Apple's Core Problems: Market Makers (07/23)

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July 23 (Bloomberg) -- On today's "Market Makers," Erik Schatzker and Stephanie Ruhle use analysis, insights and A-list guests to help set up your daily market trades. (Source: Bloomberg)

. apple's core problem.

The stocks in a slum.

No signs of any changing product.

The latest in a string of mishaps.

How soon before it hits the bottom line?

Housing leaves the minute oil -- leaves the minot -- leaves the millennial's behind.

Welcome to two "market makers"." let's get straight to our newsfeed.

It is our look at the most important business stores around the world.

They're trying to cash in on the increased demand.

They agreed to by sourcefire.

It helps prevent hacker attacks.

There is the premium.

Steven cohen striking back.

His capital has responded to allegations of that they felt his take -- failed to take steps.

Evidence shows he did not even read the e-mail.

At his at the center of the government claims.

That is according to the wall street journal.

The e-mail was sent to the office and home e-mail addresses.

It is the world most expensive utility vehicle.

Both giving the greenlight light to the pricey set of wheels.

Telling the brand to build an seb that will cost $237,000. bentley is going to hope that the suv helps to double sales in the next five years.

At the top of our agenda, radioshack's efforts to turn efforts around may be bearing fruit.

They had their first significant comparable sales gain in three years.

Julie hyman has been digging into the numbers.

They had a tiny gain of 1/10 of 1%. this blew away analyst estimates.

I do not see anyone that was looking for any gains whatsoever.

They are touting that comparable sale.

Its revenue overall beat estimates.

The ceo has been trying to turn it around.

He comes to radioshack from walgreens.

He has been doing a lot of partnerships.

He partnered with beats by dre, makers media.

They've also partnered with college bookstores.

They partnered with a company that runs the bookstores.

They could get radioshack in- store through many shops as many as 4000 shells.

This is something he has been trying to do.

How much time is it going to take?

It is a tangible strategy.

It was a wider loss.

A wider loss than it was a year ago.

$.53 loss versus the $.25 that analysts have been looking for.

I have been talking to analysts who have been looking at the gap between sales and inventory.

They still haven't inventory issue.

You want to see a speedy turn of inventory.

Do not want to hold onto it.

It comes off pretty quickly.

. sales are still struggling.

You have this one quarter blip eared seals are still struggling.

You do not want to have your sales below your inventory.

This is clearly one of the financial problems that this company is facing.

We know they are trying to pursue strategic opportunities.

We learned recently that they have hired some advisers and this confirms that.

Alex partners is being hired as an advisor.

Speaking of alix partners, an executive will become the interim chief financial officer.

The cfo resigned today and said he was taking a position at planet fitness.

We should note that radioshack talked at the debt versus cash.

They have liquidity of 818 million debt.

This is the race here that i talked to.

Can it turn around the business quickly enough?

This is on the comparable sale which beats.

Julie hyman, thank you.

We're going to speak later on with the chief marketing officer at kodak.

I wonder if he sees any similarities here with the bleeding and radioshack.

There are shocking images of a boeing plane.

You're going to see them now.

It is skidding to a halt on his belly at laguardia.

No one was injured.

Some are questioning boeing's brand and if it may push the maker into a tailspin.

Adam johnson with me now.

First of all, what is the official line from bollinger?

Here is the statement which they reiterated when i call this morning.

"you're gathering information about southwest airline flights in new york and we stand ready to provide technical assistance." you can understand why they are interested in doing all they can.

The 737 is incredibly important.

It accounts for 72% of the backlog.

Of all the airplanes on order are 737s. it is in their interest to make sure whatever happened his figure out.

Here is the thing.

Bowling does not make the landing gear.

It just assembles landing gear made by others.

United technology is one company.

It assembles it on the airframe.

I am curious.

When you start thinking about the mishaps that we have seen, 787 batteries aside , you think about the ag on a -- asiana flight.

Boeing is actually up today.

It sounds that at least investors are reacting to what you are saying, some of the parts that happen to be breaking are actually not made by boeing.

That is correct.

That is one of the several tillers -- that is one of the subtleties they need to know.

They make the airframe.

They may component in the same way that general motors or ford creates the body of the car and assembles rakes that were made elsewhere.

Transmission systems that were made elsewhere.

Certainly boeing does everything in its power to lend support.

We are offering technical assistance.

It is a question if you actually made the part in who is maintaining the part.

That is really where you have got to imagine a lot of the focus will be.

I actually misspoke.

Six people were injured yesterday.

No fatalities.

They have been released.

Hopefully they are well on their way.

Some people suffered in attacks which was not that surprising.

With so many issues, if you're being told to repair for a crash landing you prepare for the worst.

That is very scary.

John nance spoke with the bloomberg printing.

He noted of all the issues that could go wrong with an aircraft, bad news here is the least concerning for a pilot.

-- nose gear is police concerning for a pilot.

8 i am now told is the final count.

Thank you adam johnson.

Coming up next, we're going to focus on the real estate rebound.

Nook is are raising concerns about the strength of the housing recovery.

We will be speaking to the ceo of re/max, the largest broker in the country.

It takes more than money to beat at the world the best restaurant.

You will need a lot of patience as well.

There is a year long waiting list.

"market makers" on television , phone, and

? sent disappointing housing numbers over the past week on existing home sales coming in surprisingly low.

