You are watching Market Makers on Bloomberg Television. I am Erik Schatzker. I am alix steel, in for stephanie ruhle. Were looking at burger king, tim hortons as well. And Canadian Dollar terms, it is 89. 32 a share. This is a whopping premium. If you go back to tim hortons whopping, good one. 39 . Clearly the brazilian billionaire behind the three g capital and burger king sees huge opportunities for canadian coffee and doughnuts. It doesnt hurt that Warren Buffett is interested in the deal and is backing it with 3 billion worth of financing. I think this is one of the most curious aspects of the deal. They have a history because buffett participated on a preferred equity basis and the 3g capital. Heinz by what we dont know yet are the terms of the preferred shares. When does buffett go into a deal and not get what he wants and more . The difference between this and the heinz takeover is that burger king more mena publicly traded company, here in new york and also in canada on the toronto stock exchange. Street art s street terms, wouldnt he have like the opportunity to but is a bit on the same basis . You would think. Im wondering if we will see a whopper doughnut. I sure hope not. 2 different companies. Erik will eat it, for sure. As i contemplate that discussing possibility, the top stories from around the world. Home prices are rising at a slower pace. They rose a little more than 8 for the year that ended in june. Smallest gain 12month gain in a mostly run have to a separate report of Consumer Confidence came out months ago and confidence rose to its highest level since 2007. Plannedsays its acquisition of Time Warner Cable should be completed early next year. It has to all of do with regulatory approval. Offst a year after it went the air, breaking bad was the big winner at the emmys, winning five awards, including top drama and it best actor for bryan cran ston. A big surprise, no wins for netflix. It is the day that traders have been waiting for. Again the s p makes a bullish run, finally reaching 2000. Will that run continue today or is it yet another fake out . Joining us is the senior u. S. Equity strategist at wells fargo. And a professor of finance at the wharton business school. On kind of get a bearish rap wall street because you get a 7 decline on the s p by the end of the year. 1850 isnt necessarily perish. Bearish. However, what role does the fed plane to that outlook . Thank you, by the way, for calling me a relative bear, because i have to bear that label. Nonetheless, our forecast is basically an tengion up on the fed. Basically contingent upon the fed. It will lead to a little bit of inflation pressure. Probably sparks some move at the fed. After five years of this incredibly accommodative policy rate, that causes some hiccups in the short term. It is not an into the bowl market, not the most bearish call in the world. In the short run, when the fed is shifting policy, and usually causes a cup usually causes hiccups for stocks. Would you agree that it all comes down to the fed . Your view of whether the stocks continue to rally or are poised to fall totally hinges on the bias among policymakers at the a form see . At the fomc . Perhaps stocks are on their way to a drop. If they are not, if they remain dovish, if they dont see cuts of inflation on the horizon, it is full steam ahead and the rally keeps going. Think this rally keeps going. The fed is one factor, to be sure, but earnings are looking very good. The Second Quarter is good. We have been getting some very strong Economic Indicators over the last couple weeks. The second half of this year, looks at 3. 5 gdp growth. Earnings forecast is 120 for the s p 500. 16. 5 times earnings. As the fed going to increase in march to 50 basis points or august to 50 basis points . 50 basis points is extraordinarily low. By any historical standard. The 10 year rate, 2. 5 now, it goes to 3 that is still extraordinarily low. Hiked athink that a fed little earlier or later is going to be a big thing for this market. Can you tell us a little bit about the Economic Outlook and would you are seeing signs of glowing growing Wage Inflation pressure and what that might mean for the timing of policy . I was a little bit worried a couple months ago. Ondid get some hotter data the Producer Price index and the little did on the cpi, look at what has been happening to oil and the crp index, commodity , over, gasoline prices 50 of the game they made from november all at april. I think we will see those headline numbers on cpi actually go considerably lower. There was a little bit of an inflationary flareup, but it died, which is pretty much what janet yellen said we are not concerned on the short run. Things like that would arise at any time, but right now i think that deflation will inflation outlook looks very favorable. Something you have talked about his Profit Margins for companies. It seems to be a concern for you. Talk little bit about that. I think it will be about tradeoffs. Can we get a strong acceleration in underlying Economic Growth to offset the pressure on interest expense . Tda margins ared following. You are getting a little bit of a conflicting picture there. The difference is taxes and interest expense, largely. Interest expense and low rates to hightributed margins. If the rates have to go up relatively rapidly, interest expense can go up as well and the grade those margins degrade those margins to some degree. That is the tradeoff we have every time the fed starts to move rides. Fed has been sitting at zero for five years. And that had consistent longterm declines in interest rates. If those factors shift more rapidly than expected them you could have some destruction. Every investor should be considered about operating income and cash flow so the ebit da issue is a relative one, but countries can continue