>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> what all the consolidation means for the industry and for consumers. >> saying goodbye to the irs. companies opting out of the u.s. tax system by incorporating overseas. celebrity smack down. the biggest brawl that escalated on market makers. george clooney versus steve when. >> good morning. welcome to the new week. i am erik schatzker you're watching "market makers."

>> i am stephanie ruhle. happy to be back with you. we are back here and we have news to cover. so the bees. outhis has been a not come -- a knock them out, drag out fight. so the bees -- sothebys is going to be accepting three new nominations to the board. they expect to work collaborate with the board and are committed to working with the leadership team. let's talk through that. the fox enters the henhouse. >> many people say -- maybe they saw the writing on the wall. they do not want to risk losing

board seats, so they extended three more. day, -- oh, hehe disagrees. >> are they really rowing in the same direction? >> they are all stakeholders in this company. >> we know what dan wants to do and continues to want to do with some of these -- sotheby's. is going tohow it be one big happy family. >> a board should never become happy 24/7.

it is good to have people on the board calling them out and have been part of the business for your. board, bill big ruppert and from the company. i opened myself up again. he understands the industry. let's just move on. let's agree to disagree. let's have a margarita. it is cinco de mayo, we are fighting already. john, this is not your wheelhouse. there are important issues at stake. whether dissidents can get along with existing directors.

there is no board renovation happening. sotheby's wanted to bring in a couple of new directors. you have a big board. you have seen this kind of thing play out. can they all get along? >> they are professional, smart people. they know they are the stewards of lots of other people's money. they will find a way to get along. whether the directors that are will on behalf of mr. loeb get everything they want -- i doubt it. i think in general, these kinds of things are good. >> are you saying the board is so big that nothing is going to get done?

at least all of these attacks and views are going to be kept in-house. the greatest defenses of the company is when the stock price does well. make aard when activists lot of noise. if the company does well, the stock price does well. there's a better chance that sotheby's will find a way to keep it on the house. i do not think -- >> it is probably good for bill ruppert. >> not everybody is going to get everything he wants. >> competition is a good thing. at sotheby's was about shareholder value and spending money it's not have spent.

bringing three additional directors -- >> spending more. >> correct. it will cost the company more. they get $50,000 a year in cash plus the expansion. it does not come for free. >> this is your specialty. it is getting exciting. >> what interests you most? >> i would say that comcast, in some form happens and the combination spurs a serious series of other transactions. you will have a large company that controls video, audio, internet and phone into the

homes of the third of america. other people trying to have a share that consumer wallet have to look at the product offering and say, am i competitive? we have entered the world where the single bundled package to the customer is a powerful thing. it is powerful for whom? franken's al criticisms about the degree to which comcast will have large market share -- it is not a national number. the government will get that wrong. it is local power. inn you have 60% or 70% 10 of the top 20 markets.

small programmers -- a tough environment. >> you say it will spur big deals. like what? >> one or both of the satellite companies pared. i think you have to. when you think about their a sense thates they would want to partner with verizon or at&t. not better off combining with at&t? >> i do not know which is better. it's a really good idea, given that comcast is everyday banging on your door, saying i can do all three. i thought verizon's appetite for that kind of service was limited. depth of the the business, but my understanding is that verizon was not going to aggressively roll that out.

i think fio's has been aggressive. >> the people that have that love it. >> may be verizon and at&t look at this landscape and say we wee a wire in the home and can compete with the cable company. maybe they conclude that they -- that that is not enough and therefore a $50 billion acquisition in the case of directv actually accelerates their strategy. we will see. >> it will be very interesting. >> to the regulators know which buttons to push? >> i do not think they have a clue. these hearings are fascinating to watch. in 1984, we broke up at&t. we have recruiter -- repackage them all. the world goes through this churn.

leave where does that sprint and t-mobile? >> that is an excellent question. the likelihood of some kind of a transaction at the bottom of the looklar food chain has to appetizing way think about how powerful the two guys are that are above them. >> it will all this and changed again for sprint and t-mobile. >> it is a tough environment. you get to these points in these industries where there are two or three people that are at the top of the industry with market power. it is going to be interesting to see -- >> if sprint and t-mobile merged, who would get the big job? >> i am not going there. we will have to ask tomorrow.

dan will be anchoring with us. you did not fall for. up, george clooney fires back, responding to our interview with steve when. wynn.ve the pentagon may not need the uss gerald ford. ♪

talk about theto rockets in hollywood and vegas. talk to me about his confrontation with george clooney and he says what he thinks about the a list actors weighing in on politics. artists, actors, people like that, they live in a strange bubble of their own.

