Transcripts For BLOOMBERG In The Loop With Betty Liu 20140327

Discount. Wall street is facing bank stress tests. Lenders including citigroup failed to pass the scrutiny. I am joined by Erik Schatzker for more on the results. The highlights were citigroup, unexpected. What went wrong for them . We can only tell you what the fed told us they scrutinized citigroups balance sheet, and the methods in which they conducted their own stress tests. The fed found qualitative in the way, for example, citigroup anticipated losses and projected revenue across its business. Citigroup operates in 100 companies. Countries. It is complicated. Michael corbat was brought in to straighten the ship after the vikram handed era vikram handed area. Still had a lot of capital, but the fed is not allowing citigroup to return more of it to shareholders aboute they have concerns the way citigroup is not so much managing its business, but its capital. And perhaps its risk what that means Going Forward . No question. Subject toapital is the ability to make or lose money in those countries, and the fed says we are not satisfied that you know those operations, or you can forecast the extent of potential losses in those countries that we feel comfortable enough to give you the green light to give capital back to shareholders. Centroup only pays a one per dividend. What does Michael Corbat do now . Citigroup failed the test in 2012, a black eye for vikram pandit. Says we arerbat deeply disappointed by the decision, it will work closely with the fed to better understand the concerns. That tells you citigroup was blindsided by the decision ane and that is in enormous problem. They should know better. Are we back to the old citigroup were they do not have a Good Relationship with regulators, theyre not as quick to change, back to the old school . Not so much back to the old school, but we need to be reminded of the fact that citigroup has had such a long way to go to put itself back together after the chuck prince, eras, as it is not enough to say i want the bank better run, or it will be more efficient and we are careful about expenses and raise our return on equity and efficiency ratio. It is not enough. The fed is saying citigroup, if you want to do what shareholders demand of the bank, get back excess capital, you had better understand the nature of your business across the world, and your ability, more important, to recognize the risks you face in those multiple jurisdictions. We have to consider the 400 citigroup uncovered to realize this is a big, sprawling operation, and it is difficult for Michael Corbat to get a handle on all of it in 15 months. While i have you here, we have news on Ally Financial and its ipo journey. The singleancial is biggest hangover from the financial crisis on the books of the federal government. They own 35 of what was once known as gmac. It is now an auto lender and one line online bank. It trades privately. Private investors owned 63 . The government has 37 . In order to get out of the shadow of tarp, they will take Ally Financial public, selling shares at a price they hope is between 25 and 28, which would leave the government with 17 that they can sell on the secondary market. It is not like the government has not already sold off chunks of ally. It is ultimately so that the u. S. Taxpayer does not own a single share. Erik schatzker, thank you for the bank breakdown. Anchor erikrs schatzker. Hour, and shaking this billionaire investor warren buffett. Is that on Financial Firms could 123 company 100 million more each year after thes like wells fargo pass stress tests. Financial firms make up the largest allocation of Equity Investments at berkshire hathaway. He welcomes payouts from the companies he invests in. President obama has been using his european trip to display unity with european allies, imposing sanctions after action in the ukraine. Me. Mattingly joins has there been a single overarching goal for the president when it comes to russia during this european trip, and has he achieved it . It. Ou said it sounds simplistic, but he is looking for unity on two fronts. First, the sanctions. No shortage of officials are on the sect oral sanctions. The other is on nato. The u. S. Has argued europe has not carried its weight on the financial side of nato. The proposed investment is 2 of gdp for defense. Only three allies have done that, something the president hit on yesterday during one of his speeches. Going forward, every nato carry its step up and share of the burden by showing the will to invest in our collective defense and developing the capabilities to serve as a source of International Peace and security. It is important to point out the u. S. Put about 4. 1 gdp into defense spending, compared to the folks that are not reaching 2 . It is a concern. What is president obamas relationship like with europe . There has been the nsa surveillance scandal, leaders are not happy about that. Did he has not paid enough attention . To your point about paying attention, the u. S. Foreignpolicy has been heavily focused on the middle east, then the arab spring. They are trying to impose a china or asia pivot, leaving european nations to wonder if the u. S. Actually cares about them. U. S. Officials are always clear that they are the number one look at the you numbers, since 1989, the fall of the soviet union two years later, u. S. Troop peasants in europe is down more than 80 , so europen presents in is down more than 80 , so european leaders are leery. How is the loan package going for the ukraine . From the u. S. Side of things, it looks we have a path forward. The imf announced a twoyear loan deal. The u. S. Had a breakthrough yesterday. There was some haggling between democrats and republicans over how the package would look. Senate democrats have agreed to accept what House Republicans were working with. What that means is the senate will vote to approve a 1 billion Loan Guarantee for the country and 150 million in direct aid. The how should pass that quickly, so we are moving forward on the imf front. You, phil mattingly. We will stay in washington. Lawmakers are calling on the president to release information on the movement of Russian Troops along the ukraine border. One republican punishment has sent a letter directly to defense secretary chuck hagel, and he joins me now. Mike turner of ohio serves as chairman of the u. S. Delegation to nato. He also sits on the House Armed Services oversight and government reform committees. Thank you for joining me. What is your biggest fear right now . Russiaggest fear is as is continuing operations that could put ukraine and our allies at risk, we have radio silence coming out of the administration and the pentagon during if you think about the unit pentagon. If you think about the u. S. Going to war, the pentagon and the administrations have been detailed in what assets we have, what troop movements are occurring as we prepare. Here, obviously, we know what russia is doing. What we do not see is the generals, the department of defense quickly explain to our allies what russia is doing right now, and this puts us at a critical this event page. Disadvantage. Would you favor a military action . We need to at least tell them what is going on. If you think of your news channels right now, you do not have the pentagon explaining where are Russian Troops, what aggressive actions they might be taking. We have a wait and see. As we discuss sanctions, russia is taking actions that the allies need to know about and the American Public needs to know about and the International