oliver: welcome to "bloomberg businessweek". i am oliver renick. the diplomatic game vladimir putin is playing with the president-elect. of his national anurity advisor, a alleged connection. that is all this week on "bloomberg businessweek" ♪ . . ♪ we are with bloomberg businessweek editor make in murphy. let's talk about the opening remarks.

this is looking at donald trump and vladimir putin, a topic that never seems to get all. it is counter intuitive. it looks at who is winning this game and who is likely to win this match. we see donald trump making this outreach to him that we have never seen a republican president-elect, trying to cozy up to him in some sense, recasting that relationship with russia. what peter delves into is what is vladimir putin's long-term game. his history is a zero-sum game, by cozying things up, what is he likely to gain? is theomacy, it strategic mission and outlook for the country that is important. you can try to have a personal relationship, but when you are dealing with putin, he will be thinking three steps ahead on the chessboard. trump talksnow

about his business and deal making history, but there is a salient point, there is no higher power to enforce political dealings rather than business dealings, so what can happen is anything. megan: putin does not have that much to deal with. his economy is struggling. oil exports are challenged. his population is shrinking. it is hard to see where they are going, so he is playing with half a deck. doing that is's by destabilizing western governments, whether the hacking allegations, running his own pseudo-news organization. what will be really interesting when trump and putin do matchup as elected officials and when they get into negotiation, who has really got anything to deal with and how trump will respond to someone who may not be

playing the same game and have the same agenda he does at all. oliver: moving to the global turkey's section, president erdogan hunting down the people behind the coup and how it's bleeding into turkey. megan: this story delves into something you don't see written about a lot, the purge of the people associated with this coup. we have found one of the largest peanut manufacturers who has been decimated, a business one singled out as a model of entrepreneurship, and that has a knock on effect down the chain. this purge,ee is this hunting down of suspected ampathizers, is having hampering affect on turkey's growth. their gdp has gone down, and

president erdogan had to encourage people to go out there and support the turkish lira. the economy was one of the ones with the most room to grow as recently as 1-2 years ago. the covernally, story, a fascinating feature, talking about a big airline. piece, theive favorite headwinds facing the ultra luxury carrier. deserttwo planes in the to one of the more globally dominant carriers out there, how it will continue, and do they have more room to expand or are they reaching the end of their road in the sky? oliver: we got those details from matt campbell. >> in europe and the u.s., ,mirates is ubiquitous unavoidable, the world's biggest long-haul airline by a huge

margin. outstandingflying capacity, number of aircraft and seats that most industry analysts never thought was possible. growth,rocess of this it has attracted a lot of enemies, notably in the u.s. where the big three u.s. arlines are stepping up campaign to essentially oppose the amount of service that emirates and its two smaller persian gulf rivals fly into the u.s., arguing these airlines are massively subsidized by their governments, and of course this was looking like a long shot, but then came donald trump. it will be a very challenging few years for emirates as it attempts to break into the united states. >> let's go through some of what you said. there is a lot in terms of how emirates got to where it is today. take us back 30 years ago, how

did it come to be this massive airline? >> well, emirates is inextricable from the story of dubai as a whole. 30 years ago, it was a backwater, very few people had heard of the place. dubaiou had the rulers of , which is an absolute monarchy, part of the federation of the uae, who decided they wanted to create a middle eastern singapore, a center for business, tourism that was clean, safe, and orderly, and would be a meeting place for the arab world and the broader middle east and african region, so they set about doing this, building development, building the port so dubai became a big maritime center, but the most important way they did this was through an airline. they figured if we have a

world-class airline that can bring the globe to our door, that would contribute immeasurably to the growth of dubai, so it grew and grew to the point where it dwarfs a lot of what we think of as larger airlines. of this story here is also as you point out, it is kin to the story of dubai in general, government backed entities and business. you start off with the control exerted by the company over its employees, down to the make the airline stewardess is where. tell us how that degree of control and oversight is so important to the growth story? >> while emirates are adamant that they are not subsidized by the government of dubai, that they don't receive cash, advantages over their competitors, there is no question they operate in an

