tv Bloomberg Bottom Line Bloomberg February 21, 2014 2:00pm-3:01pm EST
>> from bloomberg world headquarters in new york, this is bottom line. the intersection of business and economics with the mainstream perspective. signedkrainian president a deal with the opposition, hoping to bring an end to the deadly crisis. and the city of detroit filed a plan to get through and out of bankruptcy. to our viewers here in the united states, and those of you joining us from around the world, welcome. we have full coverage of the stocks and stories making headlines today.
olivia sterns is watching the into the third week, and michael mckee looks at the correlation between the weather and the feds tapering process. those stories and a moment, but first the latest on ukraine. and opposition leaders have signed an agreement meant to defuse the three-month elliptical crisis that includes the following. early presidential elections, and a return to the 2004 constitution. that is a move that would curb the president powers in favor of parliament. the peace deal was brokered in all-night talks in the capital of kiev. that needs to win the support of the protesters on the streets. at least 77 protesters and police were killed in the violence in key of this week. week.v this
will look ahead to the g 20 meetings this week in sydney. that is coming up but 2:30 p.m. new york time here on bottom line. negotiators meeting in vienna this week did find some common ground. now on the phone, are we and are closer to a final deal right now? is ashink where we are much as anyone could've expected within this first week of talks toward a comprehensive deal. what these six powers negotiating with iran, led by the u.s. and the eu agreed to with iran was for a five month ambitious timetable of talks. up until the interim deal expires in july, we're talking about the interim deal that we have spoken about that would give some lifting of sanctions
and a narrow area. up -- dividedided over thessue groups, heavywater reactor, and etc.. it will both be a sprint at a marathon because they're the huge chasm that remains between these two sides. >> let me put you on hold for just a second, because we have made contact with our reporter on the ground in keiv. can you tell us what the general mood is there on the streets? do the protesters trust this deal that was hammered out? we are in the square right now in the center of the crowd. shouted that they want him to be in jail. statements, a
beach from the leader of the former and -- foreign rice prime minister an organization. who came on stage for the first -- it was never done in public statements or a public stage before. that they're going to fight. frame, not give any time but he says we will continue our fright. -- fight. >> it did not include anything about the president being charged, or stepping down. there any development expected on that and? league -- can you
repeat the question? did not include anything about the president stepping down, and perhaps facing charges. is that something that the protesters have amended, and have you heard any developments on that front? >> i have not heard. who arenow from people the far right wing, and most act event on the front lines, they said that they will a beach theto president if he will not remove himself. wherethe ground in kiev, there have been fast-moving dolmens -- developments today in the better part of this week.
be speaking with the former u.s. ambassador at the bottom of the hour. we will be discussing this and the g 20 meeting that is getting underway this week in sydney. about the iran nuclear agreement. does this agreement lift anymore sanctions, and will businesses be allowed to return to iran any sooner? >> no. it is an excellent question that a lot of businesses will be asking around the world. the november 24 feel that we talked about many times is what still stands. that will extend until july, and all that does is lift sanctions on automotive, predator, cold, as far asarts, and oracle sections and baking sessions, those remain in place anctions,g sites
those remain in place. >> what is interesting, throughout the specter of all of this, there is also what is going on in washington. as we have talked about before, there are some on capitol hill who were not too thrilled with this interim deal to begin with, and they wanted the sanctions to be tougher. the white house has insisted that that could derail any progress that is being made. what are you hearing on that front? >> the people who are in favor of talks, including the obama administration negotiators that , they sayg the talks we are never going to get a deal unless we try, and we have to sit at the table and keep a strong sanctions and oil and banking in place. we will see of a rod is willing to make a deal. the critics that you mentioned you not believe that a rod will ever make significant
concessions, and therefore they feel that the ongoing negotiations are just a way for iran to run down the clock, by time, use this charm offensive that everyone has talked about is the new president came into office, and try to a road that undermine sanctions by raising expectations in the international community about future business in iran. it remains to be seen cap i think is most likely we will see a rollover in this interim deal after july. it is very doubtful we could get a conference of deal before them, but we will see. to besues that still need resolved. >> does president rouhani have acking of ayatollah nominee? obama said that i give it no better than a 50-50 chance of success, and ayatollah that he was a bit harsher, and said he was a pessimist. he said i will not stop the talks from going forward. to allow the
