Uber Tries to Undercut Taxis: Surveillance (07/08)

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July 8 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Michelle Meyer, Stephen Sigmund, Ben Emons, Dean Maki and Tony Dwyer. (Source: Bloomberg)

Ukraine rebels prepare for a last stand as russia prepares for negotiations with kiev.

The american housing market is a mystery for 2015, and over the undercut -- there is a price war in getting you to the airport.

Good morning, everyone.

This is bloomberg "surveillance ." we are live from our world headquarters in new york.

It is tuesday, july 8. i'm tom keene with scarlet fu and adam johnson.

Overnight u.k. manufacturing unexpectedly drops, the most in 16 months.

Hennepin, a fourth straight monthly current account surplus, making up then -- making up for a weaker yen.

Underscores a significant change in japan.

There is a massive tidal shift in japan.

It is working.

Economic data, we have a lot of stuff -- not a lot, if you think.

7:30, the mse small-business optimism figures come out.

10:00, we will focus on jobs openings, the most number of jobs in this country since late 2007. there is a discussion of the quality of the jobs.

We will talk about that.

Consumer credit comes out at 3:00. after the bell -- earnings descendents.

Alcoa and bob evans kick off the earnings season.

Bob evans, a nice place to have lunch.

1:00, richmond fed president jeff lacher speaking.

Soon after in minneapolis, the fed president.

Very interesting, maybe the fed president and nobody knows but should know.

There is your morning brief.

Let's look at the data check.

Equities, bonds, currencies, commodities.

A sustained equity market.

17,024 on the dow.

10-year yield, 2.59%. nymex oil pulls back.

11.33, still outstanding.

There is the brent crude.

And there is gold.

Let me go to the monitor here.

This chart does not go back to 1789. the spanish 10 year, new low rates.

Irwin with a great article in "the new york times" today.

The idea that every asset around the world including spanish bonds is in a bubble.

We will talk about it.

There is almost too much to talk about today.

We look at the front pages, the webpages.

Here is our front page.

Here is scarlet fu.

Israel is launching more air and sea strikes in gaza third and military says 50 targets struck in hamas controlled region during israel is also calling up reservists for possible ground operation.

This is after palestinians fired rockets into israel.

The recent violence came up after the kidnapping and murder of three israeli teenagers, setting off a chain of events.

Followed by the kidnapping and torture -- it was horrific -- of a youth from palestine.

Ukraine, real tension there, as you see the images of the bridge being blown up.

Rebels retreating into towns.

Iraq, not many new news stories coming out of iraq.

It is something we will continue to monitor throughout the day.

Our second front-page story, u.s. authorities are looking at germany's commerce bank in their investigation of alleged sanctions violations.

Germany's second biggest lender may have to pay at least $500 million, and this has to do with whether the bank violated u.s. sanctions doing business with iran, sudan, cuba area why would commerce bank have to pay that much when bnp paribas had to pay $5 billion?

The biggest tension is it is 17% owned by the german government, to credit agricole and france, bnp -- or could be a lot more agreements, negotiations to come area and you wonder where all the money goes.

The $9 billion from bnp, where does it go?

Does it pay down our deficit?

Does it help people in detroit?

I don't know.

Maybe the authorities could do a bet with the germans today on brazil-germany.

Does germany even stand a chance, by the way?

Definitely.

I have become an expert in the last two weeks.

How many people are on the soccer field at one time?

11. he did not know that.

I knew that.

Tom, you referenced this.

This is the question has everyone asking, are we in the middle of and everything boom or and everything bubble echo neil irwin said every asset class -- nearly every asset class is expensive by historical standards.

Bonds, whether it is in the u.s., spain, or anywhere else.

Real estate, including farmland, emerging markets -- you have two interrelated forces -- more money piling into savings to businesses think they can use to make productive investments.

They are hoarding it as cash.

This has been an ongoing story.

Central banks have been on this long campaign of keeping interest rates low and creating money to stimulate the economy.

We move from the great recession to the great distortion.

This is what we have to cover at bloomberg is the now-what.

I do not think we have said this enough.

In the past 12 months, the stock market is up 20%. one great example from this article says using the current s&p 500 valuations, every dollar invested in stocks buys you 5.5 cents of corporate earnings, down from two years ago.

It is also lower than before they financial crisis.

You could make the argument that you are not getting what you should be for your investments.

And retirees are not getting the income they deserve because the rates are being held artificially low.

I am in the leverage cash fund, two for one.

Those are front-page stories this morning.

Our twitter question for the day.

Let's look at it @bsurveillance.

What asset is not in a bubble?

There is the boston red sox, would be my answer.

What is your answer?

Eric came up with this, did he?

Our intern?

Where do you want to put your money now?

What can you buy and expect to make a return in the next couple of years?

The s&p 500 is up 20% in the past 12 months.

Housing has lagged even as the united kingdom seems to enjoy elements of the housing bubble.

Rachelle myers, -- she has published important and early research.

If you were to write the seminal article you wrote two or three years ago, what would you say today about where we are now housing economy?

I think we are still in the process of recovery, particularly for housing construction.

For home prices we are at the latest stages of the recovery.

We have seen pretty rapid acceleration at the bottom in early 2012. last year prices up 11.4%. this year, q1, up double digits.

The recent data suggests a kind of makes sense.

If you look at home prices relative to income or consider fair valuation, we have arguably become overvalued in a lot of the country.

We are not seeing the wage and income growth to sustain double-digit appreciations.

I think it is probably a welcome development for the market.

Here is a welcome development.

Let's look at the bloomberg chart.

This is inflation-adjusted prices set in 2014 dollars.

We come back to 2003, 2004, 2005, 2006. why is housing not in a bubble when others talk about the equity markets or commercial real estate?

Give another when here, adam.

What is another bubble?

Oil, bonds.

