Detroit or Bust: In The Loop (07/19)

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July 19 (Bloomberg) -- On today's "In The Loop," Betty Liu takes you from the day's breaking headlines straight through to the opening bell, speaking with the most influential guests and asking the smartest questions. It's not noise, it's news. (Source: Bloomberg)

The tort or bust.

Michigan's governor declares bankruptcy in the largest city, the cradle of the nation's auto industry.

Silicon valley's own of a revolution.

It will take you inside the production line and tesla's robotic plant.

And the cost of living boils down to the cost of a dragon role.

We have the rankings.

From bloomberg world headquarters in new york, you are watching "in the loop"with betty liu.

We have all of your top stories cover for you.

And earnings miss after yesterday's close.

Hans nichols is wanting u.s.- russia relations as edward snowden jeopardize this meeting between the nation's presidents.

Detroit, the once proud symbol of american manufacturing has filed for bankruptcy.

But begin with mike mckee, who has the real deal on where detroit goes from here, and what this means for those who have invested in this city.

It is important to note, to join is not a casualty of the great recession.

It is not like other cities that have gotten into financial trouble, this has been decades in the making.

The population is dwindling, but the same square mileage, the largest city in the united states cannot service it all, they do not have the tax base to do it.

Anyone with money has left town.

Add in decades of financial mismanagement and corruption, and you have the events of today.

The numbers are daunting.

Take a look at what they owe right now.

$11.8 billion in unsecured notes to creditors.

About a half billion in terms of other obligations.

$6.4 billion in secured notes.

By 2017, they say they should have a deficit of $1.3 billion, if nothing changes, which means 38 cents of every dollar that they get goes to debt service.

And they cannot raise taxes, they are already at the limit.

The highest taxes in the state for perhaps people with the lowest incomes.

They have pension obligations and benefit obligations, along with the general obligation bonds, as well as what and derivatives that they cannot pay.

This may have to go to court.

Whether or not they pay the general obligation bond will be litigated.

You mentioned it could go as to the supreme court.

Walk us through that process.

They would have to file chapter 9 and then they would offer reorganization to the creditors.

Then they would have to figure out what comes out on the other side.

You mentioned president.

How where is this?

Actually, quite rare.

Since 2010, five cases have been dismissed.

Not all cities allow you to file for chapter 9 bankruptcy, and not all cities can do that, but the idea that this is a whole wave is not true.

This is an isolated event, and it will be president-setting.

They have pension obligations, could those be restructured?

They could, and that has never been done at this scale.

That is one reason why they could end up at the supreme court.

And will be interesting to follow this through of the year.

I want to now bring in a native of detroit, matthew dowd.

Your dad worked for the auto industry?

Yes, we grew up there, but we moved out right before the riots.

Did you get a sense as a kid that things were changing, that more and more people were leaving?

Yes, you got the sense that people were living for jobs outside of the city, they were worried about crime, deteriorating schools.

Detroit is a very sad but not surprising example.

There has been that the leadership for the past 20 years.

This is something that has almost been happening in small cities across america, people moving to the bigger city.

Detroit, being a city, should of have those opportunities, but it did not stay competitive.

They lost more than half of their total population.

No large city in america has experienced that.

Until they get residents to move back down into detroit, -- there are some bright lights, but to have to fix this problem.

This is the beginning of an improvement in detroit, possibly.

If they can restructure things.

They have so little infrastructure.

If they can attract businesses, many more businesses to be there so that people can have jobs to pay taxes.

Should they be looking at tax incentives that to attract corporations?

They have tried, but ultimately, they need to change the infrastructure.

All of this becomes a cauldron of problems and no business wants to go there if they know that the street lights will not be on, if police will not be of control.

May have to fix it infrastructure, then get residents to move, and then the businesses will come.

This is not unexpected.

I was up there two weeks ago watching a tigers' game, talking to my family.

It is very sad, but we have had a series of bad leaders, bad economic and business leaders, basically, they did not bet on the future.

Not expected -- not unexpected, but rarely said.

Stay with bloomberg tv for much more on the future of detroit.

We will speak to rick snyder.

He will be with us on "market makers." real-estate developer larry silverstein, who will not be allowed to collect billions from the world trade center for attacks, according to a federal judge.

He cannot seek $3.5 billion from the airlines whose planes were flown into the buildings.

The judge ruled that under new york law, larry silverstein cannot collect twice.

In washington, the edward snowden stand out may be putting president obama's summit with vladimir putin in jeopardy.

They are set to meet in september ahead of the j-20 summit.

Hans nichols has the latest.

-- g-20 summit.

Hans nichols, does the meeting with putin depend on whether stoughton gets asylum in russia?

It appears the fate of the moscow meeting is tied into that.

The white house is sending signals that they are willing to cancel that meeting if snowden is not handed over.

Remember when the president was in africa, downplaying the importance of bringing snowden over.

Here, they are talking about canceling a summit in moscow that was just announced when they met in northern ireland in june.

That is a clear escalation.

I should add, the g-20 summoned in st.

Petersburg, where all the leaders will get together, is not in jeopardy.

