Oil Prices Slip: Surveillance (11/20)

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Nov. 20 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Judd Gregg, Howard Davidowitz, Robert Hormats, David Plouffe, Sallie Krawcheck, Poonam Goyal, and Brad Stone. (Source: Bloomberg)

Ben bernanke says the fed will keep rates down even after it tapers.

Jcpenney reports this morning.

Oil prices keep sliding on slow global growth.

Is there too much optimism about an agreement with iran?

Good morning.

This is "bloomberg surveillance." joining me is mike mckee.

Tom keene is in chicago where he will be moderating parts of bloomberg's conference that will look at how some of the world's biggest industries are changing.

Good morning.

From chicago, illinois.

The heartland of industrial america.

This is a two-day conference.

The art institute of chicago.

Ceos, business leaders, economists will gather to talk about the year ahead and the future of america.

My major message here is where will the taking industry be -- banking industry be?

We will check in with you in a little bit.

We want to get to the morning brief.

Japan posting its biggest october trade deficit on record.

Ben bernanke saying that the federal reserve will hold down interest rates after ending bond purchases.

The market moving on that news.

We do get a slew of numbers this morning.

Mortgage applications, retail sales, consumer prices.

Existing home sales, the minutes from the last federal reserve policy meeting will be released.

It is a busy day for retailers.

Lowe's and staples and jcpenney will be reporting.

John deere will also report.

Green mountain coffee roasters and williams-sonoma will also report.

Markets are moving on ben bernanke's, it's. -- comments.

They don't seem to be impressed.

Futures are off by about 0.1%. the 10 year yield is higher.

The euro is a little lower.

The dollar is rising.

Crude oil is higher.

It was lower throughout much of the morning.

It is higher off of yesterday's close.

As we look at volatility, also going up and little bit with the stock market still hovering near record highs.

The british pound rising.

The bank of england's minutes came out suggesting that the 7% target for an unemployment threshold may be moved.

Parallels to the united states, right?

Right.

Let's get to the front page.

We go back to what you had just mentioned, ben bernanke.

He has months left and he is still the guy.

People are still paying attention to what he is saying.

He says, don't worry about the end of the fed's bond buying program.

Interest rates will stay near zero even once tapering begins.

Tapering may not begin for a while.

6.5% employment rate was supposed to be the threshold.

When the fed ultimately gets to tapering and some people are taking that as a suggestion that it is farther away than maybe you think.

And maybe the markets that kind of move on that.

They are not very impressed.

The affordable care act -- the white house's signature legislation.

It will not be out of the woods even after the website is fixed.

The top government hack official says that 30% -- tech official says that 30% of the marketplace is still being developed.

They won up working by the end of this month.

Time is running out quickly.

Henry chow said they may not make it.

He cannot guarantee it.

That is a problem for the president who keeps making promises that he cannot then keep and the american people start to lose faith and the whole project.

Do hear people talking about this, tom?

It is a big issue.

In the midwest, there is anger in the poll ratings as they continue to go down.

What have you read in the last few days about the president or congress's poll ratings?

They are all down in the dumps.

They show the congressional approval ratings are about 9%. even if you ask people must -- people's mothers, they should have a higher approval rating.

President obama is a 39%. speaking of politicians making news, the u.s. ambassador to china quit after 2.5 years in the job.

Gary locke is now stepping down early next year.

He frequently criticized china's human rights record.

I found it interesting that he was really popular with the chinese public.

He was photographed carrying his own backpack and waiting in line at starbucks.

They say even the slowest communist government official would do that.

-- lowest government official would do that.

The official reason is that his family has moved back because his kids want to go to high school in the u.s. that he wants to join them.

That is not what they're saying in china.

Everybody is talking about the idea that maybe they are leaving because they don't like the effect of the pollution in beijing on their kids.

The pollution has caused a lot of companies about how they will recruit talent -- to think about how they will recruit talent to china.

It is so discouraging.

I hope the pollution in chicago is not an issue.

It is gorgeous.

Spectacular views of lake michigan last night as we flew in.

As we begin the year ahead 2014, new hampshire, the former governor of new hampshire and senator joins us here.

He will be in a seminar and panel discussion later this morning.

Wonderful to have you here.

Thank you for having me.

Let's talk about this year ahead 2014 and your great concern -- the migration of the country.

My ancient ancestors came out of new hampshire and vermont.

Many ended up in illinois.

We're still doing that.

But for different reasons.

What you are seeing in this country -- people are constantly moving.

Jobs, family, land.

People seem to be moving because of state governments.

Examples of getting the rack together.

There seem to be -- getting their act together.

Productive people.

Jobs, family, land.

People seem to be moving because of state governments.

Examples of getting the rack together.

There seem to be -- getting their act together.

Productive people.

Jobs, family, land.

People seem to be moving because of state governments.

Examples of getting the rack together.

There seem to be -- getting their act together.

Productive people.

We are looking at 2014. business, finance for our viewers next year?

Big-time.

It is not a presidential year and it will not have the dominance.

It will have an effect on everything that happens in washington.

But always tremendously affects decision-making.

He says the sequester could be worse than the last sequester.

What should our viewers look toward the middle of january?

I'm going to guess congress is split and far apart.

Remember what the sequester is.

It is an arbitrary cut to discretionary spending.

It is an arbitrary cut to discretionary spending.

Discretionary spending has already been reduced by over $900 billion.

It is primarily to the defense.

They're supposed to -- the budget committee.

The two fronts of a war.

Is this defense department only going to be able to fight on one front?

One war at a time?

The defense department is going to have to suffer the take with a significant adjustment in its spending.

Does it come so quickly that it has to cut into people who are in the field?

That would be unacceptable.

Judd gregg here with us in chicago.

All-star lineup coming up today on bloomberg television.

