The proshares trust short vix -- long-term it means it is an etf that invested the inverse of big performance.
Since its high on june 20, the svxy has returned to 20% from short futures in the market.
Low volatility will get hurt during turbulent market times, what a way to hedge the dropping volatility now.
That is your focus on futures, and that does it for "on the market." live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.
The vote on the buyout offer postponed as more shareholders say no.
We will hear from one moment from now.
Today it is the senate turn to ask when the stimulus will end.
An interview with james gorman after bank earnings soared in the second quarter.
Good morning, is a thursday here in new york city.
You're watching "market makers." i'm sara eisen filling in for stephanie ruhle.
I am looking forward to your conversation.
You will head to the office in your city.
-- new york city.
Lots to talk about.
Catching up to rivals -- merrill lynch on the brokerage side.
There are still some problems.
The most key measure for a security firm is still depressingly low.
He has a few things going right.
The buyback as well.
Good news for morgan stanley shareholders.
Right now, it is time to get to the newsroom.
We have breaking news on the economy.
Ben bernanke is going to come into his hearing with a tailwind behind him on the economy.
A lot of concern about what had happened when the fed chairman spoke.
Market shares are back down.
Mortgage rates fall to 4.37%, a big drop.
That should continue to encourage people about the housing market will stop he pushed 10-year rates lower so we could see lower freddie mac rates for a 30-year fixed.
Fed numbers are much better than expected.
It had been 12.5%. it comes up to 90.8%. that is the best since last year.
-- 19.8%. not as strong as the headline number would suggest but shipments rise 14.3%. this is good news.
A big jump in employment in that index.
Leading indicators unchanged but that is not get a lot of attention these days.
Looking forward to it.
I know you will be with us during the q&a session.
Let's get to our newsfeed.
A look at business stories around the world.
Morgan stanley -- earnings soared in the second quarter beating estimates.
Trading revenues jumped and a profit margins set a record.
Also, a surprising buyback.
In the next hour, we will have an exclusive interview with james gorman.
American power fell 1% yesterday, the smallest first day drop ever for a target of his firm's analysis.
In the united kingdom, the arrival of the royal baby is afflicted to produce a retail baby boom.
Reports that princess kate purchased a blue bugaboo stroller has some wondering if the choice might hurt sales.
They say stroller in canada.
Big news this morning out of austin, texas.
Dell has postponed the vote on michael dell's take older -- take over.
The shareholder meeting opened and quickly adjourned because the vote was rescheduled for july 24th.
Cristina alesci is at the shareholders meeting just outside of austin in round rock, texas.
Anybody watching bloomberg news new this was a possibility.
In a game of chicken with carl icahn, it looks like dell has finally blinked.
Here is the thing -- this was expected.
That is not stop the fact that shareholders voiced discontent.
They saw this as an attempt to steer the deal to michael dell.
Here is what one had to say about today's adjournment.
This company is worth at least $20 a share.
We are right now probably flat and where we stand.
I think that what is going to happen now is that they have got to come back and sweeten their deal.
If they don't come back with at least $16 a share, carl icahn will win again.
River, there are two kinds of shareholders when it comes to voting no.
There are those that will stand like you just heard and stand for a bigger increase and then there are those that may vote yes.
They may change their vote next week.
If michael dell comes back with a $.50 increase.
Another likely outcome here, let's not forget michael dell and silverlake can issue or can let the committee know that $13.65 is their best and final offer.
If that happens, shareholders that were playing chicken are bluffing about their vote could potentially -- that could potentially tip the favor back into michael dell and silverlake's corner.
You have raised a number of options for michael dell and the special committee.
Let's point out right now that dell shares are trading well below the 13.65 per share that michael dell and silverlake -- those that suggest they are not likely to swing the bid at this point?
That is what the market is saying.
Keep in mind, there's a certain percentage of shareholders that that are fast money.
They bought in really betting that the 1365 would go through.
This is unusual.
For a deal of this size, the high-profile nature, the fact that the founder of the company was involved.
The fact of the high-profile private equity was involved, it was unusual for a deal to get like this.
There was money in their, assuming that the $13.55 would have fell through.
What you're seeing right now are those people getting out of the stocks and catching up because they don't have the stomach to withstand the fluctuation.
Keep in mind, this is precisely what carl icahn is advocating . shareholders should not focus on the short-term.
They should focus on the long- term because there is value here.
Otherwise, michael dell and silverlake would not be trying to buy this company.
Keep in mind also, the vote today to adjourned this actually works against carl icahn.
Remember, he would rather have seen a straight out nobel on this so he could propose his directors to implement his plan.
Shareholders have six more days to think about before the vote is scheduled to take place.
Will he be postponed again?
Thank you, cristina alesci.
Let's talk to whether shareholders who is opposed to michael dell's buyout plan.
Jason is a portfolio manager , a 20 $5 billion asset firm which owns nearly 15 million shares of dell.
How do you feel none of the vote has been delayed?
It is a great thing and a loud message from shareholders.
They think the price is insufficient.
It is an unfortunate part of the process that you don't have a vote today come up which would send it down the transaction.
What does this postponement say about dell and silverlake and the special committee of the board?
Are they unwilling to raise their offer and want to spend the next six days canvassing shareholders and loving shareholders in trying to persuade those that are on the bubble for those in favor of $13.65 or perhaps something else?
They just don't have the votes.
We looked on the list of major shareholders who have reported they are not in favor of the transaction at this price, it is pretty extraordinary.
I think it is a matter of the prices are insufficient.
