The Fed Get It Wrong: Surveillance (05/16)

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May 16 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Michael Darda, Wendy Liebmann, Steven Davidoff, Jack Stratton, Scott Stringer, Robert Malcolm McDowell, and Tom Silverman. (Source: Bloomberg)

This is "bloomberg surveillance." the yield implosion continues.

There is light at the end of the train wreck known as jcpenney.

Good morning, everyone.

This is "bloomberg surveillance ." it is friday, may 16. joining me, scarlet fu and adam johnson.

We have an incredibly varied and busy bloomberg surveillance.

We are starting overseas first.

Indian stocks hitting an all-time high as balancer touted -- ballots are counted in the largest democratic election.

Slowing growth is a theme around the world.

It has been a crazy week.

Yes, it has been.

Speaking of which, building permits coming in at 8:30. we have the consumer confidence, as well.

Michelle obama will be speaking at topeka.

Brown versus board of education was 60 years ago.

I was too young to understand the uproar, but i remember the debate clearly.

Yelling and screaming at dinner parties.

Incredible.

In "madmen," that was my childhood.

Sitting at the top of the stairs.

[laughter] let me do a data check for you.

There is the story.

We will talk to michael.

The 10 year yield.

We care.

-- weaker.

Nymex crude has done nothing.

The ruble, i put up there with a little bit of interest in ukraine.

We will see that in our headlines, as well.

Let me go to the screen and get you set up on what the pros will be talking about.

This is the 30 year bond.

Since adam was a pup.

[laughter] this is the uproar you see on every cover of every newspaper.

We have looked at the front pages this morning.

Here is scarlet fu with our front page.

Credit suisse is the first one.

It is close to settling with the u.s. government over tax evasion.

The parent company would plead guilty and pay $2.5 billion for helping americans evade taxes.

The distinction is that this is the parent company, not the subsidiary.

This is the parent company.

Most of the money would go to the department of justice.

Earlier, we heard about u.s. authorities are trying to convince them to pay $3.5 billion.

We do not really know the ramifications of this.

They have been negotiating with regulators that they do not lose their charter to operate.

That is the concern of sanford bernstein.

If a bank effectively pleads guilty to criminal charges, there may be other institutions -- i want to be scrupulous about this.

I did an event this week it's credit suisse -- at credit suisse.

I don't want people taking a shot at me.

This is going to be at the parent company level, rather than the subsidiary.

That may be the loophole that allows companies to continue to do business with credit suisse.

The next story is fcc and the neutrality.

-- net neutrality.

It matters if you are streaming anything over the internet.

The fcc approves fast lanes.

Comcast could charge google to make sure it has flawless distribution.

It already charges netflix.

I was watching something on saturday and i could not see the fight between the gladiators because the cap -- kept pixelating.

Do we assume our bills go up?

One year ago, i was having problems on a saturday night, a lot of people watching netflix.

And it said come upgrade to faster service, $15 per month more.

I did, i do not have that problem anymore.

That offer will continue to pop up for you.

I am reading about sol ange.

Leave me alone.

[laughter] narendra modi would become the prime minister of india.

The indian stock market rallied on this and is.

-- news.

This is about caste.

He is from a lower caste.

Forget glass ceiling, it was a steel ceiling.

Will put.

-- well pitut.

If family of grocers -- a family of grocers belonging to the oil presser community.

He defeated the congress party.

This is the ruling party.

A lot of big changes in india to come.

Wonder we see the selection?

-- when do we see this election?

It is just amazing.

500 36 separate elections as part of the overall election.

It takes time.

It is not all electronic in india.

Those of the front page stories.

Our guest host, the chief executive officer of the bux l strategic -- wxl strategic.

A miserable is janet yellen?

-- how miserable is janet yellen?

Slack, slack, slack.

It has been a surprising week.

Bond yields have tumbled.

This is the third time the fed has backed off on monetary stimulus.

Are you willing to say the fed has been wrong three times?

The consensus has been wrong at these seeming turning points in terms of the rate outlook.

There is no doubt about that.

What is different about this, this has been driven by the real rate.

Inflation expectations have not plummeted like they did after qe1, qe2 ended.

We are not seeing the associated stress and other credit market indicators.

It is a little unusual, relative -- let me translate what the good darda just said.

There is the inflation pardon the real part.

Michael is saying that the inflation part has not changed and the real part is driving down rates.

And it is not necessarily something we have seen before.

I can do this, i cannot do this.

I cannot do this thing.

[laughter] we will continue low interest rates.

My guess is that if the outlook is intact for this year, it is going to be modest growth.

I don't think we will roll over.

Rates will probably stabilize and most likely move up some.

If that does not happen, some forecasters are calling for that , i do not see how that outcome is achieved unless we are seeing growth expectations scale back.

I want to talk about mario draghi and janet yellen and ben bernanke.

What is on their to do list after what we have observed this week?

I think the fed is basically locked into the continuation of the taper, unless we see a violent tightening in financial conditions or the labor market data rolling over, which has not happened.

I think those two conditions would have to be met for the fed to back away on the tapering process.

Once the purchases are completed later this year, then there will be a pause before the fed continues -- considers any tightening.

That is very uncertain.

At her first press conference, janet yellen was backed into a corner on the six-month statement that she clarified later.

The fed really does not know.

It depends on the data and the outlook and the timing of when the tightening process would start, presumably next year.

When you talk about data, you're going to wendy's wheelhouse.

You created the first survey that analyzes consumer behavior.

What is the latest data telling you?

American shoppers are still feeling very uncertain.

They are feeling better.

They want to pay for what they are buying.

They do not want to rack up debt.

Let me pay my bills and then i will come back.

That is one of the big challenges at the moment.

Might that be why we are saying ms.

Yellen go back and forth?

It is a modest economic expansion after a big fall.

I think that is consistent with the moderate growth backdrop.

Ok.

we will pick this up in an hour.

Let's go to company news.

