♪ >> downgrade in paradise. s&p but -- the s&p cuts puerto rico's credit rating to junk. >> he is a hedge fund all-star. what are the best performers in -- s performers last year. >> kicking the habit, cvs caremark takes a habit, a move that will cost the company $2 billion per year. this is "market makers," everyone. >> this is the big news from cvs, a move that we have heard

the president is in support of, mothers like me are in support of, but the question is, our shareholders? >> mostly. if you are going to assess the economic investor impact of a decision, like the one they just made, not selling tobacco products says -- look, no further than the stock price. last time i looked, it was down only like $.30. >> this is a major move. this is the first company we are seeing doing something like that. the question is, will it be broader-based? >> will it be broader? will walgreens step into it? >> air mark had their earnings this morning. they provide the food at the big stadiums out there with a great morning, but what do you buy there? hot dogs, beer, popcorn, soda. >> we are beginning with breaking economic news. the markets are watching for any piece of data very closely to

get a sense of what is happening in the u.s. economy. a key gauge of the u.s. service sector is coming out. m? >> i have got some good news for a change. not only is it up, but up more than expected. the economic indicator actually came out better during the month of january, for a change. subindexes all improved as well. this is their version of production rises, as will the new orders index. not a lot, but enough. suggesting that the economy may not be going off into a ditch. the one that everyone will be watching today, i have got it behind me here on this graph, 56.4 from 55.6, we saw a decline in the manufacturing index, worse than expected manufacturing for adp numbers, this is the first good news we have gotten, indicating that things may not be terrible when

we get the labor department report on friday. we leave you with some good news about the economy, which we have not had a lot of lately. >> help us to put this into perspective. clearly, we need to see more data, but is this better news today than the number from monday was worse because the services economy is so much larger than the manufacturing economy? be, butior, it should the iso nine manufacturing , anythingso broad that is not manufacturing, it does not have as good a correlation with how the economy performs as the manufacturing one does. the other issues that the manufacturing one, as they said affectedoom work, was by the weather. services that will be less affected by the weather, we have to separate that out and we will not have a good picture for several months, although i know that does not help you right now. >> thank you very much, michael mckee. >> now you are going to turn to

someone who needs a little bit more help than that. >> yes, puerto rico. >> the o's miele. -- dios mio. >> it does keep getting worse there. talking about the fiscal situation, not the weather, which is better. a move that has very large applications for investors, 75% of all muni bonds are focused on mutual funds. mutual funds have specialized in holding about that puerto rican bonds. why? they have curious tax advantage is. better ones than state bonds. puerto rico has 70 billion in debt outstanding and by law cannot declare bankruptcy. bond analystipal who wrote the report is with us now on the telephone. david, here is a question for you. junk, yes, but why not lower it, if you are that concerned about

their ability to repay? what is it really worth at this point? estimate of near- term liquidity, they are not running out of money tomorrow or in six months, so we do feel that they have diminished capacity in terms of near-term liquidity, and they will have to access the market, we believe, sometime by the summer. so, what levels of protection do you have in the current rating? the assumption is that they will be able to access the market at perhaps an elevated price to restore some of their liquidity. >> can you kick a dog while they are down? do they still have that window access to the capital market? >> we currently have them on credit watch. to the extent that they are not able to do that, there could be further downgrades in the future

. at this point they believe they will still be able to access the markets at a price. report you wrote that puerto rico has no margin for error over the next couple of years and you acknowledge that the current government is doing a number of things, taking steps in the right direction, if you will, trying to close the fiscal deficit and keep puerto rico from digging a deeper hole for itself. let's say that that does not work out. let's say that no margin for error is broken, if you will. what happens next? what is the way out for puerto rico if they cannot declare bankruptcy? haveneral obligation bonds a priority over everything else under the constitution. they would get paid first. there would be some difficulties. you are talking about the difference between legality and willingness to pay. i believe you are talking about -- what if they chose not to pay . it would be a new and entirely

different legal situation at that point. we are not expecting that right now. that the provisions of the constitution, giving priority payment to bondholders, would take effect. >> what about things on the ground and puerto rico? we talked about inequality here, but you have investors buying up real estate and robert e when the actual people on the ground, puerto ricans, are suffering. >> we are just looking at the ability to repay bondholders. i cannot comment on that. >> what do you think about the possibility for either restructuring, which would not be done under the auspices of a bankruptcy court, but is still possible in theory, or if that does not work out, debt repudiation, which seems far- fetched, but if you cannot go bankrupt, you are left with very few options. >> one of the options, i

suppose, could be renegotiating the terms. for years they have been refinancing debt services each year and pushing it into a later year. can negotiate you many different things. we will see what they do over the next couple of months. >> what do you actually think? what are their real options? if you and i have this conversation in six months, what will things look like? >> they will really have to make some severe budget-cutting efforts. they have already made some pretty unprecedented changes to their pension systems. people talked about that for years. they actually put that through. in most years over the past decade they did worse in the budget by midyear. midyear they are doing better than what they budgeted this year. it is partly, perhaps, because they had to do this, but they

really are taking some hard actions and making good faith efforts to try to close their budget gap. >> good faith efforts to not necessarily mean results. from your perspective, they cannot avoid a downgrade or restructuring. >> in our view the real overcurrent is the economy. the economy gets much worse, it will be very difficult to entertain their budget. there are some signs, recently, that they might have stabilized, or that we have seen temporary periods since 2006 when they contracted every year except for one, temporary periods where things destabilized, but what is going to happen to the economy over the next year? that is the wildcard. >> david, what about wall street? is it in the best interest of the banks to keep this fiscal situation in puerto rico contained? the reason i ask that question, look at what is going on in detroit right now. detroit offered to settle with

its dealers are $165 million. now all of a sudden kevin or is going back to the banks and saying, you know what? these deals are not legal after all. many of you hoodwink dust. should the banks be concerned about that? >> one thing that you alluded to earlier was that puerto rico cannot declare bankruptcy, unlike detroit. under the constitution, they have to make a priority for geo debt service. that provides an incentive to try to work this out. as to whether there would be some sort of restructuring, i could not say. we believe that at the current , it does appear in the near term they have, for a short while, have good

facilities in liquidity. we do believe that they will be able to access the market, but we will watch for that. do have an expectation that it will be an elevated price and that the current rating level, buyers might not be in the market, but there are other buyers who are interested. allt calls from investors the time. there is a range of different opinions and a price point at which they could access the market. >> what you need to say is that there are distressed investors in the wings here, and they can swoop in, but if they are not big global they are not playing? >> there are investors. i am not sure how i would characterize them, but i do talk to them on the phone every day. >> david, thank you for spending this time with us discussing puerto rico and your decision to downgrade the territory and its debt to junk.

