Capital Idea: Market Makers (07/30)

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July 30 (Bloomberg) -- On today's "Market Makers," Erik Schatzker and Stephanie Ruhle use analysis, insights and A-list guests to help set up your daily market trades. (Source: Bloomberg)

Obviously any kind of positive, good news.

I am sorry.

We have to leave it right there.

We would check back in with you.

That does it for on the markets.

? . barclays needs aliens.

The capital shortfall means investors will have to pony up -- barclays needs billions.

This is war -- sounding off as the deadline for cbs and time warner cable passes.

A brief blackout and no deals yet.

Data in the clouds, we will show you why in-flight wi-fi needs to go back to the future in this antique plane.

Good morning.

You're watching "market makers ." i am erik schatzker.

And i am sara ison filling in for stephanie ruhle.

Nice vacation in canada?

I am having to readjust.

We didn't get a big deal from canada.

-- we did get a big deal from canada.

Saks coming to canada.

Let's look at the biggest business stories from around the world.

Resident obama is calling for business taxes to be overhauled so more money can be spent on job creation the plan will be outlined in a speech today and chattanooga, tennessee.

President obama said business and individual tax codes need to be rewritten together.

An unusual move by the new york times.

The paper endorsed janet yellen to be the next fed chairman.

They say knowing can match the academic credentials and experience of the fed vice chairman.

At the same time, the newspaper heavily criticized another contender, larry summers.

The gulf oil spill still hanging over bp.

Europe's second-biggest oil company word corded -- reported second quarter earnings that were lower than estimated.

The company increased the amount of money that the gulf oil disaster ended up costing.

Big news from some of the world's biggest banks today.

First, barclays.

The only big british bank not to need a bailout during the financial crisis, but barclays has a gaping hole in its balance sheet and plans to raise a greater than expected $9 billion to meet new capital requirements set by u.k. regulators.

Francine lacqua had an exclusive interview this morning with the ceo of the bank.

Here is what he says about the amount of money involved and why barclays is not raising even more.

I think what we have done here is bold and decisive action to address the leverage ratio requirement that pra asked us to meet by june 2014. these commitments will decisively address that in place barclays very well for the future.

Why are you not provisioning on libor?

We have an item which is known.

On libor, we have no known quantifiable items.

Some of the early cases in the lower courts have been run by banks, but obviously the libor litigation will likely go on for many years.

If we feel we have to make a provision, of course, we will.

We do not at this point.

Francine lacqua is in london.

Good morning to you.

This talk about barclays and what kind of confidence this effort is instilling in investors.

The stock is dropping.

What are people saying?

Barclays gave in to pressure with a plan to issue that $8.9 billion in new shares through a rights issue.

It was a bold but balanced plan to plug a larger than expected capital shortfall at the british bank.

Some say that there will be a hugely deluge of rights issue.

But barclays hopes to put this behind them and look at a better future.

Anthony jenkins has found himself not just a boring british banker but a bit of a mr.

Fix-it.

How much can be to blame at the former ceo and how much of it is an dimmick to the way banking used to done and bring?

You're asking me if this mess was created by bob diamond, and it is partly by what happened under his watch.

He was a very well-known to run the business aggressively.

He could could have probably held more capital than it did at the time.

Some provisions, for example, forward protrusion's for ppi are related to what happened in the 1990's. there are concerns over the strength of the balance sheet.

Now the u.k. provincial regulation authority ordered it in june to increase the amount of equity it holds against total hazards, what we call leverage ratios.

Regulators are becoming tougher, sister european capital rules pushed at the end of last month.

Treasure on the bank.

The bank says it needs that 12.8 billion pounds to push the ratio above 3%. i know that barclays prospects are hinged greatly on the strength of the global economy and the recovery in the u.k. you talked about that.

What did anthony jenkins say?

He basically said that he is hoping things in the u.k. will get better.

He said that overall this is one british bank which he has positioned to face anything.

So he says there will be structural headwinds around the world.

He also said as regards to the u.k., he is actually asking authorities and the government regulation not to put too much of a burden on u.k. businesses.

He says now people need to be confident and to need to start lending again.

That will a succession for gdp and not go back to the recession we saw last year.

Thank you.

Great to see you as always.

On a related know, deutsche bank saw a surprise drop in profit, big time.

Second-quarter earnings fell 49%. the main reason was an almost $800 million cost from legal fees.

From the u.s. housing market to allegations it tried to rig interest rates, all of that waiting on deutsche bank.

Investigations will likely result in fines or settlements.

In the united states, the nation's largest bank, jpmorgan, agreed to pay $410 million to settle allegations it manipulated power markets in california and the midwest.

Let's get more.

Dawn, nice to see you.

Let's talk about this fine.

It is not an insignificant amount of money.

The bank admitted to doing this.

The bank neither admitted or denied any wrongdoing him up that it admitted the facts.

It did not admit that it violated any rules.

Legal hairsplitting if i have ever heard it.

Yeah.

Basically, the regulator accused them of lying and stealing.

Saying they overcharged providers and the fraudulent statements.

It is a tactic of baiting and switching.

It would also lowball prices to the power companies in california.

Then when it came time to actually live the power they were like, oh, well, now the cost is 3000 times higher than what we said it would be last night.

Manipulation of power market -- it sounds like a serious charge.

It brings us back to the enron case here yet it is a different type of manipulation.

Enron would move power out of california.

They would physically congest power grids and power lines.

Star of california have power.

Yeah, so you had rolling blackouts so there literally was not power to california because they were moving it to other.

Enron physically moved our so that -- moved powers of prices would become high because there was no power to be had in california at the time.

