Quarterly results missed estimates and said compensating victims for defective ignitions will cost at least 440 million. Matt miller joins me along with chuck stevens. Matt, take away. Thank you. About the costsk you have set aside or the cost you pay for the actual recalls. It was 1. 3 billion in the First Quarter, 1. 2 billion in the Second Quarter, and a lot of analysts do not seem to have accounted for that in their forecast. Why do you think that is, and how much do you think it is going to be Going Forward . Before i get into questions specifically arm the recall, if i could talk about overall performance, i think it is an Important Message to get out. We continue to have strong twolts, especially in our key markets, north america and china. Recallexclude the campaigns, earnings on a yearoveryear basis were up 20 with margins of about 9. 2 . 14 hina, earnings were up yearoveryear with margins of 10 . Specifically to north america, despite the challenges related to the recap campaign, we continue to put up strong results. Relative to your earlier question go ahead. We have been talking about your strong results for a few quarters now, and every day leading up to the earnings this has been the headline. Everyone knows this because you are selling a lot of trucks and getting great reviews on cars like the impala. Why do you think customers continue to buy so much of your product despite almost 30 million recalls . I think it is a testament to the products that are on the road today, the most recently launched products. They are specifically significantly better than the products we use to produce. They provide great value with reliability, the the quality, that customers are asking for. That is reflective of the products we have been launching most recently. So, in regards to the retail feinbergse from ken compensation fund, which he will decide himself, how much are you budgeting for continuing recall costs Going Forward in the next two quarters . And i talked about earlier in june, our expectation was we would substantially complete the work, the redoubling of our efforts around cleaning up and closing out some of the old, outstanding issues we had in the first half of the year, and we have fundamentally done that with the 1. 2 billion we took to earnings in the Second Quarter. On a prospective basis, we expect recall expense to be up, but not materially versus the historic run rate we had prior to the first half. The about the exposure that we 2013. N 2010 to on a go forward basis, we expect recall expense to come down and be more in line with our historic run rate. Willt me ask, ken feinberg decide what he decides within special compensation fund, but you have set aside 400 million and it could go up to 600 million. How do you come to that number . First, it is important, and you pointed it out, ultimately the cost of this Compensation Program will be determined by ken feinberg. Secondly, there is no cap. The 400 million estimate is our best estimate based on the data that is available to us and using outside experts and outside actuaries to evaluate a range of outcomes. The 400 million, as i indicated, is our best estimate. Based on a range of outcomes, it could be possible that it is 200 million higher, but ultimately, the cost will be determined by ken feinberg, and what we want to do is make sure that we take care of all of those people that have been adversely impacted by the ignition switch issues. As we move through the rest of the year, we will make the appropriate just adjustments, either up or down, and at the conclusion of the program, we will share the appropriate data around the ultimate disposition of the claims program. 9 andk, we talked about then some margins in the u. S. You have had good success and great margins in china as well. The business in europe still putting up a pretax loss. When do you expect to surprise us with a profit over there, because i know a lot of the cost are residual and you must be almost finished paying for that stuff now. Lets talk specifically about the Second Quarter. 300 million loss. In that was 200 million of restructuring. Excluding restructuring, the core business lost 100 million, consistent with the First Quarter and with last year. Included in the 100 million were significant headwinds associated with the russian operations. , the coreerspective business continues to improve. We are on a solid path. Our expectations are we will be profitable by middecade. Hopefully those europeans are buying a lot of corvettes. [laughter] alix steel, back to you. Thank you, matt miller. We will stick with earnings. Brian nowak at Susquehanna Financial Group increased his price target on facebook to 84 a share. We know the headlines. The big number for facebook was the adjusted margins up to almost 68 . What makes you think they are sustainable . Good morning, alix. The advantage that facebook has is they continue to get a bigger share of advertising budgets from brands, small, medium sized businesses, direct response advertisers, and through their app installs. What percentage of advertising dollar that flows through the da are typically over 86 and that is what the company is benefiting from. The company has a lot to integrate Going Forward based on acquisitions. Does that put pressure on their bottom line margins . It pressures them a bit, but advertising budget gets bigger, they can focus and still put up growth. Who is facebook stealing advertising dollars from. Google is still the master. Is it google . I do not think there are a lot of dollars moving out of google to facebook. The other bases you see losses are from smaller online display players. There are more dollars coming off line from print, moving to facebook. There are