they are highly privileged. artists like george, barbra streisand, any successful performing artist. they live in a relatively small world. the people around their are solicitous and caring for them. george clooney is fun to be with, you just have to watch her timing. george to not call me --. he was a little into the tequila. responded that anatomicalke that reference to the president and he responded in kind and it denied having any tequila before the confrontation. bubble,"i live in the more than a bubble that las

vegas?" ouch. -- still with us is john. we have to ask you. you are a vegas guide. what do you think of this? >> it is amazing. it is a commentary about our celebrity and broadcast culture. any conversation can make its way into public domain. mr. wynn is making a statement that he has disliked hollywood rubbing shoulders with washington. but that the dinner last week. he dislikes that intentionally -- intensely. he is making it known. you want to have 10 zillion

people follow you on twitter. this is the downside of it. >> we could talk about the publics na -- in a conversation that turns into something much larger. we now have twitter, facebook, instagram, snapchat, everything that somebody does. >> how is what we are talking clooney,ative to sterling, the clippers, all of that different -- think about this. clooney-wynnthe because ofe was

journalists that reported it. clooney made a public statement around -- about a. sterling, his girlfriend made the audio recording available to tmz. tmz could have been a newspaper or radio station and we would be talking about the same thing. >> people eat this stuff up. what jennifer lawrence had for dinner. whose fault is that? >> i am not passing judgment. there is an immediacy now. george clooney was on that in a day. you,wynn made comments to he made a statement immediately.

the immediacy in the feed is remarkable. e --ink we will see a cours coarsening. which do you think people will take privacy back? i think it is lost forever. >> you better be careful about what you say to anybody on any -- anyone taking a celsius view doing something. is the culture that much more course? >> there are two things. the board of directors ought to be reeling. >> you saw 50 students occupy a building and decide that the speech given by an african-american woman, the

provost of stanford was inappropriate because they disagreed with her posture. leads to that kind of result. on a campus, you should be wanting to listen to a variety of people. have young people here those decisions. i think it will lead to people being careful about what they say. sites ifome of the someone hacked into the credit card information about those. names are out there. confidential information and private behavior is no longer a realm. you see this happening more and more aware someone -- more and more where someone records it and puts it out there. isn't a little bit of

transparency a good thing? we have heard the stories about what went on at the kennedy white house. it was kept private, in theory. a gentleman's agreement between the press and the administration. it was a discretion that was extended to presidents and members of the executive. was that right? there's a whole lot more transparency in what goes on at the white house today. not old transparency, the president deserves privacy. what is better? of the things said by that president, some of those private conversations probably would have raised -- >> that was many years ago. let's take you back a little more than a decade ago. if bill clinton and his scandal took place today, with the power

-- the power of social media and technology driven him from office? >> it is everywhere. young people in particular. young people learning the hard knocks that anything you write or say, any picture you take of yourself will come back. of those young people don't care. that is what scares me the most. tory time a try to talk young people about it, they laugh at me. >> great to see you. >> thank you, john. up, it is all about the r&d. we will be talking about it. ♪

>> it is time for "on the markets. we need to talk about target. if you missed it this morning, gregg steinhafel, who has withstood the outrage over the data breach at the retailer for five months, he is stepping down. is going to take over as interim ceo while the board seeks a permanent easement. the stock is down three percent. when you see a company guy that has been there that long, following a data breach stepped down, and has people wondering if issues are bigger than that. >> how successful are they going to be finding a replacement.

ron johnson, who came into jcpenney proved to be anything but. >> we will be back in a few. we will look what is behind the surge in big pharma m&a. ♪

>> live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> i am erik schatzker. >> i am stephanie ruhle. >> when the five largest private equity firms manage billions of dollars, where does jl help lltners fitting -- j partners fit in? we have one of our favorite guests. paul, it is great to see you. let's talk about the contrast

atween firms the size of blackstone or carlyle or apollo. and a firm like you. how is it changing? i look at the apollo, just to take one firm, increased assets by $50 billion in the space of one quarter. some of them may have to do with going public transactions. nonetheless, they are growing at an extraordinary rate. >> we do not plan their league. fantastic form -- firm. many of their assets are not dedicated to buyouts. they are dedicated to he and others for of rings. -- and other

various things. they have a large equity account by any measure. partnershipnto a with a major dutch company and they wound up with 49% of the company. that was 500 million of the equity. we had 51%. that was 500. up beingup -- wound their partner, we are in control. we put together the world's largest pharmaceutical contract manufacturer. get bigger, doms they become more competitive with you because they have to find more deals, have to put the money to work or because they have so much money that they megamergers, maybe leaving more for jll? i said i love bigger firms

getting bigger. the larger they are, the less likely they are to do a modest sized transaction. aey put out $100 million in deal -- he says it differently, but it is the same thing. >> they have so many bodies there. i think they will not leave any cash on the floor. they have to prioritize. you cannot do everything. there's a limit to what can be done. there are many different disciplines. there are all kinds of other things that they do. i do not know how many people they have dedicated to buyout, but we are 100% dedicated. >> when you look at how bill drama has laidn out, what to think of it? research andthe development pipelines look a few

years down the road? one strategy that people talk about in the context of valiant, valiant says they will not been capital on research and development. they will buy other companies and used their research and development as my pipeline and to the extent that they are not deploying capital properly or efficiently in their research and development, i will reduce their research and development. that is fine. togs take a long time develop and test. it is very expensive. unless you are reinvesting in discovery and the creation of new molecules dissolve diseases, you're going to run out of roadway. that is going to have to be tested with time. there is no shorting answer to that question. passage of time will give us an answer. there is the idea that there

