U.S. Budget Agreement: Surveillance (12/11)

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Dec. 11 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Andrew Spence, Ian Weissman, Michael Sweeney, Daniel Hurwitz, Robert Nardelli, Jeffrey Klee, and Brian Kelly. (Source: Bloomberg)

This is "bloomberg surveillance." a protest and confrontation in kiev as the ukraine is torn between europe and russia.

The majority choosing the west.

Agreement on capitol hill at least among leaders.

Sequestration is out.

Debate and deliberation are possibly in.

Every home should have one, weighing in at 540 pounds, put the baby grand by the window.

We are live from a world headquarters in new york this wednesday, december 11. i'm tom keene.

Joining me is scalp -- scarlet fu and alix, i need a baby grand, steele.

Here is the way it works.

Da da da.

Is a chopsticks like this?

Ok, briefing.

Overnight we did get earnings from cosco.

Profit missing estimates.

The where hast -- warehouse chain boosting discounts.

We will do mortgage applications in the u.s., a 2:00 p.m. budget statement this day after we had a short-term budget deal.

Also earnings trickling out this morning.

Men's wearhouse after the bell.

Trying to buy jos.

A. bank.

Hilton, big news of the day, ipl -- supposed to be a record ipo or a lodging company.

This is not another deal.

This is in some way a top of the market deal.

Terrific research on this.

We will have it all day on bloomberg television.

I got goosebumps.

Almost like 2005 all over again.

And is it a problem?

We will ask a gas from isi group and we will talk also to bob nardelli.

Why it markets today.

Looking at stocks, bonds, currencies, commodities.

Boring.

The euro, 1.3764. nymex crude, 98.56. our next board, a little bit of foreign exchange.

Equity markets, back under 16,000. the dollar gives way.

The blended basket of our traditional trading partners.

Under 80 is a big heal.

Finally the dollar weakens and gold is a bit of a rally.

Gold finds a bid the last three days.

The morning papers in the web as well.

Here's scarlet fu.

It turns out you can cut a bipartisan deal in washington before the clock runs out.

A novelty.

House and senate budget negotiators, paul ryan and patty murray, reaching an agreement on a budget deal.

It would increase military and domestic spending over the next two years and would give lawmakers some breathing room by breaching the cease-fire.

Even so, of course, neither side could come out in full support.

Here is what democrat patty murray had to say.

I was disappointed we were not able to close even a single corporate tax loophole.

I know many republicans had hoped this would be an opportunity to make some of the kinds of changes to medicare and social security they have advocated for.

But congressman ryan and i have set aside our differences.

It is no ban -- grand bargain.

Baby steps.

The question is, does this avert a government shutdown come january and what does it mean for the debt ceiling debate?

And it still has to get through congress.

But they did have some kind of dialogue.

Peter cook is scheduled to join us in the next hour.

Is the basic idea is that they took away from sequestration and they will spread out the pain?

They softened sequester cuts -- what they pick and choosed to raise more money.

They will end some programs like the 2005 natural gas resource research grant.

I could bring everything back to commodities.

But this is rather than a big, grand bargain.

Nothing on entitlements.

Also on the front page, general motors tapping product chief mary barra as the neck ceo, who will succeed dan ackerson who is retiring.

The first woman to run a major global automaker in the 22nd woman running a fortune fortune -- fortune 500 company, this includes meg whitman and virginia rometty from ibm.

Women still unrepresented that's underrepresented.

But this is a bb&t at it is a big deal.

I agree totally.

But the migration is underway.

You wonder where we will be in five years or 10 years.

Some saying not too late to buy your daughter a truck for christmas.

Tonka toys.

A great idea.

Not just for boys.

Advertisers, are you listening?

My daughters are in their 20s, just with a one.

The big, ugly metal ones.

That they can get behind the wheel?

No, just big and ugly.

More confrontation in kiev overnight.

Thousands of protesters clashed with police.

Security forces tore down barriers and tenants in an overnight raid.

Opposition activists squirted water and smoke bombs at police officers in an attempt earlier to storm city hall.

That had been seized by protesters more than 10 days ago.

The biggest protest in almost a decade began last month when the ukrainian president snubbed a european integration packs and leaned more toward ties with russia.

Also financial tension, and the economics in the front page today.

We are thrilled to bring you michael spence, new york university.

He shared the 2001 nobel prize with mr.

Joseph stiglitz.

He is focused on the ukraine and the need for economic growth.

And he joins us right now.

The backstory of the ukraine and so much of your economic work is the mystery of economic growth.

Will we see it in 2014 question mark will we get back to normal in 2014? no, i think normal will be a stretch.

But we will see subpar but real economic growth in america.

Very little in europe because the countries that need to recover are still out of bounds in terms of productivity.

And in china and developing countries i think you will see very substantial real growth.

You are a man of many geographies.

Stanford, now at in the -- nyu and you lived in italy and spent a lot of time in new york and are we through with the financial crisis?

Are you think about writing about moving on some day to the normal or are we still in the crisis?

By most definitions, tom, we are out of the crisis.

What we are doing is struggling with two things.

One is getting growth back to full potential and the second huge problem is employment, lagging growth.

Are those two separate issues or are they inextricably entwined?

Can we say a fog and all at 6:00 a.m.? -- could you please take it down to the con 101. what is orthogonal?

It means perpendicular, one thing unrelated to the other.

Is he talking about my bowtie?

Why whether ukrainians want closer ties with the europe when they have seen all the difficulties the european economies have had with financial stability?

I think they want to be part of the second-largest market in the world.

The economies, while they are struggling, are democratically governed and modern.

And because when you enter the european union, there are many, many steps.

But it is a path that accelerates reform and stabilization in your own countries.

