BlackBerry SOS: Market Makers (08/12)

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Aug. 12 (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)

? but very opens the door and who would buy it and what price?

Two fish and whale, two former j.p. morgan traders may face charges in navigations.

When -- charges in allegations.

Concorde on rail?

Elon musk will announce a train that will make the trip from san francisco to two ballet in half an hour.

-- from san francisco to l.a. in half an hour.

It is monday here in new york city.

You are watching "market makers." let's take you straight to our top story, everybody.

Blackberries bordering on irrelevance.

Its latest smartphone is a bust.

The company says it is exploring strategic options, including a potential sale.

Hugo, tell us what you know right now.

The trouble is we don't know much more in terms of whom i buy them.

Though they say that a sale is one of many options that are considering, that is the something that the market isn't buying.

They believe the sale is imminent.

The question is who?

I is to be question is -- i think the big question is who would be the interested buyer?

The company has said that a sale is a potential outcome.

Surely, the big industry buyers have had a chance to kick the tires and no one has surfaced . analysts are probably thinking that is somebody who comes to pick up the pieces.

You said that the market believes that a virus whirling and that a deal is imminent, but let's give but very some credit by knology a little bit more about what they had to say.

-- some credit by acknowledging a little bit more about what they had to save.y. they said a sale was one of the things they were considering along with joint ventures.

But that was an outline as a possibility in march of 2012. the fact that we have had all the time come and go with no deals suggests that wide attend -- that the new operating systems in the new phones of gotten great reviews, but the reinvented blackberry technologies perhaps not as compelling to a partner after the great reviews imris six months ago.

Is there a role for the government here?

With the canadian government do something about a sale or a foreign company?

They would.

The government has been quite active on the telecommunications front and i think their bottom line is that they would censor -- they certainly not sanction a sale to someone seen as exotic, suspicious, by that i mean an asian buyer that they did not feel was necessarily up to scratch.

An american buyers market possibility gave its a more familiar notion.

-- an american buyer is more of a possibility.

It's more familiar.

The investment board, which invests money for federal pensions, would consider making an investment with library prairie -- with black.

, but not on its own -- with blackberry, but not on its own.

The ceo said he would definitely consider playing a role in what very became -- if blackberry became available.

They did invest successfully in skype, but that was a partnership.

They probably don't have the clout to hide like very -- to buy blackberry or two back blackberry altogether.

This is a company that is worth closer to $5 billion when it used to be closer to $85 billion.

What was the catalyst for today's statement?

Was it the speculation from westlake or maybe they had to say something because they are facing -- was it the speculation from last week or maybe they had to say something because they are facing an event?

Maybe the steady stream of speculation since the last earnings good.

It was expected to be a great day where they finally showed that the new phone sales were doing well and were evidence the company was on a turnaround path and that hasn't happened in.

I think they felt they needed they need -- i think they felt they needed to draw a line in the sand two former j.p. morgan employees who played roles in the banks to billion dollar trading ross -- trading ross loss.

16 months since you broke the news, the scandal continues.

This is the first time we could really be looking at charges.

We heard last week that jpmorgan could find penalties of some sort and the admission of guilt, which is very important.

But that is just civil stuff then coming from the securities and exchange commission.

A much bigger deal is the potential for criminal charges.

On the basis of our reporting and others, there are a couple of people in particular who criminal prosecutors are looking at.

I want to show you where they fit inside jpmorgan and where it works with the chief investment officer.

These people are several steps removed from jamie diamond.

We are talking about the guy on the second room -- second row and the guy on the very bottom.

Neither of them is resident in the united states.

If charges were to be pressed, the u.s. would wreak wire -- would require extra to get them here to face the minute test to face the music.

It looks like one junior to the london oil, where does that leave him?

This is important.

This is where it is worth ringing in some of the e-mails and telephone conversations made available by carl levin who runs the senate permanent subcommittee on investigations.

He looked into the london oil trading losses and we got us report back in march -- the london whale trading losses and we got a report back in march.

This is the discrepancy between the prices at which securities were in theory trading and the prices at which they put them on their books.

This gives you a window into why the london whale, the guy who put on the trades, may not face kernel charges because he himself had some concerns about what jpmorgan was up to.

Here is another exchange, this time between the quail and -- the whale and his boss.

What is he talking about?

He's talking about the fact that xo was communicated to others in the group what he thought losses on any given day would be.

And he said, wait a minute, don't tell anybody what these losses will be.

And other words, it makes him look like the guiltier one.

But it could be hard to prove.

First of all, stupidity is not a crime.

You have to prove intent.

Because of the last two, the traders have been marking these illiquid securities because they traded such widespread's -- such a wide spreads did you have a lot a judgment that you can exercise in deciding at what prices to put them on your books and that is simply what the defense will invoke if these people are in fact charged, that they had a wide degree of latitude.

They exercised that wide degree of latitude, and why are they facing -- and was that defined as criminal behavior?

Following the london whale kay's, 60 months later.

Lisping you some of the other big is the stories.

The ceo of boluses looking to buy 60% of the company that he doesn't already own.

David murdoch offers a company at $1.2 billion.

That is a 50% boost from the bid he made in june 2 -- that is a 15% boost from the bid he made in june to take the company private.

Japan's economy grew less than forecast in the second quarter.

Gdp rising at an annual rate of 2.6%, which is adding to the debate about the supposed three percentage point boost in the sales task -- sales tax and with japan's economy can handle it next year.

