Transcripts For BLOOMBERG Market Makers 20140827

Breaking news out of washington. New deficit numbers coming up in the congressional budget office. Analysts say the gap will be higher than they thought a few months ago but it is still going to be the smallest deficit since 2008. Peter cook is in washington with more. Put it into perspective for us. The deficit for this year according to the congressional budget office, 506 billion, up from the 492 billion estimate back in april thanks largely to weaker than expected Economic Growth which has hurt tax receipts. It is projected, the deficit, to drop lower in 2015, below the 500 million mark. The projection for this year compared to lesters deficit of 680 billion. It is dropping. Substantially. The projection for 2015, dropping to 469 billion. That would be the sixth Straight Year of falling deficit. The lowest number since 2008. The cbo warning the number is going to start to rise again starting in 2016 and eventually the 1 trillion thanks to Rising Health care costs, aging population, so the shortterm picture is good, longerterm picture is still challenging. The shortterm picture, a few more number set are important. Projected deficit this year would be 2. 9 of gdp, next youre would be 2. 6 of gdp. Expecting unemployment will average out to 6. 2 this year. Is 40 year average for gdp 3. 1 . That puts it in perspective. Unemployment for next year projected to be below 6 . We are seeing the economy having an impact on the deficit, the slowdown in the First Quarter translating into some text or seas. The shortterm picture is good, longerterm is still challenging. Is the bottom line for washington, for the white house, and congressional democrats, maybe a good thing these numbers are coming out, something they might be able to campaign on. Thank you so much, peter cook. It is a good thing to see the deficit shrinking, unless you are one of the people who Want Congress to tackle entitlement or tax reform. For lawmakers, the pressure is off. I am one of those people. Another is kent conrads been 25 years as a democratic senator for north dakota. Onwas the leading voice fiscal responsibility. He is a member of the Nonpartisan Committee for a responsible fair budget. Thank you so much. Good to see you. Is that the right way to frame this, that the shanking deficit shrinking deficit next year puts off for so many members of congress the need to tackle these pressing issues fiscal reform, tax reform . It probablytely, does. This is good news. This is a germanic reduction of the deficit. Back in 2009, the deficit was 1. 5 trillion. Now were down 2 3 from that amount. Where less than 3 of gdp as a deficit. That was really the target in ssimpson. We have to get congress credit. Unfortunately, the composition and timing probably has not been ideal. What i mean by that is, most economists would say we came down to quickly. That is one reason we have a weaker than we would like recovery going on. At the same time, we did not do enough about the longterm deficit and debt. The composition of these changes, these cuts in spending were too heavily weighted to the domestic spending, and not focused enough on those longterm entitlements. We all know health care is the 800 pound gorilla. While we see dramatic improvement in health care expenditures, the Health Care Spending is basically stabilized. It is quite remarkable. Medicare spending between 20112012 actually went down. So that is also good news. But we also know the longterm atuation starts to come back us starting about 2016, and these deficits start rising again. More work to be done. Why should we give the president and congress any credit at all . The way you frame it and the way it, if weojects experience any relief, it is really only for the shortterm. First of all, i would say they give credit on two counts. Number one, they really did cut spending and cut it quite sharply from about 25 of gdp to 21 of gdp. That is really quite remarkable sharp cut in spending over a very short time. Second, they actually did raise revenue. Not the way i would have done it, but nonetheless, they did it. That, nation is why weve seen this dramatic reduction in deficit. Were we still have work to do and where i think it is fair to criticize congress is we have not dealt with the longterm challenges sufficiently. That is a place where we still have a lot more work to be done. But theres also some good news there in that Health Care Spending has clearly stabilized. It is quite dramatic the reduction in increases in healthcare spending that we are seeing. As i said, between 20112012, medicare spending actually went down, even though they were covering a million more people. This year, medicare spending is going to be about 512 billion dollars. It will go up to modestly between now and next year, even with many, many more people being covered. Remember, 10,000 people a day are retiring. Senator, you sort of put the onus back on congress to make action, but with a massive polarization we have seen, would we be better off with one Party Controlling fall of congress to try and get something done . Say. Ok, it is very hard to one part of controlled it really wasnt interested in doing what has to be done. Unfortunately, you see on both sides, the extremes are unwilling to make the basic decisions that have to be made. That is, were going to have to have some more revenue adjustment. Any tax reform very badly in this country. Contact system is totally out of date. You almost could not write a list write a worse tax system if you try. For insolvency according to trustees. Let me ask senator conrad a question. Does the notion, very suggesting the notion of a split congress for split washington with republicans in control of both the senate and the house, and potentially what could happen in the Midterm Elections, that could boost his chances for some sort of compromise deal here and ultimately, is this a president who in his final two years in office, with a legacy willing to make the hard choices to actually cut would deal with . The settlement issues i think it had congress in control, the president continuing for two years, that would be good luck. I think of a much greater chance of actually getting to it have the Democratic Senate from Republican House and you had the president , as already indicated he is willing to make some very augh choices, to address entitlements over time. I think that is as president ma yingjeou. I think it takes a bipartisan deal. That is the only way it works. Ands an advocate for bowles simpson. I was part of the group of six. To get us back on a firm course. It is going to take, frankly, the extremes. They are the ones who are holding up progress here in washington. Whether it is the extreme right or left, those are the folks that really dont want to change much of anything. Senator conrad, that is what we have right now. A democratic controlled senate, republican controlled house. Where are we . We are no further along or if we are, it is not very far along, from where we were we started these conversations. When you set on the bowles , sat on the group of six with john boehner, why are you optimistic that preservation of the balance of power between the senate and the house will lead to anything positive in the future . Because at the end of the day, it takes both sides to walk together. Look. If in the house you have the more extreme right have a setback, that would not necessarily mean you have change in control. But if they had a setback, some of the more extreme members lost , that would help change the