It raises questions about the strength of the housing recovery, especially as we are seeing mortgage rate rising.

The ceo of re/max has more than 90,000 agents across the globe.

She joins us across the headquarters.

Great to see you.

It is great to get your into total take on the sustainability of the housing rebound.

No i do not.

Month over month i was not too worried.

It was a one percent drop.

It is a very robust month for sales.

All in all we have seen 17 months in a row of increased sales and prices.

That is a good and.

Out of curiosity, how much longer is it taking to sell a house?

It is about 65 days right now for a home to be on the market.

A year ago it was almost 85 days.

Homes are selling quicker.

The main reason is our inventory is incredibly low right now.

When you have low inventory and high demand, prices rise.

You have a lot of excitement in the market.

Once we see inventory rise a bit you will see some of those things come down.

It will be more of a normal market.

We're starting to see rising mortgage rates.

Do you anticipate a burst of buyers looking to lock lock in these rates before they go higher?

I think you'll see a lot of this that way.

Interest rates right now are at 60 year lows.

That is cheaper than my parents buy homes.

The affordability is probably more important than what the mortgage rates are.

Affordability is at an all-time high.

What are you hearing as far as lending goes?

How willing are banks to continue to make it easier for people to get mortgages?

Is it becoming more challenging?

This was way to lose.

It has gone to be a little bit too tight.

We want to see them to be a little bit looser but we also have to look at what is going on in the government and a lot of this right now we do not want to create too many regulations that actually will prohibit buyers to come into the market.

We want to make it very common sense lending right now.

Not to pour cold water, there's a great piece about first-time homebuyers.

They are pretty critical to the sustainability.

Why are they not participating?

I read the article this morning.

We talked about first-time homebuyers.

They are about 29% of all of the buyers that are out there.

The inventory is quite low.

For first-time homebuyers, that price range but they are looking for is even lower.

These are the homes that sell quickly.

You're going to have to really get in there and by quickly.

They are going to lose out.

I did not to cut you off.

What we are seeing also as prices increase, people who were underwater in their mortgages before are no longer underwater.

They're going to be able to sell their homes that will add to the inventory.

I think that will calm down some of the excitement.

They were talking about the millennial's. do you see certain parts of the inventory moving faster than others?

Usually it is the lower end that they are most interested in.

What we saw during the entire recession with the high-end homes were stall.

They were not selling . we are seeing that was enough quite a bit.

This is a good thing for the market.

We want all price points to be able to bully -- to be bought and sold.

We know blackstone has been very active.

That raises the question about substantial demand for new homes from legitimate buyers.

I think we have a huge pent- up demand.

Then to go down to a low of about 250 million, we have tremendous pent-up demand.

We have it on multiple levels.

We have household formations that were down for a number of years.

We have pent up demand for new homes.

We have pent up demand for them to type properties.

To see them start to increase again.

There are lots of permits being obtained out there.

Construction will start.

What you will see in all areas that things will begin to increase again.

That would be good for the business.

Thanks for joining us.

We are going to stay with housing and tax reform.

Congress is looking at proposals that would do away with the mortgage interest rate deduction.

That is the darling of the real estate industry.

Some in dc are targeting deductions and second homes.

Megan hughes has the details.

Does this mean members of congress do not have as much of an incentive?

Quite the contrary.

This would certainly impact homeowners but deftly members of congress.

Bloomberg went through the data.

There are eight -- they are eight times more likely to have a mortgage.

Leezer in the upper echelon in terms of income and assets and being well to do.

Their perspective when they are looking things for things of well-off will be different from someone that is barely making ends meet.

They do tend to have more wealth.

They also split time between their home district in washington, dc this is a three-bedroom townhouse on capitol hill.

That is were just under a million dollars.

Michael bennet have this nearby.

It is a vacation home.

The question is, does owning these homes color the positions?

They did argue in favor of this.

They have second homes.

Is this going to break something before it has been talked about?

This could be eliminated.

Senator max baucus has said that he would like all suggestions on what they were cut by this friday.

Everything is on the table.

It is hard to say.

The irs does not require them to break that down their mortgage interest by home.

The tax policy center does offer a rough estimate that it could bring in about $8 billion a year in revenue.

The entire deduction is expected to bring in this.

Megan hughes joining us there from dc.

Coming up, another record for the s&p 500 today.

Investors are true by more earnings reports.

We will take you through the stock market.

? might be the of summer but there may be something of a have a hard time believing this.

Focus on back-to-school shopping.

I i find that somewhat distressing.

If you are like me, one day before school starts the last minute and you send a note of apology to the teacher saying i did not have that specific rant of crayon.

Not every single person out there is a slacker.

The average family says it plans to spend $50 less than last year which is hard.

Teachers do actually ask for very specific items.

I do not know how you control that.

We took a look at some stats.

Everything you need from pencils to apparel.

It was our bloomberg industries team.

They went in physically to the isles.

I was shocked at the results . to me it seems like they should all be the same price.

They are pencils.

It turns out there is a huge discrepancy.

Walmart is the cheapest for back to school supplies.

By a lot.

By a lot.

They went there all of these categories.

Take a look at walmart versus targets.

Here's the average.

10% cheaper than targets.

The really surprising one is how much cheaper it was think kmart.

30% cheaper.

I guess they are hoping to get you in there for the school supplies then you spend it on other things.

