Going After Steve Cohen: Market Makers (07/22)

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July 22 (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)

The sec takes its first formal shot at one of the most successful hedge fund managers ever.

The residential rebound -- home sales may hit a three-year high and we will have the latest numbers in a moment.

Diving deep to secure the clout -- you will not believe the deaths companies are going to to protect valuable data.

Welcome to "market makers." m deirdre bolton.

I will be erik schatzker and you can be my partner.

Investors are not getting a break today with mcdonnell's bridge chairs are falling into the world's largest fast-food chain reported second quarter revenues that mr.

Estimates.

Economic weakness, they say, will affect sales the rest of the year.

The deal for is getting more complicated.

The vote on the buyout is scheduled for wednesday and bloomberg is reporting that there is some tension over a tensionfee the deal falls through.

Sources say that silver like it expects a portrait $50 million fee should be competing bid by carl icahn win.

The company said it would pay a smaller amount of the deal falls through.

Big changes at yahoo!

As dan loeb reduces his holdings.

After the transaction is complete, he will own less than 2% of yahoo!

Shares and lose three of the board seats when he invested.

He waged a proxy fight in 2012 to get the ceo fired at yahoo!

After he cited inconsistencies.

We have breaking news -- the american housing market data is just out for june existing home sales which is much lower than expected.

If the overall number is a big miss as is the month on month.

Michael mckee is in the news room with more.

Other than this being a big miss, what stands out?

The question is why that stands out.

It is a 2% drop and we're expecting to go up to 5.3 annual sales by dropped to just over 5 million.

Many people were looking at this as a question of whether higher mortgage rates in the month of june affected people's buying habits.

It is hard to say because these are based on people who signed contracts 12 months ago.

We are not sure that is exactly the reason.

There are not enough homes out there to buy is another reason.

There was a low but that goes up from five by a stray we don't have the total inventory number which has not been updated but we -- will be an open question whether we at don't have enough homes or because of higher mortgage costs, this will drive this fire.

-- drive this higher.

Sometimes you see the mix and we sought single-family homes dropped 1% and multifamily homes drop - one really driving.

Thank you.

Let's get more perspective from a senior u.s. economist at ubs from stamford, conn.

Is there a supply problem?

I don't know, we missed too.

I would guess it would be a supply problem.

We have not been investing a lot and housing is a country.

If you look at the homes on the market, where my wife and i have been looking for a long time, you cannot find anything that is good.

You have things in six years ago listed as a new home and people are moving out of homes but they're not perfect.

The stuff that is ready to move in, just sits there.

Michael mckee just mentioned to the question of financing.

How much is that playing a role?

I think it is too early.

If you look at the pending home sales numbers which should be a leading indicator for existing home sales, those are pretty healthy.

It could be these are dragging out longer are people -- maybe banks are driving this.

I don't know but i don't think it is the mortgage rates having gone up yet.

I think it is too early for that to have an impact on these numbers.

Put this in the context of all the economic signals we have been saying.

Since the federal reserve started talking about tapering, the data is not exactly been terrific.

It hasn't but what has gotten hits are the refinancings.

It really have to ask yourself does anyone you know has a mortgage who has any decent credit not been able to refinance?

How much refinancing is left to do out there?

There may be little and now the rates are higher.

The purchase index from the mortgage bankers association has been holding up very well given the rising mortgage rates which is a prime indicator.

I suspect that the concerns of the housing market are much ado about nothing.

The population growth is increasing, employment is increasing, people don't like to live in their parents' basement, and that usually leads to more housing.

If there is one x-factor, a surprise factor, what is it?

I tend to believe that people move on autopilot.

They hit certain points in their life and make decisions and move forward.

Sometimes with the housing data, people can live in some pretty interminable situations for a long time.

That person might be willing to stay in their parents' basement that i would be willing to.

Thank you very much.

Sec chairman mary jo white is promising a bold and unrelenting and forced an issue that the commission.

She delivered on that this past week by picking fights with 12 billionaire hedge fund managers.

Peter cook is with us with more.

What is the message that she wants to send to wall street?

Is that there is a new sheriff in town and a new way of doing business at the securities and exchange commission.

Mary jo white used to prosecute terrorists and mobsters as a u.s. attorney and talked about pushing enforcement during her confirmation process.

The moves last week put action behind the words by charging steve cohen with failing to supervise portfolio managers and rejecting an $18 million settlement in another case.

She is taking on some very big fish and taking some risks in the process.

Harvey pitt said it should make wall street take notice but this is her trademark.

She is very smart and very tough and she makes card calls.

Based on what they filed, this case looks like it is the proper approach for them to take.

These are the first big enforcement actions on her watch and they fall years of criticism that the sec has been too soft on enforcement and settles cases instead of taking them to trial.

It does not require defendants to admit wrongdoing in certain trials.

One settlement with citigroup back in 2007 was rejected by a federal judge because there was no admission from the bank.

In june, mary jo white promised to change that policy.

What is the rest in this tougher approach?

You have to go to court more often.

If you don't have the settlements and are not willing to settle, you have to go to trial and can't under litigation team to win those cases.

That is the question mark in all of this.

They are forced to go to trial and more of these cases, do they have the guns at the sec to get the job done?

You don't look tough if you don't win those cases.

That's a great point.

Thank you.

In a moment, we will talk more about steve cohen.

Look at the government case against them.

Also, the great kate wait is almost over.

She has gone into labor and british businesses are ready to cash in on a royal baby and we will tell you how many goods could be purchased.

