unchanged and that is something she indicated that it likely would not be any change to the valuation even though the offer from semen is higher from even though the industry is higher than that from ge. a general electric has its offer as being less compensated -- complicated. we will give you more updates as we get them at the top of the hour. stay tuned. >> live from bloomberg headquarters in new york, this with erik makers" schatzker and stephanie ruhle. >> shot down by scandal, the apparel house founder sees allegations of misconduct. >> and the most viable bank, we will see which of the country's financial institutions wins this title. >> it is awfully expensive to eat like a caveman. the price of protein source. you are watching "market makers"

in new york city. i'm erik schatzker. >> i am alix steel in for stephanie ruhle, who is on assignment. >> i am a lucky man, thank you. these are the top business stories from around the world. prosecutors are widening their investigation of the exchange industry -- the justice department is questioning salespeople at fx to see if bank straight -- traded at head the clients or colluded. a surprise for blackberry. a first quarter loss that was smaller than expected. ceo john chen has been cutting costs, to turn the company around. the supreme court to decide the -- arialrea today today, broadcasters went to court to keep them from broadcasting over the internet.

their very existence is at stake because they would go out of business if the supreme court ruled against them. for the networks, a loss would mean billions in lost revenue. if a decision does not come today it will likely come next week. >> one of the most controversial names in retail is out of a job this morning. the head of american apparel, who has been heard for years with sexual misconduct charges has been fired as chairman and ceo. julie hyman is reporting on this. what took so long for this to happen? >> this is a fascinating story. i am happy to talk about it. i had been following his story for years as are many people interested in retail, it is crazy that he has done a wacky thing after wacky thing if not worse and has remained ceo. the reason he's being ousted is shadowed in mystery. the company has had some kind of

investigation, perhaps, according to the l.a. times in regard to his behavior towards women. >> but these charges were nothing new. if this is worse than what is already out there, it has to be pretty bad. we have catalog what has been out there. in 2005 he gave an interview with a female reporter and self pleasure himself in front of her while she was conducting the interview and he also encouraged employees to self pleasure themselves in front of him, both male and female, in one story or allegation. he has been sued for sexual misconduct and the ads that you have seen a women being scantily clad, often he will do those photos and he has been open with his -- on his sexual relationships with employees. item after item would be inappropriate under normal circumstances. >> but where is the board in

this whole situation? dollar with aone change of sales and net income is the negative. >> they have been losing money for the past several years and it is only in the past two quarters that comparable sales growth turned negative. but from the beginning and for several years, the company has been a little bit mysterious, even when it came public, this was after it was bought by an investment company. it did not have the traditional initial public offering, it was bought by a company which then went public, which was a more complicated structure than is typical. and now the company says we might just default, as all of this is going on. meanwhile, he owns 30% of the company. this is all very complicated as it goes on. >> complicated to say the least. thank you very much for following this story for us.

>> alix, this is my favorite story. when eight and a quarter million dollars is enough, -- he says $5t goldman stiffed him million with his bonus from 2010 and he is suing goldman sachs for the money he says he is owed. this kind of thing is wall street legend because goldman sachs does every thing possible to let these escape into the public domain. he is now responsible for this outstanding bloomberg exclusive. michael, what did he do at goldman sachs? >> he was a mortgage trader, the managing director which is the second-highest title at goldman. he helped to put on what was known as the big short at goldman, which made the firm a lot of money. >> which made the firm a lot of money. >> saved you from a lot of losses and put them in a better position than other banks coming into the crisis.

a lot of banks were hurting in 2007 and goldman had a great year and it set them up very well. he was well compensated for that. thisis was 2007-2008 but concerns 2010. were they making that much money in 2010? >> not as much as at the peak but it was still making more and $1 billion in 2009 2010. not insignificant and he was paid -- >> he was paid $15 million and lloyd blankfein got more than that. he was making a lot of money for the firm, but 2010 is the issue because that year he did not get what he was expecting. >> what does goldman has to say about this? >> they call the claims utterly , and he says he was a

scapegoat who should have been paid more based on his production but he was docked and goldman is not fight this, he was docked for a written warning he received for his conduct, related to a 2007 self-evaluation and -- >> goldman takes these very seriously. >> in that evaluation he was bragging about himself and talked about attempting a short borderlineich is market manipulation. he said he was using this code and did-- colloquially not mean it. but this started an investigation into goldman sachs and it became public and was part of the allegations against goldman by the senate. this did a lot of reputation damage. >> it really crossed the line on the mutilation front. i wonder what the response from goldman was to that evaluation they didnd is that why

not pay this man $8 million? he got notime he said pushback of that self-evaluation, except for a different line in which he compared himself to michael jordan and they asked him to be a little bit more professional. so that got the criticism. he said at that time he got no criticism of it until the senate started asking about it and then it became an issue. >> there is no question that he has a very high opinion of himself. february 25, aon transcript that you have a copy of, at that hearing he says, let's be very clear, i was one of the most sought after professionals in the mortgage industry with the opportunity throughout the course of my every month,lmost i could leave for other opportunities. he thinks that he is pretty hot. >> the casey is making is that goldman executives made verbal

promises to him and that is why he stuck around. his thing is he could have left for hedge fund at any point, and i did that and they did not pay me what they said they were going to pay me, i am suing to get this money. >> is there a sliver that he actually gets this? >> his arbitration hearing was thrown out very quickly. it is based on a lot of verbal promises. his case is he did not get to present his whole case. they did not get to present his whole case. we don't know what else that he has but what was dismissed was a lot of he said, he said. >> michael, terrific story. if you have not yet seen this, his story on goldman sachs at bloomberg.com. the easy take away here is everything you ever thought was wrong with wall street is true. >> i want $8 million. want 13.obably >> i will take 1 at this point.

coming up, bp is not taking any chances. they are pulling their oil iraq after of militants try to take over a refinery. >> and we will hear from the president -- on high-frequency traits. we will be back in 2 minutes. ♪

