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tv   Street Smart  Bloomberg  April 13, 2015 3:00pm-5:01pm EDT

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critics good afternoon, everybody. welcome to the final hour of trading. i'm air schatzker for alix steel today and this is street smart. may notice stocks drifted lower over the course of the day, paced by decline and industrial in tears. the dollar is up for a six-day against the euro. the euro is trading just shy of $1.06. "street smart" starts right now. i will be joined by alistair
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noon. ♪ here's a good place to start. is in advanced negotiations to acquire all the lucent. it would help no p.m. compete with eric -- help nokia compete with ericsson. calpers had an increase of 6% over last year as the value of its portfolio rose by 8%. shares of profits have more than tripled since the recovery brought on by the recession. walt disney is investing in a steven spielberg film "the bfg. -- "the bfg." it is based on a terrific children's book.
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if you haven't read it, it up. -- pick it up. there are less than 60 minutes to the close of trade. scarlet fu had and i on some of the late action. scarlet: we've been drifting around in search of earnings before tomorrow. cautious trading in europe helps to set the tone. tomorrow, jp morgan, wells fargo, j&j, intel reporting. ahead of that, down slightly for the nasdaq s&p, and doubt. the fix is moving up, which shows the increase in prices investors are willing to pay. it is just below 14 right now. you gave us some great approaches him a dollar right now, but here's another one. the dx why dollar index rising
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to a 12 year high. the chinese index is expected to drop, sending other currencies higher, such as the aussie. oil is up for a third day as well. erik: we will be digging deeper into those chinese data later into the show. right now, talking about investors overlooking trillions of reasons why the rally will keep going. imf economist stephen jen says pent-up demand will lead to depreciation and those forces will outweigh any long-term fed policy. is he right? here with us is alistair newton and lisa abramowicz. alastair: why don't we start
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with you -- alistair, why don't we start with you? is your bias toward an ever stronger dollar? or do you think this fellow stephen jen, is wrong and fed policy will interrupt the rally? alistair: let's make this that i am a political strategist, not a currency strategist, and your readers need to take that into account. i know the market is likely to soften. it has rallied for the last several days, but we have access in opec coming out right now. -- excess coming out in opec right now. look at the amount of oil going into storage in this country right now. you've got to say that nothing is going to stop the shale boom in the long-term even priced at this level. shale will prove to be remarkably resilient. that means the u.s. will move increasingly to domestic
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security energy over the next 10 years. that has to be dollar positive. i am not particularly concerned about whether we see the dollar softening in the short term, but relative to what? the euro? we could still see a greek exit. it is still an uncertainty in the u.k. right now. certainly in the yen, given what we've seen in the japanese data. a lot of that you could put down to bad weather, i think. frankly, it is not -- it is hard not to be a dollar bill -- the dollar bull. lisa: frankly, i think everyone is a list. how much of as a bride can this have definitely would have to be a massive surprise to the upside to think it is not -- how much of a surprise can this have? it would have to be a massive surprise to the upside to think
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it's not going to be there. that's got to be part of it. karl: if i could jump incommode, setting monetary policy is a real possibility. that does point to a stronger dollar. and getting back to alistair's point, a big part of our trade deficit is energy imports. if shale producers are helping to narrow the trade gap, -- alastair: since 2012, 80 percent of the trade deficit is energy. that is a huge amount of money. the trade deficit that year with $560 billion. erik: going away, if you are right and shale production continues uninterrupted. alastair: yes. erik: we have not even brought into the conversation the notion that i started with, that
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stephen jen has documented that there are $9 billion in dollar denominated liabilities that have to be repaid. and in effort to repay those debts, companies and borrowers of all stripes will have to find dollars. lisa: there is always that dynamic and are frankly, people concerned about that. you have these emerging markets that will have to pay back this debt and it will make things more expensive for them and weaken the currency. and people will want to favor the dollar because it creates instability elsewhere and people want to put money in the u.s. there is also the structural short position with just central banks. they are less heavily weighted toward the dollar than they have in traditionally right now. -- have been traditionally right now. their investment fell to a record low in 2011 from a high of 63%.
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that could potentially be a really strong process of for the strong positive for the dollar. carl: and we are seeing some indications of a strong holding in the dollar. that is a relative -- a relevant point. if you look at the dollar the last six months, there has not been this long-term structural story. which you highlight and i think is a very valid point, but more to the central bank invasion. in terms of dollar strength now, we've seen this short-term horizon. the structural part has not kicked in yet and i think that is what will drive it over the longer time. erik: allison, perhaps it's a bit -- alistair perhaps it's a bit unfair the way i put that question to you. alastair: i'm used to unfair questions. [laughter] erik: to what degree does the
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rubin rule apply, the strong dollar in america? alistair: america imports a very large amount of manufactured goods from china. cheap energy costs will help boost domestic investment. i would like to see a boom in homegrown manufacturing. that would be good for america. but because america manufactures here are the things that are largely bought by americans, i do think that bob rubin, who i have a very high regard for, is actually right. a strong dollar is good for this country and will be again in the future. speaking as the one non-american on this show -- erik: hey, hey, hey. alistair: i beg your pardon, one non-north american. i do think that a lot of this conversation is misplaced.
