Transcripts For BLOOMBERG Bloomberg Surveillance 20150129

Monitor developed determining how long to keep rates low. That officials have now kept their target in the range of near zero two quarter of a percent since december 2008. Major leadership overhaul at mcdonalds tapping Steve Easterbrook to be the new chief executive. Replacing don thompson in march. Thompson have been ceo for less than three years, let the restaurant chain through its worst sales slump in more than a decade. The donalds hopes easterbrook a different entire company what he did in his native u. K. Credited with boosting business there, tweaking menus, and taking on critics. Facebook is putting its foot on the gas pedal and accelerating spending even as sales growth slows at the social network. Mark zuckerberg says the strategy builds in the companys efforts from last year. 2014 was also yield a Big Investments. This year, we made big bets in the next generation of communication and computing platforms requiring two apps. Focusing on serving our committed the better, raising the quality and relevance of content and news feed, improving search and video products, and improving the performance and efficiency of our mobile apps. The company says spending will jump 55 to 70 77 . Facebook reported net income rose to 701 million in the fourth quarter. Breaking news. Shake shack making the case to investors he can satisfy eaters way outside 23rd street in new york city. The burger chain has increased the price range for its ipo and a six a valuation of as much as 670 59. 670 59. This is boosting well. Danny meyer. Shake shack ups to maybe do what mcdonalds did decades and decades ago open 10 new u. S. Stores each and every year. Lets get to the data check. All of this is a bounce off the drama and i mean trauma yesterday afternoon. The euro comes back. Crude i thought maybe we would see a 43 handle this morning. 45. 52. On to the second board. The vix over 20. Rubel is the headline story. Brendan have a lot on that. 69. 22. That is substantial. Ruble weakness. A little bit of arcane news, something the pros look at 1. 21. Recession, recession, recession. We go up, boom down, boom. We are coming down. That doesnt necessarily signal recession. I am not professional soft illustrate this with interpretive markers. Were looking at the yield curve move in real time. It is high, flat, high, flat. And now were going back down. There are four ways to go. We are in a bullish flatten her the twoyear is like this and the 10 year is coming in for whatever reasons. A bullish flattener . It sounds like what they were serving up a mcdonalds. I like that. Anyways, there it is. We will talk about this. We have two wonderful economists with us today on bloomberg surveillance. We need to speak to someone authoritative on mcdonalds. Chipotle has crushed traditional fast food. Donald thompson, ceo of mcdonalds, Sara Senatore required reads whether youre reading a number two value mail or a marinated breeder with cilantro, corn, so cream and guacamole. Not that ive ever done that. Sara, good morning. Was this a surprise . Good morning. I think the timing may be a little bit of a surprise and maybe even a little bit of a surprise internally, the guys you think about a press release that was issued at 6 00 last night. It feels like it was sudden. But i dont think ultimately, anybody is really scratching their heads. It is hard for a company to put up to use an earlier term, more in results as long as mcdonalds has and not start to have some scrutiny at the top. Theres front of the store and backup the store. Walgreens is about the front of the store. There is the pharmacy in the back of the store. Easterbrook is considered a front counter guy. What does that mean and how will History Survey change the game how will mr. Easterbrook change the game . Were talking about engaging with the customer again and getting mcdonalds really improving the way people think about mcdonalds. When they come into the store what they see when they walk in, who they see when i walk, how they feel about the menu. It is less about the operations in the back of the house, and much more about customer engagement. We can probably all agree that mcdonalds could use a little bit of burnishing of its reputation with customers. Sara, there are two us a look at it. One, the mcdonalds has a system and cannot be changed. Yesterday writing allday breakfast. To mcdonalds not be changed or did don thompson did bad job of changing it . I think theres probably a third choice, which is that mcdonalds can be changed. We have seen it before. Now going on 12 years ago, the last time mcdonalds has really felt like it was kind of wondering in the desert. But it is a big ship and it can be very hard to steer. I think it is very safe to say that the world around mcdonalds changed a lot faster than mcdonalds did the last couple of years. Sara what does easterbrook have to do to turn mcdonalds around, to get the shareprice moving . That is a great question. If i knew for sure, i would be the successor and not Steve Easterbrook. What we have seen, mcdonalds has does it is losing some ground a fast casual but mcdonalds and other restaurants like mcdonalds still have a place. People still want cheaper food. They wanted to taste good and served quickly. Mcdonalds meets the needs to convince customers they do a better than anybody. I was thunderstruck by the board of directors. Every company has a different character. This is an eclectic group of chicago people. Legendary chicago, john rogers of aerial investment and miles white of abbott, is this a narrow in breadboard that has been caught asunder after a 20 year free ride . I dont think it is certainly a long tenured board and sometimes that can lead to complacency. And that may be an issue. Mcdonalds has always been a culture i dont want to say insular. In some sense, it has served it well. People who work there, let mcdonalds. Ae, sleep, and breathe mcdonalds. Continuity has been mcdonalds friend more than once. But it is possible in another company with a different board we might have seen change happen more quickly. Sara senatore thank you so much. Olivia, i was thunderstruck at the age of the board. Andy mckenna is been a forever. Don thompson was ever 23 years. He started off as a electrician. The key thing about easterbrook he had a brief hiatus at other restaurants. What he did is amazing. With Pizza Express and waga mama is a noodle change. It is so different from mcdonalds. It is so good that we bought a book of recipes from waga mama. It is amazing food at 2 00 in the morning. Getting the shake shack fast casual money, where as mcdonalds still catering to a much lower income. Olivia sterns, helping us out each and every day here at bloomberg surveillance. Lets move to an adult conversation on the fed, oil and yield slower. That was the adjustment yesterday after the fed announcement. Theres decided disagreement over what or will happen. Ellen zentner will join us in the next hour. We greet this morning. Were patiently, neil dutta flied out doesnt agree with Ellen Zentner. This is what we like about surveillance, conversation. We have like a five hour show squeezed into two hours