Here is scarlet fu.

We start with uber.

The car service startup is in talks for new financing that would give it a valuation of more than $10 billion.

It provides rides in 115 cities around the world.

Pinterest has raised new financing that values it around $5 billion.

It began a program aimed at attracting ads this week.

Deutsche bank is getting out of the casino business.

It has agreed to sell the cosmopolitan in las vegas.

$1.7 billion -- the price tag.

That is this morning's company news.

Coming up, shares of jcpenney soaring after the retailer finally posts its first sales gain in three years.

Amazing.

Is this just a one quarter wonder?

We will talk about it.

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

? good morning, everyone.

"bloomberg surveillance." scarlet fu got angry at me and called me godzilla.

I really enjoy talking to this guy.

You will enjoy it.

"bloomberg west." gelfond on "godzilla." he is a really different guy.

I have my godzilla moments.

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

I am taking a look at active movers in the premarket.

Jcpenney up 16%. financials are moving in the right direction after three years of losses.

The net loss is shrinking.

The caveat is that these first corder numbers are being compared to a pretty low base.

This makes them look better than they actually are.

You said it was up what percentage terms?

12%? let's just be clear.

The stock is trading with the handle.

It was $45 a couple of years ago.

This has been a 30 month train wreck.

It has been a long time coming.

What is interesting here is the question of the core shopper.

We shot this middle level customer had disappeared.

Wendy, you work with retailers all the time to try to innovate, to try to get on top of everything.

Jcpenney is trying to catch up.

What are they doing to attract new customers?

I'm not sure that they are attracting the new customers yet.

I think that is the future that they need to address.

What they have really done is stabilized and said to the people who have fled out the door, it is ok, it is safe to come back.

It is not so young.

There are things that fit you.

There are the basics and the brands.

It is a great value.

They have done the basics again.

They're holding on to some of the people who were fleeing.

One headline that caught my attention, the private label made up 50% of sales.

It is working for now.

Is this the right strategy?

It is where they have some integrity, some authority.

They are not trying to be who they are not now.

They have to stabilize and keep core shoppers in the store and then move on to build new.

But there are so many other avenues now.

Do i go to the jcpenney of five or 20 years ago?

I don't get a sense of new new at all.

The denim section still feels new.

They have gone back to five steps.

They have to figure out, how do they move forward?

What is that?

It is a conversation around, how do i get boomers back into the store?

How do i get people looking for everyday fashion?

People who recognize decent, contemporary fashion.

Eagle looking for home products again.

-- people looking for home products again.

Urban and suburban people.

People who say, jcpenney is a viable alternative for me.

The man who brought six flags out of bankruptcy said you have to give people a reason every year.

What is the something new a jcpenney?

I think they have not figured something out -- and that something out yet.

They went really new.

They have to move forward again.

The other news was sears, jettisoning sears canada.

The trust between a retailer and suppliers.

Does jcpenney have that trust with their suppliers?

The trust they have at the moment is michael altman.

The money guys trust him.

They trust him.

While he is willing to stay -- that is not our sweet spot, we are talking about the confidence between jcpenney and the shoppers.

The challenge is how do they tell other people, it is a good option again?

The cash option seems to be solved right now.

They're just coming off the bottom.

I have no idea what i would do.

I don't own the shares , though.

It will be an issue in the second half.

-- i don't own the shares, though.

It will be an issue in the second half.

During the quarter that counts, they can maybe turn it around.

I have enjoyed doing this.

[laughter] the boss comes over, taps you on the shoulder, why are you still on this thing?

[laughter] this is true.

This is been a wake-up call for a lot of investors.

There has been a wake-up call for chipotle.

Shareholders rejecting the pay practices.

We will be speaking about the issue.

? good morning, everyone.

"bloomberg surveillance." who took the biggest hit this week?

Tweet us.

We would like to hear from you.

Jay-z. the penguins are in their, as well.

-- there, as well.

Adam johnson gets us started with top headlines this morning.

Another warning to russia from the u.s. and the u.k. they are vowing to punish russia with more sanctions if the presidential elections are disrupted in ukraine.

Protests have erupted in brazil four weeks before the start of the world cup.

Demonstrations took place in four cities.

Money could be better spent on health and education.

There is a report that los angeles owners clippers owner donald sterling is ready to defy the nba.

The letter says sterling may also sue the nba.

Those of the top headlines.

Fascinating development, isn't it?

There is only so much you can follow.

I have to admit, i am not up to speed.

It is going to be a long, ugly battle.

You have to have a facelift to be in the front row of the l.a. clippers basketball game.

He proves you don't. [laughter] it is graduation season and our nation's best and brightest are up in arms.

You say you want a revolution?

Students protesting about big-name guests as commencement speakers.

Of course, christine lagarde withdrew as a speaker.

Condoleezza rice -- there are a lot of people against her speaking at rutgers.

The one that fascinates me is lagarde.

The criticism is that the imf has become a voice piece for developed economies to impose on emerging ones.

Since when do graduation speakers not show up?

You are allowed to protest.

Joe mccarthy would have given a commencement speech.

There would have been protesters.

This is a uniquely american thing.

Are you baffled by this?

I am baffled in the sense of the standdown on the part of people who will speak.

I have better things to do, things to work on.

This year's graduating class came of age during the recession.

There is a context for everything.

They sought the imf -- saw the imgf firsthand.

They need to talk to wendy and go shopping.

Retail therapy.

Coming up, why investors are pressing the switch off button.

That is next on "bloomberg surveillance." ? good morning, "bloomberg surveillance." i am tom keene.

With me is scarlet fu and adam johnson.

A quick data check.

For those of you in the evening and tonight as of india, election returns looking to be early resounding for mr.

Modi.

A news on the other side of the world.

You do not see it in the markets.

Look at the 10 year yield, 2.496. a stunning statistic from the week.

Futures got my attention.

Gainers and losers.