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in relative terms, america is not as strong as it was 10 years ago and we've seen the rise of china. but america has a great story to tell and i do firmly believe that america will remain a major, if not the major global military power for decades to come. and probably the world major economic power for decades to come, despite china perhaps being number one on ppp. erik: and they have a strong dollar to go along with it. alastair, thank you for speaking with me. lisa abramowicz and carl riccadonna will be the -- be with me on the inside of this break. and jordan speith this weekend. a lot it on those young shoulders. ♪
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erik: you are watching street
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smart here on bloomberg television. i'm erik schatzker. three years ago, morgan stanley 's james gorman told me he would put money on a fed hike this year. as it turns out, they were betting on a 2016 increased. now those same economists have come around to the view of a fed liftoff in december. here with me, alastair newton, lisa abramowicz, and carl riccadonna. you know some of these families as well. the cynics want to somehow believe it was influenced by gorman. carl: never bet against the boss. i think the bed -- the fed and a lot of the policymakers have done a pretty good job of at least initiating the dialogue of
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one and done, or two and down. -- and done. getting off of popping to assess the implications of one move. as the fed is getting better at telegraphing message, they saw, ok, they will do something this year but not a lot. erik: that said most market economists are still producing a fed increased before december. karl: the cap is kind of split between the june and september meeting. i would not be surprised if we saw a little more emphasis on the july. probably not a good idea to skip that. erik: i don't how much insight you have into this kind of dynamic but clearly, the ceo has accessed information he will not share with his economists. he meets with his client and he knows to what degree the ceos feel good about investment plans
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and he might know a little bit about their spending. again, information he may be able -- unable to share with his economists. it's kind of unusual frankly, to hear a ceo bs bold as james gorman was about his view. many ceos will say the house view and say, my economists say so and so. alistair: to be fair, i don't begin with particularly brave three months ago to say a fed rate hike will be happening this year. i don't agree with our economists a lot of the time either. and the good news is, she married doesn't pay me to agree with them. -- my company doesn't pay me to agree with them. despite all the movements in the data, for the very good reason that none of us can be sure until there is a persuasive argument to come down from somewhere else. and at the moment, i don't think
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that exists. it could be june or it could be december. there is that much uncertainty about it. clearly they will be a big impact on the emerging markets when this does take lace. -- take place. and a lot could happen between now and then, because clearly inflation pressure is nonexistent. growth in the u.s., low at the moment, but that could be a seasonal thing. we could see a big uptick as business gets going in the northeast again in q2. and the core thing that the fed will be looking at, i know unemployment is only at 6% in the u.s., but look at the participation rate. it's not very impressive right now. erik: we are just talking about economic fundamentals. what about the macro prudential role that the fed also has? carl: the fed repeatedly signals
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that yes, monetary policies could be used to deal with these macro prudential issues, but certainly not at a first resort. can they approach this through regulation and other impacts? and arguably, there are not any big bubbles. alan blinder highlighted as much in the wall street journal today. global yields are low. there is a tertiary bubble -- is there a tertiary bubble? it's hard to hang onto. very much to your point, we have to see the extent of the bounceback in the economy. maybe it is the weather and will prices and these transitory factors but we are not sure yet. we have to see how much the economy is recovering in q2. 1% in the fourth quarter is not a momentum that policymakers want to see to start the great liftoff, if you will. we have to see what the rebounded in q2. will we be the same as last year we are growing 5%?
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or is it something much tamer? the fed will air on the side of waiting in a bit longer. erik: carl riccadonna, as always, thank you. alastair newton is staying right here. coming up, could marco rubio steelal a vote from hillary clinton? ♪
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erik: the list of 2016 candidates keeps growing. senator marco rubio of florida told his top donors he would be running for president. he is the third republican in the race after senator ted cruz and rand paul. earlier on "market makers," a former reagan advisor told --
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talked to me and stephanie ruhle about marco rubio's tax plan. here is why he doesn't like it. >> it makes no sense. what you want to do in personal income is lower rate the rate -- lower the rate is much as you can. all caps's are bad and some are worse than others. you want to collect your money in the least damaging factors -- fashion. erik: for more, so with me is alastair newton. john, you were with me and stephanie when we were stepping all over the marco rubio tax plan. it is very decidedly end of the middle class. how successful do you think that can be amended the constellation of republican points of view? john: good to be with you again. i wouldn't say it affects the
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candidates or potential candidate, because he has had to be more specific than the other potential candidates have had to be yet. driving back to the reagan era sweeping across the -- sleeping, across-the-board tax cut chopping those as much as possible, rubio is saying we have to do something about upward mobility and income inequality. and he said he wants to focus his tax relief on families with kids but i will leave the rate where they are. especially the top rate on personal income. on the other hand, there is a whole camp of the republican party that are known as reformed conservatives who are attracted to this kind of vision. there are some who think it is the right way to go and will help marco rubio differentiate himself. at the same time, those guys at
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the wall street journal and others will give him a hard time. erik: alastair , what about you? alistair: i kind of agree with john. looking at marco rubio overall i kind of feel like i did about barack obama in 20 -- in 2007. in theory, it may be too soon for him. there are other factors that will we against him -- way against him. if he truly has something, then other republicans will be inclined to support. erik: is alastair is right and rubio does not end up being the nominee, does some of this begin to change the conversation about economics, and more important cap policy within the republican army? does he arrested out of the hands of -- does he wrest it out
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of the hands of art laffeyr and others? john glenn it is a good question. it will be a noisy fractious -- john: it is a good question. it will be a noisy fractious nomination road for republicans. we will see who wins the debate. there is not doubt it will inject a contentious element into this republican nomination of which there will be a lot. i agree with alastair that no one says marco rubio is the front runner for the republican nomination. and the analogy to barack obama is quite good. no one would have said in 2007 at barack obama -- that barack obama would have been the
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front-runner, and then he went on to become the president. we will be covering it on bloomberg politics and bloomberg tv as he brings himself forward and launches himself at the white house. erik: looking forward to it. a big show coming up on bloomberg politics. don't miss it. ♪
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erik: welcome back, everybody. you're watching "street smart" and i'm erik schatzker in for alix steel. over 200 world caribbean passengers onto ships are suffering an outbreak of vomiting and diarrhea. it's happening again. the vessel was alone coast of california and mexico. the coast guard will board the vessel's when they dock today or tomorrow. harvard once the school to divest fossil fuel investments from its endowment. harvard's president said she opposes them in favor of other
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strength for the endowment. and five years after the fatal bp skill -- bill in mexico, adopting of outside audits of oil drilling equipment. let's take you back to the breaking news desk. scarlet fu was looking at some of the notable stocks of the session. scarlet: netflix briefly talked its -- topped its numbers at the close. the catalyst for today, ubs upgrading it to a byuy and raising its price point to $565. last week citigroup upgraded the stock as well and there has been a re-rating over netflix in the past few months. the stock is up 47% in the past three months with subscriber
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additions outstripping stock growth. and an increased 6.2% in passenger traffic for jetblue. that is good for a 4% gain right now. and apple is little changed. i did want to bring it up because there was news after the preorders of the apple watch. buybacks will boost its return to as much as $180 billion. of course, does want to use any of its cash overseas because it will help to -- have to pay taxes on that. erik: in the meantime, greek
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officials denied the report that athens is nearing declaring default unless they can reach a deal with his creditors by the 24th. bruce told me and stephanie he owns some greek bond. what are the odds of greece leaving the eurozone? here's what he said. bruce: maybe 10% to 15%. on the base case, the outcomes are that they stay in the euro. erik: alastair, you have some views on greece. are you inclined to agree with bruce richards? that there is an 85% chance of greece stand in the eurozone? alastair: our economists are pretty much in the same place
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that bruce's. if you look at market participants today, they divide into two main camps, those who think the great fear is -- those who think that greece is negligible and those that think it is inevitable. most of the debt is owned by the ecb these days. erik: it's hard to get a good trade on the marketplace. we see the yield at about 11 and a half. -- 11.5. alistair: most markets are looking at markets in europe. they are looking at athens which is where most of the problem exists today, and they are looking at berlin, because that is where decisions tend to get made. but if you're looking at those who are strongly opposed to
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making further concessions to athens today, they are they government in madrid, rome to an extent lisbon to an extent, and dublin. they all have election issues coming up with their own parties to deal with. and we have a finish election coming up at the end of this week. there is a fair to medium chance that the finns will be part of the coalition. there will be an election spending cut in finland. it will be difficult to persuade voters that they should be doing more for the greeks when they are suffering and austerity program themselves. that is why it is probably higher. erik: why is the influence moving past berlin to the italians, to the spanish, to the portuguese to the irish command
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as you put it, to the financier: alistair: first, there has to make -- to the tfinns? alistair: first, there has to be concession made. and secondly, angela merkel. the voluntary and are probably around 35% and the german government acting would still prefer to keep greece in the eurozone. but not at any price. erik: you think angela merkel would be willing to hang herself on the cross? alistair: prefer not to, but keep in mind you have a situation in which the german and the anti-euro party -- not anti-europe, but anti-euro -- have already won states that could push merkel out of power.
