♪ bloomberg world headquarters in new york, i am mark crumpton. the is "bottom line," intersection of business and economics with the main street perspective. deal toets closer to a buy micros systems, and the senate involve conflict of interest in high-frequency trading, and homebuilders great ground on one million comes up for a second month. welcome to our viewers here in the united states and those of you joining us from around the world. welcome. we have full coverage of the stocks and stories making coverage today. us theller tells

long-standing relationship between ferrari and formula one may be in jeopardy. megan hughes reports congress is looking at high-frequency trading. we begin with a bloomberg exclusive, oracle close to a deal to buy a software provider for more than $5 billion. thanks for your time today. a bit ofk the deal is a surprise. i have been talking to some analysts since we reported the micros was not one of the top candidates to be bought from oracle, from the people i spoke to. oracle has had trouble getting into the cloud services businesses. some people thought they would company, andased this is one that works with hotels and various different retailers. oracle owns several companies like this already, and yet, they are moving further into this business. the other thing is, with my gross, a lot of people own the

stock and were short, so a lot were betting against it. it rose on our story. >> what is the goal here for larry ellison? salesrters of sluggish growth for oracle. is this something he had in the back of his mind? we have to turn this around? >> someone told me that larry ellison almost bought micros years ago. in fact, the ceo is now the chairman flew across country to sign the deal, and from what he told me, larry basically left him at the altar, and they did not get that deal done, and here we are six years later, and the deal is getting done. oracle has not done a big deal and a long time. this will be $5 billion. plus, if it goes through, it will be the largest deal since sun microsystems about five years ago, so it is a eager jump for them. a lot of little or deals.

>> white is dealmaking in the tech space accelerating? -- why is that? there is a thought that interest rates are going to move. so let's get these deals done now. number two, there is definitely an element of peer pressure out there. we see it in media and telecom also. a lot of these companies, they see one deal, and then the board comes together, the management, and they say, look, we should. comcast, and then directv comes along. we had heard the cisco ceo john chambers said recently that he expects some really intense consolidation among these older enterprise-type systems, oracle, cisco, as they try to figure out how to get into the new, modern age. alex sherman, and you can read more about the

pending deal on bloomberg.com and on the bloomberg terminal. tomorrow, mary barra will appear before congress and explain why the carmaker took more than a decade to address a problem with some of its ignition switches. at least 13 deaths have been linked to the defect. a's comments were released this morning, and here was one quote -- gm has now recalled a record 20 million records in -- vehicles in north america for various fixes this year, more than double the number of cars and trucks it sold worldwide in 2013. in washington, lawmakers ask me tough question, our markets senate panel looked into high-frequency trading. our bloomberg washington correspondent, megan hughes, is on capitol hill.

how did it go? >> i tell you what, a lot of people read that michael lewis lashboys," the idea that the market was rigged was repeated over and over again, and we heard from the lead character in that book, a whistleblower who was siding for more transparency. take a listen to what he had to say. >> you have to make people aware that the conflict does exist, and you have to educate them on and it means for them, before, they did not even know that the conflict existed in the first place. transparency will let people make better decisions, but right now, it is opec. >> the markets cannot survive on technology alone. older idea, a much trust, and trust is eroding. >> market, we also heard from executives from the exchanges and brokerage firms, and joining

us is a representative from td ameritrade. hasn't mentor for investor confidence? >> well, actually, i read the book, and i thought it was quite entertaining, and i have met with rad a couple of times, and most of what he writes about, it does not really pertain for the retail mom and pop client, which is who we would service, so while it is an entertaining book, it is not that applicable to what they would do in the markets on a day-to-day basis. >> what about this question of conflict of interest was to mark you were asked a lot of questions about this. what do investors need to know? >> they need to know exactly what i said in the trial there. acyclic, we are always advocating on behalf of the retail client, so their execution quality is our primary

concern, and we monitor that on a daily basis. it is part of what we do on a daily basis, so i think that quickly.t >> is this a factor in determining how orders arrive? >> no. it is not a factor unless we get that we met with respect to execution quality. become part of the equation until you have cleared those hurdles. >> by td ameritrade did make more than $230 million from revenue the way the owners are routed. >> we would put those dollars back into the free market data and the education and all of the services that we provide for $9.99. >> do you see conflicts of interest in the system that need to be addressed? >> no, you manage them, and you manage them by assuring you have the best execution but also by

