Good morning, it is tuesday here in new york city, youre watching Market Makers. Ever since kobe bryant got to have that Training Session with me the staples center, he realized that he was the future of business. We have a lot to talk about. We will begin the show with breaking news. Michael mckee has the headlines. It is good news for the real sixte or, a two point percent increase. This is much better than analysts had anticipated. This is an eightmonth high for housing and we see the number of homes for sale hold steady 5. 4 months. It looks like the existing site at least, we are doing much better, we will made for new home sales thursday. Thank you very much, that is Michael Mckee out in the newsroom with some positive economic data. Of course, it is time for the story of the day, the man himself, bill ackman. Right now, he is starting what he calls the biggest presentation of his investing career. That is a giant claim. The mother of all takedowns. Bill ackman says he will present evidence, audio and video documents that will demonstrate once and for all that herbalife is the product. Heres what he told us. The best frauds are really really good. The only clue i will give you for tomorrow is that enron, if you remember, had a fake trading room. They were touring people around the campus. I member, it was an auditor or whatever to talk about the workstations, had people look like they were trading. That is my biggest clue. His biggest most epic presentation of all time except guess what, i have been part of this broken record. We have been here before time and again. Lets take a trip down memory lane. For yearandahalf, bill ackman has been presenting one piece of evidence that herbalife is a pyramid scheme. Where are we . Herbalife is telling more of his traditional supplements and ever. No court has labored a pyramid scheme or a fraud, no one has stepped in to shut the company down. It is want to say we are pointing out the obvious. This is an about the billion dollars at stake. This is now about reputation. That is what is on the line. It is too bad that captain lou is dead. This isnt about herbalife anymore. Think of the ackman as Vince Mcmahon or don king. We are going to be monitoring his presentation very closely, looking for the smoking gun that he has promised and you can do the same thing if you like. I want to bring in our expert panel who is a Business School dean at the college in new jersey and an authority on Government Schemes and a former Hedge Fund Manager who is now a professor at columbia Business School and in fact if we are going down memory lane, yes he tried to become a distributor . Websites that my 30 and got the package. Down, didreak this you help on a presentation a but, walk us through, what you have learned since bill started this. What we have learned is that herbalife is focusing a lot on internal consumption. That will not protect them, in they wereis year, found to be a pyramid scheme and it was a company that had almost entirely internal consumption. The notion that internal consumption is there savior is a mistake on their part and it is something that regulators will look at. Why has it taken so long . Grande agot to have cup honing his. Bill has been ringing this for a year and nothing is happening. Regulators were not looking at the situation. The regulators like to think they are referees, they dont like to think that they are playing a role for one team or another. At the same time, this is a grossly underrated industry. That does not necessarily give no ackman the license to do what he has done in the public arena, does it . To publicly announce that he is taking a billion dollars short position, to make presentation after demonstration, none of which has the maturity that herbalife is a fraud. This is a pyramid scheme, a fraud. The internal consumption angle is extremely important. One from management has refuted the attacks. I know they dont need to respond to a predatory guys questions but if you were herbalife and he was pointing a gun at you, why wouldnt you come out and poke holes in all of this . These two things are not necessarily predatory. Lets go with bill was saying about the internal consumption consumption. They must close their windows, 24y must the cap hidden hours a day. Its is shifting and at worse is a cult. At best, you have a fixed retail store selling food but you dont want to it admitted and you dont want to be covered under it. So much of the stuff is going on. What other people would call this is a store. You want to sell food in an unlicensed fashion. This is dodgy to have the cornerstone of your business be something that you cannot even hang a sign outside. Bill has got a point. Does that in and of itself not prove a pyramid scheme. This will be compensation to participants, that comes primarily from recruitment. We know there is a lot of recruitment. They may say that they have a lot of distributors but 80 of them will be gone quickly. After a year and a half, bill ackman is the only guy ringing his bell. In this industry, it is. I look at that map of queens, and when i see on one square block six herbalife stores, i say, jesus, bill ackman is right, why have we not seen one single notable bigtime investor get on his side of the train . Thet is not as if information that he has compiled is in accessible. Bill has invested over half of his net worth on this investment. Whydoesnt make sense to me if bill has an epic takedown, if he is so right, not a single other investor at a time when hedge funds are desperate for trade ideas, nobody is on his side. Because even hedge funds look at risk and returns. Is a regulatory issue. Look at the stock. The compound annual growth rate is over 20 . The pe is 60 of the s and p. At 20 . Making profit if this is legal, this is a money machine. If it is illegal, it is zero. Why not just spend the 50 50 million bu the boxes full of documents and just handed over to the sec and the sec and the Justice Department and say, guys, get to work. I am waiting for you when you are ready. Ead, it has been he is showing the video to the world before the