♪ >> live, from bloomberg world headquarters in new york, this is "market makers. >> real has got tobound, it be great news from those in the construction business. raising the specter of a new financial crisis. happens when the world's largest retailer wants to spend your product? stephanie is out on

assignment this week. who is taking her place today? contestant is bill cohen. theing me out at all hours, bloomberg contributing editor, welcome. >> great to have you here. >> i am no replacement for stephanie, but i will try. >> i know you will. the top stories out of business and finance, let us begin with oil prices. the lowest level in 12 years, brent crude is at its lowest level. also -- already facing the highest capital surcharge under international rules and the bank may have to than 20 billion in

additional capital because of new regulations proposed by the federal reserve. the capital boost would not be due until 2019. wellgan says they are capitalized and intends to meet the requirements, whatever they are. shares of yum are trading lower. forecastp their profit for the year. yum was hurt via food scare in china, a huge source of its profits. kfc is very popular there. in july they were investigated for altering expiration dates on their meet, not what you want. beat posted earnings that estimates, plus sales growth that beat rivals from walmart. 7%, walmart is of less than 1%. greece is back on the front burner, in case you missed it. dropeting in the biggest since 1987, the snap election and ofthe greek default

course, bill: this year. i was delighted not to have to any longer,regxit will i have to use it again? so. don't think what you are seeing is the combination of the political and the surge of populism in europe and a backdrop to the markets. you get these incredible price moves. >> does that make any sense? that they should drop 12% in the space of a day? is continuing. and it is interesting. >> here we are, this is what is happening today. they areertain extent trying to benefit from the volatility and spook the voters into supporting his candidate. so, the more turmoil, the more

likely you will get those marginal candidates in the parliament to back the vote. this is the best play that he has got. is this a buying opportunity? overblown, this fear? or something that we should stay away from? >> on the debt side there is no question that we will pay. in terms of the percentage of interest costs, that is incidental. when people talk about the scare of restructuring it applies to the official factor of the debt. what greece is looking to do, they are looking to do a considerable haircut on the bilateral debt within europe. ironically, if you get this dialog advanced, it is probably better for the private sector, but you still might have tremendous turmoil on the ground in the equity markets. the underlying economy? we read stories over the summer

and into the early fall the ends were picking up, that the economy was doing better. absent this political turmoil, how is the actual economy doing? >> is picking up but it will have a setback. ironically if you look at the euro area rates in general, a lot of the companies and countries caught up in the enthusiasm, looking at the baseline numbers and greece, greece looks very attractive, but technically the greek bondholders tend to be risk on risk off traders, where countries like italy and spain in some ways look worse than greece and are trading very well . so, this is a good buying opportunity on the debt, but political turmoil is going to continue for a little while. >> can we go back to appoint a point that you made at the outset? that they are hoping for a 12% plunge in the stock market to wake people up to the risks of electing or putting too much power in parliament? are greek voters

to what goes on in financial markets? we have spoken before about argentina and how unusual it is that the people there have been forced to become kind of closet experts on the economy. this seems like a very difficult to manage business. it is even difficult to manage one's personal affairs when you have no idea the value of the currency tomorrow. >> this presidential election goes to parliament, not the voter on the street. do is swingrying to the additional fringe party voters. >> the parliamentarians. >> i think they are. you have seen two rounds of elections where people were faced with a real abrupt change and they backed off. if you look at the general sense of it, look at the scottish wrote. when people are faced with what might be a scott -- catastrophic vote, they back off. in some ways it is helping him

and what he is trying to do in these elections. you could make a much broader argument that he has mismanaged the dialogue, but i think that what he is doing now is probably the best that he can. >> do you think that there might be a knocking affect on the rest of europe? we all got nervous, even over here about it. this is juste political turmoil and economics might not be as bad as they apply. >> agree. i think there is a risk of this percolating into the peripheral countries. objective analysts is going to look at those instabilities in europe. >> fueling the populist outrage against renzi? >> i think that what will have to happen is at some point they may have to blink a little bit in the discussions.

>> helping out again? will the german government have to help out with financing some of these? >> they gave the two-month review extension, so there will have to be some progress. some of the rhetoric that came out of the dutch and the germans over the last few weeks, they will have to back off if they don't want to strain your to mark -- too much. >> what does this say about europe right now? >> they get volatile sometimes. [laughter] is going on inat greece is a good example of how these markets trade and it is interesting. in this situation they are trading much more like venezuela than spain. markets, you have a group of people driven a little bit more by headlines. the money can come off the table a bit more quickly. he continues to be a tricky asset class. >> based on yesterday it feels

like a shoot first ask questions type of situation. is that the case? >> possibly on both sides. to the market in general is not to overthink it. if you spend too much time looking at every angle of a you are going to -- >> but the reason that i ask is -- what is the likelihood that current levels for the market has stabilized will be the lows? or will we see the market test on the debt side or the equity side with greek markets testing new lows as we move towards the early election? >> i think that we may, given where we are in the year, see some further selling pressure with people unloading risk. i might be wrong. this could be the capitulation trade. >> because we are getting towards the end of the year cleanup for investors. nevertheless, investors are desperate for higher yields, i

call it the yield hunger games. is this an opportunity or more of an illusion? could this be worse than it looks? side, i really think you are not going to go wrong. there is some mark to market, but there is no way that if you buy a greek bond you have to go through restructuring. every headline that you see about debt restructuring talks about the efficiency structure. they are not going to have to restructure the private sector debt. stomachou have a strong as an investor and you have excess cash into play the credit markets, this is a good buying opportunity. we are not too far off the lows. >> very good. nice seeing you, my friend. of greylock capital. when we come back we will be talking about jpmorgan getting hit by yet another requirement

from the federal reserve that may force jamie dimon to find another $20 billion of capital. plus cashing in on the housing recovery, the ceo of wall would make her. ♪