That is an important economic summit coming a few weeks ahead of the german elections.

You will see a lot of wrangling, with the u.s. putting pressure on the euro to have a growth strategy.

You heard jack lew talk about that yesterday in an interview, the importance of europe growth.

It is always interesting to watch the body language of our leaders, see if we can detect any tension.

In cabo, last june, obama and putin got together, and it was very frosty.

You could almost see the tension.

This time, when they met a couple of weeks ago in northern ireland, there was an effort to paper over those hostilities, but there are steep -- still deep divisions on a number of issues, iran, human rights issues, serious differences that cannot be glossed over by jokes.

Thank you very much, hans nichols.

The nsa has been a word about the secrets that snowden has revealed.

He was not allowed inside the security agencies most secure files.

The secrets that snowden actually has.

What do we know about where he worked, how many secret documents he really had access to?

With something like this, everything is relative.

We're learning a lot more about how the nsa computers worked.

He had administrator rights, which gave him access to their corporate network, one of the biggest intelligence networks in the community.

It has thousands and thousands of computers.

On like the cia, where a network administrator with a compartmentalized, his range could be widened far.

Someone familiar with the investigation told make it they were astonished about how far he had gone.

With an intelligence agency like the nsa, the really deep secrets are, in fact, kept in secret computers with separate infrastructures sometimes you have to be physically in the room.

Snowden did not have access to those.

He did get a lot of stuff, but he did not get the deepest stuff that the nsa wants to protect.

Is seen not as big of a threat that some have made out to be?

He has leaked a lot of stuff, but things that anyone with an intelligence agency already knew.

There have been a lot of comment that the kind of leaks that he has given, russia, china, european states, already had good, detailed information about that.

The nsa does a lot of its own hacking, it goes into the servers of -- computers of the generals, other high leadership.

That is a very small, elite crew that does that he did not really have access to that.

He has given us a lot of surprises, as the public, but not so much for government.

It this was also delivered.

He took the job at booz allen, in order to get a list of computers to hack.

Is that perhaps one of the sticking points?

It sounds like what you are telling me is that whatever information he found is just not damaging enough.

It is the idea of what he was doing.

You are right, and he took the job to get a list of computers, according to his own motivations, to get a list of the computers they hacked.

That list is incredibly high value within the nsa, not the kind of secret there would have kept on a larger network that he had access to.

He probably did not get what he went after, bottom line.

Thank you.

It is a clash of the titans.

Rupert murdoch takes on espn.

Sports tv may never be the same.

Bloomberg looked at the numbers.

When it comes to rock fish, some of you are getting a raw deal.

And the car service offering on demand ice-cream.

Tech stocks were swimming in a sea of carjacker google and yahoo!

Reported earnings that missed the mark.

Dominic chu has a rundown of the numbers.

With us is a senior researcher who closely follows technology.

Take us through the numbers.

Google, microsoft.

Both not coming in as people had hoped.

Both are down and the pre market on the heels of that earnings report.

The headline earnings per share for google, $9.56, estimates of $10.80. if you look at their cost per click, that is birthings come into play, you're talking about down 6% vs.

3%. that is what is getting a lot of attention among investors.

They are pushing more into mobile adds, and those are less than personal computers.

We know that is where the industry is headed.

More consumers use these tablets and smartphones, and that is where the focus is moving.

Microsoft missed estimates by the widest margin in at least a decade.

Earnings coming in at 66 pence -- cents per share.

One of the reasons, slowing demand for personal computers that use windows as its operating system.

They also wrote down the value of its inventory on surface tablet computers.

They want to focus more on service and devices, but those devices carry smaller margins.

I want to bring in, forte.

-- tom forte.

Did you expect the numbers to be as weak as they were?

Stocks have had a great run in the last 52 weeks.

Motorola has a plan, and we will eventually see how that works out, but the company does not guide as a surly to the quarter.

This is the second consecutive quarter that they missed the top line.

They missed the bottom every now and then.

Is this indicative of the broader economic and garmin, specific to google?

I think expectations got too high.

They had some initiatives to improve search results at their network websites, which slowed their growth.

They indicated a slowdown in the u.k. due to unseasonably warm weather.

What about the competition, is any of this a threat for them?

On the search front, google has little competition.

The challenge, as we indicated, is this transition of mobile, as the consumer changes their behavior and does a lot of activity on tablets and phones.

It is not a pay are not doing enough.

They have improved ad campaigns which should help.

It will just take some time.

It seems this is a store that we here with so many tech companies, the transition to mobile, and some are just taking others -- longer to get their.

If you are an average as a company, it is difficult to transition.

If you are an e- commerce industry, it is a huge windfall.

How do you think of this as a stock, versus competitors?

Ebay and amazon are our top two picks in the sector.

We believe they will do well.

Apple is also more attractive than google.

Investor sentiment is just too negative on apple.

You think there are more to come up with a great product, a watch, apple tv, which will inspire everyone to get back into the stock?

I think innovation will drive the stock higher in the next 12 months.

Good to see you.

Coming up, we will see what happens when dvt meets r&d. you are watching "in the loop." you can also watch us streaming on your tablet, phone, and on bloomberg.com.