Cisco up 6% since last september.

Orders climbing on demand for networking machines to handle mobile traffic.

Cisco benefiting from that.

We wanted to highlight walmart, down two point four percent.

Blaming the weather for weakness in the first quarter.

Second-quarter quarter profit forecast also missing estimates.

Zip shop is a gainer.

It is an online retailer.

We will talk to steven davidoff about alibaba, he is the guy on china.

About auditing, numbers, all of that.

There is a lot going on here.

The tumble of the markets is absolutely amazing.

It is friday.

Miss-friday.

The number one fiction is why yields are lower.

I have heard more misinformation and we need clarity on what low yields signal and what they do not signal.

Michael darda is chief mr.

Stringer at mkm partners-- michael darda is chief myth destroyer at mkm partners.

What are we getting wrong in our analysis of why the yields are coming down?

People look at low yields and assume the fed has been a lead balloon on the yield curve.

If you look at the period, what is striking behind the falling yields is that you also see filing nominal gdp growth rates and falling inflation.

If you take the whole cycle, from the first quarter of recovery to the last quarter for which we have data, it is the slowest nominal gdp growth of any postwar business cycle and the second lowest inflation.

If that is your environment you will have low yields.

In the 30 year bond chart, do you agree with pimco's bill gross about the new neutral?

A dampening of growth expectations.

A more dampened era.

I think trend growth is somewhat slower.

Some of this is cyclical billing off the cliff.

A velocity shock.

The fed only partially offset that.

I do not want to sound too pessimistic because i think the growth outlook is decent.

It will be modest, 4% to 5% nominal gdp.

That is not -- that is not what deutsche bank is saying.

Pimco -- first it was the new normal.

With subpar growth for a long time.

Now the new neutral where it is 2% globally.

Can you put a number on where the 10 year and the long bond, the 30 year, where they go?

My guess would be we are closer to 3% by the end of the year.

If we can get to a 5% nominal growth pattern that would be a step up.

I think yields probably do move back up, which would be a healthy development.

Going the other way and yields filing two 2% or below normal two percent -- that is a possibility?

Sure.

But not without a big dent to growth expectations.

In other words, with yield at 2.5%, you would be looking for bonds to fall.

Losing the yield back to 3%. the end of last year was capping off a huge move, the 10 year went to 1.38 at the end of 2012 we had a more than a doubling of the yield.

Part of this is just backing and filling.

On a very low base.

I want your take on the stock market.

David tapper spoke at a conference on wednesday and said he is nervous about the u.s. market.

It is not time to go short yet but you do not want to be going too "freaking long." was his direct quote.

Scarlet fu?

That is a break exclusive.

> is a concern over valuations justified?

I agree, we had an incredible year last year and we have had a great fight you run.

I do not think the valuations are crazy but from these market levels, one -- it is prudent to be more cautious at the margin.

Unless the market pulls back.

I want to bring you in quickly and then go to wendy liebmann on retail.

You see a sustained financial repression.

For a lot of americans, for savers.

I don't know if i would use that term.

People think of that as the fed manipulative things.

The low rate environment as a result of low nominal growth.

Let's bring it over to you our world, people have a limited pocketbook.

All retail still has to manage for financial repression, whether fed manipulative or not.

The shopper is now telling us -- i know it is not going to get better anytime soon.

I want it, but i need to pay for it.

I am not putting all of my credit card.

I am managing my finances, which means it is stop and start for the for suitable future.

It is interesting that you said the shopper as "she." aren't men becoming the shoppers?

They might be more sensitive to financial downturns.

Men are doing a little more, we wish they would do a lot more.

Women are much more sensitive than men are.

They are managing the pocketbook.

Yes, they are.

They are?

Adam johnson suggesting women are more sensitive.

Another surveillance break-sclu sive.

What is your view on wall street over the next five years to 10 years?

"ft" talking about retail broker pay cuts, they did anything on ubs.

You have seen the chart.

What is michael darda's view on new york city and london?

Is a tough competitive environment.

Capacity continues to shrink.

That is the scene that will continue to play out over the next few years.

Whenever there is another recession, hopefully at least a handful of years a way, that will continue.

I would not be expecting those pressures to let up anytime soon.

Michael darda with mkm partners and wendy liebmann as well.

Coming up, our single best chart.

What the internet fast lanes will mean for your net fixed weekend nights.

-- netflix weekend nights.

This is "bloomberg surveillance," streaming on bloomberg.com.

I thought we were doing a chart?

? is an election that is a little different than an election in the united states.

A cacophony of democracy in india.

Shots of new delhi as history is being made.

The congress party, the gandhi party is really under pressure from a different form of indian democracy.

Mr.

modi will be a name you will no.

Raj rajaratnam is their yellen.

Pageantry happening right now.

This is "bloomberg surveillance," i am tom keene.

Let's get the top headlines with adam johnson.

In turkey, police dispersed thousands of protesters angered by the nation's worst mine disaster ever.

284 miners died.

The prime minister called the disaster "part of the nature of the business." billionaire paul allen was a sailor at last night's phillips auction in new york city.

He put a mark rothko painting on the block.

"untitled red blue orange" 14 $56 million.

-- went for $56 million.

I could have painted that.

There's the red, there's the blue, there's the orange.

I said the same thing.

$56 million?

$56 million for blue, orange, red.

I have sat in the dining room with a rothko and it is sublime.

You have to look a long time.

It takes you to another place.

India's opposition bloc led by narendra modi headed for the biggest election win in 30 years.

The congress party has conceded defeat, that is the party that has run india for most of the last 67 years.

Modi has promised to overhaul the slowing economy.

Already wall street is waiting in.

Cbs is reiterating a strong buy on india.

I would suggest we will pivot to an indian discussion at the white house.

Speaking of the white house.

There are comparisons between modi and president obama.

He has rhetorical resources.

In style yes.

People -- read up on this.

Single best chart right now.

