SAC Capital Indicted: Market Makers (07/25)

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July 25 (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)

Waiting 18 months versus 16 months.

It is not making too much of a difference at this point you're right that you look at the way it will develop, with futures on aluminum, you're talking about the lme, the primary benchmark.

Right.

Why is it that they are the only benchmark we're talking about?

They have been around for so long.

Shanghai has a market, but it is not as big at the lme.

It is simple.

Lme is the only aim in town for base metals.

Andrew cos grove, thank you so much for joining us.

He covers metals and mining.

Fed of the four on the markets fared we will be back in 30 minutes, but "market makers live from bloomberg reporters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

As a seed capital is indicted in the crackdown on insider trading.

Facebook stock soars.

Sequestration?

The latest earnings show budget cuts have not hurt the contractor so far.

Welcome to "market makers." we are in for stephanie and erik.

Breaking news -- as is the capital -- sac capital has been indicted by a phil roe grand jury on criminal charges of insider trading.

The result of a six-year investigation by the justice department.

Su keenan is downtime with the latest.

What are the charges they are facing?

The firm is being charged with trading in 20 different companies illegally.

The company is saying it was substantial and significant.

One insider was saying he was hired over the objection of lawyers.

There was one counts of fraud and therefore counts of securities fraud.

This relates to a grand jury indictment that was handed out earlier this week.

Steve cohen and several executives were subpoenaed to testify before the grand jury and we know that the founder, steve cohen declined to testify.

Two of the fund managers are now facing insider trading charges in november.

They were charged for securities -- the was much talk about how the government was facing a statute of limitations.

Those of securities or illegally traded in 2000 eight however, prosecutors tell us that given the conspiracy charge that allows the government to attach more recent trades to former traits widens the government's ability to charge the firm.

We know the government has been looking at suspicious trades in weight watchers.

Those were traits that took place at fac -- sac in 2010. last friday, they targeted steve cohen himself, saying he failed to supervise.

This is a civil allegation, a much lower threshold and it would have the potential to bar him from managing the firm.

It is the latest that we have.

Thanks very much, reporting for us live outside the u.s. attorney general's office.

We are joined on the phone with a former assistant u.s. attorney.

You have seen the charges and you heard the rundown.

What are you surprised by?

What i am most surprised by is the fact that the u.s. attorney's office indicted the company separately.

There isn't outstanding indictments against two employees.

The government could have superseded and had all of these kinds of tied up in a night, -- nice package.

We just got a headline that it involves more than 20 companies.

A lot more than we were thinking.

Correct.

It is a lot more.

When you charge a conspiracy -- there is only one defendant in a charge against the company.

When you chart a conspiracy, what you can do is it affects a five-year statute of limitations on prosecution.

The reason it does that is because you can charge a conspiracy back as far as you want provided the last chapter -- it was taken within five years.

I prosecuted an airline that went back almost five years.

It is a very broad and powerful tool.

The fac -- sac was substantial and pervasive.

How strong is the government's case?

You never shoot of the king was you know you will be able to kill him.

They should've never brought this case unless they have substantial evidence to convict beyond a reasonable doubt.

Having not read the charges yet, i would be willing to bet that you can supersize your extra value meal but they will get a conviction here.

In terms of the impact, to criminally charge a wall street firm is that a death sentence for the firm?

We have to see what happens.

The last time they got about $58 million.

If the government is asking to have the firm band or seek restitution, this could be a serious, serious problem.

Certainly a big blow.

What are the options from steve cohen's side?

I understand he was afforded the opportunity to testify in front of the grand jury a need to defend.

I suspect his options is a wait and see, which is a smart move.

That is a smarter way to go.

He has not been criminally charged.

This is the firm.

Does that mean to you that they don't have any evidence directly linking him to some of these trades?

Say that again.

The fact that he was not criminally charged, the fact that it stopped short there and charge the firm instead, does that signal to you that the government did not have any evidence linking him directly to these alleged insider trades?

Yes, doesn't the government right now does not have sufficient evidence.

They are playing a wait and see game.

It is a big chess match on some level.

Doesn't mean he won't not be criminally charged in the future?

No.

i would not read into that right now.

First of all, the supreme court has ruled just because someone is charged civilly does not mean you can't later charge them criminally.

Irrespective of whether or not there are damages.

Just because there is a pending civil action, none of that would lead anyone to believe that there is not what we charges against this guy ultimately.

What else do you think will happen next?

I think what will happen next is the case will move forward on the charge against the corporation.

I would not be at all surprised to see -- let me rephrase this.

The better thing to do is to watch the interplay between the case against the corporation and the case against the individuals.

We will see what happens there.

As we have pointed out, criminal cases against companies are extremely rare.

What do you think the federal prosecutors have to consider and have to know before taking this case and decided to bring it up on the company?

They are rare for number of reasons.

At the end of the day, no corporation has ever been sent to prison.

It is a question of getting out the checkbook.

Money is all that ever flows from affirmative action to get the corporation.

The way the government works is that they invite people and try to get them to agree to cooperate and testify against others and work their way up the food chain.

No corporation is going to be able to give up its employees.

It is not work that way.

In the grand scheme of things, when you are prosecutor and your trying to get to the kingpin, indicting a corporation does not get you there.

Having said that, it does say -- send a strong message to a lot of other people and corporations on wall street that the government will be aggressive and they will come after your organization criminally.

That is never off the table.

A very strong message -- message.

In december for joining us with your reaction.

-- thank you for joining us with your reaction.