atmosphere. Because i can tell you, in the senate, there is a Bipartisan Group who are prepared to make the tough choices. And i know the president is prepared to make additional tough choices. He has proposed some of them. But it has been rejected. There is an opportunity here. I think the deficit coming down dramatically helps build the context within which those decisions could be made. But at the end of the day, the American People have to send the signal they want these decisions to be made. They want copper mines to occur. They want progress to take place. They have to insist on it. Senator, shifting the focus back to president obama, he spent a lot of time at is a administration. Do you think we are seeing a detached president right now . More detached than i would like, that is for certain. Look, he was not detached when he was seeking office. I dont quite know what is happening in his thinking. But i do think he really needs to engage. If i were advising him, i would tell him, be up on that hill. Have the members down to the white house for breakfast, lunch, dinner, take them to camp david. I know sometimes it is frustrating because you feel there is no movement, that relationships matter. If youre going to be effective as president , you have to be all and. That means you have got to reach out to those members and form elation ships. It matters. I have seen it over and over. People will cut you more of a break if you are talking to people and youre seriously listening to them, they will cut you a break. But if you dont talk to them, if youre not reaching out, they think the worst. It is human nature. Relationships really matter. If theres one piece of advice i think of the president , it would be, go on a full out effort to engage with the members of the house and senate. Conrad, is president obama running an imperial white house . I would not use those words. I would say this, for some reason, the first two years he was very engaged. Then something happened. I sense part of what happened as he went through a series of meetings in which people were really over the top. Isrespectful in some cases, i would say, vicious. I think he just decided, i had enough of that. I dont get any results that way, im going to the American People. I think that is probably his thinking. He has not said that. I would say to him, you have to go back to the well. Even know there are some who are toxic and some on the left in the right i want to emphasize this isnt just a oneparty problem. It isnt just those on the right. People on the left are unreasonable as well. Critical thatly he reach out to those who are willing to do what is necessary to advance the country. Do you think theres Anyone Around as president who is offering that kind of advice, people within the white house, chief of staff, others . Is pretty clear this is a president not making a lot of inroads with congress at the moment. I dont know what can of advice the president is getting. If i were able to give him advice i would say, mr. President , you have been a transformational leader. You have helped avoid this country slipping into a depression which is exactly where we were headed when this president came into office. You have done other things that are transformational. But right now, you have to reengage with congress and the merrick and people. The American People. It is critical you do so. Senator conrad, thank you for joining us. Former senator kent conrad and peter cook the latest numbers from the congressional budget office, deficit is shrinking but the longterm outlook remains quite dim. Coming up, likely to be the before alibaba before next months roadshow. We will be breaking it down. Finding the Perfect Match isnt just for single senate more. Mergeies with an urge to can do it online, too. You are watching Market Makers. Alibaba, the chinese ecommerce company, set to ipo in the u. S. In weeks released its latest Financial Results this morning and they appeared to be good. Appearances can be deceiving, especially when it comes to chinese reporting. Cory johnson has more for us from san francisco. Its profit ining the most recent quarter almost tripled. Did it yet though did it . Is a difficult filing to get through. A lot of the results reported in rmb, they even have monthly calculations of the currency translations. Theres certainly a lot to crunch for the number crunchers. Fundamentally, the business is big and getting bigger. It is profitable and getting more profitable. You can see that in the results. The user numbers are things you can only see and china, where you have over 270 million users in the quarter that ended in june. , upnumbers are enormous from 172 million users. It is impressive stuff. The growth rate is slowing a little bit. Down to 9 . Sequential is the way to look at it, not yearoveryear. The business is big and getting bigger. It kind of shows you the benefits of a marketplace like business they have because so many sellers want to go to the place where the buyers are, and the buyers want to go to the place were most of the deals are. That is the advantage the marketplace like ali baba has. For alive a reasonably baba, yahoo is it suggesting the numbers are really not that much better than what we heard from alibaba before and what people anticipate when the Company Goes Public . Thereof people a lot smarter than me going to this and finding things. I cant believe anyone can make a real informed trading decision based on what their read in the last 1. 5 hours. It is very complicated. The company is doing boatloads of acquisition and the business is changing quite a bit as a result. One thing that jumped out, as much as their growing internationally in making acquisitions all over the world to grow their business and posit the idea to the ipo that this is more than just a chinese marketplace, the Chinese Business is growing so fast the percentage of revenues the International Business is less than it was a year or so ago. That is a function not of the slowdown in growth financially, but the massive growth in china. It is important to point out for investors who might be looking at these headlines him a there is still serious risk of investing in alibaba when it ipo plus because of structure regardless of their profit or sales or growth. I think this is something that people dont take into consideration when theyre looking not just at this deal, but a lot of the recent big internet offerings we saw with coupon and zynga and facebook and others where it is hard for shareholder to exert control of the company. They dont have the equal amount of votes. Baba realcase of ali have a vie structure were the shareholder doesnt have a direct vote to control the company, controlled only in china. That is the way theyre going to keep it. Much, coryu so johnson, who will begin a lot more work in alibaba. Coming up next, were going to talk about some fashion. We are on the markets. Looking at smith wesson. The company cut its forecast for the year due to declining demand. I want to separate what is working and not for smith wesson. What is not working our sales of modern sporting rifles. Known as the assault style weapons. Working or the smaller pistols. The smaller pistols. Trying to cater to women, looking for smaller pistols to fit their hands. The you take a look at slowing of assault weapons, if there is no huge antigun lobby push and washington, you could argue some might be not as motivated to go out and buy these. Alks that is what happened after newtown massacre, we saw gun sales spikes. Many were concerned congress would