Wide couch potatoes should care about net neutrality.

Treating web traffic equally.

What happens when websites or content companies like netflix pay for preferential treatment.

This is the fast lane the sec voted yesterday to allow.

This is from netflix and shows the average streaming speed of netflix on comcast from january 2013 until now.

You see the slowdown to a low this january us about 1.5 megabytes per second.

It jumped 66% in in march because the companies struck a deal where netflix would pay for faster performance.

Back to the question -- does my bill go up?

It is a big question mark.

Some people feel it will.

I pay $172 a month for time warner cable.

That is more than a year ago and i paid extra -- wendy liebmann on retail.

Every dime of this utility thing called netflix or entertainment or whatever comes out of jcpenney's pocket.

People prefer to pay for the entertainment then their genes.

-- than their jeans.

How does this full over into disruption of amazon?

Do you still think amazon will take their share?

You have amazon taking the prime rate.

Now you have another $20 a year i have to pay.

They are usintg goto shop.

Consumers have to manage their costs because the top line is not growing.

They are much more cautious than corporate america.

We continue this conversation on managing costs and what retailers are doing.

Our twitter question of the day is a good friday question.

Who took the biggest hit in the last five days?

Bond bearers, and a net streamers, or jay-z? the pittsburgh penguins.

Tweet us.

@bsurveillance.

? this is "bloomberg surveillance," i am scarlet fu with tom keene and adam johnson.

Futures down before housing starts and michigan numbers later this morning.

Cbs has unveiled a new lineup.

It changes including thursday night football.

My former coanchor trish regan spoke with president and ceo les move this -- les moonves.

We did cover a lot of ground.

He is excited about football.

That is a big win.

Joel mchale -- there have been lots of talk of him being the new host for "the late late show." that was making its way around the internet after les' wife twitted a picture of them.

Everybody said that is going to be it.

He cleared up some of that.

He said that was the first time he had met joel mchale.

They might have discussions but there was nothing in the works.

The other thing he said, neil patrick harris had gone on howard stern recently and said that actually the colbert job for "the late show" had been offered to him.

Les moonves cleared that up and said it was not so formerly offered.

There might be a variety show.

Those were a few things we cleared up.

The other interesting thing is that cbs news.com is going to be launched as a 24/7 -- big change.

And it will be there effort to supersede cable.

As we speak about digital, aereo comes to mind.

That has been a big story.

We spoke a little about aereo and the supreme court arguments.

Take a quick listen.

We obviously think aereo is illegal.

They are taking our content and charging people for it and not paying us.

It costs a lot for the nfl and it costs a lot to produce "ncis" and "the big bang theory." when we do this with time warner cable or comcast, they pay us.

He did make the point -- it is illegal in his opinion.

Yes, it is in his view.

They are stealing content.

He made the point that if the supreme court decides to rule in aereo's favor, they can go straight to the internet themselves.

That is what he is doing with cbs.com.

Goes directly to the internet.

The other networks -- does that mean they are going to pull out?

Those things are all being looked at.

At the end of the day they want to make sure they are the ones benefiting from the content as opposed to, say, aereo.

Excellent interview, we will be watching at 3:00. walmart, the latest retailer to blame the bad weather for bad sales.

Now it is made, no more excuses.

Our next guest created the first regular survey of consumer behavior in the 1980's. she advises retailers how to sell more.

Wendy liebmann, ceo of wsl strategies.

We know who is doing it wrong.

Target is struggling, walmart is struggling.

Who is doing it best?

Part of it is not anybody is doing it.

There are selective spots, simulate macy's -- someone like macy's where they are looking at an army channel store.

They are trying to bring in young shoppers and millenials.

They're trying to make it worth the trip.

Some of the specialty retailers.

Michael kors?

Michael cores, people like j.crew.

Shoppers are saying i am willing to do a little bit more if you give me something new and different.

If there is something new.

We talk about "the devil wears prada," you are dressed gorgeously.

I went through the metropolitan museum of art fashion exhibit.

I refuse to believe america has given up on fashion.

Are we going to become a nation of chinos and blue jeans?

Is that our destiny?

We were always that.

There are places that are not like that.

You are right, we still aspire.

We shpoop and aspire.

The damper is we feel we must pay for it.

We want new and innovative.

If not, we will cheat.

The distinction to me, you where wonderful things on the show.

I look at america and jcpenney -- maybe people are not shopping there because they do not want that garbage.

That is a different america.

We are talking about a bifurcated america.

Jcpenney wants to grow out of that because it is a disappearing group.

Michael darda, when was the last time you went shopping and felt you could spend a lot giving what you are seeing in the economy?

I don't know if i am a good proxy.

I shop pretty erratically.

You have two dogs.

All his discretionary income goes to dogs.

At petsmart.

Where it is retail play into the greater gdp statistics?

It is still huge.

Absolutely.

You really do need to see a sustained tighter labor market if we are talking about people in the middle and the low end feeling the economic recovery.

There is still too much slack in the labor market.

Wage growth has been dead flat.

We have not seen the unemployment rate and the underemployment rate fall eno ugh.

Within your worlds, this is critical to bring darda and liebmann's worlds together.

The word "slack" is word of the moment.

Talking about the wage price spiral as the driver of inflation.

Are you seeing evidence of that?

I would reorient that to a milne friedman model.

Very unlikely to see a high inflation environment without high gdp growth.

Going back to postwar history, we have not seen any cycle with average and inflation about five percent that did not see double-digit gdp growth.

Let me translate what you just said.

Michael darda just crushed adam johnson.

Chicago and milton friedman.

Wendy -- one interesting thing.

Officially, no inflation.

But from a shoppers perspective, she is saying i am spending more money.

Either because there is something new to buy or prices are going up.

The prices i pay are growing.

That perception is a big issue.

Maybe not a reality, but in her mind she is paying more.

The higher end luxury retailers have pricing power.

Food retailers do not necessarily.

