Tea Party Turned Away: Surveillance (05/21)

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May 21 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Christopher Marangi, Timothy Frye, Barbara Corcoran, David Rose, Stan Humphries, and Bill George. (Source: Bloomberg)

This is "bloomberg surveillance." credit suisse is yesterday's news.

This week, bnp paribas france could face a more than $5 billion fine.

Can they do business in america?

Incumbents win big.

The tea party falters in primary elections.

And russia's agenda as ukraine appears to vote.

Good morning, everyone.

This is "bloomberg surveillance." we're live from our world headquarters in new york.

It is wednesday, may 20 first.

I'm tom keene.

With me as always is scarlet fu and adam johnson.

We have breaking news just out.

You saw it on london tv with our ryan chilcote reporting on the gift from china deal, a large 30-year transaction.

Ryan had that's the other day in their important interview, and we will talk to ryan we hope in the coming hour.

We have much more on this gas deal in china.

You mentioned, adam, we could not get a trade deal done it with japan.

Correct.

And by the way, he did not even go to china, yet mr.

Putin goes to china and comes home with a $400 billion -- they have been working on this for years.

Yes.

It shows the power politics of russia as they look east and that they look south at ukraine.

And as a power player, there was so much discussion over the past several years with russia as a superpower, and recent evidence suggests it is.

Let's get to the calculus of a brief today.

Overnight, here is what we learned -- u.k. retail sales increased for a third month in april and in japan, the central bank refrain from boosting stimulus.

That is a good sign.

They do not feel that they needed.

Are you with me?

He is a playing it.

The market -- it was up.

7:00, we have that the weekly mortgage application.

That is a volatile number.

2:00, this is the one you're to focus on -- the fed minutes.

The april meeting, tom.

By the way, janet yellen is speaking at 11:00 today.

What matters is several, fewer, many -- yeah, right.

Those are the keywords.

We are doing several items in today's brief.

And there are several to mention.

Before the bell, lowe's, target, petsmart, tiffany's, scarlet, and american eagle.

Item to note, september 11 memorial, the museum is open to the public today, and as we noted a moment ago, janet yellen will be giving a commencement reach at 11:00 at nyu in new york.

Will they shut down the traffic for her just like they do for the president?

They probably should.

And of all the people who canceled their commencement speeches, christine lagarde, condoleezza rice.

Ms.

yellen, students are excited to hear from her.

Let me do a data check.

We look at equities, bonds, currencies, commodities.

Futures up 5, 10-year yield does nothing, nymex crude, american crude elevated at 103, brent crude at 110 this morning.

The vix shows almost a 13. there is the yen, almost a 101. a smart note about unknown territory.

Stronger yen, weaker euro.

That is what the pros look at.

I threw the 30-year bond in there because we can do that at "bloomberg surveillance." here is the abenomics.

Jim o'neal nailed this.

Here is the weaker yen, there is the turn, and as we get to 100, we would say we are in unknown territory.

And other words, the dollar buys you fewer and fewer yen.

Curiously of the jet to gdp in japan is more than double hours.

It is not apples to apples.

And there is no inflation.

Deflation is still a tangible discussion.

And there is high savings as well.

Frontpage -- with scour the newspapers and we have looked at each and every webpage.

Here is scarlet fu.

Our top front-page story is bnp paribas, shares following as much as three percent.

Remember bnp paribas being investigated against doing business with iran and sudan.

He talks are still continuing.

The final amount of the penalty could still change.

The headline is not sophisticated on this.

This is different than credit suisse.

Both took different postures when they were negotiating with the u.s. there is also this idea that the u.s. attorney in manhattan is the one who is running the negotiations, the new york state financial regulator has floated the idea of temporarily banning bnp from transfer and money in and out of the u.s., so these are all parts of the negotiations that are taking place.

Just so we're clear, credit suisse, the criminal charge was because that helped americans shield income.

Whereas with bnp paribas, it is because they facilitated trade with countries that had been blocked.

Neither of which had to do with the financial crisis, by the way.

Correct.

The number here is big.

What else?

Republican primaries -- big win for the established gop last night.

Senate and house candidates were lined with tea party candidates in kentucky, georgia, pennsylvania, and idaho will . mitch mcconnell one in kentucky.

Former century of labor, elaine chao.

Bill shuster, representative there, one over the tea party candidate as well.

This is different than just north carolina -- yeah.

Peter cook will make comments on this.

To give us a landscape of everything.

And what you had mentioned earlier, the breaking news -- russia and china settling that long awaiting deal on natural gas, 10 years in the making.

It is a done deal now.

About $400 billion is the value of it.

Putin arrives in china yesterday.

There was not a surprise when he and the chinese president signed an number of agreements by gas was not one of them.

They finally got it done today.

Four years ago on the what would russia do, they called it petro confidence.

This is interesting.

It is a superpower, but it is not.

It is not.

It is an emerging market, and it is that his own struggling economics, but when they want, they can talk about energy to a large part of the world.

And i believe that if you look at russian gdp, it is about half commodity related and a large part of that is of course energy.

Well, those are our front page stories.

Let's get perspective from europe, hans nichols joins us this morning, our chief international correspondent.

Hans, gas problem obviously not a surprise, but what is the signal to germany, and what is the signal to ukraine waiting for a vote on sunday?

There is a nether market in the offing.

Gas is flowing to the west come it always flows in the southeast.

I mean, so many interesting things about the deal finally getting done.

One, the number.

This is an eye-popping amount of money.

Two, they have to build a pipeline to send it on there from these fields in western siberia down to china.

The $22 billion plan, so lots of jobs, lots of industry expansion, but what a surprise, guys, because earlier reports were saying this deal with solid.

Then suddenly they find it.

Let's take you back to the london school of economics work.