enact restrictions on that purchasing an ownership. That did not happen. Smith wesson isnt alone. Others are going to the same trials and tribulations. Coming up, why jeans acres likely by our singing the blues like levi are singing the blues. You are watching Market Makers. Denim is in distress. Jeans have been americans go to pants for decades, but now are being swapped for comfy yoga pants and chic athletic wear. Analyst chief industry for the npd group here. 6 doesnt sound like much. Altering, it is kind of sense shockwaves through the apparel business. One, commodity categories. Out of a 200 billion u. S. Retail sales business when a 16 billion business drops a decent amount or percentage, it does kind of send a signal that something needs to change. The real key is recognized denim is not gone, but what is happening is fashion denim and the higher price denim business has shifted a lot. How many more pairs of jeans do you need . , i had to buy maternity jeans so i needed quite a few. Without the structural or cyclical . It will rebound. It always does. Were so used to seeing denim flourish that it wasnt a recession that took it down, it was the active lifestyle of the consumer. That quest for more casual and comfortable life. More casual than denim. Believe it or not. Denim has become commonplace in the workplace. That was a big shift. The new thing is going to be active where in the workplace. I dont know what is next, pajamas . We cant get much more casual than we have. We thought we were at the limit with denim, but activewear is taking a turn. What do you mean . Pants,ce pants, yoga stretch pants. We are even talking about what some people call jeggings or stretch leggings. Are people really going to adopt it at the same rate that we would see them adopt jeans . Wearld argue you cant yoga pants to the office, that you should not be wearing them to a meeting. Shouldnt. With the we see a lot of people wearing things they shouldnt wear come anyway. Its like they dont look in the mirror before they go out. Weve entered a time that we have gotten so casual. Flying on the plane yesterday, i counted how many people were wearing fleece or pajama pants and traveling like this. It is gone so casual. People look like theyre are on the weekend all the time. Inthese things do work cycles. But sometimes the trends come to an end very quickly. Casual1990s, it was friday. Then quickly on wall street, it became casual every day. All of a sudden, it seemed people were wearing suits again. An isolated example. Wall street. At a good happen elsewhere. At what point do people finally looking theo start mayor, lets analyze, oh, my toure isir juicy cout inappropriate for the workplace. , it is about recognizing something that usually percolates from a new generation. It is some is like the Younger Generation rediscover the suit. When im teaching class, i sometimes see these guys in suits and im like, what is with this . Theyre dressed better than i am. They say, we discovered it. It is all must as if theyre trying to say that they found a new way to dress. And that starts the trend to begin to develop. Ultimately, the next generation that is a little older than them who drives the trend . Is it the buyers . Obviously, the buyers have to drive the trend. What i dont understand about retail is the sellers, which is to say the clothing manufacturers, the fashion industry, the magazines, and the websites now that form that ecosystem or is it kids, as it were, deciding what they want and ignoring all of that . As someone who worked at bloomingdales for years, we would set the trend. I did tell you, it was 20 years ago. That is no longer the case. Retailers and even designers are rarely setting the trends. This whole activewear centrum, this whole suits for the upper generation this was all borne by the consumer. Now retailers and designers are left to try to catch up and figure it out. That is the big problem with retail right now. Retail is chasing the consumer rather than the consumer following retail. What is the distinction we can see with the highend market and the lowend market . The lowend market, or the commodities side of the business, is still very healthy. That has always been about a replenishment business. You wear it and outgrow it or where it out and need to replenish it. The guy who wears jeans to work and maybe it is a little harder on a product, will keep eating it. Will keep needing it. Back to school, getting new sizes for kids. That business will not change. The commodity business is fairly strong and perfectly safe. It is the fashion side, the consumer saying, do i really want to buy a new smart phone or another pair of jeans that hasnt changed its style or even its finish in the last couple of years . That is a perfect leadin to what people are buying a lot more of. Apparel is up to percent. Smartphone purchases or assess reef are up 32 accessories are up 32 . It says they care more about what they put on her cell phone and their body. It is really about basically saying, i have invested in my phone and im going to protect it. Protectiondevice sounds like something you should by no drugstore, but basically a cell phone case. Hat business is up it is not going away. The consumer is constantly finding ways to protect their investment in their electronic items. What is worse than of pair of sweatpants . Cell phone case. Once we look at the different demographics and the ages, you can see this across the board. It is about millenials driving the fashion business and also the boomer consumer driving the fashion business as well when it comes to the cell phone case business, it is everyone buying it. There were reports that intel may launch a luxury smart bracelet to be sold at barneys, which raises the question, is this the highest market that we are seeing growth in this way . And if it is at barneys, old people . Old rich people. , wearable is technology is something that a lot of people are embracing a much faster rate. We tend to look at the consumer when it comes to technology as the early adopter and then the rest of the general consumer. They tend to be lagging behind, almost by six months to a year. Not with Wearable Technology. We are seeing consumers willing to embrace it, but it has to be a product that does more than just one little application. Do you see Wearable Technology transcending the fitness world . Most of the people who put on afitbit or whatever apple may come up with come are interested in a because they want to track fitness. If they are not tracking real fitness, pretend fitness. When the secondgeneration of this technology for accessories kicks in, that is when when it really does replace some of the features your phone has the ability to do or it can then make your life better, go beyond just being a fitness peas. We all know not everyone is a fitness fanatic. In many cases, just think about it, and more people own a treadmill that dont use it then do. People still have treadmills . How do you think the wearable market could end up being . I think it will be one of those few things that technology is going to be able to embrace for a short period of time. It is not that far away. I have to get some wearables t iphone case ou and some yoga pants. Thank you so much, Marshall Cohen of the npd group. When we come back, one Way Companies are just like people. Many are looking for the Perfect Match. We will meet the man behind an online m a site. You are watching Market Makers. One a date . Go online. Want a merger . Go online. M a has gone digital. Bringing together buyers and