JPM Under Criminal Probe: Surveillance (08/08)

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August 8 (Bloomberg) -- On today's "Bloomberg Surveillance," Tom Keene, Alix Steel and Scarlet Fu bring insight on the state of the market getting you ready for the day ahead. (Source: Bloomberg)

Jpmorgan under criminal investigation.

Will jamie dimon settle civil charges?

Tesla built more cars, shares up 12% this morning, but the accounting is questioned.

Bp says it is drowning in fraudulent claims, off and on the coast of louisiana.

Good morning, this is "bloomberg surveillance." i am tom keene from new york, thursday, august 8. alix steel infra sara eisen, also scarlet fu.

I never see my husband anymore.

Stocks are on the move.

Let me tell you why.

China's exports/imports rebounded more than estimated read signs perhaps the economy is stabilizing, following a numeral two-quarter slowdown.

In the u.s., it is a busy day, initial jobless claims this morning.

It is estimated it will rise ever so slightly at 335,000. keep in mind retail sales trickling throughout the morning.

Cosco coming in at 4% for july, slightly missing estimates.

It has been a quiet week after the jobs report a lot of revision noise this week is up for the american economy.

We have a lot of deals, a lot of eco-data but the stock don't seem to be reflecting it.

Bloomberg consumer comfort to see that gradual improvement continues.

Earnings to look out for before the bell, orbitz and priceline.

Also waiting for fannie mae.

How can you have earnings from fannie mae -- are they a public company?

They're still public, right?

I don't know.

Sort of.

But get equities, bonds, currencies, commodities.

Look at the euro, one point -- 1.33. hydrocarbons do absolutely nothing.

I miss sara eisen.

She is in king's landing camp today.

Euro-yen shows the strength of the dollar-yen.

Stronger yen and you see it.

I said in the meeting, you have to look at copper and i you didn't, so i have to show it.

Look at copper.

This is what you need to know, up over 2%, that is on the china data -- this is outrageous.

Can it last?

Same story for soybeans, historical import high as well as aluminum.

What is lme -- that is aluminum -- in london.

How do you pronounce it?

Do you think your english?

That is way too much markets.

And the non- markets world, so much for the reset in u.s.- russian relations, president obama calling off his one-on-one meeting with vladimir putin and his potentially sinks their relationship to a new low.

Obama will be attending the g 20 summit in st.

Petersburg, just not meeting one-on-one with putin.

It comes after russia granted edward snowden asylum -- temporary asylum in russia.

I think within his presidency we can say worst body language.

Oh, my god, did you see those pictures?

Marshall goldman, the angst in his voice about mr.

Putin, i'm taking four or five years ago.

The other story on the front page, more regulatory trouble for jpmorgan.

The bank says it is under investigation for practices tied to sales of mortgage backed securities that the department of justice has artie concluded these rope civil law -- broke the law.

Earlier this week, the doj and sec suit over mortgage-backed as well.

At some point, isn't there a statute of limitations?

10 years is the link and statute.

They're running out of time, right?

It was after the financial crisis, so it took them a couple of years to sift through all the data.

We will talk in a bit about jpmorgan.

The keyword is "criminal." shout outs to 2007, 2008, hilton worldwide, the hotel chain, said to have hired for banks in anticipation of going public.

The company was taken private by blackstone at the height of the last bull market in 2007. the biggest at the time.

Looking to cash out on the rebounding real estate market.

Blackstone is doing that with others, sea world and pinnacle.

Taking advantage -- some of the animal spirits out there.

Take a look at our guests.

Paul barrett is with us with bloomberg businessweek.

Definitive on handguns with this wonderful book "glock." my favorite issue , mr.

Barrett much involved with this interview with the bp ceo bob dudley, the issue of the year for me in business week, a thick interview issue with bill gates on the cover.

Two-week issue.

Even barbara walters interview.

This is a must read.

Is it a lot of work to put together?

It has to be huge amount of work.

We have people all over the country tracking people down from ceos to senator rand paul to barbara walters, as you mentioned, people all over wall street as well.

How do you edit somebody who talks too much?

Actually, i don't think that is the hardest part.

It is pretty clear where the meat and fat is and you just going with a very sharp knife and have no mercy.

Chris whalen with us.

Jamie diamond is a different piece.

Is it criminal charge against dimon and jpmorgan different than any other bank is because it is jamie diamond?

I think there's been a reluctance on the part of the regulators to be to talk with him.

It was the fortress during the crisis -- they bought bear stearns.

I don't know from the new stories if this is a bear high for related charge or legacy jpmorgan.

Do you know?

That is the interesting thing about it.

Washington mutual.

Even more interesting.

Talking about 2005-2007, it can encompass a lot of banks.

I'm sorry, suit of the day club here in august and july.

Somebody will be sued tomorrow.


For all of our audience, in particular those like me that are less sophisticated, what is the why here?

Why is it the suit of the day?

I think it is the timing and you also don't know how much politics is involved.

The obama administration has ignored housing for the last five years.

They really have engaged on any of the issues related to the crisis.

Eric schneiderman, nothing.

He was the guy with the state read new york law is the mechanism to deal with these issues because of all of these -- so you think it is a calendar item?

I don't think we know.

It is hard to say whether these charges have wait and will go forward or whether or not they're just rivaling a cage.

They feel vulnerable on housing right now.

Is the goal to get a settlement on the civil charges?

I think settling is more efficient than litigation.

I worry about earnings.

The yield curve.

I think most investors to leave we knew pretty much what the downside liabilities were from all of this, but now you're starting to see another wave of claims.

It is hard to say because if it is a settlement, it is usually pennies on the dollar of the original amount.

We're talking about criminal, you don't know where this is going to go.

Remember, washington mutual was resolved by the fdic so most of the word left behind in the bankruptcy court.

