Transcripts For BLOOMBERG Bloomberg Surveillance 20140702

This is front and center for monetary authorities in the united kingdom. Well, mark carney said last month im surprised we do not think people will raise rates next year. Economics we have a lot of stuff. 7 00, the Weekly Mortgage application numbers. Adp employment figures. Adp creates about 20 of the paychecks in the united states, so when payrolls jump, it we should set up a schedule here for the next 48 hours. It is three days compressed into two. Adp today, then tomorrow back to claims another private survey as well. It is essentially three days squeezed into two. All the more reason to watch bloomberg surveillance worldwide. 10 00, we have the factory orders. Flipping the page, earnings before the bell. Told you yesterday Constellation Brands was reporting earnings. I was wrong. Today, i mean it, it really is today. An item of note, janet yellen will be speaking to the iis centralbank conference in washington. Second data check. We begin the earnings dance next week. Futures continue the advance. Dow 16,956. Euro, dollar, strength we have seen over the past two days. On to our next screen with the volatility will talk. There is the dow, buttressed up yesterday, writing against 17,000. The dollar is weaker. Look at sterling, the british sterling, 1. 7160. We looked at the webpages as well. Heres our front page with scarlet fu. The dow industrials on the verge of reaching 17,000 for the first time, yesterday got within 1. 3 points if you look at it on an intraday basis. Up 129 points. There is a bullish indicator for anyone who subscribes to the dow theory. Did you put much credibility in the dow theory of the linkage of transports with utilities s . It was quaint. It tells you there is a belief as a whole that the economy is working. We should also mention that small caps is moving along the same trajectory. I cannot wait to see the Hedge Fund Performance data for the last 90 days, to see if they even participated. Isall you would need to do be a passive investor and you would be ok. The 8000erage of all or so hedge funds that bloomberg tracks last year, only up about 9. 5 . That is before fees. There is the distinction. We will get to market shortly, but we want to continue with the front page because the second story is google, beefing up its music services. All of these different companies, whether google, apple, amazon, they are all looking to secure more listeners who are moving to streaming services as opposed to downloading music. You know why i can feel fierce . What do you mean, feel fierce . I dont know. They are curating the mood. I get it the soundtrack of your life, right . Lets not go there just yet. Ofs one comes on the heels. Pple is anyone making money off this . The idea that when they do make money off of it, they will already be established players, not playing catch up. The artists are not making the money they were making on the downloads. There has been litigation on that as well. Our third frontpage story Jpmorgan Ceo Jamie Dimon says he has throat cancer that is curable and he will undergo treatment. This is in a memo to staff and shareholders. He plans to run jpmorgan as usual during eight weeks of radiation and chemotherapy. He has already delayed a trip to europe. He is 58 years old and has been ceo since 2005, shepherding jpmorgan through the crisis without ever posting a loss. The key word is curable. This raises all kinds of questions about suggestion about Succession Planning. They have plans for the short, medium, and long term, the board. When i saw the news story break yesterday afternoon, i was concerned. Bob benmosche of aig is ran a cancer survivor and the company with the full support of the board. So there is a precedent. Those are the big stories monday morning. Bill gross and alan krueger will be with bloomberg surveillance. The Financial Community was quieted last evening. Jamie dimon told shareholders and employees that he has throat cancer, caught early, and it is curable. Cohan has worked on wall street and written about the Nations Capital merchant banks. His classic work is house of cards. Ofl cohan, your reaction when you heard about jamie dimons illness . I think you put it very well. There was quiet across wall camet when this news across the table. Obviously it is very scary for him and it does raise those questions of succession that you pointed out. It is great news for him that it is curable and that he can continue to work and lead jpmorgan, but obviously no one gets out alive and we all have to think about these things. The Bigger Picture here is that poststeve jobs, everyone is very concerned about how much is disclose when you have a a ceo who is so readily identified with the company. Do you think that influence his thinking here . Big problem with steve jobs, and he was so profoundly associated with apple for all the right reasons. Jamie dimon has clearly lead jpmorgan for nine years, been at the firm for 10 years. This is Something Like the 10th anniversary of his coming to jpmorgan, so he is closely associated with it, but i think big institutions like financial institutions, while their leaders are associated with it not the same it is as steve jobs. Bill cohan, can you discuss for us the amount of time any given ceo spends with his direct reports . Is jamie dimon speaking typically to his five or six liters daily . Is a once a month . Is all the time. These are very big organizations. No one person can run them by himself or herself. They rely on the direct reports because the pulse of the place, to get the feel of the place jamie dimon has been notoriously detail oriented, so he of course relies expensively on his direct reports, and but he himself of course is the face and leader of jpmorgan and has been. Hopefully for him he will continue to be, but this raises those issues of succession. I noticed today for the first time people are beginning to isk about mary or dose, who head of asset management, and gordon smith, head of the commercial bank. Hear one name, the head of the Investment Bank and ceo of the firm, has been a bankr in the investment and got promoted. But all of these people in the direct reports are possible successors, and they need to think about this. The last time people had questions about jpmorgan and succession was when people were talking about jamie dimon potentially being treasury secretary, although those discussions faded. Last question he really wears three hats, chairman, president , and ceo. Does this raise questions about separating those roles . I dont think so. There have been questions about splitting them up, but they rarely get through shareholders. As long as they have, as Joe Evangelista said, shortterm, aiumterm, and longterm Succession Plan, they should be fun. Bill cohan, thank you. Bloomberg contributing editor. Scarlett, i am so glad we have chris with us. The head of Technical Analysis. T strategic us i quote him probably more than i should. Romance. A regular b ofas you look at the trend the tao of 17,000, what else do you see . Internally, it is not the trend of the market, it is the trend of the stocks within the market. We need a market that is well participated, and a couple of weeks ago we got a nice expansion. As long as that of the case then the trend is intact, we are reluctant to fight against the tape. We have a wonderful set up