Detroit's Retirement Anxiety: Surveillance (7/22)

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July 22 (Bloomberg) -- On today's "Bloomberg Surveillance," Tom Keene, Sara Eisen and Scarlet Fu bring insight on the state of the market getting you ready for the day ahead.

This morning, american cities and their employees consider a teetering detroit.

How much will pensions be cut?

Aiming for the kneecaps and not the jugular, the case against stephen a: --cohen.

When the tech titans missed a step or two.

Do not can it.

How about leadership?

Good morning.

This is "bloomberg surveillance ." i'm tom keene live from world headquarters in new york.

It is monday, july 22nd.

Joining me is sara eisen and scarlet fu.

Did you good weekend?

The heat roque.

A little bit.

And the duchess is in labor.

Royal baby watch.

We will continue to give you complete coverage.

We decided earlier, manus, our colleague in london, prince manus would be "game of thrones- like." what is more important?

Landside -- landslide victory in japan for shinzo abe in the japanese elections.

We will talk about the ramifications.

Big time for the global economy.

What to watch year in the united states?

Chicago federal reserve activity index.

And at 10:00 a.m., existing home sales.

If economists are right we could see them hit the highest level since back in november 2009. we are still knee-deep in the earnings season.

Watch out for mcdonald's. and that --gannett and six flags.

And netflix, changing the way we watch television.

We will look at that later, the new idea of how we watch tv.

But the way we do conference calls will be on the next hour.

The data check.

Equities, bonds, currencies, commodities, up we go.

Up 2 on the futures.

The euro just surged higher just before airtime, 1.3181. this is the backstory.

Nymex crude.

That is american crude.

Waxed -- west texas intermediate.

Commodity driven weekend.

Gold surges above 1300 announced.

There is west texas and there is brent crude and you can see west texas, nymex crude, is a higher price than brent crude.

Let's bring up a chart, mark gilbert.

We will look at the spread.

Sara, i think it is really cool.

Stability in the spread for years and then the oddity due to the pipelines in the midwest and we just come right back.

What they have done is they finally helped clear the u.s. supply glut.

For the first time in three years -- i believe three years -- wti, the price of crude oil trading higher.

I spoke to someone from oppenheimer company, he suggested normalizing at -- with thebrent higher.

But it could mean higher gas prices.

We scoured the papers on the web for all of the stories making the front page.

I am happy to say, we will start with japan.

You mentioned here it certainly "the financial times." shinzo abe's party wins big in elections.

They have given the prime minister more freedom to pursue abenomics, which is stimulus.

He now has to turn inward because he needs to convince his party on the public that his program of change is worth and acting.

More importantly, this could mean japan is entering a stage of political stability.

They keep changing leaders every couple of years.

This is a victory for abenomics.

They have political stability with the majority ldp party coming out of the 50's for decades.

I am following this particularly if we get weaker chinese growth.

It is excitement.

Talking about the third largest economy in the world and for once you have a lot of excitement, political stability being part of it.

Even corporate japan, starting to lobby for what they want.

They want more competitive taxes, for instance.

That came out over the weekend.

The question is, can he turn the ship around?

We have seen it in the economic data, but getting rid of deflation, which have been plaguing japan.

Here is another front page story from bloomberg.com.

Sec it's a last-ditch move to put hedge fund stephen cohen out of business.

Sec allegingcohen that he failed to supervise to portfolio managers and ignored red flags.

A great quote in the bloomberg story in which unlawful first -- professor said the sec was using our component taxes -- tactics.

They are not going for the jugular but aiming at the kneecaps.

Is it that they don't have a case?

Somecome on, we have the administrative action -- what is administrative action?

Is this the end?

Do they have more on him?

Neil borofsky will be with us.

This is the cover on all of the big papers.

The fallout from the detroit bankruptcy.

"the new york times" vocus is on the city cutting pensions.

It accounts for $3.5 billion out of the $18 billion detroit owes.

Unions fighting against the cuts, as you might imagine, saying pensions are protected in the constitution.

"the journal" talks about how the michigan governor flip- flops.

He said bankruptcy was not an option back in 2011. but here we go.

We are in bankruptcy.

This will take a long time to go through and i have a feeling a lot of lawsuits.

The bottom line, can they turn detroit around with the economic and demographic challenges?

I want to go broader into the economy.

President obama will be going on the road saying washington needs to show greater leadership on jobs, education, and infrastructure.

On wednesday, he will be at knox college in illinois where he he had given his first comic speech as u.s. senator.

As the debate fuld and to economics -- robert kaplan from harvard business school will talk about different items of leadership.

His latest book -- "what you really meant to do." i love the title.

Sometimes it takes three or eight jobs until you get to what you are really meant to do.

And we are thrilled to bring you margaret carlson, never up before 8:30 a.m., it seems.

This is way too early.

Up at 5:00 for you.

The only man who could get me up at 5:00 a.m.. mr.

Ratner talking about detroit -- will washington come to the rescue?

He made a distinction between what he did for the car companies and what we can do for detroit, which is much less.

He had a quick chapter 11 bankruptcy.

This is chapter nine.

You have a lot of politicians involved.

Yes.

It will take longer because 9 takes longer.

And you have the pension liabilities.

People who did nothing long -- nothing wrong except to work their whole lives have these gigantic pension and health-care liabilities.

Professor, i would suggest we have governance fatigue.

How do you define it?

It is important to discuss with the problem is.

You talk about japan.

Aging population and a huge retirement and health care benefits.

This is also, by the way, the bigger story than the united states.

We are deleveraging yet the population is growing, aging population.

Who will pay the benefits?

The government is trying to step in and put little band-aids on, but the only antidote for these problems is economic growth.

