Transcripts For BLOOMBERG Bloomberg Surveillance 20140707

Taking a breather as german chancellor Angela Merkel takes a breather of her own. She is in china, gentlemen. What you think of that . . Ny comments moving on. No Economic Data in the u. S. No earnings to date here in the u. S. A couple of items of note, in spain, the running of the bulls kicked off have you done that . No. That is crazy. On a more serious note come and i did not realize this, today marks the nine Year Anniversary on londonsombings transportation. That was a very big deal. Do and after the fourth of july data check. The euro under. Stayedh ukraine, subdued. That, 10. 32ok at means more complacency. Near 111. E lets go to the bloomberg terminal. We will talk about this and this hour. Two year yield from 2011, down we go. There are these breakouts. This is the last peak, somewhere in september. Up we go again, the two year yield. We will talk about that this hour. Can yields break out . We look at the websites and scare the front pages. Adam johnson has our front page. The army has forced prorussian rebels from strongholds. No sign russia will come to the rebels laid. Russias foreign minister on saturday set a durable ceasefire is needed. The Ukrainian Government plans a complete blockage of donetsk to force theke rebels to give up. Where do they go . Today go to russia . Back to the special forces units in russia. There was also reporting out of the New York Times that noted some of these rebels are formal former Russian Special Service Members who are ukrainian and simply not happening with happy with what is happening. And also you cant have a little bit of war. Once you start that fighting, you have created sides. But it is like the red sox. They have a little bit of hitting. They need a little bit more. What else do we have . Yankees doing . Theyre doing better than the team from boston. The second frontpage story, American Apparels latest investor trying to avert more legal problems at the struggling retailer. Standard general may pay off a 10 million loan from capital that has been at risk of default since the board ousted the ceo. That could prevent another letter from calling their limbs another lender from calling their loans. What i have learned, Standard Chartered which may make the ofns also owns 43 percent American Apparel. Youre putting your money where your mouth is, but i dont know. Theyre basically positioning themselves for sale, right . Have a bigger question about the company, which is it is such a distinct brand, associated with what the ceo is been doing, i dont know if it is possible to have American Apparel without back guy at the helm. Fair. In our third frontpage story, germany has arrested a suspected double agent accused of spying for the u. S. Angela merkel says if it is true, that would risk undermining trust between the two allies. The curious twist here is, think about the fact the nsa was listing to Angela Merkels cell phone conversations so for her to say it undermines confidence actually this was a new split in the u. S. And a huge deal in germany. I was watching the world cup with germans two weeks ago and every time the americans and the crowd started saying, usa the germans would start yelling nsa those other frontpage headlines this morning. Good morning to all of you worldwide, particularly in europe. Theres confusion over these allegations are german intelligence employee spy for the United States, allegations but it seems breach of security whatever that must mean. I dont have a clue what that means. It is indication of distrust that Brendan Greeley just talked about between berlin and washington, germany and america, and our chief International Correspondent hans nichols has torn torn himself away from the world cup. Is there any legitimacy to these allegations . Merkel is being quite measured and saying shes going to wait and see until she has all the information, but all of the reports are that someone was arrested on wednesday. On friday, it was made public. Merkel was informed. Story. A fun spy lets not take too much away from that. There are serious implications. Purely squeaking. He is in german custody and allegedly talking. Bottomoing to get to the of this pretty soon. My favorite aspect of the story, they figured it out because the alleged double agent was offering his services to the russians. You know how he was transmitting . He had a fake weather app on his computer. You always have to check your employees weather apps or they may be selling information. It is always the weatherman. My question about this, the thing ive had trouble understanding from the news reports, did we go to him or did he come to us with his information . Rush that seems like the question of motive. The compasses never go to prison when they say, well, it wasnt really my idea. The issue is, did you do the deed . I take Brendan Greeleys point. This isnt just a legal story, but a diplomatic story. And that since, it is very important, whether we went to this guy or he came to us. Youre forgetting, theres an easy answer. Blame bush. If you was for critical for the Obama Administration kim in, just blame bush for that one. If the u. S. Is actively recruiting agents inside the German Security agency, that makes this much more difficult for obama to paper over. If this is someone who came to us, that may be a little bit easier. The ambassador has been summoned. This is going to be a major diplomatic rift. Our guest host for the hour, Brendan Greeley to me giving us great perspective. Also, recruiter from black rock. Dr. Bremmer, i guess you studied espionage in school. Before snowden and after snowden, isnt there . For germany, most importantly. A lot has been damaged because of the snowden scandal. Most particularly, germany. This has played through in such a significant way. This is adding fuel to the fire. Symbolism with Angela Merkel in china right now. Dealings, their political dealings, diplomatic dealings. Do you just assume this is industrial espionage over the more political cloak and dagger type . No, no, no. I think that the United States collects everything and what we of it isr, a lot important and a lot is not, but we want to make sure we have this intel. Im sure some of this couldve have been involved in trade negotiations, but in terms of direct American Industrial espionage, we dont pass information on to our ceos and it is because we dont own them. In china, it is double espionage because it is part of the state. So the structure is different, but from the german perspective, the mechanisms of the same. This relationship is badly damaged at this point. Rick rieder, blackrock, credible irony here that you have governments effectively going after one another, the u. S. , germany, and you have the central bankers of these governments hand in hand on the red line to make sure they do whatever it takes. What do you make of that particular tension . It is ironic. It is hard to say where the coordination is and how active it is. I think going forward, one of the things that is interesting and bond markets, now youre going to see a bit of the attaching. You see the u. K. Moving a bit the other way. I think the u. S. Could move faster and should move faster, but the u. S. Committee of the way. Clearly, globally, were been is coordinated easy on the terry policy for some time. Rick rieder with us from black rock. We have a lot to talk about, particularly the stunning jobs report we saw on friday. Hans nichols, much more to the day on Bloomberg Television on this spy i guess it is a scandal. We will talk to ian bremmer in a bit. But i think we need to pose our quitter twitter question of the day. Is it ok to spy on your allies . Tweet us. Lets move on and talk about some company news. Volkswagen putting down roots in the worlds biggest auto market. They will spend nearly 2. 