Chris whalen what does this morning, paul barrett -- i will tell you about our bp interview.

I can't wait to talk about a very different british petroleum.

Let's talk about rio tinto.

It gives up on trying to sell its aluminum unit.

They've been trying to divest an element of division from his 2 years but says market conditions are prevented it from reaching a deal.

Rio tinto reported 18% drop for the first half which was less than forecast.

Walmart striking a deal with the labor department.

It will upgrade worker safety at almost 3000 stores after safety hazards related to chemicals and trash disposal were discovered at a rochester, new york location.

Walmart has agreed to pay a $190,000 fine as part of the settlement.

The boston globe and post were sold at the new york times is not for sale.

The times publisher says he and his family are committed to leading the times forward to global and digital future.

Those are today's company news headlines.

Paul barrett with us with his decades of experience in journalism.

The new york times is a family- run business, the washington post is a family run business.

The washington post could never be sold.

What am i hearing from the new york times people?

The reaction i think you're getting is predictable, but if anyone assumes that stasis is what is going to happen in big media, they're completely wrong.

Just two weeks ago it would been unimaginable to think they were -- yuppies us was buying the post.

We have the draw dropping due toward the times he -- we have the job dropping news.

Anything is possible at this point, no disrespect.

Every thought about the difference between a family dynasty say the forts were they periodically bring outsiders in to give a new vision, etc., you could argue ford question burned three times but each time they salvaged themselves.

The times has never really considered bringing in outside management.

To think that would help?

I don't think so.

I think the newspaper industry is going through a structural change that is so profound -- literally changed from print to digital.

This is beyond a missed anything you have seen in cars.

To a degree, cars -- it is the same basic technology built in factories.

We are seeing something in media that is completely different.

Deep in conversation when we come back.

From surprise moves in the newspaper industry to a surprise operating profit at tesla, but is the accounting sound?

We will discuss when we continue right here on "bloomberg surveillance." ? later this morning with betty liu, "in the loop," sir martin sorrell of wpp.

This is "bloomberg surveillance." i am tom keene, joined by scarlet fu and alix steel in for sara eisen.

She is at "game of thrones" cap and i think today is landing day . are they jousting?

I don't think she'd joust's. she gets the rose.

Let's talk about tesla.

Shares are soaring in the premarket come up about 14% overall after second-quarter results beat analysts estimate.

It had an operating profit, which was a surprise.

Deliveries of the model scar rose five percent from the same time last quarter.

Would like to talk about operating margins they came in at 22%, which is kind of misleading in some aspects.

There is a lot of question over what is included in that margin.

They are including the green car credit into that margin and a lot of other carmakers don't. they do see that margin sustaining.

They do expect to remain profitable on an operating basis and are looking for 25% margin by the fourth quarter.

Ryan johnson will join us later and from an accounting integrity basis, he has some real solidity there versus what i see on twitter and cap spurs is not generally accepted accounting principles -- gap versus not generally accepted accounting principles.

This is a collegial debate, isn't it?

About accounting?

In any industry within gap, you could have enormous variability in how you present earnings, present balance sheets.

Even in the world of banking where the regulators basically tell you what they want in terms of definition on balance sheets even more than gap, you still have huge variations.

Bring it back to autos.

But in that barclays note, they go out and say, is elon musk the next henry ford and does that mean we will see mass market, mass book carmaker mass carmaker?

A regular move after earnings report.

Last quarter reported first-quarter of profit ever and tesla jumped 24% the following day.

We're used to outside moves as a reaction.

I would emphasize the skepticism about the accounting methods generating these terrific headlines.

On production increasing and talk about efficiency in manufacturing as well.

A lot of analysts were surprised at how many cars it is able to produce.

Can you get one?

Me personally?

I don't know how to drive.

There is a bit of a backlog because of production constraints, but yes, you could do it.

The leasing program is really something they tout.

Today to production estimates?

Looking for 40,000 on annual rate by the end of next year.

They're looking to roll it out in asia by the end of this year as well.

Are clay said, they see potential upside of 279 -- barclays said the they see potential upside of 279 if the bulls come out right on this.

Because they are behind.

There behind the curve on the stocks.

Paul barrett, how can he raise the price target and downgrade the stock?

It is wall street, time -- tom.

Coming up next, in our next hour, m&a guru sunshine partners will be joining us talking about e-books and how they change the world of publishing along with other deals.

That is our twitter question of the day -- i am doing both.

Tweet us.

This is bloomberg television.

? this is "bloomberg surveillance." i am tom keene with scarlet fu and alix steel in for sara eisen.

Let's go to top headlines.

China's trade improved more than forecast last month, adding to the signs the nation's economy is stabilizing.

Exports rising 5.1%, higher than predicted.

Exports to the u.s. increased for the first time in 5 months.

China has an almost $18 billion trade surplus.

The bank of japan leaves its monetary policy unchanged as the economic recovery gains momentum . the bank reiterated its assessment from its meeting last month that japan's economy starting to recover "moderately ." crackdown on opponents in egypt may be imminent.

He said mediators failed to end the standoff with supposed common morsi's supporters.

He said egypt was moving forward and those who stayed behind will bear the consequences.

Those are your top headlines.

We had a massive fight at 5:00 a.m. over who would go first.

I one.

The disruption that jeff bezos will bring to old ink stained newspapers.

Ken dr.

Wright's -- writes -- he calls amazon the a's of friction reduction with its one click purchases.

Imagine what you could do on a newspaper website if you changed it from three clicks to one click print.

Paul barrett with this, decades of experience in journalism.

Ken doctor is really a journalist, pushing the envelope.

Are they pushing too hard?

I don't know about the value assessment of whether they are pushing too hard, but i think where they operate in a fantasy world, this idea that you can change traditional journalism to something like amazon is just foolishness.