I'm trish regan.

Bloomberg tv is on the markets for you.

U.s. stocks a racing losses.

It happened after the people's bank of china said the floor on lending rates would be removed.

A big day for earnings.

13 companies in the s&p said to report.

Honeywell is up in the pre- market after beating estimates.

Lg related sales rose last quarter.

-- energy related sales rose last quarter.

And as we have been reporting, the city of detroit filed for chapter 9 bankruptcy.

Many businesses are fleeing the motor city, but there is an unexpected one that recently moved in, whole foods.

They open their first location in detroit last month with incentives from the city itself.

Carol nasser -- massar takes us inside the location in detroit.

It is a reputation that all foods cannot shake.

They have been working hard to change the notion.

Fresh foods should be available to all communities.

Wholefoods opened up with touches to reflect the auto city's culture.

The store here in detroit is special.

It is the first time that we have stepped into a market that we have not served before.

The city kicked in $5 million in incentives to bring wholefoods to one of its fastest-growing neighborhoods, the home of college-educated neighbors.

Residents are typically less educated and have lower income elsewhere.

Very quickly, you will see a shift in the neighborhoods.

This is the point man in making sure that wholefoods is accessible and connected to the community.

There is all of the graffiti, these huge, empty spaces in the city.

Does that scare you?

Sure, but it is also a challenge.

Our goal was to make an investment that mattered.

The company has donated a quarter million dollars to be successful.

A gallon of milk would cost about $1 less in detroit than in new york city.

Here in detroit, and made a commitment that we would be affordable and accessible.

They hired 97 store employees.

Civic leaders see it as a necessary green shoot.

It can serve as a model for other retailers who are going through a decision making process, whether or not to locate to the city of detroit.

He says it will take about three weeks to see if it is working.

I love this project.

I have no idea how it will turn out, but i have a good feeling.

From detroit to other cities across the nation, prices of japan's most popular cuisine is going higher.

Sushi lovers in new york and greenwich, conn.

Are getting a raw deal, according to the sushinomics.

I live in greenwich, conn., and i work in new york city, so i could beginning the rawest of all deals.

I am not the biggest fan, but i enjoy having it once in awhile.

And it will cost me more if i live and work in certain places.

Let's take a look at the rankings.

When it comes to sushi, new york tops the list in terms of the most expensive sushi in the metro area.

Los angeles comes in second.

San francisco, even though is close to the water, still about 12% higher.

The cheapest sushi that you will find is down in new orleans, louisiana.

They come in at 23% below the national average.

When it comes to the most expensive places, it is greenwich, conn.

The most expensive items cost on average $17.59. i am curious, you look at inflation, which there is not a tough.

How do sushi prices compare with a broader economy?

Prices were skyrocketing in 2011 to 2012, up about 5.5%, another 2% in this past year.

Take a look at regular inflation in the u.s.. wholesale prices are not going up across the board, but premium items, people are paying for them.

Those people on the high and are still paying up for their premium sushi.

We feel for you over there in greenwich.

Would you be surprised to know that some of our biggest creative industries are not deco house is that about to change?

The u.s. is set to count investments in movies and books and ideas as part of gdp.

You can read all about it in the latest edition of bloomberg business week.

Suddenly ideas are part of gdp.

How do you do that?

When you invest in software, when you make a movie, when you do r&d, these are things that create not just current output, but well off.

It is an asset that can keep on giving.

By definition, investment is something that can produce revenue a year or more into the future.

1999, the government caught up with the 20th century and started to capitalize on software.

That was a big and important step in the right direction.

But it is not until now, july 31, the government will restate the gdp back to 1929. r&d -- all of that will not be reading now be counted as an output of the economy, not just as an intermediary.

So we could have been growing much faster in the last few years than we thought?

They made an estimate before the announcement.

It does not make a huge change in the growth rate of the economy, but what they say is gdp will rise 2.7% overnight.

Over all?

The u.s. economy of 2.7% bigger.

We can all feel better about ourselves.

It is like being told that you are happier than you were.

Interesting that they are not including r&d. it is not that it is not know where.

It is in the satellite accounts, experimental accounts of the government.

It is counted as a cost of business.

The difference now is that it will be counted as creating an asset, durable asset, like digging in mind.

But you do not know that it will become an asset.

You have put your finger on a problem here.

Some movies are blockbusters, others are flops.

The government cannot be guessing which is which.

It is done with the asset based on the cost of creating it, knowing that sometimes it will be too high, sometimes too low.

I am excited that we grew 2.7% more than anyone thought.

You can read his opening remarks in the latest edition of bloomberg does this week.

-- businessweek.

Coming up, it is one of the few times that rupert murdoch has been an underdog.

He is going up against the biggest name in sports tv.

And causes the bridge match of the century.

See what happens when two bloomberg reporters seeks revenge on couple of white house economists.

In the latest issue of bloomberg business week, they take a deep dive into rupert murdoch's the latest sports network.

It is aiming to challenge espn.

, to bring in -- ammann to bring in -- i want to bring in lee berke, president and ceo of lhb.