5 billion to build a para factory plants in china. In the next 15 years, the number of licensed drivers in china is expected to reach one million. That is incredible. Wildflowers makes capris and capri sun. Two giants in the material industry trying to clear way for a merger. Planning a 40 billion deal. Farge deal. The merger would create the worlds biggest cement maker. I am laughing because we say figure thei cant company news, just my 2. 5yearold trying to get that strine in spring juice everywhere. Spraying juice everywhere. Were going to take a quick commercial break. While investors bill ackman carl icahn engage in heated fight over legitimacy of herbalife business model, some distributors are speaking out. Well hear from them. It is not a pretty picture. We will talk about that after the break. Good morning, bloomberg surveillance. Morning, he is a happy guy, mr. Schipper, john skipper of espn. Of thelove the coverage world cup. And contrasted univision and espn during the columbia match. It is a match, not a game. Ive been watching the world cup in spanish, among which i dont speak, because i dont have to pay for espn. Emotionally, the games are better. Way better. Good morning, everyone. It is bloomberg surveillance. I am tom keene with adam johnson and Brendan Greeley. Scarlet fu is off today. We will talk about the world cup in the next hour. Herbalife, a permit scheme, we have heard, we have heard it is a pyramid scheme. They were built out of their life savings. You can read about it. Legit complaint or people who bought too much product and could not sell it . It is interesting digging into some of these accusations. We sat down with three people have filed complaints in illinois and sort of dr. Their story dug through their story. Saidave this he said she thing going on at the bottom, which is what we see at the top. Some say it is a pyramid scheme and others it is not. These distributors said they lost thousands of dollars buying a lot of weight loss powder they ended up not being able to sell. Exactly why they could not sell that, they say it is because nobody wanted the product. The distributor who sold it or sponsored them says they just did not work hard enough and did not work the program right. And frankly, should not have bought that much product in the first place. In your story, you said they try to sell the product back to herbalife and even though it is the policy to take it back minus restocking fee, they were told that is not possible. Do you have any sense of whether that is systematic whether herbalife is saying one thing to investors and another to its distributors, that they cannot impact silver lake got it back sell the product back . Will behing that difficult for investigators is to figure out who is telling the truth. Who is accurate, whose memory is correct. It is unclear what those conversations the distributors had, what they were like on the phone and what they were told. Herbalife has a halsey that the product can be returned. Herbalife has a policy that the product can be returned. It is clear now that herbalife does have a return policy, but since the lachman has been on his crusade against the company, they have sure that up. You dont have to pay a restocking fee, for instance, or return shipping. So exactly what was happening back in 2008, 2000 nine, what people were being told on the phone is when investigators are going to have to get to the bottom up. As you point out in your , 50 of smallcle businesses fail according to Small Business and ministration within the first five years. What is the responsibility of the company like herbalife to make sure its just a bidders stay in business . The experts we have spoken to say one of the things that will have to be shown is whether this is systematic, whether as bill eichmann says, people are actually buying lots of product they can sell and being urged to buy product they cant sell, whether that is systematic. That is one thing that will have to be looked at in this case as well. Thank you for joining us. We appreciate it. Coming up in the next hour here ceo. Urveillance, zillow we will talk about the state of the real estate market. Good morning, bloomberg surveillance. With adameene johnson. Scarlet fu said no, no, no. Brendan greeley with us this morning. Lets get to the top headlines. Arealestinian militants vowing revenge after the latest attack by israel. Hamas said a gaza airstrike killed at least seven of its members. Violence has escalated since the kidnapping and murder of three israeli teenagers. Authorities say six suspects are being held in this case. Iraq intelligence officials are trying to determine if a new video actually shows the top leader of isil. Extremist say it shows one at a mosque who has been elusive until now. The video was posted on a pair of websites used by isil. Iraq you leaders ever said they thought the tape was fake. Damage to jetng components after a train accident. The train was taking components to boeing plant in Washington State when it derailed in montana and flipped into a river. Officials dont know how aircraft production will be affected. Those are the top headlines. That was a fascinating story over the weekend. Drama. Assessing damage. Im thinking, i dont want to fly on that plane. Lets get to the morning mustread. Writing in the wall street journal alan krueger pushed against this. He did. He really pushed against this republican angle. Is it so bad . Is raising the minimum wage just lifting people out of poverty . It is questioning whether it targets people who need it the most. We should raise minimum wage. It is the right thing to do. The question is, how fast . Technology has taken a lot of those jobs away. The tide may have turned in ukraine. Still no word from moscow. We will discuss the latest development with our guest ian bremmer of the eurasia group. This is bloomberg surveillance. Good morning, bloomberg surveillance. 17068. Up after longwake weekend. New york city looking at a bull market. We welcome all of you. This is bloomberg surveillance. Johnson and Brendan Greeley. Scarlet fu is off today. There is a shift after months of ineptitude, ukraine the latour ces are dancing yeast military forces are advancing east. Writing oneley international. Let me start with vladimir putin. What would you propose would be his response to the land being taken back by the Ukraine Military . Is official responses, these are local russians that ukrainians are fighting it out. That ive not been involved, but i demand the ukrainian stop and if they do not, then i may have to provide support. Of course, his been providing support all this way. The real point is, can you imagine putin taking it quietly . And the answer is, no. So what do you set up for july 7 through july 15 . What should i look for in the coming days . Number one, time is on the economic side working for putin. The oil pipeline, the gas pipeline has been shut down. It matters when we get toward winter. Right now it doesnt, but theyre going to need that energy putin is the one with the cards. Secondarily, he is also the one that has been providing the arms and the physical bodies for a lot of these troops. Is he going to continue that . The russians have moved back to the border will stop to what extent this moves from informal to formal in terms of russian engagement russian engagement. This is over the passing of the children from the soviet union euro. The idea of formal versus informal reactions in the coming days. Putin is clever and he understands the