is always a bunch of startups with a good ideas and they will either become big companies in their own right or they're going to get gobbled up by the likes google or cisco or facebook. sometimes it works. sometimes it is not. there is risk in the strategy. -- fullng is full poof proof. price does matter. a few factors are at work that are legitimate. they are going to have significant savings generated by , all of office overlap those activities that are the

guts of running a business, those will be duplicative. >> what about giving one entity to much power. >> it is a social issue. it is one that policy makers can address. i do not think i have a quick answer to that. far --d news in pharmaceuticals is the fda does a great job. they criticize her there to slow to approve new job -- drugs. on the safety side it is great. to some ofat benefit the american companies, not that they wish on anybody, but some of the quality issues that come out of asia are significant. we can thank the fda for providing us a pretty safe environment for the drugs we consume. >> how this private equity compete in a market where allergan valiant, comcast, time

the strategics deal? you have a firms -- we have them waiting for this for three years. all of a sudden, you see strategic m&a happening. buying another company because they see opportunity to expand or create synergies. that is the kind of thing that private equity has a harder time bringing to the table. what happens? >> the short answer is, you are right. they cannot compete with those opportunities. you cannot compete on price. coming back to j ll, we managed two companies to create a world leader. we did it in combination with the strategic. there assets were not performing as well as they would like.

they saw our management team as being able to optimize value. brought $200 million of ebi dta to the table. >> heian one second. we need to go to a commercial break and we will continue the conversation with paul leavy. -- paul levy. taxes forced them to move. we will have that and so much more when we come back. you're watching "market makers." stay with us. ♪

>> we have breaking news. eric holder is signaling that he might be ready to press criminal charges against big tanks. phil mattingly is in our d.c.

bureau. big news. it is something we have known. people have been hinting that it has been coming. they posted a video today on the justice department website too big to jail. he telegraphed criminal charges are in the works for two companies. those two companies are companies we have been hearing about. nt recordsse and the sanctions.to for him to come out and state that not only our cases looming iainst specific companies, think this is a big move. what you're seeing here is eric holder and his team trying to push back on the idea that no financial institution has been charged recently with him on

charges. it is important to note why they have changed their posture on criminal charges. they have been working closely that has always been the big concern with criminal charges against major u.s. companies. those discussions and those deliberations are crucial to this kind of pathway forward that you're seeing the attorney general and another -- a number of attorney general offices take. >> thank you. the story is not ending. phil madeley -- mattingly joining us. >> people like to relocate to states with lower taxes. companies like to do that as well.

ireland, switzerland, and bermuda are attracting u.s. companies. pfizer is one company following a growing trend of leaving the high american tax bills behind. >> you said it. weing its incorporation talked about all of the companies that have moved legal domicile to ireland, switzerland -- >> give us an example. the first. one of we write about eaton corporation.

>> it sounds un-american. >> i think americans follow the law by and large. >> should the laws change? that is a different issue. >> i do not know if it is right. american corporations have been complaining for years that our tax regime makes it difficult to compete. rate.e a 35% tax other countries, may be zero or up to 20%. we are way off the mark. it is a competitive world and much more global. everything is related. there are billions of dollars

trapped. 2 trillion is the number that i have heard that american companies do not want to bring back. sayhat do tax lobbyists about this? be corporate tax rate could brought down to 25%, but at the tax rate in ireland or the 10%, 15 or wherever is percentage points lower than that, what a make a difference? >> there is agreement on both sides of converts -- congress that something needs to be done. what pfizer and others are doing is saying we do not have time to wait for congress to get its act together. we are just owing to go and maybe later on, congress will straighten -- >> i have more friends counting their days in new york. taxes have gotten high. days andoing to count

moved to a tax-free state like texas or florida. they seek a favorable tax regime. you take corporations, you talk about changing their state or their nation of incorporation. delaware goes out of its way to be friendly to corporations with a corporate tax code that is flexible. people do not go to the states which are more difficult to work in. it is the same thing. capital follows opportunity. what would happen to a ceo that says i do not agree. i want this company to pay its fair share of american corporate taxes. >> there is a discussion about whether walgreens should reincorporate with u.k.. their shareholders are in corp. -- pushing them to go. >> warren buffett. i will not pay a dime more in individual taxes than i/o and i

will not pay a dime more of corporate taxes then wan we owe. sage of omaha. felix frankfurter, one of our esteemed supreme court justices said -- un-american does not have an obligation to pay any more taxes than they legally must. to pursue right reducing his tax bill as much as legally possible. if people do not like this kind activity, then-- the government has to get together, change the law and do something about it. brilliantthat one a alumni joins the show. >> thank you. own, zach.y and our

>> i am going to end on a high note. i am going to head out. thing as a such a low note on this show? i will be speaking to jill nbach.box -- joe gree a big day. >> stay with us. anchors away. peter cook takes us on tour of a new aircraft carrier. ♪

