>> some ups customers are still waiting for santa claus. take a look at security threats of 2014. snaggedharvey weinstein his awards with low production budgets. good morning. this is "bloomberg surveillance." thursday, december 26. tom keene is all for the week. with me is michael mckee and adam johnson. to take ayou going

nap before doing the afternoon show? >> no naps. i always say nobody should have to go to work before there is a starbucks in the neighborhood. japan's nikkei closed above 65. that was the first time since 2007. weakestnese yen at its against the dollar in five years. yen goes down, that is good for japanese exporters. 8:30 eastern, we have the initial jobless claims. it tells us a lot. on a weekly basis. it is only on bloomberg. outside the u.s., little boxing action in the u.k.

the biggest shopping day of the year. it is always after christmas. tom will be at bergdorf's. you will be at sak's. kohl's? me.o kohl's for people of thousands of had to abandon their own christmas celebrations because of heavy rain. he environmental agency in the u.k. warned flooding could get worse. not everybody celebrating on boxing day. check, there is some quiet before futures start trading. do have a green screen to start off. s&p futures almost three points

up. they are gaining some momentum of the morning goes up -- goes on. we are looking at a 10 year yield. we were talking about how we had gone up. talking about how to bridge that 3% margin. we are looking at the dollar- euro at this point. the euro is higher against the dollar. up. is pushing oil prices everybody is watching what is happening with oil prices since the economy is getting better. adam mentioned japan. the nikkeind years, was twice the level of the dow industrial. you can see that reflected in the japanese yen. it touched a five-year low.

it does not matter if you are in england. if you are in the united states, you get some good deals. bit of a bounceback for gold prices. for storiescoured making the papers. it was a sparse christmas for some this year. theirry companies missed delivery targets because of an avalanche of late holiday orders. there was a lot of finger- pointing about whose fault it was, whether it was the delivery company or manufacturers that did not fill orders in time. customers $20ring gift cards. macy's and walmart all the same. it is one thing if adam does not get his teddy bear. if a kid does not get it, what

do you say? santa claus sent you and i owe you. re for i just weigh in he a moment? parents, do not wait until the last minute to get your kid a teddy bear. you had 365 days. >> we are working. we had five extra shifts. >> if it is late, that is your problem. >> you go from work straight to going shopping. >> take a little responsibility. i waited until the last minute. i trusted ups. adam playing scrooge. scrooge johnson for us. our second story. the enrollment deadline for healthcare.gov has passed.

a records after .etting influx of shoppers if you wanted to sign up for insurance, you can still contact them and they may help you get covered. will take your money. they need it. >> the first sitting japanese administered to visit the shrine that the moralizers war veterans, including one or two criminals. china immediately criminalized the visit. the japanese prime minister is always under domestic political pressure to visit the shrine in the same way that our

president goes to arlington national cemetery. the other asian countries who suffered during world war ii get all upset. ,e should move beyond this now they say. it is our war dead. it is what every other leader does. about the tensions in the region now. it is not helping. the hourest host for is a former white house security advisor. let's start with you on this shrine visit by the japanese prime minister. his ratings within japan have fallen. is he making this visit to shore up public confidence domestically? >> it is the main driver for this. the international reaction is uniformly negative. it is not just a visit like arlington national cemetery.

japan, as a government, has not satisfy his former opponents about that history. korea occupied for about 35 years. to acknowledge the sexual enslavement of women. underliesat really why people reacted so badly. the deeper issue is the refusal of the chinese government and educational -- japanese educational system to deal with that history in a way the neighbors think is correct. right tos claiming a the islands. it may be a gateway to oil under the ocean. >> there is a major territorial dispute with china that flared up in september of 2012.

there is also another one with korea. the chinese-japanese relations are very bad. there could be another explosion if the chinese government wishes that to happen. it is also bad between japan and korea, our allies. the kind of thing that gets my parents' blood boiling because they were born around this time. ofknow that there is a lot ceremonial visits to the shrine. are there still going to be? they will eventually get together. they are not going to announce it today because they have to react to his visit to the shrine. these are the two most important leaders in the two most important asian countries. they have to get together eventually. scarlet fu, you have some

company news. vw holding a slight lead in china sales this year. they sold 3 million vehicles in the country in 2013. if it keeps its lead, it will be the first time in three years that it topped gm in china. --ie baba wins a license alibaba wins a license in china. year trial of a two- to bring more competition to the chinese wireless market. mcdonald's has taken down an employee resource website. the most recent incident labeling a cheeseburger and fries as unhealthy. that is today's breaking news. it is not exactly breaking news. mcdonald's french fries unhealthy. i would agree.

i like them. i would not agree that they are healthy. this one.w my view on all i want for christmas is an apple tv. this is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com. ♪

>> coming up on bloomberg television, the cofounder of squares joins us on "in the loop" at 9:00 a.m. eastern. that is supposed to be one of the big stories of 2014. >> other companies get involved in the space. lots of competition coming up. everybody is

talking about today is how the delivery companies fell on their face. not get their toys on christmas. adam does not like it. >> adam is not offended. the feel badly about children who did not get their toys. >> leave it there. some finger-pointing. ups said manufacturers did not fill their orders in time. we did everything on time. we are looking at the delivery options and we will review everything. they are offering gift cards and refunding for the people who did the one-day final orders. pay the fullill cost of items not delivered on time. du pont suggested to customers that they print a photo of the present -- groupon suggested to to customers that they

print a photo of the present that would not be delivered on time. explain it the next morning -- >> ups is bearing the brunt of this. it delivers 45% of the nation's packages. the head of research at bloomberg industries, you look at this and ups has been the one stalwart everyone is depending on to deliver this holiday season. is this going to affect the bottom line? the entire supply chain was overwhelmed. what it illustrates for people is the extraordinary growth of e-commerce versus bricks and mortar. he heard about store traffic over the last several weeks. everyone was waiting around waiting to click the mouse. >> we have numbers from shopper were saying store visits down 21%.

is that because people were shopping over the computer? >> people made a huge shift. this will make the commerce department raised their number they held out for e-commerce. that always seemed so low to me. they reported was 14% over the last week. that is a little more representative of what e- commerce is over bricks and mortar. are the expectations for volume. here we go. volume betweenr thanksgiving and christmas to be up 8%. pray for good weather and get procrastinators' presence to their homes on time. >> they prayed for good weather and they did not get it. that was one of the problems. was web glitches and they cannot handle the surge in late volume that came about.