Apple is expected to unveil the next generation iphone on september 10. that is according to all things z. not to be all done not -- not to be outdone, saint-saens -- not to be outdone, samsung will release their new cell phone just a week after apple.

Talk about the battle between carl icahn and michael dell.

It has moved to a delaware courtroom.

Carl icahn is trying to lock knuckle bills -- michael dell's bid to take the company private.

With this for more, cristina alesci.

I want to begin with dell because we are expecting a hearing on carl icahn's challenge to begin today and it has been delayed.

Have been hearing on his challenge, but it was carl icahn asking for a fast-track hearing.

Delaware decided whether or not he could have an expedited hearing.

A procedural thing.

And that just highlights the timing element.

He wanted to interfere obviously before the september 12 shareholder date and now we're getting headlines that the court has proposed that has postponed hearings, even the fast-track request and so this potentially could not be great news for carl icahn, but we have to bear out some of the reporting to see what this actually means.

It could be a matter of hours or a day.

And the judge may have other reasons for putting this off.

We mention that not just delano news, but activists are everywhere.

What are the battles are you're watching right now?

What is really driving this is the inflows into activist hedge funds.

If you look at him and had handwritten funds are brought, they have seen $25 billion of inflows into those funds over the first half of the year.

Now that is a larger portion -- a larger portion of that is actually activist.

But it just goes to show how much money is being driven into the strategy.

Long-term institutional investors are also beginning to quietly and publicly back activists.

In other words, on any given day, a long-term institutional holder like fidelity , one could argue an investor that does not like to publicly align itself with activist, well: activist and say we have three rooms stocks.

Can you do something about it?

They can't form a group because and they would be subject to all kinds of reporting.

But they could have these poor women married discussions with activist, giving activist a lot confidence to go ahead and take on large cap companies.

Which they had not really in the past, had enough confidence to do these lunch cap deals like sony, like smithfield, and really get their hands dirty in a very public way and maybe make a change with a very small percentage, owning a very small percentage of the stock, because they have the sport -- the support of the fidelity companies.

That is what we see with the dell very actively.

Carl icahn got his momentum because he their constitutional shareholders side with his effort very early on.

Carl icahn has his own money to play with.

But with $25 billion flowing in this direction come i have a feeling we will be talking more about activist for while.

We will talk about it more on the show.

We will tell you by fund that follows activist investors were mirrors some of their strategies and it is pouring this year.

Elon musk's latest rainstorm, hyperspeed transportation system that he says would never crash.

"market makers" on bloomberg television.

? you can bet on the optimist or against them.

That is what connects wired as both ways.

His fund is up 37% of the data's -- that is what kenneth squire does both ways.

His fund is 37%. we are witnessing the golden age of active is.

It has been picking up for a while and we have been focusing on a for seven years to but -- seven years.

But, yeah.

You are right, it is everywhere.

What is different, besides the fact that they're going after bigger companies?

Are they being more hostile toward company boards?

A lot of times, the of hostility depends on the response to get -- the response they get from the company.

Sometimes you get a lot of them the collectivism as well and that is the best.

One of the things you mentioned in the last segment is a lot of money coming into activism and a lot of institutional investors are supporting activists more than they have in the past.

How do you decide how to take a position around what some people used to call a special situation but we can now: activist situation?

How do -- we can now call the activist situation?

We look at the activist, what is his track record, what interest he is in command was strategy is he implying.

Most importantly, what are his -- what are the chances of this activists success?

Jcpenney and bill lachman, put that to that lens.

We invested in jcpenney early on when bill came.

He was going to replace a very good activist catalyst.

We sold that position when it turned into a four-year restructuring that could work and have nice returns or could not work, in which case it would be done a lot.

Those are not the dynamics we like.

So we left even bore -- even before ron johnson left.

You have the lachman effectively at war with the board.

What is going on here?

This seems to be at the very least to the full time distraction of goodwill.

It is getting a lot of media attention, but for good reasons.

He made the letter public good this is not the sort of thing you see everyday.

No, it's not.

But let's see what the differences are.

They all agree in the interim ceo and they want them to do it faster.

So it is just go wanting them to do it faster or bill warning the board to do it he wants?

In the beginning, their interests were aligned.

He brought in ron johnson and ron johnson prudent to be a failure.

Now it seems that the board wants to work on a different timetable . from one person's perspective, it appears that bill is up set this -- is upset that the board does want to do what he wants.

Bill is the biggest upholder.

He obviously wants them to do what he wants.

But tonight -- but right now, that is just moving faster.

It seems to me that they are reacting to what happened in the past and trying to punish bill for the past as opposed to saying where we now and we need a new ceo.

So you're not in jcpenney.

But one is that you are a fan of right now that it -- that an activist is pursuing?

We are in oil states.

They are splitting of the company.

Hopefully, they will convert the accommodations company into a great situation.

They are not defeated yet.

They're still in it.

He is the fire -- he is the founder of an activist fund.

Dull, the first company being taken over by its ceo.

That is next on "market makers." ? it is time for bloomberg to go on the markets.

We will begin with stocks.

In the u.s. stock market, a slight decline balanced somewhat by the nasdaq.

The story appears to be a little bit about japan.

Semi coming into the supplanting -- some economic data disappointing.

I guess it is continuing into this week now.

2.6% annualized growth rate in japan, worse than economists were expecting.

Dole foods is said to be acquired by the ceo david murdoch.

