Draghi One Year later: Street Smart (07/26)

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July 26 (Bloomberg) -- On today's "Street Smart," Trish Regan and Adam Johnson find your last trade of today and first trade for tomorrow. (Source: Bloomberg)

Right now.

What are the expecting to hear in the fed next week?

All bets off.

I think the september thing is what people are targeting.

I think people will be watching with bated breath.

Any other strategies your particularly excited about right now?

I think one thing that is an interesting is the triple fees pulled off more relative to double b's and that is just which one is priced more accurately.

Our corporate finance reporter, thank you.

"money moves," starts now europe.

We're ready to do whatever it takes to preserve the euro.

So did the european central bank president live up to his word?

And the amazon from the amazon no more.

Bautista booted from the billionaire's club.

Plus, taking sides on the herbalife trade.

Ackman called it the best managed pyramid scheme in history.

Icahn fell in.

This is "street smart" with trish regan and adam johnson.

Welcome to the most important hour of the session.

Just 60 minutes left until the closing bell.

We are scouring every market for your last trade of the day and your first trade for tomorrow.

Trish is off today.

That means julie is joining us right here and, what a huge week for earnings.

Huge week.

We've now had about 240 companies in the standard and poor's that have reported but of course it ain't over yet.

We'll hear from a lot more coming to the next week.

Time for the big picture.

Three charts you need to see right now that paint a picture of what's happening in the markets.

Take a look at the dow joneses.

We have come all the way back.

We were down about 100 points early this morning.

You can see the dip now.

Now we're down about 37 points or about .25%. a lot of optimists out there in this market.

But i'll tell you, there's one place where we are not seeing a rebound and that is materials.

Look, materials are still down .6%. worst performing group today.

Real simple.

We got word out of china that they are trying to slow growth.

So as you would expect, commodities like copper, and this is our third chart in the big picture, really having a tough day.

Copper down 2.53%. china is hitting the bricks and you certainly can understand why copper is down.

Materials are down.

But again, stocks as a whole trying to stage a comeback.

Optimists in this market.

Well, i've got a couple pessimistic movers for you.

Unfortunately.

Let's take a look at the big three stocks to watch into the close and let's start with zynga.

That stock is seeing big declines today.

The company came out with its earnings but that doesn't appear to be the problem.

At the same time zynga said it is no longer going to explore enter the online gaming business in the united states.

It had talked about that possibility previously and disappointment from that is driving those shares down 14%. expedia, another down mover today.

The online travel booking website.

Those shares falling the most in seven years, down 26% after a reported earnings that missed the average analyst estimates.

Looks like it's seeing more competition.

That's one of the things that's pressuring its numbers.

But a little ray of sunshine for you.

Starbucks, those sharings up 7%. beating average analyst estimates.

Among other things, its foray into food.

A little more heavily into food, seems to be helping starbucks' bottom line.

Starbucks going into the yo burt business.

Seems you can get just about anything these days at starbucks.

One year ago, e.c. president mario draghi made a statement that propelled the once cautious central bank into the position of protector of the euro.

The e.c.b. is ready to do whatever it takes to preserve the euro.

And believe me, it will be enough.

Famous words.

Did the central banker live up to those words?

European markets say yes.

They are up almost 7% since draghi's statement.

However, take a look at the unemployment rate.

It tells a very different story.

Now at an all-time high of 12.2%. that is absolutely brutal.

So, is europe really back from the brink?

Let's get to our panel of experts.

A senior fellow at the peterson institute for international economics, a european analyst at stratfor, and our closer, pimco's executive vice president joining us right here on set.

Jay could, i tell you what, i want to start with you.

Draghi, he has certainly backstopped the banks but one credit we can give him, but he's not done a lot for unemployment.

What does very to do now?

The reality is that unemployment is a lagging indicator for economic growth.

So it's not surprising that it keeps rising.

The broader macroeconomy in europe has stabilized in the last 12 months.

And i think the reality is that on unemployment more broadly, it's really up to european governments.

We have a lot of labor market reforms still to go in a lot of countries.

It's not something that the central bank can really do much about.

So i think it's fair to say that by and large mario draghi has done his part.

Now it's up to governments.

And i want to bring you into this.

We haven't seen as much in terms of unrest more recently linked to that unemployment rate.

To jacob's point, what do governments now have to step in and do to not only, you know, aid their economies, but also keep their populations happy and now start building that employment rate?

Well, the european crisis has long ceased to be a furel financial crisis.

As you were saying, it's become an unemployment crisis.

This is the main challenge and the main threats for the survival of the european union.

There are many factors explaining why people are not rising on the streets.

First, unemployment benefits are still being paid.

People are immigrating which gives some relief in the short-term and are sending back some remittances.

People -- young people are moving back to their parents and using their savings and their pensions.

So all these factors are important.

That being said, unemployment remains the main challenge.

The european union is in a vicious circle where governments don't spend, companies do not invest, banks do not lend and consumers do not consume.

So, looking forward, the main challenge is at the national and at the european level, is to improve credit conditions for small and medium companies in europe which are the backbone of the european economy.

Rich, you help oversee the world's largest bond fund over at pimco.

You just got back from europe.

Right.

What are investors telling you as you travel around europe?

About europe?

You know what they say is that mr.

Draghi has built a bridge and it's actually a pretty sturdy bridge but ultimately the destination has got to be toward really a growth agenda and right now europe has spent so much time fighting fires and crises that the growth agenda has been put off.

That's what's front and center.

Because things like sustainability over the long-term aren't going to be about monetary policy.

They'll be about a growth agenda.

Right now it's been a bridge to nowhere.

Kind of like washington, right?