to be creative when it comes to manufacturing the income, whether it be through inversion deals like burger king or any number of other strategies that they have taken successfully thus far. That absolutely can be and they have been for nearly two years. And they have a fiduciary response ability. They are responsible to their shareholders. You have to get Revenue Growth to recover. I think we are on the verge of seeing that growth. It is a balance of revenue, a balance of interest expense. How does it all impact the bottom line . Professor . I was going to mention that the good news about Rising Interest Rates is that firms have done just what we have recommended to homeowners, fixedrate longterm, 80 of the liabilities are now fixed rate 50 20rm, versus only years ago. They have moved considerably to locking in these low interest rates, and interestingly enough they are sitting on over a trillion dollars of cash. If the short term rates go up they might actually do a little better on earning on that cash side. I dont think the early stages of interestrate expense are really going to do a lot to squeeze margins going forward. A lot of the margin increase that we have seen is the greater foreign sales of the s p 500. They have higher margins because they have lower Corporate Taxes, as we know, a broad. The tech sector has gotten bigger and they have large margins because of the way we calculate expenses. Those trends are not going to reverse. I dont think we are going to get a reversion back to 1997 margins could i dont think that is going to be a big worry for investors going forward. Interesting debate, guys. At the end of the day we still have to invest in to grow, right thank you so much. Coming up here on Market Makers, the leaders of russia and ukraine are at an eu meeting to talk about trade. Will that give them an excuse to talk about ceasefire . What a difference a month makes. Bill ackman we will tell you why. High betweenre ukraine and russia as leaders meet in belarus today. Poroshenko says that he believes the talks will yield progress even as both governments accuse each other of committing acts of war. Hans nichols is in minsk. Obviously, this was not a friendly meeting. It was not a oneonone, it was a Group Meeting. Saying both began by their pieces. Putin focus on the economic aspects, mr. Porsche ago focused thehe political aspects economic and Structural Integrity of ukraine. There are a couple of important developments i want to tick off. In kiev, the government has released a videotape of what they say are Russian Troops caught inside ukraine. That is significant for a couple of reasons. For good it is also significant for what happened inside moscow. Agency quoted russian officials as saying that there are Russian Troops but they were in ukraine almost by accident. Theres a third development, that the u. S. Investor in ukraine is tweeting that russia may be prepared for a larger land incursion to win back territory, because the fighting on the ground is very much going on. It is a very tense backdrop and they are in a Group Meeting right now and they may break up a little bit. There is a lot of focus on whether or not there is going to be time in mr. Putin and mr. Poroshenkos schedule for a oneonone meeting. If they come out of this meeting and after group statement, that means there is been some coming together on views. If they come out of this meeting and everyone issues individual statements, it will be less likely that there will be oneonone talks between mr. Bruton mr. Putin and mr. Poroshenko and that these techs will go anywhere of any substance. Can you talk about what pressure european leaders might be under to reach some kind of deal as we head into winter and sanctions might be ramped up . European officials are here. They are clearly concerned about the global and european economy, especially in germany. No one doubts that the conflict has taken an economical. Aspectnderestimate the of natural gas coming through ukraine. A cold wind will be sweeping across these planes in a couple months matting towards western europe. They need to the russian gas to keep themselves warm. The natural gas of energy will become increasingly more important. Absolutely. Thank you, hans nichols, joining us from minsk. No ceasefire, obviously. My question, so what . Obviously, the stakes are higher in ukraine than they were in, say, georgia. What the dispute remains contained an expert on the region, an analyst at the Eurasia Group what if that happens . What if they dont turn this into some larger land incursion, the threat that hans just raised there . It is a matter of militants on the border fighting with Ukrainian Forces in a relatively small area. There is an increasing likelihood of this moving into a frozen conflict, like we saw in azerbaijan or South Ossetia in which you see parts of ukraine not under the control of the Ukrainian Government functioning in one way or another as a client of russia but russia not taking direct response ability either. That would suit the russians very well in the sense that you can ukraine is important to ukraine economically. If poroshenko doesnt have parts of ukraine under his control, honey 5 of gdp comes from the eastern part of the country 25 of gdp comes from the eastern part of the country. Because it is so agriculturally productive . The industrial regions are in the east. Why havent we seen the red line, though . We hear that he has a videotape of Russian Troops crossing the border. Why is not huge red line . From the beginning with the west has talked about trying to prevent an invasion of eastern ukraine, that that this idea of a massive land war invasion with hundreds of tanks and divisions crossing the border. That is not really how russia has played a strategy out. Russia has armed separatists in eastern ukraine. You