He works with the nfl, mlb.

Fox sports 1, can they be a competitor to espn?

They have the teams and property that could make a go of it.

They have major league baseball, nascar, the world cup -- did they pay a lot for these rights?

Yes, they made a substantial investment.

They can use those and put them on a 24-hour work sports network.

That is the one thing that they have not had that espn has been able to do well.

Others have tried it, nbc sports.

Espn is still formidable.

How will they compared to nbc sports?

They have brought in the nhl, the tour de france, and they are doing fine.

They are in about 90 million homes right now.

Fox sports?

About 90 million.

They will have one of the strongest launches for a national network.

Do they have the leverage because of the network behind them?

Yes, resources, property, and they're bringing on the talents >. i am surprised it has taken this long.

Espn has been and continues to be dominant.

It takes a lot of resources to make a 24-hour sports network.

What will this mean for their revenue potential?

The network itself will go cash flow positive in the next couple of years.

You think it will take three years?

A few years.

They have made a substantial investment, hundreds of millions of dollars for these properties, the talent, the studios they are setting up.

Beyond that, they have the opportunity to raise their subscription fees, asset sales, going out with an initial sub fee of about -- so there is a lot of room to grow.

Substantial upside.

When will they get close to an espn rate?

Down the road.

Sports continue to do well.

It continues to be successful.

It is one of the things that differentiates themselves from other services like netflix, hulu.

How important is the brand compared to the events themselves?

It is a combination, but unit of events that people will tune into.

People know the fox brand.

Espn was rated as the fifth year in a row as the most value cable network brand out there.

The fact that fox has substantial equity in its brand name, fox sports is well known, they want to translate that into a 24-hour network, but in the the properties -- but you need the properties.

Lee berke, president and ceo of lhb, good to see you.

You can read this story in the latest edition of bloomberg business week.

In washington, the bloomberg pc team is all smiles this morning and they must anticipated rematch.

Hans nichols and peter cook went head-to-head with the white house economic team gene sperling and alan krueger.

They managed to match last year's revenge.

There with me now.

I am proud of you.

We did it for you.

How good does it feel, how sweet is revenge, really?

It comes at a bit of a cost because sperling was injured -- at least pretended to be.

A competitive guy, former captain of the minnesota tennis team.

We took it to them and got a bit of redemption.

You actually injured a player?

One of the president's top economists.

The economy may not recover.

What was the final score?

7-4. it was a tie breaker.

It was a success.

We did avenge last year's defeat.

Really, it is all the bragging rights.

For a year or so we have been lamenting our loss, and now we get a year to lord this over.

Who else was playing?

Martina hingis.

We were allowed to be on the court with the former no.

1 in the world.

Hans took it to her on one exchange.

I was out there basically just watching and enjoying myself.

It was fun, never some good players out there.

Members of congress, the administration, as well as some of the tennis pros.

Mel watt, who was roughed up in his hearing to become the half fha, and it was a steamy night.

The ndp was david gregory.

He was quite a player.

He was on our squad and helped to propel us to victory.

Did gene have any words of congratulations for you?

Gracious in defeat.

We pressed him on the issue that if the president chooses a fed chaired just based on his tennis, who would he pick?

He did not take the bait.

He said he would not comment on any selection process.

Take a listen.

We spoke to them after.

2013 chaired a classic.

Bloomberg have gone a bit as sweet revenge.

I was weak, hans was strong.

This was the most disappointing experience i have had in nearly four years working for the president.

This is a victory for bloomberg this year.

The most disappointing moment in his four years at the white house.

And you are responsible for it.

I do not know.

Congrats.

I am pleased that you were able to avenge that, and congratulations.

We look forward to playing you and adam later.

Right.

Jack lew says that if europe wants to jump-start growth, look at what the u.s. did.

Property prices are on the rise in las vegas.

Hotels took a revenue hit in the recession as well, but one thing never changed, sky-high prices for the city's most luxurious suite.

It is not something that you would see every day.

9000 square feet, an elevator, cascading waterfall, a circular bed, beaded curtains along the back of on the second floor, it can sweep up to 12th.

There is a full-size car, a massage room, workout area.

Pretty much your dream suite.

If it is not the biggest, is one of the biggest.

And i do not know any others that have the view that we have had.

Whether it is a group of guys that want to enjoy the weekend, or our high roller staying with us, or if it is sorted girls.

All different types of celebrities have stayed here.

Whether you want to have a party or just two of you.

You get car service from the airport, your own butler assigned to you.

In las vegas, you get when you pay for.

There is a reason that it costs what it costs.

You call us, we can negotiate . still ahead, we have a look at the box office battle.

A beautiful live shot of new york city.

55 minutes after the hour, which means we are on the markets for you.

Erasing earlier losses on news that u.s. indexes will be near it yesterday.

We're on the markets again for you in 30 minutes.

Coming up in the next hour, jack lew says it is time for europe to get the engine of growth moving again.

Peter cook has an exclusive interview with the treasury secretary.

And behind closed doors at tesla.

How elon musk builds his cars at a factory in silicon valley.

? welcome back.