He will by his outstanding shares for 13.50 chair.

Stocks have jumped . we will be back in a couple of minutes talking about the father of the tesla electric car moving into an even faster lane.

Musk is set to unveil lands for the hyperlink -- t imagine a train that can make that 350-mile trip from san francisco to l.a. in just 30 minutes.

Today, it is a fantasy, but the ideas coming from a man you has made a career of turning fantasy into reality.

Elon musk.

Bringing big ideas to the forefront, including the hyperloop.

It is an important note -- it is important to look at where there is an industry that is established or in decline.

It is worth looking at industries which a lot of people think are possible or think you can't succeed in that is where there is opportunity.

In the space industry, things got worse over time not better when you think about going to the moon in 1969 and they only gets to lower orbit.

Another space shuttle is retired and americans can i get to outer space without the help from the russians.

That is terrible.

And the liftoff.

On the face of it, it appears startling.

How can you start out in an industry with a junta that received huge subsidies.

But they have made discoveries very inefficient and somewhat reliant on the subsidies.

They are not very good at innovation and their unwilling to take risk.

Divided you can get through the past the start of phase two once they have no real ability to catch up, that is what we are fighting with space x. it has more launch contracts than any other company in the lunch business.

The world changed medically in the 21st century.

Try to identify something, a big problem, rather than a small room, and look for an industry that is functioning poorly and has been static for a long time and even in decline.

Rather than trying to start a company the way that -- rather than try to start a company to change the way that industry behaves.

He is announcing his plan for a high-speed motor transportation the world has ever seen.

Let's bring in an expert on transportation policy.

He says it is twice as fast that an airplane and cheaper than a bullet train.

Does the hyperloop sound like a possibility?

It certainly has lacked innovation over the last few innovation -- two decades.

But a couple of things don't sound realistic.

One is traveling the -- what is traveling twice the speed of an airplane.

You have the potential for noise pollution and the sonic boom that could be a real challenge . unlike your plans, it sounds at this infrastructure would need substantial amounts of land or rights-of-way to operate.

That would be the most extensive and cass intensive problems when it comes to new infrastructure.

I would look to see if he has plans to overcome those cost barriers.

Clearly, there are some hurdles to overcome.

Even if it does sound a little bit implausible, do you kind of give you elon musk a little bit of the benefit of the doubt here because of what he has been able to accomplish with this a sex -- with space x? and a lot of people thought he was crazy good -- was crazy.

And tesla, which has not made a lot of me yet, but seems to be on its way to success.

I was on to give credit to people's when others say they are crazy.

I think that is fantastic, especially if transportation is really needed.

I think potentially, if anybody could do it, it sounds like he is a type of guy who can come up with an innovation that has really been thrown through.

-- has really been thought through.

The reason to be skeptical is not because it's impossible for -- because it's impossible.

I think his technology can be possible.

What technologies could you employ to make the hyperloop a reality?

The maglev train was something that was proposed 30- 40 years ago.

It has never come to fruition because of economics and some potential clinical challenges.

That is why the cost is such a huge factor in the success of a new transportation initiative.

Can transportation vehicle or company like this the profitable?

If so, does it have to be some sort of private-public partnership where the government gets involved?

If you look at the history of transportation, almost new initiatives are coming from the private sector.

Then the public sector adopted them or took them over.

I think it is very likely that the private sector would focus innovation in a knee new innovation in transportation -- in any new innovation in transportation.

At the end of the day, it is hard to find a test rotation system that isn't subsidized in some way.

If this system is going to be successful am i you probably have to get government or some kind of public funding behind it for it to really become too for russian -- to fruition.

But can you ballpark something like this?

I can give your sense.

If you look at maglev to make technology that has has been talked about for a long time, the cost estimates for a new mile maglev has ranged from one million miles an hour -- $1 million a mile to close to 10 billion smile -- $10 billion a mile.

That is why airports and aviation were so efficiently.

You have to build tunnels or rights-of-way through existing places where people live.

From what i've seen from this new technology, it would require new rights-of-way.

When you talk about that, you're talking about a huge cost.

When in a city, new york, manhattan come a could be a million dollars a mile for that kind of thing.

Thank you.

Much more today on elon musk.

Tonight, make sure to catch our special "risktakers" at 9 p.m. eastern time and pacific to -- and pacific.

Shares of nintendo rising 36% since january 2. in china, if the ban is lifted, nintendo may have another problem.

It may be a tough sell.

It could be a first when it comes to some of you being fired.

Tim armstrong fired an employee during a conference call.

Armstrong fired an employee for taking out a camera while the call is going on.

The employee was in the room with armstrong.

There is in the -- there is a recording saying that she is fired and then he medially continues with the call.

The next new attraction at disney theme parks may involve star wars.

The convention in southern california is great with star wars memorabilia.

Actor ashton kutcher has interest beyond the solar screen.

He has his own venture capital fund and he talked about it with "charlie rose." we go in and find a company we think is interesting and find an operator and are -- find an entrepreneur that has moxie and the perseverance to actually solve their problem and the capacity to do so.

And then we try to find problems that have great density.

So we look for companies that a lot of times appeared to be really boring companies that have been working the same way for a long time and try to find inefficiencies and ways that people are hacking solutions to problems very best to problems.

And then we invest in this company's and really try not to invest in any company we don't feel that, by lending our services in our time and our contacts, that we can't actually benefit.

If you don't add material value, we don't do it.