It was back in january when the deal came on the table and stocks are absence january.
It is a worse deal than it was back then.
If they counted heads and they don't have the votes, why even hold a meeting at all?
Why not pick it up a table and let the market decide what happens next?
There are going to be a lot of arm twisting.
They are going to be pounding on shareholders to change votes and get people to vote.
It is a set process that there is this much control from the corporation when they're trying to take their own company private, that they just have this much influence on the process.
It is part of the process.
Talk about what is happening behind the scenes at what you have experienced in terms of the arm twisting in the last 48 hours and what you expect now that the vote has been delayed.
We have been pretty clear in our message.
We have not gotten dozens of phone calls.
I am sure that people who have less of a definitive valuation in mind and are more short-term oriented, i'm sure they're getting heavily pressured.
From the reports you read, there are people that have been sort of flipping their vote in the last 20 four hours.
What ultimately do you want to see happen?
Do you want to see michael dell and silverlake step up with a higher offer because you believe they are the best people to run the company or do you wanted to get taken out at a higher price?
Do you believe that carl icahn has something practical of his sleeve, that there is more to carl icahn then 14 dollars and this mysterious war and that is closer to ken at $20 a share.
Do you have someone in mind that can run this company better than michael dell?
We are very supportive of carl icahn's position we bought our shares in the last year, we kept the position small because the capital allocation of the company had been horrific over the last four or five years.
Overspending on deals, overspending on share purchase, forster achieved decisions.
-- poor strategy decisions.
We think there is a lot of value.
We would like to see the be able to go in and get that done.
Given the way that the special committee has behaved, we would like to see changes in the board of directors.
You believe in the business model of dell and you think it is a question of management and board leadership?
You are not concerned about the slump in sales and all the financial signals we have gotten from dell?
We like to say at her firm it is about the.
We think the valuation for the cash flow the business can generate is attractive.
Dell is not a pc story as much as an enterprise story.
They hasn't a lot of money to transform the business.
We think think overspending.
There is value there.
We think there is a lot more value in the current share price.
We would like to seeing over time how the business can be run, especially if it is run effectively and more cash flow.
Stop overpaying for deals and for the business for cash.
I think shareholders can get a good return for this.
If not michael dell, who could or should run this company?
When you said you'd like to see new people on the board, who?
There is a site that has been proposed by carl icahn and i think there are good candidates there.
I think equally there are tremendous number of management candidates which the board will fervently that -- appropriately vet.
Where are the tremendous number of candidates?
Hp searched high and low ended up with meg whitman.
She is having success but is not like it is a slamdunk.
There are not a lot of people that can run a company like hp and make a go of it.
There are really good, core business people.
One of the challenges, you often have these entrenched founders.
Their capital allocation skills are messy.
We are not looking for someone to transform the business.
We are looking for someone to return investments for shareholders and the best wood to allocate capital over time.
I think the good capital alligators will make good business decision.
You are seeing that with meg whitman at hp.
She is doing a very good job.
We are also shareholders of a tree.
I think there are a large number of candidates that will be very focused.
You look at tyco.
He did a terrific job.
There are a love of good, solid business people.
It is not necessarily take a technology person to run the business.
Siding with carl icahn.
Thanks for sharing your perspective.
We will have a check back in with you as we approach the next date of the vote.
We have breaking news on the markets.
Have a look at this chart.
The s&p 500 and the dow jones are both soaring right now.
Both are making new record highs.
You are looking at the s&p 500 right now.
Get to the highest are at the highest ever.
It is up 150% since the bear market low back in 2009. look at that.
Those are remarkable numbers.
The treasury yields take a little bit higher.
The relationship that we have seen is broken for a moment.
Coming up, the big bank report card.
Earnings reports have done great.
On the markets, they rallied after day one.
Stick around, the fed chairman takes questions from the senate.
We will have it for you live on "market makers" on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.
? another wall street firm beats earnings estimates with its report card for the second quarter.
It is morgan stanley that makes it 646 on the streets biggest banks.
We will ask a question, is banking back or are these solid good?
Whatever you want to say but the numbers, in terms of organic road.
Jeff solomon is with us for a bloomberg is close though.
Good to see you.
You have a sense of what is going on in their business.
And your business.
Is the business on his way back or are they just hacking away and was in the bottom line by improving efficiency?
It is a little bit of both.
If you look at bigger banks, clearly the net interest margin and steeper yield curve has helped them from the mortgage boom.
This is a net interest mortgage game.
Morgan stanley is more about trading and underwriting.
What is interesting to me, across the board, whether it has been banks more focused on driving balance sheets or banks that are focused on creating financing opportunities and wealth management, all are doing better.
It is totally out of the bernanke playbook.
Pairing the financing mechanisms that were so brought -- bro ken, we can start providing capital and growth opportunities again.
It is all part of the 10-year rebuild that we had come out of after 2008. what's there is a big difference between institutional business, underwriting involved, mergers and acquisitions.
That is investment banking side and there is a trading site.
How good is that this is right now?
It is better than it has been.
We have a long way to go and where we need to be to really create private-sector job growth through capital formation.
If you take a look at what has happened in the ipo market in the course of the past year, certainly this year has been a record year in the past 10 years for new issuance.
That is a strong sign that we have great imaging growth opportunity in certain sectors for example, life sciences, technology.
It is also allowing some of the bigger, higher levered ipos to reecho dies and ring stocks back -- reecho ties -- re-equitize.
The numbers are not great.
Trading has improved but it is not growing at a rapid let.
