Recession in Europe?: Surveillance (08/14)

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Aug. 14 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Howard Lindzon, Neil Dutta, Phil Mattingly, Ira Jersey, Douglas Holtz-Eakin and David Strasser. (Source: Bloomberg)

U.s. troops land on mount.

The white house is relieved.

20,000 becomes 4,000. what is next for america in iraq?

The german 10-year yield falls below 1%. does it signal deflation across europe?

The crisis in gaza kills israeli tourism.

Good morning, everyone.

This is "surveillance" live from new york.

It is thursday, august 14. i'm tom keene.

Joining me, scarlet fu and adam johnson.

Let's get right to our morning brief.

Here's adam.

Overnight, european economies kind of stalling out.

France's second-quarter g.d.p. comes in flat.

Turns out germany's declines.

It's a mix, where it's germany, france, and italy, the big nations are the ones struggling.

Yes, and that's not what we would have thought.

Portugal actually picked up on the most recent data.

South korea, we should also point out, the central bank cut its rate.

Some signs of slowing.

You wonder about, when does the i.m.f. weigh in?

The i.m.f. has reduced its estimate for global g.d.p. growth twice since january, twice.

I believe it's now under 3% globally.

It's called a hat trick of gloom.

Yes.

You can understand why futures are slightly flat to down this morning.

What else?

All right, economic data here in the u.s., we got the initial jobless claims, import prices.

Those beat come out at 8:30. and then the bloomberg -- there's a g in that, right?

Yes, very good, bloomberg.

Bloomberg index comes out at 9:45. earnings before the bell, wal-mart and kohls, you're going to break those.

A lot of earnings from retailers today.

Wal-mart and kohl's before the bell.

After the bell, jc pen sandee nordstrom.

Yesterday we learned from macy's that they're not selling as much stuff as they thought, and that's because of all the promotions.

Anyway, there you have the morning brief.

Very good.

We look at occurrence success, commodities, futures flat.

10-year yield is nothing.

The first screen is boring.

On to the next screen.

Courtney, the v.i.x., that's stunning, 12.90. you talk about resiliency and quiet across u.s. equities, there it is.

We'll get to the german two-year in a minute.

That's a negative yield.

I don't think our screen can show a negative number.

Yeah.

That is cool, 0.00, it's below that.

The russian ruble, it's the convoy that awaits from eastern ukraine.

Let's go to the screen.

This is the u.s. 10-year, just to give us a stepback, mid-august, from the beginning of the crisis.

June of 2007, here's the trend, down we go, and what we're doing is rolling over.

Nothing, adam, like the german 10-year under 1%. the german 10-year is down here, and we're just rolling over here.

We're just gasping to 2%. you're very clement.

It begs the question.

And isn't the 10-year yield supposed to match the g.d.p. as well?

That's not a good sifpblete they march in lock step.

But this, of course, is hugely central bank-indusde.

We've looked at the newspapers, the web sites.

Here's scarlet fu.

We got to give you an update of what's going on in iraq.

A bit of a 180-degree turn here.

It is less likely the u.s. will mount a rescue mission.

The pentagon says thousands of those refugees stuck on the mountain in iraq have been able to escape from islamic militants.

These are refugees that were trapped there because of u.s. air strikes and kurdish fighters breaking the siege.

Marines and special operations forces went to the mountain.

They found the situation much more manageable.

That was a sigh of relief about 8:00 p.m. last night, huge sigh of relief.

Up to 20% refugees were on the mountain, but the estimate is now about 4,000. you can understand why that, and let's not underestimate what it means.

A lot of people trapped on a monday sane site.

The idea of now what, with i guess the islam i can state doesn't focus on them.

We're going to check in with our white house correspondent shortly on now what.

Our second front-page story, it goes to what you were just showing us in the data check, concern over possible nation and recession in europe.

Some countries there already in recession, like italy.

The german 10-year falling below 1% for the first time you talk about a negative yield for the two-year.

The 10-year below 1% for the first time ever.

I go back to what bill gross said two weeks ago, which is that this event, this event, this event, none of them are hooked together.

But you worry about all of a sudden they're hooked together.

Yeah.

We're not there yet.

It's the quiet before the storm?

Do i worry about italy, france, korea lowering interest rates?

There's this feeling.

You know what's curious?

Bill gross, if you look at his holdings in the total return fund of government debt, actually falling.

Most recent, 45. so curiously, he's actually scaling back.

Is he adding stamps?

Perhaps.

He's a collector.

Maybe he'll do better with stamps, we'll see.

Whaup?

Third front-page story, company news.

The sysco c.e.o. trying to turn the country around.

He's cutting jobs once again.

We're talking about 6,000 jobs being eliminated at cisco.

That's about 8% of cisco's total force, which is around 74,000. if you tally it all up, in the last 5 1/2 years, under john chambers, he's cut 26,000 jobs.

I like how you say five years.

He and i have gone back and forth, it's been an ugly up and down decade for cisco, but in the last five years, this guy, with a lot of criticism, has made tough decisions, and it's almost like a summer job cut.

This is 8%. yeah, round about 8%. if you look at how he's been doing overall, it's want just the last five years, but in the past fiscal year that just ended, revenue fell 3%, first decline in about five years.

He's trying to make the shift from servers to software.

Like everyone else.

But i want to know where the job cuts are.

Does he eliminate emerging market staff because they've they have double-digit decline?

He will be the guest on "market makers" later on morning.

Cisco systems' c.e.o. joining us on "market makers" on bloomberg television later this morning.

Those are front-page stories.

Very good.

It is good news for the white house.

Dramatically fewer u.s. troops will be needed as the crisis of the fades.

Other decisions loom front and center for the administration.

Phil mattingly is in washington, our chief white house correspondent.

Now what for the white house?

That's a great question.

If they had an answer, they'd feel more comfortable.

Yesterday was pretty crazy.

Scarlet mentioned the 180 degree turn.