Is this a bridge andnew russia-chinese relationship?

It is far too early in the morning new york time to come up with grand, sweeping arguments like that.

The great comment on the french revolution from i think it was peng, it is too early to tell.

You have to have a lot more time to take a step back and think about these things.

It is clear that russia -- i mean, this is not rocket science.

Russia wants to diversify its markets for its massive amounts of natural gas.

One in every six cubic metric meters of natural gas is in russian.

They want more markets.

The signals from the west are clear -- they do not want to have it come here.

This is pretty basic.

They just want to have more markets.

Hans, obviously bnp paribas front and center with a much larger number than i expected.

What will the executives in paris do today?

What is there to do list?

They will call up their friends at deutsche bank it's a boy, we hope you're not next.

There is a sense in europe that there is a new sheriff in town regulating things.

Yes, we have talked about credit suisse and bnp paribas.

Their next move is obviously to talk about whether or not they lose their bank license and what sort of suspensions and restrictions will be on their ability to move dollars because if there are restrictions on them being able to move dollars, then you have another set of lost business.

I could end up dwarfing the $5 billion fine.

You're going to have a tough order.

Hans, is the ceo of bnp paribas in the hot seat?

We keep hearing about how brady dougan will have to give up his job.

There is cleanup for all of these ceo's. were they culpable for the activity that they are being fined for?

This has to do with activity in 2002, 2008 in sudan and iran.

And a lot of ways, there were warnings beforehand.

One of the arguments is why this is is a big numbers because u.s. authorities are upset that bnp paribas is not more forthcoming.

If that is the case, then the current leadership that the mp paribas could have a difficult term.

Connect the dots for us.

Effectively europe losing out on russian gas to china, and the u.s. clamping down on european bank.

Any likely impact on the parliamentary elections, which happened just four days from now in europe?

Probably not.

The big story that netflix is coming to germany.

That is outshining all these massive global stories.

Germans can finally watch "house of cards" in season.

I am surprised to learn that they all speak german.

Such excellent german in "house of cards." very thank you, hans nichols, our guest host is from the gabelli 25 fund, and is focuses on media.

It has been a frenzy.

The last three years has been nothing but good news for you.

Equities straight up.

Can i continue, or as all of this m&a activity too good to be true that finally they will pause?

Cbs up, every other stock up.

Although they started the the year off down.

The growth characteristics are still there.

You've got broadband expanding both in the u.s. and abroad, and that means a thirst for more content and more dollars in the market.

Ok, chris marangi with us.

We'll looking at cheap money.

Let's look at company news.

With starwood general motors.

All those recalls related to more changes at gm.

General motors overhauling its legal department so that information about defects is shared more quickly between units.

Last week, gm was fined $35 million for the way it handled the recall of cars with faulty ignition switches.

Netflix launches its biggest expansion in almost three years.

The committee will introduce its online video service in germany, france, and water other european countries.

Netflix once overseas on its head of amazon prime minster video and hbo.

In the largest luxury goods makers, in the u.k., burberry, they plan to open more burberry stores in japan.

That is today's company news.

Speaking of retailers, they love to blame the weather for bad sales.

What about home sales?

We will be discussing whether you should use the spring season to go out and buy a new home and when you can afford it.

This is "bloomberg surveillance." on bloomberg television, streaming on your tablet, your smartphone, and bloomberg.com.

Good morning, everyone.

"bloomberg surveillance." coming up later today, stephen james, former aol ceo, "in the loop" with betty liu, steve case.

Big news now, and retail, am i right, scarlet, it sounds like good news, is it?

Home-improvement retailer, sales up, missing analysts' estimates.

Analysts were looking for a 5% increase.

Yesterday, home depot reported results that were also below analysts' estimates blaming the weather.

Is that is a convenient excuse?

How many retailers blame the weather over and over?

Or maybe this is a sign of overall weakness in the housing market.

Let's join in with your jury writing.

Is it -- drew redding.

The fed has sided housing of the risk for the economy.

What is your take?

Housing has slowed down over the last several months.

There is no doubt about it.

There are a lot of challenges out there for buyers.

One thing that is worth pointing out, and i did not think a lot of people talk about, is .13 was an extremely robust year, special when you think about the first half.

There are some difficult comps when you canompare this year to the previous year, but there are still affordability issues, there are issues with tight credit markets, and just a challenge for buyers to be able to get out there and get into a home.

We are about five months into the fed's taper, we are hitting the spring selling season, what is the net effect from what the fed has done?

Overall, the feds actions have really cruised through the market.

As rates have started to come back up, you could see the velocity and the rate change has in effect slowed be housing market back down.

We do not expect rates to go to high toward the remainder of the year.

We are probably going to remain under 5%, so overall the environment is still pretty attractive in terms of affordability, but i think the problem that is impacting buyers is the relative affordability over the last several months.

Through, can you actually quantify, put a number on the fact that rates one year ago, the 30-year fixed was reported five percent and today it is 4.17%? can you quantify that impact?

Every 100 basis point rise is obviously going to impact the amount that a buyer can afford on a mortgage.

I do not have the exact number, but every time the rate goes up, not just the demographic out of the market.

That is in part what we are seeing, which is your point.

It is not just a slowdown because all of the buyers but because of the rate issue.

That is right.

Another issue is home prices.

They have risen dramatically.

What we're hearing from a lot of builders is what buyers are coming up, they're experiencing a little bit of sticker shock.

If they came out three months to four months ago, they are seeing one price, they come back out and the prices have risen dramatically.

So it little bit of stricker shot as well.

All right, thank you, drew reading of bloomberg industry.

To not forget we have existing home sales tomorrow and new home sales friday.

Coming up in the next hour of "bloomberg surveillance," barbara corcoran will be joining us as our guest host.

