Transcripts For BLOOMBERG Market Makers 20140923

Have it their way and others as well. It ministration crackdown on companies that go shopping for foreign addresses so they could cut their tax bills. Light at the end of the tunnel. That is what the investor will ackerman may be seeing. Against herbalife, turning out to be a winner after all. You are watching Market Makers here in new york city. Coming off an extraordinary day yesterday. And influential summit but a lot of news today. United states and arab allies have taken a fight against the United States to a new level. The first time they attacked extremist positions inside syria. Fighters, bombers, cruise missiles, more than a dozen targets. The u. S. Was assisted. To hear from the president himself in the next few minutes. At the moment while we wait, peter cook is with us here he is at the white house. Peter, what is the president going to say . Is that the president to really hit on three things, that he has delivered on his promise to go after ices, even if it means going into syria. Withhave done that now widespread airstrikes over the evening hours. The second thing you will hear the president say is stressed that the u. S. Did not do this alone. There were those five countries joining along the United States. Some of these countries had aircraft flying alongside u. S. Aircraft. The other thing you will hear the president talk about is the in the overnight airstrike, and that is the new target, this separate Extremist Group separate and apart from the Islamic State, that the u. S. Targeted because there is an imminent attack being planned by this group, an attack aimed at the United States and other western interests. Language we have not heard directly before. I expect the president to touch on that shortly before he heads to new york. Any significance to these strikes beginning just as the president heads to the u. N. For the annual assembly . Click certainly come a couple of things there at he is taking the action without getting you an approval. That is significant. A reason he is doing it before he heads to the eu. He is going to United Nations to suggest other countries stand by his side as other countries have done in the last 24 hours there and this is a president going into feel like he did not need the u. N. s permission, but he is looking for support from the u. N. And other World Leaders. I am not sure he will get that from everyone around the table, rush among those are already critical of u. S. Action. Lets for a moment talk about the group, these al qaeda fighters who are in syria, but not allied with the Islamic State here it the administration has talked about this group. For most of the month, what they are going to target. It is a small group, as far as i veterannd, made up of outsider forces from afghanistan and pakistan. The leader is one of the handful of people who knew about 9 11 before it happened. He was 19 at the time. He has risen inside core al qaeda. Today, hes in syria with veterans trying to recruit western jihadist. A very valuable asset. It seems like there are so many different groups in syria. How does the military even differentiate . I would not want to be involved. A very difficult job. You have assad regime and their support and people like hezbollah coming from lebanon. Then you have the Islamic State and many dozens of smaller groups that all operate inside highly militarized systems across the country. Some of the attacks overnight very near the turkish border, there is evidence that casualties resulted from that. It shows how complex the situation is at the moment. Locals there are saying these must the western strikes. They might not be. That is right. Confusing is an understatement. Let me put the question to peter. Assad regime, opposed by many of these rebel groups in serious had warned the u. S. And its would that any incursion be considered an act of aggression. What happened . Givehe u. S. Government assad regime some kind of warning . It gave them notification it we learn from the state of armored this morning that the u. S. Ambassador to the United Nations did tell the syrian delegate to the United Nations syria representative that the u. S. Would represent these strikes and that syria should not respond with antiaircraft fire. He did not ask syrias permission to do it. It was simply a notification that these airstrikes were about to begin. There was some communication but the administration being very careful to point out it is not coordinating or collaborating in any way with assad regime. What is the point where the goal of a notification . One is to hopefully prevent the Syrian Air Defense forces from firing at the u. S. Airplanes because they do have significant air defenses around syria, particularly, stephanie, in the northern and western part of the country where the u. S. Forces went after the group, a separate part, whereas the other airstrikes basically centered around the eastern portion of syria. There were concerns about the syrian antiaircraft fire. Whether or not there was much resistance, we have not heard from Central Command yet. It sounds like we got back safely. We recently heard from the Associated Press reporting that the iranian president has called these strikes illegal. Not a surprise. They have been a big supporter of assad over the years. Russia saying similar things that this would only exacerbate syria and make things more competent at. Saying, you know what, we are not comfortable going to syria. We think it is a violation of the turn in natural law. National law. An additional complicating factor is the rule that the role iran could play in helping. In a sense, you will see them on both sides of the conflict. It is very complicated. Indeed. Thank you so much. Our chief washington correspondent, peter cook, in d. C. I suspect peter we may hear from you later. It is time to give you the newsfeed top business stories from around the world. The crackdown on socalled tax inversions being felt in stocks this morning. Jack lew imposed new rules that may make Companies Think twice about getting a foreign address to pay lower taxes. Shares of Companies Involved in potential deals were lower at the open today. Among them, burger king. Apple is denying a report that it plans to shut down music. Apple acquired a streaming service when it bought a company cofounded by dr. Dre. According to a person familiar with the matter am apple puts beats music under itunes branding. Issue maker plans an ipo in london as early as next month. Larger Luxury Companies such as product have been hurt recently in a Slower Growth environment in asia. Folks, the president is on the verge of ordering marine one, a helicopter that will take him from washington dc to new york city for the u. N. General assembly. We expect him to make remarks about those coronary coordinated strikes and we will bring it to you live. Plus, it has taken a while but bill ackermans that against herbalife may be starting to pay off. President obama speaking about syria. Lets listen. Our men and women in uniform, including the pilots who flew the message this mission with courage we have come to expect from the finalists the finest military the world has ever known. I outlined earlier this month our strategy to confront the threat by the terrorist group known as ice isil. The United States would take action against targets in iraq and syria so these terrorists cannot find safe haven anywhere. I made clear america would act as part of a Broad Coalition and that is what we have done. Byare joined in the action our friends and partners, saudi arabia, jordan, and guitar. Katar. Proud to stand on the shoulders of these nations in security. This isear to the world not americas fight alone. Among all the people and governance in the middle east are rejecting isil and standing up for