estimates. guidance however fell short. "street smart" is coming up next. ♪ >> hello, everyone and welcome to the most important session of the hour. target heading to the hill. executives testifying on the massive data breach that they knew about a month before their customers did. what took them so long to tell everyone and our other retailers at risk? >> plus, king digital in the virtual reality deal. are the signs of a growing tech bubble? all that and more coming up right here on " street smart." ♪ >> we're in the red. the dow, s&p and nasdaq in the

red despite better-than-expected durable good. a lot of concerns on the international front with ukraine weighing on the market. getting over to julie hyman with a look at the big stocks as we watch things heading into the close. >> a big potential deal in the satellite-tv business. ergen has had talks with his rivals over direct to be about potentially some kind of deal. share look at the reaction, both stock surging. up 6.4%. facebook heading in the other direction after buying a virtual and agreeing to for $2 billion. investors not to thrilled about the news and seeing facebook shares selloff today. finally, looking at qwest

diagnostics and lab corp.. both of those groups rising. bill that is positive that removes an overhang about concern about clinical reimbursement rates at labs that these companies own. shares are rising over that. >> thank you so much. time for the big story. taking tech timebomb. first facebook announcing a $2 billion bets on virtual reality company oculus. a company that makes virtual reality headset. it is a product that cannot even be bought yet. this comes on the heel of a month ago. $19 billion. a massive valuation there. king digital going public at $22.50 per share. just over $7 billion.

what is going on here? deja vu 2000 again? in al of these mean we are tech bubble? certainly seems that way. joining me now bloomberg news reporter. our very own julie hyman who spoke with the king digital ceo today. before we go to that, i want to .o over to cory what is going on behind the huge this is a big number for them to pay for a company who does not have a product yet, let alone but ridiculous phrase about the company's been .re-revenue people seriously use this phrase. this is a pre-product company. they have a developer kit and have shown demonstrations. they were out raising money.

we learned that there were other bidders out there for the company. facebook steps in and take them out. the interesting thing is that is the notion of what the future might be in computing and might be some kind of virtual reality but this kind of virtual reality . facebook says this is the platform upon computing being done in the future. >> ok. back to the pre-revenue, pre-product idea. money is soanger easy and so cheap to borrow that it is fueling return acquisition activity in a way that is not healthy? ] said can connect the dot policy with this one. is of the reasons facebook up so much is the hope that everything will go well for facebook and because money is

looking for returns it cannot find in other things. the money continues to go up. the money flowing into venture capital, tech stocks and story stocks. it has the potential for future return. that is where the money is going. >> we see the stock price, which by the way did not used to happen. shareholders basically thinking this will be a better return on the capital. another tech company making news today, king digital going public at a path -- valuation of $7 billion. i know you spoke to the ceo this morning. to pointuple of things out. king digital does have revenue and has profits as well. not talking about a company aced on nothing.

an 11-year-old company. in terms of being in a bubble, it the value is a discount to some of its peers. the stock is down. you would think if we were in a bubble environment, people would still be buying this thing. >> 10 times earnings? >> whether it is fair or not is not fair of me. the market is making a judgment that it was higher than they wanted to buy. >> this is a company that has basically one game that people play. they are making fun -- money off of it, which is great. in an environment such as gaming risk here that while it is popular today and making money today, it will not be popular tomorrow. >> of course. we saw that was zynga. do is to say that cannot happen

with candy crèche users defecting to something else? >> is this what is fueling the concern? >> absolutely. investors thought it would pop on day one and make a quick flip. when that did not happen they said i am out and them done. >> what does the ceos say? >> i said what is going on here? what is the next big hit? here is what he had to say. >> my focus is not on the prize. strategy is a long-term strategy. by focusing on the long term we create shareholder value. credit is in a strong position. >> one really interesting point he made is yes, you have these various games that come and go in terms of popularity, however, the top games do tend to have

staying power. he is right. if it catches on, they tend to stay in the top tier for a little while. most crèche has been the popular game. >> tech company after tech company that is demanding our attention these days. it is not a valuation in terms of king digital. are in attention. if you watch the numbers facebook is putting forward and the craze over social media right now, does it feel anything any similarities? >> i was here during the gold rush in the 1840's. quite similar. same neighborhood even. >> you look fantastic. >> there are a lot of similarities. i think it is more useful and think our work is more fun to do

when we look at the things that are different. one of the things that is different this time, one thing is these companies have a lot more age on them when they come to the public arctic. a company going public tomorrow that i profiled 10 years ago that is going public with well over one billion in revenue. the software company does human resource software and competes and is part of oracle now. i think we see more maturity and some of the companies coming out. one of the other differences is, a lot of the companies in the bubble relied on each other for revenues. they were not selling technology to consumers, they were selling technology to businesses. except for those being fueled by other technology money and that has changed a little bit as well . some of the companies might have a future if there were not a market collapse or if the bubble

did not continue for some of the valuations are really rough. >> when you see what is coming down the pipeline, is that particular sector more crowded man consumer or health care or any other sector? >> certainly back. we have seen a low over the past several years and now the pipeline is extremely -- strongly reported. talks just filed this week. another one losing a lot more making.an it is another example of a company trying to capitalize off balance. >> it makes you wonder when so many are coming out at a particular time. feels like we're talking about a life -- lots of ipos. >> that is certainly one reason. >> if you look at king digital as an example, they are not using the cash for the business.