And you can catch all of charlie rose pause -- charlie rose's interview tonight.

Coming up, the latest luxury items go on sale at neiman marcus.

You are watching "market makers." neiman marcus is for sale.

The twist here is that it could be sold to another buyout firm.

Cristina alesci is on the story.

Why would neiman marcus want to be sold instead of going public?

If they can get a valuation that is close to the ipo, they would rather sell because they can take their money from the table they won when the deal closes as opposed to trickling out a sale of their stake over time.

Who runs the company right now?

Right now, tbg and warburg third.

-- and warburg.

They have begun to turn itself around.

But there is a big valuation gap can be sellers think that this can go for $8 billion in an ipo.

And in the private equity buyers who are circling say they don't want to pay more than nine times , which puts it at about $5.6 billion.

Who are the private equity players?

Kelley: are definitely expressed initial interest -- kkr definitely expressed interest initially.

What is the appeal of a neiman marcus?

You just mentioned the deal has been challenged.

Why is it attractive now?

There is a case to be made on either side of this.

The buyers would say, look, if you look at overall the permit store sales, they have actually been moving share to specialty retailers and discounters.

That will -- that is the trend that has been going on for years.

You can see that these margins have been under pressure and they are utterly disastrous.

On the other side, they have more sales per square foot that are higher than sacks and nordstrom's and the really tough competitors in this market.

In addition to that, a few get online i for me me can argue that there is a lot of growth to be had here in -- to be had.

If you can get that part of it right with a brand like neiman marcus, if you can really capitalize online, there is money there.

You also have to factor in that this is very luxurious spending.

It is a very different asset class and a different income class.

That has been outpacing other servers.

More resilient to economic cycles.

Back to boom time, and not as strong as last year.

This year, luxury spending is only five percent, which is working against neiman very much in this case0 how much did the company sell for the first time around?

A tween $6 billion and $7 billion.

So it might not be a great return at $8 billion, but they would be making some money.

And what he firms want to get out of investments of high valuation scenario environment.

Money is cheap, valuations are high, sell high.

Tbg really needs to return capital to investors.

They have had to extend their investment jperiod on their -- investment period on their old fund.

And they talked about a teaming up with sacks.

) hudson did -- hudson came in and made a bid.

Thank you.

I would have answered differently on the appeal for neiman marcus.

The shoe department.

Coming up, the company that is taking marketing to new heights during will look at how red bull uses daredevil stunts and why this is working.

The debates over raising the minimum wage, bowstring their case for for or against.

Here's what happens to people who make the minimum wage.

And there are not that many more.

Our chart is based on a study conducted by texas a&m. one part of the study focuses on the transition out of minimum wage.

What happens to workers who once got paid minimum wage?

12 months later, 46% effectively graduated.

They made more than the minimum wage.

31% were still working at the bare minimum.

For those who graduated, they made an average of $.90 more to six percent were unemployed and looking for a job.

17% dropped out of the labor force, meaning they weren't working -- they were looking.

So this report shows that the minimum wage is very much a bottom letter wrong for the labor market because almost half do eventually make more.

That should put this into perspective.

The last time the federal minimum wage was raised is about 40s ago.

That's right.

It is clear that the minimum wage increase has not had pace with real cost of living.

Real purchasing power so about where was for decades ago.

You can see that it peaked in the late 1960s. the top line is the minimum wage just at $2012. the bottom line is minimum wage.

For an economist, this is a very divisive issue.

But how many people actually make the minimum wage?

This was really fascinating.

A new city found that, as of 2012, minimum wage workers are 4.5% of hourly wage workers.

And people who got paid, 3% of all workers.

Compare that to nine years ago.

What is that, the labor force?

There are different ways of captivating, whether states that are regulated by the federally regulated minimum wage.

Compared to 79 -- to 1979, is a huge contrast.

We are talking about a small group of people at this point.

Figure for "off the charts.

-- off the charts.

Far beyond traditional advertising.

They have taken the world championship three years in a row the formula one racing team did draw a daredevil firm space -- racing team.

Dropped a daredevil firm's base.

-- from space.

All things extreme.

Take a look.

I know you don't skydive or do anything extreme.

Do you drink red bull?

No kid that is even to extreme for me.

-- no, that is even to extreme for me.

Let's take a look at how stocks are trading right now getting so far, it has been an interesting morning and before the bell, futures were lower across the board good but we have seen markets turn around since then.

You're seeing both the dow and the nasdaq trading in positive territory.

The s&p is off island .5 points, still on track -- is off by 1.5 points, still on track for its worst week.

Gold prices have given a boost to minors as well.

I want to talk to you about shares of gold.

It does like this is now a done deal.

They will agree to a higher price.

Murdoch would offer $12 a share back in june.

He is now offering more than $13 a share.

While the deal is expected to close in the fourth quarter, it does include a 30-day go shop period.

Murdoch has done this he for.

He was ceo from 1987 to 2007. he put the company private was before back in 2003. now he will do it again.

To do that, he needs to buy back the portion of the company he and his family don't already own.

We will beat back a couple of evidence -- a couple of minutes talking about apple and the new iphone.

? . . from bloomberg world headquarters in new york, this is "street smart" with trish regan and adam johnson.

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

It's the largest aerospace deal -- buying airing from the carlyle group.

Is exactly what sony doesn't need -- another big movie underperforms at the box office.

We will see if the hedge fund manager turns up heat on the sale of the entertainment unit.