We will talk a lot more about this throughout the hour.

I wanted to get caught up on our news feed.

Top stories around the world.

Shares of facebook jumping 26% at the open.

Earnings beat estimates and also reported that mobile ads now make up 41% of its revenue.

More on that story in a moment.

Shares of the biggest network visa are rising.

These is reporting third-quarter warnings -- earnings that beat estimates.

More more worldwide spending on credit and debit cards.

These are trying to his -- increase business.

In spain, there is circulation that high-speed made to -- may be to blame for killing 77 people.

We are just getting started.

After the break, more on facebook's big break.

It seems they really have a mobile strategy.

The share is above $33. the latest earnings report so defense contractors are still flying high despite all of the government budget cuts and all of those dire warnings on sequestration.

That is coming up on "market makers" on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.

? this is "market makers." facebook is delivering a blowout quarter.

Shares are up 25% this morning.

Jon erlichman has the story from los angeles.

This report was all about mobile and facebook capitalizing.

It is pretty incredible, just looking at the valuation of the company and the markets of $64 billion based on how investors felt last night and this morning.

It is $80 billion.

The growth story that facebook or at least what people thought it would be as a public company -- here is one of these quarters where they say here is what is possible.

There are two mobile facts i want to share with you.

First of all, the number of people that are using facebook on their phone or tablet actively every month is well over 800 billion -- 800 million.

A big growth there.

What you are looking at is the percentage of total ad sales are coming from mobile.

It is north of 40%. that number obviously has climbed in a big way.

Every quarter for the last four quarters.

You have a analyst thinking more of the advertising revenue will be coming from mobile than desktop by the end of the year.

I think the biggest question is they made this transition to mobile.

Google has is in question.

What can you charge for these ads and are you giving anything up and what is the experience like and all it had a stuff.

We we have a blowout quarter, it helps these concerns.

Mobile is a huge concern.

It looks like facebook has delivered a little bit ahead of the curve.

Tell us about other challenges that facebook faces.

There are a huge number of questions for this company.

It did go public at $100 billion and still is not where it was when it traded on the day of the ipo.

It is a competitive market when it comes to trying to convince advertisers of where they should spend money right now.

You guys on surveillance, for example, have had some margin -- ma rtin to it knowledge that platform like facebook and twitter and google are very different.

The goal has great returns for advertisers because people know what you're looking for.

Twitter is the friend of tv and facebook introduced hashtags.

Other initiatives, facebook home is something they were hoping they could introduce to have a bigger presence on your phone.

Bigger engagement.

That has not worked out.

They're testing a lot of stuff to try to stay relevant in a big way.

There is a lot to do, for sure.

Thank you so much, jon, our senior west coast were spawned.

It was like facebook shares are at the highest.

Some analysts are capitulating on their calls.

Joining us is michael pacter.

He raised his price target from 35 dollars a share to $39 a share.

Is it on this mobile story?

Is that what has impressed you?

I am clearly impressed, but that is the basis for my upgrade.

The basis is that the ad rates but they are getting have been going up dramatically.

If you look at the growth in advertising revenue, it is vastly outpaced the growth in users of the growth of -- clearly, they're getting much better ad rates.

Some of that is they are monetizing mobile better, of course.

A lot of it is just they are doing a lot more local advertising, penetrating internationally.

They are starting to convince advertisers that facebook is an alternative to advertising on google or twitter.

That is a battle they're certain to win.

I think we're setting to see it.

I don't think that we are even close to the limits of what these guys can charge for ads.

I think he will deliver more frequently and innovatively and far more targeted.

I think you will start to see numbers closer to or approaching what google does as opposed to looking at yahoo.

Is going to be a great company.

A huge endorsement for the advertising business of facebook.

Do you think if they can take that model and transcend it to monetizing instagram and some other products like and graph search and all these others?

I am not sure that home was intended to monetize the same way.

Graph search, for sure.

Instagram is immediate.

Was he advertising probably as soon as this quarter.

They have to lap the sponsor stories.

I think he was the interstitial video ads right before you when you watch any video.

I think because that is to grab video is coming from a friend of yours, you're going to sit ad.

It is a lot more palatable.

I think you will see massive monetization with instagram sometime by september.

I think that is the big wrote the story next year.

Mark zuckerberg on the conference call highlighted engaging local business advertising for stud why is this important?

Local ads are more expensive for view the national avenue.

That makes sense because your local dry cleaner does not want to advertise across country.

The surface of the giants do not want to advertise in new york.

Local ads are willing to pay higher rates for view as national ads.

That requires a salesforce so you have a higher cost deliver.

If you get four times the revenue at the cost, it is a good deal.

I think facebook is headed that way.

They had to be headed that way because that allows them to use the demographic information may have about you and your preferences and your location to their advantage.

Advertisers really do want that.

Mobile continues to be a bright spot.

The revenue growth came in negative.

Are you concerned there is as essential chunk of the revenue in the desktop sector?

Novae think jon erlichman pointed out that daily active users are of germanic we are mobile.

That is because you carry facebook with you wherever we go.

I think what really happens is, for many people mobile is a substitute for desktops.

For a lot of people, it is a supplement.

They are on both.

I think that is why you're going to see a balance.

I am finding if desktop revenues grow slowly and mobile grows rapidly.

I don't think it matters.

Advertisers want to reach you whenever you're doing something on the internet.

Any page of the potential to be monetize.

Facebook is going where the users are.

I don't did it make much difference.

I know you raise your price target to $39 a share.

When do we see that happen?