That is the calculation.

Perhaps catering to a different crowd.

Perhaps you can go in earlier.

Thank you.

It is almost half past the hour on market makers.

It is time for bloomberg to go "on the markets." we have companies moving on earnings.

They will explore strategic options.

That includes a sale of the performance chemical unit which makes teflon coating here to shares are up better than 2.5%. netflix is interesting.

They had a solid quarter.

The one thing everybody cared about was fewer subscribers.

That hurt the stock even though earnings and revenue were strong.

Apple is reporting after the bell.

A slow in iphone sales may give investors little to cheer about.

? live from bloomberg headquarters in new york, this is "market makers" would erik schatzker and stephanie ruhle.

Apple will announce as earnings after the bell.

Tim cook has a challenging job , particularly so these days.

There is speculation they may introduce different versions of the iphone or be working on television content deals.

Peter burrows covers apple for us.

He is with us from our san francisco office.

Why is this so important?

We are going to see whether they will be able to get through this time where they have very few new projects for quite a while.

If they miss today, particularly on the iphone sales numbers and on gross margins, and there will be a lot of questions about whether this gravy train that has been the iphone is going to hold up, whether they are going to maintain the price and profitability of that project.

I think all is well in apple land.

They can move on and introduce new product that will hopefully reignite growth in the next few quarters.

That is where i wanted to go.

I wonder how shortsighted it would be to look at just these results even the fact that we are expecting more on the apple television and the iphone 5 as s coming by the end of the year.

We do not know about all of those projects.

For most ports i have gathered the 5s will not be a game changer.

There is a lot of interest in a cheaper iphone that would be $100 or $200 cheaper.

That will really be critical.

Apple has really slowed down.

They are not participating in emerging markets that are just booming right now.

Millions of people are just getting their stuff first smartphones.

For the most part they are not buying apple.

They are not buying apple because for many people the price that many people in the u.s. or europe pay is prohibited.

How many market share gain points could applegate if they do offer a cheaper iphone?

They are now at 19% or so.

I think the hope is that if they participate, they do not have to go all the way.

The booming part of the market is costing less than 200 bucks.

If they participate more in the lower end of the market, the hope is that maybe they can maintain 20% or more of the markets.

We are talking about the smartphone business.

This is billions of units a year.

A 20% share would be terrific to read earlier julian robertson got the dynamic between apple and google.

He sees a better culture at google.

He said he read the steve jobs biography and says there's no no long-term plan in place for apple.

Where is momentum shifting in terms of silicon valley in terms of where the hot products are coming from?

It is interesting.

We just wrote a story comparing the smartphone business to the pc business.

In the day, apple became a real niche player because they were up against this whole open architecture where you have hundreds of companies all participating -- competing against apple.

That is what is going on from androids.

So far apple has done fantastically well.

For the last couple of years we have not seen the products from apple.

It is all about the products.

If they can come up with some innovative products that restart this they will be fine.

These concerns will go away.

If they do not, the android is not slowing down.

All right.

We thank you very much.

Bloomberg businessweek's peterborough.

We have some other headlines for you at this hour.

It includes a report that china's biggest e-commerce company alibaba has a file for an ipo in hong kong.

This country the oriental times newspaper.

According to it, it would value alibaba up to $100 billion which is close to what facebook was a values before the ipo.

Verizon has taken the lead over internet speed.

They have boosted the internet speed to 500 megabits per second.

Comcast pulled ahead last year by offering their hundred five megabits.

The high-speed is not cheap.

You will pay over 300 a month for web, tv, and telephone.

The second-largest u.s. wireless carrier at&t report earnings after the bell.

Investors will be looking at whether they lost market share to verizon and t-mobile.

We'll also look to see if the margins fell to two more petition for smartphone sales.


That is heating up.

It certainly is.

Radioshack lobs another report.

How and what it means for the future of the company.

This is "market makers" on bloomberg television, your tablet, and

? revamping radioshack.

They are posting earnings was stronger than expected revenue.

There are emotional and clearance efforts.

Will they be able to reinvent itself?

Are you having a little flashback?

Is of the terms of the playbook.

I brought in a ceo who revamped walgreens.

There is this show flip the shack.

What he is doing is getting it ready to go out and sell.

The cfo is gone.

He just brought a new cmo . they represented walgreens.

To me it is the same kind of playbook.

Clean of the stores, make them look little better.

I have to imagine only private equity firms would be interested.

That is probably the case.

I do not know that another chain wants to do it.

And by the people want this.

If you go to yelp and start looking around at some of the reviews, people said where i went out to.

They said is it still around?

That is what we tend to see.

I think what they will do is go back to what they used to have.

They try to be a little bit of everything.

This has been working for them.

There is 700 $12 million -- and they are 712 million dollars in debt i am glad you brought up best buy.

Best buy has turned itself around.

This is looking at electronics.

You do not see that as an option?

I do not see radioshack.

They are doing something.

They do not have the website to be able to do it.

They say it is underdeveloped . they are taking products and moving it back online.

They cannot compete with that price thing.

If they said come or the tech and stay through the service, they have to revamp that service.

They have to strengthen that service.

It seems like they stole that line.

We're going to come to your house and plug it in.

Click save just put in dozens of magazines.

I just redid 10 stores.

They just do not have the money to be able to redo them all.

Franchises do not do either.