>> you are watching "market makers." i am erik schatzker. lawmakers in congress start debating the u.s. defense budget . one of big-ticket item is the uss gerald ford. the aircraft carrier with state

a the art technology and price tag of almost $13 billion. peter cook when a board to find out what taxpayers are getting for all that money. the uss gerald r ford, named for the 38th president is taking shape. america's newest super carrier, it is still a work in progress. >> welcome to the bridge. the first commanding officer took me on a tour. he will be responsible for more than 4600 sailors that will serve on the most extensive worship in history. it is either dramatically approved, wholesale and completely brand-new to this class of ship. >> all of the innovation to bruce -- to boost productivity while at sea. thee want to increase

operation of the platform and decrease the manning on the ship. are three aircraft elevators instead of four, a separate helicopter landing pad and an electromagnetic catapult system. the changes allow the ford to launch more than 25% of flight missions a day. >> the ability to get the aircraft back in the air, rearmed, that makes the difference in the world. >> changes below the flight deck as well. nuclear reactors and other upgrades will produce more power. goodbye steam pipes and hydraulics. designed for aircraft that are not on the drawing board yet. be enjoying more air-conditioning than ever before. >> the living accommodations are better. budgetship is 22% over

and the six months behind schedule. >> what are taxpayers getting? >> a 50 year platform. in 2065, this ship will still be doing the things the taxpayers needed to do. taxpayers really need 11 carriers? >> everybody wants one. we have them. why would we think about having les? ?- having less share your experience. it is an enormous vessel. what was most impressive? >> the size of it is hard to comprehend. there are 25 floors on the carrier. it is a floating city. it is hard to imagine 4600 sailors aboard that ship doing all of their jobs. there is plenty of room for them.

thing that is impressive, this is a 50 year platform. it has to be able to handle planes that are not on the drawing board. that has been the reality for years. some people may be asking themselves -- where does an aircraft carrier fit with modern warfare. implemented of conventional warfare. it is slow, lumbering, relative to missiles. how does an aircraft carrier fight terrorism? are they survivable today as they were in the past? that is a question that has been raised about whether or not america needs 11 of them. thereters still believe is nothing better. the first question they will ask, where are the carriers.

that is what they expect of the ford as well. there are those that argue they are irrelevant. >> we have to run. ♪

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>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> paying the price. target's ceo is gone, five months after that massive data breach that cost the company its customer loyalty. inhting in ukraine splits the eastern part of the country to a crucial black seaport. the minister says it's turning into a real war. no lines, no problem -- you can still waste away in .argaritaville a mixologist shows us a new way

to make the traditional drink. stephanie is on her way to the sohn conference where she will be talking to some of the world's top hedge fund managers. we will talk to her later this hour. first though, this is the newsfeed. target, as i mentioned, looking for a new chief. offer has quit, this possiblef for the data breach that hurt the retailer's sales. and at better than on service industries. it exceeded economists' estimates. the service industry makes up about 90% of the u.s. economy. and the world health organizations is the spread of polio has become a global help emergency. -- health emergency. it is monday, so let's look at

the stories you need to keep an eye on this week. it is going to be a big one. robo that, richard falcon -- richard falkenrath joins us. alesci -- gearing up for another big week of m&a. we do need to start with ukraine. it may not be the biggest geopolitical risk, but it is certainly the most immediate and hot, richard. and appears to be worsening. >> it is worsening and i think it is the hottest to a political risk because it involves a superpower, russia, and the european union and us to a degree. violence onhe friday shifted to a new part of the country, odessa, and resulted in the deaths of 34 russian separatists. it has the potential to catalyze

further violence in this country. >> it met with resistance, whereas in crimea and other regions -- there was basically no resistance to progress in forces. >> that's right. in odessa, the ukrainians are fighting back. it resulted in a lot of casualties. a terrible loss there involving the burning of a building with a bunch of pro-russian separatists which is becoming because celeb four russian separatists for russianceleb separatists in other parts of the country. >> president obama and chancellor merkel talking about this on friday. will sanctions do any better? >> no.

the russian interest overwhelms any affect that the sanctions can have to change their policy. we are giving them sanctions to feel better and make a stand for democracy, but not to change russian policy. no one thinks they will change russian policy. >> why is it outside local markets investors do not seem to care? >> because they are familiar with history and history tells us these big geopolitical events cause a wobble for a few days and then the markets go back to doing what they do. and that is everything from the kennedy assassination -- nixon taking us to the gold standard, even 9/11. the markets are falling, 9/11 happened, they fell further. hey snapped back. >> it does affect the exposure of american companies in russia. right, if the united states

has been described as a health insurance company with a standing army attached, the russians are a criminal organization with a standing army attached. who knows is what is going to happen? the rule of law is not as significant they are as it is in other countries like -- look at brazil, india, china. 's, russia hasc the most hair on the deal. >> look at the combination of factors. nixon taking the united states off the old standard could not in another itself be blamed for the bear market of the 1970's but it was a factor perhaps. we have the slowing economy and china, the threat of nuclear war between iran and israel, we have a number of things other geopolitical nature or geoeconomic nature that could, you know, form a pretty toxic brew. you a listcould show

