heading into the crucial holiday season. wagen feeling the burn from the emissions scandal. vw's chief says it is strong enough to overcome it. ♪ stephanie: welcome to "bloomberg ," i'm feeling pretty excited. david: we have a really important show today, and a great guest. brian is a terrific leader in retail, but is also a mets fan. brian: it was a late night. david: a record for the world series. stephanie: there is still hope. david: let's start with the first word with vonnie quinn. now,e: if you hours from

they're wrapping up their meetings. of anwas almost no chance interest rate hike. they now account on the fed delaying until next year. economic data has been mixed. manufacturing and retail sales all came in worse than expected. we would love a special on the fed decision. the house is expected to vote on that bill in the house. whether the spending increases will be offset by costs and other revenues. state lawmakers are unhappy. in chicago, i former house speaker will plead guilty in a hush money case. he agreed to pay some of $3.5 million to hide past misconduct. it involves sexual misconduct dating back to his time as a

high school coach. now i look at the markets. matt: banks for a much. the futures up across the board after some positive tech earnings. dow futures up, take a look at apple shares today. more importantly, better than estimated holiday outlook will stop apple expects sales in the holiday quarter to be between 75% and $77.5 billion -- 75 billion dollars and $77.5 billion. there gave a disappointing outlook for the next quarter. you can see where jack dorsey's challenge is. i want to point out to walgreens and rite aid. walgreens will buy rite aid, it is also come out with our names .hat beat the estimates nonetheless, walgreens it's

unchanged in the premarket right now. rite aid is actually trading down 7.7%. maybe investors don't like the total number, or they're just aren't enough trades going on. these are still premarket trades. david: thanks for a much. as i said, stephanie and i are delighted to o'brien cornell with us. -- brian cornell. the women'sown for word daily retail ceo summit. i would like to start the conversation there, 60 months 16 you takeover target -- months ago you takeover target. they had lost their way. what are the specifics of your strategy to get it going again? still in the very early stages. we are starting with an iconic brand.

as i traveled across the country, i run into consumers. we started this morning talking about how stephanie uses our brand both in-store and online. we made sure we focused on understanding today's consumer, what they expect from us, and we have been choice full about the priorities we set. they're in the early stages of bringing the brand the back to life. the last three quarters have shown that today's consumer is still connecting with the target of brand. david: it is early stages, but there are some indications that it is working. what are selling you that? brian: one of the most important is traffic. we are pleased with the traffic report over the last few quarters. people are shopping more frequently. we have 30 million guest who shop our stores every week. that is at the top of the list.

stephanie: do you struggle to know who is that guest? walmart has been on our minds because they have been in this race to the bottom, trying to be the lowest price out there. it seems that that massive volume is not a winning customers, or maybe they're not sure with their customers are. who is the target customer? brian: we have a really good sense for who our guest is. we've spent time understanding what they expect. part of the reinvention of the business, getting us back on track is really making sure we are true to our brand promise. expect more, and pay less. everything we do, all the choices we make, is about delivering against that the brand promise. we have to deliver great content. best of be high-quality, on trend, something you want in your home.

you are dressing your kids as suret, and we need to make we have great value. it is a balance we bring great quality, andhigh deliver the great value. that is the magic. stephanie: are you put at a disadvantage? that'su lay that out, what amazon prime says. they can do it because they don't have the overhead that a you. while that is your goal, you have been knocking at your door. ryan: n: our big advantages that we actually have stores. said, consumers still like to experience physical stores. we have the advantage of stores that are conveniently located, where you can shop wherever you want. you can order online and conveniently come to our stores and that the order as opposed to having something dropped off in your front door, or receiving a

note from ups saying they are trying to deliver. can't, storyh, i of my life. about for us it is delivering the experience anytime -- in-store, using it as a pickup location, but we also have the ability to deliver directly to your home. that is a huge advantage for us. stores to pick up your order, and we can deliver rights to your home. i think that is a competitive advantage. ivid: you talked about value, worked for a time at disney. brian: a great company. admiringlylways look at target. there was an aspirational quality, there was a style. is that essential? your core demographic --

brian: i talked about this yesterday at the conference. if you think about the essence of our brand, people talked about that. back in 1962 in duluth, minnesota people started to use that phrase. it was all about aspiration, but acceptability. that is a balance -- we have to make sure we're aspirational but accessible. that's the balance is the magic behind the target brand. stephanie: but there was not all magic. you had to make hard choices. company,evaluated the what did you say doesn't work? some: we have had to make tough choices. t 60 months the made tough choices. we chose to exit canada, which the difficult position. i did not expect that when i joined the company in august of 2014. but it was the right --

stephanie: what are was wrong? people think it is the same consumer. that might've been a problem or the flaws were servicing. the canadian consumer is very different. the consumer is diverted montreal than they are in incouver -- very different montreal than they are in vancouver. we built three distribution centers, and we moved faster than the both capabilities. at the end of the day, it was not right for us. untilld take years -- 2021 to get that business to the point that it would break even. we made the tough choice to americanwn on our business. it is all about focus right now for us.

we are very focused on understanding today's american consumer. you are staying very focused on a select priority. david: is that an important lesson about future expansion? does that limit you for the time being, to say don't look for growth overseas? u.s.: we're focused on the right now. we think we have growth opportunities for many years. we have learned lessons from canada. we are being thoughtful about how we pace those before we expand. we're moving with smaller format into urban centers. to great starts in boston, washington, d.c., and san francisco. picketing consumer feedback before we rapidly -- we are getting consumer feedback before we rapidly expand. stephanie: when i think about buttarget sale, i walk in

then i am two carts deep. people in cities are often not shopping that way. we are following the u.s. consumer. all across the country -- i travel every week whether it is los angeles, san francisco, new york, or minneapolis -- the u.s. consumer is moving back to urban centers. formats,se are smaller we have more flexibility online. tomorrow you can order online of pick up that full breadth the target assortment. we are following the consumer as they move back to urban centers. we will make sure the target brand is there. david: you are focused on exactly who your customer is, as every great marketing person is.

has that profile changed over time? are there more hispanics tell, how is it changing? brian: they have changed. you think about that target shopper as the suburban housewife -- she is pulling up in the family couple of kids. they are still there, but we are appealing much more to the millennial family. more and more, they are hispanic. we have to cater to their needs and make sure it is matching up with what they are expecting. our shopper today is very focused on digital. when i walk our stores, they have their smartphone open. they are looking at our app, they are downloading, but they are connected. we have to recognize that this

is a connected shopper. stephanie: help us understand the u.s. economy. down, wagesave been are up, unemployment is down. people in general aren't spending more money. you tell us, what does the u.s. economy look like? where do people have money, where don't they? today'se recognize consumerist a very cautious. they are saving much more, they're paying down their debt. they are treating themselves occasionally, but they are still very cautious. you are not seeing that big surge in spending. we have to work every day to earn those dollars. today's consumer is focused on saving, paying down debt, managing their budgets, and in this environment we need to make

sure we deliver a great experience. stephanie: do you care about a rate hike? are you thinking when will it happen? think about it at lot/ but i dont think the core consumer thinks about it. those 30ore consumer, don'tn target guests, i think they're spending a lot of time thinking about it there will be a quarter point interest-rate tight. we have to focus on things we can control. they're making sure we have the right products in place and delivering the target experience. our core guest probably does not know what an interest hike will mean. stephanie: you know what it means, what does it mean to you? when you look at the house

budget, does it affect how you invest? brian: short-term, probably not. we have a clear plan for the next three years from the capital standpoint and the investments we make. i don't think that will change sure medically. we're focused on the thick supply chain, and technology. that focus will not change. you mentioned the digital and people coming around their stores. e-commerce, is that a friend or an enemy? that other company that begins with a w, they will make a big investment in e-commerce. how does this fit in with your strategy? brian: we think it complement our strategy, and the great stores that we run. it is very important. look at the general retail numbers, rejected for 2015,

about 10% of all sales will be delivered directly to the home. the other 90% is still taking place in a retail location. stephanie: do we overstate digital? brian: many of those sales are still digitally influenced. people are on their ipad, or smartphone, they are checking products, looking for inspiration. more often than not, they are coming to the retail store. very focused on retail, but our online strategy complements that. we want to get our guests choices to interface with the brand the way they want. matt: i was just looking at many customerse look first then comment. the white is the online sales, the oranges walmart. for has been a huge problem

them. you're clearly winning this battle. it beats to another battle, that is the share price. very simple outperformance. target had this great recovery from the credit card problem, and walmart had a huge slum. how do you leverage this? brian: we are focused on our strategy. we have been out this in the industry over the last few quarters of digital sales performance. we'reimportant to us, but focused on making sure we understand our guests and what they want from target. they have some clear priorities. we want to venture that complement our store experience and that we elevate what we call signature categories. our style businesses, baby and kids, our focus on wellness, building smaller, flexible stores -- we are trying to make