This is "bloomberg surveillance." on bloomberg television, streaming on your tablet, your smartphone, and bloomberg.com.

Good morning, everyone.

"bloomberg surveillance." our twitter question of the day -- who is the next ceo on the firing block?

Tweet us @bsurveillance.

Mario gabelli?

What did you give an effective french accent?

There is a lot of talk over penalty.

I would say mr.

Bonnafe is not nearly as visual as mr.

Dougan.

I am with scarlet fu and adam johnson.

A big night last night, senate majority leader mitch mcconnell turned back a tea party challenger in the gop primary.

This was in kentucky, as you know.

Tea party-backed candidates also lost senate and house races in georgia, pennsylvania, and idaho.

The obama administration ready to release a secret memo in the controversial use of drone attacks overseas.

You document is used to justify overseas attacks on u.s. citizens who are expected -- suspected of being terrorists.

And former fed chairman ben bernanke -- defect to make millions if not tens of millions of speaking fees.

He could start anywhere from $200,000 to $400 per speech.

What are they make when they are fed chairman?

Give or take $200,000 a year.

One week in march, we should point out burning piece -- we should point out then bernanke spoke in abu dhabi and other places.

He will make more in role sees then he did running the most important bank in a country and the speaking fees are the normal rates that people get.

People should know that these are not high fees when you look at that caliber of talent.

Right.

And those are your top headlines.

We went through this with greenspan as well.

They have got to play catch-up up on 20 years of public service.

Is my lecture done?

Yes.

It is time for morning must-read.

Let's talk about sports.

The obsessive pursuit of precision.

This is my morning must route or may research scientist and physician in boston, presumably he roots for the red sox.

He said take me out to the replayless ballgame.

Multilanguage shots in slow motion, hd, and super slow motion have led to more consultative role.

Replay review is another step, trading the human element in sports for position.

On parts of had to play a different form of role.

Yeah, we have taken the human element out of it, but all this talk boils down to one deal -- at&t and directv.

Chris, am i going to be able to watch football on my iphone?

For sure.

Who provides it is the question.

Sports are critical, and that was underscored by the fact that the at&t-directv deal is contingent on directv re-upping with the nfl this year.

I do not think that is an issue, but it is pretty interesting.

It is a material deal for directv.

Regulatory issues?

There are certainly issues.

Unlike the time warner cable-comcast deal, you are bringing into play horizontal issues.

There is overlap of these two going from four or five players to read or four players in the eu burress market.

On the other hand, there are -- in the u-verse market, on the other hand, there is more competition for at&t. $130 billion of m&a transactions that still need approval.

Regulators have not signed off on it yet.

You say 130 billion?

More than $130 billion.

What is next?

Chris marangi weighs in.

This is "bloomberg surveillance." good morning, everyone.

"bloomberg surveillance." let me do a quick data check before we go to moscow.

Futures up 5, euro up, the story deal, gazprom and the chinese utilities, forget about that.

That is russia and china after a decade of talks come to an historic, die enormous agreement on natural gas.

Ryan chilcote joins us from moscow.

Ryan, it has been 10 years in the making.

How will this change vladimir putin's reputation in russia?

I do not know that the russian people think too much about the stuff, but it certainly gives them wiggle room with the western europeans and the west.

It allows them to kind of send the message that hey, if you do know to do business with us, we will find other partners.

I like in your reports it to london this morning how you talk about the trust factor.

Who trusts who less?

The russians have been very anxious about dealing with the chinese.

They are very concerned about getting taken advantage of, and that was one of the big issues -- price, which we still do not know what the price was because the chinese were looking for a much lower price than the russians wanted to sell a, perhaps a lower price than what russia is selling to western europe out.

The other thing is, the rest of the general are just concerned about opening up to the chinese.

If you think about the east of the country, there are about as many people in the east of russia as there are in manhattan, and the size of it -- it is bigger than all of western europe, so they are concerned about the chinese coming over the border and taking over, if you will.

Exactly.

My basic take is the energy comes from turkmenistan, not that i know where that is on the map.

Where exactly does the energy come from?

A lot of this energy comes actually from eastern siberia, so some gas does indeed come from turkmenistan.

A lot of that ends up in western europe, funny enough.

The unique part of this deal is you are passing gas that is not going to western europe now, so it is not like the russians are diversifying away from europe with the same pot of gold.

They've got another pot of gold that they have not been tapping.

Adam, that is the key point.

That is it that way when i wanted to ask you, ryan -- is there any risk to european supply based upon this new gas that is going to china?

There is a theoretical risk.

First of all, in context, the amount of gas at the russians have disagreed to supply china's about 1/5 of what they are already supplying western europe, so if the western europeans would have magically found a way to diversify completely away from russian gas, which is extremely unlikely, let's see what happens with lng in europe, then the rest of the would still need a lot more than this deal, but it certainly helped them and sends a message to western europe.

Ryan, i want to broaden this out.

Does this natural gas deal paved the way for russia and china to find common ground on other issues?

Maybe political borders, for instance.

I think so.

When the president himself cuts a deal, president putin went there to sign this deal, and it negotiates with the leadership of china, it is not just about the $400 billion or the price or the security of a 30-year supply, it is about what else are we going to do in terms of our relationship, and they already cooperate on the security council, they usually team up against the other members of the security council, but it could get a lot bigger than that.

Ryan, our adam johnson mentioned earlier the idea that russia is a resurgent superpower.

Is russia a superpower?

Russia is a regional power, and in some cases recognizes itself as a superpower, but really recognizes china as a superpower, and they see the way forward as corporation with china, which they recognize is more powerful as being the best way for them to deal with the west.

Ryan, thank you so much, from our news bureau in moscow, ryan chilcote.