I honestly think you will get it within 12 months.

I think you may get it within a quarter because if these guys watch instagram video and our success will, the stock will go right up.

This stock is trading at the lowest for any internet stock.

It is about a quarter of the valuation of netflix.

Not a bad play.

It is moving higher, up 25%. michael, thank for joining us with your call on facebook.

He is a managing director of equity research.

Coming up, general motors post second-quarter earnings that beat estimates.

It is poised for more growth due to new models.

More coming up right here on "market makers." ? this is "market makers." we are approaching 26 pass the albert and it is time for bloomberg to go on the market.

We look at the index, we are at our best levels right now.

The s&p 500 is a little change about 10 points away from the record high.

The dow jones industrial average is moving up by .4% because of facebook results.

The economic data is a little bit mixed.

Jobless claims rose.

Some earnings, movers to watch, general motors reporting results.

Second-quarter profit beat analyst estimates.

They are poised for growth because it is having one of the biggest product refreshes in history, launching 18 new models.

United continental is down by .5%. sales of the estimates earnings per share.

The company has spent less on fuel and slightly boosted shares.

One group that is under pressure are the homebuilders.

D.r. horton is reporting at the lowest levels since december.

They say earnings actually beats revenues, and there is concern with higher interest rates and mortgage rates some of the air could come out of the homebuilders would have been on a roll with recovery in the housing market.

Great news for the biggest defense contractors.

The budget cuts everyone kept warning about, they did not cut -- that is coming up next on "market makers." ? there were warnings that the sequestration would hurt defense companies, but so far, they're doing ok.

Boeing and lockheed martin are reporting blowout earnings this week.

The defense company index is up 30% in 2013 versus an 18% gain in the s&p 500. our guest is todd harrison, a senior fellow at the center for strategic and budgetary assessment.

He is in our washington bureau.

Good morning to you.

Does the defense sector to the nest deserve credit for adjusting well to this new reality?

Both are true.

I think the defense industry has gotten ahead of the curve.

And a lot of these companies started restructuring themselves as and they saw this was coming.

They have shed part of their workforce and closed facilities and other things to get more efficient internally.

They deserve credit for that.

The other thing going on here is that sequestration's impact from a defense industry are not going to be immediate.

There is a time lag because superstition cuts -- the department of defense budget authority depends on outlays.

There is a natural lag between when they get budget and when they spend it.

For services, they spend money more quickly.

They will spend two thirds of it in the year.

For equipment, which a lot of these companies make, it actually takes about five years before they spend all that money.

They have had time to prepare and may have been shrinking the workforce.

How effectively haven't been able to manage these costs and cuts that are coming?

You look at companies like lockheed -- lockheed martin, they shed 30,000 jobs since 2008. there got ahead of the the curve.

Other companies and industries are adjusting.

It is fair to say the industry is taking sequestration more seriously and adjusting to it faster than the department of defense itself.

The department of defense has been lagging and i think is fair to say they were caught flat- footed on march 1 20 recession actually went into effect.

They were not expecting this to happen.

The ceos gave these doomsday messages about how it would spell disaster.

That has not happened yet.

What kind of consequences doesn't have?

I think the risk here is credibility.

A lot of the ways they framed the impact of sequestration, there is a lot of ambiguity.

It gave people the impression that there was going to be immediacy on impact.

But with this and this year or this quarter.

That is not the way it works.

These countries have a huge backlog, many of them have huge backlog of orders.

That money is already obligated and it by law cannot be touched by sequestration.

I don't think that message was made quite clear.

It is a snowballing effect.

Starting now, it will build next year and a year after that.

We will eventually see the impact.

I was just don't ask you you, when specifically on timing?

General dynamics, they raised expectations for profits through the end of this year.

This is something i think we'll see more of the impact next year and more in 2015. this will gradually build over time.

The other thing to keep in mind is we are talking about overall sales and revenues going down.

Profitability within that, the margins of these companies make may not be affected.

In some cases, it may actually be able to prove the margin.

Why is that?

What happens is under superstition, the dod is forced to mr.

These cuts in a fairly blinded manner.

Across all accounts.

There are some accounts where they have entered into long-term contracts with these companies where they have agreed to buy at a certain rate in the future.

They have less money than they thought the reports have in that account.

They had to go back to renegotiate the contract with the vendor.

That gives the vendor the opportunity to come back in and improve their margins, if they feel they can.

I know some companies have been faring better cap and those that have been exposed to commercial aircraft and more of that kind of business.

How should these companies reposition and researcher themselves to make the most out of the fact the cuts are coming?

The reality is, we're in a downturn in terms of defense spending.

It started in 2010 and it is not just superstition going on.

We're seeing a reduction in the amount of funding for the wars in iraq and afghanistan come to an end.

We know we are in a drawdown and that will be less money for the defense industry.

We will have to see a reduction in capacity.

They should probably focus more on nondefense markets.

Focus more on international sales, or that might be appropriate.

There are other countries that are increasing defense spending.

They want to buy our commitment.

There are a lot of ways the company's can help reposition themselves.

Lookout were.

Thank you, todd harrison.

Joining us from washington.

Coming up, they make all the yoga pants that you and i and all of our female friends wear.

Why is lululemon using wall street to sell to the rest of the population?

That is coming up on "market makers." ? ebay has become so much more than an online auction house.

It is finding new and faster ways to meet customer demands in a crowded e-commerce market place.

The latest venture is evening now, a service that the company expanded this week.

They promise to deliver purchases in just under an hour.

