an improved economy. driving stock basis higher. good morning, everybody. this is bloomberg "surveillance." live from bloomberg world headquarters in new york. it is thursday, april 3. i am tom keene. joining me is adam johnson and scarlet fu. >> china announced a new 24 billion dollar railroad expansion aimed at creating jobs. in europe, the service sector productivity holds near a three-year high. the ecb will announce a rate at 7:45. at7:4 pimco investors withdrew more money from the flagship on fund. total up the $2 million has come out year to date. weekly jobless claims. u.s. trade flows followed by i

sm nonmanufacturing. i croak on -- micron announcing earnings after the bell. announce earnings tomorrow. there is a little bit to talk about. >> just a little bit. world's largest bond fund. >> stocks, bonds, currencies and commodities. i almost did not do it at least -- a second screen. will join us later on the importance of the press conference. equities do better than good. we will talk about that in a moment. i would also look at the cr be indexed. -- crb index. what has not moved, the two year zero .45%. here is the equity markets. up we go. one of the great themes here is no.

scarlett had to stay at home for two consecutive days. >> never. i got up extra early to shovel myself out. >> the spring rally is what we will touch on. >> you call it spring but it has been very buoyant. >> that is better than what i said. >> scarlet fu outdoing me once again this morning. an exclusive. >> notice how many people hate the rally. they just will not buy into it. we will not make you wealthier. we will make you smarter here. interesting and frankly very sad front page this morning. atreferring to the shooting fort hood, texas, the biggest army base in the u.s.. on iraq veteran killed greek soldiers and then shot himself. 16 others were limited. being treated for posttraumatic stress disorder.

home to more than 40,000 soldiers. >> what is fair to say? -- what is fair to say. he was in chicago where he was tying to find closure. do not yett net -- know what happened but obviously that sense of safety has been broken once again and we will have to find out exactly what happened. >> peter cook to join us shortly to give us more perspective on that. >> the second front-page story has to do with money. about to play a much bigger role in politics after the supreme court struck down the law after it counts the total amount that can be contributed to a candidate. i thought the reporting was great. to me, technology ruling. majority say forget about

technology, trust the law. veryinority is saying clearly, you are wrong, the technology will be used and manipulated for an ill outcome for society. >> the new ruling does not change the limits on contributions to specific candidates. the game and many other ways. >> absolutely. touch more on this. phil mattingly will join us later on. >> the last front-page story, another day and record for u.s. stocks. you pointed out the dow chart. add a new record. .ust shy of a new record feels different every day. >> this is not twitter or facebook. i am in cash. at least you are getting this. >> in the first two months of intoear you had inflows

bond funds of about 15 billion. simultaneous outflows that reversed in march. people are going back and. >> classical physics. >> holding up the market. jobless claims today. the big jobs report tomorrow. consensus is the u.s. economy added two hundred thousand jobs. >> we will see that tomorrow. lots of economic data today and then we go into the jobs report. going beneath the headline data this morning. of on to serious matters fort heard -- for hood. gunmen opened fire. .t least 16 wounded peter cook is with the secretary of defense. charles hagel in hawaii. mr. cook torrance a seven night by some. thank you for joining

us in our early new york morning. it a perfunctory reaction by the secretary of defense? is it by script or something new here? we are talkingt about another one of the shootings at a u.s. military installation is a strange feeling of déjà vu. something the president has had to deal with and chuck hagel and today in honolulu a cast a cloud over his fourth trip to asia. terrible tragedy. referred in a moment of science -- silence. can'tis a feeling of believe this has happened again but this is a traumatic issue for the military dearly -- dealing with mental illness and the stress of the wars. the shooter has served four and wasn iraq in 2011

being treated possibly for ptsd. top issues for chuck hagel and the defense department overall. >> greatly appreciate your report. reporting from honolulu and diamond head this morning. look for the interview tomorrow. >> a little different conversation than it was supposed to be 24 hours ago. >> wall street go to cash. i have been in cash since 2009. kate moore thinks i am crazy. there it is. courage within a four-year plus bull market. where is the correct right now and? >> you mentioned earlier veryment has been cautious, not a lot of risk appetite out there right now. we saw inflows into bond flows and the first part of the year.

everyone was rotating back into fixed income. that is a very good and as we make new highs. >> i like the skepticism frankly on the retail side, institutional side. >> that is great. this goes to michael lewis coming up later. what is the does thinks in between the psychology of the retail, the little guy and the institution? is the distinction their? >> the pension funds are looking more at asset liability match. after a significant run in the equity portfolios over the past few years, they were reallocating and rethinking about funding. i think the regular retail investors thinking they had a tremendous run and valuations looked or expensive. they started to become skeptical but not doing the work of digging down into the quality of

the companies and overall market. we have our clients goal fully invested. >> what about investors pushing the market up and policymakers sounding extra cautious. i like the fact that policymakers are more cautious. we have relied on quite a lot of policy support and had the policymakers put a floor into the market. now we are at a place where the economy is standing on its own two feet. that gives us the opportunity for policymakers to step back and the market to normalize. >> when you say the economy can stand on its own two feet, does that mean the global economy does not need all the sugar in a more? >> not as much. and the year of incredible policy differentiation. -- we are in a year of incredible policy differentiation. pope --the fed reducing

reducing support. could indicating more support. >> i want to talk about a blue-chip portfolio. they own bowling, home depot, microsoft and chevron. all of the usual names. they are making a good return, versus the risk taken but performance is lousy because small cups have done well. is this a year for the old tried-and-true names? >> i think people will look more at the road -- of the value opportunities. we want to say some stuff is cheaper because the growth story is not a strong. >> what do you buy? what is the value trap versus the value? >> there are some stuff in tech that has very high multiples that we still like frankly. does not look exceptionally cheap but think has a strong secular story. we think we need to