sure we localize our offering. we are focused on delivering what our guest is looking for. it is paying off in increased traffic, and digital acceleration. you have certainly seen it in our share price performance. we think those are important barometers, traffic is up, we are very focused on making sure we execute our strategy. stephanie: what is the risk? you are making these investments and showcasing at a time when i can go online and say great, brian just told me all the things that i want i will buy it cheaper elsewhere. brian: we still offer great value. we need to deliver the right experience, but the essence of our brand promise is to expect more and pay less. we have to do both. nelson make sure that we're offering unique proprietary

targeted brands. you can't find those with other retailers. that focus on making sure are building our own brands, and have a national brands, is an important way we differentiate. stephanie: but those other retails have stolen your jam in terms of collaborating. onlye beginning, it was you. that's what got so many people in a target store. now, it is everybody does. how do you differentiate? brian: well, we set the pace. while others had emulate what we do, if you think about -- stephanie: it was like an apple store. it was the biggest collaboration ever. we created black friday in april. it shows we can still the level -- deliver collaborations like no one else. that will play an important

role. david: let's go back to growth. right now, your focus on the u.s. where are you looking for growth, specifically? they are not spending that much your, how tdo you grow business? n: it goes back to the signature categories. we will always be a broad retailer, but we have to elevate certain issues. we're focused on signature categories, our style categories -- apparel, home, beauty -- critically important as we're going forward. we have a unique relationship with moms. i hear stories about how moms into target when buying a car seat, or baby clothes. that is an important relationship. we need to make sure we're

winning in those spaces. more important. whether it is the food assortment we provide, performacne apparel, wearable technology, we think that is a space very important for our guests. we have clear categories where we think we can differentiate and continue to make sure the target brand is strong going forward. david: you mentioned the choices, halloween, coming up on saturday, it is a big day. how is that going? brian: we are in that dark period, we will report earnings soon, but i feel really good about halloween. we have a few days left, but the guests have been engaged, we've had great costumes out there. we expect to be big and important. david: plans for christmas? brian: obviously we're big

plans, it is one of the reasons i'm here this week. holidays,lk about the and our target approach to making sure we do win the holiday season. david: a preview? you have to wait until tomorrow, but it will be iconic and true to the brand. stephanie: you have a partnership with m.i.t. around the future of food. what is that about? thinking is about differently as we go forward, and started to make sure we're building the right partners. we are looking around counters. stephanie: what does that mean? brian: we have set up new parts of the organization -- entrepreneurs and residents -- what really thinking about the future. stephanie: that sounds cool, but it sounds like an expensive investment. if i was a shareholder, i would

say simply sell to the products, what are you doing? brian: while we are focused on today, we have a small team. people,hired three really smart individuals, that have experience in starting up businesses. they are setting up partnerships. but it scrappy team, allows us to be focused on today and getting ready for the holidays and preparing for 2016, and thinking about the future, so we understand what is next. it is a small team, but important that we are planning for tomorrow. had 30 years in retail. you have been a pepsi, sam's club, you came from the outside. what is different about this experience? brian: well, i will go back to anre you started -- it is

iconic brand. it has a relationship with today's consumer. i'm privileged to lead that company. everywhere i go, when i tell they have i work for, their target stories. there was a unique connection. i have worked for great companies, but there is nothing like a brand like target. stephanie: walmart is raising their minimum wage, what will you do? we pridedng back, ourselves on having a strong frontline organization. every year the company looks market by market to make sure the of wages in place that attract a great talent and retain great talent. this is not new for us. we have a great frontline organization, it is a strength

of the company. our engagement is very high. we have hundreds of team members in one store. stephanie: they will be more enthusiastic if we pay them more -- if you pay them or money. will you? brian: we look at that every year. it is something we think about all the time, market by market, year after year to make sure you have the right plan in place. talk brieflyd to about cyber security. it had some troubles before you came on, how has that change of business? do you have more costs associated with cyber security? brian: david, this used to be first question i received. stephanie: really only in the last couple of years, six years

ago we thought it was a videogame. : today, we think about it every day. in a great team and capabilities. this is a seven day a week, before our mission for us. we need to make sure we have the capabilities in place, and the outlenges we all know are there. whether they're in media or otherwise. we recognize we need to elevate our game. it is an area of focus that we are all concerned about. stephanie: what inning are we in? brian: probably the second inning. stephanie: just getting started. good luck to the mets, and good luck to target this holiday season. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. there is washington dc with it looked like a lit up capitol dome.

stephanie: it looks pretty cool. a girl from new york city, and takes a lot for me to say washington, d.c. looks cool. welcome -- david: welcome, tom. stephanie: win a big story we're following today, volkswagen earnings just beginning. matt miller it's in the newsroom. what are you looking for the company to answer? he is literally on the call. matt: i'm waiting to see what the company will say about it outlook for how much this will cost eventually. they set aside $8 billion in the third quarter they just reported. if they had not done that, they would had a private 17% better. that did lead to a $4 billion loss which was bigger than they were looking for, but we don't know how much this will cost altogether. blue with the new ceo

will tell us. tom: take up the dunkin' donuts. it could be vw, or dunkin donuts. in a few minutes, matt miller will break it down for us. if not, hopefully bit of a bacon, and cheese sandwich. is beingnother step taken to control the flow of refugees. the interior minister says it readyot -- it needs to be in case more refugees turn up. slovenia said it may join hungary with cutting off the border. the fed has not raised interest rate says 2006. the forecast says they may hold off again. there will be another hike until sometime next year. since they met last month, economic data has been mixed.

in capitol hill, republicans and democrats are revising the export/import bank. oppose parts of the bank. others won't allow a vote on the bill, but it could be added as an amendment to highway legislation. stephanie: as i mentioned, tom is here with us. what do you have? haveit is fed day, we all coverage. stephen roach in his wheel house at the yield university. the long war for janet yellen, rather than recognize the likely namely af development, seemingly chronic shortfall of global aggregate demand amid a supply got and a deflationary profusion of technological innovations and new supply continues to fed

minimize the deflationary impact of global forces. they were adamant about this international verifications that janet yellen faces now, in particularly in 50 days. toid: yellen did refer international factors in her last press conference. what baffled me about this, there is a statue that says he was supposed to pay attention to inflation as well as jobs. piece, it was saying we should not be talking about inflation, but the stability of financial institution. there are a lot of pieces, but we still see stability. -- it 100% agrees to the economist david west. instability,see the wrist no reason to act. this is a fed that can afford to be patient along with the bank of england. wephanie: do we really think

will get something out of today? --: here's my answer to that we will not get anything out of today per se, and everyone knows that is when your radar goes up. the central bank always ask amid acts amid boredom. there's never been boredom like today. the roach piece i really recommend, it is a very sharp piece. david: i read it because you referred it. >> i'm going to jump on it. is a fascinating piece. i think it is controversial. tom: within the fed it is controversial. stanley fischer is much more towards a roach that we can't ignore these moments. the mandate is a domestic mandate, that's what rand paul and congress wants. david: we can have a list of

what congress should get you. people of congress doesn't get to that, but it is an interesting piece. david: exactly. others will be on tv. apple reported quarterly earnings. in the seeing an overwhelming amount of growth, want to is having some -- while twitter is having problems. ofe, apple generated sales $32.2 billion. this makes it bigger, just the iphone sales were bigger than a microsoft and facebook together. what can we attribute this -- gene: i don't know the exact numbers, but staggering. david: what accounts for this growth? they are gaining shares as

the china business grew at 120% most the overall china smartphone market was probably growing around 5% or 10%. when you look at the global smartphone market, gaining share is having a profound impact on those results. that is why you see these massive numbers. stephanie: are you have any reservations at the massive numbers are basically in the exact categories, the same product, and they are not innovating into new -- i almost said characters -- not into new categories at any rate noteworthy? ene: well, there is still a lot to go with the iphone. the current market share in the september quarter was around 14%. even though the iphone story is kind of old, since 2007, the opportunity is still

significant. if you can for every 1% sure that they gain that is 20 million units. that thatake away is is a big part of it. there are other things, like augmented virtual reality, and automotive that can be these new product categories. david: there were a couple of things that jumped out to me. first of all, tim cook talking but how many more people will move into the middle class. wind thatis wonderful they have behind them. the cash build is just extraordinary. paul sweeney, what is normal cash at a company like apple? do they have 10 billion free to spend, or $100 billion? knows, thisn well is a cash machine every quarter. the challenge for apple is that

it is outside of the u.s.. it limits the ability to measure that. tom: what would apple buy? gene: what they should buy is tesla, i don't thnk elon musk would do it, but it would be a huge market. inre is a lot going on augmented reality. tom: what is augmented reality? david: virtual reality, i think. tom: they were a great band. what the hell is augmented reality? paul: people say may be should buy a media company. thatf never really seen says the aol/time warner deal. tom, andlearned from

their margin was like 39.9%. my advice -- don't buy a media company. tom: don't buy a media company. david: not if you have a 49% margin. you won't find a media company that has that. tom: when does apple music beats modify? out. probably two years $2t people expect it to be million or $3 million, so to have a little bit ago. tom: where is all this coming from? these usic accounts -- apple music accounts all just popped up. wee: the current version, had long prophesies they would

come out with a panel which did not happen. i think it will be impressive. i think the gaming aspect, and are you serious to find content, you can enter a search query on your tv. there is some really subtle features. it is super excited when they get some over the top content can make it easy for cord cutting. that is probably six months to a year away. david: paul sweeney, we spent a lot of time on the happy story. twitter?t tha tell us about them. that they beat on revenue, thehe good news, but monthly average came below expectations. that is the core building blocks. they are looking to build their consumer base, and we did not see that. a week fourth quarter, people

were hoping that we might see a jack dorsey effect, but this will be a longer slog for this company. david: we may be under s abilitying twitter' to monetize. tom: i'm not as much of a twitter bear as others. it is a great place -- when does the monetization cake and? -- kick in? david: mark zuckerberg would say you need a billion users. at 324 million, they are not there. but that is ok as long as they're showing the growth of the user base. they have not been able to grow their user base. that is the challenge for jack dorsey to reignite that growth. stephanie: in short, tom thinks twitter tweets are a treasure.