equity, gas for you across four hours of bloomberg surveillance. We will continue the discussion throughout the hour. A wild ride has unfortunately come to an end because for team usa and its fans, it was fun while it lasted. The workday came to an abrupt yesterday0 p. M. Eastern time. Team usa lost to the belgian red devils, 21 in the world cup. Dont jump goes on to play argentina, belgium goes on to play argentina. Our guys come home. We learn something yesterday only watch world cup soccer with a group from france. Under their pinkies they know more than you and i will ever know. They were cheering before you and i we were like, why are they cheering . The good people from france do not even care if they score. It is totally different. They see stuff we do not say. Tim howard, the goalie, was incredible. A Record Number of saves. Easily it would have been five goals for belgium if it had not been for the u. S. Goalie. The ball went off the plexiglas. Coming up, hundreds of thousands turn out for it wrote democracy march in hong kong. We will discuss how china is reacting. This is bloomberg surveillance on bloomberg television, streaming on your tablet, your phone, and bloomberg. Com. A very good morning to you. Good morning, everyone. Bloomberg surveillance. Dow futures up 13, off the bloomberg terminal. Like like almost 17,000 yesterday. Could not get there. This is important. On asia, here is scarlet fu. Hong kong police have finally cleared the citys financial district of the hundreds of thousands of prodemocracy protesters who gathered yesterday and the largest rally in over a decade to commemorate hong kongs return to chinese rule and to protest what they feel has not in full democratic votes. The growingwhat dissent means for chinese authoritarian rulers, we bring in nick. This is a direct reaction of hong kong people to what they perceive as a heavyhanded beijing. Tell us what beijings next move is because they have been pretty overseesaying they will hong kong the way they had intended. But surely there is some movement inside, no . I think this certainly will reinforce perpetual anxiety in beijing about what the future holds for them, both within hong kong but within the wider mainland story. Cautious here. Ry i do not think we will see a hardline, direct engagement approach in the near term, but they will not be very flexible to allow hong kong to have any universal suffrage like they are calling for. Dont they need to extend some kind of all of branch some kind of olive branch to people . The people participating were barely old enough to remember the 1997 handover. I think it is hard to see that flexibility from beijing right now. Paper look at the white that has become a focal point of the protests issued by China State Council last month, the government in beijing was pretty clear that it had a fundamentally different view of two the one country, systems formulation meant. It is hard to see where the flex ability comes right now. I am glad you just said that. One country, two systems. That was a promise 17 years ago when hong kong was handed act. Is this finally breaking down this whole notion of division . , i would not call it breaking down as much as what is becoming clear, the longstanding differentiation in how the two sides interpreted that framework. I think the Chinese Government always had a determination to maintain some pretty clear lines of diverse sovereignty over hong kong, and the expectation they would not do that was probably a little bit off, unfortunately. Is is on the front pages of all the papers, japan announcing a military shift, including allowing armed forces to come to the aid of a friendly country coming under attack. Does this ratchet up the tensions between china and japan . I dont think so. But certainly in the nearterm. The mediumterm is the concern. Beijing is hosting the summit this november, and prime be iner abe is going to japan. The two sides are still working to get some kind of interaction between them at the summit. More concerning in terms of how it plays out over the next couple, 5, 10 years. Thank you so much, nick concert there he nick consignee or he the home of the kbw banking index, the index everybody watches. The ceo of kbw joining us at 7 00. This is bloomberg surveillance on bloomberg television. Right back with Chris Verrone of strategas. Good morning, everyone. Bloomberg surveillance. Our twitter question of the day what is a better investment . Good question. The dow at 17,000, or an in Downtown Manhattan in new york city . Tweet us. With topdam johnson headlines. A somber headline, Services Held in jerusalem for three israeli teenagers as bodies were the west bank town. Israeli Prime Minister Benjamin Netanyahu is threatening tougher sanctions against the gaza strip, vowing to hunt down the killers. Warplanes carried out air attacks tuesday. The taliban says it carried out an attack on its own that killed eight people. This soon the suicide bomber triggered an explosion on a bus in kabul. Brings aoff in ukraine new threat from russias president. Vladimir putin says once again that the reserves that he reserves the right to use force. F needed to protect russians prorussian separatists captured a gun a government building tuesday. A series of somber top headlines. Not much moving in oil off ukraine yet, but we will see how that goes as russia considers a response. The morning must read right now. Again, here is adam. Says inis what michael the wall street journal. Big Technology Companies have led the way inventing revolutionary products and services for half a century but something has shifted. Companies are not structured to grow 10 times faster than average. Technologyou look at over at strategas, what do you see . We like tech, and especially the stocks that have not done well over the last 10 years microsoft, intel, qualcomm. The street does not like that. Microsoft has the fewest number over the last 25 years. That is not a reason to get on board. What is distinctive about intel right now. Bid . Creates that , when everyone was already talking about patent rolloffs and all the bad news was already coming to an end. Do not buy j j. J j went 50 to 100. A lot of those Technology Stocks have similar characteristics from a sentiment standpoint. We will find out what all of this means when we continue our conversation with Chris Verrone of strategas partners. Also coming up, jamie dimon announces that he has curable throat cancer and is being treated. We will discuss all this with a jpmorgan shareholder right here on bloomberg surveillance. In new york city, after the celebration at 4 00 p. M. Yesterday afternoon you could hear it all across the city, quiet. Back to work on a twoday work week. Will go surveillance beneath the headline data. Bill gross and alan krueger will join us from princeton. He has worked at the white house as well. Good morning. Im tom keene. With me, scarlet fu and adam johnson. Scarlet fu has a summertime data check. The dow got between one and to 17,000ts yesterday. The 10year yield coming in at 2. 55 . U. S. Dollar at 1. 