Citigroup Fails Fed Test: Surveillance(03/27)

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March 27 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Larry Kantor, JP Eggers, Kyle Stock, Michael Wolf, Dean Curnutt, and Sara Senatore. (Source: Bloomberg)

Citigroup is not jpmorgan.

Flunking the stress test.

Satya nadella must convince the world of apple to use microsoft office.

Adam johnson, young urban males do not shop at jcpenney.

The morning, this is "bloomberg surveillance." it is thursday, march 27. i'm tom keene with scarlet fu and the well-dressed adam johnson.

Good morning.

In my traditional ralph lauren sue today, thank you very much.

Overnight news, ukraine's tenure dollar bonds rose to a two-month high for pledging up to $27 million over two years.

President obama is going italian, meeting with the pope this morning as well is the president and prime minister of italy.

Economic news, gdp is the big one.

We will get initial jobless claims followed by the ending home sales.

Earnings, a theme, fund companies, gamestop, winnebago, lululemon.

For you nestor's restoration hardware is coming after the bell.

Let's do a data check.

Interesting market.

Futures up 5. the yield moved lower over the last 24 hours.

The euro dollar, weaker at 1.37. crude back to 100 and barrel.

The ruble finally weakens today after a good 6, 7-day bout of strength.

The yen was stronger earlier, it has given up back.

Look at gold, under $1300. look at the gold chart.

Here's the surge in gold.

The big rollover from june 2012. this is 1400. here was the bull dash.

People getting feverish about gold.

We just bounced right off that.

And curious that gold could not get up through that area even as the vix was pushing up.

You look at gold, and clearly, not the case.

Three or four tough days for gold.

We have scoured the newspapers and the web for what is important for your front page.

First front-page story is citigroup.

The bank failed the federal reserve stress test for second time in three years because of concerns about the quality of their process.

What does that mean?

That meets management got some problems.

They do, apparently, because this is a big blow to the ceo.

Corbat has said they're very disappointed with the results.

They have yet to resubmit a plan.

And phase a lot of obstacles -- clearly, the banks raise a lot of obstacles.

Is it that citigroup is now bundled with the other x number of banks that did not pass as well?

There are a number of other banks.

A number of u.s. banks whose first mission did not quite pass, so they had to resubmit with lower plans.

Or reduced plans for deploying cash.

Eventually, they got their payout plan accused.

Citi is the only major u.s. bank that created the dual structure and now that is the one that is still having problems.

They're also very much exposed to the rest of the robed browse the other big banks aren't. this from camilla hall, "needing more attention and found fault with sees ability to estimate revenue and loss projections." this is something we will take what with the noted bank dealer.

Bank of america will be paying $9.5 billion to settle fannie and freddie mortgages.

Remember ken lewis?

He agreed to a three-year ban on serving as a public companies officer or director.

He is also going to pay $10 million -- personally?

That he misled.

Massive asterisk.

Mr.

lewis agreed to pay the 10 lane dollar fine him a bank of america is expected to pay mr.

Lewis's portion.

That is part of an employee agreement.

So not much personally.

That hurts.

I'm sorry.

That is upsetting.

Our third front-page story, taking a turn, king's digital.

The maker of candy crush got crushed yesterday.

Biggest a client of any newly listed u.s. company this year.

This comes even after king prices of the discount reflecting the concerns about it being a one-hit wonder.

What is the why?

You mean, why you care?

No, why it went down.

70% comes from candy crush.

And the question is expected to generate revenues of 618 -- i'm sorry, $6 million a day.

Revenues of six money dollars a day.

If you're generating that revenue on again, you have nowhere to go but down.

The growth has already come down.

There's a reason why this was brought to market at 9.2 times for earnings.

Which banks screwed up here?

Jpmorgan led the ipo.

But i don't know if you can blame the banks or a case of the timing.

I was offered 50,000 shares and i took 60. a month ago, nobody was talking about this.

Three weeks ago, we got the announcement, king digital -- wade, who?

They did it that pass.

Any time a dough comes together that fast, you have to wonder what is happening.

Those are our front-page stories.

Our guest host from barclays, managing director, head of research.

Also a professor at new york university and management and organization.

Larry, i want to get you.

You look at the ipo market.

It is a frothy market.

Is it a frothy to your equity groups?

Companies are starting to take risk, but remember, they're coming from a very conservative starting point.

Tesla and netflix are not conservative.

King digital is not conservative.

But if you look at you as corporate sector as a whole, he came from a conservative place.

Even today, they're not hiring much or spending much on.

The sector we would say still pretty safe.

We are starting to see evidence of access.

The cash balances have gone down.

When you look at the whole sector, they're depending more on short-term capital.

But it is too early in that cycle to get really nervous.

You can pick names as you did, but at this point, still looks pretty good.

Let's bring in jp edgar's. i want to talk about microsoft.

Satya nadella will be making his first big media presentation to unveil microsoft for apple.

The question is, is he too late on this?

The tablets have been out.

People felt comfortable using them.

They really need microsoft office and excel on their tablets?

It would be better for microsoft if they have been there earlier, but at the same time, we are coming through days one with the tablets, which is a cool toy, check things online, this idea that we will move to the tablet moore is an actual business divisive people use it much more frequently, that is the time in office these to be there can be accessible.

What stuns me about this, what took so long for microsoft to get on an apple platform.

What is the why there?

This has been microsoft's strategy, use the monopoly power.

Monopoly power in one apart of their markets to basically help growth in other parts.

If we restrict microsoft office to only being on the windows mobile platform, this will help sales of windows mobile, which is what helps the growth pattern there.

This is a huge blow for microsoft, for mobile because now it will take away enormous reasons -- weight, strength the members -- in numbers.

At the same time, because of google's relationship and the way it builds a platform, it has been a good work process but microsoft is never gone down the path of opening things up.