that just came right there. david: you are a treasure. stephanie: thank you for joining us this morning. we will be right back, you're " wehing "bloomberg , will take it back to the newsroom. do they deliver to bloomberg? stephanie: if the order is big enough, they will go anywhere. ♪

>> we want to create something beautiful, not the nice, not funny, but something beautiful. some and they can make people in their own environment and think about who they are, why, and what for. their surrounding a different way.

♪ david: welcome to "bloomberg ," a detective but earlier the volkswagen conference call is underway. matt, what has stood out so far? matt: so far, he started speaking it will have to excuse himself because he is flying to

china with the german chancellor in a little while. he did say he has five immediate priorities. number one is helping customers. willid the german recall be a platform for recalls globally. what they do there, they will do everywhere else. he said he will be ruthless in finding out who is responsible and punishing those responsible. he will also decentralize the company and implement a new structure and change the mindset. they will make things more local. he said he would have a new strategy for the group that will be unveiled in the coming years. in 2016 he would give us his new strategy through 2025. theyis a massive company, have over 600,000 employees and 300 different models of cars. he has to look at all of this stuff and try to decentralize it, localize it, and change the

way the company does business to try to win back the support of customers. you, matt.thank i am very excited about our next to guest today the temperature -- to take the temperature of digital health. jonathan bush is with us. good morning. jonathan: good morning. stephanie: you are in the house of bloomberg. some investors are loving your pop last week. really went after you in 2014. tell us about this a growth strategy, how are you winning? know how he is't wrong. you can ask him, i would be one of the viewers. that healthious care needs to be online. this internet thing is not our idea, but my theory is it will

be big and health care just like everywhere else. off-line. are all the only way you can be online as a physician is on the internet. we just believe that will be a more -- it used to be a new wage thing to do to get rid of your billing expense and be more engaged with your patience -- now it is more like a got a do thing. the equity writer writers since the ipo eight years ago. stephanie: how will you keep that up? jonathan: i get up early -- stephanie: come on. jonathan: really, one of the things that -- you need tectonic plates to grow 30% off a billion-dollar one rate. -- run rate. into that deep frustration. ofare finding that vein

frustration that all of us know of the defensive medicine, and the noise that doctors are being forced through. we are offering to we leave that, it is creating -- two we leave that for -- to relieve that. docotors are mad. stephanie: you have to be mad at the market. you're the most to shorted stock in your sector -- why? i have never really been threatened by short people. it at all.nk about stephanie: that is not true. jonathan: what am i going to do? i'm already rich, who cares? high a nettors as promoter score as we have and add more product's and more nodes. just started going into

hospitals now. that is what i have to do, if you make it go up and value it, great. david: it seems inevitable that this has to go online. stephanie: right? jonathan: comic crazy -- david: why are you the only game in town? jonathan: there was this big movement, the high-tech act but the first thing obama did, everyone will get $30 million, but you have to be an emr to certify. thatre the only new entry was far enough along to get certified. all the little guys had the door closed behind them. it is always tough to take on a market leader. he established players are merging, or dying, and the old

way of doing things is getting more efficiently delivered. then the emergent players are coming on with the internet. david: where are you making your money? services the oldest make the most because we're done the most automation -- collectors service -- and is the -- a test of years of automation. years of 12 automation. getting them into the doctor's office, that service is not making as much money. we would rather be effective for the customer. stephanie: buy my stock, sell my stock, i don't care? care, but what ceo should run his day based on -- stephanie: hold on a second, your shareholders matter.

know you're not on the dating scene -- stephanie: how do you know? jonathan: you want to be centered. we have a great, and noble mission. we will do it by being the most trusted service. that is what we do every day. if we do that, i just know the stock will follow. the fact that you have to go through it on cool kid. , we would get what we got last weekend we were thrilled. as trying to drive a boat looking at the bubble. stephanie: if the shareholders doesn't get you down, what does keep you up at night? customer,losing a getting a customer to not even get the meeting. that wetors don't know exist. they day i hear in my head

scratching sound of contracts being signed the old world enterprise software that should be on the internet. it drives me berserk. stephanie: drives him berserk. david: thank you very much. we will be right back. ♪

♪ stephanie: you are watching nowomberg ," but right you would looking and after 14 innings, the kansas city royals came out on top beating the new york mets. the game was delayed by a power outage. ♪

>> the company is strong enough to overcome the omission scandal. more ammunition for critics of

income equality, the savings of 100 ceos are equal to 41% of all american families. paul o'neill is the new budget deal just a band-aid? if any presidential candidate on the right track when it comes to spending? we will last the former treasury secretary. ♪ ♪ david: welcome to the second hour of "bloomberg go." i am reeling from the sitdown we had with jonathan bush. guess who is with us today? david: we have steve ratner. stephanie: have you ever said that? i'm already rich, i don't care. >> i have never said that. stephanie: let's get you some

first words. vonnie: investors are waiting to see what policymakers will do today. almoste betting there is no interest rate increase. they count on the fed delaying an increased until next year for economic data has been mixed since the fed met last month. data came in worse than forecast for coming up, we will have a special on the fed's decision day at 2:00 p.m. new york time. on capitol hill, the house is expected to vote on the bill that would avert a debt default. questionss of raise whether the $80 billion in spending increases will be completely offset by costs and other revenues plus, state lawmakers are unhappy. it's not a great report card in the u.s. for fourth fell

graders and eight graders over the last two years and reading grades were not much better. gradersut 1/3 of eight were considered proficient. quick look atke a futures up across the board after great earnings. s&p futures are up four points in the dow jones futures are up 23 point. looking at smaller stocks that will be in place, northrop grumman is one i want to touch on quickly. it has the out lockheed martin for an $80 billion long-range bomber contract. it also came out with earnings share. $275 per the shares are up 6%. looking at gilead, earnings were at $322 per share. revenue beat the estimate by a long shot. gilead is boosting its full-year

view as far as sales and earnings. they shares are still down 1.5% in the premarket. we will see how they look at the open. wagon reported a 3.50 8agen reported billion dollar loss, it's first in more than 15 years. the ceo said on a conference call that the carmaker will emerge stronger than ever. have hans nichols in berlin. ceo made an apology. it's too late to apologize, isn't it? it may be too late to apologize but it's too early for them to have a full estimate on what this will cost them on the penalty front and lawsuit front. the ceo is on the conference call speaking right now. the big headline i heard is they

will unveil a new strategy. they will trim their brands. there is a strong hint they could potentially trim bands and potentially trim models. they have 300 models. several times in the conference call, the ceo said he would look very closely at the number of models they had and he strongly hinted they have focused on the mass-market brands. they may want to rein in a little bit. that is the big headline i heard. he did not know whether it was an evolution or revolution he was doing. he would let investors decide. they needed to do a sentimental reorganization. david: let's go back to how much this will cost. they will have to get smaller but they have taken 3.5 billion euros in reserves at this point. i have seen estimates up to 78 billion euros. steve can tell this from

the obama administration time but no one really knew what bp would cost bp at the time and we just have estimates. we don't know the scope of the problem and how big the fines will be. today is before they set aside 6.5 billion dollars in legal provisions, they raise that to 6.7 billion but did not dramatically change that. that's an indication that investors are reading that that some of the damage can be contained. they don't know what it will cause legally and they don't know the penalties. they will look through 300 different models and shut down some of them or push more electric models. he talked about leaning toward the luxury brands. for me, the most interesting thing as a business reporter, is

that he will decentralize the former germanas a resident, i thought it was interesting how he said he will do with the people who were responsible. let's listen to what he had to say. >> we need to find out the truth and to learn from it. let me assure you, we are being extremely thorough in our analysis. we will be ruthless in punishing those involved and we will be comprehensive and learning from it so that something like this never happens again. matt: germans don't mince words when it comes to crime and penalties. when you hear a germans say he will be ruthless in punishing those responsible, it makes you wonder if you will see actual jail time for people involved in this? . hans: that will be determined by the state of lower saxony who is

