Retail Battle Over JC Penney: In The Loop (08/13)

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Aug. 13 (Bloomberg) -- On today's "In The Loop," Betty Liu takes you from the day's breaking headlines straight through to the opening bell, speaking with the most influential guests and asking the smartest questions. It's not noise, it's news. (Source: Bloomberg)

Retail battle over j.c. penney.

George soros smacked down until at men.

-- on bill ackman.

The pay gap between men and women, still wide in corporate america.

Getting from 8 to z -- a to z, elon musk's hyperloop.

? the morning, is tuesday, august 13. you are "in the loop." i am betty liu.

Julie hyman has details on the breaking news out of j.c. penney now that george soros has stepped in, bill @ command -- bill ackman has stepped down.

The clash of the hedge fund titans.

Alix steel, watching apple, a different pressure on products that may not be able to keep consumers buying and going into the stores.

Let's get straight to the top stories, bill ackman, activist investor, has officially resigned from the board of j.c. penney after george soros backed the current ceo.

Joining us now with more on this, senior market correspondent julie hyman.

But what does this mean for ackman's reputation?

Nothing great.

This does not exist in a vacuum.

He is engaging in this public and nasty fight with the board.

His letter to the board made all kinds of accusations against it.

You have to take it in context.

There is this fight over herbal life as well and the unsuccessful short of that company and also his history with retail is not exactly stellar, owning 31% of voters -- borders when that company filed for bankruptcy.

He lost money in target.

If you look at it through the sequence of events here, you can see the reputation is not great.

Add to that the fact that there are a lot of people stacked up on the other side of him, like george soros, who was not on his side when it came to the fight over j.p. -- j.c. penney.

You have dan loeb on the other side of the herbal life fight.

Carl icon on the other side -- carl icahn on the other side.

Maybe he needs to get into a different line of business, retail is not working out for this man.

The paper losses are up to $480 million in j.c. penney and there is no indication right now that he will be reducing at stake.

Of course, he could not come out and say that he was pulling out of j.c. penney, that would provide an issue there, and there are also some swaps that he holds their, he purchased about 15.9 million shares to swaps in september 2011, so any amount that the shares are below the price of 2614, that is a loss he will then post in addition to the $486 million i mentioned.

You are talking about some pretty hefty losses.

Another reason not to liquidate the shares.

Absolutely.

Julie, thank you for going through that for us.

His battle -- bill ackman's over j.c. penney has played out like the battle on wall street, remember?

But gordon gecko?

Do not expect activists tuesday quiet for too long.

Our deals reporter has been keeping busy talking with many of them and she joins us now with more.

I was just asking this to julie, but how bad is this for bill ackman?

To be honest, when it comes to marketing a new fund, your reputation has to be stellar.

Investors want to see more successes than mrs.. as julie mentioned bill ackman has been racking up losses on retail end of this episode will only rehash conversations about losses on herbal life.

To be honest, the world of activist investing is a very public one.

So, these guys have to be publicly successful.

It is not good enough for them to be privately successful.

Even if they wind up making money and the deal, the outcomes they are pushing for actually have to go in their direction.

Bill ackman is not the only one who has failed.

I am thinking about dan loeb and his crash -- clash a few months ago with sony.

And those interesting comments from george clooney.

We have even had big misses from the likes even of carl icahn.

Very publicly, the border transocean did not implement his plan to increase the dividend.

They did not implement the plan to break itself up, two huge misses for them.

Really interesting going forward will be how these current situations that are ongoing play out.

Very active this year, pushing for a merger between pepsi and [applause] with a -- pepsi and [indiscernible] bill ackman has some states in some high-profile companies and we still do not know how those are going.

For example, p&g, he is advocating for change their, agitating for change at air products.

So, those two companies could turn around for him, but we will have to wait and see a bit longer.

Tell me how this is different from other periods of activism that we have seen.

One of the things that marked this as different as we have seen a lot of younger generation activists come out of this and open up shops of their own, eliciting more fear in corporate america because you have these young guns who are really eager to prove themselves launching some campaigns.

Also, more and more investors are willing to back activist funds, not just giving them money, but institutional investors are also willing to back activists in their campaigns, whether it is quietly or publicly.

By christina, thank you for that.

You have been busy.

Well, tim cook, moving and shaking the last few months of this year, unveiling the new iphone on september 10, later they will introduce the new ipad model, one with a thinner body and the ipad mini has a high- resolution screen.

Steve cook is trying to maintain the apple position in the crowded tablet market, accounting for 70% of apple's sales in the last quarter, bread and butter.

At pulte, j.c. penney, one thing in common?

They need us to buy their products, but how important is the u.s. consumers these days?

I am assuming very important.

Alix steel has been digging into the issue, quantifying it.

No pressure on us, but if these companies want to meet earnings pressures the viet -- this year, we have to step up and bite.

S&p companies will see profit growth excel rating to 10% in the fourth quarter, a huge bomb from the 3% this quarter, and it depends on how much we decide to buy.

Here is where companies will not be making a lot of money, through margins and overseas sales according to a strategist at barclays wealth management unit.

Operating margins, up 13.4% of sales over the last year, they appear to have peaked back in 2011. in terms of a similar story overseas, u.s. companies made only 21% of their profits outside the country in the first quarter, compared to 26% five years ago.

That leaves the u.s. to really move the needle here.

How big of a concern is that for companies?

Their employment rate is still above 7%, but it has fallen from 10% in people are reducing their debt.

Helping in the short term, gas prices, down 6% since february.

It basically means people have more money to spend.

Barclays believes that it is the u.s. consumer that will spur the next phase of u.s. corporate growth.

So, no pressure.

No pressure at all.

