motown woes: will detroit's bankrupty plan hit a road block? in today's cover story, why a new line of gadgets has tech companies scrambling to stay connected to consumers. plus, the walls have eyes: extremes retailers are going to to check out shopper habits. and, move over weight watchers - the nation that has a shiny new incentive to shed pounds. first business starts now! you're watching first business: financial news, analysis, and today's investment ideas. good morning! it's monday, july 22. i'm angela miles. in today's first look: earnings could move the market this week. friday, the dow

dropped 5, held up in part by a rally in ge and honeywell. the nasdaq dropped 23, held back by disappointing earnings from google and microsoft. the s&p gained 3 points. gold moved up $11, and oil pushed higher above $108. a google mystery unfolds this week as the tech giant reveals a new product wednesday. the odds-on favorite is that a new tablet will be unvieled. and, sakes for sale: shares zipped up 8% friday on a report the retailer is attracting several bidders. a judge is giving the okay to toyota's settlement payout of $1.6 billion for 2010's sudden acceleration problem. tim mulholland of china-america capital is here to get our week started. good morning to you. - good morning, angela. - what will traders pay attention to this week? what matters most? - i think that this should be a

fairly quiet week, because next week is going to bring the unemployment report, and i think that will be a real big focus of the market. but this week, durable goods is probably the main economic report, along with some regional fed surveys. so, i think all-in-all, we are going to have a fairly quiet week and i don't think anything to disrupt the market or bonds, which i think should continue. in my opinion, we should be holding similarly to this past week, although a little quieter. - but what about earnings? what will be the focus there? - well, some tech earnings of come out disappointing, and obviously the nasdaq last week broke its- all the other major indices closed four-weeks-in-a- row higher, and the nasdaq didn't last week because of intel, microsoft, and google, so i think you're going to watch those. but earnings, i just want to throw something out you on earnings here and put it in perspective: since the financial crisis in '08, earnings, for the market, have grown at 10.5% above their peak - that's from the pre-crisis level - whereas net income has only gone up 3.3%. so this is really about low interest rates, share buybacks, and financial

engineering. so, that's what i think is the real driver in this market, and it's the fed accommodation and unprecedented liquidity that's in this market. so, having said that, we'll still keep an eye on earnings, but i think from the fundamental structure of the market, watch for the revenue, watch for top-line growth, watch for real growth, not for the engineered earnings per share. so look a little deeper into it. - we are flush with cash. all right, let's move into oil. do you see a spike happening this week? - well, it certainly looks like a big short-covering occurring, and if the dollar continues to weaken from its highs that we saw in the month of june - may and june had really sharp rally in the dollar - if we see the dollar continuing to correct lower, i think crude oil prices could move higher, and it looks like there's some short covering going on as well. so, again, i don't know where it stops or how it stops, but i know we're getting west texas up to $1.10 a barrel, and about two months ago i think that would have been hard to believe for most observers. - tim, have a great week. - you too. a new week, but perhaps the same story for the tech sector. apple's earnings, due out tomorrow, are expected to reflect weak iphone sales. some say the high-end smartphone market has hit a wall; and our cover story reports how consumers buying tablets instead of pcs has led to lower earnings for other companies, such as microsoft.

pc sales are in a five-month recession. that's what microsoft blamed for quarterly earnings off 20%. pcs' place has been taken by tablets. "what we're seeing is a shift in how consumers do their computing. tablet growth was up 75% in q4. that's a market where microsoft hasn't had 'skin in the the game' until recently." despite an advertising blitz, microsoft's "surface" tablet has not sold well and required a $900 million inventory write- down. microsoft has reorganized to improve its mobile device business. "often, when the market flips, it's the large companies that have trouble adapting. microsoft may be able to do it, but a small company filling the niche is even more likely." "i think there's going to be new products. i've heard of watches and eyewear and earwear being developed. you know, cell

phones were unimaginable 30 years ago." and the longer it takes microsoft to adjust, the greater the chance "out-of- sight-out-of-mind" becomes a factor for consumers. "if all their computer needs can be met with ipads and android and not windows, people will move away from microsoft's windows 'eco-system' that's been so profitable for them in the past." other factors that benefits microsoft: it's got billions in cash to pour into development, while shareholders are said to be calling for an increase in dividends, which may, in turn, attract more investors. it's turning into a hectic week on captiol hill. the senate and the house could vote this week on student loans. a bi-partisan compromise bill emerged last week. it calls for