of headlines going back half a century. there is always something bad going on somewhere. markets focus on other things. they look at growth. they look at valuation. focus on --ets something else we've been talking about this morning. i know this interests you a lot, barry -- the fact that finally general,the attorney eric holder, presumably with the bottom of the president of the united states has decided now is the time to file charges against banks. >> that is interesting. there was a piece -- magazine?york times >> that explain how the justice department's lost its way in prosecuting crimes. was now theyss seem to be in a post- prosecutorial mode, and

direction from the public has been negative. now they are trying to play catch-up. >> this has nothing to do with the inet to a crisis where most people want to see heads roll. this is about being taxes in the united states. you are still not getting be vindication the public wants. is it better to go after individuals and possibly pose less of a risk economically -- we heard sheila bair say that this morning -- to go after individuals -- >> it depends on the specific effects and specific issues. i was in law enforcement. i understand the appeal of a major indictment, arrest, finding the bill into it. but in the case of a systemwide failure where it was not any one individual who caused it, many individuals over a long time, with the extended involvement of elected officials, it is not clear we will ever find the single indictable villain in that story.

>> but we still have executions on the libor scandal, e-mail going back and forth -- >> that is still alive. >> you do not need to find one guy. it is not all deco folds --dick 'fault. there are cases of blatant felonies, perjury, whatever. anyone who signed an affidavit said, i reviewed these documents, when they didn't. >> broke the law. >> it is more than breaking the law. it is a felony perjury. actually, i am very sympathetic to bury's point of view on this. one more thing -- law enforcement agencies are not these to your elliott ness inatures, as they should be your piece. they are bureaucratic entities and they are not immune to these larger pressures affecting their

decisions. they start trading prosecution, which is meaningless to the financial crisis. i think the number was 8480 on the insider trade? the old joke is, if you are not losing cases, you are not trying hard enough. >> speaking of the agenda the prosecutors out, how unusual is it for the prosecutors to talk about bringing charges before they bring them? >> it is unusual. >> and the really ought not to do it at this point. at this point, prosecutors really do not like to lose cases. when you bring a case and it craters in court, your career is impacted. >> one last thing before we move on, because i want to talk about alibaba -- the one thing that sticks in my throat about this idea of the justice department may finally prosecute banks and we understand they are targeting

-- hsbc. hsbc, right, was the ink that eric holder told us was effectively too big to jail for similar violations -- was the bank that eric holder told us was effectively too big to jail for summer violations. they spent an enormous amount of money -- what is good enough for hsbc good enough for credit suisse? >> it set a horrible president to say if you are going to be the bank of choice for drug lords and terrorists, we are going to fine you just the cost of doing business -- we are going to find you. that is just the cost of doing business. that is not a deterrent. >> i agree. sub other has to be some consistency in the administration of justice. >> -- >> there has to be some consistency in the administration of justice. is right. this government is inconsistent. it is not consistent in any area

of governance. >> all right, to ali baba. they have the filing? >> the filing. risk, one thing we have talked about going into this filing, how hot this stock is going to be. who would not want this? but now they will talk about what are the risks? now it has to do with the governance structure of this deal, right? insiders with a large amount of control of what goes on in the company. put that aside. we have to look at how much exposure does ali baba have two mobile and what kind of competition is there in china? remember, alibaba is not the only large company in china. they have backed a competitor in china. when the filing comes, they will talk about what are the risks in this one here? >> i have a few.

the benefit is they have access to the chinese market, which everyone wants to be in. the risk is they are an agent of chinese surveillance. that will impact their ability to spread their model elsewhere in the world. there are parallels on the u.s. side. every government where alibaba tries to expand in the market, they will ask questions. >> they will ask questions, but one thing alibaba has that a lot of u.s. companies do not have -- i should not say a lot. few have. a large war chest. >> by the way, our government knows how to block. >> that's true. >> that structure the insiders control a lot -- not that different from google or facebook where a couple of insiders are controlling most of the voting stuff. >> i think it is fair to say if you are considering the alibaba riskyou need to read the

factors. great roundtable to kick things off this monday morning. coming up, a shakeup at the top of target. the ceo calls it quits effective immediately. and it is almost time to belly up to the bar. we will show you how to enjoy cinco de mayo even if you cannot find the lines for your -- limes for your margaritas. we will be back in a few short minutes. ♪

>> welcome to "market makers." i am erik schatzker. more fallout from the holiday data breach at target and it does not get much bigger than this. is ceo, gregg steinhafel, quitting. john mulligan is taking over as the interim ceo. you will remember, hackers stole credit card data and information from as many as 70 million target customers. restore theried to

evidence, but fails and the storefront reputation took an enormous hit. joining me, and member from a research group that spends a lot of time researching the industry. if it's a surprise? >> not a surprise. >> why did it take so long? >> it should have happened five months ago, but this has been growing for 15 years. here you have target, the greatest company in terms of philanthropy, merchandising, and failing forslowly 15 years. outsourcing everything. e-commerce, credit cards. and they should have manned the call centers when the consumers called in instead of watching the role go by. the fact that it did take five months, what does that tell us about what went on in the boardroom? pour corporate

governance. i have been a shareholder -- poor corporate governance. i have been a shareholder and a fan for a long time. they should have a bob matler on the board, the next generation of superstars in discount merchandising. instead they have vendors on the board, insiders, friends of friends. poor corporate governance. and you have a lot of people who failed the super target and failed at target canada and then failed across north america. tradings the stock down? we saw how hard it was for jcpenney to reinvent itself. is that the conclusion people are jumping to hear? if ron johnson could not do it at jcpenney, it will be awfully hard to find a guy to do it for target?