Why isn't housing like high-yield bonds?

Trying to identify a bubble in real time is extremely challenging.

If monetary policy makers were able to do so, they would a -- they would be able to appropriately lean on the bubbles and i think it is a huge debate in terms of any asset class being in a bubble.

Specifically on housing, i think if you look at the measures of valuation, we are only slightly overvalued based off the measures.

You don't have the amount of leverage in the system that you do typically when you determine if an asset class is in a bubble or not.

You do not have the same investor participation.

Holding properties, looking to rent them.

I think it is different.

Obviously we have seen rapid appreciation thread you have to be concerned in regions, but i do not think it has the typical determination she would say as a bubble for asset classes.

Michelle meyer with us for the hour.

But skip to company news.

Here is scarlet fu.

Some congressional republicans want to shut down the u.s. export import bank.

The bank helps overseas firms finance major purchases or it s&p says boeing would have to double its financial backing to airlines.

Petsmart is being pressured by two major investors.

Long view asset management is urging the company to consider a sale following a similar call from jana partners.

Jana holds almost 10% of petsmart while longview has a 9% stake.

And a company shutting all its stores -- crumbs has 65 locations in 12 states and washington, d.c. it will file for chapter seven bankruptcy liquidation.

No word on how many workers are affected.

If you look at how cupcake shops have done, there is so much competition.

There is crumbs, baked by melissa, i know he a bakery in bloomingdale's, sprinkles.

When was the last time you had a five dollar cupcake?

We go to bank of america authority on cupcakes michelle meyer.

This is a disease, isn't it?

They got popular very quickly.

They are so easy to pop in your mouth.

Crumbs -- they are big cupcakes.

They are too big.

Who wants to pay eight dollars for a cupcake?

Eight dollars?

All these cupcakes are expensive because you buy the brand, the look of it.

We could not have this conversation with ethan harris.

He could have views on cupcakes.

I never understood the whole cupcake thing.

I think it is kind of stupid.

Well, explain it here it what is so good about a cupcake?

A remind you of birthdays in second grade.

You kind of want a candle coming out of it.

I wonder if it is going to go along like the hamburger bubble.

There are hamburger joints everywhere.

I understood the other day that one of those juices that we did costs -- there is a juice craze great is it a juice bubble?

Neil irwin, if you are watching "surveillance," your next bubble article can be on juices and cupcakes.

There you go, folks, with our attrition will supplement.

Is there a bubble in -- known oncoming up we will be talking about sam.

A big disappointment.

They are not selling as many of those oversized phones as thought.

We are glad you are with us on bloomberg "surveillance." we are also on bloomberg.com and streaming on every device imaginable.

? good morning, everyone.

Bloomberg "surveillance." coming up on bloomberg television, this is always interesting.

Richard dell fun of imax.

On the state of media and the state of craft in hollywood and in new york.

Richard gelfond of imax.

I am tom keene.

With me, scarlet fu and adam johnson.

Germany will win.

Here is scarlet fu on samsung.

Samsung results them out overnight, a quarterly drop in operating income.

Second quarter saw profits down 24%. a lot of analysts had estimates prior to the release of the results.

Lenovo on the low end, and on the high and you have apple of course.

This is a big deal.

And at the same time samsung is trying to put a positive spin on it, saying it sees a recovery because of the unveiling of new products.

Sam grobart with the article of the year on apple in "bloomberg businessweek," they are saying price matters.

Samsung says unit matters.

What does the sell side say?

Samsung sales parallels with apple maybe two years ago because it is facing slow growth, stock price, leadership transition problems.

A lot of investors, foreign investors in particular are pushing samsung to do an apple.

Buy back its stock, start paying a dividend.

It is estimated the cash power will rise to $100 billion by the end of 2015. i have a one year growth rate on apple, just 1%. it is giving cashback, whether it is buyback, whether it is a dividend.

Investors will continue to wait for samsung to do something.

I am not buying a dorky watch.

We had a guy on the show yesterday wearing it.

It was kind of clunky, like a giant square.

Coming up on bloomberg "surveillance," as adam shows us his iwatch, dean maki will be our guest host.

We look forward to speaking with him about the labor market.

This is bloomberg "surveillance ." good morning, everyone.

Good morning, bloomberg "surveillance." i'm tom keene.

With me, scarlet fu and adam johnson.

Warning must read with our editor-in-chief matt winkler, marty schankel are -- all from "the wall street journal." look at this.

125th anniversary.

Al hunt was a cub reporter when this came out.

Al hunt right down here next to denver six and seven cigar makers.

They had some special celebrity columnists.

My morning must-read read is from taylor swift, the songwriter -- the economist.

She is talking about the future of music and she says it is like a love story.

She said every fan had already seen this show online.

To show them something they had never seen before, i brought out special guest performers to sing their hits with me." i know her.

"if you were romeo i was scarlet letter ? good music.

Today was a fairytale.

Excuse me.

I thought her work was def leppard.

I must have missed that one.

We are not the key demographic.

You don't think taylor swift is trying to appeal to the "surveillance" team?

She can keep up with these guys.

She has an excellent voice.

Mark zuckerberg also weighing in.

This is part of the 125th anniversary edition of "the wall street journal." "internet for all.

Almost 90% of the population lives within a cellular network it only one third is connected.

The challenge is to make it more affordable." i did not realize some of those figures.

The cell powers are there but they have to be upgraded.

The data -- that upgrade process is expensive.

More in the u.s. than other parts of the world.

On the streets of new york, everybody is doing more and more of this.

This is actually interest.

There was a picture of everyone staring at their smartphone while waiting for a train somewhere.

The picture from 100 years ago, everyone was doing the same thing but with newspapers.

We have not changed that much in our habits, but what we are using.

Is it wrong that i am almost fed up with people almost bumping into me because they are on the phone?

I am bumping into you.