This is "market makers," on bloomberg television streaming on your phone, your tablet, and bloomberg.com.

? hedge fund billionaire steve cohen is fighting for his career.

If the sec wins their case, he could be barred from managing other people's money.

He is not being charged with insider trading.

The sec went a letter in some respects and contends that he failed to supervise two portfolio managers allegedly did trade on insider tips.

Doug burns is with us and as a former federal prosecutor.

Sheila carr with us as well.

Why the letter tack?

Is this the best the sec can do?

This scenarios like a poker gain.

You can block and lot and there comes a point in time where you have to show your cards.

This is what they had.

Since a massive martoma was not cooperating and not willing to talk about the 20 minute conversation he had with steve coehn on july 20, 2008, they don't have the words that were said . in insider-trading cases, if you are left with inferences, it really reaches the senate standard but not the criminal standard.

Insider-trading charges and no personal liability?

Yes, this is an administrative filing.

There are legal quick points to be made.

It allows them to play on their home court.

They did not want to necessarily be standing in front of somebody like another judge that has not been conducive to some of these weaker series.

It is in washington and the losing party can appeal.

It is in the sec administrative leave.

It is not an enforcement action in u.s. district court and is not a criminal corp.

-- criminal case.

We don't know for a criminal case is coming.

You had been covering this for a long time.

How is this going to go down at sac and what are his options?

It could have been worse in some respects so he may have a sense of relief.

However, the government decided they wanted to try to put sac out of business in terms of running outside money.

What the consequences of this action even though it is lighter, they could end up barring him from investing customer money which is a significant effect for steve cohen.

You have been covering this from the beginning and end of the personalities.

This is not about money, from everything i know.

Steve cohen 1 stohr on this hedge funds?

He has $9 billion but he cares about his reputation.

He always thought of himself as one of the greatest treasures of his preparation.

Can they take away his ability to run his own family money?

They can take away his ability to manage other people's money.

When the dust settles, he can manage his own funds.

They're talking about a deferred prosecution resolution on the criminal side that is where you agree to certain terms without the prosecution.

They said you have to convert the fund to just managing your own money.

The worst case scenario, he manages is my only.

What about the charges that the sec has brought stacks does this mean he will be liable?

What will he have to pay?

In an administrative proceeding, you can have issuance of profits.

Theoretically, they can do that.

He settled for over $600 million already.

That will probably be the likely outcome.

We just said this is the new mary jo white and the new s.b.c and it is a risky strategy.

Will it pay off?

She was my boss in the u.s. attorney's office.

She is very capable.

She is a brilliant lawyer and very tough.

She will push the case in a very, very competent manner.

Sac a certain fight back, steve cohen has the resources to fight the government.

He could have closed up shop and had a nice life a long time ago but this is his passion and this is what he wants to be doing so he will fight.

Does this rollout a criminal case?

If he pays the damages, is he in the clear?

Absolutely not, they can go to the criminal side.

They are still investigating him.

They are considering a number of options.

Their statute of limitations to charge over the specific trades is longer, six years rather than five.

This is why the sec had to divert strategies.

What is your prediction?

I am glad to hear you say the statute of limitations have changed.

One of the biggest tricks in the playbook in the u.s. attorney's office is you can take something forward, joined with the old conduct and called one conspiracy.

-- and call it one conspiracy.

As long as part of a conspiracy is in the last few years, it falls within the statute of limitations of they could do that that thank you both very much.

Coming up next, first comes the royal baby, then comes the royal baby bump,. we will crunch the numbers on the economic impact of the blessed event, next.

? this is a live shot of st.

Mary's hospital in central london where the duchess of cambridge is in labor which means the next heir to the throne is about to be born and that means the british people can look forward to a baby boom for their economy.

Scarlets though is quantifying royal baby bump.

Is this a stimulus shots?

It is.

The center force retail research indicates that this will boost retail sales by around $370 million through the end of august.

This is alan breaks down -- that gets into a grand total of $370 million.

In terms of the actual event, it is a big deal but maybe not as other deals.

The olympics was a big deal.

$854 million.

And to the diamond jubilee?

Englander is having an eye series of events?

The royal wedding on its on was almost $800 million.

How much money did they have to spend on getting the royal baby under way?

Look at the royal wedding.

$794 million.

This is where it gets interesting -- there is a book that is on sale at amazon.com.

This is a picture of it.

You can order that for your kids.

I want to know what this baby will wear.

Kate is known as a fashion icon.

We know that the baby will probably have a bib whether it is a girl or boy dedicated to her aunt pippa.

That sells for about $21. anyone who has had a baby knows that $21 as a lot.

But it's the royal baby.

There is a royal baby pacifiers for about $18. that is also available.

It is not just for the baby but -- i know you guys have had a betting pool go in but i'm going with the girl then i also think it will be a girl.

We got to get a boy out there.

Didn't they go back and change that rule just in case it is a girl?

You think they got the word in advance?

Yes.

Conspiracy theory.

How long is he going to have to be in labor?

U.b.s. labor for two or three days.

-- you can't be in labor for two or three days.

The media should be sent some royal baby best guess because they will be hanging out.

Scarlet fu, thank you.

It is almost half the hours so it is time for "on the markets." you will see extremely close to the unchanged line.

All the markets are slightly higher.

Except for the dow.

Six flags is higher but -- is lower.

It is investigating a federal rollercoaster accident in texas over the weekend.

Hasbro also missed estimates.

That is 60% fall in sales demand for the boy-focused joyce.

