Yellen Seeks Senate Support: Surveillance (11/15)

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Nov. 15 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Brendan Greeley, Peter Cook, Ali Rosenthal, Robert Reffkin, Richard Falkenrath, Rafi Mohammed, Ilana Weinstein, and Matt Dowd. (Source: Bloomberg)

This is "bloomberg surveillance." obamacare in need of an overhaul.

Will insurers cooperate?

Will insurance cost americans more.

The melt up continues, janet yellen introduces herself to congress.

Dow 16,000 insight.

70%, 7 0. 70% of mcdonald's sales happen through the drive-through window.

Good morning, everyone.

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

Live from our world headquarters in new york.

It is friday, november 15. joining me, scarlet fu and alix steel.

I you going to brief us?

A pretty light briefing day.

Starting in europe.

European finance ministers meeting for day 2 in brussels.

Jack lew met with chinese president xi jinping overnight.

8:30 a.m., empire manufacturing.

9:30 a.m., industrial production and capacity.

It is estimated to rise about zero point two percent for october.

India and brazil, markets are closed.

Breaking news out of china on the look at that on bloomberg hd.

Scarlet, help me.

The china one child policy.

It has been in place for a long time.


According to sheila -- x inhua, an official mouthpiece, china will loosen the rules.

There has been some loosening and practice the last couple of years.

This is monumental within the scope going back to nixon and kissinger.

The chinese workforce is aging, they need to boost the birth rate in order to -- it will be interesting to see if people who are to have children are allowed to have more or if this is going for.

Can you sell children?

That would be new.

We need to get our birthrate up as well.

A long weekend at the keene house.

Equities, bonds, currencies, commodities.

This struck me.

1790, a big deal.

The 1800 watch on the s&p. yields go nowhere, 2.71%. euro/dollar, 1.3446. hydrocarbons very quiet, alix steel will opine on that.

Here you begin to see the interesting male top.

-- meltup.

Mere 900 on the dow.

1600 insight, vix grinds down.

Euro/yen, take out the dollar, this is decisively euro stronger.

We are really buttressing up over the last 12 months or 13 months against 1.35. the big question is symbolically, will the yen capitulate to the euro?

What that means, oil is dollar- based.

There is always other movement going on around the u.s. dollar.

Emerging markets currencies that weaker, that eliminates their bargaining power and their ability to buy commodities.

We have seen commodities have a tough time recently.

A knock on globally.

The focus today, in washington.

Here is scarlet.

What the president is doing.

All over every front page, including "the new york post." it has a bend.

They call a disaster, the white house calls it something else.

Allowing insurance companies to keep offering low coverage health plans that were supposed to be canceled on the affordable care act.

The president says the policies will be offered for another year without penalties.

There is a lot of political backlash from republicans and democrats over the upcoming cancellation of policies because the president had promised people if you like it you can keep it.

Listen to what he said.

Lacks -- i am very frustrated, but i am also somebody who, if i fumbled the ball, i am going to wait until i get the next play.

Then i am going to run as hard as i can and do right by the team.

Ultimately, i am the head of this team.

We did fumbled the ball.

What i'm going to do is make sure we get it fixed.

Not clear whether insurers would keep offering the plants unless they were forced to.

This will come down to commissioners in individual -- the focus is we don't know where this is going.

We don't know, there are a lot of question marks, the president is saying what he's to say to get past this.

And what this means for premiums.

If you don't have people who can afford to buy are the exchanges, you are left with sitcom a poor people for the exchanges.

Janet yellen, a lot of washington in the front page.

Janet yellen testified on the hill in her confirmation as fed chairman.

She signaled she will continue unprecedented quantitative easing to further boost the economy.

This comes as it out of europe and japan shows a lot of weakness.

She addressed fears of a bubble, she said the fed needs to see a stronger recovery before she can withdraw.

An a plus for nozick rises.

But she was not going to shock the market -- an a plus for nozick rises.

These -- no surprises.

Francine look a lot and i decided that she uses waystation for -- playstation 4. everyone trying to find out what janet yellen does in her spare time.

It is not just to the nsa, the cia is also spying on americans.

They are building a database of money transfers that include american financial and personal data.

They collect information from western union and other u.s. money transfer companies under the same provision of the patriot act that allows the nsa to collect all of our phone records.


those of the front page stories this friday morning.

A washington kind of morning.

We need to go to washington.

President obama unveils -- i guess it is a fix to his?

Peter cook is our chief washington correspondent.

What will they do at the white house today?

They're going to watch the house of representatives, that is were they going to vote on a piece of legislation that would do what the president is doing administratively.

Allow people to keep plans that have been canceled.

It would also allow health insurance companies to offer those same plans to new customers.

That would undermine the whole premise of the affordable care act.

The idea of pooling risk.

The white house has also issued a veto threat.

House republicans moving against what the president did, trying to go beyond.

Yesterday was a preemptive strike.

"the new york post" says this is a disaster.

"the new york times" says this is a disaster.

What do health experts say about what they witnessed yesterday?

Tom, there has been a lot of mixed ideas about this.

This is all politics.

Everyone knows, those who have studied the risk, the pooling of risk and the product of obamacare that you need people joining up at exchanges to balance risk across the pools.

Sick people, young people.

Anything that undermines that is a threat to the system.

Be that as it may, there is still time.

The game still has a long way to go.

The more i talk to people, they say this is all important.

But what really matters is by mars, how many people have signed up.

The reality is, the president has given the green light to offer these plans again, they are under no obligation to do so.

How many people actually get their old plans back as a result of this?

Some people say very few.

Very few indeed.

What does that due to the house republicans' argument?

What does it do to democrats?

It was congressional democrats in the house and senate that push the president to take this step.

They have been getting shellacked at home, whirring about elections.