I feel it is more chaotic that we are on phones and not paying attention when the trains are coming.

And we trip over each other to get on the train.

William being, he of the 6-29 oakland a's, having a good year.

Of course, scarlet fu did that with a single best chart.

Every single ball that came to me, it went right to my legs, hit me in the shin.

It was ugly.

Setting the oakland a's up to finally win the big one.

They are the exciting story in the bay area right now, the oakland a's. congratulations to "the journal" on 125. uber stepped up their competition with yellow cabs in new york city.

We discuss it next.

Coming up on bloomberg "surveillance." good morning, everyone.

"bloomberg surveillance." i'm tom keene.

Scarlet fu and adam johnson here.

Esther johnson has are tuesday top headlines.

-- mr.

Johnson has are tuesday top headlines.

Children should be treated as refugees in battle.

That would make them be able to be treated with asylum.

The obama administration saying that sending them back home is complicated because of a 2008 human trafficking law that protects children.

A scorched-earth strategy to get ready for a standoff with rebels.

They are holding out for a final fight with government forces.

Being on a roller coaster for hours.

It is only fun if you're moving.

Two dozen thrill streakers -- seekers were stranded after a mishap at a six flags and california.

The coaster hit a tree branch and the derail the front of the car.

Four people were slightly hurt.

Those are the top headlines.

Top headline.

Ferris wheel at the bloomberg summer party.

They had to hold my hand.

Planes are landing at laguardia.

You are waving to them.

The seven-year-old is holding my hand.

That sounds about right.

I don't like those rides.

I'm surprised they let you one.

You are like 6'5". they said no bowties.

That's what they said.

Uber has lowered prices to compete with taxis.

What did your sprint to laguardia teach you?

It taught what people already know.

The organization was founded by a realty developer to bring attention to these kinds of issues.

Sometimes you need to perform stunts.

Like writing a speed bike to laguardia.

We had seven people take different forms of transportation to get lip -- to laguardia.

Taxi, uber, airport transportation, and i wrote a city bike.

-- rode the city bike.

Did you wear a helmet?

I did.

I got there and 49 minutes.

You followed all the traffic rules?

I followed all paths.

Some of the red lights were little but optional.

In the middle of my ride, i did have an nypd cruiser notice i went through a red light and follow me for a few blocks.

You work for the port authority.

You are uniquely qualified to talk about why america has lousy infrastructure.

If uber destroys these industries with lower prices come does that -- prices, does that assist us?

Your point is right.

The mass transportation infrastructure needs to get better.

We show that double transportation -- we need public transportation access to our airports, particularly laguardia.

It is the only closed in business airport that does not have a direct transportation link.

The mta try to create some links, but there is no mass transportation link.

It highlights a larger problem.

We have completely underinvested in mass transportation infrastructure and it asserting the business community and people and passengers.

We tried the experiment going out to jfk.

We put out a monorail but you have to make three transfers.

This thing was how many billions.

What are we doing wrong?

You don't have one seat ride.

Every time, you have to transfer you lose passengers.

Even air train, which you described, to jfk, the transfers.

There is not a direct transfer platform.

You have to get off, walked down, walk.

We have talked about building a flyover.

A simple 200 foot connection.

Michelle meyer with us from bank of america merrill lynch.

Can infrastructure boost the nation's economy?

Of course.

That was a focus of a lot of the fiscal stimulus we saw during the heart of the recession.

Pumping money into the economy, build out infrastructure.

That helps in terms of hiring and investing in real time, but it has benefits and multipliers down the line.

It can make things more efficient, if it can make transportation run more smoothly.

It will be beneficial for the economy.

That was one thing we started to see.

It arguably did not go far enough.

A lot of people say we did not invest enough in wi-fi, as well.

New york city airports now offer 30 minutes of free wi-fi.

Why are they limiting it to 30? it took about a year and a half of work to get that 30 minutes.

The port should be credited for getting the contractors there.

It is being limited to 30 because there was a terrible situation in 1999. i want the answer.

With all of these agencies and all of that, what is the number one constraint to better trends like switzerland or better airports like heathrow?

Heathrow was down in the dumps and they rebuilt it.

Why can't the port authority or in chicago or lax -- sfo is worst in class.

Some parts are pretty good.

What are the constraints?

Money, commitment, and the federal government.

Because the aviation system and the train system -- because it is an integrated national system, you have to have the federal government spend money and make a commitment.

There is a satellite system for air transportation, nexgen, you have to spend the money in the time and the commitment to get nexgen in 21st century technology.

Given your perspective on infrastructure and logistics, uber price cut.

How does this percolate through the whole network and disruption?

I think it is a very interesting move.

We use uber.

There was a technical glitch is the reason it came in third.

The apps it not work particularly well.

There are issues that uber and technologies like them need to work through.

But they can be very transformative.

Particularly outside of the manhattan core.

Quite transformative.

If it is priced right.

I know michelle and i are addicted to uber.

Six hours later you get the little e-mail, you look at the price, you say, you're kidding me, that is all it was?

The trick there is that you do not have to deal with any of the pricing while you are on the ride or right afterward.

No cash.

The ride ends up being more expensive, it is six hours later, so it is like, oh.

[laughter] thanks for writing -- riding your city bike and telling us about it.

Thanks.

Coming up, who is the real winner of the 2014 fee for -- fifa world cup?

We have four teams.

We give you the answer in our single best chart next.

? good morning, everyone.

"bloomberg surveillance." there are a lot of bubbles out there -- maybe, maybe not.

Chairman yellen says, that is not our job.

What asset is not in a bubble?

We need your many answers.

That is her twitter question of the day.

This is "bloomberg surveillance." del futures, -17. let's get to our top headlines.

The new president of afghanistan is going to be sworn in.

That is still early -- to be decided.

The taliban is still taking responsibility for a bombing that killed 16 people.