negotiations to go on if a deal that he is willing to accept happens a he can take credit for it, and embrace it. if the negotiations break down, he can say i never leave they would work, and distance himself very quite how likely is the deal? >> given how quickly they have gone so far, no one thought in six weeks it would be possible to get an interim of court. i do think there is a chance otherwise negotiators would not be making plans to meet us in vienna one month from now. we're going to be seeing regular talks from now on. >> thank you. coming up, the housing recovery is showing signs of fatigue. -- why the spring selling system will be key. ♪
>> welcome back, more disappointing economic data today. lifting honesdale's -- home sales falling again. wondering if the fed might need to rethink its qe tapering. --omberg's of an object economics editor michael mckee joins me. is this just about the mother? -- weather? >> in some senses it is. most of thecause data providers are telling us this. we saw industrial production ball because of the severe weather that curtail production in some regions of the country. earlier this week the big drop in the homebuilders confidence index, they say that significant weather conditions across most of the country led to a decline in buyer traffic last month. also when you look at the data coveted tell you much of the same story.
we saw housing starts all this month, and earlier this wee k. the midwest, home to most of the storms and cold weather, 68% lower on the month. rising a drop in a lot of numbers that should drop if you're seeing bad weather. utility use goes up because we are all trying to heat our houses. expectations, economists should know because they are factoring in these weather conditions, but the numbers are going to be bad. it has just caught them by surprise how much worse than expected they are. >> so it is like a natural disaster, spending eventually rebounds? >> yes. some of the activity will be recaptured, you will not go out to dinner to make up for a valentine's day dinner, but bureau to buy new clothes, new heart, new house career would be interested in doing that. when the weather clears up to get to the mall, you will go
spend the money. >> would they start to consider reversing tapering? >> this will be a very high bar for them to change. in part because of the effect that tapering is having. none so far. what was qe3 supposed to do? push down long-term interest rates. at this point, it would not do any good as far as the transmission mechanism of the fed knows about to reverse the tapering rate it would not create any additional scenarios for the economy. ? now on then on the existing home sales. julia, welcome back to bottom line, it is good to see you again. the existing home sales number, what does it mean for the u.s. housing market? michael's agree with
assessment that there is a lot of weather in this data coveted be a big discussion to you what in this data, and it could be a big discussion for q1. that is exactly when mortgage rates jumped up. what we have seen with both consumer prices and with demand for housing, consumers are extremely price sensitive. when higher mortgage rates ean a downgrade, they do not want it. the foreclosure inventory has really dropped off. we have seen a huge decline in in 2010 in more than the midwest. there is a broader story going on in housing. >> yuan -- you had mentioned
investor demand. cash sales by investors. what does that tell you about the health of the overall housing market? >> it has been a very unconventional recovery. this is not about consumers getting more jobs and more income and taking advantage of low interest rates and buying a home, this is about investors jumping in, grabbing bargains, foreclosed homes, and converting them to rental properties. that has been a big driver in clearing the inventory. we have seen some better organic housing demand, but relative to prior norms, it is still very modest. far more sensitive to interest rates than it was in the past. we can look at the margaret rates and say they are incredibly low by historical standards, but so is take-home pay. >> there is less than five months of available inventory on the market. it would be home buyers do not
have that many properties to choose from, they are likely going to put off making a purchase. what is that going to mean for home prices going forward? >> we have a chicken and egg problem. there are a lot of problem that believe their homes are worth more than the market value as telling them, so they do not want to sell it and put their home on the market for that price. yet buyers are still very price sensitive. what it means is that we're not going to see the kind of appreciation we saw over the last 12 to 18 months. a lot of that came from the investor dynamic buying distressed homes. when we're going to see instead is much more moderate gains, .hey are more consistent >> when he going to see for the spring selling season? >> i certainly hope so. to a large extent that we're
-- some seasons rebound spring bounds back. suggested, we do not expect rates to be rising very rapidly. we will see some buyers coming back in the spring, but the extent to which they do so, the signal that that gives us about consumer confidence and broader demand are going to very important to watch. colleaguesyour pointed out that household balance sheets in the u.s. have seen a direct improvement, but as you also pointed out, the new york fed releases fourth-quarter household debt and credit report, and that showed a surge in borrowing. where are credit conditions right now? >> that surge in mortgage borrowing is a lack of reflection of the strength we saw earlier in the year.
