Penney Turns on Ackman: Market Makers (08/09)

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Aug. 9 (Bloomberg) -- On today's "Market Makers," Erik Schatzker and Stephanie Ruhle use analysis, insights and A-list guests to help set up your daily market trades. (Source: Bloomberg)

They're going to have to do a lot of things with their grid.

There's a lot of very quickly, it seems like you are pretty optimistic about future path of gold prices.

A month ago, everyone was singing it was the end of the world for china.

Right now we are seeing the data is coming in better than expected.

Where we go from here and what the new premier says will be very interesting to watch in the fall.

Ken hoffman, thank you so much.

"market makers" is up next.

? battlelines.

Bill ackman wants another new ceo at jcpenney.

But the board is pushing back.

Does the hedge fund activist have enough credibility left to win?

Summer break -- president obama heads to martha's vineyard for a week long vacation.

We will take you inside the 7 million dollar mansion he is renting.

A home comfortable enough for a king.

The chickpea spread is taking the u.s. by storm.

How the biggest producer is taking the middle east to middle america.

Good morning, everyone.

You are watching "market makers ." i'm erik schatzker.

I'm alix steel in for stephanie ruhle.

Happy friday.

It is a busy day.

On this friday morning in august, can't we all just get along?

Have a look at corporate america.

You see a series of big-time battles.

Some truly fascinating fights in the financial world, the retail world.

We are looking at bill at an squaring off against the board at jcpenney over the retailer's future.

-- bill ackerman squaring off against the board.

Meantime, it is an activist is trying to block the sale of smithfield foods to a chinese buyer.

Looking to start a bidding war that could result in smithfield being broken up.

The time warner cable-cbs standoff is entering week number two.

If there is any time to settle differences, this is that -- this is it.

The pga championships, and millions remain blocked out and will not be able to watch.

A lot to talk about, but we will talk about a food fight over smithfield.

A hong kong company agreeing to buy the company but star board wanted a breakup instead and on the firm is doing something about it.

What is the endgame for starboard?

They are pushing for a higher valuation.

A say they did $34 a share and we think the company could be worth as much as $65 a share.

In theory they would partner up, pay that much per share, take the company, and split it up.

Now what they are doing is going out talking to strategic and private equity firms about possibly teaming up.

But there are some significant challenges to the way they are approaching this.

For one, private equity generally does not like to get involved with any kind of contentious situations.

Certainly they do not want to be in public bidding wars.

Getting them on board will be a little bit tough, if not impossible.

Tyson or any other strategic is going to be pretty selective about the kind of assets that it wants from this company.

Not to mention the fact that, you know, smithfield should argue it is already getting a pretty nice price.

If you look at the multiple.

Data is pretty much in line with what we have seen with other food deals -- that is pretty much in line.

The one thing starboard has in its favor is the deal has gone a lot of ventilatory scrutiny and it still has to be signed off a very important regulators.

Any other shareholders on board with breaking up the company in this way?

Continental was in there, basically making the same exact argument that starboard was making today.

They basically signed off on the deal.

We have already seen one shareholder -- interested in that kind of breakup as well.

That is true.

What you could make the argument management is entrenched and they do not want to sell because it may mean moving their jobs.

But what is really interesting is something right up your alley.


Grain prices is what is killing these hog producers.

Not only does smithfield package the meet but it raises the hogs and wall street does not like companies that integrate it this way because there is a lot of fluctuating in raising annuals -- animals because there is fluctuation in the feed.

Now for the latest on time warner cable versus cbs, the cable company said it is back in negotiations after a week of accusations and recriminations.

Here is scarlet fu.

Remember him of the dispute is about retransmission fees.

Cbs wants two dollars per time warner cable customer each month, roughly double what they could now.

Analysts estimate the broadcaster could be losing $400,000 a day from those fees and lost ad revenue.

Where do things stand right now?

They have made their arguments through the press.

I looked through the letters, it is a blow-by-blow.

Twc got things started when they proposed niceties.

We promote -- propose they immediately agreed to resume carriage.

A response fairly sarcastically -- this is a surprise, given you have not bothered talking to me in over a week.

In that letter, time warner for post putting cbs back on air on a rack to -- on retroactive terms and they work out the details.

Cbs is singing, hold on.

You chose to take us off the air?

Because you can have more leverage.

Any sense of this fight will be resolved by tomorrow so people can watch the pga on cbs?

, april were saving that for a week because last weekend they lost out on tiger woods -- people were saying that for a week now because last weekend they lost out on tiger woods.

When the nfl regular season begins -- the preseason has beg un and time warner subscribers missed out on that.

A public fight there, but it does not come close to the tone of the dispute between bill ackman, activist hedge fund manager, and now the board of jcpenney.

His stock on which bill ackerman that a good part -- bill ackman put fortune.

A copy of the latest letter of bill ackman to jcpenney's board, whether or when the company is going to appoint the new ceo.

Steph, i -- you are on the phone.

This is a letter that will be published on bloomberg shortly.

Bill ackman sent a letter to the company, and he said of my 15 years sitting on a robert board i never sent a public letter.

Basically he is exasperated.

He is saying we are no longer functioning as a unified board.

It really seems, based on the tone of his letter, that there is a board within a board.

Interim ceo mikeullman, though bill was in support bringing them in, seems as if he has gone somewhatrogue.

The nashville is the largest shareholder and based on this letter he says he just does not want to know what is happening inside the company.

When mike became ceo he terminated alix partners and cut off blackstone from access to information, and those two firms were analyzing the overall country -- company.

They went on to hire someone they knew from craft -- kraft . he learned about the marketing higher reading it on his bloomberg terminal.