It's a bridge that's leading to a better place possibly than where we were a year ago when it really looked like the euro probably itself could unravel.

I think draghi deserves a lot of credit for that.

So to come full circle back to your point about the government and to richard's point about growth, i mean, where does the growth come from?

Is it now -- what can the government does to step in and prompt that?

Well, i mean, first of all, there is external demand that's benefiting europe.

The current account surplus in the first quarter of this year was the highest ever.

I'm not necessarily saying that's a good thing in the long run, to rely on external demand but in the short run it's going to benefit europe.

We are seeing a more -- in my opinion -- pragmatic approach to the austerity agenda.

It is being calibrated in response to weakening overall growth, particularly in the periphery.

But by and large, i think i want to push back a little bit on the argument that nothing is being done about long-term sustainability.

Because i think actually quite a lot of structural reform has been done in europe.

It hasn't had any effect yet on the unemployment rate, but one of the striking things about europe in this crisis is that, for instance, there's been no decline in the labor force participation rate.

In europe.

Despite the dire macroeconomic circumstances, which at least to me suggests that the destruct ral forms in labor market, while we still have a long way to go, are beginning to have an effect and will help ultimately long-term sustainability.

Richard, speak to that very key point that jacob makes and that is that the labor force participation is high.

People are being counted, unlike here in the u.s. where we're just dropping out.

That's an excellent point.

I think what we have to remember is that even successful structural policies take two or three or four years to pay off.

Germany is the best example.

They were the sick man of europe and now they've been reaping the benefits of that reform.

I think putting the right policies in place and being patient will be the key to a good outcome here.

And adriano', what remains the single largest risk to the progress that has been made?

There are two risks.

From a political point of view, the main risk is the rise in popularity of nationalist parties and antiestablishment parties in europe.

That is threatening the future of the european union.

At the financial level i would stress the importance of tightening credit conditions for small and medium companies.

And of course the correlation between high unemployment and default on credits.

We are seeing lots of people in europe having trouble paying back their mortgages, particularly in central and eastern europe when those mortgages are nominated in euros or swiss franks.

This is posing a significant threat for the civility of the banking sector in europe.

Jacob, final word to you.

If a year ago the problems were acute, how would you characterize them in europe now?

I think we've gone from an acute crisis about breakup or not to really a question about the chronic nature of the crisis.

Is europe turning into japan or not?

Both with respect to fixing its banking system, but also with respect to restarting growth.

That's a question that it will take much longer, unfortunately, to answer.

But personally i'm cautiously optimistic.

Cautiously optimistic.

Words we've all certainly come to hear a number of times over the past several years.

Jacob, adrian o'and richard -- adriano and richard.

You're with us the whole hour.

Coming up, there's a reason why the u.s. is the number one economy in the world.

Adam's going to tell you in today's insights and action.

Then, the amazon from the amazon no more.

Ika bautista is booted from the billionaire's club.

We'll tell but his fall from the top in today's global outlook.

? there's a reason why the u.s. has the largest economy in the world.

Innovation.

Real simple.

Time for insight and action.

Let me share with you two important numbers, they're very similar, and that makes perfectly good sense.

The u.s. accounts for 21% of world g.d.p. the u.s. also accounts for 25% of the world's patents.

All right?

If you innovate, you grow.

It's real simple.

You don't need to think this one through too hard.

As a matter of fact, the real important angle here is what it means for all of us as investors.

You may recall yesterday when we were joined by the head of research at bank of america-merrill lynch.

Here's what she said about the connection between patents, growth and stocks.

We've gone back and done the back testing and we found that those companies that actually have a line for r&d in their financials they disclose what that r&d spending is, those companies outperform.

You want to see what outperformance looks like?

Let me show you.

We found a group of r&d leaders and there they are.

Outperformance this year, 25% vs.

The s&p 500 of 18.5%. here's what we did.

We started with the s&p 1500. 1,500 stocks, right?

We screened for all the companies that allocate at least 10% of their revenues to r&d, research and development, and who are upping their r&d budgets this year.

We found 50 name, again, they're up 25%. beating the s&p 500. i'm going to share eight of the names with you right now.

Look at this.

A.c.i. payments.

Accorda drugs.

Creed, semiconductors, 12% of their sales go back into r&d. gilead, google, luminex.

They're growing and the stocks are moving up.

I gave you eight names.

If you want to see all 50, visit my new blog, bloomberg .com/insightandaction.

All 50 tickers are right there.

You can read all about it.

I'm going to do that right after the show.

Thanks a lot, adam.

Adam says we're an innovation nation but our closer is worried about a cap-ex cry sills.

Pimco manages $1.9 trillion in assets.

He's earned his chop as assistant treasury secretary . welcome back to "street smart," richard.

Richard, we've been talking you to a little bit about europe.

Let's turn now to the u.s. as we've been talking about, capex you say is indeed a problem here.

That companies aren't willing, they're willing to is spend on buying shares and dividends, they're not willing to spend on the future.

Exactly.

So essentially, if you look at the u.s. recovery, it's been disappointing, it's been muddling through and one of the reasons is capital spending has been soft.

So typically in a period of low interest rates and ample cash, you see that showing up in investment.

And it's not showing up in investment.

Indeed, by many measures this is one of the most disappointing capital spending recoveries on record.

And especially given the depth of the recession, it's really an indication that companies don't feel all that optimistic about the outlook for either demand or productivity.

We have a chart that shows this recovery vs.

Past recoveries in terms of capital spending.

You're looking specifically here at software and equipment.

Why are those the two areas that you're zooming in on?

You can look at the data that includes structures and that's factories.

That cuts both ways.

It really collapsed in the recession.

You've had some factory building.

But you think of a lot of innovation is really imbedded in equipment and software.