regulators. Why . The one thing regulators do not want to do is they do not want to appear as if an investor can come to them, put something on their desk, and get them to move in 60 days. That is what they want. It. Ell, he cant have he can have it if the senator from somewhere in the standard region turns and says, hey, we want you to look into this. ,f he can get political power the street. He is sparing no expense. Where is tim kaine us in this . Bill ackman said compare this to enron. Jim chanos, no stranger when it comes to shortselling, why hasnt he opined . Did opine that he thought the fundamentals were sound. Bills fundamentals were sound. Look at the time it took built to take down nba. Rodeo. Not his first these Companies Fight back tooth and nail. I think what is helping to do is to get to the front of the line. Not otherhen investors on the side of the trade. It was a dirt cheap stock if it went in the other direction. Down,once it starts to go the funding start to dry up, that has been down there and the actual fundamentals have been backwards. Upwards. Perspective, what would bill ackman need to today to put herbalife in the pantheon of fraud . Todays trading doesnt matter much. The stock is down quite a bit in the last week or so. There is a very crowded short. 35 of the float is short. They actually tell the stories from the dark side. It did not look like it at the time for a lot of people. There are a lot of defenders in that company. It was quite a stock for a while. Wheres a weird business there is a lot of activity going on. The question is how much of it is selfdealing. Ackman brings back this wonderful story of enron creating a fake war, filling it with actors, and showing it off to analysts and saying look at all of these busy people. Quietly, and ron did the same enron did the same thing. Meethad a private jet to the chief operating officer of enron to show off his fantastic data center. They walked behind all of the machines in the data center and none of them were plugged in. Enron was a very elaborate buildout of a fraud that they hope that their business might grow into it some day. Of course, the clock ran out of it on them. At fraud andok identify them as such looking in the rearview mirror. They are all very least, most of it is the bill ackman short position. I dont know if there are that many short sellers out there. There positions are miniscule. This is sure to come in a quickie. He could have had something derivative for him. There are suggestions that he has done that. It might not just be in clear straight equity. There are six thousands options traded in the oneyear puts. There is a lot of stuff going on far far out in the stock. There has been something made of the fact that these options are expiring in january and that the fire, so to speak is under bills behind. If you cannot prove the case, he will have to reup, it will cost them more money to go to short. Everyone squeezes, the end of a large put position is to have a happy hunting ground. Remember, there are hedges on the other side of this. Initially, in rolling it out of the actual cash short. Squeezed gains. This is off solidly for the year. They are just coming into the money. We talk about ethics for a moment, when we are criticizing herbalife, obviously a pyramid schemes, there are huge ethical issues. What bill is doing in this short position. What about this elaborate circus . The amount of information, the amount of pr firms involved. What herbalife does, what do you think of all of this . I turn to bill. I think it is fair. Those have watched the ftc kickoff sort of easy targets. Abouthose we are talking the multiyour cases. We take someone who hasnt inside voice, someone from the outside who have the resources to take on a big the sec has not taken on a large mlm is 1979. We have an industry that has real problems. Do you consider bill ackman a champion here, really helping the American People . I believe he will save some money. He will save a lot of people some money by heightening awareness about these problems. About theu are saying three ring circus. This is one of the reasons why short sellers keep their positions secret. Evaluation of the business. This is one of the reasons why bill ackman, public position is so rare. Be bill ackman is going to save people a lot of money, maybe he is going to make them aware. This herbalife is a sleazy company. I am sure there are people that have coco knives and eric arrived and mary kay cosmetics that they can never sell but that is not mean it is illegal. But it sometimes is. Of sec has done a good job the successful cases. How fine a line is there between a Multilevel Marketing Company and a pyramid scheme . What it is a cap we need to fill with data. For the casual observer, you cannot tell the difference. Is it possible for the regulators, the sec, or anyone else to examine the data and one would hope through their own efforts and come to the conclusion that what lcs as a pyramid scheme isnt in the eyes of the regulator a pyramid. Cheme that is a very interesting question. Then it comes down to judgment. It is not a black and white situation. Well, youre talking about if he delivers with him the data that they are used to seeing and they see it differently than he does, then they will come to a different conclusion. I presume he has done his homework on all of the cases that have led up to where we are now including up through june of this year. With enron. Racts it enron was a cut and dry fraud. If at the end of the day it is not blackandwhite. It is a matter of regulatory judgment. The data could go the other way. It is an position to be in. I would be shocked to get the trading floor, the Data Services that are not hooked up to anything. Bob jo, that is what will promised us. What you will see his fake retail. Im going to get the number but it is over 5000 nutrition clubs in the u. S. Most of them will be out of business quickly. You think they are a scam . Yes. Hashe new distributors signed up, over 1. 