Some ups customers are still waiting for santa claus.
And we take a look at security threats of 2014. and how harvey weinstein snagged his awards with low production budgets.
This is "bloomberg surveillance." this thursday, december 26. tom keene is all for the week.
With me is michael mckee and adam johnson.
Adam, are you going to take a nap before doing the afternoon show?
I always say nobody should have to go to work before there is a starbucks in the neighborhood.
Japan's nikkei closed above 65. that was the first time since 2007. the japanese yen at its weakest against the dollar in five years.
If the japanese yen goes down, that is good for japanese exporters.
At 8:30 eastern, we have the initial jobless claims.
It tells us a lot.
On a weekly basis.
It is only on bloomberg.
Outside the u.s., little boxing action in the u.k. the biggest shopping day of the year.
It is always after christmas.
Tom will be at bergdorf's. you will be at sak's. kohl's? no kohl's for me.
Tens of thousands of people had to abandon their own christmas celebrations because of heavy rain.
He environmental agency in the u.k. warned flooding could get worse.
Not everybody celebrating on boxing day.
On data check, there is some quiet before futures start trading.
We do have a green screen to start off.
S&p futures almost three points up.
They are gaining some momentum of the morning goes up -- goes on.
We are looking at a 10 year yield.
We were talking about how we had gone up.
Everybody talking about how to bridge that 3% margin.
We are looking at the dollar- euro at this point.
The euro is higher against the dollar.
That is pushing oil prices up.
Everybody is watching what is happening with oil prices since the economy is getting better.
Adam mentioned japan.
For years and years, the nikkei was twice the level of the dow industrial.
You can see that reflected in the japanese yen.
It touched a five-year low.
It does not matter if you are in england.
If you are in the united states, you get some good deals.
A little bit of a bounceback for gold prices.
We have scoured for stories making the papers.
It was a sparse christmas for some this year.
Delivery companies missed their delivery targets because of an avalanche of late holiday orders.
There was a lot of finger- pointing about whose fault it was, whether it was the delivery company or manufacturers that did not fill orders in time.
Amazon is offering customers $20 gift cards.
Macy's and walmart all the same.
It is one thing if adam does not get his teddy bear.
If a kid does not get it, what do you say?
Santa claus sent you and i owe you.
Can i just weigh in here for a moment?
Parents, do not wait until the last minute to get your kid a teddy bear.
You had 365 days.
We are working.
We had five extra shifts.
If it is late, that is your problem.
You go from work straight to going shopping.
Take a little responsibility.
I waited until the last minute.
I trusted ups.
Adam playing scrooge.
Scrooge johnson for us.
Our second story.
The enrollment deadline for healthcare.gov has passed.
This comes after a record setting influx of shoppers.
If you wanted to sign up for insurance, you can still contact them and they may help you get covered.
They will take your money.
They need it.
The first sitting japanese administered to visit the shrine that the moralizers war veterans, including one or two criminals.
China immediately criminalized the visit.
The japanese prime minister is always under domestic political pressure to visit the shrine in the same way that our president goes to arlington national cemetery.
The other asian countries who suffered during world war ii get all upset.
We should move beyond this now, they say.
It is our war dead.
It is what every other leader does.
We will talk about the tensions in the region now.
It is not helping.
Our guest host for the hour is a former white house security advisor.
Richard, let's start with you on this shrine visit by the japanese prime minister.
His ratings within japan have fallen.
Is he making this visit to shore up public confidence domestically?
It is the main driver for this.
The international reaction is uniformly negative.
It is not just a visit like arlington national cemetery.
Japan, as a government, has not satisfy his former opponents about that history.
Korea occupied for about 35 years.
The refusal to acknowledge the sexual enslavement of women.
That is what really underlies why people reacted so badly.
The deeper issue is the refusal of the chinese government and educational -- japanese educational system to deal with that history in a way the neighbors think is correct.
Each is claiming a right to the islands.
It may be a gateway to oil under the ocean.
There is a major territorial dispute with china that flared up in september of 2012. there is also another one with korea.
The chinese-japanese relations are very bad.
There could be another explosion if the chinese government wishes that to happen.
It is also bad between japan and korea, our allies.
This is the kind of thing that gets my parents' blood boiling because they were born around this time.
We know that there is a lot of ceremonial visits to the shrine.
Are there still going to be?
They will eventually get together.
They are not going to announce it today because they have to react to his visit to the shrine.
These are the two most important leaders in the two most important asian countries.
They have to get together eventually.
Scarlet fu, you have some company news.
Vw holding a slight lead in china sales this year.
They sold 3 million vehicles in the country in 2013. if it keeps its lead, it will be the first time in three years that it topped gm in china.
Allie baba wins a license -- alibaba wins a license in china.
It is part of a two-year trial to bring more competition to the chinese wireless market.
Mcdonald's has taken down an employee resource website.
The most recent incident involved labeling a cheeseburger and fries as unhealthy.
That is today's breaking news.
It is not exactly breaking news.
Mcdonald's french fries unhealthy.
I would agree.
I like them.
I would not agree that they are healthy.
You know my view on this one.
All i want for christmas is an apple tv.
This is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com.
? coming up on bloomberg television, the cofounder of squares joins us on "in the loop" at 9:00 a.m. eastern.
That is supposed to be one of the big stories of 2014. other companies get involved in the space.
Lots of competition coming up.
The story everybody is talking about today is how the delivery companies fell on their face.
Kids did not get their toys on christmas.
Adam does not like it.
Adam is not offended.
I feel badly about the children who did not get their toys.
Leave it there.
There is some finger-pointing.
Ups said manufacturers did not fill their orders in time.