some dollars on the margin moving out of television, but it is very small and most of displayis play and and print. The pricetoearnings ratio the industryble average, but you made two upgrades, one in july, and one this morning. Why do you think it is worth the price . Is a cleaner number to value the company on an earnings at this point, and when you step back and say what kind of multiple should this Company Trade at, it is still growing topline at 60 . If you look at what google traded at when it was the size and growing this fast, it traded at 22 times ebitda. If you really think that facebook should trade at the ate people that google did that point and its length, you would actually argue that it is a 100 stock. That parallel to google gives people confidence there is still more runway for facebook. Thank you. A lot of jargon there with ebitda, but thank you to brian nowak. U. S. Carriers are resuming flights to israel after the faa. Ifted and almost twoday ban lets get the details from Elliott Gotkine in tel aviv. What will it take for airlines to fully implement their Airline Schedules to tel aviv . X, we have heard from the American Airlines in the last few minutes saying they are looking at the safety and Security Issues surrounding flights to and from tel aviv, and they will make those decisions on the basis of their conclusions. Of course the lifting of the federal Aviation Administration ban does not mean the flights will come straight away. Other people who knew the band was in place might have put off their plans. It will certainly take time to get back to normal, assuming, of course, those people have not been lets not say permanently put off, but put off for a reasonable amount of time. What i take a look at the impact on, say, equities in israel, you do not see a huge amount of movement, but what about the economy torres, Technology Startups that cannot leave or get business in and out of the country what is the impact their . It depends on the industry and geographically what you are to look at. They invested in bomb shelters. We had to go to the shelter three times. Missile inron dome the sky. It hit a rocket and part of the shrapnel fell through a greenhouse. Nobody was injured because they have these things in place to protect their workers, and they are still fulfilling workers. One company i went to in the south, 90 or more of the revenues come from overseas, and overseas countries do not care there is a war, they want their orders fulfilled. It seems like ceasefire talks are going nowhere fast. Is anyone that can be instrumental in moving it forward . Egypt would still be your best bet, one imagines, for a ceasefire. John kerry was back in cairo. Hamas wasem that digging in its heels. There is no ceasefire inside, im afraid. In sight, im afraid. , thank you, Elliott Gotkine joining us from tel aviv. Moving and shaking this morning, president barack obama. In a speech expected around 4 00 p. M. , he plans to go on the offensive against the pennies who use crossborder deals companies who use crossborder deals to avoid taxes. The actions come understood me after a number of companies have paid big premiums in deals that allow them to pay lower rates. President obama will urge congress on curbing such avoidance is, while republicans maintain he is not done enough to negotiate with them. Republicans say blocking inversions would help 17 billion from escaping the u. S. Coming up, with sanctions against russia, we have a look at how it will affect visits is operating within the country. Back at home, we will look at builders like d. R. Horton and look at the state of the housing recovery. Stay in the loop. You are watching in the loop , live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. What is the real deal with the Housing Market . Permits and sales are weak, but existing home sales rose two and anghtmonth high rose to eightmonth high. How would you categorize this . Recovering. Really . Spike in Interest Rate last may and weather impact earlier this year. Activity inwed down the market, but we are starting to see things pick back up. But the stars on the permits were worrisome. That is where you will see the growth. What happened . Housing starts and permits are a measure of supply. Builders are faced with challenges limited with the amount of lots they can build and they are also facing labor shortages in some markets. You have to take government that with a grain of salt. Most of the decline was in the southern region. It might be an anomaly. Building data has been relatively strong in the south, singlefamily up for the month. . Who are the buyers first home buyers, secondhome buyers, investors, or does it matter . The majority of the buyers in the existing home market are in the moveup segment and we have seen that for a couple of years. Coming out of the recovery, builders deemphasize the reliance on the first time home builder buyer because the demand was not there. They are focused on the moveup homebuyer. First time homebuilders were up 20 in june. 28 percent in june. We are expecting to get a decline. What was that about . Were talking about a 5 decline month over month. We are coming off of last months spike, so i am not surprised if we have a decline. Typically demand slows down in the summer season. How affordable is it to buy a house . You have to look at the markets. In some markets, owning a home is cheaper than it is to rent. That will help the homeowning equation. When you look at northern and southern california, ownership is very expensive. Some part of that, it seems, would be distressed sales, and that accounts for 11 of the market. Paris recession we were talking about 2 . Prerecession, we were talking 2 . Fewer distressed properties. Investors have taken their foot off the gas pedal a little bit. Are you a homeowner . I am. I am afraid of these rates. I have 3. 