The Apple of Icahn's Eye: Street Smart (08/14)

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Aug. 14 (Bloomberg) -- On today's "Street Smart," Trish Regan and Adam Johnson find your last trade of today and first trade for tomorrow. (Source: Bloomberg)

Slow on the top of the line.

I think that icahn's involvement is a real vote of confidence.

" we get back up to 600? i cannot -- will we get back up to 600? i cannot comment.

What about a new iphone?

Maybe a new display.

Maybe some print identification.

We are back on the markets in 30 minutes.

The apple of carl icahn's eye.

Is icahn's support enough to make apple fruitful again.

A state of emergency after the most violent day.

The latest on the turmoil in the region.

Plus, on-line gambling arrives in the garden state.

The chairman and founder of ultimate gaming on dig taking it on-line.

Spk spk . we are near session lows today.

Stocks declined for the sixth day in eight.

Going down to the closing bell.

The first for tomorrow and a selloff here that's pretty much contained if you want to look at the bright side.

The u.s., the stocks are higher.

Not looking so good.

Once again, we find that we don't need indefinite bond buying.

Time for the big picture.

Take a look right now at the three markets that really tell the story of the day.

There's the dow jones industrials down in five points and out of six consecutive quarter, the longest recession suggests bond buying.

Take a look at tech.

They're not waiting in tech land.

They already left the station.

Look at that, technology up today.

Up .2% in spite of the fact they're down over 100 points.

Something else -- apple apple apple.

They like apple.

The golden apple as it were up about -- the big picture, the story of the moment.

Let's move on to the big three.

These are the stocks we need to hear when we get close to the close.


Retail and macy's. comparable sales fell where analysts had been expecting a gain.

Those shares were down big today, especially by macy's standards.

It's not a volatile stock.

One of the retailers had to cut prices a little.

More optimistic on the back-to-school season.

Selling itself something.

John pallson's company selling for $512 million.

Paulson winning out in a bidding war over the likes of kkr as well as a korean bidder.

The shares, by the way, above that offer price means that investors maybe they can be a continuation.

Energy efficient lighting coming out with numbers that missed estimates.

A forecast that misses estimates.

The company has a partnership with home depot.

The prices on the products are being cut a little bit, crimping the margins.

The shares down more than 20%, trish?

Julie highman, thank you so much.

Now the big story, carl icahn is trying to squeeze the juice out of apple.

The investment dollars outlook north of $500 for the first time in six months.

What does he want from the world's most valuable tech company?

One word, cash.

Icahn is calling for it.

The tech analyst at morris security.

Bloomberg industry's senior analyst, and again according to my sources, he liked to do a $150 billion buyback.

He wants to do that and to borrow the money cheap and has it on the balance sheet.

Does that scenario work in your view?

Look, i can see the notion that technology capital structures are so optimal.

Too much cash is on the balance sheet.

They need to be an effective leader.

Pure dividend.

He's talking about a buyback.

$146 billion.

Only 40 of that or so is u.s. cash.

So you don't have a choice.


That's a lot of money.

Back on track.

It's huge.

Now, with the buyback structure, you also have the return, the cost of equity capital in order for that buyback to stock money for you.

It's the whole point of it.

If you're paying let's say 3% interest rate to brother that money, the stock price needs to go up 3% to break even.

At least break even.

Now, in order to -- if you raise the money in the public markets for equity, you're paying 11%. he's saying if you assume 12 times earnings multiples, earnings are going to stay constant, you're buying that many more shares, there's less of a float in the marketplace.

Five earnings per share goes up.

You're running up a 625 share.

That's financial engineering to boost the earnings per share.

I would rather have companies organically grow top and bottom line.

And financial engineering ought to be left to the consumer.

Give me my money back and the dividend.

Take it and run.


Stewart, it's something that's been talked about in the analyst community for a while.

A barclay's analyst came out in march and said they should look at doing a stock buyback and use debt to do it.

Does this company at this stage need to look at taking on more debt?

50 just took $17 billion of debt last quarter.

150, big difference, right, between 17 and 150. they're starting that process.

Only announced the $60 billion buyback program.

They've got so much cash.

Generating way more over the next three years.

So i think icahn is not returning enough cash.

They can step that up.

They have to use debt to make that work or hope for some kind of firm repatriation holiday when it comes to tax balance.

But on balance, they have to return more cash than they have the been.

They don't need it.

There's no constructive way to have the acquisitions.

Trying to get growth back is more important still.

Historically about tech companies, these don't have a lot of debt.

It's something that culturally hasn't happened a lot in silicon valley.

Even dell, almost none.

Do you run the risk of becoming like a dell or dare i say blackberry, right?

Where you're not keeping uchlt do you need to be maybe taking on some debt so you go out and do acquisitions, etc.

That's something that needs to be considered.

As a company, apple is probably more averse to that.

Because if you look at where they were in '96, they had a lot of debt.

And they were -- you know, when you look at what the financial situation was, i think from a company morale perspective, they're afraid of going that way.

They need to invest in the future.

They need to be their own replacements.

What's the best use, $146 billion on the balance sheet right now today?

R&d and acquisitions of maybe, you know, either competitors or up and coming companies.

If nothing else, i wonder is this simply a huge vote of confidence for the stock?

I mean, to have carl icahn come out and say i like this one, going long, putting more than $1 billion in this thing.

What does that do to your psychology.

You're hitting the nail on the head.

If i buy back stock, i'm a growth stock.

I believe in the company, i'm buying back stock.

How many company management has come out and said my stock is too expensive, i'm not going to buy back my stock.

How many are not going to buy back their stock.

It's a huge vote of confidence.

If i issue dividends.

Uh-oh, no growth.

With apple's case, my contention is there's a size problem, okay?

A what problem?