A typhoon is flexing its muscles and the far east.

The storm swept across okinawa.

It turned up huge waves, packing destructive wind of more than 150 miles per hour.

Airports are closed.

Thousands of coastal residents have been evacuated.

It was four years ago tonight that lebron james went on television to say he was taking his talents to south beach.

Now, who knows what is going to happen.

He is going to be a free agent for eight days and today sports bookies are betting that he will go back to the cleveland cavaliers.

Those are your top headlines.

He wants to stay in the east.

This is dark sky, my weather app.

Gail, bring them in on this.

That is the typhoon.

That big yellow spot is the massive typhoon on oklahoma?

Okinawa.

Heading for japan.

This is a nap.

-- an app.

Two books.

What app is that?

Dark sky.

It is like my hipster weather app.

Like urban daddy.

How did you know they call me urban daddy?

[laughter] now for our single best chart.

Here is your chart, urban daddy.

China may be the big winner.

Chinese exporters are doing good business with the world cup.

Our single best chart is from mike mcdonough.

How football exports from chinese factories surge in line with world cups since 2006. the overall trend line is a steady increase.

We do see there are strong world cup sales and then you see pronounced decline afterward.

Expect one right after this world cup.

Overall, it has been rising.

Nike and adidas.

That is pretty cool.

Have you been following the world cup, michelle?

To the extent that it is on all the trading floors and i can't avoid it.

I am not an active follower.

Speaking of world cup swag on the gale, come over to the screen.

Here a.m. in a belgian bar and i have my red devil horns.

They were selling this stuff to beat the band.

It was this weekend.

Why would you wear a belgian hat?

It is amazing what rose wine will do to you.

You also took her glasses off.

I look younger on the weekends.

All this belgian swag is from china.

Some top photos of the day.

Adam johnson.

Yeah, here we go.

Undocumented immigrants are facing off against immigration supporters yesterday in murrieta , california.

Tomko you brought this into the meeting.

-- tom, you brought this into the meeting.

50,000 kids are involved in this debate.

Ukraine, iraq, how about children?

52,000. wow.

That is hard to imagine.

We tend to wrap everything up in this word immigration.

But it is about so many other -- thank you.

And all bets bundled together and misunderstood.

It is about borders.

Should they be sealed?

Then there is the whole visa issue, the undocumented issue.

They all get lumped together.

There are multiple issues.

Republicans and democrats do not want to deal with it.

Boy, that's true.

They don't do anything.

The do-nothing congress.

Wow.

I'm getting fired up.

It's almost election season.

German chancellor angela merkel visiting the chinese premier.

Ms.

merkel has started her three-day visit to china.

It is her seventh visit to china.

Did you realize that?

This really brings up, we think of it as a bilateral relationship.

All of these other nations are vying for china's business.

It is not about china-u.s. that is the relationship between the developing underdeveloped economies.

China, as it continues to build momentum and continues to mature as an economy, the partners will be important.

More portly for china will be the ability to create -- importantly for china will be the ability to create consumption.

A fabulous conversation on the courtesy dynamics.

Is germany harmed by a stronger euro?

Sure.

I mean every economy would like to have a weaker currency.

In terms of being able to export.

Germany is still manufacturing.

They are still quite reliant on their ability to export.

They want a weaker currency in terms of supporting their economy right now.

That may be why one of the top stories come a central banks around the world seeing 3% or 4% fewer euros.

Potential devaluation.

We will do whatever it takes, according to mario draghi.

Number one photo of the day.

Spectators excited to watch cyclists in the tour de france which kicked off a couple of days ago.

They are stepping onto the course to snap selfies and creating a hazard for the writers -- riders.

There were pictures and videos of bikers because people were going right into the middle of the race line.

It is crazy.

Don't do that.

That selfish.

I thought that was stephanie ruhle in the background at first blush.

[laughter] coming back and anchoring "market makers." those guys are the top photos.

Ok.

coming up, we look ahead to the release of the fed minutes tomorrow.

It is going to be a pretty light week in terms of data, but this is a big focal point.

What do the federal reserve governors and officials actually discuss when they decided to hold interest rates steady and come up with the new economic forecast?

? this is "bloomberg surveillance." with tom keene and adam johnson, who was a taylor swift fan.

Let's get you some company news from the files of "bloomberg west." samsung predicts sales will bounce back.

The operating profit fell about 24% in the second quarter.

Analysts say they are feeling heat from apple at the high-end and chinese competitors at the low-end.

They hope to rebound from fourth-generation products in china this quarter.

The virtual reality company says it will hold its own developers conference next fall.

It is scheduled for october 19-20. in los angeles.

A mobile payment provider is facing the mother of all branding problems.

The company is called isis>. the firm will change its name soon to distance itself from the sunni militant group.

That is this morning cross company news.

-- this morning's company news.

Adam -- tom, excuse me come are you a taylor swift fan?

No.

let's look at the fed policy.

The singular outcome of last tuesday's jobs report.

Earlier than they thought weeks ago.

Michelle meyer is chief of recalibration and the senior u.s. economist at bank of america merrill lynch.

Did you recalibrate off of this jobs report?

We recalibrated in terms of where we see the risk.

We have not changed our fed call.

We think the first fed call -- rate hike will be next year.

The unemployment rate is at 6.1%. that is where the fed was targeting the unemployment rate or forecasting the unemployment rate by the end of this year.

We have gotten there earlier.

We are still not in an environment where we have a real concern of inflationary threats to the upside.

Wage inflation remains quite subdued.

There is not symmetric risks around policy.

Fed can fight inflation.

They can't fight recession.

Rosengren is in chicago where they have been incredibly right on unemployment.

Here is the unemployment rate from 10%. down we go to 6.1%. with the curve down, it has improved even more.

If you look at rosengren and evans, what is the new unemployment rate for when the fed becomes more restrictive?

