straight to our top story. we had a little bit of breaking news. this is manufacturing pmi, it has risen and pretty much in line with expectations. showsng above 50 expansion. it is the story of divergence of what china and china is doing and put on the table. stimulus.uch more every piece of data from the eurozone is important and has the potential of moving the euro up. lester on the euro. the manufacturing pmi not as bad as expected, pretty much in line. our top corporate story, a deal for digital. a 3.7 billion dollars purchase of an american attack copy -- -- an american tech topic, sapient. guys, thank you for joining us. matt, let me start with you. previously, wanted to buy another company and it fell through and they are going with sapien one guestt said it would. begreat for digital and they always wanted to be in the digital space and that is where they are the weakest. to get backeffort on the front of foot after this deal fell through. a couple ofouple -- tough quarters and they need to show investors, and competitors who have been snickering behind its back it can still be aggressive and make deals and innovate. it is what we are single which a deal for sapient which is digital agency with a big footprint in the u.s. >> it seems to say it is good faith. they had differences of ideas of how to run the space. how much do we know about sapient and will it be a good fit in terms of the customer that they can attract? incredibly bold move if you consider what they were going to do with omni,, 82 big company coming together in the old world. sapient has fantastic companies. you go from the mega brands like coca-cola which everybody was to work with two exciting brands like elephant away group -- the fenway group was that you have a good mix of customers here. for a change of strategy, it is quite dynamic. to rely said they cannot take on google and facebook when it comes to scale and negotiation and it would not have happened with omni,. they need to get smart and by somebody who can help you with the data and analysis and that is what they are excited. >> are they not a little bit behind the curve? when they talk about the need to analyze for quite some time. isthey are behind and that why they are paying a hefty price. a premium of a billion dollars or more for a company that has risen quite dramatically. it is a bold move and although we might see it expensive today, if it works out, we was a very cheap in a couple of years. legacy is maurice's after the last one did not work. fewe are on quite a legacies. alexi 4 or five. he keeps saying is going to retire but he does not. announced his obsession plans. his plan is to be around 2018, which is a very long time. hise has announced retirement plans. the problems they were about is google and facebook. that is to the competition is and that is how you have to view these acquisitions. >> are we going to see many more digital deals? >> i think it is a good bet. we run one of these midsize deals every six months or so. we had aegis. it's a safe assumption we will have more. >> nick, is that a fair associate? digital is everywhere. >> what we're not talking about is the mobile side of this. how people will get onto mobile devices? we are seeing more revenue coming from this. they are finally going to the hold in the world which is ever more important. >> is it learning lessons in bringing back some of the know-how to their older platforms or is it a company that will leave a load? >> would have been listened to the conference call it now and catch up with it -- conference call now and catch up with it. they said we will keep a separate and we wanted that magic that will be there from sapient to continue. dev only talked about cost savings of $50 million which is not much. what they are doing is taking some recognition from the fed you cannot integrate. is so much about the people and creative. it is an essential move to keep the departments and the magic through those people. cost-savingabout but attracting new customers which they struggled over the past couple quarters? >> is about building the customer base and also about building the know-how. you do not have to do these things for cost-saving in the ad world. there's a long history in the advertising industry of leaving these agencies along, all of the be ad companies are really holding company. they have had a long experience with these agents is that they acquire. you do your own thing and tells at the end of the quarter how you did. that appears to be a model. >> do you lose accounts because you are not digital or you are attracted new customers? toi am coca-cola, do i go one person to say i want to be big on social media, or is it part of the bigger cap at? >> it has been happening as there is a breakdown of the accounts. you have one internal agency going to a number of different credit partners. in the old days, you go to your credit partner and a parcell it out. crated is integrated campaigns which covers so many different types of social media. what we are seeing is recognizing that they were never going to get all the business from a company with dr. that angle. it will certainly be for them a strength in their boat to say let's get their full spectrum. i do not think anybody is going to give anyone company all of their accounts. it is to get more of the share of wallet. >> if you look at it in with that much more digital m&a, who is next in line? i know it is impossible to say. will there be another acquisition by publicis because they are lagging behind? >> there's another interesting question in addition which is whether we see long-term consolidation and in the ad space itself among the big advertising holding companies? there's a lot of tart -- and there's a lot of talk after omni and perhaps they will try to merge with interpublic in the u.s. and one in japan that has done their deal and they are still out there is another big ad agency. there are two questions. who among the large players could be acquired? big holding companies in which there are four or five going to say stable? most people say the answer in both could is probably, we will see some of those activities picking up as it becomes more critical to build scale and the technological platform. >> more to come from publicis? now. not for it was a lot of money even for big company. we are on legacy number cointreau and maybe we will get a legacy number six. >> and seven and eight. matt campbell and neck nick hungerford. chinese surfaces data shows signs of a slowdown. the pullback will test of the government's determination to pull back a more stimulus and they are headed toward the slows want true year growth since 1990. the u.s. supreme court where her argument indicates that will let as many jerusalem born citizens have passports and designating their place of birth as israel. the obama administration said under my is a long-standing the state department policy and is not taking a position. the city's eastern part -- posted lower than estimated offense. -- posted lower than estimated profits. they are europe's largest bank by value. still two come, a conversation conversational with events cable. -- a conversation with events -- vince cable. ♪ >> investigators say the engine of the virgin galactic spacecraft that crashed was intact with no obvious signs of damage. they say the system a spaceshipt deployed early. one pilot was killed no one was injured. what have learned so far? conferencele press was about something called feathering. richard branson himself explained it in his blog. it is effectively like this process that allows the spacecraft to slow down when it reentered the earth's atmosphere. it worse is that same way and crates a bunch of drag. what we know and what did they discover is that the mechanism opened twirly. how -- opened too early. have a listen. 2 in normal flight in these that extent that are referred to as feathers. after the space vehicle is launched and goes up to be apogee returns to the atmosphere, the procedure is to move the feathers into a position where the entire body rotates in order to great more more drag as it reentered the atmosphere. >> favre in a nutshell. we know the fuel tanks, the images that were suspect, a lot -- the engines that were suspect , those are intact would suggest the problem was not there. when it comes to feathering, there are two things that have to happen. one is the copilot has to unlock and that was done. the second is that have to manually press and give the go-ahead for feathering to take place. moscow one and it was posted be mock 1.4 and that was too early. does it mean that was human error? they say it is too early. it is interesting that will learned so far. they said is a statement of fact and not cause was done >> -- cause. >> we heard from richard branson that he is till interest in space tourism. have we heard from him in the last two hours? talking to someone in charge of being the independent for many years. he said, this makes me angry because the bottom line is that the commercial space industry has been resisting regulation and today have not been very transparent and the safety standards that they are applying. -- redundancy, triple redundancy and it looks like and 2is case if there were only step levels of redundancy. does a mean and they end of commercial space activity? the people bought the tickets -- >> willis lower down? -- will is slow down? >> it seems likely. the people who bought the tickets are going to have to wait. we heard there from richard branson over the weekend and they will not blindly go forward. he said they will go forward if it's fixable. it will take time. it has been a while for space began 13 years ago when a guy went to the international space station thanks to the russian who took him up. i was there. there is a lot of demand for commercial space activity, not in just taking a highflying a supplementrists and provide nasa with new resources. >> isn't the first major setback? >> there was more earlier in the week and they are mounting. the fact we would launch into space, space tourism as early as next year, i think it might be fanciful at this point. >> ryan chilcote staying of the story and we'll be following very closely. and profitss off soar. we bring you our interview with the ceo when we come back will stop -- come back. ♪ >> welcome back to "the pulse." airlines and on to the low-cost and high. raised its profit go for the second time said the economic slowdown is working in his favor's. they have a new strategy for winning over the middle market and that's being nice. michael o'leary, the ceo, spoke to us. >> it is a reinvention. we have one of the price battle and a price war. the prize pedal and price war. we want to provide people with a better experience. we discounted prices for children traveling with the parents or business product and will want to move into the middle market. as we get a nicer and nicer, we are finding more of the customers are increasingly saying yeah, lieutenant ryanair. >> how is staff taking it? i am not saying they were not nice but it is a bit of a shift. >> it is a shift. the people that wanted us to do it most is the staff. we put our staff in situations of conflict far too often. wilson we're ending the conflict and will not fight over you because the bag is and is too big. it is the reflective and complement the letters from customers how nice the people are and however for sure the changes are. it is working. they are coming back for better customer service. stepping it up. >> compared to last winter, how much more flying? bywith spec traffic to rise about 16%, which is a huge growth in the first half of the year. this demand for ryan air across all markets. 60% travel growth and would expect the fares to dip. over the four-year, the travel will rise by 9%. profits will rise by about 45% over last year. o'learyes michael talking to us on why his company is so great. other company news. they are swapping liquor brands. -- its fit percent of ju is giving its 50% of juklio. [indiscernible] monte is expected to raise capital for the shortfall identified during the ecb stress test. the lender is ruled out taking state funding and has done that twice in the past five years. a binding offered to buy the portuguese telecom from brazil's oy. the offer is worth $8 billion. if successful, it would unwind a merger. the markets.n on jonathan ferro joins us with the latest. the divergence. when readinge pmi, of it. italian pm i'm, a significant disappointment. if you look at equity market, a disappointing start for this monday morning. ibex dipping into negative territory. in the untied benchmark down. the ftse down by 0.3%. last week, the stoxx 100 up. you look at the massive red and you will notice a bit of green and it is ireland. i will show you why. i wish index is up. you did in and a company you're talking about, ryan air. -- digdid in and it is in and is a company you're talking about, ryanair. a huge lift for the full-year outlook. the approach of ryan air or is efforts thatof have bitten into profit that has helped his company? ryanair is looking into the beneficiary. i look at sterling. 5977.ound buys you 1. ahead of manufacturing. not -- manufacturing, u.k. manufacturing, not a big part of the economy that in the spotlight. sterling, the uncertainty of the u.k.'s membership in the eu taking a different dimension and the german press. angela merkel signaling pushes looking it as something that might happen. the u.k. added towards the exit door. why we are opening this up, why the u.s. does u.k. government is crating this uncertainty. it resonates with the british public and they are leveraging. >> that is why they are doing it. they are saying it is bad for business. good stuff. the very latest on the markets. the first day in office. what is topping the agenda and also, attention jet setters, planning and the hands of a modern traveler. you can follow us on twitter. we will be back in just a couple of minutes and we have a really packed showed today. "the pulse" continues in a couple of minutes. ♪ >> will come back to "the pulse." these are some of the top headlines. for the first time, the german chancellors was concerned that -- u.k. might hold cameron promises to membership. the former bank of america employee has appeared in court in hong kong charged with the murder of two women. it were found in an apartment. officeout of the indefinitely. the engine ofsay the virgin galactic spacecraft that crashed was intact with no obvious signs of damage. the defense system may have been deployed early. one pilot died and another was seriously injured. takeull investigation may months. >> we are a long way from fighting cause. we have months and months of investigation to do. there is a lot that we don't know. if we have the resources to go through. >> we have some raking u.k. data. it is much better than expected. it is common up for the month of october at 53.2. anything above 50 indicates expansion. 53.2 is an impressive figure. inufacturing in general terms of gdp is not that big of a chunk in terms of the overall economy. u.k., theth the european exit for the u.k. is being talked about. according to a report, the chancellor is concerned that britain may exit the eu. book aboutote a angela merkel. how serious is this? up a's been building while. you have to deal with the starting point. she wants the u.k. to stay in the eu. she has reached out to david cameron on the multiple times over the recent months to try and make that happen. this immigration issue has turned into a problem for her. that now with this morning she is trying to draw a line of how far she is prepared to back the u.k. government. >> run me through this. we talk about a possible british exit being a disaster for all of europe. she is interested in keeping the u.k. in the eu. up week as iis will do everything to keep you inside. not at any price is basically what she is saying. she has hinted at this before. this is causing the latest quite a stir in the u.k.. merkel has of writing factors to consider. as much as she would like the u.k. to stay in the european union, she cites arguments such as the uk's free market tradition being important to the eu as a whole. she can only push that so far. ,isn't in the report she doesn't want to be seen as promoting an anti-immigration agenda in europe. >> how does this fit into her broader agenda of trying to build up germany? about germany.t i think she is interested in keeping the eu together as much as possible. we're going to have a referendum catalonia. we have the referendum in scotland. reasons,s economic she wants europe to stay together read she has said this very publicly. she argues that europe can only be strong if it holds together. that sounds like a stereotype or a cliche. i think there is a real element to -- of truth to that. , there is only so far that she can go in backing david cameron. >> thank you so much for all of that. tony is in berlin. he is an author of a book about angela merkel. also weighing in on the debate is vince cable. he spoke to jonathan ferro last hour. >> i am concerned when people start raising these issues. of view of the international business community which is investing in the u.k., they want to have certainty. in of the key certainties recent years is been knowledge that we are members of a single market and if they put their factories or offices in the u.k. that they will export goods and services to the european union. we have had anxiety expressed by investors in japan, china, and elsewhere about our future. so far, it has not affected our membership. they are increasingly toxic in nature. immigration is making this more difficult. >> just a small point. to there giving lectures scots for wanting to leave and now they find themselves in this place as well. >> it is a contradiction. the conservative party thinks that the eu is beneficial. they have a problem with this being a clinical football. they are in a battle. that's what this is really all about. it is about getting reelected. that resonates with the electorate. had you fight that? you join the party. this is a problem that everybody has had. you do something to fight -- fight the more extreme parties. do we have any polls? if we were to go to vote now, would we exit? how are merkel's comments being played out in the press? >> this looks like winning that. they are taking seats off the conservative party. these guys defected from the conservative party to begin with. the threat to the conservative party is there. this is also a threat to the labour party. they are in danger of being pushed out as being a third party in this country. he did not understand why this debate is being reopened. it resonates with the public and you can win votes i leveraging this debate. >> you can win or lose votes. if they don't talk about immigration, they may not be in power very much longer. this is the big problem. the eu has four pillars of one of them is labor. when you talk about restricting immigration, it is a non-argument because it can't be done. the conservative party is talking about as if it can be done. merkel has been start about that. she has acknowledged for the very first time that the u.k. could be heading toward the exit door. whether you think this is right or wrong in the long-term, and the short term there are two no two ways about it. it increases uncertainty about what is going to happen over the next 12 months, and that is not what we talk about markets. it is not good for assets. >> in the long-term, there is very little benefit. >> can have that argument for another time. day foris the first europe's new commissioners in brussels. this is a look at what is on the agenda. first of all, we are going to talk about digital and cyber security. is the new commissions main job going to be to convince the u.k. to stay in the eu? he is the right guy to try to do that. primethe longest-serving minister in history. dealsspent his life doing among governments. he knows that national governments run the eu. he is also the only candidate in the commission to offer to renegotiate britain's membership terms. britain and david cameron are vilified. now to have to work with them. in respect to do the economy? >> the commissioners look a lot like europe. politicaly europe's rivalries. , it will beeconomy co-managed by a french socialist who is not a big fan of austerity. isre is also a latvian who the apostle of austerity. the result is likely to be something the middle. >> on the digital side, what can we expect in terms of tech companies? some of the unfinished business that is on the plate of the new competition to mission commissioner is antitrust against google and inestigations of tax breaks luxembourg, ireland, and the netherlands for companies like apple and starbucks. you also have questions of internet corporate governance and when the eu should have a full scale law that enshrines the right to be forgotten. all of these questions will find answers in the next three years. >> think so much for joining us today. we will keep a close eye on that. is a globalow showdown and market turmoil affecting euros largest banks? ♪ >> will come back. profits missed estimates. this we arewledge joined by the author of "the art of banking." richard, let's kick it off with you. what was the biggest surprise today? you know that banks have fines. we know investigations are ongoing. exactly. i think payment protection insurance in the u.k. is one of the big issues they have set aside. over $580 million is a lot. we have seen that with all the banks in the u.k.. this is still big considering the initiative that has been rumbling on for three or four years. david, let me come to you. how concerned are you with what we heard today? the big problem is they have the currency charge. they actually missed estimates. what is the problem? i don't think they have been doing a bad job. we have a very challenging regulatory and -- environment. having that they are in thisulators investigation. i think it is difficult now given the fragmentation and the intensity of regulatory requirements that a bank can do other things. to reach a level of compliance. it takes time. at this point, i would say it takes money. there might be more fines coming down the road. >> you're talking there about a number of challenges and increasing compliance. this?an we get over i know there are a lot of ongoing investigations. a year from now, can the banking industry but this behind it? is this something that will cross off quarter after quarter? >> it is very difficult to put the timing of this. the agreement with the u.s., they are reopening investigations. it might be just a year. it might be a bit longer. you have to be very proactive in dealing with this. you have to draw a line in the sand and have comprehensive agreements. ideally, it should be a year but it could be longer. regulators are getting more aggressive. we have seen this proposed in the u.k., to make them liable in case of some proven wrong doing or misconduct. i think it becomes very inllenging for banks attracting talent and retaining. think this is a specific question or is it going to be more brought across the industry? they are one of us complex financial institutions in the world. is it better for banks to focus on things they may be better at than others? there is too much of a risk in being all things to all people. >> go-ahead, david. >> i think this is the start of intense de-risking and it getting out of risky business and risky contracts. it is more acute because we have this global operation. we have to deal with several regulators at the same time. >> i wanted to get your take on china. this is something that we should not underestimate. discouraging and worrying figures coming out of china today. aren't the other markets doing that great either. >> well, yes. we can summarize the situation with 8% less sales in floorspace. real estate is the driver and that is cooling off. gdp in china.o everybody expects some interaction with the government. the government and china has to balance this information and allow banks to lend more with in potential implication terms of bankruptcy down the road. cooling-off which can take quite a bit. terms of real estate, that will take a bit of time. >> in terms of the investigation, the u.s. -- lacks the u.s. will be bigger. we had citigroup estimating that the u.s. portion was going to be significantly higher than the u.k. element. billion, which41 is a very big number. who ise have any idea most likely to lose or put more money in than others? >> indeed. 500ave seen barclays million pounds is much bigger than it today. beenood rule of thumb has a survey of the size of market share and currency transactions. citigroup, barclays, deutsche bank were all big in there. they might be more exposed to this investigation. --how should investigate his investors pick their banks? do you pick them where the economy is stronger? we talk about fines and that is important. they have to be in an economy with a can lend and continue to make money. one of the elements is in this challenging environment, the bright side has been private banking. they have achieved this sort of financial with the regulators are a better investment at this stage. there is so much unknown still. exposure, terms of there is a stronger ability to withstand the changes. >> thank you so much. program, let'se find out why mercedes is teaming up with tesla to deliver the latest electric car. >> welcome back. it is time for the new energy headlines. they are warning about damage to the environment from fossil fuels. the results are based on the biggest ever study conducted on climate change. there are risks of floods, drought, and the extension of species. angela merkel's government has just published a paper laying the groundwork for much stricter limitations on coal in europe. this may boost the price paid for electricity. the first mainstream electric car has tesla technology under the hood. there is unlike motor and battery inside the hatchback. they teamed up with tesla to avoid the high cost of production. this car will reach german showrooms on november 29. of viewers, a second hour "the pulse" is up next. about that.king an apt for the modern traveler. about the web summit in dublin. we will have plenty to talk about in terms of digital technology. i want to get his take on the legacy. it is going to be a packed show. stay with us on "the pulse or co -- here come ways a u.k. exit. the issue puts businesses at risk. branson's space setback, there will be a search for answers after the virgin galactic crash. good morning. good evening to those of you in asia. welcome to those of you just waking up in the united states. this is "the pulse" from london. it's get straight to the top corporate stories of the day. this comes less than six months after the megamerger with comic-con. are joined by ruth. this is the first time since the now defunct megamerger, we want to be in digital. sense thats been a they have been looking for something to get away from the distraction. that would've made them the largest agency. notthey are saying we are going to be the largest agency but we will be the largest digital advertising agency. shareholders did not seem convinced. if you look at the premiums, it is a 44% increase. up 27%.seen this that is a big jump. shareholders and not so sure that they want to pay that kind of money. >> it seems expensive. it makes more sense. i will when they came on here and talked about it. that did not turn out the case. it was a very burdensome company. , this seems toe make more sense because that is where the money is. .> it is expensive it also seems like it is an easier deal to get done. i think that there is some of that playing into this as well. the shares were down 17% for the merger. they had to cut their sales forecast last month. they're hoping they can get more growth from digital. >> where does this leave them? they intimated that the megamerger that never happened was going to be his legacy. is this going to be his legacy? putting this ad agency up? i think maybe this is a step toward building that legacy. who knows best and mark --? more.may be the volumes of the highest in 10 years. the numbers are above 303 billion a. that is huge. i am sure that more consolidation in the media space. >> thank you so much, ruth. story,on to another big that is the brexit debate. on the merkel can understand why the british are reopening this issue. let's bring in jonathan ferro. you spoke with vince cable today. >> he was in fighting form. angela merkel was at least at balancing the u.k. exiting the eu was probable in itself. secretary, business it is heightening concern for anybody investing in the u.k.. take a listen. concerned people start raising these existential issues. they want certainty. one of the great certainties in recent years has been the knowledge that we are members of a single market and that if they put their factories or offices in the u.k. that they can export their goods and services to the european union. couple of years we have had exactly expressed by investors in japan and china and elsewhere about our future. so far, it has not done any damage. it is becoming increasingly toxic about immigration and that is making this more difficult. >> he called a toxic debate it is a political football. party have been marginalized on this issue. they are not getting traction with the electorate. that is why they are getting support. they jumped on a popular theme. it resonates with the british electorate. these existential questions that he is talking about will take center stage at the next election. >> it certainly will. you've re: got a seat in the house of parliament and we've got another election in two or three weeks time. they are likely to win again. that would be two seats in the house of parliament. this will gain traction. it is being acknowledged by the european union. it is a big debate. politics is not all sunshine and rainbows. immigration has become a little bit of a dirty word. it is an issue that some parties have gained traction on and others have not. when you are the conservative party, you look at the party gaining traction on this issue, what are you going to do? that is why the conservative party have put in this issue. at as long as that issue is the top of the agenda, this is likely to get your in bigger as the months role on a ahead of the big win next year. >> think you so much. anybody has seen sunshine and rainbows for quite some time. aat is the very latest on brexit. it is a long way from find out what caused the fatal test flight crash of virgin geoeye kicks spaceshiptwo. what we learned this morning? we learned a lot about feathering. i had never heard of this. richard branson himself described it in his blog last year. itis a slowing mechanism as enters the atmosphere. it creates drag so that slows down and functions like a shuttlecock in badminton. it did not function properly. have a listen. >> this is a space vehicle in normal flight and these two tales that extend back are referred to as feathers. launched vehicle was and goes up to the apogee and starts to return to the atmosphere, the procedure is to move the feathers into a position where the entire body rotates in order to create more drag as the vehicle is reentering the atmosphere. this is a mechanical process. the lock was unlocked for the feathering process. that was done by the copilot. you're supposed to press a lever that begins the feathering. that did not happen. it happened on its own. that is the big issue. the spacecraft has to be moving faster than it was. it was only going mock one. problem is a redundancy problem. we have at least one failure. i was talking to the head of the , hependent safety office was saying that is the problem. there is not enough redundancy. spaceflightal industry is going to be transparent. that is an issue going forward. >> what does that mean for the future of space tourism? >> it is going to be a break. it may not last forever. this is a statement of fact that this feathering problem and it is not a statement of cause. that could take a year. people including justin bieber who are waiting to fly that of paid a quarter of million dollars are going to have to wait at least one year or longer. richard branson was talking was theis said this innovation that made their spacecraft possible. that was the breakthrough. tourism began a while ago. it's been 13 years. there are a lot of people that want this. , the spacere agencies need private companies to help them do the basics of's .est -- space travel it is difficult to forecast when this is going to start again. playsll ahead, ryanair nice. we will talk about their new space -- strategy. ♪ >> welcome back. low-cost is aiming high. raised its profit goal for the second time. the slowdown works in its favor. that is sending shares soaring. they have a new strategy for winning over the middle market. the ceo spoke to us. >> this is a fundamental re-invitation. we won the price war. we now want to move into the middle ground where we are providing people with a better experience. we discount prices for children traveling with parents. we want to move into that middle market. when we get nicer and nicer to our companies, we find more and more are increasingly saying we take ryanair as the better alternative. >> how is the staff taking it? >> it is a bit of a shift. the staff wanted us to do it. we'll put our staff in a situation of conflict with customers. we are ending the conflict. we're not going to fight. the people who like it best are the staff. reflective in a surge of copper mentoring letters from the customers. it is really working. people are coming for the prices and coming back for the better customer experience. we are stepping it up and >> compared to last winter, how much more flying are you going to do? >> we expect traffic to rise by 16%, which is huge. there is demand for ryanair across all markets. we expect affairs to dip slightly. over the full year, the total traffic will rise by 9%. 