Look for his interviews with lavrov and prime minister medvedev as we look forward to the elections in ukraine.

Move over to the media, is the sum greater than the parts?

Media, cable, wireless, whatever merger frenzy aggregates, as carla mentioned some $130 billion -- as scarlet mentioned, some $130 billion, what will the u.s. do?

Chris marangi studies this 24/seven bank for gabelli.

What is the number one thing over a beverage of your choice he would say to someone about this frenzy?

What is the need to know about $130 billion?

Is really two deals.

When we are talking about this, i think you cannot separate the discussion over net neutrality.

It is to early in the morning.

No, we will go there, but it is wednesday.

Well, when you are buying a video package from a satellite provider, you are buying three things -- contents, the search function, and a transport function.

It is not free to get content up to the satellite and down to the subscriber.

What companies like netflix and google want to do is make sure that they can get content to the subscriber at a reasonable price.

They want to constrain the pricing power of the broadband providers, mainly the cable companies.

I go scarlet to your observation, a week ago, your netflix was terrible.

Do not watch it on a saturday night.

You cannot watch anything.

Somebody has got to pay for the upgrade to the broadband networks.

The isp's want the providers, netflix, to share in a cost.

Let me get to the million-dollar question, adam.

What is your cable bill?

$174 per month.

Is he going to pay for that upgrade so scarlet can get better video?

That is a great question.

Should the isp's be allowed to charge the fast lane or should everybody?

What you are getting at is whether the internet is a utility, which by the way in theory cannot is from a, or whether it is private enterprise like a toll road.

Right now it is classified not as a but as an information service.

And that has served the internet well.

And the secfcc voted 3-2 in favor of that.

Which company should we be buying as investors to take advantage of that discrepancy?

Well, the core of the cable both cases the broadband heads, i.e. be cable companies would be able to make up any loss revenue from video losses on the broadband side by moving to a different pricing level where scarlet pays more than you do because she assumes more internet.

All of these transactions particularly with comcast and at&t are aimed at reducing costs.

When is scale bad, when does it not work?

For the last 10 years or so, the content companies have clearly had the upper hand in negotiations with distributors.

These to him blackouts by a number of companies, including cbs, and increasing programming costs.

Write to be an comcast will go to washington say we have more scale, we will level the playing field and be a tougher negotiator versus the content companies.

I look at this, directv and all that, and a goat back to comcast getting the ball rolling on all of this.

Here is the comcast stock, and you know, chris, here is gabelli lost in the woods for a decade.

You all said be patient, here is the moonshot of.

Do you presume this moonshot continues for the whole industry as a statement, or do we go into another turn with all of this merger frenzy?

I think comcast is very well-positioned for the future.

We just came back from the los angeles junket.

Industry town, it is ok.

Exactly.

They have invested heavily at scale in their x1 platform, and it is a great interface.

They are investing in the speed of the network, and they're doing it better than they did last year, and it will do it better next year.

We were just talking about tom's airfare to paris, some crazy number.

There are only a few major carriers in the u.s., delta, united, there are only for telecom providers, there are only three primary -- i mean come is this all getting so concentrated that prices are going up for just basic services like my cable bill?

There is no question that the rock band providers, particularly cable, which has its connection and two thirds of the u.s. has pricing power.

I think they are on notice.

They have been put on notice by fcc chairman tom wheeler not to push too hard.

You really buy that?

After what i see with the airlines, you buy that the politicians in washington are going to be able to police these guys as they do?

They have a weapon called title ii.

Explain title ii.

Oh, it is your title wednesday.

Medications act of 1932, remember that, basically allows for classification under title i, information services, and title ii, for common carriers.

Right now, isp's are title i. there has been some push to regulate them as title ii, common carriers, which should allow the fcc on a slippery slope to essentially regulate price, and that is the nightmare scenario for most cable investors.

What is brian roberts best outcome given the threat of title ii?

Status quo.

I think netflix would probably agree it is a freezing of the status quo.

Every time you come on, i learn something.

We have got to have chris on more often.

There are so many wrinkles in this.

1932? i remember that.

[laughter] that was brilliant, folks, look for this interview out on bloomberg tv plus and bloomberg video here with chris marangi.

Chris marangi on title ii and consolidation in the industry.

Maybe brian roberts is watching.

Maybe not.

Coming up, more bad news for college students and grads.

Not only do they have the most debt ever, they also have a harder time paying it off as well.

It is our single best chart next on "surveillance." good morning, everyone.

"bloomberg surveillance." i am tom keene.

Let's get right to top headlines.

Here is adam johnson.

Writes russia and china have signed a natural gas deal, 10 years in the making.

An agreement was made of russian president vladimir putin visits china.

The deal is valued at $400 billion and connects the biggest producer of natural gas with the largest consumer of natural gas.

Ethan is compared -- the senate is prepared to confirm fischer to the fed.

And the 20 18th super bowl is just a hole in the ground.

It was awarded to minneapolis.

They beat out new orleans and indianapolis.

Those are the top headlines, tom.

We did a seminar here with the cfo of zurich insurance, diehard vikings fan.

Die hard.

And of which company?

Zurich insurance.

There are a lot of swedes in regions that settled in the minneapolis area, my family included.

They still speak those languages.

Are you adam yon-son?

Let's go to single best chart.

He had to say that innocent swedish accent.

According to advisors, graduating seniors will graduate with an average 33,000 ni student loansn, and 73% of graduates will have student loans.

The percent change in earnings since 2005 for these graduates, you can see when up slightly after 2005 and then it began falling.

Increase in debt has been a steady swelling, and this is the crux of the problem that college graduates are facing now.

Leading to lots of questions over whether a college degree is still buy you bowl, overvalued.