Community needs to know about. Congressman, i wonder what difference the u. S. Response would be if we had concrete information. Allowinge are doing is russia to build the momentum of surprise. Youre not having an International Debate about what russia is doing today in its own troop movements. We are discussing what they did last week, the week before, what they might do, not what they are doing right now. In todays technology, even google earth could tell you what is happening. The pentagon, the administration is radio silent as to what the emerging threat is. So, we are looking for the sense of urgency. You also introduced legislation to expedite natural gas exports to nato countries as well as japan. Energyrt can u. S. Playing in determining russian involvement . Role. Could play a huge the russian economy is largely an export economy based on energy resources. Pricehas volatility, the affects the russian economy directly. When the United States became a better producer, we began to import less. If we export more, we impact the price and give greater independence to areas where russia has almost a virtual monopoly. We have seven tournaments and terminals in the u. S. We have seen president obama at the vatican. Would you think the president and the pope might be able to teach each other today . Thatis certainly is a pope has reached out and look for a broader message. As the president goes to europe and tries to reengage his foreignpolicy and look to the abandonment of a false narrative of russia as a partner and now an adversary, he is the ability to show that the net state cares about europe the united seess cares about europe, russia as a threat, and we need to say stay unified. Mike turner of ohio, thank you. Theident Obama Meeting with pope in vatican city. They are both grappling with repairing their organizations, looking to bring big change here at what lessons change. What lessons can they teach each other . I want to know what you think. Steel. N tweet me ad aruba aims to be the first nation relying on wind, solar energy. I will talk to the Prime Minister to see how he is doing it. Plus, taco bell introduces the waffle tocco. I will sample it later. The crew is already dreaming of it. That is ahead on in the loop. [laughter] welcome back. We will turn our focus to housing. The latest monthly report shows Residential Real Estate prices climbed in january at the slowest pace since august, indicating momentum in the Housing Market might the cooling. We are joined by the chairman, president and ceo of the largest homebuilder in new jersey and the sixth largest in the u. S. Drake have you here. If you had one word to categorize great to have you here. If you had one word to address the Housing Market, what would it be . One word would be recovery. Even though home prices have been weak for a while and are flatlining . Yearoveryear. A somewhat choppy recovery is not unprecedented. If you go back to 1981, 1982, we had similar recoveries that hit a few bumps, choppiness, especially in this case with terrible weather and then continued on to a great recovery. What are the most stable areas growing quickly . The most exciting, solid growth is in texas. Oil prices help. You mean the oil boom, a lot of workers, sort of what we saw 30 th dakota absolutely, but on a larger scale. Dakota, we of north have seen Luxury Developers go develop boom states to lower end housing for the workers. Are you considering anything along these lines . We do a little housing in the ohio, West Virginia area that benefits from the fracking activity, but generally we are focused on 19 markets. You have a small presence in california. What are your plans . We operate in both Southern California and northern california, and we are about to community inome palm springs. I am very bullish on northern and Southern California. What keeps you up at night what are the concerns that you do have . Homebuilders always have concerns. We are in a cyclical business, but the good news is we have passed the bottom of the cycle, were on the way up. Housing demographics are better than they have ever been. But we have week wages weak week wages. Mortgageg prices and rates are at historic lows. Combined, there is something called an affordability index. Housing has not been this affordable for decades. Prices have gone up, wages are a little low, but when you put the factors together, it is more affordable in terms of Monthly Payments than it ever has been. Is there a breaking point for rates . I think it is psychological. I started in the 1970s. In 1981, Mortgage Rates hit 18 . That is crazy. We buildy crazy, but more housing than than we did last year. Everything is relative. As long as it is not so fast that it shocks people, everything is fine. Stick with me. Thank you for being here, ara hovnanian. Stay with us through the brick. A senior competition from walmart, gamestop is ready to release earnings. They came to office with signals of hope and change what could president obama learn from pope francis, or the other way around. Steel. Me at ad first. Bloomberg. You are watching in the loop , live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. I am alix steel, unit four betty liu in four betty liu. Overall, mixed stocks around the world, but u. S. Futures are trying to end higher, awaiting the latest read on initialuarter gdp and jobless claims. Traders are a little concerned looking at choppy markets. We are on the market again in 30 minutes. Top is a look at the bloomberg stories citigroup fell in the Federal Reserve stress test for the second time in three years. To fed rejected the plan manage capital citing concerns about the overall reliability of the planning process. Citibank was the only one of the nation top five banks to fail the stress test. Foreignexchange traders in the u. S. And switzerland as its investigation of the rigging of currency markets widens. Switzerlands largest bank opened a review of its currency operations last year after Bloomberg News reported traders had colluded to rig key benchmarks used around the world. Satyacrosoft new ceo nadella will make his public debut. He will hold a News Conference at 1 00 p. M. Where he is expected to unveil plans for Microsoft Office on your ipad. Home deliveries were hurt by whether in the First Quarter and material shortages. Ceo ara hovnanian is with us. What type of payback do you expect to see in the next quarter due to the weather . We do not project per quarter. We are expecting another fine year. Most of the big activity will and fourthhe third quarters. It looks like the labor and material issues do not seem to be solved. How will you manage those issues . This happens with every recovery. As one is so severe that it is perhaps more pronounced, but as long as the market recovers at a stable pace, and i think that is what will happen, the labor market will catch up. Home prices are better than one year ago, so that helps. The minimum wage debate rages in washington with president obama supporting 10. 