5.5%? a lot depends on why you think the unemployment rate is falling.

If you are in the camp, which i would argue a lot are dovish, that it is a function of the shrinking labor force and that is temporary, that reveals hidden slack in the labor market and you can have a lower unemployment rate.

That is the smartest thing i have heard this week on "bloomberg surveillance." what is the quality of the 6.1%? it is qualitative and not quantitative according to cherry alan.

-- chair yellen.

What is the natural rate of unemployment?

That is the challenge.

I don't think there is no agreement.

Do a certain extent, it is, you know what when you see it.

I think there is a bit of a missing link.

Yes, the unemployment rate is falling, but wages are not picking up.

You have to remain concerned about the health of the labor market and the health of the overall economy.

There was one critical issue.

There is one critical issue.

Labor market participation is the lowest in 38 years.

Part of that is demographic.

It is an aging population.

But i think there is a question of how much cyclical forces are there behind the participation rate?

That is where there is a big debate right now.

Thank you so much.

Michelle meyer with bank of america merrill lynch.

It more cautious view than we have heard from a lot of other people recently.

Let's look at the forex report.

Quiet.

Sterling still elevated.

Scarlett?

Coming up, berkeley's chief economist will be the next guest.

? . . this is "bloomberg surveillance." this is "bloomberg surveillance." -- this is "bloomberg surveillance." russia prepares for communications with kiev.

This bull market will surge ever higher.

And u.s. authorities take on german banks.

Good morning, everyone.

This is "bloomberg surveillance." we are live from our world headquarters in new york.

It is tuesday, july 8, i am tom keene.

Joining me scarlet fu and adam johnson.

Our guest host for the hour, dean maki.

Please to have the doctor with us this morning.

Tom, overnight, u.k. manufacturing unexpected jobs the most in three months.

In japan, they posted their surpluses income form exports come up more than makes up for a weaker yen.

We have a few items coming out.

7:30, small business optimism.

10:00, the job openings.

We are gritting its a lot of jobs.

It is not fill that way, but we are.

And then at 3:00, consumer credit is coming out.

Earnings are kicking off.

It is earning season, and bob evans will be after the bell.

We have some fed presidents speaking today.

Richmond fed president lacher is talking about the economy in charlotte, north carolina.

At 1:45, minneapolis that president speaking on monetary policy in minneapolis.

There you have it, scar.

You were talking about earnings.

Wells fargo reports on friday.

Usually jpmorgan reports at the same time.

It does not this time because of the fourth of july holiday.

The kind of messed up the schedule a little bit.

Citigroup will be the first to report on monday, next monday.

That will be a good indication.

Let's get to some company news in the meantime.

We start with germany's e-commerce bank.

A person familiar with the matter says germany's second-biggest bank of space penalties of at least $500 million.

The case was part of a crackdown on firms suspected of handling funds linked to blacklisted nations that have led to a record fine of almost $9 billion against bnp paribas.

The samsung says that sales will bounce back.

The korean company's opera and costs fell 24% last quarter.

Analysts say smartphone makers feeling the heat from apple on the high-end and chinese competitors on the low end.

Samsung hopes to rebound in china.

And general motors reportedly has another mechanical problem, but it does not want to issue another recall.

Gm is locking over brake failures.

There are almost 1000 complaints about it and it is affecting almost 2 million older model pickup trucks and suv's. gm says it is a maintenance issue.

Gm has already recalled almost 26 million vehicles in the u.s. good morning.

It is a market that turns heads.

The standard & poor's 500 up 20%. did you know that?

Up 20% in the last 12 months.

There is a clear understanding that that policy is directly linked to your recent prosperity, recent economic data is enough to make any economist's head spi.n. janet yellen is focused on slack.

Dr.

maki joins us this morning.

How big is the great distortion?

The "new york times" sums up the assets, distortion, possible bubbles, how big is the distortion?

I think one has to define what that means exactly.

Certainly very easy policy globally is sending us asset prices higher.

Is it too high, is in line with fundamentals, and one of those fundamentals right now is very low interest rates and qe in many large economies, so those are driving asset prices higher.

There is no question about it.

Michael bosque at stanford university hasn't been known to destroy talk and bubbles and linking that into responsibility and central-bank policy.

Is this a bubble?

We do not think u.s. equities right now or in a bubble.

We think there is a risk that they get there over the next couple of years, but right now we would say they are fair value put on the rich side of fair.

I will take that.

Is that a textbook -- the rich side of their?

Did you learn that from larry kantor?

The rich side of fair.

It sounds like a taylor swift lyrics.

Now you have got my attention.

A city strategist talks about historically the 14 range to 17 range, kind of the sweet spot for the smp.

We are talking about 16.5 times on a forward base pe, so if the range is 14 to 17, we are on the rich side of fair.

The risk here is that in the last couple of cycles in order to hit the fed was the unemployment rate role, we have needed asset rate doubles.

It has driven household wealth higher, that has caused consumption to boom and the unemployment rate to fall.

The risk is to get down to the feds referred unemployment rate, that is when we could get into unhealthy territory.

What about on the company side because there is a lot more money being hoarded in cash, sitting on companies' balance sheets.

Are there are not enough places for these companies to invest their money?

There is been recent research out of the fed that we agree with us as -- there is not really such a puzzle about business investments spending.

Business investment spending response to the rate of overall economic growth, and when that picks up, so does investment spending, so there is no puzzle.

It is a moderate recovery, therefore it is a moderate recovery in business investment spending as well.

You brought in your gdp report.

You were up at 3%-ish.

You sound like you are getting spun both ways.

The gdp numbers have been very strange of late.

Can you use them, can you trust them?

I do not think one can.

The first quarter gdp number is out of line with any of the other major economic indicators.

In fact, we came up with a model explaining gdp.

This was the biggest outlier since 1967 when our data started.

