The Fall of Detroit: Lunch Money (07/19)

Your next video will start in
  • Info

  • Comments


July 19 (Bloomberg) -- On today's "Lunch Money," super-charge the day, and devour all that's driving the markets: stocks, bonds, currencies, commodities, options. (Source: Bloomberg)

Welcome to "lunch money" on bloomberg television.

I'm adam johnson and we have the best video anywhere.

Detroit, the motor city, files for bankruptcy.

It either a big week for earnings, plus intel's view of the future.

And treasury secretary jack lew gives a bloomberg exclusive.

And our mashreq, ben stein's working association.

And with the story everyone is talking about this morning, the fall of detroit.

The city built by cars and music is literally a shadow of its former self.

Crime and corruption have pushed people out of detroit.

The exodus has meant abandoned buildings and the low tax revenue, which leads to more crime and corruption.

The spiral has been happening for decades.

From a financial point of view, detroit is broke.

Start words.

That is the governor of michigan making the announcement yesterday on his website.

He did not stop there.

Detroit has been on the top 10 list of the most violent cities in 24 of the last 27 years.

The response time for police called it at 58 minutes versus a national average of 11 minutes.

Fire, ibm as, the list goes on.

This is not viable or appropriate for the citizens of the city.

We will get back to the governor in a minute.

The city of detroit face the media in person yesterday.

This is very difficult for all of us.

But it is going to make the citizens better off, then this is a new start for us.

Services will remain open.

Paychecks will be made.

Bills will be paid.

Nothing changes from the standpoint of the ordinary citizens perspective.

What this does do is give us an opportunity the the to begin to address some of the city's overbearing debt, which we have discussed at nadia some -- ad nauseam at this point.

And we can begin to address the health and safety and welfare concerns of the citizens of that city and move on for a fresh start for this great city.

The people in charge stuck to the script yesterday.

They went home and tried to get some sleep -- probably not -- and then came back to work again.

Then the governor comes out swinging.

Now is an opportunity to stop 60 years of decline.

This is fundamental.

This has been going on and on and people had not stopped to say stop kicking the can down the road and do something.

We are doing something.

This is the place to do it.

This is the place to put a plan for improved citizens for this -- improved services for the citizens.

When you ask the worst case, i don't dwell on that.

There's a lot of difficult work to do.

That work will get done.

We will come out with a stronger, better detroit in a format to grow the city . the citizens of the city and the state deserves it.

Still looking for details.

Detroit city manager kevin orr give us the numbers.

38% of that his legacy service.

Another almost 80% pace police, fire, yet as.

We have approximately 20% that we use for everything else.

Every pothole, snowplow, garbage.

There is the the up to $12 billion of unsecured debt.

It will take us over 50 years to pay that debt.

The thethere is no way home from that equation.

As for the governor, erik schatzker and sara eisen got a chance to asking some questions today on "market makers." it is about investing in smart programs that give better services to the citizens.

We have been doing that.

We have done a number of programs in terms of helping to remove blight, public safety, parks and recreation.

Will continue that path to do great things in this city, but they will be focused approaches and in partnership with the federal government.

You had an opportunity to watch the automakers up close.

Did chrysler and general motors' experience in bankruptcy lend you confident that this was the right path for the city of detroit to make?

It has been helpful mainly for the general public, those two companies.

They saw how they continued to sell cars and now those cut -- companies are flourishing.

We have reached that low point.

Now we can get stable and then we can grow.

But i will be some context.

People do not realize how many great things are going on all the time in detroit outside of city government.

Young people are flocking to detroit.

Let's solve the city government problem and let's grow.

Why do you have faith that this is a way to work?

Why should we have faith that it will?

That detroit is going to exit bankruptcy, whenever that happens?

You can compare a city in some respects to a company.

A bad company with a restructured balance sheet is still a bad company.

And detroit has a host of problems, not all of which will be solved by bankruptcy.

This provides that format.

We are putting in the processes and procedures in place for long-term success.

If you look at the comeback of the state of michigan, we re challenged state.

In 2009, we were at the bottom.

We are in a comeback stages today.

We have $580 million in our rainy day fund.

The best budget in the state has happened in the last two or three years.

Detroit will have that happen, too.

We are partnering with them.

The automakers did release statements on detroit.