To do traditional journalist -- journalism come a huge staff of people continually are out in the world talking to lots of other people.

You can't just sit at a desk.

Can you have both?

Can he have the immediacy and digital back and forth along with the pulitzer prize winner work on walter reed hospital?

I suppose you can if you're not concerned too much about revenue levels and profits.

But without the traditional advertising revenue is supported them, it is not clear how you keep that.

This is important.

Every morning we still from traditional journalism whether it is bloomberg news, the post.

We don't steal, we give full credit.

I'm sorry, we use these resources every morning to make this go.

The culture for how quickly newspapers changes as well.

You have to look at that as well.

Coming up, we will talk about fraud at the big banks.

How to regain the public's trust.

? new york, with the heat returning this week we are told.

It is august in new york.

The chrysler building, that is my favorite building in new york are you and this is "bloomberg surveillance." i'm here with scarlet fu and alix steel.

Data check?

Futures are slightly higher after three-day drop.

Including jobless claims.

The yield on a 10-year, near high.

The euro at 1.3359. china trade data helping to support some of the riskier currencies.

Crude oil has been back and forth, right now, down slightly.

The chinese currency strengthens as we seek to either -- better economic data out of china.

Billions and billions are sitting like a lead brick on the ballot sheets of america's banks commit some point the money will move.

The stiffer wetland and paul barrett join us -- christopher weiland and paul barrett join us.

They enjoy the spotlight this morning on civil moving over to criminal allegations.

Chris whalen, you've seen this before three at the backdrop to me is business.

How is the business of american banking?

In terms of revenue, it is relatively flat.

It has been a cost-cutting store for the past couple of years.

Loss rate coming down sorting seven coming up.

If you look at housing that is probably been the biggest line item for many of these bangs, we expect volumes to fall this year and next.

Mortgage this, fannie this, freddie that.

All of a sudden we're talking about mortgage volume following.

We have had two cyclical recoveries.

In 2010, we had a tax credit that drove a lot of volume.

This time it was refinancing.

But what we aren't seeing his purchases of new homes.

We don't see young families coming in -- that isn't that more of an inventory issue?

It has been like a short squeeze the past few years.

Especially in hot markets were you saw four or five years ago yet at 30% discount for bank owned home compared to comparable house.

No discount today.

I want to go back to what we talked about earlier, all of these worries and back-and-forth and complex articles on the minutia of all of this, do i care if i am a shareholder?

I think you should care because between the increased revelatory burden that all banks face, you will have lower equity returns.

Going forward, you're really going to see a change in the nature of earnings much more like the utility on the banking side.

The universal banks will still have -- paul barrett, with your experience, i don't get the utilities.

Their suits are too expensive.

If you take the macro view, we have sifted through a few years ago a crisis of historic proportions and all of these burdens raging from increased regulation to margaret's of litigation by the same federal regulators is actually part of a larger picture.

And that is to slow the banks down and push them back closer to what they were in the 1950s in the 1960s, which is more like -- is a reporting that can be possible?

It is happening.

It is not a question of whether it is possible or not.

What is not clear is whether he will have a good effect on the overall economy and whether it will make inking safer.

It is not going to help because in order to have job road, you have to have growth in the fed has failed to get credit growth on the ballot sheets.

Quantitative easing, all of these policies, they really have not gotten that kind of growth.

If anything, we still have disinflation.

That is why ben bernanke keeps talking about inflation.

I have to pivot to bp little bit because paul is here.

You just spoke to bob dudley in a business article coming up.

Is there a relationship to be drawn between the struggles we continue to see of the government and the jpmorgan's in the bank of america of the world and the continued lawsuits we still see with the peak, sort of the endless parade of pr were the company cannot seem to get out of?

No, i think these are two different phenomenon.

Bps troubles with litigation are fairly discreet, having to do with the phenomenal environmental disaster that occurred in 2010. there is an extraordinary cloud of litigation related to that, but i don't think it is systemic across all company.

Lord brown built a company out of london, ultimate global over the horizon and other oilfield, they own russia, the whole thing.

They are the green company.

Beyond petroleum.

They bring in not lord dudley, mr.

Dudley, to strain out the house.

Dudley came in in the midst of the 2010 crisis when tony hayward was pushed aside.

Dudley has been trying to rationalize the company.

He has sold off $40 billion worth of assets in the last 2.5 years.

Golf courses.

I don't know about golf courses, but old-fashioned gas operations.

Something else that is gotten less attention that we bring out in our interview, bp, beyond petroleum, is back squarely in petroleum.

Bp has pulled back on its investment in alternative energy and basically said, we are in oil company and that is what we mean we are.

The beyond petroleum has been set to one side.

The idea of having any special responsibility for climate change is set to one side.

He emphasized that in our interview.

I can't convey how radical that is.

Especially when you see other oil companies desperately trying to do something similar to rotate from natural gas into pure oil.

Do you think bp is getting rewarded for that behavior?

Are they stuck in the quagmire of this bill?

Flex i think it is both.

They're not out of the uncertainty related to this bill . the company thought it had most of its liability pinned down and it turned out it was just wrong.

The claims have surged back up.

They still have a huge trial facing them having to do with federal government claims.

That is why you see them going back on the offensive on that front.

On the other front, i think the companies basically trying to say, we are almost to the companies.

A litigation company defending ourselves against this historic wave of litigation, but we are still in oil company.

We have investments all around the world including the gulf in places like russia and that is how the company is going to try to move forward.


Paul barrett and chris whalen with us.

All of this in my favorite magazine of the year for bloomberg businessweek, the thick issue, to the issues in one.

It is the interview issue that hits stands tomorrow and on all of our digital media, ipad, iphone, galaxy this -- and we will be talking -- carrier pigeon.