i wonder if the brick-and-mortar retailers got a little bit of a boost -- will get a little bit of a boost knowing they can go to the store and see the product on the shelves. >> the long-term trends are so clear. ofzon is invested billions dollars on fulfillment centers to create more fulfillment centers to get them closer to consumers in an effort to shorten the delivery time. we talk about the holiday shopping season. when you look at the november spending numbers, it was not good buying, it was services by that was up huge. arewonder if people spending more on services and experiences as opposed to a new doll or a new dress. >> e-commerce companies have increased the percentage of total retail sales. when you get to christmas, it is

about boxes being shipped and stuff under the tree. what we saw here was a whole supply chain from the manufacturer down to the distributor and the delivery mechanism. they just got overwhelmed. >> i was speaking with the ceo @toys r us. he said there are 81 different us. toys "r" he said there are 81 different permutations for buying. 81 different possibilities. he said you cannot have a system that is either written warner or internet. it has to be seamless and integrated. brick and mortar or internet. it has to be seamless and integrated. >> they are trying to figure out what are those anyone permutations. consumers goones to at crunch time. they expect the package to be

delivered within 24 hours. we have retailers giving you same-day delivery. >> if it sounds too good to be true, it probably is. you kind of wonder. ups said it will resume delivery starting today. the head of bloomberg industries our test host for the hour. that brings us to our twitter question of the day. what was the best deal you got this holiday season? tweet us. mike, what was the best deal you got? shopping at brooks brothers. tweet us. this is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com. ♪

this is "bloomberg surveillance." scarlet fu along with michael mckee and adam jansen. -- adam johnson. here is adam with top stories. >> the first japanese prime minister to visit the shrine. as aar memorial is viewed sign of japanese imperialism. the prime minister says the visit was not meant to hurt the feelings of the chinese or japanese people. three ministers resigned in a turkish corruption scandal. cabinet members overseeing the justice system were among those replaced. brazil, $6 billion in debt

a 90%e converted in to stake in the company. those are your top headlines. this is one of the wealthiest men in the world. he went from $30 billion down to less than 300 million. >> a fast drop. michael mckee, you will get us started with our morning must read. income inequality was one of the biggest stories of 2013. the nobel laureate noting in the corrosiveimes it's effect on the body politics. trust is becoming yet another casualty of our country's staggering inequality. the bonds that hold society together weekend. it will be one of the big stories in 2014. you have bloomberg's political analyst adding that we could

have some sort of american spring, an uprising of people who are frustrated that they get so little and so few get so much here in the united states. >> in other words, and occupy wall street that is broader this time. we started to see glimpses, but they could not coalesce. get behind theot mechanism, but there was no mechanism in place. they bloomberg contributing editor, what do you make of this idea that social unrest could come in 2014? it will take a lot more than more of the same. and hes a serious issue gets it exactly right. terriblery does have a problem with income inequality. it does a lot of other things) there are reasonable forms of civic engagement incurred -- occurring -- it does a lot of other things right.

reasonable levels of civic engagement occurring and other things right. let the parties break up. goodwinteddyns roosevelt came into office during a similar -- doris kearns notes that teddy roosevelt came into office during a similar time.

>> this is "bloomberg surveillance." is scarlet fu along with adam johnson and michael mckee. you have a data check. >> futures only started trading

about a half an hour ago. nasdaq futures are up. , 2 point10 year yield 99%. a lot of people said we would not breach 3 if the fed started tapering. -- 2.99%. our data check. our post-christmas data check. we are starting our week long series and you have our next edition. looking at, we are major themes across different industries. today we will focus on security. edward snowden delivering a christmas message on british television. he warned about the dangers of surveillance. the conversation occurring today will determine the amount of trust we can place in the

technology that surrounds us and the government that regulates it. together, we can find a better balance, and mass surveillance. >> mass surveillance. we are joined by richard, bloomberg and trimming editor. he is also a senior fellow at the council for -- and contributing editor. he is also a fellow at the council for -- is a criminal and violated the contract he signed for the u.s. government. if he is ever found -- captured, he will spend the rest of his life in prison. major companies and enterprises have been spending billions of dollars on cybersecurity. what snowden showed more graphically than anything else is that how a highly expert motivated insider can get sensitive data out into the

open. that is what he did and that is what corporate america is terrified of. >> how ironic. for all of the billions spent on security, one guy can take down the system. it.hat is the essence of a highly motivated insider can hurt you now in ways that are beyond any set of outsiders can imagine doing. >> the question snowden is trying to put forward -- does anybody need this amount of data on individuals? >> does anybody need it? there are a number of companies that have masses of information on you. social media is based on you and users dividing data in exchange for a service. the basic deal is that you give them your data and you benefit from an interested -- interesting experience online. it is something you can send it to. >> we talked about this on

tuesday. amazon is not going to show up at my door with a warrant or break down my door or come in and arrest me because i gave them my shopping data. show up atle who do your door have the power to serve warrants on amazon and everyone else. in aget all of that data compulsory way. when amazon is served with a warrant, they must turn all of that data over. while they are benefiting from it in a financial sense, the government has the power to go get it if you have done something wrong and they have cause to come and get you. >> this is right in your wheelhouse, the idea that technology companies benefit from the data that they gather from us and are not the holden from the government. -- beholden to the government and they can see their hand was forced. >> even for the googles of the

world, it is a fine line. they have to be compliant with regulatory agencies around the world. they have to represent the interests of their users and project the image that they are looking out for the benefit of their users in terms of protecting their dent -- their data and their identity. >> is that why they went to the white house to say to the president, this is too far. this hasanted to say gone too far and we need to think of a new model, a new relationship in terms of how you get this data from us, how you access this data. what are our responsibilities? >> the interesting thing snowden went on to say is that there is an entire generation growing up that will not know the concept of privacy. everything about their lives, by their own choice and by the government's choice will be

known by anybody who wants to get that data. overstated. social norms are shifting about what is private. people are more educated about it. the younger generation is willing to tolerate having more out there. it is too far to say they will know no privacy at all. it will be different than it was for the older generation. threats, especially as sporting events. there will be high-profile events invents at -- 2014. we have not seen a security breach in a big security of a -- a big sporting events yet. >> they are making sure it does not happen. there have been some worldwide, but then -- but they have not been reported in the west. a mass riot that the local

