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tv   Bloomberg West  Bloomberg  May 6, 2015 1:00pm-2:01pm EDT

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>> welcome to "bloomberg west," where we focus on innovation technology, and the future of business here it federal reserve chair janet yellen warns that equity market valuations are quite high right now, and there are potential dangers ahead. here is yellen speaking about the timing of a rate hike. janet yellen: we need to be attentive to the possibility that when the fed decides it is time to begin raising rates, these can move up and we could see a sharp jump in long-term rates. so we are trying to, as i have
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repeatedly said, communicate quickly about our monetary policies so we do not take markets by surprise. emily: she spoke of the institute for new economic thinking in washington. she's is on deals could see a sharp jump in the fed raises rates. the ecb has increased the cap on in emergency cash available to greek lenders. the limit was raised by $2.3 billion, according to people familiar with the decision to the ecb governing council is debating whether to tighten rules on further greek assistance as the greek bailout cost remain -- talks remain stalled. pharmaceuticals company buying another committee for a $.4 billion in cash and stocks. the deal allows alexion to expand its drugs for rare diseases and help the committee reduce dependence on its blockbuster drug. the deal sent shares of both
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companies in opposite directions as analysts question whether alexion is overpaying. google is getting deeper into finance. sungard data systems will use google software to provide deep analysis of financial market data for traders be at the system is based on technology that helps drive the google research and gmail services. and apple is heading back into the bond market it securities will be offered in as many as seven parts today. apple is using the proceeds to fund its capital return program, which it just boosted my $70 billion. meantime, apple will start calls with investors to mark to gauge interest in a potential japanese yen bond offering. to our lead -- the money keeps flowing into tech startups in silicon valley. it shows no signs of slowing down. we have seen a payment startup firm raised $275 million in funding. the drugmaker topped at $75
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million. hr start up zenefits a 4.5 billion dollars valuation. are things getting to public? the nasdaq era high before pulling back. does the nasdaq broke its dot come era high. cory johnson joins us from new york. with me is the ceo of one of the committees i just mentioned, and that is zenefits. parker, thanks for joining us. first, congratulations. the numbers are large. why do you need that kind of money? parker: a lot of businesses out there are going after a couple thousand of the largest companies in america to sell them business software. instead of selling the fortune 1000, we're going after the s&p 5 million. there are so many companies out there, and there are a lot of
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people we need to have conversations with, give pitches two, field questions from, so there are a lot of folks we need to hire. long-term, the business looks profitable but a lot of this costs are front-loaded. when you want to go very fast and very far, you're going to burn a lot of gasoline. we are driving at a high speed and we want to get a lot of customers. we have to make the mother of all pitstops to fill up on gasoline and beef jerky. emily: i appreciate the metaphor to it we have spoke a few times over the last year. a year ago, it was a $500 million valuation. how do you, as ceo, make a decision to take on this kind of response ability question mark is it scary? parker: there is a little bit of celebration around something like this in a lot of humility about what is in front of us. obviously, investors are investing on the promise of a lot of future growth and future execution in the business. we feel that the market we are
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going after is enormous. it solves a really big problem for almost any business in the united states. we think if we do not screw it up in a couple years, a lot of the guys in this area will be looking at it. cory: what kind of growth rates are you looking at and what do you imagine them to be enough that you have a up on beef jerky? zenefitsparker: zenefits is to try use open close out the are having growth 20 ex in one year and $20 million in run rate revenue. the plan for this year takes his past 100 million run rate revenue by de prop of the year. we want to keep growing at those kinds of rates into 2015 -- 2016, 2017. when you want to grow that quickly, it means you need to capitalize.
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emily: you basically ties together payroll, health insurance, these different hr things into one software, right? parker: that is the idea. companies today have all these disconnected systems related to employees. things like payroll and insurance and other benefits, it creates an administrative nightmare for a lot of people. zenefits ties it together to get rid of the administrative burden. the best part is we give the core software away for free because we make money on these different adjacent systems. cory: you say it is like a lead generation for those other businesses, right? parker: yeah, that is one way to think about it. emily: how does the affordable care act affect your business? parker: it is a couple things in the insurance market that makes it simpler to buy health insurance, which makes it easier for us to do it online.