>> jamie dimon likes to boast that the fortress balance sheet is not fortified enough for the federal reserve. jpmorgan, which already fell into the riskiest category may raise -- may now need to $20 billion in additional capital by 2019. at the same time they are bringing unprecedented scrutiny to the bank. asked richard farley to join us. a partner in the leverage finance group. richard, we have lots to talk about, so let's be in with the new capital surcharge.

but really, as you have probably gathered by now, it is all about jpmorgan. unequivocally singled out jpmorgan is the bank that needs to raise capital. >> i think that the policy is completely backward on this point. i think that it is just the latest iteration of uniquely american insanity in terms of the prejudice against large banks. because back of the founding fathers, where we fought against the central bank and were the last nation in the industrialized world to have a central bank. this is the latest way of saying the large banks are where the risk is. it is incorrect now and has been incorrect historically. the idea that we would require large banks, the best run, historically, which present the least risk, requiring them to have more capital than smaller banks is a misguided policy. save,reat is too small to not too big to fail. >> did i miss something?

i'm getting older, i know, but in 2008 was there not a financial crisis that originated in many of the large banks in the city? >> that is one. two in history. about 1931. >> the savings and loan crisis. >> 8093, as far back as you want to go. but historically it is too small to fail that is the problem. >> his point is that there is basically one point that has not enough capital. by the way, jpmorgan could raise that capital by retaining their earnings. >> may i at one point? from what i gather it is not the size of their balance sheet, it is how it is financed. more so than the other banks they rely on wholesale funding. think that that is what they argue with respect to smaller institutions when they want to spend more capital.

essentially this is peer discrimination against large, which is misguided. >> well, there are other large banks. bank of america. citigroup. i don't think the fed is going to penalize me in particular. my balance sheet is entirely deposit funded. >> as i understand that this particular issue is related to the size and not necessarily the mix. if i am wrong on that, i would be happy to stand corrected. >> look, it's 2008 there has been a lot of talk about having more capital at banks. >> correct, a separate issue. a separate issue. argueable people can about what the right level of capital is and how the risk inting ought to take place other matters, but i am talking about the discrimination of large versus small. >> i don't know that there is discrimination. >> that's what this is. >> not really. >> yes, really. >> it is one bank that the fed

thinks needs more capital. >> it is applied -- implied discrimination. i'm sorry. >> richard is unquestionably right in the sense that large attracts more scrutiny. look at what is happening with leveraged loans, for example. loans tot make large finance buyouts are getting a lot of scrutiny because the fed apparently has some issues on the terms in which the loans were being made and the sheer amount of money being committed. >> they do. right. it has been characterized the sierraot as leone erroneously, as the fed using its power to regulate the prudential aspects of banking to enact monetary policy. and went through the rules regulations i was attracted to what they were after and i came upon something that said that these rules, the more leverage loans that we want to limit, we want to look at them closely and squeeze them down.

it applies to whether or not they have balance sheet risk at all. deal,f the best efforts these rules apply, so how can it possibly be designed to protect the banks? it's not. policyly is monetary using regulatory authority to essentially treat the banks differently from other institutions that will fill the gap created by the regulatory arbitrage, which is completely unfair. >> even if they syndicate these loans, the fed does not want them to do them? >> even if there is no obligation at all. >> here is a question for you, bill. >> takes agents. >> to judge whether the borrower will repay a loan? jamie lee or dan tarullo? no question, jimmy lee. >> no question. [laughter] is's face it, jimmy lee

smart enough not to hold onto these loans anymore. vice chairmanhe of j.p. morgan. >> vice president of jpmorgan, in it for the fees that a leveraged loan generates. no mistake about that. someone is going to wind up holding this loan and is going to have a principal risk related to it. my concern is that we are once again in the part of the market where these loans don't have covenants. where basically people are mispricing of risk. i'm not sure the jpmorgan necessarily cares so much about that. what they wanted for their clients take the fee and syndicate it out. wife you don't want to be in the position to blow up your client a keyhen you touched on point, where do the loans and that? hedge funds. cbo. they don't wind up in the banking system where you put

your deposits. >> which is essentially what happened with mortgage backed securities. >> there was an interest rate arbitrage where the banks kept it on the balance sheet as aaa. did not haved they to add regulatory capital against it and they could borrow from the fed cheaper than the return they thought they would get on those securities. that was the disconnect. again we have real investors with real principal risk at stake who are probably mispricing risk because of the frothy nisan the market. >> some of the most sophisticated investors in the world. >> like we did in 2007 and 2008? sometimes investors do miss priced things. >> of course they do. >> if they mispriced risk, who is responsible? underwrote the loan? >> that is an ongoing debate. >> here is what we know for sure. buyers --icated

>> eager lenders want to loan the money. eager borrowers say that i can get a return on my investment using these proceeds. those between shall meet, even if the regulators -- >> the banking -- >> the fees will go to others, unregulated entities, increasing the risk when all of these loans move off of the regulated grid and into the unregulated grid. i think it will stop because it is wrongheaded. >> i am not so sure that it will increase risk when you move it off into the unregulated sector. >> we will have to continue this debate another day. >> rich, thank you. >> richard burley, bill cohen, my guest host for the hour, author and bloomberg contributor. and all sorts of other great things, wouldn't you say? >> whatever you say. >> all right. what is it like having warren buffett is your biggest

shareholder? we will ask someone who knows. ♪

>> time for bloomberg's "on the markets." market, in the oil brent crude is down another 2% in trading with a 65 handle. brent has not been this low since 2009. opec cut its forecast for the amount of crude oil it would have to supply to meet world demand after the lowest in 12 years. opec figures now it will have to supply $28.9 billion -- barrels per day, below the target that they affirm that their last meeting in vienna. this is a serious existential problem for many of their

members. 10 out of the 12 need oil prices higher to meet their budgetary forecasts. and qatar can survive long term with the oil price is $65. we will be back in a moment talking about home construction. ♪

let's live, from bloomberg headquarters in new york, this is -- >> live, from bloomberg headquarters in new york, this is "market makers." >> stephanie is on assignment this week, bill: has ably taken her place thus far. helping me out, bill, he is a contributing editor and also the author of "the price of silence," but you have also written books about their sterns and goldman sachs. >> good to be here. >> great to have you here. talk about- time to

the housing recovery. they took a huge hit when the housing bubble burst, they were among the nations largest manufacturers of drywall and other building products. companies making a comeback, here with an outlook for his business in 2015 is jim metcalf. jim, let's begin by having you explain how closely correlated your company's sales are to housing prices and gdp growth. >> i like this -- i would like to say it is a pleasure to be here once again. we are very excited about the future. housing is very important to us, but i think that where some people make a mistake is that it is only 25% of our business. the biggest part of our business is the repair and remodeling side of the business. think about people in their homes now, home prices are going up, which is very positive. we have seen the employment figures that came out last month . employment is getting more favorable.