So that's a account goir that we often times break -- category that we often times break out in the analysis.

It sounds to me like you're probably not surprised that only 50 out of 1,500 or roughly 3% of the companies have allocated 10% of their sales back to r&d. i didn't know that number but it's a striking result, how well they've done this year.

I hadn't seen that, yeah.

And i guess that's the takeaway, isn't it?

If you want to grow your business, you got to invest back in your business and not enough companies are doing that and that's your concern.

When you think about the global economy, part of this is the fact that a lot of companies, multinationals have affiliates in the u.s. and they're cutting back on their capital spending as well because of their own local economies.

We're all tied globally and it's showing up in domestic data.

We had a durable goods report that's pretty positive.

How do you reconcile that with what you see in terms of -- again, my chart is a depiction of where we are today.

And obviously looking ahead, to get a robust recovery, thank we'd all like to see with 3%, 4% growth, we need to see stronger capital spending and much stronger exports.

Let's hope today's number augurs well for the future.

Ever the optimist.

As my mother raised me, yeah.

Well done.

Well done.

All right, my, how the mighty have fallen.

We'll talk about brazilian oil magnet eike batista who once said he would be the world's richest man.

Now he is no longer even a billionaire.

What's going to happen next?

We've got more for you in today's global outlook right after the break.

Plus, it's the stock that spurred the battle between icahn and ackman.

Which side of the trade should you be on?

We have three takes on herbalife.

That's coming up.

?. this is "street smart" on bloomberg television.

Streaming on your tablet, your phone and on bloomberg.com.

A huge blow for the man who was once ranked the eighth richest man in the world.

Especially after he vocally expressed his aspirations for the top spot.

Yes, about to 15 year.

I'm telling him he should clean up his mirror on his left and on the top because i don't know, i'm going to pass through one of these.

And now eike batista can no even longer claim to be a billionaire at all.

More in this global outlook.

The amount of net worth that has been erased from this man is astounding.

Yeah.

This is a real tear jerker i've got for you today.

A real tear jerker.

Yesterday we were talking about how mark zuckerberg raked in $3.8 billion in one day.

Well, here we go, eike batista, last year, $34.5 billion according to the bloomberg billionaire's index.

Today, he might be worth only $200 million.

Shocking.

Ouch.

That is really got to hurt.

Now the latest blow comes from the abu dhabi sovereign wealth fund.

What they did was converted their investment into e.v.x., one of his flagship companies, they converted it into debt and now he owes them about $1.5 billion.

His fortune of course though has evaporated for several reasons.

He has big investments in commodities.

You know o.g.x., one of the biggest oil companies in brazil, that's lost 87% of its market cap this year.

It's really a reflection of two things.

You have a shrinking g.d.p. in brazil, slowing growth.

You also had a lot of debt that was powering this growth for so long.

And that bites.

Right.

And this is a guy who once said he exemplified the brazilian dream, the new success of entrepreneurialism.

Now he might be worth only $200 million.

So the question is, can he turn it around?

And a lot that have will depend on the brazilian economy.

On the brazilian economy and on commodities coming back, too.

Where we are in the cycle might not be terribly favorable for him.

In fairness, $200le, i'm not going to cry -- $24u7b million, i'm not going to cry for -- $200 million, i'm not going to cry for that guy.

It's the bat that will caught wall street as i 'tension -- battle that caught wall street's attention and now one bet is costing someone millions.

? it was a stock that launched a major billionaire battle.

Back in december, bill ackman an announced his short position, herbalife, calling the company, quote, the best managed pyramid scheme in history.

And carl icahn notably took the other side that have trade, buying into the firm one month later.

It looks like icahn came out on top.

Ackman's herbalife loss has grown to about $211 million.

While icahn's position has made him about $376 million.

That by the way assumes that each still has the positions that they have disclosed earlier.

And by the way, just this week, well, the stock hit a one-year high.

So which side of this trade do you want to be on ahead of earnings?

For that, let's bring in our panel.

Julie with the story, tom with the strategy.

Lay this thing out for us.

We know this one now.

There's still a lot of wrinkles and things to talk about.

This is a nutritional supplements company.

They make meal replacement shakes that are made from a powder and they really flourished through so-called nutrition clubs.

That is, they don't sell directly to users, it's a multilevel marketing company.

That means it sells to distributors, the distributors then sell to customers, but many of these distributors have started little clubs in their communities where they will sell a cup of the shake, for example, or a cup of aloe vera tea to folks who come in.

Many folks who come in have memberships.

They come in daley or monthly, for example.

And so that is how the company's really spread.

It's had double-digit sales growth to over the past several years and sales growth this time around estimated at 1213%. and this by the way -- 13%. and this by the way is a company that's beat analysts' estimates.

I had to go back to the fourth quarter of 2009 to find the last time that it missed analysts' estimates.

So it has been a big growth story and a big growth stock until of course bill ackman came without his short case here.

But as you mentioned, the stock has rebounded healthfully in the past couple of months or so as no sort of pyramid scheme official investigation has emerged from the federal trade commission or other regulators.

Tom graves of s&p capital.

You've got a hold on this stock.

A target of $50. and yet as julie points out, it's growing double digits.

And trading at a fairly reasonable 12 times earnings.

Why the hold?

Because we think that the stock still should trade at a discount because of concerns and controversy relating to its business model.

We do think herbalife appeals on a variety of by a cease, including the need for people to address weight management.

We think the social interaction aspect of the nutrition clubs has definitely been a growth driver.

And we also think the appeal of people in emerging markets who might want to enter the work force, herbalife distributorship offers the ability to do.

So you just gave me three reasons to like the stock.

Why would you have it on hold?

