’s Failures: Surveillance (10/24)

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Oct. 25 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Hardeep Walia, Barry Ritholtz, Michael Wolf, Peter Beilenson, and Dawn Zier. (Source: Bloomberg)

This is "bloomberg surveillance." amazon and microsoft report spectacular growth.

Amazon advances nearly 10%. steve ballmer resurfaces in business glory.

It was not our decision to go live -- no, not "bloomberg surveillance." was launched on test -- untested.

Get out from under the desk.

The dow, 15,500, visible market continues.

This is." -- this is "bloomberg surveillance." i'm tom keene.

Joining me, as always, sara eisen and scarlet fu.

Good morning.

Microsoft had a nice report.

News on twitter.

Lots to talk about.

But first, let's get caught up with the morning briefing, overnight news.

In the u.k., the economy rose .8% -- it does not sound like much but actually the fastest pace in more than three years.

German business confidence also unexpectedly decreased for the first time in six months, so that is something to watch great economic data in the united states today, 8:30 a.m., report on durable goods orders.

Remember, we saw a decline last time around.

Just before 10:00 a.m., university of michigan consumer confidence.

And then at 10:00 a.m., wholesale inventories.

Earnings before the bell, really in economic barometer of its own.

Procter & gamble will be out there this morning -- out this morning.

Simon property also out with results.

Let's look at equities, bonds, currencies, commodities.

Features are churning right now negative one -- 10-year really unstopped, two or three days.

The euro, a very strong euro, back to one point 38. currencies just than the last 10 minutes have weakened versus the dollar.

When i came in, those were surprise numbers.

Nymex crude, 97.45, under $100. foreign exchange, the litmus paper of the global system, 13.20 with the dow at 15,509. the yen was a 96 handle when i walked in the door this morning.

97.24, still a bit stronger.

Dxy 79.20, weaker dollar all in all.

Gold i threw in there because i did not know what to do.

You should have done the swedish krona -- at a consumer confidence in sweden.

I failed?

A foreign exchange failed.

We scoured the web and papers for most and port stories, and it is really all about technology this morning.

A really big day with technology earnings yesterday with amazon and microsoft reporting.

Who said there is no sales growth?

At least at microsoft and amazon is plenty of it.

Microsoft revenue rose 16%. a double-digit percentage gains.

It does not matter that amazon is not profitable.

Investors are looking past that, focusing on the fact it is picking up market share.

This morning, it is one of the best performers in the premarket.

Microsoft -- we focused so much on the surface and how much of the disaster for the company it is, but forget about that.

Look at the cloud compute -- cloud computing and enterprise sales.

I know we will talk about microsoft a little bit later but on the amazon note, it's difficult -- typical jeff bezos, where they were so impressed -- they continue to give him a pass.

Something we will be discussing later on.

Our second front page story is all over the "ft," twitter ipo.

"ft" says it is in a cautious mood because they price it at the lower end many work anticipating.

A lot of mixed reports in valuations, because there are moving parts.

The share price lower than expected.

But with the so-called add-on and shares, you get up to a valuation and then you get a guesstimate where people think it will go.

I think you and i have to go to the roadshow.

Let -- it started last week in washington, d.c., the new york event goes to the what could -- west coast.

"surveillance" on the west coast.

They will not do hoodies.

They made it clear they will be the anti-facebook ipo.

Bank of america cutting about 1300 more jobs in the mortgage division.

It all reflects the new reality of lower demand for home loans because of rising interest rates.

The employees affected mostly involve home loan for film and workers.

If you combine this with the other job cuts be of they have announced, it will be about 3000 people total involved in making home loans in the fourth quarter that will be dismissed.

Is this what deleveraging is?

They warned in the last conference call there will be more job eliminations.

Not in a vacuum.

You see it in banks around the world.

Look at what we saw with credits we see yesterday.

It is amazing the difference between amazon and microsoft versus the stock units of the financials.

And the fact they still make a huge part of the economy.

Those are our front page story.

A lot more to talk about on microsoft and quitter.

But first -- microsoft that's what her.

But first come a minute expressing outrage that contractors testify yesterday they did not fully test until two weeks before it launched, prompting another round of finger- pointing.

Peter cook is with us from the sea.

Peter, this is the first time we got to hear from the contractors.

What is the upshot of the day and how does it move us forward in the debate?

The upshot is that contractors all said basically we did our part.

Yes, we had a few problems with particular components to the website but basically they threw cms under the bus.

The centers for medicare and medicaid services, the government agency most responsible, they suggested pretty plainly in her testimony that the agency itself failed to make a decision to test the old system, the full integrated system, until it was basically too late.

Two weeks ago until the system launch.

That was the main take away lawmakers asked about.

They really questioned that decision and the contractors said they would have liked to have had more time but they did not get it.

Plenty of blame to go around.

You spoke to congressman fred upton, the republican chairman of the committee holding the hearings.

We spoke to him after the hearings.

Let's listen.

Probably the biggest his appointment that we heard from contractors today is when they said ready for launch, they meant that little piece.

-- of their little piece.

No one, until just prior to october 1, actually put the pieces together to test them out.

So whereas they were telling us in early september and august than july that they were ready to go, they did not even do the test until after that.

It is so specific, peter, it is hard to follow.

Is the white house following this?

Do they make any moves after these hearings to clean it up?

They have already been in damage control mode.

May have been a damage control mode and there are a couple of things they are doing to try to address all of this.

Daily briefings -- the first one yesterday, by cms, to explain how things are improving.

Yes, they have the big problems early on.

Contractors suggested yesterday that things are getting better.

Time is on the administration's side.

They do have time to clean things up.

It will be hard to criticize of things a month or two months time is better.