4% butsts will rise by profits will rise. oliver, great to have you on the program. is probably the best marketing person in this whole wide world. they're doing good. they are upping their forecast for the second time this year. that simple when the economy goes down and people know they can book with ryanair. is it true? >> if you look at the past down that invite them did mean that people tried to go to low-cost. , the rate atare which they were taking share increased. >> the world is changed. another example of a poor economic backdrop area i think they will be able to succeed. look at the traffic numbers they are showing. they were up 6% year on year. localk the evidence is carriers can take more share when times are tough and the more expensive carriers are having to restructure. >> how are they faring compared to easyjet? forget air france. easyjet is seen as a little bit more friendly. that is why it ryanair has had to play catch-up. >> they are trying to mimic easyjet's model. the network they are offering in the product they are offering and the kind of approach they are taking to revenue in terms opportunityup, the is to be able to imitate a lot of what easyjet has done. areas.ve copied a lot of they are holding their cost-based down and are offering lower fares than easyjet. at the end of the day, if you've but it islar service 20% less expensive, that is what they are aiming for. >> du think ryanair will be busy -- better than easyjet? >> not really. easyjet hase that produced the models that everybody wants to copy. i think it would take them many years to catch up with easyjet's brand offering. a biggeras got capacity in a primary airports. i think it will be a profitable strategy for ryanair. they are coming from behind. that is why you're seeing the shares up so much. muchve me a sense of how the low oil prices benefiting these companies. this is giving them a big boost. >> many of them are hedged. this, they almost lose out on the oil games. as we wind forward, their hedging forward to a time and they are looking at low rates. you would expect to see some feel benefit coming in toward next year. the euro is depreciating. it is not quite as simple to see an immediate benefit. >> are they adding enough routes? capacity bygrowing 11 or 12%. this is also about frequency on the same routes and this is a change. actually, at least half of the capacity they are putting in his offering more times a day. this is a proven thing to do. make sense because there is a market for that. you could open a new route and the airport could be away from where you want to reach. >> they are mimicking the easyjet strategy. you start off with limited frequency and then you increase the numbers of time a day you are offering the service. >> great to have you on the program. thank you for coming in. quick turn toa check. this what we are seeing on the markets. this is all about divergence in terms of the dollar rising. you can see 12494. this is on speculation that the federal reserve is moving toward raising interest rates at the same time. japan and european central bank is also of note. for china. they had a gauge this morning on services and that fell to a nine-month low in october. that may signal a slowdown. up next, what is under the hood? find out why mercedes is teaming up with tesla. back to the future fans, rejoice. flying cars could be a reality sooner than you think. ♪ >> the designations is warning about irreversible damage to the environment from fossil fuels. this the biggest ever study on climate change. the rest of floods, droughts, and species extinction increases. germany is turning against coal. anglo merkel has just published a paper laying the groundwork for much stricter stances on coal in europe. they will have additional supplies. the first mainstream electric car by mercedes has tesla tech under the hood. says it teamed up with tesla in order to avoid the high cost of production. back to the future fans take note. flying cars may sound like science fiction, but they are a step closer to reality. bird?it a is it a plane? it is a car. the flying roadster is the closest anyone has come to a vehicle made for road and the sky. it runs on petrol. it is about the same length as a luxury car. it hits 124 hours. it is no slouch. it has a range of 430 miles in the air. it can fly. traffic jams could still be a problem. flying roadster needs at least 200 meters of clear road to take off. regulations may stop this car from getting airborne in the u.s. and europe. the prototype could not fly in austria due to aviation rules. those behind it have identified china and australia as potential first markets. you can still only imagine owning the prototype, they hope to start manufacturing in the next couple of years. the estimated price is just over $280,000. >> cheap. you just need miles of strip to land on. this is the revolution that we are looking at. next, we look at how a new app puts planning in the hand of the modern traveler. this is the biggest ever ipo in the middle east. if -- a why not even fat walk and derail it. you can follow me on twitter. we can talk about flying cars. we have plenty of stories and we have coverage on "the pulse." ♪ >> welcome back to "the pulse your co we are in london. these the top headlines today. anglo merkel has voiced concern that the u.k. might leave the european union. theirs according to newspaper. the u.k. prime minister promises to hold a referendum if he is reelected next year. a former bank of america employee has appeared in a hong kong court charged with the murder of two women. they were found in a 31st floor apartment. e-mail reply said he was out of the office in definite and recommended contacting someone who is not an insane psychopath. engine ofors say the the virgin galactic spacecraft that crashed was intact. system may have been deployed early. the other was in seriously injured. the full investigation may take months. >> we are long way from finding cause. we have months and months of investigation to do. there is a lot we do not know. there are extensive data sources that we need to go through. let's check in with the markets. jonathan ferro has more. it is a packed day. >> there is a lot to talk about, francine. there are some losses across europe. if you look at this map, you can see a bright spot. is coming out with some solid numbers. they are lifting profit on the someer by 14%. that was performance by michael o'leary. stirling is up. that.ps just below manufacturing data it comes in. it is 53.2. if you look at the export orders index, that drops to 48.3. they are blaming a weaker europe. that is the only currency that is. the yen has taken another beating. the dollar is on a tear this morning. >> thank you so much. that is a good way of putting it. jonathan ferro has the very latest on the currency swings. tom keene joins us from new york with a preview. what we're looking at today are the midterm elections. >> a lot is going on. the conservative republicans are doing better than the liberal democrats. the president is a democrat. unusual.f that is we will have a lot more coverage on that. jan clifton will join us. we will talk about congress after the elections. we will have our coverage through the day and on to with allwith our show " the lip to midnight. today we will focus on the geopolitics of it all. we will talk about the four fronts of america's geopolitics. we are really looking forward to talking to dr. bremmer. carl weinberg will join us from high frequency economics. this is a very important interview. on thebeen out front many challenges that japan has. this will be our first chance to talk to dr. weinberg. history was made last friday. >> i am looking forward to the interviews. this is the first time we have heard anglo merkel say you are on your own if you start touching immigration and the free movement of labor. orderry kissinger's world and the last part of the 6:00 hour we will spend with dr. bremmer on the history and future for america and europe. merkel's front and center in that debate. >> thank you so much, tom. "surveillance" starts 25 minutes from now. our next guest is hoping to provide a nap. they help you book local holiday adventures from your mobile phone. co ome to "the pulse your this is not booking flights. this is giving you experience. the weighted we travel has dramatically changed over the last six or seven years. >> we started with this simple idea. when you are back from a holiday, you don't remember your flight. if you do, it is for the wrong reason. you might remove your hotel if it was very nice. you remember the things you did. there is no brand for that. of theseno booking third segments. it is a very fragmented market. it is difficult to put together all of the interesting things you can do all around the world. there is not a service that you can use today in london and next year in paris or peru. >> there is one question that we ask all of our smart guys that were contact. what's more important, a genius or an idea that may not be so genius but is executed to perfection? >> i think it's execution. i'm not saying that everyone will share that. to us, the key thing is that we were able to deliver on our promises. that was the crucial thing for us. we wanted to get the whole thing running and get the funding. >> what's more difficult? is getting funding the most difficult? that is a different journey. at the beginning, it was about showing a product which made sense. theas difficult to convince first experiences to come on the platform. the apple is nowhere to be seen. when we were able to convince supperers of the last that they could sell their guided visits on our app. that really gave us the initial credibility. nowadays, we are nine months down the line. it is about showing there is user engagement and the metrics. there is satisfaction at the experience we offer. see my travelt i changing over the last 10 years, you don't look at the same things. we are in a recession in europe. who are you targeting? >> not just a specific demographic. it is not just about youngsters read we have a lot of customers who are in their 50's. they want to take control of their experience. there are still travelers interested in getting a package tour. those who want to the can choose the best hotel for their likes, the best flights for their needs, and the best experiences. >> is there a company that is not operating your space that you could look at with admiration? mythere is a similarity in position with hotel tonight. they have a very curated approach to the things of they offer. they only give you a selection of hotels. differentive you 3000 tours of the vatican. we give you two tours that we trust. >> it is great to have you on the program. thank you for joining us. up, dublin's networking bonanza. island hopes that one of the most important tech events will put them on the map. ♪ >> welcome back. we are live from london on bloomberg television. let's head to the middle east publicis is the biggest offering in the world. they raised $6 billion in the ipo. we have more. it is really a line mac -- landmark sale. >> this is the biggest ever ipo in the middle east. from 2007.s dubai this is the second biggest ipo in the world this year. they have raised about one quarter of what alibaba raised. they do sit there in the number two position ahead of citizens. has had tremendous demand for shares. it was a slow process. so in about half the stock they were hoping to sell. the money that they needed. they could have sold about $58 billion worth of shares. that was 10 times more than they were looking for to begin with. they are up by about 1/5. the oil price drop has unnerved some investors. it seems to been a success. slighted byt be ncb. it all comes down to sharia law. birthplace of islam. some say that the assets do not comply with surreal law. -- sharia law. banks could charge interest and things like alcohol or gambling. ncb says that it is looking to sell $38 billion of assets that are non-sharia compliant. some analysts say that is easier said than done. everybody will be able to invest in it with a click. >> thank you so much. tech.talk thousands of people are gathering in dublin for the web summit. it is only biggest tech events in europe. joining me is the ceo of reputation.com. have you on the program. what is the next big thing? if i have been in the tech world for some time, what is the next big thing question is it wearable technology? is >>ething i haven't heard of? we saw last week the results from twitter. twitter is slowing down. it is not a mainstream product. newbet they placed is on a set called fabric. these are development tools. it is a set of developer tools that they think people will adopt. it will be the ad network for the app network. they are hoping to do dominate what google has done. toolsne will use their >> what does it mean for the consumer? >> i am looking at the summit for a lot of engineers are upset entrepreneurs and we are going to be a docking fabric or not question. when meets the consumer is not much. app developers have a hard time monetizing their apps in building apps. toric is the first attempt make that much easier. that is the next new thing in the gets of the internet that i'm edged in. >> that is not going to be a game changer. allow me to see if i like twitter or not. is apple pay a game changer? i think the qualification of , the stuff that fuel. the 90 what my activity level is. tells me how hard i am working at how much exercise i am getting. they are still clunky. they're not all that advance. once they start to get approved devices, yous -- are going to see an explosion of information that we get about ourselves. we will get a much better understanding of ourselves. that will lead to personalized health. we are not treating a woman, we are treating francine. had we tailor our medicine? benefit a lot.o >> i had one of those. i had to get rid of it. i was too embarrassed. i was not walking fast enough or working out enough. >> you were getting negative feedback about yourself. >> i tried a bunch. rex these are still very early days. measure more things than they can report. >> this is interesting. we talk about wearable technology and health. this will be for 10% of the population that was to get fit? can everybody start getting involved? as expensiveart and esoteric. eventually, you will hold a cup or glass and it will tell your health it will give you a glucose figure print. it will permeate to the vast majority of people in the developed world. the developing world is doing a lot of interesting things when it comes to health on the mobile phone. i think the markets are so unattractive to large cap and small-cap companies that they are focused on the developed world first. >> we often see the world in the latter sense. what is the next big thing in tech? tech,doesn't cut it in it's just not going to survive the next five or 10 years. we moving so fast that the situation, it is just not going to work out. i get a question. i cringe. what is your gravity strategy? digital is everything now. when the were signs for a company is having a chief digital officer. it's everywhere. everyone has to be the chief digital officer. digital has to be everywhere. what is happened in the last broad back ofe the economy is going online. uber isn't example of how the broad back of the economy works. travel is moving online. is an inevitable cloud of awesome coming. but, if you're not in that space, are you going to fail? if you're a big company and you're not on board, are you going to push off? >> you are going to have a huge disadvantage. off-line businesses like shipping. i can tell you it is a big disadvantage. large companies that are nimble do come on.hey ford is doing a great transition to the digital age. these are companies that are really using an innovating technology that brings the advantage of the internet to bear with businesses. customers, from your the ones that don't do that are going to use market share. >> you have a new book out. at enough i'm supposed to talk called "theit's reputation economy." this and i amread not sure i have a digital footprint, then i am toast? >> it's how to turn a big data into revenue. >> big data is the thing. >> this will teach and do that. >> think you. that was very comforting. we are back in just couple of minutes. ♪ >> let's bring in our middle east editor. the supreme court is getting in one of the most delicate issues. >> the issue is jerusalem. boy.lates to a 12-year-old he was born in 2002 in western jerusalem. he has two american parents. got their passport they were upset to see that it only said jerusalem instead of saying israel. there was a big fuss. congress said in that situation the parents want their children to say jerusalem, israel, that should be the case. the state department never enacted it. jerusalem for israel is an undivided capital. the eastern part of the city, the palestinians see as the future state capital. even meddling in something like beingas prevented from negotiations. the policy oft having no policy when it comes to jerusalem. >> thank you so much. pulse."it for "the keep it right here. "surveillance" is next. you can follow all of us on twitter. i will see you at the same time tomorrow. have a great afternoon. scramble to get out the vote as republicans argue how conservative their majority will be. the midterm elections are tomorrow. the dollar ranges higher, other currencies lower. cashless society. good morning, everyone. this is "bloomberg surveillance." i'm tom kean. -- tom keene. are from election. are down to one last day. anotherans may win seat to take control of the senate. , republicans are expected to expand their significant majority. turning to the crash of richard branson
spaceship. it disintegrated after a device to slow the spacecraft deployed prematurely. pilot error is a possibility. the copilot was killed. the pilot was seriously injured. known thatalways commercial space travel is an incredibly hard project. we have been undertaking a comprehensive test program for many years. safety has always been our number one priority. we do understand the risk involved. we will not push on blindly. to do so would be an insult to all those affected by this tragedy. to takeon hopes passengers above earth. >> a big takeover in the advertising business. the world's third-largest ad company has agreed to buy sapient. >> moving on -- >> the new york city marathon. 50,000 runners had to deal with wind. 30 miles per hour with the up to 50. the men's surge was won by a kenyan. the women's was won by another kenyan. >> it was freezing. it was cold. it was legitimately called. -- cold. you did not see a lot of pain and agony in central park. cold is better than hot, is my basic take. i trained this year. i was going to. there was a whisper of a moment, a glimmer where i considered it. [laughter] one marathoni ran in the cold and i would qualify for boston if i was 75. >> that's good. [laughter] let's do an extended data check. futures up a little bit today. the 10 year yield is turning. -- churning. it is in the currency market. on to the next screen. the vix showing massive complacency in rally on friday. the tao, re-acclimating. the yen -- dow, reacclimating. weaker. dramatically charts, if i can bring them up with my puny brain. gold is breaking down. gold at 1200. that is major, major support, that gold has broken through and is soggy this morning. >> the first back-to-back monthly decline. >> this is the yield. we are better. we are higher-yielding relative to japan. you can see they are grinding lower. this is the attention in europe, as well. as germany rolls over. >> diverging monetary paths. >> there it is. let's focus on that right now. we have two phenomenal guests for you this morning. the dollar surges. gold cannot find a bid under 1200. oil, 80.00. call it one big distortion. carl weinberg joins us. william lee joins us. we are thrilled to have lee and weinberg with us. we will talk japan in a minute. why is it taking so long to readjust? the market readjusting on friday. will we really just further today? >> i think it is a one-shot pop in japan. the biggest pension fund and the company said they were increasing their allocation to 12.5% of their $1.5 trillion portfolio. let's hold both of you into the conversation. gives draghiapan cover to go to the bundesbank. >> we have been saying that we need more stimulus. monetary policy can only do so much. it buys time. it buys time for structural policies. there is nothing left to do. care what thelly ecb does right now. tool.ry policy is not the they need fiscal and structural changes, they need to recapitalize the banks. >> amen. the twomy slow clap for of you. you cannot fix it with monetary policy. [laughter] effect of is not the monetary policy. i see long-term decline based on assumptions about lack of investment, lack of stimulus. melees.tural malays -- it is slow growth. we cannot get rid of it because it takes something much more fundamental. >> when you see oil done to a low 80.00, is that reinforcing >>? >>that is a reflection of the lack of demand. you look at this, the president meets with janet yellen this morning. what perfect timing. >> the first one-on-one meeting. >> what is that about? monetary policy is supposed to be independent. what is sad about this is that we have not coordinated fiscal policy to support monetary policy. >> yes, but we are in better shape. >> great shape compared to europe. >> are we removed from these debates in europe and japan? >> we think that the u.s. economy is more than strong enough to continue to grow despite the headwinds from europe and japan. the drop in oil prices and domestic gasoline prices adds more to the u.s. economy. thember, europe is not whole world, and neither is japan. there were much bigger economies out there, like china, which at 18 million new cars per year, new demand for oil. it is hard to be bearish on oil prices for more than the very short term. energy, int oil, china, it is big, big, big. 18 million cars per year is more than japan makes, more than we wake -- make. we think that every $10 per barrel off of oil takes -- adds one or 2/10 of a percent to u.s. gdp. >> those are the same numbers we come up with. >> can we get them off set, they both agree with each other? [laughter] our imports are a contribution to spending. about a quarter of a percent. >>'s monetary policy ever divorced from actual politics? >> no. >> right now, we need to make don't start financing governments with monetary policy. that is a big no-no. >> is the game theory changed with the bank of japan? janet yellen has fewer degrees of freedom to play with because of this historic action. think bank of japan is really on a track by itself and i analyze them completely independently from the other two central banks of the world. their job is to keep the yield flat. i think they are increasing quantitative easing to offset a change in strategy by the government pension fund, the largest investor. they are reducing holdings of bonds and the amount that the bank of japan increased-- >> is to keep the yields where they are. >> this is very much politics in line. >> weinberg and lee to get you started. we will look a geopolitics in our next hour. 7:00remmer, the entire hour. our twitter question of the day. what is the biggest geopolitical risk to financial markets? that is the question to get your november going. stay with us. our election coverage tomorrow. it is "bloomberg surveillance." good morning. ♪ elections are upon us. there is the beautiful capital. some assembly required. which state are you most focused on? >> from iowa to louisiana, there are a number of them. we want to check in with our white house correspondent, who checks in with us about our most watched races. the momentum seems to go in the republican favor. republicans are on the verge of a route. is that the deal? >> i do think anybody is willing to go all in, but republicans have the momentum, there was a ton of pulling that came out that in just about every state they needed, they are in a great position. harry reid had a conference call saying iowa is a must win if he wants to maintain the majority. a poll came out and the des moines register that showed joni up, up seven points right now. that is a huge deal. as you move south at little bit, you have two seats the democrats need to pick up if they want to try to defend their majority, kentucky held by mitch mcconnell , georgia which is now an open seat. both of them without his potential areas were democrats could make drug rest -- progress . both polls are looking bad in both states. , there are aort lot of pathways for republicans to get the senate majority, very few for democrats to hold it. >> sobering. it kind of looks like the republicans are not just going to get there, but they are found to be on 50. the most likely distribution is a 52-53 seats. >> i think that is fair. good harbinger to watch is new hampshire, where democrats would never thought they would have had to be dumping billions to jeanne shaheen. if is down, there is a good maybe they get to 54 is a possibility. >> when you look at this, the washington post shows that this is not unusual. i want you to tell me what happens wednesday morning. -- thethrough the it elections, what kind of government will we have on wednesday morning? >> it is a great question. it is one the republicans are trying to figure out. that was a lot of concern if republicans hold both chambers of congress, they want to show they can govern. everything,ght veto but they actually want to send something to his desk. it is a big open question. ask john boehner what a dislike to have control of a chamber. it does not make things easy. it will not make things any easier because of ted cruz and rand paul. we have a couple weeks right after the election where they are going to have to pass funding bills for the government , pass a bunch of things in the lame-duck. how that is operated is going to be interesting to watch. has been miaent for a couple of key senate races. he has been showing up for the governor races. is he moving the needle for those? he has been hitting a couple of these governor races. to getll about trying out constituencies that are still supportive of him. that is not a lot of people left. but there are people in blue states where he has been going, and connecticut, wisconsin, maine, places like that. want to win these governor's seats and they need african-americans and hispanics to come out. that is to the president is targeting. this is one of the few areas where he feels like he can have an impact and that is why they sent him in. >> thank you for giving us the lay of the land. >> you were talking about malays earlier.- malaise republicans are going to have a to do list. what is your to do list for them? my to do list is high structural deficit, high public debt. processen political prevents us from forming the coalition we need from getting politics in place. two years from now is when the problems are really going to hit. any level ofve confidence that the broken political process can be fixed? >> it is a global problem. the voice of the people has gotten so loud. politics and power cannot get it together. >> do you agree with that? are not being driven by conviction anymore. they are driven by reelection and the polls. that leads to bad solutions everywhere, particularly acute when it happens in the u.s. congress. >> the views have been so polarized that the polls are making it difficult to form the coalitions. >> it omar sounds like somebody needs to leave. [laughter] >> imagine that. forbid.n for bed -- "with all due respect." extended coverage here at the midnight hour. look at that at the midnight hour tuesday evening. stay with us. it is "bloomberg surveillance." good morning. ♪ >> good morning, everyone. city's one world trade center. new york continues a strong recovery, particularly downtown manhattan. we say congratulations to condé nast to changing the landscape of downtown manhattan. that is a single achievement for all of new york city. the architects, the politicians, everybody. >> i can't wait for that to not be a big deal. i can't wait for that to be normal. god, i am sore. >> you were running a marathon last night. [laughter] tom did have a late surge on sunday. [laughter] >> this has to do with the new mediocre. economy is slow, individuals and businesses tend to play it safe. her point being that there is no corporate leadership, no individual leadership, no political leadership because some things are getting better, other things are falling back, no one is taking risk. >> it period of low growth. it is easy to have amazing, fantastic ideas when everyone is in the market. i was surprised that somebody was able to described the way i dressed. it is definitely called normcore. it effectively means dressing and bland and generic clothes. >> when you hear this talk about no corporate, political leadership because times are not bad that anot so jolt anybody to any kind of impetus, does it strike as familiar? >> it scares us because all of these relationships we are and have areas of growth. are we going to get the investment? will we get the relationships we have in the past? >> is there any country out there that is in a position to take a bold step? >> china is redefining their norm. the kind of reforms with urbanization are absolutely key. >> that is something that ian bremmer will speak on. >> absolutely. he will join us in the next hour. lots coming up. here is our twitter question. what is the biggest geopolitical risk to your financial markets? we have been thrilled at your many responses. futures and doubt futures are negative. stay with us. ♪ >> good morning, everyone. "bloomberg surveillance." of the weekend. already some sharp analysis out about putin. -- publicis. they are taking over sapient. wpp martin sorrell of calling at the rebound transaction. competitor.e is a publicistail is that already gets 50% of its revenue from digital. i found it interesting that have already crossed that threshold. the second. sir martin sorrell -- if this world's biggest advertising agency? sapient in and field to $7 billion cash in a for $3.7n a deal billion. i cannot say how much the bank the bank-- enough how of japan stunned markets with their decision. the japanese economic experiment is a failure and fridays experiment won't fix it. you are one of the great voices and it. how desperate is mr. abe? to deliverying inflation that he cannot possibly deliver. quantitative easing cannot change things. >> i look at the relationship of napanese yen to the korean yua and it breaks out to new korean strength. that is not good for hyundai, is it? >> no, it is not. japanese exporters become a little but more competitive. but japan is not the biggest now.ter right they're using workforce, they are losing technology. they are not investing. are we in the midst of a currency and trade war to come in asia. >> i think they view the cheaper yen as a solution to their problems. i think that is a failing solution. depreciation buys you time to get things in order. but it has a temporary effect. you have the trading sector and the domestic economy that is mired in a lot of problems. have -- areroblems there. e does not have the political influence to put through the reforms that he needs. >> exports are going down. it is not a bifurcated economy. the whole economy is in the trashcan. >> we are hearing that the problems are cultural. there arephemism for not enough women in the workforce and there never will be and the japanese are not big on immigration. there's nothing wrong with the japanese economy that immigration can't solve, i'm going to throw that into the quote of the day. >> if you do not solve immigration, the economy cannot grow. extrapolational is that the economy is going to get worse until something breaks. this is japan versus korea. the red box is the asian crisis. of 1997. look at the strength of last month. korea, china, taiwan, singapore. goingis something that is to shift the power calculus in east asia. i want to get to your thoughts on china. you have been pushing back against larry summers, who says that china will never to the norms. >> he is talking about the wrong norms. china is experiencing monetization. when iteat for them happens. a small fraction of the world has actually benefited from modernization. they have to revert to a norm that is not applicable, that is just wrong. they're moving 20 million people per year from the farms to the city and every times that happens productivity goes up. >> i want you to bring us back to the united states. u.s., we face similar problems. we have to get productivity up, we have to reallocate resources. china is trying to shift to consumers. the u.s. needs to shift to a smart source economy. will hold a summit. what kind of efforts can you expect to move into modernization? china is going twice as fast as the u.s. is right now. i don't think they have to explain a lot. they have a reform program in place that fits a lot of the deficiencies. they are growing at 7%. one that is disappointing, it is to pretty great by world standards. >> there is this word pivot. everybody is pivoting. we are pivoting in asia. >> we don't really pivot. we kind of purulent. irouette. i think you are disagreeing with larry summers, which i heartily applaud. >> was that an editorial comment? [laughter] >> all growth eventually slows. eventually the process does end. >> i'm disagreeing on fundamental approach to why china is growing. they moved 20 million people front farms to the city last year and the your before and the your before that. the pace of migration is actually picking up. you have to build 20 million housing units. 20 million dining room tables and chairs. they need other things for urban life. >> urbanization is key for growth. the population is really topping out, but they have moved people in a way to work more productively. that is the key to their future. are six entered 50 million people on the farms. this modernization has a long peoplego -- 650 million on the farms. this modernization has a long way to go. it is happening every minute of every day. how china hear about is losing the one child policy? are you going to have a child where there is not a clear sense of where career is? they do not have a market to allocate resources. i would not be having kids in china right now. >> a fabulous discussion right here. we will talk about this with ian bremmer in our next hour. >> when we return, our single best chart about education. this is ""bloomberg surveillance." ♪ >> this is "bloomberg surveillance." it is time for single best chart. higher education is one of the biggest. the haves versus the have-nots. credit to gary laneger. through 2000 12, inflation-adjusted wages increased 23% for those with a bachelors degree. real wages fell 9% for those with no college degree. >> it is not a solution for the entire economy. >> it is no longer the union .ard it used to be you have to be able to define the right skills. >> that is a scary thing, an apprenticeship in economics. >> we are going to take a look at a political apprenticeship. we all sit at the knee of bill clinton. , whose namee braley the obamas mispronounced when they were out there campaigning. bill clinton knows how it is done. this is an outfit for the clintons granddaughter. >> lookout thrilled he is. >> he is thrilled to be alive. he is thrilled to be bill clinton. i will tell you all you need to know about this election. this event was a barbecue being held in waterloo, iowa. that is what it is looking like for the democrats. wallenda.ik a daredevil walking a tightrope in downtown chicago. he broke two records. one for the steepest tightrope walk. >> this is in chicago? >> yes. >> and the highest blindfolded walk. 700 feet above street level. >> there is no safety net there. i'm counting down between when tom says keynesian and blindfolded. >> the cover of "bloomberg businessweek." >> we are still on chicago. you kidding? he has a go pro on his head? wouldn't you want to capture it? he is blindfolded. how does he do that? >> the wind was blowing 25 miles per hour when it had them. surprised they didn't put the blinking sneakers on him. >> are you kidding me? >> his father died attempting the same feet. >> does he become manager of the chicago cubs if he does this? in thisyou missed morning's story meeting at 5:00 a.m. was the side of tom keene , the nick will end the -- wallenda of donut consumption. our photo of the day is sitting on the desk. this is not a grown-up --cronut. this is a croissant doughnut. gentlemen, would you like one of the croissant doughnuts that tom has not eaten? >> i'm on a low-carb diet. >> keep them coming. >> what we are hearing from the control room is that we need to hold onto some of them for the producers. >> i have your cronuts right here. >> these are different from the cronut cronuts. >> because i never had two hours right in line. >> ether $3.50 of these. >> brings them over here. of that is a doughnut of substance. innovation?e is no [laughter] >> futures coming up. >> mediocrity? ♪ >> good morning, everyone. markets on the move. ian bremmer will join us in our next hour on bloomberg television. we say good monday morning to you. this is "bloomberg surveillance." everything and gold cells. >> i moved all of the gold out of my house this weekend. >> i did, too. kugeransgar ran's -- have been pesky. why are the swedes always so much cooler than we are? [laughter] greaty have a lot of internet apps. people have been saying we don't need cash, we can use credit and debit cards. >> described the market for mobile payments in sweden. >> you have a couple of different options. the major cell companies have banded together. six of the largest banks have come together. here is an immediate transaction that will allow me to give you money right here, right now. that?you buy >> i was in stockholm two weeks ago and my american express car would not work. what are the americans doing wrong? what do we need to do to catch up? charges an express very high fee overseas. >> it just wouldn't work in places like a taxicab. i am sitting there, swiping and swiping and swiping. >> are they hipper rent go into it quicker? >> not particularly. there is a democratic -- demographic difference. young people are growing up without any cash at all. see anything that can compete with apple pay? >> one of the companies that is the square of europe. one company is called seamless. .hey are all over europe they are in 30 different countries. they have half a million locations. >> how many different payment systems are competing? >> one of the people in charge of deciding how transactions , all of these things are going to come together and the best services will win out. >> this is one of the big vulnerabilities. what is interesting in sweden is that the banks did very well out of the 2008 crash. a lot but people have more faith in the banks. told us money would come out of a machine in a bank called an atm. [laughter] this is like ancient history. the first iteration of it did not work. i waited for my iphone and i walked around all weekend and i could not use it once. i tried at the grocery store, i tried at the sandwich place, i tried at the tractor supply. [laughter] all these great places. i waited on this thing for a month. the vendors did not have the appropriate -- >> they did not have the right year. youo you have video of attempting to pay at a tractor supply store? >> i have a collection of feed store cap's. >> we can talk about it after. [laughter] >> do you have chickens? >> no, i grew up with horses. >> i have 17 chickens. do you need any eggs? this is the barter system, the barter economy. this goes to hr this weekend. -- a chart this weekend. >> absolutely. you can pay for your bus ticket with the same device as mcdonald's. >> thank you so much. let's wrap up our our. -- hour. what the talk about geopolitics mean for the u.s. economy. >> we get back to the global economy. the global share has doubled. >> 30%? >> 30%. >> i did not know that. >> it is amazing. the exchange rate matters. >> where on the euro does the effectiveness click in? strong have a weak euro, dollar, when does it begin to hurt? >> when you look at all the rest of the trade shares, the difference of the interest rates , they can only knockoff half. >> you wonder if it is a strong dollar policy. it is hard to say that this is all about currency depreciation. vulnerable now than ever before. that is the message the fed gave. the fed was worried about weakness abroad because we are now more vulnerable and more exposed. >> at the end of the day, the stuff we import from abroad is very small in terms of the individual consumers. consumerbout expenditure and they are services and they are made here. >> that is all domestically produced lu vetted apps. >> william lee, thank you very much. don't give my kids any ideas. [laughter] carl weinberg. thank you. how about the forex report. stay with us. ♪ >> this is bloomberg "surveillance." >> democrats scramble to get out the vote and republicans argue. the midterm elections are tomorrow. the dollar region is higher. how will janet yellen react to the bank of japan? ian bremmer joins us on measuring risk and uncertainty for the transnational business. good morning, this is bloomberg "surveillance." york.rom new monday, november third. i'm tom keene. joining me, scarlet fu and brendan greeley. >> republicans are counting on momentum. democrats are hoping a get out be vote effort will salvation. americans vote tomorrow. there will not be drama in the house. republicans expected to expand their majority. in the senate, the gop needs a net gain of 6 seeds. races are going down to the wire. republicans are trying to capitalize on obama's low approval rating. branson'sd richard spaceship to crash? say pilot error is a possibility. the station disintegrated after a device that slows to sent was deployed prematurely. friday in california's mojave desert. the pilot was seriously injured and the copilot was killed. richard branson spoke about the accident. >> commercial space travel as a high project. we are undertaking a testing program for many years. safety has been our number one priority. >> richard branson plans to charge $250,000 for journeys more than 60 miles above earth. >> key third-largest advertising company expanding in the u.s. publicis will buy sapien for $300 billion. sapient is based in boston. it will give publicis a bigger hold and digital advertising. cis give up on a merger with another company. half of itsmakes revenue and digital. the story of the new york city an hour, wind 30 miles through the race. gusts up to 50 miles an hour. tennyan won in 2 hours, minutes. another kenyan. she finished twice before at third in new york. >> i did not run this year, sorry. a data check. dow about 17, -- dow about 17,000. 