government had trouble getting under control. a referee was beheaded i the opposing fans when they did not like the call. fans whenopposing they did not like the call. three big sporting events are coming up in the near future. the super bowl coming up in new york city. the sochi olympics and the world cup in brazil. these are big challenges and they are totally different challenges. from a security standpoint, it one presents -- each one security challenges. resilience the biggest. mozilla has invested lavishly and certain forms -- brazil is the biggest. .t has invested lavishly there is a crack epidemic going on. they will do their best to

secure the immediate environs of the stadium. talk about those protests. people were protesting in brazil six or seven months ago because money was being put into stadiums and not health services. >> exactly right. here's his government that has andsted in sporting venues not in infrastructure. sochi will be interesting because there are a number of serious separatists disputes in the caucuses region. very high-profile attacks elsewhere. the moscow theater rate of 2002 and the school rate of 2004. on the other hand, an aggressive russian security service that will lock that place down tightly. >> that is something we will monitor as we head into the sochi olympics. explain splinter head. states is the

epicenter of the internet. many of the services are based here. nd is not a strictly hub a spoke internet. competitive and international pressure. an interest in breaking it up and having different cables underwater. shifting control over some forms of government. u.n.tu is more like a organization. the leader is the president of brazil, who has called a meeting to reduce u.s. dominance of the internet. it will take a long time to play out. >> thing about this conversation. two years ago we would not have been having it. we're fortunate to have you here, richard, to lead us through it. 36%.

that is how much time warner cable shares have appreciated since the spinoff. this is "bloomberg surveillance," streaming on your phone, tablet and on bloomberg.com. ♪

>> this is "bloomberg surveillance." tom keene has the week off. adam has our top headlines. >> police in thailand firing tear gas and rubber bullets. the clash comes as demonstrators tied to interrupt perforations for a national election. they want the political rules rewritten before the elections to make sure the family members of the prime minister are not able to keep control. officials in shanghai joining the elderly to stay indoors after the pollution level soared. to morets were pushed than 15 times the guidelines set by the world health organization. shanghai had record levels of month.rlier this president obama making a christmas day visit to a marine base in hawaii. he raised the soldiers for their

service. theiramas have been on vacation in hawaii. the president playing golf nearly every day since he arrived. those are your top headlines on december 26. -- a good timeod to be a white house correspondent and have to cover the president in hawaii. the interesting thing we talked about is the diversions between what consumers want and what investors want. you mentioned it before the break. we see it with time warner cable. cable tv company that subscribers hate and investors love. the share price in white, up 425%. is the satellite providers in the s&p 500. 140% in500 is up only

that time. what has driven this performance? part of it is arnie's growth. time warner cable -- part of it is earnings growth. time warner cable bought back a lot of its shares. paul, the last leg up for time warner cable has been on speculation that it will soon be taken over. what is the update on that? or 15 year absence from cable tv, the ceo has come back into the fore. in europeanactive cable consolidation. he has a 27% interest in charter medications. nowugh liberty media, he is saying the u.s. cable tv business is ripe for another

round of consolidation. he is talking about time warner cable as a company that charter might be interested in. >> i was talking to some analysts who said what you are looking at is people positioning themselves to be internet providers. everybody is getting their television off of the internet. have been leaving time warner cable because of dissatisfaction. really talk about themselves as cable tv providers anymore. a talk about themselves as broad broadband providers. that is the growing business, the profitable business. the cable industry has been losing video subscribers. that has been offset by the growth in broadband. they are becoming internet providing companies. >> the broadband data business for time warner cable can oftente almost a 100%

margin because they have the infrastructure already and it does not cost much to add new subscribers. are to theomics benefit of the cable operators. unlike the video service, there is a big program in costs associated. the income margin on video is only 60%. on broadband, it is close to 100%. the cable companies are willing to make that trade-off. we will lose video subscribers if we can offset them on broadband subscribers. >> if you drop them, they will not care that much. >> maybe i am doing something wrong. some first look photos making news today. we will show you how christmas was celebrated around the world. barcelona daring swimmers to brave the traditional swimming

cup. you have to race more than 200 yards. crazy costumes are encouraged. warmer there than the picture we had of people in russia of people jumping into icy water. >> why would people want to do this? i do not understand. >> with the unemployment in spain, they have time. everyone is having fun on christmas, including in indonesia, where they gave thanks for rainwater with traditional dances. we are seeing photos and parades. here is what is curious to me about christmas in indonesia. only about 8% of the population is christmas -- is christian, but it is a national holiday. >> in asia, the christmas holiday starts in mid-october. >> staying in indonesia to the

island of bali. would love to go. wheres the village people dress up celebrating in costumes. it is a christian celebration in aree of the fact that there only 8% of the population that is christian. it focuses around the church. >> there is a santa claus. >> making his way to bali. eight-year-old asked me, doesn't santa claus get hot wearing that suit? magic and he can handle this sort of thing. there is an air conditioner in the sleigh. >> we have a lot more coming up on "surveillance." $850 million. hollywood'shly what

thinnest to win an oscar. that is coming up on bloomberg surveillance. ♪

>> this is "bloomberg surveillance." tom keene is off for the week. let's get you some company news from the files of "bloomberg west." profit comes after the unit cut johnson stopped production at some overseas plants. toshiba says the company hopes to increase its business to up to 50% sales volume. taiwan is finding apple for restricting rice is on contracts. commission says the asian unit required wireless carriers to is aermission, which violation of the free trade laws. amazon tries to amend ties with shoppers. they are giving refunds on shipping charges after ups fails to deliver some packages on time

for christmas. dayping surged in the last of the holiday shopping season. that is today's shopping news from the files of "bloomberg west." adam lames the parents. blames waited -- adam the parents. >> yes, they waited too long. out their put recommendations for movies that you probably should see but often do not. the momentum from box office drive award nominations for blockbusters. what do you do if you are a smaller film? producers have a heavy hand into this. have been, you looking into this aspect of it. >> we have to go to harvey weinstein. the first rule of thumb is to keep a lid on the production budget. you do not spend a lot of money actually making the money. the best picture winners have