Apple mostly hasn't either except for a few key decisions.

Smart article this morning, larry, goes to your world, or the tech boys take a shot at the nba crew at barclays and said they would not be caught dead using the apple product.

Used to live in an xl world.

-- you still live in an excel world.

But isn't it true that microsoft still depends much more in the enterprise business and the consumer business?

That's very true to large extent, in sterling terms of growth at this point in time.

But i think there's a sense that they're hitched windows and office together so closely am especially with the mobile platform right now, it was either going to go up together were down together.

It looks like it's going down together, so we might as well pull the one piece out that we know will have broader appeal for longer period of time and have that be successful.

If there is a long-term decline as the pc market declines, we will separate that from the business.

They can't afford to leave the consumer behind.

That is a given.

Larry kantor can get 19.5 minutes more as a research analyst if they have excel on the ipad.

You're not sleeping on the plane.

You can't really use your finger to swipe anything.

You still need your keypad.

You still need your mouse.

Then you have your laptop.

Tweet as.

I would like to see tom's big fingers use excel on a tablet.

It will be the tom keene macro.

Fascinating.

Let's get the company news.

Ubs suspending traders in new york, switzerland, and singapore.

Ubs began investigating its currency operations last year after bloomberg reported traders and industry colluded to rate a benchmark for exchange rate.

Authorities in the u.k., u.s. car and other countries are looking at a possible rate fixing as well.

Charlie ergen sets his sights on directv.

The chairman of the dish network recently contacted the ceo of the satellite-tv competitor to talk merger according to people with knowledge of the matter.

You said to have made them earn just made the move -- he is said to have made the move.

The second biggest bank in the second offer was two decades, financial increase in base pay by half of 20% and bonuses will increase by 5%. this comes as the prime minister callsign companies to boost wages to help sustain japan's economy.

That is today's company news.

Coming up, five years after the financial crisis.

Citigroup failed the bank stress test.

We will discuss the management issues with chris wheeler.

Citi really struggling.

This is "bloomberg surveillance." ? good morning, "bloomberg surveillance." we welcome all of you worldwide.

Coming up, timothy armstrong of aol, "bloomberg west." this is "bloomberg surveillance." i'm tom keene with scarlet fu and adam johnson.

Scarlet, you will get a started on a stressful morning.

Stressful for citigroup.

Shares are down 58% in premarket after they fill the fed stress test for second time in three years -- shares are down 5% in premarket after they failed the stress test for second time in three years.

It shows how banks face obstacles.

Chris wheeler covers the banks and joins us on the phone this morning from london.

There are so many directions we can take this in, but the overarching picture is more than five years after the financial crisis, these stress tests are supposed to be perfunctory yet five big banks other capital plans rejected, couple of them are submitted and were proved later on.

Is the federal bidding the goal post?

Yes, i think they probably are.

What we said all along, and we see this in europe as well, banks are being pushed to build up their capital to much higher levels of leverage to lower levels than we sell precrisis.

I think once the relators got them to those levels, saying anything above what happens to be, you can be paid baxter shareholders.

The view is, let's just hold on a little bit and be a little conservative.

Let's go deeper into citigroup.

What is it about their structure or processes that makes it more vulnerable to filling the stress test?

I think it is the sheer scale and geographic and business -- obviously, as you said, he wasn't the only one.

Three european banks also were told the procedures were not adequate and they needed to go back and rework them.

We saw this last year with goldman sachs and j.p. morgan.

Obviously, we are further down the line and everybody is hoping people are used to this process.

Chris, citi had to invest a number of its japanese assets several years ago.

What comes next?

It is difficult to say.

I think they're still running down the non-core business.

I don't think there's anything that sticks out that they said they don't want, but i think there'll be a reassessment as racing in so many banks across the globe who thought they got to the shape they wanted to be in.

A lot of them are being hurt, citi included, are the much lower making investment.

-- banking investment.

I think this goes to the heart --larry kantor with us as well.

Larry, you are knee deep in this.

Is this -- is his solution or rbs or hsbc, they just have to go hire more people to help with these processes?

Just to be clear, what they mean by internal processes, from what i can see, the banks have some leeway here in terms of how they conduct the test.

The fed set certain parameters and says extreme stresses may be 11.5% to plummet rate, the stock number goes down a certain percent, but the bank itself has to said other parameters of what extreme stress means.

Then they have to do the calculations.

How this affects capital and pnl and so forth.

Then the fed checks, how do they do this?

I like that idea.

Chris wheeler, is this a manpower issue or a structural behavioral issue?

Today justine more bodies?

I think part of it is needing more bodies.

But also, it is a matter of actually saying, we need to be more efficient in the way we run these processes.

This is no longer just a regulator popping in and reviewing our books, but a much more detailed process and we have to be absolutely on top of it so we can prove what we're showing them is a genuine and accurate view of what could occur under these conditions.

To larry kantor's point about the fed effectively saying to the bank, we don't necessarily agree with your methodology, what does citi need to do to change its methodology in order to get the fed to say, ok, now you get our vote?

One analyst overnight made the point, obviously, the report between citibank and the regulator is not as good as it should be.

That is part of the process.

The need to sit down with him and say, what is it you have a problem with and what should we be doing?

Then they need to review and say, now we will put in place procedures that reflects what you want to see or what you feel is appropriate for a bank of our scale.

It is enormous bank and quite likely they feel they're been conservative.

Chris wheeler, thank you for joining us.

Larry kantor, thank you for commenting.

You did not have to do that.

Thank you.

Coming up in the next hour we are hungry.

The waffle taco has made its debut.

Taco bell trying to win with his latest invention.

This comes as food prices are rising.

Hungry yet?

Oh, yeah.

This is "bloomberg surveillance." ? good morning, "bloomberg surveillance." adam johnson johnson has our top headlines.