retroactively turning back loan rates 3.4% after doubling this month. the measure includes tying the loans to the 10-year treasury rate. another issue that could come up - postal reform. a house republican committee put a stamp on new legisation friday that would overhaul the cash-strapped postal service. it removes the need to re-open talks with unions. after years of federal investigation linked to suspicions over insider trading, sac capital founder steven cohen is now facing civil charges. the securities and exchange commission claims the hedge fund manager failed to "reasonably supervise" two senior executives at sac capital who have been accused of criminal insider trading. cohen himself has not been charged with that crime, but in an administrative hearing he will stand accused of failing to supervise his employees. the sec alleges cohen received highly suspicious information that should have caused an investigation. an sac capital spokesman tells cnbc "the sec's administrative proceeding has no merit." the world's largest economies are working on closing corporate tax loopholes in an effort to

crack down on companies that dodge paying taxes abroad. the g20 has outlined a measure for global changes. the plan would enforce stricter laws and let countries tax profits in corporate offshore accounts. starbucks recently offered to pay $16 million to the british government after failing to pay taxes in the u.k. new evidence combats some environmental concerns over fracking. the department of energy reports a year-long study at a pennsylvania drilling site finds fracking did not contaminate drinking water. environmentalists have long considered the process a threat to water sources. while the study is ongoing, results showed potentially dangerous chemicals remained thousands of feet away from drinking water sources. another hacking of nasdaq's website is prompting firms to brace for future attacks. the hacker broke into nasdaq's forum site and obtained usernames and passwords. last week, wall street firms and exchanges held a simulated cyber-attack to check for loopholes.

as mcdonald's serves up second- quarter earnings today, 280,000 people are petitioning for the chain to change the way it pays employees. the company uses debit cards employees say are "fee heavy" and decrease paychecks that are already low. mcdonald's tells first business workers can choose between direct deposit and payroll cards. also, checks are provided where required by law. employees at 7-11, dollar general, taco bell and wendy's have aired similar concerns. back-to-school shoppers are cutting back this year after record spending in 2012. the drop is due to increased costs of school supplies, fees, and activities. shoppers plan to spend an average of $635, compared to $689 last year, according to the national retail federation. students headed to college will shell out $837 compared to $907 last year. nat sillin, head of financial literacy with visa, suggests including the entire family in setting up a budget. "it's also important for parents to be transparent about the budgeting process, including how much money is available to

spend. get them involved in prioritizing expenses between the must-haves and the nice-to- haves, and use it as an opportunity rather than a headache when preparing your children for back-to-school." he adds that making a list before heading to the stores will help save money. in earnings watch, ge notes a slight improvment in the global economy. the ceo says cost cuts and business from overseas - especialy europe - helped spur 20% growth in second-quarter profits. honeywell's earnings rose 13% on strong sales in automation and control systems. whirlpool posted a 75% earnings boost and raised its forecast for demand in north america. whirlpool reports the 5-year- long slump in the u.s. appliance market is winding down. and burrito chain chipotle delivered a beefy 5.5% gain in sales in the second quarter. on the ipo calendar this week, phillips 66 partners, which includes some assets of refining company phillips 66, is

expected to price around $19-$21 a share and raise $315 million. it plans to use the money for expansion and acquisitions. last week, online coupon company retail-me-not priced in at $21, opened around $26, and closed at $27.70, good for a 32% rise in the trading session. and timeshare company diamond resorts opened around $14. shares closed at $15.72. the dell dilemma continues this week. wednesday, shareholders are scheduled to vote on the direction of the computer company. michael dell and silver lake partners want to whisk the company away from wall street for a major overhaul. billionaire investor carl ichan is willing to pay more to keep the company publicly traded. heavy lobbying on both sides is expected going into the vote.

still to come, what an earnings upset from apple could mean for its stock down the road. also, is detroit's financial distress really as bad as it looks on paper? plus, why slimming down is worth your weight in gold in one city. first business continues after this "in the know" message.

