the rich ari dish ari -- the acquiring summer playgrounds. this is "bloomberg wednesdayce," this is may 28. esci is with us today. adam johnson has our morning brief. >> she is wearing her rangers blue. >> you know it. only because i am from queens. big rangers fan. >> you get another game to continue being a fan. german unemployment unexpectedly increased for the first time in six months overnight. economic data in the u.s., we get them weekly mortgage applications. we are going to get some earnings today -- michael kors, cracker barrel,dsw.

deliver theama will commencement address at west point 11:00 today. we may get some indications about foreign policy. he was speaking about the military pullout of afghanistan. >>ian bremer will join us as well. let's do a data check. it just goes higher. the 10 year yield is 2.49, a euro, hydrocarbons are elevated as well and the vxx is the complacency, gold has gone south. we spent some time looking at gold yesterday. critical support is $1219 per

ounce. is a big theme for us today -- this is the vxx rolling over. we are through one standard deviation and in a zone of complacency. >> this is the lowest we have seen in a long time. that's why the banks are having trouble trading. >> we will talk about this today, the complacency out there in the markets. we have looked at the front pages -- adam johnson? >> we will start once again in europe where ge's jeff imelt met with the french president france françois hopllande. alstom makes tgv.

just talking about queens this morning? area ofis somewhat your mergers and acquisitions. what is the new color? >> the new color is concession after concession. it's amazing what these companies have had to do. is promising to create 1000 new jobs in france. this is what it will come down to. it is almost political at this point. >> it is highly political. eed of pfizer went in front of the board and guerin just and made guarantees. nadosoft, the new ceo satya ella in los angeles yesterday said he will focus on areas where microsoft can lead. if you read between the lines, it suggests that hardware --

>> there are places clearly that microsoft is not leading. of play at this conference but what did he say? >> he will focus on cloud computing, the mobile business, and some sort of yet unveiled service likeskype. it would be a new application. >> it seems like not really inspired. >> welcome to microsoft which has been sideways for roughly 10 years. it used to trade 30 times and now it trades at 10 times. >> he said he will notsell bing. >> correct. what else do we have? to tighten their belts, the cfo at citibank is warning the the second quarter revenue may be down 20-25%. there are problems at ficc -

fixed income commodities and currencies. >> they said the first month of the quarter did not happen but i think this is a huge deal. isthe royal bank of scotland cutting jobs in the mortgage trading the division. these and there he would be new jobs but you raise a valid point that there is sometimes double counting. . >> that's the front page? we will talk rangers --canadiens in a bit. we have one of our most popular guests on real estate. also john malloy is a chief executive officer is with us. he joins us as well. you and i have seen equity markets up down and sideways, why is this one different? vxx andit on with the

people got worried when i went below 12. that has been the number that has triggered selloffs in the past. when we saw it go below 12 this time, i think it's a different looking vxx. it has become popular and too many people are watching it. the big banks are not in their trading this thing anymore. you've got etf products off of think, is nox, i longer a reliable indicator. >> i am taking my jacket off. this is a bloomberg exclusive. it's great to have both of you here on the markets and real estate. mindu look at them as to and all assets are rising because of what the fed is doing? hasbsolutely, real estate been a key beneficiary of this whole process globally not just in the u.s. >> there has not been a correction in your world? >> there are actually two

worlds. the very high end of the real estate market where you have people traveling around the globe sinking their money into tall towers or whatever and then you have the balance of the world where people cannot get a mortgage. >> as though they are equal parts. you are talking about the fraction of the one percent. >> absolutely, you are talking about the top half of the top one percent of the market is playing in this spectrum. >> do we have further de-celebration in growth rates in order to entice first-time buyers? >> part of the first-time buyer problem besides the college debt and household formation is the issue of -- we saw a huge surge in activity the last couple of years. a lot of that has been initially played out. there has been thought that sliding interest rates will pull more force time -- first-time buyers entered we have to organically let the market catch

up. we cheated a little bit in the last couple of years and in the next year or two, and it will be quiet. >> it seems like there is nothing organic about central bank intervention globally. is so lowy the vxx and markets keep going up? >> that's right, it looks like the market is trusting janet yellen to do the backup of qe so we are in a new era. we've got qe, not as much trading by the banks but if you look at the stock data on the s&p 500, people are still cautious. people are only about 50% bullish on the spy. that's not overly enthusiastic. >> in the past, when you have seen only 50% people bullish on your website, what has happened over the next three months? >> it's all about the trend. people have gone from 40% two months ago up to 50%. when you have that rising trend of optimism on our site, the market follows. describemportant to

who is stock twist. it is a most of throwback to how people were interested in the markets 20 or 30 years ago. >> we like to call it the modern trading so stock twitch is traders in andng out and messaging each other and they are active and have some wealth. we look at the demographics and these are people that probably would be working on a trading pit 20 years ago but they are in there talking about the market with each other and we're looking at the sentiment and individual stocks and overall markets and we are not seeing a lot of overenthusiasm. john malloy is with us and jonathan miller is with us as well. onhave breaking news

allergen. is bill ackman involved? >> he is basically underwriting the bid in part for valkeant. and this is one of the first times we have seen an activist investor really play a big role. >> it's up 21%. this is not like pfizer where it is a nuance of nicholas -- of nickels and dimes. >> it's an indication they can go further. >> we will have more on this but right now to company news. >> google is getting into the driverless car business. sergei brin says google as an idea to transport passengers at the push of barton. the cars of bottle -- the cars have no gas pedal and they will test these cars sometime next year. on the ways may be general motors after investigators are investigating potential flaws in 2000 jim vehicles. among the complaints is the

unexpected failure of automatic printing and headlights on gm cars. backly, pimco is getting -- trying to restore some of its lost glory. mccully.inging in paul le pimco is trying to bolster its management. >> this is a huge deal. this guy is influential as an economist. he has influence at jackson hole. oftenyellen quotes them and particularly his focus on crisis in shock. redemptions pimco has seen come upwards of 20% and some of the funds, that is crisis and they need him. >> this is hugely accepted by international shareholders at allianz. >> bill gross needs to grow his

mustache back, that is the problem. >> coming up, toll brothers earnings are out -- higher prices lead a rise in profits, what does that say about new housing, next? this is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