They need to be satisfied that the administered a six -- worrying about elections.

They need to be satisfied that the fix is enough.

Otherwise, there is a bill in the house by mary landrieu.

She would force it.

The president is making a choice.

Peter cook, chief washington correspondent.

Our guest host, brendan greeley of bloomberg businessweek.

Writing on policy.

You have written about this before.

The sum total, we have got to get to 2014. we have got to get to march, how?

I have a hard time taking the president seriously yesterday.

It is a political fix to a political problem.

The substance of the policy problem we are talking about affects a small amount of people.

It is a policy problem.

I don't see it changing anything except making this more concentrated.

What is interest -- more complicated.

What is interesting, the washington state insurance commissioner has said he will not extend those plans.

Washington state has the most successful online of any state.

What we're going to see is that obamacare is going to be very successful in states that have a democratic governor, and not at all in states with a republican governor.

With the confusion in the press, to the president lose control of the debate?

He lasted 8 -- he lost control two years ago.

Clinton did not help.

There are things that she could have been doing a better job to explain what he is doing.

Obama shied away from talking about obamacare in reelection.

They don't like talking about it.

This is a major policy shift, it needs explaining all the time, not just yesterday.

Brendan greeley with us, home economics with medical bills this morning.

We need to get to company news.

Moody's cutting the credit ratings on for big banks.

Goldman sachs, jp morgan, morgan stanley, and bank of new york mellon or downgraded by one level.

Moody's decided that the u.s. government would be less likely to help these firms repay creditors in a financial crisis.

Warren buffett filling up on exxon mobil.

Berkshire hathaway taken a $3.7 billion stake in the company.

Archer owns just over 40 million shares of exxon, it is the company's largest new holding since shelling out $10 billion on ibm.

Sony rolls out its new playstation 4 today.

It is the center he's as everest -- the centerpiece of efforts to turn the company around after a second-quarter loss.

It retails for $399, $100 less than the new xbox game console.

They get a one-week jump on microsoft/ . i could not believe the line at union square.

I get to come home -- outrageous.

Where is matt miller?

You just saw that video at best buy.

Best buy -- sales can be up as much as 20% in that category.

It is not just about sony and microsoft, it is about big-box retailers selling them and the demand.

It is not like iphone where it is every year they upgrade.

This is a big deal -- seven years ago.

The last time they did this, there were no iphones.

Our twitter question of the day, i have a ps3. how do you game?

What do you pay for it?

Tweet us @surveillance.

We are getting a new console.

I go back and forth on game theory with mohamed el-erian.

A prisoners dilemma.

No prisoners dilemma here.

Next, mcdonald's getting a makeover.

Looking to speed up service, drive there is the answer.

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

Good morning.

? i will take a number to value meal.

Hold the catch-up.

I want mustard.

If it comes to the window, i want it hot.

Good morning, everyone.

"bloomberg surveillance," friday breakfast order.

I am tom keene.

Scarlet fu and alix steel.

This is the major news.

It is a big deal.

Mcdonald's is struggling a little bit.

The drive is a big deal.

More important than the big mac.

Fast food generates as much as 70% of sales through drive thru windows.

What do we know about this third window?

Mcdonald's is looking at october same-store sales in the u.s. of 0.2%. in brief and its menu, trying to deal with the speed issue.

Customers have been complaining about slow service.

The third drive thru window is called fast forward drive thru.

[laughter] don't laugh, tom.

Mcdonald's comes in at 189 seconds, higher than taco bell and wendy's. that is slowing versus last year.

Even if they get it to 134 seconds, isn't it about food?

70% of people cap -- by food through the drive thru.

In the 25% through breakfast.

Mcdonald's is diversifying its a customization.

The food you want when you want it, that takes longer and is more complex to make.

They are trying to offset that.

Nicole at piper jaffray says helping speed and expanding their offerings in grocery stores, they are teaming up with kraft to offer coffee, that should generate over $1 billion in a share gains over the coming year.

Over the longer term.

What is interesting is the number of everyday customers going through the drive through.

This has got to be there core audience and core profit.

How are you going to pay for it?

Franchisees or business or mcdonald's has to pay.

65% are franchisees, they already have menu changes and higher rent, cost issues.

Also, the real estate.

Mcdonald's in new york cannot expand to a third drive thru.

Brendan greeley has been frustrated in dunkin' donuts.

He likes to have a separate line.

These custom orders is desperate, trying to get same- store sales up.

Think about dunkin' donuts, i still don't know why you would go to dunkin' donuts for anything other than coffee.

It is hard to find out what the outsells are.

-- upsells are.


Businessweek has done terrific work on mcdonald's and the nuances here.

What is same store sales, 0.1% -- one percent?

0.2% in the u.s., it is an issue in the u.s. of our people eating out?

Or at mcdonald's? two trends, it has to speed up service for what is currently 70% of revenue.

It also recognizes that people want a different experience, they are going elsewhere for a different experience.

Mcdonald's is investing in the cafe -- in mccafe, sleet had a latte.

They are sending that is a long-term growth potential.

Everywhere i go, chipotles are packed.

People are most likely to recommend mcdonald's least.

It is dead last.

It is all about experience.

What do you have?

This phonebook?

Bloomberg businessweek has a new issue, a special edition, 208 pages, it does kind of look like a phone book.

Available today.

Also on the iphone and ipad app.

We take a special look at the year 2014, looking ahead.

Blumer surveillance on bloomberg television, radio, and streaming a

? good morning, everyone.

"bloomberg surveillance," i am tom keene with scarlet fu and alix steel.

Top headlines.

Changes out of china.

State media reporting china will loosen its one child policy.

Under the numeral, a couple can have two children only if either parent is an only child.

The one child policy dates back 30 years.

China is abolishing its labor camp system.