environment that is pretty unique. their chairman is the uncle of dubai's ruling monarch. also runs the airport regulator, airport authority. he runs as the chairman of the city's largest a, so there is a enjoyed atfluence the top of an emirates group. is an the desert, there five-runway new mega of being tolt i the government emirates specifications. it will be called, believe it or not, dubai world central, which i would say tells you something about the ambitions embodied in that project. similarly, unions are banned. there is no question that emirates is the favorite corporation of the government of dubai, and in that way enjoys advantages that are just unimaginable for other airlines. turning theng tholiver:

emirates a story into a cover image was the job of rob vargas. sometimes they provide is things that feel flat, but the images they gave us encompassed how they see themselves. oliver: they gave you a list of photos and you guys picked one? >> they had images of men and large comfortable beds, women getting out of the spot, a beautiful bar scene, all available on their planes. oliver: it is all luxurious. this bar is on a plane, four beautiful people, reinforcing the point of the story that it is very luxurious. that is how they made their name. >> we thought this one was our favorite almost right away. then we were trying to think of a way to make it a cover. we had this imagined conversation between these two bank people at the bar. oliver: there is also a great caption that says, are they

running out of air space, which points to a more serious part of growingy, they've been a lot, and can they sustain that? >> when you are growing as much as they have, you are bound to hit a ceiling at some point. what may happen to the 20 million americans who have health insurance under the aca if republicans do it they promised and repeal it. plus, a controversy and tied to the kremlin for donald trump's national security advisor. this is bloomberg. ♪

oliver: welcome back to "bloomberg businessweek". i am oliver renick.

in the politics and policy section, despite rhetoric from republicans, obamacare is not in a death spiral, making it tricky for the gop to follow through on its promises to repeal the law. my story in bloomberg businessweek is arguing that republicans are in a pickle here. they have said repeatedly they want to repeal obama care. they tried repeatedly while obama was in office and failed, and now they can succeed. it is like the dog chasing the truck. a catch as the truck and it does not know what to do with it. that is a chuck schumer line. >> they don't have a plan. >> so what they are trying to argue is that they need to come that so many americans would lose health insurance, which is what would happen if they repealed obamacare care and did not replace it. so what they are doing is making the case, we did not kill

obamacare. obamacare died of natural causes, failed from the start, couldn't possibly succeed. all we are doing with this repeal is putting it out of its misery. that is the argument. oliver: so it wasn't covered under a obamacare? what is the case they are making? carol: are they right? >> the economists who support the republican line talk about something called a death spiral. in the concept of a death spiral, it is actually pretty elegant and does hold in some cases. the argument is that when you have a pool of people of mixed health, some healthy, some not, if the premium is set too high, the healthiest people will say it is not justified for them to pay that much, so they will drop out and not carry insurance. then that leaves a sicker population, and so the insurers

in order to make money have to raise the premium more, so the next healthiest tranche of people will drop out and you will be left with super sick people and super high premiums. that is pretty much what a lot of republicans, including tom cotton, have been arguing is happening with obamacare. except it is not true. and let me explain why. iss happens, the spiral basically being short-circuited by a couple of key provisions of obamacare, because they knew that would be an issue and took steps to prevent it. , you have tondate have coverage or you get a tax penalty. and that has some effect, but the stronger one, the stick, the caret, which is premium support. if you are below a certain threshold of income, you get

help paying your obamacare premium, and if the pool gets sicker and so the insurers have to raise the premium will it is the government, not the individual, who takes up the extra so you have no incentive to drop out just because say some others have dropped out, so there's going to be a problem, but it won't cause a spiral. oliver: it is the spiral will have to be stopped by some sort of assistance from the government? >> and that is what is happening. oliver: staying in politics, between book ties donald trump's national security advisor and the kremlin. we ask about michael flynn's work. your story involves two companies, then the relationships between those companies, which also brings in michael flynn, named as national security advisor for president-elect donald trump. flynn until group, general

flynn was the head of the defense intelligence agency, so he worked as a consulting agency with cyber security groups, drone companies, and run-of-the-mill defense stuff, but also got involved in 2016 with a company called brainwave science, which is trying to sell technology that says it can tell if you are lying or not by doing a brain scan and reading your brain waves. carol: does it work? >> there is debate within the scientific community. a lot of people question the validity of this and think it is junk science, so that is debatable, but general flynn went into it. he was brought into in dorset. according to the people who

run the company, he wore the ,elmet and did a demonstration and you put this on and it read your waves, like something from young frankenstein, and it made him go and he met 10 times, he set up flynn intelligence group to do the training. they sold these two government agencies and they were going to do the training, and according to the company president, he made different introductions to law enforcement agencies. oliver: he jumped right in, and in the process of which, overlooked or ignored the role of a board member at this company. tell us about his history and been the target of investigations for his relationships with kgb and russian spies. >> he is one of two principles of the company, and it turns out he has a history of selling sensitive information to the russian spy agency.