From ford, "we believe a strong detroit is critical for a strong michigan and our industry.

The city had a difficult job ahead and we are optimistic that governmental leaders will be successful in strengthening the community." and from chrysler, "writes the group believes in the city of detroit and its people.

We not only continue to invest in the city and its residents by adding to our presence in detroit, we're also committed to playing a positive role in its revitalization." and finally from general motors, a of the auto industry will play a part in detroit comeback story and gm is doing its part." here is the reaction on bloomberg television this morning.

The the -- this is the perfect storm of bad things.

The federal government and the nation should look at this as a bad example.

Bad leadership, about politics, bad economics, and that long- term planning is what led to this.

I don't know if this will be the beginning of a renaissance of detroit, because they have just made themselves a tough road to hoe.

Filing bankruptcy will cut them out of the municipal bond market and a city like detroit needs to borrow money for a lot of reasons.

I think they will be frozen out.

Who is going to invest?

Who will believe that they will return on their investments?

Is there a market penalty?

We believe there will be.

We have many friends and many discussions to have.

He is a forward thinking, professional great manager, and he that the forefront of this discussion kevyn orr has put together a thoughtful proposal.

Correct -- the trend is clearly the biggest invisible bankruptcy -- detroit is clearly the biggest municipal bankruptcy.

What are the other places you should know about?

? amazing numbers, aren't they?

We will have much more on the detroit stories throughout the day on bloomberg television, including detroit because the emergency manager, kevyn orr.

A big day in earnings, especially for marissa meyer.

She had a lot to say in her web cast.

We will give it to you.

We had an exclusive interview with morgan stanley's ceo james gorman.

And why stop there?

We can talk about trains, and we're going to with the ceo of union pacific.

That is coming up later this hour.

I love trains.

? we are streaming live on your tablet, your phone, and

I'm adam johnson.

A big week for technology giants.

Yahoo!, intel, google, microsoft all reporting earnings.

Let's start with microsoft, its stock down 10% today.

The company reported its biggest myth in almost a decade.

They blamed weak pc demand and a $900 million writedown in its surface tablet inventory.

Steve ballmer has his work cut out for him.

Google also missing the estimate.

Collet the mobile growing pains.

Advertisers pay than 6% less to click ads on mobile advertising.

Good for them, bad for google.

Does anyone use a pc anymore?

Maybe at the office.

To help address this, google is unveiling new mobile at products.

Stay tuned for about one today.

Google shares are down the most in nine months today.

And intel sought its decline for a fourth straight -- sought a decline for the fourth straight quarter.

It gets most of its business from the pc market.

The the -- the new ceo has a challenge of solving pc shipments.

They're big challenge will be to tackle mobile.

-- there big challenge will be to tackle mobile.

We decided to condense the marissa mayer announcement into 16 seconds.


Traffic has been in decline.

Quarter to was the most productive.

The yahoo!

App for mobile.

Two new innovation projects.

Finally, turning to partnerships, apple, microsoft, google, facebook, a twitter.

And the complete saturday night live archive as i hit my first year anniversary.

We are deep into our second sprint.

An engagement that will drive growth in the second half of the year.

Did you get all that?

That was marissa mayer speaking on tuesday.

Yesterday, she added another acquisition.

It is a beijing-based startup . profits are up and so is guidance at ibm.

They are shifting from low- margin businesses, buying back stock, and admittedly, cutting jobs.

We wish they were hiring.

Ibm a name for itself building computers, from laptops to high- powered supercomputers.

In fact, the terms supercomputing was first learned -- first used for the custom built tabulators that ibm may for columbia university in 1929. we thought we would take a look at the power computing starting with the lunar landing.

It took 3,000 t of fuel and a computer processing 1 mhz per second.

Nasa spend $150,000 on the system.

10 years later, and easily -- and equally powerful pc with a bill at one-tenth of the price.

As time marches on, so did computing power.

The playstation was launched by sony in 2000. it was 300 times faster than the computer on apollo.

They connected them together to make a super computer.

The fastest in the world today is tighten istitan.

It is 10 times faster than its predecessor.

It is more powerful than the march curiosity rover.

Amazing, isn't it?

What treasury secretary jack lew had to stay ahead of the g-20. and now but he is getting comfortable in his office, who will take ben bernanke's job?

