Transcripts For BLOOMBERG Bloomberg Surveillance 20140411

Peter, we finally get a break. How long are they off for . Not long enough. It is remarkable. Scarlet, this is very important. Lets go to our surveillance vacation expert, peter cook. For americans, this is all a joke. What is constructively accomplished on recess . They cannot do any harm in washington. They are not here they cannot do anything. The Midterm Elections get underway. These folks get to go home and campaign. Do they go all main campaign, go to the diner, cup of coffee, listen to the voters, or the something new worth they try to wear a a lot of money . They do all those things. You cant go back, not try and raise some money because you have to raise money. It is the professional job of congress these days. You have got to raise a lot of money. They are doing all of those things. The reality is they are leaving town without getting a whole lot accomplished. We just had the ryan budget passed in the house. The senate meanwhile passing unemployment benefit extension. I passed the Willard Hotel yesterday. It is still in the lobby of the Willard Hotel . There are some smoking rules unaffected to apply to the Willard Hotel into members of congress. Not a lot of smoking. There is a cigar store by a news bureau that is sometimes visited. Lets do a data check. Equities, bonds, currencies, commodities. Incourse, is a market turmoil. Blue chips do well. He 10year yield shows at all. It is truly without exaggeration a global flight to quality as we go down to 2. 64 . 1. 39e with the euro, print. The euro advances. Onto our second page, the elevated vix. I will not collect massive, 89, a little bit weaker, japanese stock market showing an ability to sit on support right now. We have scoured the papers not only in washington but in new york and london as well. Here is scarlet fu. We will pick up where you left off. You talk about the global flight to quality. There is a global exodus out of equities whether we talk about europe, asia, or emerging markets in those regions. Europes main markets all down andt least 1 right now, this comes after the nasdaq at its worst oneday drop since 2011. We have been looking at the biotech stocks as the leading you know, they have had such a massive run. If you were long biotech stocks name one of them. Biogen, on and on. A huge run over the past year and theyre coming back to earth. Were going to take this up later on and speak with an investor, but we want to get to our second frontpage story. Personnel changes in washington. This Enrollment Period for obamas health care has ended. Kathleen sebelius, secretary of health and Human Services, is resigning. She was of course blamed for the problems with the rollout of obamacare, and the white house theunced that it succeeded 7 million, so she gives to leave on a little bit of an up note, if you can call it that. What we know about Sylvia Burwell . No question, this is important, we move on from civilians sebelius. Burwell is the new kid on the block. She does have a resume that people in washington know well. Very important is a vote to chief, her as a you omb 940. That will be a huge issue because of the rules changes, but she can get in the job right away, get up to speed and running, and she is not necessarily tainted with the same brush as sebelius. Is her man a first do no harm . There are so many hurdles that obamacare has to overcome Going Forward. Has a lot on her plate Going Forward at this job, but she is a and she is respected within the white house. Her management skills, she served in the midclinton administration. Washington. Known to again, but did executes, management skills, she helped run the gates foundation, for example. Scarlet, the mystery of palace intrigue in washington. Always, especially in the second term of the presidency. Carl icahn and ebay yesterday icahn drop his demand that ebay spinoff paypal and in turn, ebay will be naming another independent director to the board. But a deal between icahn and ebay ceo may have happened in new york interestingly enough. Interviewed about his with the ceo of ebay in an interview with trish regan yesterday. Me thatwere telling they thought john was a very attractive guy post op you know john and i mustve topped eight hours, 10 hours over the last four or five days about the future of the company, the potential. I find it to be extremely passionate. Ast is the kind of guy like a ceo. Do you think this has been his plan all the long . Lan is to make the most amount of money. The argument that john donahoe has been making which is paypal is so essential to leave a. To split them off means you will not get the benefit. There is a synergy there. I mean, it is funny because they went back and forth, scar. A month ago, they hated each other. So they figured it out. And it was all done during dinner between two guys. Tom, we will send it back over to you. We will keep an eye on this intrigue over here. Plenty of intrigue in washington. No question about it. Last week, the president took a victory lap on the Affordable Care act. It was a modest celebration in the rose garden. No Kathleen Sebelius. Beleaguered secretary of health and Human Services. She is done. We continue our discussion of palace intrigue. She was a loyal supporter of this president. She was out front in 2008. She was. She was a successful governor in kansas. When she stepped out there, one of the first elected female politicians, National Stage, to support barack obama and his run for president. That was a big deal for him. On,was loyal to him early he was loyal to her during this mess. She is leaving now not totally on her terms, but not because the president asked her. I you are better at this than am, mr. Cook, the second administration, the changing of the guard, you get really loyal people a slot of things. Will there be more to follow . I think we have already seen a significant turn over. She had been there from the start. It is not surprising that people would leave for a second term. It is surprising maybe that she stuck around this long. She almost could not leave without the embarrassment of being blamed for obamacare. Now you look at someone like tom bill sacco has been there from the start, you have got to imagine the Agriculture Sector will move on. Eric holder is the one i keep my eye on the most, the attorney general. Entry, thealace of game peter washington, peter cook. A small start up shop in boston, fidelity preparation. They do a little but in the equity markets. We are thrilled to have you here today. Markets change over time, they certainly become more global, and they become more complicated of course, but theyre still buying and selling at the end of the day. I send a note to our team that were are not talking about a massive selloff, never lose us there is no real damage. Do you make note at fidelity of the bifurcation of the market, hips doing well in every thing else gets hammered . Yes. What were seeing is a massive rotation right now. The market until yesterday, the s p started it 1845, and is that 1845 through month later. My sense is we will stay there for me the next six months, so this is going to be one of these consolidation years like 1994 was. Not for bonds buffered equities. Usually when things are quiet on the surface, there is a lot going on under the surface. I have got to reallocate my cash this week. I am 100 in cash. There is the momentum selloff as the nasdaq rolls over. Jurrien, should people be doing things in their portfolio over the weekend, or are we supposed to have patience . I love when you guys say we need patience. If you are a typical investor and most of your investments are coming through your entire met your Retirement Savings plans, your 