Amazon said we did everything on time.
We are looking at the delivery options and we will review everything.
They are offering gift cards and refunding for the people who did the one-day final orders.
One company will pay the full cost of items not delivered on time.
Du pont suggested to customers that they print a photo of the present -- groupon suggested to cups -- to customers that they print a photo of the present that would not be delivered on time.
Having to explain it the next morning -- ups is bearing the brunt of this.
It delivers 45% of the nation's packages.
The head of research at bloomberg industries, you look at this and ups has been the one stalwart everyone is depending on to deliver this holiday season.
Is this going to affect the bottom line?
This shows the entire supply chain was overwhelmed.
What it illustrates for people is the extraordinary growth of e-commerce versus bricks and mortar.
He heard about store traffic over the last several weeks.
Everyone was waiting around waiting to click the mouse.
We have numbers from shopper track saying store visits were down 21%. is that because people were shopping over the computer?
People made a huge shift.
This will make the commerce department raised their number they held out for e-commerce.
That always seemed so low to me.
The number they reported was 14% over the last week.
That is a little more representative of what e- commerce is over bricks and mortar.
These are the expectations for volume.
Here we go.
We expect our volume between thanksgiving and christmas to be up 8%. pray for good weather and get all the procrastinators' presence to their homes on time.
They prayed for good weather and they did not get it.
That was one of the problems.
One of them was web glitches and they cannot handle the surge in late volume that came about.
I wonder if the brick-and-mortar retailers got a little bit of a boost -- will get a little bit of a boost knowing they can go to the store and see the product on the shelves.
The long-term trends are so clear.
Amazon is invested billions of dollars on fulfillment centers to create more fulfillment centers to get them closer to consumers in an effort to shorten the delivery time.
We talk about the holiday shopping season.
When you look at the november spending numbers, it was not good buying, it was services by that was up huge.
You wonder if people are spending more on services and experiences as opposed to a new doll or a new dress.
E-commerce companies have increased the percentage of total retail sales.
When you get to christmas, it is about boxes being shipped and stuff under the tree.
What we saw here was a whole supply chain from the manufacturer down to the distributor and the delivery mechanism.
They just got overwhelmed.
I was speaking with the ceo @toys r us.
He said there are 81 different -- a toys "r" us.
He said there are 81 different permutations for buying.
81 different possibilities.
He said you cannot have a system that is either written warner or internet.
It has to be seamless and integrated.
-- brick and mortar or internet.
It has to be seamless and integrated.
They are trying to figure out what are those anyone permutations.
What are the ones consumers go to at crunch time.
They expect the package to be delivered within 24 hours.
We have retailers giving you same-day delivery.
If it sounds too good to be true, it probably is.
You kind of wonder.
Ups said it will resume delivery starting today.
The head of bloomberg industries our test host for the hour.
That brings us to our twitter question of the day.
What was the best deal you got this holiday season?
Mike, what was the best deal you got?
Shopping at brooks brothers.
This is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com.
? this is "bloomberg surveillance." i am scarlet fu along with michael mckee and adam jansen.
-- adam johnson.
Here is adam with top stories.
The first japanese prime minister to visit the shrine.
The war memorial is viewed as a sign of japanese imperialism.
The prime minister says the visit was not meant to hurt the feelings of the chinese or japanese people.
Three ministers resigned in a turkish corruption scandal.
Cabinet members overseeing the justice system were among those replaced.
In brazil, $6 billion in debt will be converted in to a 90% stake in the company.
Those are your top headlines.
This is one of the wealthiest men in the world.
He went from $30 billion down to less than 300 million.
A fast drop.
Michael mckee, you will get us started with our morning must read.
Income inequality was one of the biggest stories of 2013. the nobel laureate noting in the new york times it's corrosive effect on the body politics.
Trust is becoming yet another casualty of our country's staggering inequality.
The bonds that hold society together weekend.
It will be one of the big stories in 2014. you have bloomberg's political analyst adding that we could have some sort of american spring, an uprising of people who are frustrated that they get so little and so few get so much here in the united states.
In other words, and occupy wall street that is broader this time.
We started to see glimpses, but they could not coalesce.
They could not get behind the mechanism, but there was no mechanism in place.
They bloomberg contributing editor, what do you make of this idea that social unrest could come in 2014? it will take a lot more than more of the same.
It is a serious issue and he gets it exactly right.
The country does have a terrible problem with income inequality.
It does a lot of other things) there are reasonable forms of civic engagement incurred -- occurring -- it does a lot of other things right.
There are reasonable levels of civic engagement occurring and it does other things right.
Let the parties break up.
Doris kearns goodwinteddy roosevelt came into office during a similar -- doris kearns goodwin notes that teddy roosevelt came into office during a similar time.
This is "bloomberg surveillance." this is scarlet fu along with adam johnson and michael mckee.
You have a data check.
Futures only started trading about a half an hour ago.
Dow and nasdaq futures are up.
The u.s. 10 year yield, 2 point 99%. a lot of people said we would not breach 3 if the fed started tapering.
-- 2.99%. there is our data check.
Our post-christmas data check.
We are starting our week long series and you have our next edition.
All week, we are looking at major themes across different industries.
Today we will focus on security.
Edward snowden delivering a christmas message on british television.
He warned about the dangers of surveillance.
The conversation occurring today will determine the amount of trust we can place in the technology that surrounds us and the government that regulates it.
Together, we can find a better balance, and mass surveillance.
We are joined by richard, bloomberg and trimming editor.
He is also a senior fellow at the council for -- and contributing editor.
He is also a fellow at the council for -- i think he is a criminal and violated the contract he signed for the u.s. government.