differentiate between what can grow and what is cheap because i has a much lower growth prospect. equity market. scarlet fu has your company news. >> we start with credit suisse. restating the fourth quarter loss. 534 million dollar deficit. this larger loss comes as they set aside for mormon tax -- for more tax dispute. masters 24 month coming to an end. master started at jpmorgan as an internal most three decades ago. a pioneer of credit derivatives, credited with inventing the credit default swaps. ron howard and brian glazer joining with discovery communications to start a new

studio. it will produce short videos for online viewers. the oscar-winning duo behind box office hits including a beautiful mind. >> the headline there is they are not doing movies. >> comes like you to -- sounds like youtube. and theus as ron howard ceo of discovery communications. west liveoomberg special conversation. more on that later on. >> in a world of 140 characters, two-hour movie is too long. >> can you believe we got through 12 minutes without saying high-frequency trading? likes congratulations. >> we are going to discuss high-frequency trading with michael lewis. has distorted the markets and

brings us to the twitter question of the day. 7:00.ewis will be on at what should he write his next book on gecko crowd sourcing for mr. lewis. tweet us. ♪

>> working on a broadway song right now. rigged, andtown is it is unfair. new york city, folks. blueit up in red white and as they make their effort for the stanley cup. on the lewis with us next hour. looking forward to a conversation with mr. lewis. we hope you tune and worldwide during the 7:00 hour.

i am tom keene. with mia scarlet fu and adam johnson as well. >> high-frequency traders under scrutiny for allegedly for a running investors and distorting markets. stoking the flames as the new book/boys. here is what he said about how the traders are gaming the system. understand why if i am a stockbroker to pay a commission but why on top of that is the broker turning around and selling my order to a high-frequency trader for the right to execute? what is the value in that? it is quite clear. opportunity toe exploit. he has advanced information about the pricing of the stock market. >> there is the price theory of treading. there that

pontificate. they do not know the math. a few that actually get it. irene aldridge studied electrical and financial engineering. she joins us right now. have been really fortunate. i still have no gray hair. got more gray hair listening to the debate. you are terrific on the order of paul well montt. peter carr and the rest of them. what is silly about this discussion? >> a gorgeous morning out there. i would like to say what is great about the markets and high-frequency traders contribute to the market. doubt thatis beyond the u.s. markets are the best in the world. it is the best financial system, the strongest financial system. we also have lower transaction costs, lower spread. >> why is michael lewis so

upset? >> i think he has his own reasons. upsetl lewis is specifically because he thinks markets are unfair. let me tell you why they are fair. >> i want to get to the morning must reads. terrific mandatory read on global wall street. hitting the ball out of the park on opening day. consistentlyho beat the market but retailer investments are dumb. trading with them is a good way to avoid been picked off. efficient markets and high-frequency trading, is it really only about the arbitrage of dumb traders? >> absolutely not. i think retailer investors -- retail investors are extremely sophisticated. this is why we have seen a huge exodus of investors over the

past few years. many people say the high-frequency traders are driving. moser are by and hold x -- investors. the markets were in the dumpsters. of peopleng a lot point to, and we have seen this is high-frequency trading firms do not have trading losses very often. they go through times where they are extremely profitable. is it because they go home flat that night and do not actually take positions? >> this is true. most of them go home flat that night which means they do not carry risk. the main reason they do not lose money is because they directly engage in the same business as most broker-dealers. it is ok for goldman to not have a losing day but it is not ok john templeton, he told

me once the idea here is every good idea at some point everybody catches up to it. they arbitrage away the profits. is that happening to high-frequency trading right now? when michael lewis rests writing it was real profitable. relying is a trough of on very high speed's. those people have moved on to new strategies. efficient >>s more we did not get to this level. we will do it next time. blake masters built jp morgan's commodity business. how banks are dealing with increased scrutiny of the hard assets. this is bloomberg "surveillance." streaming live

.n your tablet we will be right back.

>> good morning, everyone. futures up three. dow futures up 25. with me is scarlet fu and adam johnson. >> this comes from " the new york times." here is what he said -- kate more of jpmorgan am a you

used to run emerging markets with lewis bacon. you can look at the u.s. and emerging markets, how do you think this compares? >> there are parts of the economy that have not had a real fire in their belly. beenps not -- perhaps not innovating or investing in the way they should. indicating they really want to compete on the global stage. >> which sectors get it right? >> i would say tech. what you are also reflecting from that article is places like china are not happy with just where they are. they are looking forward, planning forward. they may not like the transition or like how it plays out, but at least thinking about the next leg in the economy. to behink that we need overhauling parts of the u.s. economy and the labor force, educating people differently.

very quickly, is there a man of -- manufacturing renaissance capital growth i do not know if there is like it shows up in some of the headlines. i think some of the energy renaissance has been very good for import costs for manufacturers, but i do not think we will have americans going back to unskilled labor. going to be very different. >> just kate more. >> michael lewis joining us. lex what should michael lewis writes his next book on? treat us. -- tweet us. ♪

>> good morning , everyone. with mia scarlet fu and adam johnson. a quick data check. . lot of data to check

nymex crude goes nowhere. there is the bit on futures, doll futures up 23. likes another top executive leaves jpmorgan. another top executive leaves jpmorgan. here to tell us why this matters u.s. managinghteft, editor for " the financial times.' come and go.es this is not new. why is this a big deal? >> she is a woman in a man's world. very few that have managed to reach senior status. she has been with jpmorgan for almost three decades. that is a remarkable run. she was really at the forefront of a lot of financial innovation a couple of decades ago that bad.ht about good and very

