Transcripts For BLOOMBERG In The Loop With Betty Liu 20140731

Company into a mass automaker. Massmarket automaker. And republicans sue the president having to do with delaying one of the key requirements of obamacare. Democrats call this a political stunt. I want to get to the details of this news out of target, that they will finally have a new ceo. There was a lot of debate about whether target was going to go inhouse with another type of retailing deal, or go a little bit outofthebox and it looks like they have gone a little outofthebox. Outofthebox, for sure. You see a lot of these large retailers do tend to promote from within, so this is slightly unusual. That said, even though cornell was most recently at pepsico, he was head of the foods business, which is the largest of its extensivehe does have retail experience. In fact, he was at walmart and headed up the sams Club Division before he was a pepsi. And before that, he was ceo of michael kors, the craft store chain. Our next guest is familiar with cornell from his time at walmart. Sams club did show improvement under cornell and that he was well. He led the division up from the midsingle digits up to the midsingle digits from the low single digits. He was able to foster improvement at sams while he was there. , theurse, you know challenges at target are pretty deep ones. The company most notably had a deep data breach late last year. Ame analysts called it blessing, because it allowed the company to change its focus not just in terms of data security, but more importantly, in terms of its core strategy, where many folks feel they had gone astray, struggling in its Canadian Business as well as a winning u. S. Business. The challenges ahead of cornell are going to be big ones. It will be interesting to see what he does to address them. Certainly, a lot of challenges ahead for him at target. Julie hyman, our senior markets correspondent. Isctric Car Company Tesla teaming up with panasonic to build a 5 billion gig of factory, a battery factory. They have been working on plans to build thisgiga factory to work on ramping up production of batteries for electric cars. Joining us, matt miller, our resident auto expert. Hearing elon musk talk about this factory for quite some time. Critics have been saying it, will it ever get done . Now hes got an announcement. Of new panasonic was going to do this. This is a confirmation of a scoop that we already had. The question is, how much money will they invest . Nikkei came out a couple of days ago and said they will invest ¥20 billion to y30 billion. News,at they have this then maybe earnings will come out after the bell. Things one of the Main Investors want to hear about before they pay the stock. Correct that is what analysts focus on with every Conference Call that is what analysts focus on with every Conference Call. That. S about whether or not we get more answers will show us a lot about the stock price tomorrow morning, or after hours today. We will also get a lot of questions about china. We expect that they have sold about 1000 cars in china. This should account for a lot of their revenue, trade percent by 2020, which is not as far along as i would have hoped. Is not as2020, which far along as i would have hoped. But the Company Earnings came down 40 in the first quarter. Does that mean that california is going to be saturated with tesla . Also, does that mean you are injured ramping up your International Business . Are you getting the kind of Customer Service that you want to be getting over there . China first and foremost after panasonic on the analysts question list. We just dont know where the plant is going to be. We still dont know, which i guess is kind of exciting. Which state is going to get it . Is it a state that tesla can sell cars legally . Or will they have to change the laws before they get the giga factory . It will be interesting to see what they get for unit sales going forward. It could be weaker than expected. Also, the model x, betty, im so excited about this, and im sure elon musk is, too. They will be a crossover size. The doors open up like falcon wings on a private jet. That could be a huge seller if they could retool their factories to produce enough to meet demand. That will be another thing people wonder about on the call. Im excited about it, too. So tight it. And so much else is happening. I have to tell you about the first audi car i drove. I will talk to audis chief marketing officer. The audi driverless car. Thank you, matt miller. In the meantime, the s p has declared argentina on default in default on its foreign debt. A groupitch attempt by of argentine banks to resolve the issue fell through late last night. Joining us now from buenos aires , willem marx, and cost poors against the kastia joins me here. Late last night they said they did not come to an agreement. What was it like there . Andt was full of reporters pretty intense in the sense that it was always a possibility this would happen, but it was surprising to see that he had come all the way to new york, basically just to say, there is no deal. Get it done. T we couldnt get it done. Justt seemed like they continue to reiterate the same terms, the same offer that the holdouts had rejected twice already. And sure enough, late last night, we also got a statement from an ml mml, which is the unit from elliott, one of the holdouts, that said apparently, the master negotiator in these talks had proposed several alternatives and argentina had rejected all of them. But they are both blaming each other. Are both when each other. They are. The economic the economic minister must have been pretty downbeat. Its hard to tell with him, but he basically said this is a forced decision, that they forced his hand. That it does not really count as default, because they paid. That this is a unique situation and there are many terms for this. This is not your runofthemill default. The main thing they are pointing do anythingannot until the end of year because there is a clause in the contract that prevents them from doing so. Essentially, they wanted to postpone talks until the end of the year. Willem marx, its got to be tough being an argentinian these days, because they lost the world cup, and now you have these bankers who are not budging on this deal. Im told that down there among the newspaper headlines, they are calling these guys bolster a vulture bonds. Right . Every single one of them are referring to these u. S. Bonds vultures. It is a characterization that was talk started by the government here. Wherea characterization they are speaking to a local audience making these claims. We were just speaking to someone who said that the u. S. Judge was working on behalf of the funds. There is a real split between those who see through the rhetoric and those who are happy to swallow it. You and i talked about this yesterday, the first time that argentina had defaulted. In many ways, the economy is accustomed to these ups and downs here. To some extent. I think the biggest concern of the people here is inflation. Ask, itg on who you runs anywhere from 28 to 40 . That makes life very difficult for Business Owners for planning ahead, in terms of what they will pay their employees. It is the big concern of everyone here, the of everyone here. The Exchange Rate between the peso and the dollar is ever widening. And then the black market, which is referred to as