You are watching "market makers." the good old days when everybody wanted a blackberry are long gone and the struggling smartphone maker maker may put itself up for sale.

Like very named a special board committee to investigate its options.

Let's bring in an analyst that covers blackberry for deutsche bank or he joins us from austin, texas.

What is the potential for a sale?

We know that there are obstacles to federal approval in canada.

And also in the u.s. also.

You have a lot of blackberries in the u.s. government.

A foreign buyer outside the u.s. or canada may be limited in their options with this company.

Even with those obstacles in place, give us a sense of who might be interested in blackberry, either in whole company or parts of it.

You have to figure the operations are not of interest to anyone.

One of the things we've seen with palm and we see with any electronics company, when business goes south, and we've done a lot of surveys, it can go south in a hurry and that can cause a lot of losses.

It is our view that if they were to do anything in terms of selling the company, that would involve the likelihood, certainly the elimination of the handset business and trying to figure out the value of their knock and their ip.

I want to game out before we get into the specifics with the likelihood is of a sale, company buying blackberry.

What is the likelihood of another strategic alternative?

People have been asking about strategic alternatives since orson hines took over.

-- since thorson hines took over . they've been looking at alternatives for a while great in terms of who might be interested, it's a tough list and probably a pretty small list.

Microsoft has what they need, nokia has what they need, samsung and the others already have the android operating system, which as you noted earlier, is doing quite well.

It's a limited potential list of hires.

Private equity is another one that is thrown out there but one of the things private equity tries to do is lever up a company.

It's hard to lever up a company with a declining revenue stream.

Is this a case of too little, too late and there's not enough left in blackberry to be of enough interest to a buyer that it can january -- that it can generate any value?

It's going to be a challenge for anyone looking at this.

The value of the ip matters on a buyer and google has motorola, they've got those assets.

Who else needs this ip?

What would they want to do with it?

The analysis gets tough because you need someone who wants this stuff and identifying those buyers is not that easy.

And this is not the first time the company has talked about strategic alternatives.

We will see if this time it actually leads to an alternative as opposed to more of the same.

Thank you for joining us.

We will stay with tech and the smartphone world because apple is making news of its own -- it will release a new version of the iphone in just a few weeks during i'm out here in the newsroom with alix steel on the latest.

What do we know and when is it going to happen?

It is supposedly going to be september 10 according to all things digital.

There are two important parts to the story.

We could see a possible fingerprint sensor, so the phone recognizes your fingerprint.

The reason that is important is you can go to a store and use your phone to buy something.

That is going to integrate apple into the big is this world rather than just the consumer world.

The fingerprint sensor pack has become a big selling point very -- excelling point.

They are having some integration problems between ios and the fingerprint sensor -- they could only produce 3 million or 4 million phones per quarter as opposed to 10 million.

Or have they will offer a new phone that is lower-priced.

Previously, this is a key thing, they usually wind up discounting their older model, but they could wind up creating a whole new phone at a lower price point.

Does that tarnish apple brand -- does that tarnish apple's brand question mark -- i've gotten a variety of views on this.

It could be a name changer.

The low-end phones have been selling well in the asia-pacific region where apple has fallen to five percent.

What does well in china is local smartphones.

I have a lot of devices at cheaper price points.

The good thing for apple is if they do it, they have to do it right.

They have to have the right model at the right price or else they end up diluting their high- end brand.

Other analysts say they want equality and stick to their their brand and don't want to dilute that.

But if it does come up with a lower and model, it's a self acknowledgment that apple lacks innovation and that's not something they want to see from apple.

So to hit the nail, they really had to nail they low cost.

And that would begin the tv or i watch conversation.

Soap september said -- september 10, we could see a new iphone.

Two former jpmorgan chase employees may be charged in their role in the so-called london whale scandal that cost the bank more than 6 billion dollars.

It's the latest case of prosecutors cracking down on wall street misconduct.

How tough will it be to make this case?

I just has been following the london whale and joins us.

Let's talk about making this case in the context of the london whale.

Sarah and i were speaking earlier about this idea that there is a lot of latitude traders have when it comes to marking securities that aren't publicly traded.

The markets are very liquid greyhound difficult is it going to be to make these charges, should they be filed, stick?

We have to start with basics first.

They could be indicted but it's not not clear they could be extradited to the united states.

You don't get to the issue of the trial before you have a live defendant for the court area one of these individuals as a french citizen, perfectly entitled to live in france.

France has rarely extradited to the united states.

The other, we don't know where he is.

If he stayed in great britain, great britain might.

Other countries, it is a wildcard.

If we get him into a u.s. court, there is a question on how derivative traders can book their positions.

But if there are e-mails suggesting you are doing this knowing you are hiding your losses, that would not look like it was in good faith.

There is going to be an obligation on the government to show the way they were booking their losses were a departure from how they previously behaved and they knew it was going to hide losses so the new york office would not be aware of the losses.

It is going to come down to good faith.

You are familiar with the report senator carl levin repaired about the london whale trading losses.

On the basis of the excerpts from telephone calls and e-mail exchanges, does it seem to you there was something akin to a conspiracy to misstate the trading losses as they were being encouraged?

I think there could well be a conspiracy among the traders in london not to let headquarters know how much they lost trade it is not clear to me that anyone in new york was part of the conspiracy and quite partly -- quite possibly were victimized by it.

It seems that is the direction the prosecution is moving.

Jamie diamond seems to be headed toward a criminal indictment.