On balance, they don't want to be in the eurozone at the moment . when you take a look at the staggering photos from kiev, as well as what we have seen in the middle east the last two years, what does it speak to about the massive inequality we are seeing around the world and the fiery protests that keep happening and spreading?

My view of that -- there are lots of different forces at work, but there are two powerful forces veteran getting rise to a -- that are giving rise to a suppression of middle skill jobs and elevation of the upper end.

One of them is technology.

We are stripping routine jobs out of the economy by automation , and then globalization tends to move lower value added jobs to countries in the developing world.

When you take those two together, those are pretty powerful.

2014 trend.

Michael spence, what we will bring comments about the volcker rule coming up.

The new ceo but gm but gm is also in the news saying it will stop production in australia.

This is after 69 years of production in the country.

Gm blames the strong australian dollar and the high cost of production in australia as reasons.

Ordained already announced plans to exit australia as well -- ford also announced plans.

Bmw may build engines in north america for the first time.

This is the capitalize on growing demand.

Bmw is said to be considering the u.s. or mexico as the site for the factory.

Blackstone brings up a break -- brings up a big profit on the hilton investment.

It stands to make a paper profit of $8 billion when it prices the initial public offering later today.

Apollo made $10 billion in its investment in a chemical company 10 years ago.

Hilton hotel, the definitive interview.

Coming up, his price is $18. if it is above $18, run.

Ian will join us from isi and he will talk about blackstone's payday.

Wait a minute as they are not selling a single share.

All of that this morning on "bloomberg surveillance." that is next.

? good morning, everyone.

"bloomberg surveillance." h. buffett, howard buffett, that is, will be "in the loop" with betty liu.

I'm tom keene, and with me scarlet fu and alec still.

Big news, hilton will price its initial public offering after the market close, a day closer than expected.

It should be a record for a lodging company.

Also a big a day on paper at least for blackstone that took over the company in 2007. already went public once before.

How is it exactly going to fare the second time around?

We brought in ian weissman, head of isi's gaming and lodging research team.

Is this a well-timed sale?

This is a great time to take a hotel company public.

Stocks are up 30% year to date that we are still in the sweet spot.

One could argue there is another three or four years of the recovery, limited supply, jobs improving.

What exactly did blackstone do to make the operator a leaner and more financially viable company?

They cut cost in the front office as well as around the globe.

They expanded their footprint by about 80%. 100,000 hotel rooms in the pipeline.

They are making aggressive moves in china.

Your research report is fabulous.

You talk about an $18 share a fair place to enter the transaction.

Our institutions under pressure to acquire these shares at the ipo?

Is it like twitter or facebook or a more traditional deal where the guy is going to call up and say by hilton, and they will say, no.

There is a lot of hype around lodging to the question is, do you buy this stock or other names -- marriott.

We say fair value is $20 a share.

We are a buyer anywhere around 18 or $19. we will not be surprised if it trades really well out-of-the- box because of the interest.

But the question is, where is there more value?

We say at the higher end, more value at starwood.

Are others overvalued compared to starwood?

Multiple value 13 of 14 times, pretty high.

Where the want to be positioned?

Starwood is more levered to gateway cities in china.

What is a gateway city?

New york city, los angeles, san francisco, boston.

Tilton is more like mary.

-- hilton is more like mary.

Is it because blackstone is staying put and not selling any shares?

They want to hold on for the recovery which at last three years and we should get -- does it make more of the lien -- appealing for anybody wants to get on the ipo?

The value is, is there more value in starwood or hilton?

The rising tide lives all boats but there is better value -- is it like a search and evaluation and then it goes flat for five years because you have the overhang of 76% blackstone shares and five percent other?

That is a huge amount.

Definitely a big concern for investors.

Will hold onto the stake for many years, according to steve schwarzman -- it could be two years -- they will not miss the recovery and not the exit.

Look for them to exit the next couple of years.

To the nobel laureate michael spence.

You live in hotel rooms, jetting around.

When you look at a hilton hotel, how do you perceive the brand?

My experience with it has been it is good, but it is not at the top of the heap in terms of service, luxury, and so on.

A very good.

Michael spence.

Is that position right to where they want to be?

I would align them much more with the marriott been starwood and i think starwood is a much that a brand.

But what hilton has is a really amazing real estate portfolio, $15 billion, almost triple starwood.

If they monetize it is a game changer?

Look for them to monetize the next couple of years.

Either as a spin out as a reit -- we think they will spin out to a reit the next couple of years.

Are you suggesting this is a real estate and not a lodging transaction?

As much a real estate transaction as a lodging play.

What about overseas exposure?

Hilton properties are primarily in the united states and all the growth in china is something hilton cannot play into as well as the rival.

The problems most of these operators face is the u.s. is saturated in brand so although global brands are looking to china for growth.

Hilton is going to add 40,000 rooms the next couple of years.

The waldorf astoria new york, is that an out transfer hilton or a trophy property?

That is a big real estate play.

1400 rooms -- i cannot imagine what the real estate is worth.

Highest and best use is probably not 1400 rooms.

They can condo part of it.

They obviously need to put capital in.

We could live at the waldorf.

How much money would that cost?

I have to go into michael porter . ? it's the top ? it the eiffel tower.

I came from theater.

I can match you any time i want.

That is the twitter question of the day and why it is so great to have you here.

We'll has the best rewards program -- who has the best rewards program?

I like it, you can get airline miles and hilton points.

That was my two cents.

We've got a lot more coming up on "bloomberg surveillance." in the next hour, on bloomberg television and radio, or chrysler ceo bob nardelli will talk about gm's new chief executive mary barra.

We are streaming on your tablet, your phone, and bloomberg.com.

? some breaking news concerning home depot.

Speaking at an analyst conference today, saying the full year 2014 earnings growth will be about 17%, including a buyback.

Also seeing sales growth of about five percent.

Positive growth trends for home depot.

