stephanie: a bailout for perjury go? -- puerto rico? u.s. officials say no way. ♪ stephanie: welcome to "bloomberg ,go.." david: you had a parent-teacher conference. stephanie: those little desks, that notetaking. ask the questions on your own time. we are going to be asking and answering questions. who is going to help us do it? are bloomberg contributing , our friend bill:.

bill: i just want to say i'm well beyond the parent-teacher conference. there is hope for you. stephanie: there is home for me -- hope for me. i have a lot of questions about the news. vonnie: i'm going to do first word very quickly. walmart investors have not had a day like it in decades. yesterday,ged 10% the biggest one-day drop in's 1988. investors raised questions about doug macmillan's strategy. you can see the interview with doug macmillan in a few minutes. president obama is pushing back the timeline to bring american troops home from afghanistan. untilroops will remain

2017. the taliban has stepped up attacks since the u.s. ended combat operations last september. there were delays at major air boards last night because the computer used for terror watch lists wasn't working. to userced officers other means to process international travelers. the outage lasted about 90 minutes. authorities don't think it was intentional. here is matt miller with a check on the markets. matt: looking at blackstone waiting for profit to come out. it looks like we are getting i can get into my bloomberg blackstone ticker. it is the ax -- bx. we are getting earnings. ofare looking for a loss $.30. a loss that is wider than anticipated for blackstone. futures are up across the board

after european markets at their first gain this week. asian markets rising overnight because of the bad economic data we had worldwide yesterday. that means the fed may take longer to raise rates. bad news is good. bets on rate increases continue to fall lower and lower. we are looking at a 25% chance that the fed will raise rates before the end of the year. much more likely next year now. take a look at gold. gold continues to rise even as fed bets raising rates are off the table. the reason is gold does not pay any interest. people have been shorting it into the idea that they will get more interest from other investment. when they don't, you saee it going through its 200-day moving average. david: it is true, walmart suffered its first stock decline -- worst stock decline in 20

years. stephanie and i spoke with doug macmillan on the floor of the new york stock exchange yesterday on why he says he believes in his company still. >> part of what we announced today is a 20 -- $20 billion share repurchase program. we want to invest that in the next couple years. we believe in our stock price. we are putting her money with our mouth -- where our mouth is. halloween started off really well. maybe that bodes well for christmas. this year, christmas is one day later. we get a little bit of a longer season. david: why are we seeing more wage pressure? >> it is probably catch up. we announced our move early. nine dollars and then $10. david: were you forced by the market? >> partly by the market and state women -- state minimum wages. stephanie: is it the market and the government to blame for you to have to make the wage

increase? >> we don't think of that that way at all. our associates are doing great work and we were very excited to give half a million people a wage increase earlier this year. we give another hundred thousand people a wage increase as well. people are going to have better lives, they're going to be happy, they are going to take care of stores. david: would you get savings and reduced turnover? stephanie: listen, doug macmillan is telling a long-term story where they've got to make an investment like this to actually grow. but if i'm an investor, we are living in a world of short-term. why would i own the stock today? >> it is why we saw the stock price go down 9% or 10% yesterday. investors were saying, we are looking to a growth story here.

came out with these numbers that said no growth for the next three years, essentially. stephanie: on the growth front, they did point this out. he said, are dollars of sales growth over the next three years will be between $45 billion and $60 billion. that is like adding last year's combined revenue of netflix, ebay, whole foods to our top line. david: that is a big number. 4%nnon: it is about 3% or per year annual growth. ,his is not like doom and gloom walmart is going out of business. not yet. there is still a lot of good things happening at this company. they are still the world's biggest retailer. they are still a humongous company. wall street is a town without pity. they want growth. you've got to meet your guidance

and forecast. bill, i'm curious. they must have anticipated that people would not react particularly well. it is a long-term story. did they just not make the case or is this street just not open to a long-term story? bill: of course, the street overreacts to things. that creates opportunity. one of the greatest opportunities in the last few years was when able overreacted to netflix. carl icahn bought it and quintupled his money before selling it. wall street creates overreaction and it creates people -- opportunities for people. stephanie: matt, pull up the chart. wall street does this by design. if you have long-term, locked up money, buy it on the cheap. matt: i just want to show you what happened with netflix. bill was talking about carl icahn's

move. this is the dow jones composite index. this is walmart. this is just year to date. they have really whacked the market. incredible outperformance, even though they have now signed on less subscribers than the market anticipated. shannon: i did talk to one investor who said the same in yesterday. he said, maybe i will by tomorrow. maybe we will see the stock up today. stephanie: carl, people use walmart numbers as a bellwether for what consumers are doing. this is not the case this time, correct? carl: we have to look at it into context. it is a top line versus bottom line situation. as we step back and look at the larger macro picture, we see and wage cost are rising walmart is still anticipating decent sales growth over the next few years.

it is kind of a reassessment of expectations for walmart earnings, which is leading the stock price to climb, but the -- wages arep rising, demand continuing to grow. walmart has their own sales projections. the outlook for consumer spending is not so bad over the medium-term horizon. we sell retail sales data on the weak side yesterday. i think this is just a short-term pickup, not the beginning of a big downturn in consumer spending. one of the places they are looking to growth is china. >> there is some pressure, but there is not a complete tethered to what you read in the news and what you see in the stock market in china. we have supercenters in china. great.doing we bought the rest of an e-commerce business based in shanghai. we have set the stage in china creating a seamless

shopping experience for customers. david: shannon, are they looking for growth in china? shannon: they have been struggling in china. even before whatever is happening on the macro stage. 2-3 years ago, they were still struggling in china. they have a branding issue in china. which is interesting. .almart is known as cheap the chinese consumer does not really like cheap, they like quality. they like a deal, but they like quality. walmart does not have a reputation in china for having great quality. they have product issues, meet quality issues, they are trying to turn that around. they have an image problem. stephanie: they have a branding problem here. people go there for cheap stuff. that is what they are branded as. target and kohl's are value propositions and they have aspirational items. if you look at the margins at walmart, it is crazy.

they are making him was nothing compared to their partners. where are they really going to make real money? shannon: that is an excellent point. i'm not sure how much wages are increasing among the core walmart shopper. amongeem to be increasing the top quartile, quintile of consumers. what about the traditional walmart, working-class shopper. if they are increasing, that money is going to debt, savings, cell phone bills, new cars, health care. that is a really good point. stephanie: i have a question for you. when you go to online shop for anything, universally, for me, i just go to amazon -- du everything, let me try walmart? carl: i don't. but i would be interested in what you think about your interview with dougmcmillan? stephanie: he has been with the company since 1985. are the waltons up to go through the ride? bill: you can't have a

conversation about walmart without having a conversation about the walmart -- waltons. lost $11they have billion in the last year in market value. that only matters if they are looking to sell their share price. they still get the dividend, which pays for their lifestyle and horse farms and all of that. bill: they've got plenty left over. shannon: you can be pretty certain walmart is going to continue paying the dividend. the walton family controls the company, their son-in-law is the chairman of the board. shannon, karl, thank you very much for being here. stay with us. the beaches of san juan, puerto rico may be sunny, but the fiscal situation has been cloudy and the u.s. treasury may be stepping in. slowing demand in asia. sales have gone down big.

go global. stephanie: we can do global go. either way, we're back on the other side of the break. ♪

stephanie: welcome back to -- vonnie: welcome back to "bloomberg ." netflix has it an unexpected slowdown. subscriber growth missed estimates in the third quarter. the company could not collect from customers who had not updated their account information. that led to a bigger than expected turnover in subscribers. the fbi says it is looking into whether daily fantasy sports violated laws. shares of first data begin

trading today after the biggest ipo of the year in the u.s. did notequity firm kkr sell any of its stock as the one of our favorite times of the morning, we do global go and we go to mark barton in london. you have a lot going on. mark: a very good day to you. as the arts of a u.s. rate hike fade into the distance, european investors have a spring in their step today, just like me. what a day we are having. stocks are rising across the board. all 19 industry groups are rising. here is what is not rising. back in july, they reckoned it would rise 18% from today's level. now they think it is going to rise 10% from today's level. blame china and volkswagen.

that leads perfectly to by 0.7gen shares, down percent today. the german government is forcing volkswagen to recall 2.4 million diesel cars after authorities rejected its proposal for voluntary repairs. i want to get to what is happening in the u.k. today. 4%.ever is up by it raised its sales forecast. look at burberry today. 9% lower. it was 13% lower. biggest decline in three years. first-half sales missed estimates and it indicated profit would be below last year's estimates, as well. not a good day if you are a lover of luxury. david: how much of that is china for burberry? mark: great question. i tell you what, china accounts for 30% of burberry revenue.