I want to use that.

"the game of thrones" as well . that is enough modes of transportation for our magazine.

We want to bring you a number, 187 $.5 billion is how much fannie mae and freddie mac have drawn in aid after they almost went insolvent.

We will talk about how the president is trying to remake the housing finance system right here on "bloomberg surveillance." ? good morning, everyone.

"bloomberg surveillance." i am tom keene here with scarlet fu, alix steel.

President obama meeting with the prime minister of greece at the white house today.

The show of support and more talk of creditors on additional debt relief.

The railroad company involved in last month's deadly explosion in canada has filed for vagrancy protection.

It was the operator of the runaway oil trend that crashed and exploded, killing 47 people.

The company blamed the crash for the bankruptcy.

The main airport in kenya has resumed limited international service at day after a massive fire engulfed one of its busiest terminals.

Flights from bangkok and london arrived this morning.

Domestic flights resumed yesterday.

Those are your top headlines.

Time for the single best chart.

If it involves more than one line, it is complex.

The president has been talking of housing all week long.

The white line, s&p 500 homeowner etf rising steadily until mid-may.

The yellow line, the average 30 year fixed mortgage.

The biggest one-month move in over a decade.

I checked in with an economist and they say focus on the home price momentum rather than the actual increase in rates to test this is a positive for the home price him and him him him for homebuyers.

It feeds on itself.

It hurts stock in the short term, but in the long time, -- long-term, houses are affordable . the perception that home prices will keep rising is important to buyers.

Chris whalen is with us with his wonderful book "inflated." are we added for a another bubble?

I don't think house he is really about a buzzing -- double.

It is about constraints apply.

You have a constrained buyer group.

You have taken six or seven comments -- points off.

We will probably be around 62, 60 one percent instead of 69% during the boom.

All of those people are renting, not really in the purchase market.

Going forward, if you look at michelle meyer, she is 11.8% this year.

We will probably get there by june.

What happens in the second half of the year?

Her estimate for the next year is half that.

She has minus signs for 2016, 2017. we may plateau for a few years, which is ok, but it is still not the way it was -- not derailing.

As to rising interest rates, i have 3.25 for 30 year fixed.

I don't think i could've for the apartment at number four plus.

But that interest fact, if you're talking to a private investor who was going to hold your mortgage and take first loss risk, they would want six percent to seven percent for the same loan.


-- wow.

The front hall of her apartment is bigger than sarah's entire apartment.

She's a downtown girl.

I am going to switch gears for our first look today, we know what it is like when a flight gets canceled.

Here stephen colbert are throwing a party just like a tom keene party last night.

After five years, what surprises you most about walt?

? ? were up on that to get lucky we up all night to get lucky ? you are doing your group i there.

The charlie energy.

Charlie rose.

I know you were grooving outside.

Oprah was there the other day read.

Just happened to go by charlie's studio.

And stay there.

I pressed my nose up against the glass.

George clooney comes in and we lose you for hours.

I stock the bathroom.

She is not lying.

We have chris whalen here.

We will discuss fannie mae and freddie mac, next.

? this is "bloomberg surveillance." i am scarlet fu joined by tom keene and alix steel.

From the files of bloomberg west, after president obama overturned a decision against apple, the iphone maker is turning the tables.

Apple will ask an appeals court to block sales of some samsung smartphones found to infringe on apple patents.

Shares of groupon are shoring dice -- soaring, better than forecast earnings report.

Also encouraged by naming the new ceo.

T-mobile u.s. reports its best customer growth in four years, adding 1.1 million customers in the second quarter.

They cyber civil fine contracts and less expensive data plans.

It also started selling the iphone in april.

They are making it act.

-- making it back.

A quick some say t-mobile perhaps is more attractive for sale with the smartphones.

Yesterday, it was said to be the pick in the overpriced group, the single best -- he looks at the media sector, tele sector.


Freddie mac booked $5 million in orderly profit yesterday.

$5 billion.

We're still waiting for fannie mae to report.

They're minting money, clearly, with the recovering and housing.

The president wants to start taking them out of the equation and enlist private capital to take the charge in funding home loans.

This is a tall -- tough, long road.

They make up 87% of our mortgages right now.

Chris whalen is with us as well as paul barrett.

The back end of the article, the freddie mac chief executive.

I love the sarcasm.

If you add the numbers up, it seems to be pretty far out there in the normal career planning of the freddie mac employee.

This is forever, right?

In terms of this debate?

Forever the debate, forever the solution.

The president is supporting the hybrid, private investors and the government.

In the house, they're talking about rolling back most of the depression era housing agencies, and they don't really have a substitute other than to hand the markets to the big banks, which is how i wrote about it this morning.

What did the constituents want?

They want that 3.5% mortgage.

They want to be able to buy a house.

At the end of the year when people see the following volume numbers and you have a couple thousand realtors, home builders, mortgage bankers on capitol hill in front of members of congress, they're going to shift priorities.

That is a great point.

I was reading, talking about that, how president obama will get out of the mortgage market . she says it was less of the policy plan than a fond hope your citizens as homeowners could continue to enjoy extremely low-cost mortgages in which banks are all the risk without forcing citizens to finance the bounty.

We have a longer-term issue, which is government has subsidized housing for decades.

They do this essentially by providing a guarantee the private sector can't. in a way, i think the senate is more realistic because it says, come in and take some of the risk but in $1.5 trillion -- it is like flood insurance.

My conservative friends he keeps in the private sector will pick it up, no, they won't. he goes back to the free market price of that loan of yours is six percent to seven percent, ok?

That is the reality if you had pure private sector funding.

I spoke to the ceo of zillo and listen to what he said.

Private capital is a little reluctant to enter the mortgage market because of the uncertainty about what will happen with fannie mae and freddie mac.