You are "in the loop." i'm trish regan in for betty liu.

The city of detroit has filed for bankruptcy after decades of decline.

Breaking up is hard to do.

Bloomberg crunch the numbers on the real value it would take to break up barnes and noble.

We have that for you in just a moment.

We want to go to our markets staff for the countdown blitz.

Alix steel kicks it off.

I'm watching shares of oil services company.

The company announced a $10 billion share buyback plan as quarterly profit rose 49%. double-digit customer spending increases.

This headline is coming from whirlpool.

They're going to resume their program, boosting their profit forecast on stronger fundamentals.

A down mover.

Intuitive surgical chill -- surgical plunging after the ceo disclosed that there was a warning letter from the fda.

Jack lew arrived in moscow for a meeting with the finance ministers.

He came bearing a message for his foreign counterpart, don't just look to the u.s. for economic growth.

He spoke to peter cook before leaving.

Europe does need to look at what it needs to do to get the engine of growth going again, the world needs europe to grow.

We have been making the case to some of the emerging economies, to china in particular.

They need to go through internal reforms to get their economy moving.

Peter joins us now from washington.

How is mr.

Lu's message going to be received in moscow?

Russian still love getting advice from the u.s. about anything.

-- don't love getting advice from the u.s. about anything.

Jack lew told me that the core u.s. economy is growing at 2%. europe would be thrilled to have that growth right now.

He says these are friendly conversations he is having, he wants to show some of the steps the u.s. has taken to promote growth could be a roadmap for others.

The fact that lew is delivering it privately and publicly tells you about his view of the u.s. economy relative to the rest of the world and tells you the certain level of competency has five months into his job.

Everyone keeps saying the looming debt ceiling.

Any updates there?

He has a long to do list there.

He repeated the administration's line over the debt ceiling.

The president has been clear, we cannot and will not negotiate over this question of whether or not there should be the option of default.

Congress has to raise the debt limit.

All that does is pay the ill we have -- bill we have.

If you hear the full interview, it is clear that lew and the administration still open to negotiating a wider budget deal.

He said there is a lot of work to do to reach that agreement.

Thank you, you can see more of the interview on sunday at "capital gains." fed chairman ben bernanke went on to capitol hill, spent two base talking about the economy and monetary policy.

Nothing really happened in the market.

That in another itself a bit of a story.

Mike, it is interesting because a few weeks ago it was like no matter what he said, it was really scrutinized and there was a big reaction in the markets.

You did not see this reaction this time.

That's exactly what they wanted.

There was a big risk he would go up there and say something during the q&a that would set them off again, and he managed to do that.

The 10 year note yield is exactly where it was on to stay before he began his two days of testimony.

-- tuesday before he began his two days of testimony.

Tapering?

He said that we will start tapering when we feel the economy is meeting our objectives.

Any look at their objectives, we are not meeting it.

The un-employment rate has not gone down since february and gdp rate is lower than when we began qe.

So why do they say september?

The fed does see some financial bubbles in the making and are uncomfortable with the size of the balance sheet and they want to and this sooner rather than later.

What kind of financial bubbles are they worried about it?

They talked about it in the swaps and derivatives market, real estate, farmland prices.

They're glad they managed to blow a little of the top off the bubble in the last few weeks.

They don't want to introduce huge volatility into the markets.

A good week for ben bernanke.

Thank you, mike mckee.

Two tech giants reporting earnings after the bell.

Microsoft and google, it's probably a day they want to forget.

Let's head out to allay, to jon erlichman -- l.a., jon erlichman.

How is the company's profitability affected?

It's a big issue, especially when you enjoy such big profit margins.

Both google and microsoft are dealing with a larger issue, which is this move from pc's to the mobile devices.

In the case of google, the story is about shifting your advertisers from traditional desktop search ads to on your mobile devices.

They have done a lot of that.

The challenge is getting the same advertising rates on the new devices.

In the case of microsoft, it is an easier story to understand.

With more people using pc's, it did not hurt them too much up till now.

We also learned about microsoft's struggle.

Tell us about that.

How bad are things really over at microsoft?

Windows 8.1, is it suggesting any kind of corner of hope?

The biggest challenge for microsoft is to have such an enormous business in windows that still brings in such an enormous amount of revenue today that when you do these other things -- they did a major reorganization, they're trying to stay focused and get to that next generation.

It is really tough.

We saw that with intel.

Intel still makes a lot of money from the traditional pc business.

Thank you so much, jon erlichman.

Tesla is transforming the future of the car industry.

Why silicon valley could be the next big hub for carmakers.

? tesla pumps out in average of 500 cars a week.

Ashley van got an exclusive tour to learn how the automakers of ford operating this car factory in silicon valley -- a ford operating this car factory in silicon valley -- afford operating this car factory in silicon valley.

This car gets made from scratch, essentially.

I've noticed a huge difference , you are doing 400 cars.

One day very soon we are going to use it all.

Look at all these cars.

We have had car companies in the past in silicon valley, but people thought it was too expensive.

The price a little but higher than perhaps some other cars right now but we are convinced that by integrating a lot of the manufacturing processes here, we save money with logistics.