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in the end, did o'neill summed it up all very neatly with his "all politics is local" soundbite 30 yard years ago. merkel has to be aware of her domestic constituency and sentiment in other eurozone countries as well. and it's not as if the weeks have come to the table and made a sensible offer for what they would prepare -- be prepared to accept. when you have greek ministers coming out and saying they want billions in war reparations from germany, that's not very helpful. erik: do they not seem to be handing anything to the populace? alistair: as far as spain, they have important elections coming up at the end of may. with amos --podemos is likely to do well in those. as for his italy is concerned, i have seen a real shift in public opinion in italy in the last three years.
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three years ago, it was pretty hard to find eurosceptics outside the core. today, just about every opposition party is anti-euro to a greater or lesser to us -- or lesser extent. they have to be aware of that. erik: that is a terrific conversation about greece. and you nailed it. we will be back in a couple of minutes. alistair newton will be with me. ♪
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erik: this is "street smart." i'm erik schatzker in for our steel. -- alix steel. qualcomm is being asked to spin off its chipmaking unit. with me to talk about this more is "request" editor-at-large
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cory johnson. also here alastair newton. we discussed earlier today this is not exactly foreign to qualcomm. what we want to get a better idea from you is whether barry rosenstein, who has had a pretty successful track run as an activist is going to be successful with qualcomm. cory: what he's asking the company to do is something the company already said was a good idea in 2000. qualcomm positioned the exact same idea, that they should split their business into the chipmaking business and the technology licensing business. the unit that is looking at 20% gross margins and the unit that is looking at better than 80% gross margins. and they propose doing a tax-free spinoff of the technology licensing side to investors. the problem is that side of the business is now a much larger portion of the business and a tax benefits would be harder to come by.
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and the management and the founding of the company, the jacobs family, would indeed tremendously benefit from this is the market took this at a better price when they look at the two did businesses. -- the two businesses. erik: i will not pretend you are an economist, but you cannot ignore qualcomm these days. alistair: i will give you a specific example. cyber attack. i have nothing against sony and i think they are a very fun company, but i'm glad what happened did happen last year. not because i wish the company harm, but i like seeing this roster the four. -- this brought to the fopre. erik: because you know that sony was targeted by an activist
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investor, dan loeb, who as far as i know was not pressing tony for more information about its cyber preparedness. dan loeb wanted to spinoff sony entertainment. alistair: i think this is a big question. the risks are much bigger than people realize. a lot of cyber attacking is going on all the time and firms are not declaring it. it will be a good thing to pass legislation saying if you are hacked, you have to declare it. shareholders have a right to know what defenses are being put up against is increasingly serious cyber threat, and exactly whether you've been hacked or not. we have a big conference going on in asia at the beginning of june. we are bringing in a big cyber expert to talk to our investors about the risks and how you counter them. this is a very 21st-century threats and investors need to pre--- be more aware. erik: i want to bring cory
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back into this conversation. do you think there is a role for activists over cyber terrorism? activists are constantly trying to sell you on where the value is in the stock that is not being recognized. they rarely talk about the potential for downside if a company or ceo doesn't do something. cory: there is a risk that they take with activists, too saying , why are the costs higher? one of the costs might be because of the money they are devoting to protect themselves from cyber attacks. the conversation has moved to the boardroom, but i don't think it has moved to the executive offices of the hedge funds that are trying to find value in these companies. erik: always great to see you cory johnson. alistair newton will be with me after this break. we will be talking about the sales of the apple watch.
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how many of them in these luxury goods? and nuts make no mistake, these are luxury items. ♪
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erik: demand for the apple watch is strong in it debut weekend. the company may have sold as many as 2 million watches. it puts the delivery date for some buyers back to july. how does this compare with the release of other apple products? with we now, josh. who i believe is wearing an apple watch. josh: i do have one on. you guys are always so dressed up, so i wanted to wear something casual. this is a different kind of launch for apple. they normally get people lined up outside of stores to buy the product. this is a launch to get people to pre-order to wait for the watch to come to them. which is relatively unique for them. erik: a good idea?