people just feel better about remodeling their homes. with half of the portfolio the united states tied to repair and remodel, we are really excited about that segment of the business. housing is important, as well as our new commercial business, the third part of our segment. we are very optimistic about the future. housing, obviously, is an important part of that. >> obviously, you have a very famous large shareholder. do you think that warren buffett is just playing the recovery in the housing market? he does it with the stock market and other sectors. after the 2008 financial crisis he just asked -- what is down so low and will rebound some nicely ? or is there more to it? >> well, we really enjoy the investment from mr. buffett. like we do all of our shareholders.

we feel the best opportunity for our shareholders is to continue to feel the growth in the company on the bottom line. if you look at the aging stock houses in the united states, they are about 40 years old. looking at repair and remodel, a lot of homes need repair. wahlberg is one component of that. you have paint, carpet, a lot of components that buy into the model. our philosophy is to treat all shareholders equally and provide them appropriate returns on their investment and hopefully they are pleased at this point. >> jim, do you have a dialogue with warren buffett? >> we do. he is very open the phone calls. we have meetings with him but by the same token we do that with all shareholders, firmly believing that to have an open dialogue with shareholder small and large, to talk about the future we are optimistic about

the future. we have been through a very tough time with the recession. it really helped us to create a recovery. we were not sure what housing would come back. there was a lot of uncertainty, going back a few years ago. so, we focus on strengthening the core of the business, helping us to whether any type of storm. one thing that we did in the recession that i think was unique to a lot of companies was we doubled down on innovation. we provided products to the customers that are lighter. i don't know if either one of you gentlemen have put up products. have you installed sheetrock before? what's i have not. on my specialty. eric, probably. >> have you? >> i have not installed sheetrock. i have not tried to put up aboard, let alone ceilings. >> you know what, i think that that is the best thing to watch,

to leave to the pros. it is a heavy product. >> bill, my view, is an expert mutter. [laughter] >> of what is important is we doubled down on innovation during the recession. the customer said that we had a heavy product, so we took to wait out and focused on using less water, which means you use less natural gas, which is really very good for the environment. we invested not only on innovation, but we also have a lighter and sustainable product. the other thing that we did in this recession but i think is really important is we diversify our earnings and made an investment in asia and australasia, where the growth rate is higher than it is here in the united states. we did some things to create our own recovery. >> given those two things, the technological advances and the

fact that you have a market to tap in asia, how much pricing power do you have in 2015? >> if you look at the overall pricing for our products, it is really providing value to the customers, which is why innovation is important. when you use the term wallboard, our product is branded sheetrock wallboard. it is lighter and more environmentally friendly and we feel customers will pay us for the value. >> that is precisely my point. if they know that it is sheetrock and they wanted more than the nationals product, how much more can you charge for it next year? your competitors are raising prices. i would have to imagine that usg has at least as much of not more pricing power given the strength of your brand. >> we sit down with customers every day to discuss the regional demand. a regional business. when you look at nationwide pricing, it really is a market by market asis.

some parts of the country may be busier than others, where you can get price improvement. other parts of the country not. we look at where we have individual conversations with customers, we look at raw material costs and regional demand. for example, if you look at the united states the demand is true -- the demand is strong in what we call the gold horseshoe. san francisco through texas and in the east coast. in the middle part of the country here the demand is not a strong. those are individual conversations that we have with our customers and the customers that pay us for our value, we feel it is good for them to be able to sell more products. >> jim, thank you for joining us. we would love to have you back. jim, the chairman of sheet rock maker usg. virginia, many are asking questions about sexual violence

and fraternity culture, as well as big questions of -- the questions about publishing and reputational management. ♪

>> this is "market makers." i would like to turn to the controversy of the story published last month in rolling stone magazine. as you may know, there are some serious problems with the story and rolling stone as ibaka what -- backed away from its own story. it is not a business story, clearly, but it does underscore the challenge of reputational of ubiquitousera media. no one is better suited to this discussion than my guest host, bill, and. his latest book, "the price of silence," chronicling the ordeal in thesued for everybody rape accusations against three duke lacrosse players. i have asked my cohost to step into the breach a few minutes

early, sheila, welcome. no, you have seen this unfold since last month. least,at the very fascinating, still potentially tragic. we don't know enough to know what we know. what are your thoughts? >> i'm having flashbacks, as i am sure anyone who followed the duke case when it first happened in 2006. basically it's déjà vu all over again. extraordinary inflammatory charges and acquisition -- accusations. in this case the media broke the story and sent it worldwide before anybody really knew what happened. that is the danger. these things get reported very quickly. they are salacious. they are exciting. they bring out all sorts of concerns about young people's behavior, alcohol induced wrong behavior. >> it touches a raw nerve for american society.

whether what has been reported in rolling stone is accurate or happens allike that the time. >> all the time. >> there has been a lot of talk about how suddenly do fraternities are looking really bad and that maybe people have been too hard on the fraternities on this, that there was such a rush to believe every detail of that piece. do you think that the fraternities have been unfairly painted in this malicious fashion? i would never want to send my daughter to a school with a fraternity like that. is it fair? a raw nerve,touch it is representative of what we sort of know is happening and is in fact happening. that is why it is so important to get the facts right, otherwise people rush into discredit the basic outline of the story. the same thing happened on the duke case, the same thing is happening at uva.