401 k or an eye and every month you squirrel away as much money as you can, you just keep doing that. They are not return a buy. Absolutely. It sounds like John Templeton 101. Scarlet fu, jump in here. No real reason. Earnings season does not really get started until today at 7 00 a. M. When jpmorgan reports. Why is there so much weakness . I think there are three reasons why the market has only the going sideways and not up and why it probably will continue to consolidate for maybe several more months. Nowis that with the fed being a little more concrete about what considerable period means, the period between the last qe tapering and the first rate hike, i think the inevitability of a rate cycle is started to emerge, even though it may not be for another year, we are starting to see that take shape. One has to adjust to the side where going into a ok, bloom economy, Christine Lagarde is telling us everything is fine. I am sorry, something is amiss, what is amiss . The economy is good in the u. S. , japan, germany. We are in a midcycle expansion. The claims number yesterday, 300,000, phenomenal. We had the weatherrelated weakness. The proof is in the putting that the numbers have to come back as strongly as they fell in the first three months, but what is happening is there is no inflation, so i think what i am thinking the fed is going to do if they want to normalize rates to a level where for the next cycle they can start lowering them again, and the fact that there is no inflation allows them to be slow and steady and it is not give reason for the bond market to sell out the way it did nine months ago during the taper. Courtordered question of the ,ay come out bsurveillance thank you for the briefing. Does the week selloff make you nervous . Question for the weekend. Tweet us out bsurveillance. We would like to hear from you. Tom, we want to introduce our guest host, author of several books, chris, our twitter question was does this weeks selloff make you nervous. It makes me nervous because deflation is still a problem. The global Central Banks loaded down. We did not have a massive liquidation of the equity in the system eggs to bernanke and the rest of them at the fed and other Central Banks, but ultimately it is a lack of demand, a lack of economic pull, if you will, so if you watch Central Banks, especially in the u. S. Trying to raise rates with no real demand for credit, in fact, look at housing. Demand is falling. We have to be very careful or else it will fall. Quantify what you mean by demand is falling for housing. When you look at caseshiller come on and on, it looks like it is going up, so what do you mean . The more attractive areas of the country are going up, but the rest of the herd is stopped, and i will tell you that really home prices generally peaked last year. On thes, there is Housing Market. We will pick that up later. We will focus in on jpmorgan. Earnings are due out of the top of the next hour. Water in vectors what are investors expecting . This is bloomberg surveillance. On Bloomberg Television, streaming on your tablet, your phone, and bloomberg. Com. This is bloomberg surveillance. Reporting live from new york city, i am scarlet fu here with adam johnson. Tom keene is in washington attending the imf spring of meeting. We are here with chris whalen, author and investment anchor. Jpmorgan and wells fargo reporting. Chris, why do you care so much and focus so much on jpmorgan . Is it the best gauge of the environment across the country . It is a good gauge. They do a little of everything. Is it a leading indicator of Something Like the Mortgage Market or trading wells fargo is the leading trader know, wells is more predominantly housing a traditional lending, markets business per se. Jp has a date of everything. Capital markets and housing. When you look at their volumes falling, they have been guiding down on housing. Mean, it haso i amazing account for one third of the nations mortgages. That with their high water mark. There falling off. Wells fargo report that 8 00. 6 is supposed to be up 5 , on revenue . On earnings. Is that an engineer number . Costcutting number. Wells has been amazing. Taking operations every quarter with soft revenue. The single biggest driver housing has been soft. We will pick up on what adam said, financial engineering. The days of easy comps are over and you have fewer reserve releases coming through as well. This will be a year of much smaller numbers. You hit it on the head, scarlet. Reserve releases are why the banks made their numbers. Between that, costcutting, headcount reduction. You see headcount reduction in the mortgage section, both banks and nonbanks. That will continue. One thing i wrote about this week is the fact that a lot of assets, Mortgage Servicing haves have gone been been going up. They are selling, theyre racing cash, but lending is a business that is tough right now. Part of the reason is the fed is now out of the market. If you look at the tba market, which is where people had mortgages when you are ready to example,r house, for it is much more difficult to hedge the book today. That is affecting the overall probability of lending. We will continue to focus on this with chris whalen, our guest host for the hour, investment banker and author. Yeah, author, new book. New book coming out the second half of this year. Thank you. We will take it. Organics, there is the bell. What is next . Disrupting organics. We will be joined by the coauthor of the big bang disruptions. Interesting. Bloomberg surveillance, on Bloomberg Television, streaming on your tablet, your phone, and bloomberg. Com. We will be right back. Good morning, everyone. From washington and new york, it is bloomberg surveillance. Joing up, adam posen will us, formerly with the bank of england. Dr. Posen with the very influential peterson institute. Stay tuned for adam posen. This is bloomberg surveillance. I am tom keene. From our Washington News bureau. And with me, peter cook him our chief washington correspondent. Scarlet fu and adam johnson are in new york. It is time for our morning must listen with peter cook. Here is a little bit of my conversation yesterday with Christine Lagarde of the imf. I would hope, tom, that before the end of the calendar year, we complete the reform of the imf, which means look that we make it more credible, better resourced, and capable of jumping on urgent issues, like ukraine, for instance, with adequate financing. And there is lagarde very much on top of her game. Hugely popular worldwide and in washington. Peter cook, if lagarde is so popular, why is the imf so unloved by republicans . Because it is an International Institution that at least in the view of a lot of people on capitol hill has taxpayer money at risk and eight at not want to risk a lot of taxpayer money right now. It is hard to win support for International Institutions right now in this congress, from republicans in particular, no matter how successful madame lagarde is in no matter how much they might be helping ukraine. It is a tough sell. George bush senior was pulled out of the Pacific Ocean in world war ii. I think of western new york years ago. Those republicans have disappeared. Where are the moderate republicans that can pull the Republican Party toward an International Projection . It might take a president ial election to do it. You look at someone like marco rubio who talks a lot about engaging internationally. He is one of the lone voices among the potential candidates on capitol hill talking that way, but it also might take us down an international crisis, a ukraine, a russia, to get republicans to reengage because they might see the stakes. Look at the dynamics, the Midterm Elections. Is your