This is a john enormous issue -- this is a ginormous issue.

Student debt has risen 40% since 2005. a lot of people call it the next big bubble.

Chris marangi, what was the trajectory of your earnings pre-business school, did it look like that?

It is still getting there.

Listen, i had a great experience at williams.

I am a believer in the liberal arts, and -- but it is expensive.

Module shot out to -- massive shout out to rachel on our team.

She graduated from columbia business school.

She worked full, by the way.

Rachel had quite a bar bill.

Probably a little cheaper than midtown where you and i wouldi -- that would be true.

And there are big questions about whether i should pay $200,000 a year for my kids to go to college.

We should talk to barbara corcoran in the night shower, smart on this.

When your kids get to college, will you want to spend that amount?

I have three little kids, i am buying comcast stock to pay for it, amongst others.

It is an issue.

Do you go to college to create earnings power or do you go to college to better yourself as a citizen and to round your self out?

And those are not mutually exclusive.

My experience is it very.

School to school how they work with you.

-- my experience is it varies school to school on how they work with you.

Every school is different on how they capture 30 $30,000 or $50,000 or even more a year.

Princeton is offering very low interest rate loans to parents as a way to get through it.

I think we spent too much time -- when you have the federal government picking up the bill, there is not as much of an incentive necessarily -- i will give a massive shout out, carnegie mellon was the best.

They understood that i had multiple children at one time in school better than any of the other schools.

They were just fabulous.

And they worked with you?

They work with you.

I can assure you folks, it is a "surveillance" exclusive, the idea that you did not pay the sticker price is baloney.

This is a conversation we will continue to do next hour with barbara corcoran.

She is fired up about this.

Coming up on "surveillance," we are keeping a close eye on ukraine ahead of that country's presidential elections on sunday.

Will the elections do anything to stabilize the area, or are we headed to a new cold war?

Renminbi this is "bloomberg surveillance." good morning, everyone.

"bloomberg surveillance." our twitter question that today is a @bsurveillance.

Who is the next ceo on the firing block?

It is an opening question, we need your close answers.

Who is the next ceo on the firing block?

Of the money seems to be on brady dougan of credit suisse.

The pressure is on.

It will take a while.

It is interesting, diggs the question, if he were to resign or be ousted right now, does that actually raised -- he almost needs to stay there to quiet things down.

They have got to replace them, too.

Target just let its canadian president go.

That was yesterday.

The whole operation was three weeks ago.

We try to bring in the smartest people we can.

Bill george will be with us on the next hour on these affairs.

All right, this is "bloomberg surveillance." i'm scarlet fu along with tom keene in adam johnson.

The world's biggest maker of pc's says profit rose, we're talking about lenovo of china.

Desktop models picked up market share.

Microsoft is working to resolve issues with china after losing out on a government contract.

Windows 8 was excluded to a person showing -- was excluded from a purchasing issue due to security.

Microsoft had a 70% share in china.

And google says it needs to keep up to $30 billion overseas to use for acquisitions.

That is according to a letter that isn't to regulators.

Google generates about half of its revenue outside of the u.s. and avoids taxes by keeping foreign earnings overseas.

That is today's company news from the filed of "bloomberg west." it is memorial day weekend.

In ukraine there will be an election.

All of that wraps around the breaking news this morning of gazprom and the chinese deal.

Timothy fry is well primed to speak to us, he is director of the hair miss it did, and we decided to rip up the "surveillance" script this morning.

I go back to the idea of stalin and khrushchev in 1953, and then you stagger forward to the change of russian policy so that chinese and russians i believe could get more collegial.

What is that special relationship in 2014? in 2014, it is important to remember that russia is the largest exporter of natural gas and china is a big importer of natural gas.

That is what is driving this relationship.

This is a 10 year deal in the making, and it took 10 years really tells you how troubled the relationship has been.

We look at the distance between beijing and moscow, what do we need to know this morning about the history and in the presence of that relationship?

In the late 1960's, there was a border skirmish between china and the ussr, and the story play there has been a lot of fission between the two countries.

Russia is underpopulated in the east, china is not under populated anywhere, and there are great fears of china expanding to the east.

Fear within a broader zone is a new soviet union.

We are very far from that.

If you look at central asia, they are already supplying energy to china and directed to china and not toward russia.

The baltic states have gone to europe.

Russia is a regional power.

It is an important player on global energy, but it is not a global superpower.

It is not a new cold war.

Our guest host is chris marangi of gabelli.

We should not aid nor what is going on ukraine and that is because the markets should ignore that putin is a rational player.

Some people have argued that this is part of a greater effort to protect russian speakers, so this suggests that russian speakers in the baltics and kazakhstan will be the next targets.

Putin backed the wrong player in the class between the protesters and the president.

He is now trying to make the best of a bad hand.

He was able to cede crimea, which is a big win.

But he does not want to escalate the crisis will stop however, he does not want a very stable ukraine either i would think.

Some of these headlines are europe, russia, china, and the u.s. seems curiously absent.

Should the u.s. be concerned about that at all?

Of the asymmetry of interest is very clear.

This matters a lot more to russia, what goes on in ukraine.

It matters a lot more to europe than it does to the united states.

In some ways, the u.s. wants to keep a good relations with europe, and that is important, but it is not worth having a fight with europe over ukraine, or at least that is what appears to be the thought in the white house.

When we look at this, what would be your device to secretary kerry?

What should be our new projection?

The new projection regarding -- state department with russia.

With russia, i think it will be a very difficult period for a long time.

We have probably gotten past the -- recent signals from the kremlin have been that they are ok with the elections going forward.

There doesn't to be some effort on part of the kremlin to de-escalate.

-- there does seem to be some effort on part of the kremlin to de-escalate.