detroit's bankruptcy plan may hit a snag. a state court judge is ordering michigan's governor and city emergency manager to withdraw their historic bankruptcy petition, saying it violates michigan's constitution. the judge says the governor lacks power to diminish pension benefits. governor snyder quickly ordered an appeal. friday, he put a postive spin on filing for bankruptcy. "detroit was going farther downhill in terms of debt load, in terms of other challenges, so this is an opportunity to say we're at the stability point. we may not be at the growth point yet with respect to city services, but we're at the point we can see that light at the end of the tunnel to get us there and do it in a realistic way." detroit sits mired in $18.5 billion of debt. here with the back story on motown's troubles, chris gautz, capitol correspondent for crain's detroit business, joins us via skype this morning. great to have you on the show this morning, and what is the mood in detroit? - well, there is a lot of

concern. this is a historic time. we've never been through anything like this. although, in some respects, it was expected. this was not a surprise to many folks that this happened. but people are just sort of waiting to see what the next steps are going to be now that this is officially taking place. - we are hearing the problems piled up from a long list, including a lack of tax paying - only 53% of homeowners paid in 2011. $15 billion of debt brought on by corruption and tax issues, poor police power, and an exodus from the city - 250,000 people have left over the past decade. what do you think about this tax issue, not even being able to bring in taxes? - that has been one of sort of a multitude of issues that have sort of culminated in this filing on thursday. like you said, there was a combination of things, from people leaving the city in droves, declining population, but also, like you said, the folks that are still in the city have either not been able to afford to pay their

taxes, or they've gone on record saying that they purposely decided not to pay taxes, ironically enough because they feel like they're not getting the city services that justify them paying the taxes, even though, of course, it's those tax dollars that fund the city services. so, you've just got a whole host of issues, and people are really hoping that this will be the thing that really turns the city around, and it can get back on a firmer footing going forward. - and what about pensions? detroit's emergency manager, kevin orr, has been very clear from the start that the city just cannot meet its current pension obligations, and has made that clear to current retirees as well as current employees. he pegs the unfunded liabilities of the city's two main pension systems at around $3.4 billion, although the pensions do dispute that number. but those two pension systems were the top two unsecured creditors that were listed inside of the filing on thursday, of which there are a mind-boggling more than 100,000 creditors that are part of this bankruptcy filing. so, it's just

a huge slog to get through. there's a lot to do still. - and quickly before you take off, do you see any signs of hope? - i think so. i think that people are really trying to say that this is the end of an area after decades of mismanagement and poor, declining revenue, and that this is a way to move forward. so, to that extent, people are excited that we're going to get this behind us, we're going to get rid of this debt, and we're going to move forward and we won't hopefully carry on the practices that led us to this point going forward. - thank you, and please keep us posted. - absolutely. chicago faces a financial squeeze. moody's cut the city's bond rating from aa3 to a3. it cites chicago's "very large and growing" pension liabilities, high-fixed costs, "unrelenting public safety demands" and "significant" debt load. as part of its $1 billion deficit, the chicago public school system is giving pink slips to 2,000 employees, including more than a thousand teachers. in a city overseas, government officials are using the power of gold to get people to lose weight. city officials in dubai are payng people in grams of gold to get them to slim down. ironically, fast food chains such as mcdonalds, subway and kfc are thriving in the arab

emirates... we're just sayin'! coming up, is apple set to take a fall on earnings? what the charts have to say. first, though - they're watching you... the extent retailers will go to to track your every move. bill moller steps in, next.

we've certainly learned just how much a fact of modern life it is to have so many of our habits tracked by the government, but also the private sector. and on the private side, data help retailers sell more by better understanding our individual behaviors that get us to buy things. this happens, we know, with every online purchase, but also,more and more, with every in-store purchase as well. one of the

companies that provide brick & mortar stores with shopping analytics is retail next. let's talk with tim callan. he's the chief marketing officer there. all right, tim, how do your sensors track what's going on in stores? - what our platform does is it tells retailers how many people are coming to stores, and where they're going inside of the stores. so, if you were to go to a store and walk in and walk around inside of the store, we could let the retailers know that a person entered at this time, and this person went to this place and that place and that place over there. now, what we don't know is who those individuals are. so we don't know that bill went to the store, we just know that there was a person who came to the store, and these are what his behaviors were. - all right, give us an example. let's say people walk in, and they always seem to turn