Thailand satellites have captured images of more than 300 objects in the southern indian ocean you're the search area for the missing malaysia and airline jet.

Claims had to suspend their search due to poor weather and poor visibility.

Ships continued on with the search effort, scouring the indian ocean are possible debris from the jet.

President obama is meeting with pope francis at the vatican today.

Economic inequity, poverty, and the situation in ukraine are among the various topics they will discuss.

It is the second official trip to the vatican for the president.

He met with pope benedict almost five years ago on a stop in italy.

You'll also be within a prime minister renzi.

The u.s. experienced the lowest publishing international causes and 35 years lester.

Had the fewest births since 1998 as people are being cautious following the recession.

The u.s. recorded the most deaths in history.

The lighting fertility rate is seen as a drag on the economy -- the lighting fertility rate is seen as a drag on the economy.

It is not just the u.s., it is across the world.

Let's get to the morning rest read.

This jumped at me.

Here you have it -- incredible to think about that.

Jp eggers, your take on two very different situations?

There differences between culture and within the company, but when you think about the example you're setting for your own organization in some ways about what responsibility means within your organization and how you think of conveying bad news, look, it's it's a signal for how bad news should be conveyed within an organization if you're sending it out by text message.

It is not about taking us possibility -- you have to put a human face on it.

You have to be willing to step up and say when it is a problem that has -- that you have caused that leads to this, hiding behind the screen and say, look, we should just be a little walk away.

Jp eggers our guest host for the hour along with larry kantor . we will be right back.

Also, the imf throwing ukraine a financial wi-fi.

For geopolitical tensions affect the global market outlook in the next on "bloomberg surveillance." ? good morning, "bloomberg surveillance." the most interesting part of europe, and that would be vatican city.

The president is meeting with the pope.

110 acres separate and discrete from rome.

The pageantry, those the store guards.

The president for the second time meets with the pope will stop this time pope francis.

-- meets with the pope.

This time, pope francis.

This is "bloomberg surveillance." good morning to all of you worldwide.

I am tom keene with scarlet fu and adam johnson.

Quick data check.

A little bit of an up feel.

I saw a nervousness, maybe a little off the ukraine.

And we also have economic data coming out, pending home sells later this morning, questions about the strength of the economic recovery.

We want to highlight some gainers and losers from yesterday's trading.

We have to go back to keene digital.

Even though tom and adam del play candy crush, it was a big mover in yesterday's trading.

It went public at 22.50 a share.

Which was only 9.2 times earnings.

Theoretical earnings for this year.

The job of the bankers is to know the market.

Just ugly.

But facebook down 7%. it made that $2 billion purchase of the virtual reality headset maker that hasn't actually sold any devices to consumers yet.

Basically in beta.

It is kind of a cool thing, but it is weird.

Do you really need a virtual headset?

Investors not liking that.

Not so far.

Let's go to europe.

Hans nichols is giving us great perspective.

If it is thursday, it must be vatican city.

The president meets with the pope.

Hans nichols has followed the president from the hague to brussels.

Each and every moment, ukraine is front and center.

I saw a gentle but real market reaction.

What is the back story on the set of russian troops wrapped around the ukrainian border?

Well, what markets are looking for here is a little bit of intelligence.

They wish they had the satellite maps the pentagon has.

There was a report yesterday that show the troop buildup was just a little bit stronger and a little more pronounced than it rigorously thought.

That, along with a pretty dour speech by president obama, seen to rattle markets a little bit.

I had a slightly different view on the speech.

I heard a president vowing not to use military force over ukraine or crimea.

He said it three or four times.

What is the state of nato?

In the newspapers, i would suggest a real debate is it nato alone or nato led by the united states?

Which is it?

There's not that much of a difference.

The other countries don't have the assets, which is why president obama was chiding and prodding his nato allies to spend more.

There are other countries that have bases, but u.s. has contracted it's nato footprint as well.

It's not like we have a massive amount of assets in germany.

Most of them are in germany.

There a few planes outside, the germany and u.k. and that is it.

You don't have a huge troop presence for many reasons.

The pivot to china, to asia, the wars in afghanistan and iraq are probably chief among those.

There is not a massive nato presence in europe the way there was 20 years ago.

Mr.

putin as punters the quiet.

What are people telling you about is likely next move?

It is his way of saying he is ignoring all the noise coming out of the west.

For him, it is business as usual.

I would not reach you much into his quietness aside from the fact -- i would not read too much into his quietness.

It is in anything he needs to react to.

He doesn't really want to dignify it with a response.

Nice update.

Thank you, hans nichols, from brussels.

How about we look at the financial crisis and decide if it is shaken not stirred?

Larry kantor is the head of global research at barclays.

He and his team see a resiliency shaded and colored by what is going on in ukraine.

You wanted to jump in there about these events in ukraine.

How do they impact barclays research?

There's one big issue.

Does this stop that crimea or not?

Crimea is a done deal.

Regardless what -- that is in russian hands and that's it.

If that's it, that's fine.

I think -- you ask the right question.

What is for vladimir putin's next move?

Well, well, well.

If it is just threatening a mobilizing troops on the border and it doesn't go into ukraine, then this issue is diffused.

I think when you look at how is the market reaction, it is all about, does he go further or does it stop there?

Larry, i don't care what you think.

What people don't know is a firm like barclays has 42 people in eastern europe.

What are your ground troops telling you about the mood in eastern europe?

If you look -- i don't know about the mood in eastern europe, but right now, we don't see a big affect on this at this point on the economies of europe.

Germany would have the biggest impact.

It did the most business with russia.

The markets in terms of the debt market have been pretty stable regarding russian debt as we've seen.

When we look at this, it doesn't seem to have that big of an impact at this point.

Again, when everybody gets nervous is the potential for military conflict.