sellers of whole companies. We have the ceo of intralinks. Ron, Online Dating for companies. Tell us how it works. It sounds pretty exciting. The way it works, it is a simple process. It is a Global Online platform for matching the buyers and sellers through their advisors. It makes the entire process much more efficient in the way we connect up all of those parties because we have built a qualified community to bring everyone together. Why advisors . If im hiring an advisor, it is because the advisor knows other advisors in the business . They know what is for sale . Estateike hiring a real agent. The Real Estate Agent notably knows what is on the market and saves me from having to find myself. I would you want advisors and not ceos or chairman of the board . It doesnt really change the process. What it does is be that the process. The key is, when you have worked hard to build your business the way you want to build your business, youre going to go to our key m a advisor and you said advisor because they have a big rolodex of people they can reach out to. What we are doing is help speeding the process along by connecting different groups of , as well asellers the heads of Corporate Development offices. We bring them all together through this process by allowing them to connect and filter who sees which deals on a secure basis with complete confidentiality into a community of people that are m a professionals. That speeds up the process. What is your average size deal, ron . They range from earlystage companies all the way through to very Large Companies, and hundreds of millions of dollars in deal size. I think what is very exciting what were seeing and the deals and the way their building at this point is our inventory that has built up inside of our platform has are ready grown to over 100 billion of deals now inside of there amongst the professionals to share. What about the buyers . Are they looking for specific type of deal, certain industry, certain market cap . Yes. Great question. The way the platform is constructed, where the Largest Global platform in the world for this type of relationship connection. What it does is allow the end user who is selling the company or by to set a set of filters to choose which size companies i want, and how those companies or revenuerom ebitda perspective. You run those filters. A great example of that would one of our customers who has used the platform is a benchmark international out of tampa. What benchmark did was help sell a company. One of the things they wanted to do was bring a competitive tension into the game. When they did that, they set their filter, set up what they wanted to show, got outreach from over 150 advisors within to 150 they had matches different players. The connection made a relationship broke ventures who ended up being the buyer of the asset. According to brooke ventures, they improved the productivity by 30 because they did not have to sift through as much. You can see how the buyer and seller come together. With a more expeditious process. Ron, how does it make money . Great question. What is really important to us is the advisor, as a highlighted. We charge annual subscription fee to those members. It is an exclusive community that we want to maintain. We dont want to have any transaction fees. That is really critical to our model. It is really a subscription model as we deliver the service. How do you get people to come back . With onlineissue dating service, once they hook up, they dont need your site anymore. How do you do it . Were glad to see the marriages happen and they dont come back. That is on the transaction, the deal itself. But there are matchmakers in the world. A you think of us as matchmaker, there is always a role for the matchmaker. Were helping the advisor the m a advisor, make more matches. That is what they do. They are the matchmaker. Were getting this tool to enable them to do that. What weve seen, we are literally seen the count of deals double in the last year. We are really seeing an uptick in the number of deals falling into the platform that is helping the m a professional perform better. That is making more matches happen. It,s the way you describe youre speeding up the m a process and making it easier, faster him a cheaper in some cases for advisors to do this work, possibly putting some Investment Banking analyst out of a job in the process. If all of that is happening, the logical conclusion should be because youre saving time and m art him in a few deal fees go down. Our job is just to make the much happen. No, no, i really is not for you. But that is what technology is supposed to do, right . Make or productive and ultimately reduce the cost of a high touch business. So if this is happening, if Companies Like yours are successful in making that job easier, the m a advisors should be cutting their fees. Yeah, i think it will make for a more productive environment and the m a advisors should build a charge appropriately. As you know, that part of the market and midmarket and down has been growing the number of advisers and the number of deals down in that part of the market. This will make for more efficient process. Your point, it may make for more competitive process. Thank you for being here this morning. Coming up, rahm emanuel bets big on big data. We will hear from the mayor of chicago, next. The city of chicago is betting big on big data. Mayor rahm emanuel has given the greenlight to project that will install metal sensors on the city street traffic pulls in order to collect data on air quality and the weather but it also has some privacy groups concerned. Chicago may be the second city, but it is the first to launch a permanent infrastructure to collect big data. This network of Environmental Sensors will measure temperature, humidity, light, sound, and cell phone signals. All from these metal fixtures mounted on lampposts along the famed Michigan Avenue as well as in other locations. The project is being dubbed chicagos array of things. The city of chicago is quite large. It stretched along the lake. We will have much more precise to vitor data, which will help us to things like perhaps salt the streets more effectively depending on where temperature is faring. The city has ohs have the data. Im not sure they always used it to figure out how to govern better. The first will be installed this fall with 500 sensors in place over the next two to three years. Certain data and realized you could do something on a proactive rather than reactive basis. Get ahead of it. The city is concerned about its architecture, it was important we make sure that we put up something that is aesthetically pleasing. The inside is comprised of primarily commercially available components. We did not want to create something that wasnt sustainable or repeatable by other cities. A lot of the Technology Components inside can be purchased offtheshelf. To make chicago cleaner, more efficient, safer place to live. Analyzing time, place, trends in crime. Sometimes the record of government trying to work with technology isnt always sterling. How do you try to make sure that you dont wind up in a situation like that . Fair enough. We set the requirements, but allowing experts in the field to produce the technology. The city is setting the stage for innovation and then getting out of the way. This do Hightech System does have some privacy watchdogs concerned. The data will be open to the public and the software and hardware will be open sourced, too. So both developers and watchdogs will have access to the information. But what