Hello.

Do we get a car at the end of the tour?

We are doing what we call the body structure of the car.

You see this sides of the car moving in the air?

Just moving it together.

It is surreal.

These guys are never tired.

Even for us, it's pretty cool.

Tesla, is this the future of all carmaking?

A former executive at ibm and kodak joins us.

Also with us, bloomberg news auto editor.

As we talk about this, it is happening on a day when detroit has had to declare bankruptcy.

We have witnessed the challenges there in detroit.

So many challenges in part because of the decline of the auto industry.

Professor, could silicon valley actually be a new version of the trite in the 1950's for the auto space -- detroit in the 1950's for the auto space?

Tesla has an advantage because they are starting fresh with a clean sheet of paper.

If you look at the incumbents in the industry, they all have established processes over many years which embody their capabilities, but also some of their challenges.

As time and technologies change, it is hard for them to adapt.

You're looking at a lot of competition, there, jamie.

You are just outside of detroit . you look at the competition in silicon valley, the idea that you can have a nonunion workforce that is more tech savvy.

What does that represent as a threat to detroit?

Tesla is a threat to detroit and to really all the established global auto players.

The way they develop their cars, the way they plan to fuel them.

Most are medically for any of the established players in the u.s. market is what they are trying to do with retailing -- dramatically for any of the established players in the u.s. market is what they are trying to do with retailing.

One of many ways, that probably the biggest way -- if tesla can do it, what is to stop other brands from entering the market and really shaking up the world for toyota and chevy and mercedes-benz?

Isn't this one of the big issues here, the auto industry has really not had to innovate?

To build on some of the things jamie said, you could also look at some of the low costs in the south.

We also see a lot of new facilities, transplant factories going into those locations, which are also very competitive.

They are quite successful.

Jamie, you are talking about dealerships.

The dealership model does not necessarily need to exist if you can buy your card directly from tesla -- car directly from tesla.

The industry has evolved.

It has not been a radical revolution.

It builds up over the decades.

Detroit treated auto dealers badly 100 years ago and set precedents for laws to be written all over the country that has cemented or created this network and entrenched it.

Is there benefits to changing it all up?

There could be.

Ford tried to sell directly through the internet to get around the limits and restrictions of having these partners.

But they are stuck in these contracts.

The american car industry, if they don't start to innovate and change and embrace these new technologies and have the ability to have a nonunion workforce, what is the future like?

Gm has some nonunion workforces in place, you know, mexico.

As the professor was saying, toyota has a nonunion workforce in kentucky and nissan does in tennessee.

What they are doing in a lot of ways, there is a team that was created to study tesla.

Tesla is trying to create everything from a clean sheet of paper.

Detroit and tokyo and europe are building off a 100 years of experience but they are trying to watch what tesla is doing and how they are changing the game.

They can copy what tesla is doing.

That is imported -- impo rtant.

Willy shih of harvard business school, thank you.

Coming up, we're going to have the open for you.

Future slightly lower on this friday morning.

? coming up, is a breakup what barnes and noble needs yet so -- needs?

Can marijuana treat diabetes?

We are a few minutes from the opening bell.

We have the top traits you don't want to miss.

? will come back.

I'm trish regan, in for betty liu.

It is 26 minutes after the hour.

Bloomberg tv is on the markets.

Julie hyman has the latest on the futures.

Looks like we could have a lower open here.

That is where futures are pointing.

We have some weight here coming from earnings, even though 82 companies have reported thus far in the s&p. it is a high tech companies that are dragging us down.

Microsoft and google definitely causing things to have a downward town.

Thanks so much.

Let's count down to the open with the top 10 trades you need to know.

Actually, stay with us.

Number 10, whirlpool.

Shares are in the green ahead of the open as it raises its earnings outlook for the year.

Renewed optimism about market trends.

Number nine, time warner cable.

Are soaring in the premarket.

Speculation the charter and bill malone are working on a bid for the giant.

Number eight, chipotle.

People are not buying computers, but they are buying doritos.

Profits topped analyst's estimates.

Sales rose 5.5%. analysts were only looking for a gain of 3.8%. a few items now offered a chipotle.

They started offing -- offering tofu fillings.

Number seven, web m.d.. investors optimistic about the online medical diagnostic site.

The hedge fund reported taking a 5.2% stake.

Number six, honeywell.

The aerospace company has the street buzzing.

Second quarter profits topping estimates.

Introducing new products, such as natural gas filters.

Intuitive medical.

Shares are down 12% in the premarket.

Its medical devices include that da vinci robot.

It got a warning letter from the fda as well, reducing its sales forecast.

His and effectiveness of that robot -- safety and effectiveness of that robot under scrutiny.

Advanced micro devices, number four.

Number three, microsoft.

They do not sell doritos.

Running microsoft windows software, causing fourth-quarter profits to miss analyst estimates by the largest margin in a decade.

Shares of the computer company still suffering in the premarket.

Has anyone seen a surface tablet?

No.

also, another company that is a bit reliant on what happens with pc's, google.

The company revealed the world has moved to mobile devices it is what is hurting the search engines average advertising prices.