Jpmorgan submitted bids that were artificially high, according to the ferc order.

They would.

Like $33 per megawatt hour, and then when it came time to buy, it would actually cost $999 per megawatt hour, which is a 3000% increase.

For a bank making $6.5 billion a quarter, perhaps this fee is not so much.

Talk about the people involved.

Clive masters, an executive at jpmorgan, one of the originators , one of the people there at the dawn of credit driven devs -- he built this division up.

None of the employees involved -- they all got a pass on this.

Every employee, past and present, will not face charges from the ferc in this matter or any other pending and that -- investigations at ferc right now.

For violations committed through today, they're completely in the clear.

There were three employees.

Two others were named in the order.

They are all getting a pass on this.

None of them will face ferc charges.

This does not mean other investigative bodies cannot take their own action against this.

This does not protect them from the california attorney general's office going after them, but it does protect them from future ferc action.

Thank you for bringing as the story.

Dawn kopecki covers jpmorgan for bloomberg.

A big earning story, herbalife at the center of the battle between carl icahn and bill ackman.

Shares are surging after quarterly earnings topped estimates, but they are off the highs of the day after bill weidmann released a statement questioning the results.

-- after bill ackman released a statement questioning the results.

There is a $92 price target for the stock, the highest of the 10 company analyst tracked by bloomberg.

I want to ask you about bill ackman's questions.

But carl icahn must be smiling on these strong results.

What is the quality of the earnings?

The quality is quite high.

Revenue growth with 18%. volume growth was 14%. those are teed up things that really speak to.

Margins -- those are two things that really speak to quality.

Margins are good on an absolute aces.

I think 16.6% ebit margin, above their transit line -- trend line.

I want to go to the bill ackman response.

He questions a number of metrics, including operating income growth, which he says is absolutely core to a company's earnings.

The fact that it only grew 3% after 831 increase in cost, he wants to know why the earnings growth is so weak.

How do you respond?

Well, very clearly it is a comp issue.

I have never seen an 18% ebit margin from herbalife before.

But they put one up last year.

We all know the issue of tough comps.

They had very good ebit performance this year but-for the comp.

Whether he'll ackman is or is not right, do his questions prompt you to be more skeptical -- whether bill ackman is right or not, does this make you more skeptical?

Absolutely, i think he has done herbalife and enormous favor in the long run.

He has precipitated a level of scrutiny that is and tends.

At the -- that is intense.

This stock should be trading at 20, 25 times earnings, because it is a fast-grower.

When people have vindicated the business model, this stock will be much higher.

You say when -- bill ackman did a big favor.

In the statement, they talked about expenses.

They talked about the short seller, which the company said is inaccurate.

As herbalife proven bill ackman's allegations?

I think the company's nature -- the essential question of is herbalife it pyramid scheme is absolutely false.

We knew that five minutes after his presentation on d sabr 20. -- on december 20. it is something we have known for years.

Mr.

ackman might be new to the story.

Herbalife made be a lot of things peer and maybe you do not like the company, maybe you do like the coming, but it is not an illegal pyramid scheme.

Shares are higher.

A senior research analyst joining us on herbalife.

When we come back, there are two sides of the real estate rally.

Home prices rising.

But home ownership at an 18 having your low.

We will talk to the ceo of century 21. either a breakthrough in sexual freedom or in outrageous porn flick.

A new movie looking at deep throat and of course the actress linda lovelace.

We will talk to the director of the new film.

Coming up on "market makers." ? this is "market makers." a so-called american dream of owning a home just got pricier.

Home prices increasing at the fastest rate since back in 2006 according to the latest numbers from s&p case schiller home price index just out.

To get a feel of what is really going on, rick davidson joins us, the ceo of century 21 real estate, operating and all 50 states and several countries paired we saw broad gains in home prices, which is a positive sign.

Is this driven by low supply or stronger demand?

Clearly we are in a market recovery.

If you look at the latest existing homes overboard, we have seen a 15 point three percent increase in the number of homes sold over a a year over year basis.

-- 15.3% increase.

We have shown a double-digit year-over-year price increase for seven consecutive months.

Couple that with a limited supply, it makes for a very strong market recovery.

People often say it is a mistake to talk about a national housing market it has all housing markets are local.

Where our markets strong and where are they week?

I just spent a three-day conference in charleston, south carolina with the top agents.

I met directly with agents from northern california, southern california, the center parts of the country, down into the desert southwest, florida, northeast, and the mid-atlantic states.

The reality is markets are very local.

However, we are seeing a broad- based recovery.

Across the country.

San franciso lead and las vegas was number two.

The smallest gain actually came from new york city, which i found surprising because we pay a lot for our real estate here.

Here in the city, it is really an anomaly as compared to most of the country.

You're talking about when you see those percentage price gains in city-based real estate, it is different than looking at middle america.

Home prices in denver and dallas have surpassed 2006. it is about market demand.

When you see what is happening with the market recovery today and the new job with agents and these local marketplaces who say people want to get in and they want to own a home.

Should it concern us given the fact that we know those prices that in 2006, 2007 return and up i unsustainable housing and credit available that is not there anymore?

It speaks to demand.

I was talking recently with the president of the national association of hispanic real estate professionals thomas who happens to be essentially -- professionals, who happens to be essentially -- and 321 broker.

He says immigrants come to america as bearing to own a home, not to rant.

Homeownership is the abuse of the american dream.

That is still part of the psyche?

Even post-meltdown?

We saw this run- up in prices.

Affordability was out of the park.

A lot of people saw prior generations have difficulty with homeownership.

Isn't it the millennial's as well?

First-time homebuyers are not participating.

