Says why a speedy internet could mean big business for provo, utah. You are watching Market Makers. Good morning. I am Erik Schatzker. And i am stephanie ruhle. First, it is his birthday i am a huge done johnny cash fan. It is time for other news, top business stories around the world. The political crisis in the ukraine is spreading as gunmen seize the Parliament Building in the crimean region and russia has put fighter jets in the area on combat alert. The next Prime Minister of the ukraine believes that russia will never intervene on a military basis. The government has finally turned a profit on the bailout of freddie mac. Mortgage finance or will return 10 billion to the federal Treasury Department next month. All are required to return profits as a condition of their bailout. Freddie mac and fannie mae have billion in taxpayers have actually profited off of the bailout. Wall street has learned that you cant always take jamie diamond literally. Diamond dimon literally. They said, this is just the weather. This is part of the brutal Winter Weather that he has been thats the we have been having, but he says he did not mean that. Market values are conditional and these things happen. Analysts, you should know better. Analysts are hanging themselves on every word. Indeed, they are. Fed chairman janet yellen is on capitol hill for the congressional testimony that got snowed out two weeks ago. She appears before the Senate Banking committee and in a few minutes will deliver her opening statement. This lack of her testimony before the House Services committee. We have had fresh Economic Data since then, and the questions will be different, too. We bring you coverage from both ends of core doors of power. East coast correspondent peter cook is on capitol hill, and Michael Mckee here with us in new york city. If there is news to be made at this hearing it is almost certainly coming in the q a portion. We besenators should watching most closely . A couple of senators to watch. He will get a polite greeting from the Senate Banking committee as fed shares generally do. The two people i would watch most carefully are bob corker from tennessee, the republicans backing Janet Yellens confirmation but he has questions about fed policy and the expansion of the balance sheet, and this is about how aggressive he will be and how far he will push her, with that 10 billion reduction pace. On the democratic side, there is Elizabeth Lauren. Yellen,acker of janet since her name was first put forward, and Larry Summers she has pressure with the oversight of these banks and they want to see how aggressively Elizabeth Lauren pushes janet yellen to push up oversight of the big banks. And more news off of the top. The chairman johnson will challenge yellen about tapering to quickly. He will caution the fed not to move too quickly to exit from its current policy, that we are on solid footing and the recovery is widespread. The message is, be careful you dont taper to quickly. As we can see, senator johnson is still speaking and we will come back to you throughout yellens testimony. Chief washington correspondent peter cook. Michael, what would you ask janet yellen if you were a senator, who happened to be on the Senate Banking committee. The third point that peter made about what they will be talking about, that is the fed comments about changing their guidance in their january minutes. The dont like taking markets advice but with the 6. 5 threshold basically obsolete, what is the next at the Forward Guidance . We have at other fed officials on these programs, jim was with us not long ago, and talk about quality of guidance. What does that mean, can you give us some kind of idea . That is what i want to find out because it will set the tone for how people trade. Last month, given the quality of unemployment, this is qualitative. We are backtracking echoplex they got to the top faster than expected because of a lot of reasons, potential rates this is not just one number, the broader labor market. What kinds of markets will they see with participation rates, part time in that sort of thing . That just leads to more work for you, michael. Full employment for economic editors. I would like to bring in my guest host for the hour, peter you dean of the him i mio school of business. It is a great day to have you here during Janet Yellens testimony. What are you hoping to hear today. Your students who are new to the business and economics, they are listening. What do you take away from here cap go the first thing, labor markets. The economy added 254,000 new jobs, in january, 114,000. To put that in perspective, with growth of one percent per year, the United States needs 150,000 150,000 jobs per month to stay even. With robust jobs growth on the order of 102,000 plus, the labor market is going to continue to be a challenge. To the point that Michael Mckee was making, to the extent they will have to look at this, you cant just Pay Attention to job growth and the Unemployment Rate. Labor data is complicated and noisy these days. How much of a challenge is it for janet yellen, that she, just like in england is running to the problem of guidance . The big challenge is communication and following. Right now, there is a lot of slack in the system, inflation is not an issue and there is no sign of an economy overheating. But the question is, how do you communicate that when you have put out the status on the Unemployment Rate . How do you indicate that the Unemployment Rate, in his current environment, with 6. 7 with longer unemployment, is not like 6. 