it is time for some final thoughts with Jordan Robertson. If there is one take away from this hour, anybody can be hacked. Do people have their heads around that yet . We sat here with the ceo of wicker. We talked to mark cuban. Are people really getting their heads around just using her iphone and texting away, anyone can really get hacked. Jordan it is an important lesson from the past year. Jpmorgan spent a quarter of a billion dollars on security and they got hacked. Anthem got hacked. Sony, etc. Anybody can get hacked. When we hear news like Hillary Clintons emails we have some of the biggest organizations with some of the most money to spend on these problems and they still get hacked. Small and private servers, anytime you see one of these things, it does not matter what a company spends on security. Erik cybercrime is a growth business. Cyber security is as fast a growing business. Jordan Cyber Security is a fantastic business right now. When you read these stories there is a sense of, what am i supposed to do . Consumers are federally protected. There is a free tool available to everybody. Erik that is a free tool available to everybody. People do not know this. It is a good point. Stephanie thank you so much for doing it today. That is going to wrap it up for Market Makers. Erik 600 thousand married couples met on his website, he says. You know him from all those commercials. It is 56 past the hour. Bloomberg television is on the markets. Lets take a look at the action midway through the trading day. The euro is still in freefall. Investors are still fretting about an increase by midyear. The dow recovering a little bit, by 45 points. The s p 500 is up by three points. Joining me today is jared woodard. Jared, we saw the price of protection get a little bit more expensive yesterday. Jared it did. We are starting to change our expectations and take some of the risks on the market more serious than we had before. Scarlet we had a day to digest what we saw yesterday. Jared yesterday, was hard to describe. It was hard to follow a coherent story. People were hawking the dollar and reexpectations. Sometimes people just sell assets and they do it quickly enough that they move the market. You cannot always ascribe a big macro story to every move on a daily basis. Scarlet what does that mean for the process of more just prospect of more selling in the coming week . Jerod there are enough data points coming had that are enough catalysts to move the market and people are going to react to those in a more coherent way. Scarlet starting with the retail sales report tomorrow. You have a recommendation on the xoly. Your strategy is to benefit from further gains. Jerad we are going to jared we are going to price this bullish trade. It is going to have more leverage to a positive retail sales figure. One thing that i noticed is that if you price these out and percentile rank terms, the options are about as the same, but you can get more bang for your buck. Scarlet interesting. Taking advantage of pricing disparities. Jared exactly. The strength has been massive. When you go back and look at the history of the figure, the we are seeing exactly what we wanted to see to look for more wage gains and growth and how that affects the american worker. That marginal propensity to consume is not going down. It is only going to go up. As long as wage growth continues, it is a great indicator. All of it together paints a picture of wage growth and a Strong Economy and strong consumption. You have to be positioned for that. Scarlet it might turn profit margins, as well. Have seen that stay elevated. That could be the beginning of the end of the prophet market it spansion margin expansion. Thank you so much. We will be back with more market coverage on this wednesday. Lets take a look at how the markets are trading. We have the s p 500 down excuse me, i should say up, by three points. The dow industrial is up by 48 points. Welcome to money clip where we bring together the stories and business new. I am pimm fox. 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