3665. Sterling puts on a bit as well. That is worth watching. The news on jamie dimon. What does cantered due to the workday . What does cancer do to the workday . It is another thing to live it. As jamie dimon of jpmorgan announces he has throat cancer, we are honored to speak with steamedpeabody, and a bank analyst an esteemed bank analyst. He has fought his own battle with cancer. I am honored. My pleasure. How are you feeling . Great. Iran a 10k two weeks ago and i feel great. I want to know what happens the first day of radiation. It depends on how aggressively they start. Rituxan in 2009 and went through six to eight weeks of treatment. That did not work so they went through a more aggressive form, a cocktail of chemotherapy. That drains you. Within the cocktail, how would you presume jamie dimon going . Tially keep it i was able to function and run my company through chemotherapy. While the more aggressive forms of treatment tired me, i was still able to come back and work partial weeks. If it is assumed that mr. Dimon works out of sloankettering or out of his home, the technology has to be better than it was five years ago. Sure, he can hold teleconferences and hold meetings around the world. Everyone is different. The competitions that can arise out of the treatment the chemotherapy in my case created autoimmune issues, so i was vulnerable and eventually had a viral attack on my heart, it caused congestive heart failure. It is the complications that come from the treatment that sometimes can make this thing difficult to predict. You have the full support of your company and your partners. Ceo, just aike as a strap relating from your own experience where there are so many people who depend on you day in just extrapolating from your own experiences, where there are so many people who depend on you day in and day out. I depend on so many people and that is the solar lining, if there is one with cancer that so many people rally to support. Jamie dimon has been a very visionary leader and successful in running his firm. I suspect the firm will rally around him. Limerick has learned that jpmorgan says it has a short, medium, and longterm Succession Plan in the works. We are talking about eight weeks treatment, which could be what would you want to see or hear from his delegates . They have characterized this as a transition year, and they are putting things in place to have a better 2015, and i think they will. The Consumer Bank is struggling to grow earnings, but i can see some sunshine at the end of this process. The Corporate Bank will have a tough go because the Capital Markets are remaining uncooperative. Running gordon smith the Consumer Bank. He has a lot of experience. Who has been saenz through the wars and is viewed as a longterm potential heir. They have people in place. Is this a good juncture for mr. Dimon to take on more focused and less duties as chairman and simply as ceo . That question has been around for the last two years, and the shareholder bases has confirmed him as both ceo and chairman, so i think that will continue unless there are complications that arise from treatment. Why not simply move up to the role as chairman and let someone else do the day today so that one else can he has addressed it in the way they approach the market and the earnings. I think there is seasoning to be had amongst the next group of leaders. Things jpmorgan benefits from is its conglomeration of chemical banks , chase manhattan, jpmorgan bank. They had a deep bench, so the talent is there. But i think seasoning is required. You have improved so much from when i saw you and you are so ill. When was the day that you knew you kicked cancer, that you had eaten it back . How will jamie dimon no . Is a strength issue . Is a strength issue. You do lose confidence because you defend you depend on other people. I think it is when your confidence comes back. Portaless peabody with partners. Tradingow active stock can be a risky game. We will discuss our chart next on bloomberg surveillance. Good morning, everyone. Bloomberg surveillance. Tom keene, scarlet fu, and adam johnson. Lets get to wednesday top headlines. Former president Nicolas Sarkozy was put under investigation for corruption and misuse of influence. He was held in police come city in Police Custody for 15 hours. Certainly quite a development. The border crisis triggers an angry demonstration in southern california. Demonstrators prevented three buses carrying immigrant children from reaching the Border Patrol station in breanna. Urged residents to complain about the transfer of migrants. More than 50,000 children have been held after crossing the border of mexico without their parents. Of the fourth of july holiday, the National Hurricane Center Reports the Tropical Storm arthur will strengthen into a hurricane within two days. It is 90 miles east of Cape Canaveral and may threaten north carolinas outer banks. Those are the top headlines. That is disconcerting. Someone said to me this was normal season, which i thought was later in the year. I thought it was august and went through december. There is climate shift. We talk about it every week. And it is el nino this year, too. What is the difference between el nino as opposed to el nino instead of la nina . They play for different soccer teams. We are singling out stock pickers because it turns out investors might do just as well with a random selection of stocks in the s p 500 as they would with Fund Managers favor chairs. This is according to researchers at a belgian university. The white line tracks groups of 10 stocks drawn from the s p 500 grouped together and generated randomly on a quarterly basis. It is not the index but a group of passively grouped stocks. The yellow line produces a lower total return including dividends than the passively grouped s p 500 stocks tom at is the white line, since the morningstar january of 2012. There was a gap last week at 3. 9 Percentage Points based on the stock pickers return of 59. 6. I guess it was true that a monkey can throw darts at do analysts technically help you pick stocks . I think so. I am shocked that you say that. What have been built what have the last two years and characterized by . Momentum. When momentum is involved, driving return, it does not matter what you own, it is about participating. Lets fastforward to the last couple of months here. We have started to see correlations come lower. The correlation among different Asset Classes at the moment is the lowest it has been in a couple of years. As correlation comes down and disperses and widens, that is when stock picks emerge as a leader. What is the number one stock pick sector right now . We are skewing the majority of our longs to big technology. Give me some names. Not twitter and facebook . Google, microsoft, intel, texas instruments, analog devices. Adam, you mentioned utilities. Where is Chris Verrone on utilities . Very much a leader. Same thing with energy. Conversation, there has been reluctance to embrace those sectors as leaders, but they are mining . Can you buy finallymapper and starting to see some improvement with metals. A it an inflation scare or reemergence of Global Growth story . To do someoing photos. We have three, and let me run you through them. Starting in hong kong, hundreds of thousands. We were talking about this earlier. Residents marching through the financial district calling for free and open elections, the largest rally in hong kong for over a decade. What was the number . About 800,000. Hong kong is ranked as one of the worlds freest economies, but the inequality is off the charts. People are upset about what they call carpetbaggers from the mainland. I have read up on this because this is a different the governorat faced. A lot of the people driving 17, 18 yearss are old, barely old enough to remember the handover of hong kong back to china. 