And, by the way, population growth.

The panic disorder the test case of lack of population growth.

Detroit is losing population to other states.

The country, unless it passes immigration reform, will struggle.

But the fundamental issues cannot be papered over.

Aging population, all of these fixed benefits, and you need a new population to pay for them.

In japan, this is a leadership story.

With all your work on leadership -- we will get to the private sector and technology giants in detroit and little later on -- the japan, this is something.

Rallying additions -- rallying around since show abe -- shinzo abe.

If things do not change they will go through another 10 years of stagnation.

Margaret carlson with us and robert kaplan, of course, focusing on detroit this hour.

Our twitter question is just real simple.

Somehow we will ask it this year, next year, following year -- should u.s. taxpayers bailout detroit, or for that matter chicago or los angeles, even though they are not equate with detroit?

Send it in @ @bsurveillance.

Switzerland's largest bank is close to a settlement with regulators over mortgage-backed on sales.

Ubs not saying how much it will cost but some indicating they will shell out several hundred million dollars.

It is booking pretax charges to cover that settlement and a separate one with swiss and british tax authorities.

Another turn in the glaxosmithkline bribery scandal in china.

Executives met with chinese officials and say some of the drug companies employees may have broken chinese laws.

Promising changes that will deliver cheaper medicines.

They have been accused of a scheme purportedly aimed at boosting market share.

Sears ceo eddie lampert has not been able to persuade americans to return to sears for basics like close and washing machines, so now he is trying something different.

You can buy a $33,000 rolex watch on their website.

It is all part of the strategy to position series as a competitor to online marketplaces like amazon.

-- to position sears as a competitive.

Rolexes question?

Counterintuitive.

Did you watch golf yesterday?

Phil mickelson played what he called the best round of his life and he won the british open.

This is his first win at the british open.

His fifth victory in a major.

I think he made five birdies.

Over the age of 40. tiger woods did not do so hot.

He struggled again in the final round and has not won a major since 2008. ever since his personal life started taking a turn -- i did not know about that.

Very cool.

Very, very cool.

I like what "the new york post" says, grinning and claret.

The firm is taking action against the founder of sac.

We will talk about the uncertain fate of the game hedge fund manager coming up on "bloomberg surveillance." on bloomberg television, streaming on your tablet and phone and bloomberg.com.

? good morning, everyone.

Coming up on bloomberg television, replace the vice president.

Former delaware senator joins "in the loop" and he will discuss earnings in regulation.

Somehow i think detroit will come up as well.

This morning with betty liu.

And this is "bloomberg surveillance." i'm sara eisen, as always, with tom and scarlet.

The fec strategy against sac founders even colin him if it succeeds -- steven cohen, if they succeed, he may never practice again.

Scarlet, you have taken a look at how all this has been a long time in the making the fec going after sac and specifically steven cohen -- the sec going after sac.

This is not a lawsuit or accusation of insider trading or any other jurdie's fraud.

The goal may just be to keep him from doing business.

Worth noting in this multiyear stretch of this investigation, there have actually been settlements where sac has paid -- they agree to pay millions of dollars back in march to settle allegations of insider trading without or denying any wrongdoing.

We know at least nine former or current sac trading have been linked to insider trading.

And there is a timing with the statute of limitations.

It expires the end of this month.

So the action has to be taken now.

We need a lawyer.

I am lost.

Former assistant u.s. attorney neil borofsky is not.

He is the former tarp inspector general.

Good morning.

Good morning.

For those of you worn out by the soap opera, does the government have a case?

They definitely have a case.

But certainly not the case we have all been expecting.

After years and years -- to me, this has been a remarkable investigation.

So much has played out in the press through leaks from various sides.

At the end, it almost looks like a sitcom found -- sound, wond, wonk.

What is the distinction between being played out in the press and the reality of law and the court room?

What is the key distinction we need to know?

He is not charged with insider trading.

Allegations strongly suggest insider trading, strongly suggests he knew he traded and he speculated and he have known his employees were engaged in insider trading.

But it does not say he knew.

That is a key distinction and that is why instead of seeing a full-blown security charge with a jury trial, the sec has dug deep in the tool chest and charging him in front of an administrative law judge , failure to supervise the employees engaged in insider trading.

It is a lower threshold for the sec, an easier case for them to prove.

At the end of the day, from steven cohen's perspective he could be hit with another fine and be banned from doing what he does, which is managing other people's money.

It is not that a case we were all expecting given the lead up, but at the end of the day for steven cohen, it could be a similar result, again, absent criminal charges.

Good analysis, even the sound effects.

We have a guest post focusing on leadership who also has years of experience very high up at goldman sachs.

You think it is a big deal.

It is a big deal if he wants to work in the industry.

If he is found guilty even of administrative action, he will not be able to manage third- party money and will probably have severe restrictions on managing his own money.

So, it is a very negative thing, even though it is not the thing that could have been worse.

Neil borofsky, does it signal a tougher sec and mary jo white will not be like her predecessor?

You do not have to look at it just an isolation to say the answer is yes.

On friday, you saw a series of actions from the sec, including mary jo white it sounds like personally reject the a settlement with harbinger over securities fraud charges that were announced.

There was an agreement in principle that the enforcement staff and falcone's lawyers that there would be neither admitting or denying liability.

She has come out and said, no, i am rejecting that.

You have securities fraud charges against the city of miami all on one summer friday.

I think when you look at it all together, including the very aggressive use of the authority to go after cohen , this is what a lot of us expected when she was elected.

Neil barofsky, bloomberg contributor editor.

I'm glad you brought up harbinger -- two tough actions.

The main up in the next hour, gina martin adams, senior u.s. equity strategist at wells fargo, who will be parsing earnings because they are not all positive.