One key date, mid-november, the number of enrollees will be identified.

And we have no idea of the number at this point.

It is a moving target right now.

Peter, you also spoke to senator ben cardin, a vocal supporter of the health care law.

On kathleen sebelius.

I think she has done a great job of secretary of health.

I think she understands the challenges before us and i think she is the right person to fix the mistakes that have been made.

There's going to be two weeks in these hearings into the government website.

Her testimony does not even begin until october 30. is there any sense of some movement in the white house behind the scenes where they are throwing her under the bus or her support is diminishing at all?

I don't get the sense that the administration is diminishing their support for secretary stabile use.

The wednesday testimony next week will be very important.

That's for secretary stabile yes.

The wednesday testimony next week will be very important.

She has not handle the spotlight well the last few weeks.

But she has small -- strong support of the democratic side from ben cardin and even fred upton has not joined his colleagues in calling for her to us that down.

Help me.

I'm bored stiff by the story.

When we go to the sunday talk shows, this is just about republicans and democrats sniping at each other?

It is a lot about sniping, tom.

There's a lot of politics.

It is interesting, when you watch the hearing, to see republicans restrain themselves and prevent themselves from taking on the entire health care law is talking about repeal.

They are trying to make the case that they are trying to tweak this law and do the oversight function.

It is pretty clear republicans did not like the law in the first place, did not fund it, and one of the argument from democrats is the reason we are in this place is republicans withheld support and funding for the law.

The problem is, this continues to be on the front pages and we are not talking about the budget negotiations or the next deadline.

We will get some of that next week.

The first meeting of the budget conference committee will happen on the 30th as well.

Happens to be the same day civilians will be testifying.

Wonder which one will be the bigger deal.

Peter cook, chief washington correspondent.

And you can watch more of his interviews with congressman upton and senator cardin on "capital gains" and you can also see a saturday and sunday 1130 a.m. and 3:30 p.m.. he has become one of our most popular guest coast -- hosts.

Gloom and doom, the world is coming to an end.

Surface this, that.

They generated $3 billion in cash to go to 81 billion dollars of cash and microsoft.

Wasn't this a home run for the beleaguered steve ballmer questioned i think it reminds all of us we talk about these client devices but it is all about enterprise.

60% of that revenue is generated from enterprise.

Two thirds of their profits.

And 90% of the criticism is generated by a tablet nobody buys.

On the consumer end -- and they are finding ways of decoupling from pc growth.

You see it in their new model to the clout.

There is a lot of excitement.

In this news release.

A good tease of what we have to talk about with you and a good recap.

Much more with you.

In the meantime, scarlet, i know you have more company news.

Let's talk about other companies reporting earnings.

Dupont making a move to be less cyclical -- spinning off some units.

It has been focusing on its higher-margin businesses.

The specialty chemicals movement -- unit has had multiple unions.

Volvo profit tumbled 18%. a recent rise in the swedish krona hurt earnings but analysts were concerned by orders and profit margins.

They will also cut 2000 administrative jobs, 1.8% of its workforce as part of a cost- saving plan.

Record earnings for samsung.

Net income for the korean electronic maker rose 25% to 7.6 billion dollars.

Field by serving -- searching prices for the memory chips and cheaper galaxy smartphones in emerging markets.

I got a verizon shipment notification.

It is coming.

The gold iphone, you are getting a monday.

Coming up, a big number.

$1.4 billion.

Is it big, is a cautious?

How much twitter is seeking in the biggest internet ipos and facebook.

More details on pricing and strategy next.

? good morning, everyone.

She is the mechanical engineer of tufts university, ellenkullman is "in the loop" with betty liu this morning.

She is the most interesting chief executive officer.

Kullman at dupont.

A lot of pressure to split up the company.

And they have been pushing back.

Sara eisen as always with tom keene of scarlet fu.

We have to talk to it or setting the ipo stock price but the internet giant is not seeking as high a price as most anticipated.

Cautious is the word.

Certainly that is how the "ft" frames it.

70 million shares at $17-$20 a share compared to the last trade on the secondary market before twitter actually said it will go public, monday six dollars-$28. already a discount.

Some say the price may go up in the roadshow, it certainly may happen, but it is a sense of twitter executives really wanting to take the opposite tactic as facebook, which was price it so richly that the stock was struggling to stay up the first day and then tanked and took more than a year to get back.

Now we know the range in the numbers, what does it say about the financials?

This is a company that has doubled its revenue but is still not profitable.

Still not making money and there are?

So how they monetize their overseas users which make up of -- about 75% of membership but only 25% of revenue.

If you look at the pricing of stock in the ipo, bloomberg figured out twitter would trade at about 9.5 times estimated sales and facebook traits about 12.9 times.

The real philosophy, whether institutional or retail, is what is the pop?

Our guest who has 100 $85,000 of facebook at 38 and just barely is broken easy on it -- 38 down to the 20's, what is the appropriate pop on a tech ipo?

That is in the eye of the beholder.

I am asking you as the eye of the beholder.

If it goes higher, a big mistake?

You are leaving money on the table.

It is all about setting a trend of momentum.

What happened with facebook -- everyone lessons learned.

They learned from nasdaq.

There is a lot of learning from facebook and it seems like twitter is putting all the learning -- you pick a number like 20, it you go to 24 or 25, that is part of the game and anything over that, twitter was being too righteous, not doing evil -- however you want to put it.

I remember -- was 100% of the ipo and there was another extreme.

It is a healthy balance.

It is about setting reasonable expectations on the roadshow, they want to attract investors and build momentum.

And it has a lot to do with the valuation.

A lot of people talking about the $11 billion number, but if you count for restricted stock and options and you say that will be exercised on a fully diluted basis, twitter's valuation would be as much as $14 billion.