It's $140 billion they have to employ both to the maximum possible extent with a sound tax management strategy, with a sound capital allocation strategy.

That's all conceded.

To a certain degree, the investor psychology also matters.

If you do one over the other, technically, they're both the same minus the tax implications of it.

One sends a different message than the other.

Stewart, do we effectively need a strong statement from tim cook that says here's where i'm driving the ship.

In other words, i'm going to give this amount of cash back to shareholders, buy this amount of stock back, put this in to r&d. by the way, here are my new products.

They're coming out.

They're really exciting.

We had the big cash announcement earlier this year.

He needs to step that up.

I don't think he'll make this kind of statement this early.

We have products coming through next month.

That's what people are looking for.

Does apple have what it takes to innovate the way they were able to under steve jobs.

That's what we need to see.

We don't think that's going to happen until 2014. we talk about categories of devices.

That sounds like a 2014 story.

The big screen iphone sounds like a 2014 story.

The value argument, the share buyback angle continues to work for the rest of us here.

But to get earnings growth back.

Earnings were down 20% year-on-year.

I want to go to christina on products.

Before i do that, could you answer this question for me, stewart.

$150 billion in the debt market.

I mean, if you're -- can they get that money?

Probably, right?

They're making so much.

But that's a really sizable amount.

Well, if they're generating $40 billion a year, which we think they will for the next few years.

They have $140 billion as it stands.

As long as they balance the books, it's not going be a huge issue.

I can't imagine they'll go to that extent.

No way they're going to make acquisitions of any notable silsz.

No way to use the cash flow for acquisitions in my view.

R&d, that's too small to suck up that kind of spending.

What do they need to be doing right now to really grow, to really innovate it?

Is it the watch?

A brand new clever phone?

I think, you know, both.

Getting to the next category, they need to be developing their own u server so the thing that's going to kill the iphone is whatever apple develops from someone else, not from them.

If they don't do that, it will run the risk of having the slow growth and won't go anywhere.

Thank you for coming.

Anand, always a pleasure.

Carl icahn is buying apple because it's cheap.

You know what?

There are companies in a are even cheaper and frankly even growing more than apple.

That's coming up.

That list and insight and action.

Then we have to tell you about what's happening in egypt.

The state of emergency, violence erupting in cairo.

The latest on the tragic unrest gripping that country.

We'll be right back.

Very clear, mr.

Icahn says apple is cheap.

What other apples are out there that we can buy.

Time for insight and action.

Let melee out the argument.

It's really crystal clear.

The key to apple is all of the cash on the balance sheet.

The balance sheeted.

Apple trading, $425. $160 on the balance sheet means effectively the business for apple is trading for $335. that business is generating $42 worth of profits, therefore, the p/e ratio, excluding cash, 7.9 times.

That's exactly what mr.

Icahn is talking about when he says apple is cheap.

The question is, can we find other companies where you have cash that's 20% of the market value of the company and it's trading at less than ten times earnings and, by the way, has earnings growth.

Apple earnings are flat to down.

First, we found a few.

Some of the other tech companies that fall into this same combination that mr.

Icahn would see as cheap.

Cisco, drawing earnings at 9%. corning, the apple iphone.

Microsoft vishay.

They're cheap and they're growing.

That's a plus.

That's not just technology.

Here are five more for you.

Alaska airlines, 7.7 times.

6%, ford, goodyear tire.

Louisiana pacific.

North north northrup grumman.

I posted some of the names that made the cut.


Get going.

It's cheap.

He's head of equity strategy in barclay's and he spent two decades at lehman brothers.

He had one of the lowest s&p price targets on the street at 1600. welcome back to street smart.

You have a tech love affair going on, huh?

One of our big themes nor year was as we go through the year, rather than have policy uncertainty rise to the course of the year and have that impacted confidence and business investment and labor capital investment this year the public policy uncertainty was going to fall through the course of the year.

That went better than we thought.

Who would have expected to continue the resolution, sequestration and debt ceiling would pass without a fight.

Business confidence went up for the second quarter this time for the first time in the last four.

We've seen lots of signs that capital investment is gaining momentum.

The idea around tech would be that would be the first place you would see capital spending pick up.

It's got the lowest payback and productivity enhancing.

So if you don't think the top line is going to improve, it makes sense to invest in tech.

We've seen through the second quarter the semiconductor or software analyst, for example cited that, oh, his companies raised guidance for the second half of the year.

Orders are picking up.

We see the same thing in networking around the enterprise business.

Carrier cap-ex-means at&t and verizon and the like.

So we see the whole investment pickup which is initially the catalyst for that which is lower public policy uncertainty.

It speaks to one of the big themes everyone talks about on the show called mobile.

That's where all of the growth is.

It's mobile technology.

I would agree.

We are not making sump a specific call.

For us, public policy uncertainty.

There's a strong case for a big capital spending cycle given that any capital spending we got in the last business cycle in the 2,000ths was concentrated in the energy sector, tech coming off of the aftermath of the bubble.

People underestimated tech.

We thought tech will pick up.

We'll see industrial cap-ex in the industrial sector.

We're bullish on that part of the economy through the rest of the business cycle.

Tech is doing well.

Starting to see growth.

A good sign overall.

For the markets, the economy, everything.

No doubt.

A love affair.

Carl icahn likes it too.

You're in good company.

The point is we're bullish on the economy, bearish on policy.

So we have a tactical concern about the impact of tapering purchases, reducing the asset purchases.

But overall, more optimistic about the economic outlook.

We're looking at ways to express that view.

Tech being one of them.


Save more, live better, and profit.

Three tapes on walmart for you.

Egypt this is "street smart" on bloomberg television.

We're streaming live on your tablet, phone, and

The army-backed government in egypt is declaring a state of emergency.

They're imposing a nationwide curfew after security forces stormed camps of protesters in cairo.