most of the money is going to pay off a tax partner, which was one of the early investors in it. in that case, definitely have a cash out. right nowre out there i would be looking for the opportunity to take my money out in public markets or acquisition , that is the way to do it. there are 100 73 ipos pending right now. 240 three percent increase. leslie will be buried the -- busy if those deals comes out trying to make heads or tails. clearly wall street once more speculative stuff. investors seem to be looking for that. doking for companies that not have proven results. they might and might not.

i think we might have expected to see this kind of thing, but as we remember, this does not end in a week. >> does not always end well. we have seen the movie before and cannot help but ask the questions. thank you very much, cory johnson. a busy couple of months. thank you. terrific interview. target executives testifying about why the company ignored warning signs that lead to a massive hack attack. we will head there to get the latest. president obama on the european tour. i will be back right after this. ♪

plans it is about time -- >> about time. target executives being grilled on capitol hill about the massive hack attack.

we broke the story that target actually ignored warnings from the hacker detection tool. i am joined by andy dunn, ceo of a new book and the man covering the hearing. bring us up to speed on what is happening right now on capitol hill. was the theme of the hearing but only to a point. the cfo apologize for the damage they have done and admitted that they have had early clues early on and took weeks to respond and now performing an internal review to see why it took them as long as it did to react. byh all that said, standing the fact that they met hundreds of standards. and that no system is perfect. things like this happen and trying to move this forward, we saw mulligan say prevention, it will need to be a team effort. >> to prevent breaches like this

from happening again, none of us can go at it alone. all businesses and customers are facing sophisticated attacks by criminals. the texting american consumers is a shared responsibility and target remains committed to being part of that solution. >> trying to divert the attention. target was a victim. in all not a perfect system may need to do this as a team effort. for the most part senators seem to be in agreement with that. the hearing is temporarily on pause while the senators vote. have not been quite as stern or strict with target. perhaps that will change in seymour fireworks when they come back. >> thank you for getting us caught up. i am joined by andy dunn, ceo of the notebook. --is find the senators actually it is not find that the senator seemed to be taking this in stride. this company have multiple

warning signs. they did not tell everyone right away. learn thelly did system had been compromised and peoples credit card information had been taken but did not alert customers right away. this happened for several years ago. they had done the same thing. took them two years to tell people what had happened. everyesponsibility should -- at a retailer have in this situation? >> i have been in the situation. our site went down on cyber monday. a lot of people upset because they could not shop. different from theft of private information. i think you have to own it quickly. the real victim here is the consumer. are wherertunate they they are. i think i would own that. there is the tip -- different

take away from that. retail is now a technology business. you have to be incredibly technology able to do the work. been all about brick-and-mortar stores. i think technology is equally important. >> there is an incentive for you to be proactive. we saw traffic declined considerably. sales were down in the quarter after this news. reluctant to go and use a credit card target. i can't tell you how many people said i was in target but i made sure i used cash. a lot of as they the retailer. i would think companies would be incentivized to try to do their darndest to make sure this thing does not happen and then let customers know if it does. >> i think it is all about trust. a moment the trust is jeopardized, you come out and

apologize, own it and say here is what we're doing. i think people will understand that. you own it and move forward with an action fan but says here is why the technology will be awesome and security will be great and why it will not happen again and have it not happen again. >> you do not get on capitol hill to say we're the victims, the ones compromised, even if earnings are down because people do not want to shop there. >> it is a tough spot. hopefully they can get on with enabling the company and making it secured. nothe fact that they are required by law to let customers know. the bank and let the customers know, but the bank does not have to tell you and is not supposed to tell you who the retailer is that actually had the hacking attack. do we need better protection for consumers? or is the consumer protection agency in all of this? it is one of the situations

where it feels like people have a right to know. we should have a set of policies that alerts you so you can do something about it. we have taken our eyes off of days.or a couple >> i will have to ask you about that later. we will took about -- talk about that. coming up, president obama in brussels and telling russia to back off or pay the price. is his warning for russia enough? we will talk about that next. >> if anyone in the russian leadership of the world would not care about their actions in ukraine or they could drive a wedge between the european union and the united states, they clearly miscalculated. ♪

>> president obama in brussels

trying to strengthen american ties with the eu allies. hans nichols in the belgian capital. the president's trip has been dominated by the crisis in ukraine. tell us the latest in brussels. washat president obama did robust, rhetorical defense of nato, western alliance, western virtues and norms. everything like treaties signed in the places he has been visiting. he also buried -- laid bare the .imit very clear he would not authorize military action either for crimea and the ukraine. in terms of additional sanction, he did hit at the possibility of what could have been. >> if the russian leadership stays on its current course, thisher, we will ensure

isolation deepens. sanctions will expand. the toll on russia's economy as well at six standing in the world will only increase. >> if russia stays on its current course, a slight tweak from what they said before, which is bad for new sanctions to be triggered, they would have to go into the ukraine. one thing earlier is energy independent. >> once we have a trade agreement in place, export licenses for projects for liquefied natural gas would be much easier. >> assets will be deployed in eastern europe in the new nato companies -- countries as well as poland.

the president is off to rome. >> definitely on the set of the red line. interesting. inc. you. coming up, we will talk about malaysian airline problems. -- thank you. ♪