That is 7:00 a.m. on "bloomberg surveillance" on television and radio.

? i'm sara eisen, as always with tom keene and scarlet fu.

Michigan governor rick sc nyder believes bondholders should take a hit in the bankruptcy filing.

He appeared on "face the nation" and asked, if you were lending to detroit, and you understand there were major problems.

In japan, prime minister shinzo abe valdis to push ahead with economic reform after a big election went over the weekend.

His ruling coalition winning a solid majority in the upper house of parliament.

He faces a fight within his coalition over proposals to make it easier to fire workers and entering a us-led free-trade zone.

In london, the royal baby is on the way.

Prince william's wife kate, the duchess of cambridge, has officially been admitted to hospital.

She is in the early stages of labor.

It is their first child.

The baby will be third in line to the british front.

Those are your top headlines.

It is announced off of an easel in front of the gates at buckingham palace.

They do it old school.

In the meantime, there is a huge scrum in front of the hospital.

Morning must-read, a ceo's the eye view of obamacare, affordable care act.

The ceo of cke restaurant says the in mandate preserves incentives.

He says for employees, the penalty will be low compared to the cost.

If employees happen to get sick, they can get insurance later.

The economically rational decision for young people is to pay the penalty and forego insurance.

As we know, obamacare relies on younger healthy people of lower risk to sign up for the health insurance to defray the cost.

Our bloomberg news columnist, famed washington observer, what is the tension in washington this july over obamacare?

The idea that it is an economically rational decision for young people not to have health insurance is exactly why we have obamacare, which is the principle of everybody has to get into the pool because some of those young people are going to get sick, even though when you are young -- ok.

Why won't they just pay the fine -- at least something is going to happen to increase the pool of people who are contributing -- in this heat wave, is everyone getting into the pool?

That is the question.

Are they?

We don't know that -- yet.

There are so many moving parts.

We have a congress, of course, who may want to try to repeal it for, i think, the 39th or 40 -- or 40th time.

Fascinating.

I have no idea where this issue will be in october.

But it is being delayed in terms of implementation.

Mark olson, good to have you here.

We will come back and talk about detroit -- margaret carlson, good to have you here.

When we come back, we will talk about detroit.

Washington could get involved.

? i'm sara eisen here with tom keene and scarlet fu.

Tom, we need a data check.

We are still in earnings season.

Mcdonald's will be a big one.

Commodities over the weekend, a summer kind of weekend feel, and we open with futures up a little bit.

2.47, the 10 year yield.

Really puts it on just before airtime.

My story for july, crude up 108. and i would also point out that gold is up $24, 1318 and out.

The story of the weekend detroit.

The plan to cut worker pensions would actually violate michigan's constitution.

The mayor asks for a federal court hearing to block pension fund lawsuits against the filing.

This is going to take a while.

It is going to be messy.

But it is important because it will set a precedent.

The bigger story is how the bankruptcy filing will play out.

How much will pensioners and bondholders lose and will it change the game for struggling mr.

Pahlavi's -- municipalities?

We have margaret colson, " bloomberg view", ms.. there has been talk about chronic mismanagement in government.

What is the to do list for the mayor right now?

Here is the one thing to point out to viewers.

The differences between a bankruptcy in a minas -- municipality and country, most municipalities do not have much debt but they do have fixed obligations for pensions and retirement.

So, you could do a haircut of the bondholders and not get much done.

So, the trick is, you they have to figure out how to do restructuring, but they've got to put other economic actions in place that will attract is this is to detroit , -- businesses to detroit, encourage population growth, and they have to haircut the retirement obligations and pensions.

Margaret amo when you look at this in washington, there have to be a lot of politicians of the detroit ilk in other urban areas saying we have to stop it here so it does not end up in my town.

They are saying that, but getting something done would be hard in a congress that doesn't even want to help hurricane sandy victims.

I think this is a killer point.

If it requires money, it will not get voted on.

This is a congress -- the house certainly does not have sympathy for the cities, and they blame detroit's problems on detroit.

There is a reluctance to do it.

I don't see the federal government coming in and bailing out detroit.

No matter who has to pay the bill, the bottom line is how the city turned itself around and what is the road to recovery.

This is what the michigan governor told me.

I spoke to him on friday about how to get detroit under control.

A very challenging process and this is a very serious step.

But it is positive because now we have one for them to bring all the creditors to give her -- together, thoughtful discussion under a judge to make sure we're moving forward to get better services to citizens and solving the debt question.

They have a big uphill battle when it comes to technicalities, but the governor also says he looks to the automakers and the restructuring, general motors and chrysler as an example.

I read other articles from steven rattner and others -- not quite, because that was about retirement obligations but it was heavily debt restructuring.

Yet, gm can products all over the world.

Detroit's problems have to be sold within the demographics of detroit -- solved within the demographics of detroit.

The fact of the matter is, they have to go back on promises they made to pay retirement benefits.

That is tough to do.

Talk about demographics, so many of the bondholders are pensioners.

Not only in detroit but across the nation.

That plays into what as well, in discussing whether a government, whether this eight or local or federal government coming in.

Remember wisconsin?

Remember the brouhaha over the unions, right to work laws.

That will be brought up again all over the country.

These municipal unions, can you really afford their obligations?

You've got somebody who has worked -- let's take the republican view.

They were overpaid to begin with, but the fact is they've got a pension plan, if the 4000 -- $54,700. if that goes away, the person will end up on the government dole regardless.

These people are not to blame.

There unions negotiated deals.

They probably took less in wages.

What you have is a string of politicians who wanted to get reelected, bargaining, giving away the store -- giving away too much, probably.