>> is this more condemnation what what she did with credit default swaps? >> nothing to do with credit default swaps. commodities business has been sold. in some ways, part of a normal turnover. she is striking is probably the last of the group that helped to build the business two or three decades ago. >> you own the franchise in derivatives. .ou did it with fools gold i looked at the ft umpteen years ago. i am like you are kidding me. >> a lot of the crisis the book part of life, partly because of my book, and frankly, a lot of that was completely unfair. i believe very strongly one

reason there was so much focus on her is because she was of her . she stood out in an industry. >> what was the critical the strength distinction? criticism for a disgrace product. there was a good sign and outside. in the early days, there was hope that this could be used to manage risk. unfortunately it got not just used that very badly abused. she was not an angel, not in any way entirely blameless for the mistakes made. one of the messages about her career is that if you are a woman who stands out and willing to engage regulators and stand up and be counted him unfortunately you become very visible. of the say a lot criticism attached to her ended up being very unfair. >> you know her personally.

what do you think she does very -- does best? >> she is an entrepreneur. she managed relationships within jpmorgan for many years. she is last of the greats still there. a wildly creative mind. someone willing to stand up and get involved in the regulatory process and represent the industry. >> have you ever heard her say i screwed up on that? there are people in london that's messed up way back. but did she ever say i did not do that right? stood upctually several years ago with her yes, we had on and said made mistakes. many other bankers that did not do that. i am not saying she is blameless. many people got swept up in hype. many were naïve.

she did it knowledge that. >> what is her significance to jpmorgan top brass overall? wishy in contention to be ceo one day? now that she is left, clearly off the table, but i wonder. >> if you go back to the original jpmorgan group to say where are they? none of them are at the bank. every single one. of oneh the exception that has gone to a regional bank, they have gone to the regional bank. that shows if you want to be part of the sexy, inciting you are probably not sitting there. what will you write about uncredited -- joe derivatives? >> right now i am looking at the changing of the guard and new era and thanking.

writing about the fact that you have more tech entrepreneurs giving back and getting involved in entrepreneurship. >> why does jpmorgan necessarily need a changing of the guard when it was the only bank able to get through the entire crisis without a single quarterly loss? not saying nothing new but representing a wider shift. what is interesting about jamie dimon right now is the number of senior staff who have recently left, even banks that appear to be completely untouchable still need to have questions asked about them for management style and what is going on inside the bank. i would not be surprised if there is more screen to going forward in the coming months. >> we have a lot to talk about. an interesting story. paintings in our world? >> painting in the art world. for the past four decades,'s -- two stolen paintings valued at $7 million have been hanging on

the kitchen wall. worker boughttory them back in 1970 five. $70. last summer spotting one in an art book. there it is. art experts told the new york times it might be worth 15 million. the other painting is by peer bernard. it is all that circuit 1905 stuff. my best knowledge is the ham and cheese in the lobby. i would say the europeans do this better. much more accessible. a lot of stolen art. what was the movie just out? >> monuments men. london?a big deal in

>> not so much in london. the reality is you have a huge amount of art and the second world war that went missing and is still missing. have not cover themselves in glory in relation to this. any people have asked questions about where a lot of assets are. will remain for a long time. >> the famed roman cross from early medieval. it was like in four or five parts. it inin yugoslavia found the 1950's. they think it came from richard lionheart. he was in germany.

>> 1066. they think the cross ended up in yugoslavia or germany. >> i am not sure the viewers thought they would get it either. contract theyou passage of wealth and power over time. changing fortunes of people. >> dairy well put. like thank you very much. thank you very much. lex coming up, a stall season is upon us. means it is time for the second pass time last second favorite pastime, the billboard or postal. ♪

good morning, everyone. headlines.the top >> secretary-general of nato tells russia it would be a historic mistake if there were two in it -- if they were to intervene further. presence is fueling concern that russia may invade to contact russian speaking inhabitants in the south there's

just southern ukraine. vacation homes are surging again. more than 700,002nd-home sales last year. year over year with the largest gain since the national association of realtors in 2003.racking back more than 40% purchased were in the south. 28% in the west. this is curious. the u.s. behind the creation of a twitter like service and underminingn cuba the government. the service was built through secret shell companies and finance through foreign bank. the plan was to have a build an -- built for a young audience. digital bay of eggs. >> i am fascinated by this. council on foreign relations is fabulous. the conspiracyr

over there. mike you think about what has happened all around the world from the arab spring to what is happening in turkey to indonesia and on and on it goes. cuba has been able to hold out. curious. one dimension. with wherecinated this ends up. the new miami. imagine when it opened. >> are there people yelling and screaming at each other at? >> this is a little more serious. talking about destruction from the earthquake. 8.2 for the magnitude in chile. image.g with this sunken fishing boats. the earthquake killed at least

six people. created a tsunami waves that reached as far as indonesia. -- a major off your shock lex they had a major aftershock as well overnight. >> we take for granted living in new york. locals take refuge in the city stadium pronounced ekk. forgive me if i get that wrong. the port city 928,000 people evacuated. you have fires burning. we do not see this sort of thing in new york. firefighters trying to extinguish a fire on a restaurant. strict building codes when it happens interest rates up. suggest that ?iewers synthesize off

>> but as the top question. the policy risks were a lot higher. >> you did well on that. policy risks. geopolitical risks and these risks that you cannot really forecast or predict. they are really springing up. one of the reason why investors psyche. >> a lot of elections coming up. in emergingions markets in 2014. we certainly care. a lot of expect patience around the elections in india. here.ave to make money why add to the emerging-market portfolio or detract? >> i do not see a huge positive catalyst in the near term.