is the citys take on those concerns for privacy anonymity . You have to balance those. That goes without saying. Were trying to be more transparent. Data in chicago. Big data, big city, big windy. I would to school there. It is very cold. It is open sourced. You have to worry about Cyber Security and hackers as well. Governments efforts to do things that are at the cutting edge of technology havent always been the best. We will be back in a moment. Coming up, does the world really want a larger ipad . We will find out in a few months from now and maybe sooner. Live from bloomberg World Headquarters in new york, this is Market Makers with Erik Shatzker and stephanie ruhle. Apple coming out with the largest ipad ever will that be enough to stop the tablet sales slump . Not all of House Speaker John Boehners opponents are in the democratic party, some are just like him, a republican. Around the world, growing demand for toptier hotels. We will talk to the ceo of hyatt. You are watching Market Makers on Bloomberg Television. Im alix steel in for stephanie ruhle. Time for the newsfeed the top business stories from around the world. Is underanager investigation for negligence stemming from when she was the french wine and semester and allowed arbitration between a businessman and state owned bank. The businessman ended up being awarded about 500 million and she says the accusations are without merit. A group of harvard alums is protesting the amount of money the schools endowment pays its managers. Harvard paid 130 million in compensation last year, more than twice what it paid three years before. The alums point out harvards endowment still has not bounced back from the financial crisis. Bes years aja deficit will larger than expected because of weaker Economic Growth. The shortfall will be 506 billion for the year ending next month. Its still the smallest since 2007. What does the fed do when it is done with quantitative easing . Eventually it will have to start raising Interest Rates will stop fed chair janet yellen and other policymakers are concerned about job growth, and so may be reluctant to move quickly. What is the right move . We are asking president george w. Bushs chief economist. Right now, he is the dean of Columbia Universitys business school. You have some concerns about the exithe fed is handling the from unconventional Monetary Policy and what should be on the mind of janet yellen and other policymakers. Share those thoughts with us. I think he fed is rightly concerned a lot of people left the labor force. To that, i would say i dont think Monetary Policy is the answer to getting it back. Exitd is the timing of the. I think the economy is recovering, the labor market is recovering, even though we have a low Labor Force Participation rate. I think the feds exit will happen faster than markets thing. What do you think the conversation needs to be between the fed, congress and president obama . That is a great question. While the fed does not have much or it can do, theres a lot of fiscal policy could do. Tax reform, trade reform, that would enhance growth. Low incomeincomes of americans with the itc reform. These are big things we could be doing but they are not in the feds wheelhouse. That leaves us with a big problem. We both know that congress has not been willing to take up any of those issues. It doesnt appear to be willing to take up those issues anytime soon, before the midterms or after. We will have to see what happens in november. Absent movement by congress, what choice is janet yellen left with . I do think after the midterms, theres good chance for congressional action. Whether congress and president obama agree, is another story. The fed is not able to pull into many more people from the margins of the labor force than it has done right now and it runs the risk of ms. Allocating credits. Has donetely, the fed what cam. Is the fed ms. Allocating credit right now or encouraging the misallocation of credit . While Interest Rates are very low, its good news for Large Companies refinancing their debt or for the government and wealthy households. The many households cannot borrow anywhere near this rate. Certainly entrepreneurs and Small Businesses cannot. The fed is aware of this but thinks its in the interest of making the Employment Situation brighter. If we look at the whatloyment rate, ill literal level at what literal level doesnt become an issue and force the feds hand . Within a year, we will be at the lower bound or below of what the fed even says as the natural rate of stop we will be in the low fives in a years time if we keep that job creation at its present pace. The fed will have to ask and i think the fed will be acting 2015 because wage pressures will be building. Even though there is a legitimate problem with low Labor Force Participation, thats for the president and congress, not the fed. What about the feds dual mandate . Janet yellen and any other policymakers have an obligation to prevent prices from rising too quickly and also stimulate job growth. As long as that remains a mandate, mustnt they do something, take some action to try to stimulate job growth, ofn if we are in a situation limited effectiveness . The chair pointed to that on several occasions in her jackson hole remarks. The lack of efficacy at the margins of fed policy to move job creation, i dont think its eating at the dual mandate i think we are seeing more of a debate around the Federal Reserve around these moves and i expect the fed to change course in early 2015. That the you mentioned onus is really on fiscal policy but what has been the relationship between the Federal Reserve and fiscal policymaking . The Federal Reserve is independent, but fed chairs have in the past comment on fiscal policy. When Alan Greenspan was fed chair, he commented on fiscal policy often. Did anyone listen . I think they did. Its important for the fed to talk about macro effects that other him or her and i think chair yellen would be well within her bounds to call for fiscal policy. Yellenou think janet believes in the nonaccelerating inflation rate of unemployment . If so, where would she put that number . The feds staff but that number in a range from the low to mid fives will stop that is why we will within a years time be in that range will stop i think chair yellen is a very datadriven and good economist. If the data play out in the way i think they will, her hand will be forced. I know you think the fed is going to raise Interest Rates in 2015. Forgive me if i missed you saying it. If you are there now, would you be raising Interest Rates today . The question were today is more about communication. Fed has to explain exactly what its looking at they have talked about a 19 factor model. Its too complicated unless you are asking the public to focus on a single index. Step one is communication and step to his execution. Many . Are 19 factors too it seems like the fed is dammed if it does and dammed if it doesnt. If it takes to big and approach, relying on the number of jobs created every month for the revisions or the Unemployment Rate, any one of those things, it will be criticized. I feel the feds pain on this as an economist. Andything you said is true it was true when chairman bernankes talk about the Unemployment Rate alone. , but 19 way too limited is way too big a number. It puts most of the weight on a few variables. Reallyout what you are looking at and give the public a sense of a glidepath will stop the fed has not yet done that and i think it has to do that before raising rates. If we continue to see