6 unemployment in normal times . But mike, how do you communicate that . It will be difficult to do that and you will have speeches you make to give people guidance on what is going forward. I want to ask about the statement of inflation not being a problem. Betting that inflation will rise over the coming months and the question is, how much is slack is there. On bloomberg surveillance tomorrow they argued it he will argue, this is much more dangerous than people think. Saywill see chairman yellen that they will follow strict policy that will look at the labor market for reasons that we mentioned but this is not the only thing they will look at. They will go day to day to make sure they are not too soft. What kind of market can ben bernanke handoff to janet yellen . I would much rather be in her spot than his spot in 2008. I think that ben bernanke did a wonderful job of communicating that we are moving to tapering, and handing chairperson yellen an economy where this had been put in place. But is in job even tougher . For ben bernanke, things were so bad that the only way was up. He had toe had to do, pump money into the system and get the vote going the right way. Keeping it afloat is going to be tricky for her. No question. I would rather have a stable economy. In which you have these very subtle communication challenges. Likes you say the labor market is the single most important thing for the fed to be paying attention to. But people are beginning to say more and more and more that the fed could be behind the curve when it comes to the fed labor market, because there are Structural Forces like automation and robotics that change the labor market, and that economists dont understand because they have never seen that before and cannot model. Here is the key point. There are shortterm challenges and longterm challenges. The fed has asked, what do you do for a stable shortterm environment . There are longterm challenges, and if you go back to 1970, at that point in time, one in four workers needed post secondary education. The fact we are not producing enough high School Workers to keep up with a manned, jackson should show that a ship therell be a shortage of 1. 5 million high School Workers in these corporations. High skilled workers. In these corp. High skilled workers in these corporations. We have to find high skilled workers for these organizations,. Nd that is the challenge you look at the s p 500, you look at all of these companies and their multibilliondollar market caps, and the employees that they have, 100,000, 200,000, walmart has 2. 2 million. And you look at facebook, with 6000 employees. The jobs of the future will be what we have in the past. If you are going to make it in the new economy there has to be a change in the way that we prepare people for it. Such a polite lady, janet yellen, saying, this is on you. We will be checking back with you, and who better to get the real deal from that Michael Mckee and peter, who will be joining us for the entire hour. We need to take a break now. When we come back, we will talk jcpenney, where shares are soaring today. Up 27 . Jcpenney has been promising a turnaround. The question is, is it finally here or is the market overstating things . Go to your phone or tablet or bloomberg. Com. Of our can check out all programming on bloomberg tv. First, bloomberg. You are watching Market Makers on bloomberg television. We ask this question, is jcpenney finally turning a corner . Shares are up after jcpenney reported a strong Holiday Season and its first courtly profit in more than two years. Also postedman revenue in 2014 and we are looking at the performance with ussgilbert, who has underperform on jcpenney shares even after the earnings report. And with us the stern school of youness dean, so, mary, do remain as skeptical on jcpenney as you have been over the course of the last year . Then,were reasons for it it seems like there are less reasons today. Just to be clear, we have been very favorable on a turnaround, but that does not justify where the shares trade. As we have said, historically, even if they were to recover 1 billion and in the first quarter, they deposit 72 million for the first time in many quarters they posted positive, and less they got to 1 billion, in our estimate we have brought it down to 500 million. The recovery is very gradual. You cannot justify the current share prices. We are pressed to come up with any value for the shares. The reason is the hefty debt load. They have 5. 6 billion in debt. We are seeing some favorable momentum so we are not surprised to see the shares up, but the way to play jcpenney is to buy the long bond, which was in the 60s yesterday and today they are in the low 70s and just like those bonds, we think they have further upside. We would rather have jcpenney that way. We are very comfortable with the estimates for the year, with increases in comp sales. Our comp Sales Estimates are slightly higher and we think that they are benefiting from being in the Home Business this year. Last year, they were out of the Home Business. Those were out last fall kyle is a smart guy. Is it fair to say that if we look at where shares are trading, this is kind of justified. If you look at the entire retail landscape, everyone has been blowing it out. With many other companies you can see the same thing. Thing could say the same in terms of coming in with better performance. With whether the shares are trading. Oh yes. You could justify where the shares are trading. You could say that about many other companies as well. I look at shares of macys and dillards. I would say that those shares still represent attractive valuations. Macys is trading at 6. 