been produced on an average $21 million budget for the past five years. hobbit," we saw, "the was not produced on that budget. you have to look out for good content. you go to film festivals. he bought the rights to the book , "silver linings playbook." also, the small strategic rollout of the film. forget about opening at every multiplex in the country. mouthave the word-of- welding busts for the movie. go for broke when it comes for for the movie.z go for broke when it comes to publicity. flash -- splash out those for your consideration trade as. >> paul is the director for

research for bloomberg industries. this is a different kind of strategy. think small instead of thinking big in an industry when people tend to think big. >> it never happens that a big blockbuster or comic book movie wins an oscar for anything, certainly best picture. the movies that tend to hit the most consideration are the smaller movies geared toward adults. that is where harvey weinstein plays. do the awards mean anything? getting an oscar for best picture or best actor. when they focus on the smaller movies, it may not mean much for the initial box office, but it means a tremendous amount of value over the life of the movie whether it is the pay-tv window or the library. >> it is a huge moneymaker. so far, harvey weinstein says

it will be the most competitive season he has seen so far. the release of the premises of monaco to next year because there is not enough time to get the -- the release until princess of monaco next year because there is not a lot of time to get the buzz built. >> one of the key variables to the success of a movie is the release window. big studios will lock up a release window, whether it is memorial day or christmas, three or four years in advance. out one ofwill put their animation films 2 years from now and they will choose that day because they know there are no other animation pictures coming out. >> thank you so much for your perspective. >> you and i agree.

smaug wins. the dollar taking a little bit today -- of an uptick today ♪.

block hitting a christmas

-- some kids and parents are waiting for santa claus. they have some explaining to do. the new year brings new concerns for corn farmers, why a decision in washington will make or break profits in nebraska. arctic landputin's grab, what it means for u.s. security in 2014. good morning. this is "bloomberg surveillance ." live from world headquarters in new york this thursday, december 26th. i'm scarlet fu. tom keene is off for the week. with me are michael mckee and adam johnson making an early appearance. our guest was for the hour, bloomberg contributing editor richard falkenrath, and we have ehmanthe lehman -- wendy l to talk about all things retail. the morning brief. nikkei closing above 16,000 for the first time since 2007. its weakest in five

years, because a lot of asked orders in japan -- as the yen goes down, they sell more products, it is good for earnings and stocks are up. economic data in the u.s., at 8:30 p.m. -- 8:30 a.m., initial jobless claims and then the consumer comfort index. we will see how people are feeling now that unemployment has dropped to seven percent and gdp is up to four point one percent. outside the u.s., it is boxing day and the u.k., the biggest shopping day. always the day after christmas. we should always point out in the u.k., tens of thousands of christmasndoned celebrations because of heavy rain and flooding. several people were evacuated from their homes as the u.k.'s environmental agency warns flooding could get worse. we hope all of those people are doing ok today. >> we need to get to michael mckee with some company news. >> this is a story everybody is talking about. iou's fors delivers christmas as ups fails to deliver some packages in time.

the company saying the volume of last-minute shipments exceeded the capacity of the network. amazon among one of the companies trying to mend fences with customers who were affect it, offering $20 gift card and refunds on shipping costs. folks like an -- volkswagen set to be general motors in china. it hold a slight lead over gm in china but both automakers have surpassed their goal of selling 3 million vehicles in the country during 2013. lead -- theeeps its first time in nine years at top to gm in china. alibaba with a wireless license in china. one of 11 companies awarded licenses to lease wireless capacity from china's carriers. part of a two-year trial to bring more competition to the chinese wireless market. that is today's company news. >> our guest host for the hour, wsl strategic ceo and chief shopper wendy lehman and we have richard falkenrath, former white

house advisor and security. wendy, we start with you. the story about ups being blamed not delivering packages on time. who comes out ahead, the retailers? >> nobody comes out ahead. it is too late for the retailers to benefit from it, except people running and for the regular sales. the retailers who have been shipping online get a bad rush as well because they did not deliver when they should have. >> this is a supply chain issue and an administrative issue really. do they get -- sorted out next year or will they always be behind because the search of online shopping will get heavier? this year, online shopping took this huge rush people did not anticipate so we have this whole issue of how do you get supply chain working. they must get it right this year. they must get it right sooner than last year because people will not put up with it. >> between now and this year,

they don't have the volume. it is what you put in place i guess in time for the holidays of 2014. but you have to spend extra. so i guess it is a balancing act. >> it is, because then you have the other issues -- do i do free shipping? how do i increase capacity to ship on time? how do i deal with returns? big wave of online shopping, so -- >> the people move away from free shipping? >> i think a bigger balance. how much do i have to spend to get free shipping? it has been given away already, now shoppers are saying you promised me free shipping. what about consenting shoppers to buy sooner. buyou give a discount -- two weeks in advance, and by the way, we will take 10% off. >> absolutely that can be done. theyhe online guys say -- can encourage you very intimately, so there is a lot of

that going on. >> richard falkenrath, our other got a lot ofarget data lost or stolen from the card readers. do you expect more of that in the coming weeks ahead because of the surge in holiday shopping online, that we will hear more stories about this? continue toe will be stores. target is the latest in a long line of major retailers and large companies have been hacked. this is a new feature of the economy, and it is not going away. it will continue. iswas a serious hack but it commonplace for these breaches to occur. >> maybe companies will finally start spending more on this. >> they say in 2014 we will have the chips like in europe embedded in the plastic cards. maybe the target problem will drive them to move quickly. >> maybe retailers and consumers will be the drivers as well, that effort. >> those chips have been available, richard, since the

1990's. it is what europe uses. why are we so slow? >> a good question and a lot of people are asking themselves that now. there's really no good explanation. just a lack of -- sort of inertia of the old system with the magnetic card. issues likelk about this around the table as a national security company, that you can bring the u.s. economy to a halt with a cyber threat? the topthis is one of topics. in fact, the highest level, the president and his top advisers -- when they talk about the national strategies, cybersecurity figures into it and it is frankly one of the more difficult problems. in part, because you have to enlarge the table. it is not just the traditional national security advisers -- defense, cia, state department -- that you have to bring in everyone who looks after the economy, and then the lawyers who can tell you what you can can't do. this is really a different kind of national security issue, in part because the economic implications of the internet are so vast.