Number one, general electric.

The global company reported its second-quarter profit and $.36 per share.

Ge got a boost from a record order backlog for it's a jet engines and for oil and gas drilling equipment.

At the open, joining us from chicago, we have the honor of can i capital management.

What is your expectation for today?

All eyes have got to be on crude oil.

If you look at stock market crude, that is a set contract.

He said crude is trading five dollars premium to december.

This would be the equivalent of an inverted yield curve in bonds.

I do not have any reasonable price target for the upside, but as long as you see massive premiums in the front, that tells you the end user is saying, give me the crude.

Crude went to 150 in 2008. we will definitely be watching crude.

We have a market that is a little bit lower here.

Mike mckee some of -- mike mckee, some folks might be discouraged when the tech front.

Tech has been a problem.

I have to wonder if tech has run out on the string here as the economy slows down a little bit.

If you look at the chart, the eye chart and nasdaq and s&p, the nasdaq spread versus s&p, you reached an old high and failed on an old high.

If i'm going to see leadership to the downside, it's going to have to come from the nasdaq.

Thanks so much.

We will be watching all of it.

Owner ofkenai -- kenai capital management.

We went to go to the chief portfolio strategist at wells fargo.

He still likes stocks in the long run but expects disappointing data for the rest of the year.

You are looking for disappointing data on the economic front.

You look at earnings right now.

At least in the tech sector, not as good as people had hoped.

You draw a great distinction there.

I'm looking for disappointing data on the economy, but not necessarily the earnings front.

Some of the big-name technology companies, yes, it was disappointing.

Where more of the opportunities are are the lower profile tech names.

If we're going to have our download speeds on the united states are slower than what they have in south korea and lithuania.

Over the longer-term we're going to want to improve that a little bit.

Let's look where the money is going to flow.

It's going to be these lower profile companies that play a really big role in improving our infrastructure.

Such as?

I can't name any particular names.

We leave that up to the portfolio managers.

It is something i would encourage people to look at.

Google fiber, who are they purchasing from to improve some of those download speeds?

You have to do a little investigating, but there are really good opportunities.

Thank you very much.

Julie, you have been covering earnings.

How does the season look so far?

We have not had that many companies in the s&p 500 report since it was kicked off in early july.

80 some handful here have reported their numbers.

72% beat estimates, but only 55% have beat sales estimates.

There are some concerns here about the quality of the earnings season.

The conventional wisdom is that cost cutting other sorts of financial engineering can be done to boost that earnings-per- share number.

It's harder to conjure up demand in order to boost your sales.

Brian jacobson, i'm tired of this cost cutting.

When will we see topline revenue growth?

This scene has been going on for months.

If not years now.

American corporations, when will we see demand?

That has been the theme since the bottom, march 2008. everyone has been looking for topline revenue growth and it has been from the cost cutting, especially interest cost savings.

The low interest-rate rate environment has been phenomenal for refinancing.

We are looking for that topline revenue growth.

To find that, you have to do it on a case-by-case asus.

The united states, if we're going to squeak out 1.6% to 1.9% gdp growth this year, you have to look at more of the multinational companies that can harness the 3.5% global growth we are seeing.

It's an issue.

You look at oil prices.

You look at oil right now.

None of that necessarily bodes well.

Gas prices sticking higher at the gas pump.

Interesting story happening right now in the oil markets.

For months we have seen brent crude traded much higher than west texas.

They reached a peak of $29 for the spread.

Now west texas this morning crossed that line.

It is now more expensive than brett.

You like oil, but do you like it with these prices?

What is going on with the reversal in the spread?

This is a return to normal.

Prior to october 2010 west texas intermediate usually traded at a slight premium to brent.

One of the reasons brent was at a premium is because of the supply issues in cushing, oklahoma.

Now that we see the pipelines developing, rail transport of oil, this is beginning to collapse that spread and we could see a longer period of time in which west texas trades at a premium to brent.

Over the longer term, and expecting the best cure for a high price is a high price.

Refiners expanding capacity.

If we see suppliers of the actual crude expand their capacity, we could see significant reversal of the run- up in prices.

That would be interesting.

I suppose that would potentially bode well for end-user demand, and revenue growth next quarter in some of these companies.

That would be the long-term outlook, let's look at these longer-term trends that would be beneficial to consumers and businesses that have energy intensive processes.

It is going to be a choppy transition.

We will leave it there.

Good to see you.

Coming up, break ups are never easy.

? we are watching shares of barnes & noble trade breaking up is hard to do but for the bookseller it could mean a boost.

What will happen if it separates its businesses?

Average estimates compiled by bloomberg said if separated, the company's three businesses should be valued at a combined $25.86 a share.

That is serious upside.

How realistic is it that the company might you this?

Last week the ceo resigned and michael hughes killed over see the spinoff.

Short sellers reduced those bets in anticipation of a value boosting breakup.

That is according to montgomery scott.

Some of the big suitors, google, microsoft, make make a bid -- may make a bid for that part of the company.

Selling the note business and taking the retail unit private may be the best way to unlock that value.

