Interest rates rise on the recovery in europe.
Is it too much too soon?
The department of justice thanks stunned the airline industry.
Management and union block the merger of american and u.s. air.
And carl icahn likes apple.
He buys big and then demands cash.
Good morning, everyone.
It is "bloomberg surveillance." i am tom, live from our world headquarters in new york this wednesday, august 14. joining me as always, sara eisen and scarlet fu with us as well.
Activism is in the august air.
Is in the air.
It at the golden age.
They're going after bigger companies.
Karl eichmann, -- r.o.i. con, bill ackman.
We've got some good news on europe.
I will kick it off with the morning briefing.
Europe is turning the corner.
We saw growth in europe.
Gdp for the euro area expanding .3%, expansion, france and germany leading the way out of a record long recession in europe.
In the united states, seven clock a.m. we will get that weekly number on it and be a mortgage applications.
The big one comes at 8:30 a.m., ppi index, a look at prices or inflation at the wholesale or business level.
Some evidence to watch, we get earnings from deeere and macy's. deere is big.
We will see what the spirit is of our nominal gdp and howard fulton to those earnings reports.
Let's do the data check.
It is a non-correlated data check.
You look at equities, bonds, currencies, commodities.
Sometimes they almost long step, sometimes they don't. jeff rosenberg will join us in our next order -- our from blackrock.
The u.s. 10 year yield, 2.69%. 30 year bonds, we'll talk about in a bit.
In europe, yields drive higher.
Euro is fractionally lower.
Nymex has not moved in a month.
Let's go to the next ring.
There is the vix.
Very important showing that enthusiasm for equities in the united states.
The 30 year bond was a 37024 hours ago.
He continues to drive higher yield, lower bond prices.
It is a big deal to the 401(k) and investments.
Overnight, this is a chinese currency, why do i care that it drives stronger under 6.12 yield?
It is a vote of confidence.
Generally we want a stronger currency for the overall health of the global economy.
Maybe are hard landing pushes away.
Australian miners doing better than good.
Maybe a breath of fresh air.
Cracks you left out the german 10 year bond yield.
Germany auctioned off bonds had the highest yields and back in 2012. things are looking up here . it is time for frontpage for the most important stories.
Scarlet, that airline story.
It certainly stunned the airlines.
This is all over the front pages.
"usa today," "wall street journal him cope "financial times." the u.s. along with attorney general of six states said in an and they trust that the deal is bad for consumers.
It will lead to less competition, higher prices, and what we know is this move has already disrupted americans plans to exit bankruptcy.
By definition, there is less competition if you have a four players a set of five.
But they have already approved all these megamergers are so the question is -- why now you?
Everybody has opinions on this.
It has been fascinating.
And everybody does.
Some people are so anti- merger saying this will lead to higher prices.
Our "surveillance" benchmark of a flight from new york to cincinnati for sara eisen.
Which is so expenses.
The other frontpage is billionaire investor carl icahn making at least a $1 billion bet on apple.
He is billed at the stake.
His first public statement on return of cash, how the stock is undervalued.
Investors like the news because they saw apple rising to the highest level since anywhere.
We will have more on this in a bit.
We want to stay with the five -- this idea of activist investors because icahn is the latest move.
He was in the building yesterday.
He set down with charlie rose.
That was why he was that the bloomberg headquarters.
After he resigned from jcpenney the board, charlie rose asked ackman about the recruitment of ron johnson.
The software from 20 to 42 on ron being hired.
We had too much credit for that because why i actually helped the company recruit ron johnson coming of a collective decision of the board.
When the business failed, i probably got too much of the blame.
For recruiting wrong.
But that is ok -- that is the risk of my business.
That is just the beginning of the conversation that he had with charlie rose.
You can sketch the entire interview tonight on bloomberg television at 8:00 p.m. and 10:00 p.m. bill ackman retreating from the jcpenney trade or his role of influencing the board.
Also, from page story, we have been following this 1 -- jpmorgan, charges against two former jpmorgan employees could come as early as today.
What is the new now you?
This is been a year-long investigation.
It is all linked to that $6 billion trading lot that everyone called the london well.
As for the london whale himself, no charges will likely be made against him because he is cooperating with federal authorities.
It could be as quickly as today.
This is one of those examples of an overhang over jpmorgan.
The other banks are trying to get out from under this.
Not to compare to snowden, do i understand that's to bring these two individuals, one in london and one in france, back to the united states?
It would appear so.
We were talking to doug burns, a former federal rescuer -- prosecutor on "market makers ," and he finds it curious that the actual london whale is not getting charged and it's getting a deal.
He think there is perhaps some evidence that would lead them to not convicting him.
It is an interesting twist because you see the headline and it is not him being charged.
This is just getting started.
Let's look at this airline -- not disaster, that is opinionated, but huge event.
Robert is head of mergers and acquisitions.
-- is involved with the u.s. airways american merger.
You have been doing this for years heard what was the mood in your office yesterday when he saw this news come across?
I think scarlet said stunned.
Everyone was stunned.
When you think about the airlines, it started the quintessential expression of capitalism.
Combine creative destruction, all of the above, new people coming into the market space.
Is this the study of law or politics?
Will certainly it is a complaint.
They have not blocked it yet.
One of the things that was interesting with the news without vomiting on the specifics of a very strong reaction from the two parties.
That we're going to fight this.
Because it was surprising.
When you think about it in the context, this was something the union supported as part of the bankruptcy.
It was a very huge development.
It was a disaster from the share crisis.
U.s. airways and shares lost 13%. some other airlines fell in sympathy i guess on this idea, robert, that if they are not allowed to merge, that reduces competition, and the pricing power that these airlines had been given.