>> tell us about the perpetrators. is that a russian ring, domestic? traditionally people think of it as a russian crime ring, but it is not necessarily case, is it? >> there are many different actors with many different motors -- motives in different places. we don't know exactly who was behind it. maybe somebody does, who is investigating. but there are hackers are higher. -- for hire. sometimes the actual hackers are not the one to want to use the data but they are hired out to acquire this. i was a case in the chemical sector where one set of hackers based in china was systematically targeting the entire, coal industry worldwide to steal their insider information, their intellectual property. they were doing enough for the own purposes but at the behest of another. >> i can understand why an competitor would like the code, how do you make the chemicals, can we make them more cheaply, but in the case of a target with

40 million red card strips -- credit card strip stolen, what do you do with the info? >> you sell it. there is the secondary market -- >> the credit card can effectively be siphoned off? >> yes, and to get the small amount of cash you can get off of them before the bank figures out that has been stolen and shuts it down. but there is a secondary market for that, and it has pretty best -- precise prices. you buy them in batches. 1000 card numbers with valid -- theion date and valid three numbers on the back, goes for 20 bucks. 40 million of them is a lot of money. >> in the case of target, do they lose business to kohl's and jcpenney? >> it does, because people don't feel comfortable. consumers are already telling us they are feeling insecure about the economy, the ups and downs. it is just one more thing that

makes people say maybe i won't go there this week, maybe i will wait until it is fixed. >> they can't afford any of that at this point. there a lot of volume out this morning. people straggling back in from the holidays, but those who are trading started to push futures higher. three points up on the s&p, and the dow and nasdaq also higher. keeping a close eye on the 10-year note yield, at the moment, just above the 2.98 range. will we go over three? is gaining on the dollar, although the dollar is up against the yen. the yen hit a six-year low. oil prices, a big concern for everybody. this is the season where they should be going down. they are up a little bit. we talked about on tuesday, gasoline prices. >> 98 bucks to fill up my car yesterday. >> what do you drive? [laughter] >> 22 gallon tank.

is 12 years old, i have to make it last another 12. >> maybe that is the best deal they got this holiday shopping season. billion, how 64 big the u.s. industry is for corn. how governments subsidies affect this. if you missed any of our interviews, check them out on bloomberg and apple tv. also, our twitter question of the day -- what is the best deal you got this holiday shopping season? tweet us @bsurveillance. maybe you have not finished getting a deal, because i know after work i wanted to bloomingdale's. >> he is going to saks. we are hitting all the stores. >> where are you going to go? >> sleep. ♪

>> this is "bloomberg surveillance." i'm scarlet fu. credit card fraud costing 2012.sses $11 billion in sure to increase as target reported the personal information of 40 million customers has been stolen. a large region, the u.s. is lagging behind in credit card encryption technology. wendy liebman is ceo and cheap shopper of fatigue retailer. tell us why they have been reluctant to upgrade our technology? >> that is a wonderful question,

and i have absolutely no answer. it is running. >> you would think they want to decrease fraud. issuehink tj maxx at this six or seven years ago, and nothing has changed. you know when you go to a restaurant here versus europe and they give you -- they bring the machine to you, here we give it away. somebody go to the back room and makes copies. >> we have to sign our names when we make a credit card purpose. what is the signature for, because it does not seem very secure? >> i think it makes us feel secure. there was a time when people did feel it identified who you were but today it means absolutely nothing. who knows why this is going on. >> part of this could be fraud as a percentage is pretty title -- tiny. but fraud rates are on the rise. at what point will retailers and credit card issuers start to take action on it? >> i think we are getting to the point. to have this happen at the critical time of year in a year that is very difficult for sales, you get a double hit.

if occult sales, they now give another reason for people not to come into the store -- difficult sales. we are starting to see a sign where retailers are saying we have to pay extra for that. >> when i launch into work remotely from home, i need to enter a randomly generated number just to log in. why can't retailers or credit card issuers do something as simple as that? >> i don't know. the complexity, the cost, or the fact it has caused a very little in the retail community so accents, whatever. , whatever.s >> i know consumers don't get hit with the bill, the retailers get hit? >> i don't know the answer. but when you say the consumer does not get hit, they get hit emotionally and they get hit emotionally in saying i will not go there for a while. that is a big issue for everybody. >> bad news for target. and bad news for other retailers.

shoppers are saying, will my card be compromised at another retailer, too? >> may be the case of making purchases with bitcoin these days. >> wendy liebman. the number coming up, 33% -- the percentage of online gift will be returned post-christmas. wendy will tell us how retailers are failing with that. -- faring with that. ♪

>> this is "bloomberg surveillance." fu, with michael mckee and adam johnson. tom keene is off for the week. our guest host, bloomberg contributing editor richard f and also wendy liebman -- richard falk and wrath and also wendy liebman. >> a lot of news. ofwill start with a visit the prime minister -- a visit to the japanese war memorial. abe became the first japanese prime minister to visit the

shrine in years. some see it as a sign of japanese imperialism. the visit, he says, was not intended to hurt the feelings of the chinese of the korean people. tear gasthailand fired and rubber bullets at antigovernment protesters -- police in thailand fired tear gas. there are preparations for national elections scheduled for february. protesters want to keep the country's political -- or i should say they want the rules rewritten to make sure the family of the prime minister is not able to keep control. the orange crop in florida falling to a 23 year low. the big reason? a disease spread by an asian insect that causes the fruit to shrink and drop from the trees. number ofthe fewest boxes since 1990's. >> another agricultural product in trouble, but it is not bugs -- unless you figure washington falls in that category.

farmers make $64 billion a year on it, and now washington is taking a bite out of it. talking about corn. in the next three months, the environmental protection agency has to decide how much ethanol the u.s. will use next year. they will rule on the fate of farmers, corn, and ethanol producers. alix steel has the story. there is a lot at stake. >> did you just call washington bugs? >> i don't think anybody -- >> [laughter] >> i don't think anybody will be upset. oil companies, farmers, everybody has a stake in this conversation. in mid-november, the epa issued a draft rule lowering the amount of ethanol refiners would have to blend with gasoline. introduced aalso bill to remove the corn ethanol mandate. -- also a big deal. the american petroleum institute, they spent a total of