Matt miller has the story in today's outlook.

We called it an arab spring.

Then they said it wasn't a coup another month ago, then it gets worse.

You can say it's not a coup, but the military took out the president-elected by the people.

Call it what you want.

Give you the facts of what happened.

We can investigate why and who's funding it -- we are.

A curfew for much of the country killing 149 people when they stormed an islamist protest camp.

The vice president mohammed elbaradei resigned saying he didn't want the responsibility for, quote, bloodshed that could have been avoided.

Let me tell you what the state media is reporting.

Grain of salt -- muslim brotherhood is leading the protest there in the camps.

They have occupied the finance ministry and they're apparently holding hostages according to state media in that burning finance building.

What are we doing about it?

So far here in the u.s., nothing.

Listen to what secretary of state john kerry had to say today.

Today's events are deplorable.

They run counter to aspirations of peace and.

They need to calm the situation and avoid the former loss of life.

The white house and congress attained well over $1 billion in military aid to egypt.

President obama requested an increase in aid from $1.3 billion to $1.55 billion in the fiscal 2014 budget.

Army general martin dempsey, the chairman of the joint chiefs of staffs told the armed services committee that, quote, they are worth the investment because the arizona republican can and now manies are wondering why they're ordering the stop of egypt's weapons.

That's the story -- what we're paying for is the military government to buy m-1-a-1 tanks made by general dynamics and fighter planes made by lockheed martin.

Something to be discussed a lot.

Very thorny indeed.

Walmart earnings wow investors and keep them wanting americans are opening up their wallets again.

Retail sales rose in july.

But the story isn't just about the numbers here.

It's about earnings.

And there are a sure a lot of them coming up.

Macy's, kohl's, nordstroms, sachs just to name a few.

The mother of all retailers on whether it's on course.

Talking about walmart.

Net sales have climbed since 2009. that success doesn't come without a few mishaps along the way.

Among them, the mexican bribery scandal and empty shelves.

Will the largest retailer reaffirm faith in the u.s. consumer or cause investor panic?

Deirdre bolton with the story.

Ian gordon with the strategy.

What are folks looking for tomorrow.

When i spoke to analysts about what they're waiting for from walmart, two key metrics.

Waiting for same store sales looking for a range between 0% and 2%. a lot of people saying if it comes in as 0, the market will have a neutral reaction.

But if there's a negative read that will put a lot of pressure on the stock.

Not too much people will come in higher anyway than .5%. canada, also, the expansion in canada seems to be a big theme.

A lot of analysts waiting for more data on that.

Of course, you know walmart is going to compete directly with target there.

If you look at the stock charts year to date, target outperforming walmart.

Some of the elements that are working for walmart, they're offering electronics.

The ones apparently people want to buy.

Apple's ipad, iphone, apparel, home goods.

These are all goods gaining traction.


Some pressure, some duress.

There's a lagging employment from many people.

A lot of these things can affect walmart's earnings and how much money people are willing to sell there now.

Walmart is being really impressive with the pricing.

The comparison between walmart, this choice of at least where people say they're going to do the back-to-school shopping.

It remains to be seen if that's where they're going to go.

People say they are, in fact, going to go back to walmart.

Basket of goods for back to school, $155.20, k-mart for comparison, $272.70. what does this mean for the margin.

A little bit of the setup.

Three metrics.

Same store sales, expansion in canada.

How they're competing and a little spin forward to back to school.

Talk about the prices.

I know you have a hold in gordon.

Are you nervous and where do you think the stock is headed.

Not particularly.

We're expecting $1.25 in earnings for the quarter.

That's in line with the capital iq consensus.

That's a 6% year-over-year growth.

A 0.3% same store sales growth in the u.s. a little towards the low end of that 0 to 2% range.

That's in line with the differential in the government retail sales growth numbers that we saw from the first quarter to the second quarter, about two percentage points better than the first quarter.

That's where we should come out.

Our target price is $81. a 90% total return, including the dividend.

That's about what you would expect from the market.

Where's the pressure coming from?

Do you think consumers are struggling because jobs are still hard to come biy?

Weather issues that walmart might have to contend with.

Where are the pressure point s? they're all over the place.

The 2% payroll tax is still weighing on the consumer, particularly the core walmart consumer which is at the lower end of that spectrum and the 2% is really the difference between them having chicken or steak for dinner or vegetables.

Gas prices are inching up.

The job growth slowed down a little bit in the second quarter.

Wages as well.

Not seeing much movement on that front.

Where does it leave you, mark, in the options pits in chicago.

What are you thinking?

Walmart is like a straight a student.

When they show up with an a-minus or b plus, they get punished and with an a, they don't get a lot of reward.

Looking at paper flow, a lot of bearish action and at the money puts, slightly in the money puts that tends to be really pointing towards some negative bias.

The trade i like is a risk-reward trade.

Expiring tomorrow, 76-74 put spread paying about 50 cents.

So i'm getting three-to-one payout against my risk and that's a trade that has 50-50 odds of working.

If i can get 50-50 odds of something that pays me three-to-one, i take it any day of the week.

The bearish put spread in walmart betting they're going to come up with an a-minus this quarter instead of an a. an interesting way to put it, illegal operators and took billions of dollar out of the economy.

We're protecting players better than ever before and bringing the much-needed tax revenues.

We turn on the tv and look at the newspapers and see things like detroit, we see different states that need revenue.

This is just one small solution to that.

So we think that states are seriously considering this.

And i think all 50 states are actually seriously looking at this in terms of how they want to address this issue.

How good of a market can it be.

Well, it's interesting, the two paths here are the one path being a federal path.

That's been a consideration of a poker only path.

Nevada's poker only, the estimates are $250 million to over $1 billion market in year one.

The estimates vary.