It will be a mismatch.

That is why you will see a get wrapped up.

As an owner of myself, i have to make sure i hold onto everything i can.

That might be the case.

Are there parts that are more valuable than others?

There is the franchised themselves and having that.

Was go back to your experience at kojak.

Companies need to deal with a changing technology and changing consumer habits.

It totally missed the boat?

Thomas lee had tweeted me and said should it be successful?

Just like codec needed that purpose, they have defined this moving beyond the film.

What is the purpose specifically?

In terms of radioshack?

It has to differentiate it from the big box retailers.

I do not think they have it yet heard is there a year and -- learning lesson that they could take from a company such as kodak?

It would be relevant.

If you have something that people want they will come for you.

Look at what most people say.

Ask your friends.

They are saying they are still around.

I didn't know they existed.

There is this huge chasm.

What are they going to do to jump the shark?

What do they need to convey?

They are selling dr.


It got me people back in but it will not sustain it.

A brand is a promise delivered.

When i went to radioshack i would go there to get batteries and the things they needed to fix the things that broke.

I think this is some of the key things they had.

There was one near me in college.

Lisa go there and batteries.

I know that was only last year.

Ok ok.

That is the keeping -- the key point.

It is always good to get your advice and your insights.

He is a pitcher meeting editor and a former officer of kodak.

When we come back, we're going to take a look at a big question.

Americans are worth their weight in gold or not.

We have crunched some numbers on money and obesity.

We will bring these to you next.

In ? ? is the best restaurant in the world but if you want to go you had to wait more than a year for a reservation.

It is in northern spain and at one this year's top honors and restaurant magazines or widely watched lists.

We are joined from london.

I am only slightly envious of your experience.

Wasn't as as good as the hype?

-- was it as good as the hype?


When someone has received awards like that you're setting yourself up for disappointment.

It is a really beautiful restaurant.

It is in the northeast of spain.

It is just outside a small city.

It is in this nondescript suburb.

Once you get into the garden it is the most beautiful place.

We are looking at some images now.

It looks very much to that way.

This is a teeny, tiny town.

Is it a surprising location for such a great restaurant?

It is except that el bulli is only 30 or 40 miles away.

There must be something in the water.

We would be remiss if we did not ask what were your favorite dishes?

There were about 20 courses which was very nicely.

There were many highlights.

One was starting with some canapes representing five different places in the world where the chef has traveled.

It was through there.

Other highlights include some of the most beautiful cycling paid.

It was certainly plate with orange and lemon.

It is very colorful.

When i was reading your review, i have to admit that bitter -- borderline brought tears to my eyes.

There you have it.

It is three brothers who own it.

Three brothers.

His younger brother was in charge of wine.

They were born within hundred yards of the restaurant.

They were just around the road.

This was a real family affair.

It is a real family affair.

It seemed as if it is actually real feel -- food.

It seems like everything such as orange foam and even if there were 20 courses the dinner did not fill you up.

This seems like a blend of traditional and modern.

It is a blend.

It is about culinary expert imitation.

You can have fantastic food.

Sometimes eating is removed from dishes you recognize.

This was great things like lamb or beef or fish that you know what you are eating.

It comes from a very modern way of presentation.

It is doubly one of the best meals of my life.

You had three women here all squinting at the monitor.

We can read the menu.

I think that says it all.

Thank you very much.

Thank you very much.

I want to know what grilled opinions are.

All three of us right here are just gazing.

While we are talking about food, here is a story.

Dubai is a fat city.

The government put those two together and is offering citizens gold to lose weight.

I wonder if the united states were to do something similar?

We are hashing it out.

There hypothesizing be gold for that program.

According to one public health study americans gained 2.6 billion extra pounds due to obesity.

Let's put into context.

It is equivalent to 225,000 adult elephants.

A while.

-- wow.

This is what the u.s. obesity problem looks like.

As far as the dubai program, they will pay one gram of gold for one kilogram loss.

That is 20 pounds of gold.

If u.s. were to pay overweight americans the same weight that would equal 1.2 billion grams of gold.

In terms of how much money that is where, over $50 billion.

It sounds like a lock.

Studies have shown that the annual medical costs of obesity is $150 billion.

Is the west of the fattest country in the world?

It is.

It is still number one by pretty wild margin.

It is 1.2% more than new zealand.

I am surprised it is up there.

Anyone that watches oprah will tell you that it is keeping the weight off.

You can lose the weight quickly.

And here we go.

It is an unfortunate video.

It has to happen after the food.

I wonder how successful the program will be?

It is a good question.

They are probably only a day three or four into this.

Starlet -- scarlet fu, gold for that program.

Whether it can work in the united states.

We are coming up on the end of the hour.

It is time for bloomberg to go on the markets.

Dominic chu has all the latest.

Let's take a look at what is happening across the markets.

At least with the stock market you can see a relatively flat trade happening for stocks.

The s&p 500 trying to get to a level where they are pushing those record highs yet again.

If you look at some of the sector movers it is pretty.

They are leading the way higher.

On the downside healthcare stocks will bring this to the rear.

It is the worst performing sector in the s&p 500. let's look at what is happening with the interest rate out of the equation.

10-year note yields are up but off of their sessions high.

This was the high in terms of 10-year note yields.

If you look elsewhere on the to your side of things, not a whole lot of movement.

On the currency side of things, we will look at what is happening with the euros.