-- toys.

Current products are better anyway.

That is our line.

The girl power day.

Coming up next, netflix has the buzz.

We will find out of that has the numbers in a few hours after the report earnings after the bell.

Also, the best place in the country to work is not all about salary and perks.

We will fill you in on details.

This is "market makers, go on bloomberg television and streaming on your phone, your tablet, and bloomberg.com.

? live from bloomberg headquarters in new york, this is "market makers." we have top headlines.

Apple developer site is still offline after a hacker tried to steal personal information.

The site is used by programmers who write apps apple products . it is -- alice said to be tested larger screens for its iphones and ipad.

Apple has asked suppliers for smart phone screens larger than the iphone 5 so they may be working on tablas screens that measure about 13 inches.

The current screen is slightly less than 10 inches.

For the first time, and american will be completely in charge insap, the german corporate software maker.

Bill mcdermott will take over next may after his c0-ceo transitions out of the job.

He has been running the global sales force in the meantime.

Let's talk netflix.

It rocked the emmys last week, winning an astounding 40 nominations.

The streaming company is also a darling on wall street.

Is the best performing stock in the s&p 500 this year.

The company offered second quarter earnings later this year and john ehrlichman is in los angeles with more.

I think i will be looking at the subscriber numbers.

What amazed everybody is how quickly their subscriber base is growing.

A lot of that has to do with the business model.

It is like a fly will approach that netflix has.

What is it you want?

Your absolute unquestioning loyalty.

In netflix original show " house of cards, co kevin spacey plays an ambitious politician and read hastings is an ambitious guy, tugrik after building a dvd by mel business that sank blockbuster comedy such a future in streaming video with people watching movies and tv shows on their smart phones and tablets and it is working.

Netflix predicted it could end its second quarter with more than 30 million straining subscribers in the u.s. tradehastings wants more.

He says the servings -- the services on its way to 90 million.

Compare that to cinemax with 41 billion -- million subscribers.

When hastings what this is for people to think of netflix like hbo, as its own tv network.

"house of cards" arrested development don't come cheap.

Add more subscribers at $8 per month in use that money to create more m&a-or the content while hoping competitors whilehulu and amazon cannot catch up.

As for the stock market story, this company has left the short fellows on their toes.

There was a lot of short covering this year.

The stock has gone 185%. speaking of netflix, you're telling us last week there was a big relief over the weekend with the movie "turbo." it was kind of a flop.

This movie did not do as well, near as well as the remarks animation would have hoped.

This is a story of how hollywood tries to hedge itself.

Remarks as an important relationship with netflix where there are creating original tv programming for netflix including an original series based on that snail in " turbo,"and that will come out at the end of the year.

If you are a hollywood player, you can be less competitive on what happens over the weekend by having deals with players like netflix who are hungry for original content.

That is a whole new model.

Thank you.

We're going to continue the conversation on netflix.

One analyst saysorange is the new black.

He has a buy on the stock.

He is an analyst with hudson square research review had a $325 price target.

I am a number cruncher.

"orange is the new black" was created by the same creator as "sweet spirit o weeds." so far, it seems like it is going well but it points out that this original content game is changing everything that has the biggest implications for netflix?

The number one thing that will drive subscribers is that this will be good to watch on the show.

For a long time, people thought content guys would not license to netflix.

Instead of having to go to hbo or showtime and ask for a license, they are going directly to the producer.

It is the same places their competitors are going.

Because they have 35 million subscribers around the world, they now have the budget to go out and bid originally on content rather than waiting for it in the second or third window.

Netflix is shifting the paradigm when it comes to earnings calls.

You are an analyst and now you can i do q &a with company executives?

Are you angry?

In japan, they have earnings calls in a ballroom of a hotel.

You have to leave your office and go to the small room and listen to an oral presentation.

It is like a board meeting.

Then you have to go back to your office late at night and write the report as an analyst covering global markets, you have to roll with the punches so this is different.

I don't think it really matters.

The number one thing that matters to me about netflix is subscriber growth for the june quarter is not typically be quarter for subscriber growth.

In the winter is when people are looking for something to watch.

They honestly don't have great choices.

There is not that many things streaming that i want to see.

I think the numbers contradict what you say.

Last quarter, the members streamed 4 billion hours.

I don't know if you have kids that the kids offerings in netflix are great.

Our kids do not know what channels are.

They pick a show they want to watch a netflix and that's how it goes.

You have submitted your questions.

Is your number one question?

I want to ask about sub growth.

Netflix has been growing their contribution margin 200 basis points of recorder as they roll out new markets.

They are bringing in subscribers and revenue.

It is suggested that maybe they should take the amazon playbook and grow at all costs.

Amazon has been very expensive because they keep growing the top line but not the bottom line.

This is something of a bit of a land gerab subscribe is a new paradigm, there is a lot of credence to this.

When netflix loses money, the market freaks out.

Taking the long-term view, maybe they should be growing more aggressively and not trying to grow profits as fast.

We have been talking about content development and the way we watch it.

Apple, in theory, is developing a bigger screen device.

What do you make of that?

I have been writing about apple tv for three or four years.

It is something the kids being not happening.

-- it is something that keeps not happening.

Apple has to do something like what netflix is doing and license the content and bring it on.

It cannot be just a better conduit to your time warner cable box.

As to the on demand and everything.

-- it has to be on demand and everything.

That has been a stumbling block for apple is that they not have been willing to spend the money up front.

With apps, you buy a magazine or a game a movie.

His success-based soleil-sur 70% of that with the publisher.