>> missing flight 370. satellite images from a french defense -- satellite camera identified more than 100 potential objects in the southern indian ocean. families i'd have some sort of closure. the airline has been criticized for poor decision-making in the aftermath of the plane's disappearance but they did not start with 370. here with more it says kaplan. i know you have looked extensively at the malaysia airlines financial issue. where do you think the trouble

really began for this company? >> we are talking about an airline losing warm money than almost any other around the world. do star before 270. the problem is some of the other airlines growing our airlines like air asia. a rogue carrier based in kuala lumpur has very low cost of production. is more than one way to make money. you could be mcdonald's or ruth's chris essentially. you better get paid more for your product. the problem with malaysia airlines is it a silly ruth's chris but getting paid make donald prices for it. the margins were

extraordinarily slim. what is the crisis now doing to the company? >> a company that seems to have concerns before this. part of the reason is it is a government-owned carrier. malaysia airlines from a financial perspective was not one of them. the iron age that perhaps it is government owned may help it because the government likely providing cash infusions, although the airline has not provided government updates. we know this has cost of a lot of money. typically you have a revenue impact. >> you can understand it. other disasters in history. you think about air france after

it situation off the coast of brazil. it survived. what is different about malaysia airlines hearses air france? >> rate point. these types of disasters rarely prove the undoing of her otherwise strong airline. france, greatair example. they often prove the undoing of an airline that is teetering anyway. the other problem here is the story will not go away. tragicl the others, as as they were, they were off the front pages within a couple of us. here that has not happened yet. if you are doing a flight search right now and have a lot of airlines to choose from, malaysia airlines probably will not be their first choice.

>> probably certainly not the first choice. you have closure much more quickly than anything like this. what is the best path forward for them now? will they need to rely heavily on the government and get every investment? >> in all likelihood, yes. is the blessing. this comes on the other side of government ownership that has not been helpful. management, they have tried. they have tried labor reforms and you get meddling from government. you have to continue flying on profitable route. maybe the other blessing in disguise is the government finally lets them run the airline for commercial benefit, recognizing there is plenty of air service from other airlines. to meet the market demand.

they will have to get this off the front pages. >> it will take some time. until they know what has happened, it will continue to dominate. appreciate you joining us here today. >> are the winds of change blowing? across satellite airwaves, dish and directv may have been in touch over a merger. how this could affect your tv bill. and he done that will discuss his key to getting start up off the ground. -- andy dunn. back after this. ♪

>> the landscape in media may be shifting yet again.

dish network chairman charlie ergen contacted directv ceo mike white. here to discuss this is porter bit. and bloomberg head of research for bloomberg business week in tv, eric timmy. we also have anti-with us. this? >> it take on is not news. charlie ergen for months and months and months. that was the catalyst. charlie has been amassing enormous amounts of spectrum. for dish andans direct, not just in broadcast and video, but in telecom. changing industry. changing quite rapidly. plans, what doig you think might entail?

>> he has to get regulatory approval. he will have the biggest aggregation of video customers in the country if he can put dish and direct together. >> as we talk about the changing industry am a what are some of observations in terms of how the landscape is shifting? >> this time warner opportunity, it's them an opportunity because they got rejected a decade ago to do this. if they allow satellite radio to emerge, why night -- not satellite video? given that, it is a great time to say me, too. in terms of my research i have done, we look at advertisement

rates and talk about how network time time tv is demanding higher rates now than before. normally think of all wholesale discount when you go to costco. premium -- all the as audiences have gone down, you see fewer people watching primetime tv. still relatively bigger than the alternative they can charge of bigger premium. >> when they're watching television, watching it with tens of millions of people. onwhen you are watching it your mobile phone or tablet, you may be the only person looking at advertisement. the networks have come up with a wonderful phrase to counter the media inflation paradox. call it guaranteed you ability and will be selling that hard coming up in april. >> that islam -- what some of the ad buyers say who will go

out of their way to pay the extra money to get exactly what they want. >> an incredibly important thing. you want to hit the target market. you choose to advertise and know that as a potential customer. isn't there an extra added value in some of this internet , online advertising that knows more about the fewer i have seen tv? >> one thing in business which is when facebook opened the advertising platform initially was not well understood. we have seen five years later, it is a tremendous deep valuable platform. ago it really helped

us filled the business. retail has is own revolution and media as having it -- the same thing. 25-40-year-old guy who wants to look great in close. models we could go straight to the customer. toare able to use platforms target directly. >> it is not commanding more value. if you have the opportunity to customer,, and he has the ability to target his customer, don't you pay up for that? >> something called programmable media. this is using big eta and predictive analytics.

you find this in the digital domain. >> television strikes back. >> is this 15 years or 20 years or five years? >> a lot of analysts say television has 60 or 70% of all the ad spend that goes into video. 2017 that equation will shift to mobile and internet. that is where the growth will come from. to answer your question, 3-5 years. >> it is the same thing. such a big business. people who do not keep up with this, they will have issues.

>> we are still smart. just because we are old, does not mean we are as dumb as the new start ups. >> why isn't this has not happened faster go we had seen facebook say they would charge a lot for video. in general, why was this not tossing advertisers more if you can guarantee you would get the customer, wouldn't you pay up for that? >> let's say your product is a lot more specified in terms of what you want. you do not want to waste money on a big modern family wednesday night but for guys like car dealers in gatorade, they want all your customers and everybody else, to. thatare willing to pay expense of rate to get

everybody. as the percentage of volume going online moves for retailers , that will catch up. when e-commerce started seven years ago, that was seven percent. when that is 50% to 20 years, there will be a time for the evolution. >> let me throw a dark cloud. we are going into class metrics. you get tired of being signaled out by an advertiser who knows everything about you and has targeted advertising just to you that you tuned out. timeviously an interesting . we will continue to watch this .n c if we get a merger >> you will see dish and direct

come together. as i suggested earlier, they will also be the main telecom providers as well as internet providers. >> and a sticking with us. in the age of billion-dollar startups, what does it take to run a smart company. more after this. ♪

>> welcome to the billion-dollar club, except it is not all that exclusive. the price hike of instagram and they're all worth more than some established s&p 500 companies. what is the smart way to start a company? how do you become of billionaire? private equity investor.