? finance leaders from around the world's 20 biggest economies are meeting in moscow today.

Are treasury secretary jack lew will give an exclusive interview of the focal point of the g- 20 meetings, which he says is europe.

Europe does need to look at what it needs to do to get growth going again.

The world needs europe to grow.

I think we have a common interest and a world where there is growth so we can have benefits within our borders and across our borders through job creation.

Those are the kinds of conversations are the four to having at the g-20 meeting.

What are the sort of steps that the u.s. would like to see europeans doing that they are not seeing right now?

Accommodation of policy that was decisive -- we have had a combination of policy that was decisive and help to get the economy moving.

If you look at the world for years ago and the world now, very different.

Four years ago, the world looked at the united states with the financial crisis and there was a lot of explaining to do.

Four years later we are growing again, not as fast as we would like, but we are going in the right direction.

The core of our economy is recovering.

The resilience of our economy is clear.

Itthe political system has led to policies that have been effective.

We have more work to do.

We are in a place where the example of the u.s. is a good one.

Unemployment is still lots of it -- 7.6%. wall street economists are looking at the second quarter may be under 1%. can we be that much of of europeans in that context?

I never miss an opportunity to say that we are relentlessly focused on people looking for work in this country, i making sure they have the opportunity to find work.

The fact that we have made enormous progress does not mean we are all the way there.

The core economy is growing at 2%. if you look at europe, 2% is far beyond their expectations.

And headwinds will not be there next year, so we should be doing better as we get to the beginning of next year.

I have never said the work is done.

And we need to be cognizant of the fact that we have to invest in our own country in order to make sure that everyone who wants the job has a job.

We have to worry about education, about research and development, about infrastructure.

And that is subject to much debate as it worked for the fiscal measures the remainder of this year.

-- as we work through the fiscal issues the remainder of this year.

Taking a break to sweat it out with his colleagues, hans nichols, peter, and alan sperling of the white house.

Here's a look at how they did.

[years] -- [cheers [] we've got two exclusive interviews for you.

The morgan stanley ceo and the georgia bank ceo.

All of that is coming out.

-- the deutsche bank ceo.

All that is coming up.

? 26 past the hour, which means it is time for on the market.

We are seeing stock market's decline, largely because of earnings disappointments.

A lot of that happening in technology.

Also, watching the bond market with its second weekly gain.

? this is "lunch money." streaming on your phone, your tablet, and

I am adam johnson.

Here is the latest video grabbing headlines.

We begin in southern california or more than 6000 people have fled their homes because of a growing wild fire.

Fire crews are strike -- trying to stop the flames from spreading to the city of palms springs and idle while.

At least seven homes of already been destroyed.

In egypt, thousands of people are taking to the streets protesting against the military- backed government.

Traditionally on this day, egyptian celebrate their armed forces but these protesters are chanting anti-military slogans and calling for the return of ousted president mohamed mussi.

In london, reporters will do an immucor story and that includes standing in the hot sun all day waiting for a royal baby announcement.

Runs of media are camping out near the hospital or the duchess of cambridge, formally known as kate middleton is expected to give birth any day now.

Ben bernanke has had a very busy week.

Of days of testimony in front of congress, his semiannual economic of date.

Who is going to get his job?

His term is up in january.

There is one group that has a pretty good handle on the short list and some of the long shots.

A hot parlor gain in washington this summer is who is going to be the next fed chairman.

Has been jockeying for position and bloomberg broke the story last week that larry summers is making a behind-the-scenes bid to push for the job but the irish online brokers are laying odds on this.

The interesting thing is they called it right last time.

People tend to to listen to the wisdom of the crowds but it is worth paying attention to.

Vice chairman yellin , a chic front and center?

Question is front and center by quite a bit.

The number two is roger ferguson and has edged ahead of larry summers.

He is not a name that gets a lot of chatter in the washington social scene.

Why roger ferguson?

He is not a front line monetary economist?

No, and not a guy you see on tv talking a lot.

He would be an historic pick as the first black fed chairman.

He is eminently qualified.

If you talk to some of the more sane people in washington, he is a popular name.

He is not somebody on everybody's list of.

Is there a dark force?

Let's see -- there is alan krueger at 25-1 with just let the obama administration.