what we own is there a specific story. taking a very active that. -- bet. >> we like the u.s., adding exposure to europe and japan. we still think there is opportunity. >> and my long singapore? -- am i long singapore? >> we are using active managers to get in. andre making more company sector specific calls. it is the same thing with china. we think there are opportunities in china. >> is that because we have had a rally for five years? >> it is true in the u.s. and europe. you have to be more differentiated about the approach. not a one-size-fits-all equity upswing. >> tom wants to whittle down his cash holdings.

make political contributions. a divided supreme court striking down decades-old limits on campaign giving. how this will affect the role of money in american politics. this is bloomberg "surveillance." ♪

>> good morning. the capitol building where they the selloutwith from the supreme court ruling. >> they are watching frozen. >> i think they are watching pretty closely. getting to the details of the ruling in just a minute. company news from the files of bloomberg "west." u.k.one investing in the division. opening 150 new stores, creating 1400 jobs. this comes after they completed the sale of the 45% stake in verizon earlier this year. turkey's top court orders the government to lift the ban on twitter. they told the prime minister that the ban violates freedom of expression. access was restored immediately. they imposed the ban two weeks ago after content about alleged government corruption appeared

on twitter. walt disney rose thought -- rolled out " captain america" this weekend. stanley, the former president of marvel talked about why moviegoers cannot get enough from superheroes. was a kid,ber and i everyone wanted to see king kong, frankenstein. people love things that are bigger than life. they did not make that many untold recently when the producers discovered that the superheroes are just the most popular things ever with the public. $97 milliontimates when it opens this weekend. >> looks a little bit like adam johnson. the modern captain america. johnson, ihink adam

think captain america definitely. we do have the full interview with stan lee tomorrow. the cover story of this week's edition of bloomberg " business week" on stamps tomorrow. you can download it tomorrow. >> week after week, thus coverage. >> i will take my scotch on the rocks, please. >> to get through it. all right. from captain america to the supreme court. the supreme court voting political contributions constitute free speech. that means the government cannot impose limits on how much you give. so get ready to open the checkbooks. our washington correspondent, phil mattingly, joins us. 2015dvocates more ahead of -- 2016? >> bottom line him of both.

if you are a traditional party committee, powerful member of congress or potential presidential candidate, yesterday a big friend -- a big win for your party. who are the losers? believe it or not, likely super pack, the dark money area. the aggregate limits. cutting away the max that people can provide. that will funnel more money into the party committees, as opposed to the dark money groups. people who do not benefit for sure, probably the high dollar donors whose phones will now be ringing off the hook. >> i know you spent time parsing the supreme court decision. to me, and specifically with justice breyer, this is a technology division. the democrats and liberal side, you are out of your minds, too naïve. how is that debate in your washington? >> i think what people are trying to figure out right now

is what breyer said in his opinion, people trying to figure out if it is hyperbole or believe this opens the floodgates as he thought it was. the real debate is a little bit specifico than that on wording of what corruption stands for, how the court is reading that. clearly the republicans on the court are reading it as a very small level idea. very quick pro-quote. that has major implications for campaign finance for years to come. donationsn individual are still to come. there is a chance that those go next. i think that is where people are trying to guess where they are based on arguments yesterday. >> what is the back story, the political discussion on what we will see in many of the decisions of the deeply divided court? >> no question about it, this is

a political move. this is the roberts court in a nutshell. citizens united in 2010. this opened the floodgates for corporate and union giving. this is the concern with the obama administration and democrats, -- anytime a campaign decision will come to this court, it will end up i've-four and justices will ruling towards less limitations on political giving. that raises major concerns within the justice department and obama administration for cases that could be coming up a cap stillo eliminate in place. >> a lot of republicans vying of sheldonention adelson. who one? >> i think if anyone had the answer, you would immediately know who had the inside track. everyone goes out there and does the kiss of the rain dance. you talk to some people in town

and they are a little bit turned off. as its about as blatant gets. look to see more of this. it is not just mean republicans. you are going to see this more and more as the donors do not have limits on what they can spend. >> phil mattingly from the washington news bureau. kate more with us. talking about equities in the midyear election. do you buy the idea that pros like you should write essays about the election year cycle. and goes quarter flat up. >> i do not know there is much analysis of the had been. one thing i have learned over the past few years is investors are tired of the politics in d.c.

i think what we saw in 2013 was everyone shrugged off fiscal austerity, another round of debate. people are tired of the noise and feel like the deadlock and back-and-forth is really distracting. >> thank you. wisdom there in equities. forex report, the yen continues weaker. brent coming up. michael lewis. ♪

>> wall street is rigged and

unfair. for the entire hour, michael conversation -- how original -- on "flash boys." the european central bank will hold a press conference, wall street will lean forward. and your children cannot write, you cannot write -- michael lewis on picking up the quill. this is bloomberg "surveillance ." it is thursday, april 3. i'm tom keene. adamng me, scarlet fu and johnson. our guest host for the hour, the kahlúa. also, the ceo of -- red-p it will not play him in the moving. -- in the movie. >> china announced a new $24 billion railroad extension aimed at creating jobs and get the gdp back up to 8%. they are doing better. europe, service sector productivity holds near a

three-year high, and the ecb will announce its rates decision. conference,ress ecb, the european central bank. pimco -- investors withdraw more money from the flagship bond fund, a total of $15 billion now. splitting two for one, starts trading at the lowered price today. as far as it go data goes, at 8:30.bless claims >> at big economic day. i will speak to fill gross tomorrow on bloomberg radio. looking forward to that on the jobs report, the challenges of market at pimco. >> we start with banks, credit suisse restating its fourth-quarter loss. it has posted a 530 $4 million deficit, the larger loss coming after the swiss bank set aside or money for u.s. tax disputes.