800,000s amazing, protesters in hong kong. Our number two photo of the day, another protest, taxi drivers protesting against the taxi app uber. This is a 24hour strike yesterday. They are angry, and understandably so because uber is displacing them. It is in the seven figures to be ui in the seven figures to taxi license. Every city seems to be different. Because taxi and limousine emissions are local by definition. Our number one photo, american soccer fans reacting to interdays 21 loss overtime. That is matt miller in the background. Yeah, wearing the cowboy hat. Belgium advances to the quarterfinals. I guess we go home. It was tough because we had that moment with two minutes left, an open goal, and he kicked it above the goal. We had chances. They were a better team but we had chances. I loved looking at the twitter feed because at one point when it became clear that the u. S. Was going to lose, someone tweeted a map of europe and someone put over top of it, s. Per bowl did you hear about the loss of that Goldman Sachs is facing . It portrayed goldman as wall streets version of animal house, accusing them of the terminating against women while male colleagues went on drinking binges and took clients to strip clubs. I am shocked that they are gambling in this institution. Atmosphere where women were ignored. A federal judge has been brought into the case. Basically a class action status. Goldman says the claims have no merit and is fighting the case. I saw some interesting figures that i think suggested female Vice President s were paid 23 less or Something Like that. A pretty a distinction, where the associates gap was a lot smaller. Will catch upcs eventually because everyone talks about the majorityminority coming in 2040. A lot will change between now and then and the boys club will not be around for that much longer. Coming up after the break, those low volatility spell trouble for the second half of the year . That brings us to our twitter question of the day. This is bloomberg surveillance. Lets get use in company news from the files of bloomberg west. Twitters new chief Financial Officer is the latest alum to make a Top Executive. Anthony noto. Denies theutives company is bullying a major publisher in the battle for you books. The senior Vice President says the online retailer is trying to win better prices for its customers. ,mazon is in a trade dispute wanting a larger share of ebook revenue. And facebook has a new way to sell mobile apps to people in emerging markets. The 100 million users in india will be able to request cricket scores by placing missed calls a call back. That is company news from the files of bloomberg west. Here is a question for you. Do you worry that low volatility suggests there is no fear, that somehow we are all too complacent . I have a chart for you courtesy of Chris Verrone, from strategas partners. We have seen two extended periods of low volatility since the 1990s. We circle the low periods. The vix stay low for years and look at the markets. The s p 500 soared. About what do you think the volatility index . Lets make a couple of points about the vix. Forwardwas below 20, s p returns are three times greater than when it is above 20. Historically low volatility has been good for risk assets. Now, what is volatility . It is a function of credit and correlation. When correlations are low and Credit Conditions are well behaved, volatility tends to remain low. If those conditions are in place. Allah till he tends to move in very secular fashions. It tends to get low and stay low. 20022006. E 1980s, like we saw in 2004, 2005, 2006. The vix is awork, credit benign environments. Is there a way to capture that sharp move where the fix goes the vix is low and like this . I think you want to be sellers here with this volatility. Would take the other side of that trade here. Let me look at the great distortion here. Put up a chart on the threemonth libor for shortterm paper. And smoke what you do and mirrors the outcome of Technical Analysis . Does it work when the Interest Rate is zero bound for this long . I think what the Interest Rates are telling us is that we have been forced out of the risk curve, which is why every pullback in equities is so welcome and bought so quickly. Our chief strategist has been making the case unless couple of years that there is no alternative, and that is what the credit but has that changed the ruler and the pencil and the Technical Analysis . It has not changed one thing that we do. We are trend followers. I want to make one thing clear. I completely agree with the map and the chart, what Chris Verrone does. I dont believe in stochastic. Give us the relationship between flattening yield curve, the smaller spread between bid two and 10year yield and equities. You say it can still be bullish for stocks. When the curve is flattening, it is very bullish for stocks. It is when the curve inverts that you get yourself into trouble. Is spread between two and 10 basis points. We are a long way from curve inversion. Think it is reflective of economic momentum. Our audiencey of is behind it. They have not gone up 22 , etc. , etc. What is the rookie mistake one of our listeners or viewers does when they look at a chart . Try to pick tops. A top takes time. It takes months, even years to take shape. We come across too many people who try to sell high prices. High prices often beget high prices. The combination of momentum work and trend following can keep you in a game longer. It has kept us in this market the last five or six years. And again, your top group is bigcap tech . Bigcap technology looks good. Last sixs improved the months. Anything from oil Service Names to the integrated names, exxon, conoco,xxon, occidental. Would you avoid or not go into it . They are not leaders. In this type of environment when the trend is up, you need to be exposed to leadership. Here is another question. Where do you choose your exposure . What is a better investment right now the dow at 17,000 or a new york city apartment . Bsurveillance. How about a four x report . Forex report . Mark barton, stronger sterling. 