in the 1990's, he was involved in russia. in the early 2000's, he pleaded guilty to selling biotechnology to a russian operative. in the course of that, the fbi came out with evidence that he had been part of a spy ring that sold missile defense shield technology to the russians. the guy he met with, who was a notorious kgb agent, met him in cyprus and overseas come a got hundreds of thousands of dollars to sell technology about transistors, missile shield technology, and u.s. helicopters , so general flynn, this was a person he was doing business with, but trying to help him get inroads into the u.s. law enforcement and defense establishments. rules clearlyent state this is not the kind of company that a government contractor, military contractor, should be dealing with. >> there is a publication they put out available online that , convictedctors

people, and it warns people in the defense industry and defense department that spy activity does not happen like james bond movies. it is very monday and things and says here is a list of 100 beene who have convicted and you should stay away because they have ties to intelligence agencies or shown to have criminal backgrounds. he was written of extensively in this. the question about general flynn is why he did not do due diligence? oliver: it is basically an encyclopedia of spies. >> not even that, but you get that by googling him. you google the stories about the spy trial. next, rogue trades and a ponzi scheme that investigators say could be the biggest investment fraud since bernie madoff.

we will introduce you to baby monitor aristotle. ♪

oliver: welcome back to "bloomberg businessweek". i am oliver renick. you can also catch us on the radio on sirius xm 119. 99.1 fm in washington, d.c. , and in asia on the bloomberg radio plus app. and financets section, why it took great you later so long to catch on the rogue trades and schemes that platinum partners. its peakedge fund at manage $2 billion and flew under the radar, founded by two orthodox choose from new york --

ofs from new york, and much its fundraising was from the orthodox jewish community. philanthropists, so they met people through that. the u.s.month prosecutors in brooklyn arrested seven people associated with platinum. the authorities are now saying a $1 billion fraud and the hedge fund had been inflating its returns for years. carol: talk about their track record, right. it was kind of review that it was so consistently a performer. chart thatis was a went at a 45 degree angle up. carol: all good. >> in the main fund, they returned to 17% a year from 2003-2015, some of the best

returns you are ever see from a hedge fund. oliver: even during the financial crisis? no downes, no losses, years. they had a second fund that was lower, but only one down month in that fund, even more consistent. if you look at the sharpe ratio, adjusted of like risk returns, the main fund was reporting returns that were nearly as smooth as the fake numbers that bernie madoff posted. oliver: that is what true scrutiny? this is too good to be true question mark had to the sec get a whiff of what was going on here? platinumted looking at two years ago because a lot of these return numbers were amazing in that few people had heard of them. it was almost a little weird that the fund had only $2 billion under management if and it's great returns. you would expect it would be much acre.

when i started poking around, there were so many weird things that the fund had been involved with over the years. carol: such as? 2007, there was a rogue trading scandal at the bank of montréal, and platinum partners of trades.other side bank of montréal suit platinum's founder and accused tim of helping the rogue trader, may be coming up with the ideas for these trades. oliver: are we talking equities? what kinds of assets? >> these were gas options. platinum call themselves a multi-strategy hedge fund, but that meant they would do almost anything. from people i talked to come up they would take meetings with someone, someone who needed money for crazy ventures, and they would loan people say $10

million, $20 million at a pretty high interest rate to pursue crazy sounding things. carol: that was like warning number one. >> yeah, that was one morning. in 2011, a big ponzi scheme grew up in florida, run by this .awyer, scott rothstein he had been telling investors they could participate in his legal settlements, like basically you would give scott hehstein $50,000, and when got paid for a case that had already settled, he would give you $100,000. the returns were great, and he had raised about a billion dollars with this, but if you are a sophisticated guy like platinum partners, maybe you should've thought this seem too good to be true. oliver: up next, how many of our pets become overmedicated and over vaccinated. in hishat, george lucas