That's it.

As long as it doesn't go further than this, i think things are fine.

But does the nervousness get in the way of what each country and each central bank is trying to affect over the next year?

No.

all i'm saying is, if this poses a risk of a major military conflict, this thing becomes a big deal.

It hasn't gone there.

Exactly.

What is the current cycle?

Is the hard landing as bad as they fear?

My view on china, the next move is up.

Everybody is nervous because so far this year, the data have been much worse than anybody expected.

We estimated in the first quarter china grew at 59%. that would be great for the u.s., awful for china.

They're already bringing forward infrastructure projects, easing the money market, you see the currency going down.

The problem is, this will make the bigger structural problem worse down the road.

They're trying to wean off credit and investment spending.

I want to fold it back from the global view to the united states.

Here's the research note from barclays and the idea of what to do.

So the fed is helping everyone out.

What does your global view and the optimism on china, what does it mean for u.s. investors?

You don't have to worry so much here about the bubble bursting.

This isn't a bubble.

Markets aren't stretched enough -- we are midcycle.

We are not early cycle or late cycle, that we are midcycle.

That doesn't mean we can have a correction.

We haven't had a serious correction and all must years, which is a long time.

Investors have gotten much more optimistic about stocks.

I am cautious about singapore back.

But if you get that 10% correction, we are buyers in the stock market here.

Jp, your wheelhouse is helping companies figure out how to make decisions given uncertainty.

As you hear there he talked about these question marks, what is your ties to companies?

-- what is your advice to companies?

It is difficult.

I would tend to agree i think given the fact i don't think anyone is expecting a significant bubble burst, companies still need to be relatively aggressive based on opportunities and front of them.

And with the idea if there is a correction, yes, it is not a radical shift.

Are you seeing increase in the united states?

At the moment, no.

There is scope for it.

If you look abroad statistics of capex relative to gdp, it is still very low.

Remember, this expansion was a housing consumer debt-let expansion.

It wasn't the corporate sector.

They were cautious coming into the recession, then they pulled it way down during it.

It is still low, level-wise.

15, 20 as ago, a lot of u.s. spending was on capex.

But now it is about m&a, investments in r&d. you sound like a guy promoting virtual-reality.

Larry kantor all fired up with barclays.

We have a lot more to talk about with larry kantor and jp eggers including the russian ruble as well as the american companies that want to sell to them.

This is "bloomberg surveillance." ? good morning, "bloomberg surveillance." busy thursday morning.

Adam johnson has the top headlines.

Football players on full scholarship to northwestern have been given the green light to form a union.

Original director of the national labour relations ruling saying scholarships are contract for compensation, and players are employees of the school as a result.

Northwestern plans to appeal.

War football, the nfl will push the kick for the extra point back 18 yards to the 20 yard line.

Just an experiment for the first two weeks of the season.

The league is trying to make the extra point more of a challenge.

Last season, 99.6% of the kicks were successful.

Who is the guy who did make the kick?

I'm with you.

They have to keep the fair kick rule.

Nudity a of the chicago subway train that derailed earlier this week ash new video of the subway train in chicago that derailed earlier this week.

It ran up an escalator before stopping.

More than 30 people were injured in the early morning accident.

Driver fatigue have been responsible.

Our director has taken a train many times.

Makes you wonder if google is onto something with driverless cars.

It is time for single best chart before adam and i get into trouble.

Brtik.

It shows the strength of major emergency markets versus the dollar in 2014. indian and brazil, currencies have strengthened against the dollar this year by about 3 present.

Look at russia's ruble.

Weaker by about 17% against the dollar.

Getting crushed because of the tension in ukraine.

The so what is, investors have been saying, eh, so far.

Research police of currency.

Larry kantor with us.

Why do currencies matter?

Why do you follow currencies?

They are a key part of financial markets.

I look at currencies as the last clearing markets.

They reflect what is going on in equity flows.

To me, they are the litmus test.

Their critical, but this chart brings up an important point.

Emerging markets are and they used to be.

You can't bucket them in one big group.

They are different.

We have been saying, we are starting to like for zillow -- brazil and india that you have in there because emerging markets generally have been selling off for a year now.

Money has been coming out.

It is the typical thing.

You see them hike rates were checked the currencies to prevent inflation from going up.

We look for fundamental improvement.

We're seeing that in india and brazil.

If there big declines, inflation starting to stabilize, that is assigned for us because now the yields are high, time to go back in.

That is not happening in russia or turkey.

Russia and turkey.

That is part of the story.

Larry kantor with barclays on the emerging markets.

We will go to the meetings in april.

Let's get to the top photos.

We're going to focus on egypt, starting with the number three photo, egyptian muslim brotherhood supporters crash with right police outside cairo university.

This just won't go away.

Earlier this week, egyptian court handed death sentences to more than 500 supporters of muslim brotherhood charged with murder.

Lots of them charged in absentia.

There's no economy, so you get social protest.

I think it is more than economics.

It is also about repression.

There's a lot going on there.

A lot of angry young men there.

Number two, a muslim brotherhood student fires a firework outside cairo university.

We call it a firework, but is it a firework or molotov cocktail?

It is on fire.

It brings us to our number one photo with a student running through smoke during clashes outside the university.

Look at that.

Scary.

Quite an image of that.

I can wartime image.

-- like a wartime image.

Something lighter, we're going to talk about the future of luxury retailer.

Adam knows who they are.

Young, urban males.

Yummies.

Coming up on "bloomberg surveillance." ? this is "bloomberg surveillance." let's get you some company news from the files of bloomberg west.

Panasonic plans to boost sales by cutting its number business units.

They will reduce the number of business units from 49 to 40 three, also selling a plasma display factory in japan.

Art of the strategy to boost sales by 34% over the next five years.

Sprint will offer rural carriers low as it gears up for possible takeover of t-mobile.