10. What would that do to your business . I do not think we have a lot of minimum wage workers. It might affect fast food more than the construction business. May be wages are more reserved, but in terms of lumber, those prices have been on a tear. What you do about that . Unfortunately, we are as exposed as every homebuilder is because you cannot properly hedge lumber on any large scale in terms of a national homebuilder. We just hope the home prices will keep pace, and over the long term, it usually does. It seems you are relatively optimistic over the medium and longer term with shortterm hiccups. When i look at analysts come a day keep revising down next quarter, this quarter. What is the market not saying that you are saying . We are talking about a couple of Different Things the next quarter, and the more mediumterm. Mediumterm, everybody sees demographics. The United States population is growing. We are not italy, we are not france. We are underproducing housing as the market is slowly getting back to a recovery in we are not only under recovery. You not only under producing current demand, but we have a dearth of demand from the last five years. Is are thoseon people moving out of their parents house. Household formation is declining, and it seems to be structural, not cyclical. I think it is cyclical. This was a great recession. Unemployment hit difficult levels. As the economy slowly crawls out, roommates will unbundle, children will move out of their parents houses, divorces will accelerate, unfortunately. I believe that. Launched Big Deal Days to speed up the selling season. What is your early read on that . It has been great. Thankfully, it was great timing. The winter was difficult. The spring selling season has been great. Our promotion help to accelerate that. Going back to washington, we keep hearing new proposals to overhaul fannie mae and freddie mac. All of them seem to have the private sector taking some of the front. What you think that was due to the affordability of the Housing Market . All of the proposals i have heard about are calling for a change andl transition. I do not fear it in the intermediate time period, what he may do, but longterm i think we need a government backstop, a failsafe, if you will, when the market slows down and there is no accessibility. The proposals we have heard have that. I will not comment on the specifics. There are costs associated with that, but over the long term, i think it will work that out. I am not overly concerned. It is not one of the things that keeps me up at night. Care. Fair. Hank you, ara hovnanian we have breaking economic data. Economics editor Michael Mckee is at the breaking news desk. Gdp comes in we will call it a disappointment, 2. 6 , a little better than it was in the second revision of the numbers. We were expecting 2. 7 . The hope was a big increase in personal consumption, and we didnt get that, mostly based on services, and most of that comes from medical care. Also, from the amount of money we were spelling on utility. Those areas pushed services up. The weakness seems to be in business investment. Gross investment falls, nonresidential falling. Is this is not keeping businesses not keeping up with the rest of the economy. Net exports, inventories, lower than expected. 111 billion. It was 117. Actually, no changing that experts as i look through the numbers. And final sales, two. 7 , that is excluding inventories, and excluding the effect of exports. At this point, that is pretty good news. It is a major increase from 2. 3 , and that is what you want to look at to see how the economy is doing. Jobless claims the other big number, really good news. 311,000, almost a new cycle low since the recession began and we see that in the moving average with the exception of one statistical anomaly in september. This is the lowest since the end of the financial crisis. We are seeing Real Progress there, and it does suggest that maybe we will see a snapback in hiring in the month of march. Some analysts, already, based on last weeks numbers, raising their forecast for job creation during the month of february, and we will see whether that turns out to be the case in march. Lowest since the financial crisis wow. Thank you, Michael Mckee. Anda is banking on the sun tropical wind to attract tourists and power of the country. The Prime Minister and joins me to talk about his push for sustainable energy. That is coming up next. Stay in the loop. Waffle taco. Lls they are treating us to breakfast. Tom keene has his right there. Just ahead on in the loop. We have some breaking news for you earnings from gamestop. Senior marcus corresponded julie hyman has the breakdown. Gamestop has a split report. On the one hand, Fourth Quarter numbers were strong. Comparable store sales were up, driven by the strength of x sales, butand xbo it is coming out with a cautious forecast for the full year, saying fullyear earnings will ofe, but it leaves a short what analysts were anticipating, so shares are falling back a little bit in early trading this morning. Thank you. A wind of change is sweeping through Energy Policy in the caribbean, and leading the charge, aruba, which has pledged to transition the island to 100 Renewable Energy by 2020. If successful, it would be the first country to do so. Richard branson has signed on to the initiative and has helped aruba reduce oil imports from 3000 barrels a day to 1700. Arubas Prime Minister, mike eman, joins me with more. Congratulations. That is a sizable decrease in oil imports. What made you decide to take on this . Thank you. We are an island that focuses on the quality of life we can offer our citizens, and also the quality of the experience that we can offer the tourist that visit aruba, and in our vision sustainability has become very important. Sustainable prosperity is not only about the experience we have with our material wealth, but how way translate that to a better quality of life for our citizens, and that total vision of where we want to bring the aruba to translate a vision from a country that can not only speak about fivestar hotels, but also fivestar neighborhoods, fivestar schools, elderly homes, within the vision of creating , andinable prosperity sustainability in the sense of energy is important. A large part of our income gets invested in the import of oil and for the import of oil we spend a lot of our hardearned currency, and by reducing our dependency on oil, we can invest in a better quality of life for our citizens. Of the have been some biggest initiatives you have been able to accomplish so far in just about two years . Is a 20 nd farm impact reduction of the need for import has a 20 andso the total capacity of alternative energy in aruba. Adding the next wind farm, that will bring us to 40 . We are building a solar plant, the largest in the caribbean, right in front of the airport of aruba. It will have to w important functions. It will produce five percent more of our electricity with solar, and it will cover a parking garage, giving the cars shade. It is an important double objectives that we can realize with his vision. It is having a great effect that aruba is becoming an important leader, being embraced by people gore,ichard branson, al harvard university. You have a wind farm, you will work on a solar installation, and you also unveiled a streetcar that uses Hydrogen Fuel technology, the only one that actually does so. What is the cost associated with these huge transformations . Actually, if you look at the savings come a it is much more than the costs. The initial stage, you do some investments, but if you look at the efficiency rates that you mention in the opening, you will see that we reduced the amount of investment daily paid for our more than 50 . Y but what is the upfront cost . It depends on the investment. Sometimes you have investment that we do ourselves, say a streetcar connection that cost 16 million to connect, but if you look at the quality of Service Provided and how fast that returns back in the growing numbers of tourists coming to aruba, or if you look at the return with the amount of payment that we have to make for imported