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and it as to the compliance burden for a lot of small businesses. there are a lot of filings they need to make and compliance they need to deal with. it makes it harder and harder for a small business to go on their own on this stuff. zenefits can take that off their plate and handle it all for them. it is compelling. emily: do you want -- and do you watch the show "silicon valley"? parker: occasionally, but sometimes it hits too close to home. i stopped watching it. emily: there is a scene where the main character is talking about raising money and someone tells him, look, do not raise that much money because you might have to go through down round and that would be devastating to its so he says maybe i should do less money and more valuation. he says no to a lot of people trying to write him checks per would that happen in real life? do you think, maybe i should not the raising of this type of valuation? parker: our view of our business
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is that all of the underlying metrics are pointing in the right direction. every customer that we acquire long-term, we think it is profitable. all signs point towards us stepping on the gas. for us, you know, my goal is to run the company so that we never need to raise another round of financing. we want to capitalize in a way that lets us run the company the way we want to run it, scale at the speed we want to scale, and grabbed this giant opportunity in front of us. cory: i hate to live your company in as we are -- i hate to lump your company in with others as we are, but when you look at the premium model and the ability to launch a business, i assume you use something like amazon web services him and not having to build up the kind of infrastructure that companies use to have to build up when launching 10 years ago. what to do you see as the commonality which might be leading to these companies that
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are seeing such big rapid growth at early stages of their development? parker: you know, i do not know that much about the ecosystem at large be at one thing i know is that maybe as recently as 5, 7 years ago, selling businesses on outsourcing and having the software be on the crowd and accessing the information over the web, that was something you had to convince people that they should do. now i think a lot of governors have bought into the idea that that is a good way to go. there are so many industries -- we focus on health insurance space and inter-software. there are no systems to speak up at a lot of the legacy systems or the software is 20 years old. ebenezer looking around saying, man, it is so frustrating dealing with all of this stuff. so there is a company for businesses like ours to make life a lot easier for these companies in these very unsexy corners of the world that happen to be successful. emily: zenefits software is
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free, so how do you make money? parker: basically, the micro levels we connect of these different systems and we give the hub away for free but make money on the different spokes. health insurance is the most lucrative part, but we make money and lots of different places. big picture, the way i think about valuations like this listen, businesses only have kind of three systems of record. a system of record for their financial information, things like quickbooks and oracle. for customer information for businesses like salesforce. there is sort of a giant hole in the universe for any company with less than 1000 employees. we think that we have a decent shot at occupying that space and being the system that businesses use for this. that is a big and important and lucrative company long-term if we can get there.
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emily: would you ever take $3 million off the table and by a ferrari? parker: no, i am more of a toyota corolla kind of guy. emily: ok parker conrad, ceo of zenefits. thank you for joining us. coming up, what happens next after a company goes through a major funding round, like zenefits just did, how do you make sure the money is spent wisely? we will look at current valuations and burn rates at tech startups. ♪
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emily: welcome back at still to come, the home shopping network is still a booming business even as people turn to online retail. the ceo shares secrets to success. top headlines -- shares in the canadian energy committees is selling off after election results and albert appeared the new democratic party swept from
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power. they will boost corporate taxes, phase out coal power, scale back support of oil pipelines. a national election in great britain tomorrow. it appears prime minister david cameron may be making last-minute inroads. polls a deadlock, and the biggest you can put maker now gives cameron and miliband the same office to be prime minister and miliband was the favorite last month. we just heard from the zenefits ceo about his start up fundraising round. secret shut down last week. are these massive investments secure? are we taking on too much risk? what goes into these fundraising rounds? what kind of diligence is done? joining me in the studio is founder of resolute ventures. you do invest on the earlier side. for a company like secret right?