At let's get to company news from johnson & johnson.

They are settling hip implant issues.

And they will pay at least $2.4 billion for thousands of dollars -- lawsuits relating to the hip implants.

Yahoo!

Is returning more cash to shareholders.

They're boosting the stock buyback by $5 billion.

That comes on top of the stock they have purchased since january of last year.

Sony has an explanation for all of those playstation 4's that were turning themselves off.

Some of the new consoles were damaged in shipping.

The malfunction rate for all of the playstation 4's that were shipped were less than 1%. that is today's company news.

You are in shape though.

I did not get it yet.

Not yet.

I'm sure that will be a lot of pressure at home.

They were talking about obamacare.

It is also the gift that keeps on giving for late-night comedians.

And they continue to have fun with obamacare.

Jay leno bringing it up in a personal way with former president bush and his wife laura.

I want to ask you something.

When the president had that heart scare, how scary was that?

It was very scary.

I wasn't that scared.

[laughter] you had obamacare?

[laughter] [applause] the former president just kind of let it lie there.

It is obviously something that will provide full enjoyment for some time.

I'm surprised that he hasn't made that much, don obamacare, unlike -- comment on obamacare, unlike president clinton.

We have a lot more coming up on bloomberg surveillance.

A landmark week for jpmorgan reaching a $13 billion settlement with the department of justice.

We will discuss the implications for banking on the government.

Coming up, the president of the st.

Louis fed will be sitting down with erik schatzker at the year ahead 2014 conference taking place in chicago.

What will he say after ben bernanke signaled that interest rates will likely stay low for a long.

Of time -- period of time?

I am scarlet fu.

Tom keene is live in chicago.

You have a special guest for us.

I have a special guest.

How about the banking industry?

It has been a landmark week for jpmorgan and the banking industry as a whole.

We have the perfect guest, judd gregg come of the former senator from new hampshire.

After becoming senator and retiring, he is with the industry group for banking.

There have been some pretty tough times.

The 2008 period was a pretty tough time for the financial industry.

This has been difficult.

You have to ask yourself, when can we get the industry back into doing what it really wants to do?

But the fuel into main street.

Main street is the entered of america.

It's fuel comes from the capital.

We're at a point where the critics want more.

Where do they get more?

What they get wrong is that this is a country that has to have a vibrant banking industry that has to have at its core people who are willing to go out and support the risktakers with their savings.

The banking industry does not handle its own money, it handles pensioners money, customers money.

We are putting our customers first and people are still looking back to 2008 instead of looking forward to 2015. that is the political debate of the moment.

There's a huge part of america that says judd gregg and jamie dimon are wrong.

They want their pound of flesh.

One does that -- when does that end?

You can only take so much out of the system and expect the system to function.

$13 billion is a huge penalty to pay.

It will mean that that $13 billion won't be recycled through the winding process or through the capital markets process.

It was a decision the jpmorgan made that it was the right decision for them.

I will be speaking with well fargo's later today.

That is a different bank than jpmorgan.

Sure the other banks for what we have seen in the last few days?

It is hard to know.

It is a real mystery.

The justice department appears to be continuing to pursue certain issues and we don't know where they will lead to.

I will say this though, that the banking industry i work with is totally committed to customers, to getting back to main street and helping it prosper and helping individuals succeed.

Our economy is an integrated economy.

It cannot function without a strong financial structure.

We are the fuel for the attention of america.

Very qualified people -- they sharply disagree with this approach.

They want a penalty to be paid, whether civil or criminal.

What would you say to the attorney general?

You have to recognize that regulation has gone to the excess and that enforcement is undermining the basic goal of this administration which is to create a more prosperous country and having a drug or economy.

You cannot continue to pound one sector which is a core sector of our economy.

In a manner that is speaking to events that occurred earlier in time -- almost five years ago now -- and expect that industry to be as strong and forceful a force going forward as we need.

We need to refocus on the future and not on the past.

How unified is simfafma> ? how unified is american banking?

I think 90% of the thought process within the financial system is that they are on the same boat.

There was also a view of some that basically wall street has its issues, we have our issues on the retail side.

As a practical matter, everybody understands that until we regain the confidence on the -- of the customer, that we as a system from wall street all the way through the community bank are not going to be successful.

Does the obama administration want smaller banks in the -- in america?

We live in a global economy.

Our banks are not that large compared to the rest of the world.

Our banking community -- in the way that we fund our structure -- we do it much more through the capital markets enter lending -- than the european system works.

I think it is a misdirected thought that you don't want to have large banks out there to compete on the international community.

Let's continue.

Judd gregg is our guest.

Getting a started here at our year ahead 2014 conference.

A lot to look forward to.

Investors and companies are also sitting on piles of cash.

Why that savings is holding back economic recovery.

We will discuss that next.

? i'm scarlet fu with michael mckee in new york.

In a special edition of bloomberg television, tom keene is live at the year ahead 2014 summit in chicago.

Let's get to mike for our top headlines.

Durant and representatives the world powers are restarting talks in geneva to reach a deal on iran's nuclear program.

The third round of talks in the last six weeks.

President obama met with members of congress urging them to not place further sanctions on iran.

Japan's trade deficit widening and october.

The falling and hurting -- yen hurting.

Fuel imports of grown.

October's $11 billion trade gap widened.

The 16th straight monthly deficit.

Rupert murdoch is close to reaching a settlement with his wife of 14 years.

The chairman filing for divorce in june.

At the para scheduled to appear in court today.

It is his third marriage.

They have two daughters.

Those are your top headlines.

He is eligible again.

They do have a prenup also.

The amicable separation, divorce is all rooted in that.

A lot of millions and billions of dollars at stake.

It is time for the morning must- read.

Millions and billions of dollars at stake with obamacare, of course.

Tom, i hope you're paying attention out in chicago.