peace that the people in the region and the world deserve. Meanwhile, we will move forward with our plan supported by bipartisan majorities in congress to ramp up our effort to train and equip Syrian Opposition for the best counter to syria and the regime. More broadly, nations have offered to help in the comprehensive effort to confront the terrorist threat, take out terrorist targets, train and equip iraq he and Syrian Opposition fighters going up against isil on the ground, to cut off isils financing, cut up hateful ideology. Last night, we also took strikes to disrupt plotting against the United States and their our allies against seated. Easoned groups in syria it must be clear to anyone who would plot against america and try to do americans harm that we will not tolerate safe havens for terrorists who threaten our people. I have spoken to leaders in congress and him please there is bipartisan support for the actions we have taken. America is always stronger when we stand united. That unity stands sends a powerful message to the world that we will do what is necessary to defend our country. I will have the opportunity to meet with the Prime Minister of iraq and with friends and allies at the United Nations to continue Building Support for the coalition confronting the threat to our peace and security. The overall effort will take time here it there will be challenges ahead, but we will do what is necessary to take the fight to this terrorist group, for the scary of the country and the region and the entire world. Thank you, god bless our troops and god bless america. President obama making brief remarks on the lawn of the white house before he boards a helicopter to travel to new york city for general assembly. Not taking questions from reporters. Lets take you back to d. C. Where our chief washington correspondent it or cook is standing by. The thrust of the message . The thrust of the message is, once again, delivered on the promise to go after these guys wherever they are, including doing it in syria. Most important way, i stressed the u. S. Did not act alone, that this was a cooperative effort on the range of a bunch middle Eastern Countries that have a stake themselves confronting the threat of the Islamic State. We got the reference to the group. Not many more details than what on what theo word threat may have been in the United States. The president talking about this separate attack on a group in syria. Whole long list of World Leaders he is trying to encourage to join the United States in the effort. He mentioned countries that contributed something to the effort. Perhaps, atlenge, the u. N. But a sense of accomplishment domestically given that he asked congress for the authority and was given it and now moved ahead very quickly with support of arab allies who badly want it. What he got from congress, and you raise a good point, what he got from congress is the authority to train and arm moderate syrian rebels. He did not get a specific authorization for us to launch these airstrikes in syria. You will start hearing a lot more democrats and republicans Start Talking now that the airstrikes have lunch, that there should be a separate vote on a new authorization of force. You will hear that today from democrat tim crane tim kaine of virginia. Another pushing the force that he may certainly win, but there will be healthy debate in congress. Thank you. Peter cook with us from d. C. Outside the white house to request and we come back, we have were talking about authority we are beating on earlier in the year. It looks like waiting will pay bill ackerman. Herbalife is starting to look like a winner. Stay with us. Adam much more when we come back. That and much more when we come back. Welcome back. Jack lew warned he would do it. Numerals were announced to make Corporate Tax and inversion deals less appealing to companies. Smaller foreign firms located in a country with Corporate Tax interest rate. All may now be rethinking their deals. Former ceo of one of the companies with an inversion deal still pending. Now he is a management professor at Harvard Business school and with the was with us this morning. What do you think of the news . I saw it coming. Obama made it clear he would do Something Like this and he has carried through on it now. It will have some impact. A lot is in the details and no one is seeing that there is a 44 page statement and i have not seen it or talk 21. But i think youll have some impact. The deal in particular was done to make very good sense financially. They will have to think through how it can best finance this based on new rules. But there are a lot of problems with this. Goingof all, it is like to the doctor and finally you have skin cancer, so the doctor puts an ice patch an ointment on the top of your hand and with a big and it on it. Meanwhile, cancer is growing underneath it. We have a big problem with taxes. A huge problem. Still 2 trillion traveler receipts. The idea that people will pay this, it is not going to happen. I have talked to a lot of the companies. 160 billion trapped overseas. They will not do an inversion, nor will they bring the cash back. It creates a real problem. We have not fixed the tax code. Democrats want to fix it. We need to get to a territorial tax, and that will put us in competition more competitively with other countries in the world. We are just prolonging the problem and we create a great uncertainty. This is a retroactive situation which applies to deals already announced. That is what theyre trying to pick up. Business people do not like uncertainty roles. You have to tell them what the rules are. Third and most significantly, it makes American Companies worth more to foreign buyers than it does to the u. S. You have seen German Companies buying u. S. Companies. Siemens is buying dresserrand. You have more buying sigma. Three deals going for a total of 33 billion. Theyre worth more than they are in the u. S. This forces u. S. Companies to buy outside the u. S. I do not think it makes a lot of sense there it is a stopgap measure. Bill, a question for you. Jack lew himself, treasury secretary, has said, waiting into this legal area is complicated, his words. This is complicated law. While the treasury has not actually pass the rules yet, and it just served notice that it plans to, it does give some options to a company trapped in limbo here. They could sue the Treasury Department, saying it is exceeding its authority or the way it is attempting to pose these regulations is at odds with the way agencies must act. Would you favor the option . If it were up to you, would you advise met try to sue the Treasury Department . Depends on, what are the rules and how do they come out and how egregious are they . Tax has normally been the province of congress. And were using administrative rules to get around Congress Passes authority here. I would have to see the rules before i could give sound advice. I do not know how much it will actually affect medtronic. They have a lot of finance deals. The test borrowing is less than 1 . I would have to take a wait and see. I would not advise them now until i see all the rules. I think companies will look at the option and there will be lawsuits. I think there will be lawsuits to test the rules and see how they come out. It just creates more uncertainty. Maybe that is what the administration wants there it maybe they want that right up until the election in november. I am not sure but it is not a good ink. If you look, almost all the action throughout the Business Community are punitive. Theyre going after the. Inancial Service Companies they are preventing Energy Companies from expanding and shipping natural gas overseas. One after the other. Everything is punitive, rather than trying to grow our great company. Im in favor of growing great companies. They