8. Under is a sophisticated forex report. We heard the Technical Analysis about the dow nearing 17,000. What about the fundamental analysis . Good morning, everyone. This is bloomberg surveillance. We are live from World Headquarters in new york. It is wednesday, july 2. Im tom keene. Joining me, scarlet fu and adam johnson. Our guest host this hour, adam parker, chief u. S. Equity analyst at Morgan Stanley. We are starting in london, where home prices jumped the most in 27 years. I thought new york was expensive. Just out, the Weekly Mortgage applications were down two cents, not much. It is very voluble volatile number. Thus we, they were down one percent. Adp cut paychecks for about 1 5 of the people in the u. S. , so when payrolls go up, that says a lot about hiring. Earnings before the bell, weve got Constellation Brands will stop and janet yellen will be speaking on monetary policy. Imfwill be addressing the central banking conference in washington. Tmobile is in trouble with regulators. Forcompany is in trouble putting bogus charges on its customers mogul mobile phone bills. The the practice is called cramming. These charges were for such services as horror scopes and quirky ring tones. According to the suit, the charges total hundreds of millions of dollars. Square is pershing wants to push outward in into a pharmaceuticals. Botoxan is the maker of and the trade would be worth 50 million. Bankhief of a huge french says the company is in no rush to pay. Harbaughs is said to have strong secondquarter results. Jamie dimon told his shareholdersd yesterday he has throat cancer. He will continue to operate the company. Yes cancel his trip to europe as he faces treatment. Joined by tom, from a banking firm. A perfect time to speak with you. A. C. L. Of a bank looks out over divisions. Is there a favored division to turn to for leadership . Do you turn to consumer, to Investment Banking . My opinion is that Companies Like jpmorgan run themselves , because it isrs a very large organization. Numerous individuals who will keep the Company Operating on a daytoday basis. You advise them on Succession Planning . But it is an important thing that directors have to do. Jamie hasthis case been such an important part of that organization. Also, it is the regulatory goal of bridges across the country to make sure that Succession Plan is in place. You believe that this is important . Suggest that regulators in washington will subway will review will in some way review this illness and how it carries over to the bank echo over to the bank . I dont think with this theicular illness at all, key thing is Board Involvement and Succession Planning is a part of that. Jamie dimon is the ceo, the chairman of the board, and also the president. Is there worry over that . I think that is how it was done with increasing Corporate Governance in this country. Item think there is one right answer for every company. Is onent think there right answer for every company. I think the shareholders felt that jamie had earned the right to do that. It will be an important question for the next seo, if that person the next ceo, if that person thoseo hold all of tha titles. Overes it threaten to take as a team for the Earnings Call on july 15 . I think it is important because jamie is so well respected and has been so important to that company. But i think there is a great bench strength to that company. Weve had of weve had a chance to meet many of those individuals. Howard our opinion is that a today operations will continue. And jamie has been very optimistic about this. I think he will be very involved. What do you think will be the toughest question put to him on this matter . I think investors will want to know where he stands with his treatment. He has said, too, that he has a for the position he would like to stay in. Addressed it investors will have to address this point, but sooner rather than later. I know it is not proper for you to comment on the going ons and other banks, but the banks in general, where do they fit into your strategy . We have been negative in the last couple of months. There are a few reasons. Less upwardill be signed. Two, i dont think the Interest Rate environment was very benign in this quarter. Directionally, i dont think that helped. Three, i think housing is generally slowing. Lastly, there is a regulatory lance kfed is heating up into the midterm elections. It may be prudent to turn a little exposure in the second half of the year. You are not a fan of the bank, but you are a fan of the market. What do you like . We still like health care. Its got really good riskreward. Also utilities and telecoms. Chemicals make a lot more money when oil is high. Use ofarch debate is cash. Everyone got that wrong in the First Quarter in the Second Quarter. They still did it. Do you just presume on the day today that there will still be share buybacks, dividend growth, this huge pressure to do something . The new thing in his last years that m a is safer than. Way, m a is safer than investing in your own business . Capex has some riskiness in that if you dont know the , thatent next two years is difficult to manage. In thegest companies market, the megacompanies that have performed buybacks have outperformed those that are not doing buybacks. Tommy, you almost jumped out of your seat when adam parker made that comment. But my opinion is that the my opinion is that the best way to grow is organic growth. But i do agree with adam that it is very fruitful for companies to seek acquisition at the moment because the cost of acquisition is very inexpensive where Interest Rates are. I can understand that. Industrial,l and what do you say, adam . Market is outperforming the 70s and 80s and 90s. In other words, you are rewarded for going out and doing a deal with another company. And my opinion has been, too, when you only get two percent gdp growth to my usually the gap between the winners and the losers starts to widen. And that is one way to see it, where the buybacks start to perform well. Im going to rip up the script. Here are the bankers . We are trying, tom, as you know. What is interesting is, we are seeing more bank mergers on average this year than in the last 23 years. However, they are below the radar screen because the 50 billion banks that are called the strategically important 50, they have been out of the marketment out of the because of the Regulatory Environment. You are seeing a lot of regional banks accelerating. It is not frontpage page news, but it is very important. Our twitter question of the day wraps as altogether. What is a better investment right now, the dow at 17,000 or a new york city apartment . We will be discussing this surveillance. Let me do a data check. Commodities near 17 thousand. Near 17,000. We will discuss the markets further. When will the dow hit 17,000 echo also, the state of the Luxury Real Estate market in new york postop in new york. Bloomberg surveillance. Im tom keene. There will be mergers and thankful made, but they need a catalyst. Shareholders are waiting. What is the catalyst to give people who do not want to merge to merge . Usually, it is stock factors. Very healthys have stock prices, which will allow them to continue to do deals. That is in the midand smallcap space. In a larger cap space, stock prices matter, but also you need a Regulatory Environment for it to happen. Are the too big to fail banks of the percentage of the nations deposits where a guy wakes up in the morning and says, bank of america cannot do mergers . Banks controle 42 of the nations deposits. I would think that the big four probably are very unlikely to buy other banks. But when you get below that into the super regional category, those banks have not been active , but have the capacity to act. I would assume in the next year or two that they do come back into the market. We see a change of language in the market, use of cash, shared buybacks, management of cash, the best allocation of cash. Is it the same religion in banking . Again, we have to go back to the rig a torrid market the red editorial environment. Is limited. My opinion is that is a pendulum that will probably ultimately begin to swing. Thate not calling for anytime soon. But once you get below that 50 billion barrier, the cash is not trapped. And those boards and management teams have more capacity to reward shareholders with their excesses. With their access. Will use you retaliations against our