First-time homebuyers are 29% of the market today.

It should be somewhere around 40%. what you have to realize is there is very limited inventory in those lower-priced homes, and it is more difficult to get a mortgage today.

It is good to get color from you.

I am sure you are doing well.

Ceo of century 21 real estate.

A secret weapon in the airlines battle over wi-fi in the skies.

? time for bloomberg to go on the market.

If you look at the major indices, we are singing gains.

We are fighting back yesterday's losses.

The tao of about 53 points.

The nasdaq in the lead, up .6%. the s&p up point 39%. this is the last trading day of the month of july, and we're still headed for the best month since october 2011. cf industries rose almost 12% yesterday.

It acquired -- third point acquired a stake.

They said it should be paying a bigger dividend.

The stock is up ever so slightly today.

Fertilizer names are getting killed of their a russian producers that potash prices are going down.

Another stock getting hit hard today is coach, dropping the most in six months, shares down almost 8.5%. coaches getting jobs.

Second-quarter revenue falling at some of the established stores in north america, facing increased, edition from the likes of michael kors.

When we come back, les moonves says we are at war as cbs and time warner cable are back at the negotiating table.

The movie that rocked the nation.

What happened to the star of deep throat?

We will talk to the directors of the new film.

This is "market makers" on bloomberg television.

? live from bloomberg headquarters in new york, this is "market makers." the battle between cbs and time warner cable is not over.

Les moonves said the nation's number one broadcast network is at war with time warner over retransmission fees.

The late-night in line past and cbs was stripped from some time warner customers for a short amount of time before being restored.

A new deadline is this friday.

We are wondering, what are the odds a deal gets done?

A bit of a frenzy yesterday.

This is getting exciting.

A theater of the absurd yesterday.

I was waiting for a deal to get done.

8:00 came and they said, wait one more hour.

9:00 came, then 10:00, then 11:00, then midnight.

Didn't rogue ramming go off?

For 30 minutes in some markets.

Time warner cable has a new deadline for 5:00 this coming friday.

We assume the general investor community, people that watch this industry feel like there will be a deal.

When you get so close that your have written -- having hourly deadlines, one would assume you are fairly close a deal.

The thing is that both sides need each other.

It is not like time warner cable can afford to live without the number one broadcast network, can it?

Time warner cable would be flooded with consumer complaints and death actions.

-- and defections.

The customer service department at time warner cable needs to control normal or -- normal business.

Operations could shut down temporarily.

It has been done before.

Directv and viacom last year had this type of dispute.

Directv did pull viacom off the air for about 10 days.

What is the sticking point right now?

Still money.

How far apart?

Hard to say.

It is nonpublic.

You have to have to read between the lines.

I guess that they are fairly close to a number and it is about leverage.

Time warner cable thinks it has the leverage because he can watch cbs on cbs.com.

Or aereo.

Yes, these new startups.

Time warner cable points out aereo has a one-month free trial right now.

Chances are any like out when not last a month.

Any chance that either side is complaining that the other is not negotiating?

I have not heard that not in good faith expression once.

I feel both sides have been consistent on negotiations.

They do not want a blackout.

Les moonves and the ceo of time warner cable have said we do want a blackout.

It has not quite clicked yet.

Countdown to friday.

And they are both arrington dirty laundry -- airing dirty laundry.

And then they get a long-term deal.

It is all about money.

Thank you for joining us, our bloomberg media and cable reporter.

We have some other top tech and media headlines.

Homer simpson may finally be on his way to cable.

That can mean a billion-dollar payday.

They are getting ready to sell the simpsons to cable for the first time.

The show has been on the air for 24 years.

Activist investor dan loeb turning up the heat on sony him of pushing sony to sell off the entertainment division.

Dan loeb wrote that sony's entertaining and remains poorly managed.

He blasted sony's summer movies.

Time to get out those old record albums, take them out of storage.

Vinyl is hot.

Americans will buy 28% more music on vinyl this year.

More artists are recording lp's than in recent years.

I know all about vinyl.

And you ever spun the wax?

I have not.

Nostalgic for you.

I grew up in the age of cassettes.

Still old school.

Eight tracks?

Not so much.

More of us are using smart phones and tablets on airplanes.

Competition for the wi-fi business heats up somewhere over the nevada desert.

We learn how one company satellite technology is taking the fight to a very, very old plane.

Rising above the clouds once met losing your connection to the cloud.

Today, there is onboard wi-fi to cater to consumers.

John runs one of several in- flight wi-fi companies trying to get a slice of this $40 billion pie in the sky.

They were capable of handling media, but not high definition media like now.

For the data feeds necessary , the technology needs a lot of testing.

They say they have a clear advantage here it its secret weapon, this 62-year-old reconnaissance airplane.

This is the perfect vehicle for them.

It came at the right price.

Now it is our testbed for wi-fi and television, basically for everything that we do.

The albatross posted the latest in 1940's -- these days it has equipment that is a bit more cutting-edge.

Engineers decided to restore the plane because it has a similar shape to the boeing 737. the albatross helps the company test its wi-fi technology repeatedly before it is installed in more modern jets.

Operating a network over 35,000 feet on planes going over 500.5 -- 525,000 miles per hour.

There are some difficult things to get right.

It takes many hours of testing in a real environment to get calculations right.

This antenna must rotate in reaction to the plane's movements.

Data is bounced from passenger devices.

It is around about 22,000 miles away from the equator.

They want to keep the business like this flying high.

And less user numbers start to take off, profits are unlikely to soar.

That sort of reminds me of the war for spectrum.

I just want to find out when we will be able to use cell phones on airplanes.