the blue market here. All of these are pressing concerns to those in buenos aires. Thank you, willem marx. Oil giants reporting earnings this morning. Beat estimates. Conoco so has yet to posted. Econdquarter results alix steel has a closer look at the industry and may continue to fire on all cylinders when it comes to earnings for the but there are some big problems, because production is falling while costs are rising pretty much across the board. Production costs fell almost 6 in the Second Quarter, but at the same time that net income is at its longest slide since the financial crisis. Exxon is not alone. All of these Big Oil Companies are hurting. Shale was supposed to be the magic ticket. It makes up about 40 of all of the oil the u. S. Produces, but oil prices have to stay high for drilling to be economical. Love, production in shale is quite plus, production in shale is quite fast. You have to drill longer and deeper. Has that hurt Oil Companies that have huge opportunity for highend jewelers dr. Highend drillers . What do these highend rigs look like . They are pretty fancy, as you can see there. I headed up to west chester, pennsylvania, to check out the new one. It walks on its own and need 75 fewer truckloads to put it together come and has a 40 smaller crew. The small crew operates the rig from a control room that is about 25 feet in the air from with a joystick. No one is on the ground. From thecontrol it control room. You look at the pipes, drilling the plate you lift up the pipes, drill in the plates will stop and drill in the plates. Was explained to me how it all works. The technical people who grew up using joysticks, they are used to this type of technology. The coming generation is really going to do enjoy the future. It will be a lot safer for them to operate. Playing all those video games wind up helping you. Horizontallydrill as much as 18,000 feet to mop pump out the oil, move a few feet. Older rigs had to drill one well, pack up the equipment, and then move miles away to drill another well. Estimates from analysts are that it will grow as much as 10 to 15 a year. Coming up, the government ruling that rocked the fast food industry. It could change the way mcdonalds and others deal with their franchisees. But republican senator tom coburn talks about Corporate Tax dollars. Dodgers. He says it is time to rethink how everybody is taxed. Mcdonalds, which has been taking heat for worker pay, just suffered another blow. This time, the National River Labor Relations board. If upheld, a new decision could make it easier for unionization fight for and a better wages. Mcdonald said they also believe this decision changes the rules for thousands of Small Businesses and goes against decades of established law regarding the franchise model in the United States. Joining us is someone else who also opposes this decision, steve caldera, the president of the International Franchise association. For those who are not ensconced in this industry, tell us why this will hurt the franchisees. First and foremost, franchisees are independent owners. They put their own skin in the game. They take out loans. They use their investment savings, their regular savings, to take a shot at the american dream. They have the ability to hire, theire, and they process own payroll. They pay their own taxes. And they set their own wages. And there recognized by the Internal Revenue service with their own employer identification number. It is a way to be in business for yourself, but not by yourself. It is the reason it we are growth ofthe overall the economy. It is a timetested business model. As i was looking into the story and digging deeper, having, lets say, fast food workers, or unions go against franchisee, but the franchise or, mcdonalds for is there some benefit for the franchisees . Where at least they would be teamed up with the corporate owner in fighting these lawsuits . Am i missing something . There is anyink benefit. They would be the middleman and between the consumer and the corporate entity. All of the hard earned equity they have put into their business would be put into question. We dont think this is a good thing at all. What this is, is a special interest benefit by a prounion government entity. It is no secret that privatesector Union Membership has been declining for years. This is, we believe, part of a broader effort led by the Service Employees International Union to unionize Quick Service restaurants. And again, we believe this has broader invitations implications beyond the franchise industry, which could be devastating for business and stifle job creation and Small Business entrepreneurship. Formthough i want to read read for you one quotation from the person representing some of mcdonalds employees in new york city. Tosays mcdonalds can try hide behind its franchisees, but todays determination shows there are no two ways about it. The golden arches is an employer, plain and simple. While you are saying that we should be separating the two, their argument is, look, they are one and the same, and mcdonalds, the company, has to stop hiding behind its franchise model. He is certainly entitled to his opinion, but this model has worked for over 60 years. Whyn, there is a reason franchisors and franchisees continue to Work Together and grow as an industry. Mcdonald has a responsibility to its franchisees to protect brand standards, to ensure a consistent quality experience to the consumer relative to the products and services whatever the franchisor might serve. Technically, they might be separate, but from the union sir union side, they are saying, look, they are one in the same. The franchisee cannot run its business without getting the approval from the franchisor. The franchisee doesnt run its business. I just went through all of the latitude they have to hire does run its business. I just went through all the latitude they had to hire and fire, etc. The franchisor has the responsibility to ensure aces a consistent quality experience for the consumer. That is why they have worked together well for years. Politicallyed and motivated decision. Weve got to run. Thank you. You are watching in the loop live on bloomberg television, streaming on your phone, and at bloomberg. Com. Good morning. Im betty liu. Said the success of its playstation four and spiderman sequel helped to boost the bottom line. The company is trying to reshape sixbusiness to avoid it annual loss in seven years. Withbrands has cut ties the company that allegedly repackaged old beef and chicken and sold it to kfc and Mcdonalds Restaurant in china. Yum foods says the safety scandal has hurt its business and could cut into its annual profits. Has slashed its fullyear forecast. Its annual profit will be at least 241 million short of its forecast. The company cited cited a slump in demand and increased risks in the russian market. Bloomberg television is on the market and equity futures are trending a little bit lower. We have new economic numbers having out in a little bit. 300,000 is expected where we is where we are expecting to see jobless claims come in. We are on the market again in 30 minutes. Ceo, topepsico americas be the next head of target. For more, i want to bring in between stan in Atlanta Duane stanton in atlanta. You know a little bit about brian cornell. Why is he good for target . He came in from walmarts sams club, where he had been well