Now let's so given the fact that the government will block the merger.
That is absolutely correct.
In -- and it was not surprising.
Whites were there hence that the government was concerned about this?
All mergers are scrutinized, especially large ones.
Particularly ones that have a direct touch to consumers.
Was it the case with ual and continental?
It was some review of that.
The bankruptcy court, by the way, at american -- approved all of this, and the unions approved all this.
They are on board as well.
You study antitrust, and there are some a formula that we as amulets -- as amateurs use.
The theme of the article was this was enough.
We have merger one, merger to, and a merger three is not going to happen.
Why can we have the tube radius -- the two previous mergers standalone?
That is a great question.
The airline industry is obviously a little bit different.
People kind of think of it almost like it is a public institution and set of a business.
But it is a business fundamentally.
You get new interests all the time.
Who ever heard of jetblue 10 years ago?
Why can't american airlines compete with jetblue as a standalone?
They certainly can cometpete.
Because they are in vagrancy.
Quite the fact that the union supported the combined a deal but not standalone says a lot.
The unions wanted a healthy, vibrant company that did not end up back in chapter 11. one of the things about this chemistry that -- this industry that proves the competitiveness isn't so frequent has to go through reorganization.
We will continue this throughout the hour on bloomberg television.
Let's get through company news.
Quite the shakeup over zynga.
The new ceo says thing up of the chief operations officer and two other top executive's are leaving.
Shares of zynga have fallen 71% since the company went public in a december 2011. meantime, blackberry have been looking for someone to buy the smartphone company for almost a year.
That is the latest development heard according to people with knowledge of the matter, bankers have been contacting possible bidders, they found literal -- little interest.
Piper he will consider all options, including an outright sale.
And cbs was almost 5% of its audience during that verse regret dispute with the time warner cable.
3 million homes and new york, l.a., and dallas.
Cbs and time warner cable cannot agree on fees or the network.
That is today's company news headlines.
It is still black, right?
It is still black and knows markets.
They need to resolve that before the beginning of the nfl season.
Pga was here last week in, but it is about sports.
It is not just about sports, it is about football and could dig up -- and football in particular.
A lot of people say that time warner has been pushing people off to aereo.
We need to make clear, you and i -- i'm as guilty as you -- we say time warner, this is time warner cable, not the packaged time warner.
That it's one story where going to follow today.
Another one has to be apple.
625. that is the -- that is how high roi contradicts apple's shares will rise with bigger buybacks.
It is our twitter question of the day -- is icahn's investment good for apple as a company?
This is "bloomberg surveillance" just getting started on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.
By the morning, everyone.
On bloomberg television, president, chief executive officer, that is on "market makers," stephen kaufer.
Price like a mature advisor, trip advisor and the rest.
This is "bloomberg surveillance." i'm sara eisen here is always with tom and scarlet.
Carl icahn making another big splash in a big tech company.
This disclosing a $1 billion position in apple.
Scarlet, he did on twitter.
Tracy did it on twitter, yeah, he used social media to discloses big stake.
And this case, he is going long.
He is not betting against the company.
He is not taking a short position.
He tweeted -- we currently have a large position in apple could we believe the company to be extremely undervalued.
Spoke to tim cook today.
More to come.
He also added that he had a nice conversation indicating that a larger buyback could be done now.
They were third of a friendlier carl icahn waken to apple.
-- it was sort of a friendlier carl icahn when it came to apple.
He mentioned that he believes apple shares should be worth $625, and he wants apple to take advantage of its investor grade rating.
Borrow at low rates, 3%, to find buybacks.
Let's walk through this for those who are not up to speed on the complexities of where the money is pure and where is the money, scarlet?
Much of it is overseas.
And for the other companies that have ported their cash, they cannot buy it back without -- robert profusek with us, to me, this is one big disk -- distortion theory we have dumb corporate tax law, which means we have the jillions of dollars abroad.
Icon says --icahn says bring that money back, even if you do not want to.
The texas him was predicated on a different world, a non- globalized world, where country by country dealt with all of the stuff.
This is a major problem.
The same debate in washington about a reprint creation holiday.
Let companies bring it back for a limited period of time at a lower level of tax, good for everybody because it is not as in the buyback stocks, it is anything, if you are a manager and you can spend 100 $10 outside of the u.s. or invest inside of the u.s. for $55, you are going overseas.
Du believe we can repatriate apple's billions and create jobs?
That is exactly the point.
If you are going to build another plant, by the way, you guys talk about these all the time with energies and employment, you want to do it except that it costs too much.
This is not the first time that apple has faced complaints of from investors as far as it's cash pile.
David einhorn famously push apple.
Apple came in to say that it will return $100 billion in the form of buyback and dividend.
The broader context here is that apple has not had a next big thing, a killer product, in a walter so that makes it more vulnerable.
David einhorn and the carl icahn's of the world push it.
It is also very big.
This is the biggest company by market value in the s&p 500. it is much more expensive for activists to take a standard is apple a good target, a good candidate for activist investors?
Activism meese to be a $200 million cap a bunny.
They're getting bigger.
Like you mentioned social media.
There are different ways to communicate this and deal with the marketplace.
You do not have to go over 5%. garlic, i know you want to jump in.
-- scarlet, i know you want to jump in here.
Can we say apple is away from the doom and gloom?
It is undervalued if you look at it on a post-earnings basis.
Here is my question because when it comes to these activist investors, tom was asking about returning the cash and putting it into creating jobs.
Carl icahn is not looking to create jobs when he asks apple to return cash to shareholders, is he?
But money comes into the country, it is recycled, and gets alternately deployed in investments.