city asleep until the first tuesday of november . Except for the washington nationals. Who are now 72 after my game that i watched yesterday. Did not happen for the dreaded new york yankees. The nationals are the bigger story right now compared to congress will stop i can assure you. There is not a lot that will get done because as we talked about yesterday, they are on autopilot. The president is campaigning for democrats. There will be a lot of issues out there. Obamacare is something still to watch. How big of a political down drag is a for democrats . Has there been enough success that it is less than republicans think . Can matter more guard go back to france and can madame lagarde go back to france and run . And she absolutely could run if she chose to do that. She has more time at the imf, but she has handled the job well here. What is troubling for the imf is that someone as popular as madame lagarde here in the u. S. Cannot get this done who can . Us,xactly, peter cook with our chief washington correspondent. Coming up, the Housing Market in america. Stay with us from washington and new york, bloomberg surveillance. Well,ongressman theyre not packing up the suitcase and white house. Everyone else is in washington as the capital considers spring recess, but there is the white house, of course it is the president with a new secretary of health and Human Services as well. This is bloomberg surveillance. Everyone. Ng, i am tom keene from washington, and the meetings of the imf and world bank. Scarlet fu and adam johnson are in new york. Levy do a quick data check. I want to do this after the bloodshed yesterday. Futures not bad. I would really watch that 10year yield, a break below 2. 60 would be a huge deal. Europe does not want this right now. I will be doing a seminar in washington, a panel rather later this morning with some European Finance leaders. Crude oil elevated as well. Lets go to new york. Here is adam with our top headlines. Slowed sales in china last month, 1. 7 million new vehicles were sold. With a slow but it is a drop from the 11 rise that we saw each of the two previous months. A separate report shows Consumer Prices in china rose 2. 4 in march to may in line with the forecast. And Stephen Colbert if you have not heard by now will be replacing letterman as the host of the late show. Cbs made the announcement just a week after letterman announced he will be leaving the show. The comedians show on Comedy Central, the cold air ubert report, averaged over one Million Viewers a night according to nielsen. Overnnesota him a 21 win north dakota. Scarlett likes this one. The victory with the golden gophers in the ncaa championship game for the First Time Since 2003. For thea will play title saturday night. That was a nice one. Your two boys play hock ey. They dont play the goals like that, though. They do cherry picking. It is the spring season. Home prices are rising. Inventory does remain tight. Certain cities, prospective homebuyers are being shut out of the market. Our guest host of the hour, chris whalen, says the tightest turning on housing. He is author of the forthcoming inflated how money and that built the american dream. Yellen, the new venture, its ok with the idea that housing is turning. That is right. Can you explain . A supply driven phenomenon. The two factors the bank sales of homes from foreclosure weslowly tailed off, and have a lot of homes that are underwater and cannot trade. Markets,y attractive there is a supply squeeze. What has driven home prices up. Sales are any make end up actually in sales every anemic. When we talk about home prices rising, if you look at a month over month or quarter over quarter basis, we have a chart that illustrates how things are breaking up a little bit here. There you see it. Much over month is white, quarter over quarter is yellow. The fed has two official mandates employment and controlling inflation. Wasnt housing an unofficial goal . The reality is Interest Rates are so low, even though rates for Housing Loans have gone up several points since last summer, it is still relatively cheap by historical standards. Why have we not seen the demand . Consumer income. Those are the two big drivers of housing. Without excessive credit creation, the economy only grows with more or less with the population rate. That is normal. 6 our expectations for 5 , growth is predicated on having successful credit, and we no longer have that. Is peter cook in washington. Against that backdrop, what do you see are the real chances of an overhaul of freddie mae and freddie mac over here a time soon in d. C. . If we have a republican today, you will definitely see some sort of reform. Can we really get investors to 10 of and take 5 or the credit risk and housing bonds . What do you think of that . Is that what would happen . Isconceptually it attractive. There are certain indicators out there that we are going to see change both to the enterprises, fannie and freddie, have been trying to sell credit risk to the market. Overall, you have got to remember it has always been a governmentbacked market. The private sector has never really supported housing in this country going back 100 years. Why are conservatives, my friend at the American Enterprise institute, talk about this conceptually, my answer is ok, fine, but realized the way to we get investors to buy housing today is by making it a commodity so they dont have to actually do the particular credit risk on a particular one because they not prepared to do that. Now is commoditized. Accustomed to that, so our central bank, who have been big buyers. They will do that. If you make them look at the individual pools and try to break down the credit risk, it is going to change the market. Have we really learned anything . No. No. It is a big asset class. It is 10 trillion. Even the u. S. Banking industry only has 20 of its Balance Sheet and housing. They do not take that much risk. We have to come up with some sort of a hybrid where the short end of a mortgage bond, you would have wanted investors take that, and maybe the longduration paper, you have an Insurance Company or another type of more sophisticated investor who can do a bit of the credit risk on it. They might take that. Ultimately i think you will have the government backing it up withng on what is wrong your good oldfashioned main street baking where the bank makes a loan and gives it on its Balance Sheet and services it . You will see that. He little banks would love to do that, but did they have to have a takeout investor for the bonds so they can do that again. In other words, the velocity of the capital, that is how you get the Multiplier Effect and the growth will stop that is what we do not have today. It is almost impossible to find a takeout investor for anything but what you call a qualified mortgage today, which is a bond or a mortgage second going to the agency market. Chris, what do you think what people back of investors like blackstone . From housing . They got in length. Late. They ate their fill and are probably getting some indigestion. The fed convinced Institutional Investors that running for family homes was an investment proposition for rental was a good idea. No. I am sorry. The best rate in housing today is still nonperforming loans where an investor partners with a good servicer and extract value, mostly by keeping the family in the house. Lets specify. But the other traits, the Residential Housing trade for rent, no. I think that was always a bit of a stretch. What about the best investment in politics . Hillary clinton she has learned how to roll with the punches during this specific case, a shoe, because she had one thrown her yesterday while making a speech at a recycling