nothing you think wess, do will start hearing different communication out of the fed . Overtime, the discussion of what more Monetary Policy can do, even if congress doesnt act if Congress Changes composition this november, theres every chance there would be legislation placed on the president s desk and it will be up to him to decide. He mentioned the need for the fed to communicate a glidepath. Why is that a concern right now . If you were to look at the way the markets were performing him if you look at the text income market or we look at the stock market, the s p 500 surpassing 2000, it does not appear as though Financial Market participants are all too concerned about the shortterm direction of Monetary Policy. Market participants have in mind their own glidepath. I think the fed is going to shift that light path and until the fed communicates the earlier the fed communicates what it is doing, the better. The problem is there is a range of opinion out there. There are some people who agree with you, the folks at blackrock think were going to see the fed move early in 2015 and there are like Goldman Sachs who think the fed is going to move considerably later in the year. Because theat fed has not communicated that effectively . The fed could limit the range. The fed is still trying to its not all janet yellen, its a bunch of talented people in a talented staff. The sooner, the better. Havent we seen a lot of janet yellen . We hear from her all the time. Why havent we gotten that clarity . I think we hear a lot of fed officials and its not uncommon at points like this in the economy. What i suggest might be helpful is crystallizing more clearly exactly what the feds goals are. When i listen to chair yellens speech in jackson hole, i was left with the question of what does the fed want . If you cant answer that, its hard to communicate. We also heard a lot that if this happens we will do this, if this happens, we will do that. Isnt that fair when we are in a difficult Monetary Policy environment . It is true you want to make sure the fed has some discretion but you also want to know where true north is. Quickly and answer clearly, when do i know i have one if i havent made the communication . Quickly before we go, the fed has faced all manner of criticism in this post crisis time for the choices that were made, the choices that led us to. Nconventional Monetary Policy unconventional Monetary Policy is almost over. Can you say whether it was successful . I think we owe the fed a debt of gratitude for the early actions in the crisis, particularly its intervention and mortgagebacked securities market. Lately, rounds of quantitative easing have not had the effects they had early on, but that does not mean the fed was not important early on. Doddfrank limits that ability to act in ways that are not entirely productive, but i think we should give the fed some points. Glenn hubbard is the dean of Columbia University business chief and former economist of george w. Bush. One more thing a washington get to focus on now. Aming up, does the world need 13 inch ipad . Apple hope so. Will00 a night is what you pay to stay in new yorks luxury hotel. The ceo of hyatt will be with us. You can find all of our stories and interviews at bloomberg. Com, us asr tablet and find well streaming on apple tv and amazon fire. Its time for some top tech and media headlines. Tripled lastprofit quarter. Alibaba is just a few days away from the roadshow for what may be the biggest ipo in u. S. History it could value the company at 187 billion. Snapchat is getting a new round of funding that will value it at 10 billion, more than triple that facebook offered to pay last year for the disappearing message up. Disappearing message app. The fight between Ridesharing Services or at lift is getting nastier. The online tech site the verge published what it called internal emails and documents goober is trying to undermine lift. Hundreds ofceling lift rides. Apple will roll out a new and bigger version of the ipad to go along with the your version of the iphone. What will that be enough to jumpstart sales . Cory johnson is again with us in san francisco. Who is the target market for these larger ipads . 12. 9 inches thats 30 larger than the ipad right now. Artists, graphic artists using it for illustration, you can imagine spreadsheet of zest people like me lugging around the big ipad. Why dont you get a bigger computer . I think thats the point. What we are seeing is the effect the tablet is having on the pc market is that its not getting rid of it, but it is slowing the purchase of the pc. They can get this device into places where they have not been able to sell macs but they can get into computer sales next year with this device. Are we talking about the enterprise segment . Enterprise . Tarship american businesses and global businesses where the company has had limited success penetrating and seems to be the inspiration for its recent partnership with ibm. And steve jobs returned to when, iany, way back think he finally save the company from this decadelong discussion of what is apple going to get into businesses and enterprise. They recognize there are bigger markets and outside the world of business and now we see apple getting some gains. Forget the pc. The computing happens in the world happens on smartphones much more than pc and we see the growth of that operating system, whether it is on the phone, on the tablet and we also have to have the pc and macintosh. Apple has gotten into the enterprise and businesses all over the world. The increasing factors of the phone and then the ipad next year opens up new opportunities for them. It will be interesting to see whether a bigger iphone means people have interest in a bigger i had. Was steve jobs wrong . He believed a single form factor was all anybody needed. It was going to be a 9. 7 inch ipad and a 4. 5 inch iphone. Thenow the world likes larger iphone even though it feels like a piece of toast, and a so far like the idea of a smaller ipad. We will find out if they like the idea of a larger ipad, but it emphasizes the point that multiple form factors seem to be with the consumer demands will demand. Consumer he basically said were going to have four products four for markets and that is it to simplify whats happening in a company that is very confused. One of the hardest things apple faces in a poststeve jobs world is the ability to go against steve jobs. He could contradict himself all the time and he did, but going against the tenants he left behind will be a difficult thing for this company to do. We will see how many multiple offerings they have in terms of size when this thing is released next year. What part of this is trying to cater to the asian consumer . You could argue the larger iphone screen is for asian consumers. I think apple is being reactionary at some level. They have seen the success larger phones have had, particularly in asia. They were insisting they were not going to go bigger and now theyre going bigger both in terms of the phone and the ipad. Its a very different platform and we will see how it might work with a keyboard or other innovations that might come with the device. Yesterday for patent that would allow a response where you could touch buttons on a single glass screen and feel the reaction as you touch the button and that could be part of this next roger. What are the margins like for bigger products for apple . We fundamentally do not know. Margin get a lot better over the lifetime of the product and that happens faster and faster. We will see. Thank you, cory. We will see you in a few hours for bloomberg west. Coming up, the soaring demand for luxury hotel rooms. How come the demand hasnt reached the big apple . We will ask the ceo of hyatt hotels. Coming up, is there too much room at the inn . There dozens of hotels set to open in new york the next couple of years. The ceo of hyatt will be here. A Speaker John Boehner is keeping an eye out for potential threats as far. Chances are hes looking right over his shoulder. Live from bloomberg World Headquarters in new york, this is Market Makers with Erik Shatzker and stephanie ruhle. You are watching Bloomberg Television. Ais is Market Makers. New highend Luxury Hotel Just opened its door and rooms at the park hyatt average about 900. Forget 1000 thread count, we are talking underwater cool speakers that pipe in music from Carnegie Hall, because who doesnt need that in their hotel room . The ceo of hyatt hotels joins us now. We have an exclusive heat. Ryan miller covers lodging for bloomberg intelligence. 