distinction between actively participating in this war impassively sidling things across the border. It seems like his reaction has been muted in the past several days, which seems like he is clever enough to know to consolidate his things and let this happen. Do we not think this is going to happen . I think that is what is happening now. But poroshenko im a friend to maintain but poroshenko, in will that betain, possible . Is it a feasible outcome . Given what putin has whipped up over the last couple of months, i dont think so. I dont see the ukrainians Holding Donetsk and the russians sitting on the sideline. Russia does not they do not want to formally invade. But if all of a sudden we see a bunch of russians dying in a firefight and a request after these referenda, which putin says he risk threats respect the outcome of, would he respond with such support . I suspect he would. Looking at the markets right now, i cant say we should be comfortable about how we react to the ukrainians making military gains against effectively prudent. I dont think putin will end up the loser against ukraine. What is the goal for putin . It has been a takeover southeast ukraine and put as much pressure as possible on the kiev government to assure at the very least a federal ukraine, which means these guys can have their own Foreign Policy, their own trade policy engaged, that that is a complete redline. Anyone you talk to in moscow that is absolutely not negotiable. I dont see that changing. The question is, can they handle a Ukrainian Government that is really decentralized but as someone who runs a that doesnt really like them . Right now these guys are at war against each other. Theyre doing it politely and the media, but the reality is, it is very different on the ground. Does prove need to carve off a piece of ukraine or does he have what he wants if there is just increased or constant instability and uncertainty in that part of ukraine which hobbles the rest of the country . No, it is not enough. That is the problem with this crisis. The present status quo is not stable. In other words, he has to have some level of integration of southeast ukraine toward russia. That is why the notion of federalism, which is defined by the common very different than in the United States of america, that has been is redline. Last week brought us further away from what a stable equilibrium would reflect from which means they have to concede or was back in a serious way. I dont believe at the end of the day concession is in the playbook of mr. Putin. Its not for poroshenko, either. He is putting up a tough fight. As soon as he became president , he said, were going after these guys. He has had some losses and now some gains, but poroshenko is under massive pressure. A large number saying, this has to be unitary country. Theres not much space between us folks. When tom asked, what happens to all of the folks fighting here when they leave . Poroshenko has his own refugee crisis. Of thousands tens of ukrainians streaming from southeast ukraine living in the rest of the country. They dont have the money to pay for these folks. The economics are going to get really tough as we move into the winter months. Putin knows that. I dont think hes in a hurry as long as you maintains the critical towns. Now, this looks bad in the headlines. I dont think theres any urgency for putin. But if poroshenko continues to push militarily on the ground of the saudis, then i think you get a russian response official russian response. We saw the passing of the foreign foreign minister of the soviet union. Thething he did was manage decline of the soviet union. Would he be handling this better right now . There are so few people in the world right now when theres a crisis that are prepared to stand down and do the right could have burst into absolute flames. Basically said, im going to resign. Im going to withdraw. The guy who came in as the foreign minister, communist party of the soviet union, ends up stepping down in facilitating democracy. Are we too rigid in our Foreign Policy then . Tell you, what the georgians used to say in the 1980s and 1990s, they said we, the georgians, we have he is a great man that passes. He is someone that i think all of us would have liked to have had around in that part of the world right now delta with the crisis. Ian bremmer of eurasia group. Question, could janet yellen be ready to raise rates sooner than people think . Blackrock think so. The new yellen index, they crunched the numbers. We will share them with you. We will be right back with rick rieder on bloomberg surveillance. Withod morning, tom keene adam johnson and Brendan Greeley. Mr. Johnson has our top headlines. An attack by gunmen on kenyas coast killed at least 22 people according to the red cross. Militants linked to al qaeda took responsibility. Kenyan officials blame local separatist. Theington will become second state to license marijuana for recreational use. Some shop owners say their are ready worried about shortages of the drug. Pot sales will be heavily regulated and heavily taxed. Change in the years air. Some passengers with overseas flights will soon be required to power up your Electronic Devices to enhance security. The Transportation Security Administration says devices wont switch on will not be allowed on planes. Travelers may to undergo additional screening. Those are the top headlines. Lets look at the single best chart. Up thelett loves pulling single best chart. In her absence, im stepping in. From blackrock, our guest host rick rieder, with this team, has come up with the socalled yellen index. The bottom line, the yellen index looks at a lot of the things the fed is looking at and tries to determine if the fed is ahead of the curve in its rate policy or maybe behind. Explain. We started constructing when it looked like janet yellen was going to be the fed chair. It puts together data and takes an employment rate, payroll, job vacancies, longterm unemployment, conference of set of data to think about when is it the fed would start to change policy. The thing that is extraordinary, when you look at where we are today, youre at a place we can start to move policy literally today. There are a number of things around this chart. One, think about where we are versus the unusual conditions we were four or five years ago. Versusok at where we are 20052006 when the funds rate was hundreds of basis points higher. Which we forget. Only t being, he not the momentum of the line has moved up to a point where we dont need to be a 0 . Is this a taylor rule proxy . A bit, but it takes to really what chair yellen has described over the years and what are the relevant statistics that also includes a piece from gdp to look at what are we score this in terms of what we think is relevant to where fed metrix are. It seems this is a little bit like knowing yellen better than yellen knowing herself. Myself. Ed to do this im looking at something in her press conference. She talks about labor force working parttime involuntarily, longterm unemployed. Which of these measures she is mentioned in the past, which other measures of unemployment are you looking at . U6 is a big component and how we score this. Payroll is a big deal. The Participation Rate is also going to be a big deal. We literally wrap everything into what we think by the way, you cant just rely on this in terms of when we will see the right move. Is important you or because it is important to yellen . Because it is important to yellen. The slack in the labor force is not shortterm unemployment. It is what i would argue is the structural piece, longterm unemployed. That is where she is laid out today. If you just