the justice department is waiting to see if it helps u.s. clients evade taxes. masters is a global head of commodities and currencies at the firm. jpmorgan as an internal most three decades ago. she is a pioneer of credit derivatives, inventing credit default swaps. in hollywood reducers ron howard joiningn glazer are hollywood communications to start a new studio. howard and glazer are the oscar-winning duo behind oscar-winning hits such as "a beautiful mind." joining us later today for an exclusive interview is mr. and 9:45 along with david zaslav. honest, justin

smith with bloomberg media has been very once about this. nobody has a clue where this is going. nobody seems to be able to figure it out. call it a shameless plug if you would like, but you can walk down madison avenue and watch bloomberg television on your iphone. no one else is doing that. thank you, shameless plug. is "flash boys," a wall street revolt. michael lewis has created a firestorm of debate over reagan and unfair markets. aftertreet pushes back the yelling and the screaming. his book tour continues. he cannot get to berkeley fast enough. rad of iex.d by b did you expect the tumult.

a did you expect the tumult? follow-up war on wall street, did you know that was coming? spoke to my wife about this last night. >> she is a media type. -- nted her to feeling -- imember did not expect this. the level of the noise is incredible, and really the only thing i have experienced like this in my publishing life is when "moneyball" came out. street -- wall >> i want to discuss some well-written stuff, and in it they give you credit, and here and there we take -- they take some shots at you. here is something from "the wall street journal." is respondingice quickly and traders not being able to buy or sell a ton

without the market moving is what is supposed to happen. an efficient market should not be mistaken for an unfair one." to definehael lewis "unfair" in this modern wall street world. >> let brad have a shot at it. what fair and unfair it is. is perfectly accurate. there will be fast traders. computers will be the only thing profitn possibly exploit from certain arbitrage opportunity is there a natural. possiblymputer can profit from that arbitrage, but there is nothing wrong with that. >> is your book old news? >> i don't think so. unfair financial

mediation in the book that he picked up in the last month or two. the answer is no. the market itself is created inefficiently. it is permanent inefficiencies. it is structural inefficiency, which is different from the price of chevron getting out of line with the price of oil. that is not the nature of this. this is sort of like the plumbing is broken and people are sucking on the pipes. >> as i read the book, i sensed a key distinction you make between, on the one hand, traders who trade frequently and versusthan others companies, brokers that are effectively buying business and potentially front running orders. isn't that true, that you see a distinction between speed and front running? >> the difference in speed enables the front running, and the question is who is benefiting from the front running. i think if you back away from

the ecosystem that has been created in the stock market, the way it looks -- the high-frequency trading -- thenot sure i understand question you are asking. >> let's say one broker has put in thicker tables and in theory that grants faster access. if that person does not know what the order is, he or she is just faster, right? i am not sure i understand the question. >> i think the best point to make is that people will use computers to trade and there are a lot of legitimate reasons why intruders are needed to trade and arbitrage certain things. but people always look to game the market and use computers to scalp. there is a clear distinction between using computers to trade and to scalp. >> scarlet, jump into something else. >> explain to wall street guys why you chose to write a book from the point of view of a

traitor or bank. er or bank.d by not going to the source of the action, these people would say that you are not telling the whole story, that maybe the story is discredited. >> there are two answers. the first is it is unfair to describe rbc as a first -- as a third tier bank. >> maybe first-tier then. >> this is what is so interesting about the story. is trading in the equity market in 2000 and starts to see changes in the stock market. he goes on a five-year investigation to understand how the stock market works. after a couple of years he finds described by investors as the world expert on how the stock market works. the only one from wall street

willing to describe -- >> this is the distinction. of the big the angle banks versus little banks. i agree with you that the distinguishing thing between the four or five major banks and the other banks -- sachs,e was goldman morgan stanley, and credit suisse and all this? >> i'm sorry, he educated goldman sachs. where they come from? >> why didn't they see the same thing? was in theit is i right place at the right time. had evolved.ading in 2009 andg at rbc people were looking to get out firedks, people getting from banks, and rbc was in a position of strength being able to hire. there is no way in the world i could have ever solved this myself. >> do you think you did anything

wrong? >> wrong? think each time you get information you have a decision to make, what to do with the information. that ledhoosing a path us to being where we are right now. people that are bc -- people at rbc, they have all been a part of educating and discovery, and collectively i think we have come together to solve the issue. us,rad katsuyama joining michael lewis here for the entire hour. we will move the conversation forward with the author of "flash toys." and our twitter question of the day -- what should michael next book be about? ♪

>> good morning, everyone. bloomberg "surveillance." we are talking with michael lewis. his new book could have been "trading ball" instead of "flash boys coco what should be done to improve our markets. brad katsuyama is in the book.

did you know you were going to be in the book when michael lewis first came to you? >> i knew i was going to be part of the book. i think when he decided to go to canada and meet my parents and friends, i realized i was going to be a larger part of the book. >> here is one of the great distinctions. this goes back to your tenure at salomon brothers. from "the new york times," "mr. lewis seemingly glosses over the -- the bighats exchanges which are enabling and profiting handsomely from the extra fast access they are providing to certain investors." book -- int in the cannot believe anybody who read the book said that. pages and pages about it. the whole point of the story is

he is creating an exchange that is the one fair exchange for investors. >> i will give you credit for this. michael mckee said, "has anyone ?"ad the book did you read it with scotch or without scotch? >> it is also reminiscent of "moneyball." about comes out that is the disruptive force in the market. it is disruptive entrepreneurship. because it is so disruptive, all the interested parties feel they have to have an opinion before they have read the book. >> the public traded markets i think are a huge deal here. the competition to create volume -- is that the heart of this discussion? are nottition, there only the 13 public exchanges, there are 35 dark pools. when they are all competing for volume, the easiest way is to

create high-speed trading. that has shifted the focus away from investors and companies to intermediaries and high-speed trading. shift in focus. whether that was purposeful or not, it has evolved. we are trying to shift the focus back. >> we will continue the conversation, echo lewis and brad katsuyama joining us right now on "surveillance." this is bloomberg "surveillance ," on television and radio. ♪