If he is ever found -- captured, he will spend the rest of his life in prison.
Major companies and enterprises have been spending billions of dollars on cybersecurity.
What snowden showed more graphically than anything else is that how a highly expert motivated insider can get sensitive data out into the open.
That is what he did and that is what corporate america is terrified of.
For all of the billions spent on security, one guy can take down the system.
That is the essence of it.
A highly motivated insider can hurt you now in ways that are beyond any set of outsiders can imagine doing.
The question snowden is trying to put forward -- does anybody need this amount of data on individuals?
Does anybody need it?
There are a number of companies that have masses of information on you.
Social media is based on you and users dividing data in exchange for a service.
The basic deal is that you give them your data and you benefit from an interested -- interesting experience online.
It is something you can send it to.
We talked about this on tuesday.
Amazon is not going to show up at my door with a warrant or break down my door or come in and arrest me because i gave them my shopping data.
The people who do show up at your door have the power to serve warrants on amazon and everyone else.
They get all of that data in a compulsory way.
When amazon is served with a warrant, they must turn all of that data over.
While they are benefiting from it in a financial sense, the government has the power to go get it if you have done something wrong and they have cause to come and get you.
This is right in your wheelhouse, the idea that technology companies benefit from the data that they gather from us and are not the holden from the government.
-- beholden to the government and they can see their hand was forced.
Even for the googles of the world, it is a fine line.
They have to be compliant with regulatory agencies around the world.
They have to represent the interests of their users and project the image that they are looking out for the benefit of their users in terms of protecting their dent -- their data and their identity.
Is that why they went to the white house to say to the president, this is too far.
They wanted to say this has gone too far and we need to think of a new model, a new relationship in terms of how you get this data from us, how you access this data.
What are our responsibilities?
The interesting thing snowden went on to say is that there is an entire generation growing up that will not know the concept of privacy.
Everything about their lives, by their own choice and by the government's choice will be known by anybody who wants to get that data.
It is overstated.
Social norms are shifting about what is private.
People are more educated about it.
The younger generation is willing to tolerate having more out there.
It is too far to say they will know no privacy at all.
It will be different than it was for the older generation.
Security threats, especially as sporting events.
There will be high-profile sporting events at -- events in 2014. we have not seen a security breach in a big security of a -- a big sporting events yet.
They are making sure it does not happen.
There have been some worldwide, but then -- but they have not been reported in the west.
A mass riot that the local government had trouble getting under control.
A referee was beheaded i the opposing fans when they did not like the call.
-- by the opposing fans when they did not like the call.
Three big sporting events are coming up in the near future.
The super bowl coming up in new york city.
The sochi olympics and the world cup in brazil.
These are big challenges and they are totally different challenges.
From a security standpoint, it one presents -- each one presents security challenges.
Resilience the biggest.
Mozilla has invested lavishly and certain forms -- brazil is the biggest.
It has invested lavishly.
There is a crack epidemic going on.
They will do their best to secure the immediate environs of the stadium.
You talk about those protests.
People were protesting in brazil six or seven months ago because money was being put into stadiums and not health services.
Here's his government that has invested in sporting venues and not in infrastructure.
Sochi will be interesting because there are a number of serious separatists disputes in the caucuses region.
Very high-profile attacks elsewhere.
The moscow theater rate of 2002 and the school rate of 2004. on the other hand, an aggressive russian security service that will lock that place down tightly.
That is something we will monitor as we head into the sochi olympics.
Explain splinter head.
The united states is the epicenter of the internet.
Many of the services are based here.
It is not a strictly hub and spoke internet.
Competitive and international pressure.
An interest in breaking it up and having different cables underwater.
Shifting control over some forms of government.
The itu is more like a u.n. organization.
The leader is the president of brazil, who has called a meeting to reduce u.s. dominance of the internet.
It will take a long time to play out.
Thing about this conversation.
Two years ago we would not have been having it.
We're fortunate to have you here, richard, to lead us through it.
436%. that is how much time warner cable shares have appreciated since the spinoff.
This is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com.
? this is "bloomberg surveillance." tom keene has the week off.
Adam has our top headlines.
Police in thailand firing tear gas and rubber bullets.
The clash comes as demonstrators tied to interrupt perforations for a national election.
They want the political rules rewritten before the elections to make sure the family members of the prime minister are not able to keep control.
Officials in shanghai joining the elderly to stay indoors after the pollution level soared.
Pollutants were pushed to more than 15 times the guidelines set by the world health organization.
Shanghai had record levels of smog earlier this month.
President obama making a christmas day visit to a marine base in hawaii.
He raised the soldiers for their service.
The obamas have been on their vacation in hawaii.
The president playing golf nearly every day since he arrived.
Those are your top headlines on december 26. this is a good -- a good time to be a white house correspondent and have to cover the president in hawaii.
The interesting thing we talked about is the diversions between what consumers want and what investors want.
You mentioned it before the break.
We see it with time warner cable.
The cable tv company that subscribers hate and investors love.
The share price in white, up 425%. the yellow line is the satellite providers in the s&p 500. the s&p 500 is up only 140% in that time.
What has driven this performance?
Part of it is arnie's growth.
Time warner cable -- part of it is earnings growth.
Time warner cable bought back a lot of its shares.
Paul, the last leg up for time warner cable has been on speculation that it will soon be taken over.
What is the update on that?
After a 10 or 15 year absence from cable tv, the ceo has come back into the fore.
He has been active in european cable consolidation.
He has a 27% interest in charter medications.
Through liberty media, he is now saying the u.s. cable tv business is ripe for another round of consolidation.
He is talking about time warner cable as a company that charter might be interested in.