Both of these guys are showing a little bit of strength versus the u.s. dollar.

The dollar yen still hovering just above that hundred yen per dollar level.

We will finish off what is happening with them oddities.

I'm oddities is all about what is happening with gold and oil prices.

Gold is giving back some of the gains that we saw yesterday and over the past couple of days.

As you look at what is happening overall, it really does become about whether the state is in a holding pattern.

That is why it is so important.

Little in the way of economic data.

Dominic chu, thank you.

We will be back for another on the markets.

We will be coming back on market makers to talk about a story people are very intimately aware of your to they are.

This is the report about the cost of college.

You know this actually now outweighs car loans and consumer debt.

This is a big issue for u.s. society.

This whole idea that parents are not paying as much because of the tougher economy.

We're also going to talk to to the president of odyssey.

That is right.

Treasure hunting.

Where are our pirate suits.

It is a tough business.

Our guest will be coming with some actual hard metal goods.

An 80 pound trunk of silver.

He will be bringing up some treasurerses from the bottom of the sea.

That is coming up on "market makers" in just a few minutes.

? live from bloomberg headquarters in new york, this is "market makers." with erik schatzker and stephanie ruhle.

Cisco span is 2.7 billion for a company that protects computer networks from hackers -- cisco spends 2.7 billion.

And hidden treasure.

The deep sea explore discovers tons of silver in a shipwreck on the ocean floor.

Welcome to "market makers." i am deirdre bolton.

We want to get you caught up on the news feed.

The most important business stories from around the globe.

The ceo of switzerland leading telecom company has died in an apparent suicide.

He was found in his home, 49- years-old.

The deputy ceo has been named to temporarily leave the company.

Netflix is down.

Subscriber growth was the metric investors cared about the most, and that missed.

Even with today's decline, still the best performer in the s&p 500 this year, up 177%. increasing production of original programs to attract more subscribers.

Donations fell at the cancer charity founded by the disgraced biker, lance armstrong.

Livestrong added 8% drop.

The u.s. doping agency banned him from cycling last august and resigned as the chairman in october.

Another top company story, cisco balking up.

Buying source fire for $2.7 billion.

They make software that protect companies from cyber threats and now wheremalwear.

What kind of competitive position does this but john chambers in?

Buying the company for pride of -- quite a premium.

One of the many acquisitions that has been a characteristic.

They buy companies of all stages in all places.

Not based in silicon valley, but in maryland.

A lot of computer networking and security.

They essentially make a lot of the hardware used to prevent very sophisticated attacks to monitor network equipment traffic from kids -- from a security perspective.

It is a company growing quite a bit.

It is up from 25% the year before.

A lot of growth in the company.

We are constantly covering the hacking stories.

When you see the revenue growth doing 223 million in revenues in 2012, expected to do 278 this year, we'll see a company really growing dramatically because of this persistent threat.

With the attacks ramping up, does that explain the 29% premium that they are offering to pay for this company?

Take of this is not a huge premium to a lot of people.

-- is is not a huge premium to a lot of people.

This is one of the hottest areas of computing.

You can take a server or equipment and compartmentalize pieces of it and have virtual networks on many networks.

That also means many levels of security.

They make some fertilization security products that are really hot right now.

-- virtualization security products.

Is there another source fire out there, looking at other acquisition targets?

They run a merger and acquisition practice within the company.

One thing interesting is their ability to incorporate the companies they acquire.

You rarely hear about a big kick up some problems, despite multiple acquisitions they do.

They have a machine down there in san jose that helps them acquired these companies.

When they think they cannot build it and partner with it, they're very happy to partner with it.

Gives them ammunition in the fight against competition.

The stock up more than 25%. corey johnson, editor at large.

Detroit is not the only american city struggling under a mountain of debt.

With an estimate how many other cities could follow, we bring in michael mckee.

He has the real deal.

How big a risk is there that detroit is not unique?

A lot has been written.

Indeed the case may provide important precedents but a wave of chapter nine bankruptcy filings will not be one of them.

They have $11.8 billion in unsecured debt.

9.2 billion owed to pension funds and health care.

They have not put a number on it yet but hope to do this to cut obligations.

The michigan state constitution prohibits cuts to public pension programs.

The city argues that federal bankruptcy law trump's that provision.

If they win, the theory goes that sets the stage for other cities to follow.

There are a lot of them.

The pew research trust recently estimated 61 of the largest cities in america have more than $217 billion in underfunded pension and health-care liabilities.

Charleston, west virginia, bounded 24% of its obligations.

Are there legal requirements, the only reason that other cities would not follow?

Charleston cannot.

Three of the five cities on the worst cities list cannot by law.

Only 12 states allow you to file chapter 94 for municia palitites.

-- municipalities.

The tre detroit different from the cities as well.

Not only the amount but the kind of that.

18 billion total, possibly more than that.

They're not as the victim of the 2008 downturn or bad investment decisions.

Years of corruption, mismanagement, and the loss of their only industry, the car industry.

Nevertheless, this will be closely followed.

The first hearing tomorrow.

They go to court to prove it is not insolvent.

To cope think you as always, michael mckee joining us.

We will continue to talk about detroit.

-- thank you as always.

We will talk to one of the best-known restructuring experts out there.

Uncovering secrets of the deep.

Finding a fortune 15,000 feet below the surface of the atlantic.