toi am still struggling understand this story, i think you need to send me down there, executives. cvs, you know what is going on there today, going cold turkey. what will that cost the company? >> one of the most successful hedge fund managers of 2013 deion cooperman is with us shortly. we are streaming on your smartphone tablet. catch us on bloomberg.com. ♪

back to "market makers." everyone is talking about the big news from cvs. the first national drugstore chain to stop selling tobacco rod x -- tobacco products. olivia sterns is here with more on this surprise move. olivia, investors, eric and i have the question -- what is

this going to do to the company's broader line -- bottom line? people love the message, but what does it do to company profitability? >> as you have been saying, this is a really big deal. did you realize they are the second largest retailer in the u.s. after walmart? >> i have spent a lot of time there. >> bet you are not buying cigarettes. >> retail. >> retail make up about three percent of their total pharmacy sales. lose about $2 to billion in direct tobacco sales. >> what about the ancillary sales? let's pretend you go to buy cigarettes are a couple of days. you could be buying gum, letter 10 werade. are matt miller. >> i try never to do that. >> generally a bad idea. sales,e is the new york and that isales,

revenue. >> why do investors seem so sanguine? put it into perspective, right? investors are fairly coldhearted people, they will make decisions that maximize profit. cvs traded on multiple sales, so if they lose $2 billion in revenue they shouldn't. lose at least 1.2 billion dollars in market cap, but they have not. and this suggests that somehow investors see something positive here. >> john over at raymond james says that cvs could make up some of the loss and thinks there are other ways of offsetting sales, but the bigger issue is the changing business model. they are going from being a retail health pharmacy more to health care provider. >> not only does it feel better to do business with them? >> thing about it honestly.

do you walk in there and think about the customer? i walk into cvs because there is a drugstore next my house. >> they want to get more into the health care provider business. you are seeing them more and more opening up these clinics inside the stores. they are offering prescription drug plans. that is what this is about. you have seen walgreens doing this. >> if you want to think of cvs as a health care provider, you do not want to see cigarettes on the shelf. >> what do you want to see? --ry goes, chocolate, great gatorade? soda pop? >> that is a good question. walgreens came out with a statement saying that they are also considering evaluating whether or not he should keep selling tobacco products. obviously, the president is very happy, he came out with a statement today saying that he applauds them for the move as one of the largest retailer pharmacies in america. setting a powerful example and

attempting to reduce tobacco related deaths. >> this from a quote unquote former smoker. >> good point. i do not know if you are about to ask me -- i do not know if they are about to keep selling e-cigarettes. ari herzog put out a note this morning saying that they believe this will have no impact on tobacco manufacturers as smokers will still buy the products, they will simply go to other retail stores. >> in your gut, what do you think? >> it makes sense. if you are smoking, you are addicted. those are existing smokers. maybe it makes it harder? harder for kids who might want to take up smoking? -- lesser, but less

convenient. just less convenient, right? >> yes. >> convenience matters. >> i think the indirect sales is a bigger issue. you are going to find your nicotine one way or another if you are addicted. if you go there to buy your cigarettes, you might go there for something else. money. where they lose >> that is what i think. you're up there, then it is gatorade, doritos, condoms. >> you keep mentioning condoms. do you always pick up condoms when you go to the cvs? [laughter] you are buying cigarettes you are not a responsible person. endless chaos. >> when we come back we will be talking about twitter's first earnings as a public company. we will have more on what to look for, next.

>> you are watching "market makers," here on bloomberg television with me and stephanie ruhle. theirr, they want to put own spin on disclosure. there will be an analysts call, but it is taking questions only submitted through a special #. here to tell us what we can coryt from twitter, johnson, from san francisco. what are your thoughts on twitter? i am sure that you have many. >> first of all, that notion, they will only take the questions they want to take. they can look at the questions ahead of time and not answer them. this should have been baked in when they did their ipo. this is one of the most closely watched and manage ipos we have

ever seen in the last few years. not only because it responded to the failures of the facebook ipo , but because this bubble lish's market really mandated an ipo that was carefully managed, which usually include baking the first quarter. thatare betting not only the quarter will perform better than expected, but we are also learning that one percent of the shares outstanding are short, so the really is a big battle going on this quarter on the stock market that may be completely independent of business results. like how concerned should we be that twitter has already saturated the market? the brings this up all time. super bowl twitter use was massive, yes, but only up three percent from last year. >> and we have seen the same kind of plateau with other investments -- with other events. people are active on twitter, but not more active. >> i think you will see that and

a lot of numbers. international is a big deal for this company, i think. much more of their business is international, i think. and if the monetization is international and quite low, the growth rate has been slowing even more dramatically. that will be one of the things that people really dig to the numbers to look at. is i think that monetization quite low, again, even if the total number of users and usage does not grow. >> what do we expect to hear from twitter on the data moving front? it seems to me that there is a huge unexploited opportunity in big data for twitter. >> while that is true they have a real difficulty with advertising right now. they did a big acquisition right resultshe ipo and those will be listened for to see if there is anything that came through on that. there is a big story going on in