leading the investigation. the company has placed to cooperate and we will see of those strong words come true. he has a vested interest in culpas and we mea will see if that strict crackdown is echoed by prosecutors. the economy there is very dependent on the strength of volkswagen. to what extent is volkswagen company a part of germany. there are many critics that say it is too cozy. mueller had to get off the call quickly and he is fine with 20 executives with angela merkel to beijing. david: beyond the scandal and the cost, they have a business to run. you're trying to run the business given the climate in the automobile industry worldwide, doesn't make sense to get rid of brands? does it make sense to decentralize? >> first of all, i think the

analogy to bp is probably pretty good. it's a one-time hit and the cost will be more than the six point 7 billion euros. i'll think it will be 70 billion euros. secondly, it's worth noting that their car sales appear to be holding up. the september sales numbers were fine, maybe better than fine. things the most important that they continue to sell cars. thirdly, a crisis like this can be used as an opportunity to do stuff you should have done anyway to deal with a huge company, one of the two biggest automakers in the world, with sprawling operations and different models and you clean the place up. it gives the ceo a good opening to do what would have been harder to do in a good time. matt: steve's right, is a huge opportunity to do things that would have otherwise been difficult. the unions have a huge stake in

germany and this company. the other thing to mention is they had great results if you take out the $6.7 billion lawsuit. they had earnings that were 17% over the same quarter last year. strong brande loyalty. bentley,lamborghini, ducati, audi, porsche. these are brands that people love. there's a difference between where you buy gas and what kind of car you will drive. i think they have a very strong chance of bouncing back. stephanie: i only buy gas in new jersey. do you want to weigh in? that means you can also buy gas in oregon. one thing to caution on the numbers, their sales numbers are holding up but we only have the numbers for september we don't have october. the scandal hit september 18.

many of the numbers to be strong because of the audi and porsche brand. we know they lost 1% market share because we have new vehicle registrations in the eu. they lost 1% market share in have a months time. this quarter is not capturing a lot of what could be the downside of the damage to the brand. david: we will keep coming back to volkswagen. thank you very much. before we go to break, i want to take you to india. mark zuckerberg is in new delhi and had time for a quiet moment at the taj mahal. he made headline saying facebook has 130 million users in india and wants to get the next one billion online. stephanie: not million. amazinge will bring you quotes from newsmakers around the world coming up. ♪

vonnie: welcome back. top two beer makers will get another week to work out their merger. miller asked british regulators to extend their deadline. until november 4 to make a formal offer. the beer makers say they need time to finalize their wonder to six billing -- $106 billion deal. executive will take over at a british bank in september -- in december. he have been considered a likely successor at barclays. three months ago, barclays fired their chief executive. the chairman wants to cut costs and double the share price in the next four years. a takeover in the snack food business. foodsis a diamond purchase.

lance makes pretzels and cookies. david: let's take a look at some amazing quotes. it says they are amazing. this is something we like to call " say what?" scour bloomberg and go around the world a look at interesting things people are saying. this is the first 1 -- stephanie: what do you make of this, steve? 3/4 of investors are friendless to china and the other ones are putting in a lot of money. there is a huge division in the money market world about china and where it's going. camp? are you in the 1/3

stephanie: why? >> it's growing and is growing pretty fast. every time you go -- i go there, you get this incredible energy and sense of a country on the move. some of the most interesting stuff in the venture capital area outside the u.s. is happening there. we think it's a real country making a real profit. it's really cheap. tim cook said yesterday there is enormous growth in the middle class but there is a long way to go. it will grow enormously. >> he says he does not even see it. stephanie: china is a place for investors, not players. >> that's probably true or investors with a lot of got. -ere is the second quote

stephanie: are you quoting tom keene? this is one of the most red pieces. >> is relevant to today given we will hear from the fed. it's about super forecasters. these are people who make their living with deep science about figuring out how people were act. david: do you know about this? >> i do not. david: i know this because of jason. took 2800 forecasters and tracked them and you got 60 who were really accurate. he goes through what makes them different. there are things you do every day. worldok at the outside and look at specific data. a super forecaster and does not even know it. >> i wish i was, i would not be sitting here now. >> we go back to apple -- this is from an annals looking at

their earnings yesterday. >> i don't think anyone is mistaking apple for the dead. one of the big questions around apple is what they will do with goingash and if they are to deploy it, will they? ? they always say what are you going to do next? ok but not is doing doing great. apple tv is a work in progress. apple watches a work in progress. there are many for questions to be asked about the next act. stephanie: there are more questions these days about the technology companies. jason, we're not letting you go anywhere. when we return, alternative asset managers are struggling with kkr's first loss in five years. ♪

matt: oil is rebounding from a two-month low. futures have slumped more than 45% in the past year amid a global glut that estimates say will remain until the middle of 2016. joining me to discuss oil is the chief market strategist. what do you think about this glut? is this in oil going to hold crude prices below $50 through next year? >> i think it is. i think the oil glut is similar qe from a macro view, it is accurate. where 100 million barrels over where we were last year at this time and inventory.

that is a huge number and it's not slowing down. u.s. production is down by about 500,000 barrels per day but opec is continuing to pump and we are waiting for that iranian oil to come online if the signs are lifted. the oil glut does nothing to be ending. there are views of diminished demand out of china. matt: the huge headline yesterday was natural gas falling since 2012. did you experience that in what does that mean for the broader industry? >> there is a slight effect on crude oil. the predictions of a warmer winter especially in the northeast and the central northern states where they use crude oil for heating oil especially maine or connecticut, the demand was lower last year and expected to be the -- the price was lower at last year. gas story fits in with the warmer weather predictions.

you put that together and you are looking at the bear market in energy continuing. there was a rally in crude couple of weeks ago which fell. we are now in a horizontal channel that looks like a continuation. expecting it to go to the lows before we get toward $65 that bp is predicting for next year. matt: thanks very much. go" is next.mberg ♪ stephanie: welcome back, we are talking kkr in premarket trading after posting their first loss in four years. their assets dropped to about $99 billion. those numbers are big. steve ratner is here.

morning, the numbers were reported and is the first loss since going public. what's going on? >> this is how the public market volatility over the summer is playing through private equities. private equity, by rule, has to mark their assets that they own. what we are seeing is that volatility flow through their portfolios. they have to tell investors what they own and what it's worth. stephanie: is this the moment where these companies ask why they went public? why do they want to share this information? they could have kept the business to themselves. be thenot sure that will outcome. >> if you find yourself with hundreds of millions of dollars of stock, will you regret going public? [laughter]

interesting that this is a different window into the economy. i believe the private equity investors would say is that this is an opportunity for us to reinvest area they are reinvesting their balance sheet. they are in it for the long haul. is wepitch to investors are long-term holders and do not worry about short-term volatility. we'll come out the other side and i believe the private equity guys say they have prove that across the crisis. stephanie: they are not going to say they are screwed. irony in a a certain group of firms that told everyone you should be private. and they ended up in the position they tell people not to end up with which is the quarterly earnings dilemma. said, the s&p 500 was down 7% in the third quarter. you have to write down the value of your assets. this was inevitable anytime the market corrected.

they will go about their business. >> this is a cycle and not something broader about private equities. >> not at the moment, there are things going on a private equity to think about. there is used push back going on about fees and hidden fees they get charged to investors. the real number to watch which was mentioned is the assets under management. these are growth machines in the market is expecting to adding to those assets. kkrfact that this quarter, didn't is more disappointing the what happened to the overall value. is it possible private equity is becoming a mature business? >> it is getting toward that. i would argue that it is more late adolescence. they have to figure out what they will be. marks, another publicly traded alternate asset manager, is doubling down in china.