today. You dont agree with ellen. Ellen says theyre going to wait and be forced by the market vigilantes. State the case why she is wrong. I think i think those who are arguing the fed is going to go later need to tell me why inflation all of the sudden matters now. The fed hasnt been hitting their inflation boat, god, for two years running or longer since they formally introduced their inflation target of 2 . We assume substantial improvement in the Employment Situation in the United States. Every model that anyone looks at, whether you put it into the taylor rule, is as the fed should be going sometime soon. I think it is ultimately the labor market that is going to dictate the outcome for fed policy. The link between inflation and economic slack has broken down. Inflation is a much slower moving process than it used to be. This is the distinction between dutta, jobs zzentner. You have taken what is going on and coin into phrase dish inflation or he this inflationary growth. It is not my term, it is what the Labor Department telling us. Tom was talking about nominal gdp off the year. Nominal gdp in the u. S. Has basically been growing 5 now for five of the last six quarters. Were going to get a gdp report later this week. That is likely to come in around 3 to 3. 5 . Here is what i tell you. I think this has been said many times before me. The economy is normalizing and Monetary Policy is very far from normal. Stanley fischer has basically said that. I mean, this idea that Interest Rates are supposed to be at zero forever, that is not right. Quickly, what did you make of the fact we suddenly Heard International connected to development . If they cared about it that much, why did they put it in the first paragraph . The first paragraph was the most bullish Economic Assessment on the u. S. In as long as i can remove or. Want to talk about International Development . The risk to International Economy are fading. The ecb stepped up. The bank of japan is easing. The japanese fiscal situation is improving, because they just shelve their consumption tax. Were going until 12 noon today. Talking about paragraph placement. Angels on a head of a pin. Coming up, were going to go to Deutsche Bank these estimates, reports of demise were grossly underestimated. This is bloomberg surveillance. Still in new york on bloomberg television. Good morning. Olivia sterns emperor and in greeley with me. Lets get to our world news headlines. We begin in holland, lowerthanexpected profit from royal dutch shell. The company says it will cut 15 billion in spending over the next three years in response to plunging crude prices. Fourth quarter profit was 3. 3 billion. Analyst surveyed expected 4. 1 billion. Shares fell as much as 4 in trade. Sony is getting out of the music streaming business. The company will shut down its music unlimited at the end of march according to the wall street journal. The service, which costs 10 per month, is integrated in the playstation consoles and counts mainly play station users among its subscribers. Deutsche bank Beat Estimates as provisions for find illegal settlements decline. And legal settlements decline. Shares have fallen 28 over the last 12 months. That is the latest world news. We are to stay in germany for this one. Wanted to turn Deutsche Bank into respective global bank. Raise more capital after the crisis and analysts suggested it scale that back. As olivia pointed out, they got the earnings reports. Legal charges down, trading revenue up. Const nichols, everything is fine now . Every thing is better. Lets not go fine. It is still Deutsche Bank. They had a very good quarter. You saw the u. S. Banks were all down about 25 on debt trading. You saw they did not book that big of a charge legal provisions, 207 Million Euros last year it was north of one billion. Those two factors, good quarter, they will pay out . 75 a share dividend. Analysts before the suggested Deutsche Bank still needed to restructure. Do we have any structure theyre taking that to heart . Stay tuned. They will give us an update on the Restructuring Plan under strategy next quarter that will be the press conference and hopefully, there will not be snow behind me. Hopefully, it will be spring. The switchover to the market of the moment, which is greece. What is the likelihood of a bond repricing in germany, in france . Is there even a whisper of discussion they will cram down to the bondholders and lower the prices of all that trouble debt . There is a fear. There is it whispers this will happen. There isnt actually anything tangible. I think the more immediate concern right now is what is happening with the banks. Yesterday we saw them down. They were down almost 27 . We did speak with the had regular here at the ecb. I will play her comments in a moment. It sent the banks stocks in greece up. Listen to what she had to say. They are pretty strong. They havent a lot of good work that has been done. So i think Danielle Nouy making all kaizen news this morning. She also talked about maybe scrutinizing bank bonuses and warning even the well capitalized banks to be conservative in their dividend payouts. Hans i dont buy this. I see the spread market widening out. I think this rests on a crucial conversation that has really been had yet, which is the greeks say they want to restructure their debt and that is what this rests on. Youre standing in frankfurt where there is no will and never has been any will to do exactly that, restructure greek debt. And the greeks are come for getting things by some of their moves on russia. You have seen them talking about the statement on russia coming out yesterday and it was unanimous greeks justin to that. Objecting to that. Some are saying, taking harder line on any sort of debt writedown for greece. Thank you. Greatly appreciate it. Coming up, we have neil dutta optimistic about what the fed will do. Ellen zentner flied out disagrees just flatout disagrees. Stay with us. This is bloomberg surveillance. Good morning. Lots of earnings coming out later today, we will bring you some of that coverage. Lets get to the morning mustread. Writing and Bloomberg View taking look at what we all missed with apple and what we all missed again today with Deutsche Bank. He writes neil dutta, i know you are a macro guy, but he writes about devices that there is a bullish bias until too late and then a bearish bias until too late. Do you feel like you have these as well . You get attached to certain narrative of the economy and then you have to stick with it . For forecasting, i think is important for people to focus on the batting average, so to speak. Theres actually Academic Research that shows forecasters have one big call right and be wrong about everything else. I just think i mean, think about it that way. Your trick is, never get anything right. Forecasting is about wing probable outcomes and picking your battles wisely. Get the one thing right john paulson. Or an economic arena, you know the names nouriel roubini. I was pretty cautious a few years ago. You have to switch as the data changes. Theres always going to be critics. We havent dared of bias. We have a narrative bias. Part of being the thoughtful person in any field, you need to have your own views known hypotheses and constantly bringing in data and making her best assessments. I hope is we can all have more than one thing right over the course of our lifetime. But that is what were doing. That is why people are watching bloomberg. We are challenging narratives every day. Quick earlier this week, said economists have it right 12. 