Coming up, so much for the fed being removed from politics.

Will it be larry summers or janet yellen that replaces then bernanke?

This, nation has become a political football.

? larry summers or janet yellen?

The fight for the next fed chairman is turning into a circus.

A third of the senate democratic caucus has come out in support of janet yellen, the former fed vice chairman.

Today the new york times officially endorse janet yellen in an op-ed.

Speculation is running rampant for job that has historically been very apolitical.

We are following all the twists and turns very closely.

This feels unprecedented.

That is right, it really is unprecedented.

Not only the new york times op- ed today, but the senate later has a lot of folks in washington nervous about what is happening in the federal reserve -- but that senate letter has a lot of people nervous.

Could this open it up to greater criticism in the future?

Critics say the fed is doing too much.

It opens a pandora's box and has people nervous.

What i think is crazy is the op-ed from the new york times.

It is unusual.

Not just an endorsement but really blasting larry summers as being part of this fraternity of timothy geithner and robert rubin who dominated president obama haas economic decisions over the last few years.

What is the reaction from washington and those close to the fed?

It is an eye-opener, the fact that the new york times is weighing in in this way.

It has this feeling almost like a senate race.

The new york times can weighing in and the senate democrats can weighing in.

It has veteran fed-watchers and veterans of the fed nervous about what this means going forward.

This could have a spillover effect in terms of policy for the fed.

A lot of folks are very nervous about every time ben bernanke and fed officials get dragged out there to testify.

These questions about auditing the fed, this talk about the fed chairmanship and replacing ben bernanke could have a larger effect on the fed policies.

There are observers or people that have a stake in this that phil this attention is bad for the fed -- and that feel this is bad for the fed.

It raises questions the independence of the fed.

The fed has to evolve over time, but that does not necessarily mean that the fed has to be a pinball in terms of politics.

Monetary policy should be separate and apart from the government is doing every day.

That is the basis for the fed fed in the first place.

There are questions about whether this fight is a political fight and could undermine that.

What this signals to me is that either one will face a tough and political senate confirmation.

Not too much was divulged in the new york times.

There are certainly lead candidates.

But this raises the prospects for a dark horse.

There are names being floated around.

It is safe to say that janet yellen and larry summers are getting the most talk in terms of potential replacements for ben bernanke.

You have to wonder whether both are tainted with the scrutiny and controversy around the western of the nomination.

Thank you, peter cook.

Both are being very quiet.

Two of president obama haas biggest -- president obama's was jobs and healthcare.

There is an link between the two.

Back in 2005, the medicaid system was discontinued, the biggest public health insurance disenrollment in u.s. history, about 4% of working age adult tabulation losing health insurance.

The employment rate in tennessee rose after the care was disabled.

The employment rate rose in individuals working within 20 hours per week in getting private employer-provided health insurance.

People were entering the labor force to get insurance.

There is a paper that argues that obamacare would do the reverse.

It would have people leave their jobs because the government will provide insurance.

Did they put a number on how many people would exit the labor force?

Looking at adults without children were above the poverty line, between 840 -- 840,000 and 1.5 million people.

That is the number of people who could drop out of the workforce to get obamacare.

Do they have any idea what kinds of jobs these people -- know, and that is a good point.

We have seen the rise in part- time america.

These unofficial freelance jobs . that is a very good question.

It is not necessarily account for that shift in the economy.

You heard the former commerce secretary this morning and he is worried about the long-term economy.

He was pretty adamant that it will be negative.

Not to mention innovation and healthcare.

The link between the labor force in the health care law.

When we come back, exploitation on the big screen.

The story of linda lovelace.

We will talk to the directors of a new film about the actress and more.

? mandolin late -- linda lovelace had a role in the 1972 film deep throat and is the subject of a new file pick.

The story of struggle and exploitation and ultimately humanity.

How does it feel to be the poster girl for the sexual revolution?

It is a movie like any other movie, but there are so many better things in it.

Like what?

Like me.

We have the directors of this new film, rob epstein and jeffrey friedman.

You call this a ducocu- drama with comedic undertones.

The early part of this story is very humorous as linda is just 21 years old and entering this world of pornography that she has never experienced before , and we tell the story as she was telling it initially which was that everything was peaches and cream.

Years later we discover that she had a darker story to tell.

What is also interesting as there is another movie about linda lovelace that is in pre- production, a biographical film.

Is there a little competition going on there?

When we were developing the film, there was intense competition.

But now that we're getting out into the world, we have relaxed.

What is it about her?

It often happens in hollywood that something gets in the zeitgeist and there are multiple projects.

The first one out of the gate is the one that actually makes it.

This is one of those examples.

The cynics out there, and there are many, will say that a docu-drama about porn is just a cheap way to get people to see your movie.

Why did you decide that linda lovelace was worthy of this?

She has an amazing story.

A classic story of a woman overcoming adversity and finding herself.

And it happens in the context of a very interesting time in our history when the so-called sexual revolution was happening.

We were in many ways defined as a culture sexually during that time.

And to segue from that into feminism.

Linda's personal struggle track what was going on in the country at the time and it was very public.

I think we are all wondering, how much pornography is really in this movie?

Not much.

If people are expecting that, they made the disappointed.

The sexuality is really about linda as a young woman coming into her sense of herself as a sexual being and how that eventually got exploited and she had to spend the rest of her life overcoming that.

She was only in the pornography industry for 17 days, but she became notorious and internationally famous at 21. she then spent the rest of her life trying to overcome that.

Ultimately it is the story of a woman finding her own power.

The main film people have seen about porn is boogie nights.

Has that paved the way for this story?

It is a classic.