As of 1:00 p.m., we were all fairly sure and were being told by officials across the administration to expect some type of rescue operation in the next couple of days.

It would have been been by helicopter or corridor ors off the mountain, where u.s. troops would work with the kurdish forces on security.

By 8:00 p.m., that had totally reversed itself.

You said, tom, big sigh of relief.

All this does is it transfers the focus on to the bigger, broader issues, which is isil is still moving fairly quickly throughout the region, and the political situation in baghdad is still really tenuous at the moment.

I want to look back once more before adam johnson looks forward.

I read the comments yesterday from the white house.

Was our intelligence flawed here?

Do we feel like we did not have the right intelligence?

I think, tom, the best way to look at it, as ben was make -- ben is the national deputy security advisor -- as he was making those comments, the u.s. kind of assessment team was actually on the ground.

There were about 15 special ops and usaid workers on the mountain as ben was making the comments.

The shift on the u.s. side came entirely from that assessment.

It was as if the pentagon, the state department, and the white house all at the same time got a full readout on what was seen on the top of that mountain, and it completely shifted where we were.

What we were lying is largely intelligence-based, what they're hearing from the kurds or refugees.

Now they have their own people giving their own assessment, and they feel much more comfortable with that.

What does this mean for senator dick durbin and his support, which has been questionable for president obama, saying don't escalate?

The biggest issue is his support has been contingent on the humanitarian side of this mission, on helping them on the top of this mountain f. that situation all the sudden clears up, what is the rationale then for the administration to expand or even continue the air strikes that have been going on, the push to figure out some type of way to push back?

I think with the u.s. is trying to work on right now, what you've seen a lot of out of germany, out of france, out of the u.k., you're starting to get a sense of this in international coalition, based on arming the kurdish forces, based on supporting u.s. air strikes.

That will help.

Lawmakers are a lot more comfortable when they don't feel like the u.s. is going at it aloneful that will help going forward.

Phil mattingly, thank you so much, reporting from washington.

Scarlet?

Our guest host this hour, howard lindzon, co-founder of stockwits.

I want to start with the contrast that we talked about what we're sneeg europe, deflation and recession.

Italy in recession, the third in five years, and the resilience of u.s. financial markets, despite the disappointing sales number.

What are your thoughts there?

Well, i think europe is really in a rolling depression.

Remember that for the euro chair, they are not actually above their prior peak levels of g.d.p. so it was nice to see about 1% growth over the last year, but, you know, i think europe basically suffering first from too tight fiscal policy, so i think this is really going to put the pressure on the e.c.b. i think the markets are reflecting the fundamentals, which is the u.s. is a pretty contained entity, and we're moving ahead.

I never asked this questions before, and i'm going ask it of howard lindzon.

Does you're have a silicon sfleal do they have the craziness you live in your california lifetime?

They a misery value, it seems like.

What it feels like, people are starting to make investments over their index, they have a huge fund out of the u.k. so money is starting to creep there, and here's why.

They're going with mobile and social, so you have the creep back.

So it's percolating, ok.

Howard lindzon with us.

And yes, we will focus on the repo market, but right now, on this thursday, let's get to company news.

We start with the m&a. the hunt is on in auto supplies.

"the wall street journal" says industry executives are on a quest for deals.

One possibility, a $10 billion purchase of t.r.w. automotive.

The u.s. parts maker is being thought by a german rival.

The acquisition would be the large toast hit the industry in years.

Merck has approval to sell a new insomnia drug.

The f.d.a. has gin them the market to market it.

It is believed to have fewer side effects.

Analysts say it could generate sales of more than $300 million come 2017. and wal-mart reports second quarter earnings before today's opening bell.

Analysts, their expectations are pretty low.

The world's biggest retailer has been hurt by stagnant sales and slowing traffic.

It could post its third annual decline in the last three quarters.

That is today's company news.

Adam?

Scarlet, after a very quick break, we're going to go live to jerusalem.

Our reporter there on the ground talking about what has happened to the local economy since all the hostilities erupted between israel and hamas.

? it is a shot, it's a city east of manhattan.

Brooklyn.

Yes.

Brooklyn.

It's the heart of the city, what are you talking about?

Across the east river with governors island.

It's a beautiful photograph.

Looking west, new jersey in the distance.

Atlantic city is down there to the left lower corner.

Bloomberg television today looking at atlantic city and the train wreck it is for governor chris christie as well.

There is the beauty of new york city.

Good morning, everyone.

This is "surveillance" surveillance.

I'm tom keene.

With me, scarlet fu and adam johnson.

Adam?

Tom, israel and hamas have extended their truce five days.

It's welcome relief on both sides, but as we get this report, travel to israel is still caught in the cross fire.

As negotiations continue between israel and hamas in the alleyways and markets, jerusalem, one consequence of the gaza conflict remains beyond dispute.

Tourism here has been devastated.

How many customers do you have at the moment?

At the moment, zero.

None?

My guide to the city runs a small touring company for those visiting jerusalem from near and far.

During better times, its clientele ranges from day tripping israeli couples to large trips from china.

If somebody is calling, we just want to come -- the latest round has impacted the entire tourism trade.

We are talking about close to four million tourists coming to israel.

You have an income of $6 billion a year, which is very important for country like us.

This yeerks instead of the four million, it's predicted that number will fall to 2.8 million with far-reaching effects.

Airlines are affected, hotels being affected, transportation, buses, guide, restaurant, taxi drivers, almost everybody will be affected somehow.

But in jerusalem's historic center, the bells toll for businesses that belong to both israelis and palestinians.

Normal this will time of year, you'd have people everywhere.

Everywhere, especially in the market.

While israeli citizens demand answers from their political leaders, many israeli workers require assurances from their bosses.

They're working in a good place, and i can provide them jobs, and if i'm working, i don't tell them go home, you don't have work.

Zrl's government has promised to compensate businesses that suffer lozz because of the conflict.

But for many here, any loss of income is nothing compared to the loss of life.