>> good morning, everyone. bloomberg "surveillance." i'm tom keene. our guest host this hour, michael lewis. scarlet fu gets us going. >> we also have with us brad katsuyama, who figures prominently in "flash boys." i want to start with the collusion of tech and wall street. look at us the inside

the i.t. guys, the computer programmers, offering from russia, who have become the market. how russians computer programmers became everything. >> this is what got me interested in the story in the first place, the arrest of the goldman high-frequency trading -- the broad picture is wall street has become increasingly about technology. are displacingts traders. the people who program the computer, their status has gone through the roof. -- i woulderesting love to hear brad's thoughts on banks- it appears the big have a hard time getting their mind around the technologists, the i.t. guys being the same stature as the traders. there is a kind of collision and

they do not speak the same language. they do not interact well. part of the reason i think high-frequency trading is happening outside the banks is elevate theps that technology are going to do the best. it is about slicker technology. a way the industry has evolved is a direct result of the capacity of the banks to appreciate the technologists. >> brad, when you look at the , you check with the i.t. guys. they were able to figure it out. >> i think there is a big divide. acknowledge us want to understand how the business works, but the business might not always be incentivized to let them know. park,by the name of rob who is kind of a right-hand man in technology, became my

interpreter into that world, and i became his interpreter into the business world. .echnologists want purpose if you put them in a box and say make this box faster, it is hard to serve that purpose. it creates a much greater -- >> one of the interesting things in telling the story was how often people walked into brad's life, who came in with some piece of useful information on how the system worked, who had detailed, specialized knowledge about one piece of the system and no sense of their context in the larger system. it was like a headless beast in some ways. >> i want to go back to your work -- you are in our history major, london school of economics. >> you have expressed incredulity about that fact before. >> stephen roach, formerly with morgan stanley, now with yale university.

--this is pure journalistic the idea that the market is rigged makes it sound like some computer is in a backroom conniving to squeeze this guy or that guy. system istorted because the elites are rigged. you are one of the elites. how do you get your world, wall street, back in trust with main street? >> the heart of the story is how do you restore trust in the financial system that nobody trusts anymore. doing hiskatsuyama is part of the answer. when someone walks in and behaves in a trustworthy faction -- in a trustworthy fashion and exposes wrongdoing in the market, all of a sudden people

start to trust him. >> this is the idea of the little guy can trade wherever and get a fair trade, but indirectly the little guy is getting taken in his pension fund. do you agree with mr. lewis on that? >> i think there are opportunities for them to get taken both ways. >> even in the little trade? >> yes. a little trays are being sold off to high-frequency trading firms. the reason the high-frequency theing firms by the flow -- reason the high-frequency trading firms buy the flow -- i think it is a complicated topic to get into. there is a smoke machine going off everywhere. what we are trying to do and what michael has done is he has level of the broader education. >> as you mentioned before, what points do clifford and arthur score when they say your world

needs fixing? >> what needs fixing is there are bills-in, unnecessary structural inefficiencies in the market that should not exist. what we are trying to do is highlight the inefficiencies and fix them at iex. when the house has termites, you do not burn down the house and sleep on the streets, you get rid of the termites. unstable whenomes you are constantly introducing things that have nothing to do with the investment process or trading. >> name while, there is an arbitrage that is happening. according to larry todd, spreads 1/7 of what they were three years ago. you disagree with that?

years, spreads have dropped by -- >> 85%, is what he says. >> i would check that number. >> we will be right back with more "surveillance." ♪

>> good morning, everyone. bloomberg "surveillance." i'm tom keene. lewis.st host, michael not baseball, not europe, not even the flash boys in their rigged markets. echo lewis is about putting pen to paper and telling the story.

where did you learn to write? >> i never wrote for magazines or newspapers -- school newspapers when i was a kid. the first things i did where i thought i was writing for an audience was writing letters, home to my parents when i was living in london. that i did freelance magazine work when i worked at salomon brothers. was,ucation, such as it came at "the new republic," the " run by republic michael kinsley and andrew salamon. someone like me, what someone like me does, you are trying to get your particular vision down on the you learn something in the world and are trying to explain it to a reader in your voice. that comes from a lot of ways --

in a lot of ways from my father. he was extremely articulate and a storyteller. >> you grew up in the new orleans tradition of english language. arguably theth editor in america today. does he read write you a lot, or do you rewrite yourself a lot? >> he plays a very critical function, starling lawrence. one is he tells the story if i have gone off track, if i have lost the reader. or if he does not understand it in some way. when it is really not working, when the prose is not working, or he tells me. >> just rip it up? >> yes. the first thing he taught me was -- and if you look at my former book you can see it -- once you

have gotten the reader in the first 40 or 50 pages, you can take them anywhere. i was worried, how do i explain the mortgage bond market without putting everybody to sleep? itwas nothing to do with me, was all about the mortgage bond market. he said do not worry about it. by the time you get there, they will follow you anywhere. create that environment where you are taking the reader on a journey and they trust you. >> what do you do with your kids about writing? celebrating kids getting into college. how do you get kids to write in the eighth grade or the fourth -- or the fourth grade? >> i have kids 14 and seven. never once have they asked me, dad look at my paper, what do you think of this. elephantke kind of the

in the china cabinet. to walk in their lives and say let me tell you about writing. we have had almost no interaction. findi do with them is really good children's books and read them aloud to them and have endless cover stations about them. anything by neil game and, dr. seuss for the younger one. it stimulates the language impulse. our twitter question of the day is, "what are you going to write next?" where did "moneyball" come from? started inagency baseball, i got curious. >> where did you learn to be curious? >> that is a very deep question. >> it is. >> i go through periods of my life, when i am on a book tour,