you know what is happening in china, david. they are clamping down on extravagance. of chinese are going abroad to buy luxury. they are going to japan because of the exchange rates. guess what japan is when it comes to burberry revenue? 2% of revenue. it is not even benefiting that. burberry's problem is the asian problem right now. stephanie: mark, thank you so much. i still like a good burberry trench coat, but they have gotten exponentially more expensive. how much do you think in burberry trench costs, mark? the answer is twice $500. david: $2500? stephanie: exactly. we will discuss that on the break. mark barton joining us. are back in just a minute to talk ipo's. first data priced below

expectations yesterday. what does that mean for investors? ♪

stephanie: welcome back. data priced below expectations yesterday in its ipo. another famous company also announced plans to go public. alex has been following the story. erik schatzker, back from north carolina, joins us early. alex, let's talk about first data's pricing. we never thought we would have seen pricing at $16. alex: that is 17% from the market price. it has become an issue in this ipo market. it doesn't seem like the bankers and the company's have been able to drum up investor interest because of the volatility going on right now. investors may not want to take a

big risk on a new stock. david: this must be a disappointment to kkr. this is the biggest equity play, isn't it? is.: it right now, it seems like they just want to get this out there and get it trading. right now, the biggest bottom line for them is to get this price right, potentially have a pop in shares today. that is probably why you saw a more conservative number. stephanie: that sounds terrible. kkr just wants to get it priced and out the door and off their plate. david: this is wall street 101. stephanie: the cynic showed up. david: it is just the way wall street works. it is underpriced so investors get a nice pop. bill: investors benefit. that is good for kkr in the long run. they are coming off of two big bankruptcies. they had their energy company, the natural gas company. this is a nice win for kkr.

i'm sure they are popping corks. david: how much of this is the overall market? how much is it the product itself? erik: that is why i would turn your attention to square. the payment processing business. there are lots of reasons to be concerned about square, which filed for an ipo yesterday. jack dorsey, the ceo, is letting his time between square and twitter. the most recent investors recover their money at prices low -- below is certain level of the ipo. i'm a one note instrument on square because i want to draw your attention to gross margins stephanie:. wa-waa.e: at grosse a look margins of a startup.

think about it. foursquare to become a competitor to the likes of first data, it is going to have to spend all kinds of money on international ranch in, on marketing, on research and development. there ain't a whole lot of money left. stephanie: that ain't good. david: there you have it from erik schatzker. erik, you have an interview with the first data ceo. up next, puerto rico's $73 billion debt. ♪

stephanie: welcome back to "bloomberg ." i'm shaking my head talking first aid, square. the payment companies are racing

to go public. steph.1999 and 2000, history repeating itself. a lot of americans out of silicon valley and overvaluation. you see perfectly here with jack dorsey because how to you beat the ceo of twitter and square at the same time? stephanie: they share a parking lot. david: we will have a continuing conversation but let's start with vonnie quinn. vonnie: thank you perry and secretary john kerry hoping to end the latest topic of fines between israeli and palestinians. he will travel to israel to me with both sides. to europe this weekend. 40 people have been killed in the last four weeks. will lastlongest war beyond president obama's term in office. ine push back at timetables afghanistan. at least 5000 u.s. troops will stay after 2016.

they will make the announcement today. -- theson for the change president hoped for all u.s. troops to come home by 2017. one day after the democratic debate, hillary clinton takes up an endorsement. the international union of painters has decided to back her. her performance has many asking whether vice president joe biden has missed its opportunity to enter the race. let's go to matt miller for a look at stocks moving ahead of the open. matt: interesting thing -- take a look at futures. -- they gains overnight, but the fascinating thing right now is the ab inbev going to issue $55 billion worth buy sab miller. the biggest bond sale ever after billion fourd 49 verizon wireless. they have lined up seven banks

to get $70 billion in financing. you need 106 but they will lend them the extra 10 billion dollars to $15 billion. huge story of corporate debt and i can show you at any point that there is so much corporate debt right now. andhanie: there is so much we are starting to see people leave the credit market. out of high-yield investors paying equities that are massive right now. who is going to take on the positions? question but it is super cheap right now, so even if they have to pay more, like you thought hp do, it is still cheap as chips, as the british would say. here is sab miller. i was going to show you oil because it has fallen, but honestly, here is crude and this will play in today's market but i don't think anything is interesting like 55 billion dollar bond sale. just shocking. stephanie: i don't know anything cheap in london. david: chips are french fries,

fyi. tom keene from "surveillance" joins us now. i think your morning must-read must there on the bonds right now. a little bit about the bonds but mostly about bill cohan. he knows nancy levine over at bloomberg view an absolutely superb at ripping apart the hot air of any deal. this dell, emc -- and of course michael dell knows all of this as well, on class a, class b and tracking shares. if you squint, the tracking shares look sort of like the economic equivalent of em shares but you have to squint pretty hard. shares are kind of a trust meet security says one analyst. if you are on global wall street, this is a must read by matt levine. , when i lookt this

at the creative financing, it begins to tell me that the m&a environment, whether it is beer, dell, any other transaction, we are getting to a new level of creative effort. david: tom, are we getting to a new peak? i think that is a very interesting column by overlooking our times" the other day on whether or not m&a has reached a peak because people start doing crazy m&a deals or deals they think they need to do when they don't have any other great strategic moves to make. you have two very big deals back to back, and i think both are going to change the landscape. david: breaking news, sorry to interrupt. $2.90goldman coming out earning shares and $30 and eps. it is not clear if it is comparable with the survey number reject but they certainly

had a mess on the revenue side. $6.8 billion is what they are reporting and we are looking closer to seven point $1 billion. goldman sachs and other bank to miss some revenue. we have had it that accompanies miss on revenue, but goldman sachs is out with a few numbers. good to have bill here because he can talk about this non-compensation expenses, $2.46 billion. you have a recorder equities trading around one $.75 billion. investment thank you revenue one point five $6 billion, so a --ber -- a lot of figures 1.5 $6 billion, so a lot of figures. david: an initial reaction, though? bill: all the firms are missing revenues at this point. yes, revenues are down but there they are stillt profitable. if they are doing deals like the dell deal and the financing ev deal, thehe b

firms will still do fine. i know stephanie and i have this little debate, but i still think it is part of the golden age of foster. stephanie: i want to bring you in, just last month, we set out the global head of investment banking for goldman sachs and he said they thought they would have the best year ever. guy's outlook and the numbers look like that -- what does this mean for banking? tom: i don't think it is that correlated. i would be fascinated by the pressure they are under to lay , bill cohen, the reality is they have to hire new people back and they are having bodyle bringing the countdown. particularly of the intellectual content of the firms, aren't they? stephanie: good point. bill: wall street likes to not lower people's taste. if they can avoid it, so they fire people. stephanie: they lower pay quite a bit since the days of

2006-2007. a,l: ok, they have lowered that a ratio, people still get paid a lot of money. pay,ey have lowered the the pay ratio, people still get paid a lot of money. they could do better. i am seeing an adjusted eps number of 264 -- 2.6 before versus $30. you are right, stephanie, barclays said they were cutting contract workers paid by 10%. -- pay by 10%. stephanie: loads of industries do. david: we will come back to this. tom, thank you.

+++ triple tax exception. a wide range of investors found it easy to put puerto rico into their packages. you could fit into any portfolio because it was exempt from federal and state taxes and virtually all jurisdictions. the solution for puerto rico does not have to come from the federal government. certainly a big bailout is unlikely. we have seen a lot of dysfunction at the federal level. david: and the treasury denies it. they are saying, we will take the tax receipts and the minister it what it is not a bailout. hector: right. let's go back to lens to see what is going on and frankly we do not know. there are not a lot of details. maybe they could collect a better revenue and comfortable, that sounds like a good idea. they probably do not collect as many taxes as they should. stephanie: is one of the problems that the governor does not know what he is doing? hector: i think the problems they face are many. at the top of it is puerto rico has probably not dealt with the necessary realities of collecting revenues and endorsing reforms of the government and reducing the

obese excited government to cut expenses -- obese side of the government and cut expenses of sovereign debt not inclusive like general obligation. david: how about privatizations? where's the government on selling some assets off? hector: currently, there is been no effort. bill: isn't that an obvious thing to do? hector: clearly. they took several efforts along privatization and they have been successes. they could monetize and not only monetize but if they just could run better. one of the things orderly go can do this maybe there are services and businesses they should not be in relation outsourced to private industry. creating jobs, reducing burden on government, that is a necessary part of the solution. david: hector negroni, a pleasure. hector: thank you. stephanie: thank you, hector.