Also adding eight new stores.

Also raising the margin expansion, operating margin.

What you always want to see, sales and margins at the same time.

And buybacks, $5 billion, repurchasing its own stock.

Robert hurt -- robert nardelli will join us with a perspective on that in the next hour.

It is time for morning must- read.

Margins are expanding.

Here's scarlet fu.

? a slate columnist talking about the buybacks are a mechanism to boost this bob rice.

You should ignore carl icahn and other activist investors encouraging companies to use their cash to buy back shares.

He says -- [laughter] just like the way he put it.

The idea of these corporate raiders, carl icahn among others, are pushing companies to abuse their cash to buy back stock to lift the stock price and then they sell out.

Activist investors are for the longer-term, the long ball.

The question, where are the jobs?

What do you have, alexix?

Looking at where the new next liquidity risk is.

He says -- the speed of finance, the speed of transactions across the world.

Michael spence with us from new york university.

You really thought about this, the affect of china on emerging markets and capitalism.

China is about the same size of all the other bric's plus mexico an intermediate -- and indonesia.

I think most likely the outcome is they will have a bit of a slowdown next year, and it will be very scary in markets because they won't know whether it is permanent or temporary.

And then i think the new growth engines will pick back in.

To find a bit of a slowdown in china -- i've got to make some news here this morning -- is it a recession in china?

By our standards, nothing like it.

A slowdown would mean frightening markets and the little worrying for policy markets and china would be 6.5%. under seven percent royals the markets.

Michael spence, we will talk about the focal rules in a bit -- the focalvolcker rule in a bit.

Steinway, the iconic brand.

I know tom is open for a baby grand.

I want the steinway upright.

It takes a year to build it.

If you are asking, in walnut.

Thank you.

This is "bloomberg surveillance" on bloomberg television and radio.

? good morning, everyone.

"bloomberg surveillance." let's do a data check.

I want to get to scarlet fu.

This is why we do "bloomberg surveillance." not the data check, but the next section.

Flat, flat.

The euro, 1.3767. talk about the wrong call, the euro will weaken and we will all die.

Forget about it.

It went the other way.

Scarlet, this is wonderful.

You should have added golden, because our next guest that a lot of gold.

Steinway and sons has a new owner, hedge fund titan john paulson.

For just about a half $1 billion.

A promise to keep the quality but a lot of people, pianists, worried the cost-cutting will win out.

We visited the factory here in new york to see how the pianos are made by hand.

At the steinway piano factory in astoria, queens, tradition rules.

The american companies pianos are made about the same way they were 100 years ago.

The musicality of the instrument is always the very first thing we look at.

In some cases we can implement technology and you can save money, save -- save time and improve the instrument.

That happens.

But there are other times, technology, no matter how advanced, cannot do the job a craftsperson can, working with the wood.

Some things machines and robots can do.

-- cannot do.

Handcrafting every piece of the instrument sets it apart from its competitors.

It shows up in the price tag.

Up to $150,000 for a new concert grand.

The head of the restoration division, he has worked -- you sell it from the inside in.

-- from the outside in.

Five owners and 150 years has not disrupted the loyal following, ranging from famous musicians like billy joel and wall street titans like john paulson, steinway's newest owner.

Wally lays the final touches on this piano.

Manually adjusting the density of every key to achieve the sound.

No cutting corners.

Everything is handmade.

There are no machines, no nothing.

You have to put pride into your work.

Most of the people, you know, that is the way we do.

Those are all highly skilled american jobs.

Amazing.

Fantastic.

Outstanding.

Made in astoria, new york, just east of our headquarters.

There is a steinway tone that is different.

The touch and feel.

I'm sorry, there is only a steinway.

A baby grand, i needed under my tree, scarlet.

What about the upper right, built since 1903? that was simply -- will simply make you cry.

We have the ceo of tone at steinway.

We were delighted john paulson was ultimately an acquirer because he is an owner of three steinway pianos.

He plays piano?

He plays a bit but members of his family play quite a bit.

So, it is a family affair.

When he plays chopsticks, he can do better than me.

Within the steinway magic and brand, how do you find the labor?

How are you going to maintain the tradition of the older people we saw?

It is an extraordinary situation.

In our factory in a story we have third and fourth generation workers.

So our best recruiters are our current workers and they are also the one to maintain the quality control because workers who are not committed to the same level of excellence are not invited to stay.

Both of the recruiting and the quality control is done by our current workforce.

Colberg had put a bid in but john paulson one out.

What makes it so attractive to private equity investors?

A rare 160-year-old company that has rare growth opportunities and the brand is known around the world and the product is clearly the finest of its kind.

The combination brought in many potential acquirers.

When you say organic growth opportunities, do you mean domestically or outside the united states?

In both.

The most obvious is the developing world.

We have a very quickly growing business in china, brazil, russia.

We also have great growth opportunities in the united states.

When you go outside the united states, the jobs you will need to hide her to make the pianos, will those be in the united states of the countries?

We are committed to the two factories we have, new york city and hamburg, germany.

Is a steinway in china the same as at harrison's at 58th street?

Exactly the same.

The same in beijing?

We typically supply our customers with pianos from hamburg, there are minor differences.

What are the differences?

Cosmetic differences.

Mainly.

Squared off arm in new york and rounded in hamburg.

Minor differences because since 1880 we have run the two factories in overtime -- can i go narrow?

1826, change from bach and beethoven, lvb was your symbol, and then you figured out the felt.

Where do you get the felt on your damping keys?

Michael spence studied this at oxford years ago.

The felt comes down on the string -- that's right, the hammer.

We do not make our supplier list, the -- public.

Triple top secret, how they make the felt?

Everything is top secret.

You mention china and perhaps brazil.

And they are dealing with higher inflation and slower growth.