2 5 , and i would be scared to give that up. Thank you, well thank you, drew reading. Check out the newest edition of bloomberg businessweek. The cover story titled young aboutfeatures a story burger king and what happened when a bunch of kids to go over the chain. It is a good read and it kind of makes you hungry. Coming up, from housing to implement, will break down the weekly jobless claims and what they tell us about the state of the economic recovery. We will be right back. First. Bloomberg. You are watching in the loop , live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. For bettysteel, in liu. Here are the top headlines at this hour. Authorities in africa are trying to find out what happened to in air algeria plane. It vanished from radar less than an hour after leaving burkina faso. Caterpillar says it is being helped by the rebound in u. S. Construction. The world leader in building and Mining Machinery is raising its earnings forecast are this year. Cup looksoks halffull at Dunkin Donuts. Quarterly net income is up 13 . They have more than 11,000 shops in 33 countries. Donuts. It is 26 minutes past the hour. Bloomberg tv is on the markets. You are seeing equity futures trying to claw their way higher, up by about three points, but this is after the s p hit a record high yesterday, a record close, i should say, of 1987. We have expected earnings from caterpillar, American Airlines, and killer numbers from facebook. You also had good data from china. There was an 18 month high. We have a lot of Economic Data today like the governments weekly job report. I would like to bring in the chief economist at the Consulting Firm ihs, who is also the author of spin free economics. Thank you for joining us. Great to have you with so many pieces of Economic Data. We were talking about the housing recovery. At what point does that boost gdp . Certainly in the Second Quarter we will see the positive effect of the housing rebound, if you will, and in the third and fourth quarters for sure. We believe secondquarter numbers will show between 3. 5 and 4 growth, and housing will be part of that. 4 growth is aggressive. Is that payback from the First Quarter, or is it sustainable. Sustainable . It is not sustainable. Absolutely, the Second Quarter will be a bit of a payback, but that we will settle into the 3 range. The First Quarter was weird. I like it. Rates lowuld keep past 2015 if the outlook holds. What is your take . It is entirely possible. The fed is keeping an eye on a lot of things, but in particular Wage Inflation, which is at some fundamental sense the core of inflation, really the driver. If that starts to pick up, and it has not yet, i think the fed will get worried and start to raise rates. Our best guess is the first rate hike will be in the Third Quarter of next year, but obviously will be datadriven. We will see how the economy does, how inflation does. See low productivity. You have to wonder at what point does this are triggering Wage Inflation down the road. Again, those very low productivity numbers are by some extent distorted by that strange First Quarter number. We will have to wait and see what the Second Quarter productivity numbers and the Third Quarter productivity numbers look like. My guess is they will bounce back a little with a bounce back in growth. Obviously, if productivity Growth Continues to do very badly, that is a reason to be concerned. What is the biggest risk from where you sit, because you sound relatively optimistic in this new normal that we end up seeing in the Economic Data . Accepting the biggest risk is continued corporate caution, i would say the biggest risk is continued corporate caution, i would say. Companies that are reluctant to hire, spend on capital goods. Outside, you have geopolitics, the middle east and the ukraine, and those could come back and haunt us at some point. That is a question, will the company spend on what could the company spend on capx . It depends on what the economy is doing. If the economy is growing at 3 , you could see topline growth and companies will spend more aggressively. , Nariman Behravesh, stay with me. We have jobless claims numbers breaking, and scarlet fu is joining me. Practices a betterthanexpected read, and unexpected decline of 284,000. The estimates were a slight increase of 300 and 7000. Lastly, last week, it was revised higher, and it was already at a sevenyear low. We are at a psychologically important level. On a continuing basis, the number below the continue to receive jobless benefits dropped 2. 5 oneillion from million the previous week. June, at the lowest since 2007. They continue to get more encouraging. How would ward who was on howard ward who was on bloomberg surveillance this morning said this is the magic is focused on, weekly jobless claims and how it continues to show improvement and to the extent that the fed pays attention to it. Scarlet fu, you are sticking with me. As is Nariman Behravesh. What do you make of this, good enough . It is very good and consistent with the numbers we see on implement front. Things are improving employment front. Things are improving, and improving nicely, one has to say. In terms of the trend, we have now had five months of job growth over 200,000. We will probably get another one very soon, the next time we see the payroll numbers. So, i think were on a good track. The economy is on the mend. This little hiatus we had earlier in the year seems to be behind us. This just confirms the fact that the Employment Situation is definitely improving. I wanted Nariman Behravesh, i wanted to pick up on somet