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josh: i think necessary idea. you have to get people to play around with it a little bit. as a whole supply chain issue for apple. it's not just a different screen and body. it's a completely different product and there are so many variations of it. i think it's a good idea and if estimates are right, then pretty strong sales for something that a few months ago nobody thought they wanted or needed. erik: alistair, you didn't know this but you've been wearing the apple watch for how long? josh: about two weeks now. erik: why would you want to buy one? alistair: why would i want to buy one? josh: that is the question i asked in my interview. the question is have they made a product that you have to go and get? i'm not totally convinced. i think the answer could be do you fetishize gadgets? that would be a good answer if you have to have the latest and
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greatest shiny thing. they are trying to solve a couple of things and one of them is distraction not getting sucked into your phone all the time and having something more subtle. they kind of get there, but i actually found it to be overwhelming. do you have a watch on right now? alistair: i do have a watch and i was early adopter of ipod technology living in new york 15 or so years ago. i have an apple mac. and i have an iphone. i find all of those incredibly useful devices and the reason i have them is principally -- of course, the brand does influence me, but it is the utility. erik: here's the thing, you think of apple as a consumer electronics device supplier because the products they sell you are utility. but this is a luxury item. josh: it is a beautiful
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expensive in some cases, accessory for all of the things you just talked about, for your phone, your tablet, your laptop. this thing cannot stand alone. it is clearly designed in a way that it cannot stand alone. it really is an extension of the other apple stuff you have. there is an argument there when it comes to how you get notified and how you interact with people. this can be useful in certain scenarios. but it is not another iphone. it's not suddenly an epiphany that you've got to have one. erik: when you think about apple as the kind of company you want -- you know it to be, do you want it to be selling accessories? alistair: i think i will stick with what i've got, to be honest. i'm not the person to ever spend a lot on watches. erik: what kind of watch are you wearing? alistair: 25 pounds, something i picked up on the -- at the airport. erik: i'm actually struggling,
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because i have a nice one that i wear. we've got to end this. who would be back. -- we will be back. ♪
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erik: welcome to our viewers around the globe. i'm sure -- i'm erik schatzker and this is "street smart." numbers have been fluctuating throughout the day and are now recovering. they would have to recover a great deal of ground to get back into the green. let's go to scarlet fu at the breaking news desk. barlett -- scarlet: qualcomm started off with a bang, opening up with a 3% bang after jana
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partners the activist investor, called for the company to spin off its chipset business from its licensing business, its patent licensing business which is facing challenges in places like chana -- china. both the s&p and the nasdaq got within 7/10 of 1% of their all-time highs before retreating. it does look like we will be closing near the lows of the recession. right now, it is a waiting game. jpmorgan and wells fargo kicked things off along with johnson & johnson and intel. erik: we back with you in just moments. right now, lisa abramowicz and carl riccadonna join me. and world equity strategist tina martin adams. we will talk about your outlook for the market. you think the rally.
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i want to talk about one reference, and not specifically the position that jana partners has taken against qualcomm, but the idea that activists are constantly having to look for larger and larger target. and because they only have so much money to put to work, the percentage of the stock that they are able to own of multibillion-dollar companies like qualcomm and that dean quite small. jana partners has $2 billion invested in qualcomm, but walk-on -- qualcomm has a market capability of $13 billion. will that change the market of activists cannot get done what they have been so successful at doing, which is getting ceo's endboards to capitulate? gina: it could, and i say that because activists have had a substantial part in driving share reduction dividend payment increases, share count
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decreases by way of their activism. the reason it may not matter much is because earnings may grow faster going forward. earnings have been growing slowly so they have impacted share count and cash deployment. these are factors that have impacted share prices. if we get earnings growing much more quickly, revenue growth driving earnings growth, reduction doesn't mean as much. it blunts the voice, because success is more ample. in an environment where success is fairly limited, they have a much eager impact in my view. it depends going forward how successful the earnings stream can be on organic growth. erik: quickly, before the closing bell rings, have we seen activism in the bond market yet? gina: certainly in the smaller deals. as farce the bigger -- lisa: certainly in the smaller deals. as far as the bigger deals not really.
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i mean, to some extent, but it underscores the same idea that it's getting harder and harder to do very well without being an activist on some level. [closing bell] or being more of a -- erik: when bill gross was with pimco, would you call him an activist? because of the amount of money he had under management and -- lisa: an activist with what, the fed? erik: yeah. >> he was involved in the biggest, deepest market in the world, treasury market. erik: we will continue the conversation about stocks in just one second. i want to bring you up to speed on where things ended today. dow down 79 points s&p down 9.45 points. in both cases decline of slightly half a percent. let's go back to our chief
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corespondent. scarlet, what caught your attention? scarlet: as days go, today was meh overall but for the year we v.a. seen rotations out of u.s. stock where valuations are north of five-year high and into europe and china where stimulus is on the agenda. for china evidence of fuel slowing economy is fueling the economy. so the exchange traded fund that tracks large cap is at a six-year high and mirroring gains in hong kong and shanghai. just to put the chinese equity bubble in perspective here erik, i have a chart from alberto gallo from r.b.s. which shows return of chinese stocks versus that of the u.s. and europe. the real divergence beginning around the fourth quarter of last year. the return of chinese stocks all things considered going back to the start of 2014, four times what we have seen in the u.s.
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and seven times what we have seen in europe. that gives you some perspective on how powerful the gains have been. erik: scarlet, thank you very much. our chief corespondent scarlet fu. let's continue with our chief u.s. economist and wells fargo equity strategist gina martin adams. there are so many things influencing the direction of stocks in particular but bonds as well. among them the dollar. which if you measure by the d.x.y. is trade weighted basket of currency. sixth day of gains for the dollar. as scleart mentioned we had economic data out of china suggesting the chinese economy is slowing further. what's your view on the importance of the strong dollar vis-a-vis the stock market? >> it all depends on the pace at which the dollar rises. the dollar has been rising since 2011. stocks rose in 2012. rose in 2013 even though the dollar was rising in those years
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well. it didn't become a problem until the dollar made a parabolic move in the second half of 2014 and rose at a faster pace in the fourth quarter and that's because it was a surprisingly strong move. it naturally fed through the expect the pace of future earnings growth and came at a time in which oil prices were also plummeting. there are a lot of moving parts to capture. i think stocks absolutely can rise and earnings can rise as well if the dollar rises at a more normalized pace. let's say somewhere close to 5% annual instead of 10% to 30% change we're in. in the near term it's volatile violenting an impressive impact on earnings growth. what i will say is that as it goes on, however investors increasingly fear the dollar and it becomes less and less of a broader concern, right? because we start start to price in the dollar will never stop rising. we start to embed that in our expectations and it becomes less risky. >> it depends why the dollar
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viesing. is it pick your bad cliche here? the best shirt in the dirty landry? cleanest shirt in the dirty hamper whatever. the fact is it just everyone else is so bad or we're doing so well? and that makes a big defense about whether it's a good thing or bad thing. erik: what's remarkable we have seen the continuing strength in the q-1 where much of the economic data looked lousy, we're now out of the q-1 slump and insight into the second quarter, tomorrow's retail sales for march show significant headline gain. if we get strong data here, bounce-back maybe in the industrial production data and retail sales figures, people have more confidence that the economy has a permanently downshifted to a 1% handle on the growth rate, that could be the next leg in the dollar here, pushing us very close to parody. erik: carl, that very conveniently takes us to the next topic i wanted to raise with all three of you, op-ed in "the wall street journal" by