Thank you, alix steel.

Coming up, capitol hill is getting involved in the dispute between cbs and time warner cable.

Two senators urging an end to the blackout.

Cory booker may be headed to washington as a senator himself, his army of wealthy donors playing a huge role in his campaign.

Hyper loop?

Just hype?

A closer look at the proposal for revolutionized transportation for a mosque.

? -- elon musk.

It will feel like being in an airplane, the initial accelerations, once you hit speedy would not notice it at all.

It would just feel extremely smooth, like riding on a cushion of air, really.

You would not feel lateral acceleration because the pot with bang against the side of the tube.

It would always point down.

? ? you are watching "in the loop" live on bloomberg television.

For another day it is a standoff between time warner cable and cbs, continuing the special focus on this monumental moment put the fight for your eyeballs.

The blackout is now in its third weekend calls for action by federal regulators are growing louder as prime-time television and the nfl season return to television.

Paul, great to see you, so many interesting angles to this story.

Let's talk about ratings.

Cbs has been putting out press releases noting that their ratings, do not worry, have been going up, that the pga championship coverage over the weekend, ratings went up 19%. what does that tell you?

Good news for cbs and it is amazing, the two markets that are black out are the no.

1 and no.

2 market in the country.

To generate decent ratings by missing three big markets is impressive.

Pour the golfing community any time you can have good ratings without tiger woods -- that is a good sign.

How do you think they were able to do that, then?

Those big three are big markets.

It is a slow time of the year.

That is one of the reasons we are seeing them in this fight here in august.

There is not a lot going on.

At the end of the day there is not a lot of ads and relative to other times in the year, this is when cbs and time warner cable can really dig in their heels.

So, if you had to pick a month to do a standoff like this, it would be august?

Exactly.

It is right before september, when a lot of new programming comes back, the fall lineup, nfl football, which is huge.

That is when advertisers come back from vacation and want to start spending money again.

Clearly the posturing in august, see resolution until we get closer to the nfl season.

Advertisers, as you mentioned, are on vacation.

Are they watching this and getting frustrated by seeing this standoff?

Or are they pretty used to these competitions?

Advertisers are definitely starting to get concerned.

This is an issue for local advertisers who are not getting any coverage, and even the national advertisers who are missing three big markets.

Again, while the dollar is on a relative basis and may not be that great in august, these are still big markets they are missing.

I'm sure that the advertising partners and cbs are saying get this together and solve it quickly.

I was going to say, what happens?

What is that dialogue with the advertisers?

What do you say to them, exactly?

It is a delicate conversation in cbs is saying that they have large, strategic issues to deal with, bear with us.

That is probably working in the near term, but when you get into big network ad buys in september, the big up-front that were made in may -- can they be cancelled?

There are some, but not in the first quarter.

Cbs will have to make good if there are shortfalls in audience delivery.

I think that advertisers are saying do what you need to do here, but solve this before we start gearing up for september.

As this drags on, who is getting more hurt?

Who is going to get hit by this in the third week?

Both parties are arguably getting pushed back.

There might be ratings issues for cbs and dialogue with advertisers that is dicey, but from the time warner cable side clearly the pressure continues to mount from all the cbs viewers asking for their programming to come back.

If you are a cable subscriber, you are angry at your cable operator.

You will just go to comcast or whoever.

Right, satellite providers, verio, there are a couple of -- they will not be angry at cbs.

Right, they do not write a check to cbs, they write it to time warner cable.

That is the ultimate party that consumers hold responsible.

It has always been a challenge for these distributors, to let consumers know that the reason they are doing this is to keep your cable bill down.

One of the main reasons we raise our bill every month, year after year, is because our programming costs are going up, that is a hard argument to get across, but that is the challenge for these distributors.

Yesterday we had a guest who said to us that in a way, cbs on the flip side dug themselves into their own grave, so to speak, because they have been farming out some of their content.

Not just on cable, but they have been farming it out to companies like netflix, charging a lot less for that.

They are able to do that and, yes, it is a delayed the form of content, but they're basically, in his view, cheapening the value of their content, which gives time warner cable the justification to said they are not paying $2 per sub.

Because the content is moving out on so many other systems, which is a good theoretical argument, but the reality remains that the vast majority, the 99% of americans consume their video either through their cable system or satellite system.

The bulk of the money is still through the traditional distribution methods.

Clearly, that is one of a long- term strategic issues for these media companies, cable companies, how much content to write keep within the existing ecosystem?

In a way that everyone makes money.

How much do i try to put -- does this, by the way, set precedents for other negotiations coming up?

We have seen more in the last several years.

They have had an issue with new dollars and the fight will continue to be flawed because the dollars are too big for the broadcasters.

Thank you so much for joining us, paul sweeney.

5.5 million, how many people watched the premier of the final season of "to breaking bad" on amc.

Last season's premiere only attracted have as many.

The only thing that beat it was the zombie drama, "to the walking dead." more of the future j.c. penney, coming out.

The battle to turn around a retailers still in play.

On payday they come up short compared to men.

We will talk more about the pay gap and how big it is.

? ? you are watching "in the loop" live on your television.

It is 26 minutes after the hour, meaning that bloomberg television is on the market.

Equity futures right now, slightly higher.

Remember, we had one of the worst losses in early june of last week but we seem to be stabilizing around these levels.

We are expecting retail sales numbers in just a few minutes.

Bill ackman is resigning from the board of j.c. penney.

We are on the markets again in 30 minutes.

A look at our bloomberg top headlines, we begin with bill ackman and how he is out in a stunning new development.

He resigned from the board, the announcement came as he called to replace the ceo but the call was rejected after george soros came to the support of this current structure of j.c. penney.