will actually invest more in the u. S. As a result of the able to do this deal. To be fair, the fact that we do not have comprehensive tax reform is not solely the administrations fault. Ofis just as much the fault the democratic and republican parties in congress, neither of them can seem to get along with have agreed to do nothing of substance, not that they can any longer because congress is in recess. If you are the president , you have chosen to define the tax issue in political terms. You left with . He could go to congress and really work hard to solve the problem. I think it is a problem of congress and we have balance of hours here it that is why, but i think you have got to go in and negotiate. You have got to cut a deal. You have got to cut a deal with the republicans. That is something this president has found unpleasant to do. I agree the republicans have not been collaborative work collaborative either. You have seen people in the senate and i think you can put something together. We have got to dress the problems. Hes German Companies will get a 10 point tax savings right off the top and they can buy American Companies with their own cash. It does not make a lot of sense to me. Youve got to figure out how to solve the underlying root cause problems, which are well known. Thank you for joining us. Harvard Harvard Business school professor. We will be back. Live from bloomberg headquarters in new york, this is Market Makers. Welcome. Heres a question. Whatever happened to the leveraged buyout . ,ergers and Acquisitions Private equity is responsible for just 20 of u. S. Takeovers. Blackstone is the u. S. Largest alternative asset manager. Noticeably quiet. Tony james is at a Global Initiative this morning. Sorry i could not be there with you. Good have you on our show. How difficult is it for a firm like blackstone to do acquisitions these days, given where valuations are, and the surge, really, of strategic deals . The company is buying each other because they have got all of these synergies . Know, we usually find the volume of leveraged buyouts is higher. It stirs the pot. Acquisitions spun off afterwards. For us, a bigger year of putting off private equitys vanity in the last five. The statistics do speak to this. Private equity accounts for just 1 5 of u. S. Takeover activity we have seen this year. Is that to say statistics are not telling us something . The dollar volume is still pretty high because the overall volume of activity is a. Some statistics driving big that are noteals private equity type deals in any way. 10, 20, 30 billiondollar takeover, we are out anyway. Market to place small takeovers as a rule. Putting money to work, you have so much dried powder. Dried powder,t of but it has broken up a lot of businesses. Some of it is in real estate and some of it is in secretary some of it is in capital opportunities and credit. Only a portion is in private equity. We have got an investment rate plenty high for the amount of capital we have. , itverage, we are probably is probably three years of investment activity, not at all high. This is sixyear investment size. We are going through quicker if anything minutes is dated area it wasnt quite famously a couple of years ago how much better it was to be a seller than a buyer. Has that changed and how does it apply to various businesses lack stone is in . He was referring principally to private equity. You just mentioned, there are a bunch of other things, like real estate, hedge Fund Allocation is this. Credit. Tell us about it. It is a good, market to sell at, but also a good market to buy assets. We are not buying the market and not buying indiscriminately. Businesses by a company or a real estate asset, fix it up and then sell it. We are on a 34year cycle for each investment and we are still into a good assets market today and also, we are finding a lot of things to buy. In real estate, assets shifted from United States to asia. In private equity, it shifted more from industrials in north america to Energy Assets and new bills and things like that, fixerupper is, as we call them. In credit, we sold a lot of longterm fixedrate instruments and moved toward more from floating. It ends on the business, but it has been a good market to buy and sell, ironically. Since the economy has been recovering, is it that easy to buy business right now . Someone might think, i have got to be leaving money on the table. You are nice to say that. I am not sure that is true. It is usually hardest to buy businesses when it is the best time to buy them. I would have loved to, but there just was not that much for so in 2008 and 2009. Why . They were bleeding so badly, they did not want to sell the bottom . They had seen higher stock prices in 2006 at 2007 and the stocks were down 40 and they said, i do not want to sell the price. I want my 60 and not my 40. Now, prices are back up and there are more willing dollars. What we buy are companies that are under managed. We could go in and intervene and fundamentally change the trajectory of a company. We do not pay for that. It is something we bring to the table. We could bring that and create our own value, if there is stuff for sale, we will find things to buy. Lets talk more about the economic backdrop. The u. S. Economy is slowly accelerating. To european economy appears be stuck for the time being. Monetary policy is adjusting accordingly. The fed is withdrawing or at least ending its stimulus policy. Europeans just appear to be getting started. What does that mean mean for blackstone in terms of companies you already own and the ones you want to own . Performedpanies have very well. An economy growing at about 3 , our companies are growing at least twice that on average in revenues. On earnings, maybe three times that. We are blessed by having a portfolio of Companies Performing really well. The economy continues, we will be very happy. We have got good Earnings Growth and we are paying down a lot of debt. We have good ipo candidates. Our positionike now. In europe, it is a little harder in the sense of, i think the economy will be much lower for a long time. They have got the challenges america had a few years ago and then some, with a weaker banking system, the structural euro, and of the ironically, what is happening in europe as economies leak, if anything, the cohesiveness of the eurozone is incinerated is integrating a little bit as you can see from the rise of the nationalist parties. There are a lot of challenges there. Now you have got russia, a big market for europe and the United States, slowing a little bit, and, i think europe will have its challenge. I am not at all convinced the ecb monetary easing will solve the problem. How much longer might it last in europe . Will are we talking about five years, a decade . My crystal ball gets pretty cloudy after a decade. 35 years, i think. That is a long time. Another benefit you have right now, it seems tension runs and endowments have private isity fever and money pouring in. Do you feel you have an unfair advantage . The fact that you have got a 10 year lockup, you are just sitting pretty. Private equity has gotten plenty of criticism as well, as you well know. I do not go it is a public chris is an kind of thing. What is driving that, i think, is the returns you can get in Public Markets from publicly traded securities are very anemic. Government bonds will yield you 2. 