>> it will be hard, but they are not looking for the right people. they are going to mckenzie, the major research firms. they do not have the depth of experience -- >> so, who should they get? >> [indiscernible] >> that exposes my own ignorance, but who is he? as turnedmartin around saks fifth avenue, president of macy's west, top five turnaround guide. mickey drexler. >> mickey drexler, i know something about him. >> he buys out j.crew and if drexler can do it, drexler would be ideal -- >> would he want that job? >> ever since abraham and strauss, he has been master of the universe in terms of merchandising and marketing. he would be ideal. >> is there no one in the company? do they not have a deep bench? for 30fel has been there

years. surely he has cultivated some kind of step in in this situation? >> he has had a lot of great women in their the past decades. it is almost like a bulletproof glass ceiling. a lot of the best and brightest women have left the building. they do not have as much talent now as they had in the past. the guy johnson poached from target to go to jcpenney -- who was now at dreamworks. does he have the wherewithal to run this company? >> not to run it, but maybe as a merchant, a possible consideration, or an advisor. will not be mickey drexler and you say the consultants are in charge, will kind of individual are they considering? who is inappropriate for target? >> john mulligan is a good interim choice. >> he may get the job?

>> he may be interim for the time being. outsourcesmary tradition, the credit cards and everything else, proved everything in canada. as the fire regime -- as the prior regime that approved all underminetakes that the company. >> given walmart is undergoing its own leadership transition, although one better engineered than this one, is this the right time for targets to make this move? butt is the right time, they should send target a thank .ou gift card what target has done to screw up the last five quarters is the best gift walmart can get going into the new fiscal year. >> the investors care. you see these stock price. do customers care? they were offended by the data breach. but do they care about this?

do they even know who gregg steinhafel is? >> customers do care because they counted on target to support philanthropy, to raise their standard of living, so are their -- so their families could live better. >> and while this is happening, the board and those executives will have to take their eye off those balls? >> right. and those customers will go to tj maxx, j. crew, a number of other places. and they will go to zap those and amazon, who target stupidly outsourced e-commerce for the last 10 years. >> my goodness. >> i recommend people do what i did and sell 98% of their shares and wait for this to get better. >> thank you so much. here talking about target and the departure of gregg steinhafel. coming up, we are going to the sohn conference. stay with us.

lots more on "market makers." we will be back. ♪

>> we are approaching 26 minutes past the hour here on "market makers." time for bloomberg's on the markets. we are looking at jpmorgan, two percent down, leading other banks lower after warning its quarterly filing with the securities and exchange commission may deepen -- the fixed income trading revenue in the firstut 26% quarter from the same time a year ago. they blame "a challenging environment and lower client activity levels." revenue has been the single against obstacle for america's big bank and you can see that

conveys to be the case for jpmorgan. still to come, we bring you to sohn conference and an interview with joel greenblatt. and break out the tequila find out a new way to make margaritas. we have a master mixologist to show you how. ♪

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> welcome back, everybody. you are watching "market makers" on bloomberg television. i'm erik schatzker. today is the all-star game off an conferences. it is theira sohn conference -- the ira sohn conference conference. take a look at the lineup. michael novogratz. james grant. stephanie disappeared about half

an hour ago and she is back with the most fantastic interview of the day. stephanie? >> indeed, i am joined by joel founder and ceo of gotham. thanks for joining me. you say this is a difficult time for stock pickers in the market and we are in a market where people are giving specific ideas on stocks to invest in. why do you feel this way? are always good investment ideas out there. what i mean by that, right now we look back at the market over the last >> decades and the large-cap market as represented by the russell 1000, when we look back over history, we are on the 44th percentile towards expensive for that market cap weighted index. which means the market is -- it has been cheaper 56% of the time over the last few decades. when you look at the equally thehted index, meaning

russell 1000, we are in the 21st percentile, which means the cheapest values -- why is the market cap weighted index cheaper? the microsofts and the apples of the world. a markete looking at cap weighted index like the s&p 500, you can have a rough time if you are randomly picking stocks. a different story for the russell 2000. that is actually in the sixth percentile towards expense the last few decades. that means it has been cheaper 94% of the time. return has been about negative one percent. large-cap, the year forward return has been between seven percent and 12%. between thece large-cap and the super large-cap makes the market indexes tough to beat.