respected. He made the jump back to back he made the jump back to pepsi. As you know, pepsico has been in battles, trying to fight their way back into the soft drinks is this. And of course, fritolay is an important part of offsetting some of those problems. He has played a key role. But he has been in a very key role. What have been some of his big as head of theo Foods Division . One of the things is pushing the notion of the power of one. Brandsheir big fritolay and soft drink brands and soft drink brand to gain traction at retail. The company has also made a lot of strides in terms of food service. They have been trying to pair up some of the Foods Products in restaurants like taco bell, trying to get traction for some of those brands and compete better against coke on the food service side. Coke, as you know, dominates food service in the u. S. They do, indeed. Was he considered as possibly a at pepsico . Does this leave a management vacuum . Not said shes leaving. It could be a couple of years. It is hard to say. There were three lead horses in that race, and cornell was definitely one of those. He was definitely one of the three that people were watching to see if he would maybe take indrain drug decides to leave. Why would it make sense for him to take over at target . What are people telling you . Moves fromingly, he being a pepsi insider to being one of its large customers. He will be running target. You can imagine the kind of business that pepsico does with its fritolay chip rants brands at targets, and is pepsico brands. Its beverage brands. And he knows retailing. Again, he worked for sams. He understands those environments. Target has somewhat of a different demographic, different store design. There is a different thing going on there. It will be interesting to see how he translates those skills from that from the pure disk outside to something in the middle between discount and maybe a Traditional Department store. As you say, there is certainly a relationship between pepsico and target. And really, the soft drink company and these major retailers like target. Thank you for joining us. Duane stanford of Bloomberg News on this interesting pick for a were just about to get jobless claims numbers, the last report for the jobs report tomorrow. Attial claims coming in 300,200, in line with expectations. Chief markets correspondent scarlet fu is digging further into these numbers. Initial jobless claims rose 000. 00 last week to 302, the prior weeks number has been revised lower to 279,000. Jobless claims the prior week had dropped to an eightyear low. A lot of people said there are seasonal factors to be aware of. To go with needs that particular jobs number lessess claims number, jobs claims numbers for july because of seasonal issues. This is something we will want to get more insight on, whether 302,000 number is clean or whether we need to consider seasonal influence. The fourweek claims average has fallen to the lowest since million. 06, at 2. 54 fourweek average number has also come down as well. Thats good news as we head into the friday jobs report. Thank you so much, scarlet fu, our chief more markets correspondent. The biggest ipo of the year. We will take a look at ges spin off of synchrony. Says a total overhaul of the tax code is necessary. He will join us in just a moment. Be sure to tune into bottom line today for an interview with under armour ceo kevin plank, as the Company Looks to widen its focus. That is at 2 00 p. M. Eastern time. Spinningng off off its Consumer Lending arm, 23. Rony, shares priced at picker,us now is leslie who covers the ipo markets for us at Bloomberg News. Ge will still hold an 85 stake in synchrony. Anything int sell this company into its ipo, actually. They still have a ownership they still have ownership. Reason for spinning off . They remained profitable during the financial crisis. They werent necessarily a problem child for the Parent Company, but it is a business exposed to finance. They have a bank. They have all this cyclical exposure to the financial industry. Off,said, we can spin this get a goodsized valuation for it. It is one thing that ge has repeatedly told its shareholders they will get a good told its shareholders they will get a good value from as well. There is quite a bit of demand, including from sovereign wealth fans funds. It is a good sign for the ipo. You want to have big, Institutional Investors showing interest. When they see the sovereign wealth funds are coming in, they will say, ok, this means they will hold on for a little bit longer than, say, a Big Hedge Fund coming in, which is more likely to flip. They raised about 3 billion dollars, right . What are the Comparable Companies we can say, where is synchrony going to trade today . How are they going to perform against their peers . Theapital one and discover, major credit card issuers. Synchrony does private label credit cards. You may not know the brand like you 01 or discover. T is a new brand they issue cards to jcpenney or amazon. Jcpenney you will see the jcpenney or the macys name, but you dont see synchrony. They are behind the scenes. For shareholders, is there any concern for a possible exit by ge at some point echo ge said they will at some point . Ge said they will do some type of exchange. They could sell a big lock of stuff, which may be a bi concero some shareholders. It is still up in the air. That is a question that investors were asking management at the roadshow. We had some ipos that were focused were consumer focused. We have synchrony, which was number one, the auto lender. Pinoff and another auto lender they operate in totally different sectors. It is interesting that they were the biggest ipos so far this year. Why is that . There is a lot of investor demand in these companies that there isd products to high reward potential. Issuesave individual that have caused them to trade down, but it was something that investors were interested in, especially early on in the year. Some of the bankers who worked on this ipo worked on alibaba. What is going on with alibaba . Alibaba is waiting until september. They have a couple more weeks to get things figured out. We should start to see some action come out right after labor day. And a potential roadshow. This could all change with respect to the markets if the markets turn or if the sec comes out with more questions that they have. Like september is a good month for this company to finally make its debut. Much, leslieso picker of Bloomberg News. We will be back in two minutes. It is time for todays bloomberg big number, 30 million. That is how much Michael Jacksons neverland ranch is worth. It is about to be sold. It is roughly 130 miles work northwest of l. A. Barrick purchased a 23. 