They are long gone.

Those politicians won their elections.

Now the liabilities are there.

Reading a volume "from lincoln to roosevelt," the late 19th century in washington and the united states.

You look at your, it is history -- ulysses s. grant, it is history repeating itself.

The one thing you can say about detroit in bankruptcy, at least they will face their issues, but they still have to make fundamental changes.

At least they are facing it.

In all of your studies of leadership, is there an example of a state or local government official or leader that we can look to?

Mitch daniels is the one in particular i have looked at in indiana, where he was there specific -- he was very specific, attract jobs to this date the -- to the state.

He passed reform, right to work law, and was single-minded in his focus of attracting jobs to the state.

The press corps wanted mitch daniels to run for president because he did have such a good record.

Another problem with detroit is, they don't have a product like gm and chrysler did.

Detroit takes 58 minutes for the police to answer a call.

Almost no streetlights.

You have blighted areas next to areas with populations so you can't get the services to function again because it is a sprawling blight problem.

I look at it as an urban exercise of titanic size.

Somebody mentioned over the weekend -- the industry has moved on from detroit, and to professor kaplan's point, now what?

The renaissance in the auto industry certainly not helping detroit.

How do we help detroit?

How we prevent another detroit?

First, at the national level, we need to create more economic growth in the united states.

That will help every city.

We have to fix -- we have to address the fixed retirements like medicare, medicaid.

We probably need stimulus, particularly infrastructure.

And that will help every city if we have a little more growth.

What the professor described is not happening in washington in any way.

You presume it will happen in december of 2014 or january of 2015? then we go right on to the presidential election.

We are into presidential politics and we do not know the composition.

Will the senate vote republican?

We have had a lot of retirements.

If you have the house and senate vote republican, you certainly will not get help for the cities.

This is not where they live.

The discussion, the stumbling nature of the.

Like any normal discussion of detroit.

You wonder if we will have the same discussion in four years.

It could be very messy and take a long time.

The story of our generation is what to do about all the fixed obligations.

We are overleveraged as a country and we lived through debt grows our entire lives come a greater promises by government, and now we are on the flip side where we have to be -- it sounds like europe.

Just like europe, exactly.

I love how professor caplan just points to margaret carlson.

To all the republicans watching this morning, it is margaret carlson.

Coming up, we will talk about leadership lessons with robert kaplan.

He is looking at the technology companies, and the strength of m issses on the technology front.

But why their leadership has the right stuff.

We are streaming on your tablet, your phone, and bloomberg.com.

? this is "bloomberg surveillance." i'm sara eisen, with tom keene and scarlet fu.

Top headlines -- an added note on detroit.

The emergency manager says the bankrupt city is not expecting help from the government.

He told fox news sunday "we are not waiting for the cavalry their coat the toy is the largest american city ever to file for bankruptcy.

Pilot unions are concerned regulators may skew the investigation of the crash in san francisco.

They say the ntsb put to much emphasis on the possibility of pilot error.

The ntsb said it has not narrowed the scope.

The turmoil in egypt has had a surprisingly strong impact on the housing market.

More sections deciding it is a good time to buy a home.

House prices and sales are surging since morsi was ousted.

Good top headlines on how the stories continue forward.

We forget about an air for -- airplane crash in san francisco.

Good monday, single best chart.

An interesting one.

We have not forgotten about how the economy added jobs in july.

My chart focuses on the challenges in the labor market.

This is from the kansas city fed.

The yellow line shows the rate of change.

In other words, how quickly conditions in the job market are changing.

They've gotten better.

The white line is the level of activity.

How far conditions are from historical averages.

You can see they started to converge.

Notably the white line moving up.

But there is still one standard deviation below the historical average.

The white line, level of activity, is likely to reach of the historical average during the summer of 2015 if the trend continues.

Suggest we are two years from normal.

Robert kaplan is with us from harvard business school.

It comes down to productivity, capital investment and the american job.

Robert samuelson in "the washington post" writes about the new lack of prosperity in america.

Can we presume we can get america employee down the road?

Yes, we eventually will.

It will take longer than everybody thinks because we have the most massive deleveraging probably in the last 100 years to do and that deleveraging suffocates to some extent job growth.

The fed has tried to counter that with easy money, but the deleveraging still needs to get done.

It is hard to grow at high rates until it is behind us.

The rate of change has to continue at the elevated level.

How do we keep it there?

I think we have to continue to face, as painful as it is, entitlement reform.

We probably need more infrastructure spending.

But we still have a lot of macro work to do on the fiscal side.

It has been a little bit masked by how aggressive the fed has been, but the fiscal job is there.

It is hard to grow until we get that address.

We have google jobs, apple jobs, when will we have akron tire jobs?

We need to have a mobile population who goes to where the jobs are.

The improvement in housing helps, by the way, because it is easier to sell your home and moved to where the jobs are.

That is positive.

We still have a long way to go in this leveraging.

Let's look at first look,, some of the photos making these.

This one in colombia, because national police seized 500 have -- 500 tons of marijuana.

They are laying out the drugs for the press.

Female supporters of the muslim brotherhood still rallying outside of where -- all about the economy, this i sent --ascent of poverty.

And this was a photo, the costa concordia that was submerged off the coast of italy since striking a rock.

It happened in january of 2012, but just this weekend five members of the crew were found guilty of manslaughter.

The captain will be tried separately.

Interesting.

That is still in the water.

That is a live shot -- no, this is a photo.

A reminder shot.

Is the boat out of the water?

We believe so.

No, it is still in the water, we are being told.

Not carnival cruise.

I did not get to say anything about steve cohen.

And we will also talk about steve jobs and technology.

Mobile is where the growth is when it comes to technology and apple and google are struggling to capture it.