-- is success-based and they share 70% of that with the publisher.

Apple seems to be getting into more location services trying to make better what it did with its mapping device.

Are you optimistic about their strategic moves to?

The long term for them is the services around apple products.

It is easier to stay in the apple ecosystem.

That's the way it works with itunes.

Once you buy music and itunes, -- john itunes, you wanted to play it on and ipod.

When you brought in that content, much like what google has done with their maps, apple just released a beta version of office in the clouds.

At 10 times earnings, the market treats apple like they will never in ovate again.

I cannot prove to you that they will but you also cannot prove that they won't. at 10 times earnings, you're getting to a 2% dividend yield and you're being paid to wait.

I remain optimistic.

It will be a hard thesis to prove right now but i don't think apple is done.

Thank you very much.

Coming up, the job where you can keep your career and your life in balance.

We will show you the company that as did just been named the best place to work.

? live from jim -- bloomberg headquarters in new york, this is "market makers." subsidized day care, an olympic size swimming pool and on said barber shop and a card telling -- party telling services but it may sound a country club that is the nation's best place to work.

It is a business software company and has just been named the best company to work for four work-life balance.

Joining us now to talk about what it takes to keep employees happy and they math is jen mann, the vp of human resources.

We know that you are offering all kinds of perks your employees.

Aside from an altruistic reasons, i'm sure there is a purpose and that is to reduce churn?

Absolutely, our employee value proposition consists of having a place that has meaningful work for our employes and empowered management philosophy and providing a world class work environment that provides these services for employees.

This is so they can be creative and innovative.

How important is it for you and software developer to maintain top talent and incentivize people you have on the payroll?

It is absolutely critical.

When you think about what we produce is a product of the minds of our employees associated with developing software is court to who we are and providing a work environment that helps foster creativity and innovation is critical for us to be successful.

Is part of the strategy the idea the you are not based in silicon valley or not in new york?

So you have to make it more attractive to debt and keep top tech talent?

Absolutely, we have a diverse work force.

We have students read out of school and a young population and then we have an older population that has been with us for 20-30 years.

We want to have programs and services that meet the needs of all of our employees.

I think we have done a great job of doing that.

About salaries?

Are they competitive?

They absolutely are.

We would have to in order to attract the talent we have.

I like to think we have the best in the industry.

For staff, it is more than just peg.

We look at a total award philosophy.

We want competitive pay but we want to have a quality of life for our employees and i think we have that with the things we offer.

It is a growth opportunity and is empowered management philosophy where they can take risks and learn and providing the services to make life easier for them as they continue to work at sap.

Company is based in north carolina.

Wamu turk -- talk about the turnover rate, some staff intercompany are between 3-5%. how does this compare to industry average?

This is something we are proud of british industry average is closer to 15-20%. when you think about the savings, that is the money that funds the wonderful programs we have.

Have you found about your employees that they like the best?

That's a difficult question.

It depends on who you ask.

We have wonderful convenience benefits' like the hair salon and the car detailing and the cafes.

We also have a wonderful health care facility that is a flagship program available for all employees and their families.

It is a primary care facility and free for their families as well as the employee.

Congratulations on the award, thanks for joining us.

I would like to have a nail salon at work.

Or card d telling and olympic-sized pool.

If your base in north carolina, you have more space than a manhattan office.

True.

Coming up, we will take a deeper dive into the computer security, going beneath the surface, maybe the best way to protect the data.

? we store everything in the cloud.

We believe that all is safe but the cloud is connected, not just a virtual, to computers that need to be safeguarded which is why a growing number of companies are going to extremes to protect big data.

Richard falkenrath has more.

It's not the first place you expect to find a cloud.

How far underground are we?

125 feet below ground.

This is a data services company that causes this 3 million-square-foot cave in kansas home.

With natural disasters in recent tornadoes, threatening to wipe out above ground data, an increasing number of data services company moving underground.

Iron mountain was one of the first storing the data in a mine in pennsylvania since 1998. another one when subterranean in 2006 inside a former air force bunker in central iowa.

Beyond protection of natural disasters, this 3 million-square- caverns says the benefits are many.

It is almost physically impossible for someone to put together a better cost effective solution.

The equipment is the same above and below ground.

One of many advantages for the 70 global clients, k temperature is 68 degrees which makes cooling servers underground more cost-efficient.

They say operating costs are 30% lower than above-ground.

The limestone walls are five times stronger than traditional concrete to protect against earthquakes are bombs.

Access to individual does which is controlled with advanced biometrics.

There is one surratts that one of the tons of rock cannot do anything about.

A hacker with an ax to grind.

There is richard falkenrath from deep underground.

It looks like an adventure movie.

For all the security and all this cool location, a hacker can still get access.

It is time for "on the markets." if you take a look at the equity futures picture, we are seeing a flat market overall.

A lot of that has to do with the fact that we are near record highs for stocks ended the look of what the housing data was this morning, existing home sales posted an unexpected drop.

Housing may start to temper some of the gains and that is adding to a little bit of that tempered optimism about where the stock market can go it the housing market is starting to slow.

Elsewhere, you can see in terms of the treasury market, the 10- year note is not changed as far as the yield.

For treasuries, we are seeing the slowest pace of purchases of treasurys over the past few years.

That will be a key indicator and if you talk about earnings.

Mcdonald's is coming out their earnings and has broken 6 flax.

-- and has broke and six flags.

-- hasbro and six flags.

We will be back in just 30 minutes.