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finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. oliver: welcome back to "bloomberg businessweek". i am oliver renick. still ahead, think the u.s. dollar is strong? what happens if it really starts rallying. andook at mattel's new toy why george lucas is having so much trouble giving away a $1.5 billion art museum. all of that ahead on "bloomberg businessweek". ♪ oliver: we are back with "bloomberg businessweek" editor megan murphy. let's talk more about the feature. let's start with pets. there is some over medication going on. megan: alleged over medication.

we explore the corporatization of health care and how pets are being treated like humans are in terms of getting wellness plans, private equity funds, investors going in and corporatizeing this space, how they are trying to extract a higher premium for care, how they are trying to get people involved in payments for this care. as a result of that ship, some overmedicated, getting more tests than they need, and frankly paying more money for their dogs and cats than they should be. oliver: there's conflict in this story too. it focuses on a veterinarian who goes back and forth. megan: it does go into this. they have had a long tortured legal history on both sides of that argument, but the bigger

picture is are we serving our pet population as well as we can or should be? vaccines, have we devoted enough care? one of the most fascinating places is how veterans are still regulated by the departments of agriculture, which harkens back to the day when pets are treated like livestock. and are part of the family closer to some people than their own children. let's talk about another interesting topic. george lucas and the fact he is having trouble and getting frustrated by giving away an art museum. megan: this has been a long running chicago saga. he tried to put the museum there. it is an interesting battle. george lucas that feels like he does not get the respect he deserves, but also his own art collection which contains betty boop drawings,

norman rockwell, stuff that is not considered high art. is he getting pushed back because it is not significant enough for the art world. it is down to los angeles and san francisco now. if you take a look at some of hughmagery of the museum, low rise piece of architecture, you can see why some local residents have rejected it. oliver: back to this great story, dealing with the dollar and whether we are thinking about the dollar properly. itan: this talks about how economists and businesses have warned about the dollar rising since election. is that hampering growth for american corporates. will it be something that affects them. ifer coy writes about there is more room to run for the dollar. oliver: it is a complicated

topic. thise important point in story is that the dollar is not quite as strong as some people think it is. strong dollar, strong dollar, strong dollar, and yet if you look at the federal reserves broad real trade weighted index, yes,s gone up, considerably over the past couple of years, but still well below the level it reached in 2001, 2002, and farther below the all-time peak it reached in 1980 five, when we had the so-called plaza accord, a concerted effort to bring the dollar down. covers the vast majority of trade the u.s. does. real means is adjusted for inflation, and this makes it a better indicator than the dxy, which bloomberg's users are

familiar with, the dollar index, which covers only six currencies and is not adjusted for inflation. that does show a bigger rise, 25% from its recent low, versus 20% by this index. but why does it matter that the dollar has gone up less? we are having trouble with the dollar at these levels, this fairly modest rise, imagine would get ife it it really does? there are two negative consequences of a strong dollar. the one we hear most about is the damage to u.s. manufacturers , because a strong dollar makes their products more expensive abroad and makes imports cheaper, imports that compete with american production, but there is another consequence, which is the one abroad, and that affects mostly developing countries, fragile emerging

markets, especially ones that had issued a lot of debt in dollars. they do that because they can pay a lower rate when it is denominated in dollars. now they have to take their local currencies and converted to dollars added this invented's exchange rate, so it raises the cost of funding for them. it comes on the back of the federal reserve raising interest rates, which is putting pressure on worldwide interest rates, so a double whammy. they are getting hurt. dollar could go considerably higher in 2017. carol: what kind of move starts to cause problems, peter? >> i think we are starting to see problems are ready, but i cannot give you a percentage. it is more like a concept kind of thing. carol: it is all relative. , you would think a strong dollar would help one side of the equation and heard

the other, but in this case, it can hurt both. the u.s. does not gain any advantage on the financing side because the u.s. has no trouble raising money. carol: emerging markets. do suffer. markets of course they do gain the benefit from being able to export united states at an advantagous price. when you talk about the stronger dollar, there are other ways to look at this. you can look at it versus a basket, the trade weighted dollar, explain to us why the trade weighted dollar is more than an academic way to look at the dollar. >> it is the whole ball of whacks. if you're looking at the point thanew of economics rather currency trading, which you care about is the buying power of the dollar with regard to other