>> i need ranger tickets. we need--canadiens, tickets. we will listen to a guest we he's the most important guy in the planet if you need tickets to madison square garden. he will be with us live at 10:00 a.m. on market makers. this is "bloomberg surveillance."

i've got toll brothers, the largest u.s. homebuilder reported earnings earlier this money sink profit gained. and fallingather affordability slow delivery of new homes nationwide for the first four months of the year. what does this tell us about new housing? jonathan miller is with us. thanks for being here. do we need more inventory or less? >> the problem nationwide, cross almost every harnessing -- housing market is that inventory defines housing markets. we have a lack of supply except near the top of the market. supply at have more the top of the market than the balance of the market. developers across the country especially in urban markets are unable to acquire development sites and build a price point that middle-class and working-class can afford. >> let's stick with the urban

markets because one thing that came out in the housing data yesterday was about that. we had a price jump of nearly 21% in san francisco. where does new york them out? housing market in new york, if you look at the new york city metro area, you are looking at modest growth overall except for markets like manhattan and brooklyn. the problem with the case schiller index is that it's very broad and spread out over the metro area. >> run the video again. look at these houses. they are on 9000 square feet and the kitchen is bigger than the first three apartments i lived in in new york read the kitchen alone is $2 million. we are living in this fantasyland of stuff we cannot afford. maelas duncan at fannie says there is a high market. is there any sense of trickle-down? >> there is no connection whatsoever. i like to say that we are

building the world's most it -- most expensive safety deposit box. it has nothing to do with the help of the housing market and nothing to do -- there is no trickle down and it's an investor play. >> is there a housing market for mere mortals? but it iss unbelievably tight in many markets because of the chronic lack of supply. nationally, we see inventory bottomed in 2012 and was up nominally last year, a little bit up this year but still woefully below what the levels were. >> if there is a correlation here between what you just said, that is -- that it is a supply said thatd whatzillow 19% of homeowners is not under -- are now underwater. >> that's exactly the primary reason. it's not just the underwater,

the 19%, but double that and that's the people. who have low equity. they don't qualify for the trade up or the lateral movement. . it's really about 40% of april with a mortgage in the u.s. cannot get a mortgage for the next transaction. they just sit and wait and that creates the supply problem across the u.s. >> this goes back to the linkage between real estate and the equity market. >> that's right. are people taking their investments out of the equity markets or deferring their investments and perhaps going into the housing market on the higher-end? >> we are not seeing that at all. you are seeing hedge funds with record inflows. the high-end folks are staying with the market and not going into real estate. they are not picking one over the other. beremember when we used to

in the markets to get that down payment for the real estate? >> i'm hoping that toll brothers beats this morning because i need a couple of grand to put a down payment. wall street is active in real estate on the investment side in terms of financing the projects being else. commercial banks with a few exceptions are not active in the market but they are still grappling with the legacy of bad lending decisions before. and hedgewealth funds funds are the drivers for the new high-end product. >> can you get me an apartment that i can turn around quickly? >> in new york, everybody takes reservations. >> you got that right. this is the twitter question of the day -- next will be joined in the hour by ian bremer, the founder

of the eurasia group. we will talk about the elections in india and what's happening with china and the u.s. and even china and vietnam. this is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

>> that morning, everyone," bloomberg surveillance." let's get to our wednesday top headlines. chuck hagelecretary has ordered the pentagon to review the military which all. -- two with -- to review the va.

ratchet downng to the tensions in its cyber espionage dispute. the official chinese news agency says the u.s. should not let the issue get involved with counterterrorism. in the nhl playoffs, montréal stayed alive in the eastern conference. the canadiens beat the new york rangers, 7-4. game six is set for tomorrow night right here in new york. those are the top headlines, i have to get tickets for that. >> erik schatzker had the best tweet of the night.

" playoff hockey is the best." >> last night was tough but they are playing well. >> here is the morning must read. >>

>> matt levine writes on equity every day. is there a new board? >> in this case there want be but the company has control but it's about sending a message to the company. >> we are talking about small caps. they have been making is they come back but they are down a little bit. we'll talk to john malloy when we come back. ♪

>> good morning, everyone "bloomberg surveillance." up, let me do a continued data check off ever

, the eurothe s&p 500 is weaker. towards $135.g you need to buy real estate this weekend. on the equity markets, it is the most unloved bull market since time began. apple has gone from $89 to $625 per share. colgate-palmolive from $30 -- $65.$30 to small-cap stocks have been recently crashed over last five years. stock twist is been a gathering place for those in the market and want to participate and those who want to get smart bridge john malloy is the chief executive officer. fascinatedople are with the switch for you. you are with bloomberg for years and cnbc and now you got a real job. what is it like having a real job? >> my parents don't understand

what i do. [laughter] different than what i used to do here and that cnbc. people trade all kinds of stocks. we would do whole shows on apple or whole shows on microsoft but if you look at what is trending on stocks this morning, half of them are stocks that maybe you have not heard of before. they are small cap stock so we may be going through a boring summer to some people but our users in active traders are out there trying to find the small could store is going on. >> the lead story is jamie -- 25% off at citigroup -- that lack of oomph on wall street? >> we see that the active trader and the retail trader is getting back in the market. we are seeing traffic on our side go up. we are seeing messages increase.