into oil aruba, it is a 50 drop in the impact import of fuel oil, an enormous impact. I want to get your take on some of the companies that are partnering with you. The denmark windmill producers, the institutions working with us, richard o, the, t and Netherlands Research and Development Institute they are also working with us. They are excited. Having a small island that is committed to being a leader in the introduction of sustainable policy and technology, they really have the opportunity. To get stuff done. Thank you so much, aruba Prime Minister, mike eman, good luck with your sustainability project. Coming up, we will talk about waffle tacos. I am excited. Im going to eat it. Look at that. Tot seems to have beat me it. He seems to be enjoying it. We will talk about that coming up after this break. I am Ronald Mcdonald. The am Ronald Mcdonald third. Waffleke taco bells taco. The number is 400, how many taco bellonalds rounded up to get attention for the most innovative breakfast menu. It is by far the most ambitious in its 50year history. I am joined by the taco bell president , brian nickel, and we are also joined by some tasty treats. What made you decide to get into breakfast, which is so competitive . Mcdonalds owns 21 of the market. Wendys failed. Is one of the fastestgrowing parts of Quick Service restaurants, and it is a part that taco bell has never had the opportunity to compete in. We have been looking at the category. A lot of our customers already eat breakfast at other Quick Service restaurants. We realized it was ripe for innovation, terrific value, and what we have heard is if we can give them a better reward for the breakfast routine, they will keep coming to taco bell. Talk about the pricing. Mcdonalds does a one dollar sausage biscuit. Up pricing . End we have food from one dollar, two 2. 49. The waffle taco is 1. 99. The french rap is 2. 49. We have great food for one dollar. We have every price point with tremendous value for our customers. How long did it take you to come up with these products what kind of lead time are we talking about . We have been working on this for a couple of years. We wanted to come up with food that were traditional, but put a twist on it, and that is why the eggs, taco is bacon, syrup that you enjoy, and it took us a couple of years of working back and forth to get the flavor, the experience correct because he wanted to live or on speed, convenience, and it has to be a terrific value. You brought up speed. Not only do you have to train the staff, but what equipment, new ingredients that you have to invest in . We had to bring in all new ingredients from bacon and eggs. We make coffee, which we have not done in the past. He brought in a new coffee machine. Your point is a new good one. We had to have a program our team members would be excited about executing, but also eating themselves. When our team members are excited about the food and coffee they serve, we know we deliver a terrific experience. That is the type of program we are rolling out. Of taco bellol will be sticking with me. Andy percent of the computers around the world run on the xp operating system. What will happen when windows stop supporting it . What can president Obama Pope Francis learn from each other. I want to know what you think. They met at vatican city. Lease tweet me, adsteel tweet us your answers. Well be talking about this later in the show. Welcome back to in the loop. I am alix steel. I am back with taco bell president brian niccol, and just had a cinnamon delight. Sugar, feeling good. Geting about breakfast, you more traffic, but you not get the revenue later in the day. What do you think about that . You find your check is lower him about what has been exciting is it has been hugely incremental. With incremental sales, growth on the comp side. We have kept a close eye on the increment holiday as we have tested this. How long have you given this to sell . Restaurants will be opening 7 00 a. M. Or earlier. It depends on the trade area. I meant timeline for you a oneyear, two years, to see if it works . We have already tested it for twoto two wlto three years, with a methodical approach, so that we can ensure franchisees and restaurants and up in a place where we feel good. Presumably, wendys did that because it was not selling countrywide. We have seen a lot of people have brought out similar breakfast sandwiches. Lot of me toos we have tried to bring innovation. Speaking to Nicole Miller reagan at piper jaffray, she said potentially breakfast could 20 of your sales, and what would that mean to you . A home run. Absolutely. What about the push for healthy Quick Service restaurants have been beat up by fast,like chipotle, still but healthy. How does this awesome cinema and i just had compare with the cinnabon ise had compare with the health craze . Our food is made fresh to order, and it is customize. If you just wanted to do eggs and waffles, you would have a breakfast sandwich for less than 250 calories. Justice kagan the waffle it would be just eggs and waffle, less than 250 calories . Now we are talking. Lets talk about mobile. You are in the process of launching an app. We will be moving forward with mobile payment this summer, and we want to do something extraordinary in the space. We have seen a lot of other competitors go forward with mobile ordering, but we wanted to bring something forward that would be something consumers have never seen before, but would be consistent with how they use their mobile applications today. That means you could track my gps but i am close to the store, Something Weird and creepy, but convenient. Very convenient. Brian, thank you. We will pig out. Brian niccol, thank you for being with us. It is 56 past the hour. Futures are flat. Initial jobless claims unexpectedly falling. Barely up, dow is one point. We are on the market again in 30 minutes. Coming up, google is gearing up for a stock put attic have a stock split on and you could have a major impact. Watching in the loop, live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. You are 30 minutes from the opening bell. U are in the loop i am alix steel, uniform betty liu. Futuresre flat are flat. Ally financial is seeking an ipo. The move might generate 2. 7 billion for the treasury department. Citigroup fails the Federal Reserve stress tests, and denied the attempt to quintuple its dividend. Two Global Health Care Companies are being created, one focusing on pharmaceuticals, and the other on medical product. I want to turn to washington. With this latest announcement, the white house has given itself more time to get the word out on Obamacare Exchanges to the young, Healthy Demographic insurers need to make this work. Megan hughes, you have been looking at this from an advertisers perspective. How is it going so far . I spoke to adweek and they took a look at the best and worst from a strategy perspective, and they gave it high marks when it came to reaching out to young people. They said the video the president did with zach galifianakis, and yes, that means i have to play a clip of it again, but it is funny. Would you come here to plug . It is here fair to say i would not be with you today it might not something to plug. Have you heard of the Affordable Care act . The video has 20 million views so far, reaching out to a digital office. A white house bearing with a comedian that has a cult following. I does not mean the white house has not had some flops. The worst as they try to tie the enrollment deadline to march madness with an Affordable Care act bracket, your sweet 16 reasons