Why they are doing better than what you might think, and it is all about the leadership at the top.

We will discuss it coming up on "bloomberg surveillance turcotte ?." ? i'm scarlet fu, as always joined by tom keene and sara eisen.

Taken from "bloomberg west," traces are falling and apple and samsung.

The average price of a smartphone has dropped from $450 to $375 since the start of 2012. the winners?

Companies that make cheaper phones.

Apple has taken down its developer site after hackers tried to steal personal information.

Rote memory is used it to great apps -- programmers used it to rate apps.

Another disagreement involving the proposed buyout of dell.

Michael dell and his backers silverlake cannot agree on a breakup fee.

According to a person familiar with the matter of -- matter, silverlake considers entitled to a $450 million fee and michael dell leaves the firm should only get its expenses.

The soap opera continues.

We have a correction on the boat that was in the water.

In 2013 it was supposed to be yanked out of the water.

It is still there.

Unbelievable.

We will continue the technology story, scarlet, because if you have been looking at earnings, they have been missing the boat on the forecast.

Google using ad revenue.

Apple losing some of the mobile market.

But robert kaplan from harvard as a guest host has a live case study on the leadership lessons.

All about smartphones and products.

But you are looking at the ceo's. larry page, tim cook, you see positive momentum.

I do work with google, as people may know, so i may be a little biased.

The backdrop is, businesses hard.

I ran a business for over 20 years.

It it is hard.

You have set acts, competitors.

Things go wrong.

These two companies have built 300 billion plus market cap companies.

It is incredible.

They have done it -- even today with setbacks -- they focused on how to add value to customers and how to develop their people.

Vision is key.

And i would be fine vision as how do you add value, what do you need to be great at to add that value, and if you look at macy's or google or caterpillar, or the governor, we talked about , and mitch daniels.

Does tim cook have the vision?

When i think of apple vision, i think steve jobs.

He does.

But in fairness, tim cook took over a company with $400 billion market cap.

I think the degree of difficulty is high.

18 -- a deeply troubled company, a train wreck.

Terrible.

The world is coming to an end.

You've got to be kidding me.

Phenomenal stock rises.

Is this over media analysis of a hick up to fill summertime versus companies of excellence?

When you were at hbs and you were going through all of the management exercises, do these guys actually use those?

Do guys like larry page and tim cook listen to what hbs says?

They may listen the little bit but the truth is, these folks have lots of ways to add value and they are dreaming up new ones every day and they are building up competencies and they are a powerhouse.

Most ceo's he out there would love to have that -- those cards to play.

Does a strong share price like what we just saw with google or strong leadership old off activist shareholders from targeting the company?

Absolutely.

I used to do raid defense for years and companies tend to get taken over when they are not adding value and want to share heights -- share price declines.

I want to get this in before we go to margaret carlson.

Professor caplan -- one microsoft, will it work?

The new non-siloed strategy -- the overhaul.

I don't know.

The jury is out.

It depends on what they do that add value and what competencies they build.

Obviously steve ballmer thinks it will.

Is essential?

I don't know.

Margaret carlson, we were talking about steve cohen and the troubles with sac capital.

You've got strong opinions.

This story made it from the business pages to the front pages, and why main street does not trust wall street.

It looks like they have the goods.

If there isn't an insider trading law that gets steven cohen, then our insider trading laws are not strong enough.

There is a smoking gun in this phone call where he was supervising his brokers right before they unloaded the stocks because there was inside information.

A 20 minute phone call.

He gets his day in court.

Why can't they get him into court to get his day?

Why they are not bringing criminal charges -- because the one point where i disagree with the professor is i don't think he will suffer by not being able to be in the securities business.

Most of the money he manages is his own money.

It is a slap on the wrist not to be able to manage other people's money when you are as wealthy as steven cohen.

The only thing i think these people understand his prison.

Either way, no one has gone to prison in the whole financial catastrophe.

We look forward to seeing this on "bloomberg view." robert kaplan, thank you so much.

Time for the forex report, major currencies on the move.

You have to start with the japanese yen after the election victory for the prime minister.

The japanese yen a strengthening.

I was a little surprised away, and see it because abenomics is predicated on the idea the yen weakens on monetary stimulus.

It is strengthening -- euro and sterling, is that because of the royal baby?

Watching the british pound as we wait to hear.

For those of you waking up, i believe the duchess is in labor.

Six hours ago.

We don't know if it is a boy or girl.

Thank you.

The mystery is there.

And the name might not be known for weeks.

We need to bring the royal baby over to america.

We need the stimulus of a royal baby.

Thank you.

This is "bloomberg surveillance ." ? this is "bloomberg surveillance." aiming for the kneecaps, not the jugular.

The government's case against steve cohen, well, he should have known better.

We'll tim cook mapped a turnaround route with insanely new products?

Alexander graham bell invented the conference call.

Now some are calling for a change, but will the executive script remain the same?

Good morning.

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

Join me as always, sara eisen and scarlet fu.

Our guest host genia -- gina martin adams.

Now we will take a question from sara eisen.

That is like a conference call.

We will look at the shape of conference calls, how executives are changing the playbook.

First, a morning briefing.

A landslide victory for shinzo abe in the japanese selection, a mandate for his bold plan on the economy.

In the u.s. we get the chicago federal reserve activity index and then at 10:00 a.m., existing home sales, which economist picked to be at the highest level since 2009. also, earnings season.

Mcdonald's, did not.

After the bell, it will be interesting to watch reed hastings and netflix.

We will look at the new business model for net books.

They picked up emmy nominations.

Ubs is not saying how much a settlement with the fha will cost, but there looking -- booking for the covering of those settlements.