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former vice chairman alan blinder. he says current chair janet yellen is correct to implore patience. he writes -- here's the question, is blinder right? we talked about this a little bit earlier in the show. what is the role of the fed? is it to police the job market and inflation and if so, which of those car aries more weight right now or is it to sort of take into account the bigger picture where financial markets are headed what's happening in europe what's happening in japan? carl: alan blinder is very much of the same ilk as new york fed president dudley and chairman janet yellen. his continued case for administration of federal policy gives us tremendous insight into
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how the fed is actually operating. we have heard very similar comments from new york fed president dudley recently and i suspect he speaks for freely than the fed chairwoman who is sensitive to the market overreacting to what she says. >> there's an argument you're not just going to prevent inflation by hiking rates but you actually could stimulate growth by raising rates. it sounds counterintuitive but people are getting paid more for deposits and paid for more investments, they might have more money to go out there and reinvest. there is sort of this growing undercurrent saying -- >> i would argue against that. the cost of financing and higher the cost of financing is that rerestrains economic growth. erik: gina you have an s&p 500 for your end of 2222. call it a couple points higher from where we are right now. to what degree does that target assume a rate hike of 25 or 50 basis points? >> it actually assumes we get 50
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basis points through the second half of next year and pickup in earnings growth as well. the more important aspect quite frankly is earnings growth. in our model every 25 basis point increase in fed funds takes only .2 x off the multiple in the s&p 500. what matter is we get an acceleration earnings growth the second half of the year and into 2016. so i'm not going zero to 50, we're probably in pretty good shape with our forecast. is it will we -- at this point in the cycle the teeny tiny moves in interest rates have very, very limited impact on futures. carl: quhiped of g.d.p. growth do you have baked into your mod until >> it's not baked into g.d.p. at all. it's based on leading model indicators and we run 10 sector models to the total. g.d.p. is a trailing number anyway. what we rely on is leading economic indicators which is very good forecast record and
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l.e.i. rising 6% and that implies 6% growth in earnings in the second half of this year. erik: let's bring into this conversation lisa, the bond market. lisa: please. erik: you see the bond market opportunity. there are a lot of reasons to argue the bond rally should come to an end. lisa: people have for many years. erik: and they lost a lot of money for doing so. pimm co -- pimco, latest to sell treasuries in a bet perhaps this rally is over. once upon a time that headline alone might have been something of a market mover. not any longer. put it into perspective for us. lisa: sure, everybody is hating on bonds for a long time, hating on treasuries for a while saying if the fed will hike rates, that means yields go up, prices go down. will you have losses. and that has been the prevailing wisdom for many years and that got turned on its head in a
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massive way this year and last year. it's been sort of a very punishing bet to try to bet against treasuries right? but here's the thing, it's a question of, is it a long-term strategy to be short or is it sort of reducing the exposure to the thing, it's treasuries right now because there might be volatility coming up or the yields might cream up a little bit? i think what people are looking at is they're saying in the u.s., if inflation rises enough you start to basically get negative real rate of return if you own treasuries at too low yields. there's sort of a floor to how low they can go. that's the argument. at the same time when you look at the trillions and trillions of dollars of negative yielding assets in japan and europe it's hard to see how yields will rise that much. so this is sort of the conundrum making a lot of investors right now. erik: carl, some at least of what appears to be driving treasury yields lower is the quantitate tive easing that the
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european central bank has taken across the atlantic. to what degree is that a help or behind drens to the fed? carl: to some degree the more q.e. done in europe, the marginal investor moves into treasury securities so that's helping keep yields low. as long as the fed is looking to nudge comet into faster growth, q.e. actually helps. from the perspective q.e. is weakening the euro, vis-a-vis the dollar, i'm in the camp the dollar really mattels for u.s. economic output. from that perspective it's actually hurting things so it's a double-edged sword if you l i hate to be the economist saying on one hand and the other hand but it is double-edge side. erik: great conversation, carl, thank you very much. chief economist here bloom intelligence. lisa and as a matter of fact, i wanted to tell everybody before we finished about retail sales. there's a big report coming out tomorrow. we are so focused on what's happening in the economy. retail sales for march.
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gina martin adams of wells fargo, great conversation. thank you very much. up next on "street smart," it's also a big bang -- big week for bank earners. j.p. and wells fargo kicking things off. how much of an impact will they have on the bottom line?
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erik: good afternoon. once again you're watching "street smart" on bloomberg television. here are some of the top stories we are watching after the closing bell. pimco is cutting way back. the government fund cut debt from 22% down to 35% in february. america's triple a credit rating was affirmed by fish. fitch cited the strength of the u.s. economy. fitch said the outlook for
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america's credit rating is stable. citigroup named steven bird head of its global consumer bank. bird will take on the new role june 1. speaking of citi it's among the banks reporting. jpmorgan and wells fargo kicking off tomorrow and citibank and goldman sachs reporting this week, followed by morgue an stanley. bloomberg's michael moore is here. michael, will this be the quarter when trading finally shows some signs of life? michael: analysts expect a little bit of sign of life here. jpmorgan kicks off tomorrow. they're expected to show the first quarter increase since 2010. it's been five years since we had a little bit of an uptick in the first quarter. we might finally see that. but it's expected to be 2% to 5%, so not a huge bump up. a little progress maybe turning the tide. erik: is this on the basis of weak comps or is something
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changing in financial markets to the trading environment that makes it more track tive for these banks to do business? michael: you had a little bit of volatility in the macro markets and rates and currencies and you have -- your previous conversation, you have the fed going one way, europe going another. that's caused a little bit more activity in the macro markets, i think that is the biggest thing. first quarter is typically seasonly a little bit better than fourth quarter so that will be up there. erik: what about what we heard from citigroup earlier last month? citi suggested fourth quarter trading down 10%? michael: citi would be down i think mid-single digits and part of that was a one off. they said they lost money on the swiss depegging. so there's a little bit of one-off there. which happened in mid-january. but some analysts pointed out
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that was early march when citi made that warning. march was fairly active so perhaps they can do a little bit better than that. erik: and let's talk about goldman sachs and morgan stanley. the other banks are principally commercial banks. so much of the income and profit they generate is dependent on the interest rate environment. still waiting on the fed. lord blank-fine said in his letter to shareholders it's a good thing it's a smaller firm. are we to buy this? michael: he pushed that line a few times, that there are -- this economy is to scale now because of capital requirements because of the complexity. so i think, you know, that is -- and they are more narrowly focused. so they have more of -- they believe they have more of a culture of being more of an institutional firm and not having a commercial. erik: but they have a bigger balance sheet than morgan
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stanley? so if it's good to be small in theory better to be morgan stanley -- michael: when you're comparing yourself to jpmorgan you're going to look small no matter what. erik: how about the retail business? that's been a source of strength for the most part, for morgan stanley and also bank of america, which still owns myrl lynch. so we have a sense of what that environment is like? stocks continuing to go up. we're not having a year like we did two years ago. stocks continue to rise. michael: i think -- and a lot these last year was such a good year for stocks, that a lot of these managers are moving into managed accounts. relying less on clients to be active on a commission basis and really pricing it based on the level of the assets. the last couple of years the -- they have benefited from the rise in asset price. erik: most of the time that that happens if you switch from
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a commission account to an account you're charged a management fee, the broker becomes a fiduciary in that case does he not? michael: they're still working on the rules of that. in many cases you are a fiduciary and you feel the clients charge 1% to 2% of assets. the banks like it because it's a more stable stream of fees and has benefited from the rise in asset prices. erik: michael, good look forward. bank earnings begin taupe. i know we will see more of you on bloomberg television. bloomberg's michael moore. coming up on "street smart," why are chinese investors going on a hong kong buying spree? you will hear about it when we come back.