We think it's pretty adequately priced.

We raised our target price today to $60. that's up from $50. and in our view the stock should still trade at a little bit of a discount to the multipresidentple that it's traded at his to -- multiple it's traded at historically.

We think there's headline risk here related to possible regulatory scrutiny but we think the company has very successfully defended itself in the last six months and as noted the stock is up sharply.

It's more than doubled since december and this week it's at the highest level it's been at since may of 2012. and of course really at the heart of this whole thing is how herbalife classifies its sales and whether some large percentage, above 75% of those sales were actually to their own distributors as opposed to customers outside the firm.

What do you say about that?

We think that's an important point.

We think there's been confusion over herbalife's customer base.

And as you noted, the company's indicated that the majority of its distributors are primarily taking on that role because of their desire to buy the herbalife product at a discount.

And we think the lowering between distributor and customer is something that people will increasingly be focusing on.

It may build some confidence that herbalife's customer base and customer demand is healthier than some people might have otherwise feared.

But we think there's still questions remaining about the sustainability of herbalife's business model and the need to attract new customers to replace people who have moved away from herbalife products.

Joe, earnings are coming out on monday.

How do you possibly trade this thing with the volatilities right now?

Absolutely.

The battle has brought a lot of attention to this stock.

Currently the options market is pricing in the 13% move for the earnings.

Put that in perspective, procter & gamble is only expecting a 3% move.

Very large move which means very expensive option premiums.

So, to go at the money options, it's too risky to buy or sell -- what's the trade?

The trade will be august 70, 75 call spread.

That's where it will be in play and i'll look to trade out of it on tuesday.

Do you want to buy that call spread?

I want to buy that call spread, outlay about 53 cents.

A cheap way to get into the volatility.

Spend 53 cents to make $4.47. i like that risk-reward.

All right, joe, thank you.

And tom, of s&p capital, thank you.

And jewels, why don't you take it away from here.

I will.

Let's talk about a couple of comebacks here.

Facebook and emerging markets.

Both of them making a comeback.

Where can you go to play all these hot investing trends?

E.t.f. prid is it -- friday is coming up next on "street smart." ? facebook shares up 28% since earnings came out on wednesday.

So let's ride that wave of success.

Joining me now is bloomberg's e.t.f. analyst.

And presumably here, it's the beginning of a comeback.

Not necessarily, you know, a one-day pop from the earnings.

How do you play that through the e.t.f. market?

Believe it or not, there are now 80 e.t.f.'s have that facebook exposure.

A couple of months ago it was almost like two or three.

There's a lot of options.

If you want a lot of facebook punch in your e.t.f., one of those is the power shares nasdaq internet portfolio.

This has a -- facebook has a 10% waiting in this one and internet stocks have been doing well overall.

This thing's up 30% year to date.

It's outpacing a lot of the market, including the tech e.t.f. by a good margin.

So there's that one.

If you want to go more -- by that way, that ticker -- they obviously needed a marketing guy to come in and help with that.

Pnqi.

What do you make of that?

I have no idea.

All right, well, moving on.

What's another with an easier ticker?

How about socl which is the global social media.

This has been dubbed the facebook e.t.f. it's the fourth largest waiting.

This has given you social media stocks not only in the u.s. but also abroad as well.

This one also incidentally is the e.t.f. with the most exposure to pan dora which is up 100%. it hasn't hit, though.

It's $10 million in assets and doesn't trade a ton but it has a liquid portfolio.

Another wild card option here, and this is interesting, the market vecter's important star wide mote e.t.f. this is based on that warren buffett philosophy.

Morning star determines what stocks go.

There's only 20. so facebook is the top holding in this out of nowhere.

Because they have -- explain what you mean by mote.

These are exetive advantages.

What they deem here is that -- competitive advantages.

What they deem here is they call it the network effect.

Facebook has 1.1 billion users and that's off the charts.

That is would be the third largest country in the world.

Absolutely.

You have a lot of users, plus they saw it as being cheap a month ago, because it was trading pretty low.

You add up that and you have a wide moat that ends up being the top waiting and i give them credit because they put it in here in june and they were a precursor to the actual earnings that we saw.

Interesting sort of alternative way to play moat.

This e.t.f. is a rising star.

It's $250 million, it's doubled this year.

Talking about comebacks, i want to talk about the emerging markets comeback.

People getting back in there, willing to take on more risk.

I imagine people are still quite squared -- scared but if you look at emetf, they've lost 10ds billion to date, but not all of them have lost money.

Some that have gained money and tread watter this year, one of those is the i shares msci, emerging markets minimum volatility.

Low-vol isn't working great in the u.s. but over there it's working great.

This one's actually -- has brought in the most money, $1.2 billion.

It's low-vol and it performs better.

The other one i like is the egshares consumer market e.t.f. all the stocks in the e.t.f. here, 90% of their revenue comes from emerging markets.

It's not dependent on the developed world and this is something that could work out in the future if you want to play that.

The third one, i got from a very interesting blog called insight and action, yes, i did, and it's the ishares south korea e.t.f. this one's having a pretty bad year.

It's down 10% year to date but it's up 11% in july and as adam described on his blog, this has -- it's got great valuations, high earnings growth and if you look at the numbers there, a nice surge, it just crossed a 60-day moving average.

Did we mention that adam has a blog?

Have we said that?

Insight and action.

Yeah, bloomberg.com/insightandaction, just in case you were wondering.

I might have a tit twitter handle.

While we're at it.

Let's get to the final one here.

I like this.

We've got a little yin and yang for people when it comes to china.

Yes.

This is this week's ticker of the week.

Yin is the direction three times bold china an yang is the three times -- bull china and the yang is the three times bear.