technology that we had not planned on talking about, but i think that people should be paying attention to, the fringe stock completely collapsing today, and the bubble ending -- >> everyone is going to find out more about that at 1 p.m. on "bloomberg west." "market makers" will be back. ♪

thatoomberg has learned new york state is opening a currency trading investigation of more than one dozen banks. according to people familiar with the situation, benjamin loss key is behind this. he has requested documents behind or related to the foreign exchange trading practices of several banks, including goldman sachs, deutsche bank, lloyd's of , credit suisse, and standard chartered banks. spokesman for the banks declined to comment. the back story here that was reported on in june is that some employees at some banks were sharing information about their

currency position with counterparties at other banks. this is the back story to this investigation that they have reportedly opened up. investigators in the u.s. and europe again looking into this last year, it has heated up and now the new york state financial regulator is looking into it as well. we are keeping an eye on the shares of financial stocks right now. u.s. stock markets are at the session lows, giving up earlier strength. banks continuation of how are struggling and how some investors are doing quite well, that is our next topic here. all this month we will be talking to the world's most successful hedge fund managers. we are going to do it right now. bloomberg's market magazine is out with their top list of outperforming hedge fund managers. overseas returns 22% in

october. lucky him. lee, you have better weather than us, better returns than most. as you look at 2014, some say that we are facing a tumble, others say correction. what is your macro view? >> these kinds of selloffs create opportunity. the correction was to be expected and was probably healthy. onre were too many players the same side. you folks have an exhibit on your terminal where you solicit the display -- solicit and display the opinions of 21 different strategists and it is interesting, at the end of the year, 20 have the markets up for the year, one strategist had it down. the vast majority of people pulled up and invested long and stocks, long in japan, shortly end. now all of a sudden they were not thinking about it at that time, emerging-market issues, thinking about some slowdown in

the economy, the markets taking a quick five percent hit. for a number of months i have been arguing -- >> i was just going to say that you pointed out that the market was down five percent, six percent, based on the outlook. what do you think is going to happen? will the stock market and the gear up or down? >> i think it will end of the year up. with profits growing very slowly , corporate profits growing at five percent, six percent, the answer to where the market will be is a function of the multiple you want to ascribe to those earnings. a 16 in the s&p is reasonable. if you'd take a defensive earnings estimate, 117 dollars on the index this year, and i guess we are all statisticians a little bit, if you take that is 1872. that the market ended last year at 1848. there was not a lot of room for

appreciation. the 16 multiple was right. not make, one could the argument that the market was dramatically undervalued. year,the end of this things look ok for the economy going into 2015. you can take that 1848 and market up for the improvement of profits that will dissipate next year. lo and behold, that is very plastic. on the downside -- >> the problem is that not everybody -- you are right, everybody at times is static. sometimes people are reasonable, but they are not as rational as you are. why do you believe -- why are au certain that this is just correction and not the beginning of a bear market motivated by fear and panic? one, one is not

certain about anything in life. it is dangerous if you think you know all the answers. but i would say that traditionally there are several phenomenon in place leading to a bear market. i would say, in my view, i would get bearish. have been positive on small peanuts and have been saying that for months. i would get negative if i thought something was coming and i saw evidence of it. the reality is that all the economic data supports continued growth, including today's number . what is the big deal? you could get a big number on friday and everybody's psychology changes. the first thing to get bearish, basically it would be the expectation of the recessionary forecast. talking to everyone that i speak to, i would say the chance for recession in 2014 is one out of 20. the second thing that could get

me bearish, and i said this a a quickd a half ago, rise in the year-end level, that would make me bearish. quite the contrary, we have created opportunity in the market now. the third thing would be growth coming in at one percent or less, threatening the outlook of corporate profits. oversely, if growth was 3.5%, that would bring the fed into play. are of the bear markets induced by recessions, ok? case for a recession does not seem to be credible. >> if we are creating opportunity in the market, what is it opportunity for? things whento buy they are down, not up. >> like what? correction,ort-term

those who believe that, what should their trigger fingers be ready to buy? >> the same things that we like. first of all, you have to understand the approach that we take. if you look at the s&p index as an index of 500 companies, on average it grows five percent to six percent each year. it sells 2.5 times book, roughly, with a debt to capital ratio around 35% and you are paying 50 times the average company. our own they get is to find companies that are more rapid than the average, yielding more than the average, with more asset value than the average, paying a much lower price than the average. there are plenty of things you can find. 25% of the s&p 500 now yields more than bonds. more than bonds, they are growing, and looking out at the

year, interest rates will be higher and you will lose money on your bonds and i think i will make money on my stocks. financials, aig sells at a discount to book value, roughly nine times earnings. eight percent, nine percent, a recent high of 53, 47 was a nice correction. >> i need you to leave it there. i want to date into all of those picks. we have to take a quick commercial break and when we come back we will be talking about your favorites. tot's right, we are talking hedge fund heavyweight, leon cooperman. find out which names he likes and which names he does not like these days. stay with us. this is a good one. ♪

>> we are backed out of leon cooperman, one of the best-

performing hedge fund managers out there. markets magazine has given him -- giving you and your firm that designation for your performance in 2013. i know that stephanie wants to dig into specific stocks with you. so do i. but i want to talk about one more thing. technical analysts have been out this morning, warning that the market is at an inflection point. not all that dissimilar from what happened before 1929, before the crash, and that stocks could unravel quickly. given what you were sharing with us before, specifically when it comes to technical analysis, what do you make of that? >> i know tom, he is a fine fellow, a workaholic who believes in what he does. it came to that if pass, i would have to call him a visionary.

him onsaid this to record, and to my investors on one of your competitive programs, for the year 2014, the s&p 500 will be at 1800. the high would be 2000. i do not number that relate to and do not see. i would just say that on the plus side for the market, bull markets do not die of old age. they die from success and recession. there is no recession in the cards for 2014, best as we can see. secondly, the fed has created an environment where there is no effective alternative to common stocks. the choice today is keep your money in cash and earn zero, buy government bonds at 2.5%. that holds no fascination for me as an individual. you can buy high-yield, but there is no longer a high yield.