david: we have a bloomberg bite. stephanie: perfect for those who need morning inspiration. check out bloomberg's quote of the day. passion is energy. feel the power that comes from focusing on what excites you. that is oprah winfrey. her new passion project and documentary permit last night in new york city. i loved that. who does not love opera? ., the stockg ,go selling off in the premarket -- next on "bloomberg ", selling off in the premarket. ♪

vonnie: i vonnie quinn. tesla begins disobedient autopilot software for their model s electric cars. it will help drivers stay in their lanes or change lanes for

them and allow the model s to park itself. drivers will not have to grab the string will -- drivers will have to grab the string will to keep it from slowing down. full year profit will probably drop for the second year. falling sales are more than 30% of the revenue from chinese consumers. the milestone for jeffrey good luck, he reached $50 billion in assets and faster than anyone else. his double line total return was at 99% of the rivals for the last five years. stephanie: thank you. we have been talking about goldman sachs, down in the premarket. third-quarter results and tracy in the house. making her "bloomberg " debut. tracy: not a nice result, is it? i don't know what else to say. we saw a fixed down something like 30%. we stopped investing and lending

which is where goldman invested their own money and made their proprietary investments down 60% year on year. stephanie: 60%? what is that about? tracy: that is the market volatility impacting the price of equity positions, but bill knows as all, this is what happens when you take this last man on wall street standing strategy. goldman's that was that fixed income would come back -- bet was that fixed income would come back and they would be a powerhouse. stephanie: that they would they off banks? -- that they would lay off banks? tracy: that works if you saw that in the quarter. bill: they have been better. goldman has made the strategy at that there will be cyclical downturn, not fundamental or strategic change in the market whereas other big banks have commercial banking to rely on and that is what helped earnings and goldman

does not have that. tracy: they did not have a choice. stephanie: unless they wanted to go vanilla or generic, the opposite of goldman sachs -- bill: they will not do that. stephanie: they had to lean into this. bill: their secret sauce is they will do things no one else will do in the market. when markets are not as volatile like in august -- in line -- stephanie: they crushed it. tracy: they have not died in as big -- bill: they would like to. tracy: around this time last quarter, they said they would start a consumer lending business, they would start making small loans like mom-and-pop -- maybe not mom and pop david: like bank of america. tracy: right. middleie: that whole market space we have seen what private equity firms getting involved, hedge fund firms and goldman does not want to miss

that low hanging fruit because even though it is mom-and-pop, it is high margin. once tooldman never miss any lohan gate fruit, but that is different than having -- any low hanging fruit, but that is different than having the finances. a massive status expense though -- that is a massive expense. phil: a great way to collect free money. stephanie: other organizations have been in those businesses. that, youcan buy don't have to build it. maybe they should get an appendage on to them. stephanie: do you see lloyd blankfein going on that summer bus tour to all the branches in his jeans? : absolutely not, but maybe kerry: what. -- but maybe gary cohan word. david: we would like to be on that express. tracy, thank you.

next, what does the color of your sports car say about you? what about you? stephanie: i barely drive. david: surprising numbers to share, next on "bloomberg ." ♪

david: welcome back to "bloomberg ." park,ly, in this newsish something not that important but this is an exception and this is what is the color of your sports car and what does it say about you? matt miller is here with us to share an article on this topic. stephanie: so important to matt he had to dig into it. matt: the question is what does the color of your sports car say about you and my argument is that should say something about your car, right? no one is going to go a red or british racing green ferrari because different cars have traditional colors that they should be.

the british sports car should be green, you know? and a tyrant sports car should be read and german sports car should be silver or white. david: this is a different conversation because we aren't reaching agreement. it is written in the stars, stephanie. no question. stephanie: i have detroit to my right, ohio to my left. david: and matt millers sport car. i chose navy blue for the 9/11 which is not traditional but should be understated and then i chose the ducati as almost all ready because i do not want anyone to not see me. david: what does the reporting say about the colors of cars and what colors they should be? matt: apparently, there is a story in "pursuit" that tells you something -- actually, i talked with the present of general motors yesterday and he has all black sports cars although he has a c2 corvette in blue. "pursuit" reports

that most are white, silver or gray. stephanie: these colors supposedly put across that when this smart, sophisticated, elegant. if you have a sport car, you do not want people to think you are some wild, reckless highflyer but want to be viewed as cool. bill: i have a bright red 62 corvette. stephanie: you are all details all the time. there we are with my kids for the memorial day parade. matt: they came in white and red. most cars are white and silver. david: you, matt miller, bill:. next, we hear from brian monahan -- monyhan. ♪

david: bank of america and the search for growth. what is brian moynihan next. netflix stumbles.

new anti-five care to cards -- new anti-fraud credit cards slowdowns have a roof. the restaurant revolution. we tell you about the guy doing away with tipping and changing the way he pays his workers. welcome to the second hour of "bloomberg ." i am david weston. stephanie: i am stephanie ruhle. you know what that was? 11 madison. faid: i went to welcome my, of columbia university, favorite guest name so far. a former hedge fund investor at merrill lynch. of the day for banking. erik schatzker is back with us and we are joined by analyst allison williams. stephanie: we have more bank

earnings first. there you go. goldman in the red but citigroup and the grain. matt: citigroup beating the estimate on the bottom line for shareed eps, $1.31 a compared to the bloomberg survey comparing at $1.27 a share. citigroup missed the revenue side. as bill was talking about, this has been a problem for wall street. you can massage the bottom line but it is difficult to make a topline do anything to what it actually does, so citigroup coming out with revenue of $18.5 billion and we will looking for a $2.6 billion. not as big a mess as goldman sachs. -- we were looking for $18.6 billion, not as big a mess as goldman sachs. goldman obviously was a bigamist than any of the other banks. -- a bigger mess than other banks. perking uperik is

because i said i do not know what they would do today and he said they would crush it. talk they did, but let's about trading numbers because we have seen them from jpmorgan and goldman sachs and bank of america. citigroup, similar to the other banks, had a tough quarter on fixed income, almost $2.6 billion in trading revenue but down 16%. stephanie: one, six? erik: yes. equity markets which have been strong for other banks, massively strong for citigroup on a relative basis. 990 $6 million, almost $1 billion in quarterly revenue of 31% year-over-year and 53% quarter over quarter. stephanie: what are they doing right, allison? allison: is that an adjusted number? epa adjustments are not built into the numbers so we will get more detail from the investor presentation, which

folks at citigroup, my friends onr the, can you put this up the website when you report earnings because i looked for it and it is not there. i do not have a good answer for your question, allison. houston: that is a pretty strong number -- allison: that is a pretty strong number they. they also had a big charge last quarter so another thing to look related to prime brokerage. equity is tender, -- -- equity is better. stephanie: citigroup is at the bottom of the barrel -- new glasses, by the way? o: since i am going italian, you know. stephanie: they look right on you. they are at the bottom of the barrel so it is as a price look at goldman suffering and citigroup having a moment. is it relative week as they come from such a low base? fabio: they are trapped in the worst leg of the cycle. stephanie: i'm pretty sure 2008

was the worst leg. fabio: very fair, but during the recessionary period, they were on the wrong side as rates were pushed down. as rates may or may not come back up, using the banks continue under reform because of dueomic slowdown partially to the uncertainty. they are the only sector that is not -- that did not benefit from either loose money or slightly potentially tighter many. 's suffering and goldman, being a traded shop, is much when the boat to take advantage of reflections in the way that citibank could not. wanted more broadly, we talked recently about the difference between retail banking and having with bank of america or wells fargo, you have all the branches, all the deposit takers. in this new regulatory climate, a certain stability and steady income without the risk. allison: much less risky businesses in high leverage

loans. i think the nature of the business, goldman's businesses are transactional, so you will have a lot more variability. if you look at the fixed income, rather difference is the commodity business, so not a great quarter for commodities. the figure banks like citigroup, bank of america, are not as affected by that. like some of the goldman sachs. david: you got to sit down with brian moynihan, tell us what he had to say. erik: whether it is citigroup, jpmorgan, bank of america numbers, yesterday, i have been wondering, how much better with the banks be doing today if it were not for dodd-frank? if you are living in a precrisis world because it is dodd-frank that hurt the fixed-income business in two ways -- heavy to and the will of trading, so when i sat down with in aeo, brian moynihan, charlotte, i asked him if would be good for his company.