Preparing for a t-mobile bid by promising to improve u.s. wireless broadband access.

Sprint will announce specifics at a trade show today.

Not deterred by regulators.

Twitter taking another crack at music, rolling out a new strategy this week according to "the wall street journal." less than a week after pulling the app from the itunes store.

Twitter met with beats music earlier this week to propose a partnership.

You're outraged.

They don't have content.

How can it be a music service if you're not going to pay the content provider?

I like twitter because it is clean and uncluttered.

I go to twitter for specific reason, and that is news.

And i transmit news.

I don't want to clutter it up with as our music.

Something this is the problem.

You go there for a specific herb is.

You get what you want and get out.

That is not going to drive eyeballs.

Today acquire something like pandora or do they have to build it as they are doing?

Hold on.

We will see what they're going to build and rollout, but at the very least, they're trying to figure out how music could fit into the portfolio.

Whether that means going down a different path -- i would agree.

Acquiring pandora would be a better solution.

If i want to listen to music, blue oyster call, i will listen to it.

I don't need twitter to do it.

Is this an example of a company that was great as a standalone private company that goes public, and now they say, how are we going to be the earnings next call -- quarter?

Back to this whole idea that innovation changes radically when companies go public, this is how innovation happens for publicly traded companies.

They make these deals and acquisitions and invest in things to grow the portfolio.

Sadness and exclusive, the only one at the table that knew who lou oyster call was was larry kantor.

I've heard of them.

Move over, yuppies.

The future of retail now rests on the yummies.

Young urban males.

According to hsbc, the status hungry men have cash to burn and they want the latest.

How did joe cool turn into joe spender?

Terrible name.

It is a three-part thesis.

A burgeoning middle-class, upper-class and much of the world, younger men are marrying later so they have more disposable income.

This is the theory.

The urban part is key.

Status isn't a bmw necessarily more, it is a rubbery trenchcoat, sunglasses, that kind of things.

It became south korea.

Is this a non-usa were u.s. thing as well?

It is global.

The rope growth is asia -- where real growth is asia.

Africa is big, too.

Which comedies are best positioned to take advantage of this?

Who are they going after?

It is all smart digital strategy kind of wins the day.

Burberry has been at of the crowd.

They have a new crowd.

They have a whole platform of music.

It does not include blue oyster.

Weight, he qualifies as a yummy?

A mummy.

Did you hear that?

He is busy typing.

How much do think the central banks around the world that just made money so easy to come by that -- it is a part of it that luxury has been doing well generally.

That speaks to wealth creation, which looks to me like qe has been a bonanza for investors has not done that much for the economy.

When talking about the younger class, there's something else going on.

Jp eggers, jump in here on what fashion is doing and why they're doing it.

Let's not forget the that comedies are not simpler responding to trends and desires of the consumers, but creating these trends and desires of the first place.

If you look at the competition in the last few years, it has been intense.

If you can open up entirely different markets, a new set of clients, this is the best way to try to grow the business for these firms.

Thank you for joining us.

You can read his article on bloomberg.com.

Let's go to the report.

Quickly, rubel rallying.

It turns around abruptly earlier this morning.

A churn to the rest of the fort exchange market.

Look at gold, under $1300. larry kantor and jp eggers, thank you.

Michael wolff will be joining us and we will get his take on microsoft and virtual reality.

? . . . . this is "bloomberg surveillance." citigroup is not jpmorgan.

They flunked the stress test.

He must convince the world of apple to use microsoft office.

And i'm springing for the team and we are springing for breakfast at taco bell.

Good morning, everyone.

This is "bloomberg surveillance ," live from our world headquarters in new york.

I am tom keene.

Joining us, scarlet fu and adam johnson and michael wolff, former yahoo!

Board member.

The nearest taco bell is like 22 miles away.

No!

say it ain't so.

We are not going to get the lawful tocco.

-- waffle tacoi.

I want the waffle taco and a gordita to go with it.

What do we have in the morning brief?

President obama is going italian, meeting with the pope as well as the president and prime minister of italy.

Gdp is going to be the big one could also coming out at 8:30, initial jobless claims.

Earnings, we have a little theme to the -- little theme today.

Lululemon and pareto are out for the bow.

Restoration hardware is after the bell.

Leading how company news is king digital, the maker of candy crush.

It was crushed it's -- in its first trading day.

This came even after it had priced its shares at a discount, reflecting concern about it being a one-hit wonder.

Shares dropped 16%, trading at $19 after listing from making the debut at $22.50 apiece.

The chairman of the dish network recently contacted the ceo of its satellite-tv competitor to talk merger.

This is according to people with knowledge of the matter.

He is said to have made the move in response to the comcast-time warner cable merger.

Ubs is suspending foreign-exchange traders in new york, singapore, switzerland, putting to a person with knowledge of the matter.

Ubs began investigating its currency operations last year after bloomberg reported traders and industry colluded.

Authorities in the u.s., u.k., and other countries are looking into possible rate fixing as well.

A "surveillance" correction -- gina lollabrigida.

This all came up because of the gordita?

I mispronounced and a claim's -- the acclaimed actresses name.

[sad trombone] we will come back erik schatzker, who is seen all of gina lollabrigida's movies on amazon digital.

I was shocked by this outcome.

Was michael corbett shocked?

This was what he was brought into six.

Citigroup failed the stress tests under decremented and was one of the events that precipitated his departure as -- under vikram handed and was one of the events that precipitated his departure as ceo.

You talk to these guys all the time.

The distinction to me is the first davos.

The last davos, he was very confident, playing big banker -- let's put it into perspective.

Yes, he was confident.

He has a, stay lot at citigroup.

But i was before citigroup discovered a $400 million fraud in the mexican units.

Is there a link to that?

Not an explicit link.