Also in the next hour, big news about yobbo it is buying back 40 million shares of a fund run by activists investor down low.

He became a yahoo!

Director in a board shakeup links to the ouster of the former ceo and we will have more on that and what it means the future of yahoo!

Under marissa meyer.

? . . at the failed.

Detroit is not just bankrupt, you have not seen a city whose finances are in such bad shape.

Apparently nobody wanted fries with that.

Shares of mcdonald's falling after sales come up short.

And together for the first time, superman and batman join forces on the big screen.

Will place the number of to prepare risley to twice the number of profits?

Welcome back to the second hour of "market makers." we are in for stephanie ruhle and erik schatzker.

Let's go straight to revenues feed.

Yahoo!

Shares are down more than 3% today.

The web portal has agreed to buy back a billion dollars from the third point, the fun run by dinallo.

-- dan hollow.

--loeb.

Second quarter earnings at hasbro fell 16%, missing analysts' estimates.

There was a drop in revenue from boy toys.

Hasbro and disney have extended a merchandising deal.

They will be with to make marvel comics and star wars characters through 2020. a surprise drop in previously owned homes in the country last month.

Sales fell by 1.2%, hurt by rising interest rates and a lack of supply.

We want to move ahead to our top tax story.

Activist investor dan loeb selling back 40 million shares teel yahoo!, declaring victory a year after he pushed through major changes in the company.

For more on what this means for yahoo!, we go to california with cory johnson.

He is with us from santa disco.

Jon erlichman is also in los angeles.

Cory, why now?

The heavy lifting has been done at yahoo!

In terms of a turnaround.

Lots of investors have been pushing for this as dan loeb got involved in the stock.

The company announced a new buyback plan with the last earnings announcement, so this becomes part of that.

They announce $1.9 billion a share buyback, so buying back at the closing price.

It was a nice mark for him.

All those shares are bought back as part of that reauthorization of the share buyback.

That means the share buyback jobs quite far ahead in one day.

The company says it boost earnings per share, but it will also have the effect of removing dan loeb from the board.

He will leave in july, as well as the other two that joined it with him.

With all three of them leaving the board, one way that wall street looks at this is a catalyst for change.

Based on what your sources are telling you, it is this the victory lap?

We came in, agitating for change, got the kb wanted, and now we are finished.

First of all, there is the return of dan loeb to the company.

He had a big victory for investors, for investors, and for himself.

Paris also the fact of the business has fundamentally turned around.

Forget the pending sale, the alibaba assets, japanese assets, which investors have been pushing for four years.

You look at the company and it is not growing much at all, but it has stopped shrinking.

Sales were falling at double- digit rates for years.

Any given quarter, back to 2008, that was arrested by the time that dan loeb joined the board.

Anemic growth, but that is better than shrinkage.

The business is a long way to go, and dan loeb will not be there to see that happen.

I know that you had done a lot of reporting on this story, jon, and how the deal came together.

What else do you have?

This is not something that was discussed over a long period of time.

There were windows for big investors to sell their stakes.

He had told the company he was planning to sell a big amount of his stock.

Actually, he had already sold some stock since joining the board.

As part of that, yahoo!

And marissa mayer said, let's speak about what we can potentially do here.

They say it was a pretty quick process.

So big that started on friday of last week and wrapped up yesterday.

For marissa mayer, this opens the door for her to put her stamp on the board in a bigger way.

You have a border directors around seven, they have not figured out who they want to be the chair.

You would figure they would add a couple more members and then make a decision on who the chair will be.

It is another opportunity for marissa mayer to put her stamp on the company.

If you want to know about the relationship between marissa mayer and dan loeb, it has been fairly good, but both are fairly have strong people.

Dan loeb is direct and marissa mayer is a good leader as well.

Perhaps, based on the stock performance, this was an opportunity for dan loeb to make his next move, but he still owns a lot of stock.

It sounds like they have a good relationship, the way they are talking about it.

Great stuff from both of you on the west coast.

Cory johnson and jon erlichman.

Of course, they will have it covered on "bloomberg west." from a shareholder's perspective, we want to bring in a hedge fund investor.

Larry, i am looking at the stock price.

Down more than 4%. what did you think of third point selling back of these shares to yahoo!? are you annoyed?

I am not annoyed, it is a question of what side of the " new look at.

Dan loeb's business model is a hedge fund, has made over $500 million.

The utility of profits beyond that diminishes.

He has an obligation first to investors and the idea of harvesting the profit, even though a lot of and will be taxed severely, is very good, consistent with his business model.

You look at our business model, and at gamco, we are long-term investors, very tax-sensitive.

You look at yahoo!

And the attraction that we had, and dan had, the ability to participate in this asian increase as a phenomenon without really having to pay for it.

We have more or less doubled our money for our shareholders, but i do not think the game is over.

You saw the quarter from alibaba.

We met with the management of 10 cent.

We are confident they will continue to grow.

50 million people are joining the internet.

The government wants consumption in china.

Alibaba is reasonably valued.

My personal opinion is, after the public offering, $100 million, and that gets me easily to the mid 30's on yahoo!

Valuation.

If cory is right, that marissa mayer has turned the company around -- i have not seen the numbers to make that clear -- but if he is right, we will get a foreign bond.

Dan loeb, given his business, did the right thing.

As a long-term fundamental investor, we are still comfortable.

I think we will let our profits run.

I wonder if this marks a turning point in the leadership, dan loeb's presence there, constantly try to find the right visionary for yahoo!

Do you see that in marissa mayer?