banks by european authorities and policy . Right after the crisis, you cite global approach to regulation. Since that time, it started to break up a little bit. My sense is that it is a little more nationalistic. I would not be surprised if we started to see more, but i would like to think it would be factbased and not just where you are headquartered. Coming up, folks, here is a partial score. Belgium beat team usa. Keene, five glasses of rose. Adam johnson, three glasses of rose. We had fun watching. What are the odds for the rest of the world cup . Good morning, everyone. With me,eene and scarlet fu and adam johnson. And tom and adam parker. Aremore than 500 people arrested in hong kong after one of the largest prodemocracy demonstration in decades. Hundreds of thousands marched, what was it, 800,000 . Yes. Hong kong took over from britain in 1997. The march happens every year. But we are put in says once again he reserves the right to use force if needed to protect russian speaking ukrainians. After a fivehour gun battle, prorussian separatist after to easternnt holding in ukraines largest city. And former french president Nicolas Sarkozy was put under official investigation for corruption and misuse of influence. He was held in Police Custody for 15 hours of custody. The charges were centered on whether some judges were keeping sarkozy and his lawyers informed about the case involving his campaign finance. Absolutely amazing. I cannot imagine a former american president hauled in for 15 hours of questioning. This is Police Custody. It just seems inappropriate. He had a lot of lawyers, im sure. Curious. Talk about curious, the dow making it higher again yesterday. And janet yellen keeps rates low. Corporate america is growing about six percent. Clientsu were advising to buy stock. You dont like the banks, but tell us what you do like and why. Our main bets are on the side, staples, and rely chemicals for and we like chemicals particularly over energy or industrials. Companies are not hiring a lot, not doing a lot of capital spending. What theyre doing is investing productivity will stop productivity. It seems Like Software is always a safe way to invest in the business. Im not going to buy a machine, but i will buy software that makes my current machine faster. Is that the way you think of it . Whether you are in that market or across the market, you see investment in productivity. Nobody looks at income anymore. Where are you looking on the income and income statement . Honestly, i think it is at the very top the second half of the year. You need revenue improvement to propel the market much higher from here. What the topbout risks are. Im sure the world is a risky place with geopolitical issues, but the biggest risk is the slowdown of the u. S. Economy. And im not sure that 2. 9 was also be thrown away. And were not getting as much acceleration back as people want. That is the risky point, the revenue side at the top. Where is the income statement for the banks when they begin reporting earnings . We are looking at loan growth. We think that is a major driver for the big industry. I would agree with what adam said earlier about the banks, but that would be the large cap inks. Banks. Our firm follows over 200 banking companies. About 25 of them are what most people will consider about very large cap. 170 five are actually seeing accelerated loan growth. The margins have not kicked in yet, but its a start to improve, that could be a very rewarding experience for shareholders and most of those companies. Youre talking about shareholders and industrial loans. There are so many categories, i dont know which one to look at. What is the trend right now . Commercial and industrial loans is the only loan category that grew in the First Quarter. We think the story in the Second Quarter is going to be how the isns read how the loan spread out. In particular, auto loan growth throughout the country. We are also seeing commercial real estate loan growth storing to build, and we think that is very positive for the banks. As a matter of fact, we can more than a third of our companies that we research will have more than 10 annualized loan growth in the Second Quarter, which is a little bit more where you would think gdp growth is. Youru said one third of companies will have at least 10 loan growth . Correct, that is what we are forecasting. How does that compare to, lets say, going back to 2002 through 2006. For thes six percent regional bank. We think it will be nine percent in the Second Quarter. And we think it will be 10 for the whole year. Different dynamic than the nations biggest banks, which are fighting with Capital Market trends, more regulatory pressure with a lot of the influences that adam mentioned earlier. Am glad that i am glad that tom brought up gdp. You will be looking at the duringary from ceos this earnings season. What do you want them to say . To me, i am more negative on the Capital Expenditure stickup. The i saw on bloomberg that the is going to rebound. I worry that it will be a little less optimistic. To capex is going to rebound. I worry it will be a little less optimistic. Demand improving, there will not be an improvement in capex. People dont know where to put their money. You asked about real estate and equities, but i look around and some oth things do not look good to me. Adam parker with Morgan Stanley. You like the red sox. But i do. Worldre the current series champions. We will be right back. Good morning, worldwide. Good morning to the view of a gorgeous city. It is spectacular this morning. Tomorrow, bill gross and alan princeton are scheduled to join us on the labor economy. We do that tomorrow, on a thursday, and not on the fourth of july. Im scarlet fu here with tom keene and adam johnson. Start withs, we fidelity. It is telling investors it cannot find future will it cannot fund mutual funds after the last day of the month. It is linking the change to evolving global Regulatory Environment. Just ad clients are shareholders. Tire google is trying to pull users away from apple with a new song company. And investigators are trying to find out why a factory in indiana exploded yesterday. It is about 65 miles away from indianapolis. They were fined five years ago for safety violations, but there have been no incidents since then. As we know, team usas world cup journey ended sadly yesterday as belgium won the round of 16 match my beating usa 21 in extra time. Belgium will play argentina on july 5. Will belgian when will belgium win in the quarterfinals . Are they good enough to beat brazil . They are good enough, but they have to get through argentina first. We saw then yesterday with 39 shots on goal and howard had an alltime record of 16 saves. If they have that kind of performance, they will get their goals and it is just a matter of time until they keep winning. But argentina is a much tougher opponent than the u. S. Is. Fun yesterdayre talking about the stats we had someone to root for. You still see the same kind of 58 50 58 of 40 to 42 argentina over brazil. Those numbers are still in play. You are the expert. I am the dummy. However ward and our goals how important our goalies . You saw the team yesterday, they were all depending on him. Is that true for the other teams . Other teams score a lot of goals. The u. S. Doesnt score a lot of goals. They need the goalie. Differ. E