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The Worlds Largest ontime rate online retailer, known for operating on razor thin margin, saw more than double what was expected. The news is wearing on investors and the stock is down 10 in premarket trading. I want to bring in the head of north american research. Also joining us is jason, an analyst at oppenheimer. Why do investors seem to care now . Weve known they want to operate at a loss . This is the Second Quarter in a row where the stock has reacted negatively to quarterly earnings. Theirors on the margin patience is wearing thin with the investment at all costs and topline growth at all costs, at the expense of profit. It is an issue that management is starting to think about. They are starting to play hardball with some of their suppliers, for example on the media side, with hachette. They want tothat, they dont want to raise prices. The ceo cfo made no bones about it. They will continue their investment in the company. They feel extremely bullish longterm about the story of ecommerce globally. Wordsi look behind the and numbers, it seems like the Cloud Computing business is where amazon is starting to feel some pain. Does that reset expectations for that part of the business . It is now going to take several quarters to run through the numbers. If you had a business that was previously growing roughly around 60 , it is now going to grow just 30 with partial cuts on the quarter here and we are probably talking about that segment growing in the 20s for a few quarters before it really accelerates before it reaccelerates. Its entirely possible they could win more share with these price cuts, but that being said, this is their highest margin business line. I would point out that it does look like they are trying to raise margins, whether it is for prime price increase, the full price phone, the full price fire tv, but all of these initiatives take time. Outperformdo have an rating on the stock. What do you feel most optimistic about . It is still clear they are gaining share. One of the metrics we like to look at is if you break down the ecommerce business and look at the Gross Profit Per customer, that is still growing in the 10 range. If you think about what is overall retail spending growing, 2 , 1 , depending on the geography, they are still growing at 10x of what the overall environment is growing. They are still gaining share. The reality is they are not making much money when they do it. When you look at the company, which is effectively two companies, web service and ecommerce, and if you put a 7times multiple on it, right now, in the markets putting 25 times on the ecommerce business, assuming they could hypothetically get back to a 6 margin am a we think that is a very reasonable that is very reasonable to pay for that type of growth. Thats assuming they can get back to that kind of margin. It seems like the expectation was jeff bezos would stop spending and work on margins. It seems like the worry is he is not going to do that at all and keep investing in different businesses, like drones, for example. Giveven that they dont annual guidance, it does make the profit picture look as worse as possible. I understand investor concerns. If you look at the longterm, they are still gaining share. Are you investing for the short term or the long term . We were looking at the operating loss that amazon is looking at this quarter and it could be as high as 810 million. What about alibaba . Thehen alibaba comes into market, when they start the roadshow, they will step back and say, let me compare the margin of amazon, ebay, alibaba. I think that will shine a harsher light on the amazon story and may put pressure on management to step back. I suspect investors will put some pressure on management to take a look at the profitability in that business. Management believes in the longterm growth story of ecommerce. We think it is only 6 or 7 of retail sales today. Could it be 10 or 12 five years down the road . I think they think the answer is yes. It could make sense to invest longterm today. At what point does the lack of profit that we see no longer justify 150 billion market cap . If you got to a point where this company is growing sales at less than 20 , i think at that point, probably investor frustration at this point, you should be generating profit. The reality is that the company could show whatever margin they wanted overnight. Seen this massive transition from physical media to digital media. They are probably not holding their share within digital media. Part of it has to do with making it easy for consumers to purchase digital goods. I think there are a number of factors at play. They are trying to figure them out for the longterm. Right now, it is not driving the business as much as it had been 12 months or 24 months ago. The amazon fire phone goes on sale today. Are you buying one . Im probably going to take a pass on that one. I tend to not buy the first of a new model of device. Amazon believers, but maybe not so much in the phone. Thank you so much. We are going to move overseas to ukraine. Military positions are under bombardment and the u. S. Is pointing the blame at russia him a the first time the u. S. Has accused the country of a direct attack. I am joined by bloomberg newss Ryan Chilcote in london. Will the accusations move the needle at all . Changet going to president putins behavior . You have to assume if they are firing into the russian part of ukraine, someone might see that. Just because the ukraine is showing it is not going to change his behavior. When it comes to europeans, who i think are the real target for these images, these statements from the u. S. , things might be a little different. They started moving closer to the u. S. And pushing for more sanctions. There is a process, though. This is a way for the u. S. To nudge them along. The u. S. Wants to isolate russia but minimize impact on its own businesses. In order to do that, it needs the europeans on board. It will appease u. S. Business interests who are concerned that if the u. S. Goes it alone, then russia will retaliate against american businesses. This makes the Playing Field a little bit more even. Waso that point, he publishing the u. S. Publishing its latest blacklist today. Will it fall short in terms of what the u. S. Wants in sanctions . Will fallink it short. It is a small list, mostly spies and the heads of the Security Organization and some insurgents. We knew that going into this. There will be a second list that comes out next week called the cronies list, the friends and it,ly list as some refer to and it is designed to get at putins inner circle, not just the decisionmakers interrupting the situation in ukraine itself, but those that support president putin and his rule. That is something that is going to be very interesting. I bet that is something that u. S. Blacklist. Of this on a backdrop of the Ukrainian Government essentially collapsing yesterday after the Prime Minister resigned. Could you argue that was putin possible . Putins goal . I think Ukrainian Government may have wanted that a little bit it self. This had me scratching my head yesterday. There are two things that happened. The Ruling Coalition collapsed. That may have been by design. What a lot of people in ukraine want, including the ruling elite, is to have early parliamentary elections. And the only way according to the constitution to do that is to not have a Ruling Coalition. They parted so that they could come back. Get rid of some of the parliamentarians left from the old regime that supported the ousted president. Thats how that works. ,he more