the case that they make here is don't pay attention to the man behind the curtain. we are focused on what is down the road and investing now, talk to us in a couple of years. problem,rt of the kkr the stock went down with a made an acquisition, and yesterday walgreen said they will buy them for a 40% premium. their announcement would look different of that deal went forward. quarter,y, even a you'll potentially ceased darkly different results given the market. stephanie: there you go. thank you. take?s your in terms of a buying opportunity, if you look of these private equity firms, do you take this moment to say this is a chance to look closer? >> the way these firms have traded since they went public is they are basically leveraged in

the market. they are the market on steroids. if you think the market is going up, these companies will probably outperform and you should load up your portfolio. if you think the market is going down, some of them are down 20 or 30%, people worry about growth in the value of portfolios. that is the way to think about it. it is a leopard play on the market and make your bed. there are good companies run by serious people who know how to make money. that theytable to say go beyond private equity. david: thank you both for being with us. fark in the euro go, next. ♪

we are getting that

much closer to halloween. take a look at these photos from england. that's big for me. david: it looks like your kind of place. stephanie: i don't like horror. again by are joined steve ratner and now we are joined by the former secretary of the treasury, paul o'neill, delighted to have you here. >> thank you. vonnie: republican candidates face-off tonight for the first time since ben carson is topping the polls. leading candidates will take the stage in colorado. forums willary feature for candidates lagging in the polls and we will bring before thereport

debate at 5:00 p.m. new york time. policymakers of the fed will hold off again. a two-day meeting today at the fed and traders are betting there will not be another rate hike until sometime next year. since that that messed last month, data has been mixed. bloomberg will bring you the fed announcement as soon as it happens at 2:00 p.m.. a german airfield built by the nazis has been given a new lease on life. it will divide emergency housing for refugees in the coming weeks. they will sleep in a hangar the size of a football field. matt: i used to fly in and out of it because it was not busy. full wagon shares are -- full to volkswagen shares are

up as the company came out with results that were much better than the street estimate before you add in the $7 billion loss because of the diesel scandal. the conference call is still going on. the ceo will reorganize the company and give his strategy next year. let's talk about some smaller companies. i beat on revenue and yet it's been downgraded. analysts are downgrading this stock may be thinking it has pete and shoulder -- and holding share targets at $60. it's down 20% so there is something deeper in these numbers. foods is getting acquired by snyder.

stephanie: it's time to take you to the morning meeting where we hear what key banks are looking at. we have the european head of affect strategy who joins us now. the euro is about $1.10 versus the dollar. how far can the euro keep going? >> it's a matter of your horizon but we ultimately think $1.05 by year end. it will take a few things to get is there which means the data will have to weaken over november and the ecb will have to expand policy at the december 3 meeting. $1.08 near term, we see is a good target for down around the $1.05 at year-end. stephanie: in terms of trading, how are investors playing the euro? if you look at the cftc data, 70% of the euro shorts have been

taken back from the market since march. ultimately, the market is slightly short euro but nowhere near the beginning of this year. perspective, we see greater interest in the downside. the interest is likely to continue to build over november. stephanie: we have seen the massive impact when mario draghi said we will do whatever it takes. do you expect more stimulus. ? >> i think credibility is a key issue. the ecb is probably one of the more credible central banks. of laid down the road map for what they expect to see. more than likely, they will follow through on it. stephanie: they are more credible than i when i tell my kids i will do whatever it takes. thank you so much. leaders areessional

working to muster support for a budget deal that would raise the debt limit and fund the government through 2017. despite rulings of republican opposition, the house is expected to pass the bill tomorrow or today. someone with ay distinguished career in public service and the private sector, having been a ceo for years with elco and secretary of the treasury, paul o'neill. let's talk about the grand compromise. what is your view of it? it's amazing to me how far we have come a long in running a scam on the people. wet i mean by that is defaulted on our debt in march. most people don't know we defaulted. david: i don't think i knew it. >> we defaulted because we ran out of debt ceiling. ist we have done since march

the secretary of treasury, jack lu, has played accounting games that are equivalent to channel stopping in order to keep is going from march until november. effectively, the secretary of the treasury has $300 billion worth of flexibility in what we call default on the debt. ew isanie:jack l consciously playing this numbers gain? -- game? 1980 five, people have been playing this stupid game of afectively it, dating congress they cannot do his job. since 1985se years come every time we approach a debt ceiling, they go through this charade where the secretary effectively accommodates additional time. at the end of the day, they don't really have a choice.

this is not about authorizing additional spending. this is authorizing the treasury to pay for bills that have already been incurred. the whole thing is a nightmare diversion from real fiscal responsibility. watch thes galling to tragedy that has become our federal process of how we run our country. stephanie: what do you think of this? >> what he's saying is completely accurate. it's one of several problems with how we do business at the moment in terms of these rolling deadlines and in terms of the artificial caps across the board and in terms of effect of the kind of spending we should be increasing like education and denver structure we are holding down. what is good about this deal is that we avoided another last-minute shut down. give them credit for that. it's a tiny little deal. it's $80 billion in spending over the next couple of years.

it puts us off for a couple of years and does not do any fundamental reforms that need to be done to the federal budget. it's a little piece of a huge problem. it backs away from sequestration. it avoids a true default. >> it's unconscionable we would default on the obligations of the united states of america. there is no excuse for that. david: some people in our congress have said we should do exactly that. >> it's truly mind-boggling we have come to this where people toi believe they are elected represent the best interest of the american people and they no longer do their essential functions. stephanie: let's deal with what we have and of how we are served now.

it is despicable. what can be done realistically today? now, we are in this endless season of campaigning for who is going to be in charge. stephanie: that will not change. >> ideally, we should be asking result that if they are elected president, they -- we theby a maxim american people will pay for the things we want and need. stephanie: realistically? >> why should we elect somebody who is not going to serve the best interest of we, the american people. i don't understand why we let people off easy on obligations for things they are going to do. we have been kicking the can down the road with social security and medicare for 25 years. not only have we kicked it down the road, in 2005, bush 43 and

new $8gress enacted a entitlement without raising one penny of revenue. that wed to believe have done these things and keep doing these things that are not in the interest of the american people. potentialour growth has been hobbled. stephanie: it is our reality. we have to talk monetary policy for a minute because we are expecting the fed decision at 2:00 p.m. today. how much of your time is spent thinking about the timing of the rate hike? does it matter? >> we should have done a long time ago. qe we should have stopped doing1 qe's but we did not stop. we put like $4 trillion in the fed balance sheet over the last seven or eight years.

we have basically destroyed the flexibility of monetary policy by running this policy at zero thatest rate for this time has a transformative effect on our economy. it has made savings and impossibility. people to go further up the wrist chain and invested in equities and things because you cannot get a decent return. if you look at the return on a money market account, it's three places behind the decimal point. stephanie: there is no return. lewd: i think secretary said growth. we are tying to get growth through monetary policy but it doesn't seem to be working. how do we get to growth? certainly many things you can do to get growth that we are not doing like using

fiscal policy or regulatory policy on the supply side. in the real world, none of that is happening. congress is doing nothing. i would respectfully disagree with paul. i think what the fed is doing is the only game in town. when you say we don't -- we are not getting growth, we don't know what would be the fed's answer to this stuff. having most economists would say y lower. materiall i think the fed have dumb extraordinary difficult job and did not do it by themselves but they didn't they had to do. >> congress cannot do his job so therefore, we will progressively destroy the possibility of the monetary authority being able to do their job. they are out of tools. we don't know how to run a negative interest rate policy which is what is called for four additional growth in the absence of intelligent fiscal policy. we payie: we get what

for after voting these people into office. >> we didn't get our money's worth. matt: take a look at inflation, this is one of the -- part of the fed's dual mandate. is down atcore pce 1.3%. see what most people think about when they talk about inflation. less food and energy which is the only things you actually need to pay for. everything else is getting closer to the fed goal. if you look at breakeven's, you're getting closer but you are not quite there at about one point 84%. -- at 1.84%. use this tool, we were there for a little while this year. the fed get us there with monetary policy? i think you made the point

that it's not the time to raise the interest rate. wages have really not gone up. everyone growth, wages have to go up so people can spend money. we need to have tighter labor markets so that workers will be able to get pay increases. that is what i think the fed should be holding for the moment. david: there is lots more to talk about so please stay with us. >> 1.4 of a percent is a rounding error. up next, a tale of two retirements in america. ♪

david: the retirement funds of 100 top ceos is equal to 41% of all u.s. families taken together which is more than 160 million people as opposed to 100 ceos. joining us to discuss it is our panel. please describe what this study finds. ina couple of think tanks washington looked through the sec filing for hundreds of companies and found the retirement packages for 100 ceos added up to just under $5 billion3. to put that in perspective, that is equal to the retirement of about 40% of americans or 160 million people in the u.s. it highlights that we have a retirement crisis3 people know this and highlights the degree to which there is not just an income inequality issue in the u.s. but also in the

retirement/savings. david: let's talk about the 100 but let's talk about the 41% first. some people are getting paid a lot in some people don't have that much for retirement. >> i have not seen the study. are they only talking about 401(k)s? government workers are still covered by defined-benefit plans. i read your story and it of theed it was 41% people of the companies of the ceos being compared. >> no, that's not correct. it's 41% of americans. that have 401(k)s and defined-benefit plans and iras. when you take the total money those folks have accumulated and adds up to roughly what these 100 ceos have. >> $5 billion? that's not possible.