transparency. there are brokers out there who will pass that feedback to clients, but as a result of that, they will also charge you , and our clients have already made the choice, saying i want the clean and simple. model,t want the gotcha where you tack on fees. >> we have got the sec looking into this, the f yeah, the new york attorney general, the cftc -- the fbi, the new york attorney general, the cftc. this as a steep drop in investor confidence. of fact, our metrics tell us quite the opposite. that is not to say that we do not think that this continues -- we need to continuously monitor this and make sure we are making improvements just the way we are with our business, but i think

doingc is on the pats are a comprehensive market review, and they have already done this. i think it is a very good first step. >> you do not think they are going too far? >> no pre-to be with support them in all that they are doing. >> steve, thank you for being here. i will turn it back over to you. >> coming up, housing starts are for may. 2014 will be the breakout year for new home construction, that story and more when "bottom line " continues on this tuesday, in just a moment. ♪

>> breaking news on a story we have been following from yesterday, argentina has been ccc+, and theom outlook is negative, and this comes as the president ruled out complying with a u.s. court order to pave holders of

defaulted bonds in full. leaves argentina two weeks to come up with a way to avoid a second debt crisis in 13 years. she opened a nationwide address just hours after the u.s. supreme court declined to hear argentina's appeal of the case. she used the term extortion to describe the rule that requires the nation to pay defaulted bondholders when it makes three payments on its restructured debt. the country's next interest in it is done june 30, limiting the time for president fernandez to reach an accord with creditors, including hedge fund managers. is inr michael mckee washington. michael joined me yesterday, and we were discussing the argentinian bond issue. michael, i know that you and i are going to talk about the imf in just a moment, but i wanted to get your reaction to this breaking news and what it means for argentina. >> well, it had been telegraphed by the argentinians. they had said going into the

court case that they did not want to comply. the court, one of the arguments before the court was whether or not they could bring a case in which they would not comply with the court ruling, and that may be one reason the supreme court declined to hear their appeal, so now they are following through on it. they do have weeks to come up with a $13 billion payment, and under the rules of the u.s. second court of appeals, whose , they have tonow pay the holdout bondholders at the same time. if they do not, in theory, they are in default. the question is then, what happens? most of the bondholders who are holding restructured paper may be willing to talk to them again. it will be an interesting workout. >> michael, let's switch gears a moment. the international monetary fund warning janet yellen and members of the fed that the u.s. economy will grow more slowly than forecast, so they should keep interest rates lower for longer. the fed is meeting now. our policy makers going to pay

any attention to this? >> no, they are not going to pay any attention at all, even though what christine lagarde is saying is gray similar to what janet yellen is saying. the fed is already there. they are already talking about being lower for longer. the imf has been doing this for quite some time. take a look at the whole past year. the central banks they have given advice to, they told the ecb they should continue. >> michael, if the fed is not going to listen to the imf, what is going to influence them? >> they're going to be influenced by the data. we know they are going to continue their tapering, but it is a question of when they will start raising interest rates, and that depends on what the data tell them, because they have new forecast coming out tomorrow. they will let us know what they think is going to happen to gdp, unemployment, and inflation, and

they had lowered their gdp forecast the last time they met, but raised their inflation forecast a little bit. we will see if that trend continues. if they do see unemployment falling faster and inflation rising more quickly, then people might read into those charts that the fed is going to start raising rates sooner, and that will have a profound impact on the markets. we had the cpi come out today hotter than expected, particularly in some of the underlying components, and that has to be a concern to fed members as they meet tomorrow. >> all right, and we, of course, will be following the dots and michael mckee. he will be in washington tomorrow. stay with bloomberg for live coverage of the fed decision and janet yellen's news conference starting at 2:00 p.m., with a news conference half an hour later at 2:30. housing continues to be an issue for the fed, housing starts in may coming in below expectation,