7 of the time. Our twitter question of the day oil south. The uproar in the fed. 44. 28 right now on west texas intermediate. Top headlines. Closing two of its temporaries in russia. The fourthlargest brewer making the move after review of its production structure in the country. Closures will cut the russian capacity by about 15 and will effect up to 600 employees. The decision will bring a pretax noncash writedown of about 100 million. Yet another milestone for apple dominating headlines with this weeks earnings report. The company has told pulled into a tie with samsung as the worlds Biggest Smartphone vendor for the First Time Since 2011. Both comedy shipped 74. 5 million smartphones in the fourth quarter, giving each company a 19. 6 market share. You can count billionaire investor carl icahn among the companys many fans. He calls apple one of the best buys in the last couple of decades. He is one of apples largest shareholders and says the stock is still undervalued. He also said his target price for two at a 30 was too suggested buying back even more shares. Apple reported quarterly profit of 18 billion on tuesday. The largest corporate profit in history. Stunning. It is. Historic announcement. We will see if he gets the proper use of cash. Lets look at japan. The people of japan are focused on the Islamic State, focused on jordan. One japanese killed and others life hangs in the balance. Shinzo abe will not cave to terrorists. First, we consider the hostage kenji goto. They are doing this differently in japan, arent they . What is the japanese distinction of dealing with the islamic caliphate . Shinzo offabe was elected left office, the reelected and reelected for the third time. He has two big missions. One is revitalizing the japanese economy the second is returning to pay into a larger global role than it is has had in the past. I was in japan last week and shinzo abe was in the middle east we announced 200 million was going to go to countering isis and nonlethal assistance. At the same time i was in the headquarters of nhk when these audios came out that these two japanese people have been taken hostage and one is executed. Theyre not going to put the Japanese Navy in the persian gulf, right . They cant. Shinzo abe would like to. They have done it in the past. First of all, he doesnt pay ransom, right . They have paid ransom in the past. This time, theyre hesitant to because the ransom issues have been so devisive. Where is japan . More toward the United States. But protecting the people is a really big deal. They dont have the same experience we have a people all over the place. These two people, now one person, are really big deal in japan. What do you make of the way japan is telling the story . If you like theyre doing it so publicly and sort of bundling it. They have to do it publicly. The reason is, the u. S. Has so much experience with this kind of engagement in the world in japan doesnt. It is the emotion of the politics and the mothers and kenji motos mother is everywhere in the japanese media. It is not a media train and how to respond to this type of situation. Japanese foreignpolicy has been conducted along you visit the shrine, does he not visit the shrine. Now they are actually conducting foreignpolicy. You have set in the white house when these decisions were being made. It is very collocated. It is very complicated. The ironic situation we face is the United States has always done too good of a job of instilling pacifism in japan. With all of asia moving more toward a balance of four model, kind of like europe in the 19th and 20th century, many in asia new japan to step up but they cant. Olivia, youre talking about the idea of this foreignpolicy. Japan doesnt have it. It comes from the kissinger book. Im surprised you havent mentioned it this morning. Kissinger describes there is no historical precedents for this type of thing, so why would there be this cut of Security Cooperation in the region. That is the basic issue. After the second world war, seen as the shared sovereignty. In asia that the opposite lesson. They felt it was the absence of those things that allowed colonialism to take hold. In asia today, it is cut of like europe in the 19 century. China, korea, others, their Holding Tight to their sovereignty. That is creating this imbalance. Japan is part of this western transnational system, one of the biggest supporters of the u. N. China is pushing the rest of asia into a more balance of power model. For that to work likened there needs to be a balance. That is why japan is looking to unshackle itself from the limitations of its postwar constitution, but it is very tricky politically. What is the mood in japan about this or muscular foreignpolicy . Is a Popular Support . There is a Popular Support but a lot of ambivalence. He is moving out pretty aggressively and a bit ahead of the populace. If he gets a big win, if kenji goto is returned their questions about the first guy that was question about his character. If goto comes alive, it will strengthen [inaudible] what is the likelihood . The stated deadline is today. It has gotten a lot more come pick it up because the jordanians who have this woman terrorist who isis once released, they have said they will only release her if the jordanian pilot is released as well. Now it is cut of a twoforone deal. It is starting to look marquis. I would put it at 50 50 unfortunately. Coming up, we know where i will be february 6. Spongebob hits the theaters nationwide. Some of you wrote that promo for me. We will be taking a look at the cartoons staying power when we come back. This is bloomberg surveillance. Good morning, bloomberg surveillance. I am spongebob with Olivia Sterns and brendan greeley. Does that make me patrick . I hope not. 15 years of increasing popularity of january 3, four the top 35 shows on cable or spongebob reruns. That brings us to our single best chart. What youre looking at right there is not growth in norway, that is yearly telecast of spongebob. Almost unbroken growth since it launched in 1999. Those are reruns. Their only 100 89 episodes. Heres what is going on. Felix gillette wrote a great piece about it this week. He spoke to an analyst to said cartoons have to make the generational leap. If they do theyll stick around forever. That is, if you see it as a kid and show it to your kids, it may start to survive forever. That is what is happen, for example, with bugs bunny. Spongebob is on his way to bugs bunny. How do you feel about spongebob . All over it. Buy a mens jumper. I have the underwear. Spongebob is huge with merchandisers because theres huge appeal among millennials who have enough money to buy the sort of thing for the cartoons of their youth. There are spongebob golf bags. Did he millennials grow up with spongebob . I am on the upside of the millennials. Did