>> on angel investing. some angel investing. >> what is the key to entrepreneurship? >> starting with the idea that guy's pants to not fit that well. we felt like shopping was not that fun and invested in a new way to do it with an internet driven model. it is all about experience retail-- experience role . >> finding a niche, finding a need that consumers may have. you look at the valuations on some of the companies right now, do you feel at all like this will be of global? >> i think there was a rich debate between a great venture capitalists and a public market investor. there was a conversation about just that. i think if you look at the pe

multiples, there are a lot of companies out there were the valuation is reasonable. there are other companies in the private market where there is an open question. i remember five years ago when facebook was getting in at 10 billion and i thought that was outrageous and now there is a business there. it was a huge price. i headed to hundred billion-dollar arctic cap i might make the pricey acquisitions. >> all the money on your hands, done the ipo, might as well spend some of it. matterink it is also a of would you be a person to disrupt or be the person to do it? >> we built the website around menswear. we recently have launched a women's brand. is i knew i did that

it would apply to the women's space. >> thank you. i will be right back. ♪

>> time for your top 10 as you watch the market continue to selloff with the dow off 81 points. number 10, cv energy. one of the biggest decliners in the s&p today after ubs downgraded five: producers, saying they expect more financial distress. >> peabody. number nine. number nine is american apparel shares -- shares down almost on percent after the retailer announced plans to sell 35.4

million and stocks to pour money into defense turnaround. has not made money since 2009. eight is sap. shares are up almost a full percent. the largest maker of the stress management software rising after a being to buy a u.s. software supplier specializing in managing contract work. this furthers the push it to more internet-based applications. thember seven pvh, clothing owner reported adjusted earnings that topped earnings estimates but for your guidance fell short. not weather. >> not weather. number six, facebook following almost seven percent, one of the biggest decliners in the s&p today. making a 2 billion-dollar bets on virtual reality with the , the maker ofulus

gaming classes that facebook hopes can be used for other things. the latest acquisition falls -- follows in 19 billion-dollar deal. foray into wearable devices and the internet is very unhappy. number five, speaking of facebook, another company is down 12.5%. not heavily traded. not the company acquired by facebook. this company is involved in digital watermarking. the name is very similar. it is a penny stock. very thinly traded. happens on the day of the twitter ipo if you recall. people got confused with the tickers. >> moving on. ubser four following --

falling. suspending at least four fx traders as the probe widens because the traders are located in new york and singapore that are affected. >> number three, international game technology shares down seven percent after the company cut the fiscal 2014 earnings announcement. >> number two, dish network. shares rising after bloomberg news reported the chairman recently contacted directv ceo mike white to discuss a possible merger of the satellite tv companies. according to several people with knowledge of the matter. one person said he made the response to contest 45 million dollar acquisition of time warner cable in mid february. >> king digital entertainment falling 16%. the maker of candy crash with on the first day of trading after raising 500 million in the ipo. of 7 billion dollars. coming up on the close of trading. dow jones ending in the red.

[closing bell] >> we want to get straight to the news at this hour. erik schatzker is here with all the details. michael mckee, eric? >> it has to do with citigroup. stress tests, formerly known as the capital comprehensive analysis conducted under the dodd frank act. citigroup failed. citigroup, as every bank did, asked the fed for permission to return more capital to shareholders, an increase in its dividend, currently a penny for the larger buyback. citigroup rejected the fed on a qualitative basis. qualitative basis? >> there are two bases under which the fed qualifies the

bank. the quantitative basis, the numbers-based analysis of the bank's capital with zillions see, let's say, and a qualitative that takes into consideration things like internal controls and the bank's ability to identify risks. on that basis, citigroup failed. they will not be allowed to increase their dividend or buyback more stock. i am going to read you an excerpt of their comprehensive capital analysis and review report. the embargo on this was just lifted. i had a chance to see this in advance, which is why i have this prepared. practices with 6 -- with sufficient deficiencies included the ability to project revenue losses under a stressful scenario for global operations and the ability to develop scenarios for the internal stress testing to adequately reflect and stress the full range of business activities and exposures year ago they are deliberately not being more

specific about what it is that they are incapable of doing to the fed's satisfaction, but we can jump to a couple of conclusions. we have to be careful, the fed is not saying anything. on background they are arguing for specific guidance that is important. but we should recall that recently citigroup uncovered a fraud at its unit in mexico. you could put two and two together and say that if citigroup was not able to identify $400 million, not an insignificant amount of money in an operation this important, what else about them do we not know? what else should we perhaps be nervous about? >> and this is the qualitative basis. >> exactly. are moreadd that there headlines beyond citigroup alone. bank of america and goldman sachs were told by the fed that their initial capital request would be rejected and, as a result, they were given a

mulligan. go back, resubmit, ask for less, we might give you a pass. that is what happened. under the first scenario, bank of america and goldman sachs failed on the leverage ratio. i don't want to get into too many specifics here. bank of america would have failed under the leverage ratio and capital adequacy ratio. under the resubmitted plan, a smaller dividend or buyback, they passed, which is what is most important to the shareholders. >> i guess one of the big central questions here -- are we at risk of over regulating this industry right now, as we look at these stress tests? these qualitative measures? isn't this supposed to be what investors are doing themselves? >> and the banks themselves. there is a huge debate between the banks and the fed overstressed test. those tests, that exercise spits out a certain number.