A researcher said $19 billion in the "ft" cover this morning.

It is a question of where it actually goes.

Another thing worth mentioning is a lot point to the fact that founders, big shareholders of twitter right now, are not cashing in.

They are staying with their company.

They are selling some of their state but not cashing in my facebook.

What does that tell you, hardeep?

A lot of conviction that they will hold on.

Remarkable to see founders not throwing in secondary shares in the market.

Is this a retail stock or institutional stock question mark doesn't every institution have to own some question are absolutely.

People are going to crack the code on social moving to mobile.

Twitter is front and center.

I want to -- don't want to pick on a mutual fund house name, that would be unfair, but goldman sachs and the owners of twitter are providing psychological cover institutions to get into this thing by phrasing it more responsibly.

I think it is true.

Even post facebook's ipo, there were 180 funds who jumped in -- mickey number.

180 institutions on facebook even after the disaster.

? if they do it well and smoothly it could go a long way.

There was a lot of credibility lost with facebook and they are saving the day by being very responsible.

The message here is, we learn from facebook.

Especially with the retail investors, because they were really taken aback.

I think a lot of retail investors rushed in.

I think a lot on the secondary market, there were big industries that opened selling secondary shares of facebook on the market and the lot got burned.

It is an ongoing conversation.

We have to talk about what could go wrong.

It is our twitter question of the day.

Twitter on twitter -- what is twitter worth?

We want to hear from you.

Give us a number.

Give us some commentary.

Tweet us.

What do you think what it is worth question mark this is "bloomberg surveillance." we will be right back.

We want to talk about microsoft.

? this is "bloomberg surveillance." i'm sara eisen, as always, with tom keene and scarlet time for the morning must-read.

You have a good one.

Jobs in small towns and small cities, the challenge is rested on jobs in the education sector.

A former senior economist at the white house, the council of economic advisers, writes that ed and meds the only thing keeping them from sliding into deeper decline.

Several regions are building around these services under the logic they cannot be outsourced.

Both assumptions are wrong.

Specifically, he says online education will reduce enrollment in the smaller schools.

On the health care front -- sure, there will be erp put in your small town but specialists will be in places where the costs are lower because companies and place -- patients over.

So glad you brought it up.

We see the trend every day.

With disinflation and deflation, a wide body of urban economics study that everybody migrates to big cities.

Mexico city or new york.

No accident why technology is centered in silicon valley, banking in new york.

It will also happen with education and health care.

Let's talk about banking in new york.

My morning must read is from jonathan weil at "bloomberg view." new regulatory push from eric holder.

Eric holder, where have you been?

Is is no telling great things u.s. prosecutors might have accomplished if holder and his team had been this determined and creative all along before the biggest fraud cases of the financial crisis turn cold.

He still gives props to the justice department and eric holder from -- for coming from nowhere.

Basically the stock market is rising, the fed is sticking with easy money and banks will not get hurt if they launch these attacks so now they are waking up.

A great theme for october.

Remember, october is opposed to be so gloomy?

18,509, and now we go off the bank -- 15,509 and now we go after the banks.

It will not jpmorgan.

And bank of america getting around the statute of limitations.

That will certainly be an ongoing theme as well.

Coming up, a new tech savvy icon -- he is on twitter, has a new website and making demands.

Not everybody have the about it.

So it -- should ceo's he be listening, people listening, shareholders?

We are on bloomberg television, streaming on your tablet, your phone, and

? this is "bloomberg surveillance." i am sara eisen.

We need a data check.

Top -- stocks are still near a record high.

Futures at negative two.

The euro was at 138. west texas under 100. that is the data check.

With the stock market at record highs, i want to look at a couple of losers.

Starting with cameron international.

A lot of these equipment manufacturers are struggling to maintain cost.

Rising demand is not coming along as quickly as anticipated.

Also the securities company, symantec fell short of estimates.

We are also watching apple.

Carl icahn is added again.

He has a new website.

The 77 year -- 77-year-old activist investor announced it on twitter.

The first product -- a letter to tim cook.

Cash for shareholders, a buyback.

Joining us on the phone, barry -- he has twitter, he goes on media -- now he has a website.

Easy changing roles -- is he changing the rules?


this is what activist investors have done for years.

But instead of going after a smaller company or potentially on the rocks and having a substantial number of shorts in it, a vulnerable company, carl icahn is going after the white whale.

They see $150 billion in cash sitting there and that is just a giant pile of money that is a resistible.

Almost making as much of a splash is a tweet from pimco.

Calling out carl icahn and spending more time like bill gates.

There's this perception that he is just in it for the short- term, in it to win it.

Do you agree with?

Carl icahn has always struck me as a very smart guy who was married to his work.

He is never going to retire.

I don't see carl icahn playing golf or fishing or chilling out.

This is what he loves to do.

That said, he may have bitten off a little more than he could chew with apple.

This happened not too long ago with david einhorn.

It has happened with other hedge fund managers.

They say, you should do something with your pile of cash.

To be blunt, stock buybacks are among the least productive ways that countries can invest their money for the long-term.

If you were saying, you guys need to pour money into research and development or you are rich enough, maybe you might want to raise your dividends a little bit because you become a value stock -- that is a very different argument.

Look at companies like dow -- dell.

They have rued the day that they spent that money.

Dell spend more money on share buybacks than they made on profits.

To your bullishness, all of these companies have walls of cash -- there's a thing called eminem theory -- m and m theory.

An intelligent use of cash -- maybe it doesn't matter.

As carl icahn writes, it is our money.

Which way is it?

It is a lot of johnny-come- lately have taken the position in apple -- it is not their money.

It is the shareholders' who have been sitting there for a decade or longer.