worrisome part here they will have an election and the date will probably be october 26. The ukrainian Prime Minister did not have to step down. Everybody is wondering if there is a risk inside of the government risk inside of the if there is a rift inside of the government camp. Us fromchilcote joining london, thank you so much. We want to continue with the news in ukraine. The Prime Minister has resigned. The u. S. Is accusing russia of shelling military targets. Thats go to the director of the Europe Program at the center for strategic and international studies, based in washington. These accusations from the u. S. That russia is firing artillery across the border and are going to move more weapons over to ukraine, do you believe that . We have to take the information on face value. We certainly know that increased russian transfer is a very sophisticated weapons weapon and arms have been flowing across the ukrainian border. Prorussian separatists are losing very important face on the ground in donetsk and luhansk. President putin doesnt need an outright victory by the prorussian separatists, but he does need a stalemate. Right now, the separatists are on their. Theyre back heel on their back heel. He will have to respond with escalated sanctions. Why does putin just want a stalemate . It would seem what he wanted was a complete destabilization mtf so the country cant really destabilization in kiev so the country cant really function. As weve seen in moldova and georgia and elsewhere, you basically have a russiancontrolled enclave which allows the russians to destabilize and influence the government. So, he doesnt need outright control. But, in order to maintain influence over the government, to prevent them from other ever taking meaningful steps toward the west, he has to be able to have very Strong Influence over the region. The problem is the separatists really are losing militarily. Essay 11s and these very sophisticated aircraft antiaircraft missiles entered into theater as they try to lessen the severity of the military push back against their positions in ukraine. What would be the best deterrent . Weve heard so much about sanctions. You kind of feel like putin is calling europes bluff at this point. Putin has a very high threshold of economic pain. This is existential to his regime. He cannot create this Greater Eurasia Union concept without ukraine. If ukraine goes decisively towards the west or towards europe, that is an excess essential challenge to his regime. The stakes are enormously high. He is prepared to take that economic pain. Europe is the key here. The u. S. Does not have a very strong trade relationship with russia. We do have tools in our toolkit. Slowly, the administration is focusing on the financial and energy sector. Europe is the key. They could begin to change the calculus if they put very meaningful sanctions forward. Unfortunately, they have not. They are extremely slow to do this. It is going to have an enormous impact on their economies. Also, they are concerned they are going to provoke pruden and make the situation worse. The white house will be very frustrated with europe for the foreseeable future. And they all have to agree. With 28 member countries, it is going to be difficult. Thank you very much. Coming up, congress cannot agree on immigration policy, but the president is going straight are going to meet with leaders of Central American countries at the white house today. Look behinds a burger kings 33yearold ceo. President obama meets with the leaders of honduras, guatemala, and el salvador today. Congress has not acted on the president s request for 3. 7 billion to help stem the immigration crisis. Phil mattingly joins me now. Ood morning, phil what does president obama think to accomplish in these meetings . To convey apoint is message, that it is incumbent on these leaders to explain to their people that there is simply no way to establish some type of residency in the United States. White house believes and Administration Officials have told us that these leaders are extremely important to what is akin to a pr push, to inform people in their countries that taking the word of these smugglers and taking a very dangerous trek through mexico is not only worth it an extremely dangerous, but it will eventually result in deportation. To administration will try hammer it home with the leaders facetoface. One proposal has been allowing hundreds to enter the u. S. Is it a realistic proposal . It is realistic but early stage. There have been multiple cabinet officials working on a working group to put forward Different Things that the president could do to try and quell the flow of onse undocumented migrants his own, without congress. One of those is this emergency refugee proposal. Right now is this would apply primarily to honduras. The individuals would be interviewed in country. The administration hopes that people would stop to stop trying to float to the border and instead meet with officials in country. If the program is proven effective, it would be extended to both water mullah both water mullah both guatemala and el salvador. Obverse will be going on a five week vacation. What will they do . They have six make six days left before that break. They are nowhere near a agreement. They are on different tracks. At the crux of it is that 2008 law. Republicans and the Obama Administration want to change the law to allow them to speed up deportations of these Central American undocumented children. Democrats have moved away from that change en masse. There is a chance that they will leave with no solution whatsoever. It is hard to describe as anything but messy. Thank you so much, White House Correspondent phil mattingly. Earnings season is off to a strong start. What does that tell us about the state of the economy . One of those Companies Reporting strong earnings we will have details right after the break. Stay in the loop. You are watching in the loop. Im alix steel, in for betty liu. The flight reporter from an air flight that crashed has been recovered. That is according to french president francois hollande. Mali is fighting a stock on the world bank of scotland is nearing a threeyear high after reports that profits nearly doubled in the first half of the year. Largestritains stateowned lender. Company is buying a company of ireland and plans to cut its u. S. Taxes by moving its base there. The hour. Inutes past Bloomberg Television is on the markets. Futures are taking a bit of a breather. S p futures are down about three points. Another record close for the s p yesterday. The nasdaq is heavily weighted to the downside. Negative Earnings Report from amazon. Premarket shares are down as much as 10 . We will be on the markets again in 30 minutes. Fullngs season is in swing. Many companies surprising to the upside, pushing markets to record highs. What does this say about the state of the u. S. Economy . Are we spending more and buying more . Is that theells us firstquarter gdp numbers that got everyone so upset were nothing to worry about. Going forward, we should be expecting things like more bank lending, increasing loans, etc. , which will also help boost the economy. Its one of the reasons why our equity strategist is so upbeat on financials Going Forward. I dont want to be debbie downer. Weve been hearing about a big pickup in potential cap ex, but we did not hear that echoed. Esterday from caterpillar housing is a big worry spot for the u. S. Economy. We think we are going to be doing ok. Something tos was get past. We think we are on a trend. The trend is maybe not what we had all hoped for, but there is one simple fact. Kids dont