that exercise spits out a certain number. most of the time the numbers do not match. there is room for a difference of opinion. what we learned from the fed, and i cannot name the fed official who explained this to us, but it is important to add to the conversation as it helps to answer your question, over time the fed is becoming more rigorous in its qualitative assessment of these banks. to those who are skeptical or doubtful, or critical, of the way the fed goes about this, yes, the fed is moving the goalposts. it is true. the fed wants us to have a safe and sound financial system. clearly, the fed is prepared to air on the side of caution, perhaps maybe not want the shareholders want. >> on the one hand you have a fed that once these banks to be out there lending, has created an environment where there are tons of incentives to borrow money.

things have never been so cheap for this long. yet effectively it seems to be fighting what it is trying to do , because it is requiring banks to have much higher, stricter capital requirements, including these stress test results out. limiting their ability to issue dividends. are a bank, why not hoard your cash and call it a day? what incentive do you have when your margins are this thin on lending and the fed tells you you have to hang onto things for a rainy day? a you don't, though, that is misunderstanding of capital requirements. capital can be lent out, it is the capital that you can fall back on when you have loan losses. they would like to see more equity capital over the borrowed money that you have to pay back. they are not putting money aside. there is no money stashed under the mattress. that is a complete misnomer.

banks would like you to think that, but it is not true. >> the idea that you somehow have the fed regulating this industry as opposed to some self-regulation from investors themselves -- >> that works so well before? >> i know, i know. but one would have to assume that after 2008 the environment is big increasingly cautious. banks themselves are more cautious, investors are more cautious. >> investors are more cautious until they are not. until they see an opportunity to make money that appears on the surface to be so compelling that they are willing to suspend disbelief and buy the stock because frankly to them it looks cheap and i am willing to take a fire on this one. that is how investors behaved leading up to the financial crisis, right? we did not understand the methods and mechanisms by which the banks were making money on things like collateralized debt

obligations. they acknowledge that they did not fully understand it. if a ceo like ken lewis was running at the time, lori vikram pant it was running at the time, they could not understand what they were doing at the bank, how could a shareholder on the outside understand? >> he has tried to shrink down the bank of bit. on the international side before heading up, what does it mean for someone like him? without question this is a blow to someone like him. this seen to be as old-fashioned, button-down, straightlaced banker type. remember, he was put into place by another straightlaced banker type. towas returning the bank basics. of course they still have a large trading operation and investment bank. but michael corbett is focused

on operations and efficiency. focused on the things that a bank like citigroup at this stage of the game is supposed to be focused on. now, can michael corbett explain this fact? no, that is an enormous embarrassment. so is this. what does it mean for leadership at the bank? it certainly costs confidence in the marketplace as a result of this rejection from the fed, the failure, if you will, of the stress test. other than that it is difficult to say. and want to interject here point out that morgan stanley, this news just rossi now, announcing a billion-dollar buyback, as well as the assembling of its quarterly dividend to $.10 per share. >> we will get a lot of these announcements. two important points about this. after two thousand eight, because there was a bailout the bank regulators, including the

fed, decided that we would have to raise capital standards. we would have to have more money -- not stuffed under the mattress, but more money in case of loan losses. that petition was made. now, what are your risks? how risky is it that you will lose that money? that is where the disagreement comes in. we both know, having talked to officials behind the scenes in the wake of the crisis, banks did not even know what their risks were. banks were being told to focus on it in invest -- in advanced, -- in advance, know where the bodies are buried, essentially. that is where the fed and the banks are fighting right now. how much risk is any one particular thing? >> and before we beat up on the fed, admittedly easy to do, don't forget the 25 out of the 30 banks studied in this exercise were given the greenlight light to go ahead and

pay dividends, increase dividends or buyback to shareholders. >> but what other industry has a regulator telling -- >> what other industry has a federal guarantee that they will pay off your losses? >> i want to point this out, citigroup merits scrutiny without question. the zion bank failed, we knew it would. also, three units of foreign banks. rbs, hsbc, they were denied the right to pay more capital back to their parent company. the fed's criticism of those banks, nothing short of withering. >> we are going to leave it there. erik schatzker, michael mckee, thank you so much. we are taking a very weak break. back with more "be smart" after this. ♪

snoopingt a resolution, lawmakers averaged a

bipartisan deal stockpiling some records. now it is time to get the president on board. we spoke with mike rogers, chairman of the house intelligence committee, and ranking member, roos berger, yesterday. they said they thought they were closer to a final deal. take a listen. >> the administration is taking a move towards our position. we have been working with them on language that we have worked out over the last nine months. i feel confident that we will get -- that this will be the rally point where we can come together and say that it ends the government holding the metadata phone records that bothered a lot of people with a way for it to protect american lives by catching terrorists calling and the united states. rexx joining me now, representative peter king, also a member of the house intelligence committee. thank you very much. your initial reaction to this? have supported the nsa program. i did not think reform was needed.