>> use a volume is to light? the equity volume is still light but message traffic on our site is going up. you are seeing people like td ameritrade say the same thing. >> is that a leading indicator? yeah, people ask if that is the time to buy. we would like to think that the retail traders these days are coming back in is smarter than the big crowds. we are not seeing the big crowds like we saw in 2000 but we are seeing the people who have over $100,000 which is not so dumb money. that may be a better indication. >> the not so dumb money is a lot smarter than it used to be. they may lose the same amount of money -- this differential from global wall street to the world of stock twist and others is a

lot less than people think they are smart. what you have figured out to do is tap into this group of people who are maybe retired or working in other jobs and they are highly intelligent and plugged in and they know the data. do they find you or do you find them? >> they find us. unlike some other sites out there, they liked that it is all business on the site and people talk analysis and price targets. maybe years ago, you saw people talk about analyst price targets and these great stories. people are now talking about head and shoulders patterns and wedge patterns, technical things. >> you are saying we are a bunch of stock jockeys and we don't know the companies. >> why did you put yourself in this camp? >> i am a former trader. >> this is important.

pearlman is an example of making people smarter so they don't lose money. it's like in real estate. ass about not losing money much as about making money. can you bring his world over to your world? buy a two unit in queens anymore? >> you see this push to the outer boroughs. you see that and a lot of metro area. >> what is the outer boroughs, pennsylvania? >> queens, the bronx, and the outlying suburbs. >> there is a bunch of people that secretly want to move to queens. >> we have had the phenomenon with brooklyn and people coming to the city and the they go to brooklyn just as much as they go to manhattan. brooklyn is becoming very expensive so they are going to other places. >> there were families that

saved up 47,000, $400 so they get -- $47,400 to get a piece of the american dream. >> that's part of the reason why we are seeing sales nationally slide. we are just now leveling off. thewhole weather thing, polar vortex and slowing down sales activity causing the housing recovery to stall is silly. >> where are people in new york going to go for quasi-affordable housing? something that approaches affordability? >> they can get started on your website? >> right, but this is a physical assets of they will have to go to des moines. is new york that tight? >> inventory bottomed in the city in december.

it is up a little bit but it's that tightest -- it's the tightest it's been. >> what's the number one message on how not to lose money? the amazing part we are seeing, talking about how the regular joe is becoming more sophisticated, we see a lot of people put in limit orders and people use options. options of volume has exploded. that is not just institutions, that is the retail investor becoming more educated. we see people talk about options and talk about using stops. we are seeing more sophisticated trading out of the regular joe this time around and that's what a lot of the discussions are taking place on stocks with. >> how bad was the carnage? >> it was ugly. >> did you get death threats? our users already went

through a correction even though the indices did not show it. our users went through a correction because those stocks like twitter -- these were the most popular stocks on the site so that data -- that day that twitter went to $29 after the lockup, looking at the internals on our site, i have never seen a volume of messages like that before. there was such negativity on our site and that was the date bottoms. you can use the site as a contrarian indicator. >> there is a magazine cover right there. now is happening by days. it used to be that was an indicator over months. melloy is with us. >> governor chris christie of new jersey had high hopes for online gambling but is it paying

off? youill discuss and show today single best chart. this is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

>> good morning everyone, "bloomberg surveillance."

let's go to our top headlines. >> the u.s. will cut the military presence in afghanistan to almost zero over the next two years. president obama says he is going to pull back as he prepares to leave office by 2016. the u.s. will leave only enough troops to provide security for the american embassy. republican senator say is foolish to set a date for the final withdrawal from it pakistan -- from afghanistan. hashe ukraine says it inflicted significant losses on the pro-russian separatist. that's president will about to wipe out the rebels and restore order. get ready for bitcoin to disrupt check -- a portion of the economy. the virtual currency is probably 1-3 years away from having an impact. 60%?in has fallen by about

has the tattoo removal thing on bitcoin on his left arm. >> you can still see it. >>i feel like we are over it. it was fun to talk about around christmas but so many countries shut it down. >> it's a story to be told. right now we have the story called the single best chart. >> today's single best chart is all about online gambling and the effect it is having on atlantic city. five months after in new jersey started allowing internet betting, it appears revenue has plateaued. the business reported its first monthly revenue decline in april. we have our resident data crusher. sign? this such a bad

new jersey was hoping to get $180 million in revenue the first year and now they are on pace for only about $12 million. this is reflective of a large it budget shortfall in new jersey. after six months, it's already going down? this is supposed to be a growth areas of the fact that we are seeing it plateau so early is a bad sign for everything going on in ac and new jersey in general. on in all going regional casinos with the drop-off in brick-and-mortar openings but online gambling. it has been suffer these guys but las vegas is the one standout? revenue in las vegas is looking pretty good mainly because they are not just relying on gambling, right? >> that both peaked in 2000 session -- in 2007 but we have seen a drop 44% because in 2007 it was the first to the

pennsylvania casinos started opening up. they are taking all the money from atlantic city. las vegas is only down five percent since 2007. it went down and started coming back up. ac has gone down every year since then. >that is total gambling revenue in ac. it's the whole thing. >> jonathan miller is with this, do you look at atlantic city? >> there is value in the casinos but everything behind it is not doing well. it's interesting because the jersey shore itself is not keeping pace with new york city in terms of growth. they had the devastation from sandy and are still recovering. i would like to think that people are not gambling, they are putting their money into housing. >> i would guess we have done six interviews online gambling. this was supposed to be part

of the jersey comeback because chris christie did not want to expand gaming outside of ac. delaware are the only two other states that have this. new jersey became the third stated do it but it's so early, we are not seeing it grow anymore. gamble online in new jersey, you have to be a new jersey resident? >> yes, and there are problems with that software. if you live in western new jersey, the routers go through pennsylvania's to some of the software thinks you are in albania. what's happening is the casinos are not marketing the product because i have not tested it properly. many people who can gamble cannot do it yet3 >> thank you very much. our twitter question of the day -- what do you think? suck at gambling.

i am the worst. >> i am worse than you. >> can you walk away? >> sometimes i can't. right. 100% here are our top photos. this is our number three photo -- newly elected prime minister of india shaking hands with the pakistani prime minister. the neighboring countries had a very violent and contentious relationship. >> there is an extensive article in a quote the new york post" today on how the u.s. has to react to see changes in southern asia. >> amazing how quickly it is happening. thank goodness. the number two photo is the new york rangers. here is the goalie looking on as the montréal canadiens center celebrates the goal. he scored the first goal.