I was talking to some analysts who said what you are looking at is people positioning themselves to be internet providers.
Everybody is getting their television off of the internet.
Subscribers have been leaving time warner cable because of dissatisfaction.
They do not really talk about themselves as cable tv providers anymore.
A talk about themselves as broad bang -- broadband providers.
That is the growing business, the profitable business.
The cable industry has been losing video subscribers.
That has been offset by the growth in broadband.
They are becoming internet providing companies.
The broadband data business for time warner cable can generate almost a 100% often margin because they have the infrastructure already and it does not cost much to add new subscribers.
The economics are to the benefit of the cable operators.
Unlike the video service, there is a big program in costs associated.
The income margin on video is only 60%. on broadband, it is close to 100%. the cable companies are willing to make that trade-off.
We will lose video subscribers if we can offset them on broadband subscribers.
If you drop them, they will not care that much.
Maybe i am doing something wrong.
We will look at some first look photos making news today.
We will show you how christmas was celebrated around the world.
Barcelona daring swimmers to brave the traditional swimming cup.
You have to race more than 200 yards.
Crazy costumes are encouraged.
It is warmer there than the picture we had of people in russia of people jumping into icy water.
Why would people want to do this?
I do not understand.
With the unemployment in spain, they have time.
Everyone is having fun on christmas, including in indonesia, where they gave thanks for rainwater with traditional dances.
We are seeing photos and parades.
Here is what is curious to me about christmas in indonesia.
Only about 8% of the population is christmas -- is christian, but it is a national holiday.
In asia, the christmas holiday starts in mid-october.
Staying in indonesia to the island of bali.
A place i would love to go.
This is the village where people dress up celebrating in costumes.
It is a christian celebration in spite of the fact that there are only 8% of the population that is christian.
It focuses around the church.
There is a santa claus.
Making his way to bali.
Might eight-year-old asked me, doesn't santa claus get hot wearing that suit?
I said santa is magic and he can handle this sort of thing.
There is an air conditioner in the sleigh.
We have a lot more coming up on "surveillance." $850 million.
That is roughly what hollywood's thinnest to win an oscar.
That is coming up on bloomberg surveillance.
? this is "bloomberg surveillance." tom keene is off for the week.
Let's get you some company news from the files of "bloomberg west." profit comes after the unit cut johnson stopped production at some overseas plants.
Toshiba says the company hopes to increase its business to up to 50% sales volume.
Taiwan is finding apple for restricting rice is on contracts.
A commission says the asian unit required wireless carriers to get permission, which is a violation of the free trade laws.
Amazon tries to amend ties with shoppers.
They are giving refunds on shipping charges after ups fails to deliver some packages on time for christmas.
Shopping surged in the last day of the holiday shopping season.
That is today's shopping news from the files of "bloomberg west." adam lames the parents.
They waited -- adam blames the parents.
Yes, they waited too long.
Critics put out their recommendations for movies that you probably should see but often do not.
The momentum from box office sales can drive award nominations for blockbusters.
What do you do if you are a smaller film?
Producers have a heavy hand into this.
Scarlet fu, you have been looking into this aspect of it.
We have to go to harvey weinstein.
The first rule of thumb is to keep a lid on the production budget.
You do not spend a lot of money actually making the money.
The best picture winners have been produced on an average $21 million budget for the past five years.
The movie we saw, "the hobbit," was not produced on that budget.
You have to look out for good content.
You go to film festivals.
He bought the rights to the book , "silver linings playbook." also, the small strategic rollout of the film.
Forget about opening at every multiplex in the country.
You have the word-of-mouth welding busts for the movie.
Go for broke when it comes for -- building buzz for the movie.
Go for broke when it comes to publicity.
Flash -- splash out those for your consideration trade as.
Paul is the director for research for bloomberg industries.
This is a different kind of strategy.
Think small instead of thinking big in an industry when people tend to think big.
It never happens that a big blockbuster or comic book movie wins an oscar for anything, certainly best picture.
The movies that tend to hit the most consideration are the smaller movies geared toward adults.
That is where harvey weinstein plays.
Do the awards mean anything?
Getting an oscar for best picture or best actor.
When they focus on the smaller movies, it may not mean much for the initial box office, but it means a tremendous amount of value over the life of the movie whether it is the pay-tv window or the library.
It is a huge moneymaker.
So far, harvey weinstein says it will be the most competitive season he has seen so far.
He has delayed the release of the premises of monaco to next year because there is not enough time to get the -- the release of the princess of monaco until next year because there is not a lot of time to get the buzz built.
One of the key variables to the success of a movie is the release window.
Big studios will lock up a release window, whether it is memorial day or christmas, three or four years in advance.
Dreamworks will put out one of their animation films 2 years from now and they will choose that day because they know there are no other animation pictures coming out.
Thank you so much for your perspective.
You and i agree.
The dollar taking a little bit of atick up today -- of an uptick today ?. ups hitting a christmas block -- some kids and parents are waiting for santa claus.
They have some explaining to do.
The new year brings new concerns for corn farmers, why a decision in washington will make or break profits in nebraska.
Vladimir putin's arctic land grab, what it means for u.s. security in 2014. good morning.
This is "bloomberg surveillance ." live from world headquarters in new york this thursday, december 26th.
I'm scarlet fu.
Tom keene is off for the week.
With me are michael mckee and adam johnson making an early appearance.
Our guest was for the hour, bloomberg contributing editor richard falkenrath, and we have went the lehman -- wendy lehman to talk about all things retail.
The morning brief.
The nikkei closing above 16,000 for the first time since 2007. the yen at its weakest in five years, because a lot of asked orders in japan -- as the yen goes down, they sell more products, it is good for earnings and stocks are up.