We need a potion here.

There is people suffering a lot more than us, and if we just have a few months of quiet, we can reach a state with no fear and we can manage.

We can manage.

Joining us live from jerusalem, what's happening on the ground right now?

What happened overnight?

Good morning.

Overnight as the cease-fire ran out toward midnight here, it really came down to the extension of this truce.

The two sides seem to have agreed on a five-day extension of the cease-fire.

The palestinian authority negotiator announcing about an hour and a half before the deadline passed that there would be an agreement, but around exactly that same time we got confirmed reports that rockets are being fired into southern israel.

At around midnight, there were retaliatory air strikes and a number of targets hit in gaza.

I'm absolutely fascinated.

I think the stanley fisher as governor of the bank of israel, now vice chairman of the fed, getting massively high marks for stabilizing the israeli economy.

You're there.

When you're there and you're on the street, how normal is jerusalem, how normal is tel aviv?

Well, i think things are pretty calm.

I will say the old city, when i visited it properly, was very, very empty, according to those i was speaking to.

A lot of the merchants were saying they were getting very, very few customers, and this was having a very detrimental impact.

In tel aviv, on the other hand, things seem to be incredibly normal.

The restaurants and bars were buzz and people don't seem to be that affected.

What are you hearing in terms of u.s. involvement or any kind of involvement from neighboring countries?

Well, one of the striking strat stinks was that july tourism numbers were down, so without that, they're really struggling.

In terms of the government coming to help them, there have been discussions between these people representing the industry and the government.

It was up to $40 million being discussed in terms of compensation for these businesses, but in the grand scheme of things, out of a total g.d.p. loss of $1 oovement 2 billion we saw in the story, that's more.

Well, there's certainly been plenty of lives lost in the process.

It's a complex story.

Thanks for bringing us the latest.

We'll be falling you all day live on the network.

Thanks.

Also to give you a heads up on what's coming up on "surveillance" in the next hour, douglas holes-eakin will join us as guest host on bloomberg television and radio.

The budget gap, adam, shrank 24% this fiscal year.

We'll take it.

? good morning, everyone.

I'm tom keene.

Futures up two.

Let's get right to our top headlines.

Here's adam johnson.

Tom, it's time to get peace a chance.

That's the message from pope francis, as he took to the war-divided korean peninsula on a five-day visit to south korea.

That nation is the first papal visit there in 25 years.

Francis called on north and south korea to avoid fruitless criticisms and showing of force.

Brazil's presidential race is in disarray after the death of a leading candidate.

The socialist politician and six others were killed wednesday when their plane crashed in the port city of santos.

Campos was one of the top three contenders ahead of voting, which is currently scheduled for october 4. and more chaos in the st.

Louis suburb of ferguson, missouri.

Police in riot gear used tear gas on crowds and officers were reportedly targeted with bottles.

The protests follow the failed shooting of an unarmed teen last saturday.

And those are the top headlines.

It is a must read, but today it's a must listen.

Let's get to scarlet.

It's courtesy of matt miller.

He sat down with rolls royce's c.e.o. take a listen to what he had to say about rolls royce's design strategy.

We are highly interested in excellent resale value, and that is particular, but also our clients are looking in, and you don't to want see your car being outdated after a couple of years, so that's the reason why we are following a complete different strategy.

We are making sure that our cars, technology-wise, are up to date, but we would never change just for the sake of pure changing the design of our cars.

Because we think our cars are timeless masterpieces.

So they don't change their design because they want it to be timeless, yet at the same time, about 95% of rolls royce vehicles get some kind of element.

The owners like them.

Should i get the ghost or the phantom?

Which do you think?

Well, i don't know.

I interviewed this guy.

Their factory in southern england is just gorgeous.

You should be get a bentley.

I saw one, it was two-stone silver and black.

I don't remember what the interior was.

But the exterior was so gorgeous.

What would it cost for notice park a ghost in manhattan?

I can't even imagine.

$100,000 a year?

I paid $432 up on 94th street and second avenue.

That's a long way up.

$432. speaking of budget, let's get to our twitter question of the day.

How would you change minimum wage policies?

It's the polar opposite behalf we were just talking about.

We want to hear from you.

? good morning, everyone.

"bloomberg surveillance." a busy morning.

Let's get right to the data check.

There is only one story.

Futures up 3. u.s. yields, not in europe.

We have negative yields there as well.

The german yield went negative.

Hans nichols is in germany where people have to deal with deflation and economic slowdown.

I want to talk about the german people and their reaction to this economic slowdown.

What is different now versus two years ago?

Well, two years ago, there was a confidence that germany could pull europe out of the recession.

Now, they are thinking there is so much global concern, global crisis, there is quite a bit of queasiness, when you talk especially to business leaders.

Who in frankfurt is listened to by berlin?

Do they listen to the german people?

Do they listen to angela merkel?

They listen to companies like this one.

52% of the economy in germany is export.

They listen to the small and medium-sized businesses.

One thing this week is that the industries and businesses are comfortable with increased sanctions on russia.

They will be willing to support sanctions, even if it is bad for germany's bottom line.

The numbers today are mostly about the second quarter.

Fair.

It gets to this idea of psychological confidence.

Most of the economically damaging sanctions are in the third quarter.

The third quarter numbers could be even worse.

It is about a blame game.

To the german people blame a certain party for this economic slowdown and the record low interest rates?

It is not hard to gig a cab driver.

The greek economy or the greek people.

Not that i have ever gigged a cab driver.

Most of the animus is stricter to the south, not their own political leaders.

Merkel and the political leaders are getting decent marks for the response to ukraine and the lingering aftereffects of the economic crisis.

Hans nichols reporting from germany.

We continue our discussion on the economics and finance.

We have an economist and a fixed income pro.

Two different perspectives.

The engine oil of the financial system.

Fed officials are more than concerned about another lehman brothers, but maybe about how the system will withstand new shocks.