Who is on the verge of having pricing power?

I do not know the answer to that question.

Is it too small to matter?

Tom ford who is charging whatever you charge for a suit.

I think the big question is where is the value.

Not the price, where is the value?

What is worth it that i am willing to pay a little bit more.

So, who provides the best value?

People are a little bit nervous about target.

Do i trust you?

Walmart still creates value for people, no doubt.

The dollar stores create value.

Aldi creates value for people.

That is a worry.

Wonderful to have you, wendy liebmann on retail.

Michael, thank you.

Do not be a stranger.

You need the two-bedroom for fireplace here more often.

Michael darda of mkm partners.

Your forex report.

Yen back under 1.02. coming up, we talk to steven davidoff on alibaba.

? this is "bloomberg surveillance." can the sec and alibaba shareholders trust the chinese?

A conversation with steve and out off.

Holy guacamole, the pay packages for the leaders of chipotle are large, like the burritos.

Musicians are getting crushed by spotify, pandora, and i-radio.

"bloomberg surveillance," alive from our world headquarters in new york.

I am tom keene.

Joining me is early through an adam johnson.

Our guest host is steven davidoff of ohio state.

Alibaba, we will get to that in a moment.

A busy morning brief with a lot going on.

Starting with india.

India stocks hitting an all-time high as ballots are counted in the largest democratic election ever.

In hong kong, growth slips to the slowest pace since 2012. in the u.s., housing starts and building permits at 8:30. at 9:55, michigan consumer confidence index.

This has been a tumultuous week but if the lack of volatility.

Churn.

Not to mention bonds, which is telling you what is happening under the surface.

Janet yellen, for the third time, has scaled expectations down.

2.49% on the 10 year.

Towards the end of earnings season.

Michelle obama speaking tonight in topeka, the 60th anniversary of the desegregation decision brown versus board of education.

60 years.

Why are you looking at me?

You are the only one who has any memory of that.

I remember the uproar.

Let's get to company news.

We will start with uber.

About to join the $10 billion club.

In talks for new financing that would give it a valuation of more than $10 million according to people familiar with the matter.

Uber provides rides in 115 cities around the world.

Interest has new -- pinterest has new financing being valued at $5 billion.

This week it began a program aimed at attracting advertising.

Deutsche bank getting out of the casino business, selling the cosmopolitan hotel to blackstone group 41 $.7 billion in cash.

They foreclosed on the hotel six years ago after developers defaulted on a loan.

Our most important conversation of the week.

Through the summer and into the fall, alibaba.

Wall street awaits a make a deal loaded with fees to be earned.

What are shareholders going to receive?

What rights will shareholders have it the giant giant -- what rights will shareholders have if the giant is encumbered by chinese law and cayman islands regularations.

No one has looked into this like stephen davidoff.

You wrote the single best article i have seen on this.

What is the distinction you see versus the media hype on alibaba?

There is hype.

Nobody is looking at the risks.

This is not about china versus the u.s.. this company tried to list in singapore and hong kong and was not allowed.

Jack ma is keeping control of the company.

They do not allow that.

They have come to the u.s.. u.s. shareholders are going to be buying not actually alibaba, it is a cayman company that is a veritable interest entity with contractual right to alibaba's assets.

Let's look at the history of this.

From professor david off's article in "the new york times." it has been difficult for americans to enforce contractual rights in china if they were not set there.

This lease shareholders at the mercy of whoever holds the assets of the chinese company.

Is there an sec in china?

Good luck.

If something goes wrong with a chinese company you do not have much to do.

You can sue, you are not going to get anywhere.

You have no rights.

Can you use the ohio state endowment to invest in alibaba?

I have a 401(k). your school and their endowment, should they purchase shares in alabama?

This is really for chinese citizens, not u.s. citizens.

Too much rish.

Yet investors like the promise of fast growth.

We are not sure who holds the assets of the chinese company, it will not the investors who buy into the ipo?

Is it simply jack ma?

Jack ma and one of his founders.

If you pick them off, they can go.

That has happened with other chinese companies.

This is not jack ma as compared to mark zuckerberg.

Age 30 this week.

It is not the same as google.

This is a different dialogue.

It also proves jack ma has gone through extraordinary lengths to maintain his control of this company.

Here's the thing that upsets me.

Singapore said no, hong kong said no.

Why is the u.s. saying yes?

Thank you.

We are at a race to the bottom.

We are the biggest sucker.

There was a cry that no one is coming to the u.s.. it really was not true but we deregulated so much we are not getting alibaba.

How different is alibaba going to be from other chinese companies in new york?

It is and it is not.

It is massive.

The vie structure is used by most chinese companies because u.s. holders cannot hold directly in china.

You have a $100 billion company listed in the u.s. once jack ma goes with those assets it will have a bigger impact than if it were a smaller company.

We have had over 100 frauds with these chinese companies.

With your heritage have you had the privilege of talking to any investment bankers involved?

Has anyone dialed 1-800- buckeyes?

They are not going to talk.

This is pure greed.

The pure hunger for the internet company.

Is this something we want u.s. holders to own?

Do they really even own anything?

They will own an entity with a claim on chinese asset.

If things go wrong, they can go to the cayman islands and try to sue china.

It is a puzzle that could fall apart very easily.

Things look good now but things could go back.

Money will flow to u.s. holders of alibaba if and when the thing becomes public.

They have a right to a cayman islands entity which has a right to a chinese entity.

Any comments on the auditing?

Nuances of a given firm's auditing in mainland china versus hong kong versus the cayman islands versus litigation accounting in new york or washington.

It is a soup of accounting.

Try to parse through it.

The average investor cannot do it.

Who is going to buy it?

What did you find distinctives in the red herring, the first f1 document that struck you?

The thing that stood out to me -- this is not a u.s. company.

It is not a company that should be here.

Given the risk involved they should rest in china and let the chinese people take those risks.

Why the retail holders here should take that risk is uncertain.