What is the appetite for a $150,000 grant piano?

Let's choose china as the first example.

Customers in america have had the opportunity to acquire a steinway.

So, many of the people who will own a steinway, already do.

That is not true in china.

People my age grew up during the cultural revolution in china where music, and particularly western music, was not loved away it is today.

Today there are 35 million chinese children taking piano lessons.

It is an astounding number.

And we hope some of them will ultimately on a steinway.

A driving question -- how do you get a steinway in a skyscraper?

Do you really put it up aside?

In new york city, in particular.

In many of the world capital cities cranes are used to bring pianos and from the outside through the window.

But more modern buildings have freight elevators that are quite a commentators.

-- quite accommodating.

Michael spence, d c a steinway in every home in shanghai?

There is an enormous wealth.

The upper end is a very large group of people.

I think a lot of them will want to own a steinway.

Some of the finest guinness in the world are coming out of china.

And the pricing power you would have presumably there, the chinese consumer has the mindset if it costs more it must be higher polity.

I suppose it translates what you can charge for abb grand -- for abb grand.

They are recognizing steinway is the finest of its kind.

Those walnut sound different than the black pianos?

No.

ok, scarlet, walnut k52. and i would like a yacht and a dupe locks on park avenue.

You might be surprised to find how many yachts actually have a steinway on them.

Really?

Michael sweeney, thank you so much.

Ceo of steinway.

Just recently sold to john paulson.

We've got much more coming up on "bloomberg surveillance." the number, four point $5 trillion.

U.s. stock market capitalizations of far in 2013 -- $4.5 trillion.

We are streaming on your tablet, your phone, and bloomberg.com.

? good morning, everyone.

"bloomberg surveillance." i'm tom keene.

Alix steel and scarlet fu are with me.

Here are the headlines with alix steel.

In the ukraine rightly stormed independence square to dismantle a camp built by protesters, despite please by western diplomats for the government to not use force.

The demonstrations began almost three weeks ago when the country's president rejected a trade agreement with the eu.

South africans have begun to bid farewell to nelson mandela.

His body will lie in state the next three days in pretoria.

The government expects as many as 2000 people and our will file past his casket.

His body will be transported saturday to a village where he spent part of his childhood.

Mandela's funeral will take place sunday.

David ortiz has been named the major league baseball's top designated hitter.

Not kidding.

The boston red sox slugger had a batting average of .309. tom is doing his happy dance.

The seventh time he has won the award.

He is a first baseman, david ortiz.

Dazzled us in the world series.

The yankees did not.

Let's have a moment.

[laughter] but the basic idea, he is a first baseman.

He showed great agility.

David ortiz and agility do not belong in the same sentence.

Power, maybe.

You are a yankee methhead here.

Jacoby who?

Elsbury.

Talking about how u.s. stock market help fill the government coffers.

The white line shows the u.s. stock market capitalization, we have seen a monster increase in shareholder wealth.

According to dan clifton, it will add about $100 billion of tax revenue.

It brings up an interesting question.

Wealth has been rising but there is no real income growth that we can see.

There is the tax growth, though.

John taylor from stanford university suggests there is stabilizers -- there are stabilizes in a cyclical covered.

Michael spence, are we having a cyclic or best cyclical recovery or structural where things will get better?

We are having both.

We thought we had a cyclical recovery after we did not die of a heart attack but it is both a cyclical and structural.

The structural part is hard.

The cyclical recovery is a lot more modest than we have seen in the past -- and taking longer.

The reasons is the structural one takes longer.

Deleveraging, because it was a balance sheet recession, takes longer, and the government is under invested.

Are we taking longer because of competition from abroad?

A new globalization?

I know this is something you really thought about -- the lack of investment and jobs here because the investment is going to -- in a sense.

But the problem was, when we came into recession, we were running on a highly leveraged economy that generated excess aggregate demand.

And then domestic.

And then it dropped.

Like a stone.

So our main problem is we don't have enough aggregate demand.

What our economy is doing is restoring some of the domestic amanda slowly and accessing -- domestic demand slowly and accessing external demand because we are becoming more competitive.

The exchange rate, natural gas, and just resources.

Labor, capital, and stuff moving toward the tradable sector because at the margin -- are you willing to say 2014 is an american year?

No, i wouldn't go that far.

Compared with europe, yes, but i don't think we will get back until after 2014 and when the government decides that its portfolio has a bigger investment.

That is where i wanted to go.

Can washington assist or do they need to get out of the way?

Sometimes governments to get in the way.

So, both sides of this debate are sometimes right and sometimes wrong.

The government have a positive complementary role to play.

They generate human capital through education.

They generate the knowledge and technology.

They generate the infrastructure by investing.

And if you under invested for too long, you impair your potential growth.

Michael spence, noble laureate, joining us for the hour.

He talks about the government having a role to play.

Coming up, regulators taking a step to dim proprietary trading and prevent a crisis.

The volcker rule, we will discuss that next right here on "bloomberg surveillance." ? good morning, everyone.

"bloomberg surveillance." across the "surveillance" nation, a beautiful morning in the nation's capital.

Meanwhile, out in the vicinity of the state of o'hare -- chicago, illinois.

December, to say the least bit of safe driving to all of you watching and listening to "bloomberg surveillance" in the vicinity of chicago.

We have to get to company news.

She is warm, safe, and drive.

Google increases spending on its data center in taiwan.

It doubled spending to $600 million after it sees surging demand across asia.

Verizon open to swapping some of the airways it is trying to sell.

It may consider selling a certain blocks a game capacity and other areas.

T-mobile could be a likely it are for the airways.

Ibm sees a discouraging economy.

A senior vp says demand for the company's tech services depends on the economic climate, and right now the climate is "not very encouraging." europe is enjoying signs of recovery but north america is uncertain.