Investment seems stable.
Is it possible that we will look back on the pros crisis era and see that james gorman and people at bank of america were the smartest guys in the room because their brokerage business was unaffected by these capital regulations?
May all the sudden start to print tons of money, and they are.
Here is what all of us do.
You focus on what your core competency is.
You look inside her culture and figure out which parts of your organization are ones that you really need to nurture and make sure they're going to be successful.
For every bank, it is different.
What i find interesting about what has gone on, they have gone back to some of the places where they can focus most on driving the heart of their culture.
That is exactly what we did.
We are a research dominated firm.
We focus on institutional equity business.
We think people will still pay a premium for quality research.
In our turnaround, that is where we focus.
That is what is interesting about this.
You make it sound so appealingly old school.
I will be leaving everybody.
I am on my way to blogs was in manhattan for an exclusive interview with james gorman.
Stock is rising and lots to discuss with him.
Sarah will be back with you in a couple of minutes here on "market makers." ? this is "market makers." it is almost half past the hour, time for bloomberg to go on a markets.
The big story right now, record highs for the s&p and the dow jones.
The s&p 500 is up more than wi- fi percent -- .5 p%. better earnings and bitter feelings around the fed chief's testimony.
They one was yesterday before the house.
Wonder what he will say to the senate today.
We will have a cover for you live.
Companies on the move -- verizon shares are under pressure.
We saw a small beat when it came to earnings on subscriber numbers.
How about blackrock?
Larry fink had a nice quarter.
The profits rose 32%. investors have profited.
We spoke with mike jackson, the ceo of the biggest auto retailer in the country.
Better than predicted quarter.
Coming up, it was a morning for the record books at the emmy nominations.
House of cards making history.
That story is next.
Waiting for questions to begin on capitol hill.
We will bring you better like you testimony live on the senate.
-- ben bernanke.
? breaking news you comes to dell here on "market makers." we just got word -- a statement released by carl icahn and southeastern management.
They are saying they're urging the dell special committee to act in the best interest of stockholders and move the dell forward.
They are calling the puzzlement of the vote until july 24 unfortunate but not surprising.
They say we believe this delay reflects unhappiness of dell stockholders with the michael dell, silverlake offer.
Carl icahn and southeastern management responding not to happy but not surprised to see a postponement of the boat -- vote.
We will see whether they raise the price.
We are also monitoring a live shot from capitol hill where the fed chairman is about to start testifying before the senate banking committee.
He will give an opening statement, which will be the same one he gave to the house financial services committee yesterday.
Once you start answering questions from senators, we will take you there live.
And he talk about tapering or when he will start to scale back quantitative easing could be very market moving.
Emmy award nominations are also out this morning.
Netflix made history being the first internet streaming service to go for the top honors.
Scarlet fu, who loves to cover hollywood has the highlights as we begin to dig into what it means for media companies.
This is a whole different ballgame.
It is different.
Netflix wants to us -- attract new subscribers.
They have a strategy that is starting to pay off.
It has lured top talent to television streaming in this case.
By releasing on the episodes at once instead of once a week, that has changed the game.
Kevin spacey, the start of "house of cards" -- the star of "house of cards" has said is an opportunity to learn the lesson that the music industry did not.
Give the audience what they want, when they won it, in the form that won him, at a reasonable price and they will buy it.
I wonder what kind of trend this will send to the industry?
Cable channels and maybe networks will discipline similar.
There are people in the industry asking what if.
What if episodes of mad men were released early.
What if cbs did this with the good wife?
They would get people to pay for content that will be later offered for free.
It is completely different.
People were not convinced until now.
How do we monetize that?
Netflix spends a ton of money developing this program.
That set a new bar.
At least $4.5 million.
Keep in mind, the average for the big four networks like abc, nbc, cbs and fox is less than $4 million.
It is also different with house of cards that it did not spend tens of millions of dollars on a marketing campaign.
It is using data that was gleaned from algorithms to guide viewers to content.
They are going the hard route, putting picket signs in l.a. and handing out free starbucks gift cards to try to get favor.
We both enjoyed it.
It was good acting.
It is meaningful and it further legitimizes what networks is doing and how they are asserting the industry.
They got props from the chairman of the academy as well.
They said netflix is producing high-quality entertainment worthy of recognition.
Episodic television is on broadcast, cable or the internet.
Of the top categories for the emmy nominations, only nine were from traditional networks.
75% were from cable and netflix.
Any big surprises?
I think robin wright getting best actress nomination, that was a long shot.
A couple of people not even making the list in terms of nominees.
That is what we turn to you, the business of the emmy nominations.
The business of tv which is changing quickly.
Thanks very much.
We will turn to some other bloomberg west media headlines for you.
So much for nokia's comeback in the mobile phone business.
The company says its sales fell 27% in the second quarter.
Sales of the smartphone rosebud demand for older basic phones plunged.
The alibaba c eo says there was a terrible misunderstanding.
Twitter blew up after the crackdown on protesters -- he called the tiananmen square a correct decision.
General motors does not want to be caught offguard by a billionaire entrepreneur will stop they have a signed a small team and how it might disrupt the auto business.
The vice chairman tells a bloomberg big companies that aid nor innovation.
We will take you back to washington in a few minutes.
It is the banking committees turn to question the federal reserve chairman, ben bernanke.
That is coming up on "market makers." ? ben bernanke is back on capitol hill for day two.
He will stand before the senate banking committee, giving testimony right now.
We would take you there as he starts his question and answer session.