>> you are the guy who wrote the book and then broke the book again on how to beat the market. what you do? >> you do not buy an index. i was describing how the index was priced. in general there are always stocks out of favor. there are signals -- lots of cash flow, for instance -- that are out of favor for one reason or another. right now there are stocks that may have done well in the recent past, but people do not think the next year or two will be good. that is where we look for bargains. >> why, because people think valuations are too high right now? >> if you are an active stock picker, right, you are looking for companies that will do well in the next year or two. if they are a group of companies that although they have done well in the past, are not expected to do as well in the next year or two, that is not where stock pickers look. they are systematically avoided. companies look for

that will not do as well in the next year or two. they are systematically avoided. there are bargains there. >> without giving us names, give us an idea. yes, you are looking for these bargains, but where do you think they are sleeping? where are they hiding? >> i will give you an example, an easy one. apple. apple is trading at low multiples to most recent cash flows. a nice market makes. some people say it is just a hardware company, they will crash and burn like all of them do. and others say, no, they have a system of products that play with one another. the answer is probably somewhere in between there. what most people think, the reason you can buy that at a reasonably low multiple, given how well their businesses doing, is people that -- think they cannot be keeping it up. we do not know what products they will be selling three or four years from now. we try not to concentrate on

now, but we try to i a bucket of apples. >> like what? you are ok with apple, how do you balance it out? how do you fill the barrel? >> you look at companies that are selling at low multiples to cash flow, huge returns on capital -- whose prospects, you know, the niches they are in -- >> do you ignore the dollar price? there were times when apple is trading at 300 or 400 and people said, it just seems so excessive until they were trading at 700. >> these are not pieces of paper that bounce around. these are ownership shares. we value businesses to try to buy at a big discount. on average would try to do a good job of that. saying, buy low, sell high? >> i am saying valuation drives

-- i have been teaching at columbia for the last >> years. i make my students a guarantee class.first day of i guarantee them the market will agree with him. i just do not tell them win. work,y do good valuation i tell them the market will agree with them. i also tell them in 90% of the cases, two or three years is generally enough time for the market to recognize the value they see if they do good valuation work. if you can buy at a big discount, the market may not agree with you. it may be a noisy journey. but companies make a journey to fair value over time. that's what i'm saying. do the evaluation first. >> does that mean hedge funds are set up to fail, because more and more hedge funds are under pressure to offer quarterly, monthly, daily liquidity. how can you look at companies when you have your investors

knocking on your door saying, the market seems tough -- sell? >> that's a great question. my answer is, i love that. i love that. >> i love that. >> people's incentives are not related to value and price. the causes dislocations in market. people do things that are illogical related to the value of a business and how cheap you should buy it. if you had a strategy that worked every day, every market, every year, everyone would do it and it would stop working. there are times that following that strategy will not be worth it, and people try to be satisfied quarterly will not be able to stick with that. do hedge fund investors not understand this? posted crisis, they so wanted liquidity. crisis, they so wanted

liquidity. >> i do not think most hedge funds justify their fees to begin with. there are hedge fund managers that are really excellent at what they do. i think you have to get the right investors who are patient. you cannot invest in the stock horizon.th a 3-month some guys are good at trading that, but in the long run, no one is always right. i will give you an example with the mutual fund world. the best-performing mutual funds through 2010and was -- >> what mutual fund was that? >> i do not want to mention names. it was up 18% a year. to average investor managed lose 11% a year. every time the mutual fund outperforms, they pile then, and when it underperforms, they piled out. they managed to turn an 18% annual gain into an 11% dollar weighted annual loss and that is

because people just follow what happened most recently. i think that dynamic continues. i think timer rhizomes are not increasing. they are shortening. not think time horizons are increasing. they are shortening. there is more data. that helps the long-term investor. >> do you have a general view on investing and ipo's? in ipo's? it seems that people are not doing their homework or attending the roadshow. that seems scary to me. >> there is a short-term strategy would ipo's, and a long-term strategy. if they do not buy yen on the ipo, the first two days or stock these sky may -- be may skyrocket. then people will sell because it is time to sell. not because it is a good time for you to buy. even though the initial pops are quite attractive, people are playing the short term game and

trying to get out before the valuations takeover. much. thank you so the author, investor, professor, joel greenblatt of gotham asset management. ring it sohn conference to you live from the sohn conference. , that was really special. i hope you are listening. >> i was indeed. includingcoming up, bill ackman, michael novogratz -- and do not you worry about the -- don't you worry about the high cost of limes. we will save your margarita. ♪

>> welcome back, everybody. you are watching "market makers" on bloomberg television. i am erik schatzker. and i, along with the rest of the margarita loving world, have a sour taste in my mouth. the cost of limes has skyrocketed. you may ask, what to do on the

cinco de mayo with cocktail hour approaching. joining me, a mixologist and the founder of creative cocktail consultants. it is always dangerous to drink before noon, especially on a week day. but that is what we're going to do. tell me how to break the -- the the price squeeze on limes. >> first of all, happy zynga billing -- cinco de mayo. >> happy cinco de mayo. >> and a lot of people do not know this -- it is your birthday, too. >> it is our birthday. -- my birthday. 5000ericans read -- drink margaritas per hour. >> what? >> they do. ok, we will take some fresh squeezed, of course, we used -- fresh squeezed grapefruit juice. ruby red is in season right now.