He made the comment in a conference in new york yesterday.

Of course, they also had the big drop-off in sales in china.

Like from mohamed el-erian and michael spence, the slowdown, it is tangible.

Some wondering how much is company specific ibm.

Because north american weakness here is not something we tend to hear from tech and biz, so it does bring to question ibm.

Despite snowy weather in d.c. yesterday, a stricter volcker rule was adopted yesterday by five regulatory agencies.

Wall street faces increase government oversight, like traders cannot be reworded for proprietary trading.

-- could not be rewarded for proprietary trading.

For a bonus ,850-page preamble.

850 pages of false positives.

No one has said more about the idea of be careful what you wish for then nobel laureate michael spence.

This 2010 essay on risk him arguably the most important of our financial crisis.

He talked about the risk of making regulations, for that matter, on risk.

You have talking so much about this -- you have talked so much about this.

Be careful what you wish for.

What is our fear of the volcker rule.

Our fear of a volcker rule -- the volcker rule the cost of imposing restrictions that we think will limit the potential for systemic risk will be higher than we expect.

So the benefit cost analysis, which is sort of, do too much to prevent potential damage in the future and pay those costs now or don't do that and then run these risks.

That is the trade-off we have.

And the people who don't like the volcker rule, other than those that are self interested, the ones who say those restrictions are powerful enough to produce cost.

Critically within the analysis, and the sophisticated analysis, title one and type two, what most of our viewers would say is, yes, but we are not in a vacuum of manhattan, we are not in the vacuum of washington, not in the vacuum of the united states.

We are doing it in a complex global system.

Kenzie -- can the volcker rule succeed if not in the united states?

On the other hand, if it generally creates an increment to the stability of the financial markets that are so liquid and deep here, it may turn into a competitive advantage, tom.

Is washington of the 1930s, ben bernanke, our chairman, out of princeton and m.i.t., mr.

Bernanke suggest that we did regulation wrong at the end of the depression, is washington back in the mindset of another time?

Are they fighting the last war with the volcker rule?

The volcker rule is an attempt to get at the inherent embedded conflict of interest that go with sort of the fully diversified financial entity.

It may not turn out to be the right answer.

Most people think that these things are not once for all the learning processes.

We may discover if there are problems with this and have to modify it later on.

But i don't think we are going back to that "let's overdo it" mindset.

If we look at the global financial system, that the eu and the u.s. are going at it differently, what is the instability level of the global financial system?

By far, the biggest risk -- the laureate iphone.

It doesn't turn off.

[laughter] the biggest risk is the leverage in the european system.

Very high.

Much higher than ours.

So, mild shocks could cause big problems.

Continually.

Will we see the u.s. regulators discuss more with the european regulators to try to stem the risk of saving what we are doing at home?

Yeah, and the banks for international settlements and the central banks are the core and the financial stability board are the core of the economic discussion.

In a better america, better financial system, do we return to the enthusiasm and animal spirits of 2005-2006 or will we turn to something different, a new animal spirit, i should say?

I don't think it will feel like 2005-2006 because most people think we are not going to go back to the bubble element of that.

The parts we didn't want.

But i think we will have on a continuing basis a very dynamic, innovative economy.

In that sensem,, i don't see it is different.

Austin, texas, silicon valley in california, new york city -- say new york city, please.

[laughter] these are hotbeds of innovation.

Michael spence, thank you so much for joining us.

The day after the anointing -- the acceptance of the volcker rule?

Unveiling.

The unveiling.

Forex report right now, dollar index, under 80, a big deal.

Stronger yen.

Sterling, a little bit weaker.

Michael carney returns to london after speaking at the economic club of new york.

The dollar and canada finally catches -- the dollar canada finally catches a bid.

Also waiting for mortgage applications coming out at the top of the next hour.

Coming up on "bloomberg surveillance." we will talk about -- will talk to dan hurwitz on shopping centers and retail.

? this is "bloomberg surveillance." protests and confrontation in kiev as the crane is torn between europe and russia.

The majority choose to look west.

Agreement on capitol hill at least among leaders.

Sequestration, it is out.

Debate and deliberation possibly in.

I use bitcoin, i use it to buy plane tickets.

But bitcoin, is a good for retail?

Good morning.

This is "bloomberg surveillance ." we are live from our world headquarters in new york and wednesday, december 11. i'm tom keene.

Joining me are scarlet fu and alex dale.

Our guest host this hour, former chief executive officer at chrysler, robert nardelli.

He is now with cerberus.

Also joining us -- what a pairing -- one of the top rank chief executive officers in the mall world, daniel hurwitz joins us.

It has been a busy night.

Cosco earnings coming out early this morning.

Profit missing estimates as the warehouse chain is boosting its discount.

Also home depot at an analyst conference this morning sees sales growth next year at five percent.

Also spending $5 billion buying back shares.

7:00 a.m. right now, mba mortgage applications and at 2:00 p.m. the monthly budget statement on the day after we get a short-term budget deal.

Also earnings before the bell, -- global, revenues a bit light and men's wearhouse trying to buy jos.

A bank, and hilton trying to price the initial public offering a day earlier than expected.

We will be talking about this throughout the morning.

Joy global, i don't know the name.

It is mining equipment.

It is the story.

Huge exposure to australia.

It shows the underlying end-user demand.

If people are not buying machinery -- you know who joy global is.

Yes, i am a nerd.

A good way to get a gauge on how caterpillar is doing as well.

If china is not buying, the big miners are not buying them in the trickle-down happens.

Joy global is litmus paper for the mining economy.

Let's talk about bmw.

It is considering building engines in north america for the first time.

It would allow the automaker to capitalize on growing demand in this region, at least according to people familiar with the matter.

Bmw is said to consider the u.s. or mexico for the site.

General motors names of mary barra as the ceo.