falling to a pace of one million units. a senior economist at wells fargo securities joins me now from charlotte, north carolina, and welcome back to "bottom line ." good to see you again. >> thank you. >> the national association of homebuilders, the index rose to 49 this month, up from 45 in may. that is a solid line, but doesn't indicate an improvement in housing near term? >> it doesn't. that is a confusion index. it is still below the key level, where more builders see thatvement and say conditions are good than bad, so we are still seeing that more builders are seeing that conditions. in fact, it has been at the same level for a number of months now, so we got a good increase, but it is still not above that threshold level. , borrowing costs and home prices are higher than last

year. is this not when they were flexing their muscle and gave the u.s. economy the muscle it needed? >> so we thought, and, of course, we are in the middle of homebuying season, and today's number, even though it is a monthly number, it still shows that we have a slower pace of growth than originally anticipated. we have been talking about this for a while, and we still have to point to the first-time homebuyer. are fha those borrowers borrowers, and those credit conditions and standards are still very tight for many of those borrowers, but, essentially, our key thing out of the mortgage market -- permits decreased nearly 6.5%, and that drop was centered in multifamily projects, and it indicates that more americans are renters than homeowners. how long do you see this trend continuing? >> it is going to be a while.

actually, if we look at household formation, the vast arerity of new households renters, and if we look at the younger generation, those that are the so-called e theyomers/millennials, have a higher propensity to rent, and that demographic is very large, and so with many of these young attentional borrowers, very much inclined to continue to rent, we are going to see this trend for a very long time. >> the only region of the united states that experienced greater till the activity last month is where you are in the south. why was that? >> the south has the largest number of homes, so when you look at the south, you're going to get a lot of momentum. we are out of the weather pattern, so canceling whether --

a lotme of the regions, of these regional numbers have to deal with population growth, outmigration, and inventories, and the south is not excluded from that. how is the fed going to react to this, given that prices rose. what will the pickup in inflation mean for the housing sector? >> you know, if you weigh inflation and how the fed is looking at inflation, it is still very much at a very low level, so the inflation number is not going to play as big a role, of course, in the latest fed decision, but going forward, of course, it has more to do with borrowing costs than anything and whether or not the fed is going to move on those short rates. of course, we know that a majority, and wells fargo is

included, we do not think that the fed will move until mid-2015, so we have a ways to go. our main focus, of course, is what is happening in the labor market. han, alwayst, anika k good to see you, from wells fargo securities. >> thank you. >> details from baghdad, next. ♪

>> word from the white house the president obama will meet with congressional leaders tomorrow on the situation from iraq, and meanwhile, they have repelled an attack by an al qaeda breakaway group, and gunmen from the islamic state in iraq or the a citytacked a prison in

about 34 miles north of baghdad. 43 inmates were killed. uba on the map,q posing a grave threat to nuri all maladies since he took our in 2000 six. tonight on charlie rose, the president emeritus on the council of foreign relations talks about the escalating sectarian violence in iraq. a flawed, diverse state of kurds, sunni, and shiites, and you can keep them together ultimately only if each was more or less allowed to run its own affairs within. >> or you had some kind of strongman, likes to don hussein .- like saddam hussein >> yes, and with that gone, you have almost a state of permanent civil war. >> and you can watch the full

interview with charlie rose tonight at 8:00 and 10:00 p.m. new york time am only on bloomberg television. it is 26 minutes past the hour. that means bloomberg television is on the markets. jonathan ferro is standing by with details. good afternoon. >> good afternoon to you, mr. crompton. the s&p, the dow, the nasdaq all whooshing higher. by one 500 pushing up third of one percent, shaking off any concern in iraq, but look at the dollar. treasuries dropped the most on the back of that inflation number, north of two percent. high yields, of course, a stronger dollar, up a couple of tenths of one percent, and the dollar/yen back through 102. canon the move higher, you see this on the chart there, another couple of tenths of one percent, through $113 per barrel of crude, and clearly, the instability is pushing the rent

brent certainly continues to travel north. i will be back on the markets in about 30 minutes time. mark crumpton is back in two. ♪