conference. She missed the former secretary of state, the former first lady, a woman was taken into custody after admitting that she was the pitcher, the shoe thrower. Clinton joked about the incident, but peter, does this happen pretty often . She has still got a lot of fans. She does. She also has a ready substantial security detail as well. Oh there it was. I dodged that one. All things happen when tomko to d. C. , strange things happen. Scarlet, that shoe that was flying. It would hurt her. It is serious stuff. The fact that she made a few jokes afterwards shows you she is ready to run for president. She is ready. It could have hurt her. The woman was arrested. To do we identify the woman . I believe it was a woman that through it. Do we understand the politics . We do not know exactly what her motivation was, why she did it, and of course brings us back to baghdad can i change my thoughts and three days . That was a large shoe that is came by my head. Oh, there it goes. Delayed reaction. Heres another shoe that is coming for you, tom. Scarlet fu, we all have to take our shoes off. We have got a lot more coming up on surveillance, including whether you want to buy a golf course, because an honors of the masters, we will discuss the health of the golf real estate market. Chris whalen has some thoughts on golfing as well. This is bloomberg surveillance. On Bloomberg Television, streaming on your tablet, your phone, and bloomberg. Com. Good morning. This is bloomberg surveillance. It is a friday, but we have had a rocky week in terms of market action. Our twitter question of the day does this weeks selloff make you nervous . Tweet us bsurveillance. We will be giving you the answers in the next hour. This is bloomberg surveillance. I am scarlet fu here with adam johnson. Tom keene is in washington for the imf spring meeting. He is joined with hooter with peter cook there. Chris whalen. Is our single best chart is golf related because the masters kicked off yesterday. This is for all of the golf fanatic. It is from the National Golf resort properties group, which tracks the average selling of golf courses. The white line, it felt pretty steadily from 2006, then it rebounded over 50 from 2012 to 2013. The average sell price was four point two 5 million last year. The overall drop in prices has had some investors and golf a doozy us to pick up some extra supplies, and you can see how the number of sales has picked up an inverse relationship there with the average sale price. Peter cook in washington, you are a golf fan, what is your handicap . It is really high. It is 20. I actually play a decent amount, but i do not get any better. My 15yearold beats me on a regular basis. I dont golf, but i shoot. Right, sporting plays it like golf for guys with shotguns. This is what we can do with the golf courses when the boomers are gone, we can use them for clay shooting. Take them over. We can use them for shoe throwing competitions. Exactly. How close did tom get when he threw the shoe eu, peter cook . Shoe at you, peter cook . Radar system was up, and it was not close, but it was in the neighborhood. Tom, how big is your shoe . I have petite feet, 11. 5, 12. On the masters, i watched a little bit of it last night as we began round one. Peter cook, this is exciting. It is about to change, which means not on spring recess, a lot of our Public Officials go to the Congressional Country Club. Tell us a little bit about where the president calls. Golfs. Heads over tont Andrews Air Force base, which is not quite as nice a course as congressional, but the security there is excellent. Hard for anyone else to get in there, and he gets out there and create on a pretty regular basis. You know who is trying to make it a golfing capital is tiger woods. He has hosted his personal tournament here the last couple of years. It has been a fundraiser of sorts for Wounded Warriors and that sort of thing. He has helped to bring golf back onto sort of the National Stage here in the nations capital. Tough before the masters that he is not there. It is not feel like it has the same energy. We now go to new york, chris whalen, on the financial history of the United States and golf, i mean, you look at the bankers of wall street, they are too busy to play golf now, arent they . The same with writers, tom. We get up in the morning and we sit down and we write. It is funny in washington, i worked at Congressional Country Club as a teenager, and it is almost too far away and too difficult with the traffic to get out there. That is the problem. It used to be considered close. It is in potomac, maryland. It will take you over an hour to get there downtown with all the traffic. This is what we call a highclass problem, chris. He traffic was so bad to get to the golf course. Low, tom, it was just terrible. You are right. It used to be right next door eight it is no longer right nextdoor. You take river road, 495. The president could get there sooner on his marine one. In new york and boston, Bloomberg Radio has the masters on radio. Adam, i was sod wrong about this. I thought it was the dumbest idea. Golf works on radio. I would never have thought that in one million years. Yeah, it is like baseball. It would work. If you are just interested in following the score everything works on regular. People listen to radio wherever they are. When we come back, we will be talking about Kathleen Sebelius. As the health secretary, and we will talk with the new woman that is coming in, silvio burwell. She was running the omb. We will be back with julianna goldman. This is bloomberg surveillance. On Bloomberg Television, streaming on your tablet, your phone, and bloomberg. Com. This is bloomberg surveillance. With adamet fu johnson in new york. Tom keene is in washington attending the imf spring meetings. We will join him shortly. Lets eu company news from the files of bloomberg west. Samsung galaxy s5 goes on sale around the world. Some critics say it lacks the wow factor to stand out among competitors. The introduction comes a few sung saidr sam it was facing a Second Quarter of profit decline. 11a recalling its bio fit model. It is recommending that users stop using the device because the battery may catch fire. And the heartbleed security sco andix burke and ci Juniper Networks are vulnerable to this law. If you were in the rosses of sending Software Fixes or artistic customers. That is todays company news from the files of bloomberg west. Im not on social media like tumblr, i think you have to change passwords. There are too many passwords. That is the problem. And where do you have to write them down . No spreadsheet or google documents, right . I know and then you lose it. Walmart brought choice and price to the masses and now it is going organic. Watch out, whole foods, it is a big bang disruption, which is also the title of larry downes new book. What is it that makes walmart so effective it is completely jumping on every business a gets into and stealing the competition . The short answer is a scale of course. You have organic food, it has been a niche premium product for years, very extensive, high end stuff. What has happened here is that agriculture has now gone digital, and now it is improving on the same pace as computers. A gets better and cheaper and faster all the time. Say has allowed walmart to this is now costeffective for us, and now you put together the low end cost and also the scale that walmart brings, and this is a game changer for food. In the book, you talk about two things. One is cost control, the other is best practices. What are the best practices . For companies, it is obviously getting on the digital bandwagon as much as they can and betting is much information on their products, as Much