Neil dutta is with us today.

It is wonderful to have both of you here.

Neil, let me go to you first.

Why are bill dudley -- why is bill dudley focused on the subscore short-term overnight bond market?

-- obscure, short-term overnight bond market?

Before the crisis, they had a lot of short-term funding.

That really has not changed all that much over the last several years.

That is why they are jobawboing aboutning about the macro prudential.

Once the fed does victim, volatility goes up.

There are problems in the repo market.

Shocks and surprises here.

What happens when we shrink the balance sheet?

We are not very smart and we really don't know exactly what happens with less elasticity of dealer balancing.

Dealers used to be able to decrease and increase balance sheets.

They will not be able to do that today because rules are already in place, not because of what has happened.

If you look at the repo market, you look at bank funding, banks used to be lenders into the repo market, they used to give dealers funding.

They do not want to be in the game.

Explain why scarlet fu should care about this.

You are this money pro.

I got this 14 times yesterday.

What does scarlet fu or tom keene or adam johnson, why do we care about this?

You mentioned motor oil.

The repo market is the lubricant that makes the financial sector work.

If you buy a bond or do anything where a dealer does not have anything on the balance sheet -- the son's golf lessons.

[laughter] and asset-backed security, the first step is that it gets funded somewhere.

The first step is the repo market.

It is short-term.

I do have to say something.

We talk about the short-term funding aspect.

Dealer balance sheet used to be funded overnight.

That is not the case and cannot be because of the regulations.

Lthe liquidity coverage ratio requires businesses to do things much differently than they did before.

Even repo money is not as much overnight as before.

Was that in english?

It is pretty good.

[laughter] what is relevant is the reverse repo.

In other words, you give me your cash and i will give you securities and i will pay you interest on it.

Why would they not want to do that?

Dealers do not have the cash to do that.

The reverse repo is a way to circumvent the banks and allow other market participants into the fed facility.

It used to be that the primary dealers were the means that the federal reserve used to conduct monetary policy.

You cannot do that anymore.

Dealers do not have the ability to expand balance sheets the way they used to be.

The fed had to find a way around that.

Fed presidents talking about this.

Beckon for comments.

You wonder if the pickup in the repo market could be dashed back and forth on this.

You wonder if the pic -- back in forkand forth on this.

You wonder if the pickup in the repo market could be systemic risk.

It could force them to accelerate the exit process.

Banks are holding treasuries.

That is one of the reasons why the treasury market has been out of balance.

Some of the regulatory things going on is putting the treasury market less aligned with the fed intentions.

We could talk about this for another two hours.

That was great in english.

Thank you so much.

Thank you.

Thank you so much, guys.

Coming up, our single best chart.

I will explain.

We will tell you in the single best chart.

It is enough.

Bacon, kale.

? good morning, everyone.

"bloomberg surveillance." our twitter question of the day, we need to hear from you.

How would you change minimum wage policy?

That is contentious, to say the least.

Send in your sharp response.

How would you change the minimum wage policy?

This is "bloomberg surveillance." with me, scarlet fu and adam johnson.

Adam has our top headlines.

The new ebola vaccine is at least a month away.

Global officials are trying to give an existing vaccine to health the people or those already infected.

More than 1000 west africans have died in the current outbreak.

3 candidates are vying to become the next commissioner of major league baseball.

The hopefuls include mlb executives and the boston red sox chairman.

That would be interesting.

Tiger woods' aching back is proving very painful for the ryder cup team.

It is a struggle right now.

Tiger's game has not been the same since he underwent back surgery last month.

It is time for single best chart.

It is a polarized america when it comes to our politics and our food.

I want to bring in the head of research a bloomberg television.

You opput together this chart that shows us how the country is divided when it comes to bacon versus kale.

This is data that comes from the social intelligence company.

They have the raw data.

It looks very much like a political election map.

The red states look like red states.

The kale states look like blue states.

The vast majority of the high kale ratio states, the ratio of twitter mentions positive to kale versus positive to bacon.

In every state, bacon is more popular than kale.

It is about the ratio of how popular kale is to bacon.

The democratic states are kale and the republican states are bacon.

California, but a native canadian.

Are you a kale guy?

I have never been more embarrassed about green than the california i just saw.

I live in coronado.

It is blood red.

I think the watch could be wrong today.

Coronado is red thanks to you.

We are already blooded bacon lovers in coronado.

Let it be heard.

-- all all red blooded bacon lovers in coronado.

Let it be heard.

We have bacon and kale together.

Fair and balanced.

Non-polarized.

Thank you so much.

A great single best chart.

Talk about a cultural cap.

-- gap.

A list of words and phrases that editors they are likely to stand the test of time.

I'm not sure i agree with this.

One of the new entries, yolo.

As in, you only live once.

Carpe diem.

Yolo.

Here is another one.

Amazeballs.

What was his name?

Mike myers.

What is the character?

Austin powers.

Thank you.

Did he say amazeballs?

Listical, hasn't made the list?

-- has it made the list?

Yes.

Here is another one.

Hot mess.

Can you believe that?

I don't know why oxford is doing this.

Desecration of the english language.

Vape i can almost get to.

It is sort of out there.

I think they're under a lot of pressure to be hip and current.

What is the new word for you?

You are in the absolute clutches of the cultural zeitgeist.

I am nervous about paying for kids' college.

Is that a word?

You know you are the third week in august.

What is your top hashtag?

Linzanity.

Seriously, if you want to make an iconic image, just put two dollar signs.

We were looking at twitter.

Inspired by twitter.

I talk about stocks.

Apl means apple.

If you are looking at twitter and you are trying to understand he was talking about apple versus apl.

Ple.

How did you come up with two dollar sings?

Gns?

A way to pull information off twitter that was talking about stocks.

Changing how we communicate.

That is linzneane.

Linzanity.

We were the first two people to start to use it.

It spread.

Did you see the last three or four visits howard has had with us?

He wouldn't give me a cigarette.