He said an order for the company to work, the board has to be fully informed, and right now it is not the case.

As i mentioned, he feels there is a board within a board.

As the larger shareholder, he feels like the only option, because he is banging his head against the wall, is to, publicly and say we don't have time to kind of pussyfoot around.

Clearly, if the advisors that are currently advising mike ullman have come in, they will not choose to terminate him, they are "his boys." it needs to be a unified board where people can speak clearly and in the hiring process everyone needs to be vetted clearly.

Hang on one second -- those are mike's guys.

How can a board truly evaluate things fairly when the ceo himself brings them in?

I actually just myself had a chance to read through this letter and jump to the bottom to see what his final blow would be.

He says -- "i have lost confidence in our chairman's ability to oversee this board.

I would therefore recommend tom be replaced." this is war.

This is major.

Right now, jcpenney needs to be moving in one direction.

As we spoke to bill earlier this year, we were looking or big days like mother's day, when they were releasing their new home store.

And the company is just not growing in the same direction.

If they are not growing in the same direction, how can they possibly win against their competitors?

They can't. bill sounds like he is in a desperate situation dealing with the board.

He wants to get this company in line.

He has to get management in line.

That is what he has to do here.

He has one problem, he doesn't control his company and as such doesn't control the board.

It seems to me he is almost left with few choices but to wage his battle with tom and who we he would perceive to be a rogue group of directors in public.

Has only choice -- if he does not control the company.

Erik, he needs to get the public, other shareholders behind him to see what is going on is that the board.

If you are not chairman of the finance committee and not the larger shareholder but simply a jcpenney shareholder in general, you don't have privilege to this kind of information, so bill has not week that publicly before, as i said, in the 15 years he sat on boards.

At this point, he feels like he needs to because other people need to know they are not moving in the same direction.

If this company has a chance, we need to.

Some of the question ultimately, though, is, on whose side are the other investors?

They are mindful of the fact that jcpenney's shares are doing terribly.

They clearly want to turn around a company.

Who are they going to side with?

Are they going to side with bill ackman or the chairman, who at the time -- time seems to support mike ullman.

And the question is, how much time?

The company chugging along the in and out.

We are at back-to-school shopping where target and kohl's are selling merchandise.

Is jcpenney doing it?

As they are having a fight, what is the company doing?

Is there enough time and cash to keep the company afloat while this is happening?

Unclear at this point.

Bill seems like -- i do not want to say his back is against a wall in a bad way.

His back is against the wall.

He has to take the control he's got to try to get consensus behind him.

That's the if it works.

Bill ackman, as we know, is not shy of explosive situations.

But in this case, he seems to be throwing dynamite on the fire.

In a war of words and more with a jcpenney.

Our own stephanie ruhle, still on maternity leave, but reporting and bringing us a bloomberg exclusive.

We are grateful for that.

Much more on this story after a break.

We will talk to analysts quite bearish on jcpenney as well as a former top executive at goldman sachs.

Reports are swirling.

Blackberry may be going private.

Will that be enough to save the troubled smartphone maker?

The stock is climbing higher.

? bill ackman is taking his battle over the future of jcpenney to a new level, calling for the ouster or perhaps resignation of the company's chairman.

I want to read you an excerpt from a letter he just wrote to jcpenney's board.

Which stephanie ruhle, my colleague, brought us a just -- just a few minutes ago.

"i lost confidence in the chairman's ability to oversee the board and i recommend that tom be replaced as our chairman with alan as the new chairman, we would have the benefit of one of the great retail ceos in assisting us in overseeing the company at this critical time." we have mary ross gilbert from imperial capital who recommend shorting jcpenney.

And we also have the former head of investment banking at goldman sachs.

Mary, it was a war yesterday.

It seems like even something worse than that right now.

Let's try putting it into perspective for everybody.

What does it say about the state of jcpenney?

I think what it says is that we don't have a unified board.

I think what is going on with this major shareholder is just what the board responded to the first letter -- saying this is disruptive and unproductive.

We think this focus on the second quarter is over done.

This quarter is not the make or break a quarter for the company.

We really had to look for the fourth quarter.

Ullman has been on the board since early april.

It will not take one quarter to execute a turnaround.

It takes a fair amount of time.

We think we will see a gradual improvement in back to school and i think we will see a better improvement in the fourth quarter.

We are negative on the stop here and we have an underperform rating and eight dollar price target.

That is because we think that looking at a valuation two years from now, we are expecting even.

E --bitda -- we are using six and a quarter times multiple on that ebit da in the future and we are getting a dollars a share.

We are saying the stock is overvalued today.

Off, i want to get your take in terms of the board versus an activist investor fight.

Can you explain the dynamics that go behind closed doors?

This situation is unusual, as just described.

It is not out of the woods.

This company is fighting for survival.

These next few quarters are very critical for them to get to positive cash flow.

You've had this on one.

Then at the board letter -- board level, nearly bill ackman once the new ceo to be chosen more quickly.

I would suggest the board wants to give disney ceo time to write this ship before they bring in somebody new.

And clearly communication has broken down.

But he is a 17% shareholder so he has a lot of power.

They will need to go off-line, this board, and work this out here because this company and management does not need this distraction right now.

Robert, mary made the point that this is a critical time for jcpenney.

We are in the midst of back-to- school.

The company is getting ready for the christmas shopping season.

Is she right that now is not a time in the race to change horses?

That no matter what bill ackman wants, when it comes to a new ceo and the direction he might take the company in, no one who steps in right now can get their hands and all of the stuff to make -- to have time.