Ok, but critically, to scarlet's point, with all of your he spirits in the law, do we need a specifically patriots an item that says put x percent into creating jobs, or do we just trust the capitalist?
Unlikely that we will do the latter.
There will probably be some strings attached, but it makes so much sense.
In an environment where it's rhetoric and posturing in washington rather than policy that we get that done, i don't know.
I love this.
I think i make no bones about it, i am an apple bull.
I am sorry -- you just like your ipod.
It is our twitter question of the day --is icahn's investment good for apple as a company?
You can tweeted, it is free @bsurveillance.
What is a, $1 billion?
Anywhere from $1 billion to 1.5 billion, we are not sure.
What does apple do if -- what does carl icahn do if apple does not respond?
Also, big story -- mexico wants to open up its oil industry for the first time in 75 years.
Huge opportunity, especially for big oil in this country.
Which company could go after mexico for exploration?
That is coming up on "bloomberg surveillance," on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.
This is "bloomberg surveillance ergo i'm sara eisen here is always with tom keene and scarlet fu.
In egypt, violence erupted at a fit and by supporters of ousted president mohammed morsi.
Security forces stormed is honest camps in cairo firing tear gas.
Muslim brotherhood says hundreds of people have been killed.
Health officials say 30 people are confirmed dead.
In mumbai, an explosion ripping through an indian submarine tied to a dog.
14 sailors aboard the sub were killed.
It is not known how many, the indian sub is diesel powered and was built in russia.
In new jersey, newark mayor ory booker has won the democratic primary to fill a u.s. senate seat.
He will feel the seat of late senator frank lautenberg.
Those are your top headlines.
Sir, are you ok?
I was joking over a granola bar.
This is a big story, especially as we look at the anti- competitive -- you have got to stop with the three egg sausage and rye toast.
She has got to have her big breakfast, don't bother her.
I thought it was spectacular today, morning mustard, here is scarlet fu.
-- morning must read.
Here is scarlet fu.
The rhetoric in washington, that is the theme of my morning must read, especially on capitol hill.
This particular class of congress is the most unproductive.
Since at least the 1940. former labor secretary robert reisch writes in the "new york times," that the political decision-making has moved to clinical entities where power is exercised less transparency, and accountability to voters is less record what we're losing in the process is not government -- it is democracy.
He points out the federal reserve is doing all the heavy lifting when it comes to the economy.
The supreme court has become a lot more active as well.
This is listened of national politics also moves the spotlight and get put on to state governments, where their decisions -- they don't always realize that there decisions have national implications.
Quite the secretary is an interesting guy.
He is a liberal conservative, casper read, and they love to hate.
He has got some wonderful ideas about this dynamic labor and this assistant unemployment, and now the fed is going to solve it.
I think this is the yellin- sommers distinction.
Yellin has been adamant she is not confident what a fed can do really about the job market.
What's interesting is to watch the improvement on a broader scale.
We are still looking at more than 190,000 jobs created on average so far this year through the month of july.
Unemployment rate has dropped down to 7.4%. is it enough?
And have you'd addressed stubbornness?
What you agree, sara, that it has been a bernanke-friendly stream of data in the last couple of weeks?
Retail sales came in better.
He has pretensions himself both ways, to be somewhat hawkish.
Tapering begins dealing back.
We will talk more about this of course and also big oil and big opportunities in mexico on "bloomberg surveillance." this is "bloomberg surveillance." i'm sara eisen here is always with tom and scarlet.
You've got a broader data check.
Not correlated with the boom, not the gloom in europe.
Futures at negative three, into the green, up higher yields.
10 year yield,2.70%. higher yields on a believe in future economic growth.
The euro, 1.3249. that positive gdp number in europe.
Is higher yields good or bad?
That is the ambiguous question.
We are seeing a growth.
Nothing ambiguous about yesterday.
The big gainer, auto-parts supplier, will sell a stake in his chinese venture and that would be for 1.2 5 billion dollars.
It will focus on its automotive electronics unit.
The saga that is highest since market 2011. the apple of course one of the big gainers, up almost five percent higher since january 2013 because of carl icahn's involvement in the airlines.
As a group, airlines dropped the most in one year after the boj stunned everyone by moving to block the merger of american and us airways.
It is not just the parties that are involved.
That tells you so much about what investors are expecting.
And jetblue, not one of the majors, a lot of the focus on reagan, on washington national airport near the white house, near the washington monument.
Jetblue i guess has american gates.
And only dropped 1.4%. interesting.
Quakes we are going to move from big airlines to big oil because mexico is making moves to open its toilet is three to foreign investors for the first time in 75 years.
It is a huge opportunity for private companies to tap untapped reserves.
U.s. oil companies have only face more restrictions from countries like iraq.
It is a geopolitical in nature, even though it is right next-door.
The heart of the metal -- of the matter, cartel nations have boxed a oil simply out of the game.
The game has changed.
Alix steel knows where every barrel production is.
She joins us now.
This is a special story.
It is not just about mexico.
It really is not because it really points to the broader issue of big oil companies like exxon and chevron like we saw in their quarters.
Not being able to find the right kind of oil, not being able to make the right kind of money they should as they need to diversify into other countries.
The distinction is mexico is easy, cheaper production oil.
Will they be able to book more reserves?
They need to find oil, and the easy oil has already been made.
It has been more expensive oil that they are trying again.
Mexico opens up that opportunity.
The question is -- will it be a profit-sharing or production sharing?
And production sharing, they can say i own these reserves, with profit-sharing, they just get the profits.
That will be up to the mexican government.
And pinion yet though is instituting any -- and pena- nieto is instituting that.
