Time to Buy or Rent?: Surveillance (02/26)

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Feb. 26 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Jed Kolko, Joel Kurtzman, Harald Wilhelm, Adam Levin, and Indira Lakshmanan. (Source: Bloomberg)

The american housing recovery . we look at the rent or buy calculus.

The blown crew has it wrong.

The 21st century is america ascendant.

And brady dougan of credit suisse goes before the secret -- the senate committee.

Good morning, everyone.

This is "bloomberg surveillance." it is wednesday, february 20 six.

I'm tom keene.

Joining me, scarlet fu, adam johnson with us as well.

I had a swiss bank account m a million years ago, like a little fun one.

And then the government seized it.

It had, like, $46 on it.

It is the hollywood movie.

What is the trashiest part you have seen so far?

Effect that their accounting was tucked inside "sports illustrated" magazines.

You might not have been worried so much about what was inside.

Let's go right to our morning breeze.

The bank of england's chief economist spencer dale says no plan to raise interest rates anytime soon.

This is coming as the fourth quarter gp held constant.

No change.

Economic data in the u.s., at 7:00, we have the weekly ,bmba mortgage applications.

10:00, new home sales.

He and -- earnings meanwhile, we have got lowes, target, abercrombie and fitch, and after the bell -- there are earnings at jcpenney.

Earnings per share, 29 cents, which appear to miss the consensus which was ready one cents.

Comparable sales from blows, the home improvement retailer, up 3.9%. analysts were looking for an increase of 4.2%. in terms of the full year earnings per share estimate, about $2.60, also coming in lighter.

Analysts were looking for $2.64. it looks like ms from lowe's after home depot came out was better-than-expected numbers.

It has been little soggy so far all in all.

A $5 billion share buyback program.

The buyback authorization is $6.3 billion as of january 31. that has been a big story with corporate cash right now at near all-time highs, 4.8% of total access -- use the cash.

Robert nardelli in our next hour.

We will also focus on the jpmorgan article in the "ft" this morning about the billions of dollars a jamie dimon has to figure out what to do with.

We have to figure out a data check right now.

There's a lot going on right now in equities, bonds, currencies, commodities.

Yields come in slightly, the euro does not tell a story.

The yield has gone nowhere, $1.3742. for exchange market, fix well under 14, the ruble is weaker today, and you can see the grainy and -- the ukrainian currency through 10, that is a huge deal.

Congratulations to ubs for really calling that weaker ukrainian currency.

They are at the precipice of insolvency.

Here is what else is going on.

This is the chinese run-in be -- something witnessing and 8, 9, 10 years, a sharply weaker renminbi.

A very managed currency where the government steps then, take by tech.

They decided to weaken the renminbi to tell a market -- no, we are in charge.

That is a major difference.

You think about the debate in the senate about that managed currency, obviously they are leading ago.

We look at the newspapers this morning, the website as well.

Here is scarlet fu with the front page.

On all the front pages this morning, credit suisse ceo brady dougan is in washington today testifying before a senate subcommittee coming on the heels of the senate report released yesterday to assess the swiss bank helped u.s. clients hide as much as $10 billion in assets from the irs.

This is the subcommittee headed by carl levin and of course it will be full of fireworks.

That $10 million, by the way, more than double the amount previously known.

Hans nichols, our international correspondent, will be giving us more details in the next few minutes or so on this story but certainly this is when it will get a lot of attention.

Absolute fireworks.

I think it was the "ft" said department of justice push back against the good senator from michigan said no, this is actually what we have been doing.

As a matter fact, about a year ago, the irs said hey, come clean, we're going to give you a grace period to come clean.

That inspired about a year ago.

To be fair to carl levin, you mentioned the details -- the details are great.

There were special components within zurich airport where credit suisse met with clients.

So 502if aii got to davos and disappear for 20 minutes -- that is right.

Jpmorgan seven should have about $30 billion of excess capital, a war chest really, that could be distributed to shareholders.

Also, they have plans to cut 8000 more jobs.

Of course, jpmorgan is not going to spend all of its 30 billion dollars but did say the dividend would be increased over time.

There will be more buyback as well.

The stock is trading near an all-time high.

Jpmorgan has already taken 20 billion -- effectively paid $20 billion in fines, whether it is the london whale, etc.

And they have got more.

The dow up 16%, s&p 500 up 23%. jamie dimon says the stock has done fine against our major competitors.

What else?

The first lady's favorite brand, j.crew, is talking with banks about an ipo later this year.

This is according to people familiar with the matter.

J.crew has more than 450 stores, 2.4 billion dollars in annual sales.

Could get evaluation of up to $5 billion which would be twice with gbg and leonard green paper the company in a buyout three years ago.

Strike when the iron is hot.

J.crew is on fire right now.

That is the heart of the matter.

They have one where others have stumbled.

Correct.

And creativity, you walk into the stores, they changed the format every 10 days.

There is new product on the sale, they turn it over, you know, they have figured out what people want -- and they have been expanding rapidly to london, hong kong.

It is a huge premium in london.

The same jacket that would cost you $80 in new york would cost you 80 pounds in london.

Ok.

by the way, tom, you might want to check out the j.crew sutra, they're using laurel p on a fabric.

You are just a maven of style.

This is what adam does.

I don't know if i am a maven of style but i will admit, i like to shout.

Those are the front page stories in any case.

Ok, our guest toes, ted coco, chief economist at trulyia.com.

I tell you, this is a great and well-timed effort, unleashing -- unleashing the second american century.

Mr.

kurtzman does not mince any words about and we will talk about that in the hour.

It is a moment of cash.

We are up to our eyeballs in cash.

To start with housing, jed, this is that to roll over into housing, doesn't it?