like to live with their parents in definitely. We know that jobs are being gained. They dont like to. It doesnt mean they dont have to. As the labor market picks up and kids are more able to find jobs ez, that was a long time ago. As they are able to find jobs, they will move out of their parents cost the basement and and parents basements find their own apartments. Thehere was the cut to forecast due to the terrible firstquarter. Everyone is in the same boat. The imf is finally getting around to it. Are they a contrary indicator . My friend would say they are in fact an a contra care a contrary indicator. He is pretty good at his job, so i wont dismiss that out of hand. The Second Quarter is looking pretty good. Third and fourth quarters are looking ok. If we want to play sesame street economics, there is one quarter that did not gdph up, and that was the number. How about the rate tightening from the fed . It could be that by the end of the year the fed is sitting on its target for unemployment, the mid5 s. Theyre inflation target is their inflation target is 2 . It is not a recipe for good things happening. I dont think janet yellen sees it my way. Hike inks they will mid2015. We think that is well behind the curve. When they do go, they will go on a consistent basis. We will see a constant stream of 25 basis points. What is the biggest risk in that timeframe for the u. S. Economy . That inflation picks up more. Even if there is no Wage Inflation . No Wage Inflation, but there is growth. Why is there so much wage growth . The Unemployment Rate story is not telling you how many mollify people there are four jobs, rather how many people want jobs. It is a very different metric. People in industries where there is demand are going to see higher wage gains. We are going to see younger workers taking jobs that baby boomers are exiting. Are they going to get paid the same . No. We will see this might be a little more restrained. It doesnt tell us that overall wages are not doing what they are supposed to be doing. Me for onewith second. June durable goods orders are out and they look slightly better than estimated, up by 7 10 of 1 . Olivia sterns has more. We were expecting a rise in durable goods orders, and they have come in a little bit ahead of expectations. You strip out transportation, they have risen by eight 8 10 of 1 . Durable goods orders fell in may by about 1 . That was because of a sharp decline in military spending, a big fall in orders for military equipment. Good news to round out the Second Quarter, a particularly important quarter for durable goods. A lot of economists will be looking at this to gauge the Overall Health of the markets. Back to you. What is your take on this . We did not see it revised downward. We were hoping for a good june number. We got it. If you look at the other series, ism, they are all looking for good quarters. We are looking for that cap ex rebound. When rates go up, we should expect some weakness in capex. We think the opposite. We think it will encourage people to make investments. . Does it make it sustainable we havent invested in anything for almost five years. One of the reasons we are seeing rents go up so dramatically is because we havent invested in rental stock or housing stock. Likewise on the corporate side, we havent been investigating investing in new plants, new equipment. Once we start the cycle again, it will be a prolonged cycle. May was revised down by 1 that was telegraphed into the numbers. We will see what june gets revised to. Drew matus. Theng Interest Rates not in u. S. But in russia. Have sanctions are finally taking a toll on that countrys economy how sanctions are finally taking a toll on that countrys economy. You wont believe how new york city is spending its share of that money. Russias central bank is reacting to the threat of wider sanctions by unexpectedly raising its borrowing costs for the third time this year. With us is drew matus. It seems like russian officials can talk all they want about how they dont care about the sanctions, they are not concerned, but clearly it is having an impact on their economy. And you always have to look at what people are doing, not what they are saying. If you Say Something is not going to have an impact and then you raise rates, you are not being up front. Of coarse sanctions are going to have an impact. We are very adept at figuring out where the pressure points are an very good at pressing on them. Weve had a lot of practice over the last 20 years. We had iraq and iran sanctions, north korean sanctions. We know how to do sanctions in this country. We do them pretty well. We will start inflicting more and more pain as time goes on. The u. S. Exports so far are inll up 60 year on year 2014. It seems like the sanctions threat is not factored in at all. There is a huge risk that hasnt been discovered yet. It is 60 on a relatively small number if you compare it our biggest trading partners are canada and mexico, and they are are not i dont think there are going to be sanctions on either one of those anytime soon. Lowestt exactly the country on the totem pole. But its not the highest. Its not going to make a huge difference. We export a lot of food and capital equipment. Those are pretty sticky items. If you made the order for the capital equipment, you probably want order the the capital equipment. And food, especially if you need to eat. It is not like we are selling a lot of consumer goods into that country. We talk a lot about the financiallys are and economically to russia. What he pointed out was that the underwriting in russia, most of it is done by european banks, by a staggering amount, 63 . We can they do business if see much more material financial sanctions Going Forward . It will depend on the nature. If youve been watching some of the press conferences from the state department and the like, they have gone out of their way to not impede that kind of activity. It seems like at some point europe will have to make that kind of call. It is not entirely clear what direction we are heading in. This the downing of the airliner, was that the worst it is going to get, or is it going to progress beyond that point . The real risk for the u. S. Lies in financial markets, our equity market response to these kinds of events, to the geopolitical events. If that ends up being relatively contained, then the impact on the u. S. Does not have to be that significant. On twitter about sanctions, basically saying that it is likely and details will be worked out. Perhaps it would be improved approved by july 29. Some sanction some countries will want more sanctions because they are more threatened by a bigger russia. When we look at their russian economy what does the european economy look like . Europe is growing slowly. They have a lot of risk out there. This isnt going to help. Not everything has been cleaned up. You have this disinflation is sayingch draghi might require quantitative easing. We are not sure what form that could take. If that rhetoric will step up more if we see sanctions against russia. You need to have something behind the rhetoric. Draghi Nothing Happened with the but there was a great market response. One of my colleagues likes to call him the central banker of the decade. Everything he says everyone listens to. There is deceleration in activity coupled with disinflation. The mechanism for qe could come into question. There better be something behind it. Listen to what i do, not what i say. Thank you so much for joining me. Kids often get jobs working in fast food, but not as ceo. We have the design the behind the scene look at the kid wearing the crown over at