Changes are coming from the recently concluded communist party meeting.

Touching with reality.

It will contribute $1.6 million to victims of typhoon haiyan.

It was criticized for offering $100,000 and eight.

The u.s. and japan pledged more.

From baseball to bucks.

That is derek jeter's plan.

You always need a plan b. the shortstop has a partnership with simon & schuster, they will launch books from sports to pop culture.

Derek jeter says he will use the venture as a blueprint for life after baseball.

The first thing they can publish is how to date hot young things in hollywood.

It is kind of brilliant.

Is the kind of old?

That would be true.

How about life with a-rod.

It is november, we cannot get the yankee depression until january.

We have been in yankee depression for a while.

An interesting morning must rate.

This is from russell -- former ceo of general electric.

Defending the ranking system where a certain number of employees are always underperforming.

He writes in "the wall street journal." he says under this differentiated system, people know when they are underperforming.

They are not surprised when they are let go.

I have been critical of mr.

Welch's effort to be an economist and go after the bureau of labor statistics.

This is the best thing he has written.

This is his wheelhouse, he is known for turning around general electric and putting a management stamp on it that became the model for everyone else.

What is the model going forward, brendan greeley?

You see this, all the articles you do.

Will this work where we rank each other?

What is fascinating in that is to think about the strategies companies are taking on.

There is a huge industry in silicon valley that will take leaderboards from videogames and apply them to a company.

They are being installed in sales tasks.

You can see in real time where you are.

That is busily reinventing the stacking system.

Snapchat has made no revenue, why is it worth this much?

Good morning, everyone.

"bloomberg surveillance," the secretary of treasury is in beijing.

A stream of headlines out of china.

. lou -- jack lew met with xi jinping, president of china.

Saying he learned more about reform, following the meeting the leaders held in china for a blueprint for economic goals.

He said china is a partner on iran sanctions, and they discussed currencies and trade deals, specifically the transpacific partnership.

This is something obama was not able to engage with.

He stayed at home during the meetings.

We are worried about nsa, affordable care act.

China to abolish reeducation through labor.

That goes all the way back to the cultural revolution.

These are some announcements that came out of the plan on, along with loosening the one child policy.

If you had a child, a daughter as your first child, you could try again, and try for a son.

Any family where the parents are a single child, they can try.

This fulton to the economic -- this fulton junior economic challenges.

They transfer to a consumer driven economy, the plenum left details sure.

Especially moving farmers into urban areas.

It speaks to their demand and their ability to buy stuff.

More coming, looks to throughout the day on china.

We will look for that.

Let's move onto another topic.

Mobile messaging, snapchat, facebook.

Snapchat cents 350 million messages a day, a fivefold increase since february.

Its founders rejected a $3 billion cash offer from facebook, a bigger, slower competitor.

They popsst one billion messages a day.

Aly raisman ball is with messageme, -- allie rosenthal is with messageme, she was an earlier employee of facebook.

We have seen this before.

What is different this time about the vibrancy, the positive feeling of companies that make absolutely no money?

Good morning, thank you for having me on.

A lot of mobile messengers are following a general trend towards mobile.

People have many computers in their pockets now.

A lot of social networking, in addition to communication, is happening on double devices.

In its early days, and consumer internet and consumer mobile, you get a ton of traction and growth early.

Founders do not -- that is not the focus at the beginning of the journey.

They figure it out later when they have traction.

That is what we're seeing with some of these.

Is the goal of an entrepreneur like snapchat or the venture capitalists, is the goal to go public or just assume they want to be taken out by a bigger player?

I think with snapchat in particular, it is hard to tell.

They have raised a lot of money.

They have a lot of runway to figure out with a business model.

They have serious traction.

You talked about 300 and 2 million snaps a day.

, -- up from 200 million injured.

They have some incredible traction.

If i were them, i would think i have some real usage to a bill -- experiment.

What was the major driver in snapchat rejecting facebook's offer?

Was it the money, or was it facebook doing the bidding?

If i had to guess, a our young entrepreneurs, they are onto something that is clearly hot.

They may want to try to figure something out, something new.

Facebook has done a great job of monetizing mobile.

We are early days in mobile, it is partly the reason i joined messageme.

The traction and the engagement is absolutely unbelievable.

There are going to be new business models that get figured out.

They are going to be new ways of monetizing.

That is fine.

For an innovator, that is very tempting.

Brendan greeley also joining us.

Why is profitability mattering less for these guys than other companies?

I love this story.

Ira member in 2006, going to internet conferences, people were talking about a kid in a heardoodie.

Someone went to mark zuckerberg and said old man, i don't need your money.

What is interesting, it turns companies like facebook or yahoo!

Into social media agents.

Facebook used to be just a platform.

As it makes more acquisitions, it is going to -- the onus is on the companies making the acquisitions to not screw up.

I had the about marissa mayer, sing not to screw up tumblr.

The old person saying have your fun, i'm going to make money.

The large companies that are well capitalized like facebook are going to have to figure out how to gently acquire and make a little revenue without screwing things up.

Ali rosenthal, how come this is not practical -- this is not replicable?

Facebook came out with a similar chester -- gesture called poke.

It was a message sending feature.

Son has to -- some has to do with brand.

You are seeing a younger generation migrate to something different, different brand association.

They are picking a different product to associate themselves in the generation with.

That is different from just the technology being replicated.

Ali, what did you learn from the twitter ipl?

-- ipo?

What is the take away?

The take away is that there are going to be some interesting jesters on mobile: four.

The way people are going to experience entertainment and content and communicating around content is changing.

They will be way different.

Twitter enables that.

A lot of second screen experiences via a product like twitter.

You will see more of that going for.

Ali rosenthal with messageme.

Decades of experience on wall street.