Professor frye, thank you so much, we would love to see you monday morning after the election.

Chris marangi, thank you so much of gabelli, particularly on title ii, title iii, and title iv.

Yen is front and center, it was a 100 handle earlier, now 101. coming up in the next hour of "bloomberg surveillance," barbara corcoran will be joining us as our guest host.

. credit suisse is yesterday's news.

This morning in france they could face a more than $5 billion fine.

Can they do business in america?

Incumbents win big, the tea party falters in primary elections.

And if you don't live in manhattan, barbara corcoran joins us from her venture partner shop on housing markets.

Good morning, everyone.

This is "bloomberg surveillance." joining me this morning the scarlet fu and adam johnson.

Our guest host this hour, barbara corcoran, cofounder of barbara corcoran venture founders, and david rose.

Starting overseas, u.k. retail sales increased for a third month in april.

The central bank in japan and refrain from boosting stimulus, a good sign, in part why futures are up.

Economic data, at any moment we get the mortgage applications, a volatile number, up the past few weeks, they were down for the previous to you.

Down 9/10 of one percent.

We get the fed release of the minutes.

Focus on that.

Before the bell earnings?

Targets the smarted tiffany, american eagle, the september 11 memorial museum opens to the public today in new york city.

Janet yellen is delivering the commencement address to nyu seniors at 11:00. we will let you know of any headlines come out of that.

The u.s. is negotiating with another bank about investigating a big -- settling a big penalty.

Prosecutors may seek more than $5 billion from a french bank for possibly vile -- violating u.s. sanctions.

Those recalls are leading to more sanctions against gm.

General motors is overhauling its legal department.

That is according to people familiar with the matter.

Last week they were fined $35 million for the way they handle the recall of cars with faulty -- faulty ignition switches.

Netflix launches its biggest expansion in three years, moving into germany, france, and for other european countries this year.

They want to boost their overseas presence ahead of amazon and hbo.

Within the hour we have had the news of russia siding with china, a giant norma's gas deal, no other way to describe it.

10 years in the making.

Ryan is in st.

Petersburg this morning.

Ryan, this this change the politics of russia and europe in the ukraine?

This kind of hydrocarbon transaction?

I think that it does, to a certain extent.

What putin is hoping it says to the west is that if you don't want to do business with us, if you are going to do -- but sanctions on us, we are going to find other partners, so be careful.

Is this an affront to the united states?

To see russia and china with the pageantry, a pushback against president obama?

I think it is to a certain extent.

Russians, as you know, are very upset about the sanctions.

About how president obama has handled this.

I was speaking to the prime minister the day before yesterday about this reset in relations between the u.s. and russia and look at what has happened, it has been all but eliminated and they have these individual sanctions against us.

Even in the darkest days of the missile crisis the soviet union and the u.s. did not introduce sanctions in this manner.

They are upset and this is a way for them to say that as emerging markets we recognize the real power of china and we can deal with them.

This is a lot of gas now going to china.

Should europe be at all concerned?

No.

this comes from a different pool of gas, if you will, in the far east of the country.

And it is a lot less gas than what western europe is getting.

It is about 1/5, in fact, of the gas that western europe is already getting.

But it does allow the russians, if western europe follows through on their threats to really diversify away from russian gas, to sort of moved to another market.

Now that russia and china have cleared this deal, $400 billion being done 10 years in the making, what is the next big to do list on their agenda?

The russians have really been talking about opening up their economy to the chinese.

We will have to see.

Russia has always been a bit reluctant about letting the chinese get too involved in the economy, but they need money and the chinese, of course, have plenty of it.

What china does not have that russia also needs is technical expertise.

Shell, exxon, bp, they are irreplaceable.

It is a stunt for them.

Ryan chilcote, thank you so much.

Russia and china with a deal this morning.

We are ripping up the script with stunning news from tiffany's. a smaller stock, but boy this is something about japanese recovery.

And luxury retail space.

The number you are referring to is comparable sales globally up 11% in exchange terms.

The consensus was for a gain of five percent, more than double what analysts were looking for.

A huge move in japan as well.

In the u.s. the comparable store sales are up four percent, which is nearly double.

How curious, right?

Lowe's is falling short?

We need to talk to someone who describes tiffany's in venture optimism.

Barbara corcoran is the tiffany branded joining us this morning.

David rose is with us as well as we look at angel investing.

Tiffany's to me so much describes the branding that you represent.

You are there at 59th street, 57th street, that iconic store.

It talks about how the high-end just keeps going.

Not just about the high end, it is about having everyone else in the world interpret one brand the same way -- we are the best.

I got to tiffany gifts this week, brown leather luggage tags.

I wanted the jewelry.

But if they can pass off a luggage tag and a tiffany box, that is amazing.

Are you still get exciting when you see the light blue box?

I sort of did, until i got the luggage tag.

The excitement here about the oneness of tiffany's in manhattan, canada translate into a better american economy?

Of course.

Anytime you have a great brand that says america has done well, it puts a positive spin on everything.

Not so much trickle-down as pull up.

You are always looking for good new ideas.

How does an entrepreneur turn their brand into something like tiffany's? where the box tells you everything that you need to know?

They have to put a lot of time in.

It was not just from the get-go.

You really have to hold onto the long term and stay focused on what you want to really build.

That is not a talent that a lot of entrepreneurs have.

This cheap money help entrepreneurs?

It helps apple, it helps ibm.

Of course, they get the best benefit.

There are so many new platforms out there.

Millions of platforms -- dozens, i should say, where you can raise money for yourself overnight.

And the jobs act?

And what has yet to roll out?

Young entrepreneurs are in a better position than they have ever been.

David rose, with us for the hour, founder of "new york angels," what is the key to reinvention?

They need to think about where business is going and where technology is going.