you . No, i did not. What about me . Is spongebob big in japan . Spongebob, hello kitty, im delighted there been a lot of revelations on the show. One is, tom, youre wearing spongebob underpants. And brendan gets drunk at 2 00 in the morning and goes to wga mama. I threw it up in the air and thought it dropped without a sound. I heard it. Yes, i have been not sober to waga mamas at 2 00 in the morning. I recommend it. You are a good man. February 6, you will be at the theaters you will be at the theaters. They also make a sweater dress with the golden arches. Olivia, get us to our photos. Number three, in france, run 1000 Truck Drivers blocked traffic to Oil Refineries while on strike for higher salaries. Theyre calling for a 5 wage increase in pushing unions to reopen negotiations. We know the french do wine well and food well, they dont do protesting well. How often would you say this is . I would say there are strikes once a week. Some type of strike. In paris, you can regularly expect it. In france, you often get paid to strike. If youre a government in play, you get your salary while on strike. It is an awesome freebie. It is good to show these photos, because this is the drumbeat behind what is going on at the eu. There is great dissatisfaction. Number two, last night in alaska, nasa successfully launched four rockets at the northern lights. The team is hoping to study aur oras because of the sun. Brendan greeley said, put four children into orbit. They would not go to bed. After put another dollar in the jar for mentioning my children. I had a bet with myself they would mention frozen. I just lost that bet. What are they going to do . Film . They want to study the auroras. Do you know what the armor borealis is . The magnetic field. Causing iron is asian. Number one, this is amazing abandoned Hershey Chocolate factory is being transformed into a Medicinal Marijuana grow house in ontario, canada. It now contains over 3000 pot plants. To me, the synergy is so obvious. Why didnt they just make edibles . I see a story like this and i just love the world so much. Tom is not abused. We will know the moment has passed the first time we run a pot story without giggling. It just becomes a normal, boring business. We are not there yet. The company is aiming for 91 million in sales the first year. The basic sum is the legalization of pot and all that is going well . Going well. It is not produced the text windfall many assumed it would, at least in colorado. Smart photos. Eric to the last few days off for the blizzard. Coming up, we are going to sit down with the man who wrote and coined the phrase axis of evil. States like these and their terrorist allies constitute an axis of evil, arming to threaten the peace of the world. Former speechwriter for george w. Bush david from all join us. He has been doing a lot since those days. This is bloomberg surveillance. Good morning. In the next hour, the economist of the moment, Ellen Zentner says the fed will be forced to wait into 15. New details about airasia flight 8501. The copilot was at the controls. The plane went from a cruising altitude of 32,000 feet to more than 87,000 feet in a span of just 30 seconds. But then dissented slowly for three minutes before disappearing. That is according to indonesian investigators. The crash killed 162 people. Israel and hezbollah are signaling they want to avoid or violence deadly attack on an Israeli Military convoy that led to some of the most serious clashes between the sides since the 2006 war. The minister said has below sent a message to the under nation the incident is over. Has below sent a message to the united nations, the incident is over. The cuban president was in and to the economic embargo and havanas removal from a terror list. He also says he wants to return of guantanamo bay. Cash was to mans, week after a visit from the highest rating is delegation of anna and 35 years. Those are your latest world news headlines. Greek banks are in the brink once again. The biggest lenders are back in crisis. Some shares have fallen as much as 40 since it is elections. Our economics editor might make he has seen a drama play out on the ground Michael Mckee has in the drama play out on the ground. His comments since the election have people worried they wont rigid deal with editors. That would lead to a greek exit from euro zone. The first up and that would be the European Central bank cutting off liquidity to greet ranks. You can see why theres been the Banking System collapsed. It could collapse. European banking supervisor came out last on it said the great eggs are ok, which is why they are rebounding today. The greek banks are ok, which is why theyre rebounding today. They have to reach a deal with creditors by the end of february or they are out of cash and cannot pay their bills. Will there be a third bailout . There is the possibility of changes. It is not that the debt is unsustainable. The loans go out to 2054. It is the austerity. They have to run a primary surplus of 4. 5 . They have to take in more than they spend. That leaves nothing for the economy. They have been in recession for six years. 25 on a. After do something to try to get the greek people back into this. Hans nichols did have a good answer, but is it any good indication this renegotiation which is the core of this platform from syriza theres any willingness on the germans to actually deal . There is some possibility. What they want to do, and the finance minister of known for a long time, heres what he is adjusting they could do. Lower the primary surplus they have to have and tither debt repayments to gdp. If theyre in recession, they dont have to pay the interest. Heres what he told me a couple of weeks ago. There are better ways of packaging debt writedown in a way that doesnt look like a debt writedown. What were saying is if you think the will be no haircut. If they are wrong, it would be a haircut. Because the debt is tied to forecasting, greece is going to grow 3 , 4 , 5 . We know that isnt going to happen. He says, look, if we catch reach the targets you said, we dont pay you. The thrust here is, we go back to them saying we need to reprice that. Is any discussion that germany or france will consider fundamentally repricing . No. The debt is now owned by institutions, not individuals. Most of the debt, more than two thirds, is owned by the European Central bank and the eu. That is the taxpayers take the hit. The question is, whos taxpayers have to pay for this . Ireland is greatly they still have debt at whatever percent gdp procedurally bailout germanys banks. Theres quite frustration. If greece is successful, what happens . How does that change politics in ireland and portugal . Jamie metzl youre an academic who has done time in policy circles. Very well respected academic widely read, a blogger, imminently portable, is about to do the work of government. What does that transition like . It is a big deal because when youre in government, your hands on the wheel. Right now with greece, there is so much that is up in the air. When these people are going back and you have your theories, and then was all of the emphasis on greece today, in very short order, yet