using your own data i would give you a statistic. the bloomberg high index in wereber of 2008, earnings running $65. the multiple was 13 nine. the mobile is currently 13. the high yield was down from 25. ,he total relative repricing you are left with common stocks, 25% of which are yielding more than bonds, about in line with historical norms. another point on the plus side, totally different from 29, investors are still under exposed to risk. people are very nervous, very worried. they were scarred by the experience of 2008. they aggressively got involved in the market. pension plans are under 50% common stocks. finally, bull markets do not end of fair valuation, they end from

overvaluation. there are generally three phases to a bull market. the first phase i describe as -- wow, we survived. when it goes down, as you tend to extrapolate, it goes down forever. suddenly the market changes its fiscal monetary policy and it turns. the economy turned up in june of 2009, and that first phase ended in 2009. the second phase reflected that which was perspective. the average economic expansion, once one gets going, lasts about five years. the fifth year. there is still plenty of excess capacity in the economy. i do not think that there is a basis to call for an end to business expansion. the final phase of the bull market is the phase where everyone forgets about what they swore they would never do and

the lessons they learned in the last market. and we have this kind of blow up . you have seen it a bit in the individual market, the public market, but by and large the stock market has been very rationally priced. what we need hereto and this is a stabilization in the emerging markets, which are a small army. everyone is worried about , but 10% of the earnings are tied in and if you throw in china, it is 15%. not a major number to the economy. why, then, do we need stabilization in the emerging markets? why can investors not just look past it? >> alternately, i think that they will. when the market gets to the level and creates the opportunity, you would hope that that psychology would change by friday, but we saw those numbers and suddenly everyone said that

the economy was ok and they got optimistic. bull, like iging said. the market at the end of the year was in a zone of fair valuation. i say it is a correction that is creating some values, which everyone will be happy about. >> i believe it, i like it, so tell me what to buy. let's get into it. like basically, aig is the surest thing. it generates a fair amount of excess capital, sells at nine times earnings, growing in line with the market. the book value is in the 60's. we think that sometime in the next few years they will do the job that we think they can do, with a stock now at 46 or 47 in terms of discounted book value. citigroup is trading at eight times what we think they will earn, probably in a percent

grower. sallie mae, buying back stock, yielding three percent, splitting up into two companies shortly. we wanted them to be a prime takeover candidate. you are paying eight times earnings, again, more than the aftermarket. we like the energy companies. we have been very high on something called sandridge energy. people wait around for everyone else to show up with other companies. ,e are in the valuation game investing in companies that are asset-based, where we can see a catalyst for change. >> this is a name we have seen activist investors get involved in. >> that is my point. tpg did a lot of analysis on sand ridge, the analysis was closer than their website, closer to 11 or 12. independently of them we owned the stock before they showed up.

i think the answer to that was 10. we see that the tpg one their proxy by changing to new management. management of the shareholder friendly, doing the right things, cutting cost, hydrating drilling activity. on march 4 they will lay out their story. upside withis an very little risk. >> in general, as a matter of principle, do you think it is a good idea to invest with and anticipate in some cases, following activists? think about carl icahn at ebay or apple. do you like the positions that he takes? do you want to be there with him? if you got involved with transocean, we owned it. we have both been wrong. carl is a very bright man. we do our independent work, you know?

we listen to what we say, we have our own view. we owned the ebay before him. we agreed that they should spin , createpart with paypal more visibility for the high growth in the company. i take the activists -- we are quiet activists. think, we advocate our positions and our views, but i and large through management we do the heavy lifting in processing the good work. and bang on them, changing what they do. we are management fan but -- management friendly, shareholder friendly, but we are known for expressing our views intelligently. if they will not listen, we will basically move on. one of my biggest positions in a value situation was too complicated for the first time. ,uing the company derivatively

i think the board of the company is acting in a disgraceful fashion. >> what company? >> they are called [indiscernible] financial. the underlying asset value is at 16, yielding almost six percent. a lot of excess liquidity. very complicated trades in the netherlands. there are a lot of things that you can do with money. halliburton trades around nine times what we think they will learn in 2015. one that has cost us a lot of money this year but made us a lot of money last year, sprint. we think they are going to attempt to consolidate the industry and there is a greater than if you percent chance that they will do something with t- mobile and he is a winner. if you look at everything the man has touched, he has been a winner. he paid to get his position, and

that intrigues me. we moved on apple at a very opportune time. we put the money into qualcomm, which is ubiquitous in the chip does this. >> i want to jump in and ask you one question before we run out of time. about uncertainty, you have been outspoken on politics. something of a starring role last year in a role oft focused on the the .1%. what do you make of the current debate on inequality and prayer is a taking this country? heart -- we in my could spend an hour on this. i am very sympathetic to the problems of the 99%. thereality is, i have taken giving pledge of warren buffett. i have given back about half of my net worth to society. i believe with every bone in my body that these youngsters deserve equal -- equal

opportunity. her from the cannotnt is that you force equal outcomes through the tax code. but you do have a moral obligation to provide equal opportunity. i think it is a big problem in our society. time i would say that the things that bother me are the income disparity between the haves and the have-nots and the fact that there are 70 5 million units globally unemployed. this is a tremendous source of instability in the world. we have to fix this, but it will not be fixed to the tax code. >> what do we need to do? >> you have got to get into the home, educate the parents. i sponsored a church group where i grew up in the bronx. 90% of the kids in those programs do not know their fathers. when i think about my father and how influential he was in my career? you have to get into the home, educate the parents, give the kids an opportunity.

