>> live from bloomberg headquarters in new york, "market makers" with our chapter and stephanie ruhle. > -- with erik schatzker and stephanie ruhle. >> burger king buying tim en buffett helping to finance the deal. >> will a meeting between ukraine and russia do any good? >> you might say he has time on his hands. meet the last great american watch maker.

you are watching "market makers" on bloomberg television. i am erik schatzker. >> i am alix steel, in for stephanie ruhle. we're looking at burger king, tim hortons as well. and canadian dollar terms, it is $89.32 a share. this is a whopping premium. if you go back to tim hortons -- >> whopping, good one. >> 39%. clearly the brazilian billionaire behind the three g capital and burger king sees huge opportunities for canadian coffee and doughnuts. >> it doesn't hurt that warren buffett is interested in the deal and is backing it with $3 billion worth of financing. >> i think this is one of the most curious aspects of the deal. they have a history because

buffett participated on a preferred equity basis and the 3g capital. heinz by what we don't know yet are the terms of the preferred shares. when does buffett go into a deal and not get -- >> what he wants and more? >> the difference between this and the heinz takeover is that burger king more mena publicly traded company, here in new york and also in canada on the toronto stock exchange. street art --s street terms, wouldn't he have like the opportunity to but is a bit on the same basis? >> you would think. i'm wondering if we will see a whopper doughnut. >> i sure hope not. >> 2 different companies. erik will eat it, for sure. >> as i contemplate that

discussing possibility, the top stories from around the world. home prices are rising at a slower pace. they rose a little more than 8% for the year that ended in june. smallest gain -- 12-month gain in a mostly run have to a separate report of consumer confidence came out months ago and confidence rose to its highest level since 2007. plannedsays its acquisition of time warner cable should be completed early next year. it has to -- all of do with regulatory approval. offst a year after it went the air, "breaking bad" was the big winner at the emmys, winning five awards, including top drama and it best actor for bryan cran ston. a big surprise, no wins for netflix. >> it is the day that traders have been waiting for. again the s&p makes a bullish run, finally reaching 2000.

will that run continue today or is it yet another fake out? joining us is the senior u.s. equity strategist at wells fargo. and a professor of finance at the wharton business school. on kind of get a bearish rap wall street because you get a 7% decline on the s&p by the end of the year. 1850 isn't necessarily perish. -- bearish. however, what role does the fed plane to that outlook? >> thank you, by the way, for calling me a relative bear, because i have to bear that label. nonetheless, our forecast is basically an tengion up on the fed. -- basically contingent upon the fed. it will lead to a little bit of inflation pressure. probably sparks some move at the fed. after five years of this incredibly accommodative policy rate, that causes some hiccups in the short term.

it is not an into the bowl market, not the most bearish call in the world. in the short run, when the fed is shifting policy, and usually causes a cup -- usually causes hiccups for stocks. >> would you agree that it all comes down to the fed? your view of whether the stocks continue to rally or are poised to fall totally hinges on the bias among policymakers at the a form see? -- at the fomc? perhaps stocks are on their way to a drop. if they are not, if they remain dovish, if they don't see cuts of inflation on the horizon, it is full steam ahead and the rally keeps going. think this rally keeps going. the fed is one factor, to be sure, but earnings are looking very good. the second quarter is good. we have been getting some very strong economic indicators over the last couple weeks. the second half of this year,

looks at 3.5% gdp growth. earnings forecast is 120 for the s&p 500. 16.5 times earnings. as the fed going to increase in march to 50 basis points or august to 50 basis points? 50 basis points is extraordinarily low. by any historical standard. the 10 year rate, 2.5 now, it goes to 3 -- that is still extraordinarily low. hiked athink that a fed little earlier or later is going to be a big thing for this market. >> can you tell us a little bit about the economic outlook and would you are seeing signs of glowing -- growing wage inflation pressure and what that might mean for the timing of policy? >> i was a little bit worried a couple months ago. ondid get some hotter data

the producer price index and the little did on the cpi, look at what has been happening to oil and the crp index, commodity , over, gasoline prices 50% of the game they made from november all at april. i think we will see those headline numbers on cpi actually go considerably lower. there was a little bit of an inflationary flareup, but it died, which is pretty much what janet yellen said we are not concerned on the short run. things like that would arise at any time, but right now i think that deflation will -- inflation outlook looks very favorable. >> something you have talked about his profit margins for companies. it seems to be a concern for you . talk little bit about that. >> i think it will be about trade-offs. can we get a strong acceleration

in underlying economic growth to offset the pressure on interest expense? tda margins ared following. you are getting a little bit of a conflicting picture there. the difference is taxes and interest expense, largely. interest expense and low rates to hightributed margins. if the rates have to go up relatively rapidly, interest expense can go up as well and the grade those margins -- degrade those margins to some degree. that is the trade-off we have every time the fed starts to move rides. fed has been sitting at zero for five years. and that had consistent long-term declines in interest rates. if those factors shift more rapidly than expected them you could have some destruction.