Robert profusek is with us.
You are a board member of the bolero as well.
What does this mean for oil?
It might be a one-off thing.
Mexico has had a lot of problem spirit -- of problems.
Making it work right, having utilization.
They don't have the technology that we have here in the u.s. that is absolutely the key point.
National oil company has been there forever.
You can argue you want, but it is not able to compete with the -- how much oil does mexico have?
Over 10 billion barrels of oil, that is not counting all their energy reserves.
So that is right below, venezuela, brazil, mexico.
They are about 920 comes to oil reserves in the entire world and -- world.
Where is the oil?
It is in water.
They also have some shale.
We are not the only ones with shale.
We are just the only ones that talk about the shale because you have argentina, mexico, china, even countries in europe, but they don't have the technology like bob was just talking about.
They also have stricter environmental regulations that islamic the shale accessible.
If i am chevron or exxon or whoever this morning, i wanted to say texaco, but i do not think they are around anymore.
Like they will be production.
-- it will be production.
If you take a look and say eog, which is really heavy into walk and eager for it production increased 35%. exxon fall into the second year in a row.
That is a big distinction.
Does this make us more u.s. energy independent, the fact that this is going to happen in our backyard?
Importing oil from ensco, which brings up the question -- we get some oil from venezuela, but other than that, we are really becoming dependent as long as we can make the crude that we need, that is the key of course.
Bringing the crude we don't have from canada.
We will continue this discussion.
I think this is big news.
You're not going to ask me about breakeven?
I had break evens ready for you.
It is too early for break evens apparently.
This is not affect thomas.
Alix steel on oil.
We will have much more throughout the day.
We want to continue talking about the big story of carl icahn taking a stake in apple.
He made the disclosure on twitter.
He called on apple to return cash to shareholders.
This has been a familiar theme.
Bill ackman earlier this week had to resign from the board of jcpenney or chose to resign.
He set down with our charlie rose and talked about his business, including doing business with carl icahn.
Carl icahn is someone that years ago, 10 years ago, i made a deal with that he ended up reaching a contract.
I had to student to present -- to perform.
He is not happy with me making them pay money that was owed.
He has used this herb 11 investment as a platform to get back at me.
He has had some other our file eyes that have toyed in.
Arguably, the dispute between bill ackman and carl icahn has taken more of a center stage than what the business of herbalife is actually about.
ackman is still short herbalife.
He is still short.
I can barely keep track.
The problem for bill ackman is that that has not paid off either being sure with carl icahn being along.
Charlie rose also asked them about why herbalife has been going up despite his being sure.
This is what he said -- simply because carl icahn and others have been promoting it.
That is why.
Ultimately -- meaning the people and investment communities believe in the carl icahn more than they believe in you.
Certainly on this investment or that is the case are quite conceding a little bit of ground there to carl icahn.
I wonder if he is going to stick with it?
This rests on the fact that the government needs to get involved and start to look into herbalife to make certain that bill ackman's claim that it is a pyramid scheme is true.
I have been reading the biography, buried in 1870, 1880, 1890, stakes at del monaco's, everyone is smoking the cigar's, is this the 1890's we are in right now?
There are certainly a lot of tycoons.
When you think about it, think about icahn.
You can say what you want about his vitriol and stuff, but has there been anyone more newsworthy in the last since month?
I cannot think of anyone.
The other thing it tells you is just so much money to be able to be deployed.
The idea of taking the stake in apple, taking these huge companies, almost unthinkable just a few years ago.
Like the distinction is from another time and place before 1933, there was an idea that these tycoons affected all of the markets.
You look at these activists as separate from what we do with our 401(k)s, from what we do with our retirement plans?
Yes, because it is so serendipitous.
It is hard to count on an activist doing something.
What does it end up doing?
Are blithe is an interesting issue.
I'm not all certain a final chapter has been written very he did talk about -- herbalife is an interesting issue.
I'm not all certain a final chapter has been written.
Quite he did talk about others.
If you talk about canadian pacific am i think it would give you universal appreciation for what we have been able to accomplish there.
This is a company that has been the worst run railroad in north america for the last 10 years.
Stock was 46 at the time.
We took part of the company, we bought a 14% stake in the business.
We ended up replacing management, a guy named hunter harrison, the greatest railroader of all time.
It is becoming the best program in north america.
Ackman is doing so well that pershing square is actually cutting its stake in canadian the civic.
You can catch the entire interview tonight on bloomberg television at 8:00 p.m. and 10:00 p.m. eastern time.
He was fired up between what we end zone with larry ellison and bill ackman the last 48 hours.
It is a great.
It is great to get a first- hand perspective.
On the day when bill ackman resigned from jcpenney's board.
I did as a thank you to our team yesterday.
Yesterday morning was fascinating, the smart people we got.
Our team did a great job.
Today, we are all low labor fee -- all over the airline story.
The department of justice trying to block the proposed merger between us airways and american airlines feared we will be speaking with the former american airlines ceo robert crandall.
You will not want to miss that coming up on "bloomberg surveillance," on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.
This is "bloomberg surveillance." i am sara eisen here is always with tom keene and scarlet fu.
Top headlines this morning -- israel has released 26 palestinian prisoners just hours before the next round of middle east peace talks.
The prisoners are the first among the 100 that israel has agreed to release in order to restart negotiations.
Aides to president obama and senate majority leader harry reid med talk about the waiting next fed chairman will be selected.
That comes after 19 senate democrats sent a letter to the president urging him to appoint fed fights chairman janet yellin.
Some demo that's -- some democrats have also criticized former secretary treasury larry summers.
New tga champion sets his plans to port of -- fortified his plans to retire from golf.