In the corporate world, we have got cash, and it ends up helping us.

We are at a point in the housing recovery where we are trying to switch tracks from a very investor-driven year to a price increases, to hopefully getting it more toward house colts, looking to rent or buy household, rent or buy how things for themselves.

But ultimately depends on jobs and income.

Right now for young adults, the jobs are so pretty weak.

They're not getting back to work, there are jobs that look a lot closer to the worst of the recession than normal.

Wire institutional investors no longer so active?

The biggest reason is that prices have risen.

So those who are looking to buy homes and rent amount, the math is less good.

Also, fewer people are looking to rent single-family homes now that much of the foreclosure prices -- crisis is behind us.

Can you quantify how many homes nationally were actually taken in by large institutional investors like pimco?

It is not mostly the large investors.

When we talk about the single- family rentals, that has been an increase of about 4 million homes during the course of the recession as part of the recovery.

People can get a pretty small share of the institutional investors, is a whole range of investors.

Rice 4 million homes held by financial owners rather than people who actually want to live there.

That is right.

We're going to talk about this throughout the hour, but one of your great themes, one of your optimism is all of the cash so we have.

Constructive for jamie dimon to increase the dividend or should he go out and buy a new bank?

I think you should buy a new bank.

We have $4.4 trillion approximately in corporate cash that is not being spent, it is not being invested.

You get some headlines about this acquisition or this merger, but it is really a very small share.

Plus, the banks are just flush with cash america lending as much as they should've.

Wednesday you blame carl levin?

I do.

I don't think it is carl levin.

I think it is in an ornament -- it is an inordinate amount of confusion and people are still afraid.

It is going to be a really interesting our here.

A lot of things centered around -- what do we do with all this cash?

Scarlet fu has company news.

State politicians are targeting google blast.

Lawmakers have introduced bills to ban or limit the use of the glasses by drivers.

Politicians are worried about drivers watching videos or other contents while behind the wheel.

Global has hired a lobbyists to make its -- google has hired lobbyists to make its case.

And ibm had 41,212 employees, a .7% drop.

The last time the workforce shrank was back in 2002. the employee reduction comes as ibm tries to break a string of seven straight quarters of falling sales.

And morgan stanley agrees to pay $275 million to settle an investigation into the subprime mortgage backed securities back in 2007. the proposed settlement with the sec, which still needs to approve the agreement.

That is today's company news.

Of course those headlines continue.

We keep hearing hundreds of millions of dollars out of the banks or basically repaying their sins.

I tell you what, we're going to dig the printer that.

We are telling you about credit suisse getting burned.

A u.s. senate report telling us that americans hide billions.

We want to dig in a little bit deeper and talk about that and what it means with our international correspondent who joins us from euro.

Hans nichols next.

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

? good morning, everyone.

"bloomberg surveillance." i think that is pennsylvania in the far distance on a beautiful, clear, february morning here in new york city.

Very chilly.

That is quite a shock, but it is cold out there.

The chrysler building over there to the left.

Very good.

John loranger, the founder and chief executive officer of shutter stock will join "market makers," doing well.

This is "bloomberg surveillance." adam johnson scarlet fu with us.

Scarlet get the start with banking.

The u.s. and is taking credit squeeze to tap.

The number two swiss bank will put up a bill for helping american clients evade taxes.

Now the son is asking what exactly to the justice department so long to clamp down.

Rady dougan, c -- brady dougan, ceo of credit suisse will be testifying in washington.

We want to go to berlin where our international correspondent hans nichols is.

With this into perspective with us because the sec began investigating this last year and are now just getting around to holding a hearing.

Why the lag?

Well, they have been compiling this report, this committee report.

We spent a lot of time with brady dougan.

Every quarter we go down and interview him.

The question really today, tom, you know that swiss bankers are the most sophisticated people in the world.

I feel like i blunder when i just say hello to them.

Today we find out whether or not brady dougan is an american banker or a swiss banker because he has got a tough, tough challenge.

The facts don't reconcile.

We have heard from in this morning they are talking about a handful of employees did this.

The committee report said 1800 employees.

They will have to reconcile these numbers.

Help me out here with brady dougan.

Let's start with hiszurich.

If the perceived as an american interloper in zurich?

No, it is his bank, he came up with the credit banking division.

They are retracting on some aspects of the bank.

He left on my interviewed him, they are trying to get more toward what their core is, which is wealth management.

Take us to washington where you used to hold court at the white house.

Is credit suisse going to be treated differently or the same as jpmorgan or bank of america?

I bet you they are a little more harsh because there is a little xenophobia.

How can you get harsher than what jamie dimon got, right?

I know john mccain very well.

I covered his presidential campaign.

John mccain is going to ask for people to be fired.

What brady dougan is going to say if this was a handful of people that were involved, rogue people.

What john mccain is going to say -- this is your bank, you have been at the head of it.

Why only 10 people been disciplined and no one fired?

The allegations are remarkable.

People were flying on to the states on forest visas to clear in transact business.

You had a bank branch in the airport.

The allegations arts plosive postop the details are -- the allegations are explosive.

The details are amazing.

Credit suisse is one of only working banks under investigation into this probe of swiss lenders.

Is credit suisse being singled out?

No, they are the most high- profile.

Credit suisse, to their credit, has been sort of forthright on 182 quad rate or saying they want to cooperate.

-- on saying they want to walk rate.

-- cooperate.

The swiss franc was for the sec investigation.

In 2011, they put up $270 million for the caps issue.

They paid up $197 million just last week.

Another number -- how much they spend on lobbying -- 1.5 million dollars in 2013. he had lobbyist is an x in on the house financial services committee.

The only thing i want to see more than this is the mob aborts, the murder boards.