We'll find out.

Three months to the nevada operation.

We've only launched on april 30. i want to point out to your audience that this really is a new environment where innovation meets regulation.

You have to put in place teams that work with regulators.

And states around this country should know that the technology is working and that the formula is working and players can be protected and revenue can be generated for the states.

That's a key point, generating revenue for the states.

Tom, explain to the viewers how the accounting works for taxes, whether it's for money getting to states or individuals getting income taxes on games.

Revenue is flowing into the coffers of the states starting here in nevada.

Nevada, it's consistent with the tax rate here which is 6.75%. new jersey made the decision to tax on-line gaming at 15%. and so it really, again, immaterial comes down to choice and the states have to make a choice in terms of what they want the tax rate to be.

Operators like us have to make a choice of whether it makes sense to go to the marketplace based on that tax rate.

It's a new environment where finally, okay, after a decade, revenue will be coming back to america in the form of real money on-line gaming.

Very interesting stuff.


My pleasure.

Thank you.

All right, less risk, more time for chart attack.

We'll show you a chart that will make you smarter.

Guess what, today we have two.

Less risk, more investment.

Let's start with risk.

Describe what's happening right now from a risk viewpoint.

Sure, we've had a number of risks through the postcrisis period.

We've had certainly monetary policy in the potential impact of changing policy that we would end the scale of asset purchases, the most prom mate risk, if you will.

We had economic risk, a big factor, all of the flirtations with double dips in the like of the summer of '10 and '11. this is getting better.

Matt, bring in the camera so we can show period what we're talking about.

It's all of the issues that you're enumerating for us are starting to work themselves out.


The vix, the volatility index, incorporates all of the various risks that impacts stock prices, economic risk, monetary policy risk, or fiscal or public policy risk.

But specifically, we think what's changed this year is the public policy uncertainty, the comings and goings of washington, the fights down there, are so different in the last three years.

We integrated the baker uncertainty index measuring public policy uncertainty.

You can see the relationship with that and overall economic growth.

That's the lowest level since the crisis.

Got it.

As a all of the risks in effect work themselves out, companies feel better about spending.

So risk is coming down.

So it looks like investment is starting to go up.

That's exactly right.

The long investment in history in the u.s., we go back to world war ii, periods of the late 40s and early '50 s. a lot of public policy uncertainty.

Nonresidential investment went to 9% of gdp.

Under ronald reagan when they started deregular latering and cutting tax, then you had investment go to 14% of gdp.

We're in an invest mentment environment right now.

New orders for nondefense capital goods.

Moving up, that's what we want to see.


That's closely related to employment, job gains, business investment and employment and business investment in capital are closely related.

As that goes up because of the uncertainty falling.

Generate job, generate labor income.

The capital that you put in place needs people to work it and the whole thing becomes a virtuous cycle.

It does.

There you have it, trish.

Less risk, more investment.


Coming up on 56 after the hour, bloomberg is on the markets for you.

We get the ten-year bond yield.

Still up around 2.7. pretty high there.

So even though we're seeing a lot of people flee the markets today, equities, that is, you would think they might be going into bonds.

Not the case that yield still remaining up there at 2.7. so, the -- i think this is -- yeah, we'll get the charts of the last six months.

You can see it just keeps creeping up there.

And all of this is really centering around concerns about tapering -- is the fed going to taper sooner rather than later?

From zeng a's management takeup, to killer whales.

Oscar-nominated actor gary sinise on honoring america's bravest.

More you missed everything that happened in the day's session, don't worry.

The stocks you need to know about today, it's time for the top ten.

Apple, shares up 2% hitting $500 million for the first time since january.

The jump comes a day after carl icahn disclosed a stake in the country.

Apple declined 8% compared to a 9% gain in the s&p 500. encree, emphasis on the second syllable as the energy efficient lighting maker provides a forecast well below the estimate.

Sales of l.e.d. lights will be flat with last quarter, last year.

That's not the growth in a you want to see.

That's a painful move.

Millennial media down 19%. falling six months down in the country.

Millennial announcing plans to buy junk tap, a competitive in the market.

Number seven, zenga shares up 2%. the chief officer and two other executives are leaving.

The new ceo works to turn around the struggling developer of on-line games.

Hovnanian is down despite the rise to neutral.

You may recall, also, that pulte guided down significantly about three weeks ago.

So that really has taken some of the steam out of the home builders in general.

Aol is trading flat.

Tim armstrong sent a memo to the employees saying he's sorry for firing a staff member at a meeting last week.

Fired the creator of the local news business patch in front of a roomful of employees.

An earful of analysts on the earnings call.

Out there on the public venue is really unfortunate.


I would not be able to sleep.

He needs to apologize.

What happened is the person was -- the head of social media saying the conference call is why he had to lay off 200 people.

He was upset they chose that moment to take the picture.

Still you hate to treat people like that in public.

Cisco is up slightly ahead of the results due out after the close.

Analysts you are vaed by bloomberg estimate $12.1 billion.

Full coverage of cisco's numbers are coming up.

And ups, we have to talk about this one.

A cargo jet crashed and exploded early this morning in birmingham, alabama.

The airbus a-300 exploded 900 yards from the airport where it was attempting to land.

The two crew members onboard were killed.

The plane was en route from louisville, kentucky.

Two, sea world down nearly 5% falling the most since the ipo in april.

The theme park operator cutting the forecast for 2013 sales as attendance fell in the second quarter.

Sea world blames the drop in attendance on higher ticket prices and bad weather.

Coming up on the number one stock of the day, macy's down 4% sinking the most in eight months.

Macy's posted second quarter profit that trailed analysts' estimates amid an unexpected sales decline.

Coming up on the close here.

Looks like a tough day for the session here.

Apple is one of the few standouts.