96.o-dollar 1.248 >> tom keene only runs when someone is taking away his donuts. >> i'm in training! >> you started by having a donut croissant. radio, we will have a chart on the number of done it i have consumed. >> all right. day, politicians fighting to win a seat in congress. we will check in with phil mattingly. the most-watched races. clinton, the former president, showed up to help campaign for bruce braley. president obama in sight in the key senate races. >> bill clinton has been the number one surrogate that every close senate democrat once. bruce braley needs help. poll,s moines register the most respected and the state, coming out on the senate race. 51.44, outsidep the margin of error and a big lead. forekend at that post democrats. a democratic operative i spoke to said this is like where republicans were in 2012 in the presidential race. mitt romney had a narrow path to win. obama had a town of different ways to win. it is reversed now. republicans have a ton of ways to win the majority in the senate and democrats is narrow. iowa is a state they need. trying to pick up a republican seat in kentucky or georgia. forh mcconnell is up reelection. starting to pull away from alison lundergan grimes. open seatorgia, an with a republican lawmaker. givinge nunn, democrats a lot of enthusiasm, starting to fall behind to david perdue. people have options been looking out for a pathway forward for democrats look like they are starting to close. >> a week ago this was so much closer. 'sat i assume you do in d.c. stand in bars and have drinks with smart people. does anyone have a theory on why the polls take towards republican in the last week? >> republicans have then waiting for this. people point to the 2006 model where things stayed close up weeks until the election day. these races are not very far apart. the polls look good this weekend for republicans. without question, the mood looks good for republicans. the big question everybody has, democrats operate on the ground that are than the other party. can turn out, it might have an impact. the races are not that far apart but they are trending that way. >> phil mattingly in washington. days ofg our two coverage. tomorrow night, "with all due 5:00 p.m. on bloomberg television and radio. everything we can, pol lsters. republicans and democrats scrambling. ian bremmer axes it to the prism of our foreign policy. a lame-duck president and possibly a lame-duck democratic party. how do elections change our foreign policy debate? >> it makes it unlikely you are going to have a consistent message coming out of the u.s. bey little push for obama to accepted internationally. he's been reacted to all sorts of conflicts. headlines in every region of the world. if you look at the republican side it is not as if there has been a coherent "no, do this instead." >> what is the history of a two-term presidency with new people involved? could we see secretary kerry exit? he's likes the job and working very hard. i would be surprised. everyone and their mother is starting to circulate cv's. those people are starting to get picked up. >> when you hire -- would you hire john kerry? >> no. that is purely a question of partisanship here he will be hired by all sorts of people. very closeeady been to a small number of people who are dealing with too many issues on their plate. that will get worse over the next two years. that's the problem. >> do you see any international issues that matter domestically? are we all looking at minimum wage? >> of course, there are lots of them. i would love to see the transpacific partnership done. >> you what. >> because it will matter for the u.s. economy. thatact that we can say does not mean it resonates for the american population. the u.s. population overwhelmingly wants the u.s. to do less. even the fight on isis. everyone said we have got to bomb because they decapitated two american citizens. when you look at turkey, which finally decided they would start , if you are an american citizen, wait a second. this affects them more. they are doing how little and we should engage why? that is the discussion around in our tables in america. >> who in washington understands how to cross that divide? >> nobody once too. look at where the american market is. explain what is the economic imperative. in a way that the europeans have downside impact on every single geopolitical risk, they are the ones taking on the chips. going to die because there is not that impetus? >> obama did call prime minister abe in japan last week and said this is a priority for me. they put a lot of effort into it. it is one of the few big wins for policy wise available for obama. the other is the iran negotiation. no one has talked about the sia is the parta of the world obama will have done the best with. he has to restart the pivot. tpp didn't die. american troops over there. our relations with our allies in asia -- >> to get this started, what is the american order? henry kissinger's book, "the world order." the this order, the that order. >> the u.s. does not know what it wants to do and the rest of the world. it is not having much of an effect on us to play less of a roll and kick the can down the road. the cleanest dirty shirt you economically, we are the cleanest. >> we will be right back. ian bremmer's twitter question of the day. what is the biggest geopolitical risk to financial markets? tweet us @bsurveillance. ♪ >> we are focusing on geopolitical crises with ian bremmer of eurasia group. he's identified 4 crises set to rattle the global economy. it is the topic of his cover story "nowhere to hide." we focus on one of them, russia. russia's conflict with the west. russia and the ukraine. russia and desperation because oil prices continue to decline. everything it does is tilted towards that. >> you look at the russians today and you do not get a sense of desperation. you get a sense of antagonism. >> to compensate? >> i do not want to talk about putin's compensation. that is a different field of study. anyone who might have believed -- that 10crease is increases in sanctions would lead to an iota of different behavior from president putin has been mistaken. inin supported the elections a separatist region in ukraine, which the ukrainians and nato and the eu, the americans oppose. the separatists did win. the ukrainians say there is a large number of russian troops in southeast ukraine. this is only escalating. >> i want to read something you wrote about russia. "russia becomes weaker as putin 's hold on power becomes more tenuous, russian foreign policy will become more unpredictable." you use the word "rogue state." >> is being perceived as a rogue state. the u.s. is saying we cannot do business with these guys. they are becoming a pariah from the american perspective but not the international perspective. the number of times i've seen about the international community supporting ukraine, that is only true if your definition of the international community does not include an emerging market. the brics are doing more with russia commercially. takes it personally. a lot of the sanctions have gone .fter his friends they feel -- he feels like americans want to undermine him. russians to the cyber attacks against the white house, icy putin reacting personally. >> is there going to be a book about vladimir the great? >> there will be many. >> it will include him posing with a jaguar. our twitter question of the day. what is the biggest geopolitical risk to financial markets. @bsurveillance. stay with us. ♪ >> good morning. bloomberg "surveillance." lawsky, new york superintendent for financial services. staring up -- stirring up so much in new york city. with noon, a conversation erik schatzker. upon us.lection dawns obamacare, dodd-frank, the pentagon. the issues for a presumed republican held in 2015. a presidential 2016. congress and the president will have to decide if they are going to legislate next year. no one better to speak to them getting a confident -- no one better to speak to then daniel clifton. what will be the relationship of republicans to the democratic president? >> some things could get done. 8-iron will have to get set early by the president and congress. the president might have to try to jam through his attorney general pick in the lame-duck segment of congress. talking about doing something on immigration by executive order. that could set a negative tone. look at some of the issues on the table. the transpacific partnership. republican support that and president obama is trying to get this done. the details are a little messy. >> let's say the talent gets set by a senate mix. ted cruz on the cover of "the washington post." the senate we know or a different senate dovetailed with house.like >> you have two different kinds of republicans. a new class you are very conservative. you have many republican states that won in president obama won in 2012. from pennsylvania and the senator from ohio will be looking to cut deals. maybe on highways, energy, and taxes. this is about where the leadership of the republican party is. the republican leadership in the house are talking about doing morees and getting domestic pipeline spill in the u.s. speeding up the process for drug and medical device approval to make americans more healthy. it is a very moderate conservative agenda. not the ted cruz agenda that many conservatives are going to say. >> i want to stick with energy. you wrote in your report, "coal is dying a fast death. this will continue. republicans will only slow the pace." all the conversation in kentucky about coal, it does not really matter? you are aers if coworker in kentucky or ohio. they were told they were not going to lose their job and are losing their jobs. the president is going to fight for a mission changes. the president is going to try to do a global climate change yield for the un. he's going to try to bypass congress. the president is afford on that agenda. whether the republicans can slow the rolls down will be determined through the budget process. industry is trying to slow it down and hope a republican wins the presidency in 2016. staying with energy. you see changes in crude oil export ban. which companies stand to benefit from that decision is it comes? >> energy is the greatest beneficiary of a republican taking over the senate. i do not believe the republicans are going to change the crude oil x van. -- the crude oil export ban. the companies are the enp producers who have taken a hit with the lower price of oil. this will get them deeper into foreign markets. >> ian bremmer is here. does opec care? >> opec is taking seriously the energy revolution in the u.s. >> which is furthered by a republican senate and house. >> do they really believe that? only a little at most. i think the united states is moving towards wanting to export oil. >> a question for both of you. what is your ticket price on oil where it becomes really interesting? $78, $75? >> my team says we are not going to hit it. the iran deal does not happen and libya is falling apart. that is as low as were going to get. >> dan, what is the lower-priced -- dan, what is the oil price that matters? >> i don't think we're going to hit it. $70 is what they spent telling us in washington. >> the president will be a lame-duck president on wednesday morning. find?egacy issues will he legacy issues -- the affordable care act, emigration, and climate change. he's talking about using an executive order for climate change and immigration. the president has had two chances to come to the republicans and say let's do deals. the beginning of 2009 and the beginning of 2013. he chose not to do it. that's the choice facing the president if the republicans take over the senate. do we do a deal on highways are taxes? that could be his legacy. if not, it will be hard for the democrats to run in 2016 if his numbers stay in the 40% range. >> what is your confidence the republicans will decide to get something done? >> i think you will get two or three things done. the domestic pipeline will be hard to reject if you start seeing natural gas prices go higher during the winter. the fda issues are important. two or three issues. in washington. when the polls start to close, we start with bloomberg politics. startingoss the u.s. at seven got eastern and going all night. it is an all nighter. bloomberg "surveillance," good morning. ♪ is bloomberg "surveillance." i'm scarlet fu. let's get you top headlines. quarantine says her in new jersey was politics and not silence. the nurse who was quarantined after treating ebola patients in africa. kaci hickox has not shown any symptoms of ebola and she is at home in maine. ukraine's government says elections held by pro-russian factions as a threat to the peace process. abels organized in donetsk week after boycotting national elections. eu u.n. estimates that fighting in ukraine has claimed 4000 lives. ages bc lower than estimated income. income rose 4.6 billion. the bank made provision towards a currency trading investigation . that is a year top headlines. >> this matters to ian bremmer of eurasia group. the bank of japan and their action on friday reverberates worldwide. oil south. equity markets have a bid. nowhere is the effect greater than asia. book, what will be the asian order? >> looks pretty good. you do not have global leadership that you have leadership in asia. india, japan, china, even indonesia. leaders who are quite charismatic. they are prioritizing domestic transformation. even though there is nationalism they want a stable environment. that is good for the market. it is the one place where the geopolitical headlines should recede. people remember the 20th century. how much baggage can be new leaders carry of an asia of 1970, 1940, 1920. the nationalism is there. china is only getting bigger. they are capable of squeezing countries. if you are vietnam, very little solace. if we see that any of these leaders have serious problems at home and it is not going to be smooth sailing ever the long-term, china is the question mark, life is going to get ugly. nationalism and the jostling when the u.s. is not as secure. that will emerge. in a world that is really exploding through the geopolitical turmoil, asia looks pretty good. >> you wrote a review of the kissinger book. what he talks about more than anything is the american-chinese relationship. where is that right now? >> he's very negative long-term about the u.s.-china relationship. he believes geopolitics -- >> he is nostalgic. >> kissinger gets russia right because russia has not changed at all. kissinger on china, his one blind spot is that the younger chinese really do engage with the world economically. they are getting wealthier and they are going to want more rule of law. not because they support the u.s. that because it helps them domestically. >> do they coalesce with korea to engage with japan? if japan uses economics as a weapon. japan-uestion that the china relationship is key. the japanese are moving south korea closer towards beijing. abe has done everything to try to get a direct bilateral meeting with xi jinping. >> what is the likelihood of a reunified korean peninsula? >> over the long-term it is almost 100%. the question is how stabilizing -- the question is how destabilizing is the process. south korean president park makes it sound wonderful. the interim process is going to be incredibly messy and potentially dangerous. >> when does your new book come out? >> may. >> what is the theme? tulane football? >> you and i will be talking about it. >> ian bremmer. >> data check, dollar strengthening to an almost seven-year high versus the japanese yen. u.s. futures lower. s&p futures off by three. the 10 year yield comes down. euro-dollar at 1.2499. manufacturing comes out at 10 a clock a.m.. construction spending for september due out at got a.m. this -- at 10:00 a.m. this is bloomberg "surveillance." >> this is bloomberg "surveillance." i am brendan greeley. i am a graduate of tulane like ian bremmer. insurers are boring. they think about risk. when they are ready to name a price, they think about it again. mike is an insurer. he says the industry needs to get less boring. let's move the on industrial accidents, what are the industry is failing to price? >> there are several. you make a good point. insurers are slow to move. technology is the space ways moved the least. if you think about how much the economy is dependent on debts as posted to -- oin bits is atoms -- bits as opposed to atoms. >> why would you get into cyper -- cyber risk. >> if we fail to an event, we are going to be dismissed. more breaches that businesses have not factored into their accounting. >> that is only one piece. the other piece is does location within business when their own systems fail. self-inflicted? >> it could be external that causes it but you are losing the ability to perform. and the economy is slowing down. we need projects in a range of spaces. thene of the stories in last five years or so is not insurers getting into this risk of hedge funds buying insurers. you have pension funds buying catastrophe bonds. do they understand these risks? you been doing this for a while. >> i'm not sure they do. but those are the spaces where there is modeling that is done best. the pension funds and the hedge saying we trust these models and we are willing to take risk. if you have been in the business you are going these models are not that good. when wed we get scared hear "so we trust these models." >> the alternative investment scenario, 1% bonds, they do not have the room to play anywhere else. >> is there too much faith in the data? >> yes. >> where is big data failing? >> the data set for hurricanes is not that great. we try to forecast the future. climate change will make the models was reliable. >> you just bought in agriculture insurer. that is a huge risk. >> is quite a profitable business. it is a unique play. it is very different. business hasrance been tough. out of politics. when does the industry in bermuda normalized so you are having? >> reinsurers have been doing well. we're getting the nontraditional capital and its hollowing out the profits. a very difficult sector for the next -- >> everybody thinks you are having cocktails in bermuda. you are not. with you.e this is a difficult business. the trouble with insurance is rate of change. we're looking backwards to predict what happens. the rate of change gets faster and it gets more difficult. >> a "surveillance" break-sclusive. another industry down as we are, looking back as we look forward. space.geopolitical it takes you years to put it together. is that a space we can see real innovation? a real opportunity. that is where more risk is. products, we have a whole division of our company that is about new products for that space. we think there's great opportunity. >> mike mcgavick with xl. the twitter question this morning. we will ask ian bremmer. what is the biggest geopolitical risk to your financial markets? that's @bsurveillance. no charge for that. stay with us. ♪ >> this is bloomberg "surveillance." we are asking ian bremmer if john kerry retires -- tom keene will never retire. >> the level of ambition on this table. >> we're not retiring. not requiring. john kerry is not retiring. he sat down with al hunt. take a look. >> we are working on the measures that need to be taken in concert with many other countries to close down avenues for banking, for transfers, to largefy people who are donors and to block that. also to identify the means by which they are collecting money largerler sums from numbers of people. all of these avenues are being pursued. >> in regards to funding for the islamic state. said to have killed more than 300 members. >> eric schmidt on the cover of "the new york times." ian bremmer, this article click have been written 10 years ago. finding somebody in iraq to go after somebody else. that has worked out before. they've been so reluctant. it's not as if the u.s. has any partners it can rely on on the isund in syria and iraq it the kurds. u.s. policy against isis, given the alternatives, has been reasonable. >> what has eurasia group learned in the last four weeks? what is the understanding of all the conversations? >> they're are going to have a hard time being different than other terrorist organizations. they have institutionalized themselves. that means a lot of cost. that means guarding territory. it means meeting to be strategic and they are not. months ork ahead six 12 months, this is a horrible organization that causes damage and is killing a lot of folks. i do not believe that they actually are going to be a state for very long. >> i like the idea that they are not strategic. you said we are doing the best job with ices that we could be doing given the options. what that implies is that we do not have that many options. do we delude ourselves in thinking we have more pull in the world? >> i think we have a lot of options if we wanted to put skin in the game but we do not. when obama said we do not have a strategy, i thought that was smart. a teamwant to put together, it behooves you not to say what the strategy is until you talk to the team. b monarchiesgulf ara that are running bombing runs with us. when we start screwing up, it is as a group -- that is fantastic. we do not want to own this. with all the problems, we do not want to own this. we had an environment that we do f, that islot o something americans will find more sustainable. >> one of the 4 crises ian bremmer has identified as what is going to hit the global economy. >> thank you for the responses so far. what is the biggest geopolitical risk to financial markets? @bsurveillance good morning. ♪ >> please, he says. short must read. as we look to election day, he will join us. 7:30 on radio and television. he does not by the happy talk coming out of the parties. all he sees is confrontation. tomorrow, bloomberg politics. and mark heilemann halperin starting at 7:00 eastern. that goes all night. looking forward to that. let's go to our top headlines. federal investigators say richard branson's spatial disintegrated after a device meant to slow its dissent was prematurely. the copilot was killed and the pilot was injured. investigators say it will take months to come up with a final cause. the national football league record for ben roethlisberger touchdowns12 over his last two games. the performance came a week against the up 6 indianapolis colts. a takeover in the advertising business. will buy sapient. publicis gave up on a proposed $35 billion merger with omnicom earlier this year. there's a your top headlines. conversation to get your november going on our geopolitical mess. g-zero coming g7, a world. the post-world war ii relationship of europe and america. think the charter of 1941. is threatened according to ian bremmer of eurasia group. kissinger out with "world order." we wax nostalgic about roosevelt and churchill. it is ancient history. what will be the new trans-atlantic order? the transgenic relationship has been the absolute bedrock of the world order -- the transatlantic relationship has been the absolute bedrock of the world order since world war ii. it is deteriorating. russia are isis and exposing weaknesses in nato. >> we talk about china growing faster than america. we look like a growth machine compared to europe. is there a bigger picture? >> it is also about the fact that the germans are the leaders of europe. and their relationship with the u.s. is very strained. they looked at the world very differently. when you look at china, germany sees a bilateral commercial relationship. you have the snowden issues, what is perceived as american unilateralism on sanctions against european banks and drone use. u.s. relations with a german led europe. >> it comes to focus with the ecb meeting this week. >> that thursday. does the rest of europe need to be more like germany or does it bendinate need to -- does germany need to bend? >> you need germinate to lead europe with britain. germinate needs to figure out its relationship with the eu. they are not prepared to deal with geopolitical risk. >> i keep thinking of the speech a few years ago, lead, germany. they've done a lot of bleeding after the euro zone crisis. that has looked like fiscal tightening. merkel has her own domestic politics. populism on the right is limited in what she can do. the beginning at the munich security conference. to get away from the postwar limitations and take on greater leadership. it has not gone anywhere. they do not appear ready. there are plenty of things getting worse for europe. there's not a sharp crisis that's going to force germans to act. >> sometimes it feels like a security blanket. germany is allowed to say we have a history we have to be aware of so we don't have to lead. >> you have an external>> environment that is worse for the europeans and then you have internal populism that will make europeans growth writer part. apart. farther >> nouriel roubini publishing about a one engine global economy. do we have a one engine politics as well? >> we do not have an international environment that shows immigration between the u.s. and europe. i think obama's key relations right now art with asia and not with european allies. the french are closer -->> how would he he received giving a speech in berlin? >> much worse than he did. obama is doing in the u.s., the disappointment in hen is so much more palpable among american allies around the world. >> we've heard from ian bremmer on what he thinks are some of the looming global crises over investors. we want your answers. what is the biggest geopolitical risk to markets? most of the answers had to do with russia and china. wanted to highlight a couple other ones. first answer. >> in some ways we are almost there. #climatechange. >> did you send this in? >> amen! came out with a report. if we do not stop using carbon, it's going to be a catastrophe. why is this not one of your geopolitical risks? >> we can kick the can down the road. the chinese emit double the carbon the u.s. does. we don't have control. >> i will rip up the script. what will be the catalyst for china to fix air pollution? >> they are fixing it. they are going to fix the cities that are wealthy. in four cities, they went subsidize coal and jobs. >> it's not a problem because we cannot fix it? >> it is too long term for any of our policymakers to take on. >> what organization is best tasked to do with this? >> i don't think any global institution. you will have a coalition of the willing that will be a bunch of billionaires and private sector companies, some governments will likeomerate into things adaptations, not trying to mitigate. >> the last answer to our twitter question. what is the biggest geopolitical risk? "the unknown." >> that is a sophisticated answer. >> that is a copout. >> that is out there. what's next. >> let's talk about what is next on our agenda. the stories we are following that will shape the day. tom? >> there will be a meeting today. the chair of the federal reserve will wonder by the president's office. i was surprised, why haven't they had a one-on-one before? i was stunned. is interesting is that you are thinking that ben bernanke and president obama had a lot of meetings. that was not normal, that was because of the crisis. >> i think the word slack will,. >> i think considerable time will come up. >> discouraged workers. >> getting this fixed. it is not just the fed. >> on my agenda, auto sales. reported through the day. honda sales in october rose 5.8%, slower than expected. rosen said u.s. sales 13.3%. employees of conde nast moved into one world trade center. my biggest fears about this are getting all packed in time. great to see it be normal down there. haven't visited new york, this is a solemn location. great to see enterprise next to the site. >> more residents in downtown manhattan than there were before 9/11. >> ian bremmer, thank you so much. greatly appreciated. onbloomberg "surveillance" radio continues. "in the loop" is up next. had a great morning. ♪ >> good morning, it is monday, november 3. you are "in the loop." we have a great program -- days after a virgin galactic space or broke apart midflight, investigators are now saying the incident was due to something other than an engine explosion. we will talk about what it means for the future of space tourism and we will talk to captain mark kelly. the 120 billion dollar company behind insulin drugs is in the loop. he will talk us through the pressure on drug pricing. there is look at our top stories -- america votes tomorrow and midterm elections and the results will determine what president obama's last two years in officer like. --re is drama involving there is no drama involving the house but there is about eight races in the house -- in the senate that are crucial. president obama staying out of combat that competitive congressional races where republicans are made in the issue. he come -- he campaigned yesterday in connecticut and nn
rescinding the carbon laws. ., data in the u.s., 8:30 a.m u.s. jobless claims. the bloomberg consumer comfort number at 9:45 a.m. p.m., the consumer credit number four june. earnings, before the bell, wendy's, duke energy, and amc. bell, news corporation, not 21st century foxconn with the unit that owns "the wall street journal." >> i can't keep track of the names. >> it is "the wall street journal," essentially. news corp. 19th-century? >> this is what rupert murdoch loves. >> maybe newspapers can make money on their own. >> with a pay wall. cbs, lions gate, and solarcity as well. bank of england comes out with its rate decision at 7:00 a.m., ecb comes out at 7:45. of the important out press conference for governor mario draghi. that will be a remarkable press conference. a data check. stocks, bonds, currencies, commodities. futures bounce after a tough number of days. interesting to see how the equity markets in the u.s. react after what we healed from frankfurt. oil south of $97. vix, 16.37. german 10 year, contrast that with our 2.46%. 36 with news on ukraine. brendan greeley, help me out. u.s., hereame as the is their yield below 2%. >> red circle is the u.s. yield? >> yes. what a differential here, two different economies. >> is the continuation of the story we have seen in europe for the last four years, germany has been a huge part of sending other capital to the periphery. place. is still a safe it gets the brain drain from spain and bulgaria, straight to berlin. bund.ave safety in the they are part of the problem and also the biggest winner. >> they are the full faith and credit. us ino gallo will join the 8:00 hour. let's look at the front page. bank of america on the verge of a record-setting settlement in the mortgage backed securities case. bofa will pay anywhere from $60 $17ion to -- $16 million to end the government investigation. bofa have been trying to negotiate down the $17 billion number that was focused on. uggla the new york times" has a back story. >> "the bank's top lawyers and executives," you have to assume "who made the ill-fated decision to fight judge raykoff." leverage was eroded after they lost that case. there are different numbers in operating income. 360 nine daysa, of present operating income. jpmorgan, 204 days. gorgeous chart. citi, 161 days. view"hought "bloomberg had a good point. they wrote it is a shame that these cases do not go to trial. what we would get is understanding of how the bank works internally. >> they do not want us to know. useful for future regulations, we don't have it. we have a settlement, they write it off, the shareholders take a bath and we don't get anything out of it. >> is a secret how "surveillance" puts it together. day, i will explain it. i am a mole inside "surveillance." >> russia striking back against u.s. and eu sanctions over ukraine. putin announcing food imports that will be banned for one year. on them -- among them, cheese, pork, fruit, vegetables, and dairy. food from countries that have supported the sanctions like canada and norway. >> this is not funny but sometimes putin does things that feels like putin's pride. when he goes on vacations and get pictures taken with white tigers or shirtless. -o-d-k-a, i do not see it in there. >> they do not need imports of vodka. >> the first idea of germany, is some of the slowdown in italy because it is the initial -- >> there is concern that will be a drag going forward. adidas seeing a hit from sales in russia. >> what else? story,third front-page concern over deflation in europe. you showed us the 10 year yield of the german bund. the two-year yield falls below zero today, negative right now. the catalyst, industrial output grew less than expected. tension increasing over ukraine, people are stampeding to the safe haven of german bunds. >> i have to bang this gong again. it is the long-term consequence of the fact that germany did not have to bail out its own banks. was filled out by irish taxpayers. >> really? help me here. banks notout weak doing what we have the courage in the u.s. to do, or is about lousy economy, or both? >> i always make this germany's fault. it is about taking too long to understand that the problem was not with the banks, but with the economy. germany has been obsessed with austerity. it is realizing now it has to help other economies. this morning, mario draghi press conference. we will have that later. >> those are our front-page stories. >> our guest host for the hour id. looking forward to this, ceo of wsl strategic resource. forget back-to-school. exist in the winter and end of the spring? >> it is almost as if every store in america closed. >> has summer been ok? 75% off. >> that is what is happening. i got an e-mail about a sale, it is only 80% off. >> is this permanent? >> it is permanent and a sense that entrenched shoppers saying i'm not going to overpay for anything. i'm going to check the deals. unless you have something really new and different, i will come. how toilers have learned gain that, they adapt accordingly. who is coming out the best? >> we have a new series of managers running big retail companies. walmart and target, the discounters, are now very focused on the best deals. uniqlo and h&m are in a good place. high-end, luxury brands are struggling. &m --t's stick with h >> cheap and cheerful. >> they are getting traffic. >> it is about young people, middle-aged people, kids. that's the starting point for people. >> is a mix and match going on? >> high-low? >> even the wealthy are saying i am stupid to pay $300 for a white t-shirt. i might as well go to h&m. >> how much? >> some people will pay $300. >> kanye. >> cheaper bowties. >> it was like $7. >> tom, you overpaid. >> come on! $100 t-shirt. there we go. $300 ifpeople will pay it is the right brand name. not us. >> i am going shopping after the program. >> goto company news. >> some company news headlines, boeing wants to cash in on aviation junkyards. they might be in the market for a salvage company that recycles jet engines and other components. airlines are getting rid of old planes to be broken up four parts. the world's largest food company will spend almost $9 billion buying back shares, the first in years. the maker of nespresso reported growth that beat estimates. to newlosing a battle york's explorers club. stop selling a brand of scotch called "johnnie walker explorers club." diageo says it will appeal. the club's former members include neil armstrong. >> coming up, thomas mueller wears adidas. important german soccer player. adidas coming off of its world cup success is having some problems. we will talk about that, after the break. ♪ >> good morning, bloomberg "surveillance." evercore phas merged with isi. altman making a transaction. "in the loop," look for ralph schlosstein of evercore. this is bloomberg "surveillance," scarlet fu and brendan greeley. >> adidas reported results come a preannounced bad second quarter numbers. the profit margin outlook missed estimates. the golf business not doing so well. adidas relies on russia. i had no idea, 13% of sales overall. marketing expenses, when you're up against nike, you have to spend a lot. the company that spends like there is no tomorrow on ads. >> is not just marketing. it is sponsoring teams. >> they did very well in the world cup. >> but then the sponsoring does not end in the world cup. we are talking about european leagues, english premier leagues. adidas has an advantage but it is very expensive. they just took over the contract from manchester united, $94 million. unprecedented amounts of money being spent at the club level. i spent all summer boring you guys about adidas' soccer. adidas has a lot of other brands and a problem that comes up at earning calls is the golf brand. millenials are not playing golf. >> nike also has golf, it is operated nike -- all branded nike. >> has the swoosh. adidas has brands, nike is so consistent worldwide. ,> wendy liebmann of wsl branding is key. >> nike has always been so consistent. foras always been one brand performance, fashion. adidas has chopped and changed it for different countries and different sports. >> as an aside, is nike the apple computer of retailing? analogy.s a fair they have continually pushed innovation and design. >> i think nike does offense that apple can only dream of. >> you've gone to all of them. ologyke was called a fash- company, a fashion technology company. >> if you and i said that, we would get punched. >> i think it comes more from performance. dicede it is sliced and into different brands, the challenges it is harder to get the global power of the brand. >> one bright spot for adidas is reebok brand has invested in crossfit. they are sponsoring the crossfit games and have crossfit g ear, sponsoring athletes. part of that is a wider trend towards fitness specific gear. have you seen in a trick broadly, not just around crossfit? >> we have done research about the wellness uprising. at all levels in the u.s. economy -- >> the wellness uprising? >> people walking around in workout clothes. >> trying to be healthier in eating. that has an impact. people trying to be healthier. that is in everyday clothing or exercise clothing. >> she's looking at you, tom. >> does this change marketing strategies, it is not just about getting athletes? it is about taking a walk every day. how does that change retail? >> for a retailer, that opens