5 million stake in the property and has been making improvements ever since. He says it is now close to his ridge to its original condition. Why would you want it without bubbles . Isnt that one of the selling points . And three other states have passed laws allowing Autonomous Vehicles to be tested on their highways. It is part of an effort to bring jobs to the state and help Companies Develop technology that will pave the way for safer, more efficient travel. The first Autonomous Vehicle to reach the preproduction stage. Matt miller, who you just heard offcamera, went to tampa, florida, to take it for a ride or maybe it is vice versa. Selfen you think of driving cars, you might think of frome or the hit sitcom hbo, silicon valley. Has entered the game. And is testing this sleek sports car on state highways. Here we go. The technology hasnt been perfected, but it is well on its way then to countless Software Engineers and states like florida. We have a Large Population within the state and several urban areas where this type of technology would be very beneficial. Florida governor rick scott is betting it will add jobs as well. You start with things like this. Having these Autonomous Vehicles tested and developed here is exciting for our state. The car we are driving today an executive limousine with a fastback. This will keep you in your own lane and accelerate and brake as necessary, but it wont drive you to the mall or pick you up from the bar. It wont be until stage five that you can have your car drive you where you tell it to go. We believe in the philosophy that when you want to drive, you should drive. When you want the car to take over, you should designate it to do so. Technology doesnt always work, but when it does, it is quite useful. Wheel. S are not on the i just sent a text message. It could be an absolute boon for carmakers. Theres only about one billion people with a drivers license. There are another 6 billion people who would like to have the mobility of a car. Very cool. Matt, did you feel safe in it . Were you ok with ed . Highway that was shut down and surrounded by a bunch of audis. This is the testing phase. Would i trust the technology in a reallife situation on the highway . Probably yes. I dont know if you want to go by my level of judgment. It doesnt switch lanes, it just brakes and accelerates and stays in the lane. It is meant for commuting. We could see this as soon as the next model year. It is interesting. Is the car company the ones to be working on this . Its interesting you say this. A lot of people would refer google or ibm or some sort of tech company. There was a survey done recently where consumers said we would trust more a tech company than a car company. In the end, it will probably be a partnership of both. Said itysts we spoke to would take about 100 million lines of code to make a car level five autonomous, meaning it comes to pick you up from your house, takes you to the mall and drops you off somewhere. You will probably see a partnership. Theyestingly, in england, are talking about these little pods that will drive you around. It seems so british. They are not even cars. They are little, british pods that drive you around and drop you off. It set sounds so cute. Very british. Thank you so much. Roger altman will be my cohost for the next hour. We will discuss the wild am scene we are currently seeing. Hes going to give me his read on the economy. You know this trend. In a quest for tax savings, many u. S. Companies are using mergers to move their address overseas. President obama has called the strategy known as in version unpatriotic. An accounting trick, but it hurts our countrys finances and it adds to the deficit and it sticks you with the tab. If they are not paying their fair share and stashing their money offshore, you dont have that option. It aint right. It aint right. Joining us now with more perspective is senator tom coburn of oklahoma, who wrote a recent oped on this issue. I know you say this whole trend of inversion is an opportunity for us to look at longterm reform in the tax code. What about closing this loophole first . As atty, i dont see it loophole. I see capital going where it gets the best return. It is typical washington. We address symptoms but we dont diagnose the real problem. The real problem is the Corporate Tax rate is not competitive with the rest of the world. Are 5 belowyou everybody else on average, even after the tax credit for foreign , in this country. If you want to stop this problem and enhance our growth, we ought to have Corporate Tax reform that makes our Corporate Tax rate competitive with the rest of the world and go to a territorial tax system. We are, by our tax policies today, Incentivizing Companies that dont do inversions senator, do you support companies who say, look, i am sick of the taxes i have to pay in the u. S. And im going to move my company overseas . I support economic freedom. Thats not the question. The question is what is the motivation causing this . The motivation is to be competitive worldwide. You can ignore the real problem willreat a symptom and you still not have it. They are still going to invest overseas even if you stop inversions. We need to be competitive in terms of global Corporate Taxes and we are not. If we want to stop all this movement, thus seeking and finding for the best return on capital, we have to become competitive, and we are not. There is a larger issue. I know you want to talk about reforming the tax code. Both sides have said we need to reform the tax code, but there is a larger issue for ceos and companies. Rarely do i hear a ceo say im going to do a merger because of the tax situation. Mostly, they are doing it because they are not only facing the tax situation here or higher thes, but also because landscape in the United States is getting less and less i guess, more and more hostile to them. They feel like there are regulations coming from congress, there is gridlock in washington. If i can like, look, find some sort of advantage, im going to take that then you i would say there is not gridlock in washington, there is lack of leadership, which is two different things. Ceoer two, if you are the of a company and you are the board, your job is to maximize shareholder value and grow that business. They are going to go where ever they can do it. We have put ourselves in a predicament by our tax code, where we have two 2 tri trillion sitting overseas, where we have created. Ompanies that are vulnerable what we have to do is you either bring in Free Enterprise or you dont you either believe in Free Enterprise or you dont. The Regulatory Burden on companies has grown tremendously and it is much more expensive to conduct a business in this country than it has been in the past. I dont think that is what is driving them. I think what is driving them is a lack of being competitive in a worldwide market. At the same time that you are longterm tax reform, what about a shorter term measure to keep that money here or to keep those companies here . Tax measuresher like giving companies a tax break and having them returned their earnings back to the United States . Have territorial systems. Everybody else in the world does except for one or two. We are at a disadvantage. We ought to go to a territorial tax system or we ought to allow them to bring it home with a much smaller tax. The fact is we are telling american businesses, go out and compete in a world market, because this is a global market, but, by the way, we are going to handicap you with our tax code. Thats whats happening. Thank you so much for joining us. We will be back in two minutes. We are about 30 minutes away from the opening bell. Here is what we are working on. Futures indicate stocks will open much lower. More people applied for jobless benefits last week. Jobless benefits at the lowest in eight years. Target has a new ceo. Brian cornell has been running pepsi americas food unit since 2012. He is also a former walmart executive. Synchrony financial raised almost 3 billion in the biggest ipo in