We will be weighing in on financial technology.

We need to get up to speed.

The winners and losers in this grand opportunity.

We will discuss next on "surveillance." ? this is "bloomberg surveillance." i'm scarlet fu with tom keene and adam johnson.

Let's get you company news.

We start with the biggest maker of personal computers.

Linovo of china posted a 23% increase in quarterly profit.

The cfo of t-mobile says a $15 billion takeover is inadequate, but it does not mean a deal is dead.

Braxton carter is dropping hints that the carrier might be open to a higher offer your -- offer.

Finally, cisco plans to lay off up to 6000 workers or 8% of its workforce.

The company says it is in restructuring mode.

They reported a 1% profit decline.

Shares are down 1.3% in the premarket trade.

Thanks.

John chambers, the ceo of cisco, will be joining the "market makers" tina 10:00. -- at 10:00. he is not on cue cards.

Unlike most ceo's. who, admittedly, have their talking points.

He is critically for being down deep.

He wants to retire soon.

He wants to make sure he did become descent.

His buzz word was "internet of things." did he coined that?

I think i did.

In any case, john chambers is coming up at 10:00 a.m. on "market makers." investors, those younger than tom keene, are looking for new ways to transact and trade online.

Brokerage firms like schwab and tedium eric are lagging behind.

-- td ameritrade are lagging behind.

10 mobile trading go mainstream?

-- can mobile trading go mainstream?

My good friend phil pearlman is over at yahoo!

Active finance right now.

You should have him on.

He is using tumblr to replace bad content coming from other sites.

I believe the 1% are going to be an important 1%. we hate on them, but they are important.

There are 50,000 families around the world with $100 million.

Most of those families are using excel spreadsheets.

People are coming to give those people the services.

Banks pull back.

People don't trust the wealth managers.

We have an underserved, under technologized industry.

On the small screen, go log into your schwab account.

It is awful, even with their iphone technology.

I'm an investor in robin hood.

Within a month and a half, we will be close to any stock that we want.

How does your world make money on seven dollar trades?

It is zero dollar trades.

Seven dollars is a dinosaur.

Zero dollar trades to die make sense on a desk top.

In today's world, i will say i am buying amazon and 8000 people by three shares.

That same company becomes a bank.

They are lending out on margin.

We all went "flash boys." paying on order allows you to do zero commission.

That world never changes.

It is math.

It is people trying to make it living.

It is like uber.

Nobody thought they could make money.

Printing cash.

When you reduce infrastructure costs and that is what some of what technology is -- it is not more tech, it is less tech.

When you hac kk the sec, money gets made.

There are just less people manning this.

Schwab has 20 compliance officers.

Robin hood has one.

It is not so much of the revenue is can it be, it is a much more efficiency is going to come out of this.

Sets moving in, sets moving out.

Now it is all digital.

In case of the millennial's, is it, if you build it, they will come?

Oh, if you build it, they will come.

That is the beauty.

Robin hood, to acquire 500,000, it would have cost him $10 million.

They can't afford a house, but they know it go pro with they know what twitter is.

Just because they can't afford a house, doesn't mean they shouldn't be able to trade.

The front-end venture capital and your huge success -- how does schwab or the others make money anymore with the little guy?

I can't figure it out.

They are going upstream.

They are going to the 50,000 families.

That is what leaves the opportunity with the mobile phone.

The cost of building it.

You will be shocked, robin hood will have one million accounts when we said we would, in 18 months.

That changes the industry.

Thank you so much.

The forex report today.

The ruble is a little bit stronger.

Sterling, 1.66 83. an ever weaker sterling.

Coming up, the former director of the congressional will be joining us as guest host.

? u.s. troops land on mount sinjar.

20,000 becomes 4000. what is next for america in iraq?

The german 10 year yield falls below 1%. does this signal recession and deflation in europe?

Chris christie confronts the failure that is his atlantic city.

Good morning, everyone.

This is "bloomberg surveillance." it is thursday, august 14. we're live from our world headquarters.

Joining me, scarlet fu and adam johnson.

Our guest host for this hour is douglas holtz-eakin.

Let's get to our morning brief.

Overnight, european economies are stalling out.

France's second-quarter gdp comes in flat.

Germany's declines.

And south korea, the central bank cut interest rates.

Economic data here in the u.s. initial jobless claims and import price index.

Then the bloomberg consumer comfort index.

Kohl's just came out.

This is the beat on the bottom line.

When it comes to sales, it missed estimates.

Comparable sales fell 1.3%. we should explain.

Some companies, the earnings roll out automatically.

Others come by carrier pigeon.

Walmart is like in "game of thrones." they have the raven with the e ye in the middle.

Guess what just came out?

Walmart.

They matched analysts' estimates.

They rollout slower for walmart, but the size and the mass . it has cut -- the mass.

It has cut its full-year forecast.

This is the third consecutive quarter of falling earnings for walmart.

Walmart has issues stateside and they need to fix that.

They sure do.

I know we will be joined by an analyst to lowered his numbers.

Those are your two before the bell.

After the bell, we have jcpenney and nordstrom's. it will be interesting to see have jcpenney comes in after seeing the others.

To the company news.

Pmn they hunt is -- the m&a hunt is on an auto supplies.

A $10 billion per to sub trw -- purchase of trw automotive.

The acquisition would be the largest that the industry has seen in years.

Merck has approval to sell a new insomnia drug.

It is believed to have fewer side effects than older drugs.

Cisco plans to lay off up to 6000 workers.

That is about 8% of its workforce.

It is restructuring.

They reported a 1% profit decline in the latest quarter.

Shares are down more than 1% in the trading market.

A huge deal.

John chambers, ceo of cisco systems, will be joining "market makers" with alix steel and erik schatzker at 10:00 a.m. eastern time.

What did i say about the u.s. struggles?

Where is the poor customer?

Dollar stores.

Nominal gdp was good and walmart did not do good.

Dollar stores make walmart look expensive.