beg to tom and i were watching the game yesterday. Where i learned from some of the french guys there that mcdonalds, coke, and nike are the biggest backers of fee for. Fifa they are global brands. They understand that the u. S. Is going to lose in this type of environment early and the other teams will make it. All of the winners of all eight games with the winners in their group. Re you just assuming are you just assuming brazil and argentina . Weve got to go with it. 20 for brazil. How do you manage the hysteria at your office . Then dr. Otto bloomberg lp put out a lovely note yesterday. First of all, our Trading Floor is loaded with tvs. That is just where we are today. The game is obviously going to be on, which we do allow to be on those about we to Pay Attention to meetings and client things that we do. We stay away, certainly come up from the u. S. Game. That has been part of our scheduling for the last couple of weeks. Adam parker watch the game yesterday too, right . Like i did. I did. Are you going to keep watching . The rates will go precipitously lower. Stock trading biomes were down 43 . Now those numbers should go back up. Volumes wereing down 43 . Now those numbers should go back up. Even Conference Call volumes were down 11 during world cup games. A lot of people were doing what you were doing. Callhad a Conference Meeting yesterday during the game and there was an apology in the invite. Climate adp and employment change coming out ahead of the market. Good morning, everyone. Bloomberg surveillance is on boomer television and radio and all of our media. Im tom keene. With me scarlet fu and adam johnson. Show tom eschow is with us and adam parker as well. Lets talk about forecast. Here to explain how the big apple became the global safe deposit boxes a manhattan broker at douglas ellman. Jackie, of all the different stats out there, the one that is the onettention between 49th and 70 this 70th street and 39th and park avenue. They sat empty for much of the year. Are these foreign buyers . These are foreign buyers buying. A lot of people do come to new york several times a year. It is basically a second home. For their them or children, or for the family. But they do come here and they use their apartments, because they love to come to new york. They love to come for shopping, for the broadway shows, and also to meet their wealth managers. And they have a pretty wide portfolio of Properties Around the world, large and small. Give us a sense of where Luxury Real Estate is a bargain compared to that in other global capitals. If you look at the world report, there is this one by night front stop you will see that we are number six and number seven. We are still a bargain. Compare us to hong kong, london, to paris. Moree are getting much value for their money here in new york. I dont know about that. I read an article from new york magazine, a 16 page strength spread on new York Real Estate talking about some of the apartments downtown going for 1. 3 million. You can rent it out and get 4000 a month. That does not sound like a very good deal. And common cause are a lot more than four grand a month. Most of the investors do not take mortgages. They are buying with cash. The investment right now is about three percent to four percent. This is about preserving capital, not necessarily a return on the investment in an immediate way. Also, people are counting on the outside of the appreciation. Central park south looks like a war zone. There are holes in the ground. We have one tower up. We have another one going up. Its like the edge of dubai. You learned about Luxury Real Estate in the last 24 months that his new versus five years ago or 10 years ago . But people have more options. Moree, people have options. Before, you had basically time warner in this area. Now you will have 157, talking about the tower off the ground. Then you have deals at 220 central park south. You also at tribeca. Do these people even care what kind of kitchen they have . About thent care kitchen, but they do care about the view. They want view, location, and some amenities in the building that will cater to their own needs. Are they actually coming in and visiting the property . Or have they been buying it by getting a description over the phone or checking the link on the website . You have both. You have a situation with someone from hong kong that basically called and said, look, im coming in only if i can get an accepted offer. And i said, well, you have not actually seen the apartment. And they said, well, no, my broker already took the pictures and im ok with it, but i want to be assured that if i come i can get a contract within 24 hours and i can leave the country with a fully executed contract. That is basically what happened. It is basically sight unseen. I know how it works. You bring a suitcase full of cash i will pay the contract. Exactly. Thank you for joining us. Our twitter question devices altogether. What is a better investment, the dow at 17,000 or a new apartment between 17 to 59th street . Good morning, everyone. Bloomberg surveillance. Coming up on our program, tomorrow, our conversation is of lhp sports entertainment. B sports entertainment. And we will stick with sports. The daytona in her National Speedway getting a muchneeded makeover. Track to see the transformation. Are you a fan . Now, i turn the am. Daytona opened in 1959. 50 years later, they bring in hundreds of thousands, millions every year for the daytona 500 marquee event. They will pack 200,000 people into the stands. What does this place need . A major facelift. It has not been redone in decades. I sat down with the granddaughter of the founder of nascar. She is dropping 400 million on a project known as daytona rising on a full makeover for the arena. Take a look. The track was built in 1959 and we need to take it to the next level with modern amenities that you expect from most stadiums. We are building the first true motor sports stadium. That is what people expect. Wider, more comfortable seats, much more to do as far as the guest experience, amenities available. We will have 60 luxury suite. We hope it will appeal to all of our fans. It is exactly what weve heard from Football Team owners that have redone their stadiums. They are tripling the amount of concessions and merchandise opportunities. They are also taking away 50,000 seats. Why . To hikel now, you had up about six stories ended in a folding chair. To widen those seats and make it a better experience. But they will be losing dollars. Theave you ever gone for whole day . We were there for the whole day. And the one thing that is famous one thing that has not changed is you can go straight honkytonk and bring your own cooler into the stands. Did you just say straight honkytonk . How many days a year does this get used . They have events all year long. Have a Fan Experience where i get in the car and i get the full experience. You are driving the car . I am in the passenger seat. I am not a driver. Im urban. Stephanie ruhle in the passenger seat of a racecar. Thank you so much. Coming up on surveillance, our guest hosts. We will discuss our agenda and talk about new york city real estate. We will talk about Bank Earnings season. All of that in the final bit of bloomberg surveillance. Good morning, everyone. Its wednesday. Us, the chairman of the council of economic advisers, alan