I think the reason they brought in mike ullman is not because he he is the perfect ceo but that he knows the company and can it -- can get up to speed very quickly and has a financial background, and this company has to fix the balance sheet, which he has done things to do, and has to stabilize the ship so a new ceo down the road can take over.

But they are in the midst of stabilizing this, and they have not saved lives that yet.

I do agree with mary.

Mary, you said really the fourth quarter is what we will be looking at.

If they have enough cash?capex rising to one billion in 2013. they do have cash.

On .5 billion, as the company pointed out, at the end of the second quarter.

What happened in the quarter, the cash burn, about 1.1 billion, most of it was to fund capital investment in completing the reservation -- restoration of the home stores and the capital investment to fill both home stores as well as getting the merchandise back into balance, meaning bringing back some of those core private label brands that are important to the core customer.

Those investments are not going to be made going forward.

It has already been made.

And the fourth quarter is when the company generates a boatload of cash.

Second of all, the company has additional liquidity option.

About a billion, appraisal value of unencumbered real estate.

They also have investment in joint ventures of malls that they could sell that could raise maybe another 100 million-200 million.

And they have the auto business they could sell that has somewhere between 50 million-200 million in proceeds.

It has liquidity options in the fourth quarter generates significant amount of cash flows.

We could see them getting through the holidays.

What if bill ackman wins and he does engineered the ouster of tom engovis and was quickly for a new ceo.

Three candidates that have been considered -- brendan hoffman and bonnie brought of the hudson bay company.

Would either of these people be able to do what i believe you think is very difficult?

Yet a handle on this company quickly and make a difference before the end of the fourth quarter?

, yes.

-- yes.

Let me preface my answer first and saying that.

Bringing back michael -- and it was very clearly and in -- transitional role.

It was always anticipated they would bring in a another -- another ceo.

I am familiar with brendan hoffman, the turnaround he has been working on with bonton , and i have a lot of confidence in his abilities.

I would say he would be a great candidate but i am not sure bonton would be pleased to know someone with his strengths and capabilities.

I want to quickly get into a question with robert.

Robert, you said the board needs to take this off-line.

You have been an investment banker.

What would you be telling bill ackman right now?

Is there anything coming to a truce, or does somebody have to go?

They are going to have to come to a truce, and it may involve somebody going.

But they need to take this off- line, bring it in the room, use an outside facilitator if they need to, whatever they need, and work out a compromise where they can emerge.

It may mean a new chairman.

Whatever it is, they need to emerge with support for what they are doing an agreement among themselves on the timing of the ceo search and they need to come out and remove this distraction.

Because i think it is hurting -- i think it will hurt the company if they don't. remember, -- store sales are still negative here and the company needs to focus.

Sorry, my friend.

We've got to rent.

Robert clapton -- robert kaplan from harvard business school.

We are back in two minutes.

? time for bloomberg to go "on the markets." looking at red across the screen.

All in negative territory.

The dow off about 47 points.

Down about one percent in the past five days.

If we continue, it will be on track to halt the strength of the six weekly advances.

Can you say $1000? that is where priceline shares appear to be headed next.

980 two dollars, up five percent.

The largest -- $982, up five percent.

The stock almost got up to $995 this morning.

Talking about another hotspot -- elon musk has gone a whole lot richer thanks to tesla's major rally.

We will talk about that when we come back.

? from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

It was not so long ago investors cannot get enough of research in motion shares.

Now the smart phone maker renamed blackberry has fallen so out of favor in may go private.

Report this ceo and the blackberry board all warming up to the deal just to the idea.

Hugo miller joins us from chicago -- toronto.

What will it do for blackberry that the public cannot do in the public market?

They have really just been battered, you know, over the last few years.

Despite more recent attempts to launch two new phones and a brand-new operating system, nothing seems to be working.

With every small rumor or tip or blog story about slumping sales, the stock seems to take another five percent or 10% die.

If indeed the report is true, what we will be looking at is thorsten heins or someone else to say let's take another look at going private.

Hitting out under the scrutiny of investors in the market and try to really make -- getting out under the scrutiny of investors and turn these things around without scrutiny.

Why did it take so long?

Shares have been pummeled over the last few years.

Why did it take so long?

We do know one thing, there is a report out today that they are looking at this.

We do know just before thorsten heins join blackberry as ceo in january -- or became ceo in january of last year, silver lake and blackberry help some talks to discuss exact leave this.

They did not go anywhere because the talks eventually broke down.

This is not entirely new if indeed this is what is going on now.

I think they just had a belief that for a long time or for the past year, a new platform, new phones would really be a salvation.

But it does not seem to be happening.

You make a good point.

Blackberry cannot exactly do this on its own.

Nowhere near enough cash on the balance sheet, and going private strictly through the issuance of debt is not easy.

They need a partner.

Any sense silver lake is the preferred partner and doesn't have to be private equity?

I think silver lake, according to the report out today, silver lake has been speaking to blackberry recently.

Not specifically about being taken private.

More about some kind of partnership potentially with another listed company.

I think they would need, as we have seen with dell, there have been all sorts of struggles with the company going private.

Dell is much, much larger.

Like barry is only about $5 billion.

But you are right, they do not have enough cash on the balance sheet to do it alone.

I do not know if silver lake is the preferred -- is the preferred partner.

But on the board you have a senior partner at tech specific, so if there was going to be in august -- august through to explore, tpg.

Is there a signal -- i know some of this is highly speculative.

What is there an underlying signal perhaps, consideration of going private transaction means that black area, thorsten heins, others on the board have ruled out either a sale to another tech company or perhaps that is not even possible?

No other tech company wants to buy blackberry?

The last thing you said i think is very true.