take shortterm unemployment, you can argue we should be raising rates. What portion of the front has a more structural longterm phil versus a more cyclical nuance . I was say the more important are the ones who influence the decision, have much more of a cyclical feel. I would argue today, were at a 20year low in shortterm unemployment. The structural piece is where lets rip up the script. Why are we so miserable . Rick rieders indexes going like this, i should feel better. Violent crime in the United States overall is that a 40year low. That is extraordinary. Miserable . E feel so why is president obamas approval rate virtually at alltime low . I think one major reason is because we as americans no longer feel that we play the same role in the world. Have we hit peak america . I dont think our country is in the climb, but compared to where we are, where we stand with the rest of the world, we do not feel we are doing as well, and that is true. We dont have the same ability to form and make. We dont have the leadership. The obama problem, people look at bush who says, this is a leader that did not think. They look at obama and they say, heres a thinker who does not like to lead. And fedex . Early to starty with. We think theres enough indication to suggest you can move literally first or Second Quarter of next her. We think youll start to see change. All this week, the new views on what the fed could, should come or will do. Quick mention of our twitter question of the day. Is it really ok to spy on your allies . This comes out of germany where it looks like a young german was actually spying on behalf of the u. S. Tweet us at good morning, bloomberg surveillance. I am tom keene with adam johnson and Brendan Greeley with us, scarlet fu is off, off, off. Mr. Johnson has our company news. Were going to start in europe were spanish wifi provider may file for bankruptcy. The company says its cef is resigning after admitting he filed fake accounts for at least four years. The board has accepted general garcias resignation. Shares have plunged on this news. Here at home, amazon is part of the investigation by the european union. The eu has already said starbucks and apple are part of the similar probe. The antitrust chief says google couldnt be targeted as well. Could be targeted as well. Spotify hiring financial pros to universets financial for Public Offering potentially. That is according to report by focus. Spotify made a Key Acquisition and made it 200 Million Dollar credit line. The report says the popular music stemming website would be a takeover target. I li the takeover angle. We have looked at this a lot. Were not completely convinced we know how it is his extreme and services are going to make money longterm. I think spotify, its founders want to make as much money as they can very quickly. Streaming is winning, right . But it is not making money. That doesnt mean the new technology is sustainable. It is a problem for artists. Would you recommend apple becomes more spotifylike . That acquisition with beats. I dont understand what that acquisition is about. It is streaming. It is streaming, but the great thing about that market, it is very competitive and innovative. The bad thing for everyone in that market is all of them are driving each others prices down. Gat for us. I love spotify. I paid 12 religiously every month for it. And the next hour, susan lyne will join us. News whichack to the was fridays jobs report. Watch what they do, not with a say. Perhaps our financial repression will become less repressed with a weak opening dow above 17,000. What will big money doing the second half of 2014 . Rick rieder from blackrock joins us this morning. Where is the institutional dollar going to float in the last six months of this year . Atpeople are still looking equities. People are still going to the fixed income market. Were still seeing flows into a variety of areas. Businesses,hyield and constrained. The thing people are doing is they want to get yield. Thrusttrust i see the i see, click the coupon and forget about the total return. Are you that defeatist . Were trying to be more flexible. There are places in the world where you want see rates higher. Were trying to be flexible. Like the emerging markets. You can get attractive short in Interest Rates. Will we see less financial repression . One of the most important moments we had on surveillance, this idea that ua four years, five years, 10 years to get a real return. I think you brought up important point will stop important point. The u. S. Is clearly from the terms of Banking System is lending, the household system, corporate are when, europe will be in financial repression for a longer time, as is japan. Places like the u. S. And the u. K. Are clearly leaving. It is a big deal in terms of all financial markets. The british pound starting to appreciate after last week. And largely still will. You talk about policy going to involve, very slowly in terms of the rate at which it will change, same thing in the u. S. , but it will change. Yeah, right. I look at this, rick, and weve all been wrong about the bond. What exactly is the official blackrock call on the 10 year . We think it will shift up 3 . Rates are not going to explode higher anytime soon. 3 . Hink we will move to when you think about Interest Rates today, you look around the , theyre not that unattractive of a product. Get liquidity. Foreign money still good for our government paper . Absolutely. They have nowhere else to go. You want that money in the United States. In russia, even with the sanctions, you still largely feel that way. Many are coming to the United States. Highend real estate and u. S. Paper, u. S. Dollar, absolutely. The largest flows youve seen in the past few weeks have come, particularly from asia. Confident we are capable of enacting fiscal policy . Is such a thing were possible, it would be great. But i dont see how it will happen in washington. I things are percent fine rate is not meaningful anymore in terms of transmission mechanism. I think fiscal for the policy, infrastructure discussion among i think youre going to start to see some movement for the first time in a while. Ian bremmer. R and thank you. A special treat for you. It was the ninth game of the deciding fifth set yesterday in an true english form, clouds gave way to sun. Novak djokovic had held court, giving what to Roger Federer in thrust solidly behind federer, then djokovic dominated. Us this morning, novak djokovic. Here. Ful to have you the duchess of cambridge yesterday sent many congratulations. What was the mood you sense and that fits that . You had a lousy fourth set. What was the shift you noted in the fifth set . Well, this is the best quality tennis grand slam final i have been a part of playing against Roger Federer, a great champion. He showed why he is been so dominant and successful and why he is 117 grand slam titles, came back in the fourth set when i was serving for the match and i did not do much wrong, but he picked it up and took this match to the fits that. In the fifth set, he really could have gone either way. There are many moments when i could drop concentration, hadwing him the win, but i a little pep talk with myself and try to encourage myself and find that inner strength and self belief that cured me through to try out. I know yet a conversation with yourself at the very end. You had one in your sitting there with your head in your hands as though you had lost. Im thinking, wait a minute, he just won wimbledon. What was going to your had . That different emotions, very positive ones, obviously, very joyful moment. Id tears of joy. I had a flashback from Early Childhood days and