burger king. Menuucks is updating its in an effort to stay competitive. It is time for todays bloomberg big number. Billion, the estimated personal fortune of he also just filed for divorce from his wife of 11 years. He is a managing partner over at eric on global management. At aragon global management. According to his wife, she did not receive notice from her husband of the filing, which she learned about while on vacation with their three young children. In 1950ing debuted back seven. Burger king has recently put its faith in a new generation of young, ambitious leaders, led by a 33yearold who learned to make a whopper in under 35 seconds. Virtualing has become a money machine, opening more than 1400 new stores in 2012. It is the cover story on the latest addition of Bloomberg Businessweek of Bloomberg Businessweek. I had no idea. I love covering the food companies. How did a 33yearold get to be ceo . The kids are taking over. What is the world coming to . In charge of burger king. But the average age of an incoming ceo in the s p 53. How did he get it . He went to cornell. He grew up on long island. He spent about a decade on wall street. He wound up working for three g, the brazilian private equity firm. This is out of their label. They put young people in top positions in the companies they buy. He has set the record. He was 32. And his team are in their late 20s, early 30s. The whole management team. Spears. Er than britney is it you take a look at sales compared to wendys or mcdonalds. Their firstquarter samestore sales beat mcdonalds. Theought this company for 4 billion it is now worth for more than a billion market billion more than 9 market cap. Is it an ancillary point . No. Burger king is growing. Like mcdonalds and wendys, everyone is having a tough time in north america. Daniel schwartz, the ceo, has orchestrated all these deals. They found franchisees in other countries and money people. They are growing overseas, even though north america is kind of flat. The foreign financiers are putting up the money. It is not on their dime. It is hard to see how the company will grow. The actual stores that burger king owns are reduced to Something Like 52. It is mostly a franchisee operation. What did you find in your research . The growth is really hope happening overseas. Somebody else is paying for it. In america, people arent as interested in eating burgers. In other countries, burgers are still considered something of a novelty. In france, they are getting stopped in the airport by people saying where is the burger king. I dont know if youre going to argue with the french. More focused on overseas. Thank you so much. We appreciate it. Do not miss the latest edition of Bloomberg Businessweek, available on newsstands of Bloomberg Businessweek, available on newsstands. The one and only big mac index. In the long run, Exchange Rates should move toward the rate that would equalize prices of identical goods, like a big mac, which is sold throughout the world. 7. 77mac right now costs in norway and only 4. 80 in america, which means the kroner is overvalued, the most overvalued currency in the index. In ukraine, a big mac costs 1. 62. Average currencies in the index are now 15 undervalued against the dollar this year. I guess you could say the dollar has been beefing up. Get it . Starbucks brewed yet another Strong Quarterly Earnings Report on thursday, beating analyst estimates, helped in large part by food sales. We have the highlights. Talk to me about how food really drove there their bottom line. Alix, thats exactly what happened. Starbucks, as we all know, definitely a Coffee Company at its core, but for the Third Quarter, it was food that came out as the standout. Characterized as an outstanding and strong Third Quarter for the Worlds Largest Coffee Company. Lets go through the highlights. For the Third Quarter, they clocked in a net income of 513 million, about a 23 gain from a year ago. Earnings per share in at . 67, beating the street estimate by one cent on revenue of 4. 2 billion for the quarter. Global samestore sales growth locked in at 6 for an impressive 18th consecutive quarter of comp growth of 5 or more. Largely by, helped china, and 3 for europe, the middle east, and africa. 2 of comp growth in the United States alone. They are optimistic for what is to come, helped by the fact that as coffee costs rise, they have locked in about 60 of coffee prices for the next year, giving them a big leg up on their competitors. They have increased their earningspershare estimate for the Current Quarter, up by two cents. Things are looking good. Strong quarter for starbucks. Starbucks also just raised prices. Hopefully they lock in those coffee prices and you will see potentially grow some margins there. The pipeline . Own some stores are selling real cheese now, which seems crazy to me. The one big thing that Howard Schultz said in yesterdays call was expect the lunch hour to look different. They have a few things coming down the pipeline. They will be increasing their food offerings. The teas and Starbucks Reserve coffee line. They will be introducing more 24hour Stores Across the globe. Those have been very successful. Also successful, starbucks store in the magic kingdom. Partnershipa great with disney. They say expect that to expand in many locations around the world. They are testing the possibility of a mobile ordering app. It would let users order their coffee online, on their phones, and to pick them up in the store. That would be a game changer. Absolutely. If you dont go into mobile, you will pretty much be dead in a couple of years. Interesting point. Get some coffee. Is one of bnp paribas the banks that had to pay up for u. S. Sanction violations. New york city is set to get some of that cash. You may be a bit surprised as to what they plan to do with it. That, wedays this vs. S have an update on where all the cash from a Bank Settlement is going. This is bnp paribas, which recently settled a lawsuit for a cool 8. 9 billion, one of several companies that had to pay large fines to the u. S. State. Ent, new york state authorities are getting nearly 5 billion from the settlement. What does new york city planned to do with that money . Carpets. New york city prosecutors will get new carpet in their office. Also go toward Technology Investments for the city police, including Camera Networks around the city to help will alsoe money go toward Technology Investments , includingy police Camera Networks around the city to help deter crime. Two days of records in a row. Earlier this morning, we got june durable goods orders coming 1 , better than expected. Laying it on amazon and their dismal quarter. Blame it on amazon and their dismal quarter. Amazon investors getting squeamish about the companys spending. An allstar analyst will join us. Dont miss that. Sharples ceo brian will join us as the worlds leading market for the Vacation Rental industry reported earnings yesterday. You are watching in the loop in the loop. We are 30 minutes from the opening bell. You are in the loop. Futures are flat as we head to the opening bell. Demand for durable goods increased 7 10 of 1 in june. Royal bank of scotland shares are nearing a threeyear high. Profit almost doubled in the first half of this year. Costcutting steps are almost on track. Down 10 amazon are ahead of the bell. The company lost 126 million in the Second Quarter, more than double what wall street had estimated. I want to return to one of the most important stories of the week russia facing capital flight, a weaker ruble. The u. S. Accuses it of shelling military positions on ukraines oil. Director bring in the of