Heres a look at whats making news as we head into a new week on the money. A cooldown on wall street this week. All of the major indices took a tumble, suffering the biggest drops on thursday. And it also led to a fall in the price of treasuries. Investors are preparing for the Federal Reserves eventual winding down of the bondbuying program. And a disappointing Earnings Report from walmart, citing weaker sales and cutting the outlook for the year. Technology bellwether, meanwhile, cisco warned uncertain demand for its Business Technology products will lead that company to cut as many as 4,000 jobs, 5 of the workforce. Emerging markets an issue there. It wasnt that bad. Fewer u. S. Work hes are being laid off. The weekly count for state Unemployment Benefits dropped to the lowest level since october 2007. Charges have been brought up in the Jpmorgan Chase london whale investigation. Manhattans u. S. Attorney has brought conspiracy and wire fraud charges against two former traders known for outsized derivative bets that led to a 6 billion loss for jpmorgan last year. Regulators need to be more vigilant. And as ive been saying for some years now, companies themselves need to pay closer attention to the cultures that they create. And elsewhere, an Airline Delay making news. The Justice Department filed suit to block the merger of urz airways and american airlines, citing a concern of reduced industry capacity. The proposed merger would create the Worlds Largest airline with more than 40 billion in annual revenue. How did the market move set up wall street for the week ahead . Barry knapp is head of u. S. Equity portfolio strategy at barclays and Zachary Karabell is president of river twice research. Also a columnist at reuters and the atlantic. Gentlemen, good to see you. Thank you very much for joining us. Barry, what a week. A couple of rough days. The biggest selloff in the market since june. Do you think this is the beginning of a correction a lot of people have been calling for, or is this a buying opportunity . No, its part of the typical fed policy normalizationrelated corrections that have taken place, basically after every recession and then recovery rally that has occurred since world war ii, you have the long period of stocks advancing and the fed easing and then the fed finally decides, as the data gets better, its time to normalize policy. Look, our broad theme is that we think the economy is Getting Better and weve reached a real inflection point. Things like lower Public Policy uncertainty has boosted Capital Investment. Labor investment. So things are generally Getting Better. Yeah. But the markets discounted that. We are up 20 year to date. We are double digits, thats for sure. All of the major averages. Zach, everyone is talking about the Federal Reserve and when the fed will start lowering the stimulus, winding down beginning to wind down the 85 billion in bond purchases a month. Whats your take . When do you expect the tapering to begin . Two things. I think Market Participants invest, a pun intended, with a lot more weight psychologically than literally. Meaning we live in a world of 60 trillion, 70 trillion of securities floating around in stocks, and while the fed is buying close to 900 billion of them a year and revolving them, its still not a moving needle, kind of event. When you look at that as a global thing. Its a psychological thing for the markets right now, because people believe that the fed and Central Banks are determining rates, and because they believe it, they then believe this will determine rates. Theres a selffulfilling reality here. I think the reality is bonds are the thing to look at much more than equities right now as an area of volatility. Because thats the then thats going to be most impacted by the fed. Stocks are kind of in their own world in that its corporate earnings, whats going on in terms of global growth. While we tend to lump them together as one conversation, they are two different conversations. I mean, we saw weak Economic Data this week. Yeah. Given where we are in this anemic recovery, can the fed wind things down this september . This is what theyre trying to figure out. How long you can maintain this before it becomes a permanent policy. And were already close to it being the new normal, right . Theyre not increasing it, that we know. The question is, when do they decrease it . Barry, i know things have improved. Can we really see the fed begin tapering in 30 days . Oh, absolutely. Really . Absolutely. You think the fed starts next month . We do. And whats really interesting about this is if you go back through all of the cycles, theres been a discussion, for example, about low readings of inflation. Maybe the fed shouldnt do it, because theyre missing the 2 target mandate on the downside. In 1983 1994, 2004, the last three asures were falling. One labor factor improved, the labor market, and it began with the firing slowing, the falling jobless claims, and like nightle tos day, the hiring starts and weve had a pickup in the labor market and thats what triggers the start of the normalization. Although you may not get any meaningful inflation period in this global system right now. The high productivity based on technology, low wages, based on the fact that the rest of the world is emerging. And while rages are rising in the rest of the world, theyre nowhere near in europe or the United States. We could have a new normal of an extremely low inflation environment for many, many, many years. I guess the reason i dont believe tapering can begin next month is because of the two targets, the metrics that the fed has put forward. Unemployment at 6. 