Welcome to Market Makers. We are going to spend some decent time talking about how hot, amazing and stylish fashionable guys are. Adam johnson is here for that. We will have fun and i might learn something. You are a fashion plate yourself. You have heard that before but that dates you. They dont say fashion plate anymore. I think that is from the cheryl tiegs area. You will come up with something. We need to get to the big earnings story of the morning. Goldman sachs and Morgan Stanley , shares of both companies are soaring after they beat analyst estimates on the top and bottom line. For Goldman Sachs, it was by a wide margin. Devon ryan is here to break it down for us. Surprise, surprise, Goldman Sachs wins. It was a good quarter for Goldman Sachs but you also have to look at what it is coming off of. The bar was reduced throughout the quarter. They beat lowered expectations. If you look at results, and upside surprise but the quality beat question. I wouldg and lending suspect is the big driver. Incentive income which can be volatile helped. And yet Goldman Sachs did it again. It beat by a long shot. What does goldman consistently do right that the others dont . It is relative to her expectations were. Earnings were down a bit year on year. Its still a pretty challenging revenue environment and fixed income was down 11 . That was better than what we saw in the big bank peers. That is all good news but at the end of the day, you have to take a step back and say this is still a pretty difficult environment for them. Four dollars of earnings is well below what they would like to be earning longer term. Fixed income is traditionally where they score quarter after quarter. It is all just trending downward. Fixed incomehat for Goldman Sachs specifically is one of the biggest revenue drivers, about 30 of the overall business. That business is facing a combination of both secular pressure which are not really a beijing. There is also cyclicality. To the revenues. The First Quarter of the year is normally when banks precious. They should be crush it. They should be more worried about the summer. Again, i think that speaks to the cyclical secular elements. The secular elements are higher regulation, higher capital requirements, changes to Market Structure all those things will impact revenues. We are probably not getting back to the levels we saw in the prefinancial crisis. That is our starting point and you have to think about where we are from a cyclical perspective. There are still some areas were Risk Appetite could improve on that could drive better client volume. Risk appetite on behalf of clients or Goldman Sachs . Client Risk Appetite. We have had low rate environment. There is uncertainty around rate policy. Clients have been sitting on their hands. They want more direction as to where rates are going in that could increase activity. Morgan stanley is also out with earnings but goldman is talking about getting out of dark pools. How significant is that announcement that it is contemplating leaving dark pools . Is not a material driver of results of if they do, it will not dramatically hurts their business. However, its a reflection of where the industry is knowing and the way people are thinking about being in dark pools. Do you think thats why a stock like Goldman Sachs is trading at 10. 5 earnings . Yes but you have to think about goldman historically was generating 20 on average. Today they are generating an roe of 10 . If they cannot get that up, it will be hard to have the stock material higher. Do you feel Morgan Stanley got her groove back . I do, and its a funk and their business mix. They have reacted postfinancial crisis and have shifted the businesses they are in. Theyre focused on asset and Wealth Management and those businesses are over 50 of the revenues. Those are more steadier aboutsses so if you think Morgan Stanley moving forward, it is a more predictable company and has a good Growth Profile in those Wealth Management businesses. Why did they stay in fixed income . Its such an expensive business to run. If i am ramping up private wealth, why keep around a bunch of highyield traders that want to get paid 5 million per year . I think is still an important business for clients. Fixed income today is roughly 10 of their revenue so does not drive the bus. Prefinancial crisis am a it was closer to 30 . It is important but in the scheme of the entire firm, its a much smaller percentage of the overall company. Who gets better marks, Morgan Stanleys gorman or Lloyd Blankfein at Goldman Sachs . Transitiontanleys to active Wealth Management in hindsight is been a smart move. As the firm moves forward, the businesses they are in are less capital intensive. About the ability to return capital to shareholders, look at Morgan Stanley as the one that can do that over the next few years and that will be a big driver of the stock. Do you remember where Morgan Stanley was a few years ago . People said i cannot believe how far they have fallen. What a comeback. Thank you for joining us this morning. He is the managing director at jme securities. Given morgan has stanley and Goldman Sachs a pass. Lets talk about google which came out with earnings last night after the close and they were bad. They missed on the bottom and top line. Despite the fact that people are paying less for ads, lets introduce you to mark mahaney. What is your take on the earnings . You had a modest missed quarter on the top and bottom line. There was some onetime costs related to some recent deals. They announced the Company Called nest. Google does a lot of acquisition so its hard to say that what they do with them. You had some unusual cost items. Overall fundamentals