the basic idea that fraternities are more than a little bit out of control, that underage drinking is more than a little bit out of control, and that people -- with that volatile combination of things it leads to bad behavior all around. >> if you were running a fraternity company, hypothetically, what would you advise the company to do? what should fraternities be doing to try to fix this serious damage? even if this piece winds up falling apart -- >> i hate to be simplistic about it, but to me it is all about too much drinking, frankly. we know, once you drink too much and too quickly, all hell kind of breaks loose. the drinking age is 21. you know, you have to adhere to that law and prevent anyone who is not 21 from drinking, or you have to change the drinking laws, or which i think we should, lower the drinking age to 19 and make any kind of yourng with i'll call in

blood zero tolerance, like brazil, immediate loss of life. i think we have to trick -- change the drinking laws and recognize that it does not make sense, because that becomes a forbidden fruit. >> where do the similarities start with the duke case and where do the similarities end? >> the duke case similarities are the rush to judgment. absolutely, the media pouncing. , ofnd a similar response sorts, a similar response from the university. >> a similar response? sort of a condemnation. >> there is a big difference. the duke case got into the legal system nearly immediately. within hours of happening it hit the justice system. this matter is only just now being brought to the attention of the justice system. we would not know about this except for the rolling stone incredible story, true or not. case, the victim

herself brought this into the justice system and then the media found out about it one week later and then pounced on it eats later. >> what about the role of the prosecutor in this case? >> one of the questions that everyone is asking right now is organization -- look, rolling stone has done some tremendous journalism over the years, how could an organization like rolling stone not check its facts? >> that is an upsetting question . i have been a huge admirer of their journalism for my entire career and this is sad to see them happening to them. i don't know if they will ever recover the reputation. by their own admission they obviously made some serious mistakes. even if the broad outlines wind up being true, the fact that they left it so open to attack by cutting corners is very upsetting. i agree. >> anybody involved in publishing and journalism, as both of you are -- bill, you

publish books, right here, for vanity fair. sheila, you work for business we. >> the damage goes farther. anti-woman whoever claims that she was assaulted will have to listen to this all over again. >> that is a real tragedy. we stick around, we will be back after a short commercial break, talking about what happens when massastry marker has to go market almost overnight. it is a sweet story.

>> hosting a party this holiday season? of worse you are. once we treat maker is tempting you, just not where you would expect. julie investigates. >> this classic french confection has become the new dessert. not just in the spoke a currys.

the macaroon has officially gone mainstream. know?ou >> i was further surprised. right. is those macaroons are heading to a walmart near you. martha anne frank started the business in 1987, baking out of their apartment and selling treats to restaurants in san francisco. they began freezing the desert to ship nationwide, later cultivating its work. as the financial crisis hit corporate sales, they turned to aocery stores, cooking up retail brand. in july of 2013 they brought their products to the fancy food show in new york, where a walmart buyer took an interest. >> he was really knowledgeable compared to other buyers are talk to. he knew stuff. he said he thought that mainstream america was ready for macaroons. >> this will be their first holiday selling macaroons, tear

me sue, and loose to the world's largest retailer. they have had to ramp up production. >> not just to bring in the people. >> they have also purchased equipment, including $260,000 machines to cut through the high-pressure stream of water. besides the questions of logistics, there is the challenge of a small company dealing with a large one that of accounts for 35 percent sales. >> are you worried that they will come in and dictate to you something that you are not comfortable doing? >> there is not really anything like that available. we are working together or it will not work. we feel that we are the specialists, we have been doing that for 25 years. >> the high-profile partnership has opened doors. >> we are meeting people

constantly, but we are getting approached as well, they are seeing it. >> sales have risen 40% this year and they will match that next year, meaning further growing pains. >> all right, julie hyman is .ere to talk about looka dealing with walmart is supposed to be a nightmare. doesn't sound like it. >> they seem generally pleased with how the relationship has been going. one of the things they talked about was, with so many other grocery chains that they dealt with, they required a lot of fees to even get on the shelves. marketing and advertising. she said that walmart required none of that, that although they pay the company is essentially for transportation and shipping. they have to get their stuff to dallas, where there is a walmart distribution center it is then shipped out to smaller centers and stores.

basically they collect more of the profits because of that. >> do they have to cut prices? >> i asked them about that too, pricing pressure, which is what you would expect. >> there is a bit history down the apartment, -- down the block for me, i cannot imagine -- they are not cheap. >> they are still not cheap, but not extraordinarily expensive. you could buy a box for less than a chore corner bakery. the products that they have developed have been specifically developed for walmart. it is different for the different clients they have. >> what do they have to do to keep walmart happy? keep selling? >> i asked them about that, too. i asked if there was a contract length, how does it work. they said that as long as there is demand they expect the relationship to continue. >> you story. sweet story.

it is approaching 56 minutes past the hour. that means it is time for "on the markets." --brent crude, below is below $65 per barrel. it is the weakest in 12 years. there was a brief flurry yesterday that went by the wayside. the chart has been devastating if you are long on oil because of the tumble it has taken. brent is down 16% since they decided not to cover production. on to u.s. equities like yesterday, a deep decline with lower energy stocks leading the way. the group was down 3%. all of the energy stocks are falling at least 1% this morning. keep an eye on that sector. the dow industrials are off by 137 points right now. a global selloff with european stocks under pressure this morning. off by one third of 1%,

certainly not the losses that we saw yesterday, but we should mention the stock exchange, off i only 1% this morning. the athens stock exchange closes much earlier than ours, so that looks like it for the decline right now. >> thank you for the update, scarlet fu. "market makers" will be back in a moment. learned aboutr we the giant scam, could we see another bernie made off? i will take this opportunity to say thank you very much to my guest host for the hour, bill cohen. thank you very much. sheila is already here and she will be with me for the next hour. a lot to look forward to. two minutes from now, will will be back. stick around. ♪