>> every investor should be considered about operating income and cash flow so the ebit da issue is a relative one, but countries can continue to be creative when it comes to manufacturing the income, whether it be through inversion deals like burger king or any number of other strategies that they have taken successfully thus far. >> that absolutely can be and they have been for nearly two years. >> and they have a fiduciary response ability. >> they are responsible to their shareholders. you have to get revenue growth to recover. i think we are on the verge of seeing that growth. it is a balance of revenue, a balance of interest expense. how does it all impact the bottom line? >> professor? >> i was going to mention that the good news about rising interest rates is that firms

have done just what we have recommended to homeowners, fixed-rate long-term, 80% of the liabilities are now fixed rate 50% 20rm, versus only years ago. they have moved considerably to locking in these low interest rates, and interestingly enough they are sitting on over a trillion dollars of cash. if the short term rates go up they might actually do a little better on earning on that cash side. i don't think the early stages of interest-rate expense are really going to do a lot to squeeze margins going forward. a lot of the margin increase that we have seen is the greater foreign sales of the s&p 500. they have higher margins because they have lower corporate taxes, as we know, a broad. the tech sector has gotten bigger and they have large margins because of the way we calculate expenses. those trends are not going to reverse.

i don't think we are going to get a reversion back to 1997 margins could i don't think that is going to be a big worry for investors going forward. >> interesting debate, guys. at the end of the day we still have to invest in to grow, right/ thank you so much. >> coming up here on "market makers," the leaders of russia and ukraine are at an eu meeting to talk about trade. will that give them an excuse to talk about cease-fire? >> what a difference a month makes. bill ackman -- we will tell you why. ♪

high betweenre

ukraine and russia as leaders meet in belarus today. -- poroshenko says that he believes the talks will yield progress even as both governments accuse each other of committing acts of war. hans nichols is in minsk. obviously, this was not a friendly meeting. it was not a one-on-one, it was a group meeting. saying both began by their pieces. putin focus on the economic aspects, mr. porsche ago focused thehe political aspects -- economic and structural integrity of ukraine. there are a couple of important developments i want to tick off. in kiev, the government has released a videotape of what they say are russian troops caught inside ukraine. that is significant for a couple of reasons. for good it is

also significant for what happened inside moscow. agency quoted russian officials as saying that there are russian troops but they were in ukraine almost by accident. there's a third development, that the u.s. investor in ukraine is tweeting that russia may be prepared for a larger land incursion to win back territory, because the fighting on the ground is very much going on. it is a very tense backdrop and they are in a group meeting right now and they may break up a little bit. there is a lot of focus on whether or not there is going to be time in mr. putin and mr. poroshenko's schedule for a one-on-one meeting. if they come out of this meeting and after group statement, that means there is been some coming together on views. if they come out of this meeting and everyone issues individual statements, it will be less likely that there will be one-on-one talks between mr. bruton -- mr. putin and mr.

poroshenko and that these techs will go anywhere of any substance. >> can you talk about what pressure european leaders might be under to reach some kind of deal as we head into winter and sanctions might be ramped up? >> european officials are here. they are clearly concerned about the global and european economy, especially in germany. no one doubts that the conflict has taken an economical. aspectnderestimate the of natural gas coming through ukraine. a cold wind will be sweeping across these planes in a couple months matting towards western europe. they need to the russian gas to keep themselves warm. the natural gas of energy will become increasingly more important. >> absolutely. thank you, hans nichols, joining us from minsk. >> no cease-fire, obviously. my question, so what?

obviously, the stakes are higher in ukraine than they were in, say, georgia. what the dispute remains contained an expert on the region, an analyst at the eurasia group -- what if that happens? what if they don't turn this into some larger land incursion, the threat that hans just raised there? it is a matter of militants on the border fighting with ukrainian forces in a relatively small area. >> there is an increasing likelihood of this moving into a frozen conflict, like we saw in azerbaijan or south ossetia in which you see parts of ukraine not under the control of the ukrainian government functioning in one way or another as a client of russia but russia not taking direct response ability either. that would suit the russians

very well in the sense that you can ukraine is important to ukraine economically. if poroshenko doesn't have parts of ukraine under his control, honey 5% of gdp comes from the eastern part of the country -- 25% of gdp comes from the eastern part of the country. >> because it is so agriculturally productive? >> the industrial regions are in the east. >> why haven't we seen the red line, though? we hear that he has a videotape of russian troops crossing the border. why is not huge red line? >> from the beginning with the west has talked about trying to prevent an invasion of eastern ukraine, that that this idea of a massive land war invasion with hundreds of tanks and divisions crossing the border. that is not really how russia has played a strategy out. russia has armed separatists in eastern ukraine. you heard hans say that russian soldiers accidentally crossed the border -- perhaps they

gotten lost. it is not credible will stop it is a shadowy way of conducting a campaign that stops the -- slips through the cracks. putin has played that effectively. strategy --y, the back to the point you were making about a frozen conflict -- it is a problem for ukraine if they lose 20-20 5% of gdp. if that production is in effect conferred on russia. but beyond that, it would appear to become less of a threatening situation then it either seems to be right now was a few weeks ago. >> i think the concern economically for europe, as hans mentioned, is the gas question. there is also a question of geopolitical president -- geopolitical precedent. the eu wants to send a message

that russia does not have come in effect, a veto over the geopolitical decisions of countries on europe's periphery. that is why it matters so much to berlin -- >> if that is the case you have to be compared to defend the sovereignty. -- prepared to defend 70. >> there is a limitation to how far they are willing to go. russia is willing to commit hard assets and military resources to the problem in a way that the west is not. the kremlin is banking that over time, the fact that it matters more to russia more than the u.s. -- >> it is a war of attrition. >> how does this wind up playing out with the nato countries like poland and latvia who have to be more concerned than germany? limity do but there is a to how far russia is willing to go. russia does not want conflict with nato -- >> are we sure about that? can we say that with absolute certainty? >> we can't say anything with

absolute certainty. but i strongly suspect that the kremlin does not want a military conflict with nato, and ukraine is not in the nato and that is part of what this is about, that russia wants to ensure that ukraine never joins nato. this from at western perspective, west of the ukrainian border, how risky does this appear? how much of a problem as opposed -- does it pose? >> a huge risk internally for ukraine. president poroshenko is under huge pressure with elections under way end an increasingly deteriorating economic situation. it is important to look at the political incentives that poroshenko is facing. cede thingsnko con to russia? he can spread very difficult to make compromises at all -- he can't.

very difficult to make compromises at all. how can anyone save face? >> outtake anyone can save face at the moment. >> thank you very much. >> "market makers" will be back in a few moments. lots to talk about, including whopper doughnuts. . .