She certainly does a great job on conference calls.

Has made over $3 billion in acquisitions.

We will wait to see if that turns into revenue and net cash flow.

I think they have done a very good job of attracting quality people, including some who have left the company.

Unquestionably, she has improved morale there.

This is like appointing a new head of a movie studio.

You need years, not quarters, to see what will happen.

The signs are, frankly, encouraging.

Our analysis of the assets of the company in the case the market is not paying for it, with yahoo!

Being valued at 0 to 4 times.

That is below what comparable company's value at.

I see a lot of potential here.

Larry hagerty, always great to see you, a shareholder of yahoo!. when we come down, in down times in detroit.

We will show you it is bankruptcy can provide a second chance for the motor city.

Mcdonald's warning that the economy will hurt sales for the rest of the year.

Welcome back.

It i'm sara eisen.

Detroit bottoming out.

Is it a chance for a fresh start?

Michael mckee is not very optimistic.

The bankruptcy will go through the normal process.

That is in the hands of lawyers, but nobody has asked a question of what comes out the other side, what is left when you have been through bankruptcy?

Detroit is a huge city.

You could fit san francisco, boston, and manhattan within the city limits and have room left over.

In terms of square mileage, 139 square miles.

That space used to house about 2 million people, but now under 700,000 people.

78,000 abandoned buildings, a 66,000 empty lots.

Areas in blue are were 60% of the buildings are not occupied or do not exist.

40 percent of street lights do not work.

How about 60% of ambulances do not work.

Of on the crime rate is the highest in the nation.

These are problems bankruptcy cannot fix.

It is a legacy of bad management for years and years.

And they had computer system that do not work.

You cannot automatically bring in somebody to fix this, and the city cannot pay for it anyways even after bankruptcy.

For the 60% of people are unemployed, median income, $20,000 a year.

You cannot raise taxes, you cannot charge them any more, and tax collections are collapsing.

The city cannot afford to provide services to the day in the area, but the residents have rejected the idea of downsizing, so what are you left with?

No industry or future, unless someone comes up with a plan.

On friday, wheat spoke to the detroit governor about what would come after bankruptcy.

He said that would be part of it, but no specific ideas.

Usually what people try to do to generate jobs, the state of michigan allowed a new tax zone allowing movies to be made more easily.

They are trying to attract artists but also on openers, especially in the tech sector.

That has created about 4000 jobs, not want to pick up the slack.

They have this huge part of the say that they cannot finance and no jobs.

The question is, who is going to step in?

How the generous something that was that big?

People say that detroit is the home of the big three auto makers, but in truth, it is not.

General motors headquarters, and a chrysler plant.

That is it.

Most of the manufacturers and parts makers have moved out of the city.

That is not the answer either, unless they can figure out a way to lure people back in.

How does a city do this?

Are there any case studies?

There are cities that have done it before, but they had resources detroit does not.

Pittsburgh had carnegie-mellon university and the resident of pittsburgh.

They produced a lot of jobs and focused on robotics and health care.

It is also a much smaller city than detroit.

They were able to do that.

The question is, what kind of city without a major research facility within its borders, what can they do?

What happens after the mayor's term is up?

The governor says we will have a plan.

Is the government going to step in?

Could the federal government create enterprise zones or something like that to lure in industry?

Lots of questions about what happens in the long run.

Questions not solve the necessarily by filing bankruptcy.

Michael mckee with the dire situation in detroit.

Detroit's problems, especially the unfunded pension obligations, shared by numerous american cities.

Neil richardson is with us from d.c. to talk about dozens of cities, states, and hundreds of billions in unfunded pension promises.

Nela, thanks for joining us.

Are we going to see detroit- style city bankruptcy's across the country?

I do not think we will see detroit-style bankruptcy's, but we do see similar problems across the cities and countries.

Unfunded pension liabilities.

Currently, local governments can support 40% of their liabilities to the city workers.

The gap between what cities and states are promising their workers and what they are actually setting aside funds to pay for it is growing over time.

And it is growing for a variety of reasons but basically, there are no funds available to fulfil the promise of retirement income for many city workers.

We know that a lot of pensions and institutional money is going into riskier outfits, alternative assets, but what is the time line?

How long do these municipalities have before the clock runs out?

The clock is ticking.

I cannot tell you how long that you have a show that focuses on alternative assets.

Because of the financial crisis, many of these funds went out of stocks and bonds into more alternative assets like real estate, a private equity, and hedge funds, in order to get a higher rate of return.

The whole system is based on the fact that most pension funds will average 8% annual returns, but during the financial crisis, very few were able to achieve that number, forcing them into riskier assets in order to meet those returns and keep the payments low for the city.

Is this worse than the private pension promises?

The difference that is key is that private pension funds are regulated by the federal government.

City and state pension funds are self-regulated, so this 8% expected return -- which historically is accurate and conservative -- is not riskless.

Cities and states are structuring their payment structure on something that has a lot of risk, and that is the problem.

If these were figure -- federally regulated, the problem of mismanagement, in terms of the expected returns and financing, would probably be mitigated somewhat.

Thank you so much, nela richardson.

Coming up, he is the pope with rock star status in argentina.

It turns out, that is not great for the country's currency.

One problem for argentina's economy is an issue for which argentines' do not have a prayer of fixing.

Olivia sterns has today's let american report vw could say pope francis is to blame.

He is so popular in argentina, which is no surprise.

Of course, the first argentine pulp.

-- pope.

Thousands of argentine catholic plan to be there.