Hey, hans, i have got to jump in because if i add up the back of the envelope, the numbers you just mentioned, maybe we get to about $500 million.

Jpmorgan has paid out $20 billion.

Why are the numbers that credit suisse so much smaller than it jpmorgan?

Well, that is a great question.

One, we are talking about tax arrears, so that is always a percentage of the amount.

That is by nature going to be smaller.

They have settled -- i know jpmorgan settled in some cases.

We should dig down deeper into that.

It is a very good question, adam.

My pencil is not sharp enough right now to have all the numbers in front of me.

But you are right.

These are not creating massive holes in their balance sheets.

Ok, hans nichols, thank you so much in berlin.

Brady dougan before carl levin's committee.

Something to look forward to.

Right here on "bloomberg surveillance" on bloomberg television and radio, former chrysler ceo bob nardelli will be joining us.

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

? good morning, everyone.

"bloomberg surveillance." i am tom keene.

With me is scarlet fu and adam johnson.

Lawmakers and ukraine are pledging to protect bank deposits while a new government is formed.

About 70% of deposits were withdrawn las vegas police and protesters battle.

And a vote to form a new administration is planned for tomorrow any country's parliament.

Moving on, heisman trophy winner james winston at-bat against the new york yankees.

Yesterday, the florida state quarterback is also a pitcher outfielder.

He struck out and grounded out in the play.

Maybe he ought to go back to the gridiron.

He was probably will that are at winning the football matches.

But that is really cool.

An athlete is an athlete.

You've got to respect a guy for being able to wear a bunch of different hats.

And the obesity rate for children ages 2 to 5 dropped by more than 40% over the last decade.

About 8% of children in that age group were found to be obese according to a study from the centers for disease control and prevention, but obese figures for the overall u.s. population remained flat, even increase for those over 60. it is those kale gummy bears.

Kale putting.

Kale, blueberries, and walnuts, i.e. none of them.

Adam johnson is getting us started with the morning must- read.

Let me pull this puppy out, you guys had this ready to go, here it is -- don't just do something, sit there.

The realization that to fix what ails the most troubled countries in the world of disorder is often beyond our skill set, resources, or patients as americans, tom friedman, columnist -- that really aupsets me.

This goes back to fdr and his commonwealth speech.

Joel kurtzman with us.

He really thought about the look back to the first american century and now we have a new american century.

Are we being too activist?

Should we just focus on our own knitting?

I wish we were focusing on our own knitting.

He problem is people seem to depressed emotionally to focus on our own knitting and to get things done.

The economy underneath is really very strong and people are not paying attention to that.

So the mood is gloomy, but the prospects are bright, go figure.

That is what we see everyday.

The contrast there.

This two-part america.

John edwards way out in front with that concept.

You see that and plenty of parts of the economy as well.

We get to our twitter question of the day.

What is a bigger bubble -- bitcoin, tesla, or social media?

Good question.

Whatsapp whistle to facebook for how much -- $19 billion.

Think about that.

And remember snapchat rebuffed an offer to buy it.

Maybe real estate should be on that.

Tweet us that is today's company news.

-- tweet us @bsurveillance.

Good morning, everyone.

"bloomberg surveillance." i am tom keene.

Scarlet fu and adam johnson here today.

Deceptive eta check.

Euro $1.3739. ukrainian currency as a litmus paper along with the russian ruble really show the economic and the financial crisis that confronts ukraine this morning.

I know the imf commenting overnight on that as well.

Let's get to our gainers, losers of the day, scarlet.

A big gainer is trading with tesla and elon musk who increases his wealth because of his shares in tesla.

Tesla trading at an all-time high, up 14%, $248. consumer reports ranked tesla model s of the best overall car saying it is reliable and it is an amazing achievement for such a young vehicle.

Morgan stanley's analyst double- dip projection for tesla's share prices in 12 months.

Adam, i would say the climate on this story -- wherewith the sales side when it tesla was $30 and everybody was saying we don't know if they can make it?

By the way, it is still only way to make pennies per dollar -- i'm glad you make it out.

Six buys, seven holds, and a few sales.

We have seen this before, right?

Something else we've seen before, the run-up in housing prices and then a slow air at coming out of the balloon.

U.s. housing recovery is losing steam or not.

We have sales numbers coming out today.

The case schiller home prices came out yesterday.

Home prices across the country did rise 11% in 2013. month over month price gains levels up, so is buying a home still your best bet or should you be renting?

Our guest host of the hour, jed kolko of trulia.com, he said the time is not to buy not rent.

It is an age-old debate.

Nationally, buying is 38% cheaper than renting.

That is a national average.

Big difference is locally, but why does buying still look so cheaper than renting?

Because mortgage rents at 4.5% are still extremely low.

The mortgage deduction, if that really part of the calculus?

It matters.

It ships about 10%. so if you are not itemizing your deductions, and we are assuming in your model that you are, if you're not, maybe 25% cheaper to buy than to rent a muslim afebrile difference, but it does not sit in favor -- by van to rents, so it makes a little bit of a difference.

The whole idea of renting versus buying committee live detroit, michigan, it is 66% cheaper to buy than to rent.

The equation changes in austin, texas, 30% cheaper to buy than to rent.

When you go to the other extreme, and honolulu, is only 5% cheaper to buy than to rent.

What accounts for these differences?

A lot are long-term difference is, how much it costs to buy, how easy it is to build, and also what people expect in terms of future price appreciation.

Rice is a much more volatile than rents.

Prices have bubbled.

People have bet on prices expecting them to write or not.

Rent is going to be much more stable.

So in the housing market, going down the price aside more than the rent.

And you have two bedroom, two bathrooms at central park -- and what a privilege, tom.