>> coming up, burger king prepares to head north. we will look at the tax of images of heading overseas or overland, are driving acquisitions. >> warren buffett is now helping to finance tax aversions.

>> live from bloomberg headquarters in new york, this is "market makers." schatzker. ix steel.m ale >> the pressure companies face to minimize tax bills, in an era of slow sales growth. the competition to lower those companies by cutting corporate tax rates. here with us in new york is a partner who specializes in mergers. we have jack mantz who is taking

a victory lap this morning, because he was partly the tax reform that succeeded in luring burger king. in the absence of corporate tax reform this country, we have seen it elsewhere, in canada, and others, do companies have any choice but to do the kind of deal that burger king is doing to tim hortons? >> companies that are global players and that are competing outside of the united states -- something they have to think about. they have do what is in the best interest of their shareholders. the waye to look at they look at refinancing debt. they have to look at tax policy. tim geithner told us that for the presidential election, this will all be dealt with as part of corporate incentive -- conference of tax reform. when congress was reelected,

obama was really to come at two years later, no conference of tax reform. -- comprehensive tax form. i think companies are looking at what they have to do to be competitive globally. >> eric is wearing his canadian cufflinks. see this mean we will canada get more involved with american companies? make more enticing orders for them to come across the border? >> and not sure canada needs to do that. we've already enticed americans to shift their income into america. ira member a couple of years ago we gave a speech in toronto about the corporate tax reform we have done. send several companies e-mails to me afterwards telling me how they shifted income from the united states and the canada.

now with inversions, you're getting a totally new story, which is you was company's decide to buy up a canadian company, and effectively move the headquarters into canada. thereby making it a canadian company, and basically undoing this major problem in the u.s. system, which is the current treatment of foreign sourced income earned by market corporations. >> jack, you are an expert on tax policy. is the corporate tax regime in canada right now really that much more attractive than it is in america? kpmg have done studies to try and cut through what would appear to be an apples to apples comparison. u.s. at 39 .1, canada 26.5. we know that they don't pay that. but we don't know really is how much more attractive the canadian tax regime is in the american one.

work intually do canada, in fact, we compared 90 countries around the world. the united states has one of the highest effective attack rates on new investments -- tax rates on new investments. it that canada has made much more attractive? our corporate income tax rate has fallen from 43% in 2000, down to twice 6% -- 26 point in canada. the u.s. rate is 39.1%. cost have similar capital allowances. what is also important is that we have eliminated capital taxes on canadian corporations in the nonfinancial areas, particularly

we have adopted value what a taxes in most of the provinces. we've eliminated a significant capital tax that still remains in the united states with three till sales taxes. the united states is out to lunch when it comes to the corporate tax system. it is the most onerous one in the world. in canada is in the middle of the pack. many american corporations who know canada, we are very similar in culture, we are next or neighbors, they are looking at canada and saying maybe it is time to move. and set up shop in canada. >> frank, when you talk to companies, how concerned are they about their corporate tax rate? you could argue that burger king moved in the canada for other reasons.

it's a low margin business, it's food, you won't get a big tax arbitrage for that. >> the main thing we have to of her is that these transactions are happening primarily for strategic reasons. we are in a low growth economy. companies have cut their sg in &a. the way to do that is by inorganic growth. that is the main mover. thatig thing about this is companies, particularly multinationals, are looking for maximum flexibility. rate is important, but what is really important is having flexibility to be able to move your cash in and out of the country. the deal withng covidien, they were going to be able to invest $10 million more in the united states over the

next five years than they would have been able to had they not done the transaction. >> is that the ultimate indictment of the american corporate tax system? >> like so many things in washington, it is a political discussion as opposed to an economic discussion. it needs to be an economic discussion. what is going to be best for u.s. companies? u.s. shareholders, u.s. workers? >>'s strategy is a critical element -- if strategy is a critical element goes into deciding whether to do the deal, should we expect to see more companies looking at canada? or is it going to be what we have seen by now, pharmaceutical doing a manufacturers deal with economy based in europe? >> i think that first and foremost, what you do is you look at one of the options that acquisition, for

a merger. and then you look at the jurisdiction. tax planning is a whole mother art or science. target, andthat then you find out how best to structure the deal. >> i'm curious, when you take a look at canada's economy. the benefit that we have seen from this lower corporate tax gdp at if i look at the canada versus u.s., they are mainly the same. is there a trickle-down effect? >> studies have shown that our corporate reductions, and other reforms we've taken in the past decade and a half have led to more investments in canada. and a better business climate. many companies are looking at the canadian economy is a place to set up shop and do international business as a whole.

i think there certainly has been some benefit in that way. also, governments of not lost that much revenue. revenues,k at for tax as a share of gdp, despite the significant rate cuts we have had, that ratio has hardly changed -- around 3.5%. even in the recession of 2009 in canada, where profits of the sheer gdp fell, or taxable income actually rose. and it's pop -- partly because of this lowering of corporate rates. many companies are finding a better to keep their profits in canada rather than shifting it to other jurisdictions. that has been an important benefit. >> jack, we think of her joining us this morning. "market makers," with erik schatzker and stephanie ruhle. -- jack mintz joining us from

canada. let's talk about warren buffett's role as a financier. we are in seattle this morning. this is not the first on the buffet is jumped in to a situation like this. he provided some preferred acquisition financing to heinz. he did it for dow chemical. but this feels different, doesn't it? >> yeah. he has done this before. he has used berkshires balance sheet to basically become a source of financing for acquisition. he is also done it for deals during the financial crisis. he injected liquidity into goldman sachs. this is different, because this is the second time he has teamed obviously they are the controlling shareholder in burger king.

example of what he is trying to do with the $55 billion that is piled up in his company. >> frank, wire berkshires dollars better than your dollars -- why are berkshires dollars better than your dollars? they can't go to the banks for more debt financing, or can't do something it can -- akin to a rights offering. offering existing shareholders the ability to buy preferred. it may come with an attractive orange. -- warrant. >> could borrow elsewhere. but when you borrow from berkshire hathaway, it's not just borrowing and getting the cash. you are getting a strategic partner. and that is what these companies have gotten in berkshire hathaway.