>> live from bloomberg headquarters in new york, this is market makers with erik schatzker and stephanie ruhle. banking'so rock world, pure to p lender lending club is about to disrupt the industry with its ipo, maybe the second largest of the year. and what is to keep scam artists from coming up with another ponzi scheme? reference -- unnecessary roughness in football, its parents were throwing -- it is parents who are throwing the flag.

stephanie is on assignment this week. i have reinforcements here. she lives here from bloomberg businessweek magazine. we will begin with the global stories of the morning. let's start with the following, everybody. then q mobile, goodness me, more problems for the private by they firm targeted voting block. the company says it has fallen 76% when carson block accused enqueue mobile of overstating its revenue. mobile of overstating its revenue. heated e-mails between the top movie executive and the movie's producer saying "you have destroyed relationships with half the town over the wave behaved on this movie."

earnings may rise an additional 25% next year, according to the international air transport association. giving credit to a stronger economy, at least here in america, and of course, cheaper fuel. tony tyler spoke to bloomberg. >> we will see oil prices coming down next year, saving the industry some amount of money, but of course, as all prices come down, so will average fares. relatively good global economic growth. that's the main driver of the results. >> airlines of north america expected to have the strongest earnings performance this year. that should not surprise anybody, given that it seems to the only developed economy that is growing. looks, his car booking service is getting sued or band. the cities of los angeles and san francisco are suing over

background checks. in spain, they said huber cannot -- uber cannot operate there. this all comes after a week of anding that netted uber whopping $40 billion. next year, the cartel expects to produce its mullahs little of expects next year, opec to produce its smallest level of crude in years. $61 30 five cents. it hit $60.88 earlier this morning. brent is trading below $65. want to know how low it can go. no idea where that is. an's put the question to analyst in houston, chad. and she lets here with me, as is the new bloomberg markets editor.

like every agouti analyst right now, you are having to make the macro calls on oil. like every energy analyst right now, you're having to make some macro calls on oil. where does this go? >> ever since opec handed us the thanksgiving turkey a couple of weeks ago, we've been in freefall in the markets. and we don't see much support until they act. that is the great unknown. that's why we've seen stocks selloff, and oil selling off as well. we recently put out a report 2015rday, but done are price forecast to $70 per barrel , took that down by over $20. and again, don't see any settling out in the next quarter or so. next chad, there has been talk that part of the reason opec -- >> chad, there has been talk that part of the reason opec did not cut production has been supply and other

places. how long before we see the straight line production in u.s. turnaround? >> they are talking up their own. the short-term energy output put out yesterday, we already seeing it turnover next year. budgets are cut on the order of 20% to 30% into next year. we are already seeing that forecast come down into 2016, and expect to see that growth will over. we already there. already there. >> what you are talking about is the marginal cost of production, right? would you put that overall for american shale. -- american shale? ford and what the is it for the permian basin?

>> it is clearly coming down. we took down a long-term forecast from 95 to 85. a victimtry has become of its own success, just as we've seen on the gas side. we've gotten so good at drilling these wells it has driven our marginal costs down, combined with an inflationary environment. producers are in some of the sweet thought -- sweet spot of these plays. you mention the permian and others. based of have very nice breakeven costs and prices here. there are still a lot of our producers who can turn very nice profits in those plays. in looking at specific names, caruso is one of our conviction picks right now. asset.- they are a core it's one of the last places we are doing here in the u.s. they have a great balance sheet

that prepares them for more prolonged downturn if we are in that environment. but also, pdc energy. a great balance sheet. still able to generate some very nice returns in that play. picksare our conviction right now. >> there has been a lot of panic about the oil producers and how it's hurting the various oil companies. what does it mean for consumers? gas prices are lower than they've been in four years. it seems like it cannot be that from that perspective. will you think how that will affect people's spending and their own balance sheet? >> absolutely. this is great for the u.s. consumer. we are seeing that already. more importantly, to what the impact to oil is, we will see that in -- that demand uptick as oil becomes cheaper. on the other side of that, another beneficiary is the refiners. we just saw this morning the ande or a report come out,

while the crude number was low, refinery utilization is at an all-time high. the world ino lead exports of petroleum products based on this surge of production weeks -- we have seen. by shale and that's have a thing. >> at this point with error winners and losers and it's easy to price in the market consequences, and the market has done that fairly effectively, maybe overshot in some cases. i know you are looking principally at emp, but is there anyone in your universe that stands to benefit? arms are technological dealers in your industry, and now there will be those who employ technology to drill shale cheaper. >> to your point, we have overshot to the downside. indexou see the benchmark

down year to date we are flat over five years. the beneficiary being the refiners, the end-users, the american consumer. the investors are those that have missed out. i think there is a lot of opportunity in emp stocks at these levels. and the emp industry in the u.s. has shown over time they are resilient, and they are able to deal with this downturn, lower their cost structure, and become and will continue to outlast and survive in this downturn. >> you still have a number of about angs and you talk couple of conviction picks. what are the risks with those ratings? >> the biggest risk is the uncertainty, how long a downturn this will be. theing out to 2015, even at $70 price environment, a lot of

our producers are very well hedged into next year. and pd -- casale and pdc being two of those. riso 2016, we are still in the 50 dollar or so environment. see expectations based on m&a activity. flex it is just stunning to it iss oil spurt -- >> just sending to in his oils precipitate decline, especially in light of the opec meeting you mentioned. -- oil path precipitous the decline. coming up, we are looking at lending club. plus, are there others like

bernie madoff working out there? and if so, do regulators know how to find them? ♪