Economic data in the u.s., at 8:30 p.m. -- 8:30 a.m., initial jobless claims and then the consumer comfort index.
We will see how people are feeling now that unemployment has dropped to seven percent and gdp is up to four point one percent.
Outside the u.s., it is boxing day and the u.k., the biggest shopping day.
Always the day after christmas.
We should always point out in the u.k., tens of thousands of people abandoned christmas celebrations because of heavy rain and flooding.
Several people were evacuated from their homes as the u.k.'s environmental agency warns flooding could get worse.
We hope all of those people are doing ok today.
We need to get to michael mckee with some company news.
This is a story everybody is talking about.
Santa claus delivers iou's for christmas as ups fails to deliver some packages in time.
The company saying the volume of last-minute shipments exceeded the capacity of the network.
Amazon among one of the companies trying to mend fences with customers who were affect it, offering $20 gift card and refunds on shipping costs.
Folks like an -- volkswagen set to be general motors in china.
It hold a slight lead over gm in china but both automakers have surpassed their goal of selling 3 million vehicles in the country during 2013. volkswagen keeps its lead -- the first time in nine years at top to gm in china.
Alibaba with a wireless license in china.
One of 11 companies awarded licenses to lease wireless capacity from china's carriers.
Part of a two-year trial to bring more competition to the chinese wireless market.
That is today's company news.
Our guest host for the hour, wsl strategic ceo and chief shopper wendy lehman and we have richard falkenrath, former white house advisor and security.
Wendy, we start with you.
The story about ups being blamed not delivering packages on time.
Who comes out ahead, the retailers?
Nobody comes out ahead.
It is too late for the retailers to benefit from it, except people running and for the regular sales.
All of the retailers who have been shipping online get a bad rush as well because they did not deliver when they should have.
This is a supply chain issue and an administrative issue really.
Do they get -- sorted out next year or will they always be behind because the search of online shopping will get heavier?
What we saw this year, online shopping took this huge rush people did not anticipate so we have this whole issue of how do you get supply chain working.
They must get it right this year.
They must get it right sooner than last year because people will not put up with it.
Between now and this year, they don't have the volume.
It is what you put in place i guess in time for the holidays of 2014. but you have to spend extra.
So i guess it is a balancing act.
It is, because then you have the other issues -- do i do free shipping?
How do i increase capacity to ship on time?
How do i deal with returns?
You have the big wave of online shopping, so -- the people move away from free shipping?
I think a bigger balance.
How much do i have to spend to get free shipping?
It has been given away already, now shoppers are saying you promised me free shipping.
What about consenting shoppers to buy sooner.
Do you give a discount -- buy two weeks in advance, and by the way, we will take 10% off.
Absolutely that can be done.
All the online guys say -- they can encourage you very intimately, so there is a lot of that going on.
Richard falkenrath, our other guest host, target got a lot of data lost or stolen from the card readers.
Do you expect more of that in the coming weeks ahead because of the surge in holiday shopping online, that we will hear more stories about this?
Yes, there will continue to be stores.
Target is the latest in a long line of major retailers and large companies have been hacked.
This is a new feature of the economy, and it is not going away.
It will continue.
It was a serious hack but it is commonplace for these breaches to occur.
Maybe companies will finally start spending more on this.
They say in 2014 we will have the chips like in europe embedded in the plastic cards.
Maybe the target problem will drive them to move quickly.
Maybe retailers and consumers will be the drivers as well, that effort.
Those chips have been available, richard, since the 1990's. it is what europe uses.
Why are we so slow?
A good question and a lot of people are asking themselves that now.
There's really no good explanation.
Just a lack of -- sort of inertia of the old system with the magnetic card.
Do you talk about issues like this around the table as a national security company, that you can bring the u.s. economy to a halt with a cyber threat?
Yes, this is one of the top topics.
In fact, the highest level, the president and his top advisers -- when they talk about the national strategies, cybersecurity figures into it and it is frankly one of the more difficult problems.
In part, because you have to enlarge the table.
It is not just the traditional national security advisers -- defense, cia, state department -- that you have to bring in everyone who looks after the economy, and then the lawyers who can tell you what you can can't do.
This is really a different kind of national security issue, in part because the economic implications of the internet are so vast.
Tell us about the perpetrators.
Is that a russian ring, domestic?
Traditionally people think of it as a russian crime ring, but it is not necessarily case, is it?
There are many different actors with many different motors -- motives in different places.
We don't know exactly who was behind it.
Maybe somebody does, who is investigating.
But there are hackers are higher.
-- for hire.
Sometimes the actual hackers are not the one to want to use the data but they are hired out to acquire this.
I was a case in the chemical sector where one set of hackers based in china was systematically targeting the entire, coal industry worldwide to steal their insider information, their intellectual property.
They were doing enough for the own purposes but at the behest of another.
I can understand why an competitor would like the code, how do you make the chemicals, can we make them more cheaply, but in the case of a target with 40 million red card strips -- credit card strip stolen, what do you do with the info?
You sell it.
There is the secondary market -- the credit card can effectively be siphoned off?
Yes, and to get the small amount of cash you can get off of them before the bank figures out that has been stolen and shuts it down.
But there is a secondary market for that, and it has pretty best -- precise prices.
You buy them in batches.
1000 card numbers with valid expiration date and valid -- the three numbers on the back, goes for 20 bucks.
40 million of them is a lot of money.
In the case of target, do they lose business to kohl's and jcpenney?
It does, because people don't feel comfortable.
Consumers are already telling us they are feeling insecure about the economy, the ups and downs.