the doors. derek jeter is the icon, then, how does everybody aspire to doing a little better every day? cheese, alk, healthy vegetable. scarlet?hat, >> we will do the rest of the show walking. tom is scowling. the next hour of bloomberg "surveillance," robert kaplan, former goldman sachs vice chairman will be joining us as guest host. this is bloomberg "surveillance" on bloomberg television, streaming on your tablet, smartphone, and bloomberg.com. ♪ >> good morning, futures up 5. i am tom keene, with me is scarlet fu and brendan greeley. adam johnson is on assignment. top headlines. know what, weyou will start with the 30 million americans who lack health care. a finell not pay under the affordable care act in 2016 is a list of exemptions including domestic violence, property damage from a fire or flood, or having a canceled insurance plan. government researchers racing to get an exponential drug approved to fight ebola. the world's worst ebola outbreak is being blamed for west africa.hs in in cambodia, senior members of the khmer rouge have been sentenced for war crimes. the first time top officials have been punished. those are your top headlines. >> good. brendan greeley gets us started with a morning must read. >> blog post by a tech ceo. "why i am leaving the best job i ever had." he is taking a lesser role at his own company. he wants to spend more time with his family. >> that's not the excuse? >> that is what he is planning to do. >> is he a millennial? >> i have this problem, too. we spent 30 years fighting the wars have, the daddy just begun. there is not cultural acceptance that you want to go home and spend time with your kids. >> what are you doing? >> losing the daddy war. >> he's a ceo. these discussions about the quality are wrapped around elite corporate officers. wsl, i ammann of more interested in the retail worker barely making it who has these same challenges. they do not have the option out of a ceo. >> they are grateful to have a job, it is not a great paying job. they do not always have health coverage. now, fortunately, some of them do. it is a real challenge and they are the ones who will spend if we give them more money. excuse my political -- >> can you make the statement that because of the new health care directives in the u.s., retail is going to more part-time help? >> i cannot but i have heard those conversations. i cannot make a blanket statement. >> there has not been a good study yet. >> not yet. >> to your morning must read, it is a bunch of elites going out, i think i will take off. let stock options kick in. >> there is a distinction between the elites and non-elites. yesterday we were talking about extrinsic and intrinsic motivation. intrinsic motivation is important for the elites. they want to show that they have a point to their lives and jobs. talking about retailer workers, extrinsic stuff is important. we talk about how to make sure you have a company culture, for a majority of workers, just pay people more. >> pay them more so they can have a better quality of life, whatever that looks like. >> we will continue discussing this. a topic that does not go away. back to school shopping season n begins. the state of the consumer and company's posture feet response. ♪ >> good morning, that view is better than this in europe. europe is troubled by recession in italy and low interest rates. we will have the bank of england and ecb rates from a gorgeous new york city this thursday, april 7. i cannot convey the difference in december versus the summers we have seen. a perfect sunrise above a perfect new york city. this is bloomberg "surveillance," i am tom keene. with me, scarlet fu, brendan greeley. adam johnson is on assignment. a quick data check. a standard data check. future coat up, 10 year yield, the euro does not describe what is going on in europe. morning, negative two year yields in germany before mario draghi and ecb festivities. we will have that for you in our next hour. >> let's talk about retail, the second half of the year is critical. third and fourth quarter include back to school and the holiday shopping season. for back-to-school, according to the national retail federation, americans will spend almost $75 billion on school and college items. our guest host is wendy liebmann , ceo of wsl strategic retail. you put together a regular surveys and your surveys and reporting shows that shoppers are willing to spend again but they are spending smart. what are companies doing to get ahead of this? to make sure people spend a little bit more than they are willing to? >> they are getting out early, that sounds like old news. they are getting out early in lots of social media and promotions, how do i connect with people and connect with them personally? how do i make sure my product is on their list. social is outpush in strong. deals, new products, reminding people of what they need to buy. things.nds of just getting people go in earlier rather than waiting until the very end. >> going earlier, a lot of people i talk to will say that they head out to staples for school supplies. does brick and mortar hold any advantage for back-to-school shopping? yes.r certain things, sometimes it is easier to walk into staples or walmart and get all those things done under one roof. at the same time, i have two kids and a cart, that makes it a challenge. withwill kill two birds one stone. the marginal economics of back-to-school, $4 makes a difference at walmart. the backpack, $26.99. brendan greeley, the "frozen" backpack with matching lunchbox, elsa and anna, $4 more. are not a" backpacks substitution good. i have two four-year-old girls. allouse is all "frozen," the time. with the success of disney and pixar, how important is branded gear in a time when people are aware of how much they are paying? it does cost more to get elsa on the short, i know. >> it is very important. otherwise i am picking the lowest price. when you have 24-year-old saying daddy, i want "frozen." if you can afford to, you will go for "frozen." throughen will blow bargain shopping. >> compare with the holiday season? >> it is much less important. it is a precursor to how people are feeling. i have got to buy, get them sneakers, jeans, a backpack. i've got to do it. in general, people are not buying everything at once. they are buying gradually as they go into the season. it is a different kind of season. >> you say it is less important, it seems like it is a lot more expensive than it used to be. when i was growing up, it was apparel and sports quitman, maybe staples. now, it includes a lot more categories. is there any industry that does not get a boost from back-to-school? >> very few. a really good point. everything from beauty products, technology, home goods. all of those things. really smart retailers take advantage of that. >> wait, wait. -- tooing to sit foephora sephora? >> yes. and you're buying school supplies, parents have to buy clorox wipes. >> and a teenage girl is saying what color lipstick to wear. girls did not wear lipstick until they were 25. ?hat stock to i buy> >> here's what the shopper is thinking about, all the basics i have to get. has a unique reason for me to spend more. otherwise, it is just, all bets are off. i do not mean to sound vague, it is the consumer mindset. the cheapest or the newest, nothing in between. curious about technology. you said that is a big part of back-to-school shopping. was in1990's when i college, you got one computer when you're a freshman in college and that is how it was bought. what is the lifecycle? how early in the school career are you buying computers for kids and how often are they being replaced? depends on schools. in some schools, they provide computers. kids are using computers very early. i do not know american school systems -- >> lucky you. >> right? cookuld you suggest to mr. at apple that his fall product rollout should occur august 15? >> it does. emails that say if you buy a computer or laptop you get a discount for back-to-school. >> if you are a student, you get a discount right now on applicants. -- on apple goods. tech accessories to go with it. younger age, people starting to buy, parents starting to buy and then replenishing. >> how's gap? >> slow and steady. >> they have a new person in charge of merchandising. new creative designer. >> so much competition. they have got it level, people are going back into the stores. i keep saying basics. not that one i must go and get it right now. >> next time, wendy liebmann will be with us on school uniforms. you want to get a debate going? talk about school uniforms. >> our twitter question of the day. what images are most important for global business? you need to speak portuguese or chinese to work at the gap. chinese when you work at chanel. >> math. >> math? tweet us @bsurveillance. are growing at central banks, not at the ecb. the single best chart. ♪ good morning, bloomberg "surveillance" from new york city. i am tom keene, scarlet fu and brendan greeley. adam johnson is on assignment. scarlet gets us started with top headlines. russia's president vladimir putin retaliating against sanctions over ukraine. russia will ban food imports for one year. among the products, all dairy cheese and fish from the u.s. and eu. the truce in gaza in its third day. negotiators and cairo are trying to extend it. israeli diplomats are not meeting face to face with palestinians, they are going through the egyptians. d to thents an en israeli blockade, israel wants gaza demilitarize. tiger woods is back at the pga tournament. 6 years since tiger woods won a major tournament. golf suffers because of it, the ratings go down he is not there. >> interesting. an interesting single best chart. the news flow is important. >> both the ecb and bank of england make right decision today. showsngle best chart the balance sheet of the four biggest central banks in the world. now."e all qe-sians it will bank enters qe, take longer to shrink its balance sheet. ecb's greenline, shrinking fast by over $1.3 billion since 2012. given the data we have seen, and the yield performance on the german tenure and two-year, maybe that changes. calculus is the slope of the blue line, up, up, and away. bundesbankine is a influenced draghi. >> there was a paper by the bank of japan that distinguished between pure qe, just including the balance sheet, and conference of easing -- com prehensive easing, the balance sheet and bad assets. line, they vacuumed up a lot of bad assets, now they are done. >> there are real disagreements. jonathan ferro is going to come on, blah, blah. draghi has to answer for italy's recession given that green -- bring the chart again. given the green line. what's not in this picture? >> i think that is "sesame street." mario draghi has been effective in not putting up a lot of money, he has been doing it in words. whatever it takes to save the euro. >> we keep asking mario draghi for a solution because monetary policy is the only policy going. we should be asking the heads of state to get together and figure out some sort of stimulus. they have a fiscal problem, not a monetary problem. >> from your time in brussels, is this a bundesbank-influenced dialogue? >> absolutely. there is this sort of jockeying for position over who gets to be president of the commission. >> it is baloney. thank you! angela merkel is the president of europe. everybody looks to her. germany's problem within europe is that it will not recognize the authority it has. >> it holds the key to photos, brendan greeley. get him un-fired up about the bundesbank. >> a picture of a -- >> cool! >> a comet. the picture was taken by a european spacecraft. very important. the contractor on that with airbus. an airbus photo. u.s. instruments on it. 10 years ago, it left us. >> a great quote from the european space agency, "ten years we have been in the car waiting to get into scientific disneyland." >> this is original stuff. it goes to the triumph of cassini and saturn. 250 million miles away. >> it will put a lander on the,, drill -- a lander on the comet, drill in, bring stuff home. onon trend, metallic is trend. >> second photo, this is a picture of buddhist monks cleaning the dust off of a 15 meter high great buddha in japa n. part of the preparation for a festive period of bon. buddhists welcome the spirits of their ancestors. >> that looks like our make up team on me. >> this one makes me happy, surfing in cornwall. the sun going down over the western atlantic in wales. part of a board masters surfing competition that has been going on since 1981. in england. >> makes me feel homesick for australian. >> is the water cold enough so they don't have to worry about sharks? >> they are wearing bodysuits. >> we have an australian on set. where do they worry about sharks? >> australia. >> serious. >> hawaii, as well. it has become worse with the globaln quote warming. oncan you comment australian unemployment? >> brendan talk little bit about the carbon tax laws. that is the only major thing that has had an impact of late. i cannot put those things together for you guys. >> explained rick springfield. >> does anybody remember rick springfield? it is only us. >> we all know rick springfield. >> scary. >> cultural communications here. when we return, how companies can communicate culturally to strengthen international ties. it is a link there. that brings us to our twitter question of the day, what languages are most important for global business? tom says math, i go with mandarin. >> i am learning pidgin portuguese. >> ok, tweet us @bsurveillance. ♪ >> this is bloomberg "surveillance." i am scarlet fu come here with tom keene and brendan greeley. adam johnson is on assignment. let's get you company news from the files of "bloomberg west." google and barnes & noble taking on amazon according to "the new york times." book buyers in several cities can get same-day deliveries from their local barnes & noble through google shopping express. that will help or may help barnes & noble offset a slump at brick-and-mortar stores. the bigs computer security seeinge maker says it is growing demand for anti-hacking programs. symantec beat estimates, searching for a current replacement for the ceo, who was fired in may. foursquare has read in its flagship app two-putt the location search front and center. the check and feature has faded in popularity, trying to attract more users and advertisers. the ceo says the updated app lets users find updated restaurants -- find nearby restaurants and businesses. >> a "surveillance" anglo-saxons do not think like asians. >> are you looking at me? >> those from london think explicitly, those from taipei think implicitly. are you confused? one of the most talked about books and industrial economics. "the culture map." front and center on the cover of the book. africa, a huge thing for president obama. i was thunderstruck by the differences across africa in cultures. give us one example of the challenges you have when you do business in africa. >> across africa, there are differences from one country to another. for example, between ghana next to eachright other, nigerians are more direct with negative feedback, ghanians are softer. africa as a whole, africans in general tend to defer to authority more than people in western countries. >> is it a colonial artifact -- finland, france, and belgium? people aree way raised in tribal environments. i worked with a kenyan manager who said when i was growing up, i was taught that i should defer to my older brother and my younger brother should defer to me. now i manage a danish company. ithas been managing danes, is incredible. they do not care that i am the boss. they are challenging the and contradicting me. please remember that i am in charge here. this is a really big challenge for leaders today to figure out how to not just work in the or american way, to adapt to different styles. >> this is power distance that you write about. it seems like there is a universal scale stop when you go to a country, you need to know what power distance is. in south korea, it is very high. in the u.s., it is low. is this something you can look up on an index? >> there are a lot of other things you have to think about. simply, you set travel. maybe you are working with other countries over e-mail or telephone. you can fall into all sorts of trust. -- of traps. have a tendency at the end of a telephone call to recap what we have said verbally and then put into writing what we have said. with indians, you do the same thing and they might think this person really does not trust me. >> it's an insult? >> it feels like a sign that you do not think they will follow through. if you are aware of these sometimes simple traps, you can make several adjustments and improve your effectiveness. >> let me bring a quote up here. scarlet and i love each other. >> we gaze lovingly. >>" showing how far apart we a -- a quote showing how far apart we are. >> i had a holistic thought pattern? i am chinese-american. there's a tension. i took the quiz on your website, there are different interpretations of professionalism. everyone believes they are acting in the most professional manner possible. the way we interpret it has huge ramifications. >> for example, something simple like you need provide negative feedback to someone on your team. the most professional way to provide that feedback is different from one country to another. pride ourselves on being blunt. it is true in comparison to asian countries or latin america we tend to be more direct. i have lived in france for 15 years -- >> my deepest sympathies. what's the difference there? >> in france, people are more implicit with positive feedback. they give negative feedback much more directly than we do. immelt cannot -- jeff will be comfortable. .k., they never give you negative feedback, you have to read what is less positive and slightly negative. >> culture is relative, the way you experience the british is the way the french experience the americans. i worked with a french manager, his american boss called him into his office to tell his performance was on acceptable. -- was unacceptable. he did it in the american way by saying these are things i appreciate about your work. the french person was not even listening by the time he got to his real message. >> "the culture map," erin meyer. wendy liebmann as well. >> tom is going to go to gap. bag. will buy a "frozen" >> will images are most important for global business? tweet us @bsurveillance. you could be speaking in glitch but if you are african or damage it is a different story. we go to the>> bank of england and then the ecb. euro 1.33, yen stronger, 1.02, ruvell above 36. >> robert kaplan joins us next on "surveillance." ♪ >> this is bloomberg "surveillance." >> the german two-year moves to negative. considers $17han billion of punishment. south dakota is not north dakota, living in the shadow of the american oil boom. this is bloomberg "surveillance," live from new york. i am tom august 7, keene. joining me are scarlet fu and brendan greeley. is on assignment. our guest host, robert kaplan of harvard business school. let's get to our morning brief. germany this morning. >> overnight, german industrial output grew less than forecast june, after disappointing factory orders. australia's jobless rate at a 12 year high, six point 4%. surpassing the u.s. unemployment rate for the first time since 2007. economic data here in the u.s., weekly jobless claims at 8:30 a.m. 9:45, the bloomberg consumer comfort index for consumer credit for june at 3:00 p.m. earnings before the bell, wendy's, duke energy, amc networks. after the close, news corporation, the old media properties -- "the wall street journal." cbs, lions gate, and solarcity. news in europe. bank of england coming out with its interest rate decision. he keeps interest rates on hold at .5%. boe holding his asset purchase program at 375 billion pounds stopped no change. ecb comes out with its m., marioent at 7:45 a. draghi's press conference at 8:30. i would suggest if there has been a bit of a change in the u k, everybody is in love with the success of the u.k. some economists are pushing back against what is going on in the u.k. it may not be as good as we have been led to believe. being abler of ever to make a decision at the austerity experiments. he didn't take so long to take hold. by the time the cycle is completed, everybody has their argument in place. >> a quick data check. equities, bonds, currencies, commodities. u.s.-centric. .3377, not much bounds of the boe announcement. 10 year yield, 2.45%. german yield, 1.09%. company news this morning. >> bank of america close to a record settlement in its mortgage backed securities case. according to a person familiar with the matter, bank of america would pay up to $70 billion. -- $17 billion. the government warned it would not settle.ank did apple's decision to scale back a patent fight with samsung might be a change in strategy. the two decided to drop patent litigation outside the u.s.. apple has gotten virtually nothing out of the lawsuit so far. apple claims samsung copy iphone patents. rupert murdoch making it clear 21st century fox's decision to drop a $75 billion takeover for time warner is "resolute." saying fox does not need to hunt for acquisitions. he spoke after fox reported quarterly profit that beat estimates. overnight, the shot and out of a two-year, not 10 year, two year negative yield. carl weinberg has nailed the call on persistent low interest rates in europe. good morning. how much of this is induced by vladimir putin? when you look at the greater economics mr. mario draghi has to deal with, is attention by ukraine and russia -- is it tinged by ukraine and russia? a at the margins, this was one basis point move. interest rate expectations are at zero. the yield has- moved 25 basis points at four years. noise around zero. >> when you look at troubled banks and the troubled europe, which is more important to the logjam that is european finance right now? the banksow, it is rather than ukraine that are holding things down. the ukraine is more of a longer-term problem. everybody is very worried about the imminent asset policy review and stress tests. nobody knows who is going to pass. banks are not lending on the basis of capital advocacy concerns. >> we've been hearing concern out of germany out about the possibility of addressing youth unemployment. i'll be a change in european policy. what trigger is going to make them abandon the berlin model of how to handle the euro crisis? what will change their mind? >> i don't think anything will change their minds. a lot of people for their forecast base it on the idea that germany is certainly going to change. they are not. i forecast is based on the notion that we will see more of ctioname, and action -- ina on banking and depression in europe. with billonversation gross last week, he brought up the idea that there were helmets of a liquidity crisis. a set of separate events coalescing into a lack of trust in the greater european financial system. when you see it early in, negative yields this morning. is bill gross onto something? is ae world in general mess. there is a lot of trouble. foreign policy is not addressing the problems. if you are an investor and you have a choice, that is what investing is about, you want to look at places that are making better policy decisions. north america and asia. the euro is flawed as a currency. not that the emu is going to fall apart, but the currency will cheapen as investors lose interest. carl weinberg with high frequency economics. as we go to the mario draghi press conference at 8:30, we will have that for you. it gets fiery at about 8:45. >> after the prepared statement. >> it is fascinating to see the headlines. onwe will be covering that bloomberg "surveillance" and bloomberg television. another top story we are washing. bank of america getting closer to reaching a settlement with the justice department. the justice department had been seeking $17 billion. overnight, it has made an abrupt about-face. we bring in our guest host, robert kaplan of harvard business school. brian moynihan leads the way. they have been stubborn and not getting into the $17 billion number. it seems like they are all of a sudden. is he an adequate leader for this kind of situation? has a good background with his legal background for this situation. they want to move to put this behind them. also, they have so many government entities who are regulating them, i think you want to be on good terms with the government. you want to get these things behind them. they are well preserved. you will see the stock react positively to this. and so, i think they want to do what other banks have done, keep moving forward and get this behind them. >> keep moving forward. a lot of people questioned once this is done, the focus goes back to operationally what the bank can do. in this kind of environment, with the legal overhang and capital requirements that are now being put upon by regulators, where is this growth prospect? what can brian moynihan do to change the trajectory of think of america? focused one been operating improvements. back to europe, we have a global age in the western world, a massive deleveraging, particularly in europe. it creates sluggishness for gnp growth. he is dealing with low interest rates, the yield curve is fairly flat. the net interest margin, therefore, in the western world is more challenged. they are trying to work through that. >> you say they are adequately reserved. bank of america, j.p. morgan, citigroup. number of days compared to operating income. >> j.p. morgan paid $13 lien, citigroup paid seven dollars lien. >> shows scope and scale. >> i'm curious about ongoing cultural change in largest banks. yesterday we saw the fdic and the fed say your plans for the wind down are not sufficient. you are going to have to make some changes. real, aggressive regulation. no, you cannot just say something. you have got to fix it. >> that is more about a cultural change with the regulators than the bank. sendinglators are a message, take us seriously or we will push back. >> are bank going to have to change? it.hey've been doing if you sit in bank boardrooms when the fed comes in, the tone is very different. the banks are working very hard adequacy,r capital the living wills, the resolution authority. toy are dramatically working improve everything they do. the regulars are being very tough. >> do you think this is moving down the chain? they are saying within the company we have to make this change? >> definitely. you look at how many compliance people jpmorgan has hired. ucf seen -- you seen the headlines, banks are taking this seriously. >> this is something we will continue to discuss as we wait for bofa to make an announcement. bloomberg is reporting now anywhere between $16 to $17 billion. >> a lot of money. >> our twitter question of the day, what languages are most important for global business? for brian monahan at bank of america. tweet us @bsurveillance. coming up on "surveillance, what is to blame for the recent pullback in m&a? adulation or failed deals -- r u deals.n or failed >> russian ♪ >> good morning, bloomberg "surveillance. futures. this is bloomberg "surveillance," i am tom keene. scarlet fu and brendan greeley with me. it is a merger that sort of kind of may -- >> for now it is not happening. fox pulling a $75 billion bid for time warner. the gargantuan m&a deal. jeff just -- after bewkes refused to engage. >> is not a victory lap. it is hard for me to see how fox, with the strategy, was going to successfully take over, do a hostile takeover of time warner. they're both about $75 billion. time warner is probably a better content creator, which is the critical element you need today. better than fox. there was not anything compelling for time warner to say yes to. >> there was this idea that they were going to be back off savings. they identified $1 billion, not significant enough to make this compelling. >> do you teach synergy in your class? tell me you do not. do you let the word into your class? >> you try to figure out what you do that is distinctive on the revenue and cost side. there was not anything distinctive fox was offering. you cannot pay a big premium on price if you're the same market cap as the folks you're trying to take over/ >> did rupert murdoch mis-play this? >> maybe. i did not understand the tactics or announcing basically a bear hug. they probably should have talked to time warner privately and see if they can do something friendly. to go out in such a public way with a deal that was tough to do, i don't understand. >> culture matters. you can look at the financials of a deal and say maybe we can swing this. they are two different companies, that is not insignificant. >> culture does matter. you're not off to a good start if you announce an unsolicited offer publicly. you're better off working privately and seeing if cultural you can work together. ' first is jeff bewkes priority now that the storm is over? >> keep operating the company. tbs, tnt, hbo our great content providers. you might see them do content acquisitions. keep moving along. the board of time warner looked at their five-year forecast and said we prefer to be alone than do this merger. >> we are killing it, is what they found out. >> robert kaplan of harvard business school. >> coming up, [speaking french] language, the new transnational corporation and the importance of language. we will do that next. what languages are most important for global business? ♪ >> good morning, bloomberg "surveillance." scarlet fu and brendan greeley with us. adam johnson in on assignment. our guest host is robert kaplan, a professor at harvard business school. he studies and thinks about leadership, particularly among transactional wall street. our top headlines. nsahe fugitive former contractor edward snowden is saying in russia. his lawyers say russia has given snowden three more years of asylum. snowden fled there after revealing top-secret nsa programs that collect the data. vladimirpresident putin retaliating for u.s. and european sanctions over ukraine. russia will ban billions of dollars of food imports for one year, cheese and fish from the u.s. and eu. in cambodia, senior leaders of the khmer rouge sentence to life for war crimes during the 1970's. blame for killing close to 2 million people after touring the countryside into killing fields. marking the first time that top officials have been punished. those are your top headlines. >> fascinating. we wait for the ecb decision in about 25 minutes. february cannot come soon enough for the m&a elite of wall street, bonus season. 2014 is shaping up, yeah, banner year. cohead of mergers and acquisitions at morgan stanley. something has happened. february, "game of thrones," "winter is coming." are they related, m&a, enthusiasm, and excitement? a couple deals have troubles. >> the demise of the m&a market is overstated. we see a very healthy m&a market. i would say that some of these deals not happening are a sign of the health. >> why? >> strategic's are stepping up and going after dream deals. a wise man once told me every m&a deal has to fall apart three times before gets done. we are seeing people engage in, often in the public, and trying to transact. the bread and the death of the m&a -- the breadth and the depth of the m&a is strong. >> your point about strategic buyers, we have not seen as much buyers from private equity firms, it is almost as if they've been squeezed out. >> actually, private equity is still a germanic part of the market.1/6 of the m&a the headlines are crowding out the fact that the sponsor volumes have grown. whether they are seeing difficulty, some of these big deals in the public markets for the equity market is run. >> walgreen yesterday chose to not pursue a tax inversion after completing the purchase of alliance foods. have we reached a tipping point with tax inversion? >> if you look at all the deals in the market, 300 at over $1 billion. 2% were in versions, this is not the tailwagging the dog. walgreen-alliance food, the board was circumspect about whether there was an opportunity to do this. situationing to be a where some will try in versions, others will be conscious, it is not to drive the m&a market. >> you are a philosopher, you have to knock on the door three times before they open it? do we get this wrong, do we jump on failed attempts too quickly to pronounce the death of a deal? >> what is new in this market, it is because of the activists and a little bit more aggressive behaviors, playing out in the press. some deals take years to publish. ,f you look at verizon wireless that took 10 years. the fact that these are playing out in the public has the notable aspect. >> we need something to say every day. agree with robert kaplan that fox was too public, too soon, it should have taken a cautious, sydor approach? >> one never knows what goes on between the parties. we are seeing a lot more public advances -- >> you dodged that like a pro. >> we advise on a lot of transactions. in this environment, everybody wants scale. especially when the economy is struggling to get past 3% growth. the deal that fell apart yesterday involved regulatory hurdles. what does that tell you about the state of isolation? -- state of regulation? >> in the low growth environment, the need to consolidate and restructure markets is there. acquirers are going to press regulators to the edge to figure out what kind of deals can get done. >> i need to ask you about james gorman. you have a young kid at morgan stanley out of indiana ucla fory, went to business school like someone i know. you had to give him a raise. gorman you and mr. advanced the compensation of junior employees at morgan stanley? >> we intend to create careers and keep talent. it is a competitive advantage. we are using the tools in our toolkit to make sure we are providing opportunities. experiment of delayed conversation and bonus, three or four or five years out, is that a field experience? i know you will not,, is that field for all of wall street -- i know you will not comment, is that failed for all of wall street? >> the regulators will make this common. >> comment on that? >> i think different compensation is here to stay. insisting ons are it. it is still a great place to go. i was there for 23 years. for young people if you look markets, it is a great experience. it is a great career. they are more highly regulated. if you love the markets, is a great place to work. >> jim head with morgan stanley. >> coming up, the oil boom in north dakota drawing lots of money. what is it going to the states neighbors? we are joined by the governor of south dakota, next, after the break. this is bloomberg "surveillance." streaming on your tablet, smartphone, and bloomberg.com. ♪ >> this is bloomberg "surveillance," i am scarlet fit with tom keene and brendan greeley. adam johnson is on assignment. some company news headlines. boeing wnaants to cash in on aviation junk yards. the company may be in the market for a company that salvages parts. nestlé will spend nine billion dollars buying back shares, the first in three years. the maker of kick cap bars reported sales growth that beat estimates. has lost a battle to new york's explorers club. a judge ruled diageo must stop selling a brand of scotch called "johnnie walker's explorers club," after an unsanctioned association with the club. former members include teddy roosevelt and neil armstrong. time for this matters now. tom? >> this matters now to our guest robert kaplan, harvard business school. how about [speaking french] get in line. corporations cannot afford the ugly american luxury anymore. they need language strategy. this is a brilliant article in harvard business review. thank you so much for this article. >> also had a co-author, a brilliant professor at harvard. >> why do i care about linkages, everybody sticks english. >> most global companies probably have 35 languages speaking in the company. they need a shared language. it has a big impact on your ability to run your business globally, and certain local markets, develop your strategy and most importantly to keep, develop, and evaluate talent. >> your younger talent, everybody speaks english. locally,t companies, they probably speak the local language. when they get better for execs,s or speaking to they speaking was. is, can. read, learning to write, learning to order a pizza or do you have to become fluent? >> for local employees it is about training your people in japan or italy to speak to some sufficient amount of english. and then it is making sure that you, that ex-pats that are there evaluate local talent accurately as opposed to people who speak that are english and communicate better. you have to avoid that trap. your article,f you push aside this idiocy that you're going to learn a language in your spare time. you say learned the language on company time. that is the heart of the discussion. >> the company needs to have a strategy for helping you do it so that you can learn the shared language. you can make sure that we hire the best talent locally as opposed to who speaks the best english in a local country. you want to be able to train people so you get the best talent. >> does rosetta stone work? what does the u.s. military do, what is the method? >> there are lots of methods that work. when i was sent to asia, i had to learn japanese. lots of ways the company -- >> how did you learn? >> i took a course, it was not all that effective. when i got there, everyday as i walked around, i was in charge of the business. people were speaking japanese, i do not know what they were saying that they had to communicate with me. when they went to a japanese client, they had to speak japanese. >> i would love to know from your children, your grandchildren, what is the language robert kaplan would say is the one to learn? spanish,grew up, it was french, or german. mandarin is in. >> is great to learn mandarin. >> really? >> yeah. a consecutive language to learn, very challenging. >> could enjoy some? ma, that's about as far as you will get with me. >> a fabulous article. how do you bring this down from easy multinationals down to smaller companies that need to effect a language? >> i was having dinner last night with a general manager in the national basketball association who read this article and has this issue. they go for talent all over the world. the key is to recognize it as an issue, the sensitive to it, and factor it into your strategy. do not assume it is going to happen without your direction. you need to have a strategy, it has to be explicit. that is the key message of this article. >> [speaking french] i cannot do the tease in french. i'm killing this. back to scarlet fu with a data check. >> how do you say bloomberg "surveillance" in french? bloomberg!e du 45.ec announcement at 7: euro 1.3381. the changes expected at the ecb meeting. >> no changes expected in europe. 