Georgetown Universitys Center for eurasian, russian, and east european studies, limits ofthe partnership u. S. Russia relations in the 21st century. Does this escalation with the u. S. Accusations seem like an allout war at this point . Certainly, what we are seeing in ukraine is a hybrid war. We have russia supplying very sophisticated armaments, supplying people, and they are escalating their support for these ukrainian separatists led by russia. I think you could say this is almost a war between russia and ukraine, although so far it is a proxy war. What you see in more or less from the u. S. Side is, we believe and are european allies believe increasingly that we our european allies believe increasingly that this is looking more like a cold war. It makes it difficult for the west to figure out how to deescalate. Which raises the question of what is putins longterm goal question mark is it just to hich raises thewha question, what is putins longterm goal . Is it just to destabilize ukraine . The goal is to destabilize ukraine and make it impossible for the government to function properly. You see the government resigned yesterday. They had to do that. They have to have new elections. It is already happening. Until they have new elections and hopefully a parliament that is more supportive, they cannot implement any of these Economic Reforms and energies are Energy Reforms they desperately need. You are quite right, some of it has already been accomplished. You are part of a panel on nato. Give us some insight on what nato is thinking right now, how might bestonia, latvia operating. The new nato allies, the baltic states, told as they are very worried about this. They believe much more has to be done. I think nato has a new resolve. It relies it has to be a credible force to protect its realizes it has to be a credible force to protect its members. Apart from the United States, few allies are willing to take what it to spend what it would take on defense. In order for nato to be credible, we have to persuade our allies to put their money where their mouth is. You have an underfunded nato and a very skittish europe when it comes to sanctions. What will be the perfect deterrent for putin . I think the deterrent has to be a credible nato. Putin has to realize that even though he said he wants to protect russian speaking people wherever they live, that if he is doing anything in the baltic states, the that he would be met with resistance. Im not sure if the russians believe that yet. I think the first thing is to have a credible nato. Sanctions, even if they have an Economic Impact on russia, they havent had any political impact. Some economic to be sure. We saw the rate increase today. Weekend. Aded into the what is the one thing you are going to be watching echo we have to keep watching . We have to keep watching, do they allow people to come to that site and do what inspectors have to do after this plane trip that plane catastrophe. Do we see an escalation of the fighting in Eastern Ukraine . Do we see a more belligerent russian posture . Is there some way of the escalating this . Thank you so much for your perspective, angela stent. Thank you so much for joining us this morning. The worlds biggest retailer has a new chief in its u. S. Business, a guy who has never even lived in the United States. With sales flagging, walmart is trying to think outside the box. Julie hyman covers walmart for us. The news broke yesterday on the show. I want to get more of a recipe resume of who he is. He is a kiwi. He was born in new zealand. Hobbits. Thats the connection for you and i. Yes pretty much only worked in he has pretty much only asia. D in just a couple months ago, he was promoted to walmart asia. It is interesting that he just got that promotion two months ago and is now moving over to head the u. S. Business. He is 53 years old. He and Doug Macmillan have known each other for a while. Doug macmillan being the ceo of walmart overall. Roger corbett is on the board of walmart and is a former ceo of woolworth and years ago, he over to meet. Doug and greg hit it off. They started on the floors of the retailers that they climbed through. Foran was a shelf stacker. Macmillan works in a Walmart Store originally. A walmartan worked in store originally. Moving upillans guy in this position. Whats going to be the different strategy that foran can bring to this . Its a strategy already put into place. Now it will be up to foran to implement that. Some issues have been plaguing walmart weakening economy, food stamps, people on the bottom of the economic ladder who are suffering the most. Walmart having some stocking and staffing issues at its stores. Walmart has turned the focus to smaller format stores, neighborhood markets that are more like Traditional Grocery stores. Those Grocery Stores have been taking walmarts shares. Thatis the first year walmart will open more smallers smaller format stores. Box,you say outside of the a bit of a pun. They are thinking outside of the traditional superstore business. Thank you so much, senior markets correspondent julie over at the changeup walmart. Coming up, Rupert Murdoch is getting serious about his bid for time warner. All the details for you next. A deal that could change the landscape of the real estate industry. Stay in the loop. Oxsoving and shaking, f Rupert Murdoch. The move translates to one thing more cash on hand to potentially raise his 80 billion takeover for time warner. Time warner rejected the 85 per share bid last week, saying its own growth plan is superior to any plan that 21st century fox is in position to offer. For more on the media moguls wheeling and dealing i will point out the obvious, isnt he selling to himself . Fox owns 39 of bskyb. Its a brilliant move. Raise more cash, consolidate his assets. Its something he has wanted to do for a while. It is almost a stop gap measure to his original plan. He wanted to buy out the rest of bskyb. The hacking scandal erected around the same time. Because of the political fallout the hacking scandal erupted at the same time. Because of the political fallout he winds up of not having the sure to does this give him the benefit of raising the bid for time warner . 7 billion after taxes . He will net 7 billion after taxes. The thing the company signaled in their press release is they are not saying they are using all of this or any of it to increase the bid for time warner. They stressed we are going to continue the whole Share Buyback program that they have been doing. They buyback on average about four middle 4 billion. Deal gets done, they are likely to sell cnn. That is definitely on the table for them. That could be another 4 billion, 5 billion, 6 billion. Is that enough . 