>> what do you think? >> i think the rangers are going to gillette. >-- killit. i'm from queens, who else would i be writing -- rooting for? >> we hope for something more sophisticated. >> you know me better than that. that's your specialty. our number one photo of the day is a video. here you go -- this is the opening pitch -- whoa! what happened? one more time -- he was trying to lob it in lightly. >> it was outside.

>> those are the top photos with a video added in. billionaires are driving real estate prices higher and we will discuss the nations priciest zip codes. this is oprah bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

>> good morning, everyone "bloomberg surveillance." let's get to our company news. >> we will start with amazon which says it is not optimistic that a dispute with book publisher hachette can be resolved soon. pre-orderslocking for some of their initial releases. spark invested $90 million in oculus. facebook bought them and suddenly that $19 million investment became worth $380 million. . microsoft unveiled an automatic translation service for skype.

the translation would occur almost in real-time. it could be available later this year. >> as you look at the equity markets, let's focus on real estate. manhattan in midtown will get you three bedrooms and three baths and a view of central park and no kitchen. foreign buyers are lining up with cash to buy sending luxury real estate rises ever higher. jonathan miller is president and ceo of dreams at miller samuel. what is your minimum property? is it $4 million? >> average selling price? and $4tween $2 million million. >> can the enthusiasm trickles down to everyone else? the upper end of the

market is definitely pushing the lower end of the market up. there is no inventory in any price range. it does not matter if you're looking at one or $2 million or $700,000. >> what are the ramifications if the idea of manhattan is safe deposit box goes away? that's where we are right now. >> correct, we are not only based on global investors. up to 40% of our buyers are global investors. some of these are second homes or primary homes. we have to talk about the 70% that are primary homes. those are mainly americans, new yorkers, people coming also to study and work your -- work here. we are a market and of always been that way. do you see the foreign buyer --hyped. little over

there are many domestic purchasers here and new yorkers have tie-in products. >> absolutely, i have a listing at time warner at the same price you mentioned before, $24 million. . >> i will look at it this weekend. >> did you bring your checkbook, great! [laughter] every time i show, i am very surprised about the names. we google people before we take them there and do research and more than 60% have. been americans the rest of than chinese or russian. the bulk in this case have been americans. >> when it comes to a luxury story, we published a about the 57th street corridor yesterday. >> i saw that. >> is it possible that midtown has not in the most desirable

area when it comes to residential real estate. is it possible that this could end in tears for those investors who are looking at this as purely an investment ? >> i don't think so. the people who are looking for investments will buy into the 1- $3 million range. they are not buying higher than that. you have two different categories. investors are buying for a return on their investment which is rental income and the rental income is strong in midtown. they can walk to work. that area is also that effect. basically around it will go up in value. that's how it works in real estate. that enormous skyscraper was successful but now there is a change, what is it? >> what has been happening with

a lot of the super luxury buildings across the city is there was such euphoria, such an instant early success that you had 15 or 20 price increases during the marketing period. you are now seeing some of the larger buildings like the 157 building with slow sales activity. >> this happened in the financial district? >> right, you get that early enthusiasm. i don't see any issue in terms of demand waning. it's a global phenomenon that is driving it. unless you think europe will turn around dramatically or say brazil will change dramatically or the chinese are not going to invest in a more. >> thank you so much. thank you both so much. >> we didn't talk about showing you the house. i was there this weekend and i

have fresh data. >> we will come back with fresh data, thank you so much. rex report, we are watching the euro through $1.36. coming up next is ian bremmer. ♪

>> this is "bloomberg surveillance." >> the dow goes higher as others lead or getlook -- out of the way, microsoft's nadella speaks. the president of the eurasia group joins us for the entire hour. it is wednesday, may 28 and i am tom keene, joining me is adam johnson and cristina alesci is in for scarlet fu. to a brieflet's get overview. >> kind of a boring day. german unemployment unexpectedly increased for the first time in six months as economic data was very quiet. at 7 a.m. we have mortgage applications and on the earnings front before the bell, cracker goes --nd dsw and she chicos. president obama delivers the

west point commencement speech today at a 11:00 a.m., talking more about foreign policy and any number of crises we have going. >> here is adam johnson. >> the new ceo of microsoft, satya nadella, looking forward and not backward. he says he will focus on businesses where his company can lead, and not missed opportunities. he says he will not change their plans for the xbox gaming console, or create a search engine. a company famous for chocolate is entering the skincare business. they will begin skincare problem -- products and first quarter sales growth was the worst since 2009. their loss in court for bp over the new mexico -- over the gulf of mexico oil spill. they must pay damage claims well waiting for the supreme court decision.