>> it's possible if you have 40 million american households who have no retirement at all. by calpers has $235 billion by itself. >> if you look at the way retirement funds -- the same way income on an ongoing basis is is commuted unequally, retirement is distributed on equally as well. if you look at the federal reserve data on this, it's very simple -- 2013 of americans as of have no retirement at all. that portion is very easy. i guess there would be another 10 million or so households that would have some kind of meager retirement. where is the connection or what's the point? about the chairman of leucadia, what they are doing is cutting 401(k) matching for employees who are hired after

january of 2014. that is against what his retirement savings is. what does that matter? where's the connection? >> between their cots and his accumulation of $200 million? going tocause we are defined contribution and doing the grandfather situation come the problems going worse for the bottom half the country in terms of retirement. >> yes, it's more than the bottom half. close to the bottom is nothing at all in many of a significant percentage of the company that is meager retirement. if we as a country are trying to figure out how can we fund adequate retirement for people who are in retirement have no money to survive, one possible equation is to figure out better tax policies that are around people who have significant retirements. companies can pay their

ceos anything they want. as long as it's disclosed. what jumped out at me is the tax treatment. it never occurred we have provisions in the tax love this and we give you a special rate if you want to put tens of millions of dollars away for your ceo in retirement. >> i am for a tax system with no credits and no deductions,. and no corporate taxes and no payroll taxes all replaced with a progressive value added tax. study, ie this kind of say -- and therefore? how should we react to this? if this is bad, and suggests we should do something differently. it's time for us to have a reinvention convention where we maybe have conventions we

consider the principles of how we govern ourselves and the things we should do. a good place to start is with the principle that says taxes will be used for one thing, to raise the revenue we need to pay for the things we want and need. it cannot be used to distribute or redistribute benefits or provide incentives were disincentives to anyone. if we want to give people incentives, we should write them a check. it should come from we, the people. there is no tooth fairy in this world. we are effectively doing it but we don't admit it. >> we do it every day through the tax code. stephanie: there is a tooth fairy. my children are watching. we will have a reinvention convention hosted by paul o'neill. thank you so much. this you for joining us

hour. we will be back in just a minute. ♪

david: we are just 30 minutes from the opening bell in new york and welcome to a quote bloomberg go." stephanie: we are joined by our

co-anchor just back from was vegas. can't you tell? good morning to you. look who is sitting with this? is the chief investment of us are $6 billion distressed debt hedge fund. good morning. it's good to see you. >> thanks for having me. erik: before we get into our conversation, let's bring in the first word with vonnie quinn. vonnie: iran will take place date -- pit take part in talks about the syrian crisis. like russia, iran supports the syrian president. the civil warmns but american officials of said iran is needed to work out a political solution. america's trains could be at least three years by a bill in

the house. several investigators say train controls would have prevented the amtrak derailment last may that killed a people and injured 200. the bill lets railroads postpone installing that until 2018. the republican presidential debate tonight will be the first since ben carson got to the top of the polls. it will be a two-stage event and the leading candidates will take the stage in prime time and april in a reform feature for candidates who are lagging in the polls. we will bring you a one-hour preview live from boulder, colorado. it's this afternoon at 5:00 p.m. new york time matt: futures are up across the board. they are declining as we go toward the open. s&p futures are only up two points. taking a look at the big movers,

volkswagen is one i am following closely. ceo saying hethe was going to ruthlessly punish the people responsible for the scandal but that his outlook is good for the company and his high confidence. their results were good for the third quarter and the market like them. they were up 5% in the intraday trading. apple had an incredible outlook is for a sales. 77 billion dollars in revenue and the fourth quarter. the shares were getting a big boost after the close yesterday. shares of and trading higher through the night. taking a look at this screen, this is apple revenue in red versus general motors. of carmakers is the biggest revenue generators. the apple revenue will double

the general motors revenue in the holiday season. looking at twitter, it beat on revenue but missed on earnings. a concern for investors because it's not adding as many users as people want to see. they added only 3 million users in the third quarter and the erik:is down 11 percent in the premarket. it's a merciless market rewarding the company's doing well and punishing those that aren't. it's time for the five stories that matter to markets now. hasnew boss of barclays officially been named as ceo and starts december 1. it is not waste any time dispelling rumors that a memo -- in a memo, he said we will complete the necessary transformation and reposition of the investment bank to a less capital-intensive model. he spent 34 years at j.p. morgan and served two of those as -- as

head of its investment bank and many people in london speculated he would push barclays back into risk-taking. what do you make of that? >> they will not be expanding their proper positions. the new world order is to shrink the banks. he is following suit and doing what is told. he is completing the transition. stephanie: they went from being at j.p. morgan and then went to boon mountain where shadow guys likes allowed you to grow and prosper. why would he go make a move like this? he made it to the sexy side, why return? >> it's a big corner office and a big international bank. stephanie: who cares? would you take your seat or his see? >> mine. erik: what did he learn working for blue mountain that he could apply apart place? >> he cannot take big positions

anymore so anything about ank-taking, he might be expert, but i'm not sure that's appropriate for today's environment. maybe in five years that will change again. for now, i would not bet on that. two, aie: number fourth-quarter profit for walgreens that beat analyst estimates as they filled more prescriptions and the company cut cost and this comes after they acquired -- they agreed to acquire right 80. combine the two firms is a total of 12,800 locations. will regulators approve the deal assuming it gets the regulation? why does this make sense? it seems like we have had cuts and consolidations. where's the opportunity. >> that said, cut costs, synergies from the mergers. right aid is national and walgreens is midwest.

can they organically grow? we don't know because it's hard to tell for many years. david: other things may be connected like what the growth is. what is the market? is it really drugstores or is it moving into health care provision? >> it's the medicaid side. erik: there is concern that it's down 8%. matt: let me break into something more important. it looks like carl icahn has put out a letter on aig saying he owns a large stake and he is urging the company to separate its life and mortgage insurance units. he says if they do so, aig could trade over $100 per share. carl icahn is one of these investors who has a history of telling executives to do something and they initially balk and say does not always talking about and then he year later or six month later, they

end up doing what he said they would do in the shares rise. to behow would you like the ceo of aig? you are already dealing with other situations and now you have carl icahn? maybe for once, the ceo should listen to what carl i says. look at paypal and ebay. erik: look at the aig stock. there is no way ebay's going to separate paypal into a separate unit and the businesses are reliant on each other. they could not work separately. look what happens when they finally go ahead and do what carl icon says. aig, there is a knee-jerk reaction. stephanie: i like that. the norway sovereign wealth fund, the world's

largest, posted at biggest loss in four years, dragged down by chinese stocks and volkswagen. this comes as the norwegian government is making his first with strolls -- withdrawals. wagon and china, there is a little oil problem in norway. >> absolutely. that's why they are the largest sovereign wealth fund. david: is there any end in sight for the oil price drop? >> we only have one hour and that is a long question. it is supply because demand is not growing. it's a supply based issue. david: there is a retrenchment going on the supply side? >> absolutely but not fast enough to bring oil prices to what people want them to be. there will not be enough of that. there should be enough retrenchment to have oil bounce around between $45-60 five dollars. once you start getting higher, people start to produce.

or drill again. that production makes oil too much supply and the price goes down. more regulatory headaches for jpmorgan on the company is set to take $200 million in penalties over allegations in improperly favored its own product and making investments rather can't -- for their clients. the sec wants to go further and limit their ability to do private placements. it's a vehicle they used to raise almost $6 billion. i asked jamie dimon about regulation a couple of weeks ago. >> i don't think it's just dodd frank. there are basel rules and other interpretations of rules. some of the things are quite good and some i don't agree with. they are all what they are and have been advised by regulators so we must deal with them. donald trump says he likes

the banks of the act like a punk what it comes to regulators. he said they have you -- turned to human punching bags in of standing up, guys like jimmy dimon are saying thank you, may i have another? what do you think? >> no comment. stephanie: we know how regulation and dodd frank have given you opportunities to do direct investing and lending. when does it become a problem? you need liquid markets. you don't have them anymore. >> i think that's a little overblown. if you got an order from a large account when you hired a salesperson, the trader will not take down $100 million. they will take some and work the balance. now they are taking a portion which is not of the equation so they have to work all balance. do i buy a cheaper on the buy side but the trade still gets done. it's just a different process. nevernie: they were willing to take any downs.