Glaxosmithkline executive in china met with officials and conceded that some employees might have broken chinese laws.

They have been accused of a scheme to boost market share.

Sears ceo eddie lampert has not been able to persuade americans to return to sears for basics like close and washing machines, but you can now buy a $33,000 rolex watch on the sears website.

It is part of a strategy to position them as a competitor.

I am going for the manly craftsman router.

After that, you will get a rolex.

I got the router, and i'll take the rolex.

Anything to get you in the door.

The sec is trying to put stephen coehen out of the business, alleging that he failed to supervise to portfolio managers and ignored red flags.

We will look with a former u.s. assistant attorney who joins us from philadelphia.

And administrative action.

What does that the bill to you -- signal to you?

It signals the criminal case has probably been sidetracked.

I used to counsel my clients that all they have to do is have ever to support it, so basically, you are defense is a blindfold and a cigarette.

You do not want to be there.

Does that mean they cannot file criminal charges or continue the investigations?

You can not indict someone on the testimony of two.

Without some kind of other evidence.

As i understand, they do not have electronic information or other evidence to support it.

Based on what you just said about an administrative action, let me ask the blunt question, is this a witchhunt?

Is a witchhunt in that you do not have to show they are witches to put them in the chair and them in the river.

The first step the sec will take is to get this out of the sec and in the federal district court.

That is to the point.

What are steve cohen's writes with the securities and exchange commission?

What are his right?

I do not think he has any.

What part of no defense was not coming through?

All they have to do is show he should have done something better.

That is basically all they have to do.

Have you ever seen a case like before, which is a witchhunt if he has no rights?

There are thousands of cases.

Now that the sec has more power with dodd frank, you see more of these cases.

If they had the evidence to indict him, they would have done it right now.

It is like putting all the money in the manhattan project and coming out with a spit all gone.

What is the new direction under mary jo white, who was clearly trying to prove she is not going to let them get away with this?

Which is trying to prove if she wants to put this on her home turf, in an arena where they have the best opportunities.

The problem is if somebody takes the stick away from her and moves it into district court, it could be a different ballgame.

Is this a new sec or business as usual?

You are suggesting that with ms.

White's sec, mr.

Steve cohen is not getting the day in court.

That is one way to look at it.

I can say the sec is bringing an administrative action because they know their case is weak.

They could lose a civil action district court, and that is why they have done this.

He is successful in pulling this into district court, you would see a different outcome.

Thank you, fred tecce.

He is a former assistant u.s. attorney.

That was something.

Gina martin adams of wells fargo is with us.

She cannot eat -- week about -- speak about steve cohen , but you have been cautious going higher.

How battle sky -- battle scarred are you?

We have been more cautious.

Next you are in the market and you feel -- you are in the market, and you feel uncomfortable, but you are in the market.

What is the message that you have today?

Going into the second half, things will get more difficult and volatile.

The earnings stream is shifting.

We are hugging the earnings stream.

Technology coming under pressure.

Is that a leading indicator?

Technology has been under pressure for the last year.

We think it is a leading indicator, on the other hand financials is doing well.

You are getting conflicting signals.

Financials hasn't. cap -- financials has it.

Tech does not.

What do you dislike right now the most?

Tech, materials, energies, and industrials -- anything with international exposures.

A number of currencies have hit rock autumn lows.

-- bottom lows.

It is a worrisome sign.

Gina martin adams, we have a lot to talk about.

Gold is back over $1300. futures are flat.

2.47% on the 10-year yield is the euro is stronger.

The stronger yen.

Crude up to $109. hedge fund managers are more bullish than they have been in the few months on crude oil.

Coming up, have you noticed we have not seen any new, must- have apple devices?

Apple earnings are out this week, but how about in changing product?

We have not seen that in a long time.

We will discuss that.

? it is a beautiful day in london.

There is a shot of the city.

The world is watching.

We are all watching st.

Mary's hospital in central london.

There is a live helicopter shot.

"the surveillance" helicopter.

There is a deluxe package.

$1300 extra.

She is in the window wing, which is actually where ansys diane gave birth -- princess diana gave birth to prince william.

Apparently all of the people gathered in front of st.

Mary's hospital, journalists, waiting for the first word, the first glimpse.

In separation -- in shepardson was on.

He does not want to talk about it.

Number the frenzy -- remember the frenzy about the royal wedding?

Maybe they will name it protests sara.

-- princess sarah.

That has a nice ring to it.

Gina martin adams, you were talking about tech.

Your research note, tech wreck.

Why?

A number of companies are missing expectations.

Is this on the revenue side or the earnings?

Here is your note -- it is both.

The top line missing and on margins.

Is it about a sluggish economy?

Absolutely.

The financials are still stinging out.

What is working is the american consumer, which is interesting to point out.

It is still a domestic story.

Mcdonald's is at 8:00 a.m.? 8:00 a.m. another company that has been surprising, meredith publishing.

? . . lex here is always with tom keene and scarlet fu our guest host is jean and martin acton jack -- gina martin adams.

The pope will greet thrones of young people at rio de janeiro's famous copacabana beach.

He hopes to attract argentine worshipers.

Phil mickelson plays what he is calling the best ground -- the best round of his life.

He pulled away to a three shot win in scotland.

It is his first open when an first victory in a major.

Those are your top news headlines.

Company news headlines, apple.

Apple reports earnings after the bell tomorrow.

The quarter was marked by no breakthrough products but apple did announce too many acquisitions -- announce two mini acquisitions.

A lot of concern that apple has lost its edge.

Where are the products?

Here to answer that question is the man who literally introduced the "i" to the apple products.

How badly do they need a new product with all of the excitement around the release?