Our economics editor, michael mckee, joins us for they too.
It is always interesting.
He will get new questions.
He will get new questions.
The interesting thing to watch is whether there are any stumbles.
When he talks about if this happens, what does he mean by that?
He is talking about whether the fed -- the economy will meet the fed targets and they will consider tapering.
Where are they right now?
If you look at an appointment, we have seen it come down .6% in the past year but has not moved since february.
Other measures of the labor market aren't improving a whole lot.
The number of people who were in the labor force looking for work has gone down.
By a lot of measures, the fed focus on the labor market has not come through.
Gdp is lower now than it was before quantitative easing three started.
We are not seeing a lot of process on the economic indicators.
Can you justify tapering when you're not a cop pushing what you set out -- accomplishing what you set out to?
You have a pretty good inside look at the market.
It feels like we are on a brink of a major inflection point but no one quite knows how to game it out.
I think he is been consistent.
If it looks uighur, i will do more.
If it looks daughter, i will do less.
-- if it looks stronger, i will do less.
If it looks uighur, i will do more.
You are right.
The numbers in employment are not great.
If you look at temporary workers hired, it looks worse.
A lot of that has to do with employers looking at what am i going to do under obamacare.
It is an interesting dynamic that is going on here.
The interesting thing to watch is those who are responsible for fiscal policy and monetary policy.
He is response will for both.
-- responsible for both.
People were surprised that he did not chide congress on fiscal policy.
We will see if he does today.
The economy did not fall off a cliff when it came to see question -- sequestration as some predicted.
I am probably not going to do anything as far as changing material.
We have a big fiscal cliff discussion going on.
What we just thought in the senate executive debates around -- debate around.
If you're handicapping whether or not we would get deals -- you bring up a good point.
The next meeting is at the end of july.
Two weeks after that, the end of the fiscal year , you get another round of sequestration starting october 1. another blanket round of budget cuts.
Does the fed want to act been facing that cliff is nothing happens between now and then?
In october, you have another debt ceiling debate coming up.
A lot of fiscal risk coming out.
With the potential taper on the horizon, can you be an investor on fixed income assets?
It is more challenging.
If we had not seen the kind of carnage in the equity markets, that was all we will be talking about.
If you're a fixed income investor in the month of june, you got pretty much hammered.
There is definitely more risk to fixed income than there has been.
We have seen a snapback and rally of rates.
Look what is going on in equities.
We are reaching new highs as we speak for the s&p and dow.
What does that tell you?
We are in a low rate environment.
We are talking about tapering.
All the purchases that the fed has made and people were worried would someday come back on the market, they are not coming back.
Those are by and hold.
I think people are getting their heads around the fact we could be in a slow rate environment for an extended.
Of time -- exterior -- extended time frame.
Those are where people are spending time.
I said he's order brought the market back down.
Are your clients worried?
He said no.
The question i get is are stocks fairly valued and can you justify a continued increase?
What i would say is you will see this washing around for a while.
There are a couple of big events, as you mentioned.
It is hard to see a structural move higher.
We could have this balance market where washes around for a while as people figure out where to do.
You have all these monetary changes and financial regulation hitting hard.
We were sitting here watching and surprise at how many questions the chairman.
About financial regulation.
It doesn't sound like there is a renewed push for washington.
There is, at the same time you get a lot of conversation in the house about jobs 2.0. the only thing that happened last year was the jobs act.
Ipos are up year over year.
Companies are finally confident.
It is a healthy market for equity capital formation.
We want to make sure those institutions are providing growth capital to create a visit their jobs.
It is a very interesting dynamic.
You can see ben bernanke just walked into the room.
He is allowed to walk him by himself in front of all the cameras.
We should mention that everybody -- the chairman's testimony is identical.
You were not hear anything -- he may not read the whole thing.
It is not going to be a complete recitation.
He will take questions and i hope the senators ask them more about the outlook for the economy.
What question would you have for him?
That is a good question.
I would try to understand how his policy dovetails with what he expects the policy debate.
Some people want him to bang on the president and congress to the the mantra around solid fiscal spending and so on and so forth.
I would like to know is his strategy to continue to provide liquidity and so that gives reconciled?
-- until it gets reconciled?
Jeff, good to have you here.
We will go back to washington when ben bernanke starts to answer questions from the members of the senate.
Coming up later today, don't miss our exclusive interview with treasury secretary jack lew.
He is getting ready to leave for the g-20 leanings in moscow.
We will hear from him at 4 p.m. eastern on street smart on bloomberg television.
Coming up later, 1130 a.m., erik schatzker's interview with the ceo of morgan stanley, james gorman.
? this is "market makers." it is time for the annual mcdonald's monopoly game.
We have scarlet fu to help us handicapping odds of your wedding.
You are looking at some of the prizes.
You have to collect all the properties of that one certain site.
Take a guess what you have to collect?
Boardwalk and park place.
Your chances of finding boardwalk is one in 602 million.
Good look at that.
We will put it to the test later on.
If you want to get gas -- you don't drive a new york city.
You would have to collect all the railroads.
That is when it is hard to find.
There is also a prize that involves the super bowl.
Are you interested in that one?
Orange proper season -- tennessee avenue is a hard to find.
The odds are 1 in 602 million.
If you want a new car, you have defined all the green properties.
The one you need there is pennsylvania avenue.
One in 40 million.
This is for a brand-new fiat.
People in that getting prizes for food, which could be exciting.
About one in five or one in four would get you a free prize.
The most common that you would get is french fries.
I am happy about.