5 . Of whatple, most models equity returns will yield over the next 510 years are 56 . If you are an investor, no matter how you mix the assets, youre talking three or 4 returns on your portfolio. What do you do if you are a pension plan and you have to meet tension obligations . Raising taxes and more funding is not a choice. Cutting benefits is not fair to the people who have worked their lives for the expectation. You will have to earn more on portfolio and that is where the earnings come in. One of the things we have been talking about this morning is the announcement from jack lew about inversions. That tax policy does not directly affect blackstone much, if at all. To you pay close attention policy and you are a student of government. Is a wisenk this approach . He are right. It does not affect blackstone at all. Doneof our countries have or are considering inversions. Whether it is a wise approach or not, it is mostly politically driven. Inversions are not the most economic issue in the world but it does not feel right to me or the public. The not surprised government and politicians on both sides of the aisle would want to stop it. The bigger issue, frankly, is the 2 trillion of capital sitting abroad not being what that doese, is incentivizes American Companies to build their plants abroad, not bills in the United States, because they have the free and underutilized capital sitting there. Thank you for your time this morning. I was blackstones president , tony james. Every time we speak to them, i cannot believe how smart he is. He knows about everything. Stop,r guy who cannot bill ackerman. His bill are. Billion dollar debt against herbalife. Maybe paying off. Welcome back. Some breaking news, we are getting new numbers on the severity of the ebola crisis in west africa. The numbers are scary. The centers for Disease Control in the u. S. Say we could see as byy as 1. 4 million chases january of 2015. The cdc says it is taking precautions in the u. S. Against ebola and that it is still possible to reverse the ethnic the epidemic. Complicated spiraling out of control in west africa. Just weeks ago, we were talking about numbers in the low thousands. January of next year. Lets not forget the mortality rate in the ebola is 15 or more. If we are talking about one point 4 million cases, we are talking about 700,000 deaths. Staggering figure. The other thing the cdc is considering, the possibility that if ebola becomes endemic to west africa, that the outbreak cannot be contained or stamped out, if ebola is constantly being transmitted, as opposed to rearing its hideous head for a few years, think for a moment about what that would mean for the west african economy and the livelihood of the population there. It would put a serious damper on travel, corporate. No one will go to west africa if ofre is persistent risk contracting the disease that is so deadly. No other country is going to be looking for imports. A horrifying prospect. Indeed. In july, billk ackermans widely ridiculed presentation on herbalife sent shares up 25 in a single day. After he produced the smoking gun on the company, he promised. Since then, shares are down 40 , including a huge drop yesterday. The question is, is his that so far that he has been losing against so far finally paying off . Covers the company in our atlanta bureau. We were some of the people back in july who were ridiculing him. We said his presentation fell flat and we said youve got the Hedge Fund Manager on every side. In the last two months, this stock has gone down 40 and it seems like no one has noticed . Yes. There is no doubt there is consternation on the side of the lungs. Some of those i talked to say they still believe in the original thesis, but you have got to be nerve wracked if youre looking at the share decline continue on. One of the things we have is a vacuum of information. Ackerman has not made a presentation in a while. Question. Real big what will they do . Until you get a resolution of that one way or the other, you will have a lot of uncertainty. We know what uncertainty breeds. Not always good for shares. Carl icahn is not necessarily underwater yet. What about bill . This is the biggest investment of his life. An extraordinary track record as an insider. What does it mean for him . The states the stakes have been big for bill ackerman all along. Getting bigger and bigger all along. As this stock and sunnis to decline, he is looking at the possibility this will continue for months. It is really not clear how long it would be before the ftc gives a signal, if they give one at all, or whether they come out and say herbalife, as bill ackerman has said. Positiona precarious watching a massive stake he has taken on. And his thesis has been it is not a pyramid scheme. He that everything on it. You spent a lot of time with the company and its reviewers. Do distributors actually watch the share prices and watch bill ackermans presentation question mark it did get 70,000 views. If you are an herbalife employee, do you notice question mark it has been interesting. In a wallplays out street trader sort of environment. The world we all look at. It is a huge story. But out on main street, people do not necessarily know the ins and outs. The distributors now early on, distributors, rarely would you fight one. They rarely understood what is going on there that is different now but not in thing they are focused on in the same way as wall street. You have the story playing out in two different worlds. Im curious to see tulane deck to see what bill ackerman does. The more the trade is in the money, the more it raises a question for me, how far does he want to stay in it . He has told us and the world that he wants to ride the baby down to zero. Is he really willing to wait, if there is so much money on the table . An excellent question. Hehas even said, whether unwinds the trade or not, he will personally continue this crusade against the company because he truly believes it is a pyramid scheme. You would think it would be pretty tempting to go ahead and take your money off the table. We do not fully understand what the trade looks like right now. It has been a while since he has really given an update on exactly how he structures the trades. We know there is a heavy options element as well. It looks like there will continue to be a vacuum of information until the ftc does something. One thing that has not changed with shares going up and going down and presentation is the ftc is the one that will be the final arbiter. Up tove a pyramid scheme some interpretation and a Business Model from herbalife that is left to some interpretation. Who gets to decide that . The ftc. Carl icahn has five directors on the board now. Thank you so much. We will be back with more in two. In germany, and apple store is almost as good as a bank. At a securitylin company of hauling away euros from the apple store. It happened while would be iphone buyers were lined up outside. Is way mind, germany behind when it comes to using credit and debit cards very 15 of payments in europe are made with plastic. They move toward a cashless society. A freelance economy. Americans are underemployed. It should follow more and more people are working multiple jobs, moonlighting, except the latest numbers indicate otherwise arid starlet who shows us. Kind of surprising given the slow wage growth in the economy. The number of people who work more than one job, six point 8 Million People, 4. 6 of all employed people, down one percentage way from 10 years ago, pretty much in line with the average since the recession. I was surprised by this. I ducked down a little bit. Arelly different numbers estimated, more than 21 Million People have multiple sources of income and one reason there might even suspect the is because the survey specifically asked about second jobs. A lot of time, people get more income from hobbies and passions. They tutor. Or they jive a few hours on uber or rent out rooms. They do not consider that a second job. They consider it multiple sources of income. We have a chart that also highlights which occupations tend to have people with the highest multiple job holdings. On the side, eric has a crafts project. Yes. He is also an uber driver. , on. Dnps and firefighters, a lot of workers would shift work and are the ones who moonlight a lot. 19 . School, in college, junior college, that kind of thing. Not necessarily a professor. Work isat because tutor so massive at this point . Probably. Necessarily working over the summer. And bartenders, 19 of those. Free time, only working 5 00 em to midnight. 