I was doing snapchat with mohamed el-erian yesterday.

We were snapchatting game theory.

Very exciting, why would you want that to self-destruct after 10 seconds?

You need to work on a new app.

Speaking of new technology, let's talk about old technology.

Sony, coming out with another version of playstation, the ps4. microsoft xbox one is next week.

Our gamers moving onto to something better, faster, and cheaper?

Our twitter question of the day, how do you game and what do you pay for it?

How do you game?

Game theory.

Three us @bsurveillance.

? good morning, everyone.

"bloomberg surveillance," i am tom keene with scarlet fu and alix steel.

Busy top headlines.

And a lot of news out of china.

Jack lew met with chinese vice premier wang yang in beijing.

They discussed efforts to sustain economic growth.

Following a meeting with chinese president xi jinping, lew says that china's third plenum has an ambitious agenda.

Lew believes there will be progress, the question is how much and how quickly.

Credit card reward programs being examined by regulators.

The the consumer financial protection bureau was to see if people are being misled, focusing on confusing roles attached to rewards.

If you wrote -- if the rules are not transparent, they may press for restrictions.

Caroline kennedy arrived in kennedy, her ambassadorship to japan becomes official next week.

A ceremony will take her through the city.

Her father had wanted to become the first sitting u.s. president to visit japan.

Those are your top headlines.

One week away -- from the anniversary of his death, 50 years.

I went to the book depository museum on monday.

I was in dallas, it was amazing.

I have never done that.

Very interesting.

And then you went home and watched "jfk." the movie is 12 hours long.

Single best chart.

The boom and bust cycle in commodities.

It is more like a boom and plateau.

This shows the crv index, a consistent pattern of going up for 10 years and flatlining, going up in and flatlining again.

Prices increase until new supply comes into the market.

Where are we right now?

We are moving towards u.s. energy independence.

A law of supply coming on, it looks like, a report -- according to stratega, the next decade for commodity prices will be flatlined.

Where are we in commodities?

Something about oil after the iea report.

U.s. oil production booming because of shale.

Windows that pop out?

-- when does that top out, is expensive.

The break even for the balkans is about 70. you have a couple months of that supply.

It is more difficult to get oil out of rocks through fracking.

At some point, iea estimates we could see peak shale, that will peter out.

That is the first i have heard of this.

Do we still have 10 years, or will it be condensed to five years flat?

Depends on oil price.

The more oil, the lower the price.

I'm going to go downtown and stand on the street and right on a board "peak shale." i am terrified.

I'm going to dive into tony 14, bloomberg businessweek -- into 2014, bloomberg businessweek.

You found a chestnut on page 30. this has to do with the philippines disaster, someone has to write the insurance check for the recovery, it goes beyond climate change.

The reinsurers acidly capitalize, a lot of them based in germany and switzerland, they are the farthest i had on figuring out climate change.

They have the most to lose.

When a tornado hits, the insurer picks up a check.

When the hurricane hit -- forget about the ngo's, these are the guys in the know.

They're not messing around.

Their model is completely accept climate change, they agree it is happening, it is moving forward.

They have moved past that.

They are now trying to, they are doing some experience on the gulf coast, they're trying to get people to build more sustainably.

If you keep holding along the coast, we cannot ensure you anymore.

They want people who are just risky enough, they are still willing to underwrite.

For those of you in new york city this weekend, the museum of the city of new york with a fabulous display of hurricane sandy photographs.

Getting rave reviews.

I can't imagine how emotional that must be.

Renting a home in new york city is a challenge these days.

Vacancy rates one percent, two percent.

It begs for disruption.

We speak to the ceo of one company trying to change the brokerage fee.

Coming up on "bloomberg surveillance," streaming on your tablet, your phone, and

? this is "bloomberg surveillance," i am scarlet fu with tom keene at alix steel.

Some company news from the files of bloomberg west.

Soros fund management taking a state in my caps off.

Buying health .6 million shares of microsoft in the third quarter -- 12.6 million shares of microsoft in the third quarter.

John paulson increased his stake in vodafone, a bet that the company may be a takeover target.

They added 70 million american depository receipts of vodafone last quarter.

He now owns 20 million vodafone adr's. google once a top-tier -- a copyright suit to digitally copy books.

A judge ruled that google books does not violate copyright laws, helping google strengthen its dominant an online searches.

Renting an apartment in new york is different.

Inventory is low, prices are high.

The broker's fee can drain your bank account.

One company calls that a business opportunity.

This company is urban condos, uses the web to gather leads on apartment you want, a guides you through obtaining them for half of the 15% brokers fee.

Richard reffkin is the founder and he joins us.

7.5% brokers fee, what am i getting up?

Urban compass combines technology with customer agents which make it more efficient to find a home.

Specifically, we have online search, online scheduling, online applications and online payments on both desktop and mobile.

Don't the brokers hate you?

Not at all.

Brokers are our partners in helping our customers find homes.

I have spoken with some of the heads of the largest brokers in new york.

Many of them want us to provide them with the same technology we use.

You've grown pretty fast in the last few months, about $1 million in revenue per month.

What is it take for you to be profitable?

I can't tell you about financials, but we have exceeded expectations.

A startup's success is due to the founders and their track record.

You worked at goldman sachs, chief of staff to gary cohn.

Your cofounder has experience selling his business to google and twitter.

You could have started a sock puppet company.

The idea is good and solves problems.

Your track record it's what drives funding.

I met ori allon when i was working in the white house, he had just sold his company to google.

He's one of the best engineers i've ever met.

What he has done, he brings engineering talent in next release.

That combines with my strategic partnership abilities and business talent.

We said we want to solve a big problem for new yorkers.

We asked new yorkers what issue they wish technology could improve.

We found that it was trying to find a home.

What they told you, not what you went out to find.