We will bring you the details.

"market makers" continues on bloomberg television in just a few minutes.

? this is "market makers." how does detroit get it fixed?

The founder and ceo and former chief restructuring officer at the u.s. treasury.

Before the treasury coming he advise the united autoworkers union on the historic contract negotiation with gm, ford, chrysler.

The perfect guest to talk about this story.

Before we get into the technicalities involved in the bankruptcy process, first, characterize how important this is in terms of this size, scope come and presidents it sets.

To go there has never been anything as big as this filing.

It will be presidential.

-- it will never be anything as big as this finding.

We of cnet series of bankruptcies in california, but these are creatures of the states that create them.

It implicates the state of michigan and its credit worthiness and how it handles the bankruptcy of its largest city.

-- we have never seen at series of bankruptcies in california.

I am thinking about pittsburgh, the big apple.

It is so state-by-state specific, especially the illegalities that there really are no lessons to be learned?

I think each of these examples are sooey generous.

This bankruptcy has been 40 years in the making.

A story that really started with the riots in 1967. the decline of the auto industry, a globalization.

The city that did not keep up with the forces around it and did not adjust.

They are function of the local economy.

They rise or fall with prosperity or decline of a local economy.

You have had a hollow ring out of the auto industry.

In the midwest generally over 30 years.

The city has failed to keep pace with that.

Under investing in the city itself, the systems it employs, fire and police department, and as a result, the city became unsustainable.

They lost population.

At the end of the day, when you lose people you are losing tax revenues.

They lost property taxes because property values declined.

When you look at new york in the 1970's, it rallied back.

The decline of textile and apparel was a very important manufacturing base in the 1960's and 1970's, but that obviously moved offshore.

The city rebuilt itself.

The population only stabilized.

A group.

As a result, property values increased.

The city has an economic vitality today that people in 1970 people could not imagine.

No question detroit needs that kind of a plan.

First, the question.

If you are not advising anyone, but say you were, how different would that be than a corporate restructuring?

There is a tendency, i think, in many commentators to blame the unions for this mess.

This is really a story more about the mismanagement of people who governed the city.

The unions unfortunately and retirees in particular will take a significant hit here.

In bankruptcy, the claim for post-retirement health care and post-retirement pension are unsecured obligations and capable of reduction -- rejection.

And the ongoing obligation to provide health care to retirees and pensions to retirees.

They can reject the contract and technical bankruptcy terms, which means they can walk away from it and treat those obligations as other debt for borrowed money.

Which debt will be harder to cut, pension or general obligation bonds?

They will be both easy to cut.

Here are numbers.

The city collects about 1.1 billion in revenue.

Expenses are 1.1 billion come up before the cost of the like is the liabilities, it debt and pension liabilities.

The city today, if it had access to no other fund really can support the debt burden and legacy application burden that are currently there's, unless it raises revenue that is virtually impossible to do.

And one of the highest tax burden of any city in the nation.

The notion they could put an even greater burden on the remaining population is not credible.

They have two choices, they can cut choices more deeply than they have, which is they can reduce essential services, which is not going to happen.

The city is arguably and of not providing sufficient services.

That is where we are asked.

That is where the city has gone too.

-- ogttengotten to.

My guess is this will take a very long time, a very litigated outcome.

More importantly, in this sense the city is like a business.

You start with the ability to produce revenue.

In a city that is the ability to collect taxes, impose the tax burden.

In order to really turn the city around and make it attractive, they have to build the level of service.

They have to make investments in the city, which they have failed to do for 40 years.

I think the first order of business is turning the city's operations around.

Then you can make a reliable production of what it would look like and what a reliable prediction of future revenue will look like.

You can determine if it is 10 cents on the dollar, up 15 cents on the dollar that you can afford to pay.

No question of what implications for other troubled cities around the united states.

Great to check in with you.

Sounds like it will be very long and messy.

When we come back, parents cannot handle the higher cost of higher education.

A new report explains just how bad it has gone.

We will share the details with you next on "market makers." headlines and the amount a student of that are staggering.

The estimated to drop one trillion dollars.

-- it is estimated to top one trillion dollars.

The result, relying more on aid than before.

Carol massar joins us now with more.

More than credit card debt.

More than auto loan debt.

More than any other category.

The only thing bigger than that is mortgages.

The numbers continue to astound us.

It has grown 20% from the end of 2011 to may of this year.

Much faster than growth and revolving credit products.

Even as student loan debt is growing, families are grappling big time with paying for college education.

One of the outcomes of the recession and slow economic recovery.

A new study out, how america pays for college just released.

They are relying less on their income and savings.

On behalf reported using grants and scholarships to pay for college, this year to third the family did.

Parents are contributing less and saving sports college costs.

The reduction in spending has occurred at a greater rate than the overall decline in the total spending of college.

We had a chart their that breaks down where parents are shelling out money.

That takes a look at where money is going out today.

27 percent is the amount apparent income and savings going to colleges and that is down from what it was earlier.

Student borrowing has increased to 18%. about 14% in 2008 and 2009. grants and scholarships now, 30 percent of college costs that.

Five years ago it was about 25%. i wonder if this is changing the attitude of the expensive scholarships.

We talk about what college costs and how it is outpacing inflation.

We do have families becoming much more cost-conscious.

This compares to 58 back in 2008 when it to the first year of the study.