days when i started playing tennis back in serbia and dreaming and imagining one day i could become a wimbledon champion. The highlight of microsoft are was the win in 2011 here in inbledon, but this title 2014 is even more special because of the circumstances that i was in in my private and professional life the last two years from a going through some difficulties in managing to overcome all the challenges that lie presented. That light presented. I lost the last three out of four grand slam titles. I started to doubt myself a little bit. This means a lot to my hopefully,level and what is about to come. Works thank you. Greatly appreciated it, novak djokovic, from wimbledon. This was exciting. He tasted the grass. He ate the turf again. He offers a prayer of thanks to the groundskeepers at wimbledon who do solid work. The whole backstory is, where are the americans and how important it is that we get americans back in the championship tennis . They are not there. Nowhere near. You wonder where that is going to be. There we are. The American Economy improves. Should you rent or buy as rates rise . How far did you go without your smart phone . Jerseys adidas trade after the match. Everybody wins. Good morning, everyone. I am tom keene. Joining me is adam johnson, bloomberg businessweeks Brendan Greeley is with us. Spencer rask off is with us. One of the Great Stories stocks and technology for 2014. Lets get to our morning brief with adam johnson. Were starting in europe, where industrial output dropped for a third month i missed signs of it europes largest economy taking a bit of a breather. German chancellor Angela Merkel taking a break of her own. She is in china this week. One item to note, spains running of the bulls kicked off yesterday. Were you there . I was not. On a more serious note, the anniversary of the 7 7 bombings of the london transportation system. Hard to believe, nine years. The euro oh, there is the data check. I will do that instead. The entire markets churning. Is 70,068, for those of you who is without early friday. 68, for those of you who slipped out early friday. Theoeing is assessing damage to Train Components after a train accident. To as taking jet units boeing plant. Two forn was carrying numeral special fuselage was 47 37s. Fuselages the entire u. S. Fleet of f35 jets has been grounded. The pentagon is investigating an engine fire that erupted last month. F35 is the pentagons most expensive weapons program. Engineers at tesla want to study what is left of an electric car that stood into after split in 2 after an accident. Officials want to look at the wreck because crashes of the 71,000 car are rare, fortunately. Titles. Ar i feel like that is a positive new story for tesla. Electric car in highspeed chase. Someonee yet to meet that has one that doesnt love it. Thats true, they do. It. Ou and i talked about i still like the corvair. Pale green. Interest rates will stay low longer than anyone thinks. You want to bet . Bill grossimcos does want to bed. Want to bet. This story is on bloomberg. Com and you, too can read it. How much of the money is new money for the past couple months . He has added 50 million recently and this is a 200 million bet a guy 10 . Tell anybody who listens that he loves this trade. Earlier this morning we were talking to rick rieder of blackrock i said no, jen and he said no, janet yellen is behind the eight ball. Besides putting his money where his mouth is, what is the other justification . He says this is the simple magic of landing like a bank. Ndrrowing on the short e and lending long, much more expensive. Paradigm, andtral makes a lot of sense. Interest rates are going to stay low for long and you might as well borrow. He is going short term 2 years, 5 years . The majority is determined by the fund to they dont take in new money. Kind of a oneshot deal. Of underlyingket securities. He says to buy them at a discount. Is bill gross over the great shakespearean tragedy of having lost Mohamed Elerian . I think he is working for it. We saw something take place on the National Stage that should happen private public and painful. So public and painful and he is still working through a lot of that. They are trying to tell you that this is our new strategy and we have this new structure with these guys who are very empowered. They are trying to distract attention a little. I have ais saying strategy, i have made a choice . The strategy something kind of tangential to that. Up this isah come something i like, but the new neutral tom, was at, Goldman Sachs you were pointing out early today that is sped up its assumption about rate hikes . There is a huge set of pressures here up against bill gross belief. Christine lagarde of the imf am a bill gross on one side. 14 gross on friday listeners have been listening. What do you think about what bill gross said on friday . He does really believe in the theory and it makes sense. Often the reality is more boring than you expect. It really is kind of like mary childs, thank you so much, on bill gross and his team at pimco. We have wonderful guest posts. The America Online brand group chief executive officer. Thrilled to have her with us today to talk about much more than aol. Also, zillows chief executive officer, spencer raskoff. Realist, to say the least. Boy, that is for sure. We keep reading about all these different people in the u. S. To buy and they are not american and how are americans doing . Buyersitional american are having a much harder time because there are a lot of cities like miami or tampa where 80 of the transactions in the bottom third price year are all cash. If you are actually getting a mortgage to buy a home and you are in that price tier, very constrained inventory and there are a lot of cash buyers competing for that and strange inventory. 20 of americans now have negative equity. Of what you bring to us is that we are talking manhattan, manhattan, manhattan. Lets go wider and talk washington. You see the United States. How far apart as des moines from what we cover . We have a late, san francisco, san jose, and orlando, where home values are increasing 15 yearoveryear. But other places, st. Louis, kansas city, home prices are flat. Different price tiers there are huge differences as well. Of home valuesd are appreciating much more quickly than the top third and that is because theres less inventory. He talked about detroit and miami. Do we have a sense of what the longterm strategy is . Are they going to have a chance to buy back those houses once they have appreciated or are we looking at a move towards rental units . There is a common misperception, especially in the new York Financial committee community, about how much of this inventory is going to institutional buyers. They are buying a very small number of homes relative to the housing pie. A lot of these buyers in miami, for example, are small. You could call them Institutional Investors but they entrepreneursll that are buying five or 10 properties. At the gate they are not the its i want to talk about the regular american main street. Brand head of the aol group, what is your read on how america is doing . I think that there is definitely more optimism right now that a couple years ago, no question about that. We have about 150 Million People every month in the United States who come and use aol. They are, if anything, more active now. There is definitely a shift. Is there greater advertising coming through . No question advertisers are moving into 2 different. You will see fewer of the old display ads and a lot of advertising dollars moving into programmatic, which aol has invested in significant. With us asrascoff well from zillow. Coming