rian: we would run the company the same way. we to $12 million in charges he cares there were charge-offs and credit cards, whether it was mortgage businesses. erik: you see the value? brian: we run it for the customers and stay in a prime consumer space. erik: with us capitol, he would be more profitable. brian: it is there and it is investors capital and of the cannot put it to work, we put the rest to work to get a good return. at that is the challenge. when it gets too high, the investor will want to return it across the capital, but the 300 basis points have to carry as a buffer, it is in our case the number is $50 billion of capital sitting as an insurance policy to make sure we never have could attach the -- to touch the question of support. erik: even if dodd-frank were repealed the was still make that? prime: if you go back before

dodd-frank, we took the company and lay down a set of operating principles. visit the same principles used today. are they consistent with some that cannot and dodd-frank? us, but our customers want to help them make money and that is why we built the structure. erik: let me ask you this last question, what do you think is the more likely outcome at this point -- a repeal of dodd-frank or some kind of legislation forcing banks like yours to break up? brian: i honestly think that we made all the rules and they are not done in terms of implementation. i think the best answer is to stay the course. it has made industry safer, simpler. we have living wills and everything. let's just let this operate. the numbers are staggering compared to what the capital levels and things in the credibility -- equity levels were. how much does insurance policy

cost our ability to do things? if you look at the industry and say there is $100 billion of conservatism built-in into the way the stress tests work, that is $1 trillion of loss i could be made at 10% leverage. so we pulled the insurance policy, select let it operate. us let that let operate. david: i wonder the merrill lynch side feels that? even if you would say it today he would not do anything different, they would never have hampered their business so much because brian moynihan, could he have ever gone the head of his security business to voluntarily pullback that much? no way, jose. fabio: he is sinking the to the has to sing. i think that was a good

interview and a valid series of questions but i think it is a challenge to say what he really thinks. erik: i think part of it has to do with the fact that he is not just being a pragmatist but a realist. you cannot put the genie back in the bottle. you cannot repeal dodd-frank. to say i can operate my business within confines is one thing, but to say i would have done this regardless, this is great is a completely different thing. is sayinghink he above. at this point, one in nine employees working in the firm is either in risk compliance or control. at some point, you have eight guys -- stephanie: it would be considered the ditto of investment banks. fabio: right. david: in defense of brian, and i did do work with him, i think maybe what he is saying is as a leader of a big bang, let's get behind this. i do not when my people complain about opera, they can about doctrine, we have to deal with the hands we are dealt. -- i do not want my people

complain about dodd-frank, talking about dodd-frank, we need to do with the hands we are dealt. son: we all know the pain of dodd-frank as watching the bank and investors, i think he is pointing out there is pain but there is some benefit. the benefit of safety. stephanie: there are big benefits. erik: it would have been a challenge. david: if they would have, then they could have. nobody was keeping them. stephanie: din, dig, ding! david wins the prize for today. swallowed of america these guys up throughout the country because it is actually -- absolutely crushing the smaller. they cannot observe the compliance costs. david: alison, thank you for making the trek. erik, we will see you in the

next hour. later in the show, questions that you have for the hedge fund manager of "bloomberg ." we take you inside american express, what happened behind the scenes as key partnerships fell apart, "bloomberg ." ♪

-- hanie: vonnie: welcome back. time for bloomberg this is flash. coleman sack took a big hit during the third quarter. the missed estimates, trading revenue down 34% and the bigger draw his rivals. total revenue fell below $7 billion for the first time in two years. meanwhile, citigroup had a better-than-expected quarter. 51%, a drop in legal costs helped. ceo michael corbat has in selling -- has been selling

assets to save money. says theyy overnight post a little present in the first six months of the year and london is the third most minusive place to rent tokyo. the most expensive is on, which costs about 57% more than second-place new york. that is your business flash. david: thank you. american express is an iconic company but facing scrutiny after the biggest partner cosco walked away this year. what was going on behind the scenes? revealed the details. we are here with the writer of the article, elizabeth, welcome. we have columbia university fabio still with this -- columbia university professor fabio still with us. elizabeth: when i learned is that when it comes to cosco and american express, it really was a divorce. as the writer in reporting the

story, i tell you that i did feel like i was a child in the middle of two parents going through a divorce and that everything toward the end that opposite happened was of what cosco said, down to -- costco said, down to who broke up with you. david: it ended up personal. elizabeth: an unlikely marriage to begin with, american express , butostco are given brands using the marriage analogy, both with a great they were good years. opposites attract and it was a successful relationship. 1999 is when they started. it was a successful partnership for both of the companies. until a lot of it had to do with money. the costco got wind they could get a better deal so they went into the market and they found out they could. amex was not willing to go as and give themwere

the economics of they wanted. there was also a question about the value and about the value that american express got to the relationship. one of the names or anecdotes in the story is the catch-up call. a call legibly between the ceo of costco and amex where cosco describes how they see american express like they do any other vendor and used the example, if i wanted to get ketchup for cheaper, i would. ketchup example. david: i am with you on this. elizabeth: the point is they could maybe get heinz as a supplier. not only was the rank-and-file that amex to be compared to catch up, but it really had to do with insinuating they were a commodity and costco thought they could get that same value elsewhere. stephanie: american express lost

in this trade. elizabeth: that is the question. david: how much of american express' business was in this? elizabeth: about 10%. -- that is why the market reacted the way they did. no one realized how meaningful the business was. stephanie: we should have called customer.big costco if you go there with him, he will buy you anything. you can read this story now online and on newsstands friday. thank you. next, hedge fund managers wheezing in september with the lonely -- the one and only john paulson not been spared. -- not being spared. ♪

stephanie: welcome back. you are watching "bloomberg ." that is a fantastic view of midtown manhattan. this shot is a bloomberg world headquarters right where we are. we have to dig into some business. dollars trading at a three-month low and it concerns over global slowdown. cpi and initial jobless claims are coming out which could further hurt the currency. matt miller is looking at this with this morning's bloomberg bite. matt: i heard bloomberg bite and i thought what should i bring up? world currency ranking is a great function and it can show you among so many other data points how much a big mac costs anywhere in the world. look at my a terminal, you can see that in such a link, it cost 41% more .han in new york if you go to malaysia, you will pay 63% less than you do in new

york, but you can do more with this function. i thought it was interesting. currency volatility is so important. if you look at my screen again, i will pull up a little chart i put together about the performance of macro hedge funds with currency volatility. macro funds in white over the last five years had a pretty darn good run in 2014 and really kicking butt because everybody was short the euro. currency volatility climbs as well, but as it began to flatten takeight there, and i will it down to one year so you can see it better, macro funds really started to tank. now we have had this massive fallout and everybody having to close shop because they don't really have this currency volatility play to use anymore. this sort of magic arrow in the quiver, they cannot deliver the returns investors wanted to see. stephanie: that is fortress.

wholuminary anything about was made money over the last 25 years in the fixed income market, albeit, broad not the lens about fortress. and john paulson got killed. what does this mean for the overall landscape/ ? i think the qe arrival end up archer has been tremendous as a stress test. we saw all sorts of asset prices inflated when the money was coming in and through the exclusion that everything went up to the exclusion of cash, volatility, or effectively just cash, volatility, and bank stocks. as the market has gone down, those are the only things that have effectively gone in the other direction. stephanie: it is like jack vogel or the last four years has been saying no one should ever invest in hedge fund. all they do is ride the markets. with the first with a

volatility, you see some of the biggest guys go down. where never that good to begin with? bio: there are chances of style to where they go way beyond what they were doing. john paulson's world became a macro guide which he had not been in the past and that is a challenge. stephanie: we have to point this out about john paulson. everybody knows and for being this extraordinary investor. john paulson existed for 13 years before the subprime trading and absolutely no one on planet earth ever heard of him, he clearly questioned in subprime but he was not a macro investing superstar. david: to sum of not involved in hedge funds, you cannot get a big return without a big risk. there is no such thing as a free lunch. when you have that big risk, sometimes it goes up and down. quite is it not that simple -- wise and not that simple? -- why is it not that simple?

stephanie: you don't have to get a big return. funds are getting more ste ady. david, what i think you have seen as some of the people in this is a bifurcated market and some of the people look at the flows as activist hedge which have gotten crushed along the same line. no hedges and the market goes down 6% or 7%, what do you think will happen? by the way, the positions you are in are the same one as everyone else in the hedge fund hotel. lets fly apple and is something valley and and valley and turns around david:. david:t -- around. david: thank you. you are a great professor. next, how rates will affect your retirement. ♪

[applause] stephanie: music was in the air last night at the obama with

their performance at the white house series. everyone from queen latifah to smokey robinson to usher joined in celebrating the school could it -- celebrating musical traditions. david: i could listen to james taylor for a while. stephanie: welcome. david: smokey robinson. stephanie: no mention of james taylor? david: welcome to "bloomberg ." we are here with my friend steve. let's begin with breaking and news on the economic front and we go to matt miller for that. matt: breaking news on the jobs front and inflation front. initial jobless claims for the week ended october 10 and fell to 255,000, a great number for this country. the survey was looking for 270,000. i can show you what happened to initial jobless claims over the last five years and steve knows the figures as well.