6 times gdpa and they are trading for more than jcpenney. Looking at the broad term, what is jcpenneys plan for dealing with the middle income consumer in the United States . I think that continues to be a challenge and they are very promotional. I think they provide a lot of value to that consumer. That is the private brand strategy. At one point the private brand was over 50 of their revenue. This has declined during the johnson era, but now this has been brought back and those resonate with the consumers. They provide high margins to the company and at the same time deliver good value to the consumer. I think that that is going to address that. As you can see, the retail environment is so competitive and that is why you see a gradual improvement in sales, after a pretty steep decline. The real question is, how do you see consolidation in the sector . Who do you see as being the top players . Clearly, lets say on the higher end, in terms of the consumer calling it sort of the better consumer, i would say macys is definitely showing strong execution, and i think that on the moderate side, coles an edge but carved i think jcpenney will be a survivor. We will see retail boxes shrink. We will see net store closings because online is continuing to be a big part of the business. Marys job as an analyst is to look ahead. Atsome respects, your job the Business School is to look back, to try to divine the lessons of history. The jcpenney collapse and turnaround, is is going to be a Business School case study for years to come . There are parallels between jcpenney, the turnarounds and country turnarounds. Country turnarounds . Country turnarounds. Countries that turn themselves around. Over the last few decades, the third world countries in these markets, they did their turnaround by doing three things. They were disciplined and they brought clarity, and discipline and clarity bring trust. It is the same thing for corporations. Focus on the future. How will you deliver value to the company . Clarity about the change of direction. And with clarity, you have trust. Which country or two countries, offer good examples like jcpenney . One of my favorite examples is a country that is focused on the longterm, the country of chile. To give you a very quick story, in 2006, they were booming. The citizens and one of the finance ministers wanted to see a fiscal surplus. A number of things. A number of things and he refused to do it. He said that this was money for a rainy day. When the crisis hit in 2008 they spent money on the stimulus program. Is that focus on the future and longterm strategy at these companies use. Look at ron johnson as the worst retail ceo ever . Certainly, the strategies he put in place did not make sense. For jcpenney. No doubt. Mary, thank you for joining us. Rossgilbert, joining us. We will go back to capitol hill a few minutes from now. Senators will have their questions ready for secretary janet yellen. That is next. Welcome back to market stephanie ruhle. Janet yellen just finished her opening speech. What did you hear . She deviated from the Opening Statements delivered to the house in one significant way on the economy. Chick knowledge in the twoweek period she acknowledged in betweenweek period n she testified thea with her when she testified. The afc will look into this, the numbers may be weaker than they thought. And this bears close watching. What do you think that we should be paying attention to next as the questions begin . I dont think that peter heard you. I am sorry, was there a question . We will go to the hearing, right now. Respondinget yellen, to questions. This has been appropriate for quite some time. There is no conflict at all. This is the moment between the two goals that congress has signed to wes, promoting maximum employment and price stability, inflation is running well below are two percent target. As you indicated, that gives us ample scope to continue to try to promote a return to full employment and we are committed to doing that. Yellen, what approach has the fed taken with respect to Insurance Companies , 100 65 ofew rules frank . Ank 165 of dodd what are the rules for Insurance Companies under this amendment . Senator, we are looking very carefully to design an appropriate set of rules, for companies with important involvement in insurance. Are veryize that there sniffing differences between the Business Model of Insurance Companies, and the banks that we supervise. And we are taking the time that is necessary to understand these differences, and to attempt to requirements that would be appropriated to the Business Model of Insurance Companies. However, that the collins amendment does restrict what is possible to the Federal Reserve in designing an appropriate set of rules. Constraint, onme what we can do. Towill do our very best craft an appropriate set of rules. Ways could the designation be made the designation process could be made more transparent . On this one, senator, i think that they have provided the public with a good deal of information. But that is the criteria that is used in the general criteria that it is established for, attempting to determine whether or not an institution or organization should be designated as assistance. In the cases of those organizations where it has made a designation, it has really provided a wealth of information about this organization, there there are also opportunities for companies that want to contest designation, to have an appeals process, so there is really a well worked out process. As they go on to consider other designation,s, for if it decides to use a different set of criteria, i think it is completely appropriate that the f stock should also make clear, that if new criteria are being used how is recovery impacted . What canincome congress do to address this major problem . Of income the issues countryty in this really date back many decades probably to the mid1980s when we began to see a very substantial widening of wage gaps between more skilled and less skilled workers. This is a trend that unfortunately has continue