We were initially buyers of apple when we were mocked and it was single digit so long ago.

I would like to say we held onto our shares is whole time but we didn't. a lot of people suddenly want to tell arguably the most successful tech company in the world, a here is how you should do it.

Where were you when everyone thought apple was going out of business?

At this point, in terms of what icon is doing, it is a big pile of money and he is looking to grab some.

A big pile of money.

When you look at carl icahn and what he does, he is also investing in netflix and had famously told everyone that he is selling more than half of his stake.

Would you look at his track record with other companies -- he has been very clear about that.

There is a role for activism.

You have to understand that technology is different.

You are one move away -- there is a reason that microsoft and apple put cash on their things.

That much cash?

You would be surprised.

A lot of people want to have the freedom to implement.

You never know when you will make a misstep.

It is nice to have that cash.

Think about blockbuster.

That was a company where they gutted it.

Carl icahn gutted it.

That was a bad call.

Warren buffett takes -- stays away from tech.

I have microsoft wishing $80 billion of cash and short-term investments.

There is not a management textbook that says that is justified.

What are they going to buy?

Ford motors?

There are a lot of companies out there.

Look at amazon, the kind of investments they are doing.

Tech changes.

I want to wrap it up.

. final thought from barry.

Now that carl icahn is launching these multimedia activist attacks demanding cash -- technology or not -- should other ceos be nervous?

If you have lagged the market in terms of innovation, if your stock price is not up 16,000% over the past decade, you better pay attention.

If you're apple or any of the other really successful tech companies that have a war chest -- everybody forgets, apple in 1998, was on death's store.

They have never done the acquisition.

I would not be surprised to see them start kicking other tires rather than do a share buyback.

Companies like twitter or netflix i'd make a strategic fit.

I am not suggesting those two.

There are a lot of companies that could help burnish what apple does.

It is good perspective.

They rewritten holtz -- barry ritholtz, good to have you here.

Spending on everything, it is not just movies.

They are really ripping it up -- they are a different business . they are building a phenomenal machine.

They are building for the future.

I am just saying, if you go to a 15% dividend growth -- something reasonable.

I have been in tech for a long time and i know you make one misstep, you have to catch up.

Having active cash -- that was bill gates' philosophy.

To the raiders, i would say leave them alone.

Carl icahn owns billions of apple stock, it is only 0.5%. the new wave of activism jury coming up, we will hear from elon musk, the tesla ceo.

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

Economic growth in the u.k. accelerated to its fastest level in the last three years last quarter.

The biggest increase since the second quarter of 2010. services, manufacturing, construction all expanded during the.

-- period.

Prices in september were unchanged since sliding since september 2008, a big win for the prime minister of japan.

It is seen as a big win for the economic recovery.

A big deal in sports.

The st.

Louis cardinals get even.

The cards taking game two of the world series.

They took advantage of defensive lapses by boston to even the series at one game a piece.

Those are your top news headlines.

Tom, what did i tell you yesterday?

The cardinals would recuperate.

That is tom's face after seeing the cardinals recuperate.

They look like they should be hunting those guys with those beards -- all i can say constructively is that i won a game 6, game 7 series.

There have to be three losses by the cardinals to get you to game 7. you are looking at the gorgeous are designed me -- by joan behind me.

He was rooting on -- ok, over to england.

Elon musk just wants europeans to buy teslas with the same fervor that americans do.

Guy johnson is with bloomberg london.

Johnson spoke to lord mosque -- musk.

There was no hugging.

It was curious.

Elon musk was on good form.

He was here to launch this big tesla store that they have gotten one of the massive shopping malls here.

He was keen to make sure that europe is going to be part of tesla's future.

As you say tom, he thinks europe is a better place for tesla.

We appreciate it more.

At the risk of offending a few people in the u.s., i think there is a greater appreciation for a highly refined, premium car.

We appreciate the better things in life.

Did he really say that?

What was that about?

What a snob.

I don't know what to tell you.

How dare he go after your pickup truck.

[laughter] clearly musk is a man who knows that the pump things up.

You have seen that in his share prices.

It is amazing to see the response to that over here.

Not even on your side of the pond.

I had people coming up on the street yesterday as i was driving the car up around -- a great deal of involvement in the share price.

Amazing really.

The stock price that we have is not as though -- i'm not going to say we deserve every penny of that.

I think it is more than we have any right to deserve.

We are going to do our best to fulfill the expectations of investors and i think in the long-term, that stock price is going to seem fair.

We got to drive the car.


Maybe not made for some of london's smaller streets.

The model s is a fairly big car.

It is stylish.

It cruises around london.

It feels fantastic when you put your foot down.

I am curious.

It is an interesting time to launch.

He wants to make a splash.

Tesla is doing something different.

The european car market has part -- been pretty abysmal in terms of registration, decade loads -- lows.

Is it turning the corner?


We have heard reports that the european car market is turning.

If he does not compete in the mass-market areas of the european car market -- he compete against bmw, mercedes -- these big and carmakers -- end carmakers.

Guy johnson, thank you so much.

We will have more of that through the day here at bloomberg television.

Guy johnson, london.

The crisis is over.

Do you put the kids in the back of your f 150 pickup truck?


I love pickup trucks.

No joke.

Coming up, microsoft earnings are out.

Their surprising.

We will talk about the future of the tech giant with their former director of corporate strategy and the future of who takes the reins as ceo.

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

We have company news for you.

Shares of zinga soaring after the company posted a loss.

Revenue also better than anticipated at $202 million.

Shares have risen since the former microsoft executive took over.

Record earnings for samsung.

Net income climbed 25%. the rise was fused -- fueled by surging prices for the memory -- memory chips.