If you want a quarter pounder with cheese or a mcflurry, 1 in 44 odds.
How long have they been doing this?
They are in one form of another.
Let's go after the show.
We could win a lot of french fries before we get that.
Thank you very much.
It is time for on the market.
Julie hyman joins us with more.
Let's take a look at where we stand.
The q&a session today before congress with a ben bernanke.
A look at where stocks stand at the moment.
We have a rally across the board.
There you go.
About double than yesterday.
The nasdaq is up .4%. a lot of economic data today.
Jobless claims falling by 24,000. that is the fewest since early may.
The federal reserve bank of philadelphia's measure of economic activity in that area is at a high.
Those numbers are giving speed to the market.
Financials are the best performers today.
That is the single best group within the s&p. a couple of mothers -- movers are earnings related.
The parent of sallie mae, a profit.
Morgan stanley stocks are jumping and also announced a buyback.
Lincoln national, analysts say rising rates will be beneficial for the insurer's balance sheet.
Take a look at treasuries.
Setting up for ben bernanke.
We are seeing rates go higher today.
What the chairman says could change that.
It is now at 2.53%. the dollar index -- a look at what is going on there.
The assembly -- it looks like that is continuing.
A check on oil prices and where we stand.
Oil is trading near its highest in more than 15 months.
We have inventory data yesterday that was supportive of the oil market.
Economic data helping the idea of demand for oil and those prizes have been rising.
That is a four on the markets.
We will be back and have an hour to do with the markets do in reaction to the latest from ben bernanke.
Julie hyman, our senior markets responded.
We come back, we will be taking you to washington for chairman ben bernanke's testimony.
We'll speak with james gorman, the morgan stanley ceo.
Erik schatzker is going to be at morgan stanley offices for an exclusive interview on the state of earnings.
Morgan stanley shares are soaring along with the broader market.
As we get ready to hear from the fed chairman, i have a michael mckee here with me to help give us a preview.
What set up with u.s. stocks.
This is day two.
We will be into questions pretty quickly.
When he talks about tapering, the markets -- everybody wants to know when.
We will take you to capitol hill where the chairman will be speaking to members of the senate banking committee.
He is they're now giving testimony, the same one we heard yesterday.
States and for the q&a on "market makers" on a bloomberg television.
? this is "market makers." exclusive interview with the morgan stanley ceo james gorman.
Profit is soaring.
What does he do next?
This time it is the turn of the senate.
Ben bernanke is on capitol hill for a second day of questioning.
Michael dell cannot deliver.
Shareholder vote delayed on the $24 billion buyout offer.
Welcome back to "market markers." it is a bloomberg exclusive.
Ben bernanke is to start taking questions from senators.
I will be joined by my two favorite guys, tom keene and michael mckee.
Helping us get ready for bernanke.
What is on your mind at this hour?
The testimony is a yawner.
The q&a yesterday was a yawner.
I'm not sure that ben bernanke's goal is to put you asleep.
I will tell you what is not a yawner is what is happening in the markets.
The dow rallying more than 100 points intraday.
Ben bernanke might not be upsetting the market -- he really was not asked in depth whether or not the fed is creating bubbles.
Maybe this is an excuse to do it.
We talked about how the economic indicators are not necessarily suggesting a september tapering.
Some people on wall street say they really want to get a tapering because they were afraid of the downside risk from the qe program.
We are hearing a lot more about bubble talk these days of the federal reserve and the unintended consequences.
I think so.
It has been an interesting economic discussion.
The vix, 13.34. overlaid on that is this earning system that is it in pretty good earnings system.
We think of the fed and economics, but it is just as much the fed and the banking system.
Why isn't ben bernanke and presumably his last summer appearance taking a massive victory lap?
We saw what happened when alan greenspan did that.
It does not always work out well.
We have breaking news.
Uk regulators say they think they know what caused that fire on the boeing dreamliner jet in london.
Dominic chu in the newsroom with more details.
What we are learning is that honeywell is the focus of this particular breaking news bit because according to the air accident investigation branch -- think of them us -- as the ntsb in the uk.
They have put out a report linking the transmitters -- e.l.t., emergency locator transmitter, as a possible cause or source of the fire aboard that going to reminder 787 -- boeing dreamliner 787. we did see the stock take a dramatic drop but it has recovered to be just about flat.
We are still parsing through some of the details.
All that you need to know now is that the a.a.i .d., the uk regulator or transportation authority that looks into air accidents, has linked honeywell's emergency locator transmitter as a possible or likely cause of the fire on board that boeing dreamliner 787 in london.
More details to come.
For right now, we are watching honeywell shares fairly closely.
We're also watching boeing shares.
It looks like at least from this initial report that the boeing dreamliner 787 was not per se at fault for this particular fire that happened at london heathrow.
More details to come, but for now, the uk saying that honeywell's transmitter may have been the source of that fire.
Better news for boeing.
Shareholders buying up that stock.
Some relief, perhaps.
It's not the battery and it's not boeing.
While we wait here for ben bernanke to answer some questions, we want to take you to texas for a top story.
Dell has postponed a planned shareholder vote.
Our deals reporter cristina alesci is there on the ground.
Round rock, texas.
We have heard from carl icahn in southeastern management on the decision today?
They are continuing their searing attack on michael dell, silverlight's 365 offer, saying this shows the adjournment of the meeting shows how unhappy the shareholders are with the offer on the table.
If you read the statement very clear sleep -- very closely, carl icahn is asking for an annual meeting instead of the shareholders vote scheduled for next week.