krueger and bill gross will be with us. Look for that on the bloomberg surveillance coverage of the american job economy. I will be on thursday, for those paying attention. Im scarlet fu. Keene and adamom johnson as well as tommy hsu and adam parker. Lets get you some company news. New chief Financial Officer is the latest to get to a topic Top Executive post. He was one of the leaders in goldmans Technology Media and telecombased group. He actually led twitters ipo in november. And amazon executive denies the company is bullying a major publisher in the battle over ebooks. The companys Vice President said the online retailer is trying to get better prices for its customers. The retailer want a larger share of ebook revenue and other concessions and they said it would take too much of the profit. The fouryearold smartphone maker in china outsells apple. I think mr. Know it all again morganores the value of stanley. There is nothing like security analysis to force rigor in this business. Certainly, to be able to sell the company to investors in the way they expect. That is the banking function, but before that, there is just a blocking capital of trying to figure out, and statements. It is just basic. I agree. I used to work at Morgan Stanley and she was my boss. Week,t is the news this 9 billion at bnp paribas. Tom has seen this before and says the big banks will continue to struggle with litigation. We have heard this from others, but i need you to confirm it. Dollar for dollar, these fines are paid by shareholders, right . Absolutely. Tangible book value still matters. All of these charges come out of book value, which is going to affect the share price. But how do you respond to the elasticity, how do you respond to the elasticity, the responsiveness of banks in the last 12 months . Do they just make it up . Im sorry echo im sorry . It is like a bad dream. The back of the matter is as the Global Economy gets better you have a macro outlook that has gotten better. That has gotten better. Book value is a very important variable. You cannot assume it has no cost to the company. According to robert jenkins, a former member of the Financial Policy Committee on the big of at the bank of england, he writes this. Adam parker, we look at this bull market right now we cant right now, we talk about the lack of action in a bull market foes of even as prosecutors go after these big banks, the fines might be in the 10 billion neighborhood, but theres still a sense they are getting away with something and Retail Investors are gun shy about coming back in. I sit on the Education Committee for the Largest Network in the world. I think our clients have had healthy exposure to equities and participated quite well since the trough. We went overweight equities relative to bonds in march of sub before all of these bond yields spikes. I think our clients have participated. But is there distressed on what iseet, tommy, on going on in the Financial Markets and how the banks are handling these transgressions . Unfortunately, it is not that Many Companies that have created some of these problems. Youve heard me say this before. The Financial Services industry, the Banking Industry is much broader than six companies. And i think what is at play is not only made these companies be too big, but are they too complex to manage echo and weve been reading a lot of the fed governor speeches in the last are they too complex to manage . And weve been reading a lot of the fed governor speeches in the last several months. Shareholders do not want to invest in companies that are extraordinarily too complex to manage. I think it will correct itself. What youre getting at is the regulation on the big banks that has a effectively hamstrung the small bank. Can you quantify . You have a lot of banks that have had zero to do with the crisis. The typical bank around the country had nothing to do with it. But these regulations are very hard to stop coming down. There has been a lot of bifurcation in terms of the biggest banks being regulated more, but everybody is being regulated more. A couple of things one is, at least for the first time in my career, the absolute biggest banks have to have more capital than a smaller bank. Regulators are leading the Smaller Banks be more flexible at Capital Planning and in their return to return of capital to shareholders. I quantify it this way. Over 30 years, the financial ht turn return inequity in equity is about seven percent or eight percent less on the aggregate. It is not just banks and financial institutions. It has been a meaningful reset on equity. For the banks that adam looks at and the largest cap ranks yes, the s p 500 financials. I would encourage Market Participants to look at those big and small cap banks. It is a completely different profile. Lets look at the stories shaping the day. Tom, start us off. 10,000, no question, a benchmark along the way. Ive never seen a lack of conversation about a market like this. Take a bluechip stock and just go read their annual report. I dont even care what stock it is. They are not written like they were in the last bull market, or for that matter, the last bear market. There is a new religion out there and that is what is driving this. And that is use of cash. What is a better investment right now, the dow at 17,000 or a new york city apartment . Our twitter question of the day. Here are some of the answers out there. How about a 50 a 50 grand mansion and bill grundy are . That is from one olivia sterns. Yes, our offshore correspondent. Lifer what, three months . Is tough. She is in london for a few months. Here is my favorite. A new york city apartment has way more closet space. Closet spaces premium. Adp employment change comes out today at 8 15 a. M. These are the guys that process payrolls for about 1 5 of the country. When payrolls rise, the forecast for it the forecast is for a gain of 2005000. In other words, we created jobs. 00 200,000 more the formersarkozy, president of france, he has been put under federal investigation in a corruption probe. Typically motivated smear campaign, but it could lead to a trial. Custody for 15 hours. I spoke to Christine Lagarde about this pushing 10 years ago. This is part of the way they do it in france. They love corruption investigations. Usuallytician breathing has something going on. Think about berlusconi in italy. On and on. And this could dampen his president ial aspirations as well after 2017. Jammin, thank you so much. Bloomberg surveillance on the radio continues. In the loop with betty liu is up next. Good morning. It is wednesday, july 2. We are live from bloomberg World Headquarters. You are in the loop, and i am betty liu. Here is what we are looking at record after record, it looks for the tao is headed 17,004 the first time. The bowl run keeps going. In france, former president Nicolas Sarkozy has been charged with influence peddling. Ceo jamiehairman and dimon will undergo treatment for throat cancer. Curablehis illness is and he plans to run the bank while receiving radiation and chemotherapy this summer. Vice chairman of Jpmorgan Jimmy Lee who was supposed to be out of the office today is coming into talk to staff and walk the floors, but it raises questions about Succession Planning at the biggest u. S. Banks. Joining us on the phone is an author that has written extensively about the banking sector,