These are for traders who want to hedge their bet.

The reason i picked in this week is because yinn is up 50% in the past month and this is looking at all the secters in china.

It's not less inly three times s.x.i. but again, with all leverage products, they receipt set every day so know that you're only getting three times once a day, not necessarily over the median and long-term.

A lev dnds leveraged e.t.f.'s can be tricky as well.

They can especially when they really get out all out of whack when there's volatility.

When there's volt tilt, forget about it -- volatility, forget about it.

Because the compounding adds up and cuts the other way when it goes back down or up.

They reset every day.

That's why they put daily in the name of the e.t.f. so even they want to you know these are for daily use.

All right.

Thank you so much.

Our friday e.t.f. fix.

Appreciate it.

Thank you.

All right.

So, is risky business back again?

We're going to tell you.

That's coming up in today's chart attack.

Also, this is a big deal, coming up in the next hour, golf great phil mickelson is gearing up for the pga championship but first, he's talking to us.

Right here on "street smart." we'll be right back.

? computer chips are getting a whole lot more personal, could you say.

They're no longer at the tip of your fingers, phones, tablets and televisions.

Now you can consume them.

We take a look at the emerging world of ingestible electronics.

Wearble electronics like google glass are the hottest gadget notice tech world.

But now electronics are pushing past the epidermis.

A market of ingestible electronics has emerged aimed at gathering health data that can be shared with your doctor.

But before you gull be down that computer chip, let's look at what these are monitoring.

This is a thermometer pill that when consumed wirelessly transmits core body temperature as it travels through the patient.

This technology was originally developed for nasa in the 1980's but now it's cheaper and smaller.

And as a result more than 150,000 pills have been consumed by people whose jobs rel larle expose them to high -- regularly expose them to high heat.

In fact, core temp is one pill lance armstrong willingly acknowledged taking.

Video blocking the entire experience.

-- blogging the entire experience.

I'm going swallow some thermometers that come in the form of a pill.

The pill has a built-in battery.

The average price for one is $41. three times the cost of a conventional thermometer.

But, it is reusable.

An f.d.a.-approved smart pill contains a computer chip the size of a grain of sand.

This is how it works.

You take the pill which then connects to a patch which then transmit cass at that to your smartphone.

Your grandmother's in florida, you're in new york, you want to make sure she's following doctor's orders, taking her meds, getting exercise with this pill, you know all that from the updates on your smartphone.

And instead of contains a battery, the pill uses a patient's stomach acid to generate electricity.

So it's literally powered by you.

They've already raised more than $62 million in venture capital.

Just because these lek troinl -- electronics digestible doesn't mean the idea of them is easy to swallow.

You can say that again.

Time for chart attack where we bring you a chart that will make you smarter.

Hopefully it will also make you a little bit of money.

So risky business might be back.

I'll tell you what, richard clara of pimco, you seem to think so.

You've got a chart that paints it out.

Let's give people a baseline, start with g.d.p. and talk people through that and then risk.

Ok, so over the last 50 or 60 years the u.s. economy's been growing.

G.d.p. measures that and that's the income that shows up in people's pockets.

That's your baseline income in the economy.

Let's bring in the camera and show people what we're talking about.

This is just g.d.p. going back to 1954. now you've got a wrink toll add on top of that.

-- wrinkle to add on top of that.

People often borrow against their income to buy a car or to buy a house.

The interesting fact about that is that for about 25 years, until 1984, people weren't levering up route to g.d.p. they were borrowing but in line with their income.

What we're looking at now is private nonfinancial, nonbank debt in effect.

And that yellow line, we really have levered ourselves vs.

G.d.p. it's when we call about the great moderation, there's also the great leveraging.

From 1982 to 2007. what's curious as i look at this, that's the deleveraging, but we haven't really delevered a whole lot.

The private sector has delevered a bit reltive to income and of course during the great recession we have a huge buildup of government debt.

The government's levering up and the real question going forward, will the private sector lesker up, stay on the sidelines or try to delever some more?

A big question for the forecast.

And your thought on that question?

That, yes, we're coming back together?

Year to date we've actually seen households reduce their saving in part to pay for the tax increases and so something i'm monitoring is so to see evidence if households rebuild that savings or if they're happy saving 2% of their income.

From k.k.r.'s profit to einhorn's most profitable short.

We have the top 10 stocks you need to know.

? . ./ if you missed everything that happened during today's session, don't worry.

We will get you caught up on the only stocks you need to know.

Time for the top 10. cbs up nearly 2% after the company authorized a new $6 billion buyback.

This puts cash back into the battles with time warner cable.

Time warner cable could take cbs off the air starting monday.

Stay tuned.

And everyone is hoping for a last-minute deal number nine, halliburton.

The the -- a last-minute deal.

#9, halliburton.

The stock is up, despite pleading guilty over destroying evidence in the oil leak in the gulf of mexico.

And that number eight, j.c. penney rising more than 2% after david einhorn said to investors that he closed his position on the retailer.

Zynga, plunging 14% after announcing a break in the online gaming market.

And issuing its lower guidance, it said it was a typo.

It led to questioning what in the world was happening.

Media shares are plunging -- expedia shares are plunging.

Increased competition from orbit, price line, and triggered by a third.

#5, activision soaring nearly 15%. ending five years of control by the french media.

The transaction leaves a -- an independent company how about that?

Of libya, you are at a college do the kind of an -- olivia, you are a call of duty kind of woman, aren't you?

And it is not just the activision part of the story, but that vivendi its breaking out, or reforming around the court.

These big conglomerates are now breaking out.

Correct a lot of european companies are looking to make cash in the market.

You've got that right.

Correct -- amazon has been pumping money into warehouses with digital content.