Dish is making a bet on broadband.

They are offering six wireless broadband services in trial markets in virginia.

That gives him stronger offerings to compete with cable and telecom companies.

That is the company news.

Yay, everything is more expensive.

A tweet about japan.

Speaks to the shift in japan.

They want that.

Gray tweed.

-- great tweet.

Microsoft is another top story besides japan.

First-quarter sales and profit topping analyst's estimates.

The future for this company is still unclear.

Not to mention the elephant in the room, who is going to replace d ballmer.

Microsoft is in transition.

They are looking for a new ceo to replace steve ballmer.

They're launching a new version of the surface tablet.

They are investing in the xbox.

For now, the revenue and the profits come from its bread-and- butter.

It is the enterprise market.

It drives the business and will continue to do so for the near- term.


I am in shock.

Their operating income margin is 34%. it is a total failure.

The former general manager of microsoft is with us.

When does this stop?

When does this microsoft-bashing stop?

When i look at an income statement that 500 out of five cut -- 500 other companies would kill for.

They are doing really well.

They do have to move.

They are being out executed on the consumer front.

Microsoft is an integrated technology company.

They announced at their analyst meeting last month, they have to push on certain areas, mobility, cloud.

This is the first time actually reported a little bit more depth.

Internet transition process -- from traditional enterprise services are quite -- why should the transition?

You need to consider this.

It is a money making machine.

Comparative amazon.

It is because it is the long- term.

Where are they going strategically in the long-term?

They have to act now.

Some would argue they needed to act earlier to make this transition to a cloud model.

Buried in these numbers, their winning back the government deployment from google on the cloud services -- they need to compete on so many different fronts.

This is a good step in the right direction.

Are they dealing with the decline in the pc market?

Analysts say it has been baked into the stock and they are getting beyond it.

It is a small piece.

Windows is its third-largest business.

People forget that.

You are going to see a lot of these transition models.

Interesting fact -- if you think about office for the consumer, this move to the cloud.

By moving to a cloud subscription model, they can capture revenue.

Typical consumer investor upgrades to office every five to seven years.

This new cloud model allows them to bring the revenue in 2 years -- they can capture the same revenue.

X -- will we say no, we want to it every year and we will go to apple?

Apple does not have a competitive offering for office.

I works doesn't come close even though they are handing out free right now.

What they don't have a monopoly on his search.

We know that microsoft is changing the way it reports earning, killing traditional reporting lines.

We won't know how much it loses on being in the future -- bing in the future.

Microsoft is plenty of earnings to subsidize bing, but should they give up on search and cede ground to google?

Here's the problem.

They can't allow google to come in and own that relationship on every client device.

They have to have a competitive offering.

Everyone is trying to on that last mile of the relationship, whether it is an enterprise customer or a consumer customer.

That is why they have to go in and act on nokia.

You have a system that used to be very loyal to microsoft, now they are offering android devices.

They had no choice.

His is a defensive and an offense but -- often strategy.

To mention mr.

Murdoch, he took to businesses and put them into.

-- in two.

I don't get that.

It has always been microsoft's way to have an integrated approach to technology.

It is this "better together" -- it is one microsoft.

It is one microsoft.

Thank you so much.

I got smarter on this.

I don't get it.

Are you ready to get smarter on foreign exchange?

Roll the swedish krona.

The swedish krona strengthening on confidence today.

The british pound is also moving.

We will be back.

? . . this is "bloomberg surveillance." amazon and microsoft report spectacular revenue growth.

Amazon advances near 10% this morning.

Steve ballmer resurfaces.

It was not our decision to go live -- no, not "bloomberg surveillance," was launched untested.

And have it all this fall, have it all this weekend.

It is time for me to get cut and chiseled.

Sara is expecting me to go on nutrisystem.

Good morning, everyone.

"bloomberg surveillance." i am tom keene, live from our world headquarters in new york this friday, karen 25th.

Joining me, i am having 14 glasses of water.

Sara eisen and scarlet fu.

Our guest host is cut and chisel, michael wolf, managing partner of acne, former board member of yahoo!, and also ages ago with mtv networks.

I am encouraging you to do nutrisystem.

That is a huge growth spot -- men's weight loss.

I think you should try it.

I think you would benefit.

We can all use a little weight loss.


Time for a morning breeze.

I will kick it off with u.k. news.

Overnight, rising .8% in the third quarter, up from the previous quarter.

It was the best pace of growth for the u.k. in more than three years.

The sterling advances.

This is going into the weekend.

Things are pretty good.

Things are looking at little better in europe and the u.k.. one note of caution -- german decrease in -- decreased for the persimmon six months.

Durable goods orders, there was a decline last time around.

9:55 a.m. -- university of michigan consumer confidence number.

Expect to see confidence drop perhaps because of the government shutdown and the near debt ceiling debacle.

10:00 a.m. eastern time -- host cell inventories and plenty of earnings to chew on before the bell.

Procter & gamble this cannot with numbers.

Profit managing analysts' estimates.

The company reaffirming forecasts saying it sees a strong earnings growth and strong topline growth.

One quick mention -- organic sales growth of 4%. they need that better economy, and they are really linked to it.

They are in turnaround mode as well.

Another willing to the economy is ups come out before the bell.

There is a morning brief.

Scarlet, you about other company news.

I do.

To continue on earnings, microsoft, whether it is a pc -- weathers a pc slump by focusing on gamers and the cloud.

Microsoft also forecast revenue that will exceed projections for this quarter.

The company is seeing strong xbox demand as its new game console is rolled out.

Meantime, twitter thinks it is worth about $11 billion.

The microblogger plans it shares between $70 and $20 a piece.