Arthur levin says he will not buy shares?

Would you purchase shares in china with a hong kong registration?

Arthur levitt, former sec chair.

What about the institutional shareholder services, when are we going to see them say do not do this?

Where is iss on all ipo's. it all looks wonderful when you are getting $10 million valuations for uber.

Would it fall apart, -- when it falls apart, it is going to fall apart.

Iss is not at the table, nor is the sec.

Everyone is going to wonder what happened.

Steven davidoff from ohio state.

One more question before we move onto jcpenney and other topics.

Who do you blame, what can the media do better to message away from the euphoria of the moment?

The euphoria of these transactions.

Everyone is busy, the media is trying to hit the story.

They need to step back and see what is really going on.

Not be like bankers and follow the crowd.

Steven davidoff, i really recommend his book.

It is a masterful -- it is a mouth feel.

"gods at war," shotgun takeovers, government by deal, and the private equity implosion.

Steven davidoff.

Just on your recommendation, i just bought that on amazon last week.

It is a page turner.

You will be in bed all weekend.

Breaking headlines out of india.

Gandhi has conceded the election to the bjp glance, narendra modi.

India's congress has conceded the election.

Modi will be the next prime minister.

Huge news.

Rahul gandhi wishes the new government although best.

We will be right back on "bloomberg surveillance." ? we have some breaking news.

Chesapeake energy and announcing it will go ahead with plans to spin off its oilfield services company.

This is part of the unwind from the aubrey mcclendon era.

Trying to divest assets and sell off units.

It will go ahead with spinning off its oilfield services unit.

Tom, over to you.

A train wreck out of one company.

In terms of responsibility and moving forward.

Another one is jcpenney, this matters now to steven davidoff of ohio state university.

Talking about alibaba.

On what corporations do to turn around.

Jcpenney is an example.

What is the best practice for a company like jcpenney?

Jcpenney is in a hole.

It was a toy of the hedge funds, pershing square.

It is trying to recover.

It was not -- it is not even back to where it was before.

In retail everything is tough.

It is hard to stand out.

Jcpenney might bring back customers, but where does it go?

"got at war," do we treat ceos, whether myrioon ullman or les moonves, do we treat these people like gods?

There is a lot of hubris.

Fevweer is beginning.

Markets are bubbling.

Ceos would do well to take a step back and see what they are doing and think before they plunge ahead.

Maybe not in columbus, ohio.

The idea of outside of ohio.

50 miles -- is there any reattachment to wall street?

Is there still an anger about the financial crisis?

I am a buckeye fan.

People are still struggling.

Whether it is columbus, ohio, or elsewhere.

Once you get outside the coast.

The middle-class has not recovered.

And still -- until we see recovery and people can find jobs, we will have unrest and talk about inequality and what is going on.

We are not there yet.

It will be a wild.

What is your number one message to your students?

What is the new thing from steven davidoff?

Work hard, not easy.

Work hard.

University is fun but work is work.

Steven tyler from ohio state university.

Our twitter question of the day.

Who took the biggest hit.

Bonds, net streamers, jay-z. solange, i got smarter.

Tweet us.

@bsurveillance.

? good morning.

"bloomberg surveillance," i am tom keene.

With me, scarlet fu and adam johnson.

With me, steven davidoff of ohio state university.

Adam johnson has our top headlines.

Overseas in india.

Gandhi concedes the election to the bjp alliance.

Offering congratulations to the new government.

Indian stocks making new highs.

Protests in brazil for weeks before the start of the world cup.

Demonstrations took lace in 12 cities.

Protesters denounce the $11 billion brazil is spending on the sporting event.

They say it should be invested in health and education.

A report that donald sterling is ready to defy the nba.

According to "sports illustrated," sterling's lawyer has sent a letter say he will not pay the fine for racist remarks.

It says he might sue the mba.

Let's get to chipotle.

Chipotle shareholders fed up with executive pay.

I the annual meeting, a regarding of shareholders rejected the conversation packages of senior executives.

The co-ceos made a combined 49.5 million dollars.

New york city comptroller scott stringer is worried the excessive pay might hurt long-term value.

You were at the agm yesterday.

I was at the meeting and we cast 88,000 votes against pay compensation.

How emotional?

It is a pretty significant vote.

77% of shareholders said enough is enough.

We want a company that is grounded in the notion that everybody should have reasonable pay packages.

While the pavement was going on, thousands of people across the country took to the streets and protest at.

The pay inequity.

Can i ask you something?

The no-vote, 49 million dollars, clearly it is excessive.

97% of the votes are passing, where are you on the rest?

Change comes slowly.

I am not saying this is going to change a company's assessment of how they should pay executives.

97% -- how often do you vote no?

Let's look at the 77% who voted to say enough is enough.

It is a good company.

This is significant.

Within this wonderful conversation i wonder if other corporations are looking at this or is this outside the box of what others are doing?

These are nonbinding resolutions.

But the owners is on -- but the onus is on the board of directors.

An e-mail sent out to shareholders they indicated they will look at this vote and consider this.

That is boilerplate.

Let's see what happens.

We believe yesterday was significant.

People are mobilizing around fast food workers and pay inequality.

We are long-term investors in the pension fund.

I view this vote as a signal that we want to encourage long-term value from a company.

We want to motivate ceos and create a workplace where people feel they are working hard and getting compensation.

And that one or two people in the company are not tipping the balance.

Comptroller stringer, in our coverage we found that the average ceo to line worker ratio of pay in the food business, 1200-1. it strikes the reasonable man as unreasonable.

How do you figure out a rate?

This is a job of the board of directors of major companies to look at excessive pay packages and strike that balance.

I am not suggesting executives should not be well compensated.

A $58 million pay package between two executives is ridiculous.

The stock has gone straight up and has been a success story.

Do you believe there were no consultants involved to get a better, fairer compensation?

Chipotle was set apart and did not use compensation consultants?