>> high-frequency trading is still a major issue, and you can thank michael lewis for that, ys" talks aboutbo the rate market. we have more on if this is unfair to investors. this is aefending privately owned exchange, that competes on the u.s. stock exchange and also nasdaq. i spoke to the president, bill

o'brien, and asked him if all this negative attention is having an impact. >> something that has changed a months, the last 12-18 and this is less about the book and more about the natural process of self education is we are doing more with the mutual funds and the investment they leftpreviously the details of how the order becomes a trade to their brokers and discovered that they do not only have responsibilities to understand the process in more detail but there is the opportunity for me to generate from it. whohere is a question about markets are designed to serve. a simple like question, but it is worth answering. what are the markets for? helpingare for companies and individual investors realize their version of the american dream. i think it is important to

recognize that markets are justtively an ecosystem, like flowers need these, investors need traders and market makers to provide liquidity, and make markets run smoothly. so in order to set up a market that worked very well for investors, you have to set up a market that makes sense for all kinds of participants, investors and traders and long-term investors, short-term investors and people look at the long-term and technicals, people who look at the business of being a market maker. only when the market really serves the need of all of those with the right regulatory effectives -- protections for all can really serve investors. >> without the participation of long-term investors, none of those other participants would really have a role, would they? >> a market is where capital seekers meet capital providers, and aren't capital providers best served by a market that offers maximum price

transparency and maximum liquidity? >> yes and no. maximum transparency, let's look at a pension fund, -- >> and maximum liquidity. >> price discovery can be achieved in a variety of ways that will mean different things and different positive outcomes. someone who is running a pension plan for investments wants to buy one million shares of google, yes, having the entire world know that they are trading interest immediately would contribute to the price discovery process, it would just make it more expensive for that investor who is really investing on behalf of millions of other investors to get that executed. interests of the your company aligned with those of fellow exchanges in the new york stock exchange? they want regulations that would drive trading away from the dark don't.nd you

>> theoretically our interests would be aligned with theirs, but we think it is more aligned with those of investors. traditional investors and others need this exchange execution alternative. we look at the retail brokers that we serve and we are the number one exchange for retail investors. get the market information because we tell brokers can go to market makers directly for guaranteed execution and price improvement, protection against customer identity theft, that we cannot offer. so rather than force the individual investor into the common pool of trading always on exchange and losing those benefits, we see them as benefiting at times from trading off of exchanges. for the investor who, when trying to affect the trade in a large size will not be benefited from bringing that onto exchange. we feel like we would definitely

benefit from what the competitors have advocated for, driving on the exchange and we think investors would suffer as a result and because of that we are not for those regulations. >> how do you answer critics that say that your response, dark liquidity benefiting investors is just a smokescreen for the fact that you are owned largely by a group of broker-dealers. broker-dealers who operate dark markets. and so you need to be their advocate because they are your owners. >> i think that ownership is not a driver of how we do business. i think every business has to serve the interest of its customers, our customers just so happened to be our investors and that is no different from how the new york stock exchange operated from 1792 until 2006. i don't think the public exchanges are owned by hedge funds and that makes their decisions more noble, when they

advocate for more buying to be done on their markets only give that asopolies, i think an exchange we have a responsibility under the law, but also ethically, to think product services and exchange and how markets should operate, how can all investors get the best outcome, individually and collectively over time. areink our decisions indicative of that. >> one critic is a former hedge fund manager who took his opinion to the wall street journal. he said it all could be fixed by changing a simple word. that instead of demanding the best price, the sec should demand the best execution. does that work? >> that should be considered. the mandate of always getting the best price can lead to some outcomes that may have made sense back in 2005 and 2006, when it was put into place, and it seemed like a good idea back then.

>> i think it was mrs. surrey because what you had in that time is you have the new york stock exchange effectively ignoring prices that were far better than what was quoted in those markets elsewhere. and that monopoly needed to be broken, and so that principle made sense. -- that monopoly knew to be broken, and a pencil made sense. now, in an age where to their credit, the new york stock exchange is automated with all that trading community -- now that you have people who have the technology to make the best price at any point in time, it makes sense to get a little more freedom, to get the best price, when it makes sense for them. >> would you go so far to advocate for them? >> i think the alternative trading systems should not benefit from the best price protections. >> let's just take that one step further.

if we were to go to best execution, would that not do away with the need for dark pools, because for 2000 shares of google, this could be executed on an exchange for something other than the best price, without exposing that investors intention? >> that is not necessarily true. each exchange would need to protect its own border. a you are looking to share billion shares of google and want to bring that to an exchange, we have to execute the first 100 shares of your order against whoever has the best price on the book. we would still have concerns about what impact it would have on the market in these exchanges consider using the exchange alternatives to reduce the market impact. it seems reasonable to suggest that there would be less of a need for the dark holes. do, it would empower investors not to really be held hostage to executing

orders on really diminishing usage that does not add a lot of value in the process of executing orders and prices away from the current market. what this would also do is take a lot of cost out of the industry because there is so much logical connectivity, market data costs that come with taking data from these venues that is not adding a lot to the price of discovery process. >> his firm has come under some criticism. bill o'brien, the president of bats. -- ba asked him if that's ts will go public. they try to do this on their own exchange and there was kind of a disaster. the question remains if they public company. he says they are still working and it will probably be until the second or third quarter before they know. >> hedging that a little bit. >> a lot.