The longtime gm executive is the first woman to run a major automaker.

She joins about 20 women running companies in the s&p 500. -- running fortune 500 companies.

Blackstone said to make a paper profit of $8 billion millon begins trading.

It will be the second-largest pe profit ever.

Apollo made $10 billion of it -- and its investment -- open worldwide, china or misdeal -- hilton worldwide, ginormous deal.

Robert nardelli has seen the ballet before.

The chief executive officer of cerberus and home depot in his past -- chrysler and home depot in his past and now it is cerberus.

And dan hurwitz, ceo of many a mall real estate investment trust as well.

Robert nardelli, we have been there before.

Enthusiasm, animal spirits.

How do you have a fair idea of?

I think blackstone has done a fabulous job with those properties.

I am a big customer of theirs.

They've got some really prized properties.

Certainly the waldorf right here in new york.

It is where you stay.

X occasionally -- occasionally i do.

But steve does not give me special rates.

When you look at the ipo, doesn't scream top of the market or is this just a normal process to come out with such a rich evaluation?

I don't know if it is normal.

The second-largest ipo coming out.

But i think the value is there.

They have done a fabulous job.

If you look at the remodeling going on and what they have done with customer satisfaction and the aspirational desire to stay at those facilities, they have done a great job.

Dan hurwitz, you are in the real estate game.

Is this nothing more than a real estate transaction masquerading as a hotel company?

No, it is not.

They have done a good job in -- they are operators of a hotel.

They are operators of a chain.

A good management team.

Metrics are strong.

They are the smart money in the air right now and it is good to put your money side-by-side with the smart money.

You own and manage shopping centers.

I am thinking of the conrad hotel, an anchor tenant.

Not really.

Hotels are fine if you can sell your air rights to them and you can make money and expand yield.

But you don't get a lot of business out of it.

They don't hold enough people to generate enough business that is going to change the numbers within your shopping center.

Nevertheless, hilton has a huge real estate portfolio.

As a real estate guy, is it in their interest to monetize that and what would it look like?

I don't think so.

I think it is their interest to control it.

When you start to monetize and separate the real estate from the operating company, there are a lot of examples where it does not work.

Their operations -- again, i am fairly familiar running hotel operations -- if you look at their adr, occupancy rate, customer satisfaction, amenities -- 100 something or room -- against the industry, tom, is my point.

They can command a very high price but they deliver.

They deliver on consistency of expectations of the customer base.

What does it say for 2014? cristina alesci, our mergers and at position correspondent made very clear the animal spirit was not there this year.

What you see at cerberus and the celebration of a hilton deal, does it bode well for next year?

I am optimistic that that will continue.

I know in my own personal business we bought seven companies already this year.

I think the momentum and optimistic outlook for next year should continue.

Bob, you are really familiar with the public-private, go public again scenario.

What other risks hilton might have to watch out for in doing that?

I think number one, going private -- my experience at cerberus, we were able to do things you otherwise would not be able to do in the public sector.

We were able to monetize about a billion dollars in what i call non-earning assets.

We were focused more on cash than the book value.

If you were public, the analyst would give you a whacked because it was below book value.

But you have to make sure that you maintain or retain the operational focus and focus on excellence and continuous improvement in those operations.

Lets rip up the script.

7:00 a.m. on a wednesday morning.

Robert nardelli, we talk about fortress dimon and the volcker rule, what about nardelli and the effect?

We have been talking about it for a year -- does it change cerberus operations?

I spoke to some of my dear friends at ernst & young -- exclusive.

Nardelli has friends in the accounting business.

You always have friends in the accounting business, right?

Personally and professionally.

Ernst & young has been studying this for some time and there are ins and out with a 900 pages, the devil is in the details but it is some of the rules, with 17 unique metrics, down to seven.

One of the big concerns is the ceo's they have to attest to these things.

It is like sarbanes-oxley.

404, it adds tremendous complexity.

I think it is going to slow the process down because there is this fear in this analysis that will have to go one within the banks.

This is a critical point, the idea that nardelli will have to lean over the desk and put his signature on something facing potential civil or criminal wrongdoing's -- but at the same time he is not personal responsible, which is what a lot of critics push back on.

Let me just say, you may not be legally, but i will tell you, there is the spirit in the letter -- spirit and the letter.

When i was signing at 404, i felt totally responsible as the custodian for our investors.

We will see how this plays out certainly.

Then hurwitz -- dan hurwitz, ceo of a real estate investment trust, what kind of impact does the volcker rule have on your industry?

We have to see what happens to the real estate industry in general.

In lending criteria and how it works.

But i think overall the impact will be somewhat minimal.

I think for the public companies it will be minimal, because that is not how we access capital, through the hedge funds or private equity.

There are a lot in the private sector that does, but i think the impact will be somewhat minimal.

A good hour here with dan hurwitz and robert nardelli giving perspective on so much in business, economics, finance, and investment.

And number coming up later this hour, 14%. how much deliveries of cars and light trucks increased for general motors in the month of november.

They've got a new ceo, mary barra.

Can she sustain this level of growth?

This is "bloomberg surveillance" on bloomberg television and radio.

? good morning, everyone.

"bloomberg surveillance." wednesday morning.

Thou futures, -10. this matters now to our guest host -- we dragged him out of the mall, daniel hurwitz, he owns 431 shopping malls that you can drop your kids off at.

His shares, surprise, nicely outperform amazon.

Him and off the bottom of february of 2009, ddr doing better than good.

How much of a threat is amazon to your world?

I think not a threat at all.

They rationalized some of the business.

They are more of a distribution channel than anything else.

Amazon has made retailers rethink how they distribute their goods to their customers.

They have made everyone sharper, everyone better.

That i still got to go to the store and look at the item -- and 94% of the business is still being done on bricks -- at bricks and mortar.