August 9, for infringing patents on features, a similar ban by the u.s. government.

Samsung is unlikely to get a similar for free.

The london whale, causing $6 billion in losses last year, found a way to stay at a jail, he has been cooperating with the fbi for months in a program detailing the biggest debacle of the bank ever and that he will not face charges as long as he continues to cooperate.

In politics, the mayor of newark, new jersey, facing a primary for the senate seat special appointment, his war chest helton to surge ahead of his rivals.

People talked quite a bit about how he is such a big charmer on twitter.

Is the issue in for the senate seat?

It looks that way, it looks like he has this locked down.

The polls for today show more than 50% of voters supporting him over the other three candidates.

He also has a bigger advantage if you pit him against the republican in the race for the generals election in october.

Polls are showing that he is on top, raising $8.6 million in his attempt to grab the sea.

78% of donations, by the way, have been from out-of-state.

He got national attention last year for saving and neighbor from a fire and putting out food stamps for a week touche -- living on food stamps for one week to show how hard that is.

He skipped a debate hosted by oprah winfrey that was a fund- raiser, a sign of confidence.

He has also had his detractors.

His campaign has not been without controversy, some say that he has used his political clout to enrich himself.

That is right, one of the big controversies has been this new york based video start up, waywire.

He has been involved in the company for more than one year but just last month he disclosed his interest when he showed a 1 million to $5 million stake in the company.

That is feeling his opponents.

In the debate it was brought up that he is hardly in the state of new jersey and one of the reasons is is new york startup.

Making use, thank you so much, with cory booker in his campaign, as she mentioned, looks like a shoe in for the senate seat.

We are just a few moments away from the latest read on the economy, retail sales coming out in a few moments for july.

Sara eisen is going to have a breakdown on what this means for the economy.

Retail sales, up 2/10 of 1%. economists had expected a gain of 0.3%. when you take out all those, gases always very volatile and core retail sales were up, in line with what economists were estimating.

Remember, this is still pretty small in terms of the gains you're seeing for retail sales.

Remember, futures are just slightly higher now.

Rebounding a little bit from the losses that we saw last week.

The futures are just a little bit higher on these numbers.

I know that you are digging deeper into retail sales?

We are still looking at a gain, even though the headline number was less than what economists had estimated.

This is the fourth month in a row that we have seen gains for the u.s. consumer.

Of course, a lot of it has been driven by better auto sales.

We saw that in consumer discretionary stocks, which outperformed the broader indexes this year and you have to look at the improvements in housing and jobs to see what is fueling a rebound in the u.s. consumer.

An average of 192,000 jobs added this year through the month of july, every month better than last year, the unemployment rate dropped to the best of the year with auto sales having their best year since 2007. added up, it bodes well for the u.s. consumer, which is why we are seeing this fourth month of gains.

Specifically the myth, the bottom line is that if you add it up with all the data, the u.s. economy, the consumer at least, is holding up pretty well, especially in the face of higher taxes and the federal budget cuts that were expected to weigh on the economy.

Sara eisen, thank you.

We have been following the consumer all morning long, stick around for j.c. penney news, but suppose they may be giving customers a new issue to be about.

And we have the sad details about the pay gap that still exist between men and women.

? ? we just got the latest retail numbers for the month of july, pretty much in line with what economists had estimated.

You have not seen an ad for teh gaphe gap in in years.

The dry spell is about to end.

They are experiencing a comeback, they have closed stores, invested in new technology and new blue jeans and it wants to crow about all of that.

They're reaching out to television viewers and social media fans to get them back into the colored denim for a it is.

Susan, great to have you here with us, it is a big focus on retail this morning.

I know that you do not cover j.c. penney itself, but before we get to the gap, there has to be a lot of lessons learned.

We have an outperform rating on that.

I think the promotional campaign for the fall will be huge for them.

We have been in this color scheme for so long and we are getting back to blue, which is really their heritage.

They want to blow up and make a big deal about it, not being on television for years and coming back is going to be a huge impact for them.

But put it in context, though, of how they are competing with other retailers, like j. crew and a banana republic, a gem for that matter.

-- h and m, for that matter.

Yes, they really had a huge restructuring that they went through, restructuring their whole management team, bringing each of their brands under one global president, bringing consistency in their products, which we really saw as positive a in 2012 and 2013. we see them as moving on all fronts, and i think that back to blue, their heritage, is going to be key in their competing in the environment.

Who is eating their shares the most?

Gap?

Yes.

There are a lot of other players out there that are not doing so well.

Depending on who you look at, if you look at the gap format, it could be some of the team retailers that have some overlap, the department stores, also, j.c. penney and coles, it could be the other specialty retailers.

But i think that they do compete across a number of competitors and it really probably is a bit from each.

Has significant is it that they're watching this television ad campaign, the first in four years at a time when social media seems to be the big avenue of choice to hit young consumers.

They are going back to television, but it is still going to be a small part of their budget.

They really are more focused on print and digital.

The television is just going back to saying that it is still relevant to the consumer and they do not want to block it out, but it will be small and i think a part of the campaign is this focus on digital and focus on getting the millennial customer back, i think that they lost a little over their restructuring and they are coming up with a big social media campaign.

When you talk about millennial and how to get those consumers back in the store, i think about j.c. penney and some of the things they did not do right, they did not respect customer loyalty, taking away coupons, discounting.

Gap, albeit a very different retailer, how much of a focus do their customers have on discounting?

Price sensitivity?

I think if you look through out there are promotions anywhere -- everywhere.

We cannot get away from that.

It is with the consumer has been trained and if you are not promotional, it will hurt your traffic.

I do think they have gotten smarter at it, compelling promotions with healthy margins driving the bottom line for them along with top line sales.