If there was more certainty, there were likely be more private funding.

What does the private sector need to see happen before there can be a transition from public financing to private financing?

We probably have to reopen dodd-frank.

For example, skin in the game.

If i had to keep a vertical slice of every part of a mortgage security, how might going to make that work economically?

We're talking about 5% retained interest.

We believe that karen king, if the loan is priced correctly, you don't need the government.

There are so many other obstacles the government has put in our path.

They're telling us how many fees we can put on the loan, total comp, regulating loan officers.

Let's bring in paul barrett.

You have seen decades of regulation, this and that.

You have studied it.

What is the regulation polls right now -- pulse right now?

Are we overregulated?

No, i think you're seeing a pendulum swing back toward regulation which almost inevitably is going to have crude aspects to it, aspects the lawmakers didn't necessarily anticipate.

The idea you will have to fine- tune an historic reregulation -- dodd-frank.


You're not going to get everything right the first time.

But in the wake of a crisis that nearly pushed us into a depression, you're going to have -- government action encouraged the crisis and now what we have essentially said is if you cannot get an agency mortgage, in fha, you cannot get a mortgage today.

That is the reality.

We're all going to be old.

It is not going away.

It's that simple.

We look at the yen screaming , euro stronger.

Look at that, only 631 on dollar-yen -- look at that, dollar-yen.

The ozzy comes back after a difficult for days for the restaurant and dollar.

Mark carney doing better than yesterday, sterling to a recent cable strength.

Thank you for joining us this hour, paul barrett and chris whalen.

We will do a bit of a shameless plug because bloomberg businessweek, the interview issue, a double issue, comes out on newsstands tomorrow.

The digital copy will be available tonight.

We will speak more on that in the next hour of "bloomberg surveillance." ? / this is "bloomberg surveillance." the president will travel to martha's vineyard, not russia.

He is the prosecutor of the moment.

We will focus on u.s. attorney preit bahara.

Addidas laces up.

How to win the sneaker race.

Good morning, everyone.

Courtney as always, scarlet fu.

Alix steele in for sara eisen.

Our guest host this hour , a lot of work, including with the philadelphia inquirer.

We will talk journalism and audio books with him.

I have a little bit of a play this morning.

Ticker you should not party so much the night before.

-- you should not party so much the night before.

China's imports and exports rising.

This follows the economic data and the u.s.. we of initial jobless claims.

Economists estimate it will rise ever so slightly to 335,000. lumber consumer -- consumer comfort index.

Cosco up about 4% for july.

-- bloomberg consumer comfort index.

Orbitz after the bell.

Also waiting for more than in may.

To go a lot of company news.

Take a big banks are in focus.

More legal headaches with jpmorgan.

Now under criminal investigation for its sale of mortgaged-backed securities.

Jpmorgan says the u.s. attorney's office has been conducting civil and criminal inquiries.

The department of justice has already concluded the sales practices broke several laws.

Tilted moving closer to an ipo.

They hired for banks and intuition to going public.

-- hilton moving closer to an ipo.

Blacks down went private for $26 billion at the height of the last bull market.

The boston globe and washington post were sold, but the new york times not for sale.

That is according to the times' publisher who added in a statement that he and his family are committed to leading the times into global and digital future.

I thought yesterday when we saw the president announced he will not travel to meet with mr.


Our return to politics, the president snubs the russians.

No shots of ceremonial what call -- but coke will be had.

A more complex story.

Richard hoss, president of the council on foreign relations.

His book is foreign policy begins at home.

Jeffrey man coughcaugh definitive on this in his recent book.

If russia can challenge the leadership position, discuss that.

How fragile is russia of 2013? the first point i would make in some ways is russia is not really a great power.

A medium power.

It is able to provide arms to governments around the world.

It is also able to a private -- to provide asylum to someone like edward snowden.

This is not a cold war.

Simply a country that is at most a limited partner.

Where do we go from here?

To go we probably continue to go from issue to issue.

It is a transactional relationship.

We're not able to cooperate on syria.

Very limited corporation on saranyran.

The president will not meet with the president one-on-one but will meet with russian officials.

And any work for progress to expect to get down there?

To go not particularly.

-- not particularly.

These countries are really preoccupied with the domestic situation.

Chinese leadership has a whole raft of things.

This overlay of u.s. rash of pensions.

The phrase, the international community is an empty phrase.

Groups like the g-20 really cannot accomplish a whole lot.

Does this have any implications on american businesses that do business in russia?

It might continue to be selectively good for some.

They have a very large presence in moscow.

They were able to successfully do business.

Some american investors are doing ok.

Other companies obviously had tremendous difficulties.

My guess is it will be an area that will be very hard to generalize on.

You're talking about a country of only 143 people -- 143 million people.

My guess it will be a very much micro approach.

Richard haass, thank you.

Our guest hostess our this our with the most interesting here -- history of merger and acquisition deals.

Here is jpmorgan and the word criminal is finally out there today.

We have been talking about this through surveillance this morning.

When does this end?

You could also ask why does the start so late?

For years after the final crisis no one went to jail and zero wrongs were committed and a lot of people were frustrated by that.

This is an echo of the trial that some people said was of a circus.

This is some of the issue.

So this is an echo of the five- year-old financial crisis.

In your experience, to legal affairs become a true stretch of management?

Did they funnel it off or does jamie dimon have to focus on this?

Normally it is funneled.

I think that will likely be the case here, but i also think when you have had the word criminal . we need to make clear, this is not an indictment.

An investigation.

If big banks can continue to deliver big profits, does it matter?

To go big profits matter more.

My guess is this is likely to be civil and the word criminal is being used, and we will see where it goes.

Take a look at this -- i look at this, and it is almost to the point of exhaustion.