we have got to focus on that. we are not going to get anywhere by playing that card. we will not get anywhere by telling the 98% that they are being screwed by the one percent. we will not get anywhere by telling the wealthy public that they did -- telling the public that the wealthy are not paying their fair share of the burden. ok? people create this impression of wealthy people that they pay taxes. the biggest thing that we have to do as a nation right now is focus on what's -- what the maximum tax rate should be on wealthy people. you generally pay 80% of the revenues that the government raises. >> unfortunately we have to pay the bills here and go to a commercial break. i am going to thank you for eric and i. such an honor to get your thoughts. i hate to end it here. that means we have to have you back. either in studio or from florida. the response we have gotten is extraordinary. i am so sorry we have to leave

it there. you are not just a great investor, you are a great guy. eric, on her. anther you agree or not, extraordinary investor. >> i love the fact that he speaks his mind. whether it is on activism and carl icahn or if it is on what to do about an wallaby. interestingly, right? a lot of people who plan about the focus on taxes, he is saying that the answer is not to reduce taxes, that it cannot be fixed through the tax code. that it is about education. getting into the home, getting your kids to school. >> it is not income inequality, it is opportunity inequality. that's what larry summers said. he is a special guy. likes it is approaching 56 minutes past the hour. time to get on the markets and give you an update. as you can see here, it is still a down day.

it only started off mildly down. declines have accelerated. one of those things squarely in the sights of investors, jobs. lee was telling us about the importance of the jobs report and how it can change on a dime. the private payroll survey came in short of expectations this morning, sparking some concerns that friday's jobs report will be a disappointment. >> one specific name, google has a strict -- officially struck a deal with european union regulators to put an end to a three-year antitrust regulation investigation. >> eric schmidt received a $100 million stock grant. >> it may be hard to understand, but it just means eric schmidt is experienced. >> we will be back here in a couple of minutes. >> very think of blackrock is next. >> stay here.

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>> live from bloomberg headquarters in new york, this is market makers with erik schatzker and stephanie ruhle. upinvestors better buckle because there will be a lot more volatility. that is the word from the ceo of the world's largest asset manager, larry think of blackrock. we will speak to him in a moment. >> lifesaver or jocular. a new report shows obamacare -- jobs. it is moreay complicated than that and we will see who is right. >> rising profits. wall street veterans who made a lot of joe. meet the man.

>> it was corny. welcome back. i am stephanie ruhle. to share with you, including larry, coming up in a few minutes. a little business first very >> time to take you to newsfeed, top business stories around the world. companies have fewer than expected. byvate payrolls increased 175,000 last month. speculation that bad weather slow down the pace -- pace of hiring. cvs will stop -- stop selling tobacco products. 7600 pharmacies. about $2 billion loss in revenue. the former american idol star, clay aiken, wants to perform on a bigger stage.

he announced he will run for congress on north -- in north carolina. he would face a second term republican. do you even know who he is he e -- is? >> we need to move on from clay aiken. >> last month, the move among the global elite was almost exuberant until ares think delivered a sobering message. volatility, get used to it. thought 2014 would look anything like 2013, guess again. here to tell us what is driving this selloff in emerging markets and how much longer it might last is larry, the cofounder and chairman of the largest asset manager. trillion overseas 4.5

-- four point 3 trillion. it is a staggering figure. i love to talk about it. >> i will let you do it because i never talk about it. >> i know you do not. >> when i hear the number, it is like austin powers. moment about for a what is happening. the message you delivered about volatility was a couple of weeks ago already. does it feel like we are beginning to bottom out already? is an old-fashioned correction. we went so far. if i asked you and asked everybody in january how much the equity markets rallied, we would have been happy at 10%. we have the s&p up north of 30. we have come a long way. recalibrate to ourselves. the has been more disappointing news. is, we cannot rely on central-bank behavior.

lastd the benefit for the five years of coordinated central-bank behavior that stabilized the market place and gave you ample room to invest over a longer time. pave your is changing. they have done a lot of work. growth willnd of come from governmental policies. we are dependent in japan. will they do reforms? they are dependent on chinese to get reforms in order. dependent on eu working toward forms. and dependent here. the problem is politicians are not as systematic as central bankers. they generally respond to crisis. >> they rely on policy but we may be dependent on policy, but for the moment, we are hooked on heroin. quantitative easing. >> think about how many

investors fundamentally, we see huge problems in the market. when the s&p ran last year, they all bought it. >> we have not seen any changes. no behavior change. now -- we see happening >> the underlining of large hedge fund behavior. , there are problem so many correlated trades worldwide. trades and the trades have been very harmful in the first 5.5 weeks of the year. most are down five percent who had those trades on. most importantly, sometime, i talked about that we could see a 10% correction. if you look at where long treasuries have gone from jen where first two now and where the s&p has gone, we have had a 12% relative value correction. 12% in six weeks.

up about six is percent. the s&p is down six percent. that is a huge correction. i look at this as good old- fashioned correction. we have not seen behavior change unwind of ahe correlated hedge fund trade. we have seen feared in the retail side. you have seen outflows in the mutual funds. are havingl you we as much dialogue today about investing more in emerging markets than we did two months ago. think the market from oil will affect the taper decision? >> it should not. i do not see why would. i believe the u.s. economy is one of the highlights of the global world today. whether you think we will grow at 2.543.5, that is a big boundary, but three percent, we

are growing at a faster rate than last year. i think they have room to unwind. lot ofo years, we had a fiscal drag because of the sequester. that is behind us. we have ample room for growth and we do not have the fiscal drag. we have a strong community and a rising economy due to our energy situation. there are many positive things. it is not now, i do not know how the fed would unwind this. i think they have room to unwind. >> what if the market drops five points? >> it depends on why. saw a five percent correction because friday's numbers, another 75,000 job growth, i think they would pause. if we saw a five percent