If he is successful in any way in getting the annual meeting, that means he can propose directors to the board.
That is very important because once you fire these directors, you have a whole new slate in.
They will support carl icahn's proposal.
We will staff to see how it plays out -- have to see how it plays out.
It's not business as usual.
What will occur between now and the 24th?
It's going to be a mad scramble to get investors on board with this $30 50 five cents.
Michael dell and silver lake will go, petition for support -- $30.55. michael dell and silverlake will go and petition for support.
We will see pressure . where is silverlake?
I have not heard from them since may or march.
Just for you, tom, my rachel -- my producer and i went to have a drink in honor of getting up at 2:00 in the morning to do your show.
We ran into some silverlake representatives there.
They are still very much in the mix, but they want to stay out of it.
Having a private equity firm tied to this deal could get a little controversy all -- contr oversial because they are the big-money backers and they may be the people talking michael dell out of making an increased offer.
Cristina alesci joining us from just outside of austin, the site of the dell headquarters.
The drama continues.
She got up early to be on bloomberg surveillance?
Was she lobbying for dinner or something?
I told her to get some barbecue.
Were going to go to washington, where ben bernanke is about to start taking questions from tim johnson, the democratic senator from south dakota.
As always, there will be issues of judgment there that are unavoidable in any monetary policy normalization.
That being said, we have laid out essentially a three stage process for our normalization.
The first, which is dependent upon the economy strengthening, the labor contingent -- labor market continuing to normalize.
A process of slowing, moderating the pace of our asset purchases and eventually bringing those 20 additional purchases -- to zero additional purchases at the point that we can say we have made substantial improvement in the labor market.
We have given guidelines about how that process would go forward.
The second stage would be a potentially lengthy period in which we are watching the economy for continued improvement, continued reduction in unemployment , normalization of inflation.
I described in my testimony, when unemployment gets to 6.5% and normalization is looking closer to target, we would consider whether tightening in the form of raising short-term interest rates is appropriate.
That would be the second stage.
The final stage, the ultimate normalization of policy, raising up short-term interest rates and normalization of our balance sheet.
As i noted in my testimony, assuming that the economy remains in a slow growth mode as we have been seeing, that process will be a very gradual process.
What explains the recent rise in long-term interest rates and how much more of an increase in rates could cause recovery to falter, and what would the federal reserve do to respond if interest rates spike?
There are three reasons why we have seen increase in long- term rates, though i would emphasize they remain relatively low.
The first is that there has been some better economic news as investors see brighter prospects ahead.
Interest rates tend to rise.
We saw a good labor market report which was accompanied by a sharp increase in interest rates on that day.
Second reason for that interest -- increase in rates is the unwinding of leveraged and perhaps successfully risky positions in the market.
It's probably a good thing to have that happen, although the tightening associated with that is unwelcome.
At least the benefit of it is, some concerns about building financial risks are mitigated in that way and probably make some participants more comfortable with using this tool going forward.
The third reason has to do with federal reserve communications and market interpretations of fed policy.
We have tried to be very clear from the beginning, and i have reiterated again today that we have not changed policy, we are not talking about tightening monetary policy.
We are trying to layout the same sequence i just described about how we're going to move going forward and how that would be tied to the economy, but i want to emphasize that monetary policy will be tighter at any point in the future.
What do you see as a bigger threat to the housing market recovery as we continue housing finance performance?
We have to keep our eyes open to pay attention to mortgage rates and affordability.
I think it's very important for us to get our housing institutions, regulatory structure to get those cleared up, get those in working order.
I'm glad to see that congress is now looking at reforms of fannie and freddie, the mortgage securitization system.
We still have rules to go about skin in the game and other aspects of mortgage market.
I think as we get greater clarity that we will see less tightness in the market for mortgages for first-time homebuyers and people with less than perfect credit scores.
One of the risks we face now is that there is still a pretty significant part of the population that is having considerable difficulty accessing mortgage credit, even though they may have the financial wherewithal to be worthy of that credit.
Thank you, mr.
Chairman bernanke, you have previously indicated that the fed wants to see substantial improvement in the labor market before cutting off qe.
In your june press conference you noted that substantial is in the eye of the beholder.
It is understood that today you indicated that we can see this wound down completely by midyear next year, correct?
Yes, if all goes as expected.
On the flipside, if all does not go as expected, we can see qe for the indefinite future?
I suspect at some point that the economy will reach that substantial improvement in the outlook, given the way we have seen progress to this point.
Whether it is later or earlier, that remains to be seen.
I assume you would agree that there is risk in continuing qe indefinitely.
Would you agree with that?
Yes, there are costs and risks to qe and we are watching those carefully.
We said in our statement that one of the considerations we are looking at in every meeting is the efficiency and cost of this program.
We do a benefit cost analysis as we discuss the benefits of additional purchases.
Given the notion that substantial is in the eye of the beholder, i don't think it's easy for the markets to understand exactly how and when we are going to see the winding down occur.
To me, it appears that possibly communicating more specific targets rather than thresholds would help to reduce that risk.
Do you agree, or do you do you think it's not possible to get more specific?
It is something the committee will continue to be discussed.
I will say first that we have given some fairly specific qualitative guidance about what we are looking for.
I did say that unemployment in the general vicinity with collation -- inflation moving back to 2% was indicative of the progress we were trying to achieve.
Thresholds are tied to rate increases.
While reaching that threshold is not necessarily mean we will raise rates, we are quite confident we will not raise rates before we get to those points and in that sense we are providing reassurance to the public and to the markets.