>> out of the shadows and into the lights of the public markets. that is what is about to happen to lending club's so-called pure to p are or marketplace -- pee r-to-peer marketplace. the could disrupt the highly the highly regular and powerful banking industry. to help us sort out the details, leslie picker. pretty optimistic about lending club. >> it is. we have never seen a p eer-to-peer lender in the marketplace. it is very new. it is said to be very disruptive

and has the potential to take over banking. whether it is able to achieve that is still to be determined. but people are very excited about this one. >> it seems very similar to a lot of other companies that people have been paying attention to recently, like uber , cutting out the middleman. but lending is different from a taxi ride or buying a book on the internet, or anything else. why should people be looking at the same way they look at those other businesses? because it is a much riskier business. >> i think what you are referring to is the sharing economy, the on-demand economy as people refer to it. these market places do not actually hire people to do the work. they contract out, such as huber and airbnb and others. where lending club is different is that it is a financial institution. they have certain risks that are

specific to them, which include different types of regulation. regulated like a bank per se, but they have been regular did by the sec and they have been disclosing that the -- there financials well before the sec requested it. >> i know one person who will be watching lending club's ipo very closely, that is, sam hodges, because he runs another lender,ace lending -- not really a competitor because it is focused on the business market rather than the individual market. testhow much of a litmus if you will, is lending club's ipo, broadly speaking in your industry? go -- can you hear us to sam, can you hear us? fixedry to get the audio

on this. >> i do know his thoughts on this because i've talked to him and there are not many other examples in the public market first of the valuation that the public gives to lending club will be used as a barometer for these other types of alternative lending platforms. we have on deck, which is scheduled to price its ipo next week. we have other businesses considering private sale or an ipo. this will help them determine which way to go. >> but funding circle highlights the variety, if you will, of business models within the marketplace lending industry, because you have lending club, which is the peer-to-peer lender . it matches lenders with borrowers. hang on. let's get sam back with us. leslie was answering how much of a litmus test -- let's get sam back with us. leslie was answering how much of a litmus test this idea will be. give us your take. >> absolutely. think you for having me on the

show. the lending club ipo is a bellwether event. thehows the maturity of segment and chose these businesses can have staying power over time. it is a must a generational shift in terms of how consumers and also businesses get access to finance. we are watching it very carefully. we hope they do well. >> can you explain how funding circle is different from lending club and on deck, another company that leslie mentioned that will be going public soon? >> sure. there are two dimensions posted the first is borrower focus. there exclusively focused on small business owners. we have designed the business to be bottom-up in providing capital to small business owners. whereas lending club has been much more focused on consumers. segment.ry different with regard to on deck, the difference is more around business models.

on deck has historically been a balance sheet oriented is this where they are lending out money makes with equity and debt directly. more working is capital and shorter term financing for stop at funding circle, we focus on more expansion capital. an institutional investor thinking about buying a bunch of these shares, what is the big risk? what is the event i should be putting into my model to look at how things get run? because everything looks great right now, but as we have seen with these other companies, and unpredictable event could turn things south. what is the number one risk factor in your view? >> the biggest thing is that we all have to be responsible about how we think about credit. if anyone of the market place lenders come a lending club, or funding circle or others, were to fundamentally change the way we give credit and suddenly

loans were not performing, that a serious liquidity problem. the providers of capital at individual institutions who are lending through us would go away. that, andlot about managing the business in a responsible way. i i were in equity investor, would be digging in on the credit funds. addresse -- poised to -- we are poised to address a massive market. >> sam, that makes perfect sense, but i would go back to alan greenspan testimony before congress in the aftermath of the financial crisis most of you said the cardinal mistake he made as chairman of the federal thatve was in expecting bank ceos would husband their own capital and not make irresponsible loans and do irresponsible things, like load up on stuff they plan to warehouse and turn it into ceo's. clearly, what you are doing and

what lending club is doing is different, but what is there to make sure you do not make the same types of mistakes? you talk about the importance of credit. they forgot about the importance of credit. marketplace business model has an advantage over a bank or balance sheet lender in that way. ultimately, our lenders are keeping us honest. -- our credit. erc the loans we are doing fundamentally change, they will put the -- if they see our credit change fundamentally, or the loans we are making change fundamentally, they will stop giving us funding. we are pricing in a way that is attractive and because we have a variety of different providers of capital lending through us, that provides a powerful force to make sure we're doing things responsibly. >> i'm curious about whether these types of business models can weather different types of business models.

the different difficulties missing pop up after the financial crisis, how well can a stressful financial environment? >> in lending club's case, they've already weathered it. they started in 2008. in our case, we got started in 2000 9, 2010 in the u k and i was a bad year in the u.k. economy. in both cases, we know how our credit book should perform under some level of stress. beyond that, we think about what would happen in a down cycle, when it hits. the two things we care about our, number one, credit performance command and the way we think about pricing our loans and the pace at which we lend out and how that takes into account our view in the credit cycle, and we are in constant dialogue with the lenders about that. and the second element is the liquidity, the amount of capital that can flow into these marketplaces. what really seen the last 18 months or so him and in 2015 at

think we will see more of it, is a real diversification in the types of capital put to work through platforms like lending club. there are forms of capital that are a bit more permanent, but they will help us weather different type -- parts of the cycle. >> sam hodges is cofounder of funding circle. a company in the marketplace lending business. you are getting a lot of attention with lending club due to price its ipo tonight. and leslie picker will be on the lending club case tonight and tomorrow as well when the stock makes its trading debut. we will be right back after this short break. ♪