Negative two per nine percent for the first quarter.

Exactly.

Our model based on other things based on manufacturing, hours worked would've set a 3% gain, would have been perfect, not a 3% decline.

That is the biggest negative decline -- we put this out on twitter.

We talk about the numbers out of china, no good, maybe the numbers out of washington -- if that is the case, can we trust the expected recovery that everyone is looking to see in the second quarter in gdp, too?

The things we can trust are the measures that are easy for the government to measures, things like the unemployment rate, jobless claims, the isam, which is measured by the private sector.

All of those are very simple measures.

They are all saying the economy is much better than the gdp numbers themselves would suggest.

And beginning with -- carly, you lead us on this, is this earnings season, adam, we would almost call it the revenue season.

What are we observing in revenues?

We are forecast to get earnings growth of 10%, 11%, but can we get revenue growth?

Where is barclays on earnings growth?

I do not know the exact number that equity strategists are looking for, but i would say moderate positive earnings growth, single digit.

This will be the "show me" quarter because stock prices have rallied so much in the last weeks and months, really, and now companies need to prove it and back it to prove that their customers are spending.

Like that is right.

One thing that gets me confidence on a measure is that businesses are hiring and they would not be doing that if they were not seeing the revenue growth that they would expect.

This is so important.

In a basic economics textbook, it is not like chapter seven, it is like chapter 22 -- nobody gets to a, is particularly in the spring semester.

You linked investment in your economic world.

It is amazing how the single digit crew has been wrong.

Whoa is me, single digit equity returns -- it has not happened!

How do you as a economist frame it expect a return on equities?

The easiest way to do that is to not only look at revenue growth but also what the fed is doing.

One interesting chart is looking at the fed down once she'd versus the stock market.

They are very highly correlated over the last five years, about when i three correlations, and that suggests that is not just the revenue growth companies are seeing.

It is also central-bank policy that is driving -- what happens when they take the punch bowl away you?

That is the key question.

We need further stock price depreciation from here.

We knew that equity market to continue to rise.

That creates a bit of a dangerous situation because as we spoke about earlier, if that becomes overvalued, at some point the game is up.

The key is a handoff.

In other words, the government has to effectively, the g part of gdp, government spending, had to make up for the i. can that handout pop in in the next six months?

That is a real question.

I think the ansewer is it will.

Part of the reason the fed is exiting is that the economy is on a healthier footing, and that healthier footing should help earnings growth, so that is our baseline call.

But the risk is if it turns out that qe is supporting the equity market more than we think, then when qe stops, the equity market could run into problems.

This entire conversation with dean maki out on bloomberg video in a bit.

Let's do a data check.

We look at equities, bonds, currencies, commodities.

I will call it flat, -2. oil slightly lower, even with what we see end of, despite what we see in ukraine as well.

Scarlet?

U.s. authorities continue their sanctions, but a problem with penalty.

What does it mean for other european lenders?

We will discuss on "surveillance ." good morning, everyone.

"bloomberg surveillance." i am tom keene.

This matters now to our guest toes.

Dean maki is chief u.s. economist at barclays.

After seven years of great recession, the great distortion, the raging debate within economics is the quality of part-time america.

Many suggest part-time angst is overweighted.

Full-time jobs -- let's be positive.

Full-time jobs are being created.

Do you buy it there is a overweighting the part-time worry and there is a better picture of full-time?

One of the convictions i have heard from a number of clients on thursday was that the part-time -- all of the jobs created were part-time.

That in my view is a distortion.

When one looks at these one-month changes in full-time and part-time, they essentially look like noise.

They bounce all over the place.

A 12 month change -- we are creating full-time jobs, and that has been the trend throughout this recovery.

Our time is relatively flat.

I get so much mail on this, as i am sure you do.

Within that, is the quality of the full-time jobs good enough for america?

I think it is hard to make that judgment, and i am not want to say just because we are creating food services jobs, that is somehow bad.

I think we are creating jobs where jobs are needed.

Some of them are going to be higher-paying, some of them lower paying.

If wage growth is picking up, then we are creating more of these well-paying jobs.

Right now it is picking up modestly.

We look at the average hourly earnings, the measure i prefer, down from 1.3 to 2.3. another huge distinction is the quality of manufacturing, a goods producing jobs versus a service sector job.

A lot of economics suggest that is baloney and they're one and the same.

Are they?

You have to look it with jobs.

Some manufacturing jobs are well-paying, some are not, some service jobs are well-paying, some are not.

A lot is correlated with education and skills.

The focus should be less and we created more or less high-quality jobs this month or last and people getting the education and training they need to move into those higher-quality jobs.

I went to pin you down on where the fed balloons on the unemployment rate.

Visit 6%, is a 5.9%, is that a lower number?

As we head to the feds estimate, which is right now 5.2% to 5.5%, as we get close to that, they will be starting to raise rates, so we think the fed will start to raise rates in the middle of 2015. that has been our long-standing call.

It is a big deal.

The fed is not going to change policy this year, so they will continue to taper steadily, they will watch the data, but we think they could have to move as soon as march.

But june is our baseline call.

Dean maki with me.

Of course michael mckee on lacquer speaking today from richmond.

Coming up, today's number is 52,000, the number of unaccompanied children.

The immigration debate rages in the united states.

Stay with us.

Good morning, everyone.

"bloomberg surveillance." we have a smart twitter question for you today.

Send us your response out @bsurveillance.

What asset is not in a bubble?

Chris whalen without talking up manhattan real estate is not in a bubble.

We would like to hear from you.

What asset is not in a bubble?

That would be enthusiasm for the boston red sox decidedly not in a bubble.

The last place.

The last-place boston red sox.

Hang in there.

It is like please, let's sing cumkumbaya.

This is "bloomberg surveillance." good morning, everyone.

I am tom keene, with me scarlet fu.