Technology in their products because then they can ride the currents of better and cheaper all the time and that means they can shorten the cycle. You are talking about the Samsung Galaxy s5. What was the cycle time between the 3, 4, and the five . Consumers are demanding better stuff all the time and if they do not get a, they will not buy it. Lets go back to walmart and the effort to disrupt the organic food market. Food,s not actually fresh fresh vegetables, or fresh meat, so is it really disrupting organic food in that respect . I think it will. This is obviously just the start. If they can get their claws into this stuff, they will change the practices of the producers. Is that counter to the whole organic meat and organic vegetable that you are not growing things on a massive basis . That is the point. You can grow it on a massive bases organically if you have got the technology that allows you to sort of treat individual , whatever technology they are using. This is how it starts. They will get into the fresh stuff or sure. There are case studies. You can go from industry to industry and find trends. You lay out 12, but here is the ,hing, you go to page 120 number two, pinpoint your market, but number three, launch seemingly random market experiments. Those are seemingly at all with each other. No, the way the internet ecosystem works is it is very low risk to experiment, and if an experiment takes off, you are there. You go from being zero users if you are aatsapp, 90 billion takeover, and you have got 400 million users. If the experiment fails, you ditch it and go on to the next one. Does this walmart announcement really say that organic food has come of age . It is a category that baltimore labor dominate any food channel . Means it ishat costeffective to do it on a massive scale, and that is really what we were waiting for. We needed the right combination of technology to make it mass. Exactly. Allapture the winner take markets. Is there really a sustained as a winner take all market anymore . Sure. They do not last for a long. You can in fact be the dominant smartphone, but you are not going to last three long, see you have got to be ready with the next the disruption, but consumers because of social media, if they system it may lie, they gravitated toward it immediately. Out they else will be margins. Going viral is what is about. Exactly. Larry downes, thank you for joining us this morning, author of the big bang disruption. With whalen is sticking us. Ive got to get my screen set up for that, so tom, lets headed back over to you in d. C. Sure, some final moments with peter cook, our chief washington correspondent. Spring is gorgeous. A wonderful time to be in washington. Do the talk shows matter this weekend . And they do matter. They still set the agenda in washington at least for a brief part in the time cycle. Certainly Political Capital with al hunt, we like his guests each weekend. He is talking about what is going on with russia. This is still front and center, isnt it . Absolutely front and center. You are interested to see what kind of idea get from the Imf World Bank meeting. He has the treasury secretary meeting with the russian finance yesterday. They exchange a healthy dose on a difference of opinion on a range of issues dealing with the ukraine. This is an International Issue not going away shortterm. Bloomberg news flew in a reporter to kiev. We felt it was important, yet it is sort of on slogan at the imf. It is delicate, as Christine Lagarde told me yesterday. Their domestic politics to the ukraine debate . Republicant as versus democrat as you think. I have not heard that much criticism of the president s handling of it so far. The idea of giving more than nonlethal aid to the ukrainians that is going to start to simmer a little bit more. John mccain is going to be baltics with other members of the senate. That is an issue they will watch as well. Peter cook, outstanding, thank you so much, our chief washington correspondent. Here is the forex report for the day, the euro 1. 3892. Stay tuned. Julianna goldman and adam posen next. The Obama Administration tries to move on from the disaster. The stock market around the world the sens. At this moment, jb morgan is announcing firstquarter numbers. On our World Headquarters is adam johnson and scarlet fu. Scarlet fu is with the Jpmorgan Earnings. Dividend increase is a sign of optimism. Jamie we knew jamie dimon would be excited. Is reporting revenue of 23 billion, down eight percent from a year ago. That is a big mess. That goes to the bottom line as well. Dollar are of one 1. 28. If these are the right numbers, that would be amiss as well. You mentioned the Dividend Increase that is part of the headlines i am seeing, his comments about the letter to shareholders earlier this week about this being a very difficult year and dedicating effort to adapt to the new Global Financial architecture. Ar guest host for the hour is global architect. To withstandt these different changing architectures . You take in the revenue opportunity away from jpmorgan. Well told the big banks that they cant deploy capital for their own account anymore, which limits liquidity in the market. The Business Model is changing. Business ise changing. Revenue is down 10 , yearoveryear. Spread compression is another problem. The tough time making the margin. More competition for a limited number of customers. Only writing prime loans. They dont want to have too a chanceloan that has of defaulting. Spreads are definitely coming in. Provision expenses is something worth highlighting. 800 50 million in the First Quarter when analysts were looking for 700 million. That is bigger than than the same time last year. What does that say about the credit quality that up until this point had been improving . Seeou are probably going to chargeoffs and credit cards costs go up. It is still high by just work of standards. Before the crisis, you did not see the full christ of the fault. Wereories like housing subsidized. People could refinance their home. They had access to cash. Now you see the real cost of the fault in these numbers. You will see the price go up a little bit. I want to give you a victory lap. You have been way out front on the underperformance of the banks. Is this a oneoff quarter or one off two quarters . To thee a chronic nature underperformance of our too big to fail banks . They are utilities now. They dont have as much opportunity with offbalancesheet finance. Other areas that they used to have have been taken off the table. Why is jpmorgan upping its dividend in light of problems in the business . They are giving more cash to investors to stabilize the stock price. They are fairly valued. The real problem is Something Like wells fargo, which is even more dependent. They will be announcing at 8 00 this morning. Worthe worst that that kind of premium . I dont think so. They are the best performers in the group. They should be valued at more closely. People are in wells because they want to be there. I want to jump in here. We have some trading revenue numbers. Jpmorgan said it would post a 15 drop. It appears that revenue for this very andissed by 18 it is larger than they had anticipated. That. Is hard to predict it is a tough environment trading in general. That is the one part of a bank that analysts have no chance to predict. It is a black box. It is based on all of these idiosyncratic factor. You can look at housing and telephone is going up or down. Trading is a quarter by quarter thing. Equity trading has beat analyst estimates. Analysts were looking at the neighborhood of 1. 