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erik: here's another reason for
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investors to worry about the chinese economy, exports unexpectedly slumps the most in more than a year last month. for a look at the challenges facing beijing and chinese central bank the chief strategist at silver cyst asset management is here. is there reason to worry? can we now count on the pboc to do whatever it takes to keep the chinese economic engine humming? >> no, a lot of the optimism is driven by the sense bad news is good news because the chinese government will step in and stimulate the economy. if this bubble is going to have a tombstone, it's going to read an eternal hope of stimulus. the chinese have been stimulating their economy ever since 2008. the reason why that's being reined in now is not for lack of trying. it's because it's having less and less of an effect. more and more credit is achieving less and less in the chinese economy. the credit he mechanism is broken. erik: you call it a bubble. >> yes absolutely. you have a fundamental
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disconnect here between the stock market and its going up steeply, it's doubled really in the past six months domestically in china and the steady drumbeat of negative information that we're getting. erik: we have as good an illustration as you're likely to find. yellow line is the shanghai composite and white line hang seng. >> there's been this gap between shanghai comp and hang seng for a while until chinese -- erik: beginning to close, right?s0 >> until chinese domestic investors started to recognize that and funnel money into hong kong market. and that's being driven by look, you got to take a step back here. back in 2007 the shanghai comp was at 6000. and in early 2008 this was before the financial crisis, the bottom fell out of that market and it lost two-thirds of its value. down to 2,000 and stayed around 2,000 the next five years. and now what we are seeing is --
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what happened was people went from investing in stocks to investing in real estate. you saw big real estate investment boom that's because where people put the money. they stayed away from the stock market. now the bottom is coming out of the property market. property market in china has been in couple the past year. people expect td to be better. it's not. people are shifting their money somewhere else. of course, it's going into higher and higher valuations. instead of reflecting any kind of fundamental improvement in the stock market. erik: have we already seen the canary in the coal mine? is the property mart canary in the coal mine or is it something else? >> property markets is a big factor in china because it drives a lot of g.d.p. growth. it also what underwrites a lot of collateral in the lending system in china. there are other canaries. the fact iron ore is below $50. that is a reflection of the falloff. overcapacity is being created in a lot of industries and falloff in construction and industries that feed that.
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i really do worry about this disconnect. when investors ask me what i think, aren't we really missing out, look how fantastic the chinese stock market is doing, i say if you want thrills, if you want risks, hop a flight to vegas. you will get the same excitement and really the same fundamentals. and you might even get your room comped. erik: do you have a view on what we should expect to see in the g.d.p. report tomorrow? >> look, the thing is numbers out of china reflect what -- erik: what they want them to. >> -- what they want them to say. a lot of economists, me included, are not worried about whether china will meet its 7% g.d.p. number, we believe it's already substantially below that. maybe 4% or 5% range. that's not necessarily bad. china needs to switch gears. some slowdown in the chinese economy is good but people expecting a quick rebound are
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betting on the wrong horse. erik: patrick, thank you very much for joining me. from silvercrest asset management. we will talk more about china. a new report of decade-long hack is up next.
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erik: welcome back to "street smart," everybody. i'm eric shafter in for alex steele. here are the top stories we are watching after the closing bell. the u.s. budget deficit widened in the first half of fiscal 2015 to $440 billion up 6% from a year ago. speppedsing on social security and health services increased according to figures from the treasury department. sprint is going to start making house calls. the nace's number three wireless carrier will deliver phones to customers using 5,000 sprint-branded cars. the company is rolling out the service in kansas city and will expand to miami and chicago later this month. chrysler chairman elkane seized
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the nation for more consolidation in the auto industry. saying take into consideration the culture. and open to general motors and ford. stocks closed in the red and dow dropped about 80 points, unable to extend its winning streak to a fourth day. scarlet fu is at the breaking desk with after-hours action. what's making news now? scarlet: slim pickings but a couple announcements. solar city has given details on its plan to bond sale issuing bonds in five parts. fee churting 5.6% to 5.45% and funds will come from rooftop systems leased to solarcity 190,000-plus customers. one of the futures on this plan, it's interesting is offer retail customers the opportunity to buy these bonds through their existing brokerages or through their ire r.a. accounts. we will keep you posted on movement there. stock not moving in after-hours trading on that.
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meantime under armor, notable how the broader market rose, as nike flailed and jordan spieth won the masters. he was apparently covered in under armor logos. there were three under armor logos on his hat, one on his belt and two on his pants and logos on his shoes as well. eric smallwood, an analyst, said that earned under armor $4.7 million of exposure over four days of masters coverage on cbs and espn. tiger woods, mr. nike, ended tied for 17th place, erik. erik: scarlet, it it was one heck of a masters. there will be a little more golf here for you. scarlet: he's only 21 years old. signed him when he was 19. erik: what i worry about the weight of expectation for the entire game is being placed on this poor kid's shoulders. he's 212. he won a green jacket. let him enjoy it. scarlet: i it think he's enjoying it. erik: i'm sure he is.