we love to say bank needs to take risks. maybe they were going to buy 2 million macs. jpmorgan cannot buy bonds anymore and they didn't in 2008. erik: let's move on to number five. from is taking another hit lower oil prices for the company abandoned the costly arctic drilling program. they are shoving its oilsands project in our does you no and take me $2 million charge which brings to 18 the number of oilsands projects that him the desk that have been delayed this year. it's an awful high cost of oil production. what's your take a summer >> saudi arabia wins. many people think they are targeting u.s. producers by not cutting production to get oil prices to move back up again. they are not focused on u.s. producers. they are generally short-lived assets. production early

on and he pretty significant decline after that. in canada, once they get them up and producing which is years to do and very expensive as you can see, they produce forever and ever. there is a lot of oil in the oilsands and it's a huge potential competitor to saudi arabia. >> decisions like this are taking long-term supply out of the market is smart >> absolutely. are the supplier at the margin right now. oil prices go up five dollars, they come back down. to getis years and years those water supplies online. erik: we will continue those stories. stephanie: we will go to germany next for the biggest take away --m the volt's wagon volkswagen conference call. ♪

david: welcome back, here is the latest bloomberg business flash. for the first time in 15 years, bolts wagon -- both wagon is reporting a loss. they say the full year will be significantly lower. we will have more to just a moment. northrop grumman will build a new stealth bomber for the air force. the team formed by boeing and lockheed martin one and 80 million -- $80 billion contract which will create thousands of jobs in southern california. the takeover by the nation's second-biggest maker of salty snacks, snyder lance is buying diamond foods. they make kettle potato chips. look at someing a of the earnings coming out. fiat chrysler beat by a long

shot, third-quarter adjusted e bit was $1.3 billion. the shares are up half a percentage in early trading. it's trading up even without for rory. --ferrari.. a $7.2 billion deal with wall groun -- walgreen buying right aid. the shares are trading down. .hey were up 42% yesterday not a bad jump. , they won amman contract for $80 billion for long-range armors and beat on earnings parade shares are up 6.2%. lockheed martin is down 9/[laughter] 10 of 1%. we will have the key takeaways from the bolts wagon -- books

wagon scandal. ♪

matt: breaking news on starwood hotels -- the hyatt is in talks to buy starwood hotels. the deal may be announced within one week or two. hyatt had been in talk with intercontinental but those talks did not result in a deal. it is now in talks to acquire starwood hotels with cash and stock. that's all we got so far. much, let's gory back to what we said earlier about aig. >> i guess it's a bidding war. in wasnese buyer coming news but it's about getting a bigger number because of that.

we have a merger of synergies. the consolidation continues to be the name of the game. erik: that seems to have hyatt shareholders excited. they are up 5%. >> everyone is having trouble with organic road so you have to buy it. erik: i thought it would be a good idea to go back to aig. stephanie: i think so. erik: carl icahn is in the kitchen. this has to do with improving r oe. if you look at aig relative to this -- to its insurance peers, oe theirs is 6.7% return on equity and aig does life and casualty.

10%, travelers 14.5%, - ubb stephanie: what do you think? >> they need to release capital and as the way to do it if they can. stephanie: what do you mean? >> if the regulators will let them. you get capital back to shareholders? stephanie: absolutely. we have to turn to volkswagen in a moment. moment. >> i guess the fine is potentially growing and i don't know they have come to any conclusions. if you look at previous fines, toyota paid $1.2 billion and general motors paid under $1 billion. it came out in 2003 4 general motors.

people died in those. >> there was no allegation that they intentionally misled alligators. >> gm knew about it. >> they did not design their cars that way. regulators tend to punish you if you have intentionally tried to violate what they ask you to do. >> you have the department of justice on one hand in the department of doe on the other. stephanie: being that we don't know how big the fines could get , they are pretty massive. do you want to invest in both wagon -- in volkswagen? 8 coupon but a 1 5/

it's not something i would buy. they have a lot of liquidity. they have up to 32 billion euros of liquidity. distressed bonds which is what we will talk about what may come back. ♪

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>> welcome back, we are following a big story on aig. let's bring in david havens with imperial capital and is joining us on the phone. you had a chance to look at this letter that carl icahn wrote? got a chance to take a quick look at it. it's very interesting. this is the quotation -- is trying to break the

company up and i think it will be very difficult to break aig up quickly. there is a little friction of the property casualty companies and some of the life companies and the holding company down to some of the life companies. as an think of aig omelette, it will be difficult to reconstitute that omelette back into eggs. is it possible for those who exist as intercompany agreements? >> i suppose where there is a will, there is a way to get things done but i think it will take time and it will be a very complicated process. a jet -- aig by its nature is a

cobbler get a company. erik: do you agree with the hancock,t that peter the ceo, has been dragging its heels and has not been taking action fast enough to effectively improve the aig return on equity? >> mr. havens: i do not know about dragging his heels, but it legs most in the sector. to some extent, it is by design. aig did come off a near-death experience not too long ago. need to prove to the rating agencies and regulators that it had more than enough capital to get through the next couple of years in the event there were some reverberations from the financial crisis, but i think we have moved beyond that point ,ow, aig has gotten its footing and is probably in a position to

move forward and look for additional ways to return to shareholders. stephanie: what do you think? atthey would have to look the chart. the regulators would never let you remove guarantees because they are looking at those four red cap support. they have to figure out a way to reinstate that capital somehow. david: in a broad sense, it would be ironic if the regulators had a problem because they wanted -- they did not want to big to fail. if they were three different organizations, you would not have the phenomenon you had in 2008. if you were to affect this split, none of these companies would be large enough to be labeled systemically important, so they would avoid -- it is now, you would have one that would be extremely undercapitalized, or you would be putting so much new capital be worse.he roe would

ass -- assessment makes sense? each are assessed separately. there is -- the life insurance has its own regulatory capital base. they report onto the holding company through a silo structure. the complicated -- life, property, casualty, and the mortgage insurance businesses, should be well-capitalized on a stand-alone basis, but the publication comes because our guarantees that cut through -- complication comes because there are guarantees that cut through from the holding company to the life company. david: so what is the purpose of the guarantees? the guarantees were

done prior to the financial crisis. they were done at a time when aig was a aaa company, when they were acquiring other companies in thenamerica life 1990's, and aig would acquire some of those to be applied to the life insurance company. david: there is not much function to those guarantees anymore. stephanie: we have to leave it there. matt miller, it looks like a breaking headline on ibm. matt: fantastic scoop from alex sherman and ed hammond -- ibm is in advanced discussion to buy assets from the weather company, and they own the weather channel and the website the weatherunderground. company is owned by a couple of private equity groups -- blackstone and bain capital,

as well as comcast, nbc universal. they have been working with morgan stanley to explore a sale. those private equity firms and nbc bought it for $3.5 billion in 2008. ibm, in the midst of trying to monetize watson is going to buy assets from the weather company. stephanie: my bloomberg is on fire. what is your take on this? chris: buy low, sell high. stephanie: you heard it here. investing luminaries like stan druckenmiller sake short the heck out of this thing and over the last two weeks we have got news. what is your take on this company?

chris: everybody is making acquisitions. we talked about it earlier. making acquisitions, if you buy a company that is less best valued less than you are valued on a multiple basis, and i do not know what the valuations here are, but that is a way to increase shareholder value. you are taking equity, which they think is overvalued, and using that as a trade. they will finance it in another quite -- not-net, they are increasing their own goods. specifically, what you think about ibm? chris: i do not have an opinion on ibm, sorry. avid: beyond trading, ibm has three-party strategy. cloud, digital, analytics. they are going to incorporate watson, really go after weather. i am making this up. stephanie: they have so much in

terms of data and analytics. they have not been able to convert it to dollars. david: but they do not have the company. has the content. the board authorizes an additional $4 billion for buybacks. &d.backs are not r chris: and again, it is increasing shareholder value. you are reducing your shipment. you should be increasing your pe. david: in fairness to ibm -- i feel like the apologist -- i do not know if this is a good acquisition or bad acquisition, but it makes some sense as they are trying to move with computer capabilities, watson and things, and data on the weather does not seem implausible to me. erik: we need to go back to aig

because there is a statement from the chairman, peter hancock in response to the letter carl icahn wrote calling for a breakup. has anancock says "aig open dialogue with shareholders. we have taken important steps to a position aig by both simplified and de-risking the company. we remain on course and continue to accelerate these efforts. we look forward to sharing our progress in a regularly scheduled earnings call on tuesday. chris: as a lawyer, i could not have written it better than that. stephanie: we'll take a quick break to do our homework. when we return, we will have an interview with an ibm executive driving this acquisition in just a moment. stick around. you're watching bloomberg tv. ♪

david: ibm plans to buy the technologypany business. the company's senior vice president for research joins us. john kelly. i am glad you are with us. we have been conjecturing why ibm is doing this. you can explain it to us. mr. kelly: it is great to be here. we are excited. we are announcing the acquisition of the weather company, the technology and products portion, and what is exciting about this, the weather company has a high-volume platform underlying their capability that people are accessing. it is cloud-based. we are getting a high-volume platform for the internet of things, specifically around the weather, but we will extend that. we're also going to bring watson to their on this, which is one

of the most powerful artificial intelligence cognitive systems. this platform plus watson will be unmatched in the business. stephanie: up until now why have you not been able to monetize watson? it is extremely what you built. mr. kelly: we are very excited about watson. we are bringing it to health care and internet of things. we are monetizing it. we are rolling it out as part of our analytics business. a fast growth rate. so far, no one has been able to match the power of watson. erik: is this about making watson that much more difficult to match? when you talk about extending the ability of this cloud-based data-gathering platform beyond weather to what? has many modules to build connectors to other sources of data. certainly, the weather data, which is enormous, it is something that watson will

ingest, comprehend, and give better forecasts, but we will be taking telematics from automobiles, information from medical devices, pulling all of these things together, watson will look at this information and give us better insight. david: how will this change my life or the life of companies when this is all done? where will we see the difference? see a powerfulll platform -- cloud-based to give insights whether you are a retailer, insurance, you able to see -- you will be able to see weather patterns, analyze where your shipping is, and optimize us better through watson technology. stephanie: you already could use the weather channel data. why buy the company, especially at a time when we have seen your sales, reportedly, going in one direction? mr. kelly: we have had a great partnership with the weather company and we have had access thehat data, but really,

underlying platform, which serves billions and billions of users per day through mobile devices as we all access the weather, that underlying platform has incredible capability. it can ingest data at very high volumes in fractions of a second. that will be an engine that feeds watson. watson has an incredible appetite for data and we will expand. stephanie: what you think of profits will be from wather in five years? it is something we are all dealing with. we will certainly extend the weather capabilities, but we're not doing this just for the weather. we want to extend this into other areas. stephanie: what is the revenue prediction? we are looking for growth, part of the strategic initiative, the fastest-growing portion of ibm, and is becoming a larger portion. erik: what does this cost ibm?