5 00 p. M. To midnight. Where on that chart . Pretty high. People, firefighters, emts, they love what they do but they need outside influence. Psychologists as well. Taking as ay moonlighting job . Ascolleges moonlighting bartenders. That may the smartest thing. Ever said. It is true, bartenders are amateur psychologist. Market makers will be back in a few. Stay tuned. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. President obama says we are not in this alone. Arab allies joined the u. S. In attacking Islamic State targets in syria for the first time. South ofic revolution the border. Mexicos president tells me how he wants to open up the energy and wireless injuries. Industries. No more rough seas for Carnival Cruise lines. They have recovered from a couple of fiascoes, and is raising its forecast. We have an exclusive interview with carnivals ceo. Lcome back to Market Makers we have a lot to cover. The u. S. Has opened up a new front in the campaign against the Islamic State. For the first time, fighters, bombers, and cruise missiles hit Islamic State targets inside syria. And it wasnt just the u. S. Saudi arabia, by united arab emirates, bahrain, and qatar. They focused on the Islamic State stronghold rock. They hit militants in syria. According to the pentagon, the group was planning an air and imminence attack on the u. S. President obama spoke briefly before leaving new york. It must be clear to anyone who would plot against americans , that we will not stop tolerate safe havens for terrorists who threaten our people. I am pleased there is a partisan support for the actions we are taking. America is always stronger when we stand united. That unity sends a powerful message to the world, that we will do what is necessary to defend our country. Here with us is the former ambassador to bahrain, his career at the state department spans a long time. Thank you very much. The dissipation of arab states ,ike bahrain, or the uae certainly plays well here. How does it play the middle east . Its huge, both politically and militarily. Militarily, the United States needs regional allies. If we dont have them, or actions against isis dont have local legitimacy. We dont want to get back to where we were in iraq. , weere the foreign occupier were the foreign aggressor. If this has arab bridges patient, it arabs fighting further arabs. A part what them being of this demonstrates. It is the signal it sends. Much more strategic than tactical. Doesnt matter how money planes they put in the air, or just the fact that they had at least one in the air. The symbolism is very important. The dont underestimate military sophistication and capability of the arab allies. Are moreas f16s that sophisticate than anything the u. S. Air force has. Have good equipment, they know how to use it. They can put bombs on targets. That is important. That is surprising. Has more that the uae significant agreement than the u. S. Military . They bought a lot of them about eight years ago. They kept the production line in dallas, fort worth, moving. Without that sale, that plant wouldve closed. Do we even know who and what to specifically target . There are so money moving parts, somebody different groups. In normal seems like an game of whak a mole. Yesterday strikes demonstrated two things. The military focus on i. S. I. S. Is real, it will be sustained, and it is, hence and because it is in iraq and syria. People are not talking about this enough. There is no military solution alone to i. S. I. S. What i mean by that . You cant bomb them into simitian, or bomb them off the face of the reason region. You can isolate them politically. The reason i. S. I. S. Is so successful, is because large parts of the sunni population in iraq and syria support them. You have to use military force, but you also have to divide the sunni population from i. S. I. S. If a run for just the bait drive the sunnis into the arms of i. S. I. S. , and frustrate our efforts to defeat them. Are you encouraged by the dnc nation of the attack . It shows the duplicity of iranian policy. If the United States says we are working with iran to defeat i. S. I. S. , why should we complain. What iran really wants is to weaken i. S. I. S. , strengthened shia militias in the region, and thereby dominate it. Iran is playing a double game. My concern is we are followed into the trap they are setting for us. What should our action steps be . To say clearly and unequivocally that iran is not a partner in fighting i. S. I. S. If we dont say that, the arab states that are with us will lose faith. Lot more than a we do. If they see us working with iran, that will begin their commitments to the coalition. Iraq, if population of they think that iran is the foxy getting its nose into the chicken coop, they will run like crazy, and run away from us into the arms of i. S. I. S. How does the president into followthrough . David cameron is here. Will it help the president with those states, saudi arabia, bahrain, uae, if he is able to secure the just patient in the stripes these strikes with the british . The british and the french are taking part in different ways. I do think he would have seen the arabs doing it if there wasnt that broader cover, then just working with the United States. The u. S. Is not enough. Its enough, it just makes it bigger, better, broader. When you listen to the u. S. Government take action, you think they know what they are doing . For sure. From a military perspective, in terms of targeting, putting the right hardware on the right places at the right time. Nobody does it better. W wow. We are really good. , dont respect the military to solve the problem. They can help move the needle in the right direction. But if you dont have the political side of this covered, you were not going to win the battle. Ezra vassar, thanks for spending time with us. Adam ereli with us in new york. Coming up, remember when you had to have a blackberry . Become any hopes enough people will feel that way about their new smartphones. We turn the ship around midstream, an exclusive interview with the ceo of carnival, and how they bounced back from two big mishaps. Ons Market Makers, bloomberg television. On bloombergng television, streaming on your phone, your tablet, and at bloomberg. Com, and now we are also on apple tv. You are watching Market Makers. Both samsung and apple have released new smartphones. Now, it is blackberrys turn. Blackberry, they still exist. Its new passport smartphone will have a larger screen, and return to the classic keyboard. Companyl happen to this if this new phone doesnt sell . John butler covers telecom for bloomberg and television. He is with us from new jersey. John, people need to think modestly about blackberry, dont they . There is no way this country is going to come out with an iphone killer. They are not going to come out with an iphone killer. The one thing to remember about him is reallydge instill this in the company itself. He told the employees, we are a company full of assets. They have the qnx operating system for cars. They have a Global Network of secure servers. Enterpriselackberry management, which is this mobile Management System that is just terrific. It goes well beyond devices for them. Import inises an question. Why come out with a new device . If the real intellectual property is in the other products you mentioned, who is that they could appeal to with a new phone . Ive played around with this, its not for everybody. It will definitely be for some