We asked new yorkers, we do not tell them.

They said there is broker bait and switch, it takes too much time and cost too much money.

Brokers -- you say you are their partner.

Do they want to jettison the rental business?

The six percent commission of million dollar ticket sales.

There is not a symmetry between landlords, brokers, and customers.

The worst actors often benefit.

We are trying to use technology to make sure the best actors benefit.

By bringing technology to the stakeholders, it gets rid of fake pictures and increases the quality of data.

Tell us about new york rental markets right now, other then you can i get an apartment.

-- you cannot get an apartment.

Vacancy rate of one percent or two percent.

It is stunning.

Berglund is incredibly hot, i have no idea how any people want to live there.

Is brooklyn more expensive than manhattan?

Parts of brooklyn.

It is too difficult to find a home.

The average renter has to spend more than 10 days looking at more than 10 apartments in order to find a home.

One of the core problems we are trying to sell this to bring that number down.

We brought it down by almost half, we want to bring down further.

It should only take one day.

This is not an archery hepburn movie.

What is your competition?

Trulia, zillow?

We have combined their technology with traditional brokerage components, making sure our agents are incentivized by customer service.

You wouldn't talk about profitability or financials, but you are making $1 million of revenue a month, what are your expansion plans.

How are you growing?

Our plans are in sales and geographic expansion over time.

In san francisco or chicago?

Those are great regions.

Our guest host for the hour, brendan greeley.

Burgers -- brokers can never be intermediated?

A real estate?

Our focus is not to intermediate brokers.

Our focus is to make it easier to find a home.

It should not take 10 days and 10 viewings in order to find an apartment.

What does this service due to fix or correct the absence of the worst actors?

In my experience, always the brokers.

Our brokers are ranked by customer satisfaction on a scale of one to 10. the higher your customer satisfaction ranking, the more likely you get a newly.

-- new lead.

Can you transfer this to washington and san francisco?

Washington, san francisco, chicago, boston, this will be very applicable.

What can you get me this weekend?

If you want to go to brooklyn, we can go to williamsburg.

I don't want to go to brooklyn.

Will you move into buying from renting?

We will, in the very near future.

Thank you so much.

Talk to scott when you're done.

Thank you, brandon.

The apocalypse is going to come, all left will be brokers and zombies.

"surveillance" exclusive.

The forex report is eurocentric.

Forget the dollar, euro/yen is what the pros look at, 135. stronger euro weaker yen.


Euro/ swedish krono.


All mortgages are tied to that.

Coming up in the next hour, hedge fund head hunter extraordinaire joins us.

? .. a second term president reaches a critical juncture.

Will medical insurance cost americans more?

It is a decidedly mixture for wall street.

February bonuses are all over the map.

And will scarlet wait until midnight for the playstation four.

I'm not waiting in line for anything.

Good morning, this is friday, bloomberg surveillance.

I am tom keene a live from our bloomberg headquarters in new york.

Joining me, -- do you play call of duty?

I do play assassins creed.

Alix steel is with us.

Our guest host is richard f alkenrath.

Michael mckee will be along.

Who want to update you with headlines popping up in evening.

Finance mr.

-- finance ministers will meet in brussels and jack lew is meeting with chinese president xi jinping.

Also some economic data we are watching.

We are getting manufacturing and industrial production.

India and brazil markets are closed today.

Scarlet fu is here with company news.


with warren buffett filling up on exxon mobil.

Brookshire hathaway taking a $3.7 billion state -- state in the company.

It is the company's largest new holding.

Moody's is cutting the credit rating on many banks.

This move coming after moody has decided that the government will be less likely to ease financial burden on creditors in a financial crisis.

And sony rolls out its new playstation.

It is the centerpiece of the efforts to turn the company around.

Strong sales will give sony a lift after posting a surprising second quarter loss last month.

It will retail for $100 less than the new hundred -- then the new xbox console.

This is a huge deal.

Seven years for hard-core gamers.

You have to update your software.

You don't have a computer that is seven years old?


I have the rabbit ear antennas.

He is old school.

I traded in the zenith and i have the old toshiba.

We're going to d.c. because health insurance problems are not going away.

President obama is trying to right the ship, announcing a temporary fix to canceled health insurance policies, saying people can keep their old plans for 2014, even if they don't meet the standards of the affordable care act.

He apologized for the messy rollout.

I am very frustrated by them also somebody who, if i fumbled the ball, i'm going to wait until the next play and run as hard as i can into right by the team.

-- i can and to write by the team.

We did fumble the ball and what i am going to do is make sure we get it fixed.

A long conversation for the president yesterday.

Peter cook joins us, our chief washington correspondent.

What will be the gop response?

Can the house derail obama care?

Clock's they are going to be voting in the house of representatives to pass what the president did yesterday and then some.

The white house is threatening to veto.

Will house democrats support this legislation on the floor today?

It will allow people to keep their health insurance policies that may have been canceled and will allow other americans to get new policies along those lines.

That would undermine the entire affordable care act and the arithmetic behind it.

The white house has issued a veto threat.

Watch carefully how they vote.

It is a test of loyalty.

We saw the vice-chairman in front of the senate banking committee.

If you are reporting that her nomination is somewhat challenged.

She had a cakewalk yesterday, no surprises in hearing.

What we have yet to see for janet yellen is a larger fight over nomination.

No republican has publicly stepped forward and said they will support her nomination.

She needs five to get the magic vote of 60. if he won in washington think she will get there.

There was no indication to say that she won't accept that there is a's -- there is still a larger fight over nomination over another judge.

If harry reid finds problems with how republicans are handling those nominees, or is a risk of a spill -- those nominees there is a modest risk of a spillover.

Peter cook and washington.

We have richard rfalkenrath as our guest host.