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scarlet, our economy market competentant, scarlet fu thank you. according to a new report by cyber security from fireeye, hackers are believed to be backed directly by beijing and accused of targeting governments, companies and journalists in southeast asia and india. with me is the manager of threat intelligence, laura gallant. laura, the news china has been spying should shock people just as much as gambling in a casino. quite seriously, why are your findings important? is it because china is spying on neighbors who are perceived perhaps the chinese government to be more of a friend than a foe? laura: i think the regional dynamics you're alluding to is key here. there hasn't been the dialogue especially southeast asia, to the same extent we had in the u.s. and europe around the widespread data theft, whether it be for political gains like we see with this group of hackers, or for economic gains
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that we frequently see out of china. that dialogue and awareness hasn't had the same sort of attention it already has in our market here. erik: and so what will the diplomatic and political implications of such a finding end up being? laura: i think with the raised awareness around targeting to organizations across southeast asia it's a combination of a rethinking of what governments and commercial entities think of information assets. what do they have that's valuable and what's going to be targetsed? how do you put a defensive structure, whether it be information security or the behavior that diplomats who are getting targeted for instance, undertake? how do you change your behaviors in your network postures to better defend against this type of threat? erik: do you know what it is china was going after? laura: we do. we made several judgments in the paper around what we think this group that is likely backed by the chinese government is after.
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we think a combination of political information about the legitimacy of the chinese government, so the inner workings of the chinese government. we also saw a lot of activity around border disputes and sea disputes, standard bread and butter diplomatic type of information that was getting targeted. erik: why are you confident that this hacking was state sponsored? laura: well, we looked to the resource effort behind the tools that a group of hackers will use. the malwear development effort, if you will. when a group of hackers is creating their tools, their tell tail signs of how much work goes into it. with this group we saw the operation spanning back almost a decade now. back to 2004. and when we looked at the tools even deeper, we were able to understand that, that group was acting as a team. they were working in shifts. we can see the times they were compiling the tools by and get an understanding how cohesive the effort was behind the tool
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development effort. erik: is china working as hard as ever to conceal its tracks when it sponsored again, according to your findings, sort of cyber attacks and cyber terrorism of this nature? laura: in this case we actually had analysis and assessments that led us to think this group wasn't particularly worried about being caught. and the reason was this the infa structure -- infrastructure behind the tools they used did not change a whole lot. with some groups we think are operating out of china, they will change the background tools and infrastructure every three, four years or even more frequently. this group operated very consistently for 10 years. the implication being companies in the region and governments in the regions probably weren't deekting a lot of the malware this group was successfully using to compromise victims. erik: do you think we will find ourselves perhaps someday soon at a place given everybody knows
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what china does, it's not going to bother trying to conceal its tracks as much as it does on occasion? laura: we might already be at that point where the dialogue around this is so hop it's almost becoming established norm. maybe that's overstating it but there's sort of acceptance this is occurring. i think the side that we will have to change is companies and governments' tolerance for this type of activity. intellectual property, whether diplomatic or economic is getting taken, you have to think about what the long-term consequences of that will be not just for your company but for your industry sector and really for your economy. erik: laura, thank you very much for spending some time with us on bloomberg television. the threat intelligence manager at cyber security firm fireeye. she was in washington. next up, spotify wants to take on apple and google. can it do so without taylor swift?
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erik: spotify is raising new financing in a round that would value the streaming music site at about $8 billion. so people familiar with the matter, our west coast editor at large cory johnson is with me from san francisco. cory, if this deal gets done spotify would be worth effectively, because that's the last trade double what it was worth back in november 2013. why would that be the case if you have so many other entrants in the market? apple with beats, jay-z getting into the business and, of course, in such a well publicized mini scandal of sorts, taylor swift doesn't want anything to do with spotify? cory: yeah, i think it's really interesting, i think that's part of the same thing. the reason the valuation goes from $4 billion to $8 billion isn't because they sold the company for $8 billion, latest round of investment. but i think there are two factors. the frothiness of the private market loving some of these big companies. they're being known as unicorns out here in tech land, these
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private companies valued at more than a billion dollars. you have that to nom none. more money looking for those particular companies doing well in the private markets. the other phenomenon is spotify can be a dominant business in the music business. can you see the reaction from the biggest artists in the city trying to find some way around it, perhaps responding to the historical impact that apple had with itunes. but also recognizing that this is a place and predominant place where people are getting music in the way that they increasingly likely to get it, streaming rather than owning. erik: you looked at some of the research market out there, how many streaming services is there room for in the music business? cory: i think that's an open question. we have never seen anything like this in the music industry with the possible exception of call it eight years or so or five, eight years that itunes was the center of the music industry. never have seen a single,
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dominant company in the music industry really ever. licensing services like b.m.i. but in terms of providing music, recording music, places to buy music, concert venues, ticket master had a hold on the venues but nothing like what we might be seeing in the music industry where the catalog of music carries the day. and the question really -- i think the jay-z supposition is a very interesting one. will a dozen artists or so and biggest name artists be more valuable to a consumer than all of the rest of the artists in the music industry? and all of the catalog in the music industry? and can that change over time? i think one of the more interesting things that isn't as widely known is the roles of the companies underneath that front layer, so behind beats, behind spotify, behind samsung's music service and so on are companies like omni phone that license music, digitally record it and it on a cloud, so the company
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providing the music is just the front end in the same way tower records or sam goodey was once the front end to the music industry but they were not the provide are. distributers and jobbers and people would fill the records and bins were not well known but that's where the real music industry happened. erik: what do you use? cory: i'm a spotify guy principally. i met the c.e.o. of spotify at a party one night. it was a crazy -- it was a crazy shawn parker party where he had snoop dogg performing and -- erik: is there such a thing as shawn parker party that's not crazy? cory: i sure hope not. this party had incredible music acts performing and i found myself outside talking to a bald dude who was the c.e.o. of spotify. he begged me to try it. i insists the music i listened to jazz music is more obscure and harder to find, wasn't going to be there. it was there. i think it demonstrates how that business really is about
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cataloging individual tastes perhaps even more so in an era where the long tail allows individual users to have the choices they want, not just the tent poles of the jay-zes and jason el dean's of the world. erik: cory, good to see you good, our west coast editor at large out in san francisco. next up -- i too, am i spotify user. i tried itunes radio, waiting to see what the modified beat service looks like. next up -- view from the top rope from the world of sports entertainment. we will look at the wwe's aggressive expansion strategy.