Certainly setting the bar very high.

But this is about a woman.

Obviously it is a different story than one about a man.

It is a brilliant film.

You guys went to visit porn f ilm sets.

Did you find out that some of the things we think is true is true?

We are in a different realm now than when linda was.

The sets we visited, women were calling the shots.

The women were really running the show.

In the linda's time, it was a very different experience.

Movie is out friday.

August 9. thanks so much for joining us.

They are the directors of lovelace , the movie about deep throat.

Too bad, not as much pornography as you were expecting.

Bloomberg is going to take you on the markets.

Major indices -- s&p, dow, nasdaq all trading higher.

Reversing yesterday's losses.

The biggest mover on the s&p 500 this morning, up almost 10%. the company will be acquired for $400 million.

Mosaic is the biggest laggard in the s&p 500 today.

This comes after a russian producer announced it was ending potash production.

Back in two minutes.

? . . live from bloomberg world headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

Packaging jobs -- the president heads to amazon warehouse pushing a new tax plan hips will create american jobs.

Fab's final arguments -- the defense rests without calling a single witness.

Closing arguments today.

We will walk you through the potential verdict.

Retail renaissance -- high end stores are hot as everyone targets the luxury shopper three the deal for saks fifth avenue may not be the last one.

You are watching "market makers ." let's get to the newsfeed.

The second-biggest bank in britain is making a cash call on shareholders.

Barclays wants to raise $8.9 billion to plug a hole in its balance sheet.

The bank is being forced to raise capital because of stricter basel three regulatory rules.

Barclays will also shrink its assets by as much as $123 million.

Jpmorgan will settle claims that the bank manipulated power markets in california and the midwest.

Regulators say traders engaged in strategies that empower companies to overpay for electricity.

Jpmorgan has neither admitted nor denied that it did anything wrong.

The big merger in the advertising business kicks off a wave of deals -- publicist and on the con are getting together to create a big company.

Two other ad agencies into the highest levels in a decade.

President obama is on his way to chattanooga, tennessee, where he will pick a plan to overhaul the corporate tax code and use the extra revenue to pay for infrastructure upgrades.

Hans nichols is in washington with a peak of what we can expect from the president.

There are some new proposals here.

If you talk to republicans, they will disagree with you on what is new and what is not new.

We are already having a debate about that, which gives you a sensor may not be a lot of prospects.

We have obama decoupling corporate tax reform from individual tax reform.

The idea of the grand bargain which had been talked about seriously at the end of last year is pretty much dead in the water.

This is a chance for obama to have some sort of jobs program and have it paid for.

In the past, obama has said corporate tax reform needs to be revenue neutral.

He is saying now you wanted to be revenue positive.

They're going to take money from corporate tax reform, potentially from $2 trillion in foreign earnings overseas.

If you keep the money overseas, it's on a lower tax rate if you bring it back.

Here is what one republican spokesman said -- this asks president obama to support president obama's position on taxes and spending while leaving small businesses families behind.

That is not exactly a ringing endorsement.

It would reduce the top rate from 30% to 28% and lower the rate for manufacturing to 25% and eliminate certain tax breaks.

We do not have a price tag from the white house area that is crucial.

There talking about her new jobs program and want the revenue to come the corporate side that they have not given us a number or a specific plan on on where they plan to go.

We will get more details with the president's speech, but it doesn't look like this is going anywhere.

That is an important point.

We have this decision on government funding running out of money, the debt ceiling, more talk about sequestration, and immigration reform.

Where does this fit in and doesn't have any shot of seeing the light of day?

It depends on much you think congress can do in the nine days they are in session in august.

I would put immigration in the back half of the year.

There are real deadlines for the government funding.

You have to have some sort of funding mechanism.

If they want to buy down and fix part of the sequester, that may be done in the context of raising the debt ceiling.

But that will be a tricky negotiation and markets could be rattled.

Hans nichols, our markets correspondent.

More from you as president obama lays out his plan and chattanooga, tennessee.

Let's take you to the amazon location in chattanooga where the president will be speaking a few hours from now.

Michael mckee is there.

Why is chattanooga and not choice for the announcement the president is going to be making?

-- why is chattanooga and odd choice customer he is going to give us a metaphor.

This is what a package and ship all of the stuff we buy online, to talk about the importance of manufacturing and high wage jobs.

The trouble is amazon is neither.

Service industry jobs at this warehouse and they don't pay all that much.

It's a metaphor for what has happened to the overall economy over the last several years.

We make a lot of stuff, but we don't need a lot of people to make it.

Specialty chemicals, volkswagen and little debbie cake bars are made here, but manufacturing is a smaller and smaller part of the economy area -- part of the economy.

The ticket to the middle class that she used to have here is gone.

We also love to go online because we save money and it is convenient area we are trying to get the lowest possible cost, and that is driving the wage scale.

Amazon starts its workers at $11.50 an hour, lower than the median wage in chattanooga and lower than the national median wage.

At this point, you see an economy transitioning from manufacturing to services, incomes are down, and it's no wonder people don't feel good even a they are getting jobs.

They are happy to have jobs year, but they are not making a lot of progress.

And amazon warehouse may not be the perfect device for the president, but what impact would his tax plan have on a place like chattanooga or the industries you're talking about?

It is ironic because it really wouldn't help both.

Chattanooga depends on a lot of foreign direct investment.

It's not going to help those companies.

Amazon has very little cash on its balance sheet.

I tend to spend their money building these kinds of centers.

I talked to the director of economic development.

He would rather see obama talk about free trade.

Creating high wage jobs and manufacturing jobs in general is very challenging.