Stunning headlines out of china.

I go back to your reporting on gorbachev and reagan.

What they are doing is switching -- is fleshing out the details.

They are expected to change the one child policy.

It has been in place for quite some time.

It has causing problems.

China pot -- china's population is expected to peak at 1930. if you lose one of the ingredients that go in the ability to raise gdp and living standards.

It is a little bit complicated.

The one child policy says you can have one child if you and your spouse had any siblings or if one of you was an only child.

You can have two children if both of you if just one person was in only child.

It is a problem for the economy and baby richard will address this.

It is a problem for social progress.

You are raising a generation of chinese men who may not be able to find spouses.

That leads to civil unrest.

Daughters to take care of their parents.

Jack lew is in beijing, he met with gigi paying.

-- with xi jinping.

This is an incredible headline.

Gyrfalcon wrath.

-- richard falkenrath, translate this headline for me.

I believe this is a holdover from mao.

It is.

It is the way they have dealt with political dissidents.

Putting people in jail, right?

And then they have been taking enormous correctional systems.

What this is a sign of is the new chinese president xi jinping appreciates the internal problems and is moving more quickly than chinese watchers had expected.

A new premier, when they came into power, would take a little bit longer.

That would take a year or two to build consensus.

He is acting more quickly.

At the same time we have learned from bloomberg news that the party cannot implement the -- the party plans to implement the reforms by 2020. we don't do that anymore.

We cannot even plan the defense budget from a folk -- a few months.

You have your member, it is not the government that runs the country, it is the communist party.

Each cell in the commonest party, as you go up the ladder from the localities, has its own fire it is great it is not as easy to command and control from the top to the very bottom.

The chinese have had a real problem with cities and towns going their own way.

Overhanging this, richard you are so good at this, is the chinese military and their new projection.

How much do we know about china's military will he see these headlines?

They have a comprehensive military modernization program that they were starting at a museum relic level.

What they were doing in the last decade was a very significant investment in high-tech what they do not have the capacity to project very bond -- very far beyond their shores.

Very quickly, guys like you guess wrong on the soviet sophistication in 1989. we thought they where a lot fancier than they were.

And the larger problem we did not think that the internal problems and contradictions were as severe.

They did have a lot of military capabilities.

Some of it still operates and some of it with nuclear weapons pointed directly at the heartland.

The key question is how are they doing as a society e howard holding together?

Where is hot -- as a society?

Are they holding together?

Where is china?

They have some risk.

A quick data check on a friday.

S&p, 1800 insight.

7092 -- 1792. enlighten us.

That was decided day.

-- was an exciting day.

Did sony hit a home run?

And this relates to our twitter question of the day, how do you gain and what you pay for it?

Maybe some people gain with assassins creed.

Good morning, everyone.

This matters now to our guest host.

He is richard falkenrath, bloomberg contributor, former white house security advisor.

National security is fought on many fronts.

The nsa, fbi, how about the ability to employ our military on many fronts?

That may change.

This is a huge deal, going back to world war ii.

We have prided ourselves to be billed to go either way.

Is that a risky apoplexy us, it is.

Right now the defense department is in the middle of a quadrennial defense review, it is a four-year defense review.

We have decided to prepare to medium wars, one in asia and one in the middle east.

That construct is being rethought.

The department of defense may only be able to find one.

-- to fight one.

Given the sequestration and budget realities -- the sequestration and budget realities, the end of two wars, they draw down the defense budget.

They don't not know what is exactly causing these 4000 layoffs but it is the beginning of more to come.

Is john mccain and admiral?

He was a pilot.

His father and grandfather will -- grandfather worked admiral screed -- admirals.

They have a really strong lobby.

We have independent representation.

Most cap and its departments do not have the luxury of two voices.

They speak as an administration.

In this case, -- uniformed services are able to speak.

Will they reign supreme here?

They -- that is an internal strategy.

If it happens to this year's budget, they have an independent voice.

This cart -- this cut is too much or the naval fleet.

Are we able to show our flag in china?

Are we able to -- can they move over and show the flag and hong kong?

With permission of the chinese government.

We do occasionally do port calls.

It is a big event for the local economy.

It is more unusual with letourneau china.

It is a big issue.

Sounds like a big game of risk.

I need to take a break.

Mcdonald's needs to speed up the drive through.

It is bloomberg surveillance.

Complex -- our guest host is richard falkenrath, bloomberg into beating editor, former white house security advisor.

I thought it was going to be a quiet friday.

Top headlines with alix steel.

Lots of changes coming out of china this morning.

The communist party will loosen its one child policy.

Under the new rule, the couple can have two children if either parent is an old a child -- is an only child.

The camp was used to silence protesters and dissidents.

Both changes will go into effect by 2020. and japan does a turn on omissions.

Four years ago japan says it will cut emissions by 25% from 1990 levels.

This comes after the fukushima nuclear disaster.

Utilities are importing natural gas and other carbon dioxide producing carbon fuels.

And from baseball to books, that is derek jeter's plan.

Always got to have a plan b. the new york yankee enters into partnership with simon & schuster.

They will publish everything from sports to pop culture.

He will use defense sure as a blueprint for life after baseball.

-- use the venture as a blueprint for life after baseball.

From worst to first, red sox 2013. i don't think he will be publishing that book.

Big game console wars are back.

Play station for his hitting stores at midnight last night.

Xbox one goes on sale next weekend.

With the rise of smart phone apps and networking sites, can the multibillion-dollar gaming industry regain its dominance?

Matt miller is waiting in line.

A 400 dollar consul in the age of 90 nines candy crush is a big investment.

-- $.99 candy crush is a big investment.

He is an expert on all things pricing.

How do you price a product that seems to be in its sunset years?

Mobile devices have taken over and it has been a long time since playstation or microsoft came out with a new device.