the u. S. This year. Synchrony is the Consumer Lending unit being spun off from general electric. Dealing. Ling and bloomberg has learned exclusively that amc networks is in talks with the bbc to acquire a stake in one of its channels, bbc america. Jon erlichman helped break the news for us. He is joining us early from l. A. Why is amc interested in bbc america . When you think about what is going on in media, you have Cable Operators seeking to get bigger. ,ox is going after time warner very interested in time warners cable access. That would give fox much more leverage. The muchxample, smaller example some of the same theories apply. Amc has had a hot hand. Placeannel once was the where old movies with live and now it is the place that has great original shows that a lot of people say have the same taste and appeal that hbo has, from madman to mad men to breaking bad. They have sundance and they have ifc. There is a certain brand they push which has similarities to what bbc america is doing with its original programming. Of bbcan get a portion america under our control, then maybe we are positioned where we can have that much more leverage when we go out to the advertisers and to the paytv operators to try to get more fees. Why would bbc be interested in teaming up with amc . I think the bbc, specifically bbc worldwide, which is the commercial arm of the bbc, are looking at a situation like this and looking at a variety of options. Amc does have a lot more leverage these days. Certainly, as a channel operator, we are always looking for more advertising dollars. We are looking for better distribution and better distribution fees. I think that is where potentially teaming up with amc could it be could appeal to them. There will be a lot of these kinds of discussions over the months and weeks to come. A lot of people are watching the foxtime warner deal and wondering what it means for everyone else out there. A Game Changing deal if it never happens. Thank you so much, senior west coast correspondent Jon Erlichman. I want to bring in a banker behind many of the merger and acquisition headlines we have covered these last few mins months. Roger altman is the founder and executive chairman of ever core, of evercore. We have a lot on the agenda to talk about. We just wrapped up an interview with senator tom coburn about m a and these in version yields weve seen accelerate. What is your stance on that . I think it is a shame, the differential between u. S. Corporate tax rates and comparable Global Partner tax rates is so wide that a lot of corporations feel impelled to redomicile. That is overall not a good thing. Fundamentally, what we have to do is eliminate that differential. The problem is that, and legislatively, as everybody knows, it is very difficult to get anything done. The prospects for Business Tax Reform are distant. The prospects for eliminating this incentive for corporations to redomicile arent immediate. It is understandable why a number of them have done that fact, the more of these that are done, the more Companies Say to themselves, if i dont, i will be at a competitive disadvantage. This is only, going to come to a halt when we lower the Corporate Tax rate, which we must do, lower the rate and broaden the base. The question is, what will cause us to accelerate that process. In the interim, there will be more of this. Roger and theort obama administrations stance that we should close this loophole . I think we just need to get on with tax reform. But that is longterm. It is only Corporate Tax reform, not broadbased individual tax reform. It would be very good to start that process. Im not naive. Its not going to happen in 2014 unless some huge reversal occurs in sentiment in congress. At the beginning of 2015, ideally, this process would start. To thesea benefit inversions. Maybe it will wake up the congress to the degree to which they have to start on them. I dont think the chances of a bill whose only focus is to stop inversions are very good. In the senate, there are group of democrats who one by one said they dont think that is the approach they are interested in taking right now. I dont think that approach is going to go anywhere. There seems to be some hints, lets may be treaties companies that are doing this not as well then we might treat others who will keep jobs in the United States. I dont think that is a practical approach. I dont think that could be done as a political or legislative matter. We are going to talk a lot more in the next halfhour. Roger altman staying with us through the opening bell. Coming up, too big to fail may be back. An unfair to what is advantage for the nations biggest banks. Plus, competition in the organic food space is heating up. What is whole foods doing to stay ahead . I will ask the companys coceo and he joins us. When he joins us. Were going to bring back my guest for this halfhour, roger altman, the founder and executive editor executive director of evercore partners. You wrote an oped that says you are surprised the economy is not as bad as you would think. We spoke with former fed chair Alan Greenspan yesterday. We are running out of buffer in the economy. We dont have the capability, run into a if we major conflict in the middle itt or elsewhere, where requires a major increase in our Defense Budget our Defense Budget is heading in the direction where it will be at the lowest level relative to gdp since before world war ii. We dont have the physical resources. We dont have the physical resources to respond to global warming. We dont have, what he is saying, a big rainy day fund. There are a lot of different ways to look at that. The deficit is at its lowest level in years. To beis probably going more good news on that front over the medium term, just because the economy is strengthening, revenues are strengthening. Probably a little surprised to the upside. I wouldnt say over the shortterm we dont have the resources to increase the Defense Budget if we need to. He is right in the longterm sense. That problem weve all talked so much about, the longterm mismatch in terms of revenues and expenditures, especially driven by entitlement has not been cured. Over the medium term, i dont agree. I have tremendous respect for alan. If we had to increase our Defense Budget by 100 billion, for example where would that come from . If we had a crisis, congress would promptly authorize it. The recent circumstances under which we would need to do that would be a crisis. If there is a sufficient crisis, congress would move ahead with that. It is the defense equivalent of tarp. When we had to do it, we did. If we had a really serious crisis, there would be a bipartisan agreement to do that. I know you have been beating this drum for quite a few years that the economy is a lot that are than what people are given credit for. You wrote this article in Time Magazine. You. Have agreed with they say the u. S. Economy gained job gains. Aw the jobless rate is falling. Nomic growth, and 4 Economic Growth at 4 yesterday. Housing is the one area that is struggling. Why . Way, i have said over the past year or so that i thought the economy would be more likely to surprise on the upside than the downside. So, a year, not a few years . Nobody would have said a few years ago that the economy was strong. One problem is prices. Watch the case schiller index. Prices have ridden risen steadily. There is an issue in terms of housing prices and incomes. Incomes are pretty stagnant. Then you have the problem with mortgage underwriting standards. This is a legacy of the credit market collapse of 2008. We see in markets ash you always fight the last war. People who are mortgage lending toicers these days say themselves, the last thing im going to do is repeat the mistakes that brought this whole disaster on. There is a very conservative approach to mortgage underwriting. Do you see that easing up . It is going to be slow. That is a problem right now. Have you have family formation. , but not rising quite as fast as you would think from a historical point of view at this point in the cycle. Housing is better than it was. It starts between 900,000 and 1 million. I think housing will slowly improve. It is not as good as you would think it would be at this point, what i think it will slowly improve. Some of these factors will gradually unclog. I think three years from now we will be at 1. 