Hey, but here is the thing, you can look at it like this just by the numbers, side-by-side, but then there is this other thing about having to go to a bank it actually get approved, so how hard or easy is it now for people who actually are trying to do the side-by-side to go to the bank and actually get the money to get the bank to say yes, we will make you the loan?

A lot of people still cannot qualify for a mortgage, keeping rates up 4.5%, that is out of reach for a lot of people.

We are still coming out of the recession, you have got to have a safer down payment, and chemistry, and that you have got to -- my we even see home prices have to widen relative to the rents farther in order to make up for that just because the fact that as he pointed out there are still so many people that can't? it is not the lack of affordability that is holding people back, it is jobs and income.

The groups for which is most important are young adults -- and new households.

For you, adam, just cut out one of the fireplaces.

Then i can afford it?

Quite the hot tub you can keep because you are adam johnson.

He is a senior fellow at milken, joel kurtzman with us.

We are having a discussion in the united states, the optimism of america, this discussion is really not happening in europe or asia, is it?

No, europe and asia are not really looking at the future the way we are.

I mean, conditions here, primarily because of this tremendous energy revolution that we have had over the last few years have changed the equation in the u.s. but i am saying it is behavior and emotion.

Scarlet and her husband want to get the marginal 5000 square feet.

10,000! even so, right now, americans are not as optimistic as they are traditionally.

In that is where i say that people are fearful.

They should not be fearful because all of the trends are working in the right direction.

With that said, what are you seeing, jed?

When we ask people is homeownership part of the american dream, that is climbing back up.

The vast majority of young people are renting and want to buy someday.

The danger is that that optimism translates into unreasonable expectations about what will happen to home prices.

If people start buying homes because they think prices will keep rising at 11% a year, that is a bad thing, that is a bubble.

But we are not to that point yet.

Is homeownership part of the american dream in places like san francisco where you are based?

We see the income inequality debate take on a lot of tension there.

With the city geography and its composition changing so much, how do you see that affecting the property market?

We often focus on the demand side, what are incomes like, can they get a mortgage, but there is a huge amount.

There is essentially no market in the u.s., no city in the u.s., where it is easy to build that is expensive.

Every expense of market in the u.s. is very hard to build new housing.

Especially in san francisco.

Full disclosure, jed and i grew up from each other near rochester, new york.

It is 3 above zero and processors tomorrow.

It is a completely different economy than the cities we are talking about.

How are the economy's doing that never saw the boom and it is dirt cheap real estate?

There are two places that never really had a housing bust.

Places like where we grew up in rochester, new york that never saw the price runoff.

It is still very cheap to buy than to rent, but there are economic challenges.

The other types of places are the ones that are blooming partly because of energy, so texas and oklahoma are the other parts of the country that also had a very mild housing bust, but they are seeing strong progress, that is the difference between texas and oklahoma and upstate new york.

A great map, scarlet.

Colby smith came up with it.

It is gorgeous.

By the way, tom, it makes you realize that real estate is truly local.

You have got to look at separate market, right?

I am thinking of six buildings local limits on manhattan.

Price we are in our own bubble.

Seeking of local, craft beers are all about local, right?

Our single best chart -- white house breweries are soaring.

It is coming up next on "bloomberg surveillance." good morning, everyone.

"bloomberg surveillance." it is while here in new york city today.

I'm tom keene.

With me scarlet fu and adam johnson.

Adam johnson has our top headlines.

The imf is ready to help the ukraine.

Imf head chief christine lagarde said the global lender will send a team to the country as soon as it seeks financial aid.

Lawmakers in ukraine will vote tomorrow on forming a new government.

They are expected to move quickly to secure $35 billion in aid in the -- and the u.s. and eu have pledged to follow through that.

And the u.s. is ready to withdrawal all american service from afghanistan by the end of the year.

The president delivered the news in a phone call yesterday.

The development follows an unsuccessful campaign by the u.s. to pressure the afghan leader to sign a long-term security agreement.

And jpmorgan as well as goldman sachs are among wall street firms agreeing to stop are dissipating and analyst freebies.

Based on the agreement with the attorney general.

The service give large investors unfair trading advantage and those are your top headlines.

Imf, i think is front and center.

Hans hume says imf stay out.

I don't know what else to do.

Well, hans pointed out the issue for ukraine is not a balance sheet one because there is not as much debt they are, but people are not paying their taxes, so the government does not have cash.

Can you be quiet so we can get to beer?

Scarlet fu with our single best chart.

Abn vet inbev saying growth is improving in roselle because of the world couples of our single best chart is a long-term chart.

It is on the number of active armories in the u.s. since back in 1887. it comes to us from the beer institute.

I hated the prohibition.

Road mission began in 1920 and of course they came back online legally in 1933 but a pretty steady decline since then until the 1980's, and it really began taking off in the 1990's. is at the brooklyn effect?

Yeah, the number has surged, and you can see the financial -- it is now almost at 3700. i am saving on the bet that that horrible prohibition that you found so appealing.

But you know that rise up the last couple of years is because of tax breaks.

Too generous tax breaks to small brewers.

I don't know about you, but i kind of feel like big brewers -- never a dull moment.

Joel kurtzman has a number of skills besides helping mike milken at the milken institute.

The other one is he actually understands beer while we are a bunch of amateurs.

He worked for pabst blue ribbon, which is like playing for the boston red sox.

What was it like working for pb r a few years ago?

I was inside a tank of 30,000 gallons up to my knees and what we call wort.

The mix of all the grains that you boil up, then it ferments, and then guys like i in college sweep it out and clean the tank.

Was it like to the rochester -- did you get to drink pbr?

The brewers were drinking constantly all day long and big thermos-sized -- ok, so we know where you work, what do you actually drink, joel kurtzman, and jed, you follow.

I like sam adams.