having said that, i cosponsored the bill. they are trying to preserve as much as the probe -- as much of the program as they can. saving it from potential abuses, i think reassuring people that the program is highly illegal. for that reason i am supporting this bill. we have to do this to save as much of the program as we can. >> tell me why it is that you are supporting the nsa overall. there have been so many critics, including many in the technology space, who are quite worried about the nsa may be overstepping its reach. and why are you supportive of the program in essence? >> first of all, i believe it is essential given the fact of what the enemy is doing, we can track terrorist phone calls coming into the united states. i don't know any way to do it other than having the metadata, phone number to phone number,

stored, so that we can find out who these terrorists have been talking to and who their accomplices are talking to. there are also so many protections built into the system. .o abuses have been found there were 12 minor that were internal from the nsa that were found in self-reported, but no one's rights were violated. it is entirely constitutional, overseen by the courts, the congress, the justice department. calls, notillions of one abuse has been found. >> what do you think is really at risk year for americans? arele are concerned that we in an environment where the government is overstepping its bounds. the flipside of that is that you want to be able to fight any potential terror threat. alternately, what is at risk? >> the one agency that has not overstepped its bounds is the nsa, they have a virtually perfect record in terms of complying with the law and the

constitution, more than you can say for any law or branch of government in the private sector. it is a risk idea. to get the been able phone numbers fast enough in event of a crisis. in the bill like the one chairman rogers put together, it is as protected as possible. the phone numbers themselves are corrected. they seek the assurance that when the government needs those records, they can be reached quickly. probably not as quickly as the nsa having them themselves, but thekly enough in 97% of cases. >> another issue dominating the news right now is the ukraine. what is your assessment of the president's on this particular issue? are we being strong enough when it comes to dealing with vladimir putin? >> i think the president was slow getting started. ankept talking about giving escape route to vladimir putin.

now that he has started up i think we should be putting on more sanctions. it is certainly a good start. i think we have to intensify the sanctions, increase military exercises with nato countries like poland and the czech republic. we also have to began, i believe, exporting through natural gas to europe to show the russians that they will not have the virtual monopoly that they have right now. again, this has to be assertive. we cannot just talk about off ramps. we are willing to dig in for as long as we have to, that is about rebuilding part of the russian empire. >> representative, thank you for joining me today. coming up next, the zillow ceo talks about whether he is worried about rising rates and why he kept treating them free and whether the house in recovery is truly cooling-off. ♪

>> it looks like the housing market is cooling off. home sales following residential retail sales, of course that wicked we -- wicked winter weather, it might be more than snow causing the slowdown. explain,'s -- or to one of the leading u.s. real estate websites representatives. you are i know that worried about some of the recent data. what is the concern about housing? >> housing is slowing, but keep it in perspective. it is slowing from very hot to just warm.

are that they will appreciate by four percent over the next 12 months. what is happening is negative equity straining inventory. 20% of mortgage holders in the u.s. have no equity in their home, meaning there is limited inventory, limited supply, and a lot of demand, driving prices up. as values increase, or people are freed from negative equity, which tends to bring supply and demand. >> theoretically interest rates should go up at some point. they be not until late 2015, or who knows, but at some point they will go up and we are already seeing a significant reduction. and a seeing tapering reduction in qe. what does all of that mean for the housing market? you cannot borrow as much. or it will cost you a lot more tomorrow. chances are you are not willing to pay as much. >> right now the 30 year fixed

is around 4.2%. one year from now we think it will be up to five percent. call it another 100 basis points between now and one year from now. if you take a long-term view, five percent on a 30 year fixed is still very low. there were a lot of buyers that did not transact that were waiting for home values to hit autumn. there is a lot of pent up demand with limited supply because of the inventory and negative equity. that is what is driving home value appreciation. they are still appreciating faster than the normal real estate market, there are still these gravity defying markets like the bay area, with such strong local economies. >> you mentioned the bay area, you mentioned manhattan. let's go around the country. i don't know if we have a map, looking at some of the most upsides, but what are you seeing? >> in the west it is a sellers market. california, it,

is 10% to 20% year-over-year because of very limited supply. without muchty supply, lots of demand. other parts of the country, like the midwest and the south east, home values are appreciating less quickly because there is less demand and more supply. york, manhattan, the bay area? they have such strong local economies. particularly in it manhattan, so much international buyer manhattan real estate as a store of value on the high end, creating huge price pressure here in manhattan. >> you do not see that going away. we just got the test results. citigroup failed on the qualitative measures. does that have an effect on the willingness of a bank to lend?

the fed breathing down their back, trying to ensure that we do not have another 2008? how does that inhibit their ability to go lend? >> the fed breathing down their neck on remediating stress test results, they are also giving them free money to lend. banks can borrow at basically no interest rate and turn around and charge the three percent to five percent interest rate to consumers. towill still be profitable lend, i counter vale on stress test issues. >> overall for the housing market? >> warm, but not hot. we came down 30% from the peak, bouncing off the bottom probably too quick. now it is slow and steady. >> i promise the viewers that i would ask you -- why did you keep [indiscernible] for free? you >> we bought it in august, it was on the north side of

manhattan, we made it free because we wanted more and more people to use it to learn about and hatton real estate. >> thank you so much. we will be right back, everyone. onebook, spending $2 billion virtual reality worthy of the matrix. is it worth it? ♪

>> all right, rupert murdoch is laying out his plan, maybe his oldest, as the nonexecutive cochairman of 20th century fox. meanwhile, james murdoch, embroiled in that phone hacking scandal, will become the co-chief officer of 20th century fox. emily is here with more on what it means for the future of the murdoch media empire. well, what does it mean? nonexecutive cochairman? that mean, exactly?

it means he is keeping it all in the family. a family run business. he has always wanted to get them more involved in the business. that the worthy aspect of it is that laughlin left the company a few years ago. he had a falling out with his dad. finally he convinced him to come back in a more specified, more defined role. he is back in contention to potentially run the company one day. >> the other son? >> he is also in contention as well. you know, there is a bit of king lear going on. >> like i said, it is not easy to be one of his sons. interesting that he is still keeping the family intact. that it will be his family members that succeed him. >> and he has said that publicly. he has always wanted his children to succeed him and he has always been patriarchal he focused.