The ceo is betting these short- term investments will lead to -- well, if not higher profits, at these products in general.

How long will investors way around?

And number three, facebook is down about 1% after rallying 30% yesterday.

That pushed the zuckerberg ahead of microsoft ceo steve ballmer and michael dell on the bloomberg billionaires' index.

Cracked door to bank upgraded -- deutsche bank of credit test on the index.

Sales will more than doubled in more than three to four years.

[closing bell] and you can hear the closing bell in the background.

That brings us to number one, kkr.

Second quarter drop it -- profits dropped.

We told you the closing bell just rang, and there it is, being run by phil mickelson, who will be joining us very soon to talk about his latest project with exxonmobil to try to help teachers help our children.

Let's talk more about the market closed.

We're joined by the one and oil -- one and only kathy boyle, and standstill wall -- sam stovall and richard cleared in.

Let's go right to you, sam.

This is your market.

You have been a very enthusiastic guy and the doubt and the s&p squeeze out a gain, the nasdaq up about a quarter of one.

. what is your connection?

I think what we are seeing in this month so far is just typical investors, folks seeing more in their tangible portfolios.

Maybe next week it will be in search of a new catalyst to help us break above the central market of 1700 on the s&p. as i said before, these levels frequently act as resistant, like a rusty doors, before they finally break open.

Kathy, what is your feeling on where we are right now?

You got sam, and then you've got a lot of big firms looking for 1775. we're looking at it the other side.

We are worried about the 1670 area.

If that's get broken, you're looking at 1654, then possibly those 1600's. it is a tug-of-war.

1775, that feels like a lot higher than we are now.

6091-1691 right now.

-- 1691 right now.

Why is it that everyone has been a long the the on the trade?

You look at here things that have been up and it is flat.

This is 14% real unemployment.

Food stamps are being used constantly.

We have a lot of negative undercurrent in the real economy.

And you were sounding the alarm on capital goods just a little while ago yes.

Does that make you cautious?

I think broadly, going forward we are in a muddle along economy.

And i will defer to kathy and others that he growth has been modest.

If the global economy suffers, that hit the bottom line right here.

Correct sam stovall, you look at the earnings that come out -- sam stovall, you look at the earnings that come out in different quarters.

How many quarters would characterize that we are about halfway through?

This year has been modest, if you will, four 0.5%, but it was certainly more than was expected at the beginning of this time frame, two 0.8%. companies, not surprisingly, have not done a very good job of managing earnings.

We will probably see earnings up in the area of 6% when all is said and done.

What about the sales?

We have had a lot of negative forecasts.

Is that another note of caution in terms of the recovery, not only for the economy, but for the stock market to continue the is going as well?

Absolutely.

In the beginning of this quarter, the expectation was for a decline of about 1.25%. now has moved to about 1.5%. but you do not get better by tightening your belt all the time and buying back your own shares.

You have to see top line growth.

The expectation is for the high 4% area.

That is the second half of this year.

But still, if we see the lower end of those numbers come out that is not encouraging.

Intel, microsoft, ebay come on and on it went, one after another, the top line just was not there.

And yet, nasdaq was up 1/4 of 1% today.

What is going up the the -- what is going on?

We, the u.s., and look at china, people are rotating over into us.

$700 billion liquidity out of fixed income in june into july going to money markets.

And to banks.

Well, yes, equivalent of.

The quake rotation out of bonds into stocks will propel it up.

-- the rotation out of bonds into stocks will propel it up.

We talk about this great rotation.

When you are gather around a conference room, you and bill gross and mohammad el-erian, how do you deal with that notion?

It is not just the evidence in the data, but you saw evidence in the inflows in june, mostly money flowing out of the money market funds.

Thus far, there is not the evidence for it.

We just haven't seen it.

It cuts in other words, the great -- in other words, the great rotation has not happened.

From bonds into equities, know.

When you see those funds flowing into them, then from either new money into money markets.

All of the international bond funds for the month of june are down 5%. a lot of people go to emerging markets, floating rate, high yields and they do not understand how much risk.

Bonds don't go up until rates come back down, for the most part.

It hit stocks have lots of reasons to go up.

If you go into a cycle of rising rates, you have to watch your direction and the quality of your bond portfolio.

You certainly do.

Sam stovall, thanks for joining us.

I quote you all the time on the show.

And richard, before we say thank you and goodbye to you, some final thoughts.

What is at the forefront with investors right now?

What you want them to focus on?

I think you need to have a view of the next six months and the next six years.

We talked about the macro trend and that discussion get a lot of attention these days.

In my own view, the economy is somewhat softer than the consensus.

I think we may see that it -- that reflected in the information coming out of the fed next week and in september.

In the longer term, five years in the future, you've got to look at the positive side of the ledger, whether or not there is an energy revolution in the u.s., and what we're seeing in terms of a renaissance in export sectors.

You've got to distinguish in terms of your horizons.

Looking longer-term, if you are an investor, do you get on energy?

Where would you be looking for a longer-term investment opportunities?

In my own personal account, i would.

I am convinced that the energy revolution is for real.

I think primarily near term is going to be from extracting gas and the frakking technology.

It has the direct benefit of lowering oil imports, which is a positive.

It also has the benefit of having firms relocate back to the u.s. and energy intensive sectors.

I have seen a lot of studies that i have been persuaded by that this is a real positive that over the next five years we could substantially increase the growth rate.

You just piqued my interest.

News that energy names for your personal account.

Friday, we will have to go discuss that downstairs.

I will have to buy you a beer or something.

[chuckles] be careful.

He had that twitter account.

He's not afraid to use it.

Thanks for being here, as always.