>> that was my question. is he going to get a say in his company, or is he going to stand back and let 3g run the show? >> i think he will be hands off. he made that pretty clear in the statement. if you listen to what he said about heinz, he has really let 3g run that. time, he's going to be available for them if they want to pick up the phone and ask a question. having the benefit of his involvement. >> does this put him at odds with the obama administration at all? >> that is a great question. opticscts year -- the here are tough. out whato separate buffett does on berkshire's behalf, and what buffett does and says when he is espousing his personal beliefs and philosophies. he does run berkshire in a way that is tax efficient.

he has done a number of deals over the past several months that you could argue were done to limit berkshires tax bill. at the same time, he will have to pay u.s. taxes on any proceeds he gets from this investment. that will roll up into berkshire hathaway, which is based in omaha, nebraska. he has never said anything about moving berkshires tax domicile. we payclosely should attention to this growing partnership between buffett and the brazilian behind 3g capital? >> they are good friends. they have been together in various pursuits for a number of years, since they were on the gillette award -- board some time ago. >> will they do big things? >> they already done a lot of big things. >> i think this is something we have to pay very close attention to. 3g has a really deep bench of managers, and they are obviously

out there and very inquisitive. this is one of the key ways that berkshire is going to be getting money out the door. >> covers burt for seattle. here in new york city, frank aquila, a partner at sullivan and cromwell. >> coming up, a you to remember remember.ear to a chance to say i told her so. -- i told you so. ♪

>> besides buffett, there is another high profile player in the burger king deal. made 20% on his shares yesterday. i think a back man, i think of all the bad headlines we've seen

this year. ackman, and all the bad headlines we've seen this year. but he is done really well. >> he's up 30% on the year. it's not his best year ever, but he has outperformed the market, which is better than we can say for a lot of other hedge funds. he is actually the number two shareholder of burger king, behind 3g capital. -- thee third third-largest holder is tiger global. a lot of high-profile hedge fund .uotes," unquote smart money he is up 30% year-to-date. to give some perspective, his best year ever was the year he founded pershing square capital back in 2004, when the fund was up 42.2%. in 2005, gained about 40%, in 2009 gained about 40%. 30% isn't the highest of the

high returns, but still, not so bad. >> herbalife, for all of the bad press, actually has done really well. >> that is what so amazing. you go back to july 22, when the gave that much ballyhooed presentation that lasted about three hours on herbalife. when he said he was really going to conclusively prove this is a pyramid scheme. i know you and stephanie talk to them ahead of time. to the faked it trading rooms at enron. >> enron, right. >> that is quite a claim. >> it worked out so well for him. to the't live up billing, the stock went up on that day. shortly thereafter, herbalife came out with earnings and missed estimates. if you look at herbalife shares, they are down 26%.

short, that has a means it is good news for ac kman. it's one of the positive sides of the ledger. >> you have to wonder where he will go next. he wouldn't have any redeemable money. he could raise y 15 million and really put it to work. >> he could in theory began to operate a bit more like a private equity firm, in the sense that it isn't redeemable capital, so we can make longer-term bets that are subject -- pershing square is not like a fixed income arbitrage fund. it is an subject to the same kind of redemption risks. all the same, he is in it for the wrong man -- he is in it for the long run. sometimes those risks pay off. >> he has a couple of big ones that are pending.

fannie and freddie, he is the second-largest shareholder of both of those companies after the u.s. government. so far, it has worked out relatively well. both stocks are up on the year. he has flipped again there is well. but he is a lawsuit that is outstanding against him. he owes the common shares. some of the other shareholders have tried to bet on the preferred shares of fannie and freddie. they are also struggling with the government to get their way. he has a lawsuit, where he says the government has illegally from those twots companies, when they should belong to the public. are still a couple of question marks, and herbalife is still a? a question mark as well. >> canadian pacific has done great. it was a huge home run for pershing square. howard hughes is another big real estate play in lower manhattan. >> and general growth.

>> general growth i think he is out of. i think that's mostly done. burger king, canadian pacific, howard hughes, air products. there is a lot going on. >> many of these are activist plays. some of these are plain vanilla. he bought air products. some of these are past mistakes, they're not all active stakes. hyman.k you, julie wrapping up with bill ackman. a pretty good year so far. " after "market makers, this break. ♪

>> it is 56 past the hour, which means bloomberg is "on the markets." on thea look at equities s&p, surpassing 2000 for the second day in a row. the dow jones industrial average rose above its record closing high. you look at these numbers, and

they are just round figures. >> but it is worth taking a moment to ask yourself if they mean anything. could bebe 2002, it 2003, it could be 2004. or 17 145. where are stocks going next? >> they get a bad rap for being a bear. they saw 7% decline in the s&p to 1850, partly because she is wearing -- word about things like profit margins. >> she sees the fed is the key player in deciding whether stocks go up or down. jeremy siegel of the wharton school of business believes that there is more involved, that there is enough strength in the economy to drive corporate profit, or the corporate growth will matter more than the impact of a 50 basis point height -- hike that the fed might have. >> 18,000 out, 20,000 out versus lower.

"market makers" is back in a moment. coming up, why amazon is buying twitch. ♪ . .