>> great interview and thank you for bringing that to us. on the bidding war for french energy company alstom. r bloomberg news reporter in london, matt campbell, joins us. it seems that the valuation here is the same, around $17 billion. what has changed? >> what has changed instead of the valuation that remains flat is the structure of the steel. this is the document that ge in almostcalculated every syllable to appeal to french politicians and the french public conversation. the ge bid for most of alstom and 75% of the revenue is accounted for by this energy verythat became controversial, with a loss of nationalism and protest that this crown jewel of french industry should not be killed off.

what they are proposing is a number of joint ventures. this is 50-50 between ge and alstom, and spending their own money on a rail signaling business. the end result is to allow french politicians to be able to declare victory and say that they have strengthened or saved them from what they thought was a horrible fate. >> it seems these joint ventures are in the renewable energy spaces. does this make the french government happy and is enough for the deal to go through. it certainly helps, the question is if this can be doubted the counterproposal from siemens, which has been floating around. this was solicited by the french government and while this is certainly an offer that will appeal much more to french sensibilities, you could criticize it by saying that this is quite complex. that was a knock against the siemens proposal, there were too many moving parts. we have gone from a clean offer

to one with too many strings attached. >> it seems like all what alstom may like, the french government does not like. thank you so much. matt campbell from in london. >> one more piece of news, the supreme court will not be ruling case, whetherrial they agree that the business model is illegal. the next decision will be on monday, and you know we will be watching closely to see if they do in fact rule, or it is possible that a client to rule. >> it could be just equally as interesting for the cable providers as well as the network content providers. >> we are 26 minutes past the hour and we will begin with bloomberg's on the markets. we will show you what happens with blackberry. makerruggling smartphone reported a narrower loss than analysts estimated, $.11 per share and the estimate was $.25. revenue was slightly above

expectations and blackberry ended the quarter with $2.7 from $2.5 cash, up billion in cash the previous quarter. the ceo is trying to turn this company around, it will no longer be a consumer devices company. it will be a services company and he sold a lot of assets, to cover the costs, -- >> he came out swinging. looking at red hat, that stock is higher after increasing the revenue forecast. they also announced the you are an of -- resident, am i saying that right? this is a privately owned provider -- >> i was born in north america. >> but you have a fancy accent. andhave vmware doing this red hat has had a partnership with his company since 2013 mec that continue.

>> coming up, the san francisco success story that has nothing to do with technology. >> plus, one of the trendiest diets out there turns out to be one of the most expensive. we will show you what it takes to compete in these kinds of diets. ♪

>> live from bloomberg headquarters in new york, " with erikers thi schatzker and stephanie ruhle. >> i am erik schatzker. >> i am alix steel, filling in for stephanie ruhle. >> here is the question, what is the most valuable bank in the world? would you have guessed this is far from wall street? this is wells fargo, with a market cap of $275 billion, a few billion shy of the record set by citigroup in 2001. you may wonder, what is behind the success of the san francisco

bank? joining us is -- who spent years at citigroup and citibank, he is known as the banker to the world. >> it is good to be here with you. >> what is it about wells fargo? i will also add another bank to the mix, that has industrial so excited, relative to the level of excitement that they show for the likes of j.p. morgan and citigroup and bank of america jamar >> they had been a good job in building the consumer dick gets a lot of credit because emerged wells fargo and believes that the heart and soul of banking is consumer banking and may have done extremely well, basic blocking and tackling and doing what you sort of know how to do. >> for most of the 2000s, that is not what investors rewarded, grow,ewarded things that

to almost destroy themselves and certainly a number of other firms as well like morgan stanley and bank of america. chasing after, in theory, high-margin businesses i trading itet management, and mostly was the investors celebrating the pursuit of these parts of the trading business. and they ignored the traditional bank. >> there was a great feeling about the merger that we were talking about, citibank is where i come from. basically a commercial banker all my life and with that merger everyone wanted to be sort of the supermarket of everything. dick always felt i want to continue to be at the basics. that always comes back. i think all of them are very much doing that. capitals, andng liquidity, and basically going back to the basics, all of them.

i think that the boards are very much involved with this with management, and we did a group of 30 on this with a new paradigm talking about supervisors and regulators and boards as well as working with management, on doing all of these things and basically culture comes out. each institution has its own culture. wells fargo is very much a consumer banking culture but others, city has the international culture. you really have to laze -- you really have to understand your culture, you have to know it all the way down to the bank tellers and not go into other areas. pointone point -- what does this fail to diversify? wells fargo has a lot of banking products and the need to expand how they make money but don't want to take on that risk. when does this become an issue? >> we talk about risk culture as a key component.

i know that you are from canada and we talk at times about canadian banks and they were very careful about implementing the risk culture. i think that this is one of the lessons learned out of the great recession. the need for banks that go back to the recession. that is why the importance of being put on by the supervisors and regulators, with the board of directors and risk culture. imf earlier to the this month and said the failure of culture, can be destabilizing to an institution with problems of capital or liquidity. once the reputation is lost it is very difficult to restore it. why investorsain reward wells fargo with a price ratio of 1.7, not that far off the historical average, and bank of america and citigroup trade at a discount, and jpmorgan is more or less at 1?

is this because they destroyed or damaged their own reputations and now they are on that long road back to recovering them? >> what is very important is what is going on today, which is emphasizing risk culture and building up capital, and liquidity and that is what is going on at city, and bank of america. >> it takes time to persuade people that you have done this and that you believe in it. >> obviously it does. theave another problem banks are facing because we have to talk about all of these new regulatory requirements on every aspect of banking. dodd frank is here, it is in the u.k.. my concern is that this is getting very fragmented. this is the job of my friend, mark carney, who you talk about from time to time. >> the governor of the bank of england. >> he did a good job running the

bank of canada and now the financial stability board, which makes sure we get as level of the playing field as we can on supervision. this is a tough job but this is a key component. and then you have the scandals that came out. euro bar,on of the the euro trading and all sorts of things. >> this has put a tremendous tossure on institutions basically make sure that they have the proper culture, clean up their act and move ahead, which is one of the reasons we did this group of 30 report talking about the relationships between the board of management and supervisors and regulators. >> one other observation to make, over the price-to-book valuations. the three banks trading at a discount where wells fargo is are much more international institutions.