There was silence for four-five years.

Does it just take well-meaning government organizations three and four years to get up to speed?

It should not.

The great financial crisis of to the house and it was truly cataclysmic.

I am not sure when the economy was falling apart that that was the right time for government resources to be trained in those issues.

We need to see the facts.

Are we getting ahead of ourselves saying it is taking so long to do the things?

This all took years to play out.

To go all of these cases are hard cases to bring.

They are fact specific.

Having the information does take time to develop.

That is why this by the statute of limitations, it is so important.

Five years is not forever.

Much more to go here.

Jeff bezos still reverberating through the minds of all on wall street.

Futures improve.

They are up six.

The euro-dollar is the big story.


New strength.

Really getting in the way of german exports.

Nymex crude 103.46. on we go to currencies.

The v.i.x. under 13. mark carney doing better than good yesterday.

Sterling 155 -- the sterling 1.55. 47% -- people who have recently bought audiovox.

47 percent listen while driving to or from work.

We will talk about that and twitter question of the day.

How do you read?

? this matter is now.

"bloomberg surveillance." with me this morning is michael sonishine.

The bombshell this week's summit jeff bezos weighs in with a quarter of a build recorder of a billion dollars to buy the washington post.

Were you surprised?

I was a little surprised by who bought it.

Most of these papers get sold to vanity purchasers.

This is not quite the typical case of the vanity purchaser.

Takeover you were involved with the philadelphia enquirer.

But what's the difference?

They sold it to a vanity purchaser for less than they had it.

Boston it was sold to john henry.

He is a local businessman.

He wants to on the paper.


Interesting, fund.

Number one, the washington post is different because it is only one washington and one america and the world.

It is so intertwined with the nation's capital work.

Jeff bezos is not a vanity purchaser.

He is not a local businessman and a great innovator and entrepreneur.

Whether he will apply those deals to a new and innovative way of running washington post, he has not said.

I do not know that he is fully thought it through.

Is the idea that they are different accurate?

I did not buy that for a minute?

. look, all owners of newspapers these questions.

The first thing john henry did was walk in and have a meeting to say i am not getting involved.

Everybody gets involved to some extent, but you have to try to keep journalism objective and here in some ways if you will defend the brand.

20 seconds, we have printed newspapers 10 years from now?

We will probably have some print, but i think the lead project will be digital.

The cost of print is simply too high.

Most people do not want to pay for it.

Take a they do not want to pay for the newspaper.

Coming up, we stayed digital.

-- stay digital.

Is "bloomberg surveillance." ? good morning, everyone.

"bloomberg surveillance." i am tom keene.

Futures a day of sync.

It is like eight days away.

-- futures.

She sent a post card.

Wish you were here.

Some guy in a black robe.

We will give you top headlines this morning to fill you in on what has been happening.

China's trade improved more than forecast last month.

Exports rising 5.1%. economists were predicting a 2% gain.

Also increase for the first time in five months.

Imports gained almost 11%. this but china within $18 million trade surplus.

Monetary policy unchanged.

The bank reiterated the assessment from the meeting last month that japan's economy is starting to recover moderately.

It is a big deal.

It is going the wrong way right now.

A lot of the strategy is looking for return.

Top headlines of kenya doing better.

Takeover kenya, the airline has returned to limited service.

I got excited about the yen.

He really does want to talk about the yen.

Scarlet knows what of the work i am.

But seriously, kenya is doing better, right?

The main airport resume service.

Very good.

This is interesting, because i do not know much about this, audio books.

I have black-and-white ereaders.

Audio books are winning.

People need to multitask while they are commuting, exercising, this is a complete transformation of printed page in 2 megabytes on your phone or tablets.

You have to wonder whether it is a boom or not for the book industry.

I am thrilled by this.

We have the right guy with us.

How about royalty checks to all others?

Marshall soninshine is chairman of rosetta books.

These are like truman capote.


We started 12 years ago before there were any ereaders.

We were splashed all over the front page of the wall street journal because we bought ahead of the british markets.

He won a nobel prize for not only peace-making but the writing.

He is a great writer.

You cut specs -- checks to the estate of george orwell?

All of them.

We are the author-friendly center and a leading independent provider of e books to apple and others.

There is a big six and a few others.

There was the department of justice ruling against apple.

How does that change the landscape going forward?

To go first of all, the wholesale market is the correct model in my opinion.

If you are a publisher, we are publisher, you sell the book to a distributor or retailer provider.

They will sell the price where they set it.

The problem with the agency model, it was an attempt to set the pricing among participants at the last mile of the food chain.

The justice department clearly crackdown.

Apple will have a tough uphill battle repealing this.

This whole market has been born into controversy.

I am curious as to where the market goes from here.

Is the market going to netflix?

They want to create their own content?

Once you have digital, you will have an effect on the content products.

We have started doing a lot of kindle singles.

They are short novels that are sold for $2.99. we can represent an author, not only the great iconic authors, but new ones where we are able to talk to kindle or apple and say let's come up with a product of figure out how to target the market.

Are there too many formats, too many platforms?

Is the audience confused?

I did not think so at all.

This is reading.

Reading is good.

The total book business is $25 billion.

Right now we have close to $2 billion worth of ebooks, but growing at the fastest rate of anything.

We are 70% per year.

It is an amazing story.

One of the most fun of businesses to run.

To come newspapers, the print does get on your hand and you have union-based printing a very expensive to distribute it.

It is an expensive complex proposition.

Books, people like books.

I think when you expand different ways of delivering books coming your expanding the pipe.

Just like with movies.

I am begging, will you please come back and talk about this?

This is profound.

Marshall sonenshine, too many topics today.

Futures and proof, up seven.

It is "bloomberg surveillance." how do you read?

? the morning, everyone.