The conference of analysis -- copperheads of analysis -- sounds exciting.

Practices with deficiencies included the ability to protect losses under a stressful scenario for material parts of the firm's global operations and the ability to develop scenarios for the internal stress testing to adequately affect and stressed the full range of business activities and exposures.

The fed says the city is unable to look at the business around the world and recognize that citigroup works with a lot of countries with confidence -- i want to look at the heart of the matter.

The plug on processe -- they flunked on processes.

Is it i jamie dimon hired more smart people than michael corbett?

Do guys like you have knowledge of why they find, or is it industry is morning -- is it a mystery this morning?

Citigroup was built largely by acquisition.

It is now run by michael corbett.

If you remember, tom, the steady while arrow was not known for mismanagement.

It was something of a cowboy style of extension.

You have to ask yourself from even after victor band -- even after vikram pandit spent time running the ship and after michael corbett, has a citigroup been able to instill the risk management culture that is so endemic to institutions like wells fargo or perhaps jpmorgan?

That is a legitimate question.

It is not like michael corbett doesn't have good people working for him, he does.

But when you go down the line and the people reporting to the senior vice president, the people who can run the bank in a tight enough fashion to impress the people at the fed who come i need to emphasize, continue to raise the bar -- we spoke to fed officials yesterday and they said yes, as a matter fact, as the stress tests go we are asking the banks to perform at a higher level.

May be the goal posts are being moved a little bit here.

You are a former yahoo!

Board member.

All these banks have loaded up on complaints people the last couple years.

I got to believe the board is so worried about this, and the board wants outside advice.

There's a tremendous amount of responsibility to be on the board of a financial institution.

If i were on their board, or anybody else, be very concerned.

Let me ask you this, michael.

Citi was the one bank that created bad bank, good bank to separate things.

It didn't work.

Have you ever seen a situation like that before where you are effectively splitting a company without splitting a company?

This has been a phenomenon that has happened in the banking industry.

Once again, directors are very worried about their response abilities.

They are worried about what management promised and will management be able to deliver.

Our heads going to roll on this at citigroup?

Some heads may roll further down the line.

I mean further below him.

He has got to clean out some processes.

He has had to hire some good people.

Without question -- i would say it is more ported to get good people and then to get that people -- erik schatzker, thank you so much this morning could tell me -- comeback when you figure out what the toronto maple leafs do.

The rangers winning yesterday -- the rangers were very good.

I watched them last night.

Mr.

lundquist held them at bay.

For all you, hockey is in full bloom here at "bloomberg surveillance." big day for microsoft.

Their ipo was 20 years ago.

The new ceo has to run microsoft office for apple.

Michael wolf, what took so long?

They build a moat around windows and they used to say that windows was the first priority.

And now they are recognizing a couple things.

We are moving to a mobile world.

There is also a world where there is consumerization, where consumers decide what they are going to use.

Companies -- there is bring your own device.

People are bringing their own iphone.

Is this a nodella project or effort or is this a group project?

It has been in the pipeline for a long time but it is a fortunate time for him to be the person to announce it.

Microsoft is dealing with a multiplatform world.

Can you be a company that builds moats like microsoft and then de-moatifies and effectively tries to go the android route and be inclusive?

They don't really have a choice to do 60% of their operating profits today come from office, not from windows.

More of the world will move to ios.

What they are announcing is really for apple devices, because apple devices dominate in the workplace, not android devices.

It is a momentous change.

Would you presume that apple will benefit from industrial purchases?

Now i can use excel on my ipaq.

It will continue apple's dominance -- not a jump condition.

There are a lot of people who disagree on whether it will mean a lot more earnings for microsoft.

What is most important is that microsoft is recognizing they are no longer just -- fascinating.

This is a huge deal.

Absolutely.

Nadella will be making his coming out of sorts.

The brass plaque on my desk that says "worst user of excel" three years in a row at bloomberg.

You are the top of the food chain.

You don't need to worry about that.

We will find someone to train you.

Interestingly enough, i work from apple is being offered for free and you have google docs, also free.

Our twitter question of the day good morning, everyone.

? good morning, everyone.

The pageantry in vatican city as the president meets the leader of the roman catholic church for the second time in his 2 terms.

We have seen the cards many times before at this time to greet the president of the united states.

This is "bloomberg surveillance ." i am tom keene.

We are thrilled to bring on michael wolf this morning, this after a huge week for los angeles technology.

The tech world genuinely stunned by facebook costs briefcase of stock in a virtual reality gamer.

Your reaction when you heard the news?

Facebook wants to be the internet.

It looks and virtual reality is the next platform after the computer and after mobile.

I think they are going to put a tremendous amount of effort and money in trying to be that next platform.

I look at this as an r&d purchase.

Is that the right way to look at it?

$1.4 billion r&d budget -- to me it is just a bolt-on r&d project.

They still don't have an announcement of when they are going to be shipping to consumers.

This is about taking a bet on the future.

We look around -- it is the wearable market already.

You and i got the memo on the gray suit.

Music is boring as can be today.

It is all about being on the cutting edge -- we look as boring as can be today.

It is all about being on the cutting edge.

The company with the best technologists wins.

The companies that are cool, that is why they are doing things like trying to get the best projects.

Developers wanted to the most interesting thing.

Virtual reality is the next most interesting thing.

It will be great for facebook in terms of keeping their engineers -- we mentioned at the new york rangers earlier.

Am i going to watch new york rangers hockey through some virtual-reality thing in 10 years?

Absolutely.

It will be sports, you having your own avatar.

Expect that virtual reality is going to be here whether or not microsoft has their device, whether or not google has their device, whether facebook is made the right purchase.

I need to get an update very quickly -- marissa mayer, how is she doing?

I think she is doing great.

The most important thing is she got the traffic to go up.