There it is.

Dow futures up 20. it was good news for the white house.

Dramatically fewer u.s. troops were needed on mount sinjar as the crisis fades.

Other decisions loom front and center for the obama administration.

Phil mattingly is our chief white house correspondent.

What is the to do list for the president this morning?

First and foremost, this has been the underlying problem throughout, to continue to work forward with allies in baghdad, with the prime minister designate, to try to form a coalition government in the next 30 days.

You cannot understand how important that is.

That is the central component of any plan forward in iraq.

The kurds are doing a much better job with pushing back the islamic state militants over the last couple days.

Until there are is some type of coalition force of the iraqi military, which will not occur until the political process starts moving forward, there is no broader plan.

Let me bring it back to washington.

There needs to be a coalition on martha's vineyard.

You are not on the vineyard with the junkets, but secretary clinton and the president are having a formal dinner?

I need some perspective.

First things first, the term hug it out, which has been used over and over by the clinton camp, you cannot officially use that anymore.

It is no longer fun or funny once politicians use it.

This is going to be something that will rise to the top of media attention over the next year and a half.

Whenever secretary clinton speaks, there is the plan to start set -- separating herself from a president that has low approval ratings.

A bit awkward that they both end up at the same birthday party.

The president and the first lady danced.

They had a nice moment with the clintons.

No word on what type of hog it was.

-- hug it might have been.

This is going to keep coming every week until the election.

Adam, i know you want to get back to the serious topics.

I find it absolutely stunning that we are discussing 4000 people on a mountain starving and below the fold in the new york times, we are worried about hillary clinton on martha's vineyard.

I don't have an opinion, it is just surreal.

It is surreal.

Something else that might be surreal.

The fact that u.s. intelligence could get the number so wrong.

Without there were 20,000 on the mountainside, there are only 4000. is chuck hagel taking heat for that?

We could not pin the white house or pentagon down on how many people were on the side of this mountain.

The white house would refer to reports of estimates of tens of thousands of people.

That includes yesterday.

The deputy national security adviser said yesterday that reports that estimates of tens of thousands.

The truth of the matter is that until they got their own people on the ground to conduct this assessment, they were relying entirely on reports from aid workers.

The truth of the matter is that those were not as accurate as they thought they would be.

That ends up being a positive thing for the administration policy was going forward.

Where that makes people nervous and this is what you are getting at right now is, ok, there is a dangerous force near u.s. assets in that area.

If we cannot count how many people there are on the top of a mountain, how are we keeping a close eye on the islamic state?

There is some concern and definitely in need to boost intelligence gathering capacity.

Phil mattingly, thank you so much, reporting from washington.

Our guest host for the hour today is douglas holtz-eakin.

He is currently the president of the american action for him.

I want to start -- forum.

I want to start with the u.s. budget deficit.

The economy is better, problem solved, right?

No.

budget deficit is smaller, economy is better.

If you roll the clock forward 10 years, we have not changed any of the fundamental problems we have.

The debt is quite large.

We have a really big problem looming.

What should we be doing while the budget deficit is shrinking?

We need to change the strategy.

Everything has been annual defend thing -- spending.

The problem is the big spending programs.

We need reforms of those things.

That is a big political left that is just not happening.

I give high marks for you for battling the washington system.

And losing consistency.

-- consistently.

[laughter] ira jersey is talking 3.5%. the yield curve goes up.

What happens when we gets to wall street -- get to wall street's consensus call?

People talk about systemic risk.

The u.s. is the biggest systemic risk.

What will the cost in billions of dollars?

$300 billion.

Does that make the case for the fed keeping rates low just to help?

No.

you need to fix the fundamental problem.

If you are keeping rates low, you are dealing with other problems in the economy.

You have to fix the fundamental problem.

That is going to require real political leadership.

Let me do a data check.

The negative yield in germany.

The german yield is under 1%. our twitter question of the day, how would you change the minimum wage policy of this country?

We will be asking douglas holtz-eakin for his prescription.

? good morning, everyone.

"bloomberg surveillance." we welcome you to our world headquarters.

Scarlet fu is with me, back from using my vacation home.

With vacation good?

-- was vacation good?

You poured your vacation days -- you hoard your vacation days.

President obama vacationing this week.

They are updating us on raising the minimum wage.

Douglas holtz-eakin, our guest host for the hour.

You are opposed to increasing the minimum wage.

Your alternative is more complex.

We have two strategies for low-wage workers.

The minimum wage.

It is the low skill jobs that people need they could destroy.

We have the earned income tax credit.

It is good policy, but has huge compliance problems.

25% of haman's are in error -- payments are in error.

If you work full time, let's subsidize the wages of workers.

You just said we have a deficit problem we have to fix and now we are going to subsidize wages?

My proposal is $16 billion.

It guarantees that if you work full time, you are not in poverty.

We want people to work.

Some wages could fall below the minimum wage.

It is a different strategy than minimum wage.

People worry about employers gaming it.

But that is true right now.

Markets work.

People get paid when they bring in value to the company and that will still be true.

No matter what, we seem to come back to the same issue.

You run into the problem of the difference between earnings for an individual and the household they live in.

Targeting becomes an issue.

There are always ways you can game the system or cheat.

Family structures change.

You get marriage penalties.

Incentives for and to not have kids.

This is something that will come up time and again.

What is your prescription for the minimum wage policy?

What would you change about the minimum wage policy?

We want to hear from you.

Coming up, president obama bashing companies want to relocate -- who want to relocate to get around taxes.

Douglas holtz-eakin says blame the tax code.

This is "bloomberg surveillance." television and radio.

? good morning, everyone.

"bloomberg surveillance." futures turning up 2 -- chri urning up 2 right now.

Douglas holtz-eakin providing perspective to john mccain when he dashed to the presidency a few years ago.

The russian convoy is headed toward ukraine once again.

It says it is bringing food, water, and medicine.

Ukraine's military says the cargo will be checked for weapons.