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mike: yes, in the early stages. emily: i asked parker about them taking millions off the table and buying a red ferrari what do you think about that? mike: it is very risky. emily: or irresponsible? mike: it certainly can be irresponsible. the worry is that it changes incentives. emily: how much follow-through is there once you give the guys the money? do they buy a red flowery and take the money for themselves? mike cohen as importantly, how are they thinking about the money before they spend it. ideally, investors will spend time with the management team to understand the capital and where it will go. emily: do think investors knew they were going to take that money off the table for themselves? mike: they certainly agreed to. emily: why do investors allow that to happen? for a start up at that stage,
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why would an investor allow that to happen? mike: the only reason is they really want to get into the deal and that is the bargain. emily: obvious a, secret was extremely buzzy at the time but 16 months later, completely shut down. what kind of diligence is done to determine whether the company will actually be successful? mike: it depends on the company. a company like zenefits is very different than a committee like secret. zenefits talks to customers and talks about the market. secret is high data and looking at user behavior and retention. not just the number of uses, but how many users are coming in every month and how frequently they come back. does it become a habit behavior? emily: should we be concerned? secrets is not the only one to a lot of committees are struggling. there is a company like zenefits raising $500 million on the opposite end of the spectrum what is going on? mike: we should be concerned.
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the large valuations make a ton of sense, but we know every of cycle is followed by a down cycle or none of us know when that shift will happen, but when it does, it will be painful. companies tend to grow, but their burn rate grows into the capital raise. if a company gets into a situation where they are going through the capital very rapidly, the market turns and it is difficult to raise more capital. they can be dangerous. emily: using this down cycle is definitely going to happen. mike: definitely per the market is riding a high and it will not continue to go up at emily: how much longer do we have? mike: i have no idea. emily: what do you advise your companies to do in terms of this kind of risk? mike: i was talking to one of my ceo's who i backed who has done fantastically well and has had opportunities.
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the conversation is -- be really thoughtful. raising the absolute maximum you can at the highs valuation often is not the answer. emily: really? so you would do with the guy on silicon valley did? mike: i sometimes went in with this ceo actually did that. emily: so it does happen? mike: it does happen. sometimes boards and ceo's do not go for the biggest numbers. emily: thanks so much for joining us. ok, coming up, how the home shopping network is keeping shoppers glued to the television, phone, and its website. we will speak with the ceo next on "bloomberg west." ♪
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julie: you are watching bloomberg tv, and we have
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breaking news on western union. a statement from the company saying western union is in discussions to require -- says the reports that the company is acquiring moneygram international are not accurate. there was a report that the companies were in early-stage talks beard western union says that is not the case. stocks are still higher. western union has pared its gains. if you look at money gram, the change is even more dramatic. earlier today, the stock was up as 41%. you see that around the high of the session. it fell off after the statement came out. now it is up by about 15%. stay tuned for more "bloomberg west." emily: welcome back. i emily chang to home shopping has gone digital, at least that is what the latest results show from hsn the committee that oversees a $3.4 billion retail portfolio. it reported first-quarter
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earnings today. sales of 8%, $841 million. profits grew 39%, $33 million. digital sales continue to rise, up 12% to shares are up on this in his. joining me to discuss the digital transformation is the ceo of the company, mindy grossman, who joins me from headquarters in st. petersburg, florida. mindy, thank you for joining us. retail growth is sluggish overall, but your business is booming. why? mindy: hello thanks for having me. three reasons that our business has accelerated across the entire portfolio. the first is that we have spent a lot of time in tools and talent to really use our data and analytical capabilities to drive meaning and personal and customized to relationships. it has had an impact on acquisition, as immolation, retention, and overall growth in the business. our customer files are the highest in our history.
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second, we have invested significantly in the digital experience as a whole particularly in mobile. that is everything from, how do we optimize the experience to the content we have incorporated through all our applications and all our programs. the third, which goes without saying, is the strength of our products our experiences, our events, and our content. it is the combination of all of those things that really differentiates us within retail because we are a media company a technology company, a commerce company, and we are using those three things in tandem to create a very different experience. emily: a lot of people probably still think of hsn as just a tv network, which it is far more than that. i know something like 70% of the things you sell our exclusive. how important is that to your business? mindy: i think differentiation of every kind is important to be
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able to compete today. differentiation of products. at hsn 70% of the products we sell our exclusive to us. in some of our businesses, it is even higher than that, like frontgate. how are we giving a reason for the customer to come to us? the second is, how are we also engaging the customer? that is everything from our having an arcade which allows her to play games or integrating social all the way through the site and experience. emily: mindy, we have about 30 seconds left. in a future where tv may not even exist, where is hsn? mindy: it is the content. it is not just hsn on hsn. it is hsn all platforms. partnerships with aol or univision or any of our partners in social.