were largely intact. This is the 17th consecutive quarter of top line growth. The search business continues to roll along easily and steadily for google. Ats around the business remain intact. Doesnt mean this is a great time to step in and buy . I dont think its necessarily a great time, its a reasonable time to step in and buy. It is trading at 17 times next years earnings estimates. It is cheaper than it has been in the past and is trading at a modest and into the market. We think it deserves that, we think it is a 15 earnings estimate and has nice new businesses and what google glassful means in terms of search activity. Maybe google fiber. Theyve got a couple of new growth areas out there that should stabilize the growth rate over the next 35 years on the core business is in tact. Its one of the hardest does this is to replicate. It is hard to see somebody coming in and taking share away from google. Its a decent entry point. It is not a slamdunk for it if we need something to hate on, what dont you like . The one thing to watch out for and people miss this we call it the lead market. You think google has strong share in the u. S. But look at them in the u. K. That account for maybe 20 of all ads spent on the u. K. They are that big of a player in the u. K. What you see is the large numbers or the fact that their market share is about as mature as it can get. For ae this fade down Company Growing well in that market for 15 years. It is going down to 10 which is pretty good. Very few at companies around the world cap that consisting the kind of growth. In the bestgrowth case for google and thats probably where the rest of the business will grow. 35 years down the road, or onetwo years . We think it is 35 years down the road. If searches affectively maturing at a slower rate, does google effectively have to make all these acquisitions . Thats a very good question. There may be an element of that. Interesting that facebook as a contrast has made acquisitions to defend its core user base. Its instagram and the attempted by snapchat and maybe the whatsapp. Google has never had to defend its search core business. It has never had to buy the next disruptive search business. It is looking to do acquisitions and thats Good Management strategy. Its good Growth Strategy and thats what investors should want to see. To compare that to facebook, for example, it makes sense for facebook to buy instagram because instagram is a huge threat to facebook. Many people think it is more relevant but when google makes acquisitions, they dont need to buy google, jr . Thats the history of the last 15 years. There has never been a really competitive compelling Search Engine for people to go to. Thats says something about their competitive moats around the business. They have build out new ancillary revenue streams. Some are more obvious than robotics like youtube and android and building up the mobile system they have been successful with. Some of the newer things are a little bit odder. I think nest is a perfect play into the google core businesses. The robotics is more of a stretch. Google is trying to make sure that all users around the world come onto the internet because if they do, google can monetize that. One why they do that is facebook. Facebook is announcing earnings next week. The estimate says earnings will double to . 24. Is that overly optimistic . Areo, i think those reasonable estimates. There is a lot of momentum behind facebook and a lot of new advertisers still coming onto the site. There are still two buckets of ad revenue video ads coming later this year and the monster and the monetization of instagram. We would probably give a slight preference to google because of violation evaluation but we like both stocks. Youre one of the most followed voices on google, thank you for joining us. Lets next to eric schmidt. We will be talking about pepsi and coke trying to put a little pop act into pepsi which is not easy when you are in the sugary drink business. Thats why pepsi has been so effective in diversifying. They need to do something about their flat so the sales. Who needs to give up who rate for hollywood . We got the star power we need right here not only in new york city but in my hood. The tribeca Film Festival kicked off last night and we will talk to some of the key members. This is Market Makers on bloomberg television, streaming on your phone, your tablet, and bloomberg. Com. , plus we are streaming live on amazon fire tv and apple. Stay with us. Welcome back to Market Makers. Lets turn to the soda wars. Its the war to diversify away from soda. Pepsi and cocacola are trying to do with the american waning appetite for sugary drink with acquisitions and new product. For a closer look, lets bring in kenneth shea. What do you make of all of this . Many of us are living our lives and trying to take soda out of it, what are these companies trying to do . Quarter was athe tough one for the soft drink companies. As most expected, the tough Winter Weather made the traffic to restaurants a little light. Longerterm, these Companies Know they have a challenge and what they are trying to do is diversify as best they can to address the waning demand for carbonates. Some has to do with Consumer Movement to more healthy alternatives and some could be attributed to what i would think would be aspartame fatigue. That is the main ingredient for diet sodas. A lot of the diet cola drinkers are looking for a more flavorful alternative. They are also looking for something they can eat rather than drink. The thing that jumps out to me is that pepsi beverages account for about 1 3 of sales and cocacola is 100 . Pepsi sales were up and cocacola was down. Is