Traffic following traffic, there will be advertising revenue.

The thing she has done, nobody else could have done, which is bringing developers and talent and make the traffic grow.

Michael wolf with us.

Coming up, can the u.s. stand aside for global volatility?

Good morning, everyone.

"bloomberg surveillance." tom keene.

Scarlet fu with me, adam johnson.

Michael wolf bringing us the tech perspective.

The well-dressed adam johnson -- oh, god.

Forget yuppies, it is all about the yummies.

In thailand, satellites have captured images of objects in the indian ocean, the search area for the missing malaysian airlines and jet.

They had to suspend the search due to bad weather and poor visibility.

You know what is so surprising?

I never realized how bad the weather is in the southern indian ocean.

Every day it has been an issue.

Well -- yes.

Winter is coming and you have the conversion of a number of different currents.

I have to say that as a former sailor.

President obama is meeting with pope francis at the vatican today.

Economic inequity, robert a, and the situation in ukraine are said to be on the agenda for the 2. the president will meet with italy's new prime minister.

That is also happening today.

Obviously, president going a little bit at italian.

The u.s. expressing the lowest population gain from natural causes last year.

The country had the fewest births since 1998, as people remain cautious following the recession.

At the same time, the was reported the most death -- the u.s. reported the most deaths in its history.

The lowering fertility rate lags demand.

We populated the world with children.

I'm looking at you, mr.

Yummy.

I'm a young urban male, i'm out on the town.

President obama and the pope to discuss the president's ncaa bracket choices.

Doing better than me.

When i was watching on espn, he was extolling arizona.

Arizona could go all the way.

Do you have a bracket, mr.

Wolf?

I try for the warren buffett challenge.

[laughter] i am not getting the billion dollars.

Neither am i. go, kansas.

It is a volatile cocktail at this moment.

Serious liquidity issues in china.

The brazilian economy flat on its back.

And then there are the u.s. markets.

They seem absolutely oblivious.

He parses the bix, the thermostat for market fear and complacency.

The ceo of macro risk advisors, and he comes out with an outlandish thought this money.

I don't believe you have ever been this gloomy.

Why?

The market is mispricing the probability that certain things can happen.

And i say that the vix can go to 30, i'm not saying that it is likely to happen.

Do you see that in the day-to-day action of the markets?

We see netflix rollover, tesla rollover.

Biotech -- what is the secret to a macro guy like you?

That is more the story around -- the individual stock.

That just got too bubblish.

Number one, supporting the market is not necessarily fundamental.

We see the earnings momentum actually decelerating.

We see that buybacks are very strong.

Debt issuance is very strong.

Nic is a market it as all the more on financial engineering -- and on cfo decisions.

Buying back stock which by definition raises earnings.

Adam, i want to bring this up and then you jump in.

You may not know this name, but he is a legend in the value business.

William cohan writing this in bloomberg view.

Adam, that is the mood this morning.

Why is it necessarily scary when you have historically a range of 14 to 17 times?

It is really a number of factors out there that could disrupt the markets.

When we step out and look at the fact that china, which has been really the biggest global consumer in the world -- in fact, one of the biggest growth experiments we have ever seen -- we have bank runs in this country.

We have the shadow banking system that is run out of control.

The geopolitical stuff in russia gets a lot of play.

It is just that this stuff is so unpredictable on the markets are sitting here very, very stable.

I know you see that it market positioning is another big risk.

What is the one trait everyone is trying to get into and out of the same time?

Alan greenspan made a lot of mistakes a central banker and his reputation as seen better days.

The one he said on his exit from the fed is that the markets should be worried when stability continues for very long.

It is the stability itself is a risk.

This is what we have seen, we have seen periods where the last year the year before the vix barely got to 20. michael wolf, translate this into the economy that you live every day.

Is your world part of dean car nutt's world?

It comes out of the massive valuations of a lot of these companies.

Netflix, microsoft last week.

What this la -- but this lack of credibility as a challenge for everybody.

I think it is going to translate through these stocks because as soon as the growth slows down -- you are the king of financial engineering.

Financial engineers are holding this up.

They are buying back stock and it doing this to raise value not just by the inherent earnings of the company's but, yeah, it is financial and but it is a lot more -- here is the thing, though, it is working, so why should we give it up?

You don't want to short a market that has momentum.

You mentioned seth klarman.

Corporate ceo's to the exact opposite.

Taco bell and its waffle taco making the debut today.

? this is "bloomberg surveillance." i am scarlet fu, with tom keene and adam johnson.

Citigroup reflected the stress tests.

The federal reserve gave a thumbs down to the banks plan to reward investors with evidence and buybacks.

-- with the dividends and buybacks.

It marks the second time in three years the fed is projected to citigroup's plan.

-- rejected to citigroup's plan.

An online storage company hopes that a tool make it easier to view and share documents on software.

And pay increases and japan's second-biggest bank for the first time in a 2 decades.

It will increase a by half of 1% -- it will increase in base pay by half of what 1%. prime minister shinzo abe has been calling on companies to boost wages.

Republican president or candidate for 2016 are making a pilgrimage to las vegas.

They want to kiss the ring of sheldon adelson.

We are joined by josh green, who will explain all of this to us.

What is the format today?

You have a lot of blue-chip candidates coming out here to basically they all march to sheldon adelson because not only is he one of the richest people in the world, he is one of the richest republican donors.

Sheldon -- what is really going on is the sheldon adelson a beauty contest.

You have a lot of blue-chip contestants getting ready to strut their stuff.

Governor chris christie, jeb bush, kasich of ohio, etc.

-- how will these guys be making their pitch to mr.

Adelson today?

There is a whole weekend's worth of events sponsored by the republican jewish committee.

Most of them are coming out for a private dinner that adelson will be throwing in his private airplane hangar to honor jeb bush.