The truce between gaza and israel seems to be holding.

Violence did flare up briefly.

Egypt is brokering talks.

The truce is trying to work.

Major league baseball's owners will meet today in baltimore to try to choose a new candidate for commissioner.

We will talk more about this at 11:00 eastern on "market makers." a lot is moving today.

We need to talk about what is just happening in retail.

Sales are good for you and me, but not for the retailers.

Walmart joins macy's as the latest to lose earnings are bad lower, due to discounting.

David, why is this quarter proving to be so problematic for big retailers?

What you have is you have a pretty tough consumer environment out there.

It has been rough all year.

It continues to be rough.

Part of this is that they're cutting numbers at the back half of the year.

Second of all, a positive on some level, they are trying to get way ahead of the curve and increasing spending rather dramatically on dot com, e-commerce spending.

People who don't do that, do it at their own peril.

That is certainly in its infancy at walmart.

You mentioned the core customer suffering for walmart and kohl 's. we heard from walmart in previous quarters about the change to the food stamp program and the big reason why there bills are going down.

Is that still an excuse this time?

I did not see that explicitly stated, but i'm still going through the transcript and listening to the call.

I'm sure it still has that impact, but it starts to get less so now.

One thing that probably helped them as gas prices being a little bit lower.

That helps.

When you have wage growth is weak as it is and when you have housing as weak as it is, this is going to continue to be a problem.

I like the word continue.

That goes to my next question.

How will management's adjust to the critical holiday season?

Does this change the plans for next year?

It has to shifted.

You have to see more -- it has to shift it.

You have to see more going into i.t. it accelerates more next year.

Amazon continually reinvest back into the dot com business.

I think walmart is biting the bullet.

That is exactly how i would put it.

Tough decisions have to be made.

Matter of fact, there are eight companies reporting earnings in the next couple of weeks.

Estimates of open lowered in the past week.

Take your pick.

Eight of them.

What is driving all of these lowered estimates?

What is the theme?

Earlier in the year, we had this great opportunity and then reality bites.

[laughter] that is what we are all dealing with his reality versus hope.

It is a very tough consumer out there.

The spending on the economist side of the business, it is just reality.

For all of you on bloomberg radio, we have to do this.

Would you please make a banner that says "reality bites"? [laughter] the core customer is slowing -- struggling, i should say.

E-commerce is taking some business out of the big-box retailers.

Are the best days for big-box retailers behind them?

Can walmart, target, best buy bounce back from this?

They all have the opportunity to bounce back.

Walmart said dot com revenue was up 24%. granted, it is off a small number.

But there is a shift going on.

At the moment, because of the spending, transparency, and everything, the dot com sale is less than an in-store sale.

There is a shift going on out there.

Best buy is relatively ahead of the curve.

Walmart is moving ahead of the curve.

You have other names like target and petsmart and some of the others that really need to step it up aggressively.

Costco was in that boat.

There is a need for a lot of step up in dot com.

It has been a pretty germanic year.

It probably needs to accelerate in 2015 -- it has been a pretty dramatic year.

It probably needs to accelerate in 2015. thank you for joining us today.

Coming up after the break, we're going to head out to the jersey shore and check out the downward spiral of its casino town.

We are talking about atlantic city.

A live shot of atlantic city shows you it is pretty quiet this morning.

"atlantic city: lights out" is a bloomberg special.

This is "bloomberg surveillance." streaming on your tablet, your smart phone, and bloomberg.com.

Our twitter question of the day.

How would you change minimum wage policy?

We want to hear from you.

Douglas holtz-eakin will give his answer later on right here on "bloomberg surveillance." ? this is "bloomberg surveillance." let's get you company news.

Jackguar recalling suv's. there is a glitch in the system that senses if someone gets in the passenger seat.

Burger king is sick -- scaling back lower fat french fries.

Satisfries were introduced last year.

Virgin america's flight attendants vote to organize.

The transport workers union of america says contract talks will begin.

That is the company news.

It is time for "this matters now.

Big united states companies are reducing tax bills legally.

Will politicians politick over tax policy?

This is tax and version.

Have we reached -- invesr rsion.

Have we reached a tipping point?

The u.s. code is out of step with world commerce.

Man suggest it can be done over a starbucks copy -- coffee?

The rate is way too high.

You and i could do it right now.

We tax worldwide income.

I would suggest with a collegial polarity, both of you are on common ground.

It is obvious.

Why can't we get this done?

It is a mystery.

A lot of blame has to reside in the white house.

Big reforms require white house leadership and we have not seen any serious effort by the white house to get it over the finish line.

This would be a triumph for the end of the president's to terms.

They have been talking about doing something since he took office.

They have not done the hard work on capitol hill.

Getting the votes.

That is what needs to happen.

Is that a finance, east coast, wall street attitude versus main street?

Do we have to move away from the huge polarity?

The president has really beat up big wall street firms for years.

It is a popular place to be.

To do these reforms, they do not want to get into it.

The companies moving through financial engineering.

Are they bad people?

They are not bad people.

People are missing two features of the decision-making.

Most of these deals are important pieces of business strategy.

You look at medtronic, they need the product line.

Abvvie.

You find a good merger partner.

You can get access to overseas cash and it is not locked offshore.

You need that for investment in the u.s. and elsewhere.

There is still a distressed.

Matthew levine doing a terror part of kinder morgan -- tear -apart of kinder morgan.

That is the reason for tax reform.

When you find firms changing corporate structure of location for tax purposes, the tax code is interfering with the fundamentals of the economy.

That is bad tax policy.

What does douglas holtz-eakin do with the double tax dividends?

Get rid of them.

Any double taxation is a hindrance.

We need to remodel the tax code for the times we live in.

Where should the corporate tax be?

Where do you want to be?

I would like to see that 15% to 25%. 25% would at least get us back in the game.

Maybe they will get it done by new year's. maybe not.

Tom, just checking the premarket right now.