3 will be enacted within 120 days. Well, that is real, brother. Continuation what if herbalife has in the contract that they signed, we are not liable. They might not realize. It is much a matter of distributor liability although the lounge case suggests that there is some liability there and they do not have policies they and first they enforce. Join toistributor receive rewards for recruiting others and is said the engine of this company . Now, Different Companies can be structured but in this case, in this company, that is what makes them tick. In the words of a great financial genius come he actually opined on herbalife. They have desperate dreams that this will lead them to milliondollar paydays. Is that they were talking about when they describe it. This sleazy company. At worst, a legitimate scam. That is really the best they can argue for is that this Company Looks pretty filthy. If the sec were to issue a letter saying, no harm, no foul, we are done with this, this is a clean company, the stock will double. You are still with us in San Francisco . One of the things important about the story, good to focus on details, but this does happen over and over again. There were chinese reverse Mortgage Companies that were public. People were walking through the factory. You will see up bunch of wall street guys standing in the gallery that would walk into the next room and see the same guys as though they were working. The factories were fake, the stock were fake, it is good for us to take the lessons. That remains a possibility. It could be a fraud, it could be a pyramid scheme, it has been a year and a half that nobody has validated the claim. Is so much. We will be monitoring the headlines all morning. Who wash that live has the best 401 k plan in the u. S. And u. S. The worst . We conducted an exclusive investigation. We will bring you the results. Live from bloomberg headquarters in new york, this is market with Erik Schatzker and stephanie ruhle. You are watching market on bloomberg. A court ruling that could undermine the law which threatens to be a major setback for the president and of course his legacy, health care being his signature achievement. Lets take you to our white house correspondent. Of 21, a u. S. Court of appeals in the d c federalvoted that the government cannot provide subsidies for the Affordable Care act, for insurance buyers. This is a major deal and potentially devastating to the law. State exchanges are at the center of the law but a number of states havent implemented exchanges or their exchanges have gone wrong making the federal government exchanges really kind of the bigger areion of how people planning to get insurance through the Affordable Care act. What this court ruling, it challenge that the federal government did not have the right to provide the subsidies. According to the ruling that says that we conclude that the Affordable Care act unambiguously restricts subsidies to insurance purchasers on exchanges established by the state, therefore they are reversing the idea that the federal government can provide this. This is very very big. This will be appealed. It could eventually end up in Supreme Court. This is as big of a setback as weve ever seen with the law. Is there a loophole in the language that was used to write the law in the first place . Is that what they are focusing on . Is this all the way to the Supreme Court . I think almost certainly. There will be a couple of steps before that but you will not see the Obama Administration stop and get anything like this. This would not the law as it is being made. Were talking about a trillion plus dollars worth of subsidies. They really cannot operate this without the federal exchange in place. Believe, thehey administration believes the language was ambiguous enough in the law, that the federal changes had a law, were allowed, everything was in place. I think they felt very solid. I think this finding is pretty jarring and they are taking the language as i pointed out reading the ruling, they are taking the language of the law, this is really problematic. The d c circuit court, the rule on this is considered a more conservative friendly court. This is a big deal and i think that the administration will have to build up to try to fight back something that i dont think that they were inking of having to deal with. But thank you so much. The latest on a very big court ruling over obamacare. Lets turn our attention back to the plot esther bit announced last week. Has turned a nice chilly newspaper publisher into one of the worlds biggest media companies. The question is, what would it take to get the ceo to say yes and how much is murdoch prepared to spend . Lets ask him unless stakes in both companies. ,is holdings include viacom at t, directv, cbs, the list of Media Investments goes on. With a stake in the proceedings on both sides, what do you want to see happen . Well, we are holding both of our time warner and foxx. This will go higher. Assured of that. Foxx has responded, probably overreacted to the bid. The behemoth company, a lot of synergies, a lot of power. But it is a matter of price. Up until what point are you 85 or it wast is at the time of the announcement, i think it is a little bit less now because foxx shares have dropped a bit, but call it 85, which should murdoch be prepared to spend. The street is thinking hundred dollars. Kyle i dont think we have a particular number in mind but you could finance with cash flow but Something Like 40 a share and you could put in other forms of security site referred for additional stock. Limit on the amount of stock that he puts into the transaction is how deluded does he want the deal to be. So, you own every media stock there is, what are you looking for . , we would like to see more consolidations. Witharted last year consolidation on the distribution side with charter going after twc and then you saw directv and at t and we knew that was going to spur consolidation on the content side. Murdoch, who has never been shy about deals has gone for the jugular, he is gone for the big one. We are trying to pin you down. Does this combination makes sense . They are dressing the same market which is a