I don't know if i would call it the sunset years.

There is a lot of a revamp with both of these consuls.

One of the key problems is microsoft has priced a premium of $100 over what the playstation 4 is at.

The sony have pricing power?

Or is it facing pricing picture yak -- pricing pressure?

The goal is to get as many consuls into the homes as possible.

First it is the razor razor blade model.

You get consul in, make money off your games, and then these five dollar per month subscriptions become big.

People buy what their friends by.

I think sony did the right thing by setting a low price.

Does that mean unit prices are more important than profit margins?

The unit prices get you in the door.

Where the real money is are in the subscriptions.

Next year it is estimated that xbox live gold will bring in 1.2 billion dollars of revenue, and that can go as high as $2.5 billion in the future.

The goal is off the ancillary products.

If the price is what gets us in the door, could lay station -- could playstation start cutting prices into the holiday season?

They could and sony has come out and said they are losing money on every consul they are are selling.

Microsoft is saying they are pricing at a $100 premium, they may make a small profit off of that.

I think sony has the advantage right now and microsoft is going to have to react by either lowering their price or unbundling the product and selling the console alone at a lower price.

The console competes on price but when you look at the ipad, that sells for $800. what gives apple a pricing power versus these gaming consoles?

Apple is a highly differentiated product whereas playstation versus xbox, they are relative commodities.

They are the entryway to games.

That is the key difference.

The difference for me over the decades of looking at these toys is the idea that the world has changed.

Our sony and microsoft marketing and developing these products acutely aware of google and apple and netflix?

Or are they in their own the universe -- their own little universe?

That is a great question.

What they are trying to do is be a gateway not only to games but to net looks and -- but to netflix in various television programs.

They're very cognitive sent -- very cognizant of it.

You want to make that consul the centerpiece of your entertainment.

Thank you so much.

He has a wonderful book on something which we take for granted.

The gaming platform is mom and dad's ipad.

It is all mobile.

The way it gets expensive is in act perp chooses -- in app purchases.

Flex that is not just -- that is not just -- i never would have imagined that digital properties, some additional icons would matter so much.

That is our question for the day, how do you game and what do you pay for it?

You can tweet us after the break.

This is bloomberg surveillance.

Time now for some company news.

The family office of lee unaired george soros bought shares in microsoft in the third quarter.

This new stake is the largest held by the management.

Joseph a bank makes it official, the men's clothing chain abandoning its oppose a 2.3 billion dollars cash bid for men's wearhouse's -- it's suppose it two point $3 billion cash bid for men's wearhouse.

And download the buys a stake in fedex.

-- and dan loeb buys a stake in text -- a stake in fedex.

He had met with fred smith.

That is today's company news.

Some activist discussions.

Activist investing is down 16,000. let me look at that.

Quickly up 20%. speaking of dow, mcdonald's is sprinting for customers.

The drive-through is important to mcdonald's. the drive-through makes up 70% of sales for a company like mcdonald's. as is a massive number.

It is kind of a big deal.

Mcdonald's has changed its prices, all trying to lure customers into their restaurants.

Same-store sales were up 2/10 of a percent.

Customers have been complaining about a slow service.

This drive-through window will beginning -- will begin appearing in mcdonald's next year.

You can pay at the first window, pick up at the second, or the third.

It takes 189 seconds for a driver to get through a mcdonald's drive through.

That is more than taco bell and wendy's, slower than it was last year.

You are listening to a taylor swift song -- this makes customers very angry, especially when your goal is to drive through fast as possible.

Mcdonald's is focusing on customization.

They want you to be able to design the product you want, trying to send off confrontation -- off competition from names like chipotle.

The menu has too much variety so this is a step to do that.

There are a lot of questions about the quality of food.

People go to mcdonald's because of the convenience but the food is the bigger problem.

Mcdonald's did a survey saying mcdonald's is losing customers and the people that are least likely to recommend the dumbest to friends and families, low and rating for the quality of food.

Nicole miller reagan says that improving speed, broadening accessibility could generate over $1 billion in shared gains in the future.

Richard falkenrath, black coffee, we will take it quickly.

This is a complexity issue.

They have been in business for so long.

There is so much competition.

At some point you are too big to grow.

Mcdonald's generates $1 billion.

Sometime you do hit a glass ceiling.

This is a franchise dominated companies so they will be taking up the cost.

Who ever owns the store takes up the renovations.

They are dealing with changes in menu, labor costs -- if i going through the drive through at 7:42, i am six and a half minutes late, i have to get the kids to school, we are hungry, we are ordering a basic order, the complexity just kills you.

You cannot wait in the parking lot.

This is a game theory question.

You would learn this better if you have it on your playstation.

Mcdonald's drive-through on your playstation, sounds like the worst game.

It all comes back to how can you get that food to the window faster?

Quality food.

Any update on the menu offerings?

I hear they are now offering $10 for 14 burgers.

They have to go back to simple.

Let's go to a simple data check.

A lot of economic data.

Empire manufacturing coming at 8:30 a.m. a lot of data ahead of that.

Futures are higher.

The 10 year yield inching up 2.7%. janet yellen in her confirmation hearing emphasized that she is not looking to remove that stimulus any time soon until the economy shows signs that it is on better footing.

"bloomberg surveillance" on bloomberg television and bloomberg radio.

A busy morning.

Scarlet fu with me, alix steel as well.

Major headlines on china.

Richard falkenrath giving us a perspective.

He is the bloomberg conjured bidding editor and former white house security advisor.

Losing the rules on -- loosening the rules on the one child policy, a big change in the mindset of the government.

Also, no more labor reeducation camps.

We are approaching the holiday season.

It is bonus season.

Everyone is finding out how much they are going to get paid.

This year's outlook varies.