5 million dollars,e one point 6 million, 1. 7 million, but it would be nice if we got there faster. Coming up, the ceo of whole foods will be joining us. On the healthy competition in the grocery marketplace. Much more in a moment. Late yesterday, whole foods announced earnings for the quarter. There is stiff competition from other food chains. Even new whole foods locations are cannibalizing existing ones. They had to cut their annual sales forecast. With me is the coceo of whole foods. Thank you for joining us. Still with me is evercore executive chairman roger altman. First off, what is the Biggest Issue here . Is it the competition . Is it the cannibalization. Cannibalization . Or is it that consumers are not spending as much as they were before . Bighen you look at the picture, it is a combination of all those things. , which isgrowth substantial. It is the general economic backdrop, and i think retail in general has had some challenges. Sales, more of stores than weve ever open before there is a lot of momentum in the company as well. Roger wrote a piece in Time Magazine about the challenge of lower income families in the United States. Let me read you one statistic from that article. Familiesrkingage earned 40,000 or less, 40 . Maybe there is a problem that more and more consumers and families cant afford some of the highend products in your stores. A wideainly, there is range of incomes for all of our customers. I think the question that could be asked also is people can only afford what they can afford, but can they afford to move towards not to move healthier foods in their lives . 80 of healthcare spending in this country is from preventable, chronic, lifestyle diseases. Certainly, a healthy diet is part of that. Inny wise, pound foolish some cases. I respect that there has to be some choices for folks across the economic spectrum. Roger . Im not an expert on whole foods, but i think the question that occurs to me is, as whole foods expands at this rate, do they expand the customers they are trying to appeal to . Does that run into this income weakness . All,would say, first of you know, we are continuing to broaden our Customer Base as we grow. We have almost 400 stores now and we are in 42 states. As we expand across the country and into different markets, we are broadening our Customer Base. While our comps on our shelves are slower than we would like to see them, we are still gaining market share, suggesting we are gaining customers. Remember, we have opened stores in some different markets, detroit, new orleans how are those stores doing . Beene store in detroit has open well over a year and it is doing so very well. What is very well . Can you give us some numbers . I cant give you numbers on individual stores. Let me just say the store is doing substantially over our projections. T has been about 13 months it is continuing to serve a broader community. Our food stamp percentage in that store is probably five times the company average, suggesting we are reaching a broad audience. We are learning a lot about how to continue to broaden our product assortment and our pricing range. Joining you so much for us, walter robb, the coceo of whole foods. Roger altman stays with us through the opening bell. We are just a few minutes away from the opening bell. We have the top 10 stories you do not want to miss and the stocks. Keep it here. Welcome back. You are in the loop. Im betty liu. We are on the markets. Futuresa final look at right before we open. We are declining. Jobless numbers came out a little higher than expected, not so great news on the jobless front. We are watching the jobs report tomorrow. We are on the markets again in 30 minutes. The only stories you need to know about today. Scarlet fu and julie hyman joining me this morning. Lets start with number 10 and mastercard, the worlds secondlargest debit and Credit Card Company reporting Second Credit debt Second Quarter cant Second Quarter profit that beat estimates. Mastercard is investing in new technologies amid a global shift from cash and checks to electronic transactions. Number nine is blue mobile they made the Kim Kardashian videogame. That profits margins will narrow. This game is free to play. This i keep meaning to download this app. Er. Not an alist number eight is yum brands. The Parent Company of kfc says the food scandal in china caused significant negative damage to its sales. They have cut ties with the company that allegedly repackaged old beef and chicken and sold it to kfc and Mcdonalds Restaurants in china. Number seven is shutterfly. It was a narrower than expected loss. The company had 4. 2 million orders from 2. 6 million customers over the period. The company focused on execution to drive momentum. Number six, tmobile. Gaining popularity. Tmobile added more customers than analysts estimated last quarter. Tmobile ceo tmobiles ceo will be joining emily chang for a live interview at 10 00 a. M. Eastern time. At number five, we have yelled yelp. Yelps secondquarter results beat analyst estimates. However, the stock is still falling on concerns that at the number of businesses it added during the period. Slumple foods shares in a. Coceo walter robb just said to us the company is starting a new Marketing Campaign this fall, which it hopes will help boost sales as he continues to open new markets. Number three, avon products. Profitter secondquarter and revenue missed estimates, avon saw a doubledigit sales decline. Number two is target, getting a new ceo. Former pepsico exec brian. Ornell is leaving he is the first target ceo to be chosen from outside the company. Manycurs to me how retailers are struggling. Many turnarounds in that area. Number one is synchrony financial, being spun off of. G. Off of ge they are ringing the opening bell this morning. [bellringing] f. E ticker is sy they are hoping for a good open, a good trading day. I want to bring back executive chairman roger altman, who has been with us through the our. Lets start with ipos. Weve had others so far this year. They seemed to have done well. Do you think the markets will stay attractive enough for more ipos . Right now, the market is healthy. The ipo backlog is at the highest level it has been all year. This is a very important sign. It is a landmark transaction, i think, in the types of. Usinesses that can go public i dont think you could have been done this way even 2, 4, six months ago. Im very impressed