It has definitely raise awareness.

Raised awareness for a very important topic.

Carol massar on the increasing amount of the student loan debt.

In brazil, balking at buying sponsorships for olympic games.

That means brazil's government may have to pick up more of the tab.

More trouble in brazil.

The olympics started out pretty well.

The world's second-richest man signed on early in the process.

He became a sponsor through his wireless carrier.

Since then, a struggle for the olympic organizing committee.

A big oil company did not want to spend the money would take to become a sponsor.

The same for the mining company.

Brazil will host soccer's world cup next year.

Potential olympic sponsors may feel there is more value in that event.

This could lead to more problems for brazil's government.

Protesters are unhappy with the billions they are spending on the olympic spirit and the government could be on the hook for more.

Julie hyman with today's latin america report.

Almost half past the hour.

Time for bloomberg to take you on the markets.

In just a few minutes european indices closed.

We will run you through how they did today.

Looks like losing ground in the final few minutes of the session.

Andcac in paris biting off earlier gains.

-- and caca in paris fighting off earlier gains.

We saw a movement, even in european markets.

In the currency market come figure road marches higher.

It is passed the critical level of 132. reaching critical level of 1.32. also looking at the euro-yen, stronger.

Earnings to digest but very little in the way of economic data.

Thank you very much.

In bump these guys for bowling.

The latest mishap.

-- bumpy outlook for boeing.

? live bloomberg world headquarters in new york, this is "makretrket makers" with erik schatzker and stephanie ruhle.

The plane's landing gear collapsed, slamming the nose onto the road might reject runway.

None of the passengers were critically injured.

This does raise questions about boeing.

Some say the bottom line may be deeper -- affected.

Carter leak is with us.

He previously served as an instructor pilot at the u.s. air force and holds a commercial pilot license.

Carter, adam johnson telling us earlier a lot of the parts failing in these planes are not made b y boeing.

What does this change, if anything, as far as perception goes?

This has been a tough week for the aviation industry as a whole.

Throwing boeing into the mix would be unfair.

In we are on all three cases.

These are all quite frankly speaking more to the robustness of the airplanes and how these events are happening, which appeared not to be at the fault of the airplane itself, but passengers are walking away.

I do not think they could look at it in any way it ties into it.

Unfortunate timing.

So far we have not seen it impact the bottom line.

Make the case.

Digambara take yesterday's case in la guardia.

In the scope of things that can go wrong, this is really a minor.

We can land on two wheels quite often.

I think if you look at the fact that we have a failure of the gear, we do not know what it could be.

It could be a failure of apart.

It could be a host of things, that we do not know.

Again, i know it is unnerving to be on the airplane, but it does speak to the robustness of the airplane itself.

We're going through the time line right now, starting with december, the 787 emergency landing.

Really continuing into july.

How many of them actually speak to save the concerns within the platform in the way these planes are built?

These were related to the battery incidents in has been put to bed.

Regulatory authorities had signed off on it and called it safe.

Since then we have not had any battery incidents.

As far as the most recent incidents, they are in no way related to the battery.

If you are correct that this is an unfortunate series of events, but they're really not correlated and i suspect bad timing.

How bad before the consumer becomes aware and before it could impact the business?

I do not think they are anywhere close.

If you look at airline statistics, and how people choose flights, it will not be on this.

I find it highly unlikely that you will be in a circumstance where people say i think the 737 is an unsafe airplane.

That would not be the take away from la guardia.

Certainly they do not like headlines like they had in heathrow, but early indications are that that was unrelated to boeing.

I think it is tough.

I think they can get through it.

I think we are a ways away from calling safety issues on any of the aircraft involved.

It sounds like you have no vote, no preference on boeing vs.


That is correct.

No conclusion to be drawn in these instances.

We thank you very much.

Joining us, senior vice president, carter leake.

Coming up, the shock waves that could hit commercial construction might happen if developers are not able to get terrorism insurance.

We will dive into that one next.

The is ishis is "market makers." i'm sara eisen.

Without the federal backstop, we could see a big drop in new construction.

Richardson -- neila richardson, is a bloomberg in sight analyst.

What does this law do and why is it so important for commercial real estate?

We are out with new analysis.

My colleague takes a deep look into terror insurance and why it is so important to all organizations.

All kinds of different corporations.

Of 4 9/11 terrorism insurance was just provided.

After 9/11, this industry took a huge hit.

$40 billion, leading some to say we totally miscalculated the market and we need the government to backstop, to come in and reinsure the private insurers.

That is what the terrorism backstop the spirit of providing a backstop to terrorism insurance.

To go happens if it expires at the end of 2014 on schedule?

-- what happens if it expires at the end of 2014 on schedule?

In order for these to be funded, they have to have terrorism insurance.

Before 9/11, almost every company in the country was covered.

Of -- after come only a third took up terrorism insurance.

Now we see about 60%. we can expect premiums will definitely go up and coverage will definitely go down.

It will also be harder for industries like commercial real- estate continue with many other construction projects.

We're looking right now at this chart showing premium rates are falling over the past 10 years.


Many people who oppose extending this are saying it looks like a normal market.

A pretty good take a break.

Premiums falling.

Maybe it is time for the private insurers to take over the market entirely.

If you look at the analysis and academics the britain the subjects, they will tell you terrorism insurance is uniquely different to any other kind of insurance, because this does not have the principle of standard insurance.