mr. kelly: since it is a private company, we do not announce, though we are investing heavily to grow these parts of the company. but you are a public company. david is better positioned to ask this question than me, but if it were material, you would have to disclose the purchase price. some lawyer has made the decision the purchase price is not material, correct? mr. kelly: we are a large company, we invest in r&d, nearly $6 billion a year, and we have done a number of acquisitions this year. david: how many people work in the weather company? people,y: about 900 accounting organization. think about what they do -- they break the earth down into 3 billion elements and they predict the weather in everyone of those elements around the globe. technology, tremendous underlying,

cloud-based technology, and the ability to serve up these weather predictions through a mobile device. david: talk about the next step -- this does mean other content, other data plays? would be sensible? mr. kelly: that is right. plays would-- data be sensible? mr. kelly: we will take this and expand into other industries. david: that could be other acquisitions? mr. kelly: we will continue to invest organically and in organically to expand this platform. we view this as a large platform play, not just a weather play. erik: how long is it going to take before you have a product that you can commercialize to say, a company like fedex, or ups? have, of: we already course, the capability the weather company has developed and serves up that capability, but the team with the underlying platform did a beautiful job on the platform.

i do not think anyone really realizes the power of this underlying, extremely high-volume, data-ingesting, insight-serving engine. they have built in a beautiful, modular way. we will expand that in a matter of months and quarters, not years. david: put numbers on it when you say huge data. in terms of people accessing this, there are 65 billion unique accesses to the weather company data per day. 65 alien -- it is -- 65 billion -- it is as best as we can tell the third or fourth mobile site hit in the world. this is an incredible number. stephanie: and what incredible return to you think you will get on the investment? the reason i push you on this is when you think about watson, it is extraordinary, and many people think you do not get enough credit because possibly you are a mature company and people at the shiniest new toy. give us some numbers in terms of

what kind of money you are going to make on this. mr. kelly: the internet of things has been characterized as a two dollars trillion industry. the other -- $2 trillion industry. we have been going after health care. these are large industries. we have unique technology and watson, and now with his high -volume platform, which is required for the internet of things -- the internet of things is fundamentally machines talking to machines. very high volume. we now have the underlying platform to go after a $2 trillion industry. erik: how do you acquire -- going back to david's question -- the additional data? if you want automobile telematics, you will have to reach an agreement with car companies. mr. kelly: that is right. you'veowever now that made it clear you want to do this, the car companies know they have data you want and will price it accordingly. mr. kelly: they have data that

will want to use our platform for better analytics. you want to know what the weather is, driving patterns, other things about the road conditions. this platform will serve that back up to their automobile and their customers. david: when i am commuting to work, theoretically, there will tell me -- it will tell me there is a thunderstorm mr. kelly:. -- thunderstorm? mr. kelly: it will tell you about the weather, i the car performance -- the car's performance. stephanie: the weather performance issue problem -- does it have to do with software problems and the rest of the world, cloud revenue? many analysts said this came up in august. what happened, what is materially different that we only heard about it publicly this week? mr. kelly: i cannot get into the details but we received an inquiry from the sec are

uncertain revenue recognition events, and we are fully cooperating, obviously. we are very confident. we have tight control processes in the ibm company. we are a very mature company. we believe that every thing have done is very appropriate and we are very confident this will result in a good outcome. stephanie: can you help us understand what changed between august and this week? received a notice, we have been fully collaborating and cooperating, and thus far we are working with them. erik: dr. kelly, you have been with ibm for 35 years. mr. kelly: 35 years. stephanie: very cool. erik: helpless understand -- help us understand from someone inside the company, the criticisms -- how does it feel to someone inside who has seen the company evolve over that period of time? mr. kelly: ibm is a great company. the sponsor -- we innovate in

areas that matter to our shareholders and the world. we are very responsible in our capital allocation, as we announced yesterday. more share buyback, more returns -- constant dividends. so, we are a very, very responsible company. erik: you are a scientist, right? mr. kelly: i am a scientist and engineer. erik: 20 you rather see the money go into research and intelligence -- the blue-sky thinking ibm was known for four decades? mr. kelly: we still do it. we are the only company to this day that has been able to produce a system like watson. that came out of core investments in r&d. we still, as we always have, invent the future of information technology business, and will continue to do that. stephanie: you're not getting credit for it, though. mr. kelly: we are investing heavily 10 with technologies like watson, -- heavily. with technologies like watson,

acquisitions like the weather company, people will see what we are doing. when you look at strategic acquisitions, how can we not get credit? david: john kelly. think you very much. mr. kelly: thank you very much. david: let's head over to the nasdaq where abigail doolittle is looking at some of the biggest movers at the opening. abigail: it is all about earnings, starting with health care. gilead sciences reporting a nice quarter, beating estimates by 12 points on percent, topping revenue estimates by 5.5%. its revenueraised range. it falls short of estimates of $31.5 billion. investors do not like it. shares are off. from biotech to read -- panera reported a missing quarter.

shares are trading at a premium, 21% premium to the comp on the next-12-month pe basis. it is perhaps suggesting shares will take a breather. about 5%.ff apple, the iphone maker, put up a great quarter yesterday, beating analyst estimates on the top and bottom line, very importantly saying they will have another record holiday season, driven by strong iphone demand. stephanie? david: thank you so much. chris pucillo, you're back with us. we have not gotten the goods yet. where are you investing? chris: when area that was recently talked about -- the internet of things -- we have been very invested in spectrum, cellular phone spectrum. discussing what ibm is doing with telematics and tires, all of those pieces of data coming from the cars are obviously transmitted wirelessly to, i guess, watson now, and then they will go through analytics, and

in the car copies will get information to tell you when your tires are low and you need service. but the internet of things, as you can imagine, as machines are talking to machines all over the place, spectrum gets incredibly crowded. so, we need way more than we have as the internet of things continues to get developed. david: that gets you into washington pretty quickly. it does. we are actually -- we are very involved with some of the company's that we own. stephanie: like what? chris: a company called tara star, where we have some spectrum we are working with the sec on. there are improvements we can make. there are some things we can do with the spectrum to increase its value -- value. when you look at the overall spectrum footprint, verizon wants to buy more spectrum. they have announced their looking for specific bands of spectrum. it is an auction that will be coming out from the broadcasters soon. the spectrum verizon said they

want is not that spectrum. it is higher-band spectrum they are looking for. they are assets that we own. there are other options in the future. if you look at t-mobile, some of the other providers, they will be adding spectrum assets. before we run out of time, commodities -- what is your view their? been negative on the the last time i was on with you, stephanie, we talked about that. stephanie: good call. david: hasn't gotten better. chris: i think china, obviously, is driving a lot of this. take iron ore for example. in thes a large factor increase of steel-making capacity over the last 15 years. they practically doubled the capacity of steelmaking. with that, the iron ore miners spent lots of money developing new mines to feed this call making -- i mean, this

steel-making. they went to a net importer, to a exporter of steel. not only are they using all the steel they are making, but they are exporting it out. steel production has gone down, and that is a big negative impact on iron ore. david: it sounds like the u.s. with oil. erik: at what point does this become attractive to you? chris: i would say we are not necessarily looking at the bottom, but we want to see a rebound. stephanie: out of time -- puerto rico, buy or sell? chris: bu. ystephanie: there you go. chris pucillo. that does it for "bloomberg go." we will see tomorrow at 7:00 a.m. ♪

betty: it is 10:00 a.m. in new york, 2:00 p.m. in london, and 10:00 p.m. in hong kong. welcome to the bloomberg market day.

from bloomberg world headquarters in new york, good morning. i am betty liu. here is what we are watching -- taking aim at aig. billionaire investor carl icahn wants to break up the insurance company into three copies. he says the time to act is now. shares of apple are rising after the company forecast another record holiday fueled by iphone demand, what about other products --the watch, anybody? time for house republicans to stand up and be counted -- they will vote on the cover might budget deal and whether paul ryan will be the next speaker of the house. we are about a half-hour hour into the trading session. i want to head to the markets desk where julie hyman has the latest on the earnings news and the breaking news and aig. news, and let's not forgetut