we were in trouble at 500000 and now we are below which is better than the average over the last 30 years. as far as inflation, we had an uptick in cpr. if you take out food and energy, again the point to above percent month over month and we looked for on .1 above percent. this tempers the bad news we had economic from the front and may be the fed -- this is one of those data points that goes the other way. independent, it is good for a hike. it is one data point but encouraging. steve: it is actually two data points with unemployment numbers -- but they encourage they encourage with a positive growth and put liens of other way with respect to the fed. this is the conundrum going on right now. stephanie: at this point when you see the numbers, how closely do you follow them? does it matter when we get a

hike? as thejake to inform us lots of other -- they do inform us as for lots of other things. i do not think they should raise rates in the foreseeable future. in terms of equity investment and long-term investing that we do, whether the fed raises in october, december, generally, no, no major loss. stephanie: i went to turn to our calling gina federal reserve reporter joins us. what you may care? what do you -- what do you make here? gina: it is the last inflation point we will make before the fed meets in october. as the fed looks to see if they're satisfied, they feel pretty good about the employment side. they are waiting to see the 2% goal. a wage growth. we are looking for wage growth which we have not seen despite the fact that we were close to

full employment. absolutely. i think the wage growth and inflation numbers are to some degree related. saw wagehat if they pressures or inflation, it would make them feel better and they could be satisfied. david: thank you. steve: i agree with that. i think wage pressure is probably the key indicator. we need increased wages. they have not risen and quite a long time, so wage pressure would be a good thing. that will be the same that probably gets the fed to move. david: if you look at the futures, i look that than this one, you have to get tape open 50% likelihood of a raise. steve: a recent development. i think people were saying it would happen this year and then you had them coming up on the other side but you also have people like bernie stanwyck, a

center balanced guy saying to get it over with. it will be a really interesting discussion. stephanie: what does it mean to janet yellen and her position? other fedso many governors publicly on the other side. steve cohen there are two so far. if you go back to the last meeting with all the governors on the little dots chart, i think it was 13 out of 17 thought we would raise by the end of the year, so maybe the number is different now. janet yellen is a consensus person. i think she will listen to her fellow fomc numbers and try to build a consensus. i do not think she will be one of them. i think she will be part of a majority and the substantial majority. everybody assumes janet yellen knows what she would do in december. december is a long way from no with a lot more data and we will note more. then you deal with the facts in front of you and make a decision. he was cap furnace,

-- in fairness, he said based on the data right now, but we have a long way. like you said. things could develop, so he did not say no rate hike. stephanie: what does bloomberg tell us? is price, not yield and you can see a selloff in treasuries after this number came out. that data fromng macro came out and said it is too bad cpi does not matter otherwise they would be going. it is interesting to see this new piece of inflationary data but it is not a piece of inflationary data that the fed cares about so much. and you focused on core don't see as much movement as you do in cpr. stephanie: let's get your notebook and pencils out. it is time for the morning chiefg where we hear what financial institutions are looking at today. blackrock cheap retirement strategists is here with us now. how bad are low rates

routing retirement? is ani think it underreported story about the impact of low rates on retirees. that important to realize pension responsibility is increasingly being transferred to the individual. what that means is we have retirement at how we like to characterize that as the amount you will yourself in the future, if you want to fund your retirement. stephanie: one more time. it is transferred to the individual, like 401(k) plans, there is something we characterize as retirement that. this is the amount you will yourself in the future, the day you want to attack, you will yourself money and that money will be what you need to fund. david: like if you buy an annuity for the rest of your life. how much would that cost if you have that money. this is a big change in the american economy moving from 6 -- fixed benefit plans.

it essentially shifted the responsibility to the individual. steve: i think the way to bring it into contrast is about the housing market. house, you know the value of your house, you know what your mortgages, it is what you own and what you go. you know the value of the portfolio within reason. do you know the cost of your retirement income? there are a few people know the cost of their retirement income or the retirement debt. the trick is if you want to have a successful retirement, you need your investment portfolio in position to pay that debt off. it does not mean you would go out and buy an annuity, but -- david: it is a way of thinking. stephanie: how are you advising retirees? that allowslt index you to quickly calculate your

retirement debt. for instance, the index is about $18. what that means is that for every dollar of lifetime income you want to retirement, you should multiply that by the of $18.e index that tells you what your retirement that is. what is surprising is that this retirement debt is maybe the most volatile thing you have on your personal balance sheet, or paul taubman house prices, -- more volatile than house prices. keeping track is important if you have a chance of having success. what is great about the index is it makes this so easy to do. this is an important issue i don't think i have thought about much. as a look at society, we have talked about some of the entitlement programs that come with a, social security, but have not thought much about the baby boomers. if they don't have the money for that retirement, sack of huge problem in social services.

and irasthink 401(k)s are one of the worst ideas we came up with because he basically took a system where you had professional people figuring out how much people make sure the on, company says that much or whoever the employer was, and respect this on people. would you do your own plumbing? fix your own electricity? repair your car? you would, but most people would not. to go and decide among thousands of products people picture you every day, nobody is prepared to do that and i think chip would agree that it is that numbers of people that are dissipated, what they are telling their money is pretty bad. we will have a problem out there. either with a lot of what you said. i will kindly disagree with -- i agree with a lot of what you say, but i will coming disagree that we did this because of demographics that supported

benefit plans that don't exist anymore. we are living longer and we did not have -- we are not creating that many babies. but respectively saying we had a problem that we will see because of the carpet affect. creating structures we know that will not solve the problem but transfer it into a different place. chip: it is a risk transfer. coming back on retirement debt, we need to make people aware of -- and where i agree with you strongly -- we are not letting people know that this risk has been transferred to their own personal balance sheet. when we did that and when you look at young workers, i think the system will serve them well. we need to develop the tools and techniques of it can manage the risk. david: if they are educated and financial illiterate with proper advice. we are talking about a mass of americans. getting mass of americans financially literate -- a tall order. steve: two tall an order. chip: i think we need to make it

so easy that they don't have to be. steve: i think i am correct that when you look at millennials and how much they say, numbers are lower because their incomes are low. chip: that's ok. you are looking at nominal levels of income, but on a percentage of what they are spending with data that we see, they are saving at a pretty good list. they are more risk adverse than other generations. david: thank you very much, chip. coming up next on "bloomberg ," we will talk about netflix. they had subscriber growth that disappointed and they try to blame credit cards. where they right? ♪

stephanie: -- vonnie: welcome back.

i am vonnie quinn. americans filing for unemployment was the lowest since 1970 date. they fell to 255 -- 255,000. anything under the hundred thousand is us sign of a stock market. -- eight strong labor market. blackstone has accorded -- has the largest quarterly loss since 2011. blackstone had the most profitable quarter ever backed by stu shortly, the ceo. a milestone for jeffrey good luck. he reached $50 billion in assets and his main mutual fund faster than anyone else. his total return outperformed 99% of competitors over the last five years. david: thank you, vonnie quinn. about netflix, one of the most actively traded stocks.

they are down some 5% in the thede market -- in premarket after subscriber growth missed estimates yesterday afternoon. we are joined by paul sweeney of bloomberg intelligence and we have steve ratner. onl us about this miss domestic subscriber growth. paul: you are talking about the momentum stock, not an earnings story or a revenue momentum story but a subscriber momentum story. that is what investors focus on, so this subscriber fell short in the u.s. although they were better than expected internationally, probably the bigger story. the full short in the u.s. and the company cited, among other things, the switch in the cards for a lot of the consumers that impacted the ability to reup every month and they excited that as one of the drivers. david: we have all gone new credit cards with new chips -- matt: not all of us! two or threemine

months ago. i am a netflix subscriber. paul: and they keep charging you. david: it is partially right. little biturn a higher and that was probably do a little bit to that but i think in the u.s. in particular, the video market is becoming more competitive. we saw hulu in the last six months to 12 months ramp-up investments and programming. hbo has come into the market, cbs has come with their offering. it is getting much more competitive in the u.s. and netflix is feeling some of that. stephanie: take us to the terminal. basically to apollo's point about the u.s. versus international, international in orange and u.s. in white. the problem is overseas, aside from pirating content, there is are the anyway to get a hold of the hot stuff like "house of or anything else.

anybody who can get netflix will subscribe. here, you have alternatives and we don't pirate stuff as much as they do, but we can get it almost anywhere. i think it is true that a lot of times and you get new credit cards, if you do not change that in your subscription account, it will reset and you have to go at it again. you can see this -- you have to add it again. you can see it in this quarter. steve: they said linear television was dead. it is certainly not. steve: that's right. ands in a transformation certainly declining as a share of how people get their video. all the other services are increasing. i think there will be a time when linear television is not the way most people watch television anymore. the issue for netflix is that it is in a more competitive space, but the reason they do things

like "house of cards" is proprietary content to make them valuable enough so people will pay the $8.99 or for $99 a month. -- $9.99 a month. are sublicensing from people from cbs who to just talked about the licensing. matt: if you talk to some of the few remaining bears on the stock, they have gotten crushed or years. the big short story is they have this $10 billion long-term program liability sitting on their balance sheet. that is a long-term liability they have to pay to the studios and the cbs's of the world and they have to have more subscribers paying more every month to generate the cash flow to pay off that liability. that is either a virtuous circle if you are a ball or a vicious cycle if you are up there. stephanie: we have a few comments. is better than linear tv. consumers can watch when they want on the device they want and