It is not random, a frequent.

Very hard to estimate costs and losses.

It really cannot be an entrance that is fully provided by the private market.

The argument is the taxpayer should have to pick up the cost?

That is hugely the argument against it.

Many in congress see this as an emergency measure that happens.

Like many during the financial crisis.

It has a shelf life and that has come to an end.

There are those that argue that this is something should be permanent.

The private market is frozen and will not provide the full coverage of the corporations need in order to get the funding from their banks.

What are the chances that the two sides of the aisle can come together and make a decision on this one way or another?

That is a question you can ask me on almost every political issue going on.

We have a very crowded legislative agenda.

I believe congress is well on its way to passing this.

The problem is with a crowded agenda and polarize house, it is really hard to push legislation through.

What is the time table.

The good the time table is to be determined.

We will see where it all shakes out in terms of the crowded legislative agenda.

We will add it to what we're listing.

How modern-day treasure hunters found a fortune 15,000 feet below the surface of the atlantic.

We will bring you more details when we come back.

$36 million worth of treasure was found under the atlantic in a world war ii cargo ship.

Odyssey marine explorations discovered it, and there are tons of silver bouillon in sight.

Coo mar k gordon is with us now.

Take a close look at the numbers behind the discovery.

A pretty impressive statistics.

Used to be a diver.

That is have you got the idea for the company?

I work my way through college as a diver.

Here i am president of one of the only publicly-traded companies doing this.

This is quite a treasure.

I know you brought a piece of long for us as well.

-- along for us as well.

The very first bar recovered last year.

About 100 tons recovered.

What is it worth?

$22,000. the total discovery, $75 million.

We know as far as expenses, you get 80 percent of what you find after you refund at yourselves.

In this case, the british government gets the remaining 20%? so many governments have dust -- that is it's now, we are actually helping a returning to the treasury.

Interestingly the standard commercial deal is split.

Risk in return.

Is a very good share for the government.

It has not always gone as easy as negotiations went with the u.k. government.

You had some tense moments with the spanish government.

We lost what was widely reported to be 300 million worth of treasury.

It became the catalyst for changing the business model.

We went out and made a deal with the british government.

There were happy to make a deal.

Those of the government's we're helping to looking forward.

There are plenty out there that said this material should not be touched or worried about you upsetting a coral reef or the like.

Not too many environmental issues.

The wrecks are more of an environmental issue, leaking oil, etc.. any of our historic wreck projects, which this was not, but his door?

Are fully documented here yet to come talk more about the advanced technologies that goes into getting them.

You said it is robust.

It is so deep.

This part came from 15,000 under water.

We use unmanned vehicles, remotely operated vehicles, which are robot submarines.

What it has been the biggest surprise to you?

-- what has been the biggest surprise to you?

Along the way, along the decades, what has been the most surprising are interesting thing to you about the experience?

We have rock stars.

Ingenuity and perseverance the team has to pull off an accomplishment like this is gratifying.

We started our historical research team started back in 2008 for restructuring this and putting the clues to the other.

-- for researching this and putting the clues together for where we might find this.

2012 we started the recovery.

About five years of effort.

And where is the next big discovery going to be in terms of shipwrecks?

We have over 8000 and a proprietary database project.

Warships loss in 1744. so that is gone to be a big archaeological project.

Really looking forward to finishing that one, hopefully later this year.

How to use secure those rights, how do you make sure you are allowed to dig there?

It starts with research and establishing who might have research rights.

In this case it is clear to was the british government had an ownership rights because they paid the war insurance.

Are you working with the u.s. government?

We are talking to the u.s. government about a project they have as well.

Thank you for your time.

We're back in just a minute.

? that does it for another great day here on "market makers." how one industrial city avoided becoming another detroit.

Will speak to the mayor of pittsburgh.

Time to toss it over to dominic chu.

Sara, let's take a look at what is happening in the markets right now.

Playing out a lot like it did yesterday come up and down.

The dow jones just up about 20 points.

The s&p down two points.

The nasdaq leading a decline.

On the treasury's side of things, we see yields rising.

Just about 2.57%, the last trade there.

Dew point 50 for the 10-year note.

On the currency note, a slight strength in the euro.

-- 2.50 for the 10-year note.

Dollar-yen hovering around the 99.72 per dollar mark.

We talk about the nasdaq, because today is a big day for tech earnings.

Apple comes out with its earnings after today's closing bell.

It it often times of volatile trade.

This time things may be different.

With us to help us break down the action is a bloomberg analytics specialist looking at things like equities and derivatives.

The chart we are showing right now is the apple versus a measure of apple volatility or apple v.i.x., the white line.

It's interesting note is the white line is showing the lowest level since 2011. does that mean traders do not think there will be volatility?

To g." apple is no longer the bell of the ball with big earnings beats that once was.

I think you are right, i think we see that, though were forecasting moves.

Takeover options traders can predict what kind of market it will be.

What is options market telling us about the move possibly on apple after the earnings?

Currently 4.5%. $440 per share.

That is the range on the low and high end.

We can screen a little bit about what options traders are positioning about in terms of where people are putting their money.

Any kind of trends you were seeing as we head into the earnings report after the closing bell?

There is gambles.

That means buying options above the call market with exercise prices below.

This text has been automatically generated. It may not be 100% accurate.


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