With regard to winding down the fed's balance sheet, you and others have indicated to keep the fed's qe securities on the balance sheet, keeping them out of the market.
Governor cirillo said that nobody is talking about unwinding securities we have been binding, which would mean that the fed's balance sheet could be over $3 trillion for some time, correct?
Ultimately we will stop rolling over and reinvesting into securities and then they will begin to run off and the balance sheet will start to come down.
We have done a lot of scenario analysis, and allowing the securities to run off at a certain point when the economy is strong enough does not delay normalization by very much.
But you're not expecting the winding down of the balance sheet anytime soon?
Certainly not until we get to the rate increase part of the three-part sequence i described to you.
And there again, we are not planning at this point to sell any mbs.
What we would be doing, at some point we would be allowing the maturing securities to run off and not replacing them.
As long as you continue to hold and not wind down the balance sheet, doesn't this lead to credit mispricing and increased investor risk undertaking?
I don't think so, particularly when we are winding down.
I don't see that there's any real difference between for example are holding mortgage backed securities, as intended to strengthen the housing market, and usual monetary policy which lowers long-term interest rates to short-term rate cuts.
The housing market is always an important channel of monetary policy.
I don't see that there is significant to suffocation going on there -- si gnificant going on there.
I understand this may be your final report here before the committee before the end of your term as chairman of federal reserve.
I'm sure you will miss us.
I want to thank you for your hard work and dedication and service to our country, especially during a time of crisis.
I appreciate your service.
We seem to be experiencing a trend right now where economy and unemployment are growing and recovering but we still have a ways to dig ourselves out from the deep hole caused by the financial crisis.
Unemployment is coming down but it is 7.6%. more than a third of the people unemployed are long-term unemployed, which is a true crisis for those more than 4 million individuals and families caught in this situation.
As you've discussed with this committee in the past, long-term unemployment can have serious consequences, make it harder for people to maintain skills and networks to reenter the workforce.
While the economy is recovering, we still have a lot of work to do to get employment and strong broad-based growth.
With core inflation well below the fed's target and weak demand is suggesting that inflation is unlikely to be a problem, still isn't it way too soon to consider any kind of policy tightening?
I distinguished the between changing the mix of art two tools -- mix of our tools and policy.
With inflation below target and unemployment still quite high, and by some measures with unemployment in some ways being too optimistic about the state of the labor market, both sides of our statutory mandate are suggesting we need to maintain a highly accommodative monetary policy for the foreseeable future and that is what we intend to do.
We will be able to maintain a high level of accommodation ultimately through rate policy , and by holding a very large balance sheet , and making the transition to a different stage of the process, we are intending to key policy highly accommodative.
Let me follow up.
As the reserve has engaged in measures to strengthen our economy, some critics have argued that any growth that results might somehow be artificial, or that low interest rates and cheaper credit might lead to financial instability or bubbles.
Even investors make riskier investment to, quote, reach for the yield.
In the current environment, isn't weak demand a greater concern?
If consumers are pulling back on spending because of high debt burdens and underwater mortgages from the financial crisis, and businesses are holding off in investing because of the weaker consumer demand, doesn't that change the relative cost benefits and risks of different monetary policy?
Yes, it can.
On the first point about artificial growth, during the 30's there was the liquidation is to be you -- liquidationist view.
I don't think we except that point of view anymore.
What monetary policy is try to do is to help the economy returned to its potential.
Given recent experience, we want to be careful that we understand what is going on and pay close attention to these issues.
The relationship between financial stability is a complicated one.
Very low rates for a sustained period can lead to reach for yield, and other risky behavior.
We're trying to to address that primarily through regulation, oversight, monitoring.
That is our first line of defense, certainly, for dealing with those sorts of issues.
You correctly point out that a weak economy is also bad for financial instability because it means weaker credit quality, less lending opportunities, more defaults and the link with ease.
-- delinquency's. our strategy is to try to focus on inflation and unemployment using monetary policy, but to pay close attention to any developments in the financial stability sphere and use the regulatory and supervisory tools we have as the first line of defense.
I appreciate that.
There is been a great deal written and said about expansionary austerity.
As i look at what is happening in europe, i'm not sure that all the measures taken under that guise produced either the economic results that we would like to see and certainly the consequentials we have seen.
Thank you, mr.
This humphrey hawkins meeting is like drinking day-old coffee, and even worse, accompanied by a stale doughnut.
I don't really have any questions.
I read your testimony yesterday.
I want to thank you for your service.
I know we have had our differences on some issues.
I really do appreciate the way you handle the crisis.
I think our country was under extreme duress.
I don't know how many people couldn't handle that crisis and the complexities that came with it in the way that you did.
I want to thank you for that.
We have had discussions publicly and privately about some of the quantitative easing.
I know we had differences.
I know that there is a whole industry of folks out there who watch every word that you say and people are right now doing calculations as to whether to buy this instrument or that.
I know you have to be cautious about what you say sometimes, but this is a bit of a step back.
Some of the concerns i have had, the hyperactivity of the fed.
The fed almost acting as an enabler for congress , which has had very bad behavior for a long time.
Our inability to do things fiscally and in other ways.
You do a pretty decent job of staying away from that.
I wonder if you have any parting comments.
I don't know what your future is . i wonder if you have any comments about that, any concerns about overtime because of the hyperactivity that the fed has been engaged in, in some ways because congress has been dealing with issues that we have had to deal with, i wonder if you think there are any similarities to a person who knows they need to do certain things, and instead relying on the fed . as you potentially contemplate those, i want to thank you for your service.