900 is the average, 1295 dollars is on the high average on the high end. What do you get for that . Is a magnificent property. I spent a lot of time going through the final four opening on x. There are many unique attributes. You mentioned the music from Carnegie Hall in the pool. In the gym, looking out over central park gives you a sense of place. These are experiences that do that. Most importantly, its the warmth and care of my colleagues that will differentiate this property. Its not just another luxury hotel. It will be somewhere where you get a sense of character. New york is a big market. Theres a lot of supply that has opened recently and that will continue to open over the next couple of years. Is this more of a longterm play . Is there a reason this rant is positioned for this city . This is emblematic of our growth land. Growth plan. When we went public, we had one property in new york city and today we have eight under development. This was a very focused plan to go to grow. The part are and is gaining artntum in this means Global Customer base is coming to new york more and more. Does that mean the you were underrepresented in new york city or that new york city represents a better prospect than other growing Global Cities like london, shanghai, singapore . Both are true. We are underrepresented and thats one of the things were doing now, making sure we get rate representation where we would make the best impact to our guest rate. The supply you mentioned coming into new york is not fit to be measured in the coming couple of years but the coming couple of decades. This is a city that is extremely vibrant with a taurusbased that will continue to support our industry in a significant way us to based you want to own you own three Luxury Hotels in new york city. You put a lot of money into developing these properties and are sitting on a large amount of ptsd. Is that something youre looking to do vast, like the park hyatt . . Ust manage the property what is ptsd . What is pt, ande. Act to in been an selling hotels we own, freeing up that n investing in other hotels. In that category, weve done 5 billion of transactions and we have been very active and will continue to be active. We do not have any current plans to sell the park hyatt new york. It eventually you will recycle that capital . Consistent with their strategy, that would be available in the future. What is your return on investment . It seems like it was 2 million a room to make this highend luxury. Rate of return in the high singledigit ratings singledigit range. Iconic openingy and location with i think what will prove to be a timeless and iconic hotel, thats a very good return from our respective. At the postipo, asiapacific is a big region and you are doing a lot of stuff in china, india and japan. When you look at that market, would you say its similar to new york . Are you looking to do Something Different just because the market is different . Asia is a big place. Tokyo is celebrating the 20th anniversary of the park hyatt which was made famous by bill murray in the movie lost in translation. Has helped define the brand or asia. Hyatts underk development, asia being a key area. We think the park hyatt new york will do very much the same for its a anchor hotel for the entire region . Correct. This is clustered around the highend and luxury upscale. How long is that going to continue . I think there is a lot more growth ahead of us. We have a cycle that has been relatively slow and steady as robust to rapid and very at the get go. We see an evolution of transient travelers that have been driving demand and now we see larger groups and associations driving that which will last for several years to come. We have visibility into the booking curve going toward. Fromverall Industry Growth 2007 2 this year has been Something Like 12 but luxury has grown by 30 . There is great momentum in that segment. Why is that . The easy answer would be the rich are getting richer, but it is it but is it that simple . Populationa growing of business travelers around the world. Do business travelers stay in Luxury Hotels . Well companies spend 900 a night to stay there . Yes, at the top end of the echelon him yes and other individual travelers from different places around the world, its become much more of a global marketplace and new york is one of the key destinations for that. Business, how closely are you tied to the Overall Health of the economy . You talk about having a good view for the next couple of years. Is that a variable based on how the economy does overall . Are dependent on a healthy aonomy and the u. S. Has been source of stable growth. Is the totalng supply growth has been very modest will stop we havent seen that many new hotels in gold. New york is seeing more supply growth because there has been high demand, but overall, if you look around the united states, supply has been modest. Assuming that will grow as the luxury market grows . We will clearly differentiate ourselves to be the best luxury hotel in new york. They dont have the benefit of all my colleagues. They bring themselves to what they do every day and thats why were so confident and what we are doing. We will be benefiting from overall growth in that segment. Big thing for investors is return of capital and giving money back. Spend a lotp, you of money on capex. You do shared buybacks. What is the longterm plan . You have a plan to grow profits to over a billion dollars. You are talking about incremental 300 million. What do you want to do with that . Of having the benefit a robust balance sheet, the strongest in the industry. We have a large Property Portfolio and our intention in practice over the last several years have been utilized a invested in those assets and recycle it. We are selling properties and investing in new properties where we can benefit from growth in key markets. We have a cash flow positive business and have been able to sustain that as we grow. We are going to do both and have demonstrated that over the last several years. Really interesting conversation. Thanks for being here. Ceo of hyatt hotels, thank you for talking to us. Coming up, John Boehners they get challenged, fellow republicans could prevent him from other turn as speaker of the house. Republicans are confident they will hold onto the house this coming november. The prospects are less certain for the speaker of the house, john boehner. Some of his biggest critics and the gop are headed back to washington and it looks as though they are bringing reinforcements. Peter cook has