And here is what is coming up on "street smart" we are going where the action is not big budget blockbusters are dying.

Can a wolverine bring it back to life?

A south beach ikon goes up for sale.

I know how much diversity -- the versace mansion will fetch.

Plus, a bad beanie baby investment.

It is all ahead on weird wall street.

? hollywood, we have a problem.

The movie industry has produced six big budget disasters from will smith's afterbirth to johnny depp co the lone ranger.

Steven spielberg said that last month -- our friend from hollywood.com joins us now to sort it out.

It all, paradigm shift, or is this a short term anomaly?

I think when spielberg talks, you have to listen, because he knows the industry inside and out.

He had this preordained idea of how this summer were performed, particularly talking about a string of high-profile flops, which we have had.

The irony of this is that the summer box office is $300 million ahead of last summer.

Correct but is not driven by these blockbusters.

-- but it is not driven by these blockbusters.

It is it just the smaller, more creative movies that are doing better?

That is part of it.

We are seeing some of these smaller, independent films doing well.

But it is the films we have forgotten about, like iron and 3, over four hundred million dollars.

Fast and furious 6, another huge hit.

And the conjuring from warner brothers did so well last week.

We have some casualties, very high-profile casualties of this big blockbuster budget war.

It is creating the perception that hollywood is having a rough time right now, and it is true.

These movies that do not do well thought it hurts the entire industry.

Perception means a lot.

But when you run the numbers, the marketplace as a whole is looking pretty good.

And thankfully, the wolverine is opening this weekend and it will break this streak of big budget failures.

It will probably do up to $80 million this weekend.

But there are many perception issues going on right now.

We have movies with johnny depp and world -- will smith not performing.

I don't mean to diminish that would hollywood rather have box office sales up 10%, or would you rather have a string of hits that do not add up to a blockbuster summer?

Hollywood is trying to sort this paradigm shift out that could be coming.

It seems like with a new sheriff in town, pacific rim kind of looks like transformers.

Even the new superman kind of looked a little bit like transformers.

The big machines trying to conquer us all.

Why do we keep using the same formula?

40% of the box office comes from the summer movie season.

There is not a lot of risk taking going on.

Even the movies that are not sequels, what that is great because their original -- they are original content, so to speak, meaning they are knocked sequels.

But still, people start feeling like they have seen that movie before.

Will they reach into their pocket to start paying for that?

And a big star does not guarantee it is going to be a big hit either.

There are big concepts and and have to deliver on the promises of those concepts.

You do not want to break the bank on your budget, because you've got to make that money back to make more movies.

But you've got to remember, too, they're part of a large ecosystem.

Week after week, the reporting is about -- and it is true that we have had some very high- profile, big budget failures.

There will always be a few casualties.

It and they're piled up, like last week.

Two or three of them just did not do well.

This weekend, one very wide release.

A marble, but film opening with the wolverine.

-- a marvel comic book filled opening with the wolverine.

$1.9 billion so far in that rate -- that franchise.

It will get us back on track . you get interesting films out of that.

Why edgier in august?

It is the wind down of the summer.

Blockbuster fatigued is in full effect.

People want something a bit different.

Studios can take more of a risk, because it is not a front of the summer where it is from loaded with those high dollar films like iron and 3. it gives the audience more challenging fair.

Three years ago, district 9, which was directed by the the director that i direct a medium -- that directs elysium.

We used to call it the dog days of august because he would not necessarily get a lot of big revenue numbers out of that.

But you get into interesting, offbeat more challenging movies.

You get more challenging fair.

I'm ready for some wolverine.

Coming up, new data shows that facebook could rein on gogol's search party parade.

We will go to talk to a man who is making that happen.

And phil mickelson is teaming up with math, science, and education.

? the biggest story of the week, how about going mobile?

That is what have lifted the facebook shares 31% since monday.

And one of the companies making the shift to mobile is a new york start up that helps local businesses think up their information.

-- sync up their information.

They came together in may.

How did that happen?

It is interesting.

If you look to find a local business, they may look on google, facebook, etc.

Facebook provides a richer search than even google.

We are talking about richer content.

And yext makes it possible for them to update across their platforms.

Explain how specifically yext it able to help facebook be more effective in its job.

Let's take a business.

This weekend i went to pick up a pie, and i came home empty- handed because the price store was closed.

You literally went to buy a pride.

Who says that?

My wife gave me the assignment and i came back in the doghouse be divided not get one.

And i checked the businesses and google said they were open.

I should have checked their facebook listing because they had an update the same day -- saying they were closed for the day.

But if they had used yext, they would have only had to update in one place.

Correct exactly, and it would have updated on mobil -- multiple -- exactly, and it would have updated on multiple platforms runway.

What you think that integration is happening from google to facebook?

Is it that local businesses feel like they're getting more of a personal relationship with their customers than they do want to go back here like i think it is about the phone.

Increasingly, it is about mobil.

Half of the searches got here -- on the phone are locally intended.

That means, like someone looking for a pie store.

They have launched a feature called graf search on google.

And they have captured 13% of searches -- kraft surged on facebook.

And have captured 13% of searches that way.

The reality is, alive content -- that is, the update, the pictures, all of that is happening because of the dynamic of facebook.

That provides an -- that provide a richer experience than google.

Where would you lead this company in the next six months?

We have 105 locations using our software.

We have a vision of growing at over two hundred thousand by the end of the year.

-- we have 105,000 locations using our software.

We have a vision of going back to over 200,000 to maybe even 300,000 by the end of the year.

Next up, a golf great and an oil giant team up to help teachers.

? listen up, fashion fans, the miami beach villa that once belonged to versace could belong to you.

But it is $25 million.