85 per share now. This brings it up to 95. That makes it interesting. He could leave her up could lever up another 4 billion or 5 billion. Why not . Is he going to have to sell something . I dont think he needs to get rid of stuff to shore up his Balance Sheet in any kind of way. The company is well managed. It does have an Investment Grade they dont want to destroy that in any kind of way just to get time warner. They are being disciplined about it. There are a lot of extra things they havent mentioned. Like the fact they would have all this cash left over even with extra buybacks. Bloomberg news ed lee, thank you so much. Coming up, homeaway ceo Brian Sharples joins me. You are watching in the loop, live on Bloomberg Television. One stock we are watching is homeaway, the home rental site raised its revenue outlook for the year, sending shares up as much as 10 . The stock is continuing to climb in the premarket. Running may exclusively is eaways cofounder and ceo joining me now exclusively is homeaways cofounder and ceo Brian Sharples. It surprised a lot of analysts. There was a worry about a big increase in marketing spend. Why didnt that materialize . We had telegraphed rightly or wrongly a couple months ago that it was our intent as a company to get much more aggressive with our consumer marketing over the next three years. I think a lot of people unfortunately interpreted that as we were going to spend a lot more money and decrease our margins and our a bit. Our ebitda. We are growing as a business. We have 85 Gross Margins on our core product. The basic idea is we are going to spend a lot more on marketing, but our cost structure allows us to shift spending from other areas to marketing without having a big effect on our ebitda. I think that was a big surprise for people, that we were able to maintain an even race slightly our ebit and even raise slightly our ebitda. You just hired a new chief marketing officer. What is the number one goal . That we are excited about that. We havent had a cmo we are excited about that. We havent had a cmo for four years. We operate in about 190 different countries. When we think about stepping up marketing efforts, we want to do that in an integrated way. We want to build brand. We want to get stronger on the pr front, even with database marketing. The complexity of doing that across the number of markets we operate in is quite a daunting task. We didnt have quite that capability in task inhouse. By bringing him in, his first task will be trying to make sense of a threeyear plan for us as a company and how we are going to build awareness for this business in many geographies around the world. I want to get your take on something happening in the illest in the real estate industry. Trulia. Erhaps buying as we continue to see this consolidation of online real estate, how does that wind up affecting your business . Ive paid attention to the two companies. Trulia. Ete at they have a strong business. Value, ito zillow in seems to be fairly undervalued. From that perspective, the deal makes sense from zillows side. There does seem to be a general trend toward consolidation. We are seeing it a lot in the travel industry and in general with these kind of marketplace businesses. Some of these markets appear to be longterm winner take all. In an odd way, it is good for the consumer. The consumer benefits by having a onestop shop where they can see all of the choices available to them. I dont know if it really changes anything in travel, but it is a continuation of a trend we have been seeing for the last year. It might not help the brokers, but it might help the consumers. Speaking of acquisitions and consolidation in the online real estate space, you have made 17 acquisitions to try and beef up homeaway. What is next on the buy list . For us, most of our acquisitions have been have had the target of expanding our footprint geographically. We are in a number of locations around the world that there are still pockets in south america and eastern europe, even pockets of asia where we still dont have a big presence. We spent a long time looking at emerging companies in those areas. Occasionally, we will do a technology acquisition. We most recently bought a company that had a mobile app that is going to be a fantastic boost to the Consumer Experience in our business. Speaking of it is getting increasingly competitive. You have priceline, trip advisor, airbnb all trying to ramp up their listings. You get a lot of owner listings, not just property manager listings. How will you keep that and fend off the competition . Its a very big aspect our business. What may be unappreciated is building up those listings one by one has taken many years to do. It is very difficult for any company. It doesnt matter how big their brand is and how much money they have to go out and find those individual owners, many hundreds of thousands of them all over the world. Part of the success of homeaway is we have a model that works for them. The majority of our owners use the prescription model. We are the only company in the world that has that. Rate talking to you, Brian Sharples, chairman and ceo of homeaway. Opening bell coming up. Welcome back, you are in the loop. I am alix steel. ,oomberg is on the markets the latest on futures, little bit of a decline. A tad to the downside but pretty much flat. June durable goods orders coming higher, may was revised down. Amazon waiting on the nasdaq after its Earnings Report. Lets count down to the open with the top 10. The only stories you need to know about. Number kick it off with 10, soda stream shares falling in the free market after news that the soda maker might be in talks with an Investment Firm about going private. The transaction would value the company at about 40 a share, 828. It was up a lot yesterday, coming off. The aftermath. Im a big soda stream person. Me, too. Not yet, despite Scarlett Johanssons efforts. Drugmaker beating estimates. Abbvies secondquarter profit rose 2. 8 on strong sales of one of the best arthritis drugs in the world. Shares of the Worlds Largest network falling in the premarket, 11 jump in quarterly profit as more people use plastic instead of cash to make purchases. A reduce in revenue forecast for the rest of the year. Pandora shares falling in the premarket. It raises is 2014 outlook. Missedr growth estimates. Ever jeffrey said the weakness and shares is a buying opportunity. I recently got into pandora. Youre a leading indicator. Tevamber six, ugg and hold to buy. Rom jeffries 12 month target is 130. Exxon mobil runs out of fuel, fromays downgraded it underway to equal weight, saying it faces headwinds from the lack of nearterm production. Bringing in another Strong Quarter with earnings rising 23 . Coal reaction, shares falling in the premarket on concerns plans to open more stores and hiring gradient prices might weigh on growth. , a warmaway investors welcome after its latest Earnings Report. The ceo is raising its revenue outlook for the Current Quarter and fullyear jim by strength online. A potential acquisition, zillow and trulia could change the landscape of the real estate industry. Seeking to buy trulia for as in cash andillion stock. I could be announced as soon as next week. Amazon. Com. In sales a 22 jump in the Second Quarter, so i lots 126 saw a loss of million, more than double what was expected. We dive deeper into the results in a few moments. You begin to trade, you sure the opening bell. I bring in the chief investment strategist at blackrock. I want to get into an oped he wrote for financial times. Much of the global unrest this year has not been directly linked to nearterm economic or earnings growth. As such, should have little significance for the global economy. Why . The main reason, when you think about why have investors been so willing to look past the geopolitical risk. There are a number of reasons. One of them, centralbank policies cap volatility very low. Second, people were conditioned by the dip. There has not been a direct link between the events in europe, some events in the middle east, and economic environment and earnings environment. That may change depending upon what happens in the middle east. What i would worry about is a spike in oil prices. Say that this is the perfect time to buy volatility. Because no one is looking at it. Actually one of the last cheap asset classes. How would you be buying it . Whats your timeframe, when do we see it pick up . I think the pickup is going to begin to happen you could have a pickup if there is a shock or a spike in oil prices. That leads