♪ >> welcome back to the second half-hour of "bottom line" on bloomberg television. i am mark crumpton. thanks for staying with us. hillary clinton paying an estate -- the former first lady has become inordinately wealthy since becoming the white house. richard rubin has taken a close look at the clinton tax strategy, and he joins me now from washington. richard, thanks for your time. what did you find out while looking through local property

tax records and disclosure records? thehat we found, looking at clinton ability to use trusts, particular what is known as a residence trust, to limit their estate tax, what they have done is move their ownership of their home in new york into a trust, and that uses up sometime -- some of their gift exemption, but it will eventually shrink the value of your house when you put it in that trust and use less of the exemption, paying less in taxes, and ultimately able to pass on more to your kids. >> i know you cannot talk about this without getting into the tall weeds, so for those of us who do not know, what is a qualified personal residence trust? >> what it is, it is an agreement where you take the its ownd put it into kind of account, and it has a couple of benefits. one, any appreciation in house value happens outside of your

estate. the other thing it does is you can get what is known as a valuation discount, so when you split the ownership of the house in to, as the clintons have done, you can say half a house is not worth as much as 100% of a house. what can you do with half a house? and then after the term of the trust ends in 10 or 15 years, being able to pay rent to the beneficiary, and in this case, you presume it is their daughter, though we do not know. then you can pay that, and those things happen outside of your estate and outside of that 40% tax. >> this is about the estate tax and how the very wealthy protect what they earn. how else can people take advantage of these estate tax exemptions? >> there are all sorts of things that people do. life insurance and other things that the clintons have done. there are other trusts where you can move assets outside of your estate and then pay the annual income taxes.

income of those investments, something we saw mitt romney do when he released his tax returns in the 2012 campaign, so there are all sorts of ways where you can minimize that, and every dollar saves you or descents. you $.40. criticizednton was as appearing out of touch, and she revealed she and her husband were in debt when they left the white house, and now they are multimillionaires. ,> it is always difficult always a difficult line for politicians to walk when they had this much money to both care about the issues that they are talking about and be able to talk to the vast majority of americans who find these kinds of estate planning tool very uncommon and very unfamiliar and to live their own lives as people who are in the top one percent who are making efforts to try to preserve their own

money for the next generation or their own family. it is a very difficult line for them to walk. >> richard rubin joining me from washington. you can get more details on this story on bloomberg.com under his byline. richard, thanks so much. staying with real estate, price waterhouse coopers released a survey today, one sector gaining interest in the student housing market. a national practice leader of the firm real estate advisory now.ice joins me welcome to be broadcast priebus this is some fascinating stuff. wasw this yesterday when i reading some of the information. you believe that even though the s areof the millennial scheduled to graduate in 2018, the enrollment is projected to grow. why? >> going back to 2006, 5% of those in colleges and universities were foreign students, and this is three years after they are out, and it

is 12% of enrollment, so that is about a 140% increase in foreign students during that. keeper of time. >> we are not talking about dorms the way we knew them in college. it is a big business. but it is a big business. if you think about it, the cost of education has gone up precipitously, to the fact of where a four-year college is prohibitive to many americans. but this is something universities are trying to manage, so what they have done is they have farmed out in some cases dormitories to third parties who can do it a lot more efficiently than the schools can, and that has created quite a big business for universities around the country. >> how are they staying competitive? >> it is interesting. the competition in those towns, like columbus, ohio, austin, texas, these are places where the millennials want to live, so they have some diversification where they can create housing

for the students and also create housing for the grad students and also create housing for those who graduate from the school and want to stay in those cities, so they have a big population of demand, and that is how they stay competitive. if you look at the millennials, in places like austin, texas, there is about a 30% increase in the millennial population, and millennials like to stay in those places where there is work and where they feel connected to the rest of their population. but the private operators, they seem to deliver student housing more cost efficiently than the universities. there are less hurdles for them? what i do not know. it could be. a private operator may be able to do things different than state-run organizations, so maybe that is part of it, but i also think when there is competition, there is opportunities for efficiency and

cost savings. >> how attractive are real estate asset plays at looking for student housing, and also for senior housing, to investors, what do the yield look like compared to those, say, on our apartments? >> what has happened in the last couple of years is yields have where they're almost at an all-time low. we are at pre-recession lows for initial yields, so investors are looking for alternatives, where they can get a little bit higher return, so student housing is one of them. is why we started covering them this quarter. there is a little more risk, obviously, in that way, but the return potential is something that investors are finding interesting. >> so you are comfortable at this in the near term? >> across real estate, especially in multi family, the first rib and above that would be student housing. maybe the second derivative of that would be senior housing, -- the first derivative of that would be student housing.