currencies, and not just one or two, but the entire group of currencies we do business in, so you want to include the chinese and then mexican peso, some of the smaller currencies in the feds brought index, but not in the major currency index. oliver: up next, how home and television beat cnn last year. plus, the alarming fallout from declining attendance at college football games. ♪

oliver: welcome back to "bloomberg businessweek". i am oliver renick. companies and industries section, how hdtv is dominating cable to the ocean without news, a-list celebrities, or sports. we talked with jeffrey smith. formula theya stuck to since 1994. basically, an old house, they fix it up, and a happy couple walks in and that is their new , or they have shows like

flip or flop. repetitions.about it is interesting in this era we are in, the golden age of tv with all the scripted dramas. carol: expensive. >> this is reality program, not that expensive to make. they essentially make the same show again, again, and again. carol: the most shocking line is that this is the third most popular cable channel. >> that's right. third behind fox news and espn, and in total viewers, ahead of cnn, which had a huge year with the elections. it is pretty unusual that so many people would be watching live when this is programming you can watch on demand whenever you want, but for some reason they have a high live tune in. carol: i am a huge fan of fixer upper, so i know when the show

is on and the new episode comes out. my name is carol and i watch fixer upper. to viewers andg executives. they acknowledged this as a refuge. for the presidential election, it was stressful for a lot of people, and hdtv, one viewer said a lot of the news on tv is stressful, and htv is not .omething that will hurt me there are some people tuning in because they want to tune out what is going on, especially cable news and the political season. i want to connected to a story about the hallmark channel. they do the same movies or shows over and over again, pretty much feel good stuff. is that reliability? is that what it takes to stay when peoplechannel are cutting cords and all that

stuff? >> it seems to be working for them. there are a lot of strategies going on. most networks think you have live sports or news, the two ways people tune in live, and thatis a channel like hdtv has neither of those things and is getting ratings increasing, while most cable networks have been decreasing. carol: talk to us about his thinking. . inthis was a channel started 1994. i spoke to him for this story, and he told me that back in the early 1990's, he had a lot of .keptics a lot of people gtvhad trouble getting ht carried on cable. what he did is he said he wanted

, went to customers in the isles of home depot's and lows, and talk to them, are you remodeling your house, what sort of things are going on with your house, and there was a really big demand for a channel like this, especially outside the big metropolitan areas. megan: how empty bleachers at college football stadiums might impact lucrative tv deals. >> it is starting to change a little bit now, some big fractures happening in the college sports business model. it is three things. these athletics departments make money in three ways, tv money selling their rights to espn and fox. a lot of money, that is the biggest pie. then there are alumni donations, and the third part is ticket sales, and based off those three revenue streams, sports have exploded on college campuses.

now schools are spending versus 10 years ago are orders of magnitude bigger, and now we are seeing those three streams called into question a bit. the cable tv model is fracturing , new players in the digital space, especially in the live sports world, so no one really knows if there will be more money at the end of that rainbow as there has been in the past four sports properties. college football attendance is dropping, and that is the bulk of what you get from tickets, so that is going down. don't donations, if you go to games when you are young, you were not donate to the athletics department going forward are, so in the face of those three main revenue streams fracturing at the lower levels, there are concerned people in the college sports world. oliver: give us perspective on how much their numbers are going when you'ree

reading this, it is kind of visual. one team has the entire stadium from another team in their crowd, but what is it translate into in terms of the numbers? >> attendance is down for the seventh straight year, about 1% a year, that that is masked by the fact that ohio state and michigan are selling out all the time, so when you get below that top-tier, you are seeing dramatic changes. schools, you mentioned 80% of the stadium empty. u, they built a new stadium, and their final game this year had 5000 people. carol: why are people so interested in it? people aren't watching as much. what is going on? , people will say that the

millennial generation does not value going to games as much. part and parcel with that is the experience of watching the game at home is that much better. 20 years ago you did not have the option of watching three games at once while watching social media on your phone and playing a videogame on the side. those are all options now. there is concern that the idea of going to a football game is not what it was a number of years ago, and that's why you're seeing empty seats. an apple andt, and spotify world, soundcloud is struggling to find its place. mattel's toymaker once your infant to grow up alongside its artificial intelligence. ♪

oliver: welcome back to "bloomberg businessweek". i am oliver renick. thecan also catch us on radio on serious xm channel 119. d.c., and washington,