I think it really has lost a lot of appeal.

The last attempt at -- at a revised operating system has not been a home run.

But we know any sale would be tricky.

The canadian government said over and over we don't want a sale, we don't want to cds assets of national importance just be sold off.

So, a sale would be tricky unless it was a buyer the canadian government felt comfortable with.

Private equity might be a way for a graceful exit, at least from the public's utley.

Quite possibly.

Then, of course, if the sale becomes ever more difficult may be blackberry within the being worth less.

Great to see you.

Have a great weekend.

Thank you.

We've got some other top "bloomberg west" headlines we want to update you on.

Apple shares of the chinese smartphone market cut in half this quarter.

Taking a bite out of sales question mark lower-priced handsets and phones from domestic suppliers.

And apple's phones are not available on the country's largest carrier which has a whopping 740 million subscribers.

Elon musk made $570 million yesterday, not bad for a day of work.

The billionaire cofounder of tesla motors got a boost after shares of the electric car company rallied 13%. his net worth is up over 220% this year.

Cue the music.

The moment you have all been waiting for.

The name of the second "sharknato those 12 movie -- it will be called "sharknato , the second one in." twitter played a huge role.

Legend has it that in the early days of facebook, from the mark zuckerberg was reluctant to monetize with advertising.

Today it is pretty clear he has no choice.

And investors are impatiently waiting for facebook to turn a big profit and facebook's answer, more ads.

Mashup will's chief strategy officer has more.

They spoke is rumored to be launching its own video advertising platform, giving advertisers the ability to buy ads to target different ages and genders, essentially equivalent to commercials in the news feed on facebook.

Facebook moving into video advertising is an extremely big deal, because tv advertising still attracts more advertising dollars than any other form of media.

Video advertising in online media market, expected to do $4 million -- $4 billion in revenue in united states and some say it will be as high as $8 billion the next few years.

In the movie "the social network" there is a scene where mark zuckerberg's character is in an argument.

We don't know what it can be.

What it will be.

We know it is cool.

That is a priceless asset i am not giving up.

Now that facebook is a public company, they are looking for more ways to monetize the site.

Also you see one of its main competitors, twitter, aggressively moving into courting tv advertising dollars.

Facebook commissioned a study with nielsen to basically look at how many people on facebook are logging on during prime time television hours.

They found that number is as many as 100 million people on facebook during prime time.

Within the number and looking at the key demographics advertisers try to reach, they also found that more than one third of facebook users are simultaneously watching tv during prime time.

What is unclear right now is how facebook intends to integrate video advertising in the newsfeed.

Just a commercial that interrupted users and forces them to watch it, i think they will face a backlash.

Ibo who work in advertising, they want to know what kind of content do we need to create -- people who work in advertising, they want to know what kind of content do we create third what kind of advertisers can facebook users stand before they start to revolt.


Became about how 18- 24 year olds fueling demographic but we don't know how long they stay on the site.

And his point, how much longer would they stay on the site, if at all, were they forced to watch video whacked.

How invasive it would be, how targeting they will be to those 18-24-year-olds.

Do you use facebook?

M a i used to, but to be honest, it got so cluttered i stay out of it.

This is what i hear from everybody.

Maybe the 18-24-year-olds do not mind the clutter but how much are they willing to indoor, and secondly, once they get past 24, are they still going to use facebook as much?

I can't answer the question because i have not used it.

You don't use it at all.

I'm not surprised.

Something pretty cool -- the $7 million home of obama family will be staying in on martha's vineyard this week.

Julianna goldman will tell us all about it and the politics of presidential vacations.

? i'm erik schatzker.

You are watching "market makers ." tomorrow president kicks off his vacation in martha's vineyard.

Even the commander-in-chief needs a reg.

It is a multimillion dollar estate by democratic donor david shelti.

Julianna goldman, what makes this particular place worthy of a presidential holiday?

All you have to do is look at the pictures we have to show you.

$7.6 million home.

Four bedrooms on nine and a half acres, 5000 square feet.

You can fit inside -- sit inside and look at the atlantic from the floor to ceiling windows.

But if you want to go for a slim, you can do laps in the infinity pool and shoot hoops on a half basketball court and play tennis.

If you want to be a little more laid back and just go to the gym, it is on the property.

The president and the first family have been going to martha's vineyard every year as president with the exception of last year because it was the election.

Previously they stayed at the blue heron farm, $22.4 million estate.

But that was sold in 2011 to the british architect norman foster.

So the obamas had to find a new place.

Ok, fair point.

How does the president go about finding the right place to spend his vacation?

You or i may look on craigslist but the president has a broker who can take care of it.

Somebody who they have turned to in the past.

He helped them find blue heron farm.

He has a lot of experience in finding vacation homes on marshes vineyard for dignitaries.

He helped the clintons.

He helped jordanian royalty.

He is attuned to some of the security concerns that might be needed.

For example, they are staying on the ship -- on the south shore area which is more secure.

And there is also going to be a guest house with two other bedrooms that could maybe be used for secret service agents.

It is certainly an honor to have your home used by a president on vacation, but security and other things make it a risk to the owner of a home.

What about the risk to the president himself?

It is not like there is no criticism when you hear about presidential vacations?

There are a few levels of criticism.

The first one, how much are taxpayers on the hook for?

White house says the obamas are paying for the cost of a vacation home but there are other expenses for presidential travel.

Secret service agents.

The cost ends up being split between the obamas and the taxpayers.

Also some criticism whether or not the president should be going on vacation in the first place.

But as you said just a short while ago, even the president of the united states deserves some down time.

The economy is doing well.