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >>s no big mac for millenials. twentysomethings are fleeing mickey d's in droves. financed extremists ever. we will find out where the islamic state gets its money. >> game on. one $.1 billion for a service that does not let you play games -- it lets you play other -- watch other gamers.

this is erik schatzker. >> and i am alix steel in for stephanie ruhle. watching other gamers. i don't know. >> how is it different from watching pro sports? >> i don't know. burger king has agreed to buy coffee chainda's tim hortons. this will allow them to move their corporate headquarters to canada and pay lower taxes. berkshire hathaway will help financing. consumer confidence unexpectedly rose to an almost seven-year high this month. and americans appear to be encouraged by higher stock prices and a pickup in the jobs markets. durable goods orders are up 23%. you have to give the credit to orders like boeing. orders for planes almost quit drupal. >> all of the attention is on

burger king today. a good reason, we think, to look at its archrival, mcdonald's. all those new menu items, and still u.s. sales flat or falling all year. the stock has barely budged in years. itsdoes mcdonald's get mojo back echo joining us, steve anderson, an analyst, and our stern'som the j.p. school of business. he specializes in corporate strategy. what does it take for mcdonald's to get its mojo back echo >> mcdonald's has been struggling with how to communicate with the new generation in a lot of ways -- >> it is a millennial problem? >> it is a millennial problem in a lot of ways. they have been spinning their wheels. that has created its own set of problems because they have been very inefficient. but the reality is millennial's do not value mcdonald's products

like previous generations do and they do not have the same relationship with the brand. >> that is extraordinary. >> but did they ever? >> sure they did. not with millennial's, but young people, no question. >> absolutely. >> but mcdonald's is geared toward low income white males, right? >> mcdonald's has been targeting children for generations. my own two children, mcdonald's is one of the top rants that they like. >> they still go for the happy meal. >> they still go for the happy meal, but once they turn into between's and teens, i think the relationship -- into tweens and relationship the gets broken. if you go back to the basis of cleanliness, efficiency, and speed -- on those mcdonald's can come back. if you look at the menu. in the 1950's,

mcdonald's only had nine menu items. now they have close to 50. i think that is why there are problems with execution and restaurants. to domcdonald's trying too much, please steal while many people? >> i think they are. they need to decide if they are going to play to their core, or are they going to play to this new generation with new products? they have been trying to do both, and firms tend to struggle when they try to do two different things at the same time. >> do they expand and grow or focus on their core? why are we hating so much on mcdonald's for being so bad at this when they have good things about them. 25% of their revenue comes from breakfast. they own that market. they're working on customization. that is a good thing for consumers. >> she mentioned breakfast. in the wake of the tim hortons merger this morning, it will be vital that mcdonald's continue its a game in the breakfast space.

tim hortons, the chain itself, you will probably see a lot more units in the u.s. so it will be important for mcdonald's to keep up its competitive advantage in this space. take a pagedonald's from the big oil playbook? they figured out a few years ago it does not make sense really to be in an alternative energy or renewables play. do what you are good at. -- natural gas extraction. that is what we do. burgers are going to be here for a long time. we are good at it. why don't we stick to that? >> can i just say for a moment was able to correlate oil and burgers? >> we have really reached a point where they have the choice to adapting tong new needs and wants, or bringing consumers to what they are good at. to the extent they can bring to

simmer's to the core, that is a great business plan. if they are looking long-term, it is time to look at other options other than expanding in the mcdonald's footprint. maybe it will be fast casual with mcdonald's word folio is a better option. >> what does that wind up looking like? mcdonald's is top of mind. off the bat, we see the trends affecting them other -- more than other players. but mcdonald's has so much history and success based on a branding relationship with its consumers. the changing relationships with netflix and streaming video and things like that have interrupted the ability of big random names to build brand reputations, especially -- big brand names to build brand reputations, especially with millennial's. >> do they need to take a page from five guys? much ofguys may be too

a competitor. look at fast casual in the same space. look at aaa five years ago. it makes sense. i understand why aaa did not otle did not want to maintain that relationship. >> what do you think? is fast casual the way to go? >> i am not sure that i agree with that statement. one of the reasons i think they got out of that business was to return to the core in the early 2000's, and that is what you saw restaurant same sales growth by the mid-2000's. >> we want to see chipotle. mcdonald's is not going to have that growth. >> they are not going to be chipotle.

so, what will consumers be satisfied with in the quick service space? >> you want to see strong growth, along with strong same restaurant sales growth. that has to come with a more aggressive or a rethinking of their market strategy. >> does that mean get out of the u.s.? >> certainly if we are looking at growth from a mcdonald's perspective, the best options will be outside the u.s. with the challenges younger generations where we have quickly reached over -- oversaturation with mcdonald's in the u.s. -- i think if we are looking at the idea that mcdonald's is entering a mature phase as a company in some ways, that is a harvesting period to some extent. we should be looking at operational effectiveness, returned to the core. gross maybe does not become the especiallypriority, in the u.s. market. >> people talk about how good

burger king is with operational efficiency. thanhey that much better mcdonald's episode but they have certainly made improvements under three g capital's leadership. additionalem an tests. mcdonald's has catching up to do in that regard. >> but everyone has the same problem. where do you grow organically? you can only rely on your product so much. everyone has the same issue as to who do you go out to. what products do you show? spending is not what it was coming out of a few years to cover it, so it is really a market share battle. >> it may be too early to throw the baby out with the bathwater, but at what point do people at theointing fingers

ceo? >> i would point to two things. if they continue to try new things and continue to have to scrap them, new products, new marketing strategy, whatever it is, if they continue to have to scrap them, that is a clear sign of a leadership problem. if there is a return to the existing business, but they are unable to amp up the profitability in that environment and show that they are doing it unsuccessfully. >> one of the things i wonder about mcdonald's is why do people not reward them more -- fc has this problem, right? why do they not reward mcdonald's more for the "good" things it has try to do. people say -- i am not sure if it is true -- mcdonald's has better quality ingredients. i put salads on the menu. they try to be healthy. they get nothing out of it. >> the ceo don thompson said