, where if i felt the way i feel now all the time, i would not write books. , i get interested in something and i am like a dog with a bone. so "moneyball" -- almost all the books, there is some question at the beginning of it. the question was, if the market is efficient for baseball players, how come teams do not have money to win games? when you start to pick at that question, it is the thread on the wool sweater. it is a profound question. >> michael lewis, we will come back and talk. i love the beginning of "flash boys" where they take a simple story about moving a cable from chicago to new jersey. it is absolutely riveting what they have to go through.

it is a secret. it is like "game of thrones." you don't want to give it away until you read "flash boys." how about the data on the markets? equity markets are up this morning. this is bloomberg "surveillance" on bloomberg television, bloomberg radio, and streaming on your smart phone. --ile food operating ordering service grubhub saw 3.4 million unique visitors last year, and also a 67% jump in revenue. our ipo reporter for bloomberg joins us. grubhub -- we have all used it -- but is this the company that is a tech company or is it a consumer company echo >> they list in their perspective that there competitors are brick-and-mortar restaurants.

they are technically valued more like a tech company, at either point of the range. they are valued more highly than the actual restaurants. >> and there is a london company that listed today that is pretty much in direct competition with grubhub, similar in operations. how did that company do with pricing and its performance? >> good timing -- the company is upled just eat, and they are 7% the last time i checked. example forod investors across the pond. there is demand for this type of business model. on how the company makes money and are profitable and revenue is growing, so they have all the characteristics for a good ipo. we will see tonight. >> or seems to be a distinction between the group of hot ipo's and the ones that are not.

in the past week and a half, there have been 12 ipo's, five trading at 30%, the other seven kind of flat. when thee this a lot ipo window is open, when market conditions -- there are a lot of buyers, and a lot of companies going public, capitalizing on low volatility, the high stock market situation. companies will try to take advantage of the open window, and when that happens a lot of times investors will see through that and will not buy shares. >> candy crush. >> how much is private equity looking to unload their stakes at the opportune time versus the founders who need to continue the operation? >> and that is a sure example of virtue. delayed its ipo.

a lot of people were just asking, why don't they just pull it? can they just either pull it or really postpone it for months from now just to get higher valuation? the answer is they have strong private equity backers that may want to exit this thing. they are highly motivated to exit when the iron is hot, so delaying it a week or two gives them the opportunity to do that. >> you reported on this earlier in the week. it has been postponed to -- >> after easter. >> so really only three or four weeks. >> i want to bring in my morning must read. it is from megan mcardle, a columnist. "the downside of network strategies is that as soon as the network starts to decay, it is vulnerable to collapse. having its advantage rest more

in proximity of its warehouses to users actually makes amazon more resilient." market, look at the ipo do you see stores, companies reliant on a physical presence able to get into the market? >> no, you have seen companies --e party city and michael's they have been on file for a very long time. toir pe backers are not able exit these investments because investors want to see digital, growth, future. with the brick-and-mortar stores -- the private equity owners have just been holding onto these companies for a long time. >> you mentioned toys r us. the former ceo -- i was speaking with him after thanksgiving -- said there are 80 different ways people can buy. it, othersnot do can.

so much, leslie picker, our ipo reporter, covering the story when grubhub prizes -- prices its ipo tonight. we will talk more with our guest, michael lewis, when we come back. ♪

>> good morning, everyone.

bloomberg "surveillance." our twitter question of the day -- can the oakland a's possibly get out of fourth place in the west? know -- what should michael lewis write his next book on? question oftwitter the day. >> the fed. is what our guest host for the 6:00 a.m. our suggested. >> can i ask a question? do you conceivably want to know about the fed that you do not already know? what would interest you about the fed? >> you would find lawrence myers wonderful book, and i think there is a mystery of the back and forth between the president, the governors, the chairman, and how they deal with the rest of washington. the control room is telling me this is totally a lame discussion. let's go to baseball.

a single best chart on baseball because of michael lewis and brad katsuyama, and it toabout how much it costs put up every major league baseball stadium. mlb have canvassed all of to find out how much it costs if you want to pop the question -- adam johnson, i'm looking at you. yankees, despite the second highest payroll in the majors, it only costs $100 you get -- to get your message displayed on the scoreboard. $85 for the oakland a's -- that is a bargain? >> not for the oakland a's. katsuyama, blue jays, right? proposals are not offered -- you cannot propose to your loved one on the scoreboard. >> very canadian.