He is not in an election year.

He can get some r&r. i think the concern is, if there is some august surprise, as there has known to be in the summer months, the president -- that he does not look like he is vacationing instead of responding to it.

Something the white house has to be concerned about.

But even if you look at the days the president has been on vacation, you compare it to presidential -- predecessor george w. bush, according to the unofficial historian from cbs, of the white house, obama has been 92 days on vacation and george w. bush spent 323 days at his ranch in texas.

At this time and the presidency.

We have to clarify, at this time.

Apples to apples, in other words?

Juliana, good to see you.

Julianna goldman, our white house correspondent.

As you can see, out in front.

-- out in front of the white house.

Before president obama will head to martha's vineyard he will have a press conference today.

For a preview, we have our little analyst matt dowd who was a top adviser to george w. bush and also informally advise the obama administration did what does president obama need to talk about as the press -- at the press conference, what is on the docket?

I do not think it is so much details on public policy.

I've easily he will talk about immigration and other aspects and national security.

I think the president at this point in time in his presidency has to really grasp and give the public a sense of confidence and a sense that he still has relevancy over the course of this.

I think he is at the point in time of his presidency -- much of what happened to president bush almost at the exact same time in the aftermath of katrina in 2005, people are beginning to think, ok, we are going to start thinking about the next president.

His approval ratings are just where george w. bush's were during that point of time in his presidency.

He really has to convey to people that his presidency and he is still relevant.

How does he do that?

When there is so much on the table and he may not have control over it, like the debt ceiling budget debate?

That is actually the trillion dollar question, i guess, in the course of this budget.

It is very hard to do that.

Presidents, once they start losing that grasp and once the public starts focusing on other people and another election, it is hard to get it back.

It is all about tone, all about manner.

Not really about the details of the policy at this point of time and what he needs to convince the public intellectually.

It is more of a mission will -- visceral thing and he asked to convey that he is still in command and his presidency still matters in the final three years.

Can you speak of an example -- can you think of an example where the president was able to turn his momentum of his presidency around so he retook control of the narrative and the public debate?

I can give you a lot more examples where it did not happen.

President clinton, i think, did it fairly well in the course of his presidency.

He had hiccups, problems, scandals, he had all of that, but he was able to continue to press the public until almost the very end of his presidency that what he was doing mattered.

I think a large part of it had to do with the fact that he was given credit for a lot of compromises in washington.

And he had his base of support, that when he reached across, the public was still wanted to hear from him.

President obama has a difficult time because much of the public does not think he has done the job we needed to do on compromise.

Clinton had one other benefit, which is the economy behind his back.

He had a tailwind.

Good president obama benefit from that as well?

It is not -- could president obama benefit from that as well?

Not that the economy is going gangbusters but most believe growth will accelerate second half of this year and possibly in 2014 the fed may step off the stimulus pedal and allow the economy to resuscitate on its own.

How could it change things?

That is a great point.

I think if the economy stays the way it is right now, i don't think he will get any credit.

The problem -- as we have all discussed a number of times -- we are barely above replacement level on jobs and most of what has happened on wall street has only benefited a tiny percentage of the country.

Right now, the public thinks his economy is chugging along, but it is not really benefiting the large portion of the middle class.

If that changes and we start adding jobs north of 250,000 or 300,000 a month which is what we need to be really above replacement, then i think it gives him room to run an room to govern the presidency.

If we stay the way it is now, he is not going to get any credit he needs for that in order to maintain his residency.

We were just looking at pictures of the $7 million home he is going to be staying at.

I am just curious about the tone it sets when you are talking about economic data being relatively soft.

Did he choose the wrong place?

What kind of message does a sense to the public?

I think it is an interesting lesson.

Furthermore, the public expects presidents to take vacations and time off.

They know it is a stressful job.

They take vacations in their own life.

The problem with president like obama and clinton is they did not have a homestead that the public sees -- this is his place.

He goes back and gets reconnected.

They went and basically found rich people's houses.

President reagan had his homestead at santa barbara and lbj had his homestead outside of austin and president bush 41 headed in kennebunk with -- kennebunkport and president bush 43 had his homestead in crawford.

They see they are connected and had roots in the values of those particular places.

Even president kennedy had hyannisport but people thought that was part of his family.

President clinton and president obama had to go out and find rich people's houses.

It is one of the difficulties when you don't establish a homestead somewhere that you use as vacation.

Thank you so much, bloomberg political analyst matt dowd.

One thing about establishing a homestead, you have to be pretty wealthy to do it.

You do, indeed.

We are coming back in a couple of minutes.

Stay with us.

For all the talk that the u.s. is turning into a plutocracy, there is encouraging data to suggest otherwise.

Scarlet fu is with the off the charts.

More self-made legionnaires now banned in the early 1980s. this is according to a study by steven kaplan and joshua -- who found the share of american billionaires who are the first generation to run their businesses is up dramatically.

69% in 2011. versus 40% in 1982. then you see number 2, 3, 4. inherent -- inherit from successful businesses -- steadily declining.

Is it entrepreneurial?

Part of it.

You have to credit a lot of it to technology.

Not the powerball lottery?

I don't think that those are people who set up the own businesses, they just use the money.

You were billionaires created by dynastic wealth.

Because these billionaires, if they don't give it away, will create dynasties for their descendents did may be the next set of data will change.

Because of the researchers found is that one third of those who are super wealthy billionaires, one third were born with a silver student -- silver spoon in their mouth.

They actually -- that has been steadily declining.

In 1982, the majority grew up wealthy.

You have the trend toward wealth mobility.

I am curious and -- as to what constitutes wealthy.