they argue they should not have to pay damages to companies that were not damaged by the spill. >> for the next hour, ian bremmer joins us and it is quite from the ukraine. the president must navigate a failed economy, at the same time, the ukraine needs to turn to europe. they have their own election turmoil to look at. ukraine, there are so many ways to go here. thing this newst president must do? >> he needs to stay in power. the problem is he was elected president of most of the ukraine but not all. and there were elections in most of the eastern ukraine, the first and that happened is we saw a lot of violence with over 40 russian militants killed. he brought out some ultimatums

and said that the separatists, he won't negotiate with them and they have to stand down. >> the civil war started slowly at bull run. this is not the civil war but you have a tendency to what could become a more extended civil war. >> you have the tendency for the russians to do everything possible to make life unlovable for the pro-west king of chocolate. after then't go militants in the eastern ukraine, he will be under massive pressure -- massive pressure from the group who elected him, and if he does, the russians will come take him out. militarily in the south. it is an impossible balance. >> angela merkel is distracted by european politics, we are distracted by the president at west point today. do? should the west >> i think it was correct for us to say that this election was a

success. we need to show the legitimacy of ukrainian government, we also need to stop with the red lines that we are going to fail on. i think we have to provide more support than just a billion dollars of loan guarantees. it is not about putting sanctions on the russians. when the international monetary fund has promised 27. why has president vladimir putin been so quiet? >> he is in no hurry. he has already taken a lot of what he needs. the situation on the ground is much better than it was in the ukraine that it was a month ago or two months ago. but the attacks that we have seen as of late have been ominous from everyone but vladimir putin, from the prime minister and others. i think time is on his side. this is not the environment

where he needs to make a quick decision. >> we just had memorial day and for so much of america, we have been removed from military affairs. he was great with the tweets that he had of people we have lost in iraq and afghanistan. what you take from the announcement yesterday, i believe the headlines were extending two more years. >> we were supposed be out at the end of 14. >> how does a guy like you with a phd in politics -- how do you synthesize the afghanistan experience. >> it is the longest standing war in american history, not just active war, any war. it is incredibly unpopular and i and manyma would say americans would agree that his signature kabul schmidt is moving from 180,000 troops active in afghanistan and iraq, to less than 10,000 in 2000. -- 2050.

a lot of americans would say that they would rather have it be zero, but the dramatic shift is part of the challenge. unfortunately there have not been many other foreign policy requirements -- accomplishments. >> what are 10,000 people going to do in afghanistan. like mars number two, which is why fracking has been so successful there. when we leave, it will be a disaster. obama made it clear, afghanistan will never be perfect and we are not going to make it perfect, it is not our responsibility to make it perfect, but he could have said that about any country like afghanistan. not perfect and not our job to make it perfect. most people do not know what american foreign policy really is. >> what is american foreign policy? >> i can tell you what it is not. it is not the world's policeman.

it is popular in the united states and other places, but we know that foreign policy is about risk aversion. wants to avoid getting entrapped in syria, and the ukraine, and he has been modestly successful. but in terms of outlining what america's strategy is, there has been no active attempt not to do that. >> i like what they say in the today, ourimes" foreign policy is a vestigial force. >> just to take it back to the ground for a second, what is the status of the security agreement that obama would like to sign with afghanistan, and will a new president in afghanistan sign onto that? >> they have had elections that are surprisingly successful, although they have people who don't take part in them, that is what success we have seen in afghanistan. bothks are in the running, of whom have made very clear

that women become president they will sign. say, you don't have to worry about that and nothing is done until it is done. neither of them want to cause an afghan security is only going to get worse as the americans leave. -- the slope and scale, india looks forward to pakistan and onto afghanistan. this is much larger than just india and china. >> you could be excused for thinking it is not, for the last 20 years, because india has been so inward looking, -- >> will that change? >> i think that it will. i think you will get on the road. he will be talking not just with leaders and ceos. this is a man who wants to attract investment. >> those of us who sat in your classroom and took your courses,

they -- can you state that are done, if you go back years. is the congress party finished? >> they are finished. they had the largest historic loss, a smaller minority in the lower house right now but still have significant power in the upper half, -- upper house. and now he haso the ability to move on legislation. is not justor that because he is charismatic, it is because india is so young. 180 million indians were able to vote in this election. >> the youth vote was a criminal -- clip -- critical difference. >> this is enormously positive and the single thing i worry isut with modi is that he very connected to the traditional oligarchs, some of the senior business interests. and there is a lot of corruption.

i wonder how he will move against them. >> ian bremmer with us for the entire hour. euro, here up, and the is ever slightly weaker. >> there is nothing to fear but fear itself. -- there ist virtually no volatility in the market. at these markets and try to make sense in the international context with mr. ian bremmer of the eurasia institute. what is the greater risk, stocks or housing for atlantic city? at bloomberg surveillance. we will be right back.

>> good morning, everyone "bloomberg surveillance." i am tom keene. our guest is ian bremmer, from the eurasia group. china is not part of it, maybe is expected. the cyberattacks and cyber weurity, this is about where should look. is this romania? >> china is still the biggest source of attacks against americans. >> china is the dominant force.

>> but russia is as well and they are very different from china. with china it all goes to defense. and russia goes through intelligence. they are much more stealthy and harder to track. they are more strategic in the way from the national security perspective, they have been pressed very hard by the americans and the chinese are looking to steal intellectual property. they want in that -- competitiveness against american placedand we have charges -- and the russians are in decline, they are being hit by the americans with sanctions and they need a way to lash out. vulnerablemuch more in my view to the russians doing things that may hurt us. >> cyber security, is about stealing the formula for colgate toothpaste? >> i think for the chinese it is largely about the former. for the russians it is largely about the latter.

if we are hitting them with financial sanctions, they can do that in return and it is not effective, but they do have the ability to engage in disruptions to operations. >> is is the security at ibm or the pentagon? >> if you talk about the folks at the national security agency, who were very cable people, with mostly military backgrounds, they say that you can't defend. we are getting betty at identifying them and tracking and if we spend a lot of time saying we know where country is from and who is engaged in the -- ck, we can't stop them >> on this basis, the solution is that china -- russia has become afraid of china and china has to become afraid of russia. >> i think they have moved to the opposite direction and russia knows that they have few options today other than china,

where they have just signed that gas deal. they are both focused on trying to find the american supercritical on this issue. cyber security with ian bremmer. next we look at microsoft. it was interesting on twitter last night, the way that this played out. microsoft and a new vision for microsoft. city, the york markets are quiet, but up. this is "bloomberg surveillance ," stay with us.