people. I dont know how many people. They dont need to capture a lot of subscribers. They have that core blackberry user base, around 50 million subscribers. More than that, they admit it is not for everyone. That is true. I kind of like it. I havent figured it out for myself yet how much i like it, i havent headlong to play with it. Had long enough to play with it. You can see where it would appeal to someone who is a hardcore emailer. Stephanie does a lot of blackberry work. And so do i, frankly. That is one reason that appeals to me. This could be the key to blackberry. There are some of people who carry two devices. If blackberry cannot their ability for people to take good pictures, use apps, maybe they could turn a corner. This is really built to appeal to the business customer. It is not going to be full of apps, but the screen is very unusual. It is perfectly square. As everyone knows, the smartphone world has kind of converged on that rectangular shape. You can fit more characters per line. When they talk about who it is ideally suited for, they talk about doctors, engineers, architects, people who are going to read documents online. Frankly, i would extend that to the whole Business Community. Particularly those prefer that physical keyboard over a virtual keyboard. Im in that cap, by the way. I hate virtual keyboards, they drive me nuts. Me too. Have you given any thought to how many of these devices blackberry needs to sell for them to claim success . I dont know. Tend that only because we not to look on a model by model basis about how they are going to do. Im glad you asked that question, because one interesting device also rumored to be coming out tomorrow is the blackberry classic. They are going to take everyone back to that original form factor, and again, i think this will appeal to that loyal base of 50 million subscribers that love blackberry. It will have that chiclet keyboard, the small screen. It will look somewhat like the blackberry curve. They are calling that the classic. I look at that blackberry passport that we were just talking about, as well as the classic together, it would sales that is just been moving tons of sales to apple and samsung. Is there risk of that confuses people . What blackberry needs to do is persuade investors of the value of the intellectual property that we dont see for the most part in these consumer devices, or enterprise devices if you prefer. If they are really targeted at a business market. The guts of, its the operating system. Its the other things the blackberry can do for companies, in the guts of a company. Managing all the traffic from different platforms, whether it be apples ios, or android, or even microsoft. Blackberry can do that stuff, and it appears to have real prospects there. But no one things about it in those terms. We are not the target audience. It really is the guys in the back room, the i. T. Guys that really have to get sold on blackberry. Community, onss the consumer side, i think they are going to go away and on. Asians like these markets, and latin america, they have done quite well. I would be looking at a cheap a twopronged approach. Highend with the business committee, touting the security aspect. I would beumer side, pushing a lower end device to compete below the radar of apple and samsung. They just cant match them. John, always great to see you. When we come back, we have a lot more to cover here on Market Makers. We have an exquisite interview with the ceo of Carnival Cruise. We are just 30 minutes away from money clip or co. Hes watching investor concerns about manufacturing. You look at the difference between what is happening in the u. S. Versus what is happening in europe and asia. Outfacturing data comes around the world over the course of 24 hours. Heres what we learned overnight. In europe and in china, the pmi ufacturing data is 30. 5 50. 5. 50 is the red line. Below that, you are contracting. In china, it is also 50. 5. In the u. S. We are at 58. There is a big difference there. You can see that is rolling over. Theall of the concerns, angst about what is happening here in the u. S. In our economy, and considerable time on rates etc. , manufacturers youre doing better than elsewhere. It is explained to a degree by the slow resurgence of the u. S. Economy. Companies arent going to be goods,g more, buying stocking goods, they are going to be spending more on capital goods. Play inuld in theory favor of the u. S. Or the factoring industry. Manufacturing is global as well. Much of what American Companies might be buying could be, and maybe is coming from overseas just not enough of it. Is buying aermany company in the u. S. He says hes going to be moving some of the manufacturing that were in europe are moving here to the u. S. How significant . People love that headline saying we arent going to be manufacturing in the u. S. He says they will literally shift the many factoring that is being done in germany. Have cheaper energy. He said the energy costs in the u. S. Are half of what they are in europe. I was that same story when went to alabama, and chinese benefactors are moving to alabama. Same story. Tothose the points we need see. Many people have been saying to us for a couple of years, the cheap energy shale gas was going to be a game changer for the american economy, particularly the manufacturing industry. When these ceos to say this is what we are doing, and then see them doing it for the story to be real. That is my big story. That is what i am fired up about. We will have that and more at noon on money clip. Is reporting a lot of good news this morning. The largest cruise line raised its for your forecast, and beat analyst estimates for the third quarter. The custom he is winning back customers after a series of mishaps a few years ago, including the wreck of the costa concordia, and the bathroom cruise. Karen masters covers the complete for us. She is standing by with an interview with the ceo. Arnold, great to be talking with you again. I was on the call with alex. Its was a great quarter. A lot of optimism. Is the turnaround done . Is it complete . First of all, thank you, and good morning. We enjoyed a fantastic third quarter. This is an affirmation of what we thought we saw coming into the second quarter, choose a turnaround in the business. We are doing well in europe and north america. Is doingval brand well. All nine brands are doing well. Think we are moving in the direction we should be. We should be returning capitals for shareholders. Something we talked about a year ago, i toured one of your ships. You guys were spending 700 million across the fleet to make sure you didnt have problems pop up again. Do you feel like it is back Brand Perception . Go buzz report came back, and the carnival brand was the highestrated brand in any brand in any category in terms of change in consumer perception. Yes, we feel the carnival brand from a brandred perception standpoint. A lot of hard work by our teams and the carnival brand lines to do that, in terms of product initiatives on board, and other experiences. Our guest at the section scores are through the roof. Has been fantastic. It was interesting to listen to the call. I compare it to when you and i sat down and talked at length about a year ago. I thought it was a sigh of relief for you. You feel like the money and time you spent, that those problems are finally behind you. Just a reflection of just doing the right thing. First of all, a lot of the money was invested strictly for guest enhancements. There were no systematic problems. There was no underlying broken anything. But the idea of focusing on exceeding expectations, of putting the investment to make sure we do that on a consistent basis across all of our brands, which is what we stand for, is certainly paying dividends. I have to ask you about