Technology is changing so rapidly it is affecting every business.

Everything from retailing to restaurants and taxicabs is being completely upended.

You have to think about not how to do a chip or software, but how this new communications activity can be applied to existing activity.

I know this is in your book and we will talk about this in a bit, but when you have an entrepreneur year -- entrepreneurial project, how do you know when to stop and move on to the next idea?

What i do on shark tank is i work like crazy with every investor for exactly two months.

What usually happens is they have a fast start and they hit their first wall.

That first wall is when i am watching, deciding when to fold or not.

A lot of people can't take it.

They hit the wall and they can't be fast or street smart.

I take them and they get them out of my mind and do not spend more time on them.

That ability to improvise is crucial.

Absolutely.

You are talking about completely fast-moving businesses.

The very definition of an entrepreneur is someone who goes against a market to create something new.

Within this -- and we will spend a lot of the hour on this entrepreneurial energy that barbara has brought.

I want to go back to the theme of cheap money.

Cheap everywhere.

How has that changed your life?

It enables me not only to take my own money and put it into a lot of businesses, but get that second and third round funding easily as long as i have a little bit of traction on the front side.

Did people get too much financing too soon?

The big businesses do.

The little guys have a hard time qualifying for it.

What's with us for the hour, barbara corcoran and david rose, looking at the hatch of an ariel's ear it.

What about the establishment side?

Who is the next ceo on the firing block?

Our twitter question for the day.

Tweet us.

? good morning, everyone.

"bloomberg surveillance," we say good morning to all of you worldwide.

Think you and grow rich.

Investment is something that can generate real and substantial returns.

Understanding it is ok to fail, angel investing is the context sport.

David rose wrote up from her bonus that is a bonus about book it carefully describes the math of the startup industry.

What is the number one math i need to know?

Place a lot of bets.

It is not gambling in total, but every individual company, the odds are it will fail, unfortunately.

When in doubt, go to the appendix.

I think this is hilarious -- the notes do not provide you with any voting rights as shareholder of the company, nor do they provide you with any right to participate in a future offering of security.

>you have all the boilerplate in the back.

How much do these angel investors need lawyers to guide them?

You absolutely need one to work on the documents, but investment decisions are not lawyers.

That is the angel investor.

What is the q2 you that something is good, number one, and number two can be executed?

As barbara was saying, you bet the jockey, not the horse.

The entrepreneur is the single most important thing in any startup.

I would like to take a great entrepreneur with a questionable plan.

Things are going to pivot and change.

As opposed to a great idea with someone who cannot execute.

It is all a person?

I try to ignore the business idea at times just because i want to assess how smart that person is who is going to run the show.

Page 44, truth number five got, -- five, all teenagers need more money.

Always.

Always, every single time.

There is the one in a million one that actually doesn't -- i just had one of those, it will do phenomenally well.

They had one investment seven years ago.

Notice he said seven years.

Not so easy.

That is it.

Most people who think about angel investments think about cool stuff, start tomorrow, bought out for a billion in a month.

The average holding time for an angel investor in the u.s. is nine years.

Nine years.

Unless you are doing it on "shark tank," and then there is a miracle called prime time coverage.

The average holding time for things on "shark tank" three years.

Excuse me, that was a massive shameless plug.

That was outrageous.

[laughter] it is so true, though, they get his magic dust sprinkled all over them and they start out of the gate.

We will be right back with more "surveillance." ? good morning, everyone.

Futures are up for, dow futures are up on those busy morning.

The entrepreneurial spirit, barbara corcoran is with us.

She is the cofounder of barbara corcoran venture partners.

Also with us, david rose.

Let's get right to our top headlines -- adam johnson?

It was a good night for mainstream republicans.

Mitch mcconnell turned back at tea party challenger in kentucky . tea party backed candidates also lost in senate and house races in georgia, pennsylvania, and idaho.

The obama administration is ready to release a secret memo in the drone attacks controversy overseas.

Used to justify attacks against citizens can sit -- maybe terrorists.

Ben bernanke is set to make millions this dollars -- this year in speaking fees.

He charges his hosts anywhere between $200,000 to $400,000 a pop.

He spoke in abu dhabi in march and in houston, close to $1 million.

I did this in the sixth hour and i will say this again and again, it is no big good -- big deal.

The guided public service, he deserves to make every nickel.

More power to them.

They are not outrageous fees, that is what the market bears.

Barbara corcoran, everyone does this and it is a -- it is a legit business.

Is there a speaking fee for tom keene?

There is not.

Bloomberg has a policy.

I do not accept speaking fees when thrust at me, they go to a 9/11 charity.

That is fair.

We do support the charity at the edelman foundation.

Nearly 1/5 of american homeowners are underwater.

They own more than their houses are worth.

Stan humphries calculated that figure for zillow.

Stan, how much is negative equity holding back our economy?

Understanding negative equity is a huge part of understanding the housing market.

It is serving to constrain existing home sales.

It also helps to understand why first-time homebuyers have been participating in the market at lower levels than they have historically because the most affordable homes they are looking at have most likely been underwater.

Barbara corcoran, you're getting briefed by stan humphries.

My question to you is, really, how much influence does it have on the market when you compare that to the overbidding going on in every city in the nation?

Plus fewer homes to choose from, how much does that weight?

My feeling is it does not weigh in at all.

How do you feel?

The current housing recovery is a witch's of a few different factors.

An enormous set of prices with very low mortgage right and equity that constrains inventory, a lot more buyers because of his low prices and interest rates, creating enormous price spikes.

Let me tell you something, the best thing for the real estate market right now are these price hikes we have been dreaming about.

I would like you to take that bad news, sit on it, never mention it again.

You will make people think of there is something wrong with the housing market.