25 billion. That is a silver lining. Daegis a much are giving us that analysis. Thank you so much. We are going to send it back over to tom in the meantime. We love having chris whalen on. It is the latest in palace intrigue. Kathleen sibelius is falling on her sword. King barack is excepting her recognition resignation. Julianna goldman broke the story yesterday. She joins me now. I want to know the back story. October, when 70 was wanting to be fired, the white house said we are not interested in ceremonial firings. What this shows is they are confident out obamacare now. They feel they have turned the page. They cut her eyes to the bleeding. Moving on with implementation. That is why the president must have Better Things to do. Denis mcdonough in march according to the administration. She went in and she said she was going to be offering her resignation. She thought it was time that they had new leadership. Will we see more resignations . It is interesting. If youre reading between the tea leaves over the last week or so, you kind of saw this coming. And the rose garden when the she was in the front row. The president never mentioned her when he was doing his victory lap about the enrollment. The New York Times did an therview with people from white house, talking about obamacare and looking at what they did wrong and right and how they were turning the page. Kathleen sebelius was not there. That could be one other person. It how are we focused on the 2014 and 2016 when that part of the white house calculus . The cat timing is key. They are looking for Kathleen Sebelius to say until midmay. They want to get these confirmation hearings before you get into the Midterm Election crunch in the fall. Going to be bashed from all sides by republicans. What they are looking to do is get it out of the way. They also want to flip the republican argument about repeal. Democrats think this is a winning argument for them because repealed means taking away the benefits of the people who are now benefiting from obamacare. It is gorgeous in washington. Is that me the correspondents dinner, mr. Cold air is taking over for mr. Letterman. I and that up to speed on this. He was a train wreck at the white house dinner three or four years ago. My understanding is we take of her letterman he is going to be colbert. Personalityg the from Comedy Central behind. How will he skewer your washington . Is he the Worst Nightmare . Washington deserves to be skewered,. About the first lady scored some major points on her chipped it china. She took the daughters. What is the state of the administration . They are not lame duck. If you ask the china trip, that was around other spring break. If you are a parent and youre the first lady or president , what an awesome opportunity for you to be able to give your children the ability to go to china and have those cultural exchanges. I hope youre watching this morning. This anybody study french anymore . I studied french. I know you did, that is why i rought it up very an what are you listing for on the sunday shows . Ukraine, imf. Im it is to see how the back story with civilians plays out. President is the on at 11 00 this morning. Good morning. I am tom keene. Im here for the imf spring meeting. The to bloomberg for my entire conversation with madame lagarde. I think those were important conversations. Guest. Our esteemed Simon Kennedy is our chief economic correspondent. He is the most interesting person in the bloomberg world. Mr. Kennedy knows the United States is the head of the economic train. He is based in london. He knows the United States is decidedly our locomotive. When you look at these meetings he can give us some terrific perspective. Youve seen the imf and the back story. What is the most important theme . I think there are two or three. The ukraine situation is going. O dominate the conversation there was talk from the trading secretary about the sanctions. Interested in how the imf aid can get to ukraine. Impulse as to what the imf and the u. S. Is providing the world economy. They say that the u. S. Is back in the little growth engine. It is not as strong as it once was in previous cycles. Finally, there is potential growth. It is been about growth. We have a jargon alert there. What is potential growth . How fast can the economy grow before it starts. It is politically unacceptable. Jpmorgan, they are down to 1. 75. That is below the new normal. The lower it goes, the more trouble the economy is going to face. We are talking about weak growth anyway. Inflationrouble for and deficits. Simon kennedy is with us. He jets around the world giving terrific perspective to bloomberg news. I spoke yesterday with the International Monetary Fund Managing director Christine Lagarde. She wants to reform the organization. We will have more. It is bloomberg surveillance. Were at the spring meetings of the imf. I am tom keene. We say good morning to all of you worldwide. We need a worldwide dated check after the challenges we saw yesterday, particularly in the nasdaq market. We are looking at the 10 year yield that is vital. There is still a flight to quality this morning. That goes to our twitter question. It gets to the point. It gets to your portfolio. Does the selloff make you nervous . We need to hear from you. We have a great response so far. Does this selloff make you nervous . Let us bring you back to washington with something the congress is not doing very well. We write the biggest check. We are the biggest stakeholder in the International Monetary fund. I spoke with Christina Lagarde at the imf. I asked what her Institution Needs from washington. Shareholder needs to exercise its influence. Team right away to ukraine. They have been doing Crisis Management for decades. Do the Due Diligence and put together a package for andhere between out 14 18 billion. Why do we do that . The membership is behind. Up they have an interest in civility around the world. We need to have the entire membership supporting us and saying yes, the imf should do it and do it with the full spare support of its main shareholder. You have a unique regard for america. What would you say to isolate us isolationist america the continues over manner he decades. What would you say to americans who dont want to engage . France, whichin was devastated by two world wars. Withdrawsnited states , everybody loses. When the u. S. Engages and exercises legitimate leadership, things improve around the world. Do exercise that leadership. That was Christine Lagarde yesterday. Simon kennedy is with us. Whatld love to know london, paris think about a Republican Party in washington that says just say no to the imf. There is a huge amount of frustration. You seven earlier in the week from the canadian and australians. Imf is notthe getting the resources it needs. Some discussion in the core doors about if they can get that increase without the americans, if theres some way this can bypass the u. S. Tom at which asset. E an amazing there is a great deal of frustration that this increase has not been delivered. Does it take a crisis to get america to rejoin the International Community . The ukraine situation is a canary in the mine. The white house was hoping they could get the imf more money. On,our interview touched there is a lot of irritation. There was an editorial in after world bank. Fred burstyn it and ted truman said the imf should forget about america. There is journalistic agenda to start the international organization. Theres been a great deal of interest among the media in how the imf works. Being truth speaking to power, if you look at various leaderships of imf and the world bank. There is pressure put on them by , financial bloomberg organizations. The have to justify their existence. The cant continue. The have to evolve. Explain to us the european perspective of the europeans losing power as asia is ascending and south america is ascending. How upsetting is it for germany or belgium . The imf is continuing to be run by europeans. That might be shaken up here in dont hold your breath on that. Atre is a Musical Chairs ease be in votes. The risk for the imf is if it doesnt include china or those emerging markets, it loses its credibility. You will see efforts elsewhere in the world for development banks. You are the pro on these jackets and finding out what the International Community wants. Is it truly now a g7 and not a g8 . Was always a g7. The russians really never got into it. Politically, we will have to see. In ukraine situation is barreling along. 