It is just one more thing that makes people say maybe i won't go there this week, maybe i will wait until it is fixed.
They can't afford any of that at this point.
Not a lot of volume out there this morning.
People straggling back in from the holidays, but those who are trading started to push futures higher.
Three points up on the s&p, and the dow and nasdaq also higher.
Keeping a close eye on the 10-year note yield, at the moment, just above the 2.98 range.
Will we go over three?
The euro is gaining on the dollar, although the dollar is up against the yen.
The yen hit a six-year low.
Oil prices, a big concern for everybody.
This is the season where they should be going down.
They are up a little bit.
We talked about on tuesday, gasoline prices.
98 bucks to fill up my car yesterday.
What do you drive?
[laughter] 22 gallon tank.
The car is 12 years old, i have to make it last another 12. maybe that is the best deal they got this holiday shopping season.
The number is 64 billion, how big the u.s. industry is for corn.
How governments subsidies affect this.
If you missed any of our interviews, check them out on bloomberg and apple tv.
Also, our twitter question of the day -- what is the best deal you got this holiday shopping season?
Tweet us @bsurveillance.
Maybe you have not finished getting a deal, because i know after work i wanted to bloomingdale's. he is going to saks.
We are hitting all the stores.
Where are you going to go?
? this is "bloomberg surveillance." i'm scarlet fu.
Credit card fraud costing businesses $11 billion in 2012. sure to increase as target reported the personal information of 40 million customers has been stolen.
A large region, the u.s. is lagging behind in credit card encryption technology.
Wendy liebman is ceo and cheap shopper of fatigue retailer.
Tell us why they have been reluctant to upgrade our technology?
That is a wonderful question, and i have absolutely no answer.
It is running.
You would think they want to decrease fraud.
I think tj maxx at this issue six or seven years ago, and nothing has changed.
You know when you go to a restaurant here versus europe and they give you -- they bring the machine to you, here we give it away.
Somebody go to the back room and makes copies.
We have to sign our names when we make a credit card purpose.
What is the signature for, because it does not seem very secure?
I think it makes us feel secure.
There was a time when people did feel it identified who you were but today it means absolutely nothing.
Who knows why this is going on.
Part of this could be fraud as a percentage is pretty title -- tiny.
But fraud rates are on the rise.
At what point will retailers and credit card issuers start to take action on it?
I think we are getting to the point.
To have this happen at the critical time of year in a year that is very difficult for sales, you get a double hit.
If occult sales, they now give another reason for people not to come into the store -- difficult sales.
We are starting to see a sign where retailers are saying we have to pay extra for that.
When i launch into work remotely from home, i need to enter a randomly generated number just to log in.
Why can't retailers or credit card issuers do something as simple as that?
I don't know.
The complexity, the cost, or the fact it has caused a very little in the retail community so accents, whatever.
-- six cents, whatever.
I know consumers don't get hit with the bill, the retailers get hit?
I don't know the answer.
But when you say the consumer does not get hit, they get hit emotionally and they get hit emotionally in saying i will not go there for a while.
That is a big issue for everybody.
Bad news for target.
And bad news for other retailers.
Shoppers are saying, will my card be compromised at another retailer, too?
May be the case of making purchases with bitcoin these days.
The number coming up, 33% -- the percentage of online gift will be returned post-christmas.
Wendy will tell us how retailers are failing with that.
-- faring with that.
? this is "bloomberg surveillance." i'm scarlet fu, with michael mckee and adam johnson.
Tom keene is off for the week.
Our guest host, bloomberg contributing editor richard f and also wendy liebman -- richard falk and wrath and also wendy liebman.
A lot of news.
We will start with a visit of the prime minister -- a visit to the japanese war memorial.
Abe became the first japanese prime minister to visit the shrine in years.
Some see it as a sign of japanese imperialism.
The visit, he says, was not intended to hurt the feelings of the chinese of the korean people.
Elise in thailand fired tear gas and rubber bullets at antigovernment protesters -- police in thailand fired tear gas.
There are preparations for national elections scheduled for february.
Protesters want to keep the country's political -- or i should say they want the rules rewritten to make sure the family of the prime minister is not able to keep control.
The orange crop in florida falling to a 23 year low.
The big reason?
A disease spread by an asian insect that causes the fruit to shrink and drop from the trees.
They have the fewest number of boxes since 1990's. another agricultural product in trouble, but it is not bugs -- unless you figure washington falls in that category.
Farmers make $64 billion a year on it, and now washington is taking a bite out of it.
Talking about corn.
In the next three months, the environmental protection agency has to decide how much ethanol the u.s. will use next year.
They will rule on the fate of farmers, corn, and ethanol producers.
Alix steel has the story.
There is a lot at stake.
Did you just call washington bugs?
I don't think anybody -- [laughter] i don't think anybody will be upset.
Food, oil companies, farmers, everybody has a stake in this conversation.
In mid-november, the epa issued a draft rule lowering the amount of ethanol refiners would have to blend with gasoline.
Two senators also introduced a bill to remove the corn ethanol mandate.
Altogether -- also a big deal.
The american petroleum institute, they spent a total of 2.5 million dollars lobbing in the third quarter.
They did not say whether lobbying goes but it is a huge issue to try to remove the ethanol mandate.
I hate to look backwards, but what was the problem with the renewable rule in the first place?
The real problem is ethanol production cap rising while gasoline demand kept falling.
We are driving less.
They expect gasoline demand to be down 13% next year.
We also have better cars that are more fuel-efficient.
Therefore, we are not using as much.
Cars were not necessarily designed to run on higher ethanol.
So, each gallon must be blended with 10%. if you have more often on the world is the only solution is to blend it with more, 15%. but not so much a big deal.