to higher volatility. In my mind, the greatest and most obvious risk is essential than policy. Mainf the reasons, the reason volatility is the slow is that monetary conditions are easy, the credit cycle is very benign. If that starts to shift, we get to an environment at the end of the year when people start to think about a world where Central Banks in the u. S. And u. K. Are tightening, that is when the rest really goes up. We are going to see a longawaited rise in volatility. Alixs point, how do you play volatility . That ists about the vix not the best capture of volatility. There is not a best capture of volatility. A lot of traders wind up ignoring the vix. bsurveillance what do you use . Fair point. No perfect measure. I will defend the vix, it actually does capture what people are trying to get out. You can look very sophisticated measures of volatility that include 30 or 40 or 50 indicators. When you put them together, that looks remarkably like the vix. Vix is not perfect, there are structural reasons it might be low. This volatility picks up, you will see that happen in the vix. What do you do . Think about cheap out of the money put options on the market or on stocks to get some of that longer dated protection. Ofwe are in this era unprecedented forward guidance. You think one of the only things incould cause a spike volatility is with a rate hike. Janet yellen giving us so many signals into what she is thinking in the timeframe. We believe it is going to be six months after the end of the taper. Even though it has been guided so clearly, it is still going to shock the markets . Does not have to shock the markets. We are not suggesting we are going back into a world like 2008 when the vix was at 90. With the vix close to single digits, even going back to something that resembles normal. Back to pre2008, about a 20 vix. Jump ina significant volatility, nearly a 100 increase from where we are today. Even if all that happens is the environment normalizes and volatility goes back to its longterm average. I read you also like europe right now. Obviously it looks like the threat of deflation is looming larger,. Mario draghi considering fullfledged quantitative easing. The fundamentals do not look good. Numbers cannot disappointing for the third month straight. A bit of separation even within the core of europe. You look at the reforms that have not been put in place in france, causing concern. Unemployment remains very stubbornly high, doubledigit. A lot of debt. Why do you like europe . A couple things. Broadened this to international stocks. Europe is still in the midst of a crisis. Itll take years for that to change. At the margins, things are getting better. Good numbers from the pmis, 18 month high. European earnings season is actually decent. 65 of companies there beat. Not that thewer is fundamentals are so great in europe, but that some of the bad news is reflected in the price. In europe reflects a broader view that for many inestors, they rode a rally u. S. Stocks, we think u. S. Stocks can go higher. A lot of the good news in the u. S. Economy is reflected in the price. For investors that are Underweight International equities, we think it makes sense to bring up that Brought International allocation. Not just europe, but asia and emerging markets. Whether you are looking internationally or in the u. S. , a catalyst has been a pickup in deal activity. I was looking at some of the biggest areas for deal activity this year. Here in the u. S. , that is, and north america. Telecoms, consumer staples, energy, financials. Aere is not necessarily correlation between those groups with deal activity and being the bestperforming groups. A oneday popis because of a deal and then you do not necessarily see longterm performance. When you are making your strategy, how do you figure out do you buy for the short term hoping theres going to be a deal . How do you figure all that out . I think this is an excellent question. You are right. Energy has done very well. Some of the other sectors you named, less well. Yourself, back to the conversation about europe. What are the fundamentals . To what extent are those fundamentals discounted into the price . All year. Ke energy we continue to like energy. Part of the view is predicated on the fact that in a world where there are few bargains left, Energy Stocks look relatively cheap. Particularly in this market, where stocks have been going up for five years, there has been a bid to high yield, sovereign debt is expensive. Where can you find relative value in a world with very few bargains . Thank you, everybody. Julie, olivia, russ. Talking stocks. Amazon plunging after its Earnings Report false sure. Leading many to ask, how long will shareholders put up with this . Amazon shares down 11 after reporting earnings that fell short of estimates for the third time since january. Amazon bleeding money on expenditures like the new fire phone. How long will shareholders that up with this for the longterm . Joining me is allstar analyst gene munster of piper jaffray, thank you for joining us. Did this quarter change your view on amazon . You have an overweight rating. Longerterm, it did not. It did push back when we are going to see lived in terms of profitability. That is why investors are disappointed today. If you take a big step back, Real Companies that are Sustainable Companies these are the googles, apples, to get, they find ways it right longerterm because they have solid businesses. I think amazon is one of them. We are fully on board. There are some things that we could get into but all the themes and opportunities are still in place. One of the weak points was the Cloud Computing business. Despite the fact that it wound up cutting prices by 30 . You point out it is the most profitable of its businesses. Are you confident theyre going to be able to make market share . Nothey will gain share, question. When amazon cuts pricing, they gain share, that has been their roll block for the last 10 years. The opportunity in Cloud Services is significant for the next 10 to 20 years. The issue is, it is the most profitable part of their business. By lowering price, they are pushing out the profitability. That is concerning to investors. Ultimately, you need to see around that corner. Theyre making the right moves longerterm. When you think we are going to see higher margins . In the next year they are going to show a quarter where they pull back some spending and show that the model can produce higher margins. Then they will go back into investment. They do this every couple years, they will surprise people with an impressive quarter just to remind investors that the fundamentals and the longterm margin opportunity is still intact. Within the next year i think were going to see a pop in margins and then they will start to reinvest again. I want your take on baidu. The most in a year, reported earnings in the revenue that made up about 30 of total revenue for the first time. Take us through the Growth Opportunities here for this company. Think of it as google seven years ago. Googles stock over the last seven years has been up into the right. Similar opportunity. They do not have any real opposition in china. Part grew, the mobile faster than people thought. Also, they showed better profitability. They had been investing to try to really get to that mobile inflection point. It seems they do not need to invest as much to get mobile to work for them. Back andke a step think of highperforming, Online Advertising businesses, search is one of the best businesses. You get that with baidu and you get the accelerator with china. All of those combined, the