"bloomberg surveillance." -- good morning, everyone.

The interview issue from " bloomberg business weweek." must read cover to cover.

Look at that -- look for that on newsstands.

And there is always 2-3 names i have no clue day -- no clue who they are.

Tesla eat bybeat by reporting stronger operating margins.

We will bring in brian johnson, an analyst at barclays starting as on the phone from chicago.

All of the focus on the margin, 22% vs.

17 in the first quarter.

The ceo sees 25%. a lot of analysts are skeptical about what this includes in does not include.

Why this critique?

The margin includes the 22% headline.

This is ahead of what we and most analysts had in the model.

They had guided down in that.

Nonetheless, if you strip out the subsidies from other auto makers, gross margin improved from about 7% to about 13%. it shows they are making progress at the factory in improving efficiency.

Are they breaking rules or being unconventional?

Not necessarily.

That is money they collect from other auto makers.

They will strip those regulatory credits out when we look at the gross margin.

To go if you looked down -- if you look down below gross, there is a lot of things he took out.

We downgraded overnight.

The view is it has been a great stock.

We think now is the time for the risk return ballots is at.

Like any tech company you tend to exclude stock option expense.

That is about 10 cents per quarter.

They have a lease program that creates residual risk.

The restated the e.p.s. to exclude the revenue tried to defer the revenue from that.

A lot of things to look at in the e.p.s. to take issue with.

We think the broader debate this 150 + dollars, the market is already discounting backed that this becomes as successful as a bmw.

The bulls are assuming on the next report.

Cut to the chase.

On twitter last night, people who are not chartered financial analysts or front line security analysts like you.

Non-fat purses gap accounting -- what is the biggest mystery on the income statement and balance sheets?

The three big things are one, least accounting.

-- lease accounting.

Two, stop options.

-- stock options.

Three, they sell zero emission compliance credits to other automakers.

They supplied the battery pack for some.

Those credit sales will go away.

Are they being transparent about that?


When does this become a car company?

We think is going to be very successful at a minimum of unleashed luxury maker.

-- a niche luxury maker.

Our issue with the stock is we think it is worth $100 on the stock price.

To get above that you have to assume they can break through to a broader market.

We are agnostic on that at this point.

Thank you, brian johnson, talking about tesla . company news in the meantime.

Commerzbank seeing signs of growth.

The german bank posting earnings that fell less than forecast last quarter.

The bank says they expect the loan loss provisions remained above 2012 levels while it reduces assets is still to a bad bank last year.

Rio tinto gives up on selling the aluminum unit.

They have been trying to digest the unit for almost two years but said market conditions have prevented a deal.

They posted an 18% drop in earnings of the first half but less than forecasted.

Those are the latest company news.

Take a good morning, everyone.

All of the interviews worldwide on bloomberg tv +. bloomberg radio and on the ipad.

I am tom keene.

Marshall sonenshine looking at mergers and acquisitions as well.

Busy day.

One of our top stories is what the government has been doing.

Has been criticized for folding wall street not accountable enough.

The department of justice has been on a terror, especially the manhattan district.

Indicting the hedge fund giant sac.

Suing bank of america over handling of mortgaged-backed securities.

A tough punishment for apple.


Quite a laundry list.

Does not talk to the press too often.

He is the u.s. attorney.

We sat down with him.

Born in india.

Grew up in new jersey after columbia and harvard law.

He assisted charles schumer.

Prosecutes for the southern district of manhattan, which carries a lot more weight than you would think.

It is in the fabulous interview magazine.

What was the biggest surprise?

We had just see the big fireworks out of his office, the charge against sec capital.

The big question is why did they charge the firm after all these years and months and tremendous resources spent investigating steve cohen?

What is his day like?

Does he get up at 4:00? bankers hours?

He gets up very early and eats an at kins bar and that might be the only thing he eats all day.

They have some of the cases.

250 attorneys working for them.

This is the thing he relies on to keep him going.

But he finds time to go to bruce springsteen concert.

How is this going?

He calls up someone and says this is my guy.

Obviously qualified.

He is the u.s. attorney of the financial corp.

Now what?

He is very coy.

He says i like the job i have now and will continue doing this.

Clearly a very ambitious guy.

You can see his relationship with the press is very different some of his predecessors.

He is very front and center, but at the same time, extremely careful about what he says.

Everyone thinks he is headed for higher office.

If you go back to the early days of rudolph giuliani . he was very low year-like.

We always talk to him in the elevator and calls.

I think for all of his enormous success, no one is calling him this or that or the next thing.

He is lawyer-like and rock star as a lawyer.

Whenever he does next will be interesting.

Right now he is a lawyer.

He is very careful.

You have to read between the lines a little bit with him because he always says we bring cases when we have the evidence.

If he had a case to bring against mr.: personally, he would.

Obviously he is made a tactical decision he is not ready for that.

In the meantime, he felt ready to bring a case against the enemy.

He is a lawyer.

That is exactly right.

The big question is whether he is still looking to charge.


Thank you very much.

Love the interview.

It is out late tonight and into tomorrow.

Bill gates on the cover.

Barbara walters.

I think that is the first one.

The race is on between nike and adidas.

They go head to head over the largest sporting event, the world cup.

This is bloomberg television on bloomberg tv and bloomberg radio.

? good morning, everyone.

Any event full morning -- an event will morning.

Talking about the new governor of the bank of england, sir martin sorrell.

That is at 8:00. they may come of the biggest mortgage finance here reporting profit for the second quarter.

Net income of $10.1 billion.

They will pay 10.2 billion as dividends on the senior preferred stocks to the treasury.

Yesterday we heard from freddie mac, reporting a profit of 5 million.

A lot of question marks over what comes next, especially as the president has been talking about the achaea of winding them down.