bank of america, not so much relative to j.p. morgan and citigroup. they had done a lot more business outside of north america than wells fargo, to the point that you just made, there is a lack of harmony among international regulations. is that hurting business institutions? >> there is no doubt that this is a problem but in the case of city, the franchise on the international side, they have always paid off in the long run. i think that the challenge for citibank, and mike corbin is trying to implement this, is to get back to the basics, of what citibank used to be, before the merger. >> how would you describe this? what was citigroup's business back when walt ran it? >> that is where i got to know dick, he was a great consumer banker.

he ran consumer banking in the metropolitan area. there was the international consumer bank and that is what the trusts were. corporate banking was in there as part of the international. and that was a core franchise. international corporate and consumer. see as that mean we will total wipeout of management at the end of the day? you have to implement a cultural change like you say, do we need a new separation of chairmen and ceos? >> you have a separate chairman. you have to do that because of my friend jamie were here, he would not agree with that. i think this is a pass on the institution. everyone is different and you have to do what is necessary to move the institution forward, making sure you have good risk management and proper capital, and making sure you have proper liquidity. >> what about the universal bank model?

does this make sense for the consumer or international or commercial lender to also be an investment banker? wells fargo does not do a lot of this. >> they basically stick to consumer banking, more than anything else. and i think each institution has to decide what it can handle and what it can't handle, and that means understanding between management, the board and the supervisor and regulators. they have to implement that from the very top down. each institution has to know what it's culture is, what the code of conduct is, and they have to implement that and be consistent and monitor, that is the key to success and that is what wells has been doing ever since they were put together. >> great to see you. bill rose, the anchor to the world and a senior advisor to citigroup. coming up, renaissance and the oil patch. we will see what america's booming in this -- energy industry means for the economy.

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--the operations in iraq second-largest opera user may be in trouble. iraq moving employees from because militants are attacking -- and we ask how -- and how long can they keep the oil pumping? myfar does not see production has been impacted at all yet. but what happens and what will it take for 3 million barrels to come off-line in iraq? >> so long that thing has happened to production, certainly not in the south with the north. have 1.1 or 1.2 million barrels per day. happens, thatig will be very hard to replace, given that we only have 2.5

million barrels in the system. >> it is very hard to replace that capacity and we are still at 113, nowhere near the 128 levels we saw in 2011. what is happening in the system? >> diversification is unlikely, given the way that political --elopment work spot this is -- political the bell networks, but this is different -- we see this in the middle east, we have the kuwait war. we have libya and the sanctions in iran, and syria, about 3 million barrels per day. against that background you had some of the most stable three years of oil prices, since 1970. >> does this chart explain it? holy a result of changes

in u.s. oil policy? >> you must have taken that from the statistics. that does not explain the biggest part of that. from sheer coincidence with these massive amounts of disruptions, barrel by barrel, with massive production increases -- it is a completely fair statement to say that if we had only seen these disruptions, you would have seen oil prices going up and doing damage to the economy. an event -- if we had only seen oil production issues -- >> but why? we have a lot of oil here but we cannot actually export this. so how is this in -- disrupting the supply disruption? >> the crude oil here will be defined here, for these products. the u.s. has changed to provide refined products against that background, so the crude oil

reduce efficiency because it brings prices down now. -- that thechanging u.s. is regulated. >> u.s. producers should be able to export other parts of the world, and the band has been in place since the 1980's. they should be dropped altogether. >> i would agree with the economists. some of them are lower here in part because they're in this country. >> this is actually very simple. oil prices are lower because there is not enough infrastructure or pipelines for refining capacity. but crude prices are not lower because there is competition among global oil products. --s is just around the globe with crude oil that cannot be exported. you have someone making money

out of the cheaper domestic crude, and exporting, but the customer does not benefit from this because gasoline and diesel are still competitive on a global scale. >> a lot has to happen before we tried in -- try to export, the infrastructure is not there to export the oil. what is the economic impact you would expect to see? >> if there is a chance to make money by integrating the market it will be taken, so don't worry about investments in such a case. this is part of a much bigger picture. what we are going to see over the next 20 years is the entire exports of the middle east will have to be redirected, and everything to north america will have to go through asia and north america, as mexico become self-sufficient in energy. and from africa and the former soviet union. this is a giant shift in global crude trade, this is a much bigger part of local efficiency.

u.s. oil --n on inld we see a change benchmarks like wti and brent narrow? -- brent would narrow? >> this is more a matter of -- >> what does this mean for the u.s. benchmark, would this rise? >> we have seen this over the last half year and the pipeline could shift, and all of this had narrowed a little bit. it went down to the gulf and affected other crudes there. this is as an efficient of a system that some people gain but the consumer does not. >> i have heard of the boom that led to the price differential and such. the u.s. shale boom will actually end in 10 years, basically a big decline right to get the oil out of the ground. what do you say about that?

>> we also have penciled in a lot of angles with a slight decline of production, and look what happens right now. for the second year in a row the u.s. had outperformed -- and it was the biggest increase in the country's history -- going back to 1859. when you are careful with the numbers, it turns out that only nine other times has there been a bigger production increase that all of these times in saudi arabia. this is based on spare production capacities, so in terms of organic production growth and capacity expansion, what we have seen in the last year is the fourth biggest increase in global production ever, for an annual increase. what we see now with your question, production is not just more shale, it is the u.s. that invented these technologies. and they have proven efficiency

and as they become more useful, we see the efficiency improvements. >> a kind of blows your mind that five years ago, we were talking about importing lng and now we're exporting energy -- importing energy and exporting lng. >> this is something people are not aware of, we call this the eerie calm. disruptions inhe oil and balance and these things have nothing to do with each other and can change at any time. >> thank you for being with us. >> we wish you luck. will miss you at bp. >> coming up, on "market makers ," if you are on the paeleo diet, eating like a caveman is not so cheap anymore. we will explain when we come back.