the mexicanto avoid citrus, which is so expensive right now, you can get from florida, california, even texas. and of course a little bit of cointreau, which we find in a traditional margarita. a little are angela gore. liis also -- a little orange queur. and we have tequila. >> what is the difference between tequila and ms. gao -- m escale? this is -- here's the club soda. some of the final -- >> the final ingredient? >> the final ingredient. it looks like a distant cousin to outlive era. ok? -- it is a distant cousin to aloe vera. ok question mark the difference

between tequila and mescale, they smoke it. that one has the worm and it. you will never find it warm in tequila. -- that one has the worm in it. that is a sexy ice cube. thet interferes with drinking. >> it does. that's great. shortage of limes? no problem. what is next question mark >> we limedo fresh squeezed juice -- >> what is next? >> we will do fresh squeezed lime juice. greeted by a texas socialite. we did fresh lime juice, cointreau -- tiple sec. voila. voila.a. --

>> we're going to do a little bit of cointreau. of want to get the stems out there. we have the heat and the seeds. know, i like it. we have about a minute, so let's -- i like it. we have about a minute, so let's rock it. >> this is a classic margarita. throw that in there. >> more lime juice. >> when you shake the cocktail, smack it on top. shake it, don't fake it. and smile. that is it. that is how you do it. you look like you have been doing that for years. now you will pour that into the glass. >> i have clearly done something wrong. >> no, there you go.

and i'm going to pour that straight in. >> ok. we have a shot, the jalapeno garnish, very, very classy. oh, that is terrific. >> yeah. >> i much improved to take on the classic. >> you can do a lot. that.n add mescale to >> this is the classic margarita. we have run out of time to try it. we know how that tastes. all of these recipes -- check out @marketmakers. we will be right back on bloomberg television. ♪

>> that is going to do it for "market makers" today everybody. stay tuned to bloomberg television at 4:00 p.m. stephanie will have an interview with none other than bill ackerman from the sohn

conference. have the ceo of sprint for an entire hour tomorrow. so much to talk about, including these speculations spread will move forward with an offer for t-mobile. right now, we are going to take a quick break. bloomberg's on the markets is coming up. ♪

>> these stocks are racing earlier losses after economic data show the services

industries expanded in april at the fastest raised -- fastest pace in eight months. we look at -- we look like we are at our markets highs. the violence increases in ukraine. joining me, and equity derivatives strategist at him km partners. it looks like the volatility is relatively low if you think about the violence escalating with the superpower next door. partners.ist at mkm >> with russia and ukraine, two things to watch. the credit default swaps dropped to lows, so there is certainly risk out there. on the flip, an index that represents the high volatility of the vix -- derivative?d >> that is exactly what it is. the last week that declined to lows not just since december, but very near all-time lows.

there is escalating risk out of ukraine in our equity markets where we do see much risk, especially as the vix follows this index lower. >> what does that signal to you? the vix following? >> it signals the market paying the least amount for volatility exposure that it has in quite some time. not just months, but years. even asatility exposure these risks overseas seem to be escalating. >> interesting. we also see amid the flight to safety, money going into gold. gold shares trading at near three-week highs. >> what is interesting about gold, the skew has flattened over the last couple of months. that means less exposure to the downside there. it does not mean people are biting the upside. except for today and last week we did see some. traded at about 15,000. not among guests, even the --

not humongous, given the open interests, but some risk exposure there. >> what is behind that trade? is it just people saying, hey, gold sold off so much last year, it hit the floor? >> probably a little bit of that, but stepping back into the it may behe ukraine, wanting to manage that risk. >> and for the homebuilders question marks up of the worst year.ming sector this >> utility us -- >> utilities. consumer discretion is the worst. homebuilders are worse than that. is home construction index down 10% since late february. what we like here, our analyst for the group, there is the concern about the spring selling season. housing data has been very weak. an home sales declined on

annualized basis. we really want to get long. we have seen in flexion. we will have 2-day analyst day tomorrow and wednesday. we think that they will represent a positive inflection in the spring selling season. and we will get long into that. >> so your specific options strategy to get long? >> we want to use a delight ly 15-18.ju that out of pocket. you do commit to getting long kb h down. >> why do you think katie holmes is set to outperform relative to homes is set to itserform relative to

sector? >> versus tangible book. significant upside. there is commentary from the company that they are selling homes. that is really what we're focused on. we are focused on this catalyst that comes up not just for kbh, but more broadly for the group, the significant decline in housing activity, mostly because of the weather, corrects itself. >> interesting. so before july, we would pick this up in mid-june. >> great. thank you for joining us. in 30l be on the markets minutes. ♪

♪ >> and welcome to "money clip." the ceo of target is out. the president takes his stand up back on the road. has an investor exclusive interview from the investment conference. we are going there. we are also going to space. a special series this week, behind the scenes to lead the next generation of space travel. motors, writing