Whether your actions depend on what other people do.

In other words, if people don't believe it work, it won't work.

A self-fulfilling prophecy, essentially.

We have that put 14 deadline for others as well -- 2014 deadline for others as well.

Jcpenney -- is the turnaround working?

That is coming up.

This is "bloomberg surveillance." i'm scarlet fu with michael mckee.

Time key -- tom keene is live from the year and 2014 summit in chicago.

We do want to start with a data check, post ben bernanke commentary.

Pre-economic data market.

Everyone sitting on their hands and waiting for retail sales and housing numbers.

As in the futures little changed on the day.

Have not moved the last half- hour or so.

Look at the 10-year yield.

Ben bernanke said rates will stay lower longer.

Forward guidance is not working because the market is pushing rates higher, also reflected on the currency market where the dollar is getting stronger.

Same story for crude oil, $93. big improvement from where it was.

Just a little bit of inflation may be.

Let's take a look at gainers and losers from yesterday.

Tyson having its biggest gain in one year.

A largest u.s. meat processor posted higher-than-expected revenue last quarter because of a gain in prices and sales volumes of beef and chicken.

Best buy off by 11% yesterday, the most since december.

Best by saying it will sacrifice profitability to match rival discount.

So, if you see a cheaper price on amazon, best buy will match it.

The bottom line will take a hit.

Jcpenney, everybody watching that.

Shares unchanged yesterday.

It didn't see its first monthly sales gains in two years in october.

Shifting strategy from the former leader.

Can it be saved after losing $1.6 billion in the last year?

Chairman of dividends -- davido witz and associates is here.

Here with than $19 billion in may and now $13 billion.

They can't work.

They desperately need to restructure.

They need to shrink the company.

Given the crazy loan agreements they did, the asset base, it seems to me it could only be done in bankruptcy.

I think it will happen.

Whether 18 months or 12 months.

I don't think this country is survivable.

This holiday season?

Of course, and it can probably sweep through next year.

I give the company long-term, 18 months from now, more than likely chapter 11 because that is what is needed.

It's got to shrink the number of stores.

If you look at who they appealed to, the middle class, even cold --, the best middle-class retailer is hurting.

Sears became even this dust.

-- cannot even be discussed.

It is shrinking.

One out of six in poverty in this country.

Another one out of 61 inch away from poverty.

77% of on the jobs are part- time's. the bifurcation of america at's is getting hit.

They are being killed.

The worst place to be in is in the middle.

If you want to produce people in poverty, we are doing a hell of a job.

Of the department stores are in the middle.

You say jcpenney can go into bankruptcy but do they have a long-term survival prognosis?

Nobody needs any and nobody needs sears but kohl's, if you look at their metrics, their costs are seven points lower than anyone else.

One level -- essential check out.

The winner in the middle will bekohl's, and they should be.

I wonder if a person can be made between jcpenney and best buy.

Both in turnaround mode.

The ceo of best buy have been able to turn things around the little bit.

There are massive differences, of course, because even if his platform is to match prices online he has the advantage of higher margin items that can push out and they can focus on specialized customer service.

J.c. penney does not have any of that and they are dealing with 500 stores of that have been remodeled under ron johnson who are not using the space.

And the lesson that whoever takes over dc he can learn from best buy?

I don't think so.

I think the difference between best buy and pennies is best buy did not go mentally crazy.

In other words, jcpenney was the craziest performance i have ever seen in the history of retail business.

I never saw change -- the strategy.

Not only 100% wrong than crazy but they did 100 things at once, most of them crazy.

In other words, they went nuts.

It a try to invest in a company, they try to make changes, they just did not have a good sense of who the customer was.

They made all the changes at once and they made all the changes overnight, and the wounded -- they booted all their customers out.

You would call that mentally deranged.

They threw out customers -- no coupons.

That is my -- not right.

Did ron johnson put the company and a death spiral or did he just accelerated?

Would it have died anyway?

Mike ullman was doing stuff, some of the positive.

He started to introduce shops.

He seemed to be doing ok in the cosmetics business.

The company made three dollars a share.

Did it have terrible metrics?

Lowest sales per square foot of any department store, and stuff like that.

But he was running a survivable company.

Maybe it could have been fixed.

It has been destroyed.

Combination of ackman, of course.

The combination that came in was so toxic, so crazy, it destroyed the business.

It is also curbing gross margin as well.

We are seeing it below 30% after ron johnson left and ullman returned.

Bill ackman -- it attracted a certain kind of investor, hedge fund type expecting some kind of turnaround chapter 11. what does it do for a company strategy when you have short- term investors?

It is a horror.

Ullman is a decent guy in a sound retailer.

He is not a superstar but a heat -- he is a solid guy.

He will be on the phone all day with these loons --do this, do that, by this, by that.

Why aren't the shares up?

Is is a huge distraction for mike ullman and his management team.

The last thing you need right now.

He's got so much work to do.

Think about the people who work in this company.

As is the kind of company where people work a lifetime.

They have pensions.

They are loyal.

Think about what happened to this company.

Chapter 11, if it gets that far, are those the things that are going to go away?

Everything will go away and then you will have the hedge fund doing the financing.

There will be a chance if you can dramatically shrink the number of stores.

Use them only -- you simply cannot slash sales so much and keep the stores.

The numbers will not work.

In five years can tom keene still by his bow from jcpenney ending sears?

Tom keene to do anything tom keene once.

And mike mckee by his bowties there?

No, only tom keene.

Howard davidowitz from davidowitz and associates.

His view of jcpenney.

Not yet -- in his words -- out of the.

Interesting note, vanguard funds owned 165 million shares of jcpenney and only 6 million of amazon.

Which would you that -- rather own?

Our twitter question.

Is it jeff bezos a more important amazon than steve jobs to apple?