He says his wife may have other plans.
He is 36 years old, and he says there are other things to life.
Those are your top news headlines.
Quite the is from ohio, right?
-- he is from ohio, right?
He is going to retire after winning the pga?
He says that helps his plan.
He is only 36. ok.
Emerging markets has been a challenge to say the least.
Which way whether?
That is our smart single best chart.
The chart shows the shift in equity investors interests from emerging markets.
It is from credit suisse, and it is the ratio of the emerging market index and the world index.
You can see the steady trends down that picks up pace in 2013. emerging markets have underperformed since the start of 2011. developed markets are doing better relative to emerging markets.
The thing is because of this underperformance, emerging markets are likely to participate in a risk appetite rebounds according to credit suisse.
More going forward, and in fact credit suisse names a couple of regions where he sees the most opportunity.
Europe offering the best upside , and also expect emerging market assets overall to participate.
Robert, stick with us, jones day, when you look at the expansion of law, is the law of emerging markets at solid as we perceive it to be?
Is a lot more solid than it used to be, let me put it that way.
It is still hard to predict.
Indonesia, you have got a believe in contract law, -- you have got to look at it.
In the merger context, i just said a premerger regulations are some two years ago.
There are not any roles he appeared no we knows exactly what to do.
So it is different.
We are used to something you can really predict.
It is very difficult to predict.
Dealmaking seems to be within the u.s. -- industry consolidating as opposed to going out and looking for big purchases.
Two thirds of the activity in the first half was north america.
In europe, if people conclude that it is a bottoming outs, not necessarily a rocket back, it will change a lot.
They -- i've been in a lot of board rooms with big european exposure in said not now.
Expanding abroad, or are you using other law firms?
Writes we are totally one firm.
We made a huge investment.
We're looking at photos that are making news.
We're starting with plymouth, england where fireworks lit up the sky last night.
This is actually part of the british firework champions.
They compete for the title of champion of champion.
Estimated that nearly five tons of fireworks will be set off in today's. how about that?
Quite a show.
They do this every year?
That is the fairest well in the background.
In tunisia, national women's day celebration, thousands of people gathering in front of the national assembly headquarters to rally for women's rights and protest against the country's islamist government.
Watching twitter, it is really moving in cairo right now.
That is where we are going to go next, to cairo, where muslim brotherhood supporters are running to safety.
Clashes breaking out again with egyptian security.
It a explosive turn this morning.
Egyptian police, armed with tear gas and gun, storming a sit in where the supporters of mohamed morsi have been protesting.
It was quiet for a while, now it is gearing up.
I really thought two weekends ago it was going to gear up.
But it did not.
It was quiet.
Well, certainly something to watch feared coming up, we will talk a lot more about this big deal or no deal in airlines.
Here's a number for you -- 6900 that is the percentage of plot that washington reagan national airport that the newly merged us airways-american airlines would control.
That is a huge concern for the government.
Just one of them will discuss the possible merger next on "bloomberg surveillance." this is "bloomberg surveillance." i am scarlet fu joined as always by tom and there appeared in today's company news from the files of "bloomberg west," a shakeup over zynga.
The new ceo says a single's chief operations officer and two other top executives are leaving the company.
Shares of zynga have fallen 71% since the company went public back in 2011. the taiwan-based company that assembles iphones and ipods reports second-quarter profits that beat analysts' estimates.
And the chief executive of aol apologizing for the way that he publicly fired an employee during a conference call.
Tim on song called it an emotional response.
The former employee will not be hired back.
That is today's company news from the files of "bloomberg west." that story just one go away.
Once social media got a hold of it, it went viral.
And everyone weighed in on it.
The story everyone is watching right now -- american airlines and us airways slapped with an antitrust lawsuit by the justice department yesterday.
That $12 billion merger would have created the largest airline.
Investors dumped the stock on a new spirit what is interesting is the department of justice is moving now.
It has been very active.
The doj oppose anheuser-busch's june purchase of about $20 billion heard after that, the government adopted a pretty firm stance against the apple litigation case where apple was found guilty of fixing prices.
In 2011, the doj blocked at&t's proposed purchase of t-mobile.
What exactly is in the water there in washington?
Our guest host thomas robert profusek, is the head of m&a at jones day.
Is this a new regime right now in washington when it comes to the strictness of these competitive archers?
One thing is whatever they are big things, they get more attention.
Obama as a candidate, initial candidate, or decides the bush administration for being too lax on mergers.
Then there was the financial crisis, and it was a hands-off attitude.
Probably as a policy matter -- within your experience, who sets the tone here?
Attorney general holder, mr.
Bear who is running this airline debate, or that from a higher office?
When you get these huge names that everybody knows about, it is front page news.
"usa today" -- it is hard to imagine there is not some influence upstairs.
We will quote you on that.
I want you to compare and contrast this proposed merger that everyone was pretty sure would go through with the failed at&t-t-mobile merger.
One of the things about all of this stuff is everything is sophisticated, we are living in a legally transparent world.
The lawyers are able of calibrating.
They've vetted everything.
That is one of the reasons to a lawyer this is very surprising.
I think -- you've got to consider the fact that there are thousands of deals a year, and only a handful this -- only a handful get this kind of opposition.
By the approve the other airline mergers.
Not talking about the specifics, but if you look at some of the commentary about the specifics, maybe they changed the rules because of direct flights first is -- it is just about what does it cost to put me in an economy or first-class seat?
That is all it comes down to.
We presumed we are going to have higher airfares because of these mergers.
But you don't have to go back to the 1940's to realize that airlines are on organic industry.
It is not like auto or something where it is basically where it lives forever.