that salads do not get much more than 3% of total sales. my question goes back to the issue of menu bloat. if they can go back to the menu items that have worked well for them in the past. >> also, the more menu items you have, the longer it takes to make, and it is called fast casual. it is not take 10 minutes and get your food. that is part of the issue. and they did name a new usa president, right? >> they did. -- >> they did. >> and that is returning back to the core. >> the revolving door is already starting to spend underneath thompson. my question -- he has only been ceo since the middle of 2012. it is perhaps a little bit early. eventually those questions will start dogging the ceo. >> absolutely. >> a real pleasure to talk. thank you so much. and of course steve -- and of

course, steve anderson. >> thank you both. coming up on "market makers" -- have you heard of twitch? i bet you have not. ask a video gamer. i bet they have. turns out is a good --it is a good reason for amazon to buy twitch. we will talk to the ceo of but but. i might actually do a little putting myself. we are digital. see our stories and interviews on bloomberg.com, bloomberg tv plus on your tablet, and of course streaming on apple tv and amazon fire. ♪

>> amazon and is ramping up its bet on video games. 179online retailer will pay million dollars for gamer service twitch, which has 175 million users who watch others play games or it is this a big deal for amazon? chief fore editor in

a video gaming site and our contributing editor paul kedrosky. you have got to break this down for me. i am going to go on twitch and watch other people play games and that will make me want to spend money and stay there for hours. >> that is half the story. i heard you talking earlier -- it is a little bit like watching people play sports. it is interactive as well. if you are watching on twitch, you can chat. you can ask the people watching -- playing the game to do things for you. it is not like tv, not like movies. people like that. it feels more alive. >> what is the number one thing amazon gets out of this deal? >> cheap content and traffic. they are not paying people to generate this traffic per se. you have people watching some t" ors playing"starcraf

what ever else -- playing or whatever else. these people are playing of their own galician. and -- playing of their own volition. and when you wrap around it, you have pretty inexpensive content generating meaningful content -- traffic. amazon is and e-commerce company. we all know it for that. on the other, amazon is a cloud company. amazon web services. on the surface, there does not seem to be much relationship between the e-commerce heart of amazon or the web services part of amazon and twitch. cloud service, right? in a sense you can think of twitch as yet another cloud service driving digital content am a weather as a subscription service or potentially driving

content. it is a push outside what we have typically thought of them as doing, but it is not a surprise. i am not surprised in terms of strategic drift at all. i like it as opposed to their spending on content creation and terminal a. less expensive. i preferred this to that kind of spending immensely. in large part because the content creates itself and is very inexpensive. we have seen -- youtube is a phenomenal example. what that can produce. as a digital bennison, what would you rather have seen, amazon by -- as a digital what would you have rather seen, amazon or google buy twitch?

getting into gaming. this is not as much of a left turn as you might think. they are getting more and more of the mind share of the gamer and that is a relevant market. >> paul, will the markets, sure, but what do you make of the valuation? is it worth it? i was just looking this morning. putting something like the hide $35 million back in 2011 -- this is a stunning exit for the investors. side of the on that transaction. turning around, look at the riddance is him google faced when it made acquisitions. criticism to go faced when it made acquisitions. cheap content is very compelling. people remain inordinately skeptical of the economics of those businesses, but google demonstrated with youtube they can be very effective.

let's say there is a compelling news sports network on par with espn, albeit on a smaller scale. a billion-dollar valuation, if not cheap, it will look appropriately priced. >> how much do we know about the economics of twitch? i assume you know something about it, but google and youtube seems like it would be a good comparison if twitch turns into a phenomenal home run for amazon. makers studios, the jury is still out whether that will be a good deal for disney. advertising if you are not a premium member of the service. you do also have publishers, game publishers very interested featured their games -- >> it is a genuine platform? >> and you have it on xbox and playstation.

it is all over the place. is it 80's of church and model? >> you do not have to watch the ads. i do not know if that is enough value to offer to someone. they do not create a lot of original content. there is not a whole lot you can charge the bull for. they are somewhat old into the gamers. google could steal people away. >> is there an opportunity here? owning twitch help the console or the content companies in the gaming world, interactives, the sonys, the microsofts? force. is an inexorable gaming is becoming more social. the days of people in their basements with chip bags on bellies is ending.

it is transforming the industry, making it more social and more interactive. the old knocks against gaming, that fundamentally it was very antisocial and a very narrow, those are all going away. and they're talking about the they arey of these -- truly a sports, with hundred of actions per minute required to compete at the highest levels and games like "starcraft." being able to comments in real-time is like having using bolt come it your sprint in commente -- usain bolt on your sprint in real-time. >> thank you. >> when we come back, more "market makers." stick around. ♪

>> we are approaching 26 past the hour. so it is time for bloomberg on the markets. level. at a new record the s&p is holding onto its record level of 2000. they are round numbers, of course. meaningful for day traders. aboutnow you want to talk best buy though. >> i do. >> this company has been in turnaround mode for quite some time. today the turnaround appears to be faltering. >> the company saying same-store sales will decrease by a low single-digit rate in the third and fourth quarter, something you do not want to see from a like tonics retailer heading into -- and electronics retailer heading into the holidays. they really have that on their in-store concepts and they can

only cost cut so much at the end of the day. >> i dropped into a best buy for the first time in a while a few days ago. it does not look that much different. >> i like the plaza. >> when we come back, the real working. ♪