Not even the london whale himself -- how do we explain that?

We know there is evidence that he had issues with the way anger being done inside the london office.

Is it more because of that or more that he is cooperating with the law?

I think both could be explanations.

Certainly he is cooperating and you need a witness to say these losses were enormous and we knew we were hemorrhaging out losses.

He could be very useful to that effect and you need his cooperation to get his testimony, otherwise he might take the fifth.

Otherwise , he tried to tell his superiors the losses were around as or as others tried to change their markings to not reveal those losses.

It is not criminal to make a losing trade, but it may be criminal to try to hide the extent of the lawsuit from your own internal controls.

Thank you for your perspective.

It is the biggest deal ever for rockwell collins, the big aerospace company buying and aviation information company from carlyle group.

Did you see the new matt damon movie this weekend?

The problem for sony is not enough people did.

That is coming up on "market makers" on bloomberg television, streaming on your tablet and that

? rockwell collins is making its biggest acquisition ever.

The aerospace technology company is buying airing for almost 1.4 billion dollars.

It was owned by the carlyle group, so you could call this another case of big groups rushing toward the exits.

This is kelly's first big move since taking over as ceo.

Rockwell collins assures are declining today, some people have some questions about this wheel.

Explain to us why it makes sense.

I'm confident that once investors get chance to absorb the strategic value of this deal, they will see it.

We are buying a very strong brand that couples with the capability of rockwell collins that will allow us a large increase in solutions to our customers.

One of the changes we have been seeing this industry is decrease government spending on defense trade how much of that has to do with this decision to try to diversify away from government contracts?

We like to keep a balance in our company, but we have been overweight in defense and we have a strategy to move that to commercial.

The acquisition of arinc will help us do that.

We know that there is pressure on defense spending because of sequestration.

How about the medium-term and long-term?

We are expecting we will have one more year of declining defense revenues driven by sequestration.

Then we will see that bottom out in 2015. that is for our domestic business.

In the meantime, we're focusing on international opportunities for defense and there are a lot of them.

We feel we will be well positioned.

Are you looking to make acquisitions as you try to go international?

This acquisition is a big one for us, so we will be focused heavily over the next two years.

We will continue to look at smaller types of opportunities that can continue to add value.

You just became ceo on august 1. did they consider buying when it was sold to carlisle in 2007? we have always liked ari nc's aviation business.

I had a business that provided services to the government in a way it was probably a conflict of interest were our government portfolio.

They helped write request for proposals and made it prohibitive for us to own that property.

They have subsequently divested of that and that has allowed estimates the move at this time.

Are you at all wary of buying from private equity given the fact private equity is kind of in the business of selling a flop?

We know this business quite well, we know the people in the company quite well, so i'm quite confident we have a long-term winner here.

I'm looking at your share price -- outperforming the water industry, up 28% this year.

What do you see as the most important growth driver of your business?

We have strong growth in new positions on almost all the new airplanes coming out in air transport and is this aviation.

People understand as those airplanes come into service, that will drive revenue growth rate -- revenue growth.

Who do you compete with and how is this acquisition going to make you a stronger company in that regard?

What arinc does is provide the ground information network.

We provide the avionics and infrastructure.

What the combination of our companies will allow us to do is provide end-to-end solutions from the airplane to airplane to the ground dead back to the airplane.

We see that providing a lot of growth synergies knowing forward.

I had a quick look at your balance sheet and it appears at the end of the last quarter you had about a hundred $50 million in class -- in cash.

This is a $1.4 billion purchase.

How are you making up the difference?

Our plan is to finance the purchase great do you have financing at?

Yes we do.

From who?

From citigroup.

They provided us bridge financing and we will be working with other folks as well for the full financing packages.

We are working on that as we speak.

Good speaking with you.

The ceo of aviation equipment supplier rockwell collins, making a big -- making its biggest acquisition ever.

Speaking of movers and shakers, harlow's slim wants to make a big move in europe trade some bondholders may not think it is a smart one.

That is next.

? new york city -- sometimes you just need a break.

It is that time of year when people pack up and go on summer vacation.

A lucky few of you will be traveling by private jet.

An exclusive form of transportation celebrating 50 years in the air is here.

-- in the air this year.

We renamed the plane the falcon 20. it says we found our bird.

When we were first producing our falcon 20, a barely went under 1000 miles.

Today, it goes almost 6000. clients have been changing and evolving, looking for more real- time information.

In the early days, there was not a phone system and you couldn't, with a blackberry or iphone and start logging on to your e-mail.

If the wi-fi is not working, they consider the airplane not available.

Being able to stay in touch with the office is critical to running the business.

You can control the different tvs and video sources.

April looking for business jets are looking for two things -- cabin comfort and speed.

Being able to get there quickly and efficiently.

You say the ceo or entrepreneur that flies in the airplane quite a bit of time.

News to some of us but old hat for veterans of private aircraft alike sara eisen.


I have actually not been on a private jet like that one.

You need to do something about that.

Someone who has been on many private jets, mexican billionaire carlos slim has ambitions in europe.

That is in today's latin america and the report.

Yields on american mobile have resin -- have risen to the highest level in a month after the wireless terrier slim control offers $9.6 billion to buy a dutch carrier, shares of a dutch carrier that it doesn't already own.

Sanford bernstein said in them note that if slim wants to buy it, he would have to cancel an american mobile share buyback and pay $3 billion in debt financing.