>> good morning, everyone. "bloomberg surveillance." let's look at the twitter question of the day. really straightforward but what is a bigger gamble? equities or atlantic city. housing stocks or atlantic city? this is bloomberg surveillance. good morning, everyone. tom keene with adam johnson. scarlet fu called in, devastated that lundquist was taken out of the game, cristina alesci said,

i can come in. >> they got her medicated. rangersre wearing your blue dress. >> let's get to our top headlines today. >> here we are. defense secretary chuck hagel has asked the pentagon to review the military health care system and the army just relieved the commander of fort bragg after two deaths there. congress is investigating the medical care offered by the department of veterans affairs. congress is trying to lower tensions -- china is trying to lower tensions over cyber spying disputes. the u.s. has accused the chinese military a ceiling trade secrets. the nhl playoffs, we just spoke about -- montréal is staying alive in the eastern conference finals. canadiens defeating the rangers, 7-4.

the rangers still lead numeral's three--- still lead 3-2. >> 11 goals. it was ugly. both of the goalies did not have a great night. let's look at the equity markets. these have gone higher in the last 12 months and the s&p 500 rise,15%, a single-digit some double-digit joy and for some, michael reagan is with bloomberg news. on the 2009-2014 bull market. how boring is boring? how boring is this right now? >> it is not boring if you are long on this market. everyonee big issue is was so skeptical of what the fed was doing right. oneou took a time machine

year ago last year, if i said that the fed would remove stimulus, and there be a record on the 10 year yield, would anyone believe me? and here we are. we had a great interview in the new york times, where they call this the exuberant rage of the range ofant rage -- the valley. the fed is starting to thread this needle. if you discount the possibility -- article from this weekend, and i will tweak that out for those of you on radio and television. that out to those of you on radio and television. when you talk to grizzled professionals, have a really checked out? -- haveone is cautious they really checked out? >> everyone is cautious.

this is below 15 since the middle of april, which is almost unprecedented. is a signal that this can't continue? >> historically we have seen the activity come off when there is a peak in the market. rise,e seen this activity and so perhaps this is an indicator that we need to pull back a little bit. but what is going on in the consumer stocks, when it comes to retail and how the retailers have completely missed the analysts estimates. does that cause concern for anyone? and will that spread to the broader market? >> people kept the valley below in 2009, it is led by consumer stocks and financials. this is really underperforming. obviously the first quarter, that winner -- a lot of them go

to ignore the first quarter results for retailers, whether or not they get themselves back in the year, it is easy enough to chalk that up. >> what is inspiring leadership in this market? >> for this year it is utilities, and if you have since thethe market lows in april, this is a mix technology,gy and technology is coming back. >> i go back to the numbers from last night, the use of cash, and share buybacks, this has propelled this market. >> you talked about this in your own brought -- lined trust the return of cash was about nine percent. >> cash and cash, add up the dividend and the share buyback. that is where you start the year. >> you understand why large caps are outperforming. the small caps are down about 1.5% right now, and large caps

up almost four percent? >> there is an article from in s. -- mkm partner the russell had underperformed the s&p 500 for about nine straight weeks, which has -- 2ned to other times other times in the history of the index. he really wants to see that among theance pick up small caps. >> do you think that we will? >> and he is kind of on the fence. has been stroke followed by a short term weakness in small caps. that the small caps are very important right now and this will be an interesting week where we show more confidence. >> michael reagan in the trenches at bloomberg news. ends, nobody believes this market. where will we be in a year?

>> when we come back we will talk about hotels. they are hot. small caps are not hot but hotels are hot. we will talk to the ceo of look laquinta.he ceo of we will be right back on "bloomberg surveillance." ♪

>> a first, everyone. with cristina, alesci and adam johnson. scarlet fu is out today. here is adam johnson. >> more recalls on the way at general motors.

there are flaws in an additional 2 million vehicles, the expert the failure of automatic braking and headlights. pimco is going back to the world's biggest bond fund manager is bringing back paul mcauley in the new role of chief economist. -- four40 years ago years ago, they are bolstering their team after the ceo left him a. google is getting into the no driver car business. that driveehicles passengers at the push of a button. pedals, oro gas steering wheels. i wonder how they operate. google will test these prototypes out next year. therefore valued energy, and also, the new york post is reporting that apple is adjusting the price. that is really not out there.

this is a markdown. >> it is not out there but it is not a surprise. we had that newly couple of weeks ago and we have not heard an announcement. morning for busy company news that started last night. the new cheesy -- chief executive officer of microsoft said it is time to leave and he did not want to look at the missed opportunities. we need to get focused on the future for microsoft. joining us is daniel ives from sbr capital. what did you learn from mr. nadella last evening? the time ofbeen steve ballmer, and i think that nadella season and microsoft over the next 4 or 5 years. >> when you look at the next few

years, is he jettisoning the hardware? >> he is hedging his bets a little bit. we saws of the head -- the latest tablet release. he needs to play his cards right here. this is all about software. hardware is a key acquisition and he needs to prove that to investors, that this was the right acquisition. >> microsoft is a global company. steve bremmer is there. this is a sea change? focusedechnology is overwhelmingly on this but i say the same thing about china. with ad a huge surprise difficult market and now the chinese will not allow them to sell windows eight. there is a security problem and it is also about the environment. neither of which makes any sense. should he adjust this and what is your take on what they should do in this market? >> look, he has basically taken

over the new york mets. uphill battle and i think -- if you really touch on that, there is a headwind from microsoft on the trademark, and windows eight has been underwhelming and now the next focus is on the cloud-based platform, with windows nine and that is where it is leading next year. you will hear more and more acquisitions out of microsoft in the next few months. >> amazon is now in the back office for three quarters of retail orders. how can microsoft let amazon -- effectively steal their business? >> there is no doubt. nadella has nightmares, they are about amazon. that is the focus on the cloud and they need to put a fence on the backyard. that is where they need to step up the efforts across the windows platforms, and i think to some extent, this is

something they are trying to do in terms of laying the groundwork to get the brand out there, to make sure that the games continue -- the share games continue for microsoft -- share gains for microsoft. >> what impact will this have on margins? >> there is no doubt that margins will compress in the near-term. they have to go into the fifth year, pedal to the metal, to spend in order to gain that sort of share among consumers and enterprises. the focus is i will give them six or nine months, and we will start to see the cash flow increase. that is sort of the key to the stock, into the high 40's and $50, and then you see that cash salary, and the investors are getting better over the last six or nine months. >> the short notice on microsoft. >> it is time to do a data check.