People come into this space, if there are these kinds of things, and my judgment, people are going to start competing.
Airlines will be formed.
That is happening.
Whoever heard of jetblue 10 years ago?
We should also mention that airlines are in the black now.
Don't we just not want a bankrupt airline?
You would think so.
This theory of the united- continental merger is let's run it like a business that will attract capital and set of an airline, which is different.
You do you suggest the department of justice is not want to run this like a business?
I think they think of it like a utility.
Well said, the complete debate -- is it a utility or a business?
Robert crandall will join us in the next hour.
I know exactly what he is going to say.
I think he will be very surprised to because he was expecting us to go through.
Big news in europe -- we talked positive gdp growth for the first time in a long time in europe.
That has been helping out the markets right now.
Euro is a bit weaker.
I am also watching the euro versus the swiss franc.
Swiss franc weakening.
Not as much demand for that safe haven swiss right on the back of better numbers of the euro.
The indian rupee approaching a record low.
Scarlet showed us the carnage and emerging markets.
That is certainly part of the story.
Coming up in the next hour, we will continue the conversation of consolidation with the former american airlines chief robert crandall.
"bloomberg surveillance" continues.
. interest rate rise on new signs to recovery.
In europe, is it too much, too soon?
The justice department stuns the airline industry, blocking usair and american airlines' effort to become the largest airline in the world.
Carl icahn buys into apple, then demands cash for shareholders.
He wants the cash sooner rather than later.
Good morning, everyone.
This is "bloomberg surveillance ." tom keene live from new york.
It is wednesday, august 14. joining me is sara and scarlet fu.
Our guest host this hour, or for timing, -- perfect timing -- the marketers of the morning.
Activism is alive and well.
Carl icahn tweeting bill ackerman.
We will kick it off with a morning briefing.
The big news overnight, gdp for euro nations expanding .3%. germany and france leading the way out of the record long recession in europe.
In the united states, 7:00 a.m., the weekly mortgage applications number.
A: 30 a.m., -- 8:30 a.m., -- now breaking, deere earnings.
After the bell, watch for cisco.
Scarlet, you have other company news for us.
I want to start with john deere because they reported third-quarter earnings per share, $2.56. analysts were looking for $2.17. john deere also making comments about its outlook, including growth investments remaining on track, expecting that profit for the full year of $3.45 billion, higher than what it had been anticipating.
In other company news headlines, let's talk about blackberry.
The company has been looking for someone to buy it for almost one year.
According to people familiar with the plan, bankers have been contacted and they were looking for possible bidders but found little interest.
Monday blackberry announced it would consider all options, including outright sale.
The cbs network losing most of its primetime -- losing a lot of its primetime audience.
A blackout of 3 million homes in new york, l.a., and dallas.
U.s. prosecutors could announce charges in the jpmorgan london whale case as early as today.
Investigated as to whether they tried to hide billions in investigating -- billions in losses.
That is company news.
The story everybody is watching this morning, the surprise move, the justice department blocking the merger of american airlines and u.s. airways.
The u.s. along with the attorney general saying that the deal is bad for consumers, will lead to less competition in the industry and higher prices.
Joining us on the phone, robert crandall, the former chairman and ceo of american airlines.
Good of you to join us this morning.
How shocked are you that the government is trying to block this deal?
I am very, very surprised.
In fact, the government has it exactly backwards, unfortunately, as the government often does.
If you want more competition, you don't cut off the challenges -- the challenger's legs before he gets into the ring.
They approved the merger of delta and northwest and of united and continental.
Now they say they are surprised that as a consequence of having approved those mergers, the fares went up.
Of course they went up.
That is what the mergers were all about.
That brings economic stability to the industry.
Now you have these two giant carriers, two other carriers in usair and american trying to combine in order to compete more effectively with united and with delta.
What the justice department now decides to do is to make it impossible for american and u.s. to combine and thus be an effective challenger to united and delta.
They haven't exactly backwards -- they have it exactly backwards.
They will lessen competition, not improve it.
Is it airlines as utility or airlines as business?
That is a distinction.
Are our airlines a utility, or should they make money?
They have to make money.
If they don't, how will they buy the new airplanes needed to compete with international airlines?
How will they build the new facilities required to accommodate more passengers?
The airline industry has to make money.
It is making money now, but it is not making serious money by the standards of other industries and probably never will.
It is a thin margin business.
But the fact is, if you are going to have competition, you have got to have equal competitors.
For the justice department to come along and approve the delta merger and the united merger and now say that american, which was fine on its own before those other mergers were approved, is simply irrational.
It is, and i wonder if the department of justice succeeds in this, what happens to american airlines?
Can it compete?
I think in the short term, both usair and american will still be around.
In the very long-term term -- i am talking multiple, multiple years -- unless usair and american can find ways to grow organically -- which is very difficult to do -- then in effect they will have two go into markets they are not in now.
They are not big enough and do not serve a large enough percentage of this country's and the world's cities to compete effectively with delta and united.
Without more scale and more ubiquity, they will be behind delta and united.
It always comes down to where the politicians fly out of.
They fly out of reagan national airport.
That is front and center in this debate, bob crandall.
Adam johnson spoke with douglas parker, the usair ceo, a number of months ago, and he made clear reagan and their gates would be bargaining chips.
Does that sound about right to you, that within this debate of doj and airlines, it is all about 40 or 30 or 20 gates near the white house?
It would have sounded right to me, say, three months ago.
Given what the justice department has written in its lawsuit, and watching the conference call, the press conference yesterday, it sounds to me the justice department has made up its mind that it made a mistake, a big mistake, when it approved the delta and united mergers, and it is going to try to cover that mistake by not improving -- by not approving any more mergers.