2.5 million dollars lobbing in the third quarter. they did not say whether lobbying goes but it is a huge issue to try to remove the ethanol mandate. backwards, butok what was the problem with the renewable rule in the first place? is ethanol problem production cap rising while gasoline demand kept falling. we are driving less. they expect gasoline demand to be down 13% next year. we also have better cars that are more fuel-efficient. therefore, we are not using as much. cars were not necessarily designed to run on higher ethanol. so, each gallon must be blended with 10%. if you have more often on the world is the only solution is to blend it with more, 15%. but not so much a big deal. what is the difference? but the issue is, it could be bad for the cars. cars have proved they can run on higher ethanol since 2001 but most gasoline stations will not

take it and many manufacturers will not issue warrantees if you take it -- eating away at your tank. >> the government effectively mucking it up nationally will pay farmers a subsidy, they produce too much corn and you put corn in the gas paint -- gas tank and it creates a problem. the market says it is not working. >> 40% of corn is used for ethanol. an enormous amount. this will have ripple effect for farmers, it will cut pretty deep. i was talking to an echo cultural economist over at purdue and he said what it does -- there are two pillars of demand for farmers, emerging markets and ethanol. what it does is remove one of the pillars. it is no longer a conversation about growth. the conversation is keeping what you have him and making sure you can stay afloat. that is a totally different conversation. >> the implications are huge. less --rmers will make forecasting $3.50 a bushel next

year, how will they buy equipment, fertilizer, gnu c? >> and if you are holding john deere stock, you are concerned. if you are making less than what you are producing and you are seeing this key demand pillars sort of ball down a little bit, that will affect -- >> again -- and i should not be saying this, coming from a family from iowa, the largest core producing state -- and god bless the farmers -- but the government is propping up the corn industry by providing subsidies. long-term, markets don't work that way. if you can't produce the court legitimately and profitably, to rely on government subsidies even in a good harvest year, it amounts to a wealth transfer and it is an inefficient system. stockpiles are a 25 year low -- let me see if i can find it -- 25% down from last year. stockpiles are tight. cash margins for making ethanol

pretty good. ethanol producers can still make as much as they want. it just means they are not going to get used. as long as the economics works for them, this standard is a minimum and not a maximum so they can do what they want. >> the rest of the world looks at this and they think we are crazy. -- when there are starving people outside the united states and we put in our cars. kenrath, what does it mean for relations with a country like saudi arabia? >> one of the arguments for the subsidies was energy independence. i remember when i was serving in if white house, people said, we could just use more ethanol in our cars we would be less reliant on middle eastern oil. in fact, i don't think it has had a major affect. what has had a major effect is fracking and unconventional hydrocarbon deposits in the united states which are able to mine, which is clearly shifting the u.s. -- >> we don't need the corn

energy. >> alix steel, terrific. outstanding in your field. no pun intended. includingth more, returning your christmas gift. we will be back. ♪

>> this is "bloomberg surveillance." i'm scarlet fu with michael mckee and adam johnson and tom keene, is off for the week. volkswagen is set to be general motors in china. it holds a slight lead in china sales this year but they

surpassed the goal of selling 3 million vehicles in the country in 2013. if the key to lead it will be the first time in nine years it beat out gm. giving up control of its oil company in a deal with creditors. about $6 billion in debt will be converted into a 90% stake in the company. this comes two months after the company filed for bankruptcy. mcdonald's is taking down an employee resource website after a series of embarrassing posts. the most recent incident involved a story that labeled a cheeseburger and fries as unhealthy. donald says it is performing maintenance on the website. that is today's company news. will pay a think i visit to mcdonald's and go to lumen bills where you get 60%, 70%, 80% off. >> i am shocked he will put mcdonald's into -- into the temple. >> i am ready for. hashbrowns. >> have we ordered breakfast this morning? >> speaking of which.

>> where is the "surveillance" breakfast truck? >> tom keene borrowed for vacation. >> i cannot believe he is not here. a first year it tom keene, has never, according to him, taken a week off in his entire career. >> sitting on a beach in bali right now. >> our guest host for the hour is here, wsl strategic ceo and chief shopper wendy liebman. we joked about running over to bloomingdale's. the discounts are amazing. i want to show the viewers some of the numbers. 24th, olds of the navy, 75%, neiman marcus, 65%, even bergdorf goodman come a goodman, 60%.rf the think the numbers will get even higher? , depending very well

on how these next few days go. i would say a lot of people are out today, tomorrow. if i saturday and sunday there is not enough traffic and people are not buying enough, the numbers will go up again. already 75% off. you wonder how the companies make money. gross margins are at a gap of maybe 25% or 30%, so net profit margin is eight or nine before discounts? >> and it basically budgeted much of this in the year because they don't want inventory when they get into january so they are trying to clear it out as much as they can. then you have a horrible christmas squeeze, lack of traffic in the stores, so they just want to get it out so they can get new spring merchandise in full price and get people buying again. buy whenople actually they have spring merchandise in january? it is not warm. >> cruisewear. >> tom is going on a cruise.

they now know it is not necessarily spring merchandise but fresh merchandise. got my gift card, an extra gift card -- discount may be, and i can race in. >> there are some stores that try to resist this. keeping discounts to a minimum. any indication how they are doing? the people avoid them this time of year? >> everybody now, it is what is out for me -- is it something i must have or something i bought for everybody else but have not bought for myself? >> i am going to buy it just because it is on sale? that, but know about you will at least be looking for it now because before you might have said i am not going to bother. off, you might0% -- i was at century 21 myself buying a few things. >> let's talk about some of the potential -- it almost sounds

funny about saying -- saying this, but the winners in the game. walmart, dollar tree, target, walgreens, macy's, certainly the top of the list we are talking about the value. what is your take? >> it is really the detailers that have had the best of a very difficult season. no doubt that people are looking for a great deal, people trying to get to the basics, electronics, toys, xbox, all of that kind of stuff. it is the discounters. but it is an interesting mix to see the mix you just loaded out. >> macy's made the top five. >> we will see what it is by the end of the month but at the moment it is good to see a few different types of retailers. >> what is the best deal you got this holiday season? maybe you did not get it yet, you are about to go out and get the deal by 60% or 70%. tweet us @bsurveillance. >> let's look at what they are doing in the markets at the moment.