>> a little breaking news, the president is due to meet with his national security advisers any minute. he will be talking to them about iraq and at 12:30 this afternoon, an hour and a half from now he will make some tough remarks on iraq. the president meeting with the national security council to make public remarks on iraq at 12:30. in america of living is rising especially if you are on a paleo diet. how crazy is it for those guys? >> we should set the scene. this is basically more protein, eating like a caveman with more meat and more fish, you can eat less sugar -- less of anything. no complex carbohydrates. you want meat. eririk is nodding along.

any of you who are paleo sometians, you may see sticker shock because you look at the protein index, with the price of beans and bacon and protein sources, this has been a straight shot up, six percent in the last few months. food prices are up 20% in the last five years. >> there is kind of no end in sight. it takes about 18 months to wind calfading -- breeding a and the pig virus, the piglets dying, and you end up keeping an animal because you need breeding purposes and -- >> i am more interested to find out who is on a paleo diet? >> you know quite a bit. there are some people who are watching who do this. >> according to the online study

1-2 million americans are on the paleo diet and many of them are affluent. only four percent early from high school, 41% have a combined household income of at least $100,000 as well. the more affluent types will be on the paleo diet. be massivelyould affected by the increase? >> a lot of food companies are trying to bring this to the mass market. to put together these packages of cheese and meat and nuts. >> or they will have to squeeze them are just get the market share to begin with. >> cheese is not paleo. we will bend the rules a little bit. are you going to -- >> if anything i am eating more vegetables these days. >> a fashionable diet?

>> i am the most unfashionable guy that you know. ♪

live from bloomberg headquarters in new york, this is market makers with erik schatzker and stephanie ruhle. >> showdown on capitol hill as the gop votes on who will replace eric cantor. >> t-mobile strikes back area there is no way john leger would let amazon get all the headlines about smartphones. the iphone fore a test drive on t-mobile. >> i am alix steel. stephanie ruhle is on assignment assignment.

i will be joining eric for the next hour. time for stories around the world. the supreme court will not rule case in the do or die against area. broadcasters are suing area 04 veriong signals and -- four stealing signals and selling them over the internet. a struggling retailer has -- american apparel has fired doug misconduct. alleged shares of black hairy up as much as 14% today, the smartphone maker reporting a smaller loss than estimated. the ceo has been cutting costs and selling assets as well as trying to reduce blackberry's dependence on its falling smartphone business. >> a big day for house

republicans as they choose a successor to eric cantor, a decision the business community is watching very closely. the favorite is californian kevin mccarthy. wins, there will be a vote to replace him as whip. that is a three-way race between the chief deputy whip and two more options you see here. with us to talk about the future of the republican party and the implications for american industry are two former members of congress. tom daly is a republican who represented northern virginia from 1995-2008 and mark ross who served virginia. theirpent time in hardee's leadership teams. tom, let's start with you. impact will these votes -- we assume there will be

2 -- how much of an impact will they have on the direction of the party? >> i don't think any of -- they are just filling the void between now and november and the members will see how the party does between now and november and come back for another round of electioneering. anythingvote is unlike the media portrays it to be. its friends and better friends. i have one that -- i have won two of them any only person you can believe is the one who looks you in the eyes and says i am voting against you. it is a secret ballot. some of the more moderate members are supporting skill lease because it feels like protection money. conservative as protection money. other support roskam. it will be close, but there are

of course regional and philosophical ramifications. >> i won a race in the democratic caucus by seven votes out of 200 cast. some members do tend to double commit, so you don't know for certain until it's over, but it is in court and for the republican party because john boehner has had his difficulties. this gives him a fresh start. maybe this will be good for boehner. i don't know how tom views that, but mccarthy is generally a well-liked member. he has counted votes before. he could certainly do the job of majority leader. and if republicans can use someone from the south, that is helpful to them. >> the relative calm i am hearing from both of you on the elections coming up today, but what if we have a tea party candidate make a good showing?

will that shift the dynamic in congress? recs you have to make some accommodations to the tea party faction. we need to unify this caucus. it is a difficult job for the speaker to do that. skalise's major arguments. you need somebody from inside that group to bring inside the leadership. but whatever happens, roskam has said he would take a southerner as his deputy whip. i think there is a realization that united they can move forward. they hang together or hang separately. >> the interesting thing about all of this -- and we don't know exactly what happened in the cantor race, but he was seen as being very close to big as this. if there is any message out of that, to some of the republicans , maybe they don't want to be

quite as cozy with wall street as cantor was. >> i don't think it had anything to do with wall street. i think it had to do with the fact that his constituents in the south wanted somebody to stand up to the president, and when he started raising the debt ceiling and reopening government, that is not what his constituents wanted. thatu may be right on point, but often perception is reality, and if the perception is that eric cantor's proximity, let's say, to big business and wall street in particular help , want thehim there party move away from the things he stood for? recs i don't think the party is going to move away from that. dna, we are a free market party and the democrats are a party of organized labor at its roots.