We have significant issues and we are focused on free trade , which is something the president can play a role in.

Chattanooga had a good opportunity with ally and we lost that to mexico.

One of the reasons we had was the free-trade agreements mexico as compared to the united states.

We see that growth and the potential for foreign direct investment to continue as a big opportunity for us.

He has a good point there -- as hans nichols said, those free-trade negotiations underway right now is something obama might be able to influence that may create jobs.

The chamber in chattanooga wants free trade, but if you ask ceos across the country what they want is holiday on repatriating overseas profits.

Where does that stand?

At this point, the republicans are not in favor because of the consequences of revenue.

Why would they bring money back here and spend money to expand its plant and facilities when demand is so low when need -- we need companies growing faster.

They spent all of the money on dividends and stock buybacks instead of expanding their facilities and adding jobs.

The president makes his view -- makes his remarks a few hours from now in chattanooga.

And he better be bringing me back little debbie's. the biggest ever tie up between agency publicists and on the con may set off a wave of deals in the industry.

Cristina alesci is here with more and we want you to name names.

As a person who focuses on m&a and deal activity, you always get deafened to banker hype about follow-on investment.

But it's just too strong for these mergers not to happen.

We are talking about federal targets, interpublic group, the stock is up on that $7 billion market cap, so that would be a big deal.

Then we have a french agency , $2.2 billion, more of a reasonable bite-size deal.

Then we have mdc , smaller firm that could be attractive.

The list -- the risk year for these companies is getting clients angry.

Lots of big clients don't want to work with that agency that represents a big rival.

Yesterday, a lot of the talk was around the fact that publicists and on the con have both at sea and coca-cola as clients.

There are real risks in these kinds of mergers.

But nonetheless, all he industry executives say it is bound to happen.

This is showing clearly that the market is leaning toward consolidation.

I believe this is something which is going to happen.

A lot of people were really surprised, not just because this deal is kept so quiet, but because of the transformative nature of the deal and how big.

For a long time, people talked about maybe omnicom buying interpublic but we did not think the number two and three would come together.

Clearly it would be beneficial for the ceos to have more consolidation because it makes it seem as though they have not so much buzz of the market but dominated less perhaps question mark what are shareholders saying?

I noticed the stocks of all potential targets ran up yesterday.

It doesn't seem to suggest investors are buying into the thesis there will be a ton of m&a imminently.

It could take some time, no doubt.

Here are the macro dynamics behind why these companies have to consolidate a little further.

Ad spend is projected to grow over the next couple of years which would bode well for further deal activity.

War of that spending will go to digital.

The problem with digital is it doesn't have the kinds of margins these guys are used to, so they see their margins get crushed by looking forward three or four years from now and seeing that happen, not to mention the fact they have large media buying operations that are becoming dis- intermediated by the googles of the world.

You don't need a middleman to negotiate at rates.

You can go to an online platform and get prices.

It's almost like a stock market.

You see a lot of these pressures coming together at once and then you have the big behemoths out there, with google making big headway in becoming a real threat to the traditional's. there is also some concern about the regulatory approval of this giant deal, more so than the companies are leading to believe?

The bankers i am talking to are downplaying the regulatory risk.

But anytime you see the number two and number three get together, it's going to set off alarms for regulators.

Lex -- potentially more consolidation when it comes to them and a in the ad business.

Defense rested without calling a single witness.

Shares of herbalife are up after earnings beat estimates.

Carl icahn and bill ackman, more coming up on bloomberg television, streaming on your phone, tablet and on bloomberg.com.

? lex fabulous fab -- we may not be reciting that nickname so much anymore because closing arguments begin today in the x goldman sachs banker.

The defense rested its case without calling any witnesses.

My guess spent 20 years with the sec enforcement division working on cases just like this one.

He is in our d.c. bureau.

Nice to see you again.

What does it say when the defense rests its case without calling any witnesses?

We can jump to our own conclusions, but you know better than us.

It's unusual, especially when you have such a sophisticated defense team to decide that less is more.

The use of the witnesses called, eight of those witnesses were on the defendant's list.

I think the jury was -- i think they were certain the jury got a full briefing on what happened in 2007, but most importantly, it can be a very prophetic act to stand up in open court as the defense attorney and tell the judge without putting on any testimonial evidence that the defense rests.

We will see how that resonates with the jury by the end of the week maybe.

One of the more interesting points has been the explanation of the e-mail he sent where he calls himself fabulous fab.

He called it silly and romantic.

Do you think a jury is going to buy that and is it important to the case?

I think that e-mail is a bit of a sideshow.

There was more important testimony and e-mails that go to the sense of confusion that build up around folks like paulson and within goldman itself as to what participants were taking which positions in this deal.

That e-mail itself is kind of a red herring and a little irrelevant.

I think he explained it away pretty well that it was a conversation meant to be private that he regrets, a conversation with his girlfriend.

Many people were hoping to see john paulson, the hedge fund manager who benefited from this abacus trade take the stand and testify for the defense.

What do you think the calculus was behind-the-scenes trying to determine whether or not it was a benefit to have paulson testify against the risk that might come under cross examination?

I think that is right and i think with mr.

Pellegrini they got excited -- i got essentially the same testimony before the court.

Although the jury might be skeptical as to mr.

Pellegrini given that mr.

Martin's from the sec took him on a little bit about having memory problems.

I think the story mr.

Pellegrini told that he was sitting there across the table from aca and told them paulson intended to take a short on this deal was as much as they were going to get.

So calling mr.

Paulson himself was not necessary.

How do you think it's going to play out?

If he's charged with anything, how bad is the penalty going to be?

Rex there are two ways the sec can win this case.