up, much more on bloomberg surveillance. Everyone. Rning, i am tom keene. The the i repeat, textbook case of creating something brilliant and getting fired. Made history with desperate housewives and a small show called lost and then was shown the door. Gamehouse of cards and of thrones, can she get in the door . Your world changed, hasnt it . Oh, completely. It is interesting when i watch all the shifts that have taken place since i left abc, just about a decade ago. You look at all the multiple ways that the whole industry is being disrupted, from the ad skipping technology you see right now to all of these new destinations for premium content. Is the next that that the takeover hollywood . I dont know if that is the case. I think you will see an awful lot more entertainment that is directed at essentially home entertainment. You see it now. The number of movies being made is significantly lower than it was a decade ago. This is the best moment for Premium Television we have ever had. What it was like to read the just script for lost, for example, what are we destroying american creativity by this total demand to meet the international market, like with transformers . I think the best work being done right now is for television, the small screen, because the economics are better. You can make something that will a much longer tail. With movies you are still hostage to your first weekend. Them,t are you telling l. A. Or new york . There are so many places to be oh, stop. I know Jimmy Fallons answer. I like new york. There is enormous opportunity here. Im serious about it not just being those 2 cities anymore. You see it anywhere, the number of young people who are becoming youtube stars from all over the country. It is not just about new york anymore. You can become the next big thing from austin, texas, wherever. Exclusive,ance setting of youtube for your next video. We will have much more for you on bloomberg surveillance good morning, everyone. Bloomberg surveillance. What a wonderful opportunity this is for you to do our twitter question of the day. Is it really ok do spy on your allies . This is the news over the weekend of a german employee of the Intelligence Bureau being questioned by german officials over possibly spying for the United States. It is our twitter question of the day. This is bloomberg surveillance. I am tom keene. Good morning. Adam johnson and Brendan Greeley with us this money. Susan lyne and Spencer Rascoff join us. Onan attack by gunmen kenyas coast till at least 22 people according to the red cross. Qaedants linked to al took responsibility but kenyans blamed local separatists. Up to 20 Marijuana Stores could open tomorrow. Some shop owners are worried about shortages of the precious drug. The drug will be heavily regulated and heavily taxed. A change in the air for some passengers. They will be required to power up their Electronic Devices you heard me, power up. Securityportation Administration Says the devices that dont switch on will not be allowed on planes. Those travelers may have to undergo additional screening. That cant make sense you cant bring on those Little Things you shake with the snow because theres too much fluid. When you go abroad as an american you get constant eye rolls from security going no, i know you are an american, keep your shoes on, keep moving. Such frustration at those airports i flunk it every time. What is the special one . Special pass and you are allowed to go through. Every time i flunk it. It is the bowtie. They are unpredictable. Susan lyne, we are going to rip up the script. I get Better Service traveling if i dress up. Do you agree . I think that is always a good idea. It is. Looks like you are traveling for business. Im sorry, you get Better Service. What is the old saying dress for the job you want. Wall street journal underneath your arm, may be an economist, too. The ease of travel for americans going through great program. 5 years and you whisked right through. Premier question on wall street is similar on Silicon Valley as well. It isnt just cameras, it is being billed as social media now. Google isnt just search, it is tried for list cars. Curious how you plot when everything is changing, and susan, would you tackle that one for us first, please . Sure. There are signs everywhere of where this world is going. There is no question that content discovery has moved to social. Most people are finding the content they want on either facebook or twitter or some of the other social networks. You are seeing most most sites are seeing most of the traffic not to the front page but through side doors. That is a huge change. Either you are social media or you are nothing. No, you just have to be able to activate social media. It has changed the way everybody looks at how they build their sites, how they promote their sites. It has been completely transformative and that is happened over the course of a couple years stop. With your fabulous set of expenses, who has traction now . I know you will root for aol. I would point to the Huffington Post as one that has made the move seamlessly. There was a Company Built on search forentially, content discovery, and they have made that move into social as well as anybody. There are a lot of companies that are doing very smart things, does feed buzzfeed being one. Do you think there is a coherent theory about how long something is cool . One of the things facebook is responding to his evil realizing my is people realizing my mom is on facebook, and they are buying instagram. I think it is moving more likely than it used to. But that has always been the case. Something becomes a little bit too ubiquitous, to successful. And all of the first adopters move on to a new place. Do we see this as this disruption or technological the as coolness disruption or technological disruption . It is both. Gopro is a great example of that. It allows you to become a film maker if you were just out do you use gopro . I saw this all over at the world cup. Fabulous, and it is on peoples cards now. Peoples cars now. See go pro regard to are we going to see gopro on zillow . What it is trying to pull off his vivid pivoting beyond being just a hardware manufacturer to being a producer of content and i dont know if it will be able to pull that off in its entirety but it is amazing prospect. We will talk about all the latest on social media and how it has changed the world cup. Good morning, everyone. Dow, 17,000. We are there. This is bloomberg surveillance. Tom keene, adam johnson. Scarlet fu is off. You get coffee when adam johnson with us. He has company news. Volkswagen putting down roots in the worlds biggest auto market. The w will spend vw will putd 2. 20 5 billion to plants in china. In the next 15 years, the number of licensed drivers in china is expected to reach one billion. Home, dan midland at acquiring wild flavors. The cash deal is worth about 3 billion. Wildflowers makes capri sun juiced drinks. Couldld flavors sales throw the current level up to 2. 