the content has gotten better and better. on thedamental cost large scale is because on demand is a better experience than linear, and the entire market is going to move from linear time demand internet television in the next 10 years to 20 years. stephanie: you could go on demand with cbs, abc. david: that is the point. it is one thing to say all online but all online with ethics. including cbs, hulu. inl: anybody with a server their basement, no pun intended, can set up an over-the-top service with licensing and programming. it will be a competitive business but i think netflix has a good business model. haveanie: i think they pretty good shows. i like "house of cards" and "orange is the new black." thank you. possibly, we are not letting you go anywhere. when we come back, we will talk

food. do notants where they want to tip the waitstaff anymore. find out why. ♪

stephanie: welcome back to "bloomberg ." getting serious, the man behind new york city churches like shake shack and other dining establishments is trying something new. no tipping. danny meyer will implement hospitality included policy at 13 of his restaurants. are we ready for this european take on dining? that is the question we are asking. steve, how big of an impact will this be? danny meyer truly knows cost the taliban addition to restaurants, he runs hospitality school --

tippingows the cost of in restaurants and he runs hospitality school. steve: i think having it all and will be great. i think in europe, in the old days, when service was concluded, you then left a few francs. david: they expect cash on top. steve: we will have higher prices with tips on top of that, so where does it end? i don't think it will make much of the difference at shake shack but at some others. david: if they raise prices 50% or 20%, how do we know it makes it to the waiters? how do we know? who is auditing the books? stephanie: i'm sure as part of the program, they will not skip the waiters. professional waiters to look at 11 madison and they will have to work it out to know what they will get. if you are a waiter, it could be a positive because you eliminate risk.

matt, no? matt: it is awful. i pay a waiter or waitress waste on how will he or she does the job. if you do a great job, i'll give you 20%, 25%. if you do wearable job, that is more like -- if you do a horrible job, it is more like 10%. that encourages the waiting staff to do a better job. david: more or less on to the. steve: think about how many services there are where you change on what you give them. david: steve ratner has been great. thank you for joining us. david: coming up, we will be steve.by don't go anywhere, this is "bloomberg ." ♪

david: 30 minutes from the opening bell in new york. welcome to "bloomberg ." i am david reston. stephanie: i am stephanie ruhle.

joined by erik schatzker. erik: with us this hour, the founder and managing partner of .eta-capital management nice to see you. it has been made since we saw you. stephanie: extraordinary performance. is a mortgage specialist. we are going to be talking about investment strategy. looking for to it. right now, time for the first one with vonnie quinn. you.e: thank america's longest war will last beyond president obama's term. a u.s. official says 5000 troops will stay in afghanistan into 2017. the president wanted to bring all troops home from afghanistan before he left office. afghan troops and police are having trouble controlling the taliban and al qaeda. releasedtorius will be

from prison five days from now. a parole board is allowing pistorius to serve his sentence under house arrest. the paralympic athlete was given a five-year term for the shooting of his girlfriend. we will soon know whether the mets or daughters will reach baseball's final four. the winner tonight will play the chicago cubs for the national league pennant. in the american league, kansas city will shoot for its second straight pennant. the royals ousted houston last night. kc will play the blue jays, who partied last night after eliminating taxes. -- texas. the first team to win a five-game series after losing the first two games at home. matt miller is here. board.utures across the positive moves in europe and asia. seeing the s&p up half a percent. dow futures up a third of a percent. is interesting.

four days and a row of declines for west texas intermediate after a five-day drop, 5% drop on monday. looking at a 1.5% drops today. do not findly i gold interesting but it had a poor run as we expected a fed entries. now that we do not expect a fed increase, gold has traded up. we had a leg down in the last few minutes. if you look at the longer-term chart, gold has climbed year to. and finally broken through its 200 day moving average. gold having a strong move up. back to you. erik: time for the five stories that matter to markets now. we will begin with valiant pharmaceuticals, under scrutiny with subpoenas from u.s. prosecutors seeking information on drug pricing. drug pricing is already a hot topic for the democrats eyeing the white house.

it is a different matter when the doj becomes involved. look at what happening to valeant shares this morning, down 11.7%. bill ackman who runs pershing square capital has a 5.7%, owns 5.7% of valeant shares. he's been a big backer of mike pearson the ceo. stephanie: he did say he was holding his position and not looking to add. david: the news about a doj comes on the heels of congressional subpoenas. i know drug, pricing is not your thing. you are in the mortgage market. you are in the hedge fund industry, event driven and too of any just number of strategies that have had a difficult time this year. deepak: fair enough. i think they've had good years in the past. , youallowances for that are going to have tough years. that is the nature of investing. when you get it wrong and

markets punish you things can get ugly. stephanie: does it makes sense that certain hedge funds have concentrated on hedged positions, 30% of your holdings are one stock. is that what people pay 2 and 20 for? deepak: there better be experience within the team to extract value and alpha. aum, when it grows too large, it is not a positive. stephanie: wow. deepak: you would rather have the same manager. the same ideas will be more efficiently put together. that is the trade-off between what a manager can deliver and what they would like to. stephanie: tough for a manager to turned on monday -- turned down money. we've seen david tepper shut down and not take in new investors but not as uncommon. it is tough for a manager to resist new dollars. david: sounds like you can have too much money, never knew

that. stephanie: john positive's they son's bainul fell. his advantage find which makes bets on events like bankruptcies and spinoffs, down 12% this year. ask youot going to about specific events. closing.macro funds is d think we are going to see more before year end? volatility does not seem to be going away. deepak: i don't think that is an unreasonable expectation. when you have the hedge fund industry grow the way it has grown and the size of money managers manage, it is tough to come up with ideas that are alpha generating ideas. you end up seeing a lot of packaged data.

stephanie: what is that mean? deepak: you take directional market risk. you can leverage that explicitly by using borrowing, which people might not do. you can leverage that by buying securities that move a lot more than the markets. the markets are going up and the funds look great and you are outperforming. what it is is embedded leverage in your holdings. when things go down it gets ugly . david: matt? biggestulsen's4 phed them we have gra here, they are moving in one direction, down. sinceg at a loss of 12% the beginning of september. the only place that looks good is when my daughter brings it home from preschool. david: the number three story affecting markets, germany has nein to volkswagen.

allswagen must recall vehicles affected. proposalowing out the for a voluntary recall, the rest of europe is expected to follow germany's lead. you would think if you were volkswagen you would not want to leave it short. you would make sure what you were proposing was more than asked for. why would they come up with a voluntary proposal and get it rejected? erik: matt miller? any idea why? you would never want that. government is never going to let volkswagen fail. it is the biggest example of too big to fail in germany. they have to look like they are being tough on the company. the first proposal they come up with, nein, the next proposal, ok.

it is all about political appearance. there are like 500,000 germans imposed by volkswagen directly. 1 in 7 people in the country are employed by the auto industry. angela merkel has to look good on volkswagen because the country is tiring of her position on migrants. david: political theater in germany. stephanie: nice comments. how about number four. turns out etf's do not grow to the sky. the world's largest leveraged etf is getting too big for the market it was designed to track. halting subscription orders for the next funds and two other funds on friday. the firm says the future market liquidity is not deep enough to ensure it can meet its target of two times return in the japanese benchmark stock index. we've heard from so many investors, more on the credit side, warning that while etf's seem great, they are not being marketed correctly. they're not reflecting the

underlying assets which do not have the liquidity to support what is needed if things get rocky and the etf's need to liquidate. depends onhink it the specific etf's. some sectors are very liquid and they are tracking broad indices. those are great etf's to have because they are low cost and the capital cans are well they are really efficient. when you go to etf's tracking smaller markets, those etf's grow, you are asking for trouble. stephanie: now you are talking about the wall street special. as long as they work, let's make it withred and fill garbage. that is what we see on wall street over and over. deepak: it is the nature of the incentives. what are you going to say? fix the incentives, fix the problem. uncle sam may ride to puerto rico's rescue. withreasury is in talks

the commonwealth on some kind of debt restructuring. it is not clear how this would work or whether it is even , the treasury would the replace -- somehow -- 73 billion dollars of debt held by investors and service bonds using some of puerto rico's tax revenue. you are involved in puerto rico. deepak: we are mortgage guys but we have exposure in puerto rico. some of the trades that we have have a mortgage component. this is not the treasury going to back puerto rico's debt. erik: it is not a bailout? deepak: not at all. erik: does this encourage or frighten you. deepak: it is complicated. the odds that something actually happens are not high at all. the marketshe way have reacted, puerto rico's debt has not changed at all. erik: the markets are discounting it. deepak: is not like there is new money being brought to the

table. all you are doing is saying we will collect the money, put it in a lockbox and distribute the money so there will be more transparency. wek: the treasury is saying know you cannot trust puerto rico but you can trust us to collect the money. thatk: you could see it way. if you are a bondholder, the real question is where is the money? if there's no money and you see puerto rico's forecast over the next five years, they are forecasting short falls of $73 billion, where is the money? quotinge: deepak narula cuba gooding junior, show me the money. what do you want to know from deepak? asked us via twitter. you what is moving up and down in the premarket. you are watching "bloomberg ." ♪

vonnie: welcome back to "bloomberg ."