70 might be invited back to the party. Tay watching want to get kicked out of the party, it is difficult to get invited back in. Thank you very much. Were going to continue this conversation. We are honored to bring you at him rose and. Pozen. It is bloomberg surveillance. Stay with us. Good morning. Theident obama will with cap that change will announce a new secretary or health and Human Services at 11 00 a. M. This morning. I am tom keene in washington. We are at the meetings of the imf and world bank. Scarlet fu and adam johnson are in new york. This is markets on the move. Futures are deteriorating. It called a global flight to quality. We will talk about it right now on international economics. America is always isolationist. It is reform led by the United States association. Just yesterday, fred burstyn and ted truman published a scathing note terry republicans to shreds. Their leader is adam pozen of the bank of england. He is one of our noted academics. President of the peterson institute. The markets are reacting to global turmoil. We see a, must react somewhat to domestic policies. How important is it to get republicans back in the International Game . The u. S. s quandary the institutions it is built to the years which allowed to leverage finance and power and give it credibility to intervene in places rather than allowing instability. We have broken down not just republicans. It we are vacating the potential to bring asia together as well. This is not good. Republican see george bush senior and fading. It he was pulled out of the Pacific Ocean and world war ii. He was an architect of our international experience. Had it we get from george bush senior to the acrimony we see among conservative republicans . There was a generational shift. There was a generation with nixon and rockefeller and kissinger and that is where george h. W. Bush came from. He was multilateral during his version of the a rack conflict. Iraq conflict. I remember working with glenn hubbard. He was very active with the imf. This is a very recent change. Ted truman has lead the discussion. What does Christine Lagarde actually do . How did she bring the u. S. Back into the fold . Calling out her larger shareholder. You made a commitment. You made a deal. It was your deal. It is your message and you need to leave up to it. Live up to it. And then become the imf is weaker without u. S. Involvement. That is why it is so important. These are people who spent 30 years of their lives advocating for u. S. Leadership in these organizations. They are just saying we are throwing it away. And the short term, we will have a dysfunctional system. Term, we will have to start a chinese dominated institution. Europe is going to go either way. This is fragmentation that is against u. S. Interest. This goes to a bilateral agreement. How is important is it for president obama to push for a multiple multilateral dialogue. What you have been emphasizing his he has to show leadership, but in the u. S. To get support for the multilateral dialogue. This idea that it is Just Congress holding out, there are extreme ideologues on the republican side that are just wrong. Casting aside their forbearers wisdom. It refused to push for parade trade for motion authority. He is not going to make this a major priority. We will continue with adam pozen. Give us a data check. The futures chart is behind me. Drop. Is the right wing jpmorgan it reported earnings. Is he the freefall that futures took. We are not down by more than one futures. The nasdaq the s p futures were down yesterday. Theyre down again this morning. Now it is financial. That is the problem. Jpmorgan shares are falling. Under 24e is coming billion dollars. That is amiss. Good morning, everyone. We are on Bloomberg Television and radio worldwide. This is markets on the move. Weve have seen with the Jpmorgan Earnings and headlines that of the ukraine. Russia is talking about that hydrocarbon debate about who is going to pay for what on gas and oil within the ukraine. I am tom keene in washington. Scarlet fu and adam johnson is walk are in washington. The research of your group on what America Needs to do to assist nato . We have three things are key. , i am glad you have had them. He has been very clear about differentiating between the fundamental problems ukraine had before the russians destabilize things. This is been additionally done by russian pressure and corruption. We have to look at them as something which is a temporary thing. In two years time, we will build enough natural grass gasp tords that you can get gas these places without the pipelines. The second point is sanctions, the question is can we get multilateral action on this . The question was always germany. They have so much at stake politically and economically. They are vulnerable for a gas shut up for a couple of years. The German Foreign minister yesterday gave out very clearly and a Business Leader conference and said we will go to serious sanctions. The idea ofack is corruption. Why should we develop tax dollars to regimes that are completely corrupt . In ao you shift corruption nation like ukraine . Americans have to understand that this is lending, not bailouts. Nobody is not been paid back. The u. S. Is never lost a penny of any kind. They have always gotten it back with interest. Is money going to a corrupt person is wrong. This is ak different matter. When we Start Talking about longterm aid, that is places were money goes in and goes into corrupt leaders pockets. That is a very different thing. The imf adjustment program, you never lose money. Adam pozen, think you so much. Futures are 10. There is a flight to quality this morning. The yield keeps falling as futures fall as well. Adam, if you were to pull us up on the terminal for anybody on radio, it is a Straight Line down after jpmorgan reported earnings. You can see why people are concerned. It all boils down to one number. Mortgage applications dropped 57 versus last year. We knew it would be a weak First Quarter here in. Note numbers are lot large in the grand scheme of things, but there are things not quite working in the First Quarter. The Company Still makes a lot of money. The problem is, the direction of where that money is going is dramatically wrong. They put aside more money for bad loans than was anticipated. Maybe their credit quality is changing. Exactly. This brings us to our to the question. Does this weeks selloff make you nervous . We pose this question. It we had some very complacent answers. If you have responded, respond again. Especially with wells fargo reported in the next hour. They are the biggest home lender indian it states. What did this mean for the rest of the bank stocks . Tome will check in with later on. Good luck with their bidding. We will be back with bloomberg surveillance right after this. Good morning. Tom keene is in washington attending the imf spring meeting. This is about bill gross and pimco. He is talking about all the drum that laced with the departure of , and all area and. This was an extremely disappointing. I