correction at the same time we saw 175,000 jobs created, they will not pause. it will be data dependent. chairman bernanke said it is data dependent. i am sure chairman yetter -- yellen will say the same thing when she speaks. >> you said it seems like many hedge funds are down five percent. in 2013, a ton of hedge funds had a horrible year. do you think we will see consolidation? >> yes. hairs already been consolidation. successfuling very hedge is doing quite well and you are seeing some other ones starting to struggle. i do not find that to be a problem. share. take on more you see that in the mutual fund business and the entire investment fund management business. the larger look -- the larger successful innovations -- i do not find that problematic. >> he said a moment ago you

still feel positive. >> hold on. are you in the markets buying these smaller funds? lexie s. just checking. are andhappy where we we have a great opportunity with what we have. >> all right. sorry, you were hoping at that moment larry would save you. tough luck. u.s.u feel good about the economy. what about china? what about the other emerging markets? >> china is going through a tremendous change. they are going from a policy oriented economy to a market oriented economy. they announced that. you are changing the entire way you think about directing governmental policy. it takes time to determine how you create metrics for growth and how you establish the way the market economy will grow and how you respond to it. i am surprised the market is

upset the chinese economy has slowed down in the short run. they are going through the recalibration of their economy, how to direct it. keep in mind chinese have always --n >> do you trust the numbers coming out of china? does it matter to you whether chinese gdp growth this year is six or seven percent? upset ifrket would be we saw -- >> if you believe in that -- yesterday, i was joined by -- he said to not believe a word you hear. >> there are economic, statistical -- statistical process, much improved than three years ago.

they are much more reliant on global trade and global. i do not think it is as problematic as some people believe. i believe those probably speaking poorly about what is going on in china, they probably have a short on. self -- some of the other global flashpoints? >> the biggest we have, we have growing instability in turkey and the route -- and the ukraine. brazil, thailand, these are changes. that haveeconomies had, principally, bad domestic policy that has created uncertainties and the uncertainties are now theslating into outflows in economy. >> because they are domestic issues, do they have potential or will they be detained? the crisis, the

balance sheets of these economies are huge. economieses of the are massive. this is not a balance sheet problem we saw in the 1990's. it is a cash flow issue. movements of money in and out and the fast money. i worry about, could you see governmental policy restricting how fast money goes in and out? it is hard to try to direct a an economy and seeing huge inflows and huge outflows. when i am hearing, and my private conversations with leaders and policymakers, they are very disturbed about the flows. when allnot discuss the inflows came in. did, no question, the head of the central bank there, alexander, was very upset. he had to move interest rates around.

he has been a very proactive central banker. these are big issues. that links into, related to activists. tippinge we are at a point. >> we want to ask you about activism and the tipping point when we come back. we are talking with the chairman and ceo and cofounder of lack rock, larry fink is with us and staying with us. >> we're going from dollars to doughnuts. the wall street who has done that with his career. the man behind new york's famous doughnut hub. ,treaming on your phone, tablet and now you can watch all of our interviews on demand on apple tv. ♪

>> this is "market makers."

you wanted to make a point about activists. >> on with us about a half-hour ago talking about activists a little bit, talked about carl icahn. what is your view on activists? >> we have to have a different view. as the largest shareholder of public companies in the world, all the shares before activists are there, and after activists are there. needs, like most long- term investors, will really look at what they are looking for and, does that help a company over the long-term? term pop,for a short- because they are buying back large shares and burning the company with huge amounts of that, that may not the -- that sounds like a rabbit equity.

>> is that how you view the current rise in activism? >> some are more talking about issuing large pools of debt. we are all in favor of making companies more efficient. we are all in favor of making whoever that may be, a long-term investor or an activist, is working to have the company performed better over the long term. if that is the motivation, we are happy working alongside them. if we find the motivation was just to get a quick pop, and so -- >> that is not one term by definition. >> i cannot be in favor of that. >> blackrock is the world's and largest. the largest investor. >> what is your view on wielding your might as a shareholder?

let's not call it activism. let's call it good governance. between what line is definitionally good and being an activist. responsibility with the company's pension funds, individuals who have given us their savings and retirement. they expected us to have a proper return. we have to worry about those. we talk about longevity and the meat -- the needs to have proper pools. be fullye we have to engaged with management. number of years ago a full independent team to work with companies on proxy issues. we were one of the first firms that did it. every year, my letter will go out shortly about what we expect out of companies. work with companies and management teams. >> what are they arts -- what if

they are obstinate? 18%ast year, we voted against management. 82% in favor. if we are in a disagreement about the management team, we will vote against. >> have management teams reached guidance?u for >> we recommend they do. >> as they are being attacked by the activist investors, that is not the relationship we had from you. they're asking us, can we get more engaged? >> can you call carl icahn? >> another call later today with a company ceo. >> we would love to listen. >> anyway, our job is making sure we are fully engaged in a dialogue continually.

with thesebe engaged management teams, even without activists. our job is to make sure the company is performing properly over a long cycle. >> people like to say if you do not like it, you can sell the stock. >> i cannot. >> let him make that point. if theye investors come do not like the management, they sell. this is why we have a higher responsibility. a large component of our shares are in index funds. >> why not become more active and use the bully pulpit you than engagedre with managements and say, maybe more loudly and more clearly and more publicly, this is what -- your largest shareholder -- wants you to do. you are not acting in our best interests. wethe best solution, because wield a lot of shares, is to do it quietly and constructively. >> are you saying you have been

doing this all along? >> i think my team, because i am personally not involved, my team have done this for a long time. they -- we have not changed our behavior. the behavior is to have constructive dialogue. it is important to have that before a proxy. talk to us about what are your issues and come to us about what you are thinking about. do not go to the proxy voting companies first. we want to be engaged with you. >> you have the benefit of being the companies's first call. turn the clock 20 years, if you were building blackrock, would you be singing a different tune and saying, i need to be an activist investor if i want to make a difference? that is not my personality. it is to work and build long- term confidence between management teams and what we represent at blackrock. once again, we are worried about long-term outcomes for our

investors and long-term retirement. i cannot just focus on what will be good, even for a year. i have to focus on what would be good for the company we are investing and for the outcomes of our investors. >> all right. we have to end it there. this is a conversation we have to continue. >> iq so much. moste ceo of the world's large asset manager. posting forke i was chilean dollars. crises the big boss at blackrock. will obamacare really cost millions of jobs? we will take a closer look at the new numbers coming up next. ♪