If you look at all of the sectors, info tech is one of the only sectors that is breaking even.

Everything below session of 112 points for the losds for the dow.

S&p 500 looking like it will settle down around 8. time for the roundup.

These are stories tracking ahead of tomorrow's open.

Kick it off with matt.

A little more context on today's market, please.

Talking about a buddy of yours, duff daddy.

Jason dufner, the winner of sunday's pga championship has been out on the media circuit talking about his post major life including when he was on street smart with you guys yesterday.

Listen to what he had to say?

I've been a believer that you can't experience life until it happens, you can have the what's going to happen or what might happen thoughts?

We'll find out.

I know it will change my life a lot, but i hope it doesn't change too much.

Impressed about the future plans, the 36-year-old hinted retirement isn't that far off.

He suggested he may hang up his golf clubs in five years.

Dufner's 25-year-old wife amanda doesn't have the same vision for her husband saying, quote, he's the one that wants to retire.

I don't want him to retire.

He would be around the house, you know -- hanging out.

I would stay around my house -- without my wife.

I'm not a golf person but is he a huge player.

We hear people talk about tiger woods?

Is he in the top tier?

Total underdog.

A walk-on at auburn.

The guy has been completely -- i asked him, you have been completely underestimated, why?

He goes, i'm not sure.

They're not going to underestimate him anymore.

It could be because he's in horrible shape.

He hasn't had a hair cut in months.

He doesn't seem to care that much.

There's something to be said with being mellow and swinging the ball.

That's why people love him.

He's a bit of a throwback, right?

I mean golf has changed.

Tiger revolutionized the game in the sense that these guys are serious athletes now.

He just loves that duff story.

We had to -- i wanted to get back to markets for a moment.

It's gloomy.


It can get back to that drop.

113 points we lost on the dow.

I mean everything in the red, except as i said earlier, info tech, barely, barely eking out a gain.

That's apple.

You take apple out and tech in general would have been -- what's curious, though, is you had it come out and say maybe we'll see tapering better.

Of the st.

Louis fed.

Maybe later, maybe october.

Maybe we don't have data points.

We'll push it back a little bit.

The markets didn't have that fed around it that we're used to seeing down .75%. you have to wonder taking your time, it's august.

You take your news.

I wonder, barry, it's late in the summer, right?

A lot of guys have made 18%, 19%. the markets have rallied incredibly.

So much so, a 100-point drop doesn't look that meaningful.

Especially with such a thin tape.

A couple of guys dump a portfolio and you're down like this, right?

That's fair.

They're not going to do it now, they're going to wait until september.

It's interesting because if you think about this relative to 2004, the bond market reached the peak in terms of yield two weeks before the june 30 fed meeting.

The stock market kept going and didn't bottom out until 12 weeksafter wards.

We're in the stage of the correction where people will worry people will take the punch bowl too soon and that's when the financials lead the market lower.

Financials are weak for two weeks nearly and this is starting to discount the weakening of the portfolio balance channel.

We don't talk about wa in relation to the market.

Thank god.

If we see some kind of standoff, we have a concern, a budget debate.

Is the fed going to take it into account when it talks about the taper?

Guess what happens october 1. that's the date both for health care exchanges to take effect and the expiration of the debt ceiling.

Not the debt ceiling, the continuing resolution.

No debt ceiling until later in the year.

You can forget about that one.

The debt resolution.

That's the government.

There's a potential fight over that to be sure, right.

The republicans think they have a winning issue about defunding affordable care.

And there could very well be a decent fight about that in september.

Will they take that into effect?

Only if the markets are discounting it.

I struggle to see given the amount of times we've gone to the wire, that the markets will get all that bothered by potential continuing resolution.

The markets will assume, hey, we'll get to the 11th hour and -- we got through it last year.

The fed is an issue.

The market has not completed the process for that.

You coined that term, the period of adjustment.

You said it will take a long time.

Adjusting to growth in europe.

As you probably know by now, the eurozone is finally emerged for the longest recession on gdp.

Up .3%. that's .1% better than expectation.

Six straight quarters of contraction, the longest since the euro's debut and the longest since world war ii.

It's a big deal that europe is able to come back.

France and germany.

Not to put cold water.

The two largest economies.

Italy has 1.5 gdp.

Italy is in a recession.

Spain doesn't count as much as italy.

I think it's fair to put water on the optimism here.

Please, 0.2% gain.

They moved to the lowest level that any of them have been used to for decades and decades.

Not good for those who are unemployed, right?

If you feel you can take it out, a recession is two back-to-back quarters of contraction.

One quarter of barely budging up doesn't mean the end of the recession.

They're back down again.

They say that.

It's whatever the nber says it is.

I would think about it as flows -- if you go to negative 3% growth in italy in spain to 0%, it feels good.

You increased the gdp by 3%. but italy, to your point, has both of your points, actually, has massive debt levels.

They've grown at a real gdp rate at 25 basis points before the legislation over the prior ten yearlings.

2% inflation and fund it 4%. that's a bad business model.

So ultimately, that won't work.

They have to do structural labor reforms.

Our long term debt problems aren't solved either.

It feels good going from negative 3% to 0%. u.s. prosecutors charged two former london-based j.p. morgan chase employees with attempting to trace funding losses out of the loss of 6.2 billion on derivatives bets.

The whale himself was not charged.

Find that interesting?

Copting, make a deal, don't get charged.

I lost $6.2 billion.

A couple of you helped me to fudge the books.

I turn on you and now they're going after the lieutenants.

I don't know how much business the u.s. government has investigating this internal affair of jp morgan anyway.

If they do, why not go after the guy who lost all of the money for shareholders, right?

They need him to testify against other people.

He needs the information.

I'll turn on everyone else if you let me free.

To j.p. morgan's credit, if you go back to the quarters when they were incurring those losses, they kept getting bigger.