How do they do it?

Jon erlichman tracked packages to find out.

Need something and need it now?

If you live in the big apple, james could be waiting to answer your call.

I just got an order for a usb cable.

A portable bluetooth speaker.

Looks like i'm going to best buy.

They are shopping valets for ebay now, the newest vision to the online marketplace.

It is an experiment in instant delivery, using a mobile app, customers and sever cisco, san jose and new york purchase select products from nearby retailers.

A valet delivers the goods in under an hour.

Today, our business -- you think about ebay logcal -- it is expanding the service for mobile to the desktop.

Working professionals would like the service.

Over half of usage during the day, we have made retailers even more prominent that people can shop by store.

The company hopes to expand its shopping days.

The ebay dream is to be a competitor to amazon.

It is focused on solving human problems and the need for convenience and immediacy.

Immediacy is not a new trend.

Barnes & noble and amazon offer select same-day delivery.

A delivery from ebay now cost just five dollars.

It is unclear whether the venture will be profitable.

The charges are immense.

The margins are very small.

This is a really hard business to be in.

My guess is that they view this as a way to be innovative and be on a trend to bring in new customers.

We believe we can build businesses that are profitable for ebay and retails.

Ebay plans to launch now in chicago and dallas, on the road to seeing if service can benefit ebay the bottom line nationwide.

Jon erlichman, bloomberg, los angeles.

We will talk about coffee and starbucks.

They have become the standard for global coffee culture.

Coffee is known around the world but increasingly, it is staking its future on having a prominent place in grocery store aisles.

The biggest news of the week might be the deal announced a few days ago with a yogurt maker.

Julie hyman is covering starbucks for us today.

You can already buy yogurt and starbucks, but this is taking it a step further.

Right.

Danone is going to be making yogurt just for them.

It is going to stay evolution fresh.

That is a juice chain that starbucks bought into 430 money in dollars.

It is looking to leverage that brand and increase presence.

It will be greek yogurt and eventually will be sold first and starbucks and then eventually in grocery stores as well.

It must've been having an effect with yogurt it was selling.

Is a very trendy?

Starbucks has been pushing into grocery stores and offering more branded products.

Starbucks ice cream, coffee and also its tea.

It is been getting into more branded products.

Also healthier things.

That is part of this strategy.

It is not just yogurt, it is great yogurt.

It has been explosive -- greek yogurt.

It has gone to 29% of the market, incredible growth.

Another way to look at it, unit sales going from 274 million to 879 million in 2013. chobani opened a store in soho.

How big are grocery store sales?

It is a minority of the business.

They make most of the revenue from starbucks.

However, it is a quickly-growing business.

If you look at the three-year growth in revenue, it is around 20% for its food service business.

That is, things in single outlet.

This is a big push of the company.

That is one of the numbers you will look at today.

What else?

If you just look at the basics, earnings-per-share, $.53, 24% growth.

An increase of 13% in sales.

Those are some of the numbers will look on after the close.

Thank you, julie hyman.

On the story was starbucks, getting into the grocery store aisles, i guess i have to get into costco.

They are in costco.

You can get bags of coffee.

Let's talk about yoga where, lululemon.

It is taking aim at wall street jocks to get men inside their stores and clothing.

We are joined by lindsay.

They have a face-off against under armour.

It is trying to get into events like the wall street the catalan -- decathlon.

The contestants are mostly men, wall street jocks.

They are providing of the classes as well for these men and women to help them prepare for the competition.

They are trying to get their name out there more.

They have sponsored the u.s. men's beach volleyball team in the 2012 olympics.

They were wearing lululemon.

It is about brand recognition and getting people to try the product.

In your story, you talk to men who say they liked the fact that the logo is not so prominent, that people don't know they're wearing lululemon.

Right.

The logo is really small.

They like the clothing and they think it is comfortable.

It hides your sweat.

It hides her fat.

Does does not look like you are wearing lululemon.

Is there a growth market for men's yoga pants?

It is not just about him.

They are trying to get into kinds of sports as well.

They make running shirts, a lot of different clothing that you can wear , it is a crowded field.

The market for men's yoga where probably is not very big.

Is untapped so far.

Give us an update on sheer gates and the trap dust pants that were transparent.

The pants are back in stores and they are fixed.

I have not gone to try any on, so i do not know.

It is up important that you get the right size.

That is the point that people were making, they were too small.

Yes, they were overly stretched.

They have not named anyone yet as the ceo.

So we will see who takes over leadership.

What will be the biggest challenge at lululemon?

Is it expanding to other markets like men?

They want to go overseas and break into man and open men's only stores by 2016. it is a lot of growth really quickly.

With a new ceo, it will be interesting to see how much they can grow.

Thank you so much, a great story.

Coming up, the navy spent $40 million on a vessel that some say it may not be able to do the job it was designed for.

That is coming up next on "market makers" right here on bloomberg television.

? the u.s. navy is staking its future on a combat ship.

The $34 billion program is facing some heat with a new report out and a congressional hearing.

Megan hughes has an exclusive look at some of the features of the new ship and some of its problems.

Smaller, sleeker, faster.

The program is meant to be the future of ships for the u.s. navy.

There are two variants.

General dynamics has teamed up for this one.

It is 419 feet long and it travels up to 40 knots.

Became ability of going into shallow water.

The things that this ship can physically do something i've never seen on any other class of ship.

This is a focused ship, it has many capabilities but does one thing at a time.

The command center has modules for plug and fight mission packages.

From countermeasures to surface warfare with small vessels.