I am from boston.

You are a patriot.

Yes, i am a patriot.

Would you take a bathss ale?

I do love it too.

It is not too hoppy.

Jed, what do you like?

I live in the san francisco, which is one country -- oh, you are so sensitive.

I cook with beer.

Even the chicken impaled on the can of beer that you rose, just open the beer first.

Dark beer for brazing, -- wow, you guys are gourmet.

I like the siders.

-- ciders.

I do enjoy heineken here and there.

Heineken has got the after taste.

But i am with you on the same adams.

I have bought tequila recently, adam, as you know.

I'm good with tequila and he night of the week, especially to your talk about a two-year anejo . a little twitter question, that beer does look good.

It is too early for that.

Our twitter question of the day.

What is a bigger bubble -- bitcoin, tesla, or social media?

Tweet us @bsurveillance.

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

? all right, good morning from midtown manhattan.

What a difference the half-hour makes.

It was dark out, but we had the light, now the sun has come up.

The gm building, the empire state building -- it is also freezing.

It is cold, but a gorgeous view this morning.

A gray morning.

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

Let's get to company news from the files of "bloomberg west." deutsche telekom wants closer ties with whatsapp.

It is yet another expansion of whatsapp overseas.

He netherlands royal kicking it already said they will introduce a whatsapp offer.

And instant messaging app line may be the target for 500 million users by the end of the year.

Make of america merrill lynch says a possible investment by soft bank of japan is said to be considering buying a stake in the tokyo-baseline.

And state politicians are targeting google glass.

Lawmakers in at least six states have introduced bills to ban or limit the use of the glasses by drivers.

All additions are worried about drivers watching videos while behind the wheel.

Google has hired lobbyists to make its case.

Have you ever actually seen anybody drive around with google glass?

No, i have not.

I get really upset when people drive and tax.

Jed kolko, this is where people actually use it.

People walk around with google glass.

They're not bumping into people, but they do get some funny looks.

And, you know, when we see more of them, google buses, the google glass, even more visible.

Interesting.

This is important.

Can america as people succeed live in gloom of the less educated workforce, stagnant incomes, and aspirations in the united states -- can there be a second american century?

Joel kurtzman pushes against the bloom and finds much be optimistic about.

He was a force at the harvard business review.

Now at mit's sloan's business review and with the milken institute, "unleashing the second american century" is a very important read.

I want to get to the heart of the matter.

What do the gloom people have wrong about america?

They completely underestimate the power of our creativity.

We were talking before about tesla.

Tesla can only be born in the u.s., but if you take a little walk around him i.t., that little area of the square, the future is being born there.

It is biotech, computers, imaging, technology, and the world would give anything to have one candle square.

Seven blocks from is where the boston bomber lived.

How do you bring those two worlds together?

That is a world that is out of touch and living in a fantasy of death and destruction.

I have no part of that.

What i am focusing on is the area that is the future and the future is being born there, but we have centers in this country like cambridge, massachusetts.

To tom's point, the backdrop to all of this, your four pillars that puts for a second american century, is the rising income inequality.

21 -- to what extent can the 99% play a leading role in your transformational sources?

Whether it is capital or creativity or energy independent america.

We have to focus on what the causes are.

I think because of the inequality is educational issues.

If you look at unemployment, during the worst of the great recession among unemployment among people with college educations never really changed.

It was in the 4% range.

They went through that difficult period without much trouble.

It is the people without education, the people without experience,, just coming out of school, those are the people that need to get into the workforce, and then they are going to be assimilated into it.

Here's a quote from "unleashing the second american century" -- hiring, hiring begets increasing consumption, and sales, sales begets profits, profits be get a rise in the stock market, and rising stock markets beget -- i think that is great for the haves, the wealth effect, which makes people confident to spend money.

All this begetting switches on america's economic engine.

First of all, the into structure that we are going to be building, that we have to build whether it is ports or bridges, is traditionally built by the people without the great amount of education.

That is where the unemployment is, that is going to happen.

As that happens, these people are going to go back to work.

Why has it not happened yet?

Why haven't we found the wherewithal to put together a public-private partnership and make infrastructure priority?

Part of it is pure, part of it is the ring wing in washington that has to do with whether or not the stimulus should be stopped or started.

We stopped it too early in my opinion and as a result we did not get the infrastructure built we needed.

In order to compete, we need new ports, for example.

There is a whole new generation of ships that are coming in that are too big for many of our ports.

That has to be taken care of.

Speaking of things that are big, does u.s. a strength lie more with small businesses or with the enormous corporations and their hordes of cash and their armies of lobbyists?

I think the structure is changing so that the small businesses work with the large businesses, and when we see that happening, the small businesses will grow, but the small businesses are always the main growth engines in the country.

What is the role of manufacturing in this?

You talk about manufacturing in the book, but coming out of this recession, manufacturing employment has grown slower than employment overall.

Where does that leave manufacturing both in terms of the workers and the companies?

Manufacturing is changing.

It is coming back from overseas.

A lot of companies realize it is just a bad business decision to send their manufacturing overseas.

But what is happening is what is coming back is much more automated than what went away, so we are going to see slower growth in manufacturing overall but a bigger manufacturing sector.

We are already number one in the manufacturing globally.

Most people do not realize that.

We make 20% of everything that is manufactured.

China is about at the same rate, but we are really number one, so that is coming back here, but it is coming back in a very automated way.

Jobs -- here is the real problem.

What you just said is the real crux of it.

Our manufacturing is bringing -- is returning to these shores, but it is automated, so what about the jobs?

Well, the jobs are in the services.

Most people think when you talk about services we are talking about burger flippers and low- wage jobs, but services are very high wage, whether it is attorneys or consultants or accountants or anchors -- let's get back to education, the other key factor.