Bond traders are losing out.

He is the president us us -- she is a hedge fund headhunter.

This comes back to the themes of the earnings season, regulation and litigation, higher capital ratio.

It is not a cyclical thing.

I don't think it is cyclical at all.

You have to look at those q3 earning numbers.

Fixed income currencies and commodities.


It is down almost as much as it was in 2008. these are fixed income powerhouses.

The top five u.s. banks were down 25%. if you think about that is the engine that fuels revenue growth, that is scary.

You are obviously more knowledgeable.

Is this a cyclical abba?

I think it is structural.

I don't think numbers can be off by that much.

There are explanations for what happened in q3. it is not enough for them to take it down that much.

You have the inability to use leverage.

Banks cannot park risky al -- risk -- angst cannot park risky assets on the balance sheet.

It is not as high margin or as profitable a construct.

They have to hold it pretty against their activities.

The bottom line, the regulators are telling you what profits.

The thing you do is now on behalf of the customer.

What it is -- where do they go?

I don't think there somewhere for them to go.

If they can, they would.

I think the hedge funds have really kicked over cell.

You raise an interesting point.

I don't know if you saw the article about promotions.

They were saying it happens every other year.

I was at the conrad hotel right behind west street.

Frame for us to pay you are talking about.

This is all esoteric.

Is this moving from a total package of 300,000 to 125,000? are we moving from 3 million to 800,000? , frame it for us.

There are not going to be a lot of bonus checks.

Aunless you really own client relationships or phenomenal marketmaker, those are few and far between.

Those days are really gone.

Are they going to get more titles he echoplex here is what i thought was interesting.

They say they do it every other year.

The average tenure is longer, it is to be seven years and now nine years.

Why would they be more loyal now the compensation is going down?

I think the reality is there is nowhere for them to go.

This is an interesting battle , the goldman sachs announcement.

Is janet yellen going to sail through the confirmation hearing?

We will talk about that next.

Kulaks my we get that my weekend is spelled sleep.

-- my weekend is spelled s-l-e-e-p. a big bowl on china is the long-time venture capitalists in silicon valley.

He has also been a huge advocate for immigration reform.

He is going to be talking about that meeting that the white house had with several ceos, saying we want to put this migration reform back on the agenda.

Very good.

In the loop with betty liu at 8 a.m.. we are here with a lawn the weinstein.

-- with alana weinstein.

When you look at the terribly year of fixed income crisis and the commodities, structurally what is happening that is bringing the headcount town capital in addition to the head looked -- down.

-- headcount down.

When you look at the equities workforce from peak through automation, it is down 50%. now it is going from a low volume this spoke over-the- counter business and an opaque to more transparent market.

How much will it go down boy -- down by?

50% contraction is not unusual.

We need to make a headline.

You have to think across every bank.

In general i would say it is two to 3000. -- 2000 to 3000. you are in the trenches of this.

How do you respond to people who say business will move to london, to hong kong, to zurich?

Is that true?

If you look at the new law the eu has come out with, compensation is going to be capped at salary.

If anything it becomes less attractive to move to europe because you are looking at a compensation construct were the most you can make is $400,000. banks are going to look for ways to make around this.

Those bonuses, what is left of them, to and in february -- due in february.

Does president obama's concession signaled that obamacare is mortally wounded?

Clock's which weighed opposed -- which way the prices low.

Our guest host this hour, richard falkenrath, bloomberg conjured bidding editor and former white house security advisor.

Let's get you some company news from the files of bloomberg west.

John paulson increases his stake in vodafone.

It could be a takeover target.

According to regulatory findings, he now owns -- valued at $703 billion.

Comcast plans to sell movies.

At the cable company will let subscribers by movies through its on-demand service.

This according to a person familiar with the matter.

The company and movie studios believe they can sell movies from 15 to $20 a piece.

And google challenges its project to usually copybook speed google books does not violate copyright laws.

A ruling dismissing the eight- year-old lawsuit helps google strengthen its dominance in online searches.

That is the company news from the file of bloomberg west.

I use it all the time.

They have really obscure books.

What is the last book you have read?

Stuff i am working on.

They have hugely obscure stuff they have scanned in.

That does not sound like a good promotion.

President obama wants to win to credibility on health care.

He says you will be able to keep your private plan even if it does not provide the level of care provided by the affordable care act.

Will that be enough to put health care plan back on track?

It is a fumbled effort by the white house and the president.

He said he is adapting to political reality.

A reality focused on 2014 and 2016. matthew dowd a bloomberg political analyst.

He knows the republicans and democrats, they are livid over the affordable care act.

He joins us now from scenic boston.

Good morning.

Exactly how upset are they over the affordable care act?

I think the country is upset at both political parties.

I think the president has got himself in his own bind.

He is done the exact opposite of the walt disney strategy, he has overpromised and under delivered every step on -- every step of the way.

This is not a communications problem.

This is an implementation and a governing part -- and a governing problem.

That is why he is in this difficult spot.

Is this an example of the campaign chief the being unable to be the governor in chief?

I think this is a result for a long time company -- for a long time coming.

Somebody politicians adopt short-term to mitigation solutions to long-term governing solutions that we need.

I think the country wants to be told the truth.

The country does not want to be overpromised to.

We are much better promise -- much better overpromising and under delivering.

One of the things we keep in mind is that one presidents drop this low in the second term, no president has ever recovered.

You get a mentioning the overpromising with markets in the washington post, writing just about that.

Her conclusion was listening to the president thursday was painful.

State knowledge the need to win back credibility.

He said this one is on us.

Can he recover?

Going forward, what would he need to do differ people to feel confident in his handling of this?

My expectation is when we look back three years at the end of his presidency, they're going to say this is the tipping point of relevancy in his presidency.


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


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