An operating loss of $200 million in the quarter.

Barnes & noble has declined to comment on breakup speculation.

Of course they are.

Thank you very much.

Top tech stories right now "bloomberg west" radar.

Wireless ice wars -- price wars.

Time warner cable is attracting the money again.

This is the second time that malone and charter have approached time warner about a merger.

U.s. sales of videogame hardware and accessories plunged 15% last month.

Hard-core gamers are holding off on spending.

The bull run in biotech shows no sign of slowing.

Olivia sterns is here with more on what is driving this run-up.

What is the frenzy about?

It is about the pipelines.

We have seen huge innovation insights in the past couple of years, particularly in new drugs for cancer and rare diseases.

Biotech compared to the s&p 1500, the biotech sector has returned over 160% in the past three years, more than twice the s&p, the top performer's shares have surged tenfold.

One of the reasons for this huge outperformance, a more proactive fda moving more quickly to get more drugs approved.

They approved 39 novel drugs last year.

The fda is helping move things along, but why are the drugs more promising?

We have this revolution nymex.

Analyst ---- reovlution -- revolution in genomics.

We are starting to see the benefit and pay off.

One company has a drug that treats cystic fibrosis.

There shares have doubled since the start of this year alone.

Meanwhile, a london-based drugmaker said the compound found in marijuana shows promise in treating type 2 diabetes.

Dw pharmaceuticals says a study showed that the drug helped the body produce more insulin and created a job in blood sugar levels between meals.

-- drop in blood sugar levels between meals.

This is the whole idea, if you smoke pot than you get hungry and might eat a lot of things that cause diabetes?

[laughter] lots going on in tech, right?

Uni yesterday had to deal with the fact that google and microsoft came out with earnings that -- you and i had to deal with the fact that google and microsoft came out with earnings that disappointed.

It's not good.

It's got to change at some point.

Earnings have to support the valuations.

G 20 going on right now.

Happening in moscow today.

Jack lew made the trip.

Expect headlines on qe.

We saw a change in tone from all the different central banks softening their tone somewhat over the past week.

We have seen that out of the eu and bank of england.

Expect some headlines there.

Are you going to the movies this weekend?

Yes.

Hollywoodboxoffice.com will be here.

Guys who have supposedly died, like ghost cops.

And then there is turbo, a cartoon snail that drinks nitro.

I want to let everyone know, you are watching your blog today, -- launching your blog today, insight in action.

Yes.

Adam is actually an amazing artist.

He does a lot of artwork here at his desk.

Walk us through what you do.

Insight in action, i sketched that out.

Let me show you today's. we're talking about these tech problems.

We have a bottom-line solution for a top line problem.

I sketched the artwork in the morning, i come up with the idea and give this to the artist and they turn it into all the elements we put in the touchscreen and talk about it.

You find a trading idea, and then create visually -- create it visually.

Yes.

And then you put action to it.

I always look forward to it.

Adam always gives me a copy of this in the morning and i get to look at it.

This is what we are doing today on "street smart." bloomberg.co m/insightinaction.

An ice cream delivery service, coming up.

? today is a big day for ice cream.

Uber is allowing its users in 33 cities to hail ice cream with its app.

Dom chu is here with the story for the global outlook.

I can just order an ice cream the way i would order a cab?

Yes.

You go on their app.

They're going to 33 cities all over the world and saying, you can hail an ice cream truck.

All the warm temperatures have gotten people a little bit more -- the reason why it is important, uber is trying to build business in other cities around the world where they currently don't have dismissed.

We can do it right here in new york, right?

Yes.

Tune into bloomberg later this morning because i will be hailing and uber ice cream truck.

This is about the challenges facing the industry and uber.

They are not allowed to operate in certain markets because of tax laws.

The tax lobbyists are very against this because they don't want the competition.

Uber is like 12 times the size of what they were a year ago.

This company is growing rapidly and they are getting a lot of attention.

Everybody is trying to figure out what to do with huber -- ub er.

What time will you get ice cream?

Just after the 11:00 hour.

We are on the markets right after this.

? that does it for today's "in the loop." next week, betty is back.

Mario gabelli will be here on "in the loop" as well.

Next week at 8:00 a.m. eastern.

I will see you back here on bloomberg tv at 3:00 p.m. eastern for "street smart take a -- "street smart" with adam johnson.

Julie hyman joins us with more.

We have declines in stocks at the moment.

It is tech that is responsible for the decline.

They are missing estimates by the widest margin in a decade.

His stock is down the most since january of 2009. google shares were lower, the shift to mobile is cutting ad rates.

Advanced micro devices failed to make top estimates for the company's gross margin.

Treasuries cutting for the second weekly gain.

We are seeing the yields, lower.

The yield is come down considerably for the 10-year note.

Expectations have been reset for what the fed is going to do next . the commodity futures trading commission is proposing a new rule meant to protect futures customers' money.

Many say that this particular rule could drastically alter futures trading.

Joining me is mary childs, the bloomberg news reporter.

Terry duffy spoke before congress.

He is the ceo of the cme.

Why does he think these rules will not be positive?

It makes it harder for

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

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