Exactly what we have to concentrate on is our education.

At the top levels, we are the best in the world.

We need to bring up the rest.

Joel, thank you so much, "unleashing the second american century." and jed kolko, rent versus buy.

Ruble weaker, and you can see the ukrainian money really blows through $10 to one.

Coming up in the next hour of bloomberg television and radio, former chrysler ceo robert nardelli on turning around blackberry.

This is "bloomberg surveillance." . markets moving higher on the back of the record of corporate cash.

Can you use cash to sustain your stockmarket boom?

We speak to airbus about a plane.

Why a plane when the battery works?

And brady is up in the otto when he goes before the committee on the scarlet fu twist a account.

Good morning, everyone.

We are live from our world headquarters in new york.

Joining me this morning, scarlet fu, adam johnson as well, and our guest host for the hour, robert nardelli, joining us for his expertise on chrysler and home depot.

The chief economist of the bank of england says that there is no plan to raise interest rates anytime soon.

This happens as the fourth quarter gdp report was unrevised.

Economic data in the u.s. meanwhile, any moment now we have got those mba mortgage applications coming out weekly.

We will let you know as soon as that number hits.

The world is going to end?

Down eight .5%. people are not taking out as many mortgages.

Sales coming out, this could be the third month the road that is negative.

All right, earnings before the bell, target, abercrombie & fitch, and jcpenney.

I am fascinated about jcpenney.

At retail analysts they think they will file chapter 11. under five dollars or share?

You have some others, scarlet?

Jpmorgan should have a war chest of capital by next year, but some of that money could be distributed to shareholders.

All of these numbers coming out of the firms wall street analysts.

Morgan stanley, meantime agreeing to pay $275 million for several mortgage-backed prime securities with the sec, who still needs to approve this agreement.

Subpoenaed by u.s. prosecutors in new york, the bitcoin exchange received a subpoena from federal prosecutors in the latest load to the marketplace for the virtual currency.

-- latest blow to the marketplace for the virtual currency.

We have been talking to matt miller about it.

Do you know what it stands for?

Magic the gathering online exchange.

Magic the gathering?

Magic the gathering online exchange.

That was originally going to be the title of "market makers." brady dugan is in washington today to be torn apart and shredded by a senate subcommittee.

The swiss bank let their clients hide as much assent billion dollars in assets.

Erik schatzker speaks to banking executives of four perspectives on compare and contrast of the credit suisse event.

What is different today versus the theater that we saw with jamie diamond?

There was theater but no fire, no smoke.

Remember the london whale hearings?

It seemed like there was a lot going on until you got some way through the hearing.

Then everyone else had left.

It is hard to tell, tax evasion is a serious issue to many americans.

There is probably more interest on capitol hill then there is on what went inside inside jpmorgan.

I would say the chances are yes.

Listen to me, folks, scarlet fu is the chief of tawdry here.

It is like a hollywood movie, one client inside the sports illustrated magazine.

The mapleleaf there was on the cover.

That is the one, certainly.

A created an office at the airport where the accounts were held.

A full-service office, secret elevators, 8000 bankers serving u.s. accounts.

The evidence looks damning, but to your point, shredding is what the senator does for a living, ultimately, first of all.

It alternately comes down to being able to prove who knew what when.

There is nothing, no e-mails going back to brady dugan or rob schaffer, the guy who runs the private bank asset operation.

To your point, yes, they and the other executives called to testify will say that they did not know what was going on.

I need to read their official response, some private bankers went to great lengths to describe their -- two hi there bad comment -- bad conduct from management.

We except responsibility for and deeply resent these employee actions." the cynics among you, and tom, i know you could not possibly be a cynic, they are saying q hogan's heroes reruns.

I know nothing.

Erik schatzker, you are canadian.

What was the name?

It looked very good.

Do canadians have swiss bank accounts?

I would imagine that they do, but you have raised an interesting point, the canadian government has not taken an attitude even remotely close to what the americans are doing, which reflects an important point.

It goes back to what we were saying at the beginning.

Americans care about tax cheats.

Taxes matter to americans.

This country was born in a tax revolt.

It is like being on the interstate caught between an 18 will -- 18 wheeler and the guard rail.

I want to go to the midwest.

Robert nardelli is with us, he has filed consecutive tax forms.

How is a heavy hitter like you thinking about swiss bank accounts as americans hide money?

First of all, you have to have a lot of money to even think about swiss bank accounts.

That rules me out initially.

Right.

I was going to say, queue the laugh track.

I think the big thing is when you talk about the sec, it is notable to see how they have become a profit center recently.

Where is all of that money going?

They did settle the books and records violation with the sec over the managing of these tax accounts.

Slap on the wrist?

$200 million.

Once upon a time that was not a slap on the wrist.

In this world, yes, but the criminal investigation continues.

But why so small?

That is the simple penalty.

They are negotiating with credit suisse over a penalty.

It will be bigger than this, alternately.

One would imagine.

Ubs about four years ago paid 780 million dollars for doj allegations.

Ubs likes to get ahead of the news, deal with it, move on, let the authorities go after the other firms implicated.

In switzerland they had the same charges that we saw this morning?

Yes.

To scarlet's point, you and i have seen this, you get off at zurich airport, the americans get off and they go over to their secret office.

Do they have a secret office?

The secret office in the airport catered almost exclusively to foreign clients, many of them americans.

The findings of carl levin find that as many as 10,000 credit suisse u.s. clients use this office.

The explanation offered by the swiss bank was that the office existed because many people came to switzerland to ski and did not want to go down the hill to deal with their millions of dollars.

Eric, thank you so much.

We will continue with robert.

Breaking news, scarlett?

A russian defense minister issuing orders to conduct a check of combat readiness of its military districts.