i don't think it is going to change the dna. >> maybe not what he fundamentally stood for, but practically speaking, right, he favored some form of immigration reform and was very public about that. he wanted to do exporting. there are other issues that are going to confront the republican party like highway funding, government funding, the debt ceiling. eric cantor's position was certainly not that of a moderate on all of those issues that he was much more moderate than most to party members would claim be. >> eric turned into a pretty good leader because legislatively you have to produce a product. he turned into a governance guy in a constituent where people did not care about governance. they want to blow the place up. there is a huge frustration in middle america, particularly in the southern exurbs at this republicans need to

harness that energy. we are good at doing that against democrats. >> the net result of all of this is the congress is going to do the minimum they have to, pass a continuing resolution, do something temporarily am a highway program, and then get out-of-town and go campaign. i think it's going to be a very unproductive next couple of months, and i think the leadership struggle makes it even worse. casertin you raised the about big business versus congress and you mentioned the highway builders. the export-import bank issue as well. what kind of friction do you think we will see between these issues and congress? >> it remains to be seen how the elections play out. elections have consequences. most people think republicans

will pick up a few seats in the house. i think it could be a wash. a lot depends on what happens with the united states senate. that is far from over. republicans have a chance. let's see where we are in january and february. you can't predict those issues right now, but tom is right. angry at congress. the question is does the newly elected congress reflect that to deal does it tried with those issues in a constructive way? todayults from gallup show the public faith in angress is not just at all-time low, seven percent, it is the lowest ever registered for anything. >> you have to read into cantor's defeat. he was not just a member. he was a party leader and party leaders are not popular today. the tom said they do the

minimum. i think they do less than the minimum. that is long as the public tolerates it -- one of the major issues on immigration is you have almost one hundred thousand undocumented kids coming across the border and that has raised the hackles and made it more difficult to get a bill through, even though the status quo is entirely unacceptable to everybody. >> and we don't know how much foreign policy is going to distract the president and congress in the next couple of months. iraq is a mess. we don't know how they're going to resolve that. the situation in ukraine is going on. members of the house do not want to be concerned with foreign policy, but when you combine that with public attitudes, nothing is going to happen in the foreseeable future. >> gentlemen, thank you for joining us. both served for many years of

the house. the leadership election starts at 2:00 p.m. eastern. we will have full coverage on aoomberg television with special edition of bottom line with mark crumpton coming up. , what t-mobile does on the day amazon reveals its smartphone. trouble at the world cup. this is market makers on bloomberg television, streaming on your tablets, bloomberg.com, apple tv and smart tvs.

>> you are watching market makers on bloomberg television. i am erik schatzker. twitter wants to become more useful to the television adustry so it is acquiring video startup, snappy tv.

snappy is already used with companies that work with twitter. has signed comedian chelsea handler to host a late-night talk show. she will also produce a number of specials for netflix. she is ending a seven-year run as the host of the e channel's chelsea lately. returned tosite service today after being disrupted for half an hour. facebook acknowledged the trouble but isn't telling us what caused us. >> a big week in smart for mourners. amazon made its first foray into the fire with its smartphone. the always outspoken t-mobile ceo, john leger, grabbed the spotlight by saying he would allow customers to testdrive the iphone for free without buying it, along with a music streaming

service. i am assuming he kind of jumped around, did a dance, muttered some things, yelled at people, what happened? what he was talking smack for days leading up to the amazon event. he was not happy about the exclusive contract with at&t. sameey had their event the day that amazon revealed their phone. the amazon phone boring. they had a nighttime event and threw a big concert with macklemore where they announced customers ability to testdrive phones. was screaming that exclusivity sucks. exclusivity sucks for the industry. but what did he think about the amazon phone? >> i was excited. i was expecting something big, and you know, i mean, i kind of saw an old business model,

two-year contracts, exclusive with at&t, a phone priced as high as anything in the market. i was confused because as a prime customer, i thought they were going to give me a phone, that they gave prime service to other customers. i did see that the phone allows you to point at things and tell you what you are seeing. i am, i usually know what looking at. i am not sure having that phone telling me what i am looking at is going to help. thee is talking about feature where you can point the phone at anything and it will tell you what it is you can take it back to amazon and buy it. he does not think it is such a big deal. >> it's a big deal because he doesn't get to sell it. butler, a is john bloomberg industry analyst. by the way, later today you can see the entire interview with john leger and emily.

underscore the competitiveness of the smartphone wars and the saturation in the u.s.? >> my feeling with amazon is if you're going to take share from apple and samsung, you have to come at the market very hard. it is a brutal market. it's overcrowded. is athey came out with conventional smartphone at a conventional praise. my feeling is if you look at amazon, at their heart, they are a retailer. so what they are after is increasing the average transaction for the prime customer as opposed to winning a monster share in the smartphone market. it is not going to take that many phones to get them where they need to be. so should we actually be talking about what happened last night as less of a product rollout and more of a pr battle?

>> i think it was a real product rollout. it's competitive, but it's not a share stealer, let's put it that way. >> why not roll out apple or something? app or something? >> he gets them closer to their customers. jeff bezos was saying i want to develop a device for heavy amazon users and prime users. he did not say existing smart phone users. that was very telling to me because what he is looking for is the connection with the core customer base. amazon says they want to decrease the amount of time between i want it and i have it. if you have to go through a competitors phone in the mobile world to have that, it is going to slow down that time. the phone, you own

the customer and the easy button gets that much bigger. >> emily, you're out there with all the geeks and the tech guys. is anybody going to buy this phone? of reactions,ot everything from neato, that's kind of cool, too this is going to be a disaster. i heard someone say it might be good for your grandmother as a gift. >> ouch. >> you have to think about the the phone doesn't have, google maps, instagram, snapchat. why would someone give up their iphone to buy this? i have an amazon prime account and buy a lot of stuff on amazon and it's not that difficult. i don't know that i want a phone to make me shot more. the other question is, the features that do differentiate

holographic images, do people want to see that every day? do people watch 3-d television every day? not really work out. jeff bezos talked about this. >> press and hold the lock and upbehind your pin comes firefly. the fireflies get released and they immediately start recognizing. >> the idea is that this phone makes you more connected to the amazon universe. a lot of people already are connected to the amazon universe. mark was quoted as saying he thinks we will look back on smartphones as a transition to ubiquitous computing. so does it matter has this -- how this phone specifically does or is it a step in the right direction? he don't want to leave it to apple and samsung, but there is still a big question.

who is going to buy it? >> so, if the phone is underwhelming, can we expect fb is asked to do with the fire phone what he did with the fire sosa -- jefff b fire phone with the what he did with the fire tablet? >> you either need a brand that is already established like apple or samsung -- amazon doesn't have that, or you have to have a low price. i think over time the price of this is going to come down pretty quickly. >> $200 is not enough right now, but over time. >> $200 is a lot with the conventional contract. >> tune in later today because emily chang will have interviews with john leger as well as the john jen. ceo,

you don't want to miss it. up, believe it or not, this marijuana is owned by the federal government.