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> this is "market makers" on bloomberg television. i am erik schatzker. >> and i am alix steel in for stephanie ruhle. king's appetite for lower taxes will have the burger giant more food in canada. but this is a comeback for a fast food chain with the leader here, a 33-year-old ceo. of danielprofile schwartz in "bloomberg

businessweek." reallyd he do that helped? >> he slashed expenses. they cut all of the expenses at headquarters. basically, he teed everything up for this, the tim hortons acquisition. i was going to say something in the story, two months ago, they had to do an acquisition. and lo and behold, they did. >> why is this a foregone conclusion for? >> three g, which is basically an m&a shop -- they do acquisitions for big growth. they did it at in bed of. they will probably do it at heinz. this is what they do. -- they did it at inbev. >> cutting expenses sounds easy, but it is not. as evidenced by mcdonald's. do you have a sense of what makes the folks at three g and

this man in particular so good at it? >> they have a playbook. a basically call it zero-based budgeting. every year andn justify every single expense. you come in and say, we spent this last year, we want an increase -- they have to do it every year and they find all of these different ways of cutting things and doing things other companies would not do. so, they're going to do it again. >> i want to go back to this area three-year-old thing. that will put us to -- i would to go back to this 33-year-old thing. this will put us to shame. >> he will be 34 pretty soon. >> how does a 33-year-old -- 32-year-old, come in and make these changes and have people listen to him? >> basically, he was the principal at -- >> basically he was the before he even went to burger king. the higher-ups listen to this

guy. he went to cornell, works for couple years on wall street. he was in the big csx deal. he has a long history with the brazilians, and i do not think it is a surprise. >> does he know anything about fast food? >> he does now. >> but when he got the job? >> no, but that is not the approach. they are all about cost and doing deals. >> that is fascinating. let's draw an analogy to baseball. moneyball, right? if you have seen the movie or read the book, you know the old hands in the business kept telling early dean he was crazy. -- billy dean that he was crazy. it turns out that they were wrong and he was right. ont is kind of what is going in the fast food industry. these financial upstarts at capitalcapital -- 3g

are telling the pros how it is done. out on have topped growth that burger king, so they have to do another deal. they have another brand that they can put out overseas. they are not doing that well in breakfast -- >> i told you. >> i do believe, tim hortons has almost no name recognition in america. named after a hockey player -- you think that is going to kill it overseas? i don't think so. >> that is a good question. right, i am am not just dubious. >> burger king has a big distribution center around the world. they did always deals with countriess in other that have balked brands. i think fitting tim hortons into that make sense. you are right to be skeptical, but everything these guys have done so far has been right, so i cannot doubt them now. >> and it gives them good

coffee. >> better than burger king coffee. >> exactly. you.ank that was a great profile. definitely check it out. >> coming up on "market makers," how to cut off the cache that keeps the islamic state afloat. these extremists may be immune to sanctions. ♪

>> it is "market makers" on bloomberg television. i am erik schatzker here with alex deal. year, the islamic state has become one of the most feared terrorist groups. one reason -- it is extremely well funded. peter cook joins us to explain where the islamic state is getting all this cash. peter? >> the bottom line answer, erik, is a oil for one.

the islamic state has taken down parts of syria. they own or possess under their seven oilfields, two refineries, and more oilfields in syria. they are selling that oil on the black market, effectively $25 to $60 a barrel. they are using their capacity right now to fund their own military operations and to maintain control over these areas, providing some limited services, social services to those communities. basically they are intimidating the communities they have taken over. this is posing a big problem, because it is reviving a steady stream of funding for this organization. much harder for the u.s. and other countries to target their terror financing, because they are getting this money locally. they are not going through the traditional international banking system. >> pater, 80,000 barrels a day

is a drop in the bucket -- peter, 80,000 barrels a day is a drop in the bucket. are they getting money somewhere else? there. is a question out the question whether there are other state actors providing funding, and outside sources. that is certainly an area of scrutiny. is it is suggested that oil a big source of revenue. they are also using kidnappings for ransom, a big moneymaker for them. they have also gone through extortion. in most low the iraqi central bank, right there. they are getting money as they take over more territory. there is the question whether they are getting outside money. whether they can be limits on that. whether the united it's another countries can crack -- the united states and other countries can crack down. >> does the fact that the islamic state can operate channelsraditional

mean that they are fairly resistant to efforts by the u.s. allies to cut off or impose sanctions? >> the u.s. has gotten really good at squeezing the news on terror financing. yes, the money still gets to groups, but it has gotten harder. you look at what the u.s. has done to al qaeda. look at what the u.s. has done to iran. but yes, it is harder to target the islamic state, but not impossible. one thing, they are going after -- middlemen, the the ones the ones engaged and that smuggling. not talking huge sums of money that nations might be able to put together. this is enough to continue to fund their operations. again, the best financed terrorist group the u.s. has had

to confront perhaps ever. >> peter cook, thank you. >> coming up, get ready for a whole in one. no, not so much. we will hear about the business of miniature golf from a real golf pro, the ceo of pop up. look at that. i don't even make it close. ♪

teeing uptt golf is for success with its new franchise model, turning its courses into fun centers. barry rickles and i sat down with putt-putt ceo david

callahan. look. >> in our fun centers, the golf, ands putt-putt roughly 35% of our total revenue comes from golf and that is not the case when it is not is branded putt-putt golf. >> and the growth is? >> the growth is in the fun center concept we submitted photographs on. on essence, golfing alone don't make it anymore. you cannot make that business model work. we try to develop a model that required less land than the larger fun centers. to be quiteroved successful. the prototype that we built back in north carolina. >> so, you mentioned bumper cars. when i was a kid growing up, i remember we had the ability to go, jump on these go carts courses that seem to have disappeared. are they going to make a