5 billion. Two giants in the Building Materials industry trying to clear the way for a merger. They are planning a 40 billion deal. Lafarge said it is buying out Anglo American lafarge plans to sell other portions to satisfy the antitrust concerns of regulators. The merger will create the biggest cement maker in the world. That is company news items. A monday morning we say again, good morning to all of you. This is a kickoff of the second half of 2014, the fiveday work week. Loca, but la vida valuations. H scylla was the 2014 example. Zilla was the 2014 example. What is different this time around . Lees advise me, but more what is different this time around . What is different is we have got adoption throughout the entire company throughout the entire country and throughout marketsd, so the are mainstream. Do you care about the profits right there . Valuationation, total evens out. I have never seen a valuation like zillow. Valuatione seen a like that. I was on the board of directors. Forold that went to sap forward revenue. Why is this happening . Because there is fundamental change happening in the tech world. This ep is the Largest Software Company in the world, but it is on premise. They have to go to the cloud. Success factor was in the cloud so they needed to strategically or 15 years from now they are history. We see the turmoil with twitter as they move private to public bodies. You lived this. Twitterughts on how gets management stability . I have been fired a couple of o. Mes, to i have not been fired yet, so now i am worried. Brendan, what is your story . I have never been fired, and now i am terrified. Ss walked inbo and said to me, bill, how long have you been here not counting tomorrow . As a company that is growing so fast, there are all sorts of things that happen within the organization it within the managers structure. They have to keep trying. It is not unusual. You are wearing a google watch, and i dont know how much of this is a passing fancy. Let me show you. This is the google watch. Course, it records my steps and everything else. But here i go. Ok, google. So capital. We have our own application on here. And, boom, there is my money. There is the dow and everything. And we have the you index, which is my personal portfolio. There it is. I did this this morning, too. , two eggs over medium. Why cant i just type that . Why is saying it so much better . This is the first generation of google watches, the first generation of personal capital personalware that of capitals software. All of your emails and personal communications can be right here. This is what is so a different this time around. The audience sizes are so different. In 1999 the audience was somewhat small. We appreciated. Good morning, everyone. This is bloomberg surveillance , on Bloomberg Television, bloomberg radio, all our media. Digital media. Harrisget it on bill watch. Tom keene, and joining me, adam johnson. Brendan greeley is with us as well. Adam johnson, he gets us going on this was fun this weekend. I went to the nike store and bought a france jersey. They said what is an american doing in a french jersey on july 4. It did not work out so well. Which begs the question nike has brazil, the netherlands. Adidas has france and germany. You were down in brazil, and of course this is right out of your wheelhouse. Who is winning this one, nike or adidas . Adidas is winning it, and it is not how i predicted it. It seemed like nike was so far ahead of adidas, particularly on social, taking the players they sponsored and capitalizing on creating these amazing videos with them. I asked adidas what they were doing to keep up, and they said we have the world cup ball this year, and the world cup ball is tweeting. I thought that is the worst idea i have ever heard. I cannot believe you think you are going to compete with nike. I am looking at the Fastest Growing profiles and soccer last month. Number one, the name for the adidas world cup ball. They have pulled it off. It takes helicopter court helicopter tours of rio and talks of beach balls on beaches. It has done really well. Two, joseph blatter, the boreas guy in brazil the boringest guy in brazil right now. What have you learned in the last weeks . About fifa . One thing you learn is that there are still events that get millions and millions of people who sit down in front of a television all at the same time and watch. Was a 21 million for the u. S. Game . Secondhighest watch ever on espn. Sounds like the final episode of desperate housewives. Or when they all said goodbye on mash. I have been surprised there have been some Great Stories out of the world cup. Costa rica managed to get to the quarterfinals. Was thes the lotto Italian Company that sponsored them. We had the completely predictable result. Kris jenner when although did not even make it out of the first round, still growing renaldo he i think what is different is that you have got americans all over the country who are engaged. N this in a different way do you believe that . I do. I absolutely do. I am looking at the numbers of people watching, but i am also looking at every place i walk into where there is a game going on and Television Set is people are fixated on it. It does not matter whether it is a private party or going into a restaurant or a bar grid there is a different level of engagement this time around. I think that is great. I agree. I think it is finally happening for soccer in the u. S. This is not the same america as in 1970 or 1980. Over one quarter of all kids coming into the u. S. Are being born of hispanic descent. Immigration for south america and europe. Soccer is coming. Spencer rascoff, susan lyman with us as well. A major earthquake in mexico, south of mexico city trade for those of you on bloomberg radio, way below the yucatan peninsula almost to guatemala, 7. 1, the u. S. Gs as well. Tremors felt in mexico city many miles away. Futures, negative three. Dow futures, 20. The surveillance agenda. Stay with us. Good morning, everyone. Bloomberg surveillance. Tom keene with adam johnson. Greeley is with us as well. Last week betty liu was able to speak to the president of espn while he was not highfiving other executives. Betty liu, this has to be the ultimate victory for espn. Oh, yes. The streit all the despite all the streaming glitches that have been talked about, it he is a happy man. He has been over the last several weeks. Has been a little bit of a change here in america. Suddenly we are all watching soccer. That is something that even back in 2010, he was certain noticed during the world cup games then. Heres what he said about what they learned. Cup where therld United States went out in exactly the same round in a 21 defeat, i said people are still going to care. We are going to get the audiences. All of this will continue happening, and it did. It will happen here again. He was right. Do notr at espn they have the rights for the world cup the next two times. Fox does. So fox will be able to capitalize. On what john skipper is doing today. We are also talking tech. This is an area that susan is familiar with, hiring people in tech industries. And the founder of keep. Com will weigh in on why it is so much more difficult to find people than in other parts of the working world. Betty liu, we will be watching. Sounds like a good show. You have got to check out this video. Assessis trying to damage that happened over the weekend. A couple of jets and jet components were on a train. They train was heading to washington the train was heading to Washington State. The train derailed in montana, wenthe 737s fuselages tumbling down. It is an amazing story. When i first saw it, i did not know what to make of it. Hell has fallen off a train, or has not fallen off a huge either the either the hull has fallen off of a train or it has not. You have got to assume that there is insurance on those trains and what is on them. From panrviewed a guy am 60 or 70 years ago. Of planes as two engines with other stuff. They think of it exactly opposite as we do. It is two engines with other stuff. I did not know that until four or five years ago. It is an airframe. And Different Airlines can pair up different engines with that airframe. I always look out the window to see which engine. What do i know . Coming up, demanding answers latestshington over the spy allegations, bringing