more. It seems for a time as though John Boehners job as speaker was in trouble. Is it about to get tougher . Here is the reality john boehner republicans look like theyre going to an house but that core group that has given him some any problems, theres a good chance based on the numbers right now that group is going to get larger. Youve got 10 of the 12 House Republicans who did not support him for speaker back in january of 2013 cruising onto reelection. Two of them who are not in that group chose to run for senate. That, the on top of prospect of new republicans running for congress now. As many as it doesnt have said they are not prepared at this point to commit to support Speaker Boehner if they get elected next year. That means you got a core group of republicans that is growing and threatening to put John Boehners grasp on the level somewhat in doubt. Confident he still will be speaker next year and hes got the support of his conference going forward, but the headache for john boehner, its like herding cats on the hurt is about to get larger. Ive got three cats and i appreciate how difficult it is to herd them. For him tolt is it do business with republicans at the end of the day . A lot of business groups spend money trying to help john boehner out in this Midterm Election and targeted people like walter jones. They backed other challenges other challengers and did not succeed. So we have to question if that money was well spent. Its going to be harder on issues like the debt ceiling. That may be the big test vote. There is a vote for speaker in january and then in march, we could see another vote for the ceiling and that may be when his hold on the gavel will be put to the test and we will see if theres a major or expanded civil war and the house. Some of the opposition to boehner seems to be directed at aynor himself. Some of it is just a general issue that Tea Party Members and other newer members of the house have with the republican establishment. Mcconnell, the minority leader who wants to be majority leader of the senate says if the republicans take the senate, hes going to hold the attachnt hostage and amendments on obamacare to must pass spending bills. Does that help or hurt boehner . We will see exactly how that plays out. Mitch mcconnell has walked that back somewhat during his campaign, but if theres a republican senate, it makes John Boehners life easier. Hes not constantly being bottled up by harry reid, so in a sense, that would be a plus for john boehner and could satisfy his conservative is conservative critics by achieving success to a greater extent than he has so far. But it will be hard because hes got a democrat in the white house for the next two years and the challenge for john boehner is dealing with recalcitrant republicans in his ranks that dont want to see anything move with regard to spending issues. Its going to be just as much of a challenge next year. That is our chief washington correspondent, peter cook, with the outlook for John Boehners job not getting any easier. Coming up, he says its time to put carl icahn on ice. We will tell you about the wall street executive who challenge the activist investor. The ice bucket challenge has brought in millions of dollars of donations for als and now it is moving markets. Have a look at this a spike in the shares of herbalife happened earlier this morning and here is what is happening this is unusual. Jeffreys ceo rich handler took the ice bucket challenge himself and laid down the gauntlet to none other than Hedge Fund Billionaire carl icahn for getting down to business. Icahn. Allenge carl [indiscernible] the full body ice at the challenge. Here is the response from carl icahn to rich handler, we will get back to shortly on the als challenge but right now, too busy working on a big deal with another investment banker. That is when the herbalife shares popped. Youve got to love that. I love the fact that rich handler challenged carl icahn and i love the fact that carl icahn responded via twitter and i love the fact that some people reason to buya herbalife shares. Thats the crazy part. All the sudden hes working on a has held on stock and sustained those gains so. Hat herbalife is up 3. 72 unbelievable. I hope they donate everyone. Point well taken. That doesnt for Market Makers but money clip is next is up next. P theres a lot going on in france with the shuffling of the administration. He is taken out the naysayers and filled his cabinet with yes men. Maybe that will help will stop Christine Lagarde of the imf is under investigation. The drama continues there. Dsk drama. D as the we are going to talk about that and we are also going to talk focus on this exclusive interview we had with rahm emanuel. Chicago is the third biggest city in america and it has 8. 4 unemployment. Our managing editor sat down with rahm emanuel. Im going to focus on motorcycles. Indian motorcycles. I would not have thought that. I talked to the guy who runs indian and victory. I think its an incredible manufacturing story in america. Thestock is up 670 over past five years, so we will see how they do it. How many motorcycles do you own . I currently have four but im looking to sell at least one so i can pare it down. Clip was quoteey coming up at noon with matt miller. Tomorrow, we will be talking with one of the worlds most Successful Hedge Fund investors in the financials. The last word on banks. Soit is 56 past the hour, that means its time for Bloomberg Television on the markets. Stocks fluctuating right now a day after the s p closed above 2000 for the first time. Rose, pushingnds things to record lows. Joining me is the chief options strategist at bar chart bowls bar chart old i options. As we watch the Market Action today, you are watching options on the dow. 3 , so it has lagged behind. Targeted to move about 5 higher from where we are now all stop there are some dow laggards. The ge stock yesterday had a big saw in options where they 21,500 september calls. That has a breakeven of about 2. 5 higher. If someone is alleged on ge, even though the stock is down 7 come in the worstperforming dow stock. I want to turn to pfizer. Deutsche bank raising the stock to a by, rating it a new by, one day after they announced they were teaming up with work on a lung cancer study. Are we seeing some bullishness there when it comes to pfizer . Else care has already done very well this year. But pfizer has not. Stillr to date, there are 10 stocks in the dow 30 that are negative on the year. Pfizer is a good value. People were looking at the 30 calls today. More novice trader buys note a professional does buy a 3000 lot unless they have a good idea the stock is going up. Look for pfizer to get up above that 30 level, so thats a strong indication may be a bottom is in play. I am curious pfizer is one of the stocks or health care more broadly are some of the stocks that tend to underperform after rates start to go up. But this is a shorterterm call that maybe doesnt take that into account . I think that is in the near term those front dated options. I like pfizer in the big picture and im looking at the march and april options. Has more upside potential than a lot of the bio stocks but they could sell off at any time. Will have more on the markets in 30 minutes. And video and business news. I am matt miller in for adam johnson. Here is the rundown in nation, an exclusive interview with chicagos mayor. What he is trying to do to employment inost the u. S. Housingg the u. S. Market, we will hear from zillow on the issue. With a ceo onive how he expects to find