I think that logic is absolutely upside down, and i am afraid that is what they have decided.
It sounds to me they are not interested in bargaining with the two airlines, just interested in stopping this merger.
We will see how the airlines plan to find it -- to fight it.
Bob randall -- bob crandall, thank you for joining us this morning.
It is a mistake that the government filed the suit and he called it upside down.
From bob crandall, with decades of experience , a better airline business and better economy means lower prices.
Jeffrey rosenberg joins us with perspective through the hour.
Unambiguously, our higher interest rates a signal of a good economy, or is it something to worry about western mark does it mean -- or is it something to worry about?
Or will we slow?
You have better economic data in europe today, and then there is the increase in interest rates we saw over the may- june time period, which was 100 basis points.
A lot about changing said expectations.
The better economic data fueling higher interest rates is certainly what we have seen lately, and that is why stock markets are doing better.
Published yesterday, he sees a three percent yield.
What is the blackrock call on whether 10 year yield goes -- on where the 10 year yield goes?
In six months you're talking about what is going to be the second half and into the 2014 economic outlook.
That remains to be seen.
The market expectations now are high for good economic growth, and in that kind of environment, 2.75% or 3% is approachable.
If there is any disappointment, there is hope priced into the market.
Today there is the potential for a short-term pullback.
Anything with hope i circle.
That scares the bejeebers out of me.
Another stock to watch his apple because carl icahn is hoping that they will return cash to shareholders.
He is pushing tim cook to buy back more stock, pushing apple shares higher.
It is up 1.40% . the stock yesterday moved to the highest level since january.
That is our twitter question of the day.
Is carl icahn's investment good for apple?
Coming up, we will talk a lot more about carl icahn.
Also, bill ackman resigning from jcpenney's board.
? good morning, everyone.
"bloomberg surveillance." you saw it last night, bill ackman in our studios.
Carl icahn with his bombshell.
Scarlet fu gets us started on activism.
It is not just carl icahn taking a stake in apple, but bill ackman retreating from his big bet on jcpenney, resigning from the board yesterday after a public fight.
He sat down with charlie rose and spoke of his role in recruiting ron johnson.
It did not turn out too well for him as ceo of jcpenney.
The stock went from 20 to 42 on ron being hired.
We got too much credit for that.
It was a collective decision of the board to put him on.
When the business failed, i probably got too much of the blame for recruiting him.
But that is ok.
That is the risk of my business.
Downplaying his role at jcpenney.
Once he got in -- once he got the news that he was resigning from the board -- jeffrey rosenberg of blackrock, around that, is the american capitalist experiment.
This is ugly but it is good.
The issues are that sometimes you have a conflict of interest between management and shareholders.
What activism is all about is when management is not necessarily in the best interests of shareholders, a shareholder comes in and takes a bigger share, pushes management out, and that is a better line.
Do you see that?
-- do you want to see that?
Is activism better for the little guys?
It depends because you hang and have good and bad activism.
-- you can have good and bad activism.
It comes back to this issue of where are the alignment of interests and how good of a job is current management doing?
Is carl icahn good or bad shareholder activism?
I am going to defer on that.
Wohoa, rosenberg on compliance.
Sometimes it is about getting more value.
It is not philanthropy, they are doing it to make money, capitalism.
If twitter and the new mediums are a better form of getting value for your activism, then it will happen.
"charlie rose" tonight, very exciting.
rosen is doing very good on the surveillance territory.
William ackman, tonight at 8:00 and 10:00 p.m. ? this is "bloomberg surveillance." sara eisen with tom keene and scarlet fu.
Top headlines -- in egypt, violence erupting from supporters of mohamed morsi.
The muslim brotherhood says hundreds of people have been killed.
Health officials say 13 people are confirmed dead.
In mumbai, an explosion ripping through an indian submarine tied to a dock.
Some sailors on board were killed, but it is not known how many.
It is diesel powered and was built in russia.
In new jersey, new york mayor -- newark mayor cory booker will face republican steve lonergan to fill the term of the late frank lautenberg.
Those are your top news headlines.
We will talk about john deere now, earnings just out.
There is a good read on the american industrial economy.
What john deere said as the biggest maker of farm equipment, its quarterly profit beat analyst estimates, reflecting strength in north american and south american farm sectors -- for example, brazilian farmers buying more tractors.
I think positive construction.
There's not a lot of gloom but caution about this earnings release.
And in the markets, 85 point -- 85.68 right now as opposed to yesterday's close.
Farmers will have to do more with less, including fewer workers.
They are older workers.
Jeffrey rosenberg is blackrock 's chief investment strategist.
And brendan greeley.
Cesar chavez died in 1983. i feel old.
20 years ago.
We have gone from the activism of shot is -- of chavez to that of latinos.
One of the consequences of tightening the border has been that migrant workers are going underground.
They are not interested in letting anybody know who they are, not crossing the border back.
So it is hard to get movement among people who are not willing to come out of the dark.
My experience is that you have to put 170 five people in a tomato field, a melon field.
It is about the minutia of you have to put the bodies out there.
This is a huge deal.
This was a huge deal 25 years ago.
Where are those workers now?
Well, farms are -- i think one of the things we are seeing about immigration reforms, one of the reasons we are getting a push in congress -- it is not just about republicans realizing they need to reach out to hispanics in the u.s. it is about two industries -- agriculture and tech -- saying we need workers.
Agriculture has a real problem.
In salinas, california, they need workers.
In alabama, where the law was passed demanding that law enforcement look for immigration violations, that has had a chilling effect on workers.
There are tomatoes literally rotting in the field.