Collects they certainly could use one.

-- they certainly could use one.

Personally i think they are behind.

All indications are that we will see a major revamp of the product line in september.

Your perspective is iconic.

You mentioned when you first saw the ipad you thought it was a typo.

Should they go after a lower price point market?

Or do they destroy the magic?

Collects they do destroy the magic if they do that.

There is talk of a low-cost iphone.

I think you will see a lower- cost iphone but it has to have apple quality to it or it is not going to support the brand.

We know apple is betting big three at it is excited about the -- is betting big.

It is excited about the iwatch.

I am personally holding out for one of those.

I think that will be a game changing product.

I think a lot out there -- i think apple will do it in a typical apple style.

As we wait for that breakthrough, the headlines is that apple is going for larger screens.

These are not the kinds of changes that apple fans or investors want to see.

I think there should be a larger iphone.

I expect there will be.

Steve jobs said the 10 inch ipad was the ideal size and when their market started euro and because of that we now have an ipad mini.

It is not enough to get at all faithful excited and believe they are regaining a touch.

I believe these are incremental things, like the ipod the line expanding over time.

Every three years there is the game changer.

We like it when guests take a victory lap.

If the four weeks ago you told ryan shannon you are last enthused about the surface.

-- you were less enthused about the surface . steve jobs's magic is not about a gimmick.

When you are competing with apple you are forced to come up with something and say it is better.

And then you don't really think you own one.

It only works in one direction, you have to look at it that way.

Collects what -- what business practices can they do to avoid making the surface?

Their engineers and designers are all working together.

Steve jobs talked about peeling away the layers of the onion.

To his point about the surface and the iterations of the iphone, it does seem we are at a saturated point in this market where we do not need to go out and wait in line for the next greatest and newest iteration of a product we already have.

Have we changed?

I think we do.

I am still going and getting my new iphone when it comes out.

You want the latest and the greatest.

You do not necessarily want a revolution.

When it is time to get a new phone you want the latest and greatest.

All indications are there be interesting new features in tghhe 5/s or the 6. samsung has really hit the ball out of the park, in many ways making fun of apple.

If you read the stories, if you have a lot of money it helps.

Samsung is spending three times what apple is spending.

I go down boulevards of major cities and there are samsung posters everywhere.

You get the feeling things are happening in that world because they are on big shows on tv.

I am beginning to see these bigger phones and i am beginning to see people use them quickly.

I they getting any traction?

I think they are.

I think it is the result of having a bigger screen and spending a lot of money.

You get the feeling that there are things happening in that world.

I apple got a response with a bigger iphone.

Everyone is speculating about what the federal reserve will do next.

There is some change intentionally on the horizon.

We will speak with one manager about how to navigate the murky waters.

We need a data check.

Equities, bonds, currencies, commodities, futures, they have been struggling.

248 in the 10 year yield.

The euro is stronger.

The yen is stronger.

108. 52 -- 108.52. and the british pound is stronger.

It is going into labor.

We will talk to labor when the royal baby does get announced.

We know the british tabloids are all waiting right now which brings us to our next topic.

Is print dead?

A lot of people are asking the question.

Meredith sees opportunity in print.

It is a physical magazine based on its physical recipe website.

Here is what stephen lacy told me about why people would pay for content they could get online for free.

What should be effort about the magazine is the way the content will be curated.

Most consumers access recipes.com by searching for a recipe they already know they want to prepare.

What you will find in the magazine are ideas that maybe you had not thought of in the past.

And then it will take you to the website to help you execute against that idea.

He says webb is perfect for action.

You go to amazon to buy something in particular footprint is good for discovery and inspiration.

I asked him whether he got any signals at the advertisers leaving enough room for another recipe magazine.

Food is our largest add a category.

We are well ingrained with the major food advertisers.

They are extremely excited about our west peas and the audience.

We are only able to reach it in a picture to -- in a digital format historically.

He basically says there is room for another publication because they get at the same audience in a different way.

He is making the case and weren't they interested in other magazines?

He confirmed speculation they were holding talks with them.

Gina martin adams with us from wells fargo.

Is boring good right now?

Boring is very appealing.

All of the highfliers we bought in 2010 and 2011 have underperformed in the last year and a half.

Is it fairly priced?

He had to be careful at the industry ticker level.

The domestic stocks are overvalued and all the good news is priced in.

We actually found a mastic stocks of the group are cheaper today than they were a year ago.

The earnings stream is holding up.

It all goes right back down to earnings.

If the earnings stream is holding up, if expectations are not too high and companies can manage to surpass these expectations, the stocks are outperforming.

Where are they outperforming?

Is it mid-caps, small caps ? i think it is blue-chip financials.

That is where you have a general undervaluation relative to long- term.

I asked him what his biggest headache would be one year from now.

It is not the economy, it is the post office.

I am concerned about the postal service and the challenges that the postal service is going through with being more financially viable.

All day next wednesday i am with the postmaster general in washington dc.

We are hoping congress gets behind postal reform because obviously the post office is a big part of our delivery message -- delivery mechanism.

Perhaps one of the drawbacks of being a domestically focused company -- i am curious, do they offer all of their different magazines on tablets?

They do.

The interesting part of this is they are launching this magazine with a guaranteed paid subscription of 500,000. if you go to the website they have a price attached onto it.

It is this idea of reaching people in a different mindset.

I learned a lot about -- i thought i knew numerics.

Futures are up five.

2.4 seven percent on the 10 year yield.

Let us go to company news.

Here is radioshack, the unprofitable electronics chain.

It is asking and electronics -- an investment bank to raise the money.

Shares of radioshack have fallen about 90% in the last three years.

For the first time an american will run sap.