Susan, thank you for joining us.

Coming up, many cars for the millennial.

Automakers battle for customer loyalty with cut rate cars.

? the president is nowhere to be found in washington, because he is on vacation with the first family.

How much rest and relaxation does he really get when he is under holiday?

He has been on vacation march, really, no matter where the president goes, you followed him.

I remember thinking back to 2009 when the president was on vacation, it was the same day as his august vacation and the white house told us it would be a quiet week and low and behold he announced he was nominating ben bernanke to a second term at the fed.

At the white house this year promised that we would not see a fed nomination this week but they are preparing for the unexpected and want to show us presidential readiness, that he would be taking a bus tour next week, showing that he is still getting his daily briefing from susan rice at the home where the first family is staying.

There are matters he just cannot ignore, growing tensions with russia, terrorist threats, he has the deputy chief of staff on hand.

Are there going to be unforeseen events?

Yes.

The president's hawaii vacation, remember, that was around christmas time, the underwear bomber, the president waited four days before he made a statement and he came under a lot of criticism for waiting that long.

President george w. bush ended his vacation early, but was attacked for remaining away as new orleans flooded.

He admitted that seeing the damage from air force one instead of from the ground was a huge mistake, he looked out of touch.

It is all about perception here.

They have to be aware of that on these vacations.

Statistics for you, at this point in his presidency bush had spent 300 clock -- 300 days at his ranch, 26 days at his family home.

Obama does not have a vacation home, but he has spent 92 days on 14 vacations.

Julianna goldman, keeping the tally.

Thank you.

One of the causes that sheryl sandberg has been at work -- advocating for, equal pay for men and women.

She probably bill not be thrilled with new data that bloomberg has compiled, crunching the numbers, showing the best paid women earn 18% less than men.

Joining me now, our bloomberg news editor at large.

Carol, tell us about the gaps in pay that you saw.

We looked at each of the five top 80 executives at every s&p 500 index company and overall women are lagging, the average compensation is $5.3 million.

Really?

Talking about millions of dollars, no one feels sorry, but on the other hand why is there such a big gap?

And women tend to start off less than men, even within in the -- even with an mba.

They start off from a lower base.

Women are also very hesitant to negotiate for themselves, partly out of fear that they will be seen as selfish and overly aggressive, and studies show that are seen that way when they pushed.

Even knowing that, were you surprised at this level?

I was.

She said she was much better at negotiating for others than herself.

Overall you crunch the numbers, these are very small numbers.

There is only a fraction of the ceo's in the s&p 500 or women.

That is right, out of 2500 positions, 198 are held by women and there are only four s&p companies that have three out of five top officers who are women.

Did you find a bigger gaps in certain industries or was it pretty much across the board.

Pretty much across the board.

Carol, thank you.

On the pay gap between men and women.

Coming up, general motors and ford have big dreams for their of small cars, counting on the money goes to become a longtime customers.

? ? they may be tiny, but these cars like the chevy sonic and ford fiesta are dry eyes of young people across the country.

It is not just a low-cost attracting these drivers, matt miller has a look at the ways that these super-minis are becoming a trend for the road.

Baby boomers outspend every other generation by $400 billion per year, so why is general motors making a car for the kids?

They have teamed up with a skater to get the car to jump and it worked.

The top-selling super mini beat teh fiesta in this space.

This car can be gotten in 11 colors, including dragon green.

And it comes with spotify for the infotainment system.

If you do not know what this is, you are too old for this card.

Right.

Right.

Flax you can get this in green.

Can you imagine your dad buying a car in blue candy?

Nope.

Ford brought the fiesta to the x-games and they now have 15 million hits on youtube, 1/5 of the entire country.

The real value for the company is the relationship with the kids.

Someday these millennial may be buying what the baby boomers.

Are you kidding me?

For more on the super mni, i would think it would be hard for you to fit.

I got in and drove it all weekend.

It was not difficult.

There are surprisingly spacious inside.

It might be difficult for tom keene to maneuver himself, but once he got in, he said it was comfortable.

How do they make money on these?

Not the kind of bargains that they make on the higher-priced items.

But we do know the money makers of the big trucks.

But these get the kids in, it is like a gateway drug, if you will, without the negative connotation, getting them to relate to the brand.

You rarely ever switch, according to studies.

Maybe down the road you are buying chevy and ford trucks.

One title for being the rudest on the road, the worst offenders according to the university of california researchers aren't most likely going to be those in a bmw or mercedes benz.

These drivers are found far more likely to cut off pedestrians and other drivers than those in less expensive models.

As you may have guessed, this study found that male drivers are less likely than women to stop for passing pedestrians.

Do you buy that?

I do not think that is anyone the surprise anyone.

That's a real jerk drives a porsche?

Or a bmw or mercedes?

A german brand.

I feel they tended to be precise and accurate drivers.

They cut you off with skill, no?

Yes, they do, but they rush out and cut you off on the highway.

They feel entitled.

Thank you so much, matt miller.

56 minutes after the hour, futures are making a bit of a comeback, one company we are watching in the pre-market, eli lilly, planning to submit treatment for lung cancer after they found that it increased overall survival.

We are on the market again in 30 minutes.

Coming up in the next hour, there were plenty of skeptics when tesla was unveiled, now elon musk has come up with the hyper loop.

Is it more than just hype?

? 30 minutes until the opening bell.

This is "in the loop" with betty liu.

The countdown begins right now.

Welcome back.

Struggling retailer jcpenney just overcame at least one hurdle.

Activist investor bill ackman resigning from the board after his request -- request to have ceo mike ullman replaced it is rejected.

And we will take a deeper look at elon musk's hyperlink.