to sign up for health insurance. This is a little cheesy. Adweek says they were trying to hard. It was not as natural of a between twon as the ferns video. It is a little more force to go online and have a 20something load for the number one reason to get vote for the number one reason to get health care. Another winner, michelle cares video,mom with mothers of celebrities that young people love, and also conveying Michelle Obamas message that this is something your mother wants you to do. With lebrona psa james. I am from cleveland, he is not my favorite person, but you have a lot of young man that watch more espn than cnn, so this might talk to them. One other strategy in the swap department, phone banks. They say for millenials, young people specifically, that might not work because reaching them on their mobile phone, that is their personal space. That might not be as appealing. Fairpoint. It seems like the ads are great, but how many younger people watch tv, so is the lastminute push actually doing anything . A lot of it is also the videos shared on facebook and twitter. Is it working is a valid question. The white house did get some negative news out of kaiser, a new Health Tracking poll found only 30 of uninsured event adults below medicare age knew that march 31 was the deadline, and that means the majority did not know it was the deadline. They have a lot of work to do. There is also evidence that there has been a surge. Is reportingse they had more than one million visits in one day this week, so they are seeing a surge. They will take the good news where they can find it. Innk you, megan hughes washington. Another focus in washington is Cyber Security. The sec is examining exposure of stock exchanges and brokerages to cyber attack, and at stake is stability. Kellerman,ed by tom now the managing director for Cyber Security for alvarez and marshall. What aree things the things you think we should be paying attention to as microsoft plans to and support for xp . They can no longer protected from hackers. What that means for society is that most of the major energy grid, water utilities, closedcircuit camera systems are being run off of xp, so if hackers can penetrate those things, they can control reality. Presumably theyre moving on to another system. Would that the accurate . Have,efully so, and some that many are delayed in requirements to expand the resources to fix the problem, but there are also attacked specters that are prevalent like Cloud Security, or managing. Hirdparties lets talk about Cloud Security. We will hear from microsoft ceo set in the dollar said tina dollar about the cloud. Create adifficult to perimeter. Most importantly, it is almost like hacking a wall of mailboxes. A post man can open the entire wallet once. As you live in the Apartment Building in the sky, it is fundamental to have a Cloud Security strategy with an appropriate sponsor plan. What are the chances companies are working on that . It sounds drastic. It is. Many think that they have rolled area private cloud and they insulated from hackers, but the modern criminal is a hacker, said creating a forwardleaning strategy that serves your organization and the third parties you touch would be fundamental. President obama commented on the nsa program, saying the company is not collecting or holding both data. What is the security with that when you have verizon holding onto data . It makes verizon a lucrative target for criminals and nation states, so hopefully verizon is implementing a robust Cyber Security program and Risk Management strategy accordingly. As you have consolidation of data, whether it be in verizon or the cloud, they become watering holes in west africa where predators will hunt. What are your other concerns you mentioned mobile hacking. How vulnerable is my phone . The phone has become an extension of yourself, almost like a glove or you no longer need to show intention. Because it is become a ubiquitous utility, it is easier to hack the microphone, and somebody can turn on a microphone, or a video camera, as well as steal your information. Who will these hackers be groups, individual companies . The pimple faced teenager in moms basement is now working for attacksy leveraging against our infrastructure. Because we have intellectual property and that is become the commodity of the 21st century, we need to appreciate that criminals, competitors, and nationstates are hunting for the data. President obama and pope francis our meeting at vatican city. What you think they can learn from each other . We have been asking our audience all morning. Hopefully, they can learn enough foresight to understand the new nuances of todays world, especially those that create to technology, crowd sourcing, the capacity to affect social change through media. Theneed to appreciate that integrity of the distribution is fundamental, and protecting the integrity of the Distribution Channel will be of paramount importance to both. Tom kellerman, thank you. Appreciate your insight. Moving and shaking this hour pope francis. President f met with obama in vatican city, and the president said he was a great admirer of the pope. This comes at a time when the president is looking to reshape his image at home and rally support abroad. Pope francis has an Approval Rating of 85 . President obama is in the low40s. That brings us to our twitter question what can they learn from each other . Tweet me at adsteel caret we have great responses, and we will talk about them later in the show. , falling 50 . Po will the company that 15 . Will accompany be able to turn things around . Believe it or not, many top candidates for the 2016 republican president ial ticket are hanging out in vegas, this week, all waiting for their chance to convince sheldon aldiss and that they are the ones that can win the white house. Who. Kind of the whos who is there to meet with adelson . You have bigname republican candidates, chris christie, john kasich, scott walker, and everybodys dark horse, a guys who a lotof a guy of publicans are hoping will run, former governor jeb bush of florida. They are hoping to hit the jackpot, the 1 million that Sheldon Adelson is expected to spend on the campaign. Who is not there that is a surprise . Interesting that you are asking. You do not have some of the big president ial front runner names, guys like ted cruz, rick perry, rand paul. A lot of the more extreme, or fringe candidates have not shown up or have not been invited, and that is an acknowledgment on Sheldon Adelsons part that he made a mistake by putting his money on a fringe candidate like Newt Gingrich, who he famously funded, and it really blew up the republican primary and ended up damaging that romney, the eventual nominee in the process. Dolson is determined not to there this time around. We have an audition of moderate, mainstream, delectable republicans. Ble republicans. And do some of the candidates have different hierarchies how does it work . The way it works, according to some of Sheldon Adelsons aides, there is an event this weekend, a meeting of the republican jewish committee, golf outings, scotch tastings, each will sit down with Sheldon Adelson, have a oneonone, lay out what they think their strategy is to make it to the white house, and at some point in the next year or so, Sheldon Adelson and his wife will presumably sit down and put their money on one of these candidates, and what youll probably see is what happened with Newt Gingrich last time around. They will create and fund a super pack that is specifically tied to one of these candidates, and