For years, carlos slim was the richest person and has fallen to number two according to the bloomberg index great he is now behind bill gates.

It is a bit of a horse race between bill gates and carlos slim.

We are approaching 26 minutes past the hour and it's time for bloomberg to go on the markets.

Let's start with european indices.

The markets there are about to close.

The ftse 100 in london finishing little changed.

In germany, a small gain.

Big a to point driving market data around the world was the japanese gdp number.

It came in a little below what economists were looking for.

You also have to watch current seas.

More action in the currency market these days.

. the euro has gotten higher and higher and is weakening a bit but still on the 133 level.

You go away for a week in california and look what happens to the japanese yen.

It is weakening today.

But it had been strengthening.

That pretty much jibes with the stock market fell off -- stock market fall off.

Only one percent.

It was a down week.

Coming up, how to present -- how to prevent another flash crash.

Regulars are trying to figure out if we need more restrictions on electronic trading, but it's not an easy question to answer.

Sony coming up short with it new movie.

Taking in less than forecast at the box office.

That may lead to more pressure from hedge fund manager, dan loeb.

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

When will the fed start to taper?

That's the question on top of everyone's list in the markets these days.

When the day comes, bond investors are looking for returns on the riskiest parts of the debt market, moving like they were prior to the financial quite -- financial crisis.

Is this 2007 deja® vu?

My guest is the head of the global debt team.

Good to see you again.

Before we get into the white tapering, bloomberg news has a piece on how investors are partying like back in the boom times and the potential risk this presents, the fact that everyone is loading into junk bonds.

Do you agree?

I agree with the actual facts.

There is a search for yield that has been going on for several years now and what is interesting is despite the move higher in interest rates we've seen in the last few months, we see these bond flows coming in.

They are dedicated to the juicier, higher yielding asset classes.

Should this not concern anyone at all, the fact we see record amounts of loans being sold?

Junk bond sales up 25 years to date and the fact that these notes are on pace to hit another record this year?

These are signs of a hoppy market.

These were signed into the -- in 2007 and we know where we ended up in 2008. we like to look at history to dictate where we are.

We better be careful if we stay with that nose.

It is tricky if we are in a new regime.

Definitely pay attention to it.

Investors should be paying attention to things like overcrowded positioning, whether it's in specific stocks or loan area.

It's just a technical nature investors should be aware of in addition to what we should be talking -- talking about in monetary policy.

That's going to be overwhelming any of the technical indicators.

How do you game out when the change in the monetary regime begins?

Is the economy on strong enough footing to taper in september?

It's almost splitting hairs whether it starts in november or september.

We are going to be on the first step of moving the united states economy from the life the fed has been giving it.

I think it's pretty certain it's going to happen this year.

That's a big sign.

It's not the tapering that matters, it will come to the united states doing better and this being step one of that phase is what has markets all jittering.

I think it's a copout to say we can party on in september.

Anyway you cut it, this is going to be happening and it's a great sign the underlying economy is showing strength and it doesn't need the fed possible ammunition at this point.

If i heard you correctly, you just said something akin to tapering doesn't matter.

If that is true, how come?

I said the timing of the tapering.

Why it matters is the tapering is probably not having that much of an impact anymore.

It's just going to put less than the market as far as purchases.

But what the market does it looks clearly into the future and this is step one in the whole chain of events which includes actual interest rates going up.

We have been waiting for this moment for five years.

When is the first line going to be there?

I think we know this is coming.

With this regime front and center, do you see the potential for volatility or at least some nervousness around who will be the next fed chairman?

Something we are all obsessed with trying to game out as well.

Even though the market seems to be convinced janet yellen will be the next chairperson, at the end of the day, it's an important function and has not just fed policy in the mix, it has the relationship between the president and the fed in the mix, so it will have some volatility around it.

Even though i see consensus janet yellen will take the baton and will do the same thing she will do.

I'm a little confused as to why the consensus appears to be growing that it won't make that much of a difference whether larry summers is in the fed chairman's seat or janet yellen.

Would they not do that much differently?

I think they would do things differently.

The biggest thing we can point out is their personality difference in terms of how they lead consensus or their backgrounds.

They are both early and economists, but we have more information on how janet yellen wants to act like ben bernanke where is larry summers, we think you will do the right thing, for sure, in terms of taking the economy off that life-support only when it is necessary.

What people are nervous about is they have seen how larry acted in different roles and he's not as much the statement as -- not as much the statesman as a bernanke is.

That has people more nervous than the content of his economic thought.

Always good to check in with you.

Critics say it's time to put the brakes on high-frequency trading.

We will have more on that when " market makers" continues.

? the battle lines have been drawn in the fight over high- frequency trading.

Opponents say it helps the market by adding liquidity and cutting trading fees.

Critics say it gives people an unfair advantage.

Looking at potential restrictions since the flash crash in 2010 on which was caused in part by the flash crash.

The question is, high-frequency trading as we understand it is not as raw fumble as it once was has been suffering.

Is there a renewed push and need to go after this in terms of legislation?

There absolutely is a renewed push.

There's a new paper on high- frequency trading and the regulations that may be coming down the road today.

I co-authored this paper with a professor and former chief economist at cftc.

We looked at these issues both about high frequency trading affects markets.

And there are two main issues coming out of the flash crash and post little up with knight capital.

One, high-frequency trading affects market stability, and two, high-frequency trading may be unfair.