Retail sales higher in july for the fourth month in a row, showing the u.s. economy may be breaking free of the effects of higher taxes and federal budget cuts.

Let's get straight to the markets desk.

Alix steel kicks it off.

Nordic american tankers -- and shipping company that transports oil down in the premarket after a slew of downgrades.

The ceo said tanker markets remain soft.

I am watching apple shares rising in the premarket.

That is on reports apple is at long last set to debut a new iphone next month.

Higher definition ipad also expected to follow, to give apple a refreshed lineup for the bestsellers for the holiday season.

Shares of orbitz falling after a shareholder sold about the third of its holding.

Perhaps taking advantage of the huge again it has seen your today.

But shares are falling back this morning.

Thank you.

Blackberry struggling to stay alive admits smartphone giant apple and samsung.

Now it is beginning to look like the smartphone maker may consider a sale of the company.

We heard the uc -- news yesterday coming off a black area.

Deals reported cristina alesci is on the story.

The focused is now on this other solution for blackberry.

And it seems like it is going to be a homegrown solution, right?

Because the interest right now is very much indicating that there may be some canadian players that step forward and really make a bit.

There are a couple of reasons.

The company has lost about 80 billion dollars in market value over the past five years.

It is basically -- it has basically lost its relevance on a market share basis.

It's got three percent of the smartphone market.

At this point it looks very unlikely that a strategic layer would step in here.

The situation may have been very different two years ago when there were rumors of course that microsoft and even samsung may have been interested in this company.

But it looks like the company really states its runaround on the 10 line, which has not worked out too well, so that may be too little or too late.

What they are doing and what many analysts are saying is solutions for this company will really rest on potentially a former insider that just kept -- step down from the board, known as the canadian warren buffett.

We talked about him yesterday.

He basically may get some support from some canadian pension plans.

Two of them already said they would be interested in making a bid for the company if that -- if they were approached with it.

It sounds like he will play a pivotal role in the future of the company.

Iq.

cristina alesci, our deals reporter, on blackberry.

Well, activist investor bill ackman is moving and shaking today.

All the way shaking off the board at struggling retailer jcpenney.

Bill ackman ended his public fight to oust ceo mike ullman today.

Ullman got support from investors, including george soros.

Bill ackman says his resignation and the addition of two directors is the best way for jcpenney to move forward.

Chipotle changing its tune on naturally raised beef after years of touting healthier approach.

The burrito maker is not adjusting standards to allow me treated with antibiotics into its restaurants.

Senior markets correspondent julie hyman joins us with more.

What happened?

Why is this change?

It is not a philosophical change, right?

Chipotle is still the environmentally conscious food chain that people know already.

It seems to be more of a situational issue.

Apparently there are some sick cattle in the heard that were being treated with the antibiotics, that is the reason why some of the cattle may end up at tripoli restaurants and -- chipotle restaurants in the doritos.

Other policy is still not to accept that oh but has been preheated preventively for disease or other reasons with antibiotics to make it into the chain.

That is the distinction.

Nonetheless, there have been issue with the cattle supply.

When you are talking about a growing demand for so-called naturally raised beef, which is not given added hormones or antibiotics, there is a problem in terms of the amount of supply out there.

Enough cattle ranchers out there raising this meet.

This year already, chip only c --hipotle says 80-85% of its beef is naturally raised.

They cannot get enough of the supply.

This is the disclaimer -- they support a naturally raised philosophy.

But in some cases it is subject to the supply and feel about their.

What about the customer base?

Brian elliott, an analyst at raymond james, he said you could see a risk that a portion of the clientele would be upset and a subset of that portion would be very upset.

It is unclear.

Chipotle is not really marketing the change.

It says is this beef that has been treated with an aquatic has not really made its way all the way to the stores yet.

It is unclear how much the consumer will be aware of the change when it does happen.

Thank you.

Julie hyman, senior markets correspondent.

Coming up, meet the hyperlink.

A must buy the latest of -- endeavor, we will bring you the details next.

? after weeks of hype and anticipation billion elon musk finally detailed plans for his capsule like travel sister -- travel system called hyperloop.

It would let somebody travel from san francisco to l.a. and about a half an hour and in able -- more environmentally friendly way then trains, planes, and even cars.

A civil engineering expert and consultant who has worked on projects including the panama canal, boston's big date, along with it few other projects.

An hour bloomberg west contributor has also been following this.

Cory, let's start with you.

Tell us how hyperloop exactly would work.

Who knows?

Elon musk yesterday talked about this idea -- i wanted to be excited about this idea, but it basically says you put somebody in a vacuum tube like they were in a savings and loan and it would suck them from san francisco to los angeles.

Having done that 6 hour drive last week, i can say, getting sucked in an 800 mile an hour to open by the government -- hopefully build better than the roads have been built and maintained better because a single link -- a leak in the tube could cause you a very fast death.

It is a neat idea.

I don't know what he knows of this.

The basic idea is to create a vacuum tube that would go massive distances such as san francisco to l.a., and then people would go into what either in a coffin like device or even something big enough to put their car into it and get sucked all the way at 800 miles an hour.

If the thing would work, they would arrive at their destination -- in half an hour.

In time for him in and out burger.

On the conference call, the first question was, who would build this?

Elon musk said, somebody else has to build it.

Maybe he may build the first iteration of it.

He is pretty busy, though.

The markets are about to open, right?

There are shareholders he sold stock -- whether solar city where he is the chairman or tesla where he is ceo.

Or the space project where he is launching rockets and sort of taking over for nasa, or at least trying to do that.

But the history of his businesses -- a look at it right there.

Those of the business he is favorite -- famous for.

Tesla, solar city, and paypal.