that is becoming more and more important in the party nominating process. There are a lot of people that contribute to campaigns. What is so specific about Sheldon Adelson . How much money he has. He is the 10th richest guy in the world, worth about 37 billion. He spent 93 million during the last election cycle come a guy gotletely wipe cycle, completely wiped out, but it has not faced him. ,e is expected to be one of the if not the biggest spender around. You. H green, thank stock split,ogles what is behind the decision . We will get into it after the break. Google is one week away from releasing 300 dirty nonvoting shares,oting class c and the move will likely cut the share price in half, but in the longer term it look like it will cement company control with its founders. Julie hyman has been looking into this. Walk us through the mechanics. Traders i have talked to has said they want a stock split, but this is not traditional. Effectively it is a stock split. Here is how it works right now, the shares of people own our socalled class a shares, and they have Voting Rights current you have the right rights. You have the right to vote as a shareholder. Right now, they are trading at 1100. There are also class b shares. They do not trade. They have 10 votes for every class a vote. The founders actually control about 15 of the class a shares, but 56 of the Voting Rights at the company. Class c shares, which will be one will have no Voting Rights whatsoever, that way the founders, larry page and sergei brin, will solidify their control of the company by issuing these nonvoting shares. Clocks are they not already in control . Are they not already in control . They are in control. This is more a longerterm view. 20 years down the road, the control will not be diminished. In the past, when you issued stock for any reason, pay your people, for example, or other slowly, and in, small ways, that starts to dilute their Voting Rights. Again, it would not be significant for a decade down the line, but this is something that try to do. A are class c and class shares would you trade the same price . Ideally. Traders will want to benefit from any arbitrage. If there is a difference, it might be accounted for by the discount you would get from getting a nonvoting share, but as part of a recent legal settlement, google says it will make up part of the difference if the gap is too wide one year from now. They want the shares to trade nearly in lockstep. We will see if that works. I am sure traders will be excited to get in, even though i am sure they were hoping for cheaper. Thank you, julie hyman. Differences,ve the but their stories are similar in a lot of ways. What can president obama and pope francis learn from each other . They met today at the vatican. Stay in the loop to find out. First. Bloomberg. Welcome back. You are in the loop. I am alix steel in for betty liu. It is 26 minutes past the hour. Oberg is on the markets. Julie hyman has the latest on futures. Futures are pointing to a slightly lower open, and we can call them unchanged. Jobless, claims unexpectedly falling, which would be good news, but on the flipside we had revised gdp numbers for the Fourth Quarter which showed a higher read that initially was made. At the same time, it was lower than economists were estimating. All of that equals not a lot of change. We are on the markets again in 30 minutes, but for now, the top 10 trades you need to know. Julie stays with us. Cristina alesci joins us. Ber 10, when the bingo winnebago industries. They topped estimates in spite of Severe Weather that disrupted revenue. Number nine is accenture. He raised the full year profit forecast, but reported less than expected secondquarter results. And the deal to fix the healthcare. Gov website. Number eight, . 10 holdings announced they will pay for a a south koreas cj games. Lululemon,even, posting fourthquarter results below estimates. Ceo inon, with a new january, is trying to expand internationally and maintain all clothing quality. Number six, blackstone. Company taking a public, seeking to raise as much as 781 million. It would be the third hotel chain blackstone has taken public in the last five months. Number five, king digital entertainment, maker of the candy crush name suffered the drop in months, dropping 60 in its trading debut. I am addicted. Number four is game stock. They issued a fullyear forecast that trailed estimates. Gamestop expects to reduce its videogame store count by 2 this year. Baxterer three, international, announcing plans to split into two separate companies, one focused on developing and selling pharmaceuticals, and the other on medical products. Number two, microsoft the Software Giants new Ceo Satya Nadella is making his public debut, revealing plans to rollout Microsoft Office for the ipad. Well have the breakdown of what you need to know about that announcement in a few minutes. Your number one stock is toigroup, the lender failing pass the fed stress test on a qualitative basis, finding defects in its mining practice and assessment of global exposure. The central bank denied that they increased their dividend from one penny to five cents per share. Were going to the call on the market. We will bring in jim bianco. His call, beware the slowdown. He sees a slowing economy, slowing earnings. You sound like a debbie downer. We still have a high s p. What will lead us to the fakedhink we are being out by weather. Yes, the First Quarter was depressed because of weather. Yes, the Second Quarter will ibound because it will thaw, promise you, it will. Swellingot is ground in the economy and all of these optimistic earnings expectations that everybody is looking for for the s p 500 will have to come down, and we have seen the early signs of that because corporate titans has been negative. Trying to pull us down, and when rates come down, the market will continue to struggle. Part of what we look at when we say the economy is good is housing. Housing is hard to continue to strengthen when you do not have a lot of wage growth. Julie, you have been looking at wageegration inflation. He is watching Wage Inflation roughly. A doubleedgedis sword because he wanted to go up a certain amount. You want people to be paid more but at the same time you do not want it to get too overheated. Way, were kind of a long from being overheated. Here is the 20year chart of the average hourly earnings. Below is 1. 3 growth. We have risen from that to about 2. 2 growth. In average had been 4. 3 1965. We are still well below that level. So it is again the balancing act as to where you want that number. Jim, what kind of drag might the slide of Wage Inflation come if you will, put on the economy . Im going to turn around and agree with julie that there is no Wage Inflation right now but that 2. 