not a whole lot but we are green on the screen as far as equities. point gain for the s&p futures and the 10-year note, 2.98%. >> this is "bloomberg surveillance" on bloomberg television, radio, streaming on your tablet, smartphone, and bloomberg.com. i'm scarlet fu with michael mckee and adam johnson on the day after christmas. tom keene is off for the week. probably shopping. >> i would hope he is shopping -- >> what is the twitter question next week? where did time go on vacation? >> where in the world is tom keene? >> where do you think tom keene is? tweet us. holiday shopping is over. a plethora of holiday returned set to begin, aided by lenient shipping policies. as much as a third of all sales are going to be returned. cost obviously going to

retailers a lot of money. wendy liebman is ceo and chief shopper at wsl strategic. a third of all internet purchases we should specify, at least by one estimate, returned. how do companies deal with this? >> that is not an unusual number. this year perhaps more unusual in a sense that there has been a lot of off-line shopping -- online shopping going on. amazon in general, when it comes to clothes and shoes, they have a high return rate because people just by multiple payers to see what fits and then they send it back. reasonable shipping policies, return policies, then people feel they can bring in what they want -- >> i know somebody who does that. i will not mention names. >> i will give myself up right here because i ultimately will by multiple sizes. they all have different size standard. >> such a nuisance -- >> not if it is a brick-and-mortar store across the street from the office. --you have sent

>> to my house, i try it on when convenient and then i can return it. >> this is exactly what a guest was talking about, the different permutations. you can buy it online, pick it up in the store, have it sent -- 81 permutations. i am a prettyue valuable customer. i make a lot of purchases -- i make a lot of returns but i buy more in general. is that the case always? >> not always. some people think they are going to be smart and try it on first and should them back. -- ship them back. but in some cases like you, they are great shoppers, very loyal. and they don't know what is the right size and they don't want to make a mistake him a so liberal-- mistake, so shipping policies, why not slap the label back on them and ship them back? or 10 yearsfive gift card have become huge. are they huge now or with all the discounts and the ability to get stuck over the internet, do

people come back to goods? forhey are still top items a variety of reasons. mom and dad and grandparents, nobody knows what to buy anybody. last minute, running out of time. people buy what they want. >> talk about the different return policies the different stores. started tightening it to 90 days -- i am pretty familiar with it. [laughter] calculus of tightening your return policy, doesn't have an effect on the numbers or is it a case that bloomingdale the nordstrom's know people go there because of the very generous and liberal return policy? >> it is that. a liberal return policy, you feel more comfortable. you take it back, not a big issue. you feel safe. the challenge is it costs money. when business gets tough, like you did for gap, they started to be tighter with their return policy. it is all the economics of it all the time. >> i remember when nordstrom was lace for service and

almost seems like everyone has to offer that service. amazon, ebay, etc. >> there are so many places i can buy in-store and online -- the economy is still struggling some, but anyway you can get people to come in the door on the computer to buy is an incentive. back andve the returns forth, how the managed inventory? challenge.huge if you buy online and then taken back to the store, how do you manage inventory? unique systems that are much more sophisticated to let you know where things are so that you can move things around -- you need systems that are much more sophisticated. we couldn't see this level and activity without the computer systems that exist. was not possible 10 years ago. >> absolutely true. the unifiedd for computer system. wendy liebman, our guest host for the hour. talking retailer.

retail stocks are up this year but retail sales not so much. will sales catch up to the stocks or will it be the other way around? that conversation coming up on "bloomberg surveillance" on bloomberg television and radio. ♪

>> coming up tomorrow, we will speak to media tech capital

partners managing partner on the winners and losers of the holiday movie season. >> i plan to see more movies in the coming days. >> now you're hooked. >> this is "bloomberg surveillance." i'm scarlet fu. joining me are michael mckee and adam johnson. tom keene is off for the week. our guest host, bloomberg and jinping editor richard falkenrath and also wendy liebman of wsl strategic. let's get to betty. you're here. it is always go when the regular crew is in the office. >> did you see it? >> it was funny. it was very dumb. >> in other words, very realistic. >> i thought, wait a minute, is this really a parody of our profession? >> sadly. >> i know. i went to see anchorman 2. we are all recovering from the

celebrations. squaredmckelvey, the cofounder. he helped create this really interesting mobile payment system but at the same time he is using the money he earned to bring tech companies too, of all places, st. louis, missouri. that is where he was born. >> a new hub? aboutm very skeptical stuff like this because every tech entrepreneur takes them money and wants to build a tech hub in their own home city. how many tech hubs can there be around this country? it is really silicon valley against everybody else. the question of 2014 intech is whether they go public. >> exactly. that will be a big question. >> i am sure you will be dealing him on that. -- drilling him on that. >> betty liu, from 8:00 a.m. until 10:00 a.m. >> time for morning movers.

you are not going to be surprised from the company topping the list. amazon shares of the moment are down. unfortunately for amazon, they got caught up in the whole ups -- --mike, i think >> yes they switched. they were down. anyway. the problem isn't with a feeling that may have lost revenue because they are promising refunds for shipping that did is take place -- the problem a feeling that they may lose revenue. but they are often -- also the naughty list. >> but it is still early. >> softbank looking to raise money again for a bid for t-mobile. dealis the slowest moving in the entire telecom sector. t-mobile is up on the news. still owned two thirds by deutsche telekom, which bought

it 10 years ago with great flourish but never has been able to make it go. we will see if softbank intuit. >> ebay is down still. the problem is, sales have slowed. they were up only nine percent this past week and were up 20% prior week. >> perhaps of the loser of the holiday shopping season. coming up, the arctic -- a desolate cold region? maybe not. ♪

>> this is." -- this is "bloomberg surveillance." i'm scarlet fu. tom keene is off. our guest host is bloomberg contributing editor richard falkenrath of we also wendy petitti.rom wsl we start with toshiba which said its television operation turned a profit in the second half after they cut jobs. theiba's president says company hopes to increase the corporate pc business to up to 50% of sales volume by 2015. it is currently about 10%. taiwan fines apple from restricting prices. apple hit with almost three quarters of a million dollar fine. the commission says apple's

asian unit required wireless carriers to it permission before setting contract prices on iphones, a violation of the country's free trade laws. i lead by the winds a wireless license in china. a unit of the online china -- giant was one of 11 companies to lease capacity from chinese carriers. part of a two-year trial to bring more competition to the chinese wireless market. it sets it up nicely if there is an ipo later this year. that is company news from the files of "bloomberg west." we continue with our theme, top security concerns for 2014. russian president vladimir cuban has ordered russian armed forces to boost presence in the arctic, a response to the u.s. navy. putin says he will modernize arsenal and commission intercontinental ballistic missiles, aircraft and two nuclear submarines. richard falkenrath, our guest host for the hour -- what prompted this? >> a good question.