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> i'm erik schatzker. stephanie ruhle is on assignment, but sheila is here. she is the features editor for bloomberg businessweek. have a look at the camera, so people can see you. >> hello. >> we've got a topic to take up that i know is of great interest to you. six years ago this week, bernie madoff's two sons told authorities their father was running in $19 billion ponzi scheme. course, what happened to him, 150 year prison sentence. just this week, a former

employee was sentenced to six years behind bars. his too good to be true returns were just that, too good to be true, made up. job? he sec do better next guest is currently director at berkeley research group, a consulting firm that focuses on securities market regulation. david, you have seen the sec involved in the six years since the ponzi scheme was uncovered. what do you think of the sec today? there is no question the sec has changed, has gotten better. when i did my investigation there, not only did we do a report as you mentioned, about about why they missed the ponzi scheme, but we also did 300 recommendations top -- totom to include

improve the enforcement. there were significant changes put in place by the sec. >> i've spoken to a lot of people at the sec. there are many hard-working, ernest, well intended attorneys they're working their butts off. however, the agency continues to be criticized for being too weak, not being aggressive enough, the -- public in the wrong kinds of cases. a cultural problem? is it a bureaucracy problem? what can the agency due to unleash those people who are really trying who are there? >> i think it is a couple of things. i think it is a bureaucracy problem. you are right, when i was there i saw many talented sec employees. and i also saw some not so talented, some not so hard-working employees. they don't always did the best job dealing with the employees who are not doing their job. resource issues, i think the sec has resource issues. i also think they don't manage

their resources necessarily that well. in general, i think the fraudsters are ahead. it's very difficult to keep up with the fraudsters. the sec tries its best. i think it could do a better job managing its resources. that in the end, it's very difficult to keep up with new schemes, new frauds. >> i think you are right that people on wall street are not afraid of them and there was a time when wall street traders were scared of them. they showed up in the movie "wall street" and everyone started sweating on the trading floor. what do they need to do to reinvigorate their reputation and make itself a feared regulator? think they are bringing some cases. the high-profile cases, you know, sometimes the sec gets criticized for bringing the cases to the press. i think the high-profile cases are important. and i also think their new approach of not allowing people -- or forcing admissions

in important cases, i think that is important, too. you don't want a situation where companies pay off the sec as a cost of doing business for stop you want to be more aggressive with enforcement cases. and they need to do a better job internally. no one was fired as a result of the madoff ponzi scheme. they need to make sure everyone is doing their job and that you don't have the week. on a case. you have a situation like made madoff, where the investigators were not experienced and did not really understand his ponzi scheme or trading, and it caused a huge scandal at the sec. you can have a lot of good people, but if you also have weak people, he may run into trouble. >> there is no shortage of criticism for the sec for some it's the nature of the job. it is what mary jo white has to deal with. criticismsard some in particular that i want to share with you. i know you've heard them as well

. i want to see what you think. the first criticism is that mary jo white is overly focused on itemizing, or at least quantifying the number of enforcement cases it brings and the amount of money it collects in fines, penalties, and disgorgement. what we heard from the now retired assistant -- excuse me, trial attorney who worked at the sec and on his labrador said the sec is "an agency that polices broken windows on the street level and doesn't touch the top dogs, but just the worker bees. what do you think of those two criticisms echoed >> -- those two criticisms? >> they also missed another ponzi scheme and the reason for that, they were focused on statistics.

congress helps them greatly to be -- it helps them to go to congress and being to say, look at how many cases we brought this year. and congress gives them money as a result. they are in a bit of a catch 22. the do need to focus on most important cases for step in terms of the kidney issue, i don't know that is fair. has tried to go after some of the bigger players in recent years. i think mary jo white has tried to reinvigorate the enforcement program and that was act. some of these cases take a long time to do. i'm not sure that is entirely fair. but i do think there is still room for improvement, without a doubt. >> one of mary jo white's hardest jobs is that she has to go to congress constantly and justify the agency's existence and begged for more money. if you were advising her, what would you tell her to say? how can she get the budget he needs to make the changes to make the place were more robust and more effective? flex i agree. i think the problem is even

further, that then they get new responsibilities. what happened after the bernie madoff pontes can team -- ponzi scheme? dodd-frank comes out and gives them all kinds of new response abilities and maybe not enough money to deal with them. i think the sec approach should be, look, we will do things well and we are only going to do things that we have the resources to do. we will not get into all of these new areas and new responsibilities if we do not have the resources to do it. i think that hurt them with the made off ponzi scheme. there were people who went to bernie madoff and said, i don't believe this is real. your returns are impossible. and he would say, the sec was just here and just gave me a clean bill of health. the fact that the sec examined bernie madoff over and over again lead to more people being fooled by his ponzi schemes. the sec needs to do what it does well and needs to have the resources to do it and should not take on additional response varies that they cannot manage for mary>> good advice

jo white. david cox is now the director of the berkeley research group. coming up, football has an image problem and it's not just in the nfl. we have an exclusive poll for you on parents and whether they would let their son play the game. ♪

>> if it feels to you like what has been happening off the field in football has made headlines more than on the field, you are not alone. critics say they have not dealt with a long-term consequences of things like brain damage. most americans don't want their sons to play football and few think the game's popularity will grow. for moore, john heilemann is .ere, bloomberg managing editor we also have scott sosnick from cover sports.

>> we asked two questions, what people thought about football's future and whether they thought it would be more popular, less popular, or as popular. the majority of people think it will be just as popular or more popular. i kind of lumped those two together. aey see football as having bright future for it is the dominant sport in terms of revenue. was, if youuestion have a son, whether you would want them to play competitive football. to my mind, this is a conversation of people like us. i certainly hear more people say in the wake of the concussion stuff -- not the ray rice stuff or anything else, but the wake of the concussion stuff they say, i would rather have my kid pay -- play soccer or lacrosse, or something where they were less likely to be knocked out. it raises the question of whether a lot of parents are certain to feel this way and what the future of the sport is

long-term. >> it seems to me there are no other sports that have suffered the kind of brutal pr that football has recently. everywhere you turn every day in the newspaper there is some horror story about some player in the nfl. how will they recover? how can you convince a mother to let her precious little child to get his head bashed in or whatever else? flex the chilling effect. -- >> the chilling effect. they are getting e-mails and calls at schools saying, what are you doing to prevent concussion? and the athletic directors are saying, do you know the concussion numbers behind women's soccer? it's almost as high as football. are you ok with your kids playing soccer? are you ok with your kids playing lacrosse? oh, you are? these are but the numbers say. you are only seeing football on the front page. noton james saying i will