So much, in fact, foreign demand has pushed the currency to a seven-week low.

Argentina has imposed tough exchange controls and that has forced many travelers to turn to the black market.

By one measure, the peso has fallen 7 cents against the dollar this month.

According to the catholic church, more than 42,000 argentines will head to brazil for the pope's visit, and an enormous stage is being built on the famous cookbook to ban the beach.

Thank you very much.

It is time for bloomberg to take you out on the markets.

European markets are set to close in just a few moments.

Let's take you through the major indices.

The ftse 100 in london flat.

The german dax and cac pretty much flat as well.

Two big movers.

Ubs, the largest bank insolent, rallying to a two-year high.

Phillips also reported good earnings and gains for an eight day in a row.

The euro marching higher towards 1.32 against the u.s. dollar.

Coming up, it is a super hero super summit.

That man and superman joining forces for the first time.

Warner brothers hoping for some super profits.

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

Mcdonald's is introducing new products to get more people in the doors, but those efforts have been falling short.

The cbo says the rest of the year could be just as tough.

Julie hyman had been listening in on the company's earnings call.

What i find interesting is so far they are blaming the economy.

Not just here, but globally.

We got more details about what we are seeing the outside of the united states, some interesting commentary there.

Even though asia-pacific, middle east, and africa have been an area of strength for mcdonald's, this quarter it was not the case.

Same-store sales in that region falling by 0.2%. in china in particular, comparable sales were down 6.1%. blaming one of the same elements as yum!

Brands have done in that country, and that is the avian flu.

In japan, consumers remain extremely price sensitive.

All that said, in june, sales rebounded to a gain of 1.1%, higher than the average analyst estimate.

Over all for july, comparable sales were relatively flat or will be flat, and the second half of the year will remain challenging.

That is what has been going on the outside of the country.

It is easy to blame the overseas markets, and mcdonald's is a massive multinational, but what about the united states?

Still very important what is happening here.

Very important, and they still have sales gains, but smaller than anticipated.

In the u. s, a gain of 1.1% compared to the 1.5% estimated.

Analysts were looking for a gain of 2.1%. the company has been raising prices to some extent, 1.5% from june year over year, but that is a small price increase that it implemented a year earlier.

So customers are still been looking for value.

Mcdonald's has been tried to offer that by aggressively pushing its dollar menu, but that is not making up ground in terms of the price increases.

It is the commodity costs, which rose by 1% in the second quarter.

Indeed, the company still talking about the global economy, here in the u.s. and abroad, as a big challenge.

Investors seeing the challenge as well.

The shares are down 2.6%. julie hyman, thank you.

We will continue the conversation on mcdonald's and its effort to get customers back under the golden arches.

We have a bloomberg contributing editor, former chief marketing officer at eastman kodak.

While we have you here, give us some advice.

Which of the ceo of mcdonald be doing that they are not doing now?

They are doing pretty good.

They are the biggest player in the markets.

Subway may have more stores than mcdonald's, but only half the revenue.

They have become the poster child for obesity, which is a bad thing, so they are trying to reposition the company as a safer, healthier alternative.

I was reading an article on line that said the best fast food restaurant for help as mcdonald's. the truth is, even if you go in there and you say you are quick to get a healthy salad, for most people, it is hard not to order a big mac, fries, and a drink.

They offered apples instead of fries for the kids' meals, but only 10% of people would take them up on that.

What does this mean for the core customer?

Earnings are off a bit, but it is not a big thing.

Not catastrophic.

They are doing the right things, still growing.

Still hitting gross sales numbers, maybe not as big as chipotle or five guys -- so what are they doing right?

They are still catching up.

Any gain that they get, they look like they are growing in much bigger numbers, which they are, but not with the massive size that a $27 billion company like mcdonald's has.

You mentioned the drive- thrus.

There is no drive-in for five guys but i am a fan of all these, as you can tell.

65% of the customer and then go to a mcdonald's is drive-thru.

Dening in that line, move a bit faster, the healthier wrap, made within 60 seconds, that is a big thing.

A multimillion-dollar effort to revamp the stores.

That could be a problem as well.

40% to 60% of costs are borne by mcdonald's. here is what i tell people.

A brand is a promise delivered.

In this case, your dressing of timber a little bit, which is good, but if we do not get to that core group, the younger audience, who are starting to look for something healthier, looking for the freshness of chipotle, i think mcdonald's could give it to them.

And talk about the issue of the employee's. when the employee starts to complain, of the concern.

It is only the same people doing the same kind of complaints about mcdonald's that we have typically seen, a pro with a bit of mustard at them.

Jeffrey, thank you for joining us.

A bloomberg contributing editor.

We have a great special coming up for you on the fast food giant.

Betty liu will take you inside the donald on wednesday, going inside every aspect of their business, as well as a live, exclusive conversation with cto don thompson.

This is "market makers." i'm sara eisen.

In this age of consolidation, and with the last time you heard of a magazine publisher introducing a new title.

Home and garden is launching a physical magazine based on its popular website for recipes.

We have some highlights now.

When everyone is doing the opposite is going digital, why are they doing this?

I asked him about what is providing the impetus, the consumer or the advertisers.

Here is what he said.

We bought al recipies, the world's largest digital through property.

We have done several different tests with the consumer of a printed extension, and the results have been overwhelming.

We first did something on the newsstand and the sales list was about 40%. then we send out a trial magazine to about 20 million of our existing subscribers, and we got 400,000 orders with money returned instantaneously.