1919.ures higher, up 4 at this is bloomberg "surveillance," on bloomberg television, radio, streaming on your tablet come your smartphone, and bloomberg.com. i am scarlet fit with tom keene greeley.an adam johnson is on assignment. our guest host is robert kaplan, professor at harvard business school. let's get you some type headlines. itstruce in gaza is in third day. negotiators in cairo are trying to extend it. israeli diplomats are not meeting face to face with palestinians, they are going through egyptians. end to the an israeli blockade, israel wants all of gaza demilitarize. most of the 30 million american to lack health care will not pay a fine under the of care act in 2015. % will avoid penalties due to a list of exemptions including domestic violence, property damage from a fire or flood, and having a canceled insurance plan. tiger woods is back in action at the pga championship in kentucky. woods withdrew from a tournament four days ago because of back pain. six years since tiger woods won a major turnout. those in the top headlines. >> dakota is not dakota. ibaka in jail -- the bakken shale boom. sioux falls south dakota is a finance capital. we are joined by dennis daugaard , governor of south dakota. what is the good news? with businessing is headquartered here but have presences in south dakota, talking about the possibility of expanding their facilities there or adding a new one. things are looking good. net inflow ofas a population for the last 10 years. this is important. if not with shale, what is the way you grow a state? >> we have a pretty diverse economy. agriculture is a strong sector. thanks to citibank's move to we have as in 1981, strong financial services sector. we should have about half of what we have proportionally, we have about what twice the national average would be for a place of her size. we have advanced manufacturing nation has lost manufacturing jobs, we have gained them. >> one of the most important books i've ever read was on the peopling of north america. you people are a triumph to the recompilation of the midwest. -- of the repopulation of the midwest. there was a population declining you have reversed that. try toh dakota has maintain a business friendly environment. no personal or business income tax -- no personal or corporate income tax. >> you're kidding. >> i'm not. we have a low-cost structure. if you look at moody or the department of commerce's announces that enter into the cost of living or business, whether real estate or utilities or labor, south dakota's costs are always near or at the bottom. earn income but you do not have to spend a lot on taxes. what you do bring home, you can buy a lot. >> one of the other growth industries for south dakota is providing equipment and material to the north. is it good to be not in a boom but near a boom? >> it is. we had a couple pipeline companies move into south dakota. alaska modular building company moved to south dakota, intent on serving the to locate preferring and south dakota where labor costs are not as competitive. political about the clarity of south dakota. republicans and democrats can speak to each other? >> we do pretty well. people treat each other with civility. >> what's your prescription with washington? >> treat each other with civility. >> good luck. >> can you stop by d.c.? at the work ofk south dakota, what is your to do list? and thethe academics agriculture, what is your five year plan for south dakota? is to getimportant the word out about south dakota as a business climate. people do not know that we are one of the few states that has no income tax. they do not realize what a low-cost structure we have. qualityy understand the of our workforce and the productivity of our labor, you can earn, our regulatory environment is good -- >> thank you, tom is planning on moving to sioux falls. willoomberg "surveillance" be right back. tom, brendan, and i. ♪ >> good morning, bloomberg "surveillance." england and ecb developments. ecb and ecb developments. ecb in a bit. bloomberg television, ralph schlosstein, ceo at ever core. an important interview as he and mr. altman purchase isi. intellectual content of wall street. ralph schlosstein on buying intellectual content firm on the " with bettythe loop liu. speaking with the republican governor of the state of south dakota, dennis daugaard is with us. i want to talk about your party. is there a moderate wing of the party? or is it vaporized at the moment? >> there is a breath of -- there opinion.dth of people with extreme views are often noticed more. there is a breadth of attitudes. go to the 2014 elections and the convention, what can be the dialog to coalesce the republican party to get the middle ground? the people they lost in the last presidential election. >> the focus on fiscal matters is important. >> back to traditional budget policies? >> i think it is an area where we need to focus. south dakota has made some hard choices along the way. we had some falloff in revenue as a consequence of the recession. we cut our expenses down to where our revenue had fallen, balanced the budget and have had surpluses for the last three years in a row. one of the things we have learned from texts of the last decade, they had to learn it is not just about taxes. it is also about amenities and infrastructure. what does south dakota have yet to do to make that infrastructure ready to attract business? areike all states, we concerned about highway funding. the federal government highway trust fund is near bankruptcy. we have a short-term fix in place through may. all states depend upon the federal highway trust fund to some degree. that is infrastructure, certainly important. >> what about internet access? high-speed fiber? >> we have fiber at the end of my driveway. >> congratulations. we were talking off-camera about how the state does not have an income tax but you do rely on the sales tax. is there a lesson for other states in shifting to a sales tax? tax, itconsumption encourages people to save and be responsible. it does not penalize those who are successful. >> we will continue with the governor from south dakota. europe, negative term interest rate. more attention paid on the ecb. we await that decision, joining us is jonathan ferro. this 8:30 press conference becomes more important. for three reasons. one, the data out of your is weak. not just italian recession or great deflation. weak german data. to banco espirito santo, the question will be put, is a concern about the speed in which one of the biggest banks in portugal failed? russia, how do you deal with the russian issue? >> we talked to carl weinberg earlier about that, it is o verlay. here we come with the headlines are the ecb. and much by rote. >> unchanged. we expected unchanged, it is about what happens next and the pressure building on him to do more. that question will be put to him. you have an asset purchase plan, when is it coming? inflation in the euro zone has dropped to 0.4%. that is a concern. >> how powerful is the bundesba nk in fronankfort? how much sway do they have? >> they have atrophic amount of power. the difference is the weaker data is starting to filter through into their own industries. that is something they have got to deal with. one of the reasons you have seen the bundesbank almost capitulate over the need for more qe. in the bond market, i know what , yieldsg in bunds at record lows. spain went to market, issue 10 year debt at record low yields. lowerrket is pricing in inflation, some might say it is pricing in deflation. >> bundesbank, capitulate, not words you hear in the same sentence. we always talk about monetary policy because it is the only game in europe. is there any sense that anything will drive the german government to take a different fiscal stance towards the rest of the continent? >> europe has a big current account surplus. that is largely because germany exports way more than they import. i have heard them described a shots atr dealer that the dollar store. they have got to spend more and drive growth. you've got to sit and ask the question, they have got their house in order, is it their job to drive the euro zone growth? or do they wait until the point where they have no choice? >> jonathan ferro with a by rote ecb decision. that will change at 8:30 and 8:40. >> when mario draghi starts talking x denver initially -- starts talking extemporaneously. 1.3377. low versus the dollar. s&p futures up. 10 year yield at 2.45%. $96.96.ude below $97, a little changed from the day before. >> good morning, this is bloomberg "surveillance." i am tom keene. with me, scarlet fu and brendan greeley. adam johnson is on assignment. our guest host from harvard business school, robert kaplan. we bring you the republican governor of the state of south dakota, dennis daugaard is with us as well. right now, company news. excuse me, your breaking this. >> the headlines on the european central bank. interest rate decision, no change, they have kept the benchmark rate at 0.15%. deposit facility rate is unchanged at -0.5%. in line with what economists had been looking for. the bank of england kept it asset program unchanged. >> we will go to the european press conference. robert kaplan and dennis daugaard, do you want to talk about the manufacturing renaissance? governor, you mentioned low taxes, a good fiscal policy, you need an entrepreneur and initiative. is washington and the way? >> to the extent that it provides uncertainty to the business sector is in the way. in south dakota at the state level, we deal with uncertainty after uncertainty. will the stimulus affect our economy? will the sequester take place? will the government shutdown, then it shuts down, all the things create uncertainty. business need certainty. 50 states withn, 50 different stories. it is incredibly important, state policy as well as what we talk about, 99% of the time, the beltway. >> this is, despite some of these issues, it is an extraordinarily good time for entrepreneurship and business formation. capital is powerful. the risk-taking culture is alive and well. >> texas is not new jersey. >> state matters happen on the margin. centers of entrepreneurship in some of the states, like texas, california, they are popping up in other places. in massachusetts. that may matter more. i think states like south dakota, in trying to create a pro-business, business friendly environment, that is critical. >> governor, we talk a lot here about what makes a city work. we are obsessed with bike lanes. what does it take in sioux falls . are you using sioux falls to drive the economy of the state? >> sioux falls is a major factor in south dakota. the sioux falls business community is intent on good business climate and inviting more business to south dakota. >> what is that mean? what is a good climate other than taxes? >> taxes, low cost structure, it is having your government be available to not obstruct advancement. to have a regulatory climate that is reasonable. tingwant to have permit that is prompt and efficient. regulations not with a "gotcha" attitude, but helping businesses comply with modest regulations. >> it is five hours 16 minutes from sioux falls tomorrow sure? -- to mount rushmore? i had no idea. when you are out there talking to the people between sioux falls and mount rushmore, what are you talking about? >> worked at, -- work ethic. people are very upbeat in sioux falls and the state. income in the last 10 years has moved from the bottom have to the top half. we're in the teens as far as right per capita income. thingsubtract taxes, buy that cost less, you have a good quality of life. >> a couple kids out of south dakota going to harvard. the smartest kids on the block. it is great, the diversity there. >> one thing the governor said that i like it, the ability to talk to the government and have a constructive dialogue is critical. i think most smart governors in this country realize that. you've got to be able to talk to people. >> not just adversarial. >> it has got to be constructive. it helps a state to foster business. >> i will zero in on a detail. you said there was fiber to your house? who laid that? was that a government initiative or from verizon? >> that was a telephone co-op. we've had initiatives over the last five years to extend fiber into lots of rural south dakota. that is challenged by the federal government's modification of -- some of the federal support to rural telephone. also providing rural broadband. the government now is being sucked away for other things. know itast question, i is a republican answer. which president should be the next president on mount rushmore? >> not going there. >> it is a government-funded project. come on. president reagan? >> i like the four we have. [laughter] my grandson, who is two years old, can name each one. >> let's get to our twitter question of the day. what languages are most important for global business? with robert kaplan here. here are some answers. "english, french, arabic." #landofopportunities. >> arabic, i tried it. >> how did that go? >> not well. margaret brennan at cbs, her arabic is beautiful. >> they make sounds you were not designed to make. "english works at some level everywhere." >> you pushed against that. you are an but if english down the company, you have got to foster local make peopled not feel like second-class citizens if english is not their first language. >> "language of love." >> did you send this in, brandon? >> not guilty. >> this sounds like something very reynolds would do. >> my only foreign languages german. no one has ever accused it of being the language of love. love ♪e, love, >> let's get to our agenda. >> negative interest rate, it was a shock to anybody to see what is going on in europe. i go back to the bill gross comments. he talked about not one big event, but a sequence of events to financial tension. we are not there yet, but in the last four or five days, including the negative interest rate. a.m., starts getting interest at 8:45. of america, getting close to reaching a settlement with the u.s. apartment of justice. $17 billion is what the government wants. bank of america is negotiating in the $16 billion range. a capitulation of the last four hours. >> why do i believe this is not the end? >> can we come up with a way for someone to pay other than shareholders? i want to see someone take personal responsibility instead of passing the but. buck.sing the >> i am watching to see the recovery of the doctor at emory hospital. if that works, the fda and cdc have a lot to do immediately on this drug. the state department has to make decisions on how they are going to handle it. we have a promising treatment that has a lot of work to do to get approved by the fda. a lot of exceptions are being made to pharma rules. >> mapp pharmaceutical. contract with the defense agency. emotion, we should mention the church of these people. they have the fancy clothing, there is a certain amount of courage. >> to go over there and do that work, yes. >> thank you to robert kaplan of harvard. the beststen to songwriter ever from south dakota. governor daugaard, thank you. >> coming up tomorrow, with the dow industrial halfway to eight correction. jason trennert with his analysis and insight on the equity markets. have a great morning. ♪ >> good morning. it is thursday, august 7. we are live from bloomberg world headquarters. you are "in the loop," and i am betty liu. our guest will talk about his acquisition of the research powerhouse isi. ralph schlosstein, ceo of evercore partners. week'sject of this "bloomberg businessweek" rubber story.- cover bank of america close to paying a record amount to end an investigation into mortgage bank bonds sales. keepingpean social bank interest rates at record lows. there is concern of the crisis -- vladimirerailing putin has retaliated for the u.s. and european union sanctions. russia is banning a wide range of american and european food imports. t
the european central banks in physic and not fix the economy on its own but ready to take more steps to help. here is ecb president mario draghi. >> it is necessary to further longss risks of too periods of inflation. the governing council is unanimous in using additional instruments within its mandate. >> one of those unconventional measures is buying government bonds. that is something that has not been mentioned before, at least not officially. his comments come less of three weeks before the next ecb forecast, which is likely to show weaker outlook for growth and inflation. >> in jerusalem, and attack described as the deadliest in years. palestinians armed with guns, knives, and axes killed four israelis in a synagogue. at least six more people were wounded. police still be two attackers. jimmy netanyahu says the country will respond with an iron fist. toyota unveiled a new car that emits only water vapor. it is toyota's bid to compete with teslas electric car. only a few hundred will be sold. toyota once to limit to those located near hydrogen fueling stations. missouri is preparing for more violence in the shooting of an unarmed black teenager. michael brown's death led to weeks of protest in ferguson, missouri. sometime this month, a grand jury will decide whether to indict the white police officer who shot him. governor nixon has declared a state of emergency and activated the national guard in preparation. officials say they will cancel school the day the decision is announced. they're asking people to treat as a "major storm event" and stay home. this are our top headlines morning. let look at stocks, bonds, currencies and commodities. futures at negative two. yields have done nothing since time began. the euro advances. crude oil trading 75, 76. on to the next screen. a 117 on yen. above 1200.s back brent crude still under 80. how bad is the pain in japan? here is the animal spirit of japan. nominal gdp. the collapse in 2008. ugly, ugly, improving. .his is good news for abe >> i still feel like every time we talk about this, we talk about japan as if there is no secular problem that they have, the demographics of the country and the problems they have getting women into the workforce. we keep looking at fiscal policy of monetary policy of forgetting there's a cultural policy that has to change their -- there. getting out of home depot without multiple purchases. they have earnings. they have been doing better than good. >> they have been doing better than good. earnings per share at $1.13 -- one dollar 15 cents, analysts have predicted $1.13. year-over-year sales, stores open at least a year, up 5.8% in the u.s. we're not seeing a lot of retailers with those numbers. overall, sales up 5.2%, which is also better than had been estimated. >> life is good. >> i got out of home depot and spent less than $100 earlier this month. >> how did you do that? >> a list and i left. >> with the way m&a is, maybe we have home depot meeting with walmart. i think it is a good merger. walmart and home depot? maybe not. >> i think they're going smaller, not bigger. >> that to japan. it is widely expected to be nymex needs a reaffirmation -- abenomics needs a reformation. our guest host this morning is with rbc capital markets. also on the phone, carl weinberg who has been way, way out front on the struggles of japan. carl, frame the import of the moment. how serious is the moment for the people of japan? >> from an economic policy point of view, this is a critical juncture. japan needs people, it doesn't need more debt or need to print more money. it needs people and it cannot get them. printing money is just bad policy. may win the election in control of the government again, but he may lose the economy as a consequence. >> explained the importance of japan in the modern world. we know it is the second-largest economy. we learned all of this in school, but things have changed with china. why should we care about japan this morning? >> we care about japan because a lot of investors, a lot of people listening to your program may have investment in japan, particularly in japanese stocks. the japanese stock and it has been doing well. is surged last nine in response to this news, although, it did so in a little bit yesterday in news the condo me -- economy contracted. that news will dominate. we have a bubble. betweent want to fly the clouds because there are storms lurking on the other side. right now we have a bubble going nikkei on optimism and policy and that optimism, in my opinion, is misplaced the economy can deliver what people are hoping it will. you say japan to its people. is all of this just whistling past a specific graveyard that japan is not interested in immigration? >> that's right. japan is absolutely doomed by the fact its population is shrinking. you don't have to be an economist to know if your economy is increasingly fewer people every year, you can expect those people that are going to demand increasingly less stuff and they will produce increasingly less stuff. in our lifetime, we've only seen economies growing with rising populations and this is the first time we're confronted with a major economy with a declining population. >> carl, on the currency and currency debasement, how we can the yen get? a technicians can tie you better story on that than i can, but the final medals are in place for the yenta continued to weaken. deal the offset is japanese pools of money are going to be pulling money home. this is a medium time story. that will offset some of the negative factors on the yen and break its decline. i think we want to look for a cheaper yen. >> carl weinberg, thank you for your expertise. we're thrilled to bring in morsels sunshine. it is not that you are on the japan watch, but i think it is simple to say everybody is intertwined the hydrocarbons. where does japan look to, indonesia? >> one of the things were concerned about with japan, and you mentioned sliding crude, this underscores a bearish sentiment. japan is an importer of crude. all of the negative news about japan will reinforce very bare sentiment in the argument. >> do you affirm the new mediocrity? i took a vacation. the world has changed. abenomics isn't working. >> is that the new mediocre? >> i'm curious, when he talked about this global demand problem that you're discussing, where is the biggest demand problem right now when it comes to oil? >> one of the biggest problem sibley's with north american production, we don't have the need for imports coming into this country. oecd, europe,g at japan. china's numbers have recently been a bit better, but we have about one million barrels of crude overhang right now in the markets. that is the fundamental problem, why we are in lower prices. here froml, you're sunshine partners were you advise on mergers. those cares about the phrase car weinberg used, a sucker hole in the clouds. is that what you see right now? >> it is the new term of art. sector hold. hole.ker >> do you see that? >> i think the united states is in a strong recovery mode. japan is not. parts of europe are not. i think it depends. >> let's get a shameless plug. what you hope to accomplish at your conference. every year,d of her because we love having you speak, we bring all of the m&a folks, lawyers, bankers, private equity folks and at the end of the year a usually issue a paper and we talk about -- >> you issued tomatoes and they throw them at you. >> where are we now? this is the year that m&a for real.for year -- at some point it is going to stall a little bit because a lot of what is driving it at the last remnants -- >> thank you. we will get to those. what was it, $100 billion of deals yesterday? >> unbelievable. but what does it all mean? it means nothing. today, our twitter question -- i know i could not. tweet us. this is what we are going to be talking about later in the 7:00 hour. ♪ >> good morning, "bloomberg surveillance." this guy is interesting. if you don't know him, you should. he's from the fourth congressional district in oklahoma, chickasaw indian and he is a really smart, interesting republican. he will join us in our next hour. really looking forward to speaking to dr. cold this morning. we say good morning. i am tom keene with her and in greeley and -- brendan greeley and julie hyman is in for scarlet fu. >> activists are one of the 10 largest pharmaceuticals and the company are going to buy elegant for $60 billion and with that botox. and they will stop growing, cut costs, and focus on it salesforce. marshall sonenshine, tom and i agree about this. i feel like when we see a couple , i always wonder whether it means anything. is a possible to draw a thread between those two and say it means anything about the markets at all? twoes, i think you can draw threads. number one, cheaper stuff. activist is about generic drugs, taking costs out of rmb, out of sales so you can smell -- so more drugs. halliburton is about cheaper oil, meaning fewer projects need to cut costs. the second thread is both of these jets are about expensive stocks. >> can you see the botox, is it leaking. >> you're holding up for now. >> clearly, you take it for migraines. talks i noticed the price of stock. yesterday was like a typical bubble m&a reaction to halliburton. we finally reached the stupid season? tough ona little halliburton because baker hughes is a prize and stupid season would be tough on actavis. where you saw that, last week i was here and we were talking about the rumor about hasbro buying the movie studio. dreamworks. remarks was up quickly 15% and hasbro went down 5%. i said, i think hasbro shareholders are saying because all. i think there is a lot of that right now. you have to pay up to get these companies. what are people paying with? as much stock as humanly possible. >> let's bring up a quote. actavis does it make stuff, it buys stuff and sells it. one of the things with the planes they have is they're going to drop $400 million in r&d. how long can they keep cutting on r&d -- >> it is financial engineering. >> at the moment, you're seeing the buying companies because it is hard to about yourself of new opportunities for patent expirations. it actavis makes generics. they were built on the foundation of summit else's patent is expiring, we can rush in there with a cheaper product. >> just to clarify, they don't do r&d for new stuff. >> they don't. you can't blame them because you have to come up with a hit him a little bit like dreamworks. but if you can makes up that competes on price, taking costs out of the hospital chain. >> going back to connecting the deals we have seen. this looks like it will be another record year for deals. >> it is. >> we see when the market rises on days when you get a lot of takeovers announced, well, it is because people are optimistic. but in many of these cases, are they not coming from a position of strength? aren't they doing this defensively or because their core business isn't growing? >> yes, julie, you're right about that. let's take the baker hughes situation. both of those companies are playing defense right now. for exactly the reason helima croft was giving. wehave less demand for oil, have an oversupply, u.s. is going energy independent. guess what? fewer options. >> where is the tipping point on oil? we heard from stephen short is $72 a barrel. does halliburton and baker hughes signal a behavioral change? >> i would watch for the opec meeting in terms of potentially where there is a floor. >> are you going to it? >> i wish. it is on thanksgiving day. >> helima croft has a higher floor and oil for saudi arabia, $100 a barrel. i look atdo, because the defense spending. so many of the projections on saudi arabia and the budget do not include defense spending because it is not probably disposed. that is 31% of their budget. i think break evens are much higher in saudi. >> let's get back on script. what does halliburton mean for the oil business from your economic purview? >> in terms of the notion that the low oil price. is this going to become the new normal? i guess i take a bit of a contrarian view because i do believe there is phenomenal support for higher prices out there from the middle east, but right away, i'm looking for this opec meeting. if you go into it opec meeting with one million barrel cut potentially, you could be up $10. >> i'm sure they want the price to be higher. i want my salary to be higher. but do they have the negotiating power to do it? >> compared to 1986 whenever 7 million extra barrels out there in capacity, we are at 3 million barrels -- >> before this our ins, i'm going to get you to tell me what this means for exxon mobil. she always goes to the opec in is still from 35,000 feet. >> isn't that where we live at 6:00 in the morning? >> what does it mean the u.s. is producing a lot of fracking and opec is meeting on thanksgiving? >> i don't know. conspiracy theory. >> we're going to come back with helima croft, and of course, listen to her carefully on opec. in the next hour, the discussion on the middle east will stop look for that on radio and television in our next hour. we say good morning to you from new york city. it is "bloomberg surveillance." ♪ >> good morning, "bloomberg surveillance." i am tom keene with brendan greeley and scarlet fu is off today, we have julie hyman. >> my morning must-read comes from lucy marcus. she wrote more generally about investing in the public sphere and infrastructure, but also the private sphere she writes -- >> goes back to financial engineering. >> we were just talking about this. you said this is a totally legitimate strategy, which makes sense for a company. overall, as this worry you about the industry? >> it doesn't worry me about pharma because i think we have had an extremely level of investment in pharma. i think right now the consolidation is necessary to take some cost out. there are other industries we are underinvested. i suddenly think in infrastructure, this country is simply missed the boat. we had an opportunity to build and we didn't. >> how do we fix it? >> i don't think you can because politically it is not popular to build. >> the earlier point, if these companies are just buying other companies rather than investing , doesn't that signal a lack of confidence in economic growth? >> i think you to take a piece by piece. situation,ughes there isn't as much as for oil rig's now. they have to cut back. these two companies did not really want to get together. but they had to. >> when you start 2015, what is on income statement? is there a lot of fat to cut? >> in corporate america, there's always that to cut. i was teaching yesterday and we had this discussion with ted shell and we were saying, you see large public companies always have a little too much fat. i think less of today than what have been the case a decade ago because activism has worked. >> we are ready have our quote of the day. , "i think when bridges fall again, you will see fixes." >> i'm thrilled you think that is quote-worthy. >> that is sort of depressing. do we have to get to that point? ande get a "d" infrastructure when we did not rebuild. >> is opec going to make it? with 1986 upon them, are they going to learn? >> i think many market dissidents would say, no cut. but i think of weak growth with the iran nuclear discussions coming up -- >> there it is, helima croft on opec. >> nuclear talks, we will talk about that and opec. ♪ >> good morning, "bloomberg surveillance." let's get to our top headlines. >> hong kong's government starting to clear away barriers during the seven weeks of pro-democracy protests. authorities met little resistance from the demonstrators who knew about the move ahead of time, but there has been no action to clear barricades in a more volatile protest zone. sony is hoping for a new growth and turning its eye to a superhero for help. the company says it expects new spiderman movies to drive growth as much as 36% in its pictures unit in the next three years. sony is pushing the idea of growth in its entertainment business or than your after rejecting the push to spin a part of that unit. a record-setting deal for baseball star don carlos stanton, the 25 year old center deal withs 1320 $59 the miami marlins. it is the most lucrative deal ever for an american athlete and averages $25 million per season .r more than $154,000 a game he led the national league this season with 37 home runs. i have not done the math to see how much that is per home run. >> unbelievable. >> remember how we were having his discussion about how baseball was becoming a niche sport? >> your son is playing baseball? >> our youngest son is the outfielder for a city college. the oldest is a harvard large school in the middle guy is at usc. we love city college because he owns that turf. >> these are tying into media deals. are they goingn to learn about extending it out five years, tenures, 13 years? >> and yet the sport continues to prosper. >> well, i guess it does. i'm worried about baseball. i thought this year was a real tipping point of disinterest. what we have, data check? >> let's take a look. shinzo abe saying, give me another chance. future saying, we have been burned before. nymex crude ticking up a hair. conveniently, we're talking about oil today. will be talks between iran, america, and europe with a self-imposed deadline of november 24. minimal common ground. helima croft is with us with rbc capital markets. has theeverybody question of, why are these talks important to america? >> it is the big question of, can you get a final settlement on the iranian-nuclear issues? i think this is very important. the notion there is no common ground -- i mean, in the last year, significant, ground has been reached. there are some big hurdles remaining. >> what is the biggest hurdle? >> sanctions. can you pull off the yuan sanctions, how quickly can the u.s. sections be removed? also what kind of nuclear architecture iran should have. the white house once a deal. >> before tew before the new co- >> of course. once you have mitch mcconnell senate majority leader, the transfer new sanctions is really on the table. >> over the summer we saw estimates of whether a joe kennedy reached by the 24th -- whether a deal can be reached by the 24th. where is yours? >> 35%. and the iranopec nuclear negotiations are tied together. i think if you get a deal on iran, that puts the pressure on opec will stop people will start to say, oh, my gosh, there are one million barrels off the market because of sanctions. >> could it we look at a situation where you have partial sanctions? >> no. i think that will be very challenging. if you waver the loan on u.s. measures because congress is not going to repeal them or you will european companies be willing to go back in? will he have normalization of trade relations with waivers alone? i think it will be very challenging. >> set this up, sunni-shia, ageless multi-century antagonism between them, to the saudi support iran in this or do they support us in this? >> i think the saudi's are watching this with horror. the idea we could cut a deal with the iranians that would leave iran was so much nuclear architecture in place, that is the saudi's worst nightmare. that is why they're talking about having her own nuclear program. that is what potentially is frightening. >> if we get a deal, do they drive the price of oil to $40 a barrel? >> there are some of the conspiracy theories, but that is why we put the piece out on the saudi budget. at the end of the day, the saudi's have high physical demands themselves. >> i will pull this up from your research note at rbc capital markets -- >> you read her research notes? >> not only did i read it, i highlighted it because i hang on her every word. >> did you use the "surveillance" highlighter? >> you wanted? -- you want it? i'm fascinated how high you pegged the price of oil they need. they need it worth of $100 a barrel to balance the budget. for you, this is about defense spending. i'm curis about the possibility of defense activity. the saudi's have always been reluctant to fight their own wars. >> that is the amazing thing about saudi arabia, they biased -- they buy the biggest and best toys. we did see in the case of bahrain, they did send their tanks of the causeway. they see isis on a tear, problems in yemen, problem still in the eastern province. this is not a great time for prices to be lower. that is why don't believe at the end of the day that would really risk a strategy of trying to stick it to iran or russia if they had domestic concerns. >> it is not just outside of the reporters committee is also potentially within their borders. we're not just talking about external defense budget, but a domestic defense budget, right? what is the oil price where it is right now due to them domestically? >> one thing about king abdullah, his been very concerned about keeping the population happy. so he does spend on education and health, significantly, he does not want his people in the streets. it becomes the question of, do you have to go into the red? at youth up looking unemployment. this long-term problem from the arab spring is a huge problem for saudi arabia. >> for the entire middle east. saudi arabia, at least they have cash. >> helima croft, help marshall sonenshine. you have an outlier call of higher oil prices? >> ultimately, i think the middle east provides significant floor for oil prices. i am a higher end of the spectrum. >> can you and rbc capital markets go long on oil given the technical construction of those shattered charts? >> well -- >> halliburton. >> it becomes a question of, do you believe the middle east is going to be smooth sailing? everyone focuses on north america. we have like a one million barrel supply overhang. the question is, does libya come back? libya is a huge swing factor. it basically went up to one million barrels over the summer. if that falls back, the market begins a debt balance. >> limit ask your question. let me cut to the chase. furthermore halliburton-baker hughes out there? oil is where it is, do you expect chevron or -- i say texaco. texaco was an oil from a few years ago with a red star. >> there are box in which you can read about things that happened before you were born. >> really? i love that tricia your with song, "underneath the texaco star." >> the deals in many cases have happened. to take costigned out of increase the efficiency for a market that was bracing itself, in my judgment, for a change on the downside. i think baker-halliburton is yet another one on the oil services side where the expectations by and corporate disappearances, we will see less trolling because we have a softer market. -- participants, we will see less because we have a softer market. you may be right because it would be the first time wall street is wrong, but i think that is our financial markets are. >> what about the drillers themselves? are they going to get swallowed up? >> wildcat or's are always wild. sometimes they get swallowed up and sometimes they don't. i think you will see the and automation of wildcatters. you will see continued consolidations and services and equipment sector. >> does keystone matter? are you fired up about keystone or suggest politics? is politics. with the republicans winning in the senate, that increases the likelihood of congressional action on keystone. anon't believe it is initiative the obama administration still was to deal with because of this became terminal agenda. i think of something they would like to kick down the can. >> this is great. that was a tom keene of fiber heard one. -- if i ever heard one. story is different, don't let your eyes glaze over. today single best chart after the break. also, our twitter question of the day -- ♪ >> good morning, "bloomberg surveillance." brendan greeley and julie hyman with me today. it is one of the biggest drivers of this bull market, and it will continue that as share buybacks as american big business puts its cash to use a returning it to shareholders. i spoke recently with citigroup's tobias left could pitch. >> this idea of 2007 was actually the absolute peak for buybacks in u.s.. 2011, 2012, 2013 have been record doubles first -- record levels for spending. numbersthe u.s., the have been mid to high syntel digits for capex. durable goods orders have stayed relatively strong. we're seeing more and more interest in doing this particularly as you get broaching 80%. >> there it is, you wonder where the mystery is the next year. marshall sonenshine is with us. are they inventing cash to do m&a or using cash to do m&a? >> first of all, there's a lot of cash being used to do m&a but the most important currency for him in a right now is stock. i think the fact of the matter is, companies are expensive so the acquirer once do you stock. you see the two deals that just happened yesterday, both are substantially stock -- >> of the $100 billion, how much was gross? 