Over the weekend there are golf outings and scotch tastings and in between that, adelson will have a series of one-on-one coffees and meetings and listen to these guys informally make a pitch for why they are the most electable candidate.

I don't know they do not take the "surveillance" jet hangar.

Josh, do the democrats have an equivalent?

Is there a democrat sheldon adelson?

If you ask a republican, they say that the original was a george soros and was pumped hundreds of millions of dollars into democratic politics.

You don't have the same kind of personality.

George soros does not have democrats out at a big event and grade -- and parade them through the media there.

That is more of a sheldon nilson las vegas think and write now the focus is on republicans and who is sheldon adelson going to give his money to.

Very successful.

That is where i wanted to go.

Spent $93 million and the governor of massachusetts did not take the trophy.

What is mr.

Adelson doing different this time?

In 2012 he was motivated by loyalty.

He is a good friend of newt gingrich, and so he and his wife gave gingrich through a super back about $15 million, which probably did more to help president obama than anybody in the republican party, because it was newt, if you remember, who launched those devastating attacks on romney as a vulture capitalists that obama picked up and used to win.

After the gop primary, adelson shifted to romney but by that point the damage was done, it was too late.

This time around, his aides say he is motivated by when he says he is looking to find the most electable mainstream republican.

Ah, mainstream.

That is interesting.

Very quickly, josh, are we going to hear social issues or tax issues?

What we are going to hear is israel -- sheldon adelson is a big israel talk.

-- hawk.

We are not going to hear a lot of social issues, which may not be surprising for a guy who made his money in las vegas.

And we will hear economic issues.

Josh green of "bloomberg businessweek," thank you, sir.

Baxter international is raking into 2 companies.

The ticker is bax.

One will be focused on biopharmaceuticals, the other will be focused on medical products.

Baxter splitting a pigeon 2 companies.

This keeps going on and on.

This is amazing, the restructuring of these companies.

Watch what they do, not what they said.

Of the 2 companies, the biopharmaceuticals unit will be bigger -- smaller, i should say, with annual revenue of $6 billion.

Corporate divorce -- time and time again we have seen this.

What carl icahn is saying, separate ebay into the different businesses -- part of mna for 2002. we will have much more on this on the radio on bloomberg television.

Baxter shares are rising in the premarket on the news.

Part of it is trying to expose -- good morning, everyone, this is "bloomberg surveillance" on bloomberg television and bloomberg radio, all of our digital media, bloomberg.com, bloomberg tv plus, ipad, radio plus, i could sit and read as well.

I am -- itunes ipad as well.

I am tom.

Scarlet fu and adam johnson.

Baxter splitting into 2 companies.

We are thrilled to bring you michael wolf with this breaking news it is not your area, but this is a new corporation, isn't it?

The new corporation is going to be about revealing value, trying to expose value by breaking apart companies.

It is just simple -- rake them up.

This is what the activists want.

Just to reiterate the headlines, baxter, a medical supplier company, is separating into 2 units.

One will be medical products -- annual sales of about $9 billion.

The other will be biopharmaceuticals, sales of about $6 billion.

It is the development as opposed to medical devices.

It shows the pressures that are out there day-to-day.

You see it in the food companies as well.

Nice segue, tom.

You wanted to talk about waffle tacos again.

We all want to talk about waffle tacos.

9 this comes as prices for coffee beans and pork keep rising.

A senior research analyst covering the group joins us by phone to tell us where this leaves the restaurant sector.

The reason these prices are rising and gary, whether it is a drought in south america or disease for the hogs.

Those may be the reasons why.

But this has got to be squeezing profits in an industry where thin margins are the rule.

Yeah -- no, that is exactly right.

Some of it is whether, some of it is disease.

We are not just seeing it in the 2 you mentioned but also in eggs, which is a big piece of any breakfast menu.

What tends to happen for this industry -- you first happened -- you see it first happened in the commodity markets and then it takes a couple quarters to percolate through.

What is the desperation here?

Scarlet and i think that the number of players who are desperate here is worth attention.

Practice, if you do it right, like mcdonald's has done going on 30-plus years -- breakfast, if you do it right, as the donald's has done going on 30-plus years, very profitable.

40% of their profits are coming from breakfast.

40! wow.

40% is phenomenal.

When you consider how much they can prices and for instance, have -- how much bacon prices, for instance, have been rising.

To the restaurants make money off of these waffle tacos and outlandish creations?

I think for taco bell this is exactly what they should be targeting.

If you look at some of their biggest sales drivers over the past year and a half, it has really been the terri -- dori to taco.

That is outlandish as you can think of, putting eight taco in a dorito chip.

It is all the core pieces of your breakfast -- sausage, eggs, waffle, and it is not even that novel to combine sweet and savory.

We see it at mcdonald's and dunkin' donuts.

But the -- but it really speaks to taco bell, what they do, and the mexican -- what is your single best buy right now?

I like yum!

I think the breakfast could be good for taco bell.

All right, thank you so much, sara senatore, restaurant industry analyst at sanford bernstein.

I watched one of my offspring of the male persuasion -- he devoured 5 tacos in one backseat soiree.

What is your record?

I one time did euro six white castle eyed -- i did 6 white castle burgers.

I don't know, it is something unique to finance.

Ally says it is offering 95 million shares, pricing at $25 to $20 a share piece.

It is "bloomberg surveillance ." i am tom keene.

That's a year -- let's get you your top headlines.

Ally -- ally financial.

Retail sales in the uk's soaring in february.

That, by the way, was three times the forecast.

Internet sales and spending on food in britain's economy, obviously rebounding thanks to gains in housing and unemployment.

Back in the u.s., football players on.

The ship at northwestern have been given the green light to form a union.

Is that scholarships are a contract for competition and players are employees of the school.

Northwestern plans to appeal.

A new video of a ch

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