They basically want to test the combat readiness of the armed forces across western russia on wednesday.

This began at 2 p.m. local time, running through march 3, which is next monday.

So, russia is readying combat troops with urgent military drills that come up, of course, with the tension in ukraine increasing.

You can see the dollar ruble increasing.

Raking through as the ukrainian currency, not to use the wording correctly, ukrainian currency collapsing earlier this morning.

Markets are reacting to this news.

By the way, first the olympics, now we get the announcement on troop movements.

Right?

First things first.

If the cameras off, get the journalists out of the country.

This is why they were officially following the upheaval in ukraine, now they are readying combat troops.

Coming up for you, to dollar trillion is what airbus predicts the global demand for airplanes will be in the next two decades.

We will discuss, next.

? good morning, everyone.

I am tom keene.

Our guest host is with us, the former leader of hope -- home depot and chrysler.

Blackberry, their messaging system, they have little value?

I grew up on black area when they first came out.

It was kind of the corporate standard.

Many corporations, i still carry one of those and two iphones today.

I am very comfortable with the keyboard.

I in fact bought a device that allows me to turn the iphone into the keyboard.

I just can't get used to the tapping.

When you look at a company, this is something that any ceo knows, how do you say no to motivated employees who say that this is the best thing that will destroy messaging?

Look, i think one of the biggest issues today for corporate america is being able to execute innovation.

There is a lot of talk about it, but the challenge to bring from conception to delivery, we talk a lot about corporate research and development.

I talked to jack welsh, it was research, development, innovation.

You have to solve customer issues.

The innovation that they brought was a revolution to the complexity of setting your thermostat.

That is a simple one.

Blackberry, what should be there to do list?

It is a train wreck, we agree.

Do they just go to the highest bidder?

My biggest fear is waking up some morning and they will be gone.

I think it will be a tremendous low to corporate america who grew up with it.

Someone needs to buy that asset.

Sometimes when you get so far behind, it is hard to dig out of a howl -- whole -- dig out of a hole.

If this was in iowa, would it be a different story?

I think attraction would be bigger.

It is clearly a valuable asset.

I have not had a blackberry for months and months.

Again, in many cases in my experience it is the corporate standard that the i.t. department supports.

Bob nardelli, on the train wreck known as blackberry.

Speaking of, this coin, have i been amazed by the e-mail i have gotten about bitcoin.

Conservative bitcoin supporters say say it ain't so.

This is "bloomberg surveillance" from new york city this morning.

? good morning, everyone.

A busy morning, the twitter question of the day for the moment, the bigger bubble is bitcoin, tesla, or social media?

Some would say "earned -- bloomberg surveillance." boy, we got response from that.

We sure did.

Complicated, these days.

What do you think, adam johnson?

We are starting with the imf, who specifically said that they will help the ukraine.

They global lender said that they would send a team to the country as soon as they get receipts on financial aid.

They will be working on forming a new government tomorrow.

They will work quickly on securing the aid to the u.s. and have pledged to do so.

Also, ready for this?

The obesity rate for children ages two to five has dropped by 80% in the last decade.

This is according to the centers for prevention and disease.

Figures for the u.s. population remained flat, even increasing for the men over 60. number three, the shockers become the first division i back up -- basketball team to go 30 -- zero, losing a barrage of players to todd butler.

They have one regular-season game left.

We should point out for the moment that there have been some breaking news items on vladimir putin out of russia.

Headlines crossing that vladimir putin had issued orders to conduct a check on the countries combat readiness.

He put troops on alert in western russia.

This of course comes as there is so much tension over the ukraine , it is not clear if he is readying them to go into the ukraine, to stand along the border, but in any case these drills were set to begin today, about two hours ago, running through next monday, march 3. i guess it is not a game of chicken yet.

But certainly the stakes are up.

As so many pointed out during the olympics, whether or not he decides to do something like this after the cameras left, and now we have our answers.

Airbus put out profits rising 20%, predicting more growth in the year ahead, writing down a total of nearly $1 billion.

Joining us from france, the airbus ceo.

Thank you for joining us.

The boeing dreamliner has battery problems.

Can you tell us what those challenges are specifically?

Yes, an important phase of the program, we are midway through the flight test program.

The service entries the end of the year and we are progressing well enough, but that does not mean it is a walk in the park.

Significant challenges remain.

This is not just about the entrant.

We had to take a chart, as you can see today, from the 2013 numbers.

We need to make sure that the ramp-up is on schedule and on track.

From today's point of view, our hands are around it and we have focused our maximum attention again.

This is the wide-body plane where you go head to head with the boeing, also competing with the 737. why should japan airways or any of the other airways you are competing against, why should they buy and airbus aircraft as opposed to boeing?

The 320 family, if you look it has striking progress.

The nail went as high as 2600 aircraft in the launch a few years ago.

This is outstanding and is just an endorsement marking it as a very competitive product.

Even the current version demanded market enterprise and demand.

Hence, we step up the production rate in 2016. we will set more orders in 2016 and beyond.

Thank you, sir, for joining us.

Robert nardelli with us on technology, of course.

It is all about technological progress, boeing being a great exporter.

What a shareholder return.

Did we move beyond contract a contract defense?

Did they become legitimate complex effort -- businesses?

They have both done a marvelous job.

If you think about the advance in innovation, when we did the ge 90 event at general electric, we change the engine on the plane.

What they have done with the dreamliner is probably the most aggressive and advanced technological challenge we have seen in a decade.

What does washington need to do to advance employment in these highly technologically skilled jobs?

I think that boeing is doing a great job increasing the diversity and geographic reach on their new manufacturing operations.

I saw their paper today where united technologies was working on $1 billion on a grant from the government.