5 . And inflation at 2 . Were nowhere near either of those. First of all, unemployment at 6. 5 is really a target for raising interest rates. Raising rates, okay. Theyve gone great pains to separate the taper from right. The actual rate policy. Whats fascinating about this, go back to last september, and things in the labor market were Getting Better, Capital Investment was weak amidst all of the Public Policy uncertainty related to the election. But essentially, what the fed did was they were risk managing against the risk of the u. S. Taxing their way into recession like spain, italy, and france did last year. We now know that didnt happen. The consumer responded better than we thought they would to the tax hikes. Yeah. And the economy didnt weaken all that much. Let me switch gears and ask you about the other big story, and that was the activist investor is back, and we saw so much drama around jcpenney this week. Activist investor bill ackman, who holds a sizable amount of jcpenney, about 18 , and then you had carl icahn tweeting about his large position in apple. You know, this trend of shareholder activism, is this a positive thing for the markets or a negative . My perspective, and ill be a historian, even though the real historian is next to me, is that when you think about how Creative Destruction works, the famous austrian economist talked a lot about this, in the 80s when i was first coming into the business, there was a whole round of corporate raiders and viewed negatively. They were the focus of the media. And what they essentially did was they forced Corporate America to restructure, and if you think about it in the current environment, weve had massive amounts of cash build up on corporate Balance Sheet, companies are afraid to invest because of the Public Policy uncertainty. And these activist investors are forcing the issue with some of these companies. Yeah. So they are a positive force for change in my view. Im going to take the other side of that. Icahn actually connects the raiders of the 80s, and he was a part of that to the activist investor of today. I think a lot of activist investors, and i put ackman and loeb in this category, really dont know and understand the operating businesses that theyre going after. They think they do. They think they understand the Balance Sheet part of it, they dont understand the operating part of it. A lot of businesses activist investors go out of does not take brain surgerylevel i. Q. To figure out that businesses are hurting. It didnt take, like, oh, my god, jcpenney is having trouble for someone to come along and let the board and the investing Community Know that, nor does it take carl icahn to tell us that apple has a lot of cash they have neither returned to shareholders much or been able to use productively. So theres a lot of ego involved in activists. And a lot of wall street hubris that it believes it knows how to operate operating businesses. I dont think thats true. Thats certainly the krits f critici criticism. Gentlemen, thank you very much. Appreciate your time today. Barry and zach, well see you soon. Up next on the money, reque up next on the money, reque are the suburbs dead . Its that time of year again, backtoschool shopping season, and retailers are getting the top grade from consumers and their parents. Look at the stock market and how it ended the week. Back in a moment. As the Housing Market regains its bearings, many question if the American Dream of a nice home with a white picket fence will survive the aftermath of the great recession. Here with more on the suburbs demise is leigh gallagher, author of the end of the suburbs, where the American Dream is moving. Also the assistant managing editor of fortune magazine. Thank you so much for joining us. What makes you say we are seeing the end of the suburbs . Its funny, i mean, theres actually a number of indicators that really pretty convincingly show that our love affair with suburbia suburban america as we know it is coming to an end. Theres a number of reasons behind that. Some of them are due to the financial crisis in the housing boom and bust. But many of them are not. Things like the rising price of energies. When we built the housing landscape in the suburban pattern in the 50s, it worked well at the time. We kind of grew and grew and grew and the model grew outsized, a lot of people smending money to get to work, 3. 5 Million People spending more than an hour and half to get each way to the job. Its not sustainable. Which is why people are moving to the cities. And thats all over the world. Yes, everywhere. Youre prediction is not for all suburbs. No, thats right. You said there are some communities that will be fine. Yes. And people are still gravitating there. Particularly those close to the cities with public transport. Yes, exactly. The future is one sort of urbanization everywhere. So what that means is basically people want to be closer to the things they need to do every day. And what that can mean an urbanized suburb or a suburb that is kind of built on oldfashioned sort of villagey models, the way they were before world war ii, when we mass produced everything. So those places will be okay. Every homebuilder and developer is falling all over himself to try to build more of these places, because there arent enough of them. People want to be where they can live closer to the things they want to do. How does the Housing Market comeback play into all of this . We know there are signs the housing is coming back, but if the suburbs are dying, it could trap many of the homeowners, many of them baby bookers. Millions of homeowners are already trapped because of the housing crises and baby boomers are not leaving, staying