One is to show the jury that he intended to sow the seeds of confusion so that aca would be the bond insurer and take some of the risk.

That's one way they can win.

The other is on a negligence standard, basically saying that he should have taken positive steps to make sure all the participants knew what everybody's role was.

If you were running a defense team, how would you make your closing argument?

I would say that his obligation, when you are putting a deal together between sophisticated parties, is to slowly -- is to solely structure the deal.

It's a decision made by the institutions themselves, and regardless of disclosure of the part of the middleman putting the book together as to who is on either side, that is completely irrelevant.

He acted within the normal course, the standard course of someone who puts together deals on wall street.

We may have that decision by the end of the week.

Closing arguments start today.

Thank you for talking with us today.

Coming up, you have heard emerging markets can be hot, but this is ridiculous.

You will never guess which city has more expensive friends than manhattan.

? you know the story -- booming demand for office space am a limited inventory and prices go sky high except this time it's happening in yang go and, the commercial center of myanmar.

Office towers built in the light -- built in the 90s have climbed to $100 a square foot.

If you compare that to less than $75 a square foot in manhattan.

The reason for the boom is myanmar is opening up politically and international sanctions have been eased.

The lepers are rushing to catch it in.

-- builders are rushing to cash in.

They caught the last potentially untapped emerging market.

I would like to go there.

It is indeed hot.

Speaking of hot, it seems like nothing can keep brazilians from hitting their favorite vacation spot.

Even though the country's economy is neutral in the currency is slumping, brazilians are still flocking to miami.

Miami's hotels and restaurants have become much more expensive for brazilians as their currency drops 11% against the dollar last year.

Still, the number of flights between brazil and miami has increased by 20%. according to the "miami herald " those flights are full.

It's almost passed -- almost half past the hour.

So we have to go on the markets.

The major european indices are closing out with a little bit of gains.

The ftse in london up almost point 25%. in france, up .6%. whether it's the earnings or economic confidence, jumping to the highest in 15 months.

Perhaps europe is not going to be the worst place in terms of the economic recovery and recession there.

I want to draw everyone's attention to two european banks.

We will start with barclays cropping 6%, raising a plan -- showing a plan to raise $9 billion and encourage shareholders to buy stocks.

Deutsche bank surprising with a 49% drop in quarterly earning.

The big reason is an unexpected addition of $800 million set aside for future legal costs.

Deutsche bank embroiled in everything from libor to the u.s. housing market and could face fines and settlements in the future.

Coming up, an update on herbalife.

? this is "market makers." i'm sara and -- i'm sara eisen.

Pfizer is preparing to split itself into.

Olivia sterns has been digging through the results.

What did you see with everyone focused on this break up?

It is a slight heat in earnings, but everyone wanted details on what it could look like once they separate their generics from the branded drugs.

On the earnings call, we did hear the ceo say a breakup is unlikely before 2017. so three years out.

We always knew a pfizer split would be a slow turning screw if it were to happen.

Profits rising more than fourfold.

Pfizer made a lot of money spinning off their animal health unit.

That's part of the bigger story of what is going on at pfizer.

This is a company making a fraction of the money they were making a few years ago because they lost the patents.

Now their best selling drugs, to vaccines, all of the hopes are what have been in the pipeline.

The bad news is the numbers have come in pretty soft and their blood thinner did not even make it into their own single line item.

And that is bad news.

It looks like shares are up 1%. we do get results from work today.

What was a highlight there?

There is good news and bad news.

Everyone was panicking about their drug for diabetes.

But the numbers came in strong.

Similarly to pfizer, they are in this environment of falling revenue, so they lost patents.

They lost a patent last year , but they have had some hiccups over what is in the pipeline.

They have had an experimental drug for osteoporosis and a sleeping aid we have been talking about trade it has been a tricky point for merck.

But they did announce they're going to replace the head of research and development, so they are recognizing the have trouble in the pipeline and are trying to do something about it.

And they have to offset those patent expert -- patent expirations.

Olivia sterns, covering pharmaceuticals for us on merck and pfizer.

The federal government has a new way of measuring the u.s. economy, one that finally gives seinfeld it's due.

Peter cook is back to explain.

What on earth does seinfeld have to do with measuring the economy?

Rex the puffy shirt and cramer, all of those people, what does it mean?

The sitcom that went off the air in 1998 is about to give a jolt to the u.s. economy because on wednesday, the government will release its take on second quarter growth and release revisions to the u.s. gross domestic product going back to 1929. it includes some of the biggest changes in years and they will show the u.s. economy is larger than we thought three gdp is the measure of all goods and service in the economy.

The formula is not changing that some of the inputs are being reclassified.

It includes pension costs, real estate transaction fees, but the biggest changes involve entertainment, where the cost of tv shows like "seinfeld" and movies will be counted as investment spending for the first time.

Research and development costs will be counted as a business expense and seven investments.

That is very big when you take take into account things like drug development.

He changes would have boosted gdp by about $400 billion , the equivalent of adding the economies of virginia or new jersey to the gdp.

It's a big change.

These revisions don't mean the economy is growing any faster rate -- any faster.

Decisions being made right now and the federal reserve great "seinfeld does quote finally getting its due.

Please don't tell me that keeping up at the kardashian's is not getting treated the same.

Seinfeld is more valuable than keeping up with the kardashian's grade the show brought us those highlights like the puffy shirt and soup nazi, still making money on syndication today.

Reality shows don't get the same treatment because they are not expected to get the same kind of long-term economic impact and shelf life.

Same is true for soap operas and sporting events.

I trust the government is treating market makers very seriously area -- seriously.

This show is going into syndication for decades.