It is a real, isn't it?

I cannot buy shares in fannie mae.

Hedge funds have been doing just that.

They are arguing for the case that shareholders should share in the profit as well.

We will see how that plays out.

Futures up seven.

Dow futures up 63. there are things moving.

This is one we have been watching pretty closely.

Tesla motor up 15% in the pre- market.

$26 million worth of shares exchanging hands.

Second quarter results beat.

A surprise operating profit.

The new program made up 36% of sales.

405 million in revenue.

I am also looking at groupon.

Sticking with the interim ceo . andrew mason fired in february.

It is up 23.5% this morning.

They say he is very familiar with the business and pointed out 50% of north american transactions came from mobile devices, shipping from online into the global arena.

Also paying attention to jpmorgan.

Faces of federal criminal investigation for practice is tied to mortgage-backed securities sold during the housing boom in 2005-to those in seven.

-- 2005-2007. jamie dimon has warned there would be more legal headaches to come from those years.

I am also looking at apple.

No commodities.

It is a miracle.

Apple has a chance to ban the samsung devices.

There will ask an appeals court tomorrow to block sales of the model.

The white house deputy and over the weekend to ban similar products.

These devices are pretty much old.

Samsung has such a high turnover rate, may not be a big game changer.

I am lost on this.


This is serious stuff.

A lot is at stake.

To go big numbers.

-- big numbers.

$100 million is how much adidas signed with run rumz.

They're hoping to revitalize the brand . -- run dmc.

This is "bloomberg surveillance." in today's company news, from the files of a bloomberg 'west." apple will now ask an appeals court to block sales of samsung smart phones that were found to infringe on the patent.

Shares of groupon soaring in the pre-market after posting a better than expected earnings report.

T-mobile reporting the best customer growth in four years.

Added 1.1 million customers.

Adding it is simplifying contracts and less expensive data plants.

Also started selling iphone in april as well.

That is today's company news.

Have you changed your phone plan yet?

I have not, but kind of like a revolution.

We overpay.

The ankle i get is we overpay.

To be fair, it is difficult to get people to switch funds and providers.

Greg moffett making his single best buy on the show, t- mobile.

Magic three words, unlimited data plan.

Adidas missed estimates and cut the forecast because of lackluster sales in europe.

They have faced tough years of competition from nike.

We have seen it.

It has rolled out new products like the fuel band and expanded the portfolio of athletes that endorse the product.

Nike has seen the stock rise almost 44 percent of the past year.

Now they are trying to figure out who will dominate at the upcoming world cup next year.

It just goes back and forth.

This is a lot of visibility.

The pitch.

Has been covering sports wear.

Terrific work on retail.

Very cautious retail environment.

He has out of boot school in chicago.

He wears adidas chilcott sneakers from the nikes -- wears adidas shoes from teh he 90's. i think the issue is they have had a difficult time getting headway in the states.

Reebok has been the biggest share to that.



They have been a hindrance to their ability.

Is nike anything like we knew 20 years ago?

Bigger and better.

Why do they roll so much?

54 percent of the running shoe market.

Adidas is the second biggest player in the whole world.

What is the disconnect?

Nike has a huge share of the basketball market.

That is a massive opportunity.

They're not letting anyone in there.

They have brand jordan and the nike brand.

The athletes in the campus, the best of the best of the basketball world.

To go with you look at the stock, we talked about it being up 44%. it has gained 66%. some people say it is getting frothy.

Do you see similarities in terms of profit as of stock price?

I think it comes down to product innovation.

As long as nike can continue to innovate, they should continue to do well.

Again, at the end of it all, it comes down to innovation.

Are you going quarter to quarter with 90 based on a hot product or are they so dominant is categories?

-- with nike based on a hot product or are they so dominant it is categories?

We have been in the super cycle.

Amazing growth in running.

I have led the way.

No doubt.

You nailed that one.

How much has nike benefited from the safe haven and to the big stocks that pay dividends?

To go hugely.

It is the multinational company with in this space.

The biggest and easiest to trade.

It is an index stocks.

Cinko best buy.

Is it nike or something else in your retail space?

I prefer under armor.

The growth prospects are much more vast.

They're just getting it to footwear.

They are just getting into the international market.

6% of sales.

The growth avenue, much bigger force under armor.

-- for under armour.

Who is on top?

Let's keep it in focus.

I think the world cup and the olympics are showcase events.

They showcase the next innovation.

The use the platform to show what is coming up next.

It is about who will have the next product innovation.

We've not seen exactly what they will come to market with.

Is there a big difference in brand difference?

Is brand and product.

You have to have both.

One that drives the other.

If you include endorsements, i would think so.

Fink you.

I want to go back to merger and acquisitions.

-- thank you.

I want to go back to media.

Disney is up.

The movie is up.

Have you ever seen the explosion in media values, including recently the washington post?

This is not really an explosion.

Look, this is a moment when we are starting to see expectation of enhanced consumer spending.

This is an improvement of the economy.

Media is coming out with really good products.

It is not journalism that is dead.

If you come up with great product, you are going to sell it.

You took business week and turned it around and made it fantastic.

We get this out to people.

Rosetta books.

Your comments on the uproar over music copyright.

Are the artists being treated fairly by the new media?

I want to look at the economics.

In most categories, artists get shortchanged.

In the bookcase, we change them intentionally.

The highest royalty rates are very high.

Most categories of music, those bofolks have suffered.

It is very hard to make a nickel now on the balance of music.


hancock walks in with a catalog.

He is not getting paid when i listen to him.

That is true.

We had people picketing.

People of the picketing because they were upset with what the photographers were making.

I think artists tend to get short-changed.

How will this change in music besides james taylor suing someone?

Baidu not know.

I think it is hard to change the economic paradigm in which they

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