in place, one reason being theyre trapped in their homes. The interesting thing about the housing recovery, if you look at it over the past year or so, the Housing Starts so Housing Starts for multifamily construction have done a lot better over the past year than singlefamily homes. The percentage increases theyre really you can see that shift in the Housing Starts. So, you know, when we rebuild, when we come back, the big question is how are we going to do it . It may not be in the exact same way. What about municipalities . Because we know theres already stress on so many local municipalities, and an exodus from the suburbs may mean a dwindling tax base. It may. I have a chapter in the book about the tax revenue based on the suburban model. Its different when you have low density. Youre not culling in as much property taxes per square mile in a denser environment. So the suburbs, i have one source who thinks its a big ponzi scheme, maybe a little out there. This is what he thinks. And thats because to fund the only way the revenue can sustain the maintenance or all of the infrastructure of the suburbs, which is lots of sewage and infrastructure and wiring and everything, is to keep growing. Because the density levels dont sustain themselves from a tax revenue basis. How are the cities accommodating this influx of people . Rents are going up, prices are going up. Sure. In cities like new york city. A lot of other cities are affordable. New york city is an outlier as far as thats concerned. Cities are booming. More sidewalk cafes and restaurants and multiplexes than, you know, the suburbs used to in many ways. All right. Well leave it there. Leigh, great to have you on the program. Thank you so much, leigh gallagher. The new book, the end of the suburbs. Thank you very much for being with us. Up next, schooling major retailers as summer winds down. Were shopping for answers about Consumer Sentiment this backtoschool season. And a notebook made from last years homework. Really . Surprising students supplies saved from the trash heap. Back in a moment. At a dry cleaner, we replaced people with a machine. What . Customers didnt like it. So why do banks do it . Hello . Hello . if your bank doesnt let you talk to a real person 24 7, you need an ally. Hello . Ally bank. Your money needs an ally. Welcome back. The dog days of august. Prime time for retailers with a look at the allimportant backtoschool season. Im joined now by jason wagenheim, teen vogues Vice President and publisher. Jason, good to see you again. Thank you for joining us. Thank you. Appreciate it. Lots to talk about. Last years backtoschool season was particularly successful for retailers, right . What are you seeing right now broadly in terms of back to school . We are coming off the 84 billion season that was last year. Were definitely off to a sluggish start. We saw some Earnings Reports this week that indicated sales in july werent what everybody had hoped for. As we move into august, were optimistic. 8 out of 10 readers told us they tend to spend the same or more as they did last year, which is encouraging. Break it down for the generations for us. Tell me about the ways young shoppers shop, the millennials, for example. Are they different from gen x or boomers . Wildly different. This generation has more influence than any generation before. Two reasons. First, the technology aspect. Theyre tweeting and pinning more than any generation before. Theyve grown up with technology. And the brandloyalty landscape has changed for them. Theyre considering as many as 48 brands every time they walk into a store before they make a purchase. So its tough to capture that loyalty long term now and retailers are trying more and more to do that. I know youve done a lot of research into the millennials. I want to hear more about it. The brand loyalty. Yeah. Is it an emotional connection that they form with retailers . How does it happen . What makes them come back and back and back . Yeah, theres four important things. The story that theyre allowed to tell with brands they purchase and love keeps them coming back. Theyre looking for deals and insider information. Theyre looking for the cause, community is really important to them. And theyre looking for the showcase, dyi, something to show their own expiration of their own fashion and beauty style. I do know some retailers very much loyalty yeah. For the teens group . I think h m is a great bellwether for teen fashion. They spend a lot of money launching the conscience collection, focusing on Environmental Materials to produce the fashion. When we talk about major retailers in the news, like this week, walmart for example, they had a stumble. You had jcpenney struggling with leadership, theyre board activist investors. Is there a trickledown to the 16yearold . I mean, they may not care about activist investors, obviously, but how does it trickle down . The average 16yearold doesnt know who bill ackman is, thats for sure. What these things do is a side effect, is they cause a distraction for retailers and focusing on multichannel market approaches. You have to be connected through web, social, mobile, and brickandmortar, if you want to connect with the consumer and capture brand loyalty. Rather than focus on this backtoschool season, as we look for years and years beyond, retailers that dont cap it now wont be as successful as others. And lets talk about the pricing. It was a cold spring. As a result, some stores have excess summer inventory. Will prices come down, will we see deeper discounting . We are seeing a trend with longer discount periods. We created an event backtoschool saturday, it was broadly successful. The shortterm