to put your theories to work. Coming just after the election, it is difficult to step back from everything you have promised. Which we need economic pressures and political pressures especially in relation to russia, i think a lot is going to be happening very quickly with huge implications for europe. In the United States, neil dutta with us, here is Ellen Zentner with her call joining us in the next hour. The fed is facing a conundrum a credibility. Inflation will be moving in the wrong direction at a time when theyre saying it is appropriate to raise rates. You say this is much more about jobs. Do you see an indication that it is about jobs or is it about price change for the fed . Both, but that stat you read is an assumption. Assumption a drop in oil prices is going to pass into core inflation. The fact the fed is a knology increased household purchasing power from the drop in oil prices tells me they believe that people will spend money elsewhere, driving up the prices for those Michael Mckee, you read more literature. How lonely is Ellen Zentner on this call . Baby about one third of the economists see in 2016 as opposed to 2015. More people are getting worried about the inflation, pushing it out, but not as many as in 2016. The chart next to you, i want to bring up the fiveyear forward expectation. It is a really significant move that is just picked up. Her central argument, it is not just current inflation. This is a great debate. Were going to put 42 people on sat next hour. On in the next hour. Neil dutta andm. It is all ruble. Looking for a decidedly weaker russian ruble. Off ukraine in the war Oil Prices Lower oil prices as well. We continue to debate the future of the federal reserve. This is bloomberg surveillance. It was not a boring fed meeting. America confronts further disinflation a appeared the mcdonalds chief executive officer retires. An axis of congestion. How Many Republican candidates will there be for 2016 . We are live from our World Headquarters in new york. It is thursday, january 29. I am tom keene. We have a bit of earnings going on right now. You have a afford motor out right now with a 1. 1 billion pretax profit. Ford motor. We want to see the outlook. It has been a tough start to the year. The broader market, the snp off 1. 5 . There is alibaba headlines with the yuan. A little down from the estimate we have. Going through a tough transaction transition right now, trying to go onto mobile b. Lets get to our top headlines. Foreign ministers from the European Union in brussels they discussing cover sections on russia over the escalating ukraine conflict. Russia says the government in kiev can stop the violence by starting negotiations. A fierce fighting continues today in eastern ukraine. The unrest has now killed more than 5000 people. Gains for the dollar against counterparts as the federal open Market Committee continued its promise to be patient. Policymakers noting global risk determining how long to keep rates low. Fed officials have kept their Interest Rate target in the range of zero. 25 since december of 2008. Leadership overhaul at mcdonalds. He will replace thompson at the beginning of march. He led at the restaurant chanin through its worst slump in decades. The 48yearold is credited with tweaking menus and taking on critics. Facebook putting it on the gas pedal and accelerating growth building on the companys efforts from last year. 2014 was a year of Big Investments in our future. This year, we made Big Investments on the next generation of medication mutation platforms. Communication platforms. Improving our search and video products and improving the performance of our mobile apps. Spending will jump 5570 in 2015. Net income rose to 701 million in the fourth quarter. The ipo at the moment, the make their case. They will lift up the deal structure, good for the burger chain. Near six arms and 5 million valuation 675 million valuation. Conoco phillips coming out cutting their 2016 cap x view. We can assume this is because of the plunging price and oil. Ellen zentner has been talking about this. The will drive the markets. The cap x will drive the markets. He is abruptly retired. Donald thompson spent his early life in the toughest parts of chicago and went to purdue. He advanced at mcdonalds as the stock advanced and then whether retired were fired or pink slip, betty liu has a report on the downfall of mr. Thompson. Your reaction as he is shown the door. There was a lot of frustration. I want to test your mcdonalds knowledge. You all know your mcdonalds. For us, it was the hit. You want to root for the sky he was born in a poor neighborhood in chicago and was raised by his grandmother. He got a call from a headhunter at mcdonalds when he was at northrop grumman. He went to mcdonalds, stay there for 25 years and rose through the ranks. One of a halfdozen black ceos in this country. He just could not do it when he hit the helm at mcdonalds. When he arrives, jim skinner had eight years of sales gains in a row. His first earnings call, he had to oversee a sales decline. Last year, they saw the first year of sales falls. The obesity issue was already around. Minimum wage was already there. The menu was already unwieldy. There were several issues that happened during his tenure. Let me name three of them. Paul 2013, mighty wings . A big flop. 10 million wings on sold. July 2014 come expired meat in china. From 20122014, the extra value menu. They scrapped that. They put in the dollar menu and more extra value 2. 0. There was menu confusion among consumers. They tried to these things. The even got into premium coffee. What actually worked . It has been so negative. They did go out on social media and tried to explain to their consumers directly that their food is real. I went to their headquarters. Nick rap was going to be there big it the mcwrap was going to be there big hit. Their big hit. Customers want more and more today to have a oneonone relationship with brands. They want to be able to understand what it is you are going to add to my life. What special value. How will you differentiate where food and services. I want to say one more thing. Why is mcdonalds so outoffavor . Americans just have better taste these days. I was talking about the starbucksification of our neighborhoods. They have introduced better taste to america. Consumers are demanding different things. American Consumers Want to know those cows are treated well. Mcdonalds has a system. Don thompson is a product of the system and he thought he would make new things. Thank you so much. Looking forward to your coverage on in the loop this morning. Down futures of dow futures up 87. We are pleased to have the economist makes the fed squirm. Ellen zentner at Morgan Stanley. This inflation will force any ellen to be especially patient. This we have had a 2015 call in the first rate hike for more than year now. We decided to push it even further out into 2016 to march. Half of my clients would have loved it for the fed to raise rates yesterday. They just want to get up zero lower bound off the zero lower bound. The you support a modest fed target rate increase . Or do you think they will wait, wait wait . I would rather this