to the right, or they linger or don't linger at a particular clothes rack. - so how does a retailer use this? the way a retailer would use this is - let's use the clothes rack example - if i'm coming into the store, let's say i have a rack of clothing, and it's not really selling. as a retailer, i want to know why. now, there are several different scenarios. let's suppose that nobody goes there. for whatever reason, nobody walks to that part of the store. you address that problem one way, which is, maybe that area of the store is bad or not inviting. on a second set, let's say that people do go there, but they don't stop, they walk right by it. in that case, you know that for some reason, the clothing on that rack isn't engaging people and pulling them in, and you address that problem in a different way. now, a third story would be they come, they stop, and at the end of the day, they leave without the clothing,

and in that case you would say, "maybe there's something wrong with the product itself, such that people don't want to purchase it." and so, each of these insights gives you different information you can use to try to solve the problem of "why do i have a product that's not selling?" - tim, briefly, is it typically clothes retailers who use this information? - it's really a fundamental enabling technology. it's available to every segment, so it can be specialty retail, big box, department stores, fast- moving consumer goods - all of these segments are using technology like this to understand what's going on. - tim callan from retail next, thanks so much. - thank you. coming up on first business: apple's earnings, they were a shocker - could it happen again? find out next, in chart talk.

suffwith a deadly disease. i was one of them. my disease was obesity and after consulting with my doctor, i received the effective treatment i needed. please join the obesity action coalition to acknowledge obesity as a disease visit obesity action dot org to sign an open letter pledging your support and for more information about how to talk to your doctor about weight loss and treatment options. together we can make a choice to end obesity now. a public service from the obesity action coalition. hi, i'm ben affleck, and many actors have played the part of a u.s. serviceman in the movies, but for veterans like james crosby and so many other brave men and women, his service and his sacrifice for our country are real. outside baghdad, a rocket attack blew up my humvee, killing one of my marines and leaving me paralyzed. [ben affleck] when james returned home, he, like many others, was in no condition to cope and advocate for the services he needed. fortunately,

paralyzed veterans of america's trained experts were there to help him so he could concentrate on getting well. for over sixty years, paralyzed veterans of america has worked to ensure that our injured veterans get the medical, housing and auto benefits they have earned. i'm so thankful paralyzed veterans of america was there for me. surely those who sacrificed so much deserve no less. join me in supporting our paralyzed veterans. visit p-v-a dot org. it's a busy week for earnings. joining us now, andrew keene, president of keeneonmarket.com. good morning andrew. - good morning, angie. - let's start with apple. earnings out tuesday. what do you see in the charts for this stock? - we've been talking about this for a while. apple's been stuck in this range. it depends how you want to look at it. you can look at it between $405 and $445. you can expand it out a little bit more - $390 up to that $460 level. right now it's trading at $425. it has shown

relative weakness compared to the stock market. s&p 500 futures on all-time highs; apple has been underperforming. $20 at-the-money straddle implying apple is going to go to $405 or $445. i just don't think it's going to move very much. i don't think it's an earnings story right now. it's a new- product-development story. - let's move on to netflix, then. now, the market is implying netflix could have a big move of maybe up to 15%. - yeah, $38 at-the-money straddle. i think netflix is a story, like we've seen in linkedin, we've seen it in google, now we've seen it in microsoft, where stocks that have run up so much into earnings. yes, they're going to beat year-over-year, 38¢ vs 11. the stock is up over 180% this year. it opened at $80. i think a little bit is too much, too fast. i would not go out and short the stock. that's why i like to use the option markets. i'll be looking to buy put spreads in netflix, hoping it's going to test back to that $220 - $230 level. - andrew, why is there so much focus on this? why are people so jittery about the earnings? - i mean, it's not really an

earnings stock. it has a huge customer base of about 29 million customers. i actually think that it might be bought out. but this stock has just been on fire so much. we've seen linkedin, we've seen google just absolutely on fire. we saw microsoft just absolutely on fire. so if they disappoint at all in the top or bottom line, it's going to get hit back into place, and i don't think it deserves a price target of $270. i think it's a $220 - $230 stock. - what about mcdonald's' earnings? - mcdonald's has been stuck in this little range between $97.50 and $103. over the last eight quarters the stock has sold off four times, it's rallied fourmes.n fridiactuallyl spreads into earnings. i actually didn't get filled on that, so i want to be bullish mcdonald's. if it pulls back into that $98 range, then i'll look to be a buyer. right now i'm flat mcdonald's. - thank you for being with us, andrew. - thank you. the time has come for us to say goodbye for today. coming up tomorrow, how the trading world is dramatically changing, all because of technology. from all of us at first business, thanks for watching. a great week lies ahead.

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