recent news. Norwegian buying prestige, the highend of the market. You already have that with your online. You have a lot of different segments with 10 different brands. Do you feel more pressure to beef up what you are doing when it comes to highend luxury cruises . I dont feel any more pressure whatsoever. Our seaborne brand, which is our luxury brand, and our mega ship luxury brand, that are Premium Brands princess and howl america, they all do very well with the guests we have. Consider the acquisition, i think it is a great deal for apollo. From our standpoint, we like it a lot. Benchmark, wea certainly think we are highly undervalued. Where do you want to move growth . I know you talked about china. I know you are very excited about that market. You and i have talked about also targeting millenials, and may be doing cruises catering specifically to them. Is that in the works . Of course china, as you mentioned, is a great emerging market opportunity. It will someday be the Worlds Largest cruise markets. It will take time to get there, and a lot of development. We are sending our chief Operations Officer to shanghai. We willng millenials, continue to look at special activities on board to track and millenials. Etain we will continue to explore that is a possibility. What about what the competition is doing . Competitors doing like the amusement parks on ship. Do you feel it you have to do with the things to wow passengers . The credit will thing is to know your guests. Each brand caters to a different type of guest. All guests dont want water parks. Parks on carnival, we dont have water parks on canard. August dont want large group activities. To really understand your guests , and what they value most, and make sure your brand is catering to that specifically. I think certain things are exciting for certain guests. It is really critical to understand your brand, know who you are targeting, and make sure you exceed the guests expectations. The stock is still below prerecession highs. I know it popped today 5 . What do you think it will take for investors to appreciate what you have been talking about . I think it will take continuous performance, driving towards the doubledigit returns. We have every expectation that we will achieve that in the next three to five years. I think consistent delivery and execution, and a clear line of sight towards doubledigit returns investment capital. We will be rewarded for that. The shareholders will be rewarded for that. , the president d and ceo of carnival corporation. Guys come i will send it back to you. Thank you. When we return, more cover here on Market Makers. Opening of mexico. We spoke with the president about bringing change to restricted injuries. Best industries. Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and stephanie ruhle. Welcome back to Market Makers. Im stephanie ruhle. And im Erik Schatzker. About the mank who is put mexico on the path to reform it. President Enrique Pena Nieto is opening up the countrys oil and treat a foreign investments, and busting up a mobile telecom empire. Reshaping the mexican economy for the toys for century. Not enough mexicans are feeling a difference yet, and his Approval Rating is down to its lowest since he took office. Progress index go, after all, we have all these reforms. There has been political maturity. To make it possible to have these reforms. Its actually developing a new platform. From exit go to grow economically. Have aetter, now, we nexte Service Starting year. We also are trying to expand the city by allowing the private , we are the government took a hard line. Has that approach reduced the results you wanted . Aiming toign is not impact anyone or a particular enterprise. The focus is actually to generate better competition, more diversity. More diversity for users to have different providers, different price. Reform,gards to energy when do you expect the private industry watching us right now of investing in oil products in mexico . There is april a merry information a preliminary investigation about who is going to be in round one. Who will be impetus painting. This will happen in the first quarter. Your government has made progress against drug gangs, including unprecedented cooperation between the army and local vigilantes. Yet many parts of the countryman under their control and dangerous. What more can you do . We will go to the bottom. This is a priority of our government. Its to obtain security conditions for all the people in the country. I believe the government is trying to stimulate and get results. If the legalization of marijuana, total or partial, in many u. S. States having an impact on Drug Trafficking in mexico . Comes to marijuana in somelegalization, the continent, its a crime. , its tolerated. I personally am against the legalization. Door to open the development, to a Larger Consumer drug that is very damaging of the population. Im also an agreement that we a large presence in the hemisphere about the policies in this area. To tolerate, to legalize, or. Imply to make a definition proud debate, im not personally in favor of the legalization of marijuana. But im not opposed to start a large debate. To define what is the policy we have to follow. Illegal immigration is a large problem for both the u. S. And mexico. From your point of view, what political approach works best increasing Border Security, or the types of reforms proposed by president obama . We are trying to bring some order to the traffic of immigrants to the United States. Legalize the to phenomenon, which is the results of a lack of developments and violence in many places. I think that we cannot fight problems, its not like criminalizing it. We also have to support the stayty so the people can in their origin places. And then the decision to is aate to another place free decision, not something that is forced because of your condition. In mexico, that is happening. The president ng obama project, which is very interesting. We are trying to reform the immigration, that is something within the american reach. I think its something that is to be adjusted to these people that are part of the american economy. And part of the american society. That was my interview with mexican president Enrique Pena Nieto. Bien. Thought it was muy to hear him talk about legalization. I thought he might be a little more favorably disposed towards legalizing marijuana, but he told me that his view on marijuana is still is one that has been losing favor in america. It is a gateway drug, and promotes drug use, people find their way into other, harder drugs. Immigration is similarly fascinating. He doesnt believe that Border Security is the way to go. The limited deal with the problem is to get to the root of the problem. In many cases, its in honduras. ,he kids who are arriving crossing into arizona or texas, are necessarily mexican. They are traveling through mexico. Why illegal immigration is as much of a problem for mexico as it is for the United States. Great conversation. You can catch all of that on bloomberg. Com. Interviewwrap up your with the president of mexico. We will have a lot more. Coming up, the skincare mogul women what isow before. Welcome back to Market Makers. Im stephanie ruhle. Beauty may be in the eye of the holder, but achieving business success, that lies in the hands of every entre for newer. Be ceo of dermalogica. She is you to talk about her new initiative. Jane, welcome. Your business with 40,000, a Beauty School degree, and thats about it. And you never took outside funding. I immigrated here with a suitcase, a boyfriend, and the bschools agree. We start the company together. Oneroom space. The goal was to bridge the gap in training between what was the standard license in america, about six in hours, and the twoyear qualification that i had done in europe. We