>> we are approaching 26 past the hour so it is time for bloomberg's on the market. one place we want to highlight his american apparel. this ceo has faced accusations of sexual harassment. the firm's largest outside investor says he expects journey -- mark his firing and charney to fight his firing and that could be a prelude to a sale. i don't think we have heard the i really down.

>> he is not the kind of guy to go gently into the night. >> coming up, what do investors know that we don't? we will see why the money is pouring in. ♪

>> live from bloomberg headquarters in new york, this is market makers and stephanie ruhle. >> good morning once again. i am erik schatzker. >> and i am alix steel in for stephanie ruhle. she is missing a really fun show today. >> she is indeed. we are going to talk about hedge funds. returns a relapse for years, not so great, even if you don't to the s&p 500. our friend is here. he is a former hedge fund manager, now a professor at

columbia's business school. also with us is the founder of a global consultant for the hedge fund industry. gentlemen, welcome. of theet something out way. hedge funds are not supposed to outperform the s&p 500. people make that comparison anyway. are they trying to outperform? >> the most recent study done, the results could not be more for peoplely opposed who keep comparing them to the s&p. 59% of investors are looking for uncorrelated returns. 84% feel that if you remove hedge funds they would have a higher level of volatility. when you look at them, almost 60% are looking for a return somewhere between three percent-five percent a year. and they are measuring that over

a three year or longer environment. it is simply not an s&p relative product. the happiness of investors -- 84% are either holding or are looking to add funds. >> so if that is the standard, how are hedge funds doing? are doingly, they good. most institutional investors are happy with hedge funds. each year, institutions sit down and analyze asset allocation and come up with forward-looking return assumptions. most pensions have 25-36% fixed income. most hedge funds have more of a four percent-seven percent return. as long as hedge fund returns are higher than fixed income, you will see people go into that. last year, they did about 11%

above expected returns. that's why they're happy. >> only seven percent of investors are looking for high returns from the hedge funds. are measuring purely on a return basis, let's put it that way. 45% out there are measuring on a live our pus or t-bills plus environment, which is not relative. >> are there some strategies outperforming others or doing better than others. >> credit, credit, credit, liquidity, long liquidity, credit. are investing as well. >> may have done well and they have a lot of eta. they don't tend to hedge the positions. if you look at the overall activist indices, one of the challenges -- the area with the most interest is long-shorts.

the second largest is macro funds. activist, although money keeps flowing in, is an flowing in at the rate you might thing because the correlations are so much higher. alongsidectivist fun are not hedging the positions. it's also very challenging for merger arbitrage or and event driven strategies, it is a challenging market. those indices are only about two percent, very small. >> do you see investor money flowing into hedge funds that have underperformed or performed poorly, generated negative results, negative returns, for example? bloomberg covered this in depth yesterday. tudor for example. fortress hasn't been doing so hard.

do investors look at that as an opportunity or a reason to invest with other people? comes from money institutional investors and they are buying brands. they have too much money to manage. they can generate the same returns they could when they were small. i think it's a big issue for the hedge fund industry. i think the smart money, family offices, funded to funds, they tend to invest in smaller, more nimble managers, and they are looking at managers not necessarily with the most to -- hist track records, store it track records, but the ones who are going to be -- records, but the ones who are going to do the best going forward. >> look at the move index, the bondility index, the

equivalent of the vix, not quite the same. but it is extremely low. extremely low levels of volatility. what we see is every time they reach these low levels, eventually they start to turn around. as the fed starts withdrawing and the european markets continue to flood, you're finally going to get a divergence globally, and you are setting up. make youplace they can money in that place is macro. it,hey love it, then hate then turned back again. >> when the world is awash in money and everything is running parallel, it is hard to do. but macro is the second most queried strategy after long-short. people are starting to think you know what? if this thing turns, i need something to make me money, and macro is the place to do it. >> equity valuations right now

are near historical averages. we're going to see return trades on the s&p between four percent-10%. that is where managers can make that money on the shorts. we just had a strong bull market. there's high correlation between stocks. i think the correlation is going to decouple. i like lending. --ike margaret neutral market neutral strategies. i think there are ways to make money, but most of the markets are pretty expensive. >> you talk to top hedge fund managers and advise some of these men and women. what are they worried about? >> the market is extremely competitive. if you look at peak when data, only five percent of assets have funds and to hedge only one percent are going to hedge fund managers with $100 million or less. smaller ones have significantly

outperformed larger ones. small ones are having a hard time raising money. >> i might take the other side of that just for fun. i think a lot of strategies like direct lending and structured credit require a lot of continued liquidity. up, theuidity dries credit risk inherent in the direct lending strategies and and structured credit can come back and be painful. of verye a lot successful, smart and bs guys who trade without credit risk, on the guys trading low-end can find themselves on the wrong side of the cycle if and when the fed ever actually does have to decrease global liquidity. >> the only comment i would make is that if you do direct lending, make sure the structure is similar to a private dead vehicle with a very long walk up , because you're correct. that is not liquid. it's like private equity.

in 2008, firms got in trouble because of liquidity. you need a long lockout. >> gentlemen, great conversation. thank you so much. president obama is meeting with his national security team about iraq. we will hear from him in less than an hour. ♪