How is traffic, x teenagers?

Traffic is better without the majors teenagers has been pretty tough.

Teenagers hang out in the hallways looking up the wi-fi.

Dan, when you look at how retailers are doing, operable store sales still the best metric to gauge the health of the retail industry.

I actually think that is the worst number.

Comp store sales are interesting but very controllable.

You can always raise come store sales, just lower your price.

We look at margins.

We talked to retailers.

Not necessarily comp store sales to understand whether they will make money or not.

They pay their rent with a margin.

I tried forever at home depot to get them off the analog measurement of same-store sales to digital.

We were growing 20% a year and they were still fixated on same- store sales.

Dan is exactly right.

It is an archaic measurement.

It is an easy measurement but not the right one.

So, who is doing well on the margin measurement?

Any retailer selling branded goods off price.

You look at ross, tj maxx, marshall'ss, nordstrom rack.

Value, not sheep.

Down the line, will those players get margin versus revenue?

I think that will get margins.

One reason is they are taking advantage of the dislocation in the department store business where department stores have to cancel orders already in the country.

They are buying the goods and marking them down and moving them in the store.

I have about 18 more questions.

Today, a six hour "surveillance." coming up, congressional negotiators managed to compromise.

Can they sell it to their colleagues?

Republicans versus democrats are making progress here.

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

? good morning, everyone.

"bloomberg surveillance." bob nardelli and i are talking about chrysler engines.

So manly.

Then hurwitz with us as well, from ddr.

But first, helping us with a delicate topic is alix steel.

We will start in the ukraine because the testers have reclaimed independence square in kiev after a night of battles with police -- protesters have reclaimed independence square.

Demonstrations began almost three weeks ago when the country's president rejected a trade agreement with the eu.

South africans have begun to bid farewell to nelson mandela.

The late leader's body will lie in state for the next three days in pretoria.

The government expects as many as 2000 people an hour will file past his casket.

His body will be transported saturday to a village where he spent part of his childhood, and a funeral will take place sunday.

David ortiz has been named the major league baseball top designated hitter.

Garlic is crying and tom is smiling.

He has a batting average of.309 ,309, and this is the seventh time in his career he has won this award.

Complete american league construct.

You are just saying that because the yankees are not on the list.

The yankees do have an entire team of dh's, though.

It takes away from the strategy.

That was very delicate.

Now we have to talk about a manly topic.

Or a womanly topic because general motors just may mary barra as a new ceo.

She was that into a much different gm than five years ago.

A clean slate.

U.s. government just sold it last shares of gm earlier this week.

Auto sales strongest since 2007. 14% sales growth.

What does mary barra need to do to sustain the momentum?

We bring someone who has lived through it.

Bob nardelli, the ceo of chrysler during the top years, 2007-2009 and the ceo of home depot before that.

When you went to home depot, you did not have retail experience and when you want to chrysler you did not have car experience.

What is the benefit of getting a ceo from outside the company?

I take exception.

I was a consumer -- and you probably owned a car -- drove a car.

And tom and i worked on cars growing up.

There is a definite advantage coming in from the outside because you are not associated and you don't have a lot of the best the relationship with a lot of the legacy issues.

There is talk about mary having five priorities, worried about competition and making sure the brand are able to differentiate themselves and getting rid of the fiefdoms.

That one is going to be tough.

She has been there 33 years -- and responsible for a lot of the products so it is difficult to say if she can let some of her babies go.

So much bondage wear design engineers relate to these platforms like children.

The toughest thing i think for mary will be after 33 years, to turn her hat and bring an outside perspective to continue the change that dan has put in place.

It could be a better time for the transition.

If you look at where general motors is, they are now outside government control.

I wish dan's wife the very best with her health situation, of course.

What he has done a great job.

Pat russo, the lead director, she has done a great job.

Mary is stepping in, the good news, at the top, and the challenge will be to continue that momentum and the sales and so forth.

Color for us the importance as she goes to the new chattering general motors institute.

-- kettering general motors institute.

She is an engineer on the stanford, she has the magic of the degree from the general motors institute.

What does it mean?

It means a lot.

She really understands the inner workings, the granularity of what it takes to run a company like this.

The good news is she probably has tremendous support across the organization, having sat in many of these chairs.

She has good support, good working knowledge, operational focus.

The challenge will be the competition, to continue to enhance the platform to differentiate the brand.

She's got some globality issues with opel over there.

She will have to separators up a little bit and bring the outside in perspective to change what she has put in place.

That is the toughest thing a ceo has to do.

Dan hurwitz also joining us, the ceo of ddr.

Retail, margins versus sales.

What is it like in the car market?

Is it about products or operating margins?

At think it is both.

I think you have to have both.

If your product is exceptional you have a better chance of driving margin because demand goes up.

It is important you understand your product and where you can go with margins.

And it is important how you price the product.

Where you bring it in.

You bring it in at the hive, below, do you market down, maintain price?

A lot of games that get played with pricing.

At the end of the day, the margin cuts through all of that.

From where you sit looking a parking lot in malls, a lot of cars out there?

-- new cars out there?

A lot of new cars on a regular basis.

And you see it in new car sales.

What supplies are really high.

Will we see more discounting to offset the massive supply?

A very important point.

I think what happens is enthusiasm grows and you tend to not get closer to the cliff but over the cliff.

At chrysler, we had inventory we had to discount because the dealers were drowning as the prior management was forcing cars onto the dealerships.

Bob nardelli, dan hurwitz with us.

Tonight is when hilton prices its ipo.

Arts would've weston -- who has the best rewards program?

Hilton honors, something else?

? good morning, everyone.

"bloomberg surveillance." the sun ever brighter -- although there is ice on the stairs of the capital.

They may shut down the federal government because there is a glaze of ice near the garfield statue on the west side of the capital.