paying attention to the housing news we got today, the multi family is taking off because you have got a lot more renters pay people cannot afford housing. >> and you have millennials who are not in the first time market as you would have expected. >> because they are paying off loans. >> they have student loans, and they are not as quick to jump into buying houses. i do not think the american dream is dead, but they are thinking that maybe i will rent or a while and then maybe buy a house. for concern. what impact does the overall housing market have on the student housing discussion? >> i think the rental component helps, because we have a little bit of a renter nation, so renting from a third-party landlord as opposed to the university i think gets college students into the renting mindset, so that when they

graduate, they are familiar with the risks and obligations. i think you treat housing a little differently when it is a dorm than when your name is on the lease or maybe your parents and itre on the lease, is getting these kids into a rental mindset. >> ok, we have to land it -- leave it there. from price waterhouse coopers joining me in the studio, thank you. >> thanks for having me. appreciate it and >> coming up, israelis really -- some concerns. we will look at what a private equity investor says about these concerns when "bottom line on bloomberg continues in just a moment. ♪

approved aecently plan to expand bilateral ties with china, the goal to double is really exports to china within five years, to $5 billion per year. one company building ties with

chinese companies is a private equity firm, infinity group. elliott gotkine spoke with the firm's father -- founder, and they began by talking about some of the most attractive sectors for investment. ,> the hottest sectors agriculture, a huge subsidy coming from china in this sector. traditionally, we do medical. .e are looking we can see the israeli market is looking more and more into china, and given the fact we had four ipo's with israeli companies, it makes people feel it is time to do this in the chinese market also. the ambition among israeli companies, rather than heading off to the united states to begin with, they think, oh, i will go to china? >> it is a process. some will go to china first

specifically where the market is huge and subsidies are there. they will go to china. in some cases, you try to balance the two. >> is it about the market being in china or about hedging that bet? not in the u.s. or european basket because they are not growing as fast, and the population is not rising as fast or is not as big as china? >> we believe a company needs to grow where there is growth, or even where the economy is bigger. where it is occupied with other players, you do not have a lot of growth, so growth is a big part of that, and you also want to balance your risk. a main reason for people to go is growth. and wee are concerns, have seen this in the united states and europe, as well, a little bit of concern about chinese companies coming in and buying -- let's call them strategic industries. is there any sense of that in israel?

is israel open to that kind of investment, without any political strings attached? >> there is some sensitivity in israel also about that, the public debate these days. ,n reality, these large deals like the insurance deal, and in reality, even if it was chinese companies, they are still local, so there is no need for concern. >> it is time now for today's latin america report. as we reported earlier, argentina's credit rating has been cut two levels by standard and poor's. after the u.s. supreme court declined to hear an appeal about holdout creditors. the s&p lowered the countries rating to nine levels below investment , and the lowest level of any country currently assessed by them. there is also a likelihood of a further downgrade on payment

disruptions. the s&p move comes as the argentinian president ruled out complying with the u.s. court order to pay holders of defaulted bonds in full. argentina two weeks two, with a way to avoid a second debt crisis. nationwiden a address just hours after the u.s. supreme court yesterday declined to hear argentina's appeal of the case. she used the term extortion to describe the ruling that requires the nation to pay defaulted bondholders when it makes repayments on its restructured debt. the country's next interest payment is due june 30, limiting the time for the argentinian president to reach an agreement with creditors, including paul's fingers -- paul singers. that is your latin the port -- report. and new racing rules and a

potential sale are threatening to damage a long-standing relationship with ferrari and formula one when "bottom line" continues in just a moment. ♪

ferrari and, formula one have gone hand in hand, but it could come to a screeching halt over new racing rules and a potential sale of the group. matt miller is here. who are the players? >> ok, so, first of all, i wanted to say that ferrari had a problem with formula one rules for a long time, and it has come to a head, and the chairman has wantshat he really changes, and he called the owners in for a meeting, so the cofounder and cochairman is another one of the players you can see donald mckenzie and john malone, the guy who runs liberty