20 of 100 billion? >> probably a good number. >> we call that funny money. >> you did not ask me what percentage of halliburton-baker was stock, 76%. -allergan, 40%. the fact of the matter is, don't like me could not win eligible because he wasn't paying cash. that was not a hostile bid recent, take my cash, your board of directors are asleep, i have a solution. he was say,. >> take my stock, and you could not sell it. >> is or anywhere you can see they're using more by investing? >> i see a lot of good investing by corporate america. it's be honest, there's a lot of cash on the sidelines. if it sits too long on the sidelines, carl icahn has a point, given back to her shareholders. people needed to pay tuitions. that brings us to -- >> marshall sonenshine, you have three children in college. he recently went through the entire power of the market to figure out how best to take care of them. take a look at our single best chart today -- what is happening is, college students were applicants are shopping around for the best tuition deals they can get and applying for more colleges. >> the number of colleges they're applying to is a little silly in one sense and rational and another because the truth of the matter is, how muddy businesses can you name where demand is incredible he robust or decades and they don't build more capacity? the truth of the matter is, many, many colleges have raised tremendous amounts of money -- yale a 20% on billions, but they don't build more seats. >> when the croft offspring goes to college, it is going to be $100,000 per year. >> my husband is a professor, so hopefully we get a tuition break. >> oh, please. amen. >> i am a professor at columbia and iwatch -- >> you're talking about yale not adding capacity. yale is like apple, they want to restrict capacity in a certain way. we saw the capacity raise in for-profit colleges. the ceo of our endowment at columbia, i have him talk to my class about what the hell goes on inside the money side of universities. one of my students asked, why is it they have the her education price index, which is always a point or two above the consumer price index? why have they decided universities are entitled to their own inflation index? he thought for a moment and said, i've got to tell you, it is an arms race out there. they have to raise money and bill because that is what they do. they want the sat scores to go up every year and endowment to go up every year and the -- >> does anything change? spend $100,000 to send our kids to college? if not, what will change that trajectory? >> we're talking about eight or 10 or 20 colleges and then all the rest. they are the ones that need to fill seats. we need to redefine our own understanding and appreciation of great universities. i made a little bit of a quick before because you asked about baseball. our youngest son was recruited. he loves it. i tell you, for 2500 dollars a semester, he gets a first-rate education -- they got for public education. i think to myself, thank god there's a public education system. we need it. >> amen. there is lack of investment at the state level in the state universities. we will be talking about that in the next hour with dr. catherine:. cohen.ryn twitter question of the morning -- >> i don't the guy to get a job at my own firm if i applied. ♪ good morning, keystone front and center. he is from oklahoma, between norman and a chroma city am a tom cole will join us. city, tom cole will join us. this is "bloomberg surveillance." brendan greeley and julie hyman with this, scarlet fu is rumored to return at some point. top headlines. thehe trustee unwinding ponzi scheme says more than $10 has and recovered so far, nearly 16% of the lost principle. to offshore funds that funneled money to the fraud have just agreed to pay a total of $497 million to end lawsuits. madoff is serving a 150 year sentence in a prison in north carolina. snapchat. it is joining forces with payment company square so users can send cash to each other. the new feature is called snap cash and will be available to users 18 or older with a debit card. the deal gives square access to snapchat users who and where than 100 million disappearing steps a day. noble energy investment today. the world's largest amateur retailer is by no 165 megawatt wind farm in texas. this brings the number of wind projects ikea owns to nine. they planned to invest early $2 billion in wind and solar power by the end of next year. >> really? "some assembly required"? >> you had not told anybody. >> we need some video footage of you assembling ikea furniture. something tells me you don't have a lot of ikea furniture. >> i have two lawyers to inform me. >> what do we have? mervyn king is speaking up and says we need to make a distinction between the eu and the euro area. he spoke to olivia sterns at the global financial leadership conference in naples, florida, joining us this morning with more on her exclusive conversation with the former bank of england governor. >> good morning. plenty to talk to mr. irvin king about in a very soggy and windy naples, florida. we talked about the stagnation in europe and about the risk of relation of the crisis in ukraine. and the bank of japan is once again back in recession. among all those potential threats to the global economy of a certain mervyn says he is most worried about europe. he says he is very concerned and apple european leaders have a plan. he says the first step for european leaders must be a recognition that a single monetary policy is not appropriate for all the countries in europe. got tobig step for has be within europe. the news to be a clear recognition on the part of the leaders of europe that looking ahead, there will be two different categories members of the european union. in the euro and those not in the euro area. those in the euro area will require a degree of coordination, if not explicit fiscal and political union, which is wholly inappropriate for those countries not in the euro area. and then is to be recognized. the idea there is the euro area is the european union is a dangerous mistake at present and will lead only to bigger troubles down the road. >> he says the first that must be a reckoning of there are two tiers of economies, two speeds of economy within europe. the former french president herezy is also down naples, florida. i asked mervyn king if he feels the countries domestically or put in place sufficient structural reforms, whether or not this is something mario draghi can solve any says, yes, he things many countries are making structural progress. he does think the ecb and mario draghi will need to do more stop the challenge now is, they're pushing on a string. >> bolivia, greatly appreciate it. , greatly appreciated. we have lots to talk about here. helima croft with us with rbc capital, final thought as we look at what we have seen this year. a year ago, did you expect the 2014 we saw? >> oh, gosh, no. what i been so stunned by is this price rob. i was in the middle east in january. no one was expecting mr. medic price decline. the fact we're sitting -- dramatic price decline. the fact where we're sitting is astonishing. >> marshall, the money question this morning, is the fraud back -- froth back? >> this is a sure teacher driven m&a market to a greater extent than we are seen in a long time. >> thank you so much, marshall sonenshine and helima croft. let me do a report. 117 on yen. stay with us. another hour of "bloomberg surveillance." ♪ . . this is "bloomberg surveillance." >> japan is in recession. abe results parliament. he looks for a mandate for the nation. america's middle east political and economic policy is in disarray, and suddenly, most college classrooms are half full. colleges need to fill seats. good morning, everyone. this is "bloomberg surveillance." we are live from our world headquarters in new york. it is tuesday, november 18. i'm tom keene, joining me brendan greeley, julie hyman is in for scarlet fu today. let's get to the top headlines. x in japan, prime minister shinzo abe is moving to jumpstart an economy that has fallen into recession. abe has a great 118-month delay for an unpopular tax hikes set for next october. a sales tax increase earlier this year is getting some of the blame for japan's slumping economy and the primus or is dissolving parliament. japan's nhk network says elections will be held the summer 14th and he bets his liberal democratic party will maintain control of japan's parliament. that will allow him to proceed with his abenomics program. meanwhile, the euro economy cannot be fixed on its own, but it is ready to take more steps. he ecb president mario draghi. >> it is necessary to further address risks of too long period of inflation. the government council is unanimous in its commitment to using additional and conventional instruments within this mandate. unconventional measures -- by a government bond. that has not been mentioned before. come weeksmments before the next ecb forecasts, which is likely to show a weaker outlook for growth and inflation. according to police, palestinians armed with guns, knives, and axes killed four israel he's. at least six more people were wounded. prime minister benjamin netanyahu says the country will respond with an iron fist. told you what i is hoping its new alternative fuel car is at the prius hass been. only a few hundred will be sold. toyota wants to live her deliveries. the cost about $58,000. >> to st. louis, missouri, governor jay nixon not taking chances. he is preparing for more violence for the shooting of an unarmed black teenager. death led to's weeks of protest in ferguson, missouri. sometime this month, a grand jury will decide whether to indict the white police officer who shot him. now missouri's governor has to cleared a state of emergency and has activated the national guard. school be canceled today. officials are asking people to treated as an "major storm" event and a stay home. those are our top headlines this morning. let me go to the data check now. goldbach above $1200 is really what we have got, euro-dollar $1.25, brent crude still under $80 a barrel, $79.26. on japan, we are fortunate to have a special guest. abe will dissolve a parliament in europe and they are linked, he says, there are no arrows in the quiver. president of is the council of foreign relations and only weeks ago met with mr. abe and mr. kuroda in japan. minister is incredibly forceful and he has this ambitious to mess with policy reform and secondly his foreign policy is a much more normal japan, you might fall at the first -- call it the first post-world war ii japan. >> amnesty is a parliamentary system, but he has the support of the people, i believe. why does he need to vote come december? >> it is a good question. i think they were surprised by the result of this most recent quarter. 9% down is a recession by anybody's calculation, so i think they need to go to hope to regain their initial momentum if they are ever going to move beyond monetary policies. >> i think what we are seeing is there's only so much central bankers can do. >> mario draghi is boxed in as well as kuroda. >> correct. at some point, these guys are left out there. >> you have structural reform and fiscal policy. structural reforms seems to be what is missing in japan. fiscal policy is missing in europe. what do they have to do structurally? both are missing. to some extent, even some of the meskill -- the fiscal is missing. they can do things like immigration reform, which has been a bridge too far. the one area he has made a little bit of progress in is women in the workplace. you have got to continue to move but i do think he has got to do something different with this campaign, which is say not just support me, but here is what i'm going to do specifically. last time around, they had a vague mandate. i would say give an explicit mandate. >> does he have that ability? there is a risk obviously when you call for election that you will not be successful. >> the opposition is weak and and really disarray right now, so i think he has got a pretty good chance. he is by far the strongest personality on the japanese political scene. kuroda, the central bank support.t has ask for those of you on bloomberg radio, i will put this out on bloomberg radio plus on itunes and android. this is back years and the miracle of japan and the stronger yen and then the little itsy-bitsy of all been on makes -- of abenomics. up they time we pull floorboards on japan, we look at cultural issues, bringing women into the workforce. i think women are leaving japan to get jobs and other continents where they are excepted. these are cultural issues. can japan change culturally? >> historically, yes. work.es an awful lot of it does not just happened. that is where someone like promised are able has got to talk this and translate the big hasike prime minister abe got to talk this in trend lately big picture. could the process begin? absolutely. >> what if the next big step after women in the workforce culturally, what is the next most important step? >> i would think immigration would be big to increase the number of workers who are allowed into japan. i think that would send a real signal to the workplace. >> give us a great on the trip to china by the president. you speak to this, you have got a great team of advisors, and it on thet to have you show. the president is great, but i see a lot of negativity. >> i think people are making a little too much about the chinese statement on climate. the idea that they're going to essentially in another 25 years again to calm down, but we do not know exact way from where, and even that is soft. i do not see that is quite as remarkable as other people do. i think some of the progress on a trade and technology front is good, but we will see where we go on electronic policy. >> how do you do it? i just deal from richard haass. gotgo in there, and i have four briefings on burma, and all the sudden, ima burma expert. a burma expert. >> actually you are not, but you can play one on tv. having read your foreign affairs article the unraveling, talk about international organizations to do with this, yet we have different organizations trying to come to terms with it. >> i am trying not to sound condescending -- which is the least and capable international organization -- >> this week's question. that was a triple negative. >> i am sorry. organization do you see least capable of making change? are you happy? >> the imf and other situations can actually affect some reform. >> brussels? >> nato? that nato still exists is impressive and has not done terribly well in a current crisis. think it is fascinating that you have finland considering joining nato, you have sweden -- >> the real question is whether gets capability to be meaningful . i think some of the wto -- not bad. resolutiondispute system in the wto, but others are talk shops. the g20, these are talk shops. >> ambassador, and the opening credits, mumbling as we show japan and europe linked together. how are kuroda and draghi linked together? all oftary policy out of the monetary tools is the least difficult to play because this is what central bankers can do. with a step harder to deal fiscal and several steps harder to deal with real fundamental reform. look at europe. the fundamental reform of labor mobility --labor that is simply a bridge too far, so what you have is mario draghi -- he is out there peddling furiously. everybody likes him and admires him, but at the end of the day, he cannot stay here. >> to come back to your article here in "foreign affairs," there seems to be a fundamental astament you are expressing, trajectory of default right now. is that accurate to say? like is the metaphor i there has been something of a correction, not a collapse or a crash, but a correction and world order. >> that implies we will go back up -- >> we have the possibility, not in every ability. continued haass will with us. coming up, the keystone pipeline will head to the senate. we will speak with tom cole of oklahoma. good morning. ♪ >> good morning, everyone. this matters now to our guest host, richard haass, president of the council on foreign relations. considering america's ambition and the middle east and to be direct is a mess. we need a new policy for 2015. what should it be? >> part of it is beyond the middle east. asia, where the president just was, ought to be the area of focus. increase american presence of a medically, economically, to keep asia on the rails. asia has been a remarkable three-decade story. we want to keep it that way. europe is tougher because you have the russian challenge. there we ought to be doing i believe more for ukraine and more for nato. the answer should not always be just to penalize russia. you should strengthen ukraine militarily, strengthen the rest of nato. steps to weaken european energy dependence on russia. middle east is by far the less successful, most problematic part of the world, and there we have simple he got to take steps to try to thwart the momentum of a group with isis. >> what type of diplomacy is proactive in the middle east the way we see this? everyone stammers. >> i do not think there is diplomacy with groups like isis. what you can try to do is shore up some of the neighbors. do more with turkey. i was there the other day. i am not sold that the turks are prepared to be partners of the united states and slowing down isis. proactive diplomacy with iran. as bad as the middle east is, you can imagine how much worse it could be in a week if the iranian negotiations came down. >> you just came back from exit code, he's been a year -- from abroad,you spent a year but we forget about our neighbors. has become a great surprise. you had these 95 or 96 areas of energy reform that the three major parties all signed on to. then suddenly, it is as if somebody pulled the thread and you begin to see unraveling on the security front with the awful story of the 43 students who have disappeared, and so far at least the government not being able to find the people behind it. but we know it was for up to politicians and drug lords. you are beginning to see stories of corruption, so all of a sudden this administration, mr. opinion yet though -- mr. nieto, it is the first real crisis where people are saying is this politics as usual, is mexico going backwards? time, the highly touted government of mexico is facing a crisis. >> we need another hour interview with richard haass about our latin american diplomacy. coming up, he is on the fourth congressional district of oklahoma, tom cole is a republican but much more than that. tom cole on the divide north and south, it would be the keystone pipeline. stay with us. it is "bloomberg surveillance." ♪ >> good morning, everyone. "bloomberg surveillance." i am tom keene. let's get right to our top headlines, julie hyman. >> home depot's topping estimates in the third quarter. closer to a profit of $1.15 a share. $1.13.s had estimated shares up 19% since the beginning of the year and 22% in the last 12 months. a record-setting deal for bass eball stanton. he has agreed to a $325 million contract with the miami marlins. it averages $25 million per season, or more than $154,000 a game. led the national league this season with 37 home runs, unanswered on based on his output. to $676,000k out per homer. xlote on the keystone pipeline will come today. mary landrieu is pushing for passage of the bill before next month's runoff election, but she trails representative bill cassidy. those are your top headlines. >> there a good. to politics a little bit north of louisiana. i-35, which was highway 77 and another time, cuts north-south through moore, oklahoma. tom cole is from the fourth district. he was born and raised in moore and knows this early the things i go north and south. keystone pipeline divides washington. perhaps it should not. republicans and democrats may be able to find a common ground. congressman, wonderful to have you here with us this morning. change theice of oil search for a common ground? .> no absolutely not. oil fluctuates up and down, and for american consumers, pretty good recently. long-term you have to build the infrastructure and transport the product. keystone is a critical element in that and is imported in our relationship with our friends to the north. a lot of americans forget we run a pretty important type line called the alaskan pipeline through their territory. >> if you are going to meet with the house and senate leadership today with the president, what would be your single talking point to president obama? >> energy security. frankly, making north america energy secure. not only important economically but also it has important geo, strategic implications as well for our country long-term. congressman,quote, that you gave to bloomberg news a couple of days ago, which is that the president is trying to "bait house republicans into a fight that risks a government shutdown." standing on the rotunda, how do you walk around to your colleagues in that building and keep them from taking the bait? [laughter] >> i think you just reminded what happened only a year ago in the last shutdown. thinkof people, i mistakingly, let us into a fight where we shut down the government to defund obamacare. it did not do that. our own numbers limited, the american people i think rightly were upset, and if it had not been for the failed rollout of obamacare, we would have paid a heavy price for that going forward. we should not repeat that same play. we know it does not work. there are other means to oppose the president without shutting down the government. our aim should be to shed on the presidents, not the government. >> two years ago, you said something really interesting, which is that part of the problem right now in congress for both parties is that earmarks are gone, and that was part of the way things got past, business got done. what else needs to be done for you to start getting more bills passed the president will sign? think things will change. we have a republican senate now, so the senate has been basically a graveyard for house legislation for years now. that is getting ready to change. but it has still got to recognize the president has a veto and the senate has a filibuster, and democrats have enough votes there, so it will be important to find things that are bipartisan like keystone to give the president frank way some tough decisions. we put that on his desk. majorityhelming of the american people favor that. labor unions favor it. let's give him an opportunity to make a decision. >> congressman, stay with us, richard haass is with us from cfr. your book is on his world. are you happy with the initial dialog that you see with the republican senate and republican house? progressy can do some on trade agreements, particularly the transpacific agreement, if you can do sunning on keystone, which in addition to everything the congressman has correctly set, it will send a powerful signal. we want the french to do fracking. how can we get them to do tough energy decisions if we continue to kick this down the road? >> congressman cole, what you say to conservative republicans, those who are on edge about any kind of getting something done? how do you address them in the house and even in the senate? >> again, we have been given a majority for two years and both houses. the worst thing you can do is do nothing and simply throw rocks at one another. we have got to show that republican governance works and not only ported to maintain those majorities -- it is important to set up our next presidential nominee to have a chance to win. we have got some things we know a bipartisann in basis. we have things we can work in with the president. trade is one of them, tax or four might well be another, none of us like isil, there could be a bipartisan new authorization on syria. find the areas we have in common, continue to oppose him when we think he is wrong, big if things done. >> congressman, thank you so much, tom cole from the fourth congressional district in oklahoma. julie, such an interesting guy to go beyond the monday and politics. dane- the on the mondaun politics. >> it is. not just the pipeline, charge him on immigration -- >> tom cole has always been a member of the getting things done. >> exactly. i would like to see a beer between tom cole and president obama. >> i would like to see a beer between me and tom cole. coming up, colleges are turning away students at record ♪ rates. >> good morning, everyone. "bloomberg surveillance." i am tom keene. brendan greeley and julie hyman with me. scarlet fu rumored to return sometime before christmas. let's get to our top headlines. ask hong kong's government is beginning to clear away barriers that have blocked the city center during seven weeks of protest. authorities met little resistance from the pro-democracy demonstrators. there has been no action to clear barricades in a more volatile protest zone. turning to japan, prime minister shinzo abe is moving to jumpstart an economy that has fallen into recession. an 18-month delay for an unpopular tax hike set for next october. a sales tax increase earlier this year is partly to blame for the economy. the premised or is dissolving parliament this week. held december be 14. sony is hoping a superhero will help with the revenue growth. "spiderman"he new movie to grow in the next six years -- in the next three years. those are your top headlines. >> a week ago -- i love this warm guidanceour along with times of straightness really helped our daughter bomb the sat's. >> let's hope your daughter does not read that. >> 5% of high school seniors who apply to stanford university were accepted last year. that is down from double-digit omission rates less than a year ago. cohen has a consulting form, iv wise. you were an admissions officer at yale university. first of all, thank you for nothing. [laughter] second of all -- how many people around this table got rejected? is that a rational strategy? >> no. there was an article in the "new about students submitting a crazy number of applications. we advise our students to submit to 1510 applications applications, still up from about 10 years ago when we were advising kids to do. the problem is it is very hard to manage more than that and make sure that the college knows that if a top choice school for the student, because colleges are concerned about their yield, which they are looking at for their ranking, and they want to make sure they offer you a place and you are going to come there. >> we are looking at the top five here, all of the ivs, yells going, columbia going down, princeton is going down. is there a floor there? most the top level at the selective schools, we see rates drop, so stanford last year, 5.07%, and seven years below that, it was 10.3%, so we are seeing those numbers drop. we are even seeing small liberal arts schools, your child goes to middle barry, at 20% or less. amherst 13%. >> i am sure you have had things thrown at you in speeches -- if my kid goes to middlebury, blah, blah, blah. when does this disease start? need tots and students think that most of for-year universities except two-thirds of their applicants, so we have over 3000 -- >> does anyone on the east coast know harvey mudd? >> they should. if they cast their net wide and do their research well and they put together a balance list of schools, some reach some targets, they will have -- >> thank you, a balanced list. >> great choices -- how much does it matter where you go to college? isn't the disparity between someone has gone and someone can go at all? isn't the income disparity much greater than between say a yale and a harvey mud, for example. what you makee is of the experience because you could go to harvard and not make relationships with professors, so it is what you do when you get there that is important. atcan look of course business and all walks of life and look at people and where they have gone to college. where they have gone to college does not necessarily guarantee success. it does not also guarantee that they will get that high-paying job at the end, so harvey mudd is a school where you can have the highest salary. >> we have got to take a break, cat. >> this is "bloomberg surveillance." we are going to -- we are going to continue with cat cohen. i want to pull up another couple of acceptance rates dropping. these are not randomly chosen, these colleges we are looking at, tulane university, rochester, my all mma mater, keene, tom randolph-macon for julie. >> yours is a tough one. >> mine? something happened after the storm -- they really made a change at tulane. what is driving this from the parents and the applicants in? ofwere just looking at video the leafy, beautiful video at cambridge. what is driving the increased panic about getting their/ -- getting there? >> students want to get that great college education, they are thinking by the r.o.i., return on investment's, they are thinking what the job market and what is happening after that. as you were saying earlier, it matters what you are doing when you're in school and then how you make the most of the career services, and that alumni network once you get out of school. we teach students that. driven.is financially colleges have to justify the $50,000 a year. increasingly private high schools, have to justify the 35,000 dollars a year. how much are we on a financial treadmill? >> this is one of the problems with higher education, especially the cost, going up something like three times the rate of inflation and how are we going to be able to sustain that over the years? however, one can audit for free any of these classes at harvard, m.i.t., princeton -- >> it drives me nuts how we go back -- my mother called it harvard on the brain. richard haass, you are in the trenches. every kid in the international relations would kill for an internship as cfo, when you look at a resume, what do you look at? >> not the grade point average. at is least interesting. we look at how a serious courses the young person has taken, what they have done what what rigor -- what they have done -- >> rigor! any great public school, what do you look at on a resume? >> a college is going to look at the same thing, course rigor first, if the college accepts standardized test scores, but they also look at the student having pursued their core interest. they do not want a jack of all trades, and made an and packed in their community through those core interests. that is crucial for the engagement with what they are doing. >> what about the problem of middle and lower income kids getting into the best colleges, you know, not only do they have to pay all of these application fees and if they are applying to 20 places, they have to pay 20 application fees. they have to pay to visit the college, do what the tuition, the debts, have to do with maybe paying your fees if they want to get into some of the ivy leagues -- we are talking about an enormous cost. >> tom cole was just on from the fourth district of oklahoma. he went to rent out college. -- he went to grinnell college. >> tough to get into. top sevencus on the schools drives me nuts. >> to answer your question, families need to start in a financially very early on, not just for the cost of college but for the cost of applying to college. >> this is part of -- you charge a fee to help people get into these colleges, which is a noble service, but it really dries up the price. every parent is stuck in an arms race. >> the bottom line is we are talking 40 schools, and everybody else has got seats to fill. >> it is true that most schools will accept two-thirds of their applicants, but if you look at the most selective schools, that is what is driving this sort of insanity, as we just read about in the "new york times." >> do students know what pepperdine is? >> yes. >> her argument is we are undervaluing the schools i do not have the big reputations. the quality of the education is barely correlated to the reputation. >> my argument is students need to create their list based on what is important to them, so if well-balanced list of all good fiscal's entry them all like their first choice, they will have a good place to go. >> kat cohen, thank you very much. twitter question of the day -- could you get into your alma mater day? tweet us @bsurveillance. ♪ >> good morning, everyone. churning markers. we say good morning. i am tom keene. with me brendan greeley. scarlet fu -- when is scarlet back? is she sick? goodam having a really time with julie today. >> i am having a good time. but i really hope that scarlet gets well soon. i do have a long day, but it is worth it to be here with you guys. a.m. up at 3:00 >> i am feeling so much love. >> your nose is growing. >> i know. let's get back to keystone, which we talked about a short while ago. the keystone pipeline is on the senate floor today, and while it is a lyrical flash point, does -- a politicalke flashpoint, that the pipeline make economic sense? anchor betty liu was talking about this on her show. we were talking with cole, veryive tom much in favor of keystone. you guys are what to talk more deeply about it. on sincerld has moved 2008 when transcanada first put in the ripples all that they wanted to build the keystone pipeline, which -- put in the proposal that they wanted to build the keystone pipeline, which flows across the continental united states. look, oil now, julie, is at $100 at the time, now it is $75, right? we were producing in the u.s. about 5 million barrels a day, now we are producing 8.6 million barrels a day. our energy independence has grown, so it raises the question whether the world has moved on, do we still need this? >> richard haass, you travel everywhere. we are seeing this all over the world as oil becomes less expensive, the expensive projects do not make sense anymore. >> that is true, but keystone has become something more than a narrow energy project. for canada, it is a test of its relationship to the united states and for a lot of people it is a test about the american ability politically to take tough decisions in the energy space will set be on the keystone and how much oil it puts into the united states, bottom line is it will not change the environmental impact on the world. this stuff is going to be produced and moved, so this becomes -- as much of anything -- about politics and our willingness politically to take top decisions, even if it offends some environmental lobbyists. >> richard is right. oil is coming out of the tar sands no matter what and the fact of the matter is that instead of being transported by a pipeline, it is already being transported by rail road, so those of the oil coming out of the tar sands. the oil is going to matter what washington does. >> you are going to talk to jack gerard, head of the american petroleum institute, michael weber of the mg institute -- >> they are on different sites, sub they will be debating. gerard says the keystone pipeline is needed, michael webber sets let's move on. >> it looks like congress is not looking to move on. we are looking to that conversation, betty liu, thank you so much. >> iran as well. a lot going on in international relations. we talked to richard haass of the council of foreign relations. what you need to know about united states, europe, and iran. stay with us worldwide. "bloomberg surveillance." ♪ >> good morning, everyone. "bloomberg surveillance." tomorrow, one of our most popular guests will get you ready for investments in 2015. she has been long and right, you haven't, i haven't. ers within, liz ann sond a prosperous 2015. look for that on