left out of this right now is his daughter, elizabeth. he actually has four daughters. apparently, from what sources tell us, she is the most like rupert himself in terms of character, business, that kind of stuff. she is still part of the company . she has started a television from -- television production company called shine. fox bought it a few years ago. >> not bad when you can sell money to your dad. >> he has a history of doing that, purchasing his kids companies. >> what is the sense of whether or not his kids can really fill his shoes? can they? >> a good question. they have different personalities with different abilities. his second son is known as more of a technocrat. he is very efficient and is a good operator type. laughlin is seen more as having

more charisma and is more of a smooth operator. easy-going, easy to talk to. elizabeth is reportedly the most hard-nosed business person. >> acting the most like him. >> yes. who knows what might happen months down the road or years. >> thank you. facebook, everyone, continues her buying spree, this time investing in their matrix line. onyou don't know how much the product, it happens to be oculus. just a few weeks ago we sent bloomberg business's brad stone to test out the headset. i am wearing an oculus virtual-reality headset. there are asteroids surrounding me. now i see my enemies. i am firing my machine gun, it is crazy. making aker here is

big promise, that virtual-reality will finally feel real. >> what if virtual-reality wordperfect? we could have an experience with full body language, like the matrix. except everybody realizes it. >> the 24-year-old created the headset in his parents garage and started showing it in 2012, but that was only the beginning. lexis is your hobby, your personal passion. now you are the cofounder of a company that just raise $75 million. you get to live your passion. >> it is pretty great and amazing to work with. a lot of people who are smarter are interested in me. >> one of the people he is working with his entrepreneur reebay. a >> there was a lot of excitement around this kind of technology in the 1990's, but it was not ready. now thankfully it is ready and you realize that you have the potential to change the world.

>> because oculus has a new technology called positional tracking. from the player leans forward, his virtual character leans forward as well. it is a digital world with a new perspective. >> we are finally able to live on the promise of the synthetic free environments that are nearly photorealistic. >> it is very seamless, unlike previous vr systems. i do not feel any nausea right now. >> the buzz has brought out some competition. sony just announced project prototype for the playstation four. executives are not worried at oculus. >> i think that they have now proven that there is a market for virtual-reality. i am a huge sony fan, i hope they take it seriously. more widelykes it distributed. >> both companies have many hurdles ahead of them.

it is not clear if gaming software developers will ever embrace the technology. >> why would consumer -- when can consumers by this? >> when it is ready. not one second before. >> 2014? >> we will see. >> we will see. with the right now, bloomberg business's brad stone. the company does not have a product that you and i could buy yet. why does facebook want it so much? >> why does facebook want it? a great question. they kind of missed mobile. look, even though mobile advertisements are a majority of their revenue, even though the facebook app is doing well and , they wanting others to make a bet akin to the one that google placed on android in 2005. they want the future. mark zuckerberg believes the

future is virtual-reality. we will see. >> there has been concern that facebook has been skewing older and that teens are going to other platforms to connect socially. can this change that equation by bringing in say the whole gaming community who might really like this virtual-reality tool? >> i don't think the teenager question is quite it. technology companies today are being defined by what google calls moonshot. one of the big bets on the future, google is flying balloons and google glass. for apple is wearable computers. we really did not have an answer to that question for facebook. mark zuckerberg has now gone and paid a lot of money and said that this is the facebook edition. it is still a social vision that was friends in a virtual world. >> so, $2 billion is a lot of money.

got to say. they are willing to spend. >> that is right. i mentioned android, google placed his bet in 2005. maybe it is a sign of the times. maybe it is a function of how badly mark zuckerberg wanted it and how little the oculus executives really wanted to sell . nevertheless, it is extraordinarily expensive. you saw me doing a demo on the technology. i am sitting down because when you move around, you don't know if it will cause nausea. >> i want to talk to you about the technology. don't go anywhere, we have some breaking news we have to get to with news out of the big banks. we will go back to brad. >> a couple of different headlines. first, i want to get more to the banks that we are learning about and what they are doing with their capital in the wake of the results of the fed stress test. they are also setting a $4

billion buyback, it looks like they had to go back to reduce the capital return they had requested. analysts had also been looking for a dividend of eight cents per share. that is something just to put this in perspective. we are also getting headlines learning about what jpmorgan is doing in the wake of the stress test. they say that they will raise a dividend to four cents per share. back.pital is coming one more headline i need to mention, the settlement being reached by the housing finance administration. a nine point $3 billion settlement spread between bank of america, countrywide, and merrill lynch. as part of this the deal includes bank of america buying social security's from fannie mae and freddie mac. a lot of news coming out of the banks. a settlement, on the one hand, but also the capital return from bank of america and j.p. morgan.