heard hans say that russian soldiers accidentally crossed the border perhaps they gotten lost. It is not credible will stop it is a shadowy way of conducting a campaign that stops the slips through the cracks. Putin has played that effectively. Strategy y, the back to the point you were making about a frozen conflict it is a problem for ukraine if they lose 2020 5 of gdp. If that production is in effect conferred on russia. But beyond that, it would appear to become less of a threatening situation then it either seems to be right now was a few weeks ago. I think the concern economically for europe, as hans mentioned, is the gas question. There is also a question of geopolitical president geopolitical precedent. The eu wants to send a message that russia does not have come in effect, a veto over the geopolitical decisions of countries on europes periphery. That is why it matters so much to berlin if that is the case you have to be compared to defend the sovereignty. Prepared to defend 70. There is a limitation to how far they are willing to go. Russia is willing to commit hard assets and military resources to the problem in a way that the west is not. The kremlin is banking that over time, the fact that it matters more to russia more than the u. S. It is a war of attrition. How does this wind up playing out with the nato countries like poland and latvia who have to be more concerned than germany . Limity do but there is a to how far russia is willing to go. Russia does not want conflict with nato are we sure about that . Can we say that with absolute certainty . We cant say anything with absolute certainty. But i strongly suspect that the kremlin does not want a military conflict with nato, and ukraine is not in the nato and that is part of what this is about, that russia wants to ensure that ukraine never joins nato. This from at western perspective, west of the ukrainian border, how risky does this appear . How much of a problem as opposed does it pose . A huge risk internally for ukraine. President poroshenko is under huge pressure with elections under way end an increasingly deteriorating economic situation. It is important to look at the political incentives that poroshenko is facing. Cede thingsnko con to russia . He can spread very difficult to make compromises at all he cant. Very difficult to make compromises at all. How can anyone save face . Outtake anyone can save face at the moment. Thank you very much. Market makers will be back in a few moments. Lots to talk about, including whopper doughnuts. Coming up, burger king prepares to head north. We will look at the tax of images of heading overseas or overland, are driving acquisitions. Warren buffett is now helping to finance tax aversions. Live from bloomberg headquarters in new york, this is Market Makers. Schatzker. Ix steel. M ale the Pressure Companies face to minimize tax bills, in an era of slow sales growth. The competition to lower those companies by cutting Corporate Tax rates. Here with us in new york is a partner who specializes in mergers. We have jack mantz who is taking a victory lap this morning, because he was partly the tax reform that succeeded in luring burger king. In the absence of Corporate Tax reform this country, we have seen it elsewhere, in canada, and others, do companies have any choice but to do the kind of deal that burger king is doing to tim hortons . Companies that are Global Players and that are competing outside of the United States something they have to think about. They have do what is in the best interest of their shareholders. The waye to look at they look at refinancing debt. They have to look at tax policy. Tim geithner told us that for the president ial election, this will all be dealt with as part of corporate incentive conference of tax reform. When congress was reelected, obama was really to come at two years later, no conference of tax reform. Comprehensive tax form. I think companies are looking at what they have to do to be competitive globally. Eric is wearing his canadian cufflinks. See this mean we will canada get more involved with American Companies . Make more enticing orders for them to come across the border . And not sure canada needs to do that. Weve already enticed americans to shift their income into america. Ira member a couple of years ago we gave a speech in toronto about the Corporate Tax reform we have done. Send several companies emails to me afterwards telling me how they shifted income from the United States and the canada. Now with inversions, youre getting a totally new story, which is you was companys decide to buy up a canadian company, and effectively move the headquarters into canada. Thereby making it a canadian company, and basically undoing this major problem in the u. S. System, which is the Current Treatment of foreign sourced income earned by market corporations. Jack, you are an expert on tax policy. Is the Corporate Tax regime in canada right now really that much more attractive than it is in america . Kpmg have done studies to try and cut through what would appear to be an apples to apples comparison. U. S. At 39. 1, canada 26. 5. We know that they dont pay that. But we dont know really is how much more attractive the canadian tax regime is in the american one. Work intually do canada, in fact, we compared 90 countries around the world. The United States has one of the highest effective attack rates on new investments tax rates on new investments. It that canada has made much more attractive . Our Corporate Income tax rate has fallen from 43 in 2000, down to twice 6 26 point in canada. The u. S. Rate is 39. 1 . Cost have similar capital allowances. What is also important is that we have eliminated capital taxes on canadian corporations in the nonfinancial areas, particularly we have adopted value what a taxes in most of the provin