They never lost money.

By the way, if you go back to 2008 through the whole financial crisis, j.p. morgan never had a losing quarter.

It's incredible.

The issue isn't really -- banks should be able to take on a certain amount of risk.

It's part of doing business.

They didn't ultimately for the quarter lose money on it.

But the issue here is was something being concealed.

Dishonesty at a public company disadvantages the shareholders, people at home.

Not just day traders, but pension funds.

You have to assume they're being dishonest to jamie dimon as well.

Not as if bruno didn't know these guys were helping him to cover it up.

If that's in fact what they were doing.

Surely he's just as guilty as the other two.

We could debate this all day.

But we won't. cisco results are out.

The analysts are so carefully guided by their noses.

The analysts got it bet p right again.

The year-over-year growth, that's more important.

The company did $12.4 billion in sales.

That's 11% higher than the last year.

But the net income story, i think, is more interesting.

The adjusted net income, that strips out a lot of things, stock compensation and a lot of other things.

The net income for this company is $2.8 billion compared to $1.8 billion a year ago.

That's a 57% increase in net income in a year-over-year basis.

The company is selling 11% more stuff, it's making a whole lot more money in doing so.

We see a big gain in net income.

Earnings per share up 58% reflects a decline in share buy back.

But a quarter from cisco that's strong may show a lot of resilience to the stuff they're showing in the i.t. economy.

I would note that made our screen a very cheap stocks.

You take the cash off of the balance sheet in cisco, it's trading, again -- ex-cash, 9.7 times earnings.

It's cheap.

It's growing earnings according to tanlists at 9%. yeah.

Who uses that cash?

They use the cash like stock reform in the history of silicon valley.

They're using the shares, using cash to buy back shares and we saw that a lot in this quarter as well.

Cory johnson.

Barry, a comment?

Thank you.

What do you got?

I was going to ask cory about the -- about cisco's core u.s. business.

To me, that was one of the first significant data points that capital spending was improve in the last earnings report.

Short answer is i haven't been through the entire filing.

I will do that.

A lot more on bloomberg west as well.

These guys are going to cover it well, i'm sure.

You go dig through that report.

Thanks very much.

That's the close.

But we have the first trade for tomorrow.

A look at what's coming up next.

Lieutenant dan gives back.

We all have a destiny, nothing just happens.

It's all part of a plan.

Gary sinise shows how the iconic role in forrest gump inspired his own destiny and what he's doing to get veterans back to the workforce.

Plus, blurred lines mean big bucks.

We're talking about the economics of this summer's number one song.

? where you want it ? plus, just add water, beer?

Stock quotes for google glass, and why these drivers are the worst.

That's all coming up forrest gump took the movie world by storm when it was released in 1984. it brought in $177 million at the box office and won six academy awards.

Gary sinise was nominated for his portrayal of lieutenant dan with his mission to go to war and die serving his country.

It didn't work out the way dan thought it would.

Lieutenant dan, what are you doing here?

Well, i thought i'd try out my sea legs.

You ain't got no legs, lieutenant dan.

Yes, i know that.

Lieutenant dan was much more than just a character to actor gary sinise.

He represented the struggle that so many of our country's former soldiers endure on a daily basis.

Gary hopes to change that by dedicating his life to supporting military veterans and their families and at a time when 7% of our nation's veterans are without a job and an estimated 1.4 million are living below the poverty line.

His efforts are needed more than ever.

We want to welcome gary sinise to "street smarts," thanks for being here.

Tell me how you were inspired by lieutenant dan.

I had been in veterans groups prior to that, a full ten years.

In a way, you had done a lot of research for the role.

I did, i very much wanted to play the part because of the vietnam veterans in my own family and the vietnam veterans i worked with in the chicago area.

What's the biggest challenge right now for veteran s? several challenges.

One is because the wars are winding down right now, we're off the front pages.

Troops are all over the world serving.

We don't think about it on a daily basis.

We benefit from our freedom and you go around the world and you see how people live when they don't understand what freedom is, places like afghanistan, iraq, korea, places like that, you value your freedom more.

You value those who provide it even more.


It was a difficult conflict.

It divided the nation and the warriors were the kind of the scapegoats.

They were swept under the rug and treated very badly.

It was a shameful period in our history.

That's one of the motivators for me is just to get out there and try to make sure that doesn't happen again.

One of the hard lessons that we learned from vietnam is how not to treat our warriors.

And so there is a -- there is an effort today.

And there is a phone cus today on making sure that whether you agree with the mission or not, you're honoring the service member.

Unemployment very high among veterans.

Yet, a lot of the people have such tremendous skills and have had to work in so many team environments they seem in some way ready made for corporate america.

There are some great initiatives out there, some great programs that are trying to hire veterans and put veterans to work.

I'm involved through my foundation in a great program in g.e. initiated called get skills to work.

Obviously you have great skills in the military.

You learn all kinds of things -- discipline, hard work, teamwork.

What g.e. is trying to do through the get skills to work program is bring the manufacturing sector together.

Bring the academic sector together, bring the military sector together.

Bring them all together to retool skills that people learn in the military toward manufacturing jobs with a goal of putting 100,000 veterans to work in the manufacturing sector by 2015. tell me about -- your thoughts on health care and veterans and whether the government is doing enough to address some of these concerns, the lack of health care and you consider just the disability claims that are so significant nearly half a million among the veteran population.

How does that start to change?

Yeah, they're -- look, it's much better than it was 30 or 40 years ago.

There's a backlog.

We heard about that.

All of the claims that haven't been filled, the paper work, the length of time a veteran has to wait for benefits or to get an answer on something.

That could be difficult.

I like to say we never do enough for the veterans but we should try to do a little bit more.

We should try to do a little bit more.