What is the difference?
But the issue is, it could be bad for the cars.
Cars have proved they can run on higher ethanol since 2001 but most gasoline stations will not take it and many manufacturers will not issue warrantees if you take it -- eating away at your tank.
The government effectively mucking it up nationally will pay farmers a subsidy, they produce too much corn and you put corn in the gas paint -- gas tank and it creates a problem.
The market says it is not working.
40% of corn is used for ethanol.
An enormous amount.
This will have ripple effect for farmers, it will cut pretty deep.
I was talking to an echo cultural economist over at purdue and he said what it does -- there are two pillars of demand for farmers, emerging markets and ethanol.
What it does is remove one of the pillars.
It is no longer a conversation about growth.
The conversation is keeping what you have him and making sure you can stay afloat.
That is a totally different conversation.
The implications are huge.
If farmers will make less -- forecasting $3.50 a bushel next year, how will they buy equipment, fertilizer, gnu c? and if you are holding john deere stock, you are concerned.
If you are making less than what you are producing and you are seeing this key demand pillars sort of ball down a little bit, that will affect -- again -- and i should not be saying this, coming from a family from iowa, the largest core producing state -- and god bless the farmers -- but the government is propping up the corn industry by providing subsidies.
Long-term, markets don't work that way.
If you can't produce the court legitimately and profitably, to rely on government subsidies even in a good harvest year, it amounts to a wealth transfer and it is an inefficient system.
The ethanol stockpiles are a 25 year low -- let me see if i can find it -- 25% down from last year.
Stockpiles are tight.
Cash margins for making ethanol pretty good.
Ethanol producers can still make as much as they want.
It just means they are not going to get used.
As long as the economics works for them, this standard is a minimum and not a maximum so they can do what they want.
The rest of the world looks at this and they think we are crazy.
We grow corn -- when there are starving people outside the united states and we put in our cars.
Richard falconkenrath, what does it mean for relations with a country like saudi arabia?
One of the arguments for the subsidies was energy independence.
I remember when i was serving in the white house, people said, if we could just use more ethanol in our cars we would be less reliant on middle eastern oil.
In fact, i don't think it has had a major affect.
What has had a major effect is fracking and unconventional hydrocarbon deposits in the united states which are able to mine, which is clearly shifting the u.s. -- we don't need the corn energy.
Alix steel, terrific.
Outstanding in your field.
No pun intended.
Back with more, including returning your christmas gift.
We will be back.
? this is "bloomberg surveillance." i'm scarlet fu with michael mckee and adam johnson and tom keene, is off for the week.
Volkswagen is set to be general motors in china.
It holds a slight lead in china sales this year but they surpassed the goal of selling 3 million vehicles in the country in 2013. if the key to lead it will be the first time in nine years it beat out gm.
Batista giving up control of its oil company in a deal with creditors.
About $6 billion in debt will be converted into a 90% stake in the company.
This comes two months after the company filed for bankruptcy.
Mcdonald's is taking down an employee resource website after a series of embarrassing posts.
The most recent incident involved a story that labeled a cheeseburger and fries as unhealthy.
Donald says it is performing maintenance on the website.
That is today's company news.
Post show i think i will pay a visit to mcdonald's and go to lumen bills where you get 60%, 70%, 80% off.
I am shocked he will put mcdonald's into -- into the temple.
I am ready for.
Have we ordered breakfast this morning?
Speaking of which.
Where is the "surveillance" breakfast truck?
Tom keene borrowed for vacation.
I cannot believe he is not here.
A first year it tom keene, has never, according to him, taken a week off in his entire career.
Sitting on a beach in bali right now.
Our guest host for the hour is here, wsl strategic ceo and chief shopper wendy liebman.
We joked about running over to bloomingdale's. the discounts are amazing.
I want to show the viewers some of the numbers.
This was as of the 24th, old navy, 75%, neiman marcus, 65%, even bergdorf goodman come a 60%. -- bergdorf goodman, 60%. the think the numbers will get even higher?
They may very well, depending on how these next few days go.
I would say a lot of people are out today, tomorrow.
If i saturday and sunday there is not enough traffic and people are not buying enough, the numbers will go up again.
Already 75% off.
You wonder how the companies make money.
Gross margins are at a gap of maybe 25% or 30%, so net profit margin is eight or nine before discounts?
And it basically budgeted much of this in the year because they don't want inventory when they get into january so they are trying to clear it out as much as they can.
Then you have a horrible christmas squeeze, lack of traffic in the stores, so they just want to get it out so they can get new spring merchandise in full price and get people buying again.
The people actually buy when they have spring merchandise in january?
It is not warm.
Tom is going on a cruise.
They now know it is not necessarily spring merchandise but fresh merchandise.
Got my gift card, an extra gift card -- discount may be, and i can race in.
There are some stores that try to resist this.
Keeping discounts to a minimum.
Any indication how they are doing?
The people avoid them this time of year?
Everybody now, it is what is out for me -- is it something i must have or something i bought for everybody else but have not bought for myself?
I am going to buy it just because it is on sale?
I don't know about that, but you will at least be looking for it now because before you might have said i am not going to bother.
What if it is 70% off, you might -- i was at century 21 myself buying a few things.
Let's talk about some of the potential -- it almost sounds funny about saying -- saying this, but the winners in the game.
Walmart, dollar tree, target, walgreens, macy's, certainly the top of the list we are talking about the value.
What is your take?
It is really the detailers that have had the best of a very difficult season.
No doubt that people are looking for a great deal, people trying to get to the basics, electronics, toys, xbox, all of that kind of stuff.
It is the discounters.