first, increasing the strategic posture of russia around the arctic, but, second, the arctic is becoming especially significant because of the thinning of the sea ice in the arctic, which has major economic implications. first, mineral resources. it is estimated about a quarter of the world's petroleum resources are in fact in the arctic region, and, second, the possibility of a northeast or northwest passage avoiding the need to go through the suez canal or the panama canal want the sea ice thins and you can keep the sea lanes -- >> that is a big deal, richard. from what i have read, it shaves about 30% of the shipping -- a big deal. >> yes, it is a big deal. there is one that goes north of russia called the northeast passage. it open for the first time in 2007. about 71 ships sailed that waking 2013. --000 went through the cm went through the suez canal. it saves money on fuel, but they

have to pay more for insurance and ice raking but it is a significant development. --isn't all sable rattling saber rattling? longest arctiche coastline by a lot, 10,000 miles, and they have an economic zone that extends 200 nautical miles in from the coastline. he has made it clean to extended even further in, arguing a region that wrench into the arctic -- although the region is in fact art of the continental and the russian economics should go even further into the arctic. the red line that bisects this rage which is the russian government -- ridge with the russians say they should get the shaded area. >> who arbitrates that? >> the law of the sea established an international seabed commission based in jamaica. the onlyd states is

country of significance that has not ratify the law of the sea, so we are not part of it. they have not settled yet. there is also something called the arctic council, the eight nations that directly border the arctic and a number of observer countries, to include, interestingly, china, which is one of the first sending the ships through this passage. >> canada has a lot to do with this as well. those of you on bloomberg radio, we will tweet out a map. canada made claims of late but many suggesting it has more to do with domestic politics than any strategic role globally. >> it is both. canadians are worried about what is happening in the arctic. they don't want to see it militarize and they definitely don't want it to become part of nato. of the eight countries that have borders on the arctic, seven are in need and one is russia. a canadian thing that is important is don't let this become another nato area which

will allow continental europeans to get involved. >> you know what is fascinating, the shipping lanes that are opening because of global warming. two investors in the past month getting involved in greenland, because you are able to access iron ore you cannot before. another is building a hotel in there to house miners. amazing what is happening because of global warming. >> one of the leaders of the investment push, following a strategy we have seen in africa, is china and the which has actually offered some beneficial economic agreements to extract minerals from greenland and to ship in the workforces, since there are not very many workers in greenland. >> what would it take for the u.s. to get involved? >> we are, in a way -- >> pushing back against russia. on theme keeping an eye and we are keeping our military presence in the arctic with our air bases in submarines. like in the cold war, nuclear powered submarines still follow

around in the arctic looking for each other. they follow very closely. we have a command based in colorado called northern command, and charge of the area, and we have an integrated air defense command, norad, with the canadians. their whole job is to maintain situational awareness of what is happening in these vast wild and very cold areas. >> they also track santa. >> yes, they do, certain times of the year. international territory, that is what -- what we are sure of. >> richard falkenrath on the latest on russia's ambitions. what is on your agenda this morning? >> i will watch the economy, but we will not pay any attention to it -- we don't want anybody us to pay attention to it. jobless claims coming up. the labor department says the number is not good. they cannot seasonally adjust because the holidays move around. not the same day of the week or time period each year.

so during the holiday season the numbers are basically useless. we have seen jobless claims go up. the forecast as they will drop a little bit so nobody knows what they are. so ignore the numbers are >> ignoring jobless claims at 8:30 a.m., done. adam? retail -- wendy liebman, our special guest host this retail sector, stocksil are up about 42% so far this year. which, if you compare it to the other 10 industry groups, it is the best out there. and yet you talk about all the discounting. 60%, 75% -- how sustainable is all of this? on tv showing the viewers anyway some of the data, and for those on radio, suffice it to retail sale on the stocks in spite of the fact there are plenty of sales in the stores. how sustainable is that kind of share outperformance, given the fact we're seeing the discounts? >> the discounts have become so

much of a part of the u.s. retail sales marketing approach, we just expected now. retailers build into their plans, especially this time of year. they are figuring out they've got to get people in the stores this time of year or lose them altogether. for the most part, it is built into their overall strategy. 42%an you justify stocks up -- i mean, these are the steepest discount since 2009. that has to be a moment of reckoning's in upcoming earnings. >> this has been the christmas where you really have seen the impact of the internet, both the traditional retailers and the -- pure play. that will put things -- it will be a big challenge moving into the new year. shippers.oking at the a ups, fedex, the shipping companies, primarily ups, missing some christmas delivery targets this year because of a last-minute surge in online

purchase orders. some kids did not get their christmas presents under the tree christmas morning. we know a couple of retailers like amazon have backtracked and offering gift cards, refunds on sipping -- shipping charges. on thenot trading premarket and fedex is opening a little higher. >> you are doing some brick-and-mortar shopping. but there's an interesting story -- adam and i were talking about this early. de,arriage rate -- ameritra the stock going for $30 and somebody hit 100 and $30. the trade has been canceled. somebody a little too early for the eggnog. so, if you see a strange stock price for ameritrade. >> it's the young kids on the trading desk. the bosses are not working. our guest to thank host, richard falkenrath, bloomberg contributing editor and former white house security adviser, and wendy liebman, ceo

and chief shopper at wsl strategic, giving context and perspective especially with all the heavy discounts. adam is heading over there and i will join him soon. "bloomberg surveillance" on radio continues with michael mckee.

good morning. it is thursday, december 26. you are "in the loop your call -- in the loop." .he day after christmas

some shippers missed the target an avalanche of last-minute orders. to much demand online. another headline -- head out -- mcdonald's ceo. he has shut down the mcdonald's resource website. the site is temporarily undergoing some maintenance. at japanese yen is trading its weakest level against the dollar in five years. we are going to be getting a read on our own economy with initial jobless claims out in about 30 minutes. it has been the story.