be our traditional fed that knows well the risk of going to soon. I would rather than wait and be darn sure the economy can withstand higher Interest Rates and still grow at a good pace. What is it they will have to withstand . The effects of stagnation elsewhere in the world . What was key to me in yesterdays statement was that they put in that language, we will monitor International Develop its. We have had a flurry of central bank International Developments. The u. S. Dollar should be stronger. U. S. Economy is stronger. You dont want rapid increases in currency. We are seeing that showing up in earnings. What is a need for businesses in the u. S. Or investment what does this mean for businesses in the u. S. Or investment . Good morning everyone. Bloomberg surveillance. Ellen zentner with us from Morgan Stanley this morning. We have a smart morning must read. Charles is writing in the New York Times today. Among these 35 countries america 34th in relative child poverty. Broader issues of inequality in the american market. Lets get back to what we were talking about a second ago. U. S. Economy is humming along we have 5 gdp in the Third Quarter and 5. 6 unemployment Consumer Confidence has never been this high. What do you say in the face of all that . We had neil dutta on. The economy is humming along while wages are not. That is the key in this entire fed picture. What Energy Prices are doing and the dollar is doing will be problematic for the fed. If we get stronger wage growth, that trumps everything. We have not seen a pickup and wages yet. The congressional mandate is jobs versus inflation. Wages, she seems to take that as a mandate. s wages dont pick up, how confident can we be in our outlook that the economy can withstand higher Interest Rates . It has been the key for her in the past two policy cycles. They matter greatly to her. Stronger wages are a prerequisite to that that hiking rates. We just dont have any signs yet of accelerating wage growth. Charles lowe is making the argument that one of the things they did in the u. K. To try to remedy tell poverty is they raised the minimum wage. Do you think of we did that in the u. S. We would see the Poverty Level come down for children . Minimum wage laws do help poverty. They raise Unemployment Rates for certain sectors. Overall, the literature points to it being a good thing. We have had a wave of rising minimum wage in the u. S. We have more than nearly 25 states in the u. S. To pass their own minimum wage laws. Six or more states started january 1 of this year. We are raising minimum wage in the u. S. And copies have been exhorting that absorbing that. Companies have been absorbing that. One of those copies, mcdonalds. How would you fix mcdonalds . Do you want custom burgers like at shake shack . Good morning, everyone. Ellen zentner with us from Morgan Stanley. Lets get to our world news headlines. We begin in holland as they lower that the company will cut 15 billion in spending over the next three years. Fourthquarter profit was 3. 3 billion. Analysts expected 4. 1 billion. Shares fell by 4. 4 . Sony getting out of the music streaming business. The company will shut down its business music unlimited just four years after it was launched in the u. S. It is integrated into playstation consoles. Deutsche bank swinging twice surprise profit as provisions for fines and legal sentiments declined settlements declined. They lost 1. 5 billion one year ago. Shares have fallen 28 over the last 12 months. Thank you so much. Some politics. He wrote some of george w. Bushs most famous speeches and then pointed the pen back at the Republican Party and now writes for that the brutal observer of washington that they have always deserved. It is a pleasure to meet you because ive been reading you for years. Lets Forget Congress for right now. Who is the president ial candidate getting it right . They are stumbling to get it right. The republicans problem is not who, but what. Take mitt romney. Somebody who can do the job of being president. Republicans force them into directions where he is unelectable. The party has to rethink what it stands for. Make sure it has a middleclass agenda. I see a lot of signs of progress toward that. The destination has been not arrived at. Who can do that . Who within the party can make that change . The party is evolving. They evolve in response to defeat and disappointment. They were crushed in 2008. We have a bad habit of looking at these Congressional Elections 35 the country boats. We do well in 2010 and 2014 when we dont have to change. Then we have the reminders of our problems. Republicans do pretty well as long as we can find voting people over 60. The people over 18 come out and we are in trouble. I want to point out something you wrote after the state of the union speech. The audience for the speech was hillary clinton. Is that was going on . President obama is trying to walk in a legacy that is more liberal. He is now as the economy comes out of this terrible economic recession, president obama is trying to launch the nation on a course that is very different from the course the american nation has taken in the past. He was not able to do it himself and he wants to her core message is remember the 90s, they were great, lets do it again. Barack obama was a critic of the 1990s. He was much tougher on bill clinton that he ever was on ronald reagan. The republican candidate in New Hampshire he told me there would be 16 years lost in the woods. Are the republicans lost in the woods and are we only eight years into this 16 years . I certainly hope not. The reason i am a republican, we do believe that Market Led Development and strong Foreign Policy keep the country ross risk and safe prosperous and safe. There have been a lot of negative experiences over the last eight years. It looks tough for 2016 unless the republicans start explaining to people in the middle of the economic distribution why they are better off voting for republicans. Obviously entrepreneurs and bondholders will vote republican. That is 3 of the population. We need a lot more. We have heard mitt romney say he is interested. We heard the same thing from jeb bush and Chris Christie. All of those people which a cup the fundraising base would it shake up the fundraising base. The Koch Brothers will buy the election. Isnt that simple . Theres a contest between the Traditional Party Donor Networks which lineup with jeb bush and Chris Christie and this new Party Outside the party a suburb of the party that has become bigger. They have built a Fundraising Network of awesome scale. Theyre closely aligned with the most important republican voters. The traditional Donor Networks are lining up behind jeb bush. The Koch Brothers network and talk radio aligning with scott walker. Raising money that may be larger than the money raised inside the party by the traditional networks. Keep dragging in the party the direction you want. We will discuss the president s agenda. This is bloomberg surveillance on bloomberg television. Good morning. This is bloomberg surveillance. Lets guitar top headlines. Get to our top headlines. The worlds fourthlargest brewers making the move after a review of its production structure in the country. The closures will cut the capacity by 15 . The decision will bring a pretax noncash another milestone for apple which has tom and he week with its stunning earnings report. Pulling in a tie with samsung is the worlds Biggest Smartphone vendor for the First Time Since 2011. Both companies should 74. 