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the world of distributed commerce is going to be so broad. emily: mindy grossman, thank you for joining us today. we will have more after a quick break, talking about the republican race and what is happening there on twitter. ♪
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emily: this is "bloomberg west." let's get a check of your top headlines -- it is the fifth anniversary of the flash crash that rocked the market and the british trader accused of helping cause it will spend a day in jail. a judge in london has refused to lower the $7.6 million bail. his lawyer says his bank accounts have been frozen and he told reporters he has done nothing wrong except be good at his job. the german wing pilot believed to have deliberately crashed his plane into the french alps tested out his method on an
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earlier flight that same day. data shows that he briefly set the jet to descend 100 feet on five occasions before returning the jet to cruise mode. the information is contained in an interim report from french investigators. the justice department says it may open a civil rights investigation into the practices of the baltimore police department. mayor stephanie rawlings blake had called for the inquiry after riots broke out following the death of freddy gray while in police custody. senator bernie sanders of vermont has proposed a bill to break up the nation's to get banks including j.p. morgan chase and bank of america. he is challenging hillary clinton for the democratic residential nomination. the bill could put pressure on clinton who has done far less and democrats view her as too cozy with wall street. turning now to the race for the 2016 republican presidential nomination -- there are now six candidates the field and two of
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them have never held political office. carly the arena and neurosurgeon dr. ben carson. how can these presidential hopefuls stand out from the rest? the secret may be in their digital campaign. joining me is zach moffett from the mitt romney campaign. thanks so much for joining us. there is this perception that democrats are better at digital than republicans. is that fair? zach: every campaign is different and everyone starts in a different as asian whether you're in incumbent or challenger and the results show that has not turned out to be true at all. emily: given that the main contender on the democratic side is hillary clinton, everybody knows who she is and then you have lesser-known people like carly fiorina and ben carson.
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what should they do in terms of digital to change that? zach: i think the challenge for them is to build communities and engage those committees to help them be successful in november. what they are looking to do is to remove any barriers of entry to make this as simple as possible to participate whether that is signing up to volunteer or give money or participate and share their opinions. that's the goal of every one of these campaigns to make it as easy as possible. emily: what to you see how the republican candidates and how they are managing their digital strategy question mark what sort of trends are you seeing western mark zac: i think you are seeing a much more mass adoption of digital as a platform of choice. even four years ago it was hard to get everyone to focus on twitter.
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the hardware and the software the bandwidth was not there. we were carrying massive backpacks around to allow people to participate with the campaigns. for me, social media provides a level of access to the campaigns that would be impossible otherwise. it's the ability to leverage those platforms and participate and improve the process and improve success. emily: should campaigns be spending more on social media? should they be allotting more of their budget? zac: yes, i would argue that they should. the investment is in human capital and investment up front. i think it's difficult for campaigns because technology is disruptive to the way campaigns historically have been run. on the paid media component, we are still in politics completely disconnected how people consume content and's depend -- and spend on broadcast. it's only got 40% of the
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viewership. the model is broken and has to be fixed this cycle. emily: you managed a budget of over $100 million when you are with mitt romney. how would you spend that the family today? zac: i think the hope would be that instead of being 10% of the budget, it moves to 25%. i think you would spend earlier. you always have to win a primary. not everyone gets the coronation that hillary clinton is going through that allows them to invest in the future. it's a proactive approach but in the primary you have a reactive approach. you have to build value but i would invest heavily in the technology side and the human capital to build that out and be prepared not just for the primary but in the general election and have those resources to be successful. emily: what do you think has changed in the digital arena since you worked with mitt romney? what can the republican candidates tap into question mark zac: i think there is a greater adoption of online.
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we see that from everyone. they are raising more on the first day in people are more comfortable giving online. they do it all the time through amazon or netflix. they are used to living online. we found one in three likely voters did not watch tv other than sports. you need to communicate with them online. these candidates have raised $1 million in the first 24 hours. the whole model is changed in presidential's are the most people will see that at scale. emily: something else you see is a lot of infighting between the republican candidates over social media. how does that play out and affect their strategies? zac: it's somewhat generational and we see the way campaigns are being run. people are inserting themselves personally into the process. that's the way social media has allowed it. reporters are also inserting themselves into the story and cherry point of view and that's to be expected. unfortunately, in terms of
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comprehension, we have a bit of a lag. it is interesting that staff is driving as much of the story as it is the candidates themselves. emily: who is doing the best job so far? who has the advantage? zac: i think it's too early to tell. you've only got couple who have been declared for it the ted cruz campaign had a sophisticated rollout and was successful. it outperformed where many people thought they would be by think you will see over the next two months people will learn from the experiences of the last couple of months and you will see what they learned him four years ago. the next four months will really layout who is seriously investing in technology and staff and how successful they are over the next year through the primary process. emily: that was a very politically correct answer. thank you so my much. up next, lending club ceo on his company's latest earnings and rising competition plus, a
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megaproject in the saudi desert led the way for smart cities. is it leading the way around the world?