programs are great. The longterm discounting is more of a struggle for the retailers. You said earlier you think we are going to see a better next couple of weeks going into the school season. Yeah. What are you expecting . Consumers are cautious now. They will spend more, but theyre making their dollars go further. And theyre continuing to want to create 24 7 relationships with these retailers across all of the platt forms that matter to emthis. So the more Multichannel Marketing we see from the retailers the more success well see. Great. Really good stuff. Jason, thank you very much. Great to have you on the program. Jason wagenheim joining us. Up next, School Supplies made from recycled garbage . Yes, teachable moments. Were back in a moment. Stay with us. When we made our commitment to the gulf, bp had two big goals help the gulf recover and learn from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, where experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. we do . I took the trash out. I know. And thank you so much for that. I think we should get a Medicare Supplement insurance plan. Right now . [ male announcer ] whether youre new to medicare or not, you may know it only covers about 80 of your part b medical expenses. Its up to you to pay the difference. So think about an aarp Medicare Supplement insurance plan, insured by unitedhealthcare insurance company. Like all standardized Medicare Supplement insurance plans, they help cover some of what medicare doesnt pay and could really save you in outofpocket medical costs. Call now. With a Medicare Supplement plan, youll be able to stay with your doctor. Oh, you know, i love that guy. Mmhmm. 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One company is curbing the 250 million tons of waste americans produce every year through our children. 75 of schools in the United States participate in a recycling program through teracycle. The founder and ceo tom szaky is with me. So tell us how it works. You recycle products from partnering in Consumer Brands like frito lay. Right. And youve made them into new things. Thats right. So we go to major Consumer Product Companies Like kraft or mars or frito lay and they Fund Collection programs where anyone can go to terracycle. Com and send us their waste, over 60 different categories, shoes, juice pouchs, even cigarettes. We pay the shipping and we give a small donation for every piece of waste collected and 7 million has been paid out for people sending us this garbage. Unbelievable. I know. Theyre sending you the garbage and youre creating new products with the garbage. Tell me about the School Supplies that you brought with you today. So we brought five different examples to show you what we can do with things that would otherwise end up in the landfill. First, we have here some examples of what we call upcycling. This is by sewing together juice pouchs. And today we collect 4 of all of the juice pouchs in the United States. Amazing. So another example, here is a lunch bag. This is made from old tents. You can sort of see the effect thats, again, upcycling. Wow. How do you produce them . We have a team of designers that looks at what can be reused and uppsyched. Theres a team of scientists that look at how we can recycle 9 material into a new plastic or new textile. And where can these be purchased . Online as well as all of the worlds major retailers like walmart, target, home depot, et cetera. Terrific. This is in step, right there with the Green Economy. How big is the Green Economy . Do you see this part of the economy growing . I think absolutely. Now, you know, terracycle, for example, is a 20 million company, and weve been growing 10 years straight, in 24 countries. I see a lot of other Green Companies in the Green Economy. I think its something growing very fast, but its not as big as people think it is. Theres a lot of opportunity to get involved. Terrific. And finally . So this is unique. This is a cooler. Whats special about this is the inside of the cooler. This is the bestselling cooler at walmart today, made entirely from postconsumer used chip bags. Amazing. I love it. Tom, good to have you on the program. Thank you so much. Thank you for having me. Appreciate it. Appreciate what youre doing. Tom szaky. And lets look at the week ahead and things that may move your money. Continuing the look at the retail landscape. Home depot, jcpenney, lowes, target will all report the quarterly earnings. Other retailers to include saks fifth avenue, best buy, barnes noble and sears. On wednesday, the existing home sales report. Thats out for the month of july. Also on wednesday, we will get the minutes from the july fmoc meeting. That could be a marpket mover ad on thursday, president obama will hit the road about a bus tour about the economy, traveling to new york and pennsylvania. Also friday well get the newhome sales report, also for the month of july. And thatll do it for us today. Thank you so much for joining me. Each week, keep it right here where we are on the money. Have a great rest of the weekend, everybody. Ill see you again next weekend. Maybe someone will come in here while were talking and put handcuffs on me. I dont know. Pattie dunn has been charged with four felonies. Shes at the center of the hewlettpackard leak investigation story. I have a story to tell. Im innocent. Its one of the biggest, fastest, most hightech sailboats on the high seas. Isnt she beautiful . A triumph of science, vision, money, and an abundance of ego. I just wanted the biggest boat. Lets admit it. Its ego. What . I mean. Do i have an ego . Yes. If there were a hall of fame
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