i am vonnie quinn. pressure on congress to raise the nation's debt ceiling increased. jack lew moved of the different -- moved at the deadline by two days to november 3. must take action or risk default. goldman sachs took a hit during the third quarter from the turmoil in global markets. earnings per share missed targets and not revenue fell short by more than $200 million. net income dropped 36%. investment banking rose 36%. citigroup had a better than forecast quarter, profit rose 51%. citi cut expenses faster than revenue fell. the bank has been selling assets and closing branches. that's the latest bloomberg business flash. heading to the open and matt miller is here with a look at what is moving. matt: as futures rise, i want to take a look at netflix.

the stock came out with subscription numbers people did not like and missed its profit estimates. down 5% in premarket. if you look at the chart over the last year to date versus the index, it blows it away. citi are ahs and couple stocks we will go into later. goldman missed both etf and revenue. citi missed revenue and beat etf. hospital stocks, a bit of a divergence. hca holdings down. that worriesd everybody about the rest of the industry. united health group beat, they are not down as much, only 3% compared to 10%. kicker, tenet healthcare. walmart, we want to see what walmart does after the massive drop yesterday. walmart down 30% year-to-date. yesterday.

at the open, third of a percent drop in the premarket. we are going to take a break and come back and we are going to talk about all of the bank earnings. there's been a slew of bank earnings and we will break them all down for you. ♪

david: welcome back to "bloomberg ." this is downtown hong kong. we hope everyone is at home eating dinner and watching. big banks reported their third-quarter earnings this week . goldman sachs and citigroup posted this morning. golden missed estimates for the first time since 2011. citigroup beat the street after cost cuts outpaced the drop in revenue. michael moore is here. deepak narula is still with us.

what are you making of this? five data points? morgan, -- jp morgan, bank of america, wells fargo, goldman sachs and citi. michael: it is a tough quarter and it was about cost cuts p you have interest rates hike push you have a tough trading environment and what can you control? you can control costs. the ones that i've cut costs have been rewarded. things for this conversation. the first is who is the most frugal bank ceo on wall street? would you believe -- we will find out on monday. michael: i bet it is brian moynihan. erik: mike corbett is running -- lowest efficiency radio mike corbat, ceo of citi, is running the lowest

efficiency ratio. wells fargo has always run, and their numbers are good, but citi's are better. i had to ask brian moynihan when i was in charlotte yesterday about cost-cutting at bank of america and here's what he had to say. n: headcount will 60% down because we are people costs. the question is how do you do that. for a while we had to do that quickly because the las costs were coming down fast and we had 58,000 people. we had to build it up and bring it down. stephanie: deepak, you are a customer to all the big banks. seems like they've been on a cost-cutting bonanza since the crisis. do you feel this in terms of the service and value the banks provide? they are of a consumer

banks and the investment banks. if you see what has been happening, wages have been going down. wall street has been paid really well and there's a lot more scrutiny. talent has been leaving the investment banks. how does it impact us? are thets us in that we liquidity providers. they are the market makers. especially anything that is not traded and over-the-counter. the ability to make those markets is lower than it was. the talent pool that is doing that is not as deep as it used to be. stephanie: is a certain banks rather than others? deepak: absolutely. there would be substantial tiering. some names like jp morgan, goldman sachs -- stephanie: would be other top? deepak: they do a fairly good job. bank of america has done very well. stephanie: deutsche bank and

barclays, where do they stand? has done adit suisse fine job with european banks. you are going to get me in trouble. i would say some european banks have changed, are changing their business model. they used to be a very dominant presence in the markets and they are not even -- stephanie: we will take that as ubs, rbs, and deutsche bank. michael: is it prime brokers, is it willingness on the balance sheet side or service side? deepak: it is both. there are still the names i mentioned on the prime broker's .ide much more carefully committing balance sheets than in the past. many people in prime brokerage have shrunk very significantly. in terms of market making, you can see it. there were those who had big market share that are really not players. mark, thank you

very much. a conversation about banking and taking deepak where he did not want to go. housing market recovers, where are the best opportunities in real estate and mortgage on "bloomberg ." ♪

erik: welcome back. this is "bloomberg ." news breaking moments ago, the president is going to be speaking live 11:00 this morning on afghanistan. the president is going to tru -- the president is withdrawalst troop and the country and keep 5000 troops in the country after 2016. vonnie: john kerry planning a middle east trip to meet with israeli and palestinian leaders. hoping to ease tensions after a month of violence. 40 people have been killed in the last four weeks, most of them palestinians.

israeli troops are patrolling the streets in jerusalem. years, third time in 40 millions of social security recipients are not getting cost of living increases in benefits will not be boosted. the government announcement affects more than 70 million people. about 1/5 of the population. dithersn of wisconsin about becoming house speaker, the line of candidates is growing. darrell issa of california says he would run only if ryan does not. six other republicans say they are interested. those are the latest headlines. stephanie: thank you. deepak, you've made a killing in the mortgage market. it has been a massive positive for you over the last few years. many people said that was the trade of last year. here we are in the last quarter of the year. where is the money making opportunity now? deepak: when you talk about a killing in the mortgage market,

you are referring to post crisis . if you are fortunate or lucky enough not to lose money and participate in the recovery, you did really well. tolls] deepak: there are interesting opportunities to still appeared in the last several months, we've seen performance not being good at all and sympathy with , theigh-yield markets energy markets that have driven markets down and caused yields to go up. stephanie: the high-yield is a fundamental nature. if your market is going down and sympathy, does that make it a buying opportunity? deepak: it is hard to call in terms of calling, but fundamentally without a doubt, what you are saying makes a lot of sense. if we look at exposure to the housing markets,

commercial real estate markets, those are very solid. is no fundamental reason why we should see the spread widening we've seen in our markets, which makes for a better entry point. erik: other same factors making things difficult for hedge fund managers and other strategies, market volatility and central-bank interference, are those making it tough for you to make money? deepak: there are second order effects that can become fairly large. the answer is yes. volatility is good and gives rise to opportunity. hase are things that happened, events that have happened that have been different from the past. a lot of that is related to the largest central-bank footprint in the market. a simple example, this year we've seen significant tightening in spreads on interest rate swaps. historically, swap spreads would be viewed as a proxy for , spreaded credit

widening in the markets, they would be positively correlated. this year we've had spreads tighten on swaps when they are widening on everything else. the question is why, how did this happen? that is linked, one of the factors driving that is the large sale of treasuries by central banks globally. you read in the news about china and the middle east, oil prices are where they are. central banks to balance their budgets need oil at $100. they are basically selling treasuries. taiwan, russia. the amount of selling and treasuries has been so large that we've actually seen spread tightening in the interest rate swap market. it impacts people like us to use those and as hedges. it impacts wall street. credit for most of the banks reporting is not very good. most of the reason is because they carry reasonable sized

industries and are hedged primarily not with treasuries but with bond markets. that has been a surprise. david: go back to the fundamentals that you set our sound, take residential. where are we on things like foreclosures, delinquencies, mortgages underwater and things like that? nationwide? exact: i don't have the numbers but the numbers are generally very encouraging. everything has calmed down and settled down. if you see percent of home sales andng from foreclosures coming from regular sales, those have come crashing down. home prices in a lot of areas are higher than in many -- are higher than where they were precrisis. in many areas they are not but it is not a housing market issue at all. housing is one of the drivers of

the growth we've seen. stephanie: when you look at credit have come crashing down. home prices in a lot of areas standards, credit many standards are better today than they were before the crisis. it is harder to buy a home and get a mortgage. wouldn't that make the mortgage market a gold investment space? we see widening in high yields, tons of investors jumped in. you are widening while credit standards are better. you're in a better position than 2006-2007. one would think this is the best place to invest. deepak: what you say is accurate. there has not been a lot of creation of credit sensitive securities post crisis. stephanie: they could not be. banks were not in a position to do it because of the government position. what could be done? deepak: on the residential side, the government has been so large in its footprint that there has not been much valuation of crisis.isk assets post on the commercial mortgage side there's been a lot and that is one of the areas we are

favorably disposed to, there's been spread widening and the fundamentals are solid and the supply is large. participate.lly this is commercial mortgage backed securities. this is an area that should recover. have seen a couple charts. the commercial property market has rebounded more aggressively than the residential market. is there not a risk of an overshoot? not talking about a bubble but if you are talking about residential versus commercial on a roll two basis -- aepak: that's definitely risk. if you look at loans originated today, they are a lot riskier. erik: aggressively priced. deepak: the sweet spot for us has been to go for the more seasoned securities where have really benefited from appreciation in real estate values. erik: who is going to be the turkey at the table snapping up