there is a little bit of movement, with the s&p futures up about three points. 250, withr is down at no sense of inflation. the euro is holding steady and crude oil is up ever so slightly, but above $100. >> good morning, "bloomberg surveillance" on bloomberg television and radio. our products on digital and radio, and bloombergtv plus. joining me, adam johnson and cristina alesci, in for scarlet fu. and ian bremmer joins us. tell us what you want to tell us, adam. over one have this, billion rooms booked in 2014, well above the previous record set in 2007. a holdings in april marked the fourth ipo in three months.

with growth inflation still under where the fed wants to see them, where is all of this business coming from? >> we have seen an improving economy, and with that, we see increases in consumer confidence, and in our segment and our industry we have seen demand and supply continuing to stay balanced, with demand outpacing supply, so we feel very good about the outlook and the horizon, and we believe that we have a lot of headway and runway left in the cycle, based on the demand and the supply fundamentals being imbalance. >> a lot of the proceeds went to repaying debt. what about investing in the business, where is that money coming from? >> we are still investing in the business with significant capital, over $700 million in weital of the hotels that own and operate and in our brand. we are continuing to invest capital in our business, and

yes, we are using all of the excess cash flow to do leverage the business and we will continue to do so. -- we are positive on the investments we make it our business to move our brand. >> that is cheerful. thatis your biggest worry, america has too many hotels or motels? >> i think that the demand and supply fundamentals are in check. if you look at where we are today, if you look back to the had 88 hotels in our direct market, under construction and our competitors -- today we have less than 37 hotels in the markets, we own and operate hotels under development so even if we saw an uptick in supply, it takes time to find a piece of land and develop that piece of land and zone that piece of land. we feel very good that we are really early in the cycle with a lot of runway left.

>> educate me a little bit. you describe yourself as a high-margin capital business. i understand that, conceptually, but what is the formula that could make that possible? >> inlet quintet, we have many different segments, and owner nta, we, -- in la qui have different segments, the owner segment and the performance segment -- under the performance basis. the franchise segment produces unit growth, and all the development, including 186 properties are coming from and through the high-margin franchise business. again, we feel very good about our growth, the organic growth in our own segments and the unit growth coming to our franchises through the fee-based segment. 50% of all of our properties are franchise, high market capital business. it helps us continue to grow the

brand. we are leveraging the brand and not the balance sheet. >> have you thought about the potential impact of a minimum wage increase and how this would impact your business? >> of course. we are constantly monitoring what is taking place in the local communities and in the markets and we believe that ultimately, there will be a resolution that will be in agreement on what the federal wage -- the minimum wage increase might look like and it will be done over time and it will be staged in over a number of years and adjusted. historically that is how it has been taking place and that is how i see it playing out, and it is more sustainable than having these individual markets and communities going out and doing something like they have been doing. to havethat we need this conversation and the american hotel and motel association and our government will work together, and come up

with -- inta,yne goldberg of la qu thank you for joining us. the twitter question of the day, what is a bigger gamble, housing stocks or atlantic city? we want to know, tweet us @ bsurveillance. ♪

>> good morning, everyone.

"bloomberg surveillance" and i am tom keene. the euro is weaker this morning and we are on the 135 watch. worth watchingng and also with watching are the top headlines this morning. here is adam johnson. >> the u.s. will cut the military budget in afghanistan to almost zero, president obama says e-cig repairs to leave office in 2016. they will provide enough troops to protect the american industry. they are planning the final withdrawal from afghanistan. the ukraine is on the defensive thenst rebels, president-elect has vowed to wipe out the rebels and reestablish order. get ready, maybe. bitcoin may disrupt part of the economy, so says web securities. the virtual currency is one or three years away from having a payments, but they

may actually do that. they are down about 60% from their height. >> i think this borders on evangelical. >> we are kind of over it. >> i feel like i am over it. >> matt miller did a great report on this. i said, are you kidding me. what can we buy with bitcoin based on who you are interviewing? >> right now you can't buy anything on my show, but there are perhaps some luxury goods with bitcoin, some luxury retailers except that. hongou can't do that in kong at the most expensive street in the world. you go to hong kong often, but there is russian street, and it is jampacked not just with people but with luxury stores that make it 20, 30, 50, $100

million in sales and it passed fifth avenue as the world's most expensive street. i luxuryll you retailers want to be on that particular street. that is coming up and also, the head of douglas retail group tells us, 5th avenue is coming back. >> how does this differ from what we see on 5th avenue? >> in many ways it is very similar. however, one big difference is that fifth avenue still has a few more higher end stores. top,are at the top of the and sometimes being there, even if you move money on 5th avenue, this is a great advertiser for any retailer. >> there you go. >> you have a lot coming up. up, the bid for

allegin --is this enough to seal the deal? cristina alesci, you have been on this. >> this is more of a cash bid. one he four percent more cash on this deal. >> show us your eyeballs, and we will try to make you smarter. "bloomberg surveillance" on tv and radio and streaming live on your tablet or phone. we will be right back. ♪