Tweet us @. this is "bloomberg surveillance" streaming on your television, tablet, phone, and bloomberg.com . ? good morning, everyone.

A beautiful morning in the nation's capital.

A nation worried about economic growth for next year.

Part of our theme at the year and 2014 -- year ahead 2014 summit in chicago.

With the budget battles in january.

Much more with judd gregg.

And robert -- will be here as well, we will talk china in a moment.

Let's go to michael mckee.

A unanimous vote by bank of england officials to keep policies unchanged.

Bank officials also say record low interest rates may be needed even after the unemployment rate falls to their threshold of seven percent.

The threshold was set back in august.

That sounds very familiar.

Four senate republicans say they are inclined to support janet yellen's nomination as chairman to the federal reserve.

Add it to the 55 democrats, it gives her 59 and she needs 60 to get to the hurdles to get confirmed.

At least three other republicans say they have not decided yet.

The nomination could be put to the vote in the wake of december 9. senator bob corker of tennessee says he will announce his decision today.

Tribal leaders in afghanistan prepared to vote for an agreement -- on an agreement to leave some u.s. troops in the country.

It would keep a smaller portion in the country to train afghan soldiers.

At out -- about 3000 afghan tribal leaders set to discuss the plan tomorrow.

Those are your top headlines.

Let's move onto single best chart.

I thought of you when i picked it out.

Rbc capital markets, the chief equity strategist and he talked about trends that have become apparent.

First, the weak economic recovery.

You can see the white line, gdp, it has remained pretty anemic yard running less than half of the average.

The second trend is the yellow line.

Manufacturing index two quarters forward which shows there might be a near-term pickup in activity.

He says both trends are indicative.

While the recovery will staymuted there is some anticipation of relief in the coming weeks and months that may not last in two years but will give relief.

We asked the question why we have not seen it already.

We shorthand the isn saying a reading below 50 means contraction but not really.

42.2 is the level at which you actually see contraction -- it is the new 50. yes, it is the new 50. at 56.4, where we are now, we should see real gdp growth of 4.4% there and we are not.

That has been the case for a while.

Where has it gone?

And what it means for the federal reserve monetary policy because with interest rates so low, what do they do next?

What is their options?

A real dilemma because they are sorted out of ammunition until they go really unconventional.

Mayor unconventional policy, tom, has already pushed the stock market to record highs -- they're unconventional policy has really pushed the stock market to record highs.

Dow at 16,000. in a recent panel discussion take that oppenheimer studios i spoke to rbc capital's u.s. market strategist.

Here's what he told me about the current state of the economy and the markets.

The most important thing is what with their students was saying, if you have a economy buckles 1.7 gdp, 2.7 next year, there is way more leverage in corporate earnings than people realize.

That is a huge boost in corporate earning.

It is a lower trendline but i think we're in a cyclical up there and we are its bearing thing right now which is really positive.

Jonathan gaalolub there.

Judd gregg with us, representing the banking industry.

Senator gregg, when i look at the equity markets, this is a good thing.

This is a healing process coming out of the financial crisis.

How does it translate into good news for the haves and the equity markets versus rest of the nation?

It takes time.

And more importantly, it takes confidence.

Confidence of people willing to take risk and create economic activity.

They will get the support they need.

10,000 shares of twitter shares.

I was going to use twitter as an example.

What an extraordinary event.

That is so american.

You've got a company that was started a few years ago, that has grown to the point where millions of people want to participate in its success with their savings.

That is the point.

It is their savings.

I am sure it all has to work through the system and the banking community plays a major role by basically underwriting the activity.

There is a spirit just the reverse of the river in chicago.

They decided to go the other way.

And they turned green on st.

Patrick's day.

They do very good things here in the midwest, too.

It is just our culture is entrepreneurial.

Our culture believes people have good ideas and put sweat equity into would have a chance in our nation to be successful.

And there are a lot of people who want to help them be successful by using the resources to support them.

Let's come back.

Senator gregg with us.

We are thrilled to bring you with senator gregg.

And robert hormatz will be with us.

He rested after a tour of duty with the state department.

We look forward to hearing from him, especially being the third time writing a charm.

Third round of nuclear negotiations betweent world leaders will take place.

Om will speak to him about what it means to oil prices will we are already drowning an oversupply in the united states.

That is next on "bloomberg surveillance," in new york and chicago, streaming on your television, tablet, phone and bloomberg.com.

? this is "bloomberg surveillance." i'm scarlet fu with michael mckee in new york and tom keene is live at the year ahead 2014 summit in chicago.

We do want to get to company news first.

Shares of sharp jumping in tokyo on -- because it may team up with hewlett-packard.

They may work together on photo copiers.

It looks as the japanese electronics maker looks to rebound from its record loss.

Nokia shareholders approving a deal to sell the mobilephone unit to microsoft.

More than 99% voted yes on the $7.4 billion sale.

It will let them focus on network equipment you know while freeing it from the shrinking handset business.

The mobile units toggle to gain ground on apple and song sung -- samsung.

Telecom italian outlined plans for his credit rating.

It plans to cut that and revive its domestic business to shed junk status.

The new ceo says he wants to get back to investment grade within three years.

That is today's company news from the files of bloomberg west.

Mold plans from italy.

And i was interest did in the nokia story.

It goes to the top of microsoft.

He is said to be one of the outsiders contending for the top spot.

But he is basically an insider at this point.

Is officially now an insider.

Microsoft's board has big decisions to make and also be positioned in geneva.

A third round of talks on aaron's nuclear program start and ahead of the negotiations, oil prices have been sliding -- talks in iran over the nuclear program.

Domestic supplies are forecast to rise for a ninth straight week.

Some headwinds there.

Absolutely, scarlet.

We are here in chicago at the year ahead 2013 -- 2014 summit.