960 in the bay area. and in london, and in asia on bloomberg radio plus app. in the technology section, soundcloud is beloved by artists and users, but struggling to grow as spotify cements its dominance. we talked to lucas shaw about what is next for the company. >> the music industry in the u.s. will have grown for a second time in a row in 2016, the first time that has happened since the 1990's, when people were buying a lot of cds, the peak of the modern music theness, and that is attribute it to spotify as opposed to free ones. however, while the music industry is happy about what has happened over the past few years , the service is leading this growth are not faring as well because they have to pay so much

of what they take into the music industry. no otheru write that company and capsule is the problem of digital music than soundcloud. talk to us about soundcloud. >> soundcloud is this thing from all these other ones. if you think about spotify or apple music, paid or subscription streaming service, they just have 30 million songs on demand, but it is the same catalog everywhere. what made soundcloud distinct when it started in 2007, was that it was this playground for artists and true music fans where you would see musicians upload raw cuts or demos or something they were working on that they wanted to show fans before it was ready to be released, and that proved to be incredibly popular. but what they really have struggled to do is turn that into a business and make money from it. advertising off of audio is

difficult, so they realize they would do what they could to improve the audio business -- advertising business, but they also had to have a paid service. they tried to create one at a lower price point than spotify and could not get the music industry to sign on, so they introduced this paid service in 2016, but these other services had taken off and they did not have anything different to offer the consumer from what else was out there. megan: mattel is coming out with what it is calling the first smart baby monitor. we talked to felix gillette about the copies artificial intelligence. >> it is basically what they are calling the world's first smart baby monitor that is supposed to grow with your child. the moment you bring your baby back from hospital and put him in the crib, you set up mattel's

new product aristotle next to the crib. it is a high definition camera, bluetooth, part is a wi-fi speaker that you can talk to, so it has voice recognition. it speaks and does all these and is supposed as oppose to evolve, something you keep your child's bedside for the next 10 years. carol: i am already creeped out. oliver: it sounds like alexa for babies. >> yeah, that is basically what it is. , alexa, apple supposedly working on one of these, these artificial intelligence home automation hubs. what is interesting about mattel's aristotle is differentiatedfo

in going after parents with young children, your nursery room. you havedon't know if had a baby monitor, so we know how that works. it is useful, you hear the baby, but this takes it to a whole other level. you talk about microsoft programming that collects crib-side 80 and responds to babies needs. what kind of data is a collecting? often youatterns, how are changing their diapers. it comes in with some e-commerce partnerships. you are changing your kids diaper, running out of diapers or wipes, you tell it come aristotle, can you order me some new diapers? carol: useful. oliver: you could do it with .lexa too supposed toon is learn from the data it is

collecting. terms ofme time, in sleep patterns, one of the cool things they are talking about is your child is sleeping and the baby starts getting restless, crying a little bit, you can program it to play white noise, a lullaby, turn on a night light, and hopefully soon your baby back to sleep. oliver: is there anything that it does that replaces the time or effort required by the parents? >> yeah, that is the big question of its usefulness, how easy it is to program and keep learning with your child versus just doing that stuff yourself. yeah, the idea is that it saved you time and energy with your baby, and then, you know, but they don't want you to, it's going to sell for about $300 to start, going on sale this summer, but they don't want it to be something like baby toys

are baby monitors where after the first six-12, 18 months, you toss it aside. they want you to get years of use out of this thing. part of it is that it comes with learning games that as your kid grows older, it advances to the point where it is teaching your kid how to do certain things, learning abcs, 123's, shapes and colors. oliver: bloomberg businessweek is available on newsstands now. more bloomberg television starts right now. ♪

♪ david: coming up on "bloomberg the stories that shaped the week in business around the world. transitiontrump gather speed as inauguration day approaches. >> clearly, we see a better manufacturing business environment under donald trump should >> we are going to try and protect the insurance coverage that americans have today. chinese currency surges against the dollar and all signs point to tighter -- to