television and radio tomorrow on "bloomberg surveillance." we say good morning. here is julie hyman. doff says $10d billion has been recovered. irving per card said two optional funds have just agreed to pay a total of 490 million sub -- $497 million. federals serving at a prison in north carolina. send cash to each other. the new feature is called snapcash and will be available to users 18 and older with a debit card. it gives access to snapchat users who send more than 7 million disappearing snaps a day. ikea makes its biggest process tonergy date, the number of wind projects ikea owns 29. it plans to -- to 9. we see corporations continuing to lead on these types of her new will bowl investments. ask very good. on international relations, richard haass with us with the council on foreign relations, and we look to a deadline, november 24, a deadline between iran, the u.s., europe, multilateral does not begin to describe the diplomacy needed to get multiple parties and constituencies of those parties to make tough decisions. those talks will be in vienna. there is no hall of mirrors is there? none of the romance we read in history books. >> it is tough diplomacy and so tough that the one thing we will be unlikely to get is a fully developed agreement. we will be likely to get a second interim agreement or a framework agreement with many principles and details to be filled in. >> who do we speak to in tehran? >> the foreign minister, who is very close to the president, mr. the main pointen person. this is the president's negotiation. the end of the day, the supreme leader is the force but not at the table. >> there is a confusion upon americans, so shattered by 1979. about this linkage of religion to the nonreligious state of iran. >> if you are sitting in negotiations on the side of the united states, what are you willing to give up to get a deal? >> i think the issue is -- how much capacity in the nuclear business do you allow iranians to keep, and i think your answer is we will let you have more capacity than we want to if we have confidence that we will and sufficient transparency oversight, so we know that is all you have and no more. it is both a question of capability as well as transparency and our ability to investigate, and then at the do youbate now is also allow the iranians more numbers, more centrifuges if we know that they are not sitting on fuel? it is a detailed arrangement that you can have slightly more capacity so long as you are forced to park your fuel say outside of the country and russia. multi ringcome a circus. >> how much trust is there? any trust between the two parties? word.st is a funny as ronald reagan said, trust but verify. there is a history of iran cheating here. sorry to use an undiplomatic word, but there has been cheating. >> russia is trying to stick its thing are in the pie a little bit. >> they can be important because they have a decent relationship with iran over the years. they have had on-again, off-again negotiation about giving the iranians a reactor. the fuel produced will be parked outside in russia. >> but your theory about order and disorder, russia does not seem to want a good relationship with anyone else right now. why would they do that? >> financially it makes sense plus they want to be a player. it is wrong to write russia off. i would not assume they are terrible ever. they have a history of playing a constructive part. >> in kissinger's world order, the iran chapter is frightening. you read the chapter, you go really -- is it that bad? do americans understand how important these meetings are? i think it has gone over our heads. >> it is important for the middle east. imagine if this fails what what what happens if this fails? israelis will have to make a very short order decision about what to live with and in others, the saudi's, the ejections, the turks, they are going to say -- the saudis, the edge of shins, the turks will say hold it, we do not want to live in a world where only a ryan has capabilities. >> we had helima croft on, and she said the saudis buy the biggest and best toys but never deploy them. do you see them as a real presence in the region? >> they are now. they will continue to play a heavy hand the city iran. >> you get on the "surveillance" ulf stream out of dubai and you go out over the persian golf, where does the united arab emirates play in? become a real player. it is hard to exaggerate how opposed they are to both iran's bid to nuclear weapons and iran's bid to regional primacy. -- the uae is lined up. >> let's get to our agenda. i looking forward to economic and international relations. the news of the morning on japan. here we are with japan's struggling with truly decades-long deflation and tepid nominal gdp. we will look for the election there. ambassador haass, what is the one thing to look for in the coming days from japan? >> it is what the government says it will do if reelected. what is the case for free voting? what is the mandate, and what is the calendar for introducing real reform? the am taking a look at keystone pipeline today. richard haass come i was fascinated -- you said keystone pipeline is no longer an economic issue, it is purely a political issue. >> absolutely. it is being produced and shipped, the question is where it is being shipped, the environmental impact is monthly better if it is shipped to us by pipeline than if they goes by rail or by truck. but increasingly, you are right -- it is symbolic. for people who care passionately, for the tom of the world and everyone else, this is how you measure the fidelity -- >> what should they measure fidelity by if not by this? >> take real things, like how hard you push for a carbon tax. there are serious things we can and should contemplate. this is not one of them. this is a mistake for the environmentalists to make. >> thank you for saying carbon tax on air. we cannot say it enough. >> i will be heading toward north bergen, new jersey today to a walmart supercenter. they are going to be talking about holiday plans, black friday, i will be talking to the head of their general merchandise business, which is everything you cannot eat or consume, so it should be quite an interesting -- >> they want to be open twice four hours a day for the next 40 days or something -- they want to be open 24 hours a day for the next 40 days or something? >> it seems like it. they talk about different things they try to do to mitigate the trampling from the stampede. >> adrian was adamant that every dollar of bricks and mortars goes to the internet. dollar for dollar. reachare all going to into our own path, try to accuse, the twitter question of the day -- could you get into your alma mater day? is answer -- undergrads that a state school, yes, grad, i'm not sure i could afford it, or i would ask whether it is worth it. next answer -- i could get into my all mma mater today, but i could not get readmitted when i flunked out. last answer -- i could not afford it today. >> funny thing is -- >> i was the last one of my class who did get admitted. i got my letter in august. i doubt i could get in today. >> somehow you would have made it anyway, right? you are a plucky guy. >> plucky, that is the word. >> where did you go to school? >> overland college. >> my mother went to that school. it cost $185 -- >> a quality education. >> i could not skate at rit. i majored in hockey. i did not go to school. there we are. green on the screen. stay with us for another hour. good morning. ♪ >> good morning. it is tuesday, november 18, and we are alive from bloomberg headquarters. you are "in the loop." i am betty liu. japan trying to get itself out of recession to a vote today. we have got your morning covered. six years after keystone was proposed, is the pipeline still economically necessary? has the world move beyond the pipeline? we asked scott ritual of rigell of- scott virginia to weigh in. and, making a comeback at a start up, and 15 years after affirmative action was introduced in the u.s., we're still fighting over race-based emissions. why harvard is now getting sued. first, a look at the top stories this morning. japan's prime minister is trying to get the country's economy back on track. hike, pushing the japanese economy into recession. plus, calling for new elections.
we are here in london. i'm guy johnson. >> i'm francine lacqua. happy new year to everyone. what are angela merkel's contingency plans for grace? that is a question that is dominating the currency markets this morning and is sending the euro lower. driving the news is a report over the weekend that says merkel could look at a greek exit. let's go to hans nichols with the very latest. what are we to believe? >> we basically have three different lines from the german government officials in germany on the report. the first is that saturday night line. that was a nondenial and i'll saying they don't comment on speculative reports. then, last night, we had the economy minister and junior coalition partner. he would know about internal planning inside the finance ministry. he said there were no contingency plans. this morning, we have a member of angela merkel's party, the party chairman essentially, saying he can't imagine there being contingency planning. what we don't have is a firm denial that the government is planning for a contingency if greece leads the eurozone and if they think that exit could be manageable. that was the thrust of the report. one note of caution, just because a government doesn't deny something, we can't take that to mean confirmation. the german government may be playing the long game, where they think we will have a lot of these speculative reports and they don't want to be in the position to deny all them. at 11:30 local, we will see whether or not they have cleaned up their line, whether they have a digestible line on what their plan is for grace if syriza wins and we'll see whether or not markets except that line. >> wouldn't it be remiss of a government not to plan for most eventualities? it seems slightly crazy that a government has to deny that it is planning for an eventuality, even if that is right of the far fringe of outcomes. of course they are going to plan for everything. they can't deny they are not planning for it. >> the question is, if you are planning for it, then you telegraph it. you telegraph it through "der sp iegel." in general, their reporting is excellent and spot on. the question is, was it intentional from inside the government to put this out there? or did "der speiegel" get this on their own merit? it is significant that it is out there. the thrust of that report is that a greek exit is manageable not that it is an outcome they could plan for. before, the line was always, a greek exit is unthinkable. that transition from unthinkable to manageable, that marks a change inside the government. maybe before, they thought it was manageable and never publicly telegraphed it, but to me, it is a fundamental shift. that is why we see the currency markets reacting so drastically. >> thank you so much, hans nichols from berlin. >> let's get the other side of this story and figure out what the greeks think about all this. the election campaign now in full swing. i'm curious to know how all this german input is playing as well. >> it is kind of a repeat of the situation we saw in june 2012. we've been here before in a sense. there were similar lines with people saying both inside the greek government and officials saying the greece's member sit of the euro is in stake. this has been a bit of a bluff in the past. the question is whether greeks will believe it as a real threat or whether they think it will be a bluff. there might be a bit of a boy who cried wolf syndrome. some people that i'm speaking to are more concerned. by and large, i think most greeks don't believe that greece is going to be kick out of the euro. >> give us a sense of what impact the new parties may have. >> we had said at the beginning of the presidential campaign that he is going to sound a new party. he finally went through with that and carried it out on saturday. we don't yet have holes to suggest what kind of electoral impact it will have. the polls have been holding back before asking him. there was one that was conducted before that suggested he might get about 6%. that isn't a huge amount, but if the race is a tight one, it will make a difference at the margins. the bigger impact will be on his party. he might get some of that vote but this is a party that dominates greek politics. they've already collapsed. the former voters are still around. there is a scramble for those voters. you might draw some voters from the cities. he is not a hugely popular person here. this is the guy that took greece into the bailout. on the other hand, just the name alone might attract some. if he pulls 6%, which one poll did suggest, about 6%, that could make a difference at the margin. >> marcus, thank you very much indeed. we will be back with you soon. >> looming possibility that greece might check out of the eu is impacting the markets. let's bring in eric nielsen chief economist at union credit bank. great to have you on the program. why is nobody panicking? >> your colleague put it very well. is it conceivable that somebody leaves because the market drives you out but you can't keep somebody in? if the greek population decides to leave, then you can leave. that means that the contagion effect would be a lot less. >> is that true? is that going to be the way that it happens? i want to see you start opening the door for a country leaving. it changes the dynamic completely. >> you see already now, with the qe backstop, it looks very nice across the southern flank. i think it is important to appreciate that the greeks want to leave. it is different from the market forcing you out. the other point that has not been pointed out enough is that the greeks will not necessarily say they want to leave. they may say, we will not have the policies you advocate. then you can push them out. the exit would come if the greeks start to run on the banks and the ecb will not support them. it would be the ecb's decision. >> i understand the point that this is internal politics, not about debt sustainability. this is also the test for what future countries are going to vote. you have the emergence of extreme parties in spain. if they want to leave the euro, what are the chances of other countries doing the same? >> that is a good point. i think that if greece leaves it will be a complete disaster for grace. that might take the wind out of the sails of the other extreme parties. the extreme party i worry about is in france. if france starts to pull off, there is no euro. >> so greece is important? >> greece is important for sure. it is the first test case where you see if it can hold together through this transformation to become northern european. >> if syriza wins and forms a government, do you start pricing that -- the breakup of the euro goes from being a right-hand side tail risk to start moving into the center. how do you factor that in to your thinking about pricing of all assets across the eurozone? >> i wouldn't be too worry, in a sense. i worry very much for the greeks. but greece in the euro continues. as i said, if they leave, for me, it probably reduces the risk that any other country is about to leave. if greece suddenly prospers on its own, but i can't see this happening. >> let's say, what are the chances of greece leaving at this point? and when greece leaves, what happens? >> i don't think greece will leave. let's assume they leave. i think there will be chaos in greece and the ecb will be buying bonds. therefore there will be no chaos in other places. the question to ask yourself is, what is the implications in other countries of this happening to greece? will spain move closer or further away from exiting? my guess is that if anything you move them away from the exit. people will see what disaster it brings in people. >> is there credit risk in eurozone government bonds right now? >> not really. >> even in greek bonds? >> in greek bonds, yes. but it is a very small share of the market. it is not like the effect that you have from ukraine or russia where some funds have such a big chunk of it that they have to sell other things and you have the ripple effect. >> can the ecb by something with credit risk attached to it? >> i think they should, but they won't. it is also the greek central bank. it is difficult for me to understand that you have a currency union and say, i don't quite like you. that is not monetary policy. it is what the bundesbank said. >> if they don't buy greek debt is greece a member of the eurozone? >> they are because that is their currency. >> as you say, it is meant to be a common currency. it is not common if the central bank is buying one thing but refusing to buy another. the premise doesn't exist. >> i don't think that is necessarily the definition. it is a massive blow across the project. but at the end of the day they have bought it italian bonds before, greek bonds before, the fact that you buy some but not others is not unprecedented. >> but it is an active decision on a credit basis. >> erik give us a sense of where you see the euro headed. is 2015 the year where the euro will weaken significantly, and does it mean that a lot of forecasters have their predictions wrong? >> we had it wrong. we didn't see this weakening euro, but we do now. i think it will move lower a lot. >> how much? >> to the 110, 115 range, maybe. when you start moving through this space we are not talking about small moves. the only thing that is important is this it is predominantly a dollar story. you are having maybe 4% 5% with depreciation so far. it is a wonderful situation. you have the central bank threatening to pound money into the system. oil is low. you have a lot of stimulus from this side. >> stay with us. in the meantime -- >> our twitter question today. let's ask you. how low does the euro go this year? we are talking about against the dollar. tweet us your thoughts, join the conversation. it will be interesting to get your take. >> still to come, which retailers are winners and losers later in the hour. >> loss, what impact will low oil prices have on the future of alternative energy in the you play -- in the u.k.? ♪ >> welcome back. you are watching "the pulse." live on bloomberg tv. we are on your tablet, on your phone, and we are very much on what is happening in the currency markets. the single currency floating with a nine-year low, the risk for deflation mounts. the ecb maybe just a few steps away from full-scale qe. what that looks like, let's discuss that now. we are back with erik nielsen. before christmas, you put out the note saying, 50-50. did the article from draghi move it down for you? >> it looks that way. for me, the question has always been, can you actually threaten it, get the effect, and get away with not doing it? >> he has done pretty good so far. >> exactly. we have been more optimistic than most people on the recovery. if that comes, maybe he can get away with it. also with oil prices dropping and inflation lower, we have to pull the trigger to keep his credibility. you can sort of see that they have done the groundwork. >> will he pulled the trigger at his next meeting? >> no. i find that hard to believe. there are more things he can do. he can expand the private purchases, and if you wait till march, you have the new forecast. i would be surprised if they do sovereign qe in january. >> when you look at how he's going to pull this together, you talk about the considerations is it possible that we can end up in a situation where the cpi data is screaming that it needs to happen but the politics is going to keep him from not doing it? you talk about the fact that the germans are on board but do you think the germans really are on board in the way that you can have aggressive qe? >> this is the big thing, if you don't do 500, there is a risk that people say, that is all price. think about what happened in the america and the u.k. the more you i knows it, the more you have somebody buying the rumor and selling the fact. he must say that there is much more. he must be very clever the way he says it. >> the more he waits, the more he has to do. if he was to do it in january, he could get away with less. >> unless the economy starts to pick up. the italians have disappointed but european pmi has start to look better. >> france has disappointed. >> exactly. you need better numbers in the big countries. as i said before, the die has probably moved. the germans don't like it. but i think -- if you see all the statements from the german politicians, they are saying nothing. the central bankers are saying, we don't think we are there yet. >> ok. in my mind, the argument is beyond whether they do or don't do it, it is just a question of scale. >> and timing. >> timing to a certain extent. if they come through and go large, if we go one billion, that tells you that everybody is on board. if we get 250 500, that tells you that not everybody is on board. they have to pull the horns in a little bit. that shows the ecb could be quite weak. >> i think less than 500 is impossible. draghi will make a blunder beyond. i think if you came out with a couple hundred and said -- it would be -- >> catastrophe. >> it could be complete chaos. if you pull that trigger, you have to do whatever it takes. >> what does that look like? >> minimum 500 with clear statements that this is just the first one. we will do whatever it takes until we see the deflation risk having disappeared. my guess, given the fact -- maybe there is in january some private sector stuff to extend sovereign qe at 500 with a clear indication that there could be qe 2, 3 4. >> when we had news they were going to publish, the ecb, in order to be transparent, you were on set with us. what does it mean for the markets? here, we have a very clear indication of where the ecb stands. >> we will see how much they actually published. i remember some years ago, a governing council member said to me, you would be very disappointed. you never really know what it is. you never really know how much they will tell. the other side of it, sometimes you see this list of the members, i don't think it is quite like that. my gut feeling is that there are people who probably -- he always sees himself between the germans and french. i don't think it is quite right to think it is black and white between people. nobody -- everybody will have hoped the economy will do better, but at the end, it has to be do or don't do it. >> erik nielsen, global chief economist at unicredit bank. >> how realistic is a split between greece and the eurozone? what happens if the greeks decide to go their own way? we will discuss the implications and possible contingency plans, next. ♪ >> welcome back. quick look at the equity markets. first real day back in terms of trading. the ftse, one of the few exceptions. the ftse now down by 0.5%. most of the continental markets, reasonably well bid. you can follow me on twitter. see you in a couple of minutes. ♪ >> welcome back to "the pulse" live from bloomberg's european headquarters in london. >> these are the bloomberg top headlines. >> iran's president has said that his country can't achieve sustainable economic growth while living "in isolation." rouhani told a conference on sustainable growth and job creation that iran would not suffer from becoming more transparent about its nuclear program. progress in negotiations have won the country some relief from damaging western sanctions. >> indonesian whether officers report on the path of the crashed air asia jet. the plane appears to have flown into a storm cloud and ice may have formed around the engine. rough weather has continued to hamper the search for the black box flight recorders. search teams recovered four more bodies earlier today. >> in an interview with the bbc david cameron has said that his proposed measures to reduce new immigration into the u.k. will require proper full on treaty change. >> the referendum must take place before the end of 2017. if we could do that earlier, i would be delighted. the sooner i can deliver on a renegotiation, the better. >> now, the holidays are over time for retailers to take stock. here with more is european business correspondent caroline hyde and charles allen. thank you for joining us. caroline, we have some figures from john lewis. >> building on a trend that we saw from next is online is where its at. we saw john lewis performing very well, like for like sales up almost 5%. 777 million pounds. one million pounds spent per hour in the five weeks up to december 27. we had a slight downtrend, then a pickup in the panic buying before christmas, then the sales after boxing day. online growth, up 19%. one third of all john lewis sales are going online now. that is where the growth is click and collect. more than half of all purchases being done online but then picked up in the store. many people felt that doing online would mean people wouldn't buy in stores at all. john lewis had flat sales in-store then a big pickup online. it was all about the new espresso machine. interestingly, one other area was discounters. little, it was reported, had 20% growth in like for like sales. more champagne sold than milk. i love that. >> and the nutribullet. >> you have the champagne before -- >> and then you detox. >> charles, in terms of the way the retailers have set themselves up, were they in the right position with stocking with delivery times, to cope with what appears to be a changing dynamic? >> they definitely changed. john lewis there week week used to be just before christmas. black friday week was easily a beat. implicitly, they've may be not done as well as they thought they would. there are higher costs. particularly online. if you want everyone to be delivered on the same day, you have to employ more people. you are also selling things on promotion. there is a suggestion they may step back a little bit from black friday. the whole point of christmas is you sell at full price as next did. thweir best week, the week before christmas. i think we have seen a big change with the sales brought forward to the end of november but maybe the bill -- maybe people stepped back from this. >> what about tesco's? >> we now get more unveilings from the high street players. this is of course grocers. they have been having price wars abound. sainsbury's comes out on wednesday. we will likely see like for like sales decline. anywhere up to about 3%. and an s does well on the food front. we trade up for a bit of luxury. general merchandise, they did not set themselves up for online. they had disruptions. they couldn't deliver the next day as planned. they are going to have problems in general merchandise. tesco was all going to be about the recession. >> the trading has been quite difficult. it is really about how they can set themselves up to have the right price in their merchandise and the right cost structure for what is going to be a slimmer operation. that means things like researching in head offices that they told us about in the u.k. they told us in october, that number is going to come down the number of people in head offices. the way they buy merchandise has to become a lot less complicated. it has to be simpler, like the discounters. so you are dealing on a more volume-based thing on customers want -- on things customers want to buy. that is a trap loads of retailers have fallen into. >> thank you for a great conversation, caroline hyde and charles allen. >> coming up, contemplating a breakup. the possibility of greece and the eurozone going their separate ways. what happens if greece decides to go it alone? is there a contingency plan in place? we are going to find out what the story is, next. ♪ >> welcome back. you are watching "the pulse." we are going to look at the euro and show you what is happening here. we came in throughout midmorning as low as 118.64. we've been popping up a little bit since then. that chart doesn't show you the gap down which takes us from the position of being down around 0.4%. we are trading 1.1957 as we speak. >> lithuania's adoption of the euro has triggered a new voting rotation at the european central bank. it is diluting the power of the eurozone's biggest economies. >> when lit the winning adjoined, it marked a big change, not just for the people. the entire power balance of the eurozone shifted. that is because lithuania's central bank will become a member of the ecb. there are only so many seats on the bank's governing council. lithuania's arrival has triggered a rotation system. the five biggest economies now must share four seats. the bottom 14 countries will divide the remaining 11 voting rights among themselves. the six members of the executive board as well as mario draghi have permanent votes. that means that jens weidmann the president of the bundesbank, will be able to say nein to any qe votes in may and again in october of 2015. lithuania's top bankers will only have a say in march, april, and may. lithuania, whose economy is 2% the size of germany's, will have a vote. the german bundesbank want. >> we've been talking a lot about euro and the weakness of the euro after greece rejected the prime minister's presidential nominee three times last month. the stages now set first not elections. now, with the nation's anti-austerity party ahead in the polls the result of the elections could mean greece walking away from the eurozone. joining us now is andrea's. thank you for joining us today. what is the sense on the ground? are people talking about a possible exit from the euro? are people getting cold feet? >> i think everybody knows that leaving the euro is not a real option. even syriza the radical left party, knows that. it is a bit like a mel brooks film. as if he's actually putting the pistol on his head and saying, give the money or i'll commit suicide. they have to keep the rhetoric up. if they don't do that now, they will lose votes. what this means is they would have to make a huge u-turn if they come to power on the 25th. they would lose a lot of the hard left votes from the party. what this means is they would have to make a coalition government with other forces from the sender or the right. this would give the perfect alibi to do the u-turn. even though there is a lot of scaremongering in athens, people say they are going to lose their euros i think that rationale will prevail in the end. from the point of view of democracy, i think they do fight a real battle. they have not taken the initiative in these elections. the basic argument is, vote for us, otherwise you risk getting out of the euro. the salaries a party, the radical left, say, vote for us and we will change the whole of europe. >> andreas let's assume that syriza do win and the polling holds as it is now. they take up the extra votes and form the new government. if they pull the u-turn you're talking about, how long does that government hold together? >> that's a good question. depends when they are going to do the u-turn. they don't have much time. they need to do it swiftly because the extension that greece god was for two months till the end of february. they may give another extension of another month, but they have to do a u-turn before the summer. otherwise, we would be talking about the nightmare scenario. there are enough parties in the center and the right -- let's put it this way. if new democracy loses, and the chances are that new democracy is going to lose, chances are that the current prime minister is not going to be the leader of the party anymore. the new leader might decide to move the party towards the centerleft and form a breakaway coalition government. anything goes. we do know there is a lot of rhetoric, which is basically battles. at the end of the day, greece has to be governed. greece has to move forward. if he wants to stay as the prime minister, he needs to get the dollar had from the creditors. -- the go-ahead from the creditors. >> i was going to talk to you and ask you about angela merkel. there were reports that the german government is planning a possible greek exit. are people in athens talking about this? does that sway national sentiment? >> they are indeed. the problem is, usually when foreign entities mess with greek elections, it has the opposite effect that was intended. we do know that greece does not have the bargaining power of 2010 or 2012, when a possible default on the greek bonds would have effected the core financial system. right now, the situation is different. we do have something which is a bit worrying. a lot of countries and a lot of market forces would stand to gain from a crisis in greece. this is not a conspiracy theory. it just happens to be the case. for example, if the crisis in greece takes away the heat from the italian or spanish political elite then crisis is in their favor. ecb, you mentioned earlier the quantitative easing. a crisis in greece might persuade mr. weidman that quantitative easing is the answer. >> possibly. we will get the answer to that one fairly quickly. one final question for you. if syriza changes and pulls the u-turn you're talking about, and people who voted for sir reza are we not setting up greece for a even bigger crisis further down the road? this would effectively maintain the policy of extending the current debt story surrounding the country, which many say is unsustainable and continuing high levels of unemployment. is there a danger that if so reza does what it does, that we end up with a bigger political problem further down the road maybe in six months, 12 months time? >> i think both troika and the political leaders here do know certain things need to happen. greece does have a huge social problem right now. they need to actually make some amends with that. greece cannot compete under the current 27% unemployment for a lot longer. they do have to put some leeway on how they deal with greece. on the other hand, there are a lot of analysts who say the debt levels are unsustainable at 170%. when one looks at the net present value of this debt, it is lower than italy's or spain. the maturities of the greek debt are very long. a restructuring of the greek debt is not going to happen -- is not going to be a very radical restructuring to the point of haircutting the nominal values. it may do a lot of good for greece. in other words, if they gave another 10 years of nonpayment of interest recapitalizing the interest but not paying it right now, that would give a lot of breathing space for the economy. if so reza comes into power, i think they would have to deal with all these problems. if they do lose a lot of the mp's from the left flank, there would be others from the center or the right that might actually fill in the gap. there is a new party, which is going to -- one is from the former prime minister, mr. papandreou who has decided to split from his father's party and form his own. we are not going to analyze the reasons. he may draw a lot of voters from syriza. there is another party, which basically may hold the balance of power. this is the centerleft or center-right depending on how you want to call it. it is a pro-european party that once greece to stay within the euro. we have now new forces coming into play that may take -- >> we are running out of time. we have run out of time but thank you very much indeed for the analysis. andreas koutras. >> coming up, luxury electric carmaker tesla is bidding on china. we will look into its push into the world's biggest car market after the break. ♪ >> welcome back. time for today's new energy. intel is a is helping carmakers trade in their old cars if they want to buy a new model s. it is part of tesla's effort to crack the world's biggest auto market. angie lau and steve mann took the model s out for a spin. here is how 2015 is going to look for automakers in china. >> red is my color, don't you think? red is also a very lucky color for the chinese. tesla they want to get into china. >> it is the biggest market in the world. there is over 1.3 billion people. china is spending a lot of money , spending a lot to get people to buy an electric vehicles. a lot of cities are very polluted right now. >> let's go for a ride. i want to see how this baby drives. steve, if you think china is such an important market, what are they doing to promote ev's since they have such a massive pollution problem? >> they are not only subsidizing purchases, they are spending on r&d to standardize the charging infrastructure, the battery technology all sorts of technology. >> are there any competing technologies to ev right now? >> definitely. fuel cell has been catching on very quickly. we believe fuel-cell still is going to take a little bit longer to be adopted. there's always a concern with safety. fuel-cell uses hydrogen as a main source of fuel. it is very volatile. so there is a lot of work that needs to be done to get the consumer comfortable with having hydrogen in their vehicle. >> so, drive us into the future. tell us what 2015 is going to look like for automakers. >> i think china is still going to be a major market. there's a lot of moving parts in the china market. we had two years of strong growth. i think consensus believes that there is going to be a lot of risk going forward. there is going to be limits to new car registration, especially in cities that are highly polluted, very congested. the economy is actually slowing down. the growth in the economy is slowing down. consensus is forecasting gdp to only grow 7% and there's been downward revisions in the past months to that number. >> red is my color as well. just fyi. for those listening on bloomberg radio, the first word is up next. for our viewers, a second hour of "the pulse." >> the euro near a nine-year low. join the conversation on twitter. how loader you think the euro will go in 2015? join the conversation. ♪ >> the euro falls as the ecb gets closer to qe and greece's prime minister says his country could be getting closer to an exit. >> the global gust continues after a collapse last year. oil continues to drop. >> bigger than vegas, how the consumer electronics show is stretching sin city to its limits. >> good morning to our viewers in europe. good evening to those in asia. a warm welcome to those waking up in the united states. >> this is "the pulse" live from bloomberg's european headquarters in london. >> let's talk about what spin happening between greece and germany. what are chancellor angela merkel's contingency plans for greece if syriza wins this month's elections? that is the question dominating the currency markets. the euro is down on that trade. driving the news, the report from "der spiegel" saying that merkel could live with a greek exit. let's go to berlin and join our international correspondent, hans nichols. who should we believe? let's try and get some clarity into this. >> we will get clarity in 30 minutes. we get the daily official government briefing. at this point, these denials saying they are not going to comment, it is going to be untenable to hold this position. we basically have three different kinds of denial. i will recap the "der spiegel" story. they said not only was angela merkel's government not only were they planning for contingency, but they thought a greek exit would be manageable. before, you remember this from being down in athens in 2010, the idea that greece would leave was never officially acknowledged. it wasn't even contemplated. that is the big shift. they've said they are not going to comment on speculative scenarios. a junior member of the coalition says he is not aware of any contingency planning. the head of merkel's party said he couldn't see a scenario where they would be doing contingency planning. all that is not a firm denial of the "der spiegel" story. that is that they are planning and can live with a greek exit. >> in the last hour, we spoke to an analyst in athens. he was saying, people on the street are talking about this and it may influence the way they vote. he was saying, it would be insane not to think of a plan b. i'm talking about the german government. >> governments always have contingency plan. the question is, when do they leak out? when they do, is it a mistake loose lips, or a telegraph? or telegram in this case? if it is, who are they sending it to? is the german market -- german government telling markets don't worry? or are they sending a warning to greek murder voters? a lot of unanswered questions some great reporting by "der spiegel," and some answers in about 20 minutes from the german government. >> hans nichols, thank you so much. >> we look forward to that event and the other updates throughout the day. for more on the greek elections, let's bring in marcus in athens. marcus, let's talk about the german angle on all this. the election campaign now in full swing. how are people reading what merkel has or hasn't been saying? >> well, we are seeing a little bit of a rerun of the election we had in june 2012. then there was the prospect of finishing first. you have a similar kind of situation. [inaudible] you had a lot of that domestically in terms of the campaign from santarus. -- from samaras. you also had noise from officials supporting that line. so it is a bit of a blast from the past, if you like. the battle lines are forming in a similar way to then. there is a bit of a boy who cried wolf syndrome. there is a little more concern about it than there was a few months ago. anecdotally, i don't get a huge sense that most greeks are really worried, really think greece is going to be kicked out of the euro. i guess polls will confirm that soon or not. >> marcus what impact will george andreas koutras -- george papandreou's new party have? how much impact will he have? >> a lot of this is about the scramble for the vote, looking for a home after the collapse of his old party which he was prime minister of. syriza has been a big beneficiary of the collapse. a lot of former voters have gone to surveys up. -- to syriza. papandreou is not a hugely popular figure in greece. this is the guy that took greece into the bailout. it is a matter of how many voters go over. it is a big blow for his former party. the foreign minister and the junior coalition partner are going with him. at the margins, we haven't really had any major polls over the weekend. pollsters have been holding out to see how many votes he gets. one told it come out at maybe about 6%. it is not a huge impact, but it could make a difference at the margins. >> marcus, thank you very much indeed. let's talk about the twitter question. the euro is already down. how much further does it go? >> tweet us your thoughts and join the conversation. so far, we've had some great responses. a lot of the ones i've had point to a lower euro. that goes against a lot of forecasters. last year, a lot of people were on the fence. it is interesting to see that the weakening today is prompting a lot of chatter about weather forecasters will have gotten it wrong one more time. >> i would say the spread is probably parity to 1.15. significant downside from here. this is a dollar story. we get a lot of dollar data this week. we get the fed minutes on wednesday and unemployment data on friday. that is probably a bigger factor than what is going on in europe. that can still change. >> still ahead, we talk the top trends in tech. stay tuned. ♪ >> welcome to "the pulse" live from london. >> tech is going to vegas this week. the titans of the industry are heading to the casino capital for the trade show. it is c.e.s. and caroline hyde has a preview. it is getting pretty big. >> it is, and they don't want it to get any bigger. 