Solar city has a few related deficit of $166 million.

Tesla as of the quarter announced last week has $1.84 million cumulative deficit.

Nothing that's none of these businesses have ever accumulated a dime of profit.

While it is great to be excited about the idea.

We all love the jetsons.

Let's sort of take it with a grain of salt and thinking about who we are talking about.

Need ideas, but profits, not at all.

You are -- that is why i want to go to our next guest.

Cory johnson, editor at large.

Our next guest -- i want to bring in bill ibbs who teaches building engineering and construction management at university of california berkeley.

You worked on a lot of construction projects around the country.

How feasible really is this hyperloop project?

I want to say first of all i think it is a very exciting proposal, very interesting.

I think the information that has been released so far is a good start.

There are certainly a lot of other questions that the proposal bags.

The biggest one is?

I biggest is the operating cost -- well, first of all, he only presented the construction costs for this proposal and does not say anything about the operating and maintenance costs which will be substantial going forward.

Doesn't sound right, $6 billion to build this?

Hersen l.a., i think it is low.

But it's got all the components -- personally, i think it is low.

But it's got all the components.

One could argue whether the tunneling cost would be $60 million or $90 million.

But it is a good start.

Outside of the operating and maintenance cost that you mention that are missing in his proposal, what are the other gaping holes that you see in this picture?

I have project -- questions about the projected ridership figures.

He predicts 840 per hour between san francisco and los angeles.

That would be every hour of the day, every day of the year.

I think that is a bit high.

What about land?

He's got a little bit money, a little bit of consideration in the proposal about land.

But i think there are a lot of regulatory hurdles that would have to be surmounted.

This is california, after all, and we have a reputation and we have a lot of legal structures in place to govern these types of projects.

I am glad you mentioned that.

His biggest regulatory hurdle would be what?

Probably the california department of transportation.

A lot of the project and root would be in the median of interstate five and caltrans owned that property and they would have to review his proposals.

Assessor, this is what is interesting, though.

This is what he has faced time and time again.

When he tried to build space x or tesla, everybody comes out and says it can't be done and he does it.

He does it at a cheaper cost than what others have.

Is there any chance perhaps you might be too critical of his proposal, that there is actually a way to do this?

I hope i am not too critical.

I said at the beginning that it is a very exciting proposal, and i commend him for thinking out- of-the-box in this way and presenting new ideas.

I do think we ought to look at the cost structure.

We ought to look at some of the technology he is talking about.

We ought to look at the ridership figures.

Is a possible -- outside of the fact this is elon musk proposing this -- could this actually be a reality anyway?

Could this be where we could be headed toward in transportation one day?

Absolutely.

There is certainly a demand for people to get between these two largest cities in california, but there are other technologies emerging as well.

Google is experimenting with a driverless car and we have software, telecommunication of these like gotomeeting that obviate the need for people to actually physically move between points.

Have there been, professor, by the way, any other kind of hyperloop proposals that have been out there that you know of or other people have talked about the possibility of this?

There have been some proposals.

Nothing realized.

But there are a lot of different technologies, including some of which mr.

Elon musk technologies and his proposal.

All right, thank you so much for joining us.

University of california berkeley.

On elon musk ossie hyperloop.

A reality check on how it would really happen.

Kfc and pizza hut -- are yum!

Brands falling prey to the china syndrome?

Slowing fast food sales there.

Blackstone mr.

Big on the rental market.

The latest real estate deal -- blackstone missed big.

? we are about eight minutes away from the opening bell.

It is time for the countdown blitz.

Markets reporter alix steel.

Fried chicken and pizza.

Yum.

Maybe not so yum -- struggling in china.

Same-store sales fell 13% of the drag at kfc, down 16%. people shying away from chicken during the avian flu outbreak.

They may cap the money from china.

Don't forget about silver angelo -- gold.

Silver is up.

The ratio of gold versus over, how much silver you come by per ounce of gold has fallen this week from a three-year high.

Ubs says silver's outperformance is due to its use as an industrial metal which can benefit from an economic recovery.

We end on the u.s. housing boom.

Blackstone is buying 80 apartment properties for two point $7 billion, one of his biggest back into the u.s. rental market.

According to persons familiar with the deal.

It is buying it from general electric capital unit.

U.s. homeownership rates down to 65%. people are renting and not buying.

Hate inventory.

It all leads to higher prices.

It brings in investors.

Blackstone has spent more than $5 billion and now owns more than 30,000 u.s. homes.

Of the bring up concerns about a housing bubble?

That is the worry.

You are buying it but our people renting it?

A real estate investment company found tenant for only 51% of the homes at about four 1.4 billion dollars.

Definitely a trend to watch.

I am a trend to watch.

Mru a homeowner?

I am a homeowner.

Yes, i yum.

It is so expensive in new york.

I could not imagine renting it -- i would rather have equity in the house.

Alix steel, our markets report appeared just a few minutes away from the opening bell.

Top 10 trades you do not want to miss.

Keep it here on "in the loop." ? welcome back.

I'm betty liu.

26 minutes after the hour.

It means bloomberg television is "on the markets." the latest on the futures just before the opening trade.

U.s. futures are pointing to a higher open, indicating stocks may snap two days of declines.

The s&p, the tao, and the nasdaq all up i about 0.2% in the premarket.

We have retail data out this morning.

The figure was just shy of estimates but it did show sales in the u.s. climbed for a fourth straight month.

Thank you so much.

We are "on the market" again and just about 30 minutes.

Let's count down to the open, the only trades you need to know.

Olivia stays with us and senior markets correspondent julie hyman joined as well.

Xerox.

Printing profits.

Citigroup up the rating from neutral to buy on expectations the company will benefit from the rollout of president's health care plan.