Nassim taleb is a 1000-one.

That is a serious bats?

Christie's are considered null to bets to begin with.

If you want to lay that bet, those are the odds.

We ask our viewers, you, what do you think?

Tweeds or sent to betty liu.

This is a sample -- then there were the usual suspects -- no shortage of opinion on twister.

One man has a few things to say about the fed chairman is funny man/economist ben stein.

His words are quick and pointed.

What is the first thing that comes to your mind when i say bernanke?

Drug dealer, pushing drugs, pushing that easy money drug down our throats and making all americans addicted to using money and making wall street a day to to easy money and making the stock market addicted to using my if i love it when i open up my account and say it was more than it was the day before.

I am happy camper.

He is a drug dealer and someday when you come off the drugs, it does not feel so good.

That day will come.

Word association -- taper.

I wish they would do it sooner.

I'm ready to take the hit.

I am ready to pay higher mortgage rates on the many houses i own.

President obama?

I am not a fan but i think he handled some things brilliantly.

I think he probably does a better job than mr.

Romeny would have.

I would rather have seen mr.

Mccain as president.

I don't want to see department justice pursuing george zimmerman.

I think it is picking a racist scab.

Let's talk l little about banks.

Banks -- you laugh about i hate them did they take that money and they pay almost no interest.

They sent me statements that are all screwed up.

I have a wonderful bank.

It only has about 100 clients and for some reason, the bank tells me i read as many checks as the other 99 clients put together.

That is probably because i have 12 houses.

One file or association -- bueller.


It changed my life and i love him a lot.

I miss john hughes like crazy.

He was a wonderful man.

It was the best day of my life although my wife always says what about the day we got married?

It was the second-best day of my life.


We've got an exclusive interview with two of the biggest names in the banking world, morgan stanley ceo james corman, if and deutsche bank co- ceo anju jane we will take you on a field trip to the union pacific rail yard.

It spans two counties.

From trains to helicopters, human powered helicopters.

33 years, the american helicopter society has been challenging engineers and mechanics to come up with a chopper powered by muscle.

It is called the sikorsky prize.

They have to keep it 9.8 feet in the air for 30 seconds and for 33 years, no one has been able to pull it off until now.

? it was a to a moderate $50,000 price of congratulations.

? ? -- it was a $250,000 prize so congratulations.

? ? ? ? we get a lot of exclusives and morgan stanley's james sat down with erik schatzker yesterday.

They started the conversation about the banks successes.

What stands out to you as the most meaningful achievement?

It was very steady.

One of the things that this management team has focused on is giving deliver it predictable results.

The standouts on the business performance like equities were phenomenal . $1.8 billion in revenues.

It was the best quarter.

As has been doing great for a long time but it had an absolute blowout.

18.5% growth and bringing down risk-related assets, we're below the first quarter $237 billion.

There was a lot of good news.

If you look at the equities performance by region and product, it was strong.

Prime brokerage was very strong, cash equities was strong, the tour into this business was strong and asia and japan and europe and strong year.

It was a good performance.

Any weaknesses?

There'll always weaknesses.

M&a is not where we wanted to be.

Is that what is most disappointing?

It was not disappointing.

It is clearly a function of where we are in the turnaround of the institution.

It was well-understood that it is not where our aspiration history as all the banks are recovering, shareholders have decided to get better returns and with that, compensation will reflect that.

Everyone behaving rationally or are there still some bad actors out there?

It is a complicated industry as your question implies i don't want to call them bad actors.

There is always irrational behavior is from different firms and different stages of development and different strategies.

I don't want to talk about other firms.

Talk about the degree of irrationality.

How much less rational is it when things were most rational?

Put it on a spectrum.

I think things are pretty rational right now, to be honest.

I have been around the industry for 25 years.

It is a sober environment we operate in.

The leadership of the banks, all of a home in a pretty well, are very sober, quality professional people.

I don't see a lot of holes at the large institutions.

With -- we laid out some charts a couple of these -- years ago and we got ahead of ourselves coming into a very long and extended zero test rate environment with the depressed equity environment.

The equities market has recovered in late at new targets of 50% and just exceeded those in that targets a couple of months ago that we get to 20 and above that and we will whether we do in the next quarter or not.