>> there is a lot of theory there on the oakland a's, but they have not won, have that? been transferred to the red sox? >> they have been in the playoffs the last couple of years and have dramatically outperformed a payroll. the question is why. the sort of thing in "moneyball," the specific inefficiencies described there, have gone away. on-basedt buy percentage cheaply in baseball. there is a hunt for more inefficiencies, and i feel they have found some little ones, they do some not so little ones. more importantly, it is implementing the knowledge. there is this gut check that happens with the general manager in baseball when he has got to do something that nobody who writes about baseball will

newspapers and local will be saying he is an idiot because he did it. he may stop himself even though the numbers tell him to do it. so i think the oakland a's still have the advantage, that the general manager still things he ,an operate with with immunity partly because he is an oakland and nobody cares. >> everybody watches now what he does in oakland. >> but local media will not like him. >> we will be back with more "surveillance." ♪

is bloomberg "surveillance." scarlet fu with tom keene and adam johnson. our guest host, michael lewis and brad katsuyama. justuropean central bank announcing its policy decision on interest rates. it leaves its benchmark interest 1/4 of 1%.ged at to cutdy expected them their benchmark rate. there was some thought that there was a possibility of a cut of the positive rate and they would have to go to negative rates, at zero right now.

do they do some sort of unconventional monetary policy that does not have to do with interest rates? this came about because inflation has really cooled in the eurozone, and this past week we learned that in march it was at half a percent of the annual rate. so the ecb nets to get out in front of this. the question is, what can they do? it will be very interesting to see when mario draghi leads his group -- whether mario draghi leads his group into doing something or if they just talk about it and that helps prop up the markets. >> take you so much, michael mckee, with the latest on the ecb, no change in interest rates. >> michael lewis is with us, the upper over -- the uproar over his "flash boys." brad katsuyama with iex is with us. michael lewis, you wrote a few years about -- a few years ago

about the original sin of ireland. what was that? >> the biggest mistake they made was decided to take on the liability of the bank, the governor -- the government to take on the liability of the bank. they should have let the bondholders and the banks lose money. they did not do that. they tossed the liabilities on the backs of the people. they haveredit, suffered well. they have put up unbelievable suffering in a way that most other countries have not. but i think it was unfair what happens there. katsuyama, you are starting up your own exchange in the u.s. to counter some of the advantages high trading firms have. have you gotten demands or requests for expanding to europe? >> we have, and we have gotten a lot of -- six or seven months

ago we started getting inbound calls at different markets, different asset classes. we are looking at things. we are still a startup, so limited capital. >> i am a guest host, right? iex model be in demand? i am getting calls from europe, too. why would iex be in demand in europe? the markets are similar to u.s. stock market in this structure? >> some of the similar characteristics you have seen -- fragmentation, a bunch of different things, intense competition. if you export that business model to other regions, it exports some of the same inefficiencies we have seen in the u.s. it is a matter of the solution we have built here would work elsewhere where those same inefficiencies exist.

within the yelling and shouting -- >> there is no yell a -- no yelling and shouting here. >> i think you for that. the key thing for the book is the distrust. nighthawk ambush at and rader -- raider and architect and sumo. michael lewis, how am i supposed to trust wall street if i think it is a wargame? >> what am i supposed to say? you are not. the reason all that stuff exists is because the markets are not to be trusted. >> is it still there in 2014? >> the algo wars. >> yes.

for -- weour prop called our prop thor. naming tactics -- i think what we have seen in the last three days, it has been incredible. we have gotten thousands of messages about people calling to ,ay thank you and people saying facing the markets, etc. >> do we have twitter answers? >> we do. huge responses. let's get to some of the answers. the question was, what should michael lewis wright his next book on? 'i would like michael lewis next book to be on the vampire squid, goldman sachs." >> can we show the picture of ' reaction to that

response? "bitcoin and lift the veil of its scarlet pimpernel founder." "the entrepreneurial advantage of bartenders and waitstaff in the yankee stadium diamond club." >> that would be a good book. was the last time michael lewis really wrote up washington? >> i did one on the 1996 presidential campaign, but no one wanted to read it. it was interesting up to a point. it is very hard to deal with subjects who will not tell you washington is so difficult to deal with in that way. into obama's moved life, and i did it because i felt like i was getting something very real.

know. -- i don't there are plenty of people calling over washington, right? who needs me? there are people asking you to get back into the industry that you just trashed. is anyone asking you to get back into the high-frequency trader? is very interesting. who knows? >> a shameless plug for esther could see, -- for mr. katsuy ama's firm. brad, thank you so much. greatly appreciated. i go lewis, thank you. you cannot wait to get home to berkeley, i am guessing. >> true. >> it is time now for our agenda. where we take a look at some of the new stories shaping the day.

>> ecb just announced a couple minutes ago that it is leaving benchmark interest rates unchanged. i am looking ahead to the press conference at 8:30. by the way, you have a real slowdown in europe. that is the problem. unemployment is still at record high. there still exists. >> deflation is the concern. what can mario draghi do other than -- what did he say a year ago? >> trust me, i will do whatever it takes. >> the headlines come out a little boring, but they will be important headlines to mario draghi. >> janet yellen has not use those exact words, but it is kind of the same message -- the fed will do what it takes to improve job growth. we got challenger job growth -- we got challenger job cuts earlier, which saw a 30% drop after a 20 porsche sent -- after

a 24% decline in the previous week. it correlates to a 6.6% headline rate. >> that would kick lower from 6.7%. youhe idea of arbitrage -- heard it mentioned a number of times, particularly about brad. whenever anybody thinks about michael lewis' book, it is a huge public service to jumpstart this debate -- whatever this debate is -- what about the real debate, which is that main street is dealing from the -- >> mainstreet does not trust wall street, and there are plenty of reasons why. >> read the complete essays by his critics in addition to his book, because everybody has been very fair. >> again, my takeaway, the

distinction between people who trade fast and frequently versus others who are not necessarily manipulating or front running. >> thank you for watching, everyone will stop bloomberg "surveillance" on radio continues. ♪ . . .

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headquarters. you are in the loop. i and betty liu. we will talk to actor tony hale about the hot trend. buster from as arrested development. he is in our studios. ron howard is in the loop. digital toces to go create a studio that will make short online videos. stay with us for those exclusive interviews later in the hour. first, a look at our top headlines this morning. now the lowest level in more we will hearrs, from mario draghi in the next half hour. shades of the cold war. according to the associated press, the u.s. government secretly created a cuban twitter to undermine the communist government.