if you look at mortgage origination right now, it is now down quite a bit, along with housing demand. credit conditions are a little bit better, but they are still compared to the past 15 years leading up to the session. much less of a financial accelerator. we have seen auto credit conditions, very noble lies, lots of available credit, but it would it comes to credit cards still very loans, it tight conditions, and very tepid demand. >> are you seeing a return of the household wealth effect? prices givinge consumers and homeowners more to spare? >> we do think there is a wealth effect, but it is not coming from the housing market as much as it is the stock arcade. the housing wealth effect is greatly diminished by the fact
that credit conditions are so tight. cash in a lineny of credit, like you could at the -- first. the equity welcome back is much more stable, and when you have a 30% year on the s&p 500, that is a tail wind right now for the upper tier of consumers. >> chief economist for north america bnc. thank you so much. when bottom line continues in a check inwe will with olivia sterns. ♪
correspondent, olivia sterns. >> good afternoon. it'd take a look at stocks right now they are trading pretty much let, that means we are at session lows because for most of the days all three of the main edge march word trading firmly in the green. the dow is down by about six the point -- 16 points. the nasdaq on track to post its third straight weekly gain. staffg with congressional to try to explain exactly what their business does. bill ackman, the billionaire investor has accused the company of operating impairments keep -- a peer amid scheme. we are also watching share the groupon today, lunging after they forecast first-quarter earnings that came in lower than
natural gas was up 18%, and reformulated gas was up about why gay percent -- .8%. is brokeringates an agreement between the president and opposition in the great -- in the ukraine. fannie mae says it will pay the u.s. treasury another $7 billion after posting its eight trade quarterly profit. with this latest devon a, it is now sent the treasury more money than the billing up -- bailout it received during the crisis. at a white house meeting, the president said that the increase is good policy, and good politics. he said hiking the minimum wage to $10.10 an hour, is supported
by independent democrats, and republicans. capitaland political talk to maggie about the current -- the head of the governor meeting. my next guest is an expert in both political and it's cool international affairs. a former u.s. ambassador does it european union in may he was the deputy treasury secretary under resident clinton. he now runs international affairs at covington and burly, and he joins me from washington. mr. ambassador, welcome to bottom line, thank you for your time today. president's refusal to sign an agreement with the european union was what precipitated this crisis. will the parliament look to reverse that? >> in context, this really was post cold wart
impasse between the u.s. and russia. it had shades of that's because clinton was strongly backing the president -- putin was strongly backing the president, and we were strongly backing the opposition. are divided between the western part which tilts toward the european union, and featured part that else toward russia. -- of the eastern part that tilts toward russia. >> when you make that eastern, parallel, you talk about the cold war all over again. said thatnt putin the worst thing that happened in his lifetime was the collapse of
the soviet union. ukraine has always been considered part of the russian empire. perspective, if the russians and the president that backed off, and it is an empowerment of the people in the parliament, and they got together, and said no more aggressiono more toward the protesters. there will be early elections, they will be having a joint investigation of the violence that occurred, it is a positive deal if it is implemented. malignant -- in the ointment is that the program russian president is going to stay office during this time. i think that that is not a great great a risk as
the people and parliament are in favor of this agreement. >> you mentioned that the president's powers have been curtailed. he still retains an apparent majority and the -- in the parliament, does he not? >> and is only an apparent majority. if you saw what happened this very week, as his power began to slip, as government buildings were being taken over, and the -- kievpart in seattle was taken over, he formed with the working party of majority to innal to his party do not go the streets, just to stay in their barracks. operating power is even within his own party. >> what are the ramifications between -- for the relationship