>> they with us. we will speak with the man behind the world passes most famous donut hub. streaming on your phone, tablet, and now, we are on apple tv. ♪

>> live from bloomberg headquarters in new york, this is "market makers." i am erik schatzker. we need to take you to washington right now because archie for -- washington correspondent peter cook has news for us, a spoke -- a scoop. what is the story. >> we are being told house with closedeaders doors up on capitol hill this morning have reached the conclusion they cannot ask the president to approve the keystone xl pipeline and they cannot also try to push through

a ban on a particular provision within the obama care legislation that would have benefited insurance companies, and it had to do with risk corridors. they concluded they do not have the votes to try to attempt those as trade-offs concessions -- they are abandoning those and considering their options. trying to figure out what to ask for for an increase in the debt ceiling, whether or not to ask for anything at all. it is likely we could be headed toward a clean increase in the debt ceiling. ideas at the table put forward at the retreat, they will not be asking for a keystone xl pipeline approval, and they will not ask for an end to the risk corridors. those are off the table. in?an i just jump specifically on keystone, why the retreat? is it because they are encouraged by the report of the keystone pipeline not and should

be more to global warming and, as such, approval is more likely? or does it have to do with the that a fight over the debt ceiling is apolitical nonstarter and could threaten republican chances? it is clear those are factors but they went around the room and around the republican conference. it is unlikely they will get the 218 votes they needed to get it done in the house representatives. it seems odd to me given the number of votes we art he had. the larger point you made is they think their chances with keystone are good. if they do not touch it. that is part of the factor here. the larger issue is there are a lot of republicans, some who want concessions from democrats, who acknowledge they do not have leverage and a clean debt ceiling approval is probably the way this is going. >> thank you. a scoop from chief washington peter cook correspondent.

>> democrats and republicans, a job killer, health care. we will dig into that right here when we come back. ♪

>> welcome back. the affordable care act will cost the country 2 million jobs once it is fully implemented. that was the headline from the congressional budget office yesterday. it is not the whole story. like most economic issues, it is quite a bit more cop located in that. economistked a senior to help us walk through it all. help us understand the issue. it is a good headline, one a lot people were eager to seize on yesterday. why is there more of the story? >> there is much more here. let's take the number itself. 2.3 million full-time equivalent jobs the ceo said would be lost

because of the health care subsidy. because the demand for labor is gone. it is because of the supply. people working because they need health care coverage no longer have to. result of having the subsidy. it opens the choice set forth -- for households and individuals and that is why the number is 2.3 million and not because employers are cutting jobs. a big distinction. >> it is a question of incentives. people are no longer incentivized to work because they need health care coverage and can get it from the government, especially if they are lower income and it is for free. >> it is not just about incentives. it is how the subsidy is structured. is a huge drop-off at 250% of the poverty level, about 30,000 for individuals, 60,000 for a family of four. the health care subsidy dropped dramatically at that point. people were much more on the hook for how much they had to

pay for health care coverage. because there is a discontinuity in the health care structure of the subsidy and that is why you see a bit of a perversion or a distortion in the amount of labor surprise, this is true of all subsidies structured this can't -- food stamps or medicare. it is not unique to obama care. >> this is all part of the point. >> it is not surprising. our health-care analyst makes an up or note -- an important note, that this is something that came out of the original legislation. it called for a much graduated subsidy decrease as income rises, but there was a republican pushback that to beled the legislation much more severe in the threshold. republicant of influence on obamacare. there was a second thing that came out of the cbo report.

there is no compelling evidence there has been an increase in part-time jobs. does is part again of the republican opposition to obamacare. more part-time jobs and full- time jobs. it does not look like it is happening. like told really understand. people are no longer motivated to work in order to get health care coverage and they drop out of the labor force, will others not move-in? there are a lot of unemployed people right now, in particular, -- long-termpaired unemployed people. >> there is reason to be suspicious about the numbers, especially early on. it is a projection and i longitude study. it plays into an overall trend in the job market that as the

population ages, workforce participation will necessarily decrease. a lot of the workers that could be targeted in the projection, maybe people who would retire if it were not for health care sure it -- insurance. they now can retire. we cannot totally reject -- cannot totally direct that line. >> what are the impacts on wages going to be? >> an interesting question. we do not know. program andry young there are a lot of open questions in terms of who is in rolling. are there people who already had coverage e is it low income people looking for subsidies, young people, healthy people, we do not know. we know now we have a new program that gives people an alternative to work. saymake level -- you cannot

it is a jocular. they have shown no evidence there is a reduction in companies trying to get people to create jobs. >> the difference between demand , an importante distinction. thank you for your analysis as always. >> when we come back, we will speak to the wall street veteran behind the famous dona club. that is coming up next. ♪

>> he made his living as a wall street trader until done man. it turned 50 years old this year. bloomberg businessweek's matt dropped by the shop to satisfy his curiosity and sweet tooth. check it out. >> some of the people get very welker -- who get very wealthy on wall street spend the rest of their days on small islands in the sun.