Walmart is down.

Kohl's is up in the premarket.

Analysts were looking for it to be up.

-- for it to be up.

Retail is very tough right now.

The core customer is struggling.

Let's get new jobless -- excuse me, a data check ahead of the jobless claims coming out.

The 10 year yield.

Good morning, this is "bloomberg surveillance." you name it, we are there.

I'm adam johnson with tom keene and scarlet fu.

Our guest host is douglas holtz-eakin.

Dr.

douglas holtz-eakin.

President of the american action for him.

Top headlines.

Four children killed.

Iraq's humanitarian crisis is at its highest level.

The islamic state has overrun much of the north.

More chaos in the st.

Louis suburb of ferguson, missouri.

Police in riot gear used tear gas on crowds and officers were targeted with thrown bottles.

This followed the fatal police shooting of an unarmed teen last saturday.

Tiger woods' aching back is proving too painful for the american ryder cup team.

He has not been the same since he underwent back surgery in march.

Tough to lose him.

At least he cleared the uncertainty out of the way.

I guess there is that.

Now they can focus on how they're going to make the strongest team to win at the team tournament.

Every part of his body is suffering right now.

You have to have your head in the game.

Ever since that whole issue, shall we say, his head has not been there.

This is the tabloid adam johnson.

[laughter] just calling it like it is.

Where is "the new york post"? today, we are focusing on the future of atlantic city.

Rebels casino is one of the latest victims.

Times have changed.

If you look at a live shot of the boardwalk, very quiet right now.

His donald trump still a billionaire question that is still a big question mark.

He spoke to bloomberg television.

He had sharp comments about why he left america's playground.

His trump casino will be shutting down in september.

I left atlantic city about eight years ago.

My name is on the building.

It is one of those things.

Atlantic city is a very sad situation.

Too much competition.

Do you regret that your name is on the building?

I think everyone knows that i am gone.

Atlantic city was the place i really loved.

I did it for a long time in atlantic city.

A lot of people say that when i left is when it went bad.

Shameless promoter as always.

Atlantic city had its heyday back in the 1990's, leading up to the peak in 2006. it is now down to about $2.8 billion in gambling revenue.

The ups and downs going back to the 1920's, clearly the golden age, for those of us of a certain vintage, john mcphee wrote "the search for marvin gardens" 35 years ago and it is up and down and up and down.

They had a legitimate boom in the vicinity of the 1980's. they did.

People one gambling now.

They had a peak of 12 casinos.

It is now down to about eight.

Trish regan spoke to the mayor of atlantic city.

Here is what he said about elevating the status to more than just a casino town.

Unless you walk in the mayor's shoes, i don't think you qualify to downgrade, upgrade or anything.

I accept what it is right now.

I'm a guy that fixes things and i'm going to fix this city and i am going to help it to grow.

We may have not made good decisions for 50 years, but now is the time to have a little bit of vision and say, where do we want to be in 10 years, 20 years, 30 years?

We want to be a lot more than a gaming town.

We want to have a university here.

We want to have people who live here year-round and the second homes as well.

We want to diversify.

Clearly some big play and tear from the mayor of atlantic city.

The rebel casino was supposed to hold an asset auction today, but that was delayed indefinitely.

We will have all-day coverage on atlantic city right here on bloomberg television.

We want to bring you the twitter question of the day.

How would you change minimum wage policy?

Douglas holtz-eakin will give us his prescription on "surveillance" next.

? indigestion for blackstone.

Good morning, everyone.

It is "bloomberg surveillance." blackstone is affected by blackfish, a documentary that has affected seaworld.

Blackstone is a big ownership in seaworld.

It plummeted 22% yesterday.

Difficult revenues, difficult earnings.

All of this wrapped around this uproar over orcas, killer whales, and should they be a seaworld.

Betty liu was looking at this.

It is such a hot story.

These killer whales literally killing seaworld at this point.

And killing employees.

Did you see the stock?

It went down 33% yesterday.

Blackstone was smart.

They were buying a place with revenue streams.

A year ago, blackstone on the company and they were looking at whether they were going to ipo seaworld whether companies like apollo would buy up seaworld.

They decided the ipo route would be the best one.

That comes with public pressure.

Add to that the perfect storm of this documentary that came out, was bought by cnn in january of this year.

It has suddenly exploded this whole issue of how do you treat animals in entertainment?

We at bloomberg surveillance want real-world analysis.

Douglas holtz-eakin has wandered through the gates of seaworld pre-documentary.

Did you get splashed by a killer whale?

I was.

I enjoyed myself tremendously.

Two things have changed.

This is still a very weak household sector.

This is the kind of discretionary spending that is just not happening.

You lay around top of it that publicity.

In a bad market with a bad image problem.

Southwest airlines ended their 25 year partnership with seaworld.

Peta is into aggressive tactics.

They went to the san diego airport and said, don't go to seaworld.

Is somebody pushing back or they taking the high ground on this debate?

What's so far -- so far, seaworld has taken the high ground.

Yesterday's call, the ceo was very emotional about what happened.

He hit back directly at cnn.

It is very rare to see a ceo come out and directly take to task a news organization.

Fascinating.

They are offering discounts on all of that.

Yes.

Assigning advisers to find out how to cut costs.

Thank you so much.

We will be watching "in the loop" at 8:00 a.m. coming up, jcpenney will be reporting earnings after the bell.

We got reporting's from walmart and koh;'s already.

-- kohl's already.

Retail sales are down.

Store traffic is down for 16 weeks in a row.

The state of the u.s. consumer.

Coming up on bloomberg television.

? good morning, everyone.

"bloomberg surveillance." this is well-timed.

Tomorrow, he is the editor of foreign affairs magazine.

The one magazine i read cover to cover every month.

He will join us.

The geopolitics of your summer of discontent.

Gideon rose on ukraine and iraq and we will speak about israel and gaza.

Really looking forward to that tomorrow in the 7:00 hour

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

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