It takes 96 hours to take the equipment out.

This ship was dressed a lot of -- will address a lot of mission means that the navy has.

Groomers can plug-in laptops for access to the ship's system.

-- crew members can plug-in laptops.

With this technology comes a smaller group.

One officer performs the duties of 10 on one of the navy's older, larger surface combat ships.

We have been operating the ship -- it means spacious living quarters.

They have a private toilet.

Reduced labor force could mean overworked crews will not be able to keep up with major maintenance.

The fact that operates close to shore mix that less likely.

I don't need to have a team of 20 engineers to fix things on board the ship because those things are fixed but people off ship.

The independent is armed with a surface air missile system.

A 57 millimeter cannon and machine guns and destroy swarms of small boats, like those used by iran.

It has more than 11,000 square feet of flight deck.

Its hangar has a helicopter and three drones.

Critics warn that its armor is too light to survive a major hit.

You have to be smart where we deploy this ship.

Then, there's the ever changing price tag.

Its projected cost was $220 million per ship in 2005. that figure is up to $528 million now.

The navy sees the price falling into line eventually.

Over time and with exposure, i think that will go away just like it has for every other shipbuilding program since the constitution.

Megan hughes joins us from washington.

It is an amazing-looking ship.

What he tells them of the controversy surrounding it?

This is before the house armed services committee.

The big question that we are hearing from lawmakers surrounds this came out today.

One of the big issues, it recommends that string to be attached to the 2014 money.

The navy would have to report any design changes to congress.

Second, the next big push from the next big block of ships, production would be slowed while testing is done.

That is something that we are hearing from eight secretary of the navy -- he is fighting against that.

He says you slow down the action from your going to increase costs.

He says design flaws are being addressed.

Megan hughes, we will pay attention to that one.

The newest controversial combat ship for the navy from the subject of hearings in washington.

We are approaching 56 past the hour.

This time for us to go on the market.

Joining us is a dominic chu.

Take it away.

Here are how markets are trading.

We are an hour and a half into the trading session.

It makes market overall.

The dow and the s&p is down marginally.

The nasdaq is posting higher gain.

General motors reported earnings before the opening bell, beating estimates.

The company's point for growth is one of the biggest in its history, according to the cfo.

Models in china helped boost revenues by nearly 4%. harley-davidson also revved up earnings before the day opening.

The company reported earnings.

Revenue came in at $1.79 billion.

Dunkin' brands reported their earnings today that beat estimates by a penny.

The southern california agreement franchises were signed.

They will open in orange county and los angeles county in upcoming months.

Under armour from the company is trading with a jump in profits.

Profits doubled in the second quarter.

The company also raised revenue guidance, up from its prior forecast.

Look at that, under armor and shooting higher by 10 dominic chu, thanks for a much.

We will be back in two minutes and have much more on the indictment of steve cohen's sac capital.

I have a feeling neil is all fired up.

Also in the next hour, a woman who is changing the future of the internet.

By the way, she is not even a programmer.

She's a macroeconomist.

It is great.

In silicon valley.

We was the one of the best-known one of those or market makers returns streaming on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.

? ? live from bloomberg headquarters in new york, this is "market makers." setevn cohen's hedge fund sac is en dieted.

The future of microsoft and why they are turning to an all-star economist to improve the way you find what you're looking for.

The quickest way to become an ambassador, either be a president's daughter or donate a lot of money.

Welcome back to "market makers." there's a lot coming up.

Let's get to our news feeds.

Shares of facebook are soaring, as much as 28%. it reported blow out earnings and says ad sales of mobile devices are on track.

Second quarter earnings at general motors beat analysts' estimates.

Americans bought more pickup trucks.

Gm is poised for more growth and says it is rolling out one of the biggest waves of new models.

In china, the former prime minister has been charged with taking bribes.

A court may deliver a judgment within a month and the chinese communist party has been trying to take on more corruption cases.

The story of the day of the $14 billion hedge fund sac indicted on criminal charges of insider trading.

It was the target is poised for more of a six-year investigation by the justice department.

Today, a grand jury handed down an indictment on charges involving trades in 20 companies that happened between 1999-2010. su keenan is at the u.s. attorney's office in downtown manhattan.

Go for the specific charges.

There is an unusual move of criminal indictment handed up earlier this week against the company, sac capital, founded by steven cohen.

This is significant.

Let's go through accounts.

The government is all -- is charging the company with a scheme of illegal trading involving 20 companies from 1999-2010. they are including more recent trades.

It also mentions that there will be fourth pitcher -- forfeiture tied to these illegal activities.

It's as illegal trading profits were combing old with sac proceeds.

Two of the fund managers are facing insider-trading trials in november and work at these units.

Also important is manager richard lee pled guilty in july 23. let's go through the specific charges.

There is one count of fraud and the indictment is skating.

Here is some of the words of what the government is charging sac.

There are four counts of securities fraud and we have mentioned the charges the two fund managers face in september.

The 20 companies the indictment states -- include ebay, research in motion, marvel and yahoo!

It is a significant indictment.

Allegis significant and widespread insider-trading.

The government wants to seize sac assets and force forfeiture profits.

How serious is this?

I was talking to a federal prosecutor this gives the government broad based power to use the conspiracy charge.

We are talking about illegal activities and it does have the power to seize assets.

This is a quote from the indictment -- the government says s ac shall forfeit all property related and personal, real and personal which constitutes or is derived from proceeds traceable to the commission of the offensive.