us to our twitter question of the day. bsurveillance. Good morning, everyone. Bloomberg surveillance. You need to know about housing. Tomorrow we will bring you the Michelle Meyer. Thrilled to bring to you Michelle Meyer tomorrow. Good morning, everyone. I am tom keene. Adam johnson is here. He outdid me. He watched six world cup games this weekend. I only watched three. Brendan greeley actually went to brazil. Smarter than most of us. Our guest host this morning, susan lyne. Spencer rascoff is with us with a small blue chip stock, zillow, up up and away for zillow. The filesy news from of bloomberg west, adam johnson. Wifinish wh provider, the company says the chief officer is resigning. After admitting that he filed baked accounts for at least four years. Shares have plunged on this news. One Research Firm says the startup part of anome am a investigation by the european union. The eu has already said that starbucks and apple are part of the probe. The antitrust chief says google could eventually be targeted. Investigators are looking at whether the company has overly generous tax breaks from eu members. Prosfy is hiring financial. Spotify made a Key Acquisition recently and has landed a 200 Million Dollar credit line. The report also says the popular music streaming website could takeover target. Interesting. There is spotify as well. Countless advisors suggesting the where there is a loss when moving from privacy to the bright quarterly lights of a publicly traded company. Chiefr rascoff is a officer of zillow. He began as a bloomberg intern. Lyne has never done that. She is chief executive officer what was it like being an intern at bloomberg . It was quite amazing, actually. And ias still the ceo, had an open cubicle a couple of feet away. Even back then it was still the amazing Corporate Culture that it is today. Companythink about a like spotify or zillow or aol, it is all about the company culture. I remember in the summer of 1992i called my parents. I was so excited, 18 or 19, and i said you will not believe it, theres free food everywhere. Isy said, dummy, that because they do not want you to ever leave your desk. If you were advising spotify, what would be your report . An ipo is just a stepping stone, so it is the beginning not the end. If you are going to go public, make sure employees realize it is just a step along the way. A quick highfive, congratulations, now back to work and stay focused on the longterm. Do not focus on the stock prices were the nearterm or the ipo. It is an acquisition target as well as a possible ipo, who are we looking to to make that acquisition . I think a lot of people thought it might be google, and that seems less likely. Some people thought it would be apple for a long time. Now that seems less likely. Fewernger they wait, the dance partners are left. Mark zuckerberg, the ceo of spotify early on in spotifys history, sean parker emails and said you are doing it wrong, heres how you need to do it. I have been wondering whether they can make something out of it. It would make sense on a lot of levels for facebook, and they can afford it. They already have this massive user base within facebook, so acquiring the masses user base for spotify i dont know. They have demonstrated an interest in making these big acquisitions, instagram and whats app. It is possible. I guess the private affair was no group more recently. They are trying to migrate to the public space. Your thoughts on being public it is not all it is. With aol, it has been a challenge verbally for mr. Armstrong. It is a challenge. It is also a big opportunity. There are lots of reasons why you go public. One of them being it is a great marketing opportunity. It is a way to reup position yourself to reposition yourself in the eyes of the consumer world. Tim has done an amazing job repositioning aol from the debt, and he has literally turned that company around with some very smart investments, put a big bet on video, and that is proving to be very smart. And on Programmatic Advertising so that we can participate in what the next wave of advertising is going to be. I am glad you use that term next wave. Isnt there an advantage to perhaps being private, where you do not have to keep reexplaining yourself to analysts and how you grow 50 next quarter . I could make that argument, too. There is no question there is a lot of comfort in being able to think longterm and not have to worry about your Quarterly Earnings reports, but for a lot of companies and i would even say this about aol there is a discipline that comes from being public that is probably useful. It has been very valuable for aol, and we have seen it is twice what it was when he went public. It is important to be longterm oriented, that there are privately Held Companies that are shortterm oriented and Public Companies that are longterm oriented. A public done as company. You just need a Management Team that has the fortitude to not be overly concerned. It is hard to strike that balance. Talking about striking balance, we have some ground to cover. Time for the agenda, where we look at the stories shaping the day. Where are we six months from now . Recordiday dynamics, a 17,068 on the dow. The vix well under 11. These are remarkable levels. Total disbelief and where we are. The strategists are bullish. There is no one out there who really believes in this cash flow generation, earning his generation. You get a little better economy. You have Revenue Generation as we go into earnings season. Bill gross of pimco does not believe it either. He is putting 60 million of his own money into the funds. It was amazing over the weekend, the lack of enthusiasm. Heres what is on my agenda. We probably will not get any answers in the next six hours or 16 hours. The euro there is a ton of water there is a tugofwar going on now. Makingd buying program, credit available for european banks. Trying to scale back. One hundred 36, constantly 136. Is it going to go up because there is a the consensus is a weaker euro. But it stays there. Long slowoking at the descent of americangerman relations. And i wonder where it stands. Nowas the george bush we have the spy allegations. She is responsive to a democracy. The germans are livid about this. Effectorward, does this the possibility of a trade pact with europe . I dont think we are done with the fallout over this. We could go on for eight hours. Lets get to our twitter question of the day. It is real simple. Is it really ok to spy on your allies . We got some very thoughtful responses. Yes,s the first 1 they are spying on us. No, allies are meant to be trusted. If allies spy on allies, there cannot be trusted. This is not good business. Spy is not a good word to use. Should we monitor our allies . Yes, and they should monitor us. Tothe story has more develop, as hans nichols said this morning from berlin. Susan lyne, thank you so much. Spencer, thank you so much. I am waiting for your stock to go down and then i will buy shares. Next oniu is Bloomberg Television. Good morning. It is monday. Were live from the bloomberg worldwide headquarters. You were in the loop. The espn president joins me for an exclusive interview. The network has seen recordbreaking numbers during the world cup. I talked to him about the soccer craze. Our headlines. At stocks begin at record highs. The dow closed over 17,000 for the first time. Yet another record. Futures indicate stocks will open lower over warnings that Interest Rates may rise sooner than expected. American apparels largest investor is trying to avert new troubles. They may pay off a 10 million loan. Immigrants are feeling the pinch as big banks abandon the business of transferring money