>> good morning, everyone. ,"loomberg surveillance tom keene with adam johnson. scarlet fu is out, devastated with the performance last night from the new york rangers. cristina alesci is with us. hear from bloomberg west is adam johnson. >> microsoft says it -- says it is not clear if the crisis with amazon is going to be done anytime soon, amazon has cut off pre-orders from the new release. and an early investor in twitter, oculus, wants to invest in later stage startups.

they invested 19 million in oculus, a maker of virtual reality goggles and this stake became $800 million. the company is trying to buy them earlier this year. and automatic translation service that would occur almost in real time, users would be able to use a beta version for skype. that is today's company news. >> i am sick of lagarde making fun of my lack of french. i have tried rosetta stone about eight times and failed nine of those eight times. >> this is kind of cool. it is cool that you can talk in real time. and then it comes together. stephanie ruhle has just joined us to talk about valeant, upping allergan up to $50

billion, that is real money. is this going to work? >> what it appears they are doing here is backing allergan into a corner. they are trying to look for any way to say that it won't work for us, but let's look at what they are doing. they have improved the cached that is half of the company's value, and it is amazing. if you want to be anything this would be a pre-deal acquisition shareholder. they have not changed anything from the share price perspective. product, a degeneration product that they are in the process of working on and they say this is the brock -- blockbuster drug and they don't want to be touched. millionl spend the $400 to get this approved and if you lergan shareholder, they will give you 40% of the revenue for this over the next 10 years.

the board says that this is not right for the shareholders, but t teamckman and the valean have their arms crossed and are asking what else they want to offer. >> it sounds like a sticking point. >> remember, they don't want this necessarily to happen. if you are the ceo you will be out of a job. >> i wonder where they are getting the cash. getting theeant cash? >> they have the cash, remember that they sold to nestlé overnight for $48 billion to address the antitrust issues. you have botox and a lot of the don't,ems, and now they but they have the cash and ackman has the ability to raise cash. people feel great about this idea and it will be tough for them to turn their back on this. >> we will be watching you at 10:00. allergan, a real

step up in price, there is no doubt about that. changing years, perhaps an important idea off of your memorial day weekend. enjoys the 12th two since the 1930's. -- coup since 1930's. china and japan and china and everyone else, here to put in context the army chief -- i hope i am pronouncing that right -- is thailand. thailand is a remnant from vietnam to those of us who are older. i am sure everything i know about this is wrong. what do i need to know about the reds in rural, the yellows in ?angkok >> they are like the little country that cried wolf and we don't pay attention. but this matters more because the king is almost at the end of his life. succession, the

rules for royal succession will be put into place by this new government. there is a big fight over .ecession -- succession a lot of folks want the crown prince and place, there is thaks in who was recently ousted and the consequence of that -- he is enormously unpopular within the country. he is considered a bit of a buffoon. effectively,ht, not just about what the government will be but what the monarchy is going to be, and that means the sides are much more divided. >> there is a quick briefing from bloomberg world view, the reds, the rural protesters, versus the yellows in bangkok. abundance are busy assessing odds to a thailand civil war and i can't help but wonder if the real risk is the effort to wrest from theto wrest power

cup -- clutches of the generals. this still about -- >> this is about the rural question is if they can come together to support a new government or are they so entrenched that we will see expanded violence? thailand is a place in which you can still invest. there is manufacturing and the ports are still open, but tourism jobs matter, too. those jobs are getting crushed and not coming back. watching, youu look at the cacophony that we have out there, what are you watching in the next week or two? >> i look to what extent they can actually put a cabinet in place, that seems to be functional and can actually start establishing reform policies that people will listen to? they can stop violence in the near-term, but it is hard to do in the long term. having said that, one of the

most exciting developments in the emerging markets in the world, southeast asian integration. i am talking about infrastructure and railway, this is much more broad than that and thailand plays a role. nobody talks about the enormous economic importance that this will have. >> let's get to our agenda this morning. >> why don't you go first? will and this is something ian bremmer can speak to, going back to 1802, with obama giong to west point. there's something about any president going to the ramparts. it is great that he went to afghanistan, two. if he says we have to keep troops there, you can do that if you're in front of those forces. that is why he went into west point.

>> we show the flag and the navy going out across the sea. isthis an army that projecting outward now, or do you look at five years of entrenchment? >> this army is still vastly larger than anything else. there is nobody else out there that is capable of standing up a force,gainst american but obama as a president has been historically reluctant to not only use force but even projected. despite all the drones in iraq and the boots on the ground. is at 11:00. >> here is what is on my agenda, general electric trying to get their deal done in france. yesterday was pretty amazing. ffe ceo, jeff him out -- je promised to create new promise toelt

create new jobs, with the pfizer and asters and a good deal, he said, i will create new jobs. deal, he said i will create new jobs. >> apple with a start up music site, we still don't have an official announcement now that our report is out there that they could recut the deal. maybe get a price at a lower range. >> we will be watching. time to answer the twitter question of the day. what is a bigger gamble, housing stocks or atlantic city? this is what you told us. it all depends on the system you use, the house always wins. home is the winner. if one is actively managed and other large percentage of these underperform stocks -- and finally, number three. housing, as first-time buyers are declining, secondary buyers have the biggest gamble of all,

student loans. >> ian bremmer, thank you, we greatly appreciate you. so much going on in the world. >> we continue with mr. kean. "in the loop" continues on bloomberg television, next. ♪

>> good morning. it is wednesday, may 28, and we are live from bloomberg world headquarters. you are "in the loop." i am betty liu.

we have a great program as always. amazon righter on now. we had to the far east where luxury shopping is a serious sport. yes, it is. do not miss our tour of the world's most expensive street in hong kong, but first a look at the headlines. valeant pharmaceutical has boosted its takeover offer for allergan, the maker of botox. luxury retailer michael cores posting profit that the estimates, with sales rising 26% from one year ago. the companies controlled by billionaire's charles and david coke just got bigger -- koch with a propylene pain -- plant purchase of $2 billion. jeffrey immelt is taking his bid directly to french