Basically forbes 400 -- 400 richest people.

At the top, top, top third -- top.

Super wealthy.

But if you look at who we track on the lumbar bill and his index -- no gates, mark zuckerberg, these are not exactly guys who inherited their wealth but they created it themselves -- bill gates, mark zuckerberg.

We will see how it changes in the next 10 years.

It talks about communication and technology and how people were able to leverage their talent and business and bring it to more people.

We appreciate it.

When we come back, the popular tv show "breaking bad" put out the curfew, new mexico: the -- albuquerque, new mexico, on the map.

? . . live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

Closing in on a settlement in the case of jpmorgan and the london wael.

Coming close to ending the year- long probe with the bank's biggest trading loss ever.

And what type about the firm and whose goal is not to make news, but to stay out of it.

Correct and the breaking bad economy, how the hit series helped to revitalize albuquerque.

And what other cities in the states are doing to lure high tv shows.

Correct happy friday, everybody.

I'm alex steel in for stephanie ruhle.

Bill ackman said he is -- has lost confidence in the board of j.c. penney.

It's the biggest shareholder and says the chairman should be replaced.

It is the latest escalation in the war between both sides.

We talked about the letter quite a bit, but what are the highlights as reports through the document?

Overall, the town of this letter is extraordinary.

Extraordinary, some of the accusations that bill ackman is making.

The bottom line is that he thinks that the chairman should go.

He says he has lost confidence in his ability to oversee the board.

Let's go through here and figure out exactly what he is accusing him of, and mike ullman of by extension as well.

He basically came in and sort of bail them out after ron johnson did not do a good job, who by the way, was bill ackman's pick.


When he became ceo, he terminated some of the outside advisers from alex partners and blackstone.

Ackman as saying the transparency to himself and the rest the board has been obscured because of this change.

He has also said they have seen personnel changes without the consultation of the board.

That there has not been proper vetting in some major personnel changes.

One of the ironic things in here is that he speaks of the appointment of one of the people he talks about, debra berman, and let been a kraft executive.

It -- who had been a kraft executive.

He says this, american consumers are not logically applicable to j.c. penney's customer base.

Why do i find that ironic?

Ron johnson worked at the same company before coming to j.c. penney.

You cannot own the company if you only own 18%, right?


He thinks that the former ceo should come back as chairman.

It is not clear what is going to happen next.

It does get more serious.

Essentially, bill ackman said to mike ullman, you lied to the analyst community.

You told them you were the permit choice for the ceo when the board had decided you were the interim choice.

Very strong language in here.

Correct and it highlights the financial anxiety and stress of this company -- and it highlights the financial anxiety and stress of this company as well as the tension between the two parties.

And under mike ullman, if you look at objective measures, and things seem to have been improving.

The cash situation seem to be stabilizing, at least to some degree.

Although if you talk to credit analysts, they're still not a lot of optimism about the company.

There are the same store sales, which have been improving to some degree.


The question is how long the cash is going to last.

Can the company keep its cash position, not burning through it for long enough for it to turn around the fundamentals at j.c. penney?

Thank you so much, julie hyman.

He cracked there is so -- some light at the end of the tunnel -- there is some light at the end of the tunnel for jpmorgan.

$6 billion lost in the london whale trading scandal.

Two of bloomberg best reporters are covering this story.

Dawn kopecki your new york city and phil manly art in washington.

It is not about what is a hit a drop in tomorrow.

Not to mar.

Both new york nbc are kind of empty right now.

I would not envision -- both in new york and dec are kind of empty right now.

I would not envision anything happening before september.

What are they negotiating?

Basically, the size of the find, whether or not the sec wants to go beyond what jpmorgan has already admitted.

The company has said, we're happy to admit that we did not supervise these people properly, we did not share information internally, we did not allow people to escalate complaints properly.

We're happy to admit things we have already admitted to the public, but as far as going beyond that, which is what senator carl levin accused them of, misleading investors, lying to the public, things like that, those are heart stops for jpmorgan -- hard stops for jpmorgan.

There could be some degree on how far it is willing to go.

But it did say they were willing to admit a it's growing up and they're willing to pay a lot of money.

The fine is being negotiated over.

They can have an agreement in principle and it could take weeks to hammer out the details.

It may be important for jpmorgan that it would only admit what it has already admitted to doing in public.

But let's talk about admissions in the first place.

Most of the sec settlement we have seen in the past, the settlement that goldmansachs reached with the sec, the $550 million over c.d.o. sales did not admit wrongdoing in any way, shape, or form.

It seems to be a new feature in d.c. these days.

That is right.

There is a new feature at the sec.

-- there is a new chairman at the sec.

All of the settlement up to this time barely ever admit wrongdoing.

This is a push by the sec attorneys and the sec leadership to do a couple of things.

One, quelled some of the outrage on capitol hill and the folks outside were wondering when wall street is going to be punished.

And two, they feel like this puts them in a better decision as an agency, as enforcers when they're going after these firms.

I mentioned earlier that there is a light at the end of the tunnel aspect for jpmorgan.

But i'm wondering, to what degree does getting jpmorgan to recommend something give the sec and regulatory authorities in washington a little more momentum and the other cases that they're running against jpmorgan.

It is an interesting thought you mentioned the light at the end of the tunnel, and the same week that they are facing both pros from the justice department as well as civil probes, the effort has jumped up in the past couple of months where they're trying to find ways, primarily through the civil side and not criminal side, to go through the last vestige of these cases.

There's not a sense that this will develop into something major.

But the justice department and the sec just suited bank of america at this week.

Jpmorgan is clearly next on the list.