Judd gregg is with us, former senator and now with sisma.

Now we have robert hormats just from a tour of duty w at the state department.

Bob, i want to sell the american public, and for that matter, a global audience on health social the talks are in geneva and why we need to focus on hydrocarbons in iran.

They are crucial because obviously the nuclear issue is a major issue not only for israel -- and clearly it is for premise the netanyahu and everyone else -- but for a number of iran's neighbors to make sure iran does not get a nuclear weapon.

You have to balance off the objective of improving relations with iran and maintaining good relations in the confidence of our allies in the region.

It is extremely important.

The iranians have one issue, and that is, they want to reduce their dependence on petroleum, on oil.

But there are ways they can do it peacefully and reassure the world they will not use enriched uranium for nuclear weapon.

How can we do it peacefully if the republicans of judd gregg are arguing with the president over the state department affairs.

A frame the debate in washington over iraq and what will be a constructive outcome?

Obviously it is very sensitive -- and wendy sherman -- people like that extremely good working on this.

If we get a clear delineation that the iranians will not have the capability of getting the nuclear weapon and not the capability at some point to move from where they are now to where they will be, to building a nuclear weapon, and very clear inspections, that will be good.

But it has to be very credible, very clear, very transparent.

And you have to work with all the countries in the region to make sure they understand what the deal is at all times.

Building their confidence and maintaining it is critically important.

You know, we have the bloomberg headline that came out a few days ago that just -- about the china one child policy.

What a week for china.

What a change you.

Going back to your service with henry kissinger, bob hormats -- judd gregg, what should be washington positive response to the new liberalization proposed in china?

What supportive, obviously.

But it will take a long time to reverse the demographic time bomb of extraordinary proportions china has.

China has a sexual problem that is much more severe than our problem in the united states.

For 30 years, you have one child.

So you have one person supporting to parents and four grandparents, and the system does not work.

Yes, they have huge reserves and a dynamic economy, but as a practical fact, they got a demographic issue here that is going to play them severely as they go forward the next 10-15 years.

What is so great about your work at goldman sachs is you are one of the guys that got out of hong kong and shanghai and beijing.

You got out away from the ritz- carlton hotel.

How will china respond to what they see from the leadership in beijing?

I was just there a week earlier.

Hank paulson and i were both there at the same time just prior to the third plenum, which is a major event.

We should make a movie -- with hank paulson.

I am looking for that as a sequel.

It was quite interesting.

They really underscored to us that they really want to have a deep and broad, what they call comprehensive set of reforms.

I think we have to look at china's reforms is it is not just the growth rate that is important.

You want to grow at seven percent-seven percent -- seven point five percent, but also the composition of growth.

They want growth less dependent on exports and more dependent on internal consumption and they also want more people to be able to participate in the growth, particularly people in rural china who have not been able to participate as much.

Ability -- not to sell land, because they do not own land, but transfer the right to use land.

That enables them to have more money when they go to the cities.

It broadens the pace of growth and more purchasing power.

I sell something to wrap it up -- it showed america's estimate of foreign aid was a huge number, way, way above where it was.

Some things never end.

The foreign aid budget is very small.

Less than $25 billion on a three dollar trillion budget.

-- $3 trillion budget.

Most of the goes to countries we may want to have support either militarily or economically, so there is a tremendous reflow into our culture through the purchase of military equipment often.

Thank you for joining us.

And bob hormats, look forward to seeing you later today.

End thing with -- things with a four x check.

The aussie moving big time because an official said they will for a week or ozzie, the ozzie dollar currently down.

Also, the euro weakened versus the dollar.

? will taxpayers be on the hook again, this time to bill of health insurers?

The latest front in the war over obamacare.

Regulators haggle over the fine print -- will the vocal role in dodd-frank it done?

A cold that just days -- the cult of jeff bezos.

I'm scarlet fu live from world headquarters in new york, wednesday, november 20. joining me is mike mckee.

Time is joining us from chicago where he will be moderating parts of bloomberg link event see year ahead on a 14. how the biggest industries are changing and the forces driving those changes in the year ahead.

What do we have to look forward to in the hour ahead?

Dave kluft will join us, and sallie krawcheck -- david plouffe.

We will look at the year ahead.

I will have a conversation later this morning with walter isaacson.

We have a terrific line about the year ahead summit.

The focus is american industry but we will look at each in a mix, finance, and investment as well.

Looking forward to a lot more from you in chicago.

Overnight, japan posted its biggest october trade deficit on record and fed chairman ben bernanke making comments, saying the fed will hold down interest rates near zero long after ending bond purchases and possibly after unemployment falls below the 6.5% level.

Economic data just coming up.

Mortgage applications dropping 2.3% the last week.

Later on today, retail sales and consumer prices.

Inflation coming out 8:30 a.m. after the market opens, existing home sales.

And we get the release of the fed minutes after its last policy meeting.

On the earnings front, j.c. penney's will report at 7:30 a.m., and deere just reported, looks like a big beat.

The farm equipment maker, fourth quarter earnings-per-share was $2.11 and we were looking for $1.90. after the market closes, green mountain coffee, as well as williams-sonoma.

How is this playing out in the broader market?

More volume into the futures market.

Not sure about earnings.

Deere good news, lowe's missed but staples met.

But s&p futures off by just a little.

They had been down about a 10th of a percent.

Nasdaq now positive.

Dow futures almost unchanged on the day.

10-year yield, higher, but backed off a little bit.

Supposedly bank bernanke pushed yields down last night -- ben bernanke pushed yields down last night but did not help.

Crude oil higher by about a 10th, as you can see.

And the same thing with the brand crude, and little but lower -- brent crude, a little but lower.

Vix, 13.39, two percent movement.

But it is hard to care because it is not moving very much.

The dollar index reflecting the decline across a broader range of currencies.