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emily: this is "bloomberg west." lending club ceo renaud laplanche talks earnings and competition is big banks did into his business. plus, an entire desert city built around the internet of things. first a check of your top headlines -- facebook is teaming up with ibm. it will offer marketing tools through ibm's product suite and the goal is to help advertisers make specific routes to people on facebook with pitches. they are also partnering with twitter. comcast will hire 5500 people over the next few years to improve customer service. the new service centers will be built in new mexico, arizona, and washington. comcast will triple the size of its social media team to respond to customer complaints on
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facebook, twitter and other sites. comcast had some of the most unsatisfied customers in the country according to the 2014 american customer satisfaction index. an online retailer has created what it's calling the first social network for consumers to show up their style and by luxury goods on mobile devices. they are calling the apathy net set and they have formally and fans on facebook and twitter. from online fashion to online lending, some big ranks like goldman sachs are getting ready to take on startups in the peer-to-peer lending business but should the leader in this area lending club, be worried que? they reported profits and facilitated $6 billion in loans. i am joined by the founder and ceo renaud laplanche. great to have you back on the show.
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as i mentioned, you guys are seeing competition from big established players. how do you respond? renaud: our strategy has been to partner and not compete with banks. we have seen a lot of interest from community banks to partner with us and be a participant into the marketplace. i think the banks are increasingly realizing that they can earn a higher yield by making loans to their own customers with the lending club platform rather than directly because we have a lower operating cost and more automation and more technology than the banks. it started with small committee banks and now we are seeing larger banks with partnerships like we have with citibank. there is announcement from goldman sachs for partnering. emily: do you consider them competition question mark renaud: not at this point. we are good at different things.
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what helped us succeed in this space and become the leader in the marketplace lending and grow 100% year-over-year and have the good results like yesterday are three things -- one is the low cost of operation, it too, a very consumer ridley and approachable brand and three is a deep expertise and customer marketing. those are not the three things that oldman sachs is known for. -- that goldman sachs is known for. i think other banks are complementary with lending club. it's in every once interest to partner and drive down the cost for consumers but emily: you guys have been cutting rates but how long can you maintain that? renaud: we don't feel we need to lower rates at all. we already have a very compelling offer to borrowers. many of our customers use our
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loans to pay off an existing credit card balance. most credit card balances in the country are at 17%. the average interest rate on a three-year term is 11.5%. it is a significant value. we take advantage of network effect and the appetite from investors to serve lower interest rates. i think we are in the right place where we have a good balance between investors and borrowers. borrowers are getting a great deal. investors are happy with their returns. emily: you guys have been public for four or five months or so, what is different about being public? renaud: i think it has been a positive so far. we've got a pretty good marketing event out of the ipo in september and since then, we have had a gross that is high so
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we have reaped the benefit. we have better brand awareness and credibility. we have seen that with incoming traffic and retail investors coming in greater numbers in the previous quarter. we are benefiting from the momentum of the ipo and we have seen it in our ability to attract top talent. we have also seen it in partnership strategy i was talking about with banks and sam's club and other partnerships. most recently, we benefited from our new stature as a public company and the credibility and transparency that goes with that. emily: you have an all-star board. what kind of advice have they given you in terms of warnings about not taking on too much? what's the best advice they have given you? renaud: the management team and the board has been aligned on's
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a strategy to grow fast that in a deliberate way. and not taking on risk especially in financial services with their customers. we have supply and demand and currently we are a micro supplier. we have decided to go with the current pace which is more than 100% year-over-year. we could be going faster. instead, we want to continue to build management and international controls and compliance and also the automation with higher and more engineering talent. we add to that workforce this year. we will continue to push automation. it will give a better express and automation helps you manage risk better because you get some