Buy the fact that the shareholders -- you keep using the 77% -- shareholders and those connected to the pension fund.

We did our due diligence and worry about the 1200-1 disparity.

Part of what we look for is long-term value of the company.

Professor david off, does this ring true?

You look at the stock price that just went up, it is a mountain.

Maybe they do deserve that amount for getting that value to shareholders.

I am wondering where all the votes for companies that are not producing that value and paying similar pay packages.

Chipotle is an outlier because it has gotten so much attention.

I wonder, scott, the overwhelming vote, 77%. it reflects shareholder unrest and could draw the attention of activist investors.

Would that be a good thing as you search for the long-term value?

Part of the new york city pension fund that i am a fiduciary of, the fourth-largest in america and 12th largest in the world.

Part of our job is to make sure the companies we invest in are doing digital legends that reflects that they are a long-term good investment to grow our fund.

It is not from an activist perspective, it is to make sure that this company is going to have long-term value.

Is there a specific number you are going to pick in the future?

There has to be a discussion in this country among executives as to what is the right balance.

That certainly is reflected in this vote and i agree with the professor that we have to look at this -- is this an outlier vote or a trend?

People have taken to the streets.

People are looking at fast food workers and we have to change something.

Scott stringer, comptroller of new york city.

We will be right back with the former fcc commissioner robert mcdowell on net neutrality.

? this is "bloomberg surveillance," i am scarlet fu with tom keene and adam johnson.

Our twitter question of the week.

Who took the biggest hit?

Bond bearers, internet stream errors, jay-z? maybe the co-ceos of chipotle, getting voted down on executive pay.

1200 times the person assembling burritos, that does not seem right.

It is nonbinding.

10 year yield, 2.4947%. your vote is on the bond bearers.

Treat us.

@bsurveillance.

Some company news starting with general electric.

Trying to save the deal with alstom and sending the head of its power division ii paris.

Ge has offers $17 billion to buy alstom's energy business.

The french government issued a decree that gives it the power to block the deal.

Very french.

Uber about to join the $10 billion club.

In talks for financing that would give it a valuation of more than $10 billion.

Uber provides rides in 115 cities around the world.

Pinterest has raised financing writing at $5 billion.

It is a service that is not generating significant sales.

This week it again a program aimed at attracting ads.

Steven davidoff, deals professor at "the new york times" and ohio state university.

In law, business, we have been talking alibaba, jcpenney.

The book, "gods at war." then there is the ipo frenzy.

What is different about uber at $10 billion versus the silliness of 2000? members about uber leaked, it has real revenue.

We are not talking about a sock puppet.

Pricing is at perfection.

There is a huge amount of capital coming in.

Where does it go?

Uber has a lot of regulatory risk.

Taxi drivers are pushing back.

10,000 cats in london are protesting.

Can it achieve those numbers in a prior evaluation?

-- in a private valuation?

Can it be distracted by another disruptor?

Everyone is going around saying we are the uber of x. is uber uber?

They can be disrupted and they have a long way to go.

I think of david kirkpatrick and "this is the perfect.

-- i think of david kirkpatrick and the facebook effect.

Valuation and tech, you extrapolate out with the total value.

This is extrapolation frenzy, isn't it?

Uber is a good case.

Look at pinterest.

$5 billion.

I can't find it.

What are you paying for?

Snapchat turned down a huge offer from facebook.

They have to come up with revenues.

Is uber in columbus?

No.

i tried to download the app but i could not.

They careful what you wish for.

You sign up and give them the credit card.

If it is crowded you get charged peak.

They will give you an estimate.

Subject to change.

I went 14 blocks in the rain and i paid $6,237. is that a sustainable business model, you do not know the price you are paying?

It is working right now.

Is it working to a $10 billion valuation, that is the question.

When you have these crazy violations in a bubble market is bound to end badly.

Do you see this within legal documents, do you see uncertainty in a given f1 document?

We saw the same uncertainties in 2000. everyone knows what the risks are.

They plunge ahead.

Are the risk factors in the prospectus clear and genuine?

What do you mean?

Alibaba -- if you want to invest in alibaba, read the prospectus.

It says we could lose control of our chinese assets.

I just tweeted out your writeup from "the new york times." the link is there.

Read that.

Should we take uber to skeet shooting?

I am driving myself.

Breaking news, more m&a. abbott laboratories buying cfr pharmaceuticals for about $2.8 billion less debt -- plus debt.

Buying the holding company that holds about 73% of cfr.

Should add $900 in the first full year -- should add $900 million in the first full year.

This is "bloomberg surveillance," all our interviews on digital.

Tom keene and with me is scarlet fu and adam johnson.

What?

Teensey-weensy -- price tag is about $2.9 billion plus debt, abbott says it should add $900 million in the first year.

All of this is about money.

Where are you going to put your cash?

It is a bubbly market, spend now.

Pharmaceutical needs growth.

It will be a mad dash this year.

Sold in cromwell is the lead attorney on alibaba?

Simpson-thatcher.

Are they doing good legal work?

The lawyers are representing their client, they are doing what they're supposed to do, disclose risk.

The seec can do very little here.

As long as you disclose risk, if people want to plunge ahead, let them die.

Net neutrality has been a story of the last couple days.

Battle lines have been drawn and the fcc will allow internet fast lanes.

Google versus at&t, netflix versus comcast, apple versus time warner cable.

Joining us from washington is former fcc commissioner robert mcdowell.

Is this proposal to allow the internet service providers like at&t to charge a toll consistent with net neutrality?

The idea of equal light traffic -- equal web traffic.

The fcc is putting this out for public comment.

The two-sided market, the fast lanes, there is a lot of misinformation.

That has been allowed since the beginning.

Companies like cogent and others who have been providers.

You also have over-the-top providers like netflix.

Netflix produces about 34% of the internet traffic, that can clog any pipe.

There are costs being caused.

The fcc is worried about distorting that market too much.