5 number, it is the highest it has been since 2010, and over the last three months, it has been growing at 4 , the highest it has been in six years. Yes, inflation is not a problem right now, but the trends are solidly up, and if it continues to move up, it could become problematic for the fed because they are looking to raise rates, and maybe for corporations because they could see a squeeze as well. If it stays at days levels, it will be a positive for corporations, but it is going up in a big way. What is the warning sign . The warning sign will probably be if we start to see 3 yearoveryear and we stay in 4 over a3 or low fourmonth or five month annual rate. Another twomonth that the current levels with a 90 yes we can Start Talking about inflation. We are not there yet but we are close. Three the plethora as m a. As well you have been looking at keene digital and the not so awesome ipo yesterday. That is right, alix. Im taking stock of the ipo and the m a market and basically i know that jim has studied this as well every time we see a lot of activity in both ipos and m a, it indicates some type of top in the market, and yesterday when keying digital came out and priced its offering, and investors were king digital came out of prices offered, investors were disappointed. What we saw was king digital declinethe biggest ode of newly issued stock. The last time this happened was with a Software Company back in november and people were talking about a pullback in the market decidedly alix, was different. This feels like it could extend out into the Broader Market and maybe give people some pots. Jim, what do you think about that . Does that ipo signaling top in the market . You can never really say one ipo, but it is concerning that we have such a highprofile ipo do so poorly. It reminds me a little bit of may 2012 when we have the problems with the facebook ipo, and over the next two months, the stock market corrected 10 , but more generally you are right. The dirty little secret is corporate managers and him and a tend to be trend followers was up they do the most of it when the markets are high, when the market is cheap they do not do a lot of it. Right now we are seeing it heat up a little bit. That historically has been the sign of the market getting ready to peak or maybe has already peaked. All right, a dose of cold reality. Bianco, thank you for your time. In next time youre texting on your iphone, guys, you may find a whole new array of emogis. Trend in d. C. Funding. Following the crowd but there is a downside to that. We are learning about it right now. Were at we are a few minutes into the session. Stay in the loop. Here is a look at the top tech stories on our bloomberg west radar. Samsung has failed to stop the Early Release of its new s5 sold in south korea. Some carriers are pushing up the release date from april 11, which would fall amid sanctions preventing them from doing business. Share of therrys smartphone land has tumbled, it leads in the connected car phone market. The system is used from everything from mapping to ncinging to sy entertainment. More news for the techie on the go. Apple is tackling the issue of diversity with its new set of emoji. The iphone maker will create more ethically ethnically diverse characters. As noted by the verge, apples new emoji update includes samesex families as well as couples. That is not the only change ipad users might be facing soon. Recently appointed microsoft Ceo Satya Nadella is making his public debut today and he is taking the stage in San Francisco. For more on nadellas day in the spotlight, i am joined by bloomberg west editor cory johnson who is outside the event in San Francisco now. We heard about this deal putting office on the ipad. How significant is it for microsoft . There are two aspects to this. There is the product announcement, and there is the Debutante Ball for surveillance nadella four Satya Nadella. Alix, can you imagine a day in your life without lotus 123 . Can. S, probably i and imagine a day without microsoft excel. I cannot imagine that. The best thing that microsoft is trying to deal with, in a world products maybe microsoft products, they decided to change that by offering Microsoft Office for the ios system probably through their office 360 program, their online program. They are offering to more people, more places, not have the closed world atmosphere they have had in the past. The debut of Satya Nadella as ceo of microsoft in a public way with his first public address, this is a guy who within microsoft was Opening Doors to other technologies. He was a guy who did the impossible. Putting oracle databases on microsoft clouds offering customers the ability to use things like oracle, but one of microsofts most hated rivals here in silicon valley. That nadellacant isya that Satya Nadella leading that discussion here. What kind of tone does nadella really need to set to separate itself from ballmer . This is a significant is this announcement for these guys. This could be 1 billion a year, probably more from a consumer product. Not a huge part of office in the path, maybe as little as 15 of the sales. This will be a big deal for enterprise, for people who have Enterprise Businesses else in the office, they have been using ipads in the office, the old movement of byod, bring your own device, but that includes other software. Levers ine had these the office where you have employers using office on the desktop and other products on the ipad. They can be a great opportunity not just for microsoft but also for apple. Everything that happens on the bigi store, that could be a deal for apple as well. So definitely a positive Going Forward making and roads. To stay with technology because we have been seeing a lot of light the os. A lot of ipos. Thirdy may go public in a quarter. We are seeing a ton of deal making, especially from facebook, and to discuss these two big trends, we have a Tech Industry insider with us. Thomas president ceo of a cloud app and website whose clients include the olympics, nasa, and others. We just had jim bianco on from about theearch talk ipo frenzy. Do you think we are getting frothy . I think it is frothy, but it is the early part of the technology curve. There is a big movement for disruptive technology, a big opportunity around social, mobile, cloud, big data analytics. It is all associated in going after consumers in different ways, so going directly to consumers is a whole different way of going about marketing, sales, technology, so we are seeing a whole trendlines of that is very early, i think. I so what if the decision between ipos so what is the distinct and now between ipos . I dont think Mark Zuckerberg at facebook is looking at things for the next quarter or two quarters. He is looking 10 years out. I think a lot of folks back in e looking 2000s wer at getting to the ipo as a liquidity event and much more of these firms are longterm in their vision and their thinking and they are much more oldschool in that way. I think mark is one of those guys looking that way, longterm. You brought up of course Mark Zuckerberg, recently purchased for 2 billion off deal is. A lot of backlash from smaller investors, especially those who had invested with oculus on kick starter. As i going to be a trend, this antisellout feeling . Well, there is always a big view, and when he started the company, like we did with sosa, you have a longtime view. In the process of building a division, so when you get acquired by a bigger company, like marks company, you are worried whether or not a vision will be taken over by someone else. I think from an investor and entrepreneur, you are concerned. I do not think they wouldve sold to market there was not a common view of where to take the company. With every acquisition, you have got to have a partner that has a common view to what the entrepreneur wants to do with the company and take where the Company Wants to go. Do you agree with the zuckerberg that this Virtual Reality will be the next phase of the internet . Mark has done a really cool job of reaching the consumer through social. His next move has to be about retention. It is wanting to get somebody to your application. The other side is how do you retain them . You have to offer a lot more services in doing that, and obviously that helps him to monetization. Whether it is text or chat or