Citi also raise the price target to $13 a share.

Olivia?

Number nine, marvell technology group more upgrades.

Shares of the semiconductor company were raised , price target of $17 a share.

Dyna corp., the owner of china's twitter-like service has a second-quarter loss after $27 million in charges i selling its stake in an online service to ali baba group.

Sina using the pro-tee -- the proceed to boost spending on mobile development.

Number seven is jpmorgan.

The trader known as the london whale for causing $6 billion of losses in the bank last year i found a way to stay out of jail by cooperating with the fbi for months.

Sources tell bloomberg news.

Number six, shares of this medical device company jump to the highest level in five months after receiving fda clearance for its next-generation pill ca m to detect at corral and -- abnormalities in crohn's disease.

Eli lilly shares are on the rise after announced plans to submit an application for regulators for a new lung cancer treatment next year.

At study found their experimental drug increased patient's chances for survival.

Number four, got to talk about tesla.

Ceo elon musk finally broke his silence on the futuristic transit system called the hyperloop which would allow someone to travel from san francisco to l.a. and a half an hour in a cheaper and more environmentally friendly way than airplanes, trains, ours, any other way.

Lululemon moving truck -- moving past transparent leggings.

Two months passed since the stock plunged on the announcement the ceo was stepping down.

But lululemon may no longer be a downward dog.

Shares have since resumed their upward march.

Number two, blackberry.

The ontario-based smartphone maker may soon and if that some nationalistic ride.

The consideration for takeover offers is fueling speculation a group of canadian investors will band together to rescue the company with intentions to take it private.

Number one is j.c. penney.

Activist investor bill ackman officially resigning in a stunning development from the retailer's board.

This move comes just one day after fellow hedge fund heavyweight george soros backed current ceo mike ullman in the board's battle against ackman.

Let's turn to how the markets are trading.

Larry levan, president of trading advantage.

-- larry levin.

Are the markets and a hold pattern until we get some sort of definitive news out from the fed on whether they will pay for that?

-- taper or not?

We have seen markets that have steadily moved higher as we wait on tapering which gets hinted at but certainly does not happen.

S&p's trading around 1690. have not traded above 1700. it will be interesting to see if we have a lot buying into the market.

That will be a big headline.

Without tapering talk, i really don't think the markets drop at all.

What did you make of the retail sales numbers this morning and what it says about consumer demand?

Certainly not showing the economy is taking off.

It has not been a big surprise.

Economic data really has not been terrific.

I think this was kind of a mediocre number as well.

The s&p's are taking 18 he hit.

We only had a six-point range overnight so it will not take much to extend either side.

But having said that, the retail sales number was not terrific and it goes along with the way economic data has been lately.

A queue for joining us.

Larry levan, the president of trading advantage -- larrylevin among president of trading advantage.

We have chief investment officer of credit suisse private banking americas and her call is the outlook for global equities and downgraded to neutral from overweight.

Why the downgraded, barbara?

We made a call just about 10 days ago and we downgraded the outlook for global equities over the short-term, what we call the tactical investment horizon 1-6 months because the markets moved so much on the june 24 close.

Eight percent or nine percent increase depending on what u.s. equity index you are looking at.

Though the returns you expect over a one-year time.

And not just six weeks.

You want to because it's just given the rally?

And keep the hard won gains the market is made.

There are some places you like to still be invested in, perhaps fully invested in.

M lp's partnerships, that is what you say stay on those.

I know olivia sterns has been looking at that part.

And just think, no denying master limited partnerships, as they are called, have had an incredible run the past few years.

If you compare the s&p 500 to the mlp index the past five years, mlp's have dramatically outperform equities but in the past six months they have been losing steam.

The s&p has been beating that index and the big concern is rising rates could clip them further, particularly because mlp's rely on cheap loans, cheap borrowing cost to finance growth.

Is that a concern?

Mlp's initially fell more than the equity market did in april or may and early june simply because it was a knee- jerk reaction to the potential change in policy from the fed.

Many high-yielding or yield seeking assets such as reits or high -- fixed income came under the same pressure.

Rates dramatically dropped a based on the fear of those higher interest rates.

--retis dramatically dropped.

You said play the recovery and buy into reits . basically the same information -- situation with mlp's, income producing, high- yielding assets, they have pulled back more than the broader market.

In the case of reit s the s&p 500 real estate investment trust index down 13% from its highs, a similar trajectory we have seen across the income spectrum.

At what point do the rate rises get priced into this?

What is coming into focus for us, if -- of course, is we do things the fed will take some kind of move over the next couple of months to probably stop or tried to taper the quantitative easing.

What is very clear to us is they are a very long way away from actually raising short-term interest rates.

Income producing assets such as retis and mlp's take time to recover from losses but they have been making steady gains.

Although them have covered around four percent off of their lows.

You can't deny you can get almost four percent yield on reits and six percent on master limited partnership which in our opinion is very attractive.

Much better than what you are getting in the treasury market.

Barbara thank you for joining us.

Barbara reinhardt, credit suisse private banking.

Coming up, back on the jcpenney's or he did closing its doors on bill ackman.

What is the board's next up?

The list they've grew and former retailer joseph sitt, friend of former jcpenney ceo ron johnson, will be next to weigh in on on all of this.

? for more on all the drama surrounding jcpenney with the news this morning that bill ackman has finally decided to resign from the board of the struggling retailer, i want to bring in the editor of "women's wear daily" jim fallon.

The publication has also been following this story closely.

Jim, give us your take first on how -- let's say, the vendors, how they might be looking at a move like this, whether they would either be applauding or worried that now bill ackman is no longer involved at least from a board standpoint.

I think to a certain extent they are probably applauding.