It seems like the chairman is worried about that.

At the same time, putting out ideas that could be harmful to the internet ecosystem.

Back to what it means for our wallets.

Does this mean higher bills for consumers?

It could mean lower bills.

If you have what is called a two-sided market, like you might have with a toll-free 800 number.

That means the consumer is paying zero calling long distance through 800 number.

Or if you have prepaid postage, that might be baked in to the price somewhere but helping keep rates lower.

For lower income users this could be a big positive.

We are talking about the high-bandwidth user companies like amazon prime or netflix and the cost they cause when their content clogs the system.

What are you going to do about that?

The market has got to have the freedom to experiment.

The federal trade commission, not the fcc, the ftc could address a lot of the concerns being brought forth.

There has not been a market study.

The real issue -- is the current fcc undoing your work of low price, more competition and fairness?

It is creating a lot of uncertainty.

The sec is -- the fcc is 0-2 in appellate courts, and has tried twice before to do something similar and has lost each time.

And merrily because congress has never given the fcc the authority to do what it is trying to do.

By introducing or proposing new rules is creating uncertainty.

That can squelch investment and innovation.

They need to retrench and look at all the laws that already apply that could solve these problems.

Robert mcdowell, former fcc commissioner joining us from washington.

Our twitter question of the day.

Who took the biggest hit this week?

Tweet us.

@bsurveillance.

? good morning.

Friday morning on "surveillance" i am tom keene and with me is scarlet fu and adam johnson.

Futures -1, dow futures -9. wacky.

The pros are saying dysfunctional.

Betty liu is here to tell us about what is coming up.

You color coordinated.

We have a metal every night.

A really interesting tech entrepreneur with us.

Jay has worked in music, he has been at sony music and has built a company that was a competitor to skype.

He has a new company where he is crowd funding investors to buy commercial real estate.

If you ever wanted to buy a piece of -- a mall, maybe, or a skyscraper.

If you could pull that money together.

Ring the bell.

A music business guy is creating something for people to buy real estate.

That is innovation.

He will be on "in the loop." looking forward to it.

Yesterday, the fcc proposed allowing fast lanes for content companies that need a lot of bandwidth.

Regulators let the door open on whether the internet is a public utility.

Joining us is former fcc commissioner robert mcdowell.

Why is it such an important distinction, whether the internet is a public utility?

The idea of title ii in the business of classifying the internet as a monopoly.

The communications act of 1934 -- we can all agree that things have changed since 1934. the technology, for starters.

As well as the market.

What that did.

The black rotary dial phone was a staple because you had a regulated monopoly.

Now we do not have monopolies.

I dispute the foundation of the argument that there is an internet monopoly.

You do not want to squelch innovation.

The mother may i, permission seeking from government if you are an entrepreneur.

You have got your deerfield academy tie on.

You are so good, i were that just for you.

There is a mile in deerfield, massachusetts, that is an old id ndian trail.

Nobody trusts the big boys will keep the fees low.

Can you guarantee we will not see our rates go up on that last mile?

They may go up as people consume more.

People need to understand that the fastest-growing segment of the broadband market is wireless broadband.

The average american consumer has a choice of five wireless companies.

Plus unlicensed wireless, like wi-fi and super wi-fi.

That provides a check and balance against anti-competitive conduct in the last mile.

We are consuming more and more bandwidth as we watch more videos like bloomberg.com.

That means you are causing costs.

Robert mcdowell, former fcc commissioner joining us from washington.

Coming up, a california musician or gaming spotify.

His plan.

He is the founder of tommy boy records.

Coming up.

? is a "bloomberg surveillance," i am scarlet fu with tom keene and adam johnson.

Our guest host, steven davidoff, a professor at ohio state university.

Some company news.

Three billionaire investors taking stake in verizon.

Warren buffett, john paulson, and dan lowe buying chunks of verizon.

Verizon bought out vodafone's stake in the biggest u.s. wireless carrier.

Taiwan diversifying its economy.

The computer and electronics industry has been struggling because of competition from south korea.

The country is not a big player in smart phones and tablets anymore.

The auto industry's biggest employer in california is tesla.

Now employing 6000 people in california -- more than toyota, which is bringing the majority of its employees to texas.

That is this morning's company news from the files of "bloomberg west." using spotify to sleep-ify.

A musician wants you to stream his silent album.

Spotify pays us $.5 cent.

Here's my proposal to you, i wanted to be personal.

Let's move this to face time.

If you stream sleep-ify every night, we will be able to tour without charging admission.

Innovative.

The album has been streamed 3.7 million times.

Spotify kind of -- they are too good.

It is better than downloading a song.

You can strain, download.

They are too good, that is the problem.

Spotify only paid $18,000 for 3.7 million streams.

Paying artists for their work is the defining issue says tom silverman, founder of tommy boy records.

The man who discovered queen latifah and 99 nature -- and naughty by nature.

Streaming is our future, especially companies like spotify.

They are subscription-based models that have the highest revenue per user.

Traditional music buying was only generating $40 to $50 a year for a record buyer.

Record buyers are maybe 5% to 10% of people in america.

This allows us to get into bigger numbers once we can get up to tv subscription numbers, which is 100 million plus.

We will see a business that is three times to four times bigger.

That means that three times or four times as many artists will be invested in the labels, which are venture capitalists.

Once you get there, artists will make money.

We are in a transitional economy.

You see people buying cds and buying downloads.

Downloads started to drop last year for the first time.

The two boom areas, the biggest is streaming.

Especially subscription-based streaming.

The other is vinyl.

You came out of colby college and single-handedly invented a part of independent records.

Where the -- is ascap and bmi in this debate?

They only collect on -- from radio, venues, and television?

Can't they get james taylor paid?

They collect for the person who writes the song only.

The people who are investing in the future of the artist are the record companies.

They historically have taken high risk investments.

Music publishers are a little bit more like banks.

They take a mu

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

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