that the difference . Is food a Better Business . It certainly is right now, to be blunt. , there areerm sales other things going on. These companies had to undergo a big restructuring of their bottling operations. They brought them back on board and that wade down margins and returns. They are all planning to release back into the market some way maybe this year. That will probably give l the return toift. Even though the top line is tough right now, these companies, because the consolidation is so high, coke 2 3 of theontrol carbonate market in north america, return to capital is still in the double digits because of the consolidation. Theyre able to pass on price increases and manage the operations pretty well. Sidebyside,psi not a taste test, from your perspective, whos got the most positive outlook . Cocacola is winning the cola wars based on our data. Would u. S. But pepsico say that we are more than just a cola company. We have been investing in juices like tropicana and sports drinks with gatorade and others for many years. They are much less dependent on the sluggish cola business and theyre much more into where the consumer is going which is a noncarbonated flavored lowcalorie average. They both have pretty good outlooks. I dont have a solid answer but they both have pretty good outlooks in their own right. Part of being an analyst as you are allowed to analyze and you dont necessarily have to trade. Lets talk about soda stream. It was up yesterday on market chatter that someone like coke or pepsi might be interested. What do you make of that commentary . I think that came about because of the coke of investment in keurig and coke said some nice things about the opportunity because it gives them another channel to reach the consumer. Having said that, so the stream offers a similar channel benefit but it also comes at a cost. If you are a cocacola or pepsi bottle or result beverages around the corner at a convenience store, i would think this would not be a good event. You are basically circumventing them since the consumer can make their own drink at home. Its not a Silver Bullet answer to stimulate consumer demand for the Beverage Industry but it could offer some benefits. Thank you so much for joining us. What do you drink, coke or pepsi . I drink both. They offer both at the bloomberg cafeteria. I should know that. What do you drink . Cherry coke on those rare occasions. You and warren buffett. Im not a soda got the cherry coke is pretty good. There you go. Coming up, the next big thing in movies stephanie found that at the tribeca Film Festival. I was there. It kicked off last night and it will be in next ordinary week here in new york city, all the stars are out but guess what else it is . Its big business and we will have more when we come back, you are watching Market Makers. Welcome back to Market Makers. We are approaching 26 past the hour. That means bloomberg is taking you on the markets. Lets look at the broad market. I only give them out if they are green. If they are read i send them back. You can start with ge. This is a big deal, up 1. 5 . Cents due to three an improvement in Profit Margins of 50 basis points. In other words, is it possible that u. S. Conglomerate like ge can raise prices . That says something about the broader economy. If you think about all the businesses that ge is in, many investors look to them without ever looking to possibly buy the stock. They look at it as a bellwether for the broader economy. Part of margins is the cost side. They have been taking the cost side of ge so consistently. You get a 50 basis pop in that is a big deal. You are so smart. Thats how they do it at princeton. On the comeback, we will have more on Market Makers. We will speak about the ukraine and have the latest on the talks in geneva. If you are into mens fashion and who is not, we have something for you. Live from bloomberg headquarters in new york, this is what Market Makers. Welcome back. Joined by the one and only adam johnson. To the to take you newsfeed. Chinese micro Blogging Service weibo has gone public. It raised 286 Million Dollars in this ipo and shares were priced at the low end of the range. They have not started trading and we will tell you when they do. Disney has decided to raise its own minimum wage. The company has offered to give entrylevel workers at disney world in florida a 25 raise spread over two years and will boost their pay to 10 per hour. I am glad to see this. Hey americans money because they work hard and they deserve it and they will go out and spend it on and that is good for the economy. My ticketgoing to up for disney world, so be it. Have you been there lately . Its awesome. Gets expensive. Yes but i prefer six flags magic mountain. New york is expanding its investigation into highfrequency trading. Hasyork attorney general sent subpoenas to six highfrequency terms firms. Know about theto special arrangements at traders may have had with exchanges and dark rules. Dark pools. Now we need to take a turn overseas. Secretary of state john kerry is in geneva for talks with eu, ukraine and russia as tensions rising crimea. In moscow, Vladimir Putin says he has the right to send troops into ukraine but he hopes he wont have to. Ryan chilcote is live in geneva right now. He they are still talking in geneva. They have been talking for 5. 5 hours which suggests they are getting into substantial dialogue. The russians are demanding some serious changes in ukraine like decentralization of power and ukraine giving a written guarantee they will never become part of nato. These talks are supposed to and 1. 5 hours ago but they are all still in the room. The is the first time Ukrainian Foreign mini