Also adam johnson with us.

Our guest toes -- dean maki of barclays as well.

Adam johnson have our top headlines.

Tom, the new president of afghanistan will be sworn in next month, but new it will be -- still up in the air.

One candidate is rejecting the result of the inaugural run off claiming fraud.

U.s. and you and officials want an independent audit to the voting.

Anti-taliban still fighting and taking responsible before a bombing today that killed 16 people.

And the crisis on the southern border is promising a meeting of political rivals.

We will talk about a white house adviser inviting texas governor rick perry to meet with president obama.

He present will be in dallas and while there he plans to talk with perry and other leaders.

More than 50,000 children without their parents are just on the border, they have come over -- the debate goes nowhere.

Nowhere.

You and i have aged watching this.

It is horrific.

On a significantly lighter note, it was four years ago tonight that lebron james went on television to say he was taking his talents to south beach.

The nba's superstar helped miami to two titles, but he has been a free agent now for eight days, and perhaps we will see if the las vegas bookies are right there betting that king james will return to cleveland's cavaliers.

There you have it.

Top headlines.

Let's get to another top story we have been monitoring here.

Another bank, guys, and other sanctions violation.

U.s. authorities are investigating germany's number two bank who may have to pay almost $500 million to settle the suit.

Hans nichols joins us from berlin and the dissension is that this $500 million would be part of a deferred prosecution agreement with authorities and there will be no felony conviction on mike what we saw with bnp paribas.

Scarlet, you just missed a great opportunity to use the term "for loney is intense," because that is what this is about.

There are two really relevant questions.

Is half $1 billion the floor or the ceiling, and is half $1 billion a potential fine against deutsche bank?

Yeah, half $1 billion is a lot of money for a commerzbank.

What will the pressure be on them and their shareholders?

Hans, 70% of commerzbank is owned by the -- 17% of commerzbank is owned by the german government.

Commerzbank is in many ways treated just like deutsche bank.

There are no special rules really for commerzbank.

Again on all of this, think of the numbers we're talking about.

Asset billion dollars is a lot of money.

Bnp paribas -- $9 billion.

What you have to do to turn this into an outbreak of equation, solve for x. i know adam johnson eestnet scores and high school.

You have defined what x is and see what deutsche bank is going to end up owing.

Is this extortion?

Is that wodrd being used by a german or french or swiss authorities?

In germany not quite yet.

Again, the number is lower.

The other -- the level of public sort of outrage here in germany was nothing like you saw in france with $9 billion for bnp paribas.

They are not comparable.

The question are all of this is -- did these banks actually do wrong, and if they did were wrong, what should be fine be a question of systemic importance?

Should you be worried about the health of the european economy or do you worry about u.s. sanctions law?

Hans, doing a little bit of algebra, it looks like the bnp paribas slightly more than one years worth of profit.

If it is happy billion dollars of commerzbank, it would be about half a year's worth of profit.

Rough numbers.

I want you to do that same calculation with a train leaving from paris in a train leaving from frankfurt, one has haven't billion dollars in cash, the other has $9 billion.

Where do they meet?

Luxembourg?

Seriously, where are they coming up with these numbers?

A full year's profits come i have to years profits -- it is kind of all over the place.

It seems to me like it is violations-based.

But to get back, this is where we need shoe leather from l mattingly and great reporters in washington.

What is the department of justice's calculation?

Most of these numbers appear to be leaked from the prosecution side, from justice, so they could just be using these numbers as a settlement game.

Look at how the numbers were all over the place at bnp.

First it was $5 billion, that it was up to $16 billion.

They settle on $9 billion.

It seems like there is some prosecution gaming going on here, but we have got to figure out what they think the violations were.

Hans, you mentioned deutsche bank maybe next was up i know stockton is next.

The political climate in france, the anger is different than in germany.

Talk about that for a minute.

Well, here is what will happen in france -- you will see public outrage, high levels in the government take it up to the highest level of the u.s. government, and we saw what president obama's response is.

He does not control the department of justice when it does criminal investigations, so there will be a lot of fulminating.

There will not be much action, and i will leave it to tom keene to render a verdict on whether or not the entire story of france.

All right, hans nichols, thank you so much, our international correspondent joining us from berlin this morning.

Coming up, earnings season is upon us.

What will the news about company profits me to the stock market?

Good morning, everyone.

A gorgeous day in new york city.

Truly gorgeous.

It is a hot one again.

It is like 90. 90? that is really the headline for anyone in new york, cooper in uber in a price war with new york city cabs.

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

Let's get to company news.

We start with the shutdown of the federal lending agency that could force boeing to scramble for financing.

The bank helps oversee firms that finance major purchases.

Boeing would had to double its financial backing to airlines and leasing companies if lawmakers do close the bank.

Petsmart is now being pressured by -- to consider a sale.

Petsmart says it is looking for ways to return more cash to shareholders.

And the cupcake chain crumbs shutting all of its stores.

The comedy was delisted by the nasdaq last week.

The crumbs has 65 locations.

The company says it will file for chapter seven bankruptcy the quotation.

No word on how many workers are affected, but they were taken by surprise.

That is this morning's company news.

The insight here was -- are these the two biggest cupcakes?

They are like four dollar cupcakes.

The ones that big of a cupcake?

Who once a cupcake at all?

I am sorry.

Elementary school birthday parties, but i do not like them enough -- do you know that a red velvet cupcake is nothing more than a plain vanilla cupcake with food coloring?

That is all.

Futures -- this is important in our washington.

Today the president will ask congress for more than $2 billion to address a new immigration crisis along the u.s. border.

This is mexico.

He meets with governor rick perry, the republican from texas, tomorrow.

Phil mattingly joins us now from washington.

The emotion euro 52,000 children -- phil, let's start with the reporting, where are the 52,000 children?