video or multidimensional things or 3d view of things, i think the consumer is exploring different ways to interact with other people, with products and services, so there is a lot of evolving technologies that i think in the next 10 years will come to the fold. Whether this is the right one or not, i think mark has a better idea than i do. We have 15 seconds left, but what do you think will qualify the mobile device . We are doing the old ebix in 10 years from now. We are doing the old ebix in 10 years from now. A lot more wearables. I think you will see a lot of Translation Services with things like google glass and things like that, but i think mobile is moving to wearables quite rapidly. I thought right. Im going to have to get those glasses i guess. Right. Im going to have to get those glasses i guess. We will be right back in just a few minutes. Stay with us on in the loop. Global today for outlook. We are looking at the man of power who came to office with a symbol of hope and change. Today, one is doing much better than the other when it comes to ratings. President obama met with pope francis in vatican city earlier today as he is trying to recharge his image on issues like how to bridge americas income gap. What potential lessons can they teach each other . We have been asking you that question all morning and right now i am joined by rome bureau chief alice oessandro. Thank you for having me. We do not know exactly what they talked about because it was indeed a private conversation. We know that we are waiting for the press release. We know they briefly discussed discussed the white house, the president gave the pope a resident of seeds. The book came with his platform of helping the poor and the disenfranchised and reducing the worlds inequality, would do something very different dear to obamacare. Obama an avon delta exhortation, the joy of the gospel, and obama apparently rest on it he will use it in times of trouble. That echo some of what our viewers saw that they could really learn from each other, in particular one cannot said it is not what they can teach each other, is what they can teach us , and that is compassion. Sort of emphasizing how these two leaders meeting delivers a statement to you and me. I think it is a strong message. It is what obama wanted. He said at the beginning, recharging his image in a way. He came to power with this platform of hope and change. That is dampened somewhat because of reality. The man of the pope was a man of hope and change in the church. So together the symbolic image they are giving today is very powerful and it brings us back to older images. Many years ago when reagan saw huge prl ii, that was a moment. It was a huge, important image where the two bonded together to fight communism. Now they are bonding together to fight poverty. I want to share with you one more tweet we got from peru012 h learnthey can fobot that capitalism is not perfect but the most efficient road to economic prosperity. Resonant obama is hoping that image can be revitalized here in is. President obama hoping that image can be revitalized here in the u. S. Exactly. I think it has been a relatively successful trip. This is what is coming out of the talks, and yes, they are hoping for change. I think has been a good trip for obama thus far and it will go on the rest of the day today. He will be meeting with the Prime Minister and he will be doing more. Very exciting time. Thank you for joining us, bloombergs rome bureau chief, alessandra migliaccio. That does it for us. Tomorrow, defending the purchase of oculus, even though he says facebook did overpay. We will be interested to see what he has to say about that coming up tomorrow at 8 00 a. M. Eastern. Have a great day, everybody. It is 56 past the hour, which means bloomberg is on the markets. I am julie hyman. Lets take a look at where stocks are trading 30 minutes into the trading session. We do have a little bit of a pullback here. Remember we mostly got better economics out of this morning, however gdp did come in slightly lower than was forecast for economists, the latest revision on that number. From stocks to commodities, lets take a look at oil. It is trading at a twoweek high. Food stockpiles falling. We do have some supply constraints. On the topic, we are watching the fallout from a 4000 Barrel Oil Spill near the houston ship channel. That water way home to over 1 10 of the u. S. Refining capacity. I am joined by Bloomberg News isaac. He visited the area before the spill happened because it is such a vital area for u. S. Oil reduction and refining. What is the latest on the situation. What is the status . The channels reopened yesterday but it had been closed for four or five days since this crash happened, the closing that led to the spill over the weekend, and over that time, it was affecting the price of crude oil, gasoline, natural gas liquids like propane. Because this is like a choke point for u. S. Energy infrastructure, like you of the capacity, oilfields throughout the midwest , pipelines, this is really a vital area for the u. S. A lot of refineries along the waterway they are actually cut back on the refining activity. Now, this is sort of a rudimentary question, but im curious at a refinery there when they cut back on the refining capacity, is it just because they do not have a place to put the refined product after a wild . That they have to load on a ship and move it out of the area . It could be either. I think it was actually because they cannot get the crude oil in that they would then use to make refined products, but there could be some instances where there are exports of petrochemicals or refined fuels, and they cannot get the ships to move them out. There are more than 100 ships waiting to come into the port during this outage. It is one of the busiest waterways in the whole world, and it is the biggest gateway for exports, the biggest export port in the u. S. On that front, the backdrop for this has been that there is the historic increase in u. S. Energy production, so how does this play into that . It is making this area even more congested. It is leading to an unprecedented three 5 billion in spansion expansion along 35 billion expansion along this waterway. Some people are saying maybe we have too many eggs in this basket, or the port is even close offense for fog delays and it is risky to have such a high concentration in this area. Isnt also risky because of traffic . This accident was caused by a collision. Is that why it happened, are there just too many ships around there . Traffic is actually down slightly because there are fewer tankers coming in bringing in crude oil now that we are producing more oil in the u. S. , but hundreds of ships use this channel every day and it is cruise ships and ferries and patrol boats and tankers and barges. It is so narrow actually that when you have two big ships that are crossing, they do this thing where they basically head straight at each other and one has to give. We have to leave it there. Thank you so much. We really appreciate it. We will be on the markets again in 30 minutes. Live from bloomberg headquarters in new york, this is market makers, with Erik Schatzker and stephanie ruhle. Fail. The fed denies citigroups request to turn more capital to shareholders more than five years after it almost collapsed. This bank remains its own worst enemy. What a ceo Michael Corbett doing wrong . Ncaa pay . The right to form a union. The other sign that they may start paying college players. We get reaction from the commissioner of the biggies. The big east