by it. If you think about the nature of the business, i dont think the Public Markets would have been hospitable to this business six months or 12 months ago. Im impressed at the amount that was raised, the valuation. It is quite impressive. I think it is a sign that the health of the ipo market a sign of the health of the ipo market. For the time being, you will see quite a steady flow. August is typically a period where there are not many ipos, but for the rest of the year the outlook is good. Speaking of valuations, alibaba may be making an investment. The valuation of that company has gone to 10 billion as a result. We are wondering how it fits in with other private tech startups. Billionfirst with 17 that would be its valuation. Tied at 10others billion. Virtually all of these rounds have, in the last 12 months. There is a lot of money chasing after these startups. It is not just private equity or venture capital. Isone persons frothy another persons good value. Some of the private transactions in these preipo situations have proved to be pretty smart. You have to look at these on a casebycase basis. Im not an expert on snapchat or number or any of them or uber or any of them. You could argue it is a sign up process. On the other hand, some of these seemingly very high preipo valuations have turned out to be good. Pretty smart. Back, the big mystery perpetual mystery on markets is when turns occur. Career,y career cup ive met very few people who are good at that. It may be frothy by historical standards. On the other hand, it could happen for the next two or three years. Do you feel like you are seeing the same repeats of the dotcom bubble at all here . Companies being funded on a piece of paper and an idea . We are not seeing pets. Com and so forth. We are not seeing that degree of mugglelike behavior. Valuations look extraordinarily rich three years from now, five years from now remains to be seen. Im not smart enough to say that. Reflecting on what i read about uber, but youve got to be impressed with that business model. That and airbnb. It is quite an ingenious business model. Say that those valuations do not make sense. What i know about those Business Models impresses me. Lets go to a place where there is decidedly not frothing this not frothiness. Youve done a lot of consulting with various companies, their leadership. Target has a lot of problems. For somebody coming outside of the company, what sort of advice do you give . Im not wise enough to advise this guy who is coming in to be ceo of target. If you are an incoming ceo, it is often a good thing if you come in at a time when expectations are low. Certainly he has that advantage. Anybody who looks at it will say it will take a while to turn target around. But i would not write them off. Are eventually meaning the next year or so going to start rising as the job creation numbers provide the basis for that. The overall retail environment should improve. Exactly how target does, i dont really know, and im not really in position , going back to synchrony because synchrony does a lot of business with private label, Department Store credit cards. Do you think it is a sign of the health not only from the ipo market, and perhaps the hunger for finance investments, but also the consumer . Is it a good sign for the consumer that there is so much demand for synchrony . Or is that too much of an extrapolation . I think that is too much of a leap. It is slowly improving. Three steps forward, two steps back. There is a raging debate about the health of the consumer. If you look at household net monthtomonth retail sales are spotty. Frameworke the macro that i have, the outlook for the consumer will slowly improve, fourth retail the outlook for retail will slowly improve. Whether it is a harbinger of great things to come, that is a little too much. One thing i learned here was that i am not an alister either. [laughter] roger needs to download the app as well. We could all learn a few business lessons from her. Roger altman, thank you so much for staying with us through the open. And to julie hyman and scarlet fu as well. Coming up, we hear from two senators about what they hear on think about big banks and whether they can really be considered too big to fail. Here is something you dont usually hear from investor bill ackman. He has two words to sum up his presentation on herbalife last week, my bad. He is not backing off his thesis that herbalife is a pyramid scheme, but he told bloomberg that investors may have missed the point because the presentation was so long and overhyped. He said people were looking for a smoking gun and a dead body somewhere, but what they got was a three hour long presentation. 25 aftershares rose his performance. He bet 1 billion against the stock in 2012. Many Famous Hedge Fund investors, including cargo carl icahn, betting against him. Brown and david vitor released the results of a longawaited gao analysis of the nations biggest bank. The report is supposed to determine whether the largest banks benefit from a subsidy because investors believe the government will never let them fail. Sneak peekxclusive from our chief washington correspondent, peter cook. He is standing on the hill with the two senators. Im joined by senator vitter and senator brown, who will release this longawaited Government Accountability Office Report on too big to fail. This report, i understand the testimony has been posted on the website. Did the gao have conclude did the gao conclude that the biggest banks are getting exquisite subsidy because they are deemed too big to fail . They are already getting a subsidy. We know that from a different from different reports prior to this. Know as the bigs get largerand larger, 25 just since the crisis, we also know that in times of crisis, the advantage is even bigger to the big banks, and that is particularly alarming. My understanding is that some of the testimony protested already posted already suggested that maybe the advantage has been reduced or eliminated. Case,ur critics make the if there was a subsidy, it is going away . Admit that there was or is a subsidy and they are arguing about the amount of it. The report says it may have gone down some with Economic Conditions getting much better. If we go back to the same crisis conditions of 2008, the subsidy goes up. Really, there is a too big to fail subsidy or cost of funding advantage. I dont think it has been reduced significantly if you factor in the general economy. There have been a lot of studies looking into this issue. How did this report change the debate . It changed the debate in that it reinforces the case that senator vitter and i have been making. In times of crisis, investors will flock to the largest banks. If they think too big to fail still exists, it doesnt matter what david and i think, what matters is the investors, the market thinks. In times of bad economic crisis, they will go in greater numbers to the larger banks. Getting even bigger subsidies then they get now. Will this report have a specific subsidy number . I dont think it will there have been numerous reports about those funded by the megabanks. They said no big deal. The others said yes, there is a significant too big to fail subsidy. Other reports failed to quantify the Bloomberg View number that was posted last year. We have the Treasury Department aying we think there was problem, potentially, but