Right now, this is part of what the administration is asking for money for, they are trying to put them into detainment facilities.

You see these kids that have been coming over primarily from honduras, el salvador, and what we're hearing from the administration officials as they are basically being told by cartels, parents are being told by cartels that if there gets made across the border, there are new laws in place that will allow them to immediately become citizens.

It is a major problem.

Tom, the influx is almost unbelievable when you look at the numbers.

You mentioned that he thousand -- that is since october.

This is a crisis that has overtaken the administration and they are not necessarily in panic mode, but they are definitely in triage mode.

With an eye, tell us the political nuance.

Jeff flake of arizona, john mccain of arizona, rick perry from texas, that is the obvious that's what is the story in washington?

Tom, it was announced by the president last week -- immigration reform was not going anywhere anytime soon, but this complicates the entire debate on a whole other level.

Look, it is kids.

Noted one to see kids treated poorly, deported, any of those things, but according to law, these 50,000 kids need to be deported.

The administration is saying they need to be deported.

The problem on the political side we have seen is republicans have seized on the idea that this is president obama's fault that these kids have headed over here.

It is his last efforts on border security, it is his push to try to figure out some kind of path to citizenship that has led parents to send their kids over.

Obviously the administration disputes that completely, but when it comes to immigration, we are just so far apart right now it is incredible.

This is only adding to that.

Has this effectively make it any kind of compromise impossible?

Is this the catalyst that says nothing is going to happen anytime soon, phil?

I do not know if it is the catalyst as much as the pylon.

We are already at the point right now where the president has decided he will have to act unilaterally if he was going to do anything at all.

Republicans are not going to move on this before november.

They have made that very clear.

The problem right now is from the administration's perspective, administration officials thought that they held the high ground on this issue.

There were more than happy going in in november a painting republicans as being against immigration and not having any sense that this was the path forward that everyone kind of agree dated to happen.

Now the administration is on the defensive.

They dropped the ball here with these kids coming over.

They now have a major both pr and policy crisis they are faced with right now.

$2 billion in emergency spending, major policy changes they wanted to push as well.

This is going to be problematic politically come november for democrats.

Phil mattingly, thank you so much in washington.

We will continue to finish this discussion with dean maki of barclays capital later this hour on "bloomberg surveillance." we have the jolts jobs openings,, which we know the federal reserve is looking at as a look at a quantitative approach to on implement.

He futures are down, indicating the second day of losses, 10-year yield at 2.95%. good morning, everyone.

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

All of our interviews on digital media.

Look for that particularly at bloomberg video and bloomberg radio plus.

Like that button on bloomberg.com.

I am tom keene, with me scarlet fu and adam johnson.

We are thrilled to bring in this hour the perspective of dean maki, barclays' chief economist.

Adam?

He is wall street's biggest bowl.

We are talking about tony dwyer.

He is forecasting a 10% rise for the s&p by year-end, but he also says we will get corruption before we get there.

Tony, thank you for joining us from the trading floor.

Why do we go down forced before we go higher?

When you typically become this extended, you are extremely overbroad in, and enable market like this, there are two reasons where you want to be an aggressive buyer.

One of them is when the market gets oversold.

That is obvious and not the case.

The other is when you believe that expectations for an aggressive set are kind of abating, and that is not the case here either.

We are it no man's land where economic data is good.

It has been good.

Earnings are excited to be pretty good, so a lot of that is just price.

What people consider it natural, normal, healthy until it happens.

I would imagine some of the client that the firm are saying you wanted old ways.

You want to be able and a bear and you write in both.

No, i want to be a bull.

It is not whether you are a buyer.

If i were fully invested and i had six months or 12 months timeframe, there is no way i would try to play for a 5% or 10% sheet.

My target for the market is very conservative.

People keep thinking you need to be strong fundamentals to have a big upmarket.

If that were true, high yield would be dead at 5%. weinstein maki is with us from barclays.

Dr.

maki how does it hold into topline gdp?

Better gdp means more inflation, and better nominal gdp -- does that fulbright important to the stock market?

-- does that fulbright over into the stock market?

It generally does.

A defensive posture, and the reason is we think the recent rise in u.s. inflation is not noise.

We think that is the start of an uptrend.

Does inflation help the markets when you are an economist?

It generally is neutral except when he brings the fed into play.

What it means the fed is going to be tightening in a relatively soon fashion, that is when it becomes a negative.

Tony dwyer is a stock guy, not an economist, respond to what dean maki said.

Temporarily that may be true, but when you think back and one of the major multiple expensive than the equity in market, typically comes when fed is raising rates and interest rates are going up.

Again, that into a very bad way because you were in a leveraged system and you have an inversion and credit shuts down in the whole thing is over, but we are on the opposite side of that.

I agree with the professor.

I think you are going to get a little bit of an uptick in inflation.

That is showing up in the fed funds futures for january 2016. that is just one of those other reasons where expecting a little bit of a correction.

Scarlet, that is a "surveillance," exclusive, tony dwyer giving dean maki a promotion.

We love that.

Over to you, professor dwyer, we have the beginning of earnings seasons without overreporting after the code, and then you have banks and wells fargo reporting on friday.

Citigroup will be the first big money group to report on monday.

What are you looking to hear from citigroup as an indicator for the rest of corporate earnings season?

We do not follow citigroup specifically.

I think the financials are pretty well-positioned going forward.

The important thing is -- current excitations are 46.1%, s&p 500 operating for two q 14. every quarter since the beginning of this economic recovery, that number from the beginning of the reporting season when alcoa goes off until the last economic couple he reports, you have a big upside down to their.

In other words, that 6.1% is much more likely to be somewhere aroundd eight bank percent to -- 8% to 12%. the market has rallied in front of that.

Understood, tony dwyer, canaccord genuity, thank you for joining us.

2185. up from here.

Wife we are getting a sunny

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

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