The pound is one of those that is gaining on the u.s. currency.

Some strengthen the economy there that we are not seeing here yet.

We will continue to watch for that.

Certainly investors are.

Let's get to company news.

It is shaping up to be a price war for electronics buyers.

Best buy, walmart, target, and staples leading to match prices during the holiday shopping season.

Walmart will match of the bargains rivals are advertising for black friday.

All the talk on sales -- about sales took a toll on best buy.

Shares tumbling after saying it will match prices.

Johnson & johnson striking a deal to settle hit implant issues.

It will pay at least $2.4 billion for thousands of lawsuits.

It said the cost may increase to $4 billion depending on future lawsuits.

Yahoo!

Returning more cash.

The company boosted the stock buyback program by $5 billion.

It comes on top of the $5.3 billion of stock yahoo!

Already brought -- ball back since january of last year.

-- abought back since january of last year.

How many more ways can you pick apart obamacare?

Republicans have a new way.

Michael rubio of florida says president obama's law supposes taxpayers to the possibility of having to bailout the health insurance industry.

Phil mattingly has been looking at this.

He is laying out the facts.

Not quite as simple as senator rubio suggests.

That is right.

Look, what the senator is going after right now is a key component of how the administration in this law is trying to dull the impact of bringing all these new sick people onto the rolls that insurers will have to face.

Here's what they put in place to try to make it a little easier, to forestall any steep losses.

Each insurance plan will have a target number.

Insurers that come in under the target number, 97% or below, they will be asked to -- not asked, but forced to pay into a pool of money held by the government.

Insurers who bring in sicker and rowley's, 103% or over -- enrolees.lees, -- they believe this will help the insurance companies be able to handle the new enrollees that they were not able or allowed to come in or forcing to pay a lot more to come in.

This is how rubio is looking at it.

What the president last year, allowing people who had canceled plans, to extend them for next year the individual claims.

What insurers are saying is it will bounce out a lot of the healthy people.

What rubio as saying, ok, if you skew this pool right now, that means the government will be on the hook for more money.

I talked to a few administration officials.

They disagree.

They told insurers at a private meeting last week when the president met with insurance company executives and that there is a way to kind of tweak this first quarter program that he is pointing out.

But a key point -- the administration is not going to bailout the insurance industry.

While they are willing to help, obviously, they are not going to do that.

Stay with us.

We are going to go out to tom keene in chicago and he is watching all of this with a former key member of the administration.

Davidplouffe, a democrat, former senior adviser to president obama.

He joins us here in his chicago, the year ahead 2014. health care.

We go back and forth.

And there are these deep in tropical -- intractable divisions.

What does the president need to do to bring america together to get some solution next year?

The important thing is time.

Even four months from now you have -- you will have million signed up and some of these wrinkles hopefully fix.

Even with all the problems -- the only people who want to repeal obamacare are the core of the tea party.

Where most americans are our, implemented and fix it.

You look at all the problems with the federal exchange.

The goal is to have the states run the exchanges.

And the places where the states are running the exchanges, people are running pretty well.

People agree there is an immense complexity here.

How do we get to a simple solution where democrats can get behind the president?

Most democrats -- you have to remember, about 30 voted against the affordable care act in 2010 in the house.

That was the vote then.

I would suggest things have changed tidbit in the polls.

I think were most democrats, in terms of the voters and most elected officials are where americans are.

It is a big law.

When you are implementing a big law you will find things that are not working, and you have to fix it.

The american people do not want to go through another fight about the health care law.

What they want to do is implement it and fix it.

That is the key thing.

Whatever you and i talk about on the stage -- what matters is reality, either it will work or will not.

My suspicion is by march of next year, you will see an roman being quite impressive.

I that point, the republican party -- a message that says our whole platform is the key -- kick people off of health care, it will not work.

Republicans and democrats had a chapter in an economic textbook, a way in the back, about insurance and it is all about incentives.

What is a constructive incentive to make young, healthy kids take part in obamacare.

Although we do have an example in massachusetts where eventually it took a couple of years to get the uninsurance rate among young people under 10%. it will take some time.

Time is your solution.

And social engagement.

What will happen is a young person will talk to defend -- friend, sibling, and cousin.

Saying, i have done this, it is a pretty good deal.

The website -- once people find out it is easy to use and my friend did it and it is easy and painless, it'll take time.

That is the biggest challenge.

Even if the website had gone purposely -- perfectly, the biggest challenge is to be young people to sign up.

It will not happen overnight.

It will take time.

David plouffe to get us started.

One of our themes here.

The year and ahead 2014 in chicago.

Michael?

Certainly drive the conversation.

Thanks to tom keene, david plouffe and phil mattingly.

We have a lot coming up.

A big day for retailers.

Jcpenney reporting in about 20 minutes.

Staplesl,owe's all reporting.

In one way or another they are all competing against amazon.

Is amazon founder and ceo jeff bezos as important to amazon as steve jobs was to apple?

Tweet us @bsurveillance.

This is "bloomberg surveillance" on television and radio.

? good morning, everyone.

I'm john -- tom keene live from the year ahead 2014 summit.

In chicago, illinois.

The view forward for american industry.

Part of it is the banking industry.

And the investment industry as well.

The foundation of it is confidence, confidence and investment, the ability to stay in markets.

She is the rarest of breeds, a wall street executive with a real investment skills.

How strange is that?

[laughter] she is here just with me this morning and we welcome her.

Wonderful to have you here.

Quite a change -- 7000 women, to you.

You were at sanford c bernstein for years.

You saw walls of watery and merrill lynch.

Here we are at down 16,000. what does it signal to the rest of the country that the markets are so enthused they could get out in front and be optimistic?

The same as it ever was.

Markets are discounting mechanism.

The markets are looking forward and saying the economy is not great, but it is fine.