But the light at the end of the tunnel from a law enforcement perspective, i think jpmorgan, the costs are still there and growing and they're not going anywhere anytime soon.

What kind of sense do you get, don, about how jpmorgan plans to attack those issues, the criminal investigation?

We talked the other day about the sales of mortgage funds.

Jpmorgan very effectively handled the london whale trading scandal.

This might affect things if criminal activity was involved.

Yes, i might.

The mortgage crisis left a lot of shady practices.

He said the dot and the sec cracking down on that now because they're kind -- there -- you see the doj and the sec cracking down on that now because they're highly complex cases.

This is a cloud hanging over jpmorgan's head.

Recently, they settled something that was not very big -- the likes the current investigation -- not very big -- the current investigation.

Yes, for under $10 million, thank you.

They said that their legal costs could exceed $6.5 billion.

This is clearly something that is material hitting the bottom line.

Between 2009-12 or so, they spent at least $8.5 billion settling various legal cases, a regulatory claims.

At this point, it is amount of cutting a check.

It is incredible that is the cost of doing business.

It is the cost of doing business.

They're trying to get it off the front page.

Blogger it goes, the more time -- the longer it goes, the more time we have to research and write about it, and the more pressure it puts on the stock.

Thank you, don kopecki.

And still mattingly -- dawn kopecki and phil mattingly.

The s&p headed for its biggest weekly losses since june.

In the last few moments, falling down more than 100. now, the s&p dropping below short-term moving averages.

On the flip side, price line doc, -- price is hitting the $1,000 per share mark.

President obama will be taking vacation on martha's vineyard, but first will be having a press coverage and taking questions at 3:00 p.m. today.

You can bet he will face questions on u.s.-russia relationship.

And envoy -- for some u.s. citizens this year.

The number of americans living overseas who have renounced their citizenship jumped sixfold in the second quarter from a year earlier.

Never more than 1100 of them, apparently because the government is preparing to induce tougher asset disclosure rules, seeking to crack down on taxpayers living abroad.

And a hidden hand behind some of wall street's most notorious characters.

We on the inside scoop on the pr firm that represents big names.

And a new pastry that had taken york by storm.

? fabulous fax, dick fold, nelson peltz, what do all of these men have in common?

Their clients of a firm that is famous for being able to influence the news about their client without leaving fingerprints.

What makes this firms are successful?

They have been at it for 20 years.

In a lot of executives, a lot of hedge fighters, and they know how to keep quiet out of the news, or of the news insists on covering them anyway, shedding the story to make them look better.

Winter their clients come to them?

Gilad of the business -- when do their clients come to them?

Of lot of the business starts with a relationship, and then when a crisis happened -- they cornered the market.

Craigslist -- this industry is pretty small.

I spoke with one investor who credits them with rebuilding his image.

And when other traders get in trouble, they call him and google him and say, who do you recommend?

Correct doctor watts about the man behind the firm.

What do you -- talk to us about the man behind the firm.

What do you know about them?

There is one that is more likely to be chatting up reporters.

You're more likely to see him in the magazines.

Used on him escorting martha's to work down the steps of one of her court proceedings.

Call is more of the -- paul is one of the quiet ones.

Can you give an example of when their strategy has not worked?

Most recently in the fabulous that case, the jury a ultimately found him liable.

That is not a great outcome , but their job was to make him look better and i would say that in that respect, they actually were successful.

He looked like a scapegoat and we learned about the charity work that he did in the years between rwanda and this trial -- that he did in rwanda between goldman and this trial.

In talking to their competitors, they were kind of -- jealous is not quite -- quite the right word, because they did not want to be in the story, but they did not want this company spoken about either.

But they certainly did not want to be mentioned.

They were the pioneers in this case and they were the big guys a long time ago.

It is a small club, but a lucrative club.

Yes, it is.

You can read much more in the latest edition out on newsstands right now.

Beer sales have been falling in brazil, but it is not a problem for the country's biggest brewer.

? collects a presidential push seems to a change the outlook for the overhaul of the polity.

The president's call to wind down fannie mae and freddie mac added more urgency to the debate.

Peter, it it literally possible that we could see a legislative solution if congress has a lot on their plate?

Elop on their plate and not -- and not a lot of time -- a lot on their plate and not a lot of time.

It but that is the challenge that the president laid down this week, largely because he has been missing in action since they release their white paper in 2010. this week, the president himself jumping into the bait with both feet -- into the debate with both feet.

It looks a lot like a bipartisan senate bill that is already in play.

That is right could move so quickly.

It would call for shutting down fannie mae and freddie mac.

And he called for private capital to take the lead in the the financing a private mortgages.

He said the government could pay -- play a backstop role, but only in times of crisis.

My guest on sundays capital gains is the national association of home builders ceo jerry howard.

It will go to the floor and it is now on the senate.

If they can take out the multitude of gst bills already out there, or the chairman of the ranking committee can put on the table, we can get this deal done.

Taxpayers could actually turn a profit from fannie and freddie, the bailout, and not just the the repayment.

The reality is, after the profits they reported, their latest quarterly earnings, we have them about $40 billion short of what the original bailout was cured we could see within two quarters, perhaps the tax court -- taxpayers earning a profit on that.

What to do with fannie and freddie will lead some to say, let's take some more time.

We could take -- use that cash right now.

It will also likely spur the critics of fannie and freddie to set for tuesday, we need a solution now and all the more -- if to step forward and say, we need a solution now and all the more reason to do what they are healthy.

On capital gains this sunday at 11:30 a.m. eastern and right here on bloomberg television at 12:00 p.m. and 5:00 p.m. eastern.