story continues. Amazon seven years ago in china for baidu. Iner jaffrays gene munster minneapolis. We will stay with amazon. Fire,artphone, amazon goes on sale today. The companys first entry into the industry dominated by the veterans. Apple, samsung. Joining me now is someone who has had a chance to test the device. He has one with him. Senior Electronics Editor at consumer reports. It. Macy it let me see looks like an iphone. Like it . I have fun with it. The one thing that irked me, a lot of people reported this, it locks out the google ecosystem. It is technically an Android Phone but you cannot google maps and a lot of things people like using on an Android Phone. It is a unique experience. Theyve redesigned the interface so it looks like nothing else anyone ever used. Up an important point, this is the first generation phone. Were looking at the sixth plus iteration for the iphone as well as multiple samsung phones. There will be a lot of kings, will that be a deterrent . It has two compelling features, the 3d effect is hard to duplicate on the camera. It has to be looking at a persons face. The other thing this is good for both amazon and the user the firefly shopping app. That is a dangerous tool for me. Me, too. My wife just took the phone away. The thing is, it turns everything the phone sees and hears into a buying opportunity. The one source would be amazon. People have been asking whether or not the phone is going to be successful, it is, if only because the one thing about a smart, it is like your best friend. It knows everything about you. Your best friend sharing everything about you. If amazon wants to know anything about its customers, this is the best way to find out. Where you go, what you tweet, what you say. You thingst to sell or sell things for their partners, this is the lazy do it. They want the ecosystem. Mcquarrie saying that war wont end well for amazon. They are short in that area. They are great at selling stuff but they do not do a lot of things that iphones and android do managing your data. Google has done a lot of interesting things in the last few years with the cloud and linking your digital life together. To make it fun for you are more practical for you. Google now, which you cannot get on a fire phone. If you have a dentist a clement, google now will remind you and tell you there is traffic and leave earlier. Some fun things, some missing. 200 with a twoyear contract, 30 gigabytes 32 gigabytes, will compete on price . I do not see it being very popular except with devoted amazon prime users. They may be out there, it has a serious shortcoming. A lot of people are not going to like it. The more experience you have with other smart phones, you will have difficulties because it does things in different ways. Up is literally down in some cases. I do not like change. Thank you, Senior Editor at consumer reports. A review of the amazon fire. Still ahead, boeing sales a deal ending a three decade freeze and ties. More on the playmaker in the country. State the bank time for global outlook. A strong indication that russia is economy is under pressure. The central bank boosted borrowing costs, the third increase this year. The spread of sanctions is undercutting the ruble. The crash of an air algerie yesterday was the third disaster in a week. 116 aboard were killed, after a crash near taiwan and the tragedy. Air passenger fatalities could be the highest in nearly a decade. The ceo of air france spoke about the dark week in the industry. Is a black week for air transport. Catastrophes are totally different. Companies, totally different origins, different environments, different aircraft. You cannot know a general conclusion that air transport is vo avoided. R should be i understand that passengers can be worried. That is perfectly understandable. Them first of all, air transport is very safe. It is the safest. Boeings request for a sailor beenarts to iran has okayed by u. S. Regulators, the first sale to the Islamic Republic by a u. S. Aerospace company in 35 years. Tensions have eased since iran started talks for easing its nuclear program. Virtually all trade stopped after the iran hostage crisis in 1979. On monday, betty liu talking to Robert Crandall on the state of airlines. Have a great weekend. 56 past the hour, bloomberg is on the markets. I am julie hyman. Lets look at where the markets are trading. Got a halfhour into the session, some declines. Blame some of it on amazon. Disappointing earnings news. A durable goods report coming in were stan anticipated, particularly when you look at the months prior revision. Down the most. Treasuries as well, durable goods order laying into that also. We are seeing a little bit of buying of treasuries as a result. 10 year yield going down to keeps going lower. Sticking with treasuries, a strong rally in bonds so far this year. Investors are getting nervous and preparing for music to stop, eventually. They are piling their money into credit hedge funds at a record pace, seeking strategies that deliver returns regardless of which way Interest Rates are going to go. Joining me is lisa brown whats lisa. Whereh uncertainty about rates are going to go. It makes sense people want to hedge. At one point he you believe in the rally . Can the bonds keep rallying and you finally say, ok, i believe it. Just in time to go in the other direction. People are not giving in yet. Not really having faith that this rally can keep going over the long term. Investors are pouring money, almost 30 billion in the First Six Months of the year, entities relative value credit hedge funds. They go out and look for opportunitiesspecific bonds where they can make a profit with a middle school trade with a miniscule tray. Not betting on a big swath of debt. Outperforming . They have been underperforming. It is a broad index of corporate bonds. They are saying look, we are underperforming by 50 basis not a big deal. If you look at the protection we provide over the longterm, this is sleep at night money. It is kind of counterintuitive. That is not the reputation of hedge funds precrisis. Now, hedge funds are promising you safety. Turning the idea on its head that they are hedge funds, not bullish cowboy funds. That is the pitch they are making. Last year, the real concern was rising Interest Rates. This year, there seems to be less of a feeling that benchmark yields can really spiked upwards. What could be the catalyst for that . Now, the concern is more, where is the yields . The u. S. Market is through the , gains are winding down, maybe the funds can go overseas and find better opportunities elsewhere. You started to explain this a little bit. How exactly are they doing this, how are they achieving this hedge they are talking about in an era where rates are a little bit uncertain . Lets say the European Central bank saying that they may start some kind of Asset Purchase Program like the one in the u. S. They are making a lot of noise about maintaining stimulus there. People might say that yields are than in thep lower u. S. , they can look at the gap between the two and the relationship between the two. Interesting trend here. We will be on the markets again in 30 minutes. Market makers is next. Live from bloomberg headquarters in new york, this is market makers, with Erik Schatzker and stephanie ruhle. Losing patience. Amazon shares pounded today after yet another quarterly loss. To turnos refuses revenues into profits. Penny sink, sink the stock, restarted trading today, but not much of a market for shares. Current holders seem set to lose everything. May be done, but some of

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