If you assume all restricted stock options and equity units, twitter would be valued at almost $14 billion on a fully diluted aces.

The ipo would raise as much as $1.4 billion.

More pain at the big banks.

Bank of america cutting about 1300 more jobs on its morgan state vision -- in its mortgage division.

The layouts, as demand for home loans sink on higher interest rates.

That is your company news.

More layoffs and smaller bonuses.

The headline so far from the big banks.

To washington now were a federal contractor responsible who but the website face a grilling from lawmakers.

They wanted to know why nobody's all the problem's coming and when they will get fixed.

Here's a snippet of the exchange.

How soon will it be do you think that the average american can do and get right in without any of the glitches?



What i can tell you is that i have a team of people working around the clock trying to quickly get this resolved.

As i said, there is improvement day over day.

I cannot give you an exact date as to when it will be completely to satisfaction.

How about a guess?

I would prefer not doing that.

I do not like to raise expectations.

Our chief washington correspondent peter cook is following the obamacare rollouts.

Peter, lawmakers and not look too thrilled with the answers.

How does that play out from here on capitol hill?

That was a democrat right there asking cheryl campbell about the problems with the website.

Both publicans and democrats are expressing frustration over what has happened here.

This has been partisan at this point.

There was bipartisan outrage over the problems americans are happening and rolling.

Basically the pressure is on the administration to deliver those contractors to deliver improvement.

They talked about improvements made everyday, the administration in a new conference call that will be started every sale of a will be providing updates, and the pressure is really on the administration, particularly health and human services secretary kathleen sebelius.

She testifies next week.

I look at this, i think it is absolutely extraordinary.

Michael wolf with us with some terrific aspect of on this.

You have been watching this as well.

How big a deal is this?

From a respective of consumer technology, this site is close to unusable.

The problem is not technology.

The problem is procurement.

What does that mean?

The government has gone out and instead of looking at how the big create great consumer experience, what they have gone out and done is higher big government contractors, including the company that they use, the canadian company, by the way, that built this.

They built in any way that they thought it was going to be industrial-strength strength, but it really was not usable.

Do they need to bring in marissa mayer?

Or do you have to bring in code writers and narrow expertise here and not bethe vavoom?

The front end of the system is also back.

I think it will take a while to fix it because the architecture of it is not great.

It is really not set up for this kind of volume, especially since a lot of the states decided not to build their own exchanges.

Well, clearly is going to take a little bit of time to fix it.

Peter cook, how does the administration change the conversation?

We heard president obama out yesterday talking about immigration.

He still has an agenda.

They only change the conversation if they can say with confidence and evidence that things are in fact improving.

They're claiming that is indeed what is happening.

Again, secretary civilians -- secretary se belius'testimony is important.

At the same time, you have to talk about other issues.

You have the budget conference coming up.

They are going to try to change the conversation.

At the same time they know they have to report progress.

Time is on their side.

There is an x rotation that we will move past the story pretty soon, estimates -- there is an expectation that we will move past this story pretty soon.

Peter cook, our chief washington correspondent.

Looking forward to hearing your interview with fred carden on "capitalol gains" on bloomberg television.

-- your interview with fred upton and thenben cardin.

Notorious as a senior officer of mtv, also darkening the door at mckinsey a few years ago.

It's twitter -- does twitter need mckinsey?

Twitter need to show mobile, needs to show that it can monetize, that it can take its users and get them to spend more time but not only that, so more advertisements -- and margins.

Any to be able to show that it can increase its margins.

As a grows, it has got to show that it can hold margins.

I am using it.

I hate ads on twitter.

Is there any evidence you see that we will accept ads on a cell phone?

The ads are in the stream.

Everybody else, they are annoying.

There are the little pop-ups.

You're talking about promoted tweets.


That is really where it -- it is not bother people as much -- because we do not realize that as much.


it is not say as much money as a desktop atd.

People move their viewing and their usage from the internet on a desktop to the handset or the tablet.

I think twitter is going to be the one company that will benefit the most.

Here is a promoted tweet i have inside my twitter stream -- you too can lose weight this weekend through nutrisystem.

That was me.

That was you?

When you look at the evaluation, what twitter is opposing here, $7017 to $20 a share, is it trying to hard to be facebook ipo?

One of the problems with facebook as they went out with a massive price, the shares fell, and then the consumers equated that with the help of the service.

Was facebook really in, was it out?

In reality, it had nothing to do with the use of the service or how great facebook was.

Just the stock price went out way too high.

Actually, this all has to do with our twitter question of the day.

It is about twitter.

What is twitter worth?

Michael, what is it worth?

It is worth about the range -- oh, come on.

One says $19 billion.

There is what twitter think that is worth versus what everybody else thinks it is worth.

We will be right back.

We will leave it there.

We're going to come back with michael wolf on "bloomberg surveillance." this is "bloomberg surveillance." i am tom king.

-- i am tom keene.

Michael wolf knows the talent of mark zuckerberg and marissa mayer.

He knows content is what moves forward to the consumer content.

It is still king.

Whether it is cbs, fox and the world series, or how about netflix?

He is now head of activate strategy.

Netflix in spades has told us content matters.

Netflix, despite the fact that people look at it as a distribution service -- a lot of what is driving their usage and their pickup and subscribers has been the new shows that they have created.

Everything from "arrested development" to "house of cards." people are going to netlist because they want to watch those shows.

I watched "modern family" last night going into the world series.

Is it formula to make content today the same as it was five or 20 years ago?

It used to be that the only people had the money, the cash to create great shows like these were the big networks.

Even the cable networks and not have as much money.

Now with the massive subscriber base, netflix is in a position where it can create its own content.

Let's not forget -- amazon, hulu, even youtube -- they are all creating their own content also.