Phil mcdermott will become sole chief of the company when the ceo leaves the post next may.

He has been in charge of the failed course.

This is news that the folks at oracle will be monitoring carefully.

Good morning, bloomberg surveillance on bloomberg television.

Every interview out on bloombergtv plus.

I am tom keene, as always joined by sara eisen and scarlet fu.

Our guest house this hour, gina martin adams.

No question the monetary policy of the federal reserve has kept is just rates at rock- bottom level.

-- interest rates at rock-bottom level.

Does inflation protection really work?

An important question for your retirement.

After what we saw with the chairman's testimony last week, and inflation linked fund, that is a massive jargon alert.

What is that?

If you think about a nominal bond, one of the biggest risks, when you excuse the good side of it, he you return to inflation.

So it brings it in and ties it with inflation.

What is the market telling you right now about our belief in where inflation will be?

Whether it is six or 10 years out?

If you look at to where we were at the beginning of the year, we had headline inflation trending down.

Our full-time costs were 1.5 or below that for inflation.

The inflation markets were pricing in a relatively robust rate.

The inflation market has since suggested it.

I believe markets are fairly priced.

You have the flats -- the feds favor five year around two point four percent.

If you think about the core core mandate of two percent.

Historically that has run around 2.5%. how do you respond to these viewers who say they don't care about what blackrock says, the bottom line is there is inflation.

The tips market is the headline of inflation run rates.

You have to look at how they are constructed.

I think the man on the street, particularly when you look at the various consumer -- a woman on the street?

A woman on the street.

A person on the street.

When you look at consumer services, such as the university of michigan, their expectations -- if retail gasoline goes up one percent, one year expectations jumped up orderly.

Our high-volume expenditure is where the commodity component comes in.

We are seeing oil prices with the bti going over the price of the global benchmark.

Should the average person on the street be owning gold?

I think it is a hedge against a lot of risks, not necessarily inflation.

It is a significant beneficiary of those who are generally concerned around monetization of debts and global breakdown of political systems.

In terms of inflation, i think probably one of the better hedges is the equity market or perhaps -- let us bring in gina martin adams from wells fargo.

This is a very esoteric debate.

When you look at the dynamics of inflation, how do you filter in what martin is talking about into whether i should own stocks or not?

I filter it through the margin component of earnings.

Typically when inflation is accelerated in -- is accelerating margins have accelerated along with it.

What is it doing right now?

Margins are falling.

Do you agree with that?

Inflation has been coming down.

Is it down enough to change fed policy?

Jim bullard is worried about too little inflation.

Every listener and viewer just went, "yeah right." what is your call?

I think it is going to impact policy and it has until now.

The market somewhat misinterpreted bernanke over the last couple of months.

He qualified every single statement with one on inflation.

As long as inflation and their expectations remain at these current low levels i can see the fed tapering area -- tapering.

Thank you.

Coming up, netflix is rethinking the way it does a call.

Good morning.

I am tom keene, joined by skerritt eisen and scarlet fu.

-- by sara eisen and scarlet fu.

We are all on the royal baby watch.

It is exciting.

Detroit doesn't matter and the new york mets do not matter and g does not matter.

All that matters is if it is a boy or girl.

Former senator ted kaufman, who is not on royal baby watch, i'm sure, will be joining us later.

We are going to talk about the anniversary of dodd frank and his former senate colleagues, elizabeth warren,. they are talking about ringing back glass-steagall.

-- about bringing back glass- steagall.

And mcdonald's earnings, you are going inside that company.

We talk a lot about fast food action.

Later this week we are going to have an exclusive interview with the ceo of mcdonald's. as you mentioned, the earnings are out at 8 a.m. he will be watching carefully what they say about margin expansion, global sales, how sales are doing in the u.s.. have they been getting hit in the media over everything from their food, the open cd debate, to the new budget that came out last week.

-- the obesity debate , to the new budget that came out last week.

40% of the revenue comes from europe.

It is such a global juggernaut.

I was going to say number two, whole the ketchup.

The problems the company faces are at home.

It is losing ground to the quick service restaurant -- to the quick service restaurants.

Competition is curating up on them.

-- creeping up on them.

It takes four years to bring a product to the front line.

They are bringing back the mcrib.

Morning movers.

We are taking shares -- taking a look at shares of apple.

The developers site has been taken down because a hacker tempted to the personal information.

The company confirmed this.

Apple also said it cannot rule out whether names or e-mail addresses have been accessed.

I am watching luxury departments.

The investment firm owned by barely -- bidding talks heating up for sacks.

Let us talk about crocs.

It downgraded this morning from neutral to outperform.

-- to neutral from outperform.

They have been trying to expand from beyond the clogs to something represent that something resembling shoes.

-- clogs to something res embling shoes.

Another company on the move is netflix, with earnings out tonight followed by a video.

This is a whole new playbook for earnings.

We will discuss coming up on bloomberg surveillance, television, and radio.

Our twitter question is not about the detroit tigers.

Should u.s. taxpayers bailout detroit?

The twitter question of the day.

This is "bloomberg surveillance." i am tom keene as always joined by sara eisen and scarlet fu.

Let us get to company news.

From the files of "bloomberg west," prices are falling and putting pressure on margins and sam sun.

The average price of a smartphone has dropped from $450 to $375 the start of 2012. the winners in this price launch?

The buddies that make cheaper phones.

Apple's developer site has been taken down after hackers try to steal personal information.

The site is used by programmers who write for apps and other products.

And another disagreement over the proposed buyout of dell computers.

Michael dell and his backer, silverlake thomas cannot break up -- cannot agree on a breakup fee if shareholders reject the buyout this week.

The company considers itself entitled to a $450 m

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

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