Thank you for your friendship.
Whatever happens, i wish you well.
Thank you very much.
On hyperactivity, but we'll learn during the crisis was that we did not have the right tools.
-- what we learned during the crisis was a we did not have the right tools.
We didn't have appropriate oversight.
There is a lot of weakness in her oversight, regulatory system . it sometimes seemed frenetic because the fed was trying to improvise in many cases.
We have made some progress in setting up a more orderly framework for both strengthening our financial system, monitoring it and responding in cases of another emergency.
I hope that's the case.
It is true that monetary policy has carried an awful lot of the burden for this recovery.
I'd be more than happy to share that burden more equally with other policymakers, but i recognize it has been a difficult time politically for people to come to agreement on some very important issues.
I don't think you have mentioned the enabler idea.
I don't think it's my place or the federal reserve's place to try to force congress to come to any particular outcome.
If congress is ultimately who is responsible, our role is to take what congress does and try to figure out how best to mandate.
I know it's not your place and you operate under a mandate -- fed chairman ben bernanke taking questions.
That is senator bob corker from tennessee, saying this second day of testimony is like drinking day-old coffee.
I'm here from tom keene and michael mckee -- with tom keene and michael mckee.
You start with the chairman from south dakota.
He is retired.
He has been very ill then we go to the senator from idaho.
Then we go back to new jersey -- when a second.
You are focused on all the senators?
The people manager -- mate ter.
We go to the mayor of chattanooga, senator corker of tennessee, who has been a strong supporter.
They got into the discussion of, whose fault it was the congress does not do anything.
A couple of points per nike did, nothing really major but a clarification -- bernanke did, nothing really major but a clarification.
He said that given the economic conditions we have today, we need to maintain a highly accommodative monetary policy for the foreseeable future.
A lot of people took that to mean that it was pushing out tapering.
He said, we can do that with rate policy, suggesting we can taper and maintain accommodative policy.
Tapering is not necessarily in that equation.
We don't have to see the kind of improvement that some people think we have.
The sensor from rhode island, -- senator from rhode island.
Look at tom kane, the expert.
The people asking the question really matters.
Maxine waters does not ask the same questions -- she asked about the imf yesterday.
Did congresswoman waters ask a better informed question because her staff got the note?
No questions on community banking or bank regulation yet.
We're going to hang on.
We're going to go over to erik schatzker for a bloomberg exclusive.
He is standing by at morgan stanley, midtown manhattan with ceo james gorman.
I am here back in 1585 broadway do with james gorman.
Great to be here with you.
I have learned as we have gotten to know each other that your mood can be correlated to the stock price.
A strong quarter earnings, you have been waiting for.
We have been talking about quarterly performance.
What stands out to you as the most meaningful achievement?
A couple of things.
One of the things the team has focused on is giving deliberate, predictable results for the marketplace.
The standouts on the business performance, institutional equities was a blowout.
They had a phenomenal order.
Best quarter dustbin inbusiness in a long time -- it has been in business for a long time.
We are below where we were in the first quarter, below the gear and target of.
A lot of good news.
Blowout is a great word.
It suggests it is perhaps not sustainable.
It's very broad based.
If you look at equities performance by region and product, it is very strong.
Prime brokerage is very strong.
The derivatives business was strong.
It was strong in asia, japan.
It was a good performance, no question about it.
There are always weaknesses.
We are on that journey.
What is most disappointing?
That's clearly a function of where we are in this turnaround of the institution.
It was well understood , but not where our aspiration is.
We took some extra reserves rig -- relating to litigation.
There is litigation coming out of the financial crisis.
Fixed income recovered materially from the second quarter of last year, but isn't where -- we want it to be.
Let's take a step back and slow down.
Talk about the brokerage business.
I have said it before and many people have said it.
Building this retail franchise out into something that is larger, more profitable than it has been before.
It clearly has some traction.
If the third quarter is as good as the second quarter was, can you get the pretax margin, which is the hallmark of profitability, up to 20%? i'm less on what quarter that happens in.
Investors are focused on it.
Investors are inpatient.
By their nature and design, they want results to exceed always.
We laid out some targets a couple of years ago and we were premature.
We got ahead of ourselves coming into a very long extended zero interest rate environment.
The equities market has recovered.
We laid out new targets at 15%. we laid out targets a couple months ago.
Do you think you can get there by the end of the year?
As much as i would like to like to be drawn into it, i'm not going to.
You learned your lesson the first time.
It's a competitive business.
There are that many big players in the brokerage business.
Merrill lynch remains a very strong competitor.
It is putting up some extraordinary numbers.
I'm not sure if it is apples to apples.
Your 18.5% compares to their almost 28%. what is it that they are doing that you could and should be doing more of?
It is great news.
It is proof positive that doubling up in this space was a smart thing to do.
I always like to see somebody out there setting a higher bar as a demonstration of what can be done.
It's a much more mature business.
The whole banking strategy originated when i was running the business back in 2000. the retail business.
It has had 13 years and we have had a couple of years.
There is material differences of where we are in the cycle but i like the slope of the gradient.
Let's talk about fixed income.
People tend to obsess about this when it comes to morgan stanley.
On wall street, the axiom is that size matters.
Bigger is better.
If that is true , morgan stanley is not competitive with its larger rivals -- goldman sachs and others have bigger numbers.
Back to the size matters axiom.
We have outperformed all the institutions that are larger than us year to date.
The aggregate stock price