I would say that it has become a much more sophisticated conversation.

It certainly has.

Your former colleague runs boeing and was at ge as well, what is it about ge that produces these industrial giant managers?

The thing i learned most under the mentorship of jack welch is that change is the only constant.

Innovation drives the top line.

That is certainly what is taking place right now.

We will have targeted earnings in just a moment.

? this is "bloomberg surveillance." scarlet fu, here with adam keen -- you're with tom keene and adam johnson.

Increasingly losses by 20%, the mortgage and foreign exchange businesses, all of this according to regulatory filings.

General motors doubling the number of cars being recalled for a faulty submission swish -- switch.

The ineffective ignition switch has been linked to 13 deaths.

J.crew is in talks with banks about an ipo leader this year according to those familiar with the matter.

$200 billion in annual sales could fetch valuation of $5 billion, expanding overseas in london and hong kong, that is the company news.

Michelle obama certainly put j.crew back on the map again.

Flak she certainly did, wearing it at the inauguration.

I would suggest that lord drexler does not get enough credit.

I agree.

He has done a fabulous job.

And he has done it with this as well.

It is not about the glamour, but he has done it in a business where every season everything must be reinvented.

Having spent a lot of time in retail, i am a big fan of what he has done, expanding the product line to the high-end.

The range of offerings that he has today, he is very vibrant, he is very attractive to the younger generation.

It is kind of hip.

I think he has done a great job.

Why do you say that diversifying rather than focusing has been the plus here?

It is market focused, customer back.

That is what i have learned.

He is looking at his customers and as the generation matures he is looking at having the offering.

We did it at home depot.

On retailing, speaking of that, scarlet fu has breaking news for us this morning.

It is busy, target reported results in the fourth quarter looks better than anticipated.

Adjusted earnings of $1.30 over the consensus, coming in higher than what analysts had been looking for.

Looking ahead, the full-year forecast trailed analyst estimates.

We have a cost here for that data breach.

A $61 million expense offset i-40 billion dollars in insurance receivables.

The delta, 17 million after their insurance coverage.

Corporations always have insurance on events like this, and the delta i would guess is smaller than you would suggest.

As well, we have abercrombie & fitch.

I saw adam and line out there.

He does that.

You were one of the models in the window?

You look good.

Collects the catch is that you have assured on.

-- a on.

The positions that they are taking on result of their alignment with amazon, they are trying to play down the p&g products, taking them off the end caps.

It will be an interesting play to see what happens.

People like those brands.

Speaking of brands that people used to like, abercrombie & fitch coming out with full year earnings results.

Analysts were looking for 233, it is right around where they were looking for.

Cap x will be $200 billion or slightly higher.

We are still trying to get a clean number.

Same-store sales appear to be pretty good.

You know, the idea here is that this is a chain retailer.

When you are out of favor, where do you go?

I just go there to get the bag that says fierce.

I have a hard time focusing on the shopping.

Crowded, dark, smells.

As i look to their press release, no wonder there is confusion, they have three different versions of earnings-per-share each quarter.

By the way, none of these match the estimates.

That is why it is taking time to sort out.

Quickly, bob, they separated chairman and ceo.

That is always a debate.

Always.

I am a big proponent of keeping those things together.

With jamie dimon we talked about the importance of keeping those together.

An endless debate there, you see them with their challenges in the end on leadership.

A busy day today.

If you look at the numbers that are coming out, we have new home sales coming out at 10 a.m., suggesting that futures are pointing to a higher open for the market.

Up two points, the 10 year yield, elevated, euro weaker against the dollar.

Good morning, everyone.

Tom keene here in new york, news that we had earlier, not talking about military efforts, but certainly training exercises within russia.

We see russia going through 36 right now, i huge psychological deal, a 36 print on the russian ruble.

We say good morning to bloomberg television worldwide.

With me this morning, scarlet fu and adam johnson.

Our guest host is the former chief executive officer of home depot and chrysler.

Target results just came out, we want to highlight that the fourth quarter looks decent, a beach on the bottom line and top line as well, but that number everyone was looking for was how much the data breach cost.

Target said that it was offset by a $40 million insurance receivable.

Expenses from that data breach, $17 million.

Target giving a forecast that looks lighter than what analysts were anticipating, but we are not clear on whether those forecasts are comparable with estimates.

We will continue to go through these numbers, but the big issue is the cost.

I do not think we will know the full cost until we see the lack of customer confidence in going back into that store.

We could see sales suffer for several quarters.

I think that is right.

Let's get an expert's take on this.

Adam is the chairman and founder of identity theft 911 and reddit.com.

Will they ultimately respond to this data breach if it comes to someone who operated it from there device?

A problem that phone companies have had as well.

We are living in a situation where you are your vendor.

The ftc looks at how well you secure the data of your clients and customers.

A vendor can significantly impact your situation and you are caught up in the whole thing.

Have you been busy, recently?

Very much, so.

What are you telling the companies that you have the revised about their security systems?

Of the people that you do with -- the people that you do business with, they can also kill you, just like your own employees.

You can come up with a patch and an upgrade for almost everything except for human beings.

The reality is that so many of these occur because someone made a mistake.

The intrusion was caused by someone at a contractor being fished, using that as a gateway to the point-of-sale system.

That's address fraudulent activity on those cards, the reputation damage comes first.

It could be one person or 50 million people.

Know, your reputation is priceless and the problem is breaches.

You may take a hit that you come back from, but the public looks at how urgently you approached it and if you showed empathy.

One of the problems that target had was as if the information was being bought out.

What is your to do list for target?

Forget about the fancy stuff, this, that, and the other thing, how do they get my sister to go back in?

They have to establish a case for a retail process.

They have to do that, talk about security protocol

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

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