I think so for sure.

Peter cook with the latest on gdp revisions.

Stop me if you've heard this one before -- president obama and congressional republicans are about to go to war over the debt ceiling again.

We will be talking about it next.

This is something you need to pay attention to right now.

? it is a familiar refrain from washington -- the parties about to go to war yet again over the budget.

Perhaps more familiar, congress is leaving town for summer recess this week.

After that, it will have just eight working legislative days in september to negotiate a deal before a new fiscal year starts on october 1. just eight days to get this done in the august recess and by all accounts, it sounds like both parties are pretty far apart.

There are about 90 -- they are about $90 billion apart.

That sounds pretty far apart to me.

When a come back, they have two things on the agenda -- one dollar have to figure out how to keep the government running and avoid a government shutdown.

Secondly, congress has to take some action on this moving target known as the debt ceiling.

The first is a priority.

It hits october 1, the end of the fiscal year.

And there is only eight days to do it.

Is that to say we should start to panic about this right now?

No panic is necessary.

Congress is really good at coming out in a crunch.

They have become crunch players time and time again, passing a short-term budget or a continuing resolution right at the 11th hour.

The problem with this clutch play is that it leaves to a lot of uncertainty in the economy and leads to uncertainty for business.

It's hard for businesses to make decisions when there is so much uncertainty about what fiscal policy is going to be.

If people begin to recognize what you say, which is congress has become this clutch player, isn't it like expecting the guy who comes up to the plate in the bottom of the night with two outs and two strikes to hit it every time and perhaps as a result, less uncertainty over time?

I got lost in the baseball analogy, but yes.

It is very much like that.

I will turn on the washington nationals to get a clearer picture.

It is like that except we don't know with complete certainty what congress will do and there was this talk about a grand bargain.

That would entail some tax increases which republicans don't want and some entitlement cuts, which is what democrats don't want.

The hope was the grand bargain would lead to deficit reduction over the next 10 years.

We are not going to see this.

This is probably consensus in washington right now.

What we are going to see is a little deal that will keep the government running and hopefully end this confusion over the debt ceiling.

Is there any way they could fold it in with the debt ceiling?

Perhaps even president obama's opposable about changing corporate taxes?

Any desire to complicate this issue i think makes it a harder list for congress area the house and senate plans are very far apart and it complicated by the budget control act, which we talked about at the sequester.

Not only are they going to have to deal with the fact that they are very far apart and they are far apart in discretionary programs and nondefense programs, but they are also going to figure out how to fund the government with less spending.

Unless they change current law, we are going to see sequester in 2014. tying that to the debt ceiling debate is one more hurdle congress will have to overcome and eight days on the legislative agenda before government shutdown.

Let's hope they can defy the odds or at least the recent track record.

Always good to check in with you on these issues.

Call it saks appeal.

Saks fifth avenue got snatched up and we may see more of these deals coming up.

? herbalife, they country -- the company in the middle of the battle between carl icon and bill ackman beat the street on earnings.

A conference call has been taking place and is still taking place right now.

Blackman issuing a new list of questions.

Su keenan has been monitoring the call.

Have any questions been asked on the call?

They just opened it to questions at the autumn of the hour and i just jumped off a call to tell you what is happening.

Ceo michael johnson opened the call almost as if he were speaking to bill ackman, boasting another record quarter, pounding home they were raising earnings guidance for a third time and obliquely referencing the adult of the 2 wall st titans who have taken opposite views on the stock, saying it's the most research company on wall street and there is a lot of misinformation out there.

Earlier today, bill ackman released his latest act , questioning why operating earnings growth has been so weak.

In the press release, he says " is the company by revenue growth that the expense of operating income?" notably, ackman is alleging herbalife is trying to make profit look better than it is.

The company directly address this, reiterating the exchange rate of 10 boulevard to the dollar, consistent with why they are raising guidance.

Adding the company is sustainable, financially strong and pounded home they're very strong performance.

We are continuing to hear from investors, but we have not heard from bill ackman yet great what is interesting here is bill ackman calls this company, alleges it's a pyramid game.

Zero cells on the stock, six buys.

What kinds of wes gems are the analysts asking?

They're asking about international markets, china, venezuela, latin america where you have seen a lot of this company's growth.

It is the investor reaction in terms of stock performance which is telling.

We saw the stock pop earlier in the day, it came down a little bit, but it's still up substantially, which tells you the impact of these questions is a lot less than it was earlier in the year.

We do know that bill ackman unannounced eight 20 million shares short position in december.

In his latest position, he says he's still sure the company but not telling us the size of his position.

He has supposedly lost a lot of money since getting into this position.

One of the more interesting earnings calls of the season on herbalife area one of the greatest names in luxury retail, saks fifth avenue, has been sold.

Hudson bay is looking to go upscale, so what does this say about the luxury consumer and the prospects for more deals at the high-end of the market?

Mike guest -- my guest has worked with dozens of companies, including saks fifth avenue and liz claiborne.

You know sex with avenue extremely well.

This is a deal financed entirely by debt.

How do you take one retailer that is struggling, finance a purchase with that by another retailer that isn't so fabulous in and of itself and turn it into two plus two equals 10? fax it easy.

Richard baker has been looking at saks for the last four years, even right after he bought lord and taylor.

This is a canadian company?

It is a canadian company, but he is a new yorker.

The synergies between these companies are enormous.

The report said anything from 100 million dollars to $300 million.

It's a better bet formula where i'm sure he will do what he did with hudson bay and lord and taylor and combine the back of house and keep the the front of the house separate.

The big a

This text has been automatically generated. It may not be 100% accurate.

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