comeback? just in colorado, i have seen a number of really substantial, fairly high-speed -- those sort courses.t they are a lot of fun. >> that is part of what we do. the go carts we incorporate our battery powered. you have the same speed. at can control the speed remotely. it is safe for the children. you have one track the adults can ride and one track that the children can ride. >> all electric? >> all electric or it much more friendly for your neighbors. much easier to get approved in municipalities. >> not loud -- >> as a matter of fact, the new prototype is green. accessible.capped we made something that we think will take us into the 21st century and increase our franchise. >> what is that? >> i think the fun center

concept. >> the fun center is going to arrive the growth? how important is summer? i am looking at all of your fun center locations. a lot seem to be in the south or california. what does summer do for you? >> summer is our peak season. now that we have a fun center, we are open off months a year. we can have significant revenue during the fall, significant revenue when the kids are out for christmas break and so forth. we still generates 45% of our revenue from memorial day through labor day. it is almost like turning a spigot on. >> what about the world of staycation? as the economy gets better, people will have more money to go out of town. i would presume that your fun centers do better in a weak economy. >> we do well in a weak economy. we do better in a strong economy. a strong economy allows us to

franchise. it is a $7 billion investment when you include the real estate to build the prototype. >> how do you pull good ideas from franchises? i recall not too long ago seeing runningutt that was like a thursday night date night for miniature golf, and that seemed like an interesting idea. >> we do all of the marketing. we provide the franchisees 365-day a year marketing plan, and the brand is 60 years old. we are promoting things such as cent golf.l -- 60- we are putting the best of the history out there. >> what is the margin like? >> the margin is not very good. but the cost on golf is not nearly what it is for food and

go carts. >> so, that is just marketing, bringing people in. they go out, they have a good time, maybe they come back. >> what are the margins like in this industry? >> if you cannot generate an 30% and hopefully edging towards 40%, it is a dealbreaker. are your expansion plans? now it seems that you are not really in the metropolitan areas like new york or boston. where will you grow? >> we will grow more or less in the suburban areas of the large areas. our target are municipalities where the population is a minimum of 150,000, toward 300 thousand. our focus is in the sunbelt. we have significant opportunities in north and south carolina loan. >> after that, we all took a shot at a little miniature golf. i did not do so well, but to be fair -- >> hang on, hang on.

>> take off the shoes. you have got to get comfortable. >> because everybody golfs barefoot. >> not even close. >> at least the ball was mostly on the turf. >> very tells me that i play a little differently -- barry tells me i play a little differently. it kind of touched it there. but to be fair, neither barry nor david made it. >> david should have. >> you would think he would get the whole in one -- hole in one. does don thompson know how to make a big mac? >> he knows how to eat one. -- >> he knows how to eat one. only three people have ever managed a perfect score at putt-putt.

i thought that was fascinating. >> maybe that is because once you get good at it you graduate to a real golf game. >> that's probably an excellent point. >> "market makers" returns. stick around. ♪

>> coming up at the top of the hour here on bloomberg "elevision, it is "money clip,

with olivia sterns. olivia is going to give us a glimpse of what is coming. >> i am sure you are aware of the meeting on the sidelines between the presidents of ukraine and russia. it made for a lot of awkward photo ops. you see one there. a lot of gesturing, trying to get the men close to one another. earlier today, ukraine's army said that they captured several russian paramilitary numbers -- >> that wandered across the border. >> perhaps they were paragliding and accidentally got -- >> blown over. >> you would think they would be pretty clear on where that porter was. -- border was. >> you would think. we will also be talking about your favorite story, our favorites story. to canada. moving why is warren buffett getting

involved? we will have excerpts from your conversation with the occasion -- the canadian economist jack minsk. we will find out why warren buffett is getting involved -- >> y? he is getting a 9% dividend. that is why. >> and we like to have a little fun on "money clip." we have the best video of the day with your highlights. and bryan cranston of "breaking bad." >> do you think that was planned? >> i don't know. i thought about that this morning. we have highlights from "breaking bad." will be coming up next. >> that will do it for "market makers." the travel industry down sing back. hotels opening up in new york city. we will talk to a ceo.

>> $900 a night. we will find out what you get for that kind of price tag. for now, it is 56 but the hour. that means bloomberg television is on the markets. scarlet fu has more. >> building on the gains, pushing the s&p 500 back. this after the biggest increase ever in durable goods orders and an increase in consumer confidence. joining us for options inside -- james joins us with more. james, when you look at this market, we used to call it climbing a wall of worry. to beill see reason worried? >> there might still be legitimate reasons to be concerned about the market as these -- at these new all-time highs. we saw s&p futures trade over 2000 four the first time ever this morning. -- theet continues

market continues to gain over yesterday. the market does not really seem to care about geopolitical struggles across the world. it would be a responsible to be getting short here. >> you want to stay kind of long here. let's go to the trade, make sure we get through most of it. tiffany is a trade you are keeping an eye on. they will be reporting earnings before the bell tomorrow. what is your strategy? >> tiffany has been performing strong on earnings day for the past eight quarters. an average move of around 5%. the stock could move quite higher on earnings day. we have seen a lot of bullish activity and other luxury beutel names, macy's and nordstrom. i think the expectation is for tiffany to a head higher. $106 by the end of september expiration. i know i want to get along in this name. i am looking at selling in

september half put spreads. money if the stock trades flat or higher. i have a lot of different scenarios for the stock that could still be profitable here. >> and you will be breaking even with them at 98.90. you make money if the stock does move higher. we appreciate your insight into days -- into today's options inside. "money clip" with olivia sterns is up now. ♪

welcome to "money clip" where we tie together the best stories and video in business news. here is the rundown. in tech among hello as a new -- shirt. paolo has a new businesses heading up north to avoid taxes. is canada the new hotspot for conversion? julia louis dreyfus gets a wet one from the star of breaking bad.