there have been regulatory changes that address these issues. You would expect that out of treasury. They are a big defender that everything has been solved. I think this report is further ammunition that too big to fail is not dead and gone at all. It goes up and down. You have corporate treasurer types saying this is something we can look at in terms of where we put our money, particularly in times of a bad economy. What happens to your legislation . Is there the political will nearly six years removed from the crisis to actually make changes . Street has a lot of influence. More and more of our colleagues understand these banks are not just too big to fail, they are too complex to regulate, too complicated to manage. Look at the problems these largest banks have had. His encourages risky behavior if you are too big to fail, there is incentive to engage in risky behavior. But why not but the regular but why not let the regulatory changes i do argue they did not help nearly enough. , partlyrtly about size about complexity, partly about fair play. When these banks go on the capital markets, they get a better Interest Rate than other banks. A clear trends towards much greater consolidation. Preexistinga trend, but it has been actually accelerated significantly since the crisis, and that is very dangerous. Your message to wall street, senator brown, is this report bolsters your case and they should expect a new push for your legislation . Our bill,e introduced you saw fdic, you saw the fed ,nact higher capital standards not as high as we think, but moving in that direction. I think that this debate and these discussions that david and i have been involved with help contribute to the debate that we take this more seriously than we have. The debate will continue on with this report and with your hearing today. Thank you so much, senator brown, senator vitter, still an unusual political couple here in washington, two senators, republican and democrat, on this to back too big to feel too big to fail issue. Certainly a rare thing to see. We mentioned the 3 billion ipo by synchrony, the spinoff from ge financial. They have now started trading. The ipo is priced at 23 per share. It is hovering around that price right now in the early moments of trade. Back in two minutes. Todays Global Outlook alibaba making Big Investments as it prepares to go public. It is talking to snapchat about an investment, valuing the service at 10 billion. Senior west coast correspondent Jon Erlichman with more on why this makes sense. If you look at alibaba and what theyve been doing in the u. S. The last couple of years, it helps to put into context the possibility of them investing in a business like snapchat. Theyve made a lot of investments in areas like communication and commerce. Theyve invested in shop runner. Since theyve hired a guy who previously worked at liberty and company liberty, a company you follow closely, they have bought into businesses like lyft , the ridesharing business, and tango, which is a messaging app. How are they going to make money . You are asking a very valid question. One thing that is really interesting, given that snapchat is based in the alley area, in in the l. A. Area, you have these situations where they will contact they will choose to get scale. You are clearly seeing that with snapchat. I dont think we know right now because that is not what they are focused on. They are focused on getting bigger. This has become an important story in l. A. In the past, because it is a much smaller investment scene versus silicon valley, a big exit for an entrepreneur venture capitalist has been 30 million or 50 million. Thats a lot of money. In snapchat, you are talking about a valuation of 10 billion. A lot to watch for. That does it for today on in the loop. Tomorrow, we get the highly anticipated july jobs report. We will watch that closely. Alan krueger will be joining me for on the spot analysis. Also, labor secretary tom perez will be joining in as well. Tomorrow at 8 00 a. M. It is 56 minutes past the hour. Bloomberg Television News on the markets. I am scarlet fu. Stocks around the world are in a rare treat are in the retreat mode. The s p down 7 10 of 1 . Foodsand whole disappointed investors. Investors outside of equities and bonds, we got jobless claims this morning, pretty much holding to the lowest in eight years, adding to yesterdays Second Quarter gdp report that was stronger than anticipated. Prices are down and yields are up. The u. S. Dollar is little changed right now, but it is headed for the biggest monthly gain in more than a year on the stronger data. A cousin of the stronger dollar, you are seeing declines in crude oil because of the stronger dollar, you are seeing declines in crude oil. In legg masons turnaround effort. Joining me now is bloomberg s they were hit particularly hard during the financial crisis. Why . They had a star stock picker who was known to be big risky b ets. He would see an opportunity and double down on it. Thats what he did. Companies, ithese think everything will turn out fine. In the end, he ended up right. There was a very painful period. This was a performancedriven problem. All other stock funds had to reconvince investors it was safe to come back, that they had fixed the problems they had. The timing issues with that call in particular. Bill miller does equities. One of the bond side of legg mason . What about the bond side of legg mason . They had these very risky securities during the crisis. They have worked to clean out up, derisk, delever. They invested in emerging market debt and in longterm treasuries, two things that were kind of contrarian at the time. I think people agree with the e. M. Debt thing, but western really nailed it. Good calls on bonds for this year. Set the scene for what is happening with the share price. It has had a tremendous rally. Over the past 12 months, it has been the best performer of their peer group. We have crunched the numbers and even riskadjusted, it looks like they have hit it out of the park. Theyve had good net flows. Which way is the money going . They are above the 700 billion mark for the first time and are managing to hold that. 2007, so 1 trillion in they are still off of that, but it is good progress. A lot of this can be credited to the ceo. He has done a lot to clean up the affiliate structure, something they are proud of. They used to have smaller pieces. They didnt quite fit together. They werent quite sure where it was going. He has done a lot to shut things that are working, combined things, look for new assets. They bought a u. K. Asset manager to fill in the International Equity gap. I think that are excited that they are excited about the new structure. What are you hearing from investors and analysts about legg mason . People are still skeptical. Is this a great time for western. Western . Can they maintain this trajectory . But i think they have demonstrated their strategy is something they believe in and something they will keep working on. You see it in performance. Mary childs of Bloomberg News, thank you so much. We will be back on the markets in 30 minutes. Live from bloomberg headquarters in new york, this is market makers, with Erik Schatzker and stephanie ruhle. Bill ackman cultist herbalife presentation apr called his herbal life presentation a pr failure. We will be speaking to the ceo john lynch share. The ball i t