Be careful.

It is icy out there.

I'm scarlet fu here with tom keene and alix steel.

The gauche eaters on capitol hill actually came up with a budget compromise -- negotiators on capitol hill actually came up with a budget compromise.

And it will still cut the budget deficit.

But protests from both sides -- the question is, can they sell it to the rest of congress?

We head over to chief washington correspondent peter cook.

A tough sell.

I braved the ice to get in here.

Members of congress have braved the conditions here in washington to cut this modest mini deal between patty murray and paul ryan.

At the end of the day, i think they will be able to sell it to their respective caucuses.

You will have opponents among house republicans and senate republicans, to be sure, but because paul ryan's name is attached they will get enough republicans to get a pass.

There will be democrats as well who are unhappy because it does not include increase in taxes, particularly the corporate tax loopholes they talk about all the time and it does not include expense -- extension of emergency unemployment benefits.

But at the end of the day they have enough of the democrats didn't really matter, like steny hoyer and chris van hollen.

Although there will be some drama.

What i think we know paul ryan, very familiar from the presidential campaign -- i think we know paul ryan from the presidential campaign.

Where does patty murray from washington state fit in this?

Does she have support?

She has a lot of credibility within the senate democratic caucus.

She was handpicked by harry reid to run the budget committee.

She is a veteran of the supercommittee negotiations.

She has dealt with paul ryan for several months.

I think it is pretty clear democrats believe that she did hold her own.

She did not get what she wanted.

Paul ryan did not get what he wanted as well.

This is a standoff, a truce.

I think both sides have something to show their respective parties, but they have a lot of work ahead of them.

I don't think anyone on the democratic side faults patty murray.

Bob nardelli from cerberus.

A question.

As i listened to the breaking news last night and congressman ryan was talking about no increase in taxes, i breathed a sigh a relief in the first thing i read this morning is airline passenger rates will go up.

The devil is always in the details.

What is going on?

Can you explain it?

When you go to the house budget committee website there is a lengthy for gormley asked questions list explaining why in paul ryan's review the increase in the aviation fees is not a tax increase.

I can tell you it is a tough sell to some of the republicans in the house.

He makes the case that these user fees -- and that is what they are calling, the grab bag of revenue raisers in this package -- that those are not tax increases.

One person's tax increase is another person's user fees.

That is why some conservative groups will not back the deal and some conservative house republicans will walk the other way.

That is the risk for paul ryan here, he takes -- take off enough of the conservatives for the first time ever the break with him.

I want to keep a headcount on how many abandon him.

"bloomberg surveillance" transparency, that nardelli has flown on a gulfstream nonstop for eight years, has not been on a commercial flight -- [laughter] that is not true.

I do about 200 nights a year on the road and when i saw the airline passenger fees going up, that is a tax to me.

One thing paul ryan will make the case of is that the fee was set after 9/11, and the argument they are going to make is the fee was set to cover the additional security costs put in place after 9/11 and over time the fee is not large enough to cover those costs.

Peter, very quickly.

What is the sense -- what does the sense of compromise mean for the debt ceiling debate?

All the chips will be on the debt ceiling fight.

It will be extended because of the extraordinary measures probably later in the summer.

That will be the one leverage pump between now and the midterm election.

No threat of a government shutdown until after the midterms.

The debt ceiling will be the one area where we could still have a flashpoint.

Peter cook.

Watch the ice.

Then herbert -- dan hurwitz is with us.

Once again, the government intrudes.

Will they slow the economy down again?

I don't think they will but that is what i worry about the most.

I lived this many times.

When you have sequestration, it hurts retail sales.

When you shut down the government, it hurts retail sales.

Never underestimate the government's ability to put it back in recession.

If left alone, i think we are fine but unfortunately the people in washington don't leave us alone.

We will have much more.

Tripping over their feet.

Let's do a data check.

European stocks are modestly higher.

Not doing a whole lot for u.s. futures.

S&p futures up by less than half of a point.

"bloomberg surveillance." we are on bloomberg television and radio.

It look for us out of the brand spanking new bloomberg.com.

I really like it.

Really smart new review of bloomberg.com.

All of our interviews are out there.

I'm tom keene.

With me are scarlet fu and alex pettyfer guest post this hour, robert nardelli from cerberus capital management and dan hurwitz is with us, chief executive officer of your local mall, he is that ddr, with over 400 miles.

Bitcoin, a topic that demand attention every single day.

You either hate it and you see it as a fraud or you believe it is the future.

The chinese government banned it to use.

On the other side, companies are accepting it and happy to cash in on the appreciation.

Online travel agency cheapair.com also takes bitcoin.

The ceo and founder joins us.

Why did you decide to accept payment in bitcoin?

I have always been fascinated with bitcoin ever since i first heard about it but i never put two and two together until a customer of ours asked one of our travel advisors if they can pay in bitcoin.

I got wind of it and i thought, hey, how cool would it be if we could provide a way for people to buy flights with bitcoin?

I did some research and i found it to be technically feasible, economically feasible, and we got it done.

Technically and economically feasible but also very volatile.

How do you protect yourself from the wild swings?

To be honest, we don't have to.

I have been getting all of this undeserved credit from customers, it is wonderful, you are taking the risk here that i have to be honest, the second bitcoins come in -- we have to pay airlines in dollars and so we are exchanging them immediately.

So we are not taking currency risk at all.

What new customers are you hoping to capture by accepting bitcoin?

We are definitely reaching a different market.

The other day we sold a $34,000 pair of first class tickets to australia with bitcoins.

We are cheapair.com, we are not selling many of those tickets.

Without a doubt, we are appealing to a type of customer we would have never appealed to before.

Let me ask you the uncomfortable question.

Do you just assume a $34,000 pair of tickets, to be polite, and unde

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

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