The guaranteed advertisers, average circulation of five under thousand subscribers.

As i understand it, you could get the recipe is on mine, so why would somebody want to pay to get it in the mail?

Absolutely, there are 50,000 recipes on line.

Consumers are paying someone to edit that selection . what is different about the magazine is the way the content is curated.

Most access allrecipies.com and search for something that they already know how to prepare.

In the magazine our ideas and inspiration that he may not have thought about in the past.

Then it will take you to the website to help you againexecute the idea.

Another thing that makes meredith different from other general newsmagazine's is there is not that time sensitive issue.

Most magazines are tied to your life stage.

Pied to seasons, thanksgiving, summer barbeque, and less about what happened about last week.

I always like to ask ceo's about what keeps them up at night, and you got an interesting question.

He said a year ago it might have been the economy, but now he is worried about the future of snail mail.

He is worth about the post office.

And be more financially viable, and next wednesday i will be meeting with the postmaster general in d.c. we hope congress gets behind postal reform.

Obviously, the post office is a big part of our delivery mechanism.

That is one of our worry points, and forward.

That will not be resolved soon, but it is something for a magazine publisher to think about.

He also has a group of tv station to think about.

Yes, investment bankers have been calling him about the possibility of splitting up the assets, but he is not in a rush to do it now the debt it has been one of the hottest deal properties.

Absolutely.

Unlocking that shareholder value.

Thank you for those highlights.

We are going to stay with media after the break.

There is a question of just how big one screen has to be to hold two superheros.

Superman and batman joining forces for the first time.

? welcome back to "market makers." i'm sara eisen.

Warner brothers is hoping a super hero summit will be a big hit.

For the first time, superman and batman will be uniting on the big screen.

They are among the best known, but icons, and also the most profitable.

With us is a partner at and branding company, offbeat.

Do you think this is box office magic?

I think it could be huge, the biggest film merger of superheros we have seen yet.

First of all, warner brothers has superman and batman, have done a phenomenal job with those franchises creatively.

But they have had to do with dc comics to extend the life of the franchises, just as marvel has done for the avengers.

They have been bit -- able to create a franchise out of it.

To take the cynical view, is this just them running out of ideas?

Creatively, the movies have stood while on their own.

Warner brothers has been able to maintain franchises from that standpoint.

Putting them together extend the life of both franchises.

And the geeks are going ga ga, announced at comic con.

If they have a scene where they fight, who wins?

You have got to go with superman.

Why?

That and is limited to what he can pull off.

You have to go with raw strength compared to the guy with cool gear.

How badly does the box office need a hit like this?

The box office have been pretty good -- has been pretty good this year.

Where the difference is is you have several huge budget movies that have bombed, which have performed not nearly to the potential.

We are looking at the winners, "despicable me 2" i saw, -- you can see where my demographic is.

But a lot of big budget flops.

All of these underperformed.

I do not think the damage is finished.

You still have the potential of "two guns," which i think will perform well, but with the amount of competition going on, you have "world war z." "pacific rim" had great reviews but has underperformed the box office.

You have had several movies with big budgets this year and there are still only 3000-plus theaters showing it.

So you have a distribution issue.

What does this say about the non-sequel a fact?

When we look at the hits, two were sequels.

It shows the power of people wanting to see what is familiar.

It is the fact that these movies have had a successful legacy.

Even a movie like "the hanover 3" which got terrible -- "the hangover 3" which got terrible reviews, did well at the box office.

How competitive is that right now?

When you take superman and batman and combine them together, and all the more genetic possibilities that will add to the warner brothers bottom line, it is absolutely huge.

The most important thing is if you have a great story and a great creation, you do nothing to enhance the brand.

It sounds like you are bullish.

Thank you.

Netflix reporting after the bell today.

In a moment, we will show you what the options market tells us about netflix shares.

? it was a great "market makers." tomorrow i will be back.

Netflix earnings after the bell.

We will speak to a rich green field.

He is the analyst that will be moderating the company's conference call.

The single analyst.

He will get a chance to question management.

In the meantime, it is 56 past the hour, so it is time for "on the markets." let's take a look at the overall equity markets.

We have seen more of a flat move.

You can see here, pretty flat overall for the major indices.

In the green, but not a bold rally.

Take a look at commodities.

Gold prices heading a little bit to the upside, 2.9% higher.

Oil prices in focus as well.

The price difference between west texas intermediate u.s.- based oil, and international, starting to narrow a bit.

Copper getting a hit earlier because of speculation that u.s. economy is getting better.

In treasuries, the 10-year relatively unchanged.

About one basis point to the downside.

People bidding up a little bit the price of 10-year notes.

And of course, from the big picture to the smaller.

Let's talk about netflix.

The on - streaming and moving giant is set to report earnings after today's closing bell.

This is a stock that gets all kinds of price action on and around earnings.

The options market is pricing in an up or down move of 40% run those numbers.

-- 14% run on those numbers.

We will speak to a managing director who will tell us about his take on netflix.

Thank you for joining us.

Let's talk about what you see for netflix today.

What we are looking at is, as you mentioned, a 14% move on the underlying security after the earnings this evening.

We see that as expensive in terms of the front month expiring.

We will talk about a strategy that can benefit from any upside in the security, and also any neutral or dead fish reaction.

So what kind of strategy are we talking?

Mildly bullish.

What is the call?

We are looking at something for the september expiration, on the put spread side, we want to sell this.

We are looking at the 2-10, 2- 15 puts bread, about $1.20 credit.

You are selling it, so you

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

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