It has a swimming pool made up of 24 karat gold tiles.

You could be purchasing a scene of history.

Versace was fatally shot on the front steps in 1997. thank you for joining us.

Compression of the sale price was initially listed -- i understand the sale price was initially listed higher and now has dropped down.

What price you expect it to fetch?

You should bring about $40 million or more.

Correct and you have to prove, essentially, that you have $25 million to even be shown this property.

What are some of the buyers -- i'm presuming you cannot name them, but what is the kind of buyer you are seeing come to the house?

Gregg's we are seeing some russian buyers, some south american players, and some very high-profile individuals that you would know if i said the name.

Unfortunately, i cannot say for confidentiality purposes.

Obviously, it is a very luxurious house.

Why do you think it did not sell with the initial list price of $125 million?

It was basically reduced to $75 million, but but current owner finals bankruptcy.

-- filed bankruptcy.

The bankruptcy court started with the auction process.

Is there another property like this in miami?

There is not, and quite frankly, not really in the world.

This is truly one-of-a-kind manchin.

Someone is going to be very happy to put it on their mantel.

It is a true -- a trophy to win.

What about all of the furniture and fixtures?

If you add all of that up, what do you think that it's worth it?

The furnishings alone are probably worth $2 million or $3 million, and they will probably be sold with the real-estate.

The buyers that you talk to, are most of them going to use the house and for their own personal use, or is there any talk of it come -- it becoming a very high end hotel were being used for something else?

It is interesting that you say that, because it is about a 50-50 interest inquiry, whether they want to keep it as a residence, or keep as a boutique hotel as it was before it was shut down.

What do you think?

I think a boutique hotel would work with a very nice restaurant.

It definitely opulent here is the word that comes to mind.

Thank you so much.

We look forward to the results of this auction.

Thank you.

Coming up, phil mickelson off the green.

He will be talking to jewels and me momentarily.

Collect big oil is making a big investment in american innovation and is taking a professional golfer along for the ride.

Exxonmobil and phil mickelson are bringing it back to school for u.s. teachers.

The vice president of research and development and phil mickelson join us now.

It down into my pleasure to have you from the new york stock exchange.

For the benefit of the viewers who are not familiar with this partnership, described the mission of the exxonmobil's teacher academy.

Correct the mission is quite simple.

We want to instill in teachers the tools and techniques that they can take into the classroom to excite their students about science, math, engineering, and get more kids to -- excited about that to where they will stay with that from high school into college.

Phil mickelson, a pleasure to have you on the show.

How did you decide to get involved with exxon on this project?

But this is our ninth year doing this.

A week partnered up a while ago.

F-14 thousand scientists and engineers.

We have had a -- they have 14,000 huge scientists and engineers.

We have had a huge falloff in our country.

It for america to stay great and strong, we need to have technological breakthroughs that we have had in the past.

This is something i have been passionate about.

I love science, and i always have even as a kid.

It helps me with my golfing.

It is something that i have always been passionate about.

To partner with exxonmobil in this is great, because we're making a difference.

We have affected quarter of a million young students.

How did the nexus of this project come together?

Learning that there was a need, learning that we were falling off and other countries were beating us and realizing the long-term effects.

And it is the perfect partnership.

Last year, they gave over one- quarter of a billion dollars toward education and over $100 million was in education.

But i'm sure you do a lot on a charitable front.

How is your money allocated in different efforts?

We have a broad range of activities where we spend money.

At the top of the list is the education, science technology, engineering, and now.

Last year, we spent $112 million on charitable donations.

Over a third thought when to stand -- stem.

It is important.

You talk about technology helping your game, how do you specifically designed clubs when you sit down with guys and incorporate technology and mathematical models and all of the staff that these future scientists are going to be studying?

Understanding my lodge characteristics, understanding that i come in from a steeper angle of attack on the back swing of the golf club.

Might three-way driver is not -- is now the part of things more than any other out there.

The only where was able to reach a par-5 heavy into the air was by getting a spin right off of the golf ball.

When the center of gravity goes back, the cd rate goes up.

-- cg rate goes up.

I optimize my lodge characteristics, allowing me to get the two shots that i needed to get into the wind.

I never could have done it without this club.

You said it was the game of your life.

How much of the credit goes to the club?

Certainly, that is a part of it, but i have also spent hours practicing.

[laughter] hours practicing is right.

What do you think is the difference between what is happening in the u.k. and here at home?

What is the difference?

Dealing with failure and using it as a motivator for euronext performance is at important as a part -- for your next performance is an important thing as a golfer professionally.

Certainly, i was devastated because i had come so close and wanted to win so badly in the u.s. open.

But i also won a championship that i did not know if i could win.

I had to alter my game, learn shots that i never grew up hitting, and develop and create a new style of play that was foreign to me.

To be able to accomplish that and overcome these obstacles to win, that is by far the greatest accomplishment of my career.

What did you have to change?

I have to be much more conservative off the tee.

You have to avoid the the bunkers.

I did not even carry a driver.

I'm used treating high in the air with a lot of spin, which is not the way to play there because the ground is so firm and the wind is so strong and the air is so heavy.

You've got to keep the ball low and get it on the ground so that the ground have a greater effect on the ball and the wind.

That is absolutely awesome, to how you describe how you won the british open.

The pga is coming up.

What are you doing after that?

I will be there a couple of days doing some prep work, deciding what clubs that will put in the bag.

And i play next week in ohio and then i come back to participate in the pga.

I will be working hard, because if i were able to add that to it, it would make for an amazing summer.

How are you going to get any of this man's time?

He sounds awfully busy.

He is a hot commodity right now, but i must say that he has taken time out in the past nine years on the teachers' academy.

They are absolutely g

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

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