We saw amazon in the earnings report talk about amazon trimming off a prime, you have twitter trying to link to tv.

Ginny's digital companies 20 -- can these digital companies join the space of disney?

Already they are spending an enormous amount of money on content.

They are already needed to continue to buy what is being produced by others.

Can these companies create great content?


Content comes down to creators.

It comes down to people who are great writers, actors, and directors.

And they have money like everybody else does.

Very quickly, there is a distribution issue -- youtube now trying to be spotify, a name i did not know 20 poor months ago -- 24 months ago.

Youtube want to capitulate and tv as videos on youtube.

Can the old media of video and music video work under redistribution message?

When the most popular sites on the internet is vevo, basically 95% of its traffic comes from youtube.

Abel want to watch short form programming and longform programming.

I do not know if these are videos are going to drive ratings anymore.

I think what people are showing on netflix and are now showing on these other platforms if they want to watch shows.

Yes, they want to watch a short stuff, but they also want to watch full length shows.

Let's leave it there appeared what an idea -- content is king.

Coming up, we will look at the internet juggernaut amazon.

Revenues up 24%. profits -- detail.

Coming up on bloomberg television, don't do this at home -- do it on a golf course.

Chip brewer, callaway golf ceo, he will be on "in the loop" with betty liu.

And we are going to do nutrisystem.

Betty is going to do off.

You keep looking at me like this.

I am sara eisen, here as always with tom keene and scarlet fu.

I've got top headlines for you.

Starting in japan because the guyauge of prices there in four years of the line.

-- of decline.

The index excludes prices for energy and food, and the data is seen as a boost for prime minister shinzo abe's efforts to drive an economic recovery.

Germany and france one new rules on espionage practices with the united states.

This coming after reports that the national security agency was eavesdropping on european leaders.

German chancellor on july merkel an -- angela merkel want answers.

Cardinals had a 4-2 win over the boston red sox.

They took advantage to even the series.

Now at most to gain -- st.

Louis for game three tomorrow night.

He wanted the seven games series, so this is what he asked for.

I would be surprised that carlos beltran is playing the first world series in 16 years.

I had no idea.

A james taylor gave a phenomenal national anthem.

That does not surprise me.

Major five, minor six transition in the second verse of the national anthem.

It was awesome.

Are we supposed to know what that means?

He took the whole major dominant thing and made it a minor seventh -- he james taylorized it.

James taylor and the boston red sox.

Could you be any happier?

We have been talking a lot about the rollout of the affordable care act.

What do you do if you are a business that relies on the success of the new health care law?

The challenges have made it difficult for people to enroll.

Someone with a front row seat to all of this is the ceo of a new insurance and health care organization in maryland created by the affordable care act.

Peter, obviously this has been a complete disaster.

What sort of enrollment numbers are you seeing?

The problem here in maryland is that the exchange is not working terribly well.

It is actually one of the few states that has a state exchange, so we are not part of

We still don't see terribly much in terms of numbers of enrollment in part because they don't really know how many people have enrolled.

We have taken our small stance, being a cooperative insurance company that is much smaller than the big guys we are competing against, and we are more nimble than they are, so we have changed our marketing strategy away from just the individual on the exchange, which is not working terribly well, selling to small businesses off the exchange, and we've had 250 brokers in our broker forums here in maryland in the last couple of days, and hundreds of calls that are going out to warm leads to make sure we get cells to -- sales to businesses.

How long do you think it will take to fix the maryland system and in the federal system?

And is it even fixable or should they just start from scratch?

It is fixable.

I do not want to be pollyanna- ish, but it is literally gotten better every day, and the reason i know that is that we at evergreen tested literally hundreds of times a day.

You actually can get through some of the time to enroll.

If there still are significant obstacles., the federal system is also slowly getting better, but it will be at the same or the tour before it is working to satisfaction.

Teeter, we you are one of the best while five people in the country for this question -- what portion of americans really care about

I can get a handle on the number of americans that don't care about this versus the number of americans, what percent, really care about getting this fixed?

You mean in terms of the average citizens?

The interest in going on to help your dog of a getting insurance, i think the number of people is significantly more than most people expected.

That is not the only reason that the exchanges are not working.

It is not just the usual volume.

There are clearly technical glitches here and we are finding a tremendous amount of interest here in maryland and also around the country in getting on the exchange, which is why there is so much pressure and sugar a lot of frustration.

Our guest was for the hour, michael wolf, founderinging partner at activate.

If the u.s. government were your client, what would you advise them to do with this?

At this point, they need to step back, set the exposition that is going to take a lot longer than they're saying.

People expect is going to come right back up, and the problem with it is it is not a great consumer experience, it is not something that people have a certain excitation.

The use e-mail, yahoo!, and now the government -- you want to be able to use it and sign up.

I think the government should reach the expectations.

It should take many months ahead, maybe another six months, and to roll back the timetable on this.

Peter, just to your own business and all of this, obviously it has been a bobby start, but are you worried about nonprofit upstarts like yours are going to have trouble competing with the demand and with all the problems with some of the bigger, establish insurers like aetna, cigna, and the giants?

Our web enrolled for those who are going online who don't need to go on exchange, in other words those who do not get subsidies for health coverage, i actually went on our web enrolled site this morning just before i came in today, and you can go through it and enroll in less than three minutes.

So we are quite confident that for those off the exchange will be able to get significant business, and we are hopeful that these change in maryland and around the country gets better the next two to 23 months.

I do not disagree that it is not going to be able to be fixed immediately, but i think it will be significantly better by december 15. peter beilenson, we will continue to check in with you.

Coming up, we will talk about nutrisystem with the ceo.

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

It is time for company news.

Procter & gamble posted in almost 8% jump in profit.