between washington and moscow? they believe it gives the west too much leverage. >> what precipitated this crisis to begin with was that ukraine was on the verge of signing a major agreement with the european union with economic and political benefits that would have drawn a closer to the west. that is when putin intervened with this loan package. say that wed to think they are not a good credit risk, so we are going to withhold the money. combinationd was a of the eu sanctions, the u.s. sanctions, and most importantly real people power have made a difference here. force the russians to back off, and i think this will, if implemented, have a major strategic shift of the ukraine to the west. it is a shade of the cold war, but it is tilting in the right
direction for the u.s. and europe. >> the g 20 meeting in australia the weekend, what is connection to the ukraine and market volatility that we have been seeing? >> direct connection because we have seen this tremendous market volatility and , and itng countries abou is the political instability in countries like thailand, nigeria be, and in the ukraine. when you combine that with the fact that the taper down is happening in the u.s., you are starting to see national -- massive capital outflows. they are concerned that if this continues, this will arrest their growth and cause even more market volatility. ukraine will be on everyone's agenda, along with other emerging countries in australia
this weekend when the finance ministers and central bank come together. what the imf is calling for is more coordination. what has happened is that we have had very good coronation immediately after the great mental crisis, and the recession 2008, they all had stimulative all of these. -- policies. the central banks of those countries are starting to and that stimulus, and that is causing and outflow of money from urging -- emerging countries like ukraine. reengageurging them to of the imf, because their economy is really in shambles, and one test of whether this deal will hold that has been reached today is whether there can be a better economic conditions, whether the imf can come in with some standby guarantees and economic reforms, and an end to corruption.
>> i have about a minute left. is thee observed this first times as the great recession that monetary and fiscal policy are give urging. how should the federal reserve managed the ship, and how will your actions impact the global economy? >> this is the first real test for janet yellen. it is quite rare that she's going to clear -- continue the taper down. she is not convinced that the reason for the volatility in developing countries is because of the taper down. she thinks as it is the lack of lyrical --form, and political instability. we need to reassure the countries that we are going to be there for them, more transparency in how the taper down is measured, and washed make sure that the bar -- market volatility does not get excessive. the key is more coordination,
and more transparency. >> former u.s. ambassador to the european union, former deputy ,isionary -- treasury secretary mr. ambassador, is always a privilege to have you on the broadcast. thank you for your time. >> thank you. >> detroit takes important steps to emerge from bankruptcy. we will take a look at the future of the motor seen it when we come back. ♪
>> detroit today took an ambitious step two emerge from bankruptcy. they promised to shed billions of dollars in debt. the senior director at standard & poor's obits on public find out -- focused on public finance joins me now. for your time. any surprises for you when the debt adjustment plan came out? >> there were a couple of positive things that we saw, and
a couple of surprises as well. when ice is a present, it is an interesting treatment of things. one of the big things that has been talked about a lot is how pensioners would be treated versus bondholders. the numbers that were coming out were saying that 70 to 90% payout on pensions, where you're only looking at a 20% pay out on the deal bond holders. that is an interesting precedent to set. >> the federal bankruptcy judge that is overseeing this is wanting to try to reach an agreement over what priority to assign some bonds. if he is forced to make a really, bondholders and other unsecured creditors might be lumped together. what kind of president with that said, and how would it is that -- how would that affect other cities as they try to raise money? >> from our perspective, we are any -- yet to perceive action that would affect her credit rating. it is an interesting idea that the prediction -- protection of
the bondholders feel they have had in the past to be treated differently, in a way that we are not necessarily seen before, it could have indications both in michigan and across the country. >> this would be a seismic shift, would it not? ly to would be too ear call it a seismic shift, because this is just a one depth in the process of bankruptcy. talking about liens and some other priorities that the court has. we want to take a look at se eing what those are. ones would treat the bonds as unsecured, in which one do not? road back detroit's