If there is anything whether -- where there is a firm like that -- be quiet.

The concern is that these conditions are far from normal.

We are certainly looking for a balance out on the bottom.

How about celebrating?

Fax positive appreciation has driven down negative equity.

2.5 years ago it was one, now it is below 19. the concern is that i think people think that the unpleasantness of the housing recession has passed, but it was enormously hard, left deep scars, and it will take a few years.

You know what i think?

Negative equity is a nice and failed late in people who cannot afford it day-to-day.

I want to get your take on fannie mae and freddie mac.

Larry fink said at a conference yesterday that the u.s. housing market is structurally unsound.

More unsound than it was before the financial crisis.

You are a member of the fannie mae affordable housing council.

What do you think of their stance?

I am quite concerned about reform and trying to get back on better footing.

We are under conservatorship we need stable footing with private capital in front of it.

The clarion call is the boom in rental housing.

Nationally, is that the trend we are going to see?

Undoubtedly.

We are extraordinarily bullish on multifamily rental markets.

The consumers out there are as well, and they are being snapped up faster than hotcakes.

To go from the national to new york is extraordinary.

Very different.

That is what i want to get to.

My morning must reads -- here it is, the data that samuel miller uses to show that all manhattan cash home sales were 45% of all residential sales and cash sales for -- comprising 33% of transactions and mark, where is the money coming from?

Everywhere.

International investors, good old american startups.

This is extremely important -- how much cast of you seem in a suitcase?

Honest to god?

Three or four deals over a lifespan of my career.

Not a lot.

But everybody pays with cash.

Literally it is suitcase?

Three times i had a suitcase.

I looked good.

Even the commission.

33%, though, people pay cash.

Like a lot of that is international buyers, chinese buyers, divesting themselves at the top of the housing bubble.

Stamp -- stan humphries, chief economist at zillow, thank you for this spirited conversation.

Barbara corcoran, our guest host, thank you.

Coming up, targeted earnings in a couple of minutes, we will get you to them when they break.

Bloomberg?

This is "bloomberg surveillance." i am here with tom keene and adam johnson.

Company news, first-quarter revenue coming up short at lowe's, the number two home improvement chain in the u.s., sales rose less than one percent and analysts had been looking for a five percent increase.

Prophets did however beat analyst estimates.

Las vegas sands has looked back -- look that share -- paring back the authority of the chairman, sheldon adelson.

It is reportedly all tied in with his search for a new president.

He said he would consider giving up the search -- giving up the ceo title if that's what it takes to attract a new candidate.

Randy dougan, close to giving up on the u.s. tax evasion case, giving them the ok to turn over the names of their american clients to the u.s.. no word yet on whether the appeasement has happened.

I urge everyone to read "-- to read matthew levine today.

He tears this apart.

Credit suisse got off easy.

He said it was a political ballet and it had nothing to do with the best outcome.

More to do with new york and washington.

A must read.

Absolutely.

Burberry, famous for its classic richness, trenchcoats and rain boots, the brand is under new management and christopher daley is steering them towards perfume and makeup in a big way.

Olivia sterns is in london.

Olivia, this is burberry's first earnings report under him.

What kind of impression is he leaving with investors right now?

Are they impressed with his stewardship?

Lets the dog has gone sideways ever since angela ahrens announced she would be leaving for apple.

But overall investors do see this as a steady transition.

Christopher bailey has been with the company for 12 years.

A veteran, previously chief creative officer, in that role he headed up product development.

He is staying on as chief creative.

Having had that experience, people see him as create -- capable of the job.

He does, of course, have very big shoes to fill here.

Under angela ahrens in 2000 you saw sales triple and the stock price quadrupled.

He has a lot to do and ultimately it is very rare that the fashion designer is ultimately the ceo.

You only see that and fashion brands where the ceo is founder and entrepreneur, like ralph lauren.

This brings us back to the question that tom was asking yesterday, do designers make good managers?

He needs to put his stamp on the company and one way he is doing that is with perfume.

The deal they struck with amazon, lots of people questioned whether this dilutes their brand equity.

Selling it on amazon?

This is a big deal that is very interesting because on the one hand they are bringing their makeup production in-house, but on the other hand they are also changing up is to be vision, selling it on the masses.

They are pulling a lot of levers, thinking that this can be one of the areas where they can grow the fastest.

They think that fragrance will grow 25% in the coming year.

From the product control standpoint you have to wonder how they are going to compete with other big fashion brands.

This is actually a tightly controlled industry.

Most other fashion labels, like dolce and obama, they out source and license fragrances and cosmetics because they have the distribution power to then broker with department stores to sell the products.

Here you see burberry jumping the gun, going straight to amazon, straight to the masses, teaming up with alibaba and selling their goods there.

It is very interesting, burberry.com is one of the few luxury fashion houses with a very good e-commerce operation.

Olivia, hold that thought and stay with us.

David rose, founder of new york angels, this is about reinvention, right?

Burberry teaming up with amazon?

Does this work?

Lacks absolutely.

One decade ago the idea of selling online to the internet, it would have been a complete nonstarter, but today if you are not there -- they are not doing this and going direct to the consumer, alternately?

There will be problems.

Everyone has to figure out how to play in this new space.

Whether it works on not, we will all find out.

I expect it will be a huge hit, they have huge distribution using alibaba and amazon alone.

They are grabbing headlines, they will already be selling their stuff.

We are all sitting back talking about great creative directors for the spot.

If the ceo of the home shopping network amended, burberry lives in that world too.

Thank you so much for joining us from london, olivia.

Let's get to a data check right now.

We don't have that much housing data on the docket.

I know it is a big housing week overall, but we do have the fomc minutes that will be released at 2 p.m. this afternoon.

Right now futures are slightly

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

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