others in vermont and the middle of america. has a doughnut shop open 24 hours a day. this year, the donut pub turns 50 years old. >> i could come back and all of my rent was paid. over $900 lynch for million, more than a decade later, he still has the pub. >> one reality of owning a , they have fallen out of favor in the sense of the health craze. >> doughnuts are actually pretty healthy. >> in world war ii, donuts were sold as a nutritious food for new york soldiers. >> why do you think we won the war? >> an interesting take. formidablet

competition. dunkin' donuts opened -- opened an avenue away. >> two dunkin' donuts right here. one around the corner. they did not make it. 14 doors down. they did not make it. david versus goliath. david one. >> when i think of competition, i think of the donut explosion. >> limited production, everyone wants to stand on line at 5:00 in the morning and spent five dollars for a doughnut. >> do you like donuts? >> i sit around with a box and a glass of milk every once in a while. accelerate at what -- one sitting, but just the inside. >> do you mean the donut holes? >> if it is a jelly donut, you break it in half and you need away from thenut

jelly and throw the rest away. >> i find that hard to imagine. he seemed like such a dignified man. >> it is one of the few things in life that gives you real pleasure and it is not expensive . pleasure is what life should be all about. >> i like that package so much because i was eating a doughnut the whole way through. joining us now in studio is a man, the owner of the donut shop. tell us your story. how did you get into the donut business and brokerage business? >> brokerage came after dots. i first made a living with doughnuts. early 1960's. my brother and i opened it stores around the city. hope them, sold them as quickly as we could. we kept four. army,8, i went in the

army reserves. my brother went back to wall when i came out, i decided i would like to follow my brother's footsteps. storesoff three of the and cap one in k's wall street i was there out and until 2000. >> wall street did work out. why keep it? >> you never know. andetween trading stocks making knots, what makes you happier? is this is, whether donuts or wall street. >> what are the similarities? >> i learned how to run a brokerage firm buyer how to run a doughnut shop. it is service, employees, so you want people to come back for repeat business. if you run a doughnut shop well, you can run a brokerage shop well. >> what is the biggest challenge or business fake -- faces?

>> the biggest challenge, i guess, competition. ,eople start running downtown but we are now making a real doughnut. believe people pay five dollars for a doughnut? it kills me that people spend that kind of money. >> it is incredible. as i said in the interview with max, it is brilliant. people stand on line until 5:00 in the morning. he sold out every day. we are making a croissant doughnut now. >> i'm eating one. >> if you did not hear it in her voice. >> i cannot stop. i am sorry. >> the doughnuts, the croissant dona is not discussing. >> know, meeting it on my tv is. the secret to making a good doughnut? >> a good question. a quality product.

>> you get out what you put in. >> more importantly, machine donuts these days, dunkin' donuts. these are still handmade doughnuts. there is a big difference. >> you are on 14th street between seventh and eighth. nightclub capital. between the west village and the meat packaging difference. can you afford to be there still? rent is sky high. >> who said we're there to make money? we are there to service our clients. >> are there anyone else's donuts who use it -- who you admire? >> no. >> quite a statement. business, i-- donut really think ours are best. >> i understand you make it with a machine. donuto not care for the -- duncan, to the point you just made, duncan has moved more to coffee and other things. 's doyou ever seen doughnut

anything like that? >> no. for a's talk margins minute. you do it for love and passion and not money? >> that anymore. you cannot get rich owning a bowl single doughnut shop. >> why not make more? >> if you want to give this up and work old-time, you need a full-time person to do it. you would be terrific. >> because i like eating donuts. the night of the new york city blackout, i spent the night at the donut club. a good night. he does not realize he was giving the donuts away for free. >> you are a traitor and doughnut maker. >> a style icon. >> i would not mind sitting in your chair. >> pretty good. >> i like the movie and i will

be here next week. >> 10:00. maybe he will be back. thank you so much. what a treat. the founder of the doughnut. i got to enjoy one for the last four minutes and he is sickened by it. >> i'm getting in there after the show. back in two minutes. ♪

>> that'll do it for us today. what fun. it up again.

he calls himself the silent activist. cliff robbins of blue harbour group. he will be here. thet now, 56 minutes past hour and you know what that means. time for "on the markets." time for charlotte. >> thank you. climbing straight into perverts -- into derivatives. today seeing big action into emerging markets and etf options. >> we are seeing interesting activity. crucial reports if you want to see a full -- a chart. it is held over the last 2.5 years. we are at 38 right now. 35-25fires positioning, spread trading about 13,000 contracts. someone is looking to get downside protection if it will drift low once again.

what i am seeing is to virgins. we meet new lows. that is very interesting. a sign of stability. we need volatility. back up to 1770 level. to really make a bottom here. we're started to get positive signs. class i like what you said about stability. 20, at was the highest since the december of 2012. >> 1725 is a level support i follow, that we have to take up lows recently. read back through. very positive. i like what i see sitting there. put in perspective, more than

75% rally in just the last two police. is 1750. point support it breaks the uptrend we have for two police. class i will move on to an individual company pretty a lot of action in options on 3-d systems. that stock, the ticker, it is getting punished if you look at the underlying 25%. we know there are fundamental andons 3-d printer makers consumer demand are sluggish. what are the options tell you? >> it was a warning. the chart, this is a momentum stock, seeing something like tesla or twitter, something where people are just fond of it. looking as a technical standpoint, traded between 40 and 56 for six months. it has come back. options fires leaning.

5700 of weekly options. the 60 calls, the market was at are abovend now they two dollars. a more than doubled the value looking for the stock to come back, which it has. >> let's get to your specific trade of the day. the big announcement of naming the ceo. >> we just talked about short- term activity. long-term play, the january $30 call. $30 was the breakout point this year back in april. 660.ll cost about six dollars in the money. raking $.70 higher than where it is. behave as the stock. if the stock rallies to my target, the stock, that is 20% for the option will double in

value. it is a probability play leaning on the level of 35, very important in microsoft. >> quickly, why do you want to go so far out with this trade? >> i want to buy as much time as i can to let things develop. -- pposed to buying a stock >> thank you. we are on the markets once again in 30 minutes. lunch money is up next. ♪

wechsler looking "lunch money. menu, wallok at the street, leon cooperman speaks, tells us where his money is going. a bloomberg exclusive. motors? tesla has five cars that are friendly and cheap. gop comes out firing against some new numbers showing the impact on jobs growth. fashion? hot topic expands into the u.s., we will speak to the billionaire owner who reinvented op