>> thank you so much. i want to go back to brad stone in san francisco. we were talking about oculus, the $2 billion being spent on this virtual-reality company. you tested this out and had to sit down while you did it because it was not known whether you might have a reaction? >> historically the problem with virtual reality is that when you are doing one thing in the real world and another in the virtual world, you get disoriented. previous systems, nintendo had one in the 1990's that really gave me a headache. people actually got sick. that has been a big technical challenge for oculus. they think they have solved it, but when doing these demos in the spaceship game, you sit down in real life and the cockpit. had something called project morpheus that they demonstrated last week, where you are standing up in the real world and they show a shark tank simulation where you stand up in the real world.

there are all sorts of cases where there might be a discrepancy and we will see if some people really have a reaction to this type of experience. >> we will see. maybe now that facebook has it it will come out sooner rather than later. brad, thank you very much. coming up next, the magazine is hosting its 12th annual summit next month, but first we will have a summit of our own, discussing america's hottest real estate prospects. joining us next, right here on "the smart." ♪

>> all right, time now where we give you the business behind media, entertainment, and pop

culture. coming up, "departures" magazine will curate the 12th annual luxury summit in naples, florida. the theme this year is luxury without borders. here to discuss, pamela liebman and richard story. he is the curator of this year's summit. great to have you both here. this is a magazine coming out in april? no, this is the current? ok. .ell us about the luxury summit what is it? >> i have been going for 12 years. it is to being -- bring together the most important people in the western business lifestyle. the people involved in all aspects of business and luxury, coming together in one place. everyone from robert dreyfuss, president of greentree, to the president of corcoran.

>> it is a luxury theme. how does real estate figure in? luxury high-end real estate? >> luxury is a commonly used word in the real estate business and it can mean a lot of different things. but i think it is probably a word that is commonly used to describe the greatest real estate all over the world now. i say all over the world because there really are no more borders when it comes to luxury. i went to the first summit 12 years ago. the evolution would be quite interesting. >> these people, 12 years ago luxury numbers began as a word use toople would describe certain products. since then it has become even more and more luxury us. i guess i still do this, having something that no one else has. we dealcertainly what in. >> i think that in real estate

luxury 12 years ago might have meant a marble bathroom, but today it means he has a bathroom and she has a bathroom. >> and the children each have a bathroom. >> there is sort of no better display of all of that than in manhattan. speaking with the ceo of zillow, the two areas immune to problems because of the high-end market and luxury market happened to be manhattan and the bay area. do you agree with that? is the high-end of manhattan real estate effectively immune from a downturn because of foreign buyers and this need to be here? >> we are in a different place from everyone else. we are a city of the world. we have this incredible offering of high-end property that has been built specifically to target this type of consumer. we have got a lot of great stuff that goes on here. fortunately, people want to be here.

>> when you talk about luxury you cannot help but talk about the aspirational aspects. even if you cannot afford it, you want to be able to. there is a lot that brands do to try to bring in everyone. you mentioned taguchi, for example. the most have to buy expensive gucci products. you can purchase the sunglasses or the perfume. >> the thing that is interesting about this magazine, "departures," it is not for the aspirational customer at all. >> just for the luxury. [laughter] >> i would say it is more inspirational than aspirational. we feel like we know what this cardmember, the american express platinum card member, we feel that we know what they like, what they want to buy, what they are looking for. >> how is that customer doing? >> that customer is doing very well. doing very well. they are traveling more.

they are to -- they are buying more. i think they have become more serious. it is not necessarily about price, it is about quality. >> we are going to leave it there. this is the most current issue, right? be on the lookout for the luxury summit issue. >> we will have something about it. it is a kind of private affair that we are giving a preview of right now. >> enjoy it there. excellent. more "street smart" after this. ♪

fork, that will do it today's edition, everyone. tomorrow we will find out why tom cruise is getting into the coffee business. and the man who is getting ready

to take on everest, see you tomorrow. ♪

is 56 past the hour, meaning that bloomberg television is on the markets. stocks ended the session the down day across the board. the dow jones off nearly 100 points, the nasdaq lagging behind the bunch, 1.4%. markets turning around this morning with president obama testing the international border durableing crimea, goods orders rose for the month of february. one of the big stories of the day, the debut of king digital, but on -- unfortunately for

them, shares tanked. it was the worst debut for a new company in the u.s. in nearly four months. adam johnson took a closer look at the company in today's insight and action. >> which is more addictive? candy crushed the game or the stock? time for insight and action. the ipo was priced at $22, given timesnings of 9.2 earnings, very cheap, right? cheaper than the s&p 500. turns out that they get about 78% of the revenue from that one game, candy crush. trading at less times earnings, king digital, candy crush is one of them. if it is trading that cheap but

also down, do we need to find some other companies out there that are cheap? noting and necessarily going to be quite so much of a burden in the portfolio? here is what we do. we took those 150 names and we sorted them by pe. they are cheap. also the ones growing earnings, at least 15% into the forecast this year. as it turns out we have about 14. these are the anti-candy crushers. some of these names you know. computer associates, the maker of gorilla glass on your iphone. some of them you may not. the bottom line is i put all 14 onto my twitter handle, we are just trying to find cheap technology covers. clearly the market is not too happy with candy crush and king entertainment today. >> julie hyman spoke to the

digital cofounder, ricardo oconee. she found out if she priced it too high. synergy, byterm focusing on it we create shareholder drive. i think we are in an incredibly strong position. >> julie ask him the question that all candy crush addicts want to know, given the seven billiard. -- $7 billion valuation, what will be the next game? >> we are not focused on finding another candy crush. playing candy crush every day. the strategy is to build up a portfolio of games where we number one retain the user over a portfolio to monetize.

more time we will show you how king performed on its debut, down 15% in its decline in four months. even though it was priced at a discount to its peers. that is it for "on the markets. what ♪ .

>> this is taking stock for wednesday, march 2014. is pressure. the federal reserve revealing five banks failed it stress tests, including citigroup. what that reveals about the u.s. banking system. facebook under pressure after it's that on oculus. underwater pressure.