started training, educating, and for years later, launched. He product line, dermalogica we just bootstrapped it up. Salon industryl is basically a cad industry. Now in 86 countries. Every product is made in the United States, in california. Impressive. How you do it at a time when Estee Lauders of the world seem to control the industry . How do you maintain your industry and grow it, without selling out . We are in a niche. The professional salon industry is growing. We suffered very little in the recession. If flatlined a little bit. We have a percentage growth for Job Opportunities between now and 2020. In thewth predicted salon industry, 40 in skincare alone. Went retail why not retail . Are recommended through an analysis called face mapping. They look your skin, the notes ackley what you should use. They know exactly what you should use. Consumersil, this would be selfselecting. Why havent you done the superstar collaboration . Brand outike every there has a taylor swift, a rihanna, a Sarah Jessica parker flogging their products. Women look at them saying i want to buy into that. Not only do we not do celebrity endorsement, we dont do print advertising. It is all wordofmouth. Amazing support from the magazines come up to npr. We worked heavily with makeup artists in the Makeup Studio here at bloomberg. We are tribal. Its about professional skincare, makeup artists recommending us in using us. Has your business gotten hurt because of women turning to a dermatologist for skincare . They are not necessarily going to professional salons anymore because they are getting it from prescriptions from an actual doctor. Heres the great thing. [laughter] erik, your face, i dont appreciate that. I saw that. You have eyes in the back your head. Thing, if you look at dermatologist, age 55 or plus, 11 of women, the rest is mailed or mythologists. If you look at 35 years of age or below, you have 66 women. Todays dermatologist is a woman, rather than 30 years ago, when it was a guy. That is changing the whole industry of dermatology, and skincare. They are very savvy as to the formulas they like a mother that like, the formulas they the way they wanted to feel on the skin. It is a great opportunity. Is the search for the fountain of youth recession proof . Expert much. People want to be young and beautiful, no matter what. It is pretty recession proof. Whether they decide they are going to use less product, maybe one or two key products, rather than a whole selection, or whether they decide to give something up rather than keep it, they may reduce their professional salon visit, but they will not give up the product they use at home. You are here in new york for this initiative. What exactly are you looking to do . We are looking to fund future for newers entrepreneurs. Women ino fund 25,000 all industries into their own businesses to grow in. We funded over 50,000 so far. Double your commitment. The new piece of the initiative is to fund future entrepreneurs into our district. For those who are going to steal your business . I will be retired by the time they get to that. We want them to be successful. The salon industry puts more women into business than any other. We are a job opportunity area we will train them, teach them, mentor them, and then help them get into their own businesses. How about mens products . We have a whole selection of male products. I think they are the best mens products on the market. We will happily send you some. Have you seen in the last few year, this mens lifestyle category blowing up . Not only shaving, the grooming products. Ive never seen so much product for mens hair as i have in the last five years. Its great. Everyone really wants to look their best and feel great about themselves. What is driving that trend . It hasnt always been there. I think in todays social media, and the amount of selfies we see being taken, Everyone Wants to look great. They are their own worst critic. They are saying they want to look great. Team, wherever they are socially, remember, twitter, facebook, youtube, you could appear on any medium at any time it. You have to look great. Get your beauty on. Jane, and graduation. Jane wurwand, the ceo of dermalogica. Market makers will be back. That is it for day two of Market Makers. For good. It felt great. Tomorrow, you can find out what you can learn from google. We sit down with eric schmidt, he has a new book out. How google works. I thought you decide to in google, thats how it works. It is 56 past the hour, which means bloomberg is on the markets. We will send you out to the newsroom for more. Thank you. To the markets right now. Stocks are falling for Third Straight day. You have a couple of factors are coming colluding the expanded airstrikes in syria. In addition to the fact that treasury has made some changes to its rules, and as a result, tax and versions that are pending it is questionable if those get completed. We see healthcare shares declining in the stock market. With all that in mind, join me today is dan jennings. It has been three years since the stock market took a 10 correction. We are in the third day of declines, there is concern out there. Are you hearing people discussed the possibility of a connection a correction . Is starting to enter the mindset. Weically, this time period, see a pickup in uncertainty. That october affect that weighs on the minds of traders. Of have a culmination crosscurrents. Kind of winding out liquid he provisions, that is no longer in a vacation but a reality. Coupled with the fact you have a struggle dollar stronger dollar. That will also impact their earningspershare as we rollout. You have nikes assertion, that could be a precursor of whats to come. I think the dollar index is three in the last months. And when asked about the vick says well. Right now is just above 14, where it was at the midpoint of this month. If you look at it on an intraday basis, we are trending higher, with higher highs, and lower lows. Where do you see it going from here . Right now, the excitations morehat there could be uncertainty is a role into october. Buying seeing aggressive x as well. Ks] i think there is a high possibility could see the vix pop up in the upper teens. If the 50 Day Moving Average pops down, you could see it pop in volatility. You could see it push up 60 or 18 in short order. The high for this year is 21 back in early february. You have a specific trade on this, tell us what it is. Protectiveing at type strategies here. I look in sp y, it gives you an opportunity to buy a foot spread for relatively reasonably believed priced level. About . 85 nine five cents for that. It allows you to play for the fullback possibility down the august lows we saw around when anyone in the sp y. That the cost of . 85 as well. I want ask about apple. Obviously, it is in the news quite a bit with the sale of the iphone 6 and iphone 6 plusses. A lot of activity there. What do you see . There has been. I am seeing that one of five strike, even in the weeklies, and you look at the monfils in october. There is a lot of activity there. If we can get through one of 3, you can see another leg up. Terms of the calls, there is a lot of october calls. Is that earnings related . It could be. Rolloutfunction of this. Apple is consolidating here. It looks a get is coiling up, you see a possible breakout. The shorterterm structure as opposed to latter. Dan, thank you so much. Back on the markets in 30 minutes. Welcome to money clip. I am adam johnson. Here is the lineup today. The biggest private Conference Ever does not include the two countries with the biggest carbon footprints. Will this be inning. Both he and version smack down. Talking about jack lew laying down his law on overseas mergers and companies do not like it. Low. D the world, factories mario draghi ready to do whatever it takes