5 million smartphones in the First Quarter giving each company just below 20 of Global Market share. Carl icahn among the companys many fans. He calls apple one of the best buys in the last couple of decades. He says the stock is still undervalued. Hes at his price target of 203 per share was too low. Apple reported a record quarterly profit of 18 billion on tuesday. To our guest host, Ellen Zentner of Morgan Stanley. Jenna yellin and the fed will wait until next year to really get it going on Interest Rates. Weve been talking about this. Lets talk theory. How few degrees of freedom does the fed have with their rhetoric . What they have done is they have gone to a much more new wants to rhetoric new wants uanced rhetoric. They are data dependent. The market focuses on every single data print. The next day, you get a good print, though market might reprice. Morgan stanley respect history. All of them say a fed cannot get out front. They react. That is still the fed we are dealing with today. The asymmetric risk around the tightening too early versus waiting too long. No one knows what to do if they tighten too early. This is an experiment. Policymakers know what to do you start raising rates and play catchup. Thats what we expect to happen in march of next year. How do you respond to those who are optimists and look at unit labor improvement and say she is wrong, things are getting better. It is wage growth that is the bottom line for households and jimmy janet yellen. I think the fed has got it wrong. Where is it right now . The fed thinks is between 5. 25. 5 . It is somewhere much lower than that. The chicago fed has put out a recent paper around 5 , going down to 4. 5 in the next to years. We are not at full employment. If we were near full employment, which growth would be accelerating already. Where is their nominal gdp trip point . They cant have the confidence to act. This is about confidence. You can have inflation that is not at goal. We dont have to be at the 2 goal to raise rates. We have to be convinced it will move there. Can you be convinced he will get Strong Enough sustained aggregate demand to move to that goal without wage growth . You have that great observation about the fiveyear forward curve, it varies and harry and we are looking at the futures market. Equity futures getting a pop yhere. We are seeing mcdonalds price in the premarket. We are also watching the 10 year yield and the treasury market overall. The 10 year yield of three basis points. The euro slightly stronger against the dollar. Good morning, iran. Good morning, everyone. There is a new air force one. A brandnew air force one. Is it an airbus . Its a boeing. Obama back on american soil, heading to a democratic retreat in philadelphia where he will be trying to rally support for the agenda he laid out in the state of the union. Phil mattingly tells the president for a living. I saw already the president dropped the 529. Is this state of the union agenda already unraveling . We gave it two weeks before people stopped caring. It took six days. You get this think peak sneak peek it is never something written into law. You have republicans controlling both houses of congress. It is a statement on where your party is and what the president wants his agenda to be. We will see that again tonight in philadelphia. The president will announce that he wants to bust through those budget caps and put together that vicious fight what you are seeing right now is the president seeing good at topline economic numbers and the democrats who matter are the ones in congress. Is there any sense to have that they have been energized by the state of the Union Address . Theyre energized by the president not moving to the center. There was a lot of concern that the president would decide i will make deals. When you have seen out of the president is an effort to try to grasp onto progressive priorities and push forward. Hes theory is the state of the union was supposed to drag hillary in a direction. I struggle with that. There is some truth to it. They know on a policy side that it will box hillary in a difficult spot. It is somewhat farfetched. Not because they dont care about their legacy. They are so intensely focused on what they are doing that that seems a bit far off to them. Hillarys people have the talking points. You are giving them too much credit if you think theyre thinking that far ahead. Their rallying support within the latin community. Something marco rubio is aware of these days. Its a big fight over the spending it starts a fight the democrats love to have. They put a hamstring on the Homeland Security funding in february. This was the push back the executive action on immigration. Republicans have no way forward on this. The house cannot pass a bill. Let me just ask a basic question. What is the difference between the middle class democrats are talking to and the middleclass public is are talking to . It is the same middleclass. Just a different perspective. You think its the same group . When we see the elections, they are clearly one color in the middle nobody has nailed down an actual definition of what middle classes. Class is. They try to reach different people with their message. I also deeply care about my favorite moment of the last week was when Mitch Mcconnell and john boehner they are trying to figure out a wasy to message the good economic topline. There is a tectonic shift at mcdonalds. The ceo is out. How would you fix mcdonalds . Tweet us. This is bloomberg surveillance. It is time for todays earnings edge it alibaba reported results at the top of the hour, missing results, shares down a percent. 8 . They had a great november 11, the holiday they invented to boost sales. Jack markell promised more spending to help make the transition to mobile. Jack ma has promised more spending. It is singles they. Treat yourself. Singles day. Olivia is doing a singles dance. The stock is down. Did not work this year . The expectations are so high it can only lose. He wants to boost mobile spending. Singles day is also great distortion in the u. S. Economy because people are not moving out of the parents homes. There it is. The great distortion. Ellen zentner is with us. I look at the good reports of this economy better gdp, and then i look at a single headline. We will buy negative Interest Rate paper. Discuss how surreal this is for our fed. We started off the top of the show talking about they are monitoring International Developments. How much Dollar Strength can the fed would stand if they will continue to communicate a move toward the exit when the rest of the global Central Banks are racing away from the exit . Tuesday on Interest Rates and the great distortion, you have the ability to speak with Morgan Stanley research about how odd all of this is. Where do you predict the 30 year bond or 10 year yield can lever to . I will take a very longterm perspective. Look at october 1929 after our last financial crisis. Longterm rates remained extra nearly low for decades extraordinarily low for decades. You are making a 1920s and 1930s comparison . It will never be apples to apples. The world is a scary place. Even with our longterm treasuries as low as they are, you can still pick up a bit of carry there. Im not the rates strategist because there are a lot more nuances they have to take into account. Longterm Interest Rates will remain low for a long time after this financial crisis. Thank you so much. Back to our twitter question of the day. How would you fix mcdonalds . I eagerly awaiting this conversation tomorrow. Peter fisher with blackrock. At the linkage of government to fixed income and wall street. 