thought i knew him a better. Does this make me mad . Yes. Does that make me disillusioned . Not really. Join us now is betty liu. You talk to him plenty of times. You have also talked to bill gross. He did not look very mad. He has had a couple of weeks to digest this. Some people say bill gross has to move on. He is fallen off the deep end. His quarterly letters have gotten incredibly interesting. In some spots, even a little bit weird. He has been an unusual guy. He is writing a book. He is out to publishers. With alli on it, which is the Parent Company of pimco. He is a senior advisor. He is not moved onto a fulltime job anywhere else. I dont know if there are any clauses that prevent him from doing so. He cannot speak after his departure. This is the Worlds Largest bond fund. You have a 40 Year Movement of bonds. It get lower and lower, that is ending. If it is worked for 40 years and it is changing, that is a life altering situation. Adam makes a great point. This is a distraction. What is really going on at pimco, the markets are not working in the favor of them. Redemptions in fact. I do know how this plays for investors. The market is not working in favor of banks. Atls fargo is reporting 8 00. Such a great seamless network. We all work together. Golf. You guys are golfers. Adam, youre not . Squash and shotguns. Sporting clays. , who is the son of gary player, he will be on with us. In the loop with betty liu begins in 15 minutes. Futures are tanking right now. This comes after jpmorgans results came out and missed the revenue line up. Get ready for a down day. Be right back with more bloomberg surveillance. The president will announce a personnel change at 11 00 a. M. He will be announcing the new nominee for the department of health and Human Services. Kathleen sebelius will be resigning. They get 7. 1 Million People in the. A lot of people lost their coverage in the same process. I am scarlet fu with adam johnson. Tom keene is in washington. Lets get some company news. Galaxy goes on sale around the world today. Reviews of been mostly positive but most critics say it lacks a wow factor. Aftertroduction comes they said they are facing a Second Quarter of profit decline. Sony may recall some laptops. Is due to an overheating battery. They have 26,000 these notebooks. The battery may catch fire. A web security flaw has been found in cisco. Some of their routers are vulnerable. Send Software Fixes or patches to customers. The Biggest Company news is jpmorgan and their results. Futures were little changed after yesterdays a selloff. Downhave resumed going because of the big mess on jpmorgan. More time. Oom in one the monitor that is over your shoulder, people can see. You can see what happened. For those listening on radio, it is like a cliff. If you fell off the cliff, it would hurt. 8 10 ofwn will one percent. George is joining us on the phone a. Mortgage applications are down 57 . That is bad. How bad is it . It is bad. t say attica First Quarter report was a little light across the board. Revenues were a little light. Expenses were a little bit higher. Of ijust reflective certainly would not call it that. Announced that fixed income trading would fall 15 . It that we have the numbers, fell 21 from last year. What is it about the environment the makes investors reluctant to create fixed income and make it less of a profitable business for the big banks . We are in a more normalized environment. This is a business that has been extraordinarily profitable for the investment banks for the last three to five years. Were morphing into a more normal environment. You expect fixed to become a driver. Meaningful we are reverting back to a more normal environment. I wonder if more normal means a narrowing of spreads. 10eads came down effectively basis points. To the extent that loan demand continues to pick up, n additional price competition. They had fairly good growth in the Corporate Banking area. That is an area that is extremely competitive. Spreads are still relatively wide. We have more downside to go over the coming quarters. Headlinesregis and from the bloomberg terminal. Will post aduction loss in the Second Quarter. Amorgan is looking for fullyear pretax loss. What does that say about wells fargo, the guest home under . Is washingtonnce mutual. There is a lot of noise related to that acquisition in there. We expect better results out of wells from a mortgage perspective. Expectations overall, you should down inortgages to be the 25 overall in the industry. Wells reports earnings in six or seven minutes, revenues are supposed to fall four percent. A what do you think of that number . We have a . 96 after that. We have revenues down 3. 5 . The reason for that is largely mortgage. ,eing on the topic of mortgage mortgage is the driver of expectations of lower revenues in the First Quarter. Putting this all together, au talk about fixed not being profit driver Going Forward, has the easy money been made on u. S. Banks . I think it actually has. We dont think you sell the stock on the First Quarter. Stocks of had a good run. They have benefited from loan rock lost release. More midunction of a singledigit growth rate for the industry. Jpmorgan has a fairly good relative risk reward. 2015 only nine times earnings. A this is one we still feel good about. Jpmorgan is facing on the banking side is an issue a lot of regionals left to deal with Going Forward. That was trading at a much richer valuation. Do you swap out of wells fargo and into a jpmorgan . We would not weve not seen the numbers yet. We like wells fargo as well. We would not be shocked to see a trade down a bit. Wells has been very strong the last three or four months. Backing would not surprise me. Jpmorgan. Wells and a foravid george, thank you joining us. It is good to have your perspective on a day when we get all of these earnings. Is a list actually traded stock. The sales miss came in under 24 billion. Wells fargo will be reporting its results in less than five minutes. , it is it all up dragging s p futures down. We are down about seven points on the s p futures. The nasdaq is down another two thirds of a percent this morning. That is where the pain is, the nasdaq. We want to get to our twitter question. Does the selloff make you nervous . , it makes mewer nervous. The ansys a been kind of complacent. No. No nervousness out there. Nervous like a long tailed cat in a room full of rocking chairs. That had said some. Now we are getting somewhere. All theht on a legal problems would be over. That suggests that. How much more can you do in 2014 . There is a big . Here to the profit drivers. Marginalis the next dollar of revenue going to come from . Let us do a little agenda. Printer prices are coming out at 8 30 a. M. Last year they were only up 9 10 of one percent. That is coming up and 8 30 a. M. At 11 00 a. M. , the president will be making an announcement. Secretaryminate a new of health him Human Services. Tom is in washington dc. Withs left to hold a panel the European Finance minister. Look for highlights of that conversation later. Our friendsomething in europe will be paying attention to. Continuesurveillance under bloomberg surveillance on radio continues. Good morning. We are live. Here is a look at our top headlines. U. S. Bank reported firstquarter earnings. Profit fell. Equity futures are dropping after that report. , led by techlloff stocks, that has resumed. After the disastrous rollout of obamacare, health and Human Services secretary Kathleen Sebelius is calling it quits. Budget director Sylvia Matthews burwell will be nominated as a replacement. Earnings coming in at a dollar 1. 05 for wells fargo. Beating the consensus of . 96. This comes after j. P. Morgan reported a