We are talking about $14 billion of assets and $9 billion is the personal money of founder steven cohen.

The government has alleged insider-trading scheme facing these two traders involving $200 million in illegal profits.

Thank you for the details.

There will be a news conference and we are expecting to hear from the manhattan u.s. attorney at 1:00 p.m. eastern neil barofsky is here with us this morning, a former special inspector general for tarp.

Is a former prosecutor at the justice department.

He is now senior fellow at the nyu school of law and bloomberg contributed editor.

We also have sheila khokar who has been covering this for "bloomberg business week." the fed are going after the firm but not mr.

Cohen personally.

Does that make a difference?

It makes a big difference for stephen cohen.

The worst that happens is that they get a criminal conviction that is company but he doesn't go to jail.

When mitt romney says companies are not -- our people, companies don't go to jail.

This is better than the united states unitedcohen which could end up with him serving a decade in prison.

The impact will be on his business and hedge fund of which we have started to see given these headlines.

Of course, investors will be the first shoe to drop.

There is an investor deadline coming august 15 and we get -- we can expect a few investors that remain, about $1 billion worth, they will probably be leaving.

What about the banks that have to do business with sac?

It does business with every financial firms on wall street's of those companies will have to look around.

This could cripple sac in the short term.

Longer-term, cohen could be left to manage his own money.

That may not change for him in the end.

Can they take that away from him, too?

It could be constrained in what he is able to do.

Potentially, it is unlikely he will not be able to do anything with his money but that is probably the least of his concerns now.

There was an administrative hearing last week that may be put on hold for the government will typically ask the law judge to put that case on hold to allow these proceedings to go forward.

I think the focus will be dealing with this real potential problem.

What is the ultimate goal of the federal government?

Is it to shut down sac capital text is a two-seat steve cohen in jail?

Is it to send a message to the rest of the financial industry?

I think all of those things.

Sac is most likely done.

The indictment will do that and to the extent that its trading partners and counterparties have discretion to do business, this is such a clear statement on the united states government of just how much they have it in for this guy.

There will be added pressure on counterparties and trading partners to pull out.

I think that dole will probably be achieved just by the indictment.

When you look at the words in the indictment and the scope, over 10 years and 20 different things, the government is looking at this and saying this is been like a criminal enterprise that has been chugging along for this amount of time and we have tried going the traditional route and did not have enough evidence to charge him specifically civilly or criminally so they are doing the next best thing.

It is interesting that timing and that this comes on the heels of an sec taking administrative action against steve cohen for failing to supervise the firm.

There are questions about what this accomplishes beyond what the sec was doing.

They are seeking him to bar him from managing money.

Last friday was their deadline to file against certain trades that happened five years ago.

The doj decided they had more time so they are taking this extra step and the main heating they are seeking is financial penalties.

How nervous is the financial community now?

I think people were pretty good at ignoring the headlines about this.

They said this trading was quite old and would not worry that this is a significant action.

The government is taking such a strong stand and condemning the entire company and the culture of the firm and improving -- and accusing steve cohen of breaking ball law.

I think it is too big to ignore.

Is this a career highlight?

How to youth define your career highlights?

This is a big moment for the office.

That puts too much attention on this.

It takes away from the substantial accomplishments that is more meaningful which is the drumbeat of convictions of individual traders.

At the end of the day, this is a big state and, in big type of deterrent.

Nobody goes to jail for this.

Is there a bigger prize?

You don't know.

This all started on a wire tap- related call back in the last decade.

As these cases grow and expand, you end up with steve cohen and gupta there is no way of knowing.

When you keep unraveling these insider trader cases, it is not clear as you bring each case that it presents the opportunities and new investigative leads.

It is hard to know for sure.

Steve cohen is probably one of the highest profile guys in the industry.

Greater thanmartoma is supposed to go on trial -- mr.

Martoma is supposed to go on trial in september.

This is not the end of the investigation by any means.

More to come, thank you both.

Prosecutors will officially announce the charges at 1:00 p.m. news conference.

We will bring it to you live and you can catch it on bloomberg.com/tv.

Caroline kennedy has been named the new ambassador to japan which raises a familiar question -- should money and employees played a role in these appointments?

That story's coming up.

Also, following in the footsteps of ben bernanke -- if there's a new favorite to be the next fed chairman.

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

? it is the hottest parlor gain reason game - who will be the new fed chairman after ben bernanke steps down?

Michael mckee says the real door -- the real story is bigger than all.

Larry summers?

He did not come out of nowhere.

I don't know what's on president obama's mind.

He is very popular at the white house.

Janet yellin is very popular as well and has the advantage of being a woman.

This will be a very complicated move for the president.

The fed will be shorthanded next year.

Gov.

Betsy dukes'term is up at the end of august and gov.

Jerome powell as up in january.

The politics get tricky.

Gov.

Sara bloom raskin is in line to become number two at the treasury.

Add in the ben bernanke leaving, his term is not up until 2020 but he would not be chairman.

All this is just when they have to end their extraordinary monetary policy.

They have only had seven governors for five years.

What happens next is going to shake this board for years to come beyond the chairman.

There is a lot to do but let's go back to politics.

How does that affect the president's decision?

It is always politics . larry summers is controversial and brilliant.

If he is elected, it will be difficult confirmation.

Republicans will want to know why he supported getting rid of glass-steagall and why he blocked regulation of derivatives and what the heck happened to?

And whether he can get along with people.

Suppose he is appointed?

Suppose in the face of the snub, janet yellen leaves when her term as vice chair ends next year?