As we wrote today, most of the vendors actually support mike ullman and his plan, and i think that this point in time, they are really just looking at some stability to pennies -- penny's and terms of going forward and what orders are expected and getting the customer back into the store.

I think if they shifted management midstream as they did once before with ron johnson, the vendors would have been, what's the plan now?

You wouldn't really have seen any changes even to mike ullman's plan if they brought in a new ceo until 2014. there will just be another year of uncertainty.

Another year of instability and uncertainty.

But if you take that away, though, jim -- because that uncertainty, there are a lot of factors that have to do with this.

The strategy he put forth by jcpenney, though.

And we know we brought in the ron johnson and ultimately failed.

Where the strategy is wrong in and of themselves?

Is that what you are hearing from people?

I don't think the strategies were wrong in and of themselves.

Some of them probably were wrong.

I think they were probably implemented way too fast and they left the court penny's customer behind.

That is what mike ullman is trying to get back there it -- get back.

If you watch mike ullman's plan unfold, you will see some elements of ron johnson's road wins in the new penny's but going back to the promotions and so forth which is really what the customer expects.

Bill ackman in his letter talked about how he had several discussions with vendors who were worried, he said, about mike ullman's strategy, that jcpenney was buying too much in this -- inventory.

What was bill ackman by the relationship with vendors?

I think his relationship was slightly arm's-length.

I think most of the vendors were going to be looking at the jcpenney's management rather than the jcpenney's shareholder.

I am sure some vendors might be worried that mike ullman was ordering too much, but at the end of the day, it is business with them.

I dan, a lot of the merchandise he is dealing with at jcpenney's stores right now is merchandise ron johnson ordered.

Allman --ullman had to, in terms of private label, which is due that's rebuilding, and other programs johnson dropped, he is moving quickly to get merchandise into the store.

I am a he had to deal with that as he stepped in.

Jim, there is a little bit of a relief rally in jcpenney shares right now.

But ultimately, have their just and too many mistakes along the way to really say this retailer?

I don't know whether you can say it can't be saved.

I think there were a lot of mistakes made.

It is really a period of 15 months of total instability, and let's see what mike ullman can do.

The numbers come out in another week.

They will be bad.

Probably the numbers after that will not be great.

You will probably see another six months of poor performance.

It's still a multibillion-dollar retailer with a thousand locations.

If he can get it right, he can at least be stabilized.

There is a spot for jcpenney's on a retail landscape just as there's a spot for sears.

That's another struggling retailer.

Exactly.

Jim fallon, the editor of "women's wear daily." we will have more with real estate mogul -- former retailer himself and a friend of ron johnson -- friend of ron johnson.

Joining us next.

? all morning we have been discussing the acrimony at jcpenney and the sudden departure of hedge fund manager bill ackman from the board.

He owns about 70 -- 17% of shares and he has a lot of stake in their future.

I want to bring in a man who personally knows jcpenney very well and he is also friends of the previous ceo ron johnson, the real estate developer, and also former retailer himself.

Joseph sitt, great to have you with us.

We have had the -- have had you on the past 18 months talking about jcpenney.

I remember at one point, you said it was a great harvard business case study.

Is it also a case study of what not to do if you are an activist shareholder?

You have said it well.

More of a case study of what not to do more so what to do.

It is wild.

I was talking to a group of ceo's the of other retail businesses, we were all gathered together talking about it.

One guy's reaction -- this is a train wreck.

Fraudulent malfeasance and management of business.

You've got to see the emotions of all the different retailers about it.

Can you understand, though, why bill ackman would have done what he did?

Bill ackman is an extremely wise investor, and i think folks are not giving them the credit he is due as an investor.

As an investor and hence -- and hedge fund manager, every once in a while you have to cut your losses.

My personal opinion.

I do not speak to him about it.

No conflict there.

My bet is he decided he wanted to exit.

You think he will get out?

My humble opinion is, yes.

Steve ross pulled the plug and he hightailed it.

It is about time we moved on.

My personal guess is that is probably what bill ackman is doing.

But at the same time, all is not lost.

Yes, the company isn't gary shape financially.

Burning a lot of cash.

The competition has positioned itself good to pick up business.

Macy's, the brand power.

Marketing.

So -- and i say this with all due respect, but it is not rocket science.

We are selling clothes and products to consumers, right?

Why has it been so difficult for jcpenney come up for the management and the board, to get together and understand what it takes to turnaround jcpenney?

I think you just that it would use that it is not rocket science.

I think people over complicated and uncomplicated industry.

It is about a woman who comes in a shop and she has to feel like she's got a good value.

It included the fashion, the trend -- and last him a but certainly not least, the pricing.

This is an example of what ron did wrong.

He over complicated a very civil business.

This is much more about common sense and execution.

I think ron tyso who recently joined the board i think he will make a big difference.

25 or 26 years ago i bought "the children's place" stores and road for a man who was a tie in the real estate who had his own debacle -- what do you think he is going to do?

I think he will bring it back to basics.

I think he will stabilize the business.

First and foremost, people don't realize he comes from a financial background.

The biggest thing j.c. penney needs is a financial strategy right now.

They have liquidity problems.

Cit pulling their line.

Cit is either lowering or pulling the line, it means the whole business is in danger from a liquidity perspective and they need that support.

I know it is sensitive, but have you talked to ron johnson?

Does he feel like he is being unfairly blamed for all the problems at jcpenney?

I want to be careful, so i will not fully respond to that.

I will say that my opinion, ron feels badly about how everything has come down.

It is what it is.

I would rather not get into the personal side.

Bottom line, we know it is a disaster right now.

This is a patient that is on the bed and needs emergency procedures to dea

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

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