will be very long. it took a long time for them to get to this position in the first place, and it will take a long time to get back to the capital markets with the standard & poor's rating. in terms of how it would've impacted other places, we are looking at state statutes across the country to see what kinds of similarities there are of and what kinds of differences there are. >> we will have more on the crisis in detroit. stay with us, we will talk with you after the break. ♪
few reasons. you have a lot of financial problems for a long time that -- andd a much different that put the city in a much different position than others. wasreated a government that outsized for the size of the city, and created a structural imbalance that has brought down their financial position significantly. that has now resulted in the filing for the graffiti and default-- a group c and default.pcy and fixed cost and labor costs can be a challenge, but ofrall, it is a hallmark financial difficulty, but is not necessarily something we see as rampant now. >> where do we see this adjustment plan that was
announced today fit into the landscape of the bankruptcy? >> it is one step in the long process of a grassy. the s&p at length there would be pockets of stress and pockets of distress across the country. as they move forward with the plan of adjustment, and now with at, we're rulings of th in the middle of it. >> if i might ask, do you see the irony? identity that the automakers seems to be back on their feet, but the city of detroit is languishing? >> that is something that we talk about as well. one of the important things to think about is that over time and a lot of those auto manufacturers, and some of the high paying jobs have moved out to other counties.
the gm headquarters are still there, but as things have changed over the landscape of southeast michigan, we have seen out into the suburban areas, which has had an impact on the income tax that the city excuse become a property taxes, and other things as well. chicagong us from our bureau today to talk about the debt adjustment plan that was filed in federal court today. thank you for your time. >> thank you. glad to be here. >> more on the detroit crisis coming up on monday. stay with us, we will have another check of the market movers on the other side of the break. ♪
>> get the latest headlines at the top of the hour on bloomberg radio and streaming on your tablet and on bloomberg.com. that is it for this edition of bottom line. have a great weekend. on the markets now. >> it is 56 minutes past the hour, the libertine he is on the markets so bloomberg tv is on the markets. stocks trading near session lows, the nasdaq is barely in the green. on track to post the third straight week of gains.
agreed to anaders accord with the president, after months of road has that turned deadly in the last two days. at least 77 police and protesters killed. ukraine's economic future is still at risk of default. but some people see this as a buying opportunity. askediller and alix steel how he would invest in situations like this. >> generally what we try to do is scale in several times when we see problems like this. when things were getting choppy, without we should get involved across the curve. >> what is your timeframe? >> we have to look at the downside.
this kind of situation, the debt to gdp ratio is not the ratio problem that you want to look at. stopping payments, then you have to start looking at restructuring scenarios. we've gotten to the point where thanownside was much less the upside of things got result. without the chances of the civil war were pretty low. we just hope that things do not get to that on the ground there. >> you're looking at bonds with the maturing in 2016, and onboard? -- onward? >> a five percent return between now and june. across the curve, everything has jumped as things look like they are stabilizing. we are not chasing of right now but there are some chances that the president could be that she
does not want to leave our -- he does not want to leave power. there will be further negotiations with russia in the backdrop. >> russia's power has been diminished in the but in the eu commitments. >> that is going to very important to watch here. how the issa played this -- the this and the united states played this, they need to have a good package owing board to integrate them into the eu. >> they do not want ceu taking over the western half of the country, not just regionally, but as far as the culture is concerned, and russia and vladimir putin taking over the
eastern half. >> they get 20% of the natural russia, so there has to be some sort of relationship between the three regions. >> absolutely. how do you engage with them in the ukraine? >> that was our guest from greylock capital management. "street smart" starts now. >> i am matt miller. welcome to the most important hour of the session. 59 minutes until the closing bell. julie hyman and i are here for you in place
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