They're not drinking very many cold ones in brazil these days, but still the country's biggest brewer is not worried.

And anheuser-busch is estimating beer sales will fall 4% in brazil this year.

They're trying to make up for it by providing higher margin premium beers and repackaging the cheaper beers to make the more profitable.

One analyst says the aggressive cost management style of the brazilian billionaire will help.

It is just 26 minutes past the hour and driver bloomberg to go on the markets.

It is time for european close.

We have the ftse up almost 1% and the?

Up 11 and the cac of almost nine.

Can you believe that football is already on tv?

Snacks getting food pizza, wings, but how about hamas?

-- hummus?

Coming up, how the tv show breaking bad is giving the local economy in mexico a boost.

? i am erik schatzker.

This is "market makers." the doughnut craze that consume the pacific a few months ago, the race is on to create a copy in asia.

Meet the cronut, have done that, have croissant and it's all the rage.

It is now available everywhere.

Here in asia, the race to reengineer these hybrid pastries is on.

Knockoffs have been found in tokyo, the philippines, and hong kong.

Each shop has its own twist.

One japanese chain features crispy chocolate, strawberry and other flavors.

-- strawberry and green tea flavors.

Correct we were trying to do something when it came out.

It was inspired here in new york, this cronut.

The mandarin oriental calls it the croissant doughnut to avoid copyright violations.

He and over in the philippines, it is simply known as the donor croissant.

But one company he is not shying away from using the word cronut.

Hong kong's intellectual property department has not yet approved either filing.

Doug endowments -- duggan doesn't have a mass-produced version that is cheaper,. correct -- they sell out within minutes.

Are these pastries a fad, or the next breakfast staple?

One thing is for sure, they're awfully delicious.


I think we have confidence to go further with it.

Delicious or not?

It is a matter of opinion.

I tried one.

We had a producer weigh in on that -- weight in that horrible line.

I was not impressed.

It was too much hype.

Greg is the name that has been trade mart, clearly not the process.

It -- that has been trademarked, clearly not the process.

And new yorkers have a lot of patience, but they can be fickle.

I'm not big on waiting in line.

Correct me neither.

We are new yorkers.

Let me tell you, hummus.

This has serious implications for the u.s. food and farming industry.

We're talking about the chickpea taking the country by storm.

I went to the biggest factor in the world to find out why.

Explosive is the word used to describe hummus demand in the u.s. some companies the stock sales climb over four hundred% in the last five years.

Correct -- and two-thirds of those people by sabra.

Correct we double our business every second.

The rate in $583 million last year, up nearly 15%. zeebrugge and -- sabra beat that percentage, and other brand or bring to meet $1 billion in the next few years.

Correct it is -- compared to the penetration of been a broader and hit the u.s., it is something like 60%. right now, we are around 20%. they are already the biggest hummus factor in the world, adding 140 new jobs and 10,000 lbs.

Per month.

It has spent $24 million in the last few years to bring hummus to the masses.

Why not spread hummus as the solution?

In its effort to bring hummus to the masses, they're making it more palatable to some of might be reluctant to try fault -- foreign food.

Gregg's it is very good.

-- it is very good.

My favorite is the chipotle hummus.

That is one way to get it to the maxim -- the masses.

Americans love to not just because of the -- americans love to play -- cipohipotle and not just the name.

If you look at the annual rate of growth of hummus in the last three years, we do not see too many categories that have experienced such a high growth rate.

Greg travis is putting up a good fight, but sabra is the market leader.

These free samples have been enormously helpful for them.

Eminent domain in california is right -- rivaling the likes of pinko -- pimco, the bank of new york.

? in california, a key test is playing out over one of the most controversial provisions, the eminent domain, the right of the state to seize property for the public good.

Here is the first to try eminent domain as a solution for the foreclosure crisis.

Investors who buy mortgages, like pimco and bank of n.y. mellon are up in arms.

Who is right?

There are people who have heard of eminent domain, but is usually employed for public works projects, like highway construction.

Talk to us about what is going on in california, and more important, whether this is a good idea.

Several cities are looking at eminent domain as a way to take mortgages out of investor pools, refinance them with their own private capital, and make the payments more affordable to home owners.

This is an understandable plan.

A lot of localities have been crushed by the foreclosure price it -- crisis and the housing prices.

Even though the housing he is starting to recover nationally, we still see cities like newark, chicago, las vegas, they are still under siege.

It is an understandable, but old, moved by cities.

In california in this case, they could make some headway on the foreclosure crisis.

You can hardly blame these cities.

Many of the mortgages underwritten in america are owned by banks.

Banks have been in the device by the government to reduce principal, for example, to extend payment and make it easier to stay in homes.

What you're talking about are the trusts.

And those are sliced and diced and owned by investors and trusties, whom no one can ever get in touch with.

And that is why it is a problem in the first place.

That is absolutely right.

There is an easy way to refinance and modify that mortgage.

However, the mortgages and the trust are hard to correlate . even if it is in the investor's own best interest, because the mortgages are so deeply under water.

There is an incentive on the behalf of homeowners to just walk away.

And the foreclosure risk that the the -- it is the foreclosure risk that cities are concerned about.

Companies like pimco, for example, have been screaming bloody murder over the use of eminent domain in a situation like this.

Where do you stand back you and i have been talking about this for almost a year.

Right, we were both on a round table when we discussed eminent domain with investors at the congressional roundtable.

The issue then what is the same as the issue now, the and just do not justify the means.

It is a bad idea for cities.

Just think, at either -- if there is another bump in the road in terms of the economy and the locality is stuck with these mortgages, they are risking credit with the banks.

However, i do believe t

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


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