the new stuff? deepak: the new stuff is ok but it is getting worse. that willint, be a question to ask. stephanie: how much worse? how close are we getting to the end of saying what did we repackage and sell to these guys? there's a long way to go. what we did precrisis, that is pretty amazing. the incentives or so messed up. it was originate, securitize and take the money out. does not matter what happened to the buyer. the rating agencies helped make that happen. we learned a lot. rating agencies are more cheerful -- rating agencies are more careful in the quality of loans that go to securitization. stephanie: fannie-freddie, what is your take? they are not historical to that point, there is debate about what they should look like. all thethe irony is for

talk about shrinking the government plus footprint, we have fannie, freddie and the fha . we've seen the exact opposite. the government has continued to expand its footprint. fannie and freddie are making money. money is great. if you have a source that is producing year in year out decent profits because it is a duopoly, you need motivation for winding down the duopoly. it goes down a lot. credit risk is being taken at the end of the day by the taxpayer. some has been parceled out to investors. things are time when doing well to try to wind down fannie and freddie and i don't think it is happening in this administration. david: we are about seven minutes into the opening of the trading day. a look at the indexes. gains across the board. on the s&p, the dow and nasdaq,

european and asian gains. we got some good news. take a look at the imap in my bloomberg. pretty much every sector is gaining. the only loser is health care. bad earnings out of hca -- earnings out of hca. concern across the health care industry. we got some good news as far as the economic data was concerned. selloff andsed a treasuries if you think the fed is going to raise rates anytime fed is no one thinks the going to raise rates soon. yields up. the tenure at 1.97 percent. take a look at oil and gold. oil has had a lot to do with the trade. it has come down, $46 a barrel. its 200 dayssed moving average. a few stocks to watch. goldman sachs and the baking industry.

we will talk more about it here on "go" and through the rest of the program. citigroup beating. netflix, a miss on subscription ads. netflix trading down eight dollars to $102. is talking about housing. ford says they are best placed to benefit from pickup demand as the housing recovery drives car sales. much.thank you very the latest on the opening markets. another stock we are watching his first data, the complete will be trading on the new york stock exchange in a little while. i will be speaking to first in 10 ceo frank bisignano or 15 minutes. the company has a market value of 14 million dollars. next in value proposition, tackling the democrats' whipping post, wall street. ♪

vonnie: welcome back to "bloomberg ," i am vonnie quinn. here is your bloomberg business flash. u.s. investigators want answers from valeant about price increases. it has received federal subpoenas. valeant drastically increased the prices of two hard drives after acquiring the medicines this year. diesel powered 2015 volkswagen's have software that cheats on tests. dealers will not have new cars to replace those they cannot sell because of the scandal. vw has admitted using the software to make their diesels meet emission standards. aange juice prices are in for job. futures down in the last eight days. a bug from asia is spreading such as disease. efforts to kill it have failed. cutting the orange crop by more

than half since 2008. this years florida crop will be the worst in nearly half a century. that is the latest business. for -- k: erik: time for value proposition. deepak narula, are big banks still too risky? hillary clinton and other presidential hopefuls also say so. yesterday when i was in charlotte, north carolina, i talked about hillary's plan with brian moynihan. here is what we said. mr. moynihan: session rik: she has a detailed plan for financial reform. mr. moynihan: if you go back and say what was the spirit -- erik: she wants to impose a risk the on big banks. surely you've heard. mr. moynihan: there is a risk fee on us today. i have to carry 300 basis points

more capital than an institution that competes in the middle market with me. that was built to make sure we can go through stress and you would not have to have the government -- punishow she wants to banks, not yours, necessarily, based on their funding model. mr. moynihan: that is in the rules today. calculation, the differential and fdic charge. the fdic, we all put money in the fdic and it pays to clean up the situation. of dollars.ons that?how do you interpret the broadside from mrs. clinton to the other democratic candidates, lincoln chafee, martin o'malley, bernie sanders. they are all painting targets on wall street. it is a political campaign and there will be a lot of ideas across the dimension. i'm the last person that needs to tell america that politics.

industrygone on in our since the crisis? on a global scale and everything. you think about before or five issues. people were not regulated the same way. all of the participants are under federal reserve regulations and banking regulations that were not there before. and a lot of people who fail to do not have primary regulation. second is capital, we went in with $60 billion of capital but we have $150 billion today. that dimensional change in terms of what happens. after the stress test, we have and we hadl by a lot before the crisis. after we have taken the stress and keep paying dividends and buy back stock -- we are not unique, that is the industry. we have $500 billion of liquidity could we had $100 billion as a time right after the crisis. the scope of activity, the volcker rule,= --

industryhas made the safer. is wall street still too risky? you heard brian moynihan. deepak narula, what do you think? deepak: it is a lot less risky than what it was. is it too risky? at this stage we are probably getting to levels where capital holdings of various banks seem to be fairly high. what kind of stress tests are you trying to solve? erik: i think lehman brothers is the stress test you are trying to solve four. deepak: i think we are heading in the right direction. the amount of capital banks hold will continue to go up if that is the metric you are trying to judge banks by. banks willso maybe be ok. at the end of the day when the market turns, is someone always left holding the bag? ranks are going to survive.

if you think about where people money, areed their we going to see insurance companies and pension funds, are they going to get hit? or we say let hedge funds go down? hedge fund investors are individuals. in a game of money transfer, can everyone win? thanks will be ok, someone else is going to get hurt. deepak: for sure. that is just the nature of the financial darwinism. you learn from that. you cannot set up a system where there is no failure at no point in time. stephanie: that is what americans want. gothink assets should only up. no one seems to want to accept that in a free market something wins and somebody loses. in 2008 it was not just that there weren't losses. we were not able to manage those losses. the problem in this country is

we always fight the last war. we make sure we will not make that mistake again but there's another mistake. what is the next one that we might not be prepared to unwind? war was a bigst war. we learned a lot from that. if you are a regulator, you do not want systemic failure. you do not want to bring the system to its knees, which is where we were. getting the banks to be better capitalized in the financial system to be more solid is a very sound goal to have. that is what has happened. have the banks been an easy target? do the politicians pick on the banks and go after j.p. morgan because they lost money and say you've got to pay some fines, it is fdic insured but you've got to see how i think is capitalized. if there's enough capital, it should not be a reason for a penalty. the banks have been a soft target.

the push towards higher capitalization levels for banks makes a ton of sense. stephanie: should private equity firms have that kind of regulation? deepak: good question. the money is locked up. so for years, there's really not a financial leverage. erik: it's more asset liability matching. deepak: investors sign up for that risk profile. money becauseses those investments go sour, that is what you signed up for. anna edwards model, there's so much leverage and capital levels were so tame that you have a snowballing effect. down, nothingo go wrong with that. stephanie: as long as it was not his. david: next on "bloomberg ," a look back at highlights from today's program. ♪

stephanie: welcome back here our guest made some interesting comments in the last couple hours. let's recap some favorite moments on "go." >> we believe in our stock price . we are putting our money where our mouth is. our associates are doing great work. we gave .5 million people a wage increase. all these rules. we are still not done in terms of implementation. i think the best answer is stay the course. it has made the industry safer. let's let this operate. >> janet yellen is a consensus person. she's going to listen to her fellow fomc members and build a consensus. everyone assumes that janet yellen knows what she's going to do in december. we are going to know more and then you deal with the facts in front of you and make a decision. >> when you have the hedge fund

industry grow the way it has grown and managers manage the size of money that they manage, it is tough to come up with ideas that are true alpha generating ideas. you end up seeing a lot of package data. a lot of talent has been leaving the investment banks. stephanie: time for post it, we really want to walk away from today's show with. a point you want to make? what haven't we covered? deepak: i think it is a fun show you have. one of the sectors that is fun to talk about, in the mortgage market there has been spread widening. some mortgage rates are trading at a large discount to their book value. we think that is one of the better opportunities out there. stephanie: that is my take away. mortgage reits, what is your

take away? saying thatratner he thought 401(k)s and iras were terrible ideas, period. stephanie: how about his corvette? pak's point about package data continues to be lost on so many people. you can have the s&p 500 if you are an institutional investment for single digit basis points and as an individual for 15 basis points. why would you pay 2 and 20? stephanie: what a great morning. david: deepak narula, thank you for being with us. david: that does it for "bloomberg ." tomorrow, an interview with donald trump stephanie is doing on "bloomberg ." ♪

york, 10:00 a.m. in new 10:00 p.m. in hong kong. welcome to the bloomberg "market day."

from bloomberg world headquarters, good morning. i am betty liu. goldman sachs missing estimates on the big drop in trading revenue. , a lookp profit beating at today's hits and misses in banks. shares of netflix plunging after profit of subscriber growth falls short of estimates. what they are blaming the big mess on. another sign of weakness in the -- market as data flowing lowering the data and how shares are doing on the first day of trade. we are about half an hour into the trading session and i went ahead to julie hyman where she has the latest. stocks rebound after a couple of days of losses.