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erik: you're watching "street smart" here on bloomberg television. here are some of the top stories we're watching for you after the closing bell. a former blackwater worldwide guard was sentenced to life in prison for his role in the killing of 14 unarmed civilians in a baghdad traffic circle.
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the massacre inflamed anti-american sentiment and led to curbs on u.s. military contractors. the nba is announcing today the league would switch from coke to pepsi as an official partner. this gives pepsi partnerships with every major american sports league. coke has been an nba sponsor since 1986. ohio state university's urban meyer receive a three-year contract extension at an average of $6.5 million a year. that will make him the highest paid football coach in the big ten conference. meyer led the ohio state buckeyes to the national championship last season and is now under contract until 2020. you know the names, folks, the rock, hulk hogan and stone cold steve austin bona fide icons outside the ring, these are the individuals who helped make the wwe a global publicly traded sports entertainment company. for a view from the top rope, you might see, george barris is here chief strategy financial officer with the wwe. you have $ -- 1.3 million wwe
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subscribers. that figure alone will surprise some people. before i ask you how you're going to get to the -- how you're going to clear the next hurdle, how did you get there? what is it about the wwe do people who stopped watching wrestling in 1986? george: who stopped? i don't know anybody who stopped. thank you for rolling the r's. my mom will be very happy. erik: tell me about the company. george: sure. as you know, you talked about stone cold, hulk, rock, you left out johnsenia, our current top superstar. he has over 36 million likes i think last time i checked on facebook. number one u.s. athlete on facebook. you talked about the network, i think to put the networking in context, we have what i call a three-prong media strategy content strategy. first, free video on demand, our key platform there youtube facebook coming on hard. on youtube, 4.2 billion video
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views over the last 12 months. put that in context we just passed the nba as number one sports property on youtube. big, big part engaging our fan base worldwide. we do five hours every week raw smalkdown live programming. that sits in the pay tv bundle around the world. so here on u.s.a. and sci-fi, and india. third tier you mentioned direct to consumer. that's where we took our pay-per-views, events that happened once a month $60, $70 retail price point in the u.s. and said we're going to bundle that, take our rich archive -- erik: monthly description? george: $9.99 a month. erik: how do you monetize beyond that? what other thing s can wwe do? that's what your shareholders want to know. show me the money. george: first i mepsed monetize on youtube with ad share -- erik: something new, beyond what you're doing now.
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george: that will grow, number one. number two, as an example around the world we renewed our four biggest tv license deals. another source of economics. we think the network has a lot of potential over the long term. so as that grows and you know subscriber economics. leverage significant 80%, 85% for each subscriber. erik: how do you reduce turn? that's a problem, right? you're in the subscriber business. you're in the midst of moving to new technologies. so are your fans but they don't love everything they try. george: sure. it's important you mention every subscription business deals with churn. the goal is day after day, make the content better so there's new content. develop better features. get on more platforms. give everybody more reason to continually engage with our superstars with our content. we have been successful on a lot of platforms. erik: george we have to leave it there. thank you very much. the chief strategy and financial
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officer at wwe. when we come back from the belt to the green jacket.
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erik: on sunday texas native jordan spieth made history, becoming the second youngest chairman at the masters with a record-tying score of 18 under par. "taking stock" anchor pimm fox is here. what's your handicap? pimm: i don't have a handicap. a lot of top courses in brooklyn. but here's the deal. when you talk about money and you talk about golf, you talk about numbers right? the idea is to be consistent and consistently good at whatever it is you do. here it is over 72 holes, he ends up shooting an 18 under. and if you take a look, there was a scene yesterday at the 16th where i don't know what
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this -- he's putting there for the green jacket. but there's a point at the 16th where justin rose could have narrowed the tournament, and really could have been 2 under instead of 4 under. this guy holds his poise, he shoots rose missed the putt for birdie and this guy just takes it all the way. it's this consistency. a lot of people said well, you're coming out in the first round going to do a 64. you will never be able to hold on to that. then do what 66, 70 and 70. this is a guy who knows a lot about pressure as well. he was at the shell u.s. open. erik: to be honest with you, i expect nothing short from an extraordinary performance from the winner of the masters. the thing is this kid is 21. there are a number of other hot young players on the tour, rickie fowler and rory mcilroy -- pimm: all good for golf.
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erik: good for golf in theory but how good for golf because one thing that many golfers may not have noticed because they're still playing is over the past decade the game has lost 5 million american players. can you believe that? pimm: yes. and there are two specific reasons you can point to. one is go back to 2008 and you have a financial crisis with basically wipes out an entire segment of the golf playing population. you can no longer spend 4 1/2 hours on a golf course when you're worried about your job or making payroll. that's the money part of it. the time part of it is who now has 4 1/2 hours to just leisurely and joy 18 holes? erik: one of the reasons i suppose mandarins of golf talking about 19 holes as a way to get people interested. i don't need nine holes to work out the kink in my stroke. i need the back half. pimm: they say don't focus on the short game if you want to
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improve it. there are more golf courses in the united states than we know what to do with. the business of golf as you say, troubled by declining membership declining interest -- erik: look at the stocks of companies like calloway for example. pimm: professional golf, the kind of golf this guy is playing, it is doing very, very well. there's big money in it. the sponsorship has never been better. 1.8 million. he got a million for the previous tournament. there's a lot of money in golf. erik: endorsements. pimm: they say upwards of $10.5 million easily for the green jacket. erik: the question ultimately is without another tiger woods does golf go back to what it was once upon a time, a suburban country club sport for middle-aged white guys? pimm: could be but they're not all going to shoot 18 under like this one. erik: that is true. pimm, good to see you. pimm fox, anchor of "taking stock." is coming up at 5:30 eastern
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time. that's going to do it for "street smart." tomorrow, everybody, alix steel will be back speaking to former homeland security security second tom ridge. have yourself a terrific evening. what's up next?
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mark: i'm mark halperin. john: and i'm john heilemann. and with all due respect to hillary clinton, it would have been an uneventful weekend that wasn't for those meddling kids and that dog of theirs. at the national scrabble they sports fans. in our lineup tonight, marco rubio, hillary clinton, and marco rubio. but first, hillary clinton. perhaps the most criticized and hyperbolic size -- hyperbolicize


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