There is not a trained worker in the u.s. to pick this stuff.
Chavez said you have to get 135 people in a field at 5:00 a.m. it is skilled labor.
Timer says you raise the price on this, but that is not how it works.
There are not the people in america who know how to do this and are willing to do it.
How dependent is the farm industry on laborers from outside the united states?
One other part of this is that people who would have come over from mexico are not because the mexican economy is doing better.
Jeffrey rosenberg, when you look at mexico's economy, mexico is geared to the u.s. economy, isn't it?
Investments are a higher risk play, reflection of the recovery in the u.s. we see many areas of the markets in mexico, and the fixed income side doing very well with the anticipation of recovery in the u.s. there is less incentive for people to come over with that dangerous crossing.
Bank bank -- and a tighter border control has to play into this, right?
Yes, people are staying for as long as they need to make money, and then they are going back and staying.
It feels like this conversation, this is fundamentally different than five years ago or six years ago.
When bush tried immigration reform, immigrants were flooding across the border.
That is not happening anymore.
We are still talking like there is a nun stems tied, and there is not.
-- that there is an unstemmed tide, and there is not.
We are totally new york centric, and the farm debate is the real america, along with the energy debate.
These are big issues.
To your point a second ago about what is going on in mexico, there is fundamental change relative to the border opening because the opportunities in mexico are much better.
Yet the conversation yesterday about opening the oil industry, that is a major structural change illustrating a much more developed economy.
It is not just about farms.
Something caught my eye yesterday in "the new york times." -- it is not just about farms.
Something caught my eye yesterday in "the new york times." the first thing -- the first area to do this is new orleans.
We have to continue this debate.
Coming up, we will talk about carl icahn's new stake in apple.
? this is "bloomberg surveillance." sara eisen with tom keene and scarlet fu.
Activism is the story of the day and of the moment.
Carl icahn tweeting he likes apple and taking a stake and he wanted your buyback.
Bill ackman resigning from the board of jcpenney.
Bill coh en joins us this morning.
He is a bloomberg contributor and editor.
Activism is nothing new.
You know that.
What this feels different.
At least the activists are doing -- going after bigger companies.
What is different for you this time?
There is a lot of it going on and it seems to be a high- publicity, high-mobile -- high- profile companies getting a lot of publicity.
There is just a lot of it going on.
In the old days it was sort of like companies that were dysfunctional or broken -- not always, but a lot of the times they were under the radar screen.
Now they are picking on big high-profile companies.
Now you are talking about the heart and soul of capitalism.
So far carl icahn has been friendly, tweeting it out saying he had a nice discussion with tim cook.
What happens if apple does not meet his demands and do a bigger buyback?
What does carl icahn do next?
I don't think there is much he can do.
Look at what david einhorn wanted apple to put in preferred and return some of that cash to shareholders.
He made a big public stink about it and nothing much happened.
Now it has a new ally in carl icahn.
Trouble with something new will happen because there is $150 billion in cash sitting there.
What is dan lo doing?
You go right to it, which is the size of shareholders.
Somewhere around one percent.
What would be the response of a blue-chip like apple to a guy like carl icahn saying showing up -- showing up and give me more cash?
That it is a good idea rationally at an executive level, and at the board level they might do something because these guys recognize these are shareholders who rattle the cages and can make some trouble for them.
Ultimately, if they do not want to do it, they don't have to.
Bill cohan, thank you so much . scarlet, what do you have?
One thing on carl icahn's to host -- two-do list , when we talked to jeff rogan berg -- jeff rosenberg, the activism comes back to one thing, low interest rates.
That is a good point, and the idea of pushing companies to borrow money to buy back shares, that is wrought -- that is a broad thing we are seeing.
It encourages companies to take on more leverage to the benefit of shareholders.
Is the headline here bernanke insist on more cash from apple?
Should we take this.
? you could take it almost that way, and when companies do not take advantage of his stork low interest rates to borrow -- of historic low interest rates to borrow -- what happens when we are talking about a different policy from the fed?
In the credit markets you have seen some acceleration and its wins because of what happens in may and june.
People are worried that maybe the window is over here.
There is too much heavy lifting in august, but the fact is all of this excitement about use of cash comes back to the present.
Do you feel there is a cushion under all of our equity investments because of this enthusiasm to pull cash flows to shareholders sooner rather than later?
It is certainly a support for equity valuations overall.
And you have low interest rates supporting equity friendly activity and you have management taking advantage of that, that is transferring value from the credit side.
In defense of shareholders worldwide, apple has gone from 390, 400, up to 500. here we have carl icahn today codifying a 100-point move will stop and saying that it could go past $600 per share.
Here is company news.
We have breaking news from paulson and company saying it is buying steinway, the piano maker, for $40 a share.
I believe that is prior?
In other company news, u.s. prosecutors may announce charges today in the jpmorgan london whale case, a person familiar with the matter.
London the lawyers are being investigating -- london lawyers are being investigated.
Big moves to watch from yesterday's trading.
We want to talk about this corporation.
Tom, back over to you.
Good morning, everyone.
"bloomberg surveillance" on bloomberg television and bloomberg radio.
A busy august morning.
The 10- year yield, 2.71%. interest rates moving up has been a big part of it.
Also moving up is apple.
Billionaire investor carl icahn announced he is taking a stake, building up a stake in apple, looking for apple to return more cash, buy back shares.
We have called one of the best- known analysts on the stock, walter.
He joins us on the phone.
Does this give you confidence in apple that carl icahn is taking out a steak?
I already had confidence in apple because i thought there were a lot of easy things to do as far as new products.
It is helpful to have someone like carl icahn p