Another exclusive with another bank chief, deutsche bank.

In china, we see a self- driven attempts to moderate growth and probably more importantly, a shift away from an economy that has been very dependent on direct investments in infrastructure by the government.

That will be driven by domestic consumption.

I think it is the right strategy in the long run but it does involve a structural shift which would bring with it its share of risks.

We believe those risks that people are focused on -- and our economists are still predicting it will not a hard landing in china but we remain very constructive and optimistic over all that asian growth will remain strong that not it surely there should be some [indiscernible] coming off a high base, the numbers which i am seeing are in the 6.5% vicinity which is still very healthy growth.

I would draw your attention away from just nominal gdp.

If there is something to watch closely in china, it would be the implication of that shift.

Up next, we will talk with the ceo of the largest railroad in the u.s., union pacific.

Plus, barbie's odd jobs.

? a big weaker earnings.

We had tech and banks and now we will be talking rails.

Shares of union pacific at an all-time high this week for the nation's largest railroad reported second quarter profits that beat analysts' estimates.

It hit an all-time high.

The ceo tells us how he is doing it.

It is a combination of a great franchise an awesome team focused on creating value for customers.

That is what drove the results.

What kind of pricing power do you have?


Prices in the second quarter came in at 4%. if we are happy with that.

A key focus is to create value for customers that justifies the price increases if we put into the marketplace and we are doing ok with that.

4% is a good market.

What other new businesses are you looking at?

We are multi-dimensional and terms of their franchises.

We have six strong businesses plus the strongest franchise in and out of mexico.

Our key focus now is on business development.

We turn about 10% of business every year so we have to keep that pipeline open.

We have about $6 billion right now in potential business that the team is working on which is good.

One of the things we are excited about is the amount of interest that seems to be generated for companies that in the past have located in the euro zone and even in mexico.

They are looking at mainland united states and looking at great transportation infrastructure and looking at the possibility of cheaper energy prices and building a new facility.

We have had about six companies in the last year or so that made the decision to locate on our road in mainland u.s. a we are pumped about that.

Amazing story at union pacific.

As for toys, mattel reported a 24% drop in second quarter profit.

Barbie sales fell for the fourth straight quarter.

Barbie has had a long, tough career and she has had some pretty interesting jobs.

? party has big plans this weekend.

-- barbie has big plans this weekend.

? ? ? ?barbie is hungry.

? barbee, you are so beautiful.

Barbie is making it happen.

Are you ready for this?

It is a car fiat exclusively out of tainted women.

? it is time for "on the market." there was a record close yesterday.

The s&p 500 is laura today along with the other major averages.

We are more waited to the downside today.

Let's look at the earnings winners.

We have increases in chipotle, whirlpool, general electric after positive earnings reports.

There i a lot of negatives in technology.

Microsoft posted its biggest one-day loss since 2009 and we saw negative results from intuitive surgical.

Let's talk about what we are looking at next week and earnings.

Barbie got banged up this week but mattel reports its earnings next week and it is also hasbro's turn.

Joining us to discuss this is michael perlis, chief global strategist at wheat and and company.

The analyst research seems to indicate that hasbro's more reliant on toys for boys.

Analysts are looking for some weakness in the quarter.

The options markets imply a 4% move to -- related to earnings for monday morning.

I think what has happened with the stock is it has taken a little bit of weakness that you referenced with mattel.

This is not a macro issue.

This is very company and product specific.

As mentioned, barbie has sat issues.

Whether hasbro has issues with any of its products remains to be seen.

I actually like buying august calls.

Where is that optimism coming from?

Is it because it does fallen too much because of rate mattel drag down the facts?

There's a little bit of a drag down effect.

If they come in decently on monday, you will see investors swap out of mattel and hasbro.

-- into hasbro.

With august's expiry here, you have the the ability to capture that asset reallocation from one name to the other.

There is one caveat to this optimism which is that this company has had strong momentum in emerging markets.

Emerging markets in the last quarter have had some issues so that is one caveat.

Hasbro does not have to inherit this this of the problems that mattel has had with the barbie brand of late.

That is a very product-specific issue.

There is commentary that is optimistic about the second half of the year because hasbro makes toys related to marvel

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


BTV Channel Finder


ZIP is required for U.S. locations

Bloomberg Television in   change