let my son play football. or barack obama saying it is harsh. a former football player. >> lots of former football players are saying it and that is the message getting through. >> it's pretty powerful to have a former player come out and say -- it's like steve jobs saying, i will let my kids have an ipad at home. concussions, or is it the culture around the sport? there are some really hard behavior issues among football players that have tainted the culture. >> i don't think most parents are assuming that their kids are going to go on and be professional football players and have to deal with some of the culture. but all for stats, regardless of what the those otheray, sports don't have had on head contact in the same way. players's soccer team

blowing holes in their chests. >> and with long-term damage. >> participation should be falling, correct? football,igh school even with all the headlines, the first time in five years participation in football has gone up. 6600 more people play high 2013-14 thanll in the previous year. >> in the markets come i think that is called a lagging indicator. and who knows yet all i know is there is a question. people say, you have never seen a big, important sport go out of business. i say, look at boxing. it's a sport that is not nearly as big a sport as professional football, but in our lifetimes was a sport that millions watched. -- muhammad ali and

george frazer and muhammad ali and george foreman. but more or less, people now basically say, too barbaric. it's too brutal. i will not watch it. it has become a niche sport. it does not generate huge headlines and huge heroes. the question is, could what happened to boxee happen to football? system?about the feeder if he goes away at the high school level, then there is a problem. where the nfl benefits is it is a nameless, faceless sport. interchangeable parts, spare parts, and that is how the players are treated. if you could put anybody out there in the helmet and have the star quarterback throw the touchdown pass, everybody would have the fantasy team and they benefit on the weekend. >> and we also broken down by subgroup. the strongest group that does not want their kids to play in competitive football all rich people and college educated people.

the most educated, wealthiest in the, it's like 62% over $100,000 year college educated. most professional football players are not coming from families of brain surgeons or top wall street traders. opportunities will still be great. you will still get plenty of elite high school players, college players heading into professional football player -- football. but what happens when a football player dies on the field? be a moment. it will happen in the next 10 years. it will be a huge nfl monday night game and a player will end up dead. what will then happen to the sport? >> many do not view the helmet as the protective device, but a weapon. waiting for the fallout from that. >>, to better are the helmet from five years ago? >> not much.

click are there any parallels to hockey? i asked eric, the canadian. >> he is a canadian with all of his teeth as far as i can tell, so he may not know. -- >> is look at the lacrosse and women's soccer numbers, do they want their kids to play? >> you know that the enforcers on the ice, some of what has happened to these guys, it's not that different. it's terrible. today, "all due respect" and of course, stop -- scott soft neck, our sports guy. -- scott sosnick, our sports guy. ♪

flex that will do it for "market makers" today. forla has been my co-incur the hour. thank you very much.

>> my pleasure. >> when stephanie is off once again, you will have to join me. >> absolutely. >> tomorrow, we'll will have the ceo of lending club. the market place vendor is pricing their shares tonight. an exclusive interview with the chairman of the ford motor company, bill ford. that is with matt miller. you will not want to miss it. i will see you tomorrow. ♪

>> we are slowly approaching 56 past the hour.

its 55 past the hour, but we can still do on the markets. major averages in the red for a third consecutive day. yesterday was a little iffy, but definitely for maybe down -- firmly down today. the dow jones industrial was a loser yesterday for sure. again today, 17,672. and the nasdaq, which was up yesterday is now down at 4749 as tech stocks fall. the s&p 500 is on pace for its worst three-day slide in two months. we saw a little change at the end of yesterday. joining me for the options inside, scott bauer, senior market x -- market analyst at trading advantage. we had more than 2% losses across the board in europe. in the u.s., a rough morning, but came back to finish strong again.

do you see that happening again today? to geterday, we tried some people in the market place to pick a bottom and we saw the inflows coming in. i think the volume is light and will be light through the holidays. anything goes. i don't think we are going down much further today, but i don't think we are coming back all the way up either. i don't want to be on both sides of the plate here, but i don't see the volume being the of the test behind a move here. we got some negative news overnight. notnews out of china is great. it is probably a bit of a continuation of this minor correction. >> i was talking to mike from philadelphia trust this morning and he said people were selling what they could to try to offset losses this year from energy shares and people who own the underlying commodity of oil. obviously, oil is having an amazing down day again today. what do you think about that idea? will that ruin the santa claus rally? >> no, i don't think so.

the energy sector, as big as it is, it only makes up about 8% of what the dow is. i think you are seeing some selling in their two may be offset gains that people are getting elsewhere. and oil is almost at that capitulation point because we are seeing large volume there. but again, i don't think it will knock the rally off its wheels. >> we're watching oil closely. $.71 per barrel is what we are looking at for nymex crude. if it -- if it comes below $60 per barrel, is that what everyone is calling you go >> yes, if it gets below $60, people will freak out and say, oh, my god for some but i don't think it will get much lower -- oh, my god. but i don't begin to get much lower before buyers come in.

>> you mentioned the expectations for economic growth , but also for yum! brands. they cut their forecast because of the chicken scare. what do you think about yum! brands? verye options market is bearish. this is the second time, like you said, that they cut their earnings expectation based on the chicken scare or the crabby patty scare, whatever it is. the stock is in the 73-73.5 range. the stock has some short-term struggle -- trouble here. i don't see any sort of rally between now and the end of the year. -- theopposite of opposite is true of lululemon for sub you think they have room to run after a couple of days of smooth sailing. >> absolutely. earnings tomorrow morning, a lot of upside pressure. 30% interest.

i will put on a weekly trade and buy one of the 50 calls, sell two of the three -- two of the 50, 3.5 strike. what that allows me to do is to take advantage of any appreciation on this upside swing. and my brake side to the upside is all the way of 257. if we get up to 37, i want to short the stock. i want to be short there for sub it's a huge resistance point. i do think it is going up. at 57, i'm shorting. >> thank you very much, scott bauer. we are on the market again in 30 minutes. ♪

>> welcome to "money clip." opec slashes its forecast. we break down the winners and losers. the nfl suffers another blow to its image. the results of a new bloomberg politics all the fallout from the torture report. senator john mccain says it was the right thing to do. six years on from the bernie made off scandal, -- bernie madoff