>> president obama is in the situation room meeting with his national security team ended in about 45 minutes he is scheduled iraqdress the crisis in with the media. a press conference scheduled for 12:30 p.m. our white house correspondent phil mattingly is standing by. ifl, everyone is wondering the president will decide to do anything. >> that is obviously the big

question. there is a pretty safe assumption here that something concrete is going to be announced at 12:30 p.m. he is obviously meeting with his national security team, as you said, the top people from defense, homeland security. through options, including a pentagon proposal to send 100 or more special operations troops primarily for training and targeting and purposes,ce gathering not combat purposes, the one redline the administration has set. oilfield thator there is now believe the militants will be able to take over. he also reports saying the you alsoot access -- have reports saying the militants got access to a military site. in terms of a situation that increasingly is becoming tenuous

for the administration, they're obviously facing it right now. it will be very interesting to see how the president faces that and what concrete steps he takes. >> is it possible that the u.s. government is going to demand the resignation or the exit of ?he iraqi president will that be the substance of his remarks? >> the administration has been delivered in starting to move itself away from the prime minister. the administration is facing extremely uneasy allies in that area from the united arab emirates to saudi arabia to jordan. relationship with the clearlynd the kurds is problematic. you have heard the administration start to move themselves away from him.

if the president takes that step, it is a very big step and puts the u.s. more into this than i think the administration wanted to be. however, i think we have reached that point, or are at least coming up to that line because they have allies in the area who are extremely unhappy and nervous. >> white house correspondent, phil mattingly. you can watch president obama's statements live on bloomberg television at 12:30 p.m. eastern this afternoon. we have a lot more coming up. >> we have fun things coming up. it is the premier soccer league in the world and one of the most frustrating national teams. we will see why england just can't do better at the world cup. ♪

>> this year's world cup has been full of the prizes, but here is no surprise, the continued struggle of the english national team.

blame it on a growing middle class and the shrinking talent pool. jonathan, you are a brit. explain the problem. >> if you need an excuse, here is one. we have a saying here in the u k soccer is aly goes gentleman's game played by thugs and rugby is a thug game played by gentlemen. there is a class divide. in the u.k. schools play rugby in the winter, cricket in the summer, and do not play soccer at all. straightaway, you are restricting the talent pool. to the working class, and this is something that has played out over several decades, and it has meant that the majority of players on the team are from the working class and you're cutting out a whole sector of society. 85% of the players on a world

cup team are from working-class class backgrounds, which is a much higher proportion than the actual working class population of england. there are a lot of concerns about the anti-intellectual approach to the game. after a hard days work, we want to drink and eat fish and chips. the whole approach is why they to theompared netherlands. >> other countries put together a point system, gdp and population that outranks them. >> look at uruguay. they are the number one team when it comes to fee for points per population. but when you look at experience, which countries have played soccer for a long time? usa doesn't do well at all because we don't have a lot of experience. but look at england.

they should be better. but there's an issue where coming you go back a generation and 70% of the population got out of school by 16. now it is the opposite. t 16.tay in school pas >> things are changing slowly. a lot of players on the roster have a private school background. >> there is a precedent for that. >> and there are imports as well. there is a famous story of a player joining chelsea and looking at the food and chips and burgers and saying what is going on here, and they changed the whole lifestyle. they got the good food. a lot of football players in england are much more professional than they once were. but we talked about it earlier.

2010, the english football team went down to south africa and were arguing because they wanted a night out and wanted to go for a beer. >> you know what he will be doing in just a few hours? watching the game. >> i will be, but my little teams are separated. >> market makers continues. ♪

>> that is going to do it for market makers. alex, thank you very much.

pleasure to have you here. you may have noticed the reason alex has been here, stefanie was not here this week. she has been in the south of france for the big creativity advertising festival. more on market makers. you will see her again. she will bring you some of the big interviews she has been doing. >> a tough job, but someone's got to do it. tough interviews, but someone's got to make it happen. i'm excited. it's time for him markets. the new market correspondent julie hyman has the latest. >> time for action inside. stock markets are trading little the recorday after we had yesterday on the back of janet yellen's comments. also yesterday, another pullback on the vix. aboutime to its lowest in seven years, a little more than seven years, in fact.

andrew keen,w is president and founder of keen on the markets. aboutne is complaining the vix being so low. but you have found that silver lining in the vix being so low. x is contained right now. about every month a goes a point higher. you might say it goes too low, but you could use that as an opportunity to buy some calls against the portfolio. a market has been on fire. it seems like every day it wants to go higher. we are shaking off news from iraq. use that as an opportunity to maybe buy some puts against your position. no one says you have to initiate long positions, but when it is hurricane season in florida, people buy insurance after the

hurricane. -- don't you buy it the for? before? having insurance inside makes sense -- insight makes sense. >> your argument is that hedging against or hedging for that sort of event, a pullback, is relatively cheap right now to do. >> absolutely. policiesinsurance against any asset you own, house, jewelry, car, home, why not have insurance against a basket of stocks? being lion the market continues to work. long on the market continues to work. >> let's talk about an individual stocks it's on the move, blackberry. an interesting story reported narrower losses than estimated. people were giving it up for dead. or options traders caught off guard by this? more call activity

than put activity. the losses were not as bad. big volume day today, about 40.5 million shares traded. on calls ony long nokia. i think that represents a better opportunity. if blackberry wanted to get bogged, which i think would be there and goal, they probably would have gotten bought already. this has actually been underperforming in the market this year. >> finally, i want to get to your trades. utilities have been the big al performers this year. as interest rates -- big out performers this year. as interest rates remain low, people are looking for yields. every single day iwatch institutional order flows and unusual activity trades.

in anday, a trader came bought 12,000 august 46 calls for $.12. there might be a big rotation and shift into utilities. >> we have already seen that shift though, haven't we? >> no, you still have a 4.6% dividend. unusual activity. i think these stocks are headed higher. >> have to leave it there. thanks so much. ♪

>> welcome to money clip where we tied together money news. amazon fired the latest shot with a fire font. meanwhile, chile shows little passion on the field and off. and out the door, the board of american apparel cuts loose its controversial ceo. thele glasses going into operating room. that's part of our wiring the world ri