What do you have on that charge?

Three white guys.

They are all capable is this something the first black president wants?

Are there any other names in those positions?

There has not been any chatter about that.

Many people get mentioned on a regular basis.

They've got to work with republicans in congress and it is hard to uproot anybody for obama's cabinet.

This will get complicated this year.

It is certainly a chest gs . the ambassador paused for president obama's second term are getting a heated and caroline kennedy was just named as ambassador to japan.

What is the quickest route to be appointed an ambassador?

It seems the surest route is strong support for the president.

Juliana goldman has more.

It is more financial support if you want to get a plum foreign posting.

Look at who he has picked to serve other countries like italy, belgium, spain, and london.

Since the president took office, at least 26 of his current and nominated ambassadors were major democratic campaign donors.

Gather, they get at least $13.6 million to present obama and the democratic party and congressional candidates.

This is according to data compiled by bloomberg.

Also you can look at obama campaign disclosures and federal commission records and they show that donors turned them vassar's given average of $523,000 to democratic candidates from 2008- 2014. caroline kennedy's nomination is different.

She has been a different kind of supporter, not for financial backing that is important but remember in 2008, she came out and endorsed obama alongside her late uncle, senator ted kennedy.

That was a critical time in the candidacy and this has helped him secure the democratic nomination back in 20008. so it could be political or financial support.

Give us other examples?

. you mention to the court of st.

James, mathew barsden has been assigned there and that is why we consider it to be the most prestigious position.

He raised about $1.2 million for the president paused reelect campaign.

You bet italy and the president tapped john phillips, a washington lawyer.

He raised at least $500,000 for the real expert that pos comes with a nice perk.

They've got a 5000-bottle, $1.1 million wine cellar at the residence.

These guys have to come with deep pockets.

Their annual salary is a little over $179,000 but they have to host parties and dinners and that all adds up.

It usually surpasses the limit the state department budget.

Some ambassadors and up paying more than $1 million per year out of their own pocket just to finance those events.

It costs a lot to be an ambassador.

Thank you so much.

Next, we talk about the future of internet search.

Microsoft is counting on an economist to gain ground on google.

That is next right here on "bloomberg television,"streaming on your phone, your tablet, and bloomberg.com.

. ? this is "market makers." paul francis is in brazil preaching against legalizing drugs.

That puts him at odds with several latin american presidents who have seen a fortune spent on boat war against illegal narcotics.

The pope used a visit to a hospital in rio de janeiro to stake out his position for he called a drug dealers and merchants of death and says legalizing drugs will not stop substance abuse.

He said the fight of drug trafficking requires an act of courage from all of society.

Several latin american leaders say that must change.

In the last six years, more than 60,000 people have died in the fight against drug cartels and the leaders of colombia, brazil, and mexico have called for a different approach.

The president of uruguay wants to legalize marijuana and make the president the sole supplier.

Pope francis says that is not the correct way.

He said governments should confront the problem at the root of drug abuse, promoting greater justice and educating the young people.

Thank you so much.

It is almost time for bloomberg to take up "on the markets." the ftse down for the fourth day in five.

That?

And they c areac losing ground -- the dax and the cac losing ground.

A coupl of earnings mrs.

Are misses are weighing on the european markets.

It is interesting to watch the euro continue to rise which is now stronger against the u.s. dollar.

It is marching past the $1.32 level, stronger signs in europe and even in spain where unemployment is among the highest.

We saw a little bit of improvement.

We will take a look at what's coming up next on "market makers." microsoft is putting emphasis on search these days and we will talk to an economist who is helping lead the way and microsoft.

It is the bone that everyone can drink too, the boom and american wine and will talk to a map it valley winemaker.

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

. ? live from bloomberg headquarters in new york, this is "market makers." this is "market makers." yahoo!

And googled does it and microsoft does it, search, the biggest tech companies battling to be number one.

Our next guest is helping shape the future of this search.

She is the first woman ever to win the prestigious clark metal and happens to be the microsoft chief economist.

Tell us about what you are working in for steve ballmer and microsoft.

When he economists used to work for big companies, they were thinking about macroeconomic forecasting.

Recently, tech companies have been looking to micro economists to answer a different set of questions.

These are questions about firm strategy and top four markets and questions about the macroeconomics of managing platform market places like search and advertising.

If you look at a chart, microsoft, google, and yahoo!

-- google is dominant and microsoft and yahoo!

Have a long way to catch up.

What sort of strategies are you helping implement with your work at microsoft?

Thinking about it from the big picture perspective, the market share and the size of these things are important economies to scale are crucial in search and advertising.

First of all, you've got to cover these huge costs, over $1 billion of capital in r &d. search is the ultimate self improving product.

Every time a user does a search party, they will choose to make a set of alternatives and you can take the data and what they collect on and did not to make the search results better the next time.

Third, it is important to be big in order to make it worth the time and for advertisers to spend time on search engines.

You've got a lot of small advertisers out there, about 1/4 of search and advertising comes from advertisers doing less than $100 per week and most of the small advertisers are not on the big platforms.

The bigger advertisers find it worthwhile.

We have all these economies of scale going on.

Is it possible to have competition in this market?

It turns out you can but the complete -- competing platforms have to be big enough so they can have a hope of closing the gap.

Let's talk about what you did in academia and what you do now.

You are an expert in timber auctions.

How does that link up with search and e commerce?

In 2006 and 2007, a transition from working fromtimber options to search options and thinking about how the design mechanisms affect the participation and the profits of the participants on the platform.