7 00 tomorrow. Lets get to world news. The japanese government in a race against time. The government says it is putting its trust in jordan to help gain the release of a journalist. The Islamic State militants say they want an Al Qaeda Linked terrorist set free in exchange for the journalist. They are promising to kill a Jordanian Air force pilot also held by the group. New details about the final moments of variation flight 8501. The pilot was not flying the plane. His less experienced copilot was at the controls. It descended slowly for three minutes before disappearing. The crash killed 162 people. Roll castro leng out conditions to normalize relations with the u. S. Raul castro laying out conditions. Coming one week after aa visit from the u. S. Delegation. Really interesting news. Do you want to go to havana . Of course. I want to wait until there is more there. It was huge enough two weeks ago when the chains were announced. To see him laying out these conditions. The fact that we are looking at conditions it is really exciting. It will be fascinating. I want to go to havana and im not worried about havana being ruined. If by ruined you mean people have jobs, im all for ruining havana. It has been a runaway year for the dollar. The greenback continuing to rally strength the today. Ellen zentner is the senior u. S. Economist at Morgan Stanley. You were way out ahead of consensus, looking for march of 2016. Effectors a good deal. Core goods prices in the u. S. Have collapsed in the last two months. This year, if we look at the monthly pattern of core pc pricese prices, pretty far from the feds 2 goal. By our measures, it will continue to move further away from goal and will not bottom until october of this year. That will be difficult for the fed. To communicate to markets that it is appropriate to raise rates around the year. We talked earlier that wages will we dont think the pickup and wage growth will be enough to trump the dollar card. Their rhetoric has to change soon. Probably at the semiannual testimony in february where she has to back off this idea that a may 2015 rate hike is appropriate. We talk so much about divergence. This is an international market. Financial conditions are affected internationally and immediately. This is why it was so pres sing to bring fisher on. Are they suggesting euro parity . We have a bearish view on the euro. Hans redeker and his team revised their fx forecast last week. So many other global currencies this is about europe. Everything is about europe. We are still linked to them. Im curious about something slightly different. We have been guessing about whats going on inside the fed building. I want you are opinion about wages. Why is it taking so long for wages to pick up with job growth . It has always been about tightly to rockets tight labor markets. Where we are greeting the majority of jobs is not where we have tight labor markets. Retail, Leisure Hospitality we tend to not have a shortage of workers in that area. Other areas where there is a shortage of workers, hightech trucking, wage growth going through the roof. That is the simplest explanation. The chicago fed has put out a new paper where the structural issues around Labor Force Participation is going to continue so that the Unemployment Rate associated with tight labor markets is very low. Ubs does not agree with what Ellen Zentner just said. Many others are saying no, no no. Theyre saying around 5 or even lower. 5. 6 on a plummet rate seems low this Unemployment Rate seems low but not low enough. Structurally it is been affected by a lot of demographic trends and a structural change towards the labor market being concentrated among those to him or have lower participation rates. Is it a bad thing . People are choosing not to work. I would not characterize it as a problem or not. The employment to population ratio is always important because you need more folks supporting people as they get old and need social security. You want more people paying into that system. We are saddled with the fact that it is dropping. What does that mean . The Unemployment Rate is somewhere much lower than where the fed thinks. Thats why we are not getting the wage growth. So many people are lined up against Ellen Zentner. What will be the trip point . If the fed does not remove in march, we will be wrong. I care about wage growth. I care if the fed removes that phrase around being patient and their march meeting. If they remove that, i will be the first to admit hate mail will progress as we go throughout the year. So far, i have been safe from it. We have seen it in microsoft and png. We have just finished our 17th annual Hedge Fund Forum this week. It was a predominant concern and discussion among hedge funds of how the u. S. Dollar would be affecting the bottom line. Bill gross with the headline. Fed raising rates later this year. I think we will see people pushing their expectation out. A few have gone into 2016 now. The bond market is pricing beyond the september rate hike. Lets go to our twitter question. We ask you, how would you fix the bowels . Fix mcdonalds . Keep the dollar menu and happy meal. They try to get too complicated. Chicken nuggets, apple pie and happy meal. Theyre competing with shake shack. Start with a better burger. Delete the supersize. They dont do it they havent preassembled. Have it preassembled. You cant make a cadillac out of a bicycle. I have not been to mcdonalds since i was eight years old. I am all about the health and wellness trend. Thank you so much. Ellen zentner with Morgan Stanley. Stay tuned with bloomberg throughout the day as we get the markets open. Oil and 44. 50 a barrel. Good morning. It is thursday, january 29. You are in the loop. We are 90 minutes away from the opening bell. Alibaba out with earnings in the last hour. Shares are tanking profits missed estimates and revenue came up short. We will talk with joe tsai right before the opening bell. A big change at the golden arches. Don thompson out as ceo. He has a supersized problem. How to turn around mcdonalds worst sales slump in more than a decade. The fed appears to be sticking with plans to raise Interest Rates this year for the First Time Since 2006. Fed policymakers have raised their assessment of the u. S. Economy and downplayed lowinflation. Repeating his pledge to stay patient on raising rates. The shakeup at the Worlds Largest restaurant chain the