When he back out some items, earnings were $1.05, in line with" estimates.

-- in line with analysts' estimates.

They also realigned their outlook for the year.

Meantime, dupont moves to be less cyclical.

It is spinning off a unit that makes refrigerants, coatings, and other chemicals.

The specialty chemicals unit is considered slow growth and has had volatile earnings.

And volvo posted a surprise drop in profit, earnings tumbling 18%. a recent rise, analysts were concerned by orders and profit margin.

Volvo also will cut 2000 administrative jobs all part of a plan to cut costs.

That is today's company news.

One company in the spotlight today if amazon.

Jeff bezos doing it again, reporting higher revenues, better sales, but losing money because of all of that spending.

Once again, wall street loves earnings.

Washington continues to give jeff bezos a pass.

He is so dominant in his market that the company is rolling in when it comes to sales and bulldozing through competitors.

Revenue rose 24% to more than 70 -- $17 billion.

Net loss narrowed to $41 million.

The stock is up 8% in the premarket.

All money that jeff bezos and amazon is making through their sales is being reinvested into more fulfillment services, new product, new services, cloud services -- and groceries.

And lots of other experiences.

As soon as they throttle back on the spending on new businesses, they will be enormously profitable.

That is why wall street is betting on the.

Activate, michael with a lot of management experience, there is a belief that one-day profit shifts in, isn't there?

I believe there is.

They are just gobbling up the world.

They're not just disrupting -- they are devouring.

They are over whole segments of the consumer products business.

Of media.

That is where they are spending the money.

As soon as they need to, they can earn a lot of profiteer.

Is that a model that others can replicate?

Just having with the name, it is a river as long as the amazon.

It gets a pass because people see continued growth.

That is the point of scarlet, and you researched this, i love the forward view, operating loss of between a positive $500 million and a -$500 million.

That is like a common and -- a comedy sketch.

It is a broad range.

Term, maybe it will sort itself out.

What i find interesting is the fact that amazon has huge shipping and freight expenses.

It did raise minimum order for people to $35 to get free shipping as opposed to $25. both of the costs -- fulfillment costs rose 25%. packing and picking up stuff and shipping boxes is a variable expense.

It is not fixed.

The idea, michael wolf, you are at mckinsey and your consulting and people come to you and say we want to be like jeff bezos.

Actually, i run my own firm, activate now -- no, i know.

Jeff bezos has created a model, and whole foundation to be able to really suck up other businesses.

If you look at the fact that they've got this massive group of run members, -- prime members, and yes they are getting free shipping, but they are subverted to video.

Once again, he raises the minimum price, it will cut a lot of those shipping expenses.

What about the margin?

All the traditional metrics and to go out of the way into amazon.

Negative .01% versus -.02%, contracting to 2.9% from 3.7%. you talk about apple and 40% gross margin and people getting worked up about that going below 40%, amazon is barely making a margin here, and again investors continued to press forward.

Metrics chosen to apply here at all.

It is a whole different flavor.

What is it measured by?

I think they are looking at scale, they're looking at the part of the economy that amazon gets to dominate, and by the way, there is the excitation that eventually it will make a lot of money.

There is 35 bias, 11 holes, and no sales.

Is this a one-way bet, everybody is on board and amazon train?

All right, michael wolf, stay with us.

Scarlet, let's get a data check.

We do have a lot of economic data this morning, mainly because a lot of the stuff was delayed during the government shutdown.

Durable goods before the market opens, 2.3% year to not really moving ahead of that number thomas 1749 is were s&p futures are right now.

The 10-year yield also unchanged at 2.5 one percent.

Euro-dollar not moving much either.

Crude, however, is climbing to $97.44. good morning, everyone.

"bloomberg surveillance." each and every one of our radios on bluebird radio plus, bloombergtv pluck him on ipad -- bloombergtv plus, on ipad.

Breaking news at "bloomberg surveillance," sara eisen's champagne iphone has shipped.

Brison sent me a tracking number.

It is a merkel.

It is time for our special series -- verizon sent me a tracking number.

It is a miracle.

It is time for our special series.

Today is about nutrisystem.

Helping you beat the bolt.

We're driving growth.

And have a turnaround following a five-year turnaround since president and ceo dawn zier took the helm in late 2012, the stock has been on the rise.

It looks like dawn, your turnaround plan is starting to work.

One of the most exciting things about what we have been doing and what i discovered over the last year is our brand license to do more, that the brand really resonates with the public.

Clearly it is a competitive base.

Alto suicide, you are focusing on the m -- all jokes aside, you're focusing on the mail market.

-- male market. -- i got tom a present your craving pressure formulated for men.

Good news, tom, it fights hunger.

You are one of the first to have this, tom.

Seriously, how do men go about this differently than women?

Men have different needs.

These products -- we have craving pressure shakes for men, hunger, energizing shakes for men and women.

Therefore related differently for both genders.

-- they are formulated different for both genders.

It is portion control.

Alternately, losing weight is about portion control.

We eat too much.

I saw dan marino on cbssports the other day.

He was looking gray.

Chiseled and all that.

Does he really use the product.

He really does.

He lost 22 pounds, kept it off.

Of course, dan marino is one of the celebrity endorsers along with melissa joan hart as well.

We are talking about driving growth, and a dividend is a big part of your story.

The yield has come down at the stock has risen.

What he'll do -- what yield as investors want?

Our dividend ratio is still pretty high when you look at dividend stock.

Is that enough to fend off potential activist investors?

We hear so much about the carl icahns in the world.

At that enough to fend off uncomfortable questions from those guys?

Is on performance hit when a look at the track record over the last three quarters, we are doing what we said we would do, so hopefully that

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


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