But it is an interesting mix to see the mix you just loaded out.
Macy's made the top five.
We will see what it is by the end of the month but at the moment it is good to see a few different types of retailers.
What is the best deal you got this holiday season?
Maybe you did not get it yet, you are about to go out and get the deal by 60% or 70%. tweet us @bsurveillance.
Let's look at what they are doing in the markets at the moment.
Not a whole lot but we are green on the screen as far as equities.
3 point gain for the s&p futures and the 10-year note, 2.98%. this is "bloomberg surveillance" on bloomberg television, radio, streaming on your tablet, smartphone, and bloomberg.com.
I'm scarlet fu with michael mckee and adam johnson on the day after christmas.
Tom keene is off for the week.
I would hope he is shopping -- what is the twitter question next week?
Where did time go on vacation?
Where in the world is tom keene?
Where do you think tom keene is?
Holiday shopping is over.
A plethora of holiday returned set to begin, aided by lenient shipping policies.
As much as a third of all sales are going to be returned.
It is obviously going to cost retailers a lot of money.
Wendy liebman is ceo and chief shopper at wsl strategic.
A third of all internet purchases we should specify, at least by one estimate, returned.
How do companies deal with this?
That is not an unusual number.
This year perhaps more unusual in a sense that there has been a lot of off-line shopping -- online shopping going on.
Amazon in general, when it comes to clothes and shoes, they have a high return rate because people just by multiple payers to see what fits and then they send it back.
Reasonable shipping policies, return policies, then people feel they can bring in what they want -- i know somebody who does that.
I will not mention names.
I will give myself up right here because i ultimately will by multiple sizes.
They all have different size standard.
Such a nuisance -- not if it is a brick-and-mortar store across the street from the office.
You have sent -- to my house, i try it on when convenient and then i can return it.
This is exactly what a guest was talking about, the different permutations.
You can buy it online, pick it up in the store, have it sent -- 81 permutations.
I would argue i am a pretty valuable customer.
I make a lot of purchases -- i make a lot of returns but i buy more in general.
Is that the case always?
Some people think they are going to be smart and try it on first and should them back.
-- ship them back.
But in some cases like you, they are great shoppers, very loyal.
And they don't know what is the right size and they don't want to make a mistake him a so liberal -- mistake, so liberal shipping policies, why not slap the label back on them and ship them back?
The past five or 10 years gift card have become huge.
Are they huge now or with all the discounts and the ability to get stuck over the internet, do people come back to goods?
They are still top items for a variety of reasons.
Mom and dad and grandparents, nobody knows what to buy anybody.
Last minute, running out of time.
People buy what they want.
Talk about the different return policies the different stores.
The gap, they started tightening it to 90 days -- i am pretty familiar with it.
[laughter] the calculus of tightening your return policy, doesn't have an effect on the numbers or is it a case that bloomingdale the nordstrom's know people go there because of the very generous and liberal return policy?
It is that.
A liberal return policy, you feel more comfortable.
You take it back, not a big issue.
You feel safe.
The challenge is it costs money.
When business gets tough, like you did for gap, they started to be tighter with their return policy.
It is all the economics of it all the time.
I remember when nordstrom was the "it" lace for service and almost seems like everyone has to offer that service.
Amazon, ebay, etc.
There are so many places i can buy in-store and online -- the economy is still struggling some, but anyway you can get people to come in the door on the computer to buy is an incentive.
You have the returns back and forth, how the managed inventory?
It is a huge challenge.
If you buy online and then taken back to the store, how do you manage inventory?
Unique systems that are much more sophisticated to let you know where things are so that you can move things around -- you need systems that are much more sophisticated.
We couldn't see this level and activity without the computer systems that exist.
Was not possible 10 years ago.
You needed for the unified computer system.
Wendy liebman, our guest host for the hour.
Retail stocks are up this year but retail sales not so much.
Will sales catch up to the stocks or will it be the other way around?
That conversation coming up on "bloomberg surveillance" on bloomberg television and radio.
? coming up tomorrow, we will speak to media tech capital partners managing partner on the winners and losers of the holiday movie season.
I plan to see more movies in the coming days.
Now you're hooked.
This is "bloomberg surveillance." i'm scarlet fu.
Joining me are michael mckee and adam johnson.
Tom keene is off for the week.
Our guest host, bloomberg and jinping editor richard falkenrath and also wendy liebman of wsl strategic.
Let's get to betty.
It is always go when the regular crew is in the office.
Did you see it?
It was funny.
It was very dumb.
In other words, very realistic.
I thought, wait a minute, is this really a parody of our profession?
I went to see anchorman 2. we are all recovering from the celebrations.
The jim mckelvey, the squared cofounder.
He helped create this really interesting mobile payment system but at the same time he is using the money he earned to bring tech companies too, of all places, st.
That is where he was born.
A new hub?
I am very skeptical about stuff like this because every tech entrepreneur takes them money and wants to build a tech hub in their own home city.
How many tech hubs can there be around this country?
It is really silicon valley against everybody else.
The question of 2014 intech is whether they go public.
That will be a big question.
I am sure you will be dealing him on that.
-- drilling him on that.
Betty liu, from 8:00 a.m. until 10:00 a.m. time for morning movers.
You are not going to be surprised from the company topping the list.
Amazon shares of the moment are down.
Unfortunately for amazon, they got caught up in the whole ups -- mike, i think -- yes they switched.
They were down.
The problem isn't with a feeling that may have lost revenue because they are promising refunds for shipping that did not take place -- the problem is a feeling that they may lose revenue.
But they are often -- also the naughty list.
But it is still early.
Softbank looking to raise money again for a bid for t-mobile.
This is the slo