We took a deep look at this paper about these two issues and look at the pros and cons of additional regulation.

High-frequency trading to a large degree has been the victim of its own success.

The arms race to buy ever more expensive computers and positioned in their exchanges has led to unsustainable cost and profits in high-frequency trading have plummeted.

So high-frequency traders can be in the business of high- frequency trading, might they not take care of their own problem?

We cannot confuse the profit motives and the volume in the market area -- in the market.

If you look at the volume, they are about 50% of the market.

That's a substantial piece of liquidity.

A net makes it easier for people to transact and put in their orders and get the right price.

They have a role, the question of how stable is that role and does that role disappear in times of market stress like the flash crash in 2010? how vulnerable is the financial system to some kind of mishap that could be bigger than the flash crash?

That is the question the cftc and ftc are looking at.

They are focused on the technical problems that can come with high-speed trading.

They want to make sure high- frequency traders have a old- fashioned operational risk management and the bugs that blighted knight capital won't turn around and other high- frequency trading.

That is their first order of business, but they are also looking beyond these technical approaches to whether we should at the brakes on by imposing taxes or fees linked to trading activity.

If you think profits for high- frequency traders are down now, but some taxes on their trading and see what goes on with profits a little later.

Why is it that regulators appear to be focused on the business of high-frequency trading and whether to put some obstacles in its way as opposed to addressing the market structure failings that allow high-frequency trading two floors in the first place?

Things like fragmentation?

It is hard to disentangle all the complex things in this structure.

These orders are farmed out to whatever exchange has the best price, that has been the operational procedure of the american financial market system.

However, in order to maintain liquidity and low volatility in terms of high-frequency trading, you cannot just dismantle the whole system.

It easier from a regulatory perspective to make sure people are following the rules of the road then to offer a completely different system altogether.

Thank you for clearing it up for us.

I know that it will gain momentum.

Fax over at sony headquarters in tokyo, they are not singing "hooray for hollywood." another box office disappointment area could not have come at a worse time for the studio, which is not have a lot of hits lately.

? the new matt damon sci-fi film came up short at the box office this weekend, bringing in a few million less than anticipated.

You can chalk up another disappointment for sony, the studio behind two of the biggest bombs of the summer.

A situation brought into sharp focus by hedge fund manager, dan loeb, who highlighted the poor performance to get sony to spin off its entertainment business.

What is the matter with sony movies these days westmark what's asked the head of hollywood box

If you look at sony and compare it to the other studios out there, what are what are they not doing right?

I think that's a bit of the loaded question.

I look at it as what is happening to all the movies and all the studios this summer.

If you look at the summer box office, every studio could count at least one flop in their slate this summer, but for sony, what has happened is they had a series of films, some of them have done much better overseas.

For instance, "after earth" it $180 million internationally and that's $240 million worldwide.

At the focus is on the box office.

That makes it tough, now that it has become a global marketplace.

We have to look at the overall picture, but no question they have had their ups and downs the summer.

"this is the end" was a modestly budgeted comedy that has done almost $100 million domestically.

Given the slate of films they have coming, we will see a resurgence for sony.

But to pinpoint them, and that has happened because of dan loeb's comment, is unfair because every studio has had its ups and downs this summer, no question about it.

What is the sony studio distinction?

What are they known for in hollywood?

They are known for a couple of things -- one is spiderman, which is a huge franchise.

Sony has installments scheduled until 2018. the next amazing spiderman movie kicks off the summer of 2014, early next may him and that is a big date for them because they kicked off movies this summer, last year with "the avengers" it's a huge gate grade they are also known for genre movies like poor babies and action movies that are modestly budgeted and do well at the box office.

"the call" was a good example of that.

They also have a strong marketing and distribution team.

But there have been a lot of films this summer that haven't done well that were original content and "the lizzie m -- el ysium" sony swung for the fences and try to put out a movie that was different, unusual and edgy.

Something we sort of expect in august.

Then they will have "mortal instruments" and "cloudy with a chance of meatballs." is it possible we might be looking at sony's performance in a few months and thinking to ourselves that they are doing great?


I've seen that happen with every studio.

If one thing i've learned in this business, it's that a studio can be down-and-out and come right back because it's a cyclical business.

Dan loeb -- is dan loeb wrong and george clooney is right?

George clooney says dan loeb doesn't know anything about the movie business.

It depends on where you start the clock running.

If you started at a certain place, you can find disappointment and started in a different place and find a bunch of hits.

I agree with george clooney.

He knows the business very well from the business side and creative side.

Anybody who looks at a couple of films that don't perform in a row -- if we want to spin off film movie divisions of these big conglomerates every time they have a couple of bombs, every single corporate structure, you better shut off that motion picture division because they had a couple of flops.

This is a business that is cyclical.

It happens all the time.

Disney had "the avengers" but then they had "the lone ranger." but now they are back up again.

It's a business that is so all of the land each movie is like a brand-new product being delivered to the marketplace.

If not for the faint of heart and it's not for the shortsighted.

I think sony is going to come back and i actually think $30 million for an r-rated intense film, it's pretty good and it was number one at the box office.

We say this all the time -- the studios rely on sequels and rely on fairytales and just don't take enough risk.

At least with this one, sony appears to be taking a risk.


They swung for the fences and may be people.

They should have made more, but i think it did very well.

We have to give these studios a chance to come back.

Good to see you.

We will be back with a little on the markets in just a few minutes.

? that is going to do it for "market makers"

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


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