And a fine economy actually could mean a very good market.

You will not expect interest rates to soar.

If you keep interest rates low enough, the economy ok enough, you can't have a really good market.

A question of patients.

Mario gabelli talks about patients.

How do you discover the patient for 2014? i think we have learned a lot about trading too fast.

And the difficult things that happened for individual investors when they are trading quickly on each move.

And it just is not a strategy that has worked very well due to high fees, due to typically make a mistake by trying to make some of the decisions.

If the past few years have not taught us that, then we are not able to learn.

Is it a new regime?

We will get to jpmorgan in a bit.

Is it a new regime for corporations on the use of cash?

As a permanent and structural religion that they will have dividend growth, buybacks, and also invest for john's? the final one is the real question cash -- invest for jobs.

Are the corporations going to feel confident enough in the economic growth we see, given some of the uncertainty in d.c., to spend some of that money to invest for jobs and to retrain people for the right job so we can see aegon of growth -- economic prosperity that will reach through the system.

Sallie krawcheck with us.

Our year ahead 2014. coming up, we have to speak to her about 15 billion reasons for her to be upset.

The record settlement by jpmorgan.

It is our year ahead 2014. from chicago, it is "bloomberg surveillance." good morning.

? this is a special edition of "bloomberg surveillance." i'm scarlet fu with michael mckee in new york and tom keene is live in chicago for the year ahead 2014 summit.

Let's get top headlines right now.

Japan's trade deficit widening on surging cost to import fuel.

Imports climbing 26%. fossil fuels accounting for almost half the gain.

Japan's fuel imports have grown following the shutdown of the nuclear industry.

The october $11 billion trade cap larger than what economists forecast heard it was the 15th straight monthly deficit.

Iran and representatives of world powers restarting talks in geneva trying to reach a deal on the new click program.

Representatives of the u.s., the eu, and china will take heart in this third round of talks the last six weeks.

Yesterday president obama met with members of congress urging them not to place further sanctions on iran, while negotiators trying to make progress.

Rupert murdoch lowe's to reaching a divorce settlement with his wife of 14 years.

The news chairman filing for divorce in june.

They are scheduled to appear in court today.

This is his third marriage.

The couple is two daughters.

They also have a prenup and strangely no mention on the cover of "the new york post." odd.

Who owns it?

Probably summoning rick -- murdoch.

Jpmorgan reached a record deal over the sale of mortgage bonds.

Tom, you have the perfect guest to give a perspective on the deal that would definitely set precedent.

When i think, jamie dimon needed a prenup when he bought bear stearns a couple years ago.

Sallie krawcheck said there will be more.

Attorney general eric holder suggest $13 billion is not enough.

Sally said on "bloomberg surveillance" a few months ago, enough was her answer.

Wall street did make mistakes.

A price has been paid.

She looks to the year ahead where wall street and finance american enterprises and forget about washington politics that we are right where you predicted we would be.

When is enough going to be enough?

Probably not yet, is the answer.

The question is, what other banks pay what from here?

Because if they started to look to this source of revenue, source of fines, what comes next?

The real underlying question, though, i do not think we really get asked, it is what does it mean for the earnings power for the companies?

Yes, it is a fine for some alleged wrongdoing in the past, but it is a tax on excess earnings.

It really does raise the question of what is the underlying earnings power of these banks going forward.

Charles peabody has been brilliant on that.

Extremely -- others are more optimistic.

Let's make some news here.

Is sallie krawcheck -- do you have a buy?

Backup, because i am no longer an analyst.

To what i would say is that investors have to think pretty hard about what those returns are, what the return on equity is for these financial institutions.

Single-digit return on equity?

You have ceo's he talking about 18%, 19%, 20% roe's. that is hard to think about, particularly coming off of this year that was not a great year, but it was not a bad year.

Let's ask the most important question for all of us on global wall street, and that is this idea, sally, the low return on equity forces executives to go through expense reductions, doesn't it?

Look, there are two ways to try to get the earnings up.

One is to innovate and to grow, which wall street has not been great at.

What we call it innovation in wall street in the past was increase risk wrapped in complexity.

Do not have a great history of innovating -- or they cut costs.

Grow the top line, renovation, or cut costs or write a good market.

Going back to mr.

Dimon -- i will be talking to john stump from wells fargo later -- what have the other bankers learned observing a $13 billion settlement?

[laughter] hire more lawyers?

Lawyers are doing just fine on wall street right now.

But there is a macro lesson -- really to try to see the bubble in the bubble because you will get punished on the other side for riding the bubble.

And when you are making deals with washington, you have to make sure everything is on paper because a handshake, as you have turnover in d.c., does not count.

For financial advisors listening to the interview, i have to ask -- ask you this question.

You were right and i was wrong about margin improvement in wealth management.

James gorman has done really well at morgan stanley recently.

Are the good margins we are seeing in wealth management be perpetuated?

I am glad you are admitting you were wrong finally, tom.

My one wrong time in 2013. i will tell you financial advisors -- i am the biggest fan of financial advisors, and they are very good at seeing their clients' needs.

The business that people think is a stagnant business has shifted to a true wealth management business, and with that, profitability shifts over time.

When i was running merill, i look back over years androa was stable, which nobody would have guessed.

I am a big fan of the business because it is close to the client.

You are providing a service to the client.

And therefore the client will compensated -- compensate you for the service provided.

Wonderful to have your bid i know you have a piano with judd gregg coming up it is sallie krawcheck, formally with smith barney and merrill lynch.

We will see you in a few minutes in chicago.

Coming up on "bloomberg surveillance,", j.c. penney earnings coming out in a couple of minutes.

We will break down the numbers and figure out how the retailer fits into the price wars this holiday shopping season.

All coming up on "bloomberg surveillance" on bloomberg television, radio, streaming on your tablet, your phone, and bloomberg.com.