It is natural to think about the micro economics of the search and advertising and also microsoft was trying to think about what they could do to take on google.

They realize that google had an economist topping bam and it might be helpful for them as well.

When you think about what doesn't auction person have to do with this -- there is about 8000 searches coming in every second.

The moment that search comes in, a whole series of things happen within a few milliseconds.

You have to go out and look at the big data base with hundreds of keywords and figure out which ones are most relevant and then you run an algorithm to score it and find out how well the ads will perform and you run an auction where you actually rank and price them.

If you display ads and if a consumer clicks, they pay, otherwise they don't. it is a complicated marketplace.

You have hundreds of scientists and engineers that designed all of these algorithms.

It can be helpful to have a few economists around to predict how these changes and algorithms are going to affect the players in a marketplace, the advertisers.

One harmless change in an algorithm could affect the profits of hundred of thousands of advertisers.

It is useful to have an economist around, you don't have to convince us.

When it comes to the iconic technological shift from desktop to mobile, what have you learned about how to advertise and what is different about traditional search and advertising on desktop and mobile.

? there is a lot of innovation yet to come on mobile.

It has been a hard nut to crack.

You have seen how the lower prices have affected the outcomes for google.

Advertisers are still learning how to measure success in search and advertising platforms in mobile.

The way that conversions work in the way you measure them is different.

We're taking time to show advertisers the value being created and find the best way for the platform to create that value for the advertisers.

That leads to interesting challenges.

Will search become more or less valuable as microsoft and yahoo!

Hopefully become bitter -- bigger competitors to google?

As the marketplace becomes more competitive, you will spend more money on r &d to attract consumers and that can diminish the profits.

Of the other hand, as you grow, you attract more advertising dollars into the system got small advertisers who still are not engaging in search and advertising that might be attracted to a mobile platform.

You will see some competing effect in terms of the overall profit.

I would mention that in mobile, it is hard for people to do a lot of complicated internet research.

They will rely more and more and that's all interface and what you present to get them where they are going and search will continue to be important to bear.

Thank you so much for joining us.

I love that title, chief economist at microsoft.

President obama renews his call to raise the minimum wage.

A lot of critics call it a job killer but who is right?

We will crunch the numbers coming up on "market makers." ? no one works full time in america should have to live in poverty, i will keep making the case that we need to raise the minimum wage because it is laura now but that was one of ronald reagan took office.

It is time for the minimum wage to go off.

That was president obama reiterated his pledge to raise the minimum wage in a speech at knox college in illinois.

The president says it is one way to lift more americans into the middle class but critics say it would mean fewer jobs.

Neil richardson is an analyst and is with us now.

Talk to us about the impact of raising the minimum wage.

It sounds like a good idea but there is more to it.

Raising the minimum wage , if that is the only tool in the to box, i would be all for it.

There are far more effective tools than simply raising the minimum wage.

A tax credit to low-income workers would be far more effective in increasing their income while still being pro- business.

One of the least talked-about and most impact will economic consequences as a result of the budget battle was the expiration of the payroll tax extension.

That had a big effect on low income wage workers.

And not talking about that now.

And -- raising the minimum wage is second best.

Is it still the right policy?

Do you side with john boehner that's as it is a job killer?

Economists are all over the place whether it comes to raising the minimum wage will lead to job destruction or not.

I know that the economy is producing a lot of part-time jobs right now, a lot of low income jobs.

It is these jobs that are the ones businesses are offering.

Should we be doing anything that is seen as being anti-business at this point?

It is much better to give a tax credit that would be seen as pro-business and still help low- income workers.

What about pro-middle-class?

The minimum wage is $7.25? that is an average salary of $15,000 per year and it has not changed in years.

If we have seen inflation rising and the cost of living has risen so why it has not been changed already?

10 states actually increase the minimum wage.

From the federal level to keep up with a cost of living which we now does not go far enough.

That was totally eaten away by the expiration of the payroll tax.

I am all about efficiency.

Instead of just raising the wages, when it gives a tax credit?

That has the same effect for low income workers, more money in the pocket, while still incentivizing businesses to keep creating jobs.

There is a big to do with walmart and how they want to raise minimum wage.

Washington decided to raise the minimum wage to what they call a living wage.

I think it was about $15 or $12. walmart decided to pull back.

Walmart had planned to put three stores in the district.

That would have broad economic activity and brought jobs and it would have brought a sense of viability to the district instead, they will move to the suburbs.

You can see the trade offs.

If walmart had a subsidy instead of a tax, they could go into more urban areas.

Walmart is a clear example but perhaps that was political.

Has it been proven that a race in the federal minimum wage is harmful to business?

Alan krueger, the white house economist, has done work showing that is not -- that is not necessarily so.

I am not saying it is harmful, i am saying it is not efficient.

Economic research has shown that it probably will not make a difference but are we incentivizing companies to create jobs?

There is a difference between that killing jobs and incentivizing jobs to create more.

Nela richard sand, thank you so much.

It is unusual to have you in the studio.

Coming up, america is on a wine binge and american wine makers are enjoying the fruits of their labor next.

? this is "market makers." i cooked with wine and sometimes i even added to food, said w.c. fields.

We will look at a 40-year-old family-run business basking in the california wine boom.

Silver oak is the company.

Glad to be here.

Is there a boom/bust cycle in wine?

During the beginning of the recession , we definitely saw that in the wine business.

Things are back and it seems like the consumer even though confidence is not really high, people are buying fine wines and enjoying once again.

I predicte

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

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