Before i let you go, you collaborated with tom hanks on three films.

Forest gump, apollo 13, the green mile.

Any other collaborations in your future?

I don't know, tom's pretty busy.

I've certainly been very busy.

You know, i had a television series for nine years, "c.s.i. new york" is off the air now.

In the future, i'll get back to the movie business, i hope.

We'll do other things.

Maybe it will involve tom.

But i'm still busy playing concerts with my band, trying to raise money and awareness for military charities.

A great concert coming up, something called lieutenant dan weekend down in charleston, south carolina coming up on september 14. anybody in charleston, the lieutenant dan band.

It's a nice shout.

Send us video.

All right.

There will be plenty.

We are here with our closer, barry nap over at barclay's. your strategy, what you're telling clients has shifted from be with stocks that have on-line characteristics to more be in stocks that allow you to grow with the economy?

No, that's right.

At the beginning of the year, the highest trade with great historical precedence is buy stocks with characteristics, the high dividend players.

The precedent was the last time the fed capped interest rates, the high pairs outperformed right up to the point when the fed started to normalize policy.

That trade worked so well on the first quarter, the best three performing sectors were defensive high dividend playing tseng tore ssectors.

Stocks with characteristics.

The labor market turned, bond markets started to sell off.

The fed reacted to that.

We're reaching the middle part of the business cycle, the escape velocity.

That's where we'll get to the trend that's all about capital spending which we've been talking about throughout the program.

So with that, we've weakened our exposure to that.

We downgraded utilities.

We're looking for opportunities to upgrade the sectors, like industrials and energy.

The market has done so well already.

It's just going to keep going from here, barry?

No, absolutely not.

That's why we have a target.

You get this correction, the adjustment.

Fed policy normalization that happens every time the fed normalizes policy.

You go to a range.

The outlook for 2014 is good, right?

If you think about the middle 90ed cycle, the fed tightened aggressively in 1994. 19995 with the inverted yield curve and the fed funds rate having doubled, the s&p went up 37% in '95. it's next year.

So good to have you here.

Barry nap from barclay's, always a pleasure.

Coming up, everyone, reading between the blurred okay.

Unless you've been living under a rock or stranded on a desert island or you're adam johnson, you probably heard this song -- ? i know you want it i know you want it ? ? i know you want it you're a good girl ? ? can't wait -- ? robin thicke's hit single "blurred lines" featuring t.i. he's the first artist since the december, 2012 issue to have a number one album and single.

We're joined by joe levey on set with us now.

Why is it so unusual for an act to score this kind of rare double?

Not just this double.

He's breaking records right now.

About to top the top 100 for a tenth week which no one has done in a long time.

Nine weeks is the longest this year.

Why is it unusual that the number one single and number is the u.s. postal servicemailing it in?

Well, the government agency reported a $740 million loss for the third quarter bringing the total loss this year to $3.9 billion.

Well, now, the post office may deliver big changes meant to make the agency more relevant frankly in an age where they trump snail mail it's the only way to say it.

Postmaster general patrick donahoe joins us now.

You want to focus on revenue over the next year.

Make it a priority.

How do you do that?

The number of plans out there now, business plans that have a balance of both revenue growth and cost reductions.

And i think you've heard a lot about the cost reduction programs around moving from six to five-day delivery of mail and changes in health care.

But we think there are big opportunities for the postal service for revenue growth perspective.

We've seen real good growth in the package business and we think there's more runway there.

How do you grow the package business when frankly you have very stiff and profitable competition out of both ups and fedex.

They're both great companies and to a large extent because fedex is the largest customer and ups and fedex are in the top ten in the postal service.

We do a lot of work for them as well as a lot of end-to-end work for customers.

There's big opportunities with the e-commerce business as the -- that takes off there's plenty of packages from the small business perspective to come from our we work to deliver large packages too.

It looks like you have a p.r. problem in the post office in that your prices are in many cases lower than fedex and ups, but businesses are going to ups and fedex.

Dhou you get businesses to say, wait a minute, i'm going to use the postal service.

We made an announcement today to address that.

Been listening to customers.

One of the criticisms we get, especially with priority mail is it's not specific enough in terms of definition of time delivery.

So we're launching a program that will tell you if it's delivered in one day, two days, three days.

And we're adding realtime tracking to the system up to 11 tracking reports.

So we will be at the same level and better service was in our competition.

And on the cost side, again, you mentioned it, the possibility of going to five-day service.

How serious are you thinking of reducing the service to five, or who knows, three or four days?

What we're proposing is this.

We have a business plan out that we've done a number of things ourselves.

Consolidated networks and changed the operations and saving a lot of money in that direction.

But the key for us moving forward is having some legislation pass through congress that addresses health care.

Health care costs alone that we know he can fix represent an $8 billion change on a yearly basis on the p&o. gigantic turns of business completely.

We still need to move from a network standpoint five days of mail delivery.

We lost too much volume.

Any responsible business will trim that back.

We'll deliver packages six days a week.

Patrick donahoe, thank you, sir.

We hope the agency starts to make money soon enough.

Thanks for being with us today.

Thank you.

I don't want to get anymore mail.

I don't. i don't want anymore mail.

Bills and junk mail, you can do without it.

That's all i get.

All i get in my mailbox is junk.

Just pounds and pounds of junk paper every day.

And if you don't -- if you don't keep on top of it and throw it out, it piles up.

When a regular mercedes benz isn't fancy enough, customers turn to amg, the high performance division to customize their vehicles.

Not a cheap upgrade.

Customers pay 45% more for an a.m.g. car than a standard line.

Matt miller visited in germany.

He got a look at the german automaker's booming luxury line.

Take a look.

The heart beat of one of the world's most coveted high performance vehicles.

Naturally aspirated eight cylinder engine poufrping out 91 horsepower.