? this is "bloomberg surveillance." i'm scarlet fu with michael mckee.

Tom keene is live in chicago for the year ahead 2014 summit.

We do want to get some company news, starting with earnings that just came out earlier.

Deere said the earnings forecast for next year is higher than forecast thanks to sales of construction equipment.

Net income for the fiscal year will be $3.3 billion and estimates were calling for $3 billion.

It cites a pickup in housing starts in the u.s.. sony has an explanation as to why those ps4's are turning themselves off.

Some of the playstation 4 game consoles were damaged in shipping.

It is working with amazon to help customers who experienced those problems.

Shareholders of nokia approve a deal to sell the mobile unit to microsoft.

More than 99% voted yes on the transaction.

The buyout let's nokia focus on the network equipment unit while freeing it in the shrinking handset business.

It has struggled to gain ground on apple and samsung.

We are waiting for jcpenney earnings which will be out any minute.

I know you have been looking at the different leaders at jcpenney and best i. same strategy, two different stores and two different results . ron johnson took jcpenney and try to upscale it.

He tried to make it a destination.

He tried to reconfigure the layout.

It did not go anywhere.

The ceo of best buy, he had a similar strategy but it turned out better.

He also took an aggressive stance on price matching.

He promised to price match any rival, especially online.

But his move was to move to a higher margin items, higher end products with bigger price points.

Samsung employees are working at best buy to explain how their tv works, or have a dvd player works with other items.

That might work with electronics but i am not sure you need someone working at jcpenney to help use up up a dress.

Yes, you don't have that in apparel.

Who better to talk to us about retail is our reporter who covers retail for bloomberg industries.

Punan, when you look at jcpenney and the different efforts to turn themselves around, is there any enduring lesson for jcpenney from best buy?

One key takeaways jcpenney had the -- jcpenney did not have the higher end customer where is best buy did.

Jcpenney, third-quarter adjusted loss of $1.81 a share.

Does not compare with the consensus estimate of a loss of $1.74. comparable sales in terms of an outlook -- it season increase versus the third quarter.

But in the third-quarter comparable sales did fall 4.8%. you are looking at gross margin.

Jcpenney said fourth-quarter gross margin will improve versus the third quarter.

In general comments about gross margin.

It had already fallen to below 30%. on a nine percent last quarter and it has fallen 600 basis point the first half of the year -- 29% last quarter.

Gross margins were 23% last year so there is no doubt we should the expansion the fourth quarter.

Gross margin for the quarter, 29.5%. sales were positive but you have to assume some of the comps in october had to come at the expense of margins.

Four q -- 4q will be easy, 3q not so great.

We will see if there is sustainability for margins and growth at the level.

You see in the earnings report what you don't see normal companies putting out.

$1.2 billion in cash and cash equivalents.

They expect about $2 billion in liquidity at the year end.

Worried about cash burn.

The end it 2q and 1.5 billion -- at 1.5 billion, now they are at 1.2. around $2 billion -- they estimated it to be over $2 billion so it is quite a very -- it is a little bit of a downtick.

A quick data check.

Markets are not taking the earnings reports we have had today as an indicator one way or another.

S&p you just, as you can see, off just a little bit -- s&p futures, as you can see, off just a little bit.

10-year note yield little change.

The dollar at the moment is gaining on the euro.

Crude oil up just a little bit.

Good morning, everyone.

"bloomberg surveillance." we are on bloomberg television, radio, and all of the interviews and bloomberg tv-plus, on the ipad, radio-plus on itunes and android.

I am in chicago.

The sun is rising over lake michigan.

The art institute in chicago -- a two-day celebration, the year ahead 2014 summit.

Panelists this morning including kkr -- walter isaacson will be joining us.

The real theme, the year ahead for america, american industry and business.

I am in chicago.

Scarlet and michael are in new york.

You were talking about the year ahead.

What about the year ahead for jcpenney?

They just abuse put -- reported results.

The stock is moving down in the premarket after they reported a loss of $1.81 in the quarter.

Gross margin, something our analyst says you want to focus on.

29.5%. comparable sales for the third quarter, negative, down 4.8% and the consensus was a drop of 3.7%. it broke a streak of almost two years of monthly same-store sales declining.

As you look at these same-store sales, why isn't the best gauge of whether the company can continue to deliver going forward -- why is this the best gauge?

The biggest problem is driving traffic to the stores.

When we see traffic coming to stores and sales going positive, it is a good sign but you what the sales positive on not clearance items.

We suspect october turned positive because you had a lot of clearance.

If you look at the commentary -- home sales, would you know they were struggling with, was up 50% in october.

Some has to be clearance driven, hence the margin shortfall.

Given the margins -- and howard davidowitz said they had a problem about being over stored.

Obviously they have to get people in the store, but is it changing the mix and bringing down the expense ratio really key to them?

I think the key really is to be in stock -- for that you need cash.

They say they are in stock with some of the key brains that you need to get the customers in the store and to buy just be on the clearing -- they say they are in stock with some of the key brands.

And you need to get the customers in the store to buy just beyond clearance.

Stay with the idea of margin.

Best buy saying it will take on its rivals.

It is going to price match a discount given by amazon and anyone online.

This margin story, this compression is something we will see across the retail space is holiday season, isn't it?

Holidays are expected to be promotional, no difference this year.

Retailers are already promotional.

We heard from walmart that they are rolling out pre-black friday deals, which means they are matching pre-black friday events.

How do you recover when the holiday season and then at some point the stores have to get back to some level of sales and profitability?

I think some is built-in.

I think in advance to you are the customers into the stores with a cheap blockbuster items and then hope to cross sell.

If you going to the store to buy a $20 seller and $898 tv but -- and then cross sale something with higher margin.

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

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