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of the human factor out of the equation. emily: lending club ceo, renaud laplanche good to have you back here. "online" is coming up -- bottom line is coming up the top of the hour. mark: we are at the internet and wireless expo in chicago. jerry smith will join me and market makers co anchors erik schatzker and stephanie ruhle are in las vegas at the salt conference. among their guests are greg fleming, president of morgan stanley and morgan stanley investment management and michael weinberger, a portfolio manager at york capital management. i will see you in a few minutes. back to you. emily: thank you. could a city on the coast of saudi arabia become a model for high-tech urban planning? we will find more about this next. ♪
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emily: this is "bloomberg west." silicon valley may be the heart of innovation but plans for a new mega city in saudi arabia are fusing technology with urban planning. the country is building a massive high-tech city on his red sea coast called the king abdulla economic city or kaec. they want to attract foreign investment and create jobs. 80 companies have already agreed to lease land. how could silicon valley play a role in this industrial development in the desert? the ceo is in town this week meeting with silicon valley companies. he joins me in the studio. first of all, what is this city and how long has it been in development? fahd: we are the largest
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developer in terms of sales in the country. the ideas to make it smarter. we wanted to emily: be the most innovative place on earth. emily:$100 billion to complete the city in a may be larger than washington, d.c. by the time it's done. how do you ensure that this place will be the future? fahd: we want to make sure that the 2 million people who live there will be most engaged. the idea is to give them applications that will enable them to help us run the city and keep the streets clean and it secure. emily: we are talking that housing, health care transportation -- how do you pray toward ties? -- how do you prioritize? fahd: basically, the idea is simple -- if we give you information about your energy use, you'll be able to manage it better. we are introducing all caps of smart applications in the homes to tell you how much you are using energy and which applications are inefficient. emily: who are you talking to in
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silicon valley? fahd: we are talking to everybody, big and small companies. emily: like who question mark fahd: i cannot tell you. it is packed, my schedule. emily: what do you want silicon valley to bring? fahd: one piece is the network and applications. it's the hardware and there is another piece around the applications themselves. the small companies are as important as the big ones. we can actually scale. we have 400,000 units that will be built. whatever technology we use, we can scale them to 400,000 units. emily: when will this lays be completed? corey: you never complete a city. fahd: by 2035, we think we will have 2 million people. emily: does anybody live there yet? fahd: we have 300,000 already -- we have 30,000 people already. emily: are people operating themselves from other pallets -- from other parts of saudi arabia? fahd: 65% of the population is
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under 30. they are the biggest users of youtube and twitter in the world. they are young and mobile. moving people and giving them opportunities to work and live in the best and most progressive city. emily: what is the sales pitch to someone? fahd: come and find a place to live. emily: what will they do for work? fahd: we have great jobs from all over the world. we have pfizer and mars and sanofi and other companies invested. they are setting up in the country so they can build a great career. you should remember that the red sea is one of the most dutiful in the world -- is one of the most beautiful in the world. emily: fascinating what you are working on. the king abdulla economic city. we will check back in 2035. fahd: by 2020. emily: thanks so much for joining us. it's time for the bwest byte where we focus on one number. cory johnson has more.
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corey: today's bite is 90 which is the number of seconds that the crew dragon capsule from spacex was in the air in a test of their a board scenario. they want to see if they can take a manned rocket in an abort situation and rather than send the astronauts flying out in parachutes, the entire capsule would be in the air for 90 seconds and splash land into the atlantic. it went according to plan and this will be part of their contract to try to find a way to bring astronauts to the international space station. they are developing a new kind of rocket to do that. this is a special abort capsule concept where the entire capsule separate. it's neato and cool. emily: fabulous and fascinating video. it's definitely a step forward. thank you so much and thank you all for watching this edition of "bloomberg west."
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we will see you later. ♪
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mark: from bloomberg world headquarters in new york, i am mark crumpton. this is "bottom line" the intersection of business and economics with a main street perspective. to our viewers here in the united states and to don't visit you joining us -- and to those of you joining us from around the world, welcome. we begin with the u.s. federal reserve chair janet yellen sending a jolt through the financial markets today by warning that the high valuations of stocks and bonds pose potential


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