The amgxls from 0 to 60 in 3.7 seconds, price tag of $200,000. but this isn't your typical automotive plant.

It's the headquarters of mercedes amg, the luxury automakers high performance division, a partnership which began in 1999. noticeably absent are the robots and assembly lines at amg's germany factory, each engine is assembled from start to finish by hand.

Amg's head of engine development calls it the one-man, one-engine philosophy.

Is it a sign -- i think it's a perfect setting for a mechanic, much nicer than a conveyor belt.

Here the mechanic is always responsible for the whole motor.

Dennis dollmont is one of 80 engineers in the plant specializing in the sls engine, the first car developed and built entirely by amg.

How many do you build a day?

Three day.

It peals in comparison to a standard benz production line where 725 vehicles are churned out every day.

At amg, it takes 2 1/2 hours for one engineer to complete one engine testing the mechanics each step of the way.

It's a painstaking process.

Good, check again.

Put it in.

You want to try one?

And while the assembly process is time consuming, it's paying off for amg which in addition to the sls produces 26 different mercedes models, 30% more customers onned for a performance vehicle in 2012 than the previous year.

And the company says it plans to sell 30,000 by 2017. they are competitors who practice the same thing, but in a much smaller volume.

Here at amg, we're perfectly set up for a bigger number of motors.

But for the engineers at amg, no matter how many engines they build, there's one part of the process that never gets sold.

Is it the favorite part of the hole?

Yes, it is.

Putting it back on.



Matt miller.

All right, so are they really that much more powerful?

Well, the cars are -- yeah, a lot more powerful.

It depends on which model of amg mercedes you get.

The sls is built completely by amg.

You don't buy a nonamg-sls.

I put in that motor with dennis.

I put in four of the eight pistons there.

It's great fun.

As adam points out, all of the guys working there are having the time of their lives.

For a guy who loves cars, engines, that's got to be the greatest job in the world.

Doing your hobby all day and getting paid for it.

Amazing vehicles.

They only make the amazing vehicles.

Not just the super sports cars.

The g classes rolling around new york.

How do you pronounce that?

Glendiwagen sort of an offroad vehicle and they have seven different levels of armor, the seventh level only to be ordered by the government or military.

They do a lot of cool stuff.

The broadest array of customized vehicles in one place coupled with the highest quality because they're top notch.

You had fun.

I got to ride a bmw motorcycle around germany.

Eight mercedes amg.

Of course they don't make motorcycles.

That's your defense.

That's right.

They wanted to buy -- i think they wanted to guy ducati.

You can see pictures there all around the factory.

You can see all of the people who that business race bikes.

All right, good stuff.

If you're on the highway and you see a bmw or a prius, guess what, you'd better watch out.

We're going to tell you why on bizarre is business as usual.

You're starting us off today.

I am.

I can't wait to talk about this.

Anyone out there playing that a little rager by the fire this summer.

Guess what?

You can do it now.

You don't have to lug around cans of beer.

Instant beer.

Back country beverages has just invented a just add water beer concentrate.

Well, it's carrying its own carbonation system.

It's one of the company's beer packets.

Get this, it makes a 16-ounce beer.

So if you're out in the woods, go to the stream.

There's your water.

All you have to do is hike in and you're good to go.



Come on.

No, you're offended by this, aren't you?

I love the story, the idea, the video.

But it's got taste absolutely disgusting.

I can't imagine.

Coors is made with fresh mountain water.

I will try it.

We should try it.

If i get a chance, i'm going to try that.

I would not let that one slip by.

I want to add an addendum in the story about bmw and porsche drivers being real jerks.

We all knew they were.

Prius drivers are jerks as well in the san francisco area.

According to whom?

U.s. berkeley of california found rich people are jerks on the road too.

But rich people also bloomberg is back again on the markets.

Take a look at where the markets ended the day.

It is a sea of red out there.

A down day across the board.

The dow falling more than 110 points.

The s&p off by nine points, and the nasdaq down 15 points.

In fact, the s&p is now fallen six of the past eight sessions.

It's dropped 1.5% since catching a record high in the beginning of the month.

In terms of sectors, utilities, consumer discretionary sold off the most.

The big focus, of course, for the investors the fomc meeting in september according to a bloomberg survey.

65% of economists do expect the fed to reduce the stimulus program at that meeting.

One stock we have kept an eye on throughout the day is j.p. morgan, two of the former traders are being prosecuted by the u.s. on claims they attempted to hide losses over the probe of j.p. morgan's $6.2 billion trading loss known as the london whale affair.

Joining me now is market president dennis keller.

Thank you for joining us from d.c. what does this mean for j.p. morgan?


Any time there's trading and other gross management and compliance in the news, it's not a good day for j.p. morgan or jamie dimon.

For years they set themselves up on the gold standard on all of these issues.

They suffered from the same management problems that too big to fail wall street firms have nowadays.

They haven't gotten the whale himself in this.

He's cooperating, he's not going to face charges but they're charging two strad traders.

Does that put more pressure on jamie dimon.

What the sec wants j.p. morgan as a bank to admit wrongdoing.

Based on what we know, it's good news.

The way the cases are typically prosecuted is you get someone like the so-called london whale himself to flip and be a witness for the government.

That enables him to bring charges against the two individuals.

Hopefully these charges against the two individuals will cause them to cooperate with the prosecutors too.

If you read the complaints, it's clear at new york and the senior levels are putting pressure on those traders and the cio in london to not report those trades at the right prices.

You have to remember the cio's office generated a great deal of profit for j.p. morgan chase over the years and it was closely scrutinized at the highest levels of j.p. morgan all the way up to the c.e.o., jamie dimon.

We have an implausible argument saying they had no idea what was going on with the trades.

Frankly, that's not all that believable.

The supervisors tugt be

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


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