and wants to buy this potentially. they are negotiating about the sale, but this is not helping negotiations at all. owners have been called. worldalk about wanting changes because they are limiting the amount of fuel the cars can use, and they are limiting the engines to 1.6, not exactly the strength of ferrari, and they have also not reached out to the new generation in social media the way that ferrari wants them to. >> so this is not an empty threat. >> it does not seem like an empty threat, though in addition to being angry about this and calling the wall street journal and telling them they would look into another form of racing, they had their driver wave the flag at lemans home which is the other form of driving they are talking about. he said he would be driving endurance racing after driving

formula one, and he also told reporters he had talked to the chairman about the switch. there are a cannot do both. it would be expensive to do both. if they did switch, they would no longer be in formula one. >> what about the stocks of a ?otential f1 sale >> beyond the fact that you and i are sports fans, and we care about the m&a side of it, and was a great story about the --ks to try to sell it's it's 50% stake, they have reached an impasse, where they want a billion dollars, and liberty wants to give them $7 billion, but it ferrari is a problem, this could drag the value of it down even further. >> stay with us. another check of the market movers is on the other side. " in just am line

moment. ♪

>> get the latest headlines at the top of the hour and streaming online and at bloomberg.com. that does it for this edition of "bottom line." i am mark crumpton. remember, special coverage of the fed and janet yellen's news conference tomorrow. on the markets is next.

i am jonathanets, ferro, and let's get you up to speed on where stocks are trading just minutes from the close. coming backs towards record highs, the s&p 500 up one quarter of one percent, and that is trading higher for a third straight day. the federal reserve meets today. the cpi reading came in year on year in north up two percent. it will not be a trigger for the fed to act tomorrow. janet yellen may want to see more wage inflation, but it is certainly something for them to think about. some might start sounding the alarm for a rate hikes sooner rather than later. let's check out commodities. gulbis snapping its longest rally since february. it had rallied earlier in the week when investors were looking for a safe haven as tensions escalated in iraq, and speaking of iraq, the energy agency says the

country's oil output has not been hurt by the violence, now up 4/10 ofbrent is one percent, and that goes to $113 per barrel. another area that could be impacted by the situation in iraq is the defense industry, and joining me today is bloomberg industries senior analyst george ferguson. george, looking at the defense industry, you really see some headwinds. one is fiscal. you see people cutting back on budget spending. a second headwind is political. there is an appetite for these large-scale interventions. would you say this is the tipping point looking at iraq? >> no, i do not think we are anywhere near. i think we have spent a lot of money on our engagement in iraq and afghanistan in the last decade or more, and i think the government is out of money, looking for ways to save, and

they have had it with these interventions right now, so we would have to be a lot worse in the middle east before we would look at spending a lot more on defense and looking to counteract some of the problems there. >> looking at iraq and the situation there, obviously very fast-moving, but can you give us an idea about the weapons or logistics in that region? see a lot of standoff weapons potentially being used. i think the obama administration has a lot of debating to do before they use anything. i think we are talking about romans. the are talking about bombs, guided bombs, so these things would be -- the weapons that the defense industry does not make a lot of money off of, they are not the ticket items, to get to the business side of it, not that it has just got a business site, but i think you might see some forces on the ground to make sure you are doing the right targeting, but you are not going to deploy heavy forces. >> let's talk about the big-ticket items here in the united states.

40 years old. are they at a point now where they have to talk about rebuilding them? you and i were talking about this a few minutes ago. it has gotten to this point now. >> we have a challenge in our navy. we have really undercapitalized our navy. some of the cruiser fleet, the submarine fleet was built under the reagan years. you have to think about the placement of those vessels. they are 30, 35 years old, and therefore, you get to 50 years, you have to replace them. you need a decade. what are you going to do with them? >> you need a decade. common sense would be that this is the time to replace them. thank you very much. street smart is up next. ♪

>> stocks higher for the third consecutive day heading into the day. the feds prepare for testimony. street smart starts now. ♪ welcome, everyone, to the most important hour of the session. the minutes to go until the close of the bell. amazon prepares to unveil its own smartpho.