160,000 people are going to do send upon las vegas. that is more than they have hotel rooms. there's going to be more than 3000 companies trying to show off their wares. from the eu, it is france with the biggest presence. they are sending out about 120 companies. you have german and u.k. companies flying over as well. c.e.s. is going to have asian offspring. it is going to launch in shanghai. they don't have that many chinese presence. still 160,000, two miles of floor space, drone, robot, tv you name it. >> virtual, augmented reality was sort of gadgets can we expect to be shown off this year? >> v.r. is going to be a strong one. i think there is going to be a war over connected television. you have sony, sharp, phillips all launching new connected tvs which use the android operating system. then you've got samsung coming in. this is the reinvention of samsung. this is samsung pushing the internet of things. they are launching connected tv's. samsung already tried this with smart watches and a phone. the phones were about a year delayed, and already you've got google and apple owning the algorithm -- the operating system space. in tv, samsung is the number one player. they are looking to start having connected tvs that can talk to your samsung referred to ritter your vacuum cleaner -- samsung refrigerator, your vacuum cleaner. so this is samsung not only wanting to get in on the internet of things but also get in on the connected tv and its own operating system act as well. back to you. >> caroline, thank you. >> let's go from vegas to what is happening in london. the city of coarse carving out a name for itself as one of the most exciting tech markets in the world. there was a report this morning talking about the number of startups in 2014. a new record. for more on what 2015 holds one of london's -- shouldn't say one of, one of london's leading tech investors. she joins us now. 2014, a pretty good year. >> absolutely. the amount of venture financing was actually 20 times that of four years ago. a really good time to be doing new things innovating and trying to take advantage of what is happening globally. >> it is great to have startups but the startups need to go big. >> absolutely. all the ones you were talking about this morning, they are going to get to scale. 20 people, 30 people, 50 people, showing they can generate traction. at the same time, you have more new entrants coming as well. the hottest sector will be financial services. we talk a lot about payments before. we talked a lot about foreign exchange services. then i think you are going to see things in cyber security right off the back of the sony hack and things like that. a lot of other sectors as well. much of like what caroline was talking about. >> is 2015 better than 2014? better, bigger, are we doing more with it? are we creating more jobs and more money? >> 100%. there will be more job creation more innovation, more value created. >> in vegas c.e.s. kicks off today. we saw a note this morning saying that in terms of europeans, the french have the biggest delegation. why not the u.k.? >> traditionally, .c.e.s. has been about hardware. 20, 30, 40 years ago, it was all about electronic goods. that is where they were doing all the buying. i think you will have more of that coming from other parts of europe than london, where there is a lot of software services versus some of the other places. they are going to try to court-martial from asia. >> do we think that is the right place to put our eggs right now? is software the place to be? hardware looks exciting to me. >> i believe that is where you can deliver scale. you can have a team of maybe a couple hundred people, but you are able to deliver services that can scale infinitely. as compared to when you have to produce and manufacture. we have also invested in hardware as well. you do have a lot of greater capital requirements than. i do think london is taking the smarter route. >> what kind of hardware? we know mark zuckerberg went after oculus because he was concerned he didn't have hardware. are we going to really do that kind of thing and use something like oculus all the time? >> i think the reason he went after oculus and virtual reality , and why hardware is becoming so predominant, is because it is not mutually exclusive to software. it is enabling software delivery in easier places. whether it is in front of your eyes or on your wrist or on your belt. the lines are blurring. when we used to think about software, we think, you need a laptop or a desktop. now, it should be integrated with hardware that we are used to using every day. >> you bring the belt up. i'm quite excited. [laughter] le belte, which is a smart belt. i checked this out this morning. it is a belt that adjusts when you stand up and sit down and monitors you 24/7. >> marketed by a french company. >> not for french people. >> this is a critical piece of kit for 2015. stay with us. plenty more to talk about. we will continue that conversation. >> what will the u.k. energy mix look like in 2015 and beyond? we speak to the energy minis ter. stay with us. ♪ >> welcome back. in today's new energy, we are looking at the uk's energy future and putting fracking in the spotlight. the united states continues to dominate the headlines when it comes to shale production. is there a future for the oil industry, for the gas industry here in the u k? let's talk about that now? we are joined by matt hancock, minister of energy and climate change. i read a lot of things about fracking over the holidays. 10 days, time to read. this was one of the subjects. what came through clearly was that gas prices are coming down in 2015. despite the u.k.'s desire to see fracking be part of our energy mix, these lower gas prices are going to delay that. is that a good analysis? >> i don't think they delay any necessity. the gas price hasn't come off as much of the oil price. >> it will. it follows. >> this is a long-term project. we are right at the start of a long-term project. it has got cross party support in the u.k. for the principle of getting this potential that could be enormous out of the ground. the geologists are clear that there is a huge quantity of gas deep underneath the u.k. the question is how much we can economically recover. we are right at the start of that. the planning decision this month and then others later this year just to get the first wells moving to get the first extraction out. the early signs are good. but it is really at that early stage at the moment. it is an exciting prospect. i think it is the duty of the government to try to make sure it happens in a careful well-regulated way. >> if you look at the timetable because the oil price is so low and gas prices will go lower, it doesn't give that sense of urgency. >> i don't think that is quite right. the benefits are not only getting the shale out of the ground for the companies involved, but also for the security of supply domestically. >> urgent? >> of course, it is urgent to see what the potential is. and to make sure we can get that exploration going. but we already know that full scale production is some years off. so you've got to look through the short-term moves in the price to a degree. there may well be an impact but the scale of the production in the next couple years will be small anyway. this is about finding out how much can be brought out of the ground. >> what i'm hearing from you is, lower gas prices will have very little impact on the u.k. and its desire to frack. >> certainly in terms of the motive, the need to do this exploration, absolutely. there are benefits. not only the economic benefits but benefits in terms of jobs also, it helps reduce our carbon emissions. >> economically, the economy of these things is very important. if the gas prices appear at a low level and you can frack at a price above that, it is not economic to do that. are we looking at other arguments? if gas prices come off 50% the way they have in the oil market, are we going to see it being economic to frack in the u.k.? at current prices. >> let's separate out two different groups here. from the government's point of view, from the u.k.'s point of view as a country, the benefits remain. but also, the benefits in terms of energy security which is obviously a big issue. in terms of companies who might be looking to take part, obviously, we've got to make the margins work. we have a generous fiscal regime in place. offshore, we are looking to change the fiscal regime to make sure it remains economic. we've got to get all of those details right. at the moment, we are at such an early stage that the current wells being drilled are for exploration purposes anyway, to find out what the potential is. >> if you look at oil, it will affect some of the drillers. do you plan on giving any benefits to alleviate the burden on these drillers? >> we've got this fiscal review underway that is going to report later this year. it is really important that we get the details right. that has to take into account the fact that oil is so much lower than it was months ago. >> a lot written over the last few days over the interconnect between oil and the u.k. i'm hearing march as a possible date that we could see a green light. is that the timeframe you are operating under? >> i don't want to give away any details on potential timing right now. the benefits of interconnect or's are big. we are looking forward to -- i've been working very hard towards it. i hope that it happens. >> matthew hancock, thank you for joining us today. the u.k. general election will be held on may 7. we will be bringing you interviews over the coming months. >> coming up, one million reasons for ryanair to cheer over christmas. december numbers were good. we will find out how good after the break. ♪ >> welcome back to "the pulse." >> these are the bloomberg top headlines. >> iraq's president said the country cannot acheive sustainable growth that iran cannot achieve -- in isolation. >> been indonesian weather office report on the path of the crash airasia jet may have flown into a storm cloud and that ice may have formed around the engine. search teams have recovered four more bodies in the java sea earlier today. >> the boston marathon bombing suspect's trial begins today. he requested to have his trial moved out of boston. the attack in april 2013 killed two people and injured dozens of others. >> let's find out how trading is going. >> in a word, trading as volatile. we have got lower once again. you have session lows on italy and in spain. the oil story is starting 2015 where it left it in 2014. brent, $55 per barrel. ftsy is lower by 0.5%. the biggest headline has been in the fx. euro weakness. we are off by 0.6% right now. we are touching levels we have not seen since 2006. mario draghi thursday night-friday morning, talking about the excb qe potentially being on its way. then the report the german officials could be ready to expect -- accept a greek exit. german officials and cold water on that, but nonetheless the political race is on. the story in germany has been the bundesbank stronger. we have negative yields from one year to five year in germany. the spillover has been pretty limited in spain, italy. yields are up a little bit today, but the contagion has not been there like it was before. the firewalls have been improved. how long can this go on for? the lack of contagion and spillover? investors are starting to get a little complacent about what greece may do. >> thank you so much. jonathan ferro with your asset check. tom keene joins us with a preview of "surveillance." happy new year. >> happy new year. i thought the jonathan ferro interview earlier this morning was absolutely must listen. we will talk about investing. kate moore is always of interest. we will be joined by ian bremmer of eurasia group and carl weinberg and we will focus on oil in europe. judd gregg will also join us. the republicans do better than good in the last election. >> thank you so much. >> now, it was a december to remember. joining us now is the coo of ryanair. is this the finessing of the ryanair message that is delivering the numbers? >> i think it is ryanair doing what they have always done best which is giving consumers low fares across europe. with the average fare at about 46 euros, customers are saying that is what they want and we have made improvements in the experience. we are delighted with the numbers. delighted to carry one million more people this december versus last december. customers have told us what they wanted us to improve. we have worked very hard and quickly to make those improvements happen. these numbers show that improvement. >> it is, in many ways, that effect. we are seeing a different message coming out of the company. is that the differentiating factor? >> absolutely. we put in place an improvement graham which is the -- program which is the "always getting better" program. we launched business plus service a much improved winter schedule. we have seen the load factor the best on u.k. domestic routes. a lot of main airports. that is where we see improvements. >> give is a sense for your outlook for january through march. >> we are still guiding cautiously. while we don't have full visibility of yields we have raced our guidance on the number of people we carried this year to over 90 million up from 81 million last year. but we are cautious in terms of where yields where be. we have a lot of fares available at 19.99 and we expect consumers to take advantage of those. >> how is the business story going? >> we are very happy with what we are seeing with the business customers, particularly driven by some of the newer retail. glasgow cologne, warsaw, lisbon, milan, rome. we are seeing domestics and connecting key city pairs. that together with a much improved schedule for business travelers. they want to get out early in the morning and get back in the same day. where they can do that with the flexible tickets and allocated seating, that is what they are looking for. we are happy with the take we are seeing on that. >> if you look at the load factor, december was 7%. is that the kind of forward guidance you would give? >> we were up by 0.5% and we are cautiously optimistic saying we expected to be above for the full year. november was also strong. there were some challenges with the christmas period, with whether -- the weather. we don't have full visibility on yields. we are confident we will hit the plane we set out for the remaining three months. >> a few months back, you were telling me that 2015 would be the year we would see a shakeout of some of the capacity in europe. do you think low oil prices is going to defer that shakeout? will it keep some airlines flying in a way they would not have done when oil was higher? >> i think we are starting to see a shakeout already. if you look at the large legacy carriers a lot of them would be hedged across europe. we'll know an expected oil prices to be where there are at -- they are at, we don't think there are too many large players taking advantage of that. everyone is hedged quite similarly. i would expect to see some heavy competition for the business traveler on the key city pairs. we are seeing that already. we are taking customers off other airlines. people will be hurting and they are probably hedged on fuel. >> how much are you hedged? i think it is 95% for the full year of 2015. are you regretting that decision to hedge? >> know, we are happy with the decision we have taken on hedging. i don't think anyone would have expected it to be where it is today. our investors would want the certainty, rather than taking a chance. we are 94% hedged for next year. we have some aircraft coming new aircraft arriving next year. there would be some advantage if you'll prices stay where they are at. but we would always value certainty rather than taking a chance. >> you guys hold a big chunk of the shares in caig. >> we are staying out of things so far in terms of the conversation. in terms of what it would mean if the average iag fair last year was much higher than the average aer lingus fair. from what it means from a competition point of view we certainly would not have any fear in terms of iag taking over aer lingus. it will make ryanair even more attractive. it is early days yet and we will have to see what is happening in the coming weeks with what they are going to do next. it is a new option that was not there before. >> always a pleasure. nice to talk with you. >> good morning. >> coming up, we will get back to top tech investor eileen burbage. we will also get the latest gadgets. stay tuned. ♪ >> welcome back to "the pulse. >> let's continue the conversation about tech. london is a big center for tech now. eileen burbage is at the center of the scene here. let's take a look at the other side of the atlantic. >> i'm so glad i am here with you. you do look at trends. that is why so many people go to cover. if you want to predict what people are going to be using you can only do that based on what you think manufacturers are going to be producing and what distributors are going to be carrying. however this is a traditional show based on traditional distribution. what we're seeing now people are not buying that way anymore. apple does not need to go and they don't. actually, technology itself is changing and the world is changing and cef has evolved from what it has traditionally been for buyers and maybe just looking at generally what a lot of followers are going to be doing. you don't see what apple is going to do. >> it seems that this year a lot more software producers are going. you think software is a better place to invest in. >> i think software generally and i know that it is a sweeping and bold statement -- if you look at the profit margins and software, it is inherently greater than in hardware. i think every time we talked about things like facebook or apple or these businesses, a lot of them value added services -- a lot of the value and added services come from software. that is why they are converging. or your tvs. smart tvs are going to be connected to the dishwasher and other devices in your phones. we are trying to find out how to get to everybody more readily than we do now. >> in terms of the next year -- we start with ces and then we get the apple event and work our way forward -- we get the mobile world congress later this year. trying to put -- i struggle with these events. car shows. how useful they are as predictors to what the rest of the year is going to look like. the car guys are going to ces and the tech guys are going to car shows. if you are not seeing the cool stuff here where do i need to go to find the cool stuff? where is it happening? >> i think that is a great question. tech is not going to be its own sector after a certain point. it is part of cars, medical energy. you have to talk to teenagers. you have to talk to the kids and see what they are adopting and using. that is what people will be using for how they communicate, how they stand touch with people. >> how do i do that? >> we talk to teenagers, kids, look at what they are using. you can measure who is using what with software. that is why this really interesting. then you also look at what the kids are creating. this is what facebook is done so well and why these big companies are spending on new companies. they try to get fresh ideas. they're trying to find the new things coming around. >> are the big disruptors going to come from china? is 2015 the year where they do it? how much of a game changer will it be? >> i think you will see alibaba doing one or two things more in the western markets. having listed in new york it makes the statement that they will not stay in their domestic market. they have the ability to do it. they have the resources now to look at all the markets. they need to look at growth outside of their home turf. i think china is a force to be reckoned with. >> just one final question. every tech person that sits in that chair tells me that they are not worried about and market consumers, they are worried about hiring people. that is the thing they all seem to say. is that the challenge for 2015? how big of a problem as it coming getting the right people to build the stuff that we need to build? >> talent is a challenge globally and having the right skills to continue innovating. that applies to every market in the world. silicon valley's hardest issue is recruitment. they have turnover, retention issues they have to pay exorbitant salaries to get the right developers and engineers. we have the same problem in the u k and london. i totally disagree with what the home secretary was saying but i understand she has to balance issues. i think it would be disastrous for our market and our sector and for britain and economic growth fundamentally. but i appreciate that she might be trying to explore some things and have other reasons for talking about the narrative. that would be the wrong thing to do if we want to continue to see the u.k. and london as the epicenter of technological change and value creation. >> great to speak to you as always. >> coming up how low will the euro go this year? we have had something of a move over the last couple of days. what will 2015 bring for us? keep the tweets coming. we will see you in a moment. ♪ >> welcome back. let's take a look at the euro, the dollar. you have been tweeting about how low you think the euro will go to this year. >> hans nichols, the politics is driving the story at the moment. your sense of the politics and the currency markets? the two together. >> right as we speak, the official government german spokesperson is answering questions on the spiegel report. how he finesses it, whether it is an absolute denial -- that the german government does not think that a great exit is manageable, which is what the current -- core of the spiegel report is, i suspect we will get currency reaction to what the german government is saying right now. other than that, we are just guessing a quantitative easing. and unless you are in monitor your oh -- mario draghi said -- mario draghi's head, you are just guessing. that's why we need jonathan ferro. [laughter] >> mario draghi is thinking, get him out of my head. [laughter] we have asked our twitter followers. a lot of people are saying that the euro is going to go lower. >> it is a dollar story at the moment. >> things are going to get more and more expensive at home. i hate to say it. it could get to parity. that is going to be a painful trip. >> it means more relatives, more in-laws. more in-laws visiting. you have to think on that glass half-full side. [laughter] >> more in-laws. [laughter] that is the take away for 2015. that is it for "the pulse." keep it right here on bloomberg tv. >> "surveillance" is up next. with tom keene and the team. we will see you tomorrow. >> you can tweet us in the meantime. ♪ >> this is "bloomberg surveillance." >> oil descends as europe descends into deflation. fragile geopolitics. republicans take over the senate. is there a moderate to be found? inequality is so todd 14 and-surprise -- 2014 and -- surprise -- so 2015. right now, our top headlines of this first working day of 2015. >> oil is falling again. futures are down as much as 2% after moving 5% last week. brent crude trading at $55 per barrel. prices are likely to head south further. russia says it's output jumped to the highest since the soviet union broke up. the euro is its weakest in nine years.
growing concern that the greeks will exit the euro. the german magazine "there spiegel "d --er -- "der spiegel." vanguard is the largest provider of index funds. the fees are also a fraction of the average mutual fund. >> the tragedy of airasia bad weather is slowing up the search . searchers have found more bodies bent of located sections of the tail at the bottom of the java sea relatively shallow versus other parts of the ocean. ice may have caused the airplane to crash. pope francis and the catholic church out front on a global diversity. new cardinals, nine from the emerging markets, including tonga myanmar, and ethiopia. let's look at equities, bonds currencies, and commodities. futures deteriorate. 10 year yield is stunning. scarlet mentioned a 1.18 handle on the euro. crude oil, i'm essentially speechless. brent crude, $55. euro yen shows not much going on. it is all about dollar strength against everything else. the german government bond. we will talk about eurasia. looking forward to that. the german government bond mimics that of japan. here is oil adjusted for inflation, scarlet. it is an approximation. it is a little squishy. here is the decline in oil prices. here is opec, the collapse of opec. we are back there. >> what happened in the last leg lower? >> i would say it is oil prices dropping. it is very little about incomes. >> the income level has flatlined. >> but we were richer here than we were here. we are back to a good value. >> the question is how long it stays like this? >> absolutely but there it is. oil continues to descend. getting us started, kate moore . we are also honored to bring you senator judd gregg. cheap oil will have a profound effect on america. >> it is great to have low oil prices. we heat by oil. most of new hampshire is oil, not gas. this is a big plus for consumers. it allows them to save more and send circuits to college. it is a consumer oriented energizer. >> another has never been a democratic senator from new hampshire. [laughter] >> we have one right now absolutely. >> how do you talk to when oil republican from texas or oklahoma? do you speak the same language on energy? >> no. [laughter] and we never had. they used to have the bumper sticker, let them freeze in new england. [laughter] they like oil prices up and we like them down. >> we have kate moore with us and you have a different view on oil and you say it is too early that oil below $60 is an unequivocal positive for us. >> it might be great for constituents in new hampshire and on the consumer side, but oil and energy investment has been a huge part of u.s. economics and the growth we have had over the last couple of years. if we see a massive cutback, it may have a big impact on growth. >> give us an update on jpmorgan on this. there was a headline with a very cautious view. do you have a tip point on a barrel of oil were things begin to change? >> we are not taking an explicit view on oil at all. we have stepped away from commodity views in general. we are looking at the early part of 2015 before we decide. it will determine whether or not we want to add oil back into the portfolio or we are fine sitting in out in 2015. >> i understand the argument about the u.s. economy, but isn't there the argument that as a whole it does not make up a huge part of the labor market? 2% or 3% is not going to damage the u.s. economy. >> if you look at the for s&p 500 companies, that is where it becomes an issue. it could really start to add up to something significant for the companies. >> there was no energy policy. we have this wonderful nirvana of new oil prices without a federal mandate on energy. i'm going to call that a republican ethos. republicans say, let the government get out of the way. is energy one of those examples? >> for the most part yes. but the market decide which energy works the best. in my opinion the fact is that the lower oil prices are going to cause the oil industry to adjust in the united states. we produce oil at a lower price than many countries in the world. we're much more competitive. in the end, our economy will be the winner. >> the data is showing we are getting closer to energy independence. the voters care? >> they should. it means a great deal to jobs in america. it means we are more likely to be investing in the united states. >> should we export our product? >> i think we should. >> even with the timing? >> it is actually probably pretty good. we can produce oil at a lower price than other exporting nations and that could give us a competitive advantage. >> why is there a divergence in the rest of the economy, kate? >> i would love to believe that the u.s. can be very isolated and we can operate as a cordoned off economic unit. i'm not sure it is going to be so clean and easy. when we are talking about energy , this is a perfect opportunity with oil prices a little bit soft people concerned about initial investments for us to increase ties with europe and increase ties from the emerging world. get people comfortable with the way we are trading. >> you saw this. there was a suggestion that it would be a good time for some form of a tax. i wanted to get you going this morning. [laughter] >> the last thing we need is a national sales tax on energy. that translates into a national sales tax on everything and it is not constructive to the economy. sure, it will go -- grow the government. >> isn't the real issue the distrust of what we are going to do with the money coming in the door? what do you do with carbon tax proceeds? >> the thing i found when i was governor, all government moves left all the time. the question is how quickly it moves left. the pace of the train is determined by the number of engines on the train and the engines are revenue. to the extent you live in revenue raising sources that is how the government grows. it has very little to do with good government. we deliver good government in new hampshire without an income or sales tax because we are efficient. >> is he running for office? [laughter] >>judd gregg with us. we will go to peter cook and a little bit in washington. coming up, ian bremmer joins us in our next hour as we begin a real look at eurasia group's thoughts on this year. what a double barrel. look for that in the next hour. we say good morning from our world headquarters in new york. this is "bloomberg surveillance." ♪ >> good morning, everyone. "bloomberg surveillance." sallie krawcheck -- look for her thoughts in the loop this morning. she participated in my year and study -- end study of the year forward. >> that was the one at the bar. >> yes. she was the only one who did not have a shot every time we talked about the euro. >> brendan greeley is noting out attending -- nerding out attending a conference with academic economists. this year, it is income and inequality. >> economists move at a glacial pace. they are just starting to pick up this book. things were different at this year's conference. the american economics association. i try to go every year. it is nerd mardi gras. there are hundreds of sessions. this year it was all about thomas p caddy -- picketty. there was one session where he was actually on a panel. for the first time, there were hecklers. i have never seen this at this conference. it is a reminder that he has made sure that it is clear that economics is also political. there was absolutely substance to the panel i went to. in addition to having selfies taken with thomas picketty. everyone agrees that his data is amazing. the arguments were all about his prescription, what to do about wealth inequality. wealth is slippery. it is hard to define. it moves across borders. the other point was that if you are really worried about fixing wealth inequality, you should look at a consumption tax. eventually, people have to buy things. once they consume, then you can get them. the third that a lot of people brought up is that a lot of the wealth economy is housing wealth. if you are going to figure up how a way to tax it, there are property taxes as a way to do that or changing mortgage policies. >> you spoke with a number of people. >> allen our back -- aurbach has been looking at income inequality forever. thomas piketty showed up and messed up his world. economists in many ways assume that all members of the economy are one single person and they behave the exact single way. piketty rejects that and that is a staple of modern economics. aurbach made a good point and that is that you cannot look at what is the ideal tax policy but what actually works in the real world. >> and executive gets a flight on a corporate jet. we don't know whether to call that income or consumption. these questions always come up and we make decisions. we will never have a perfect measure of consumption. but we have consumption taxes around the world. it is a successful practice in every country except the united states. we do have inheritance and state taxes, but we don't have annual wealth taxes should tell you something. >> thomas piketty is having a profound effect on economics right now. when you have a best-selling book about economic policy, you cannot help it. >> what did you do it nerd mardi gras? did you dance in the streets? >> [laughter] i got dunkin' donuts. there were some amazing sessions i went to. i looked at the man who looked at the best way to get people to donate to their church based on data that we had. i did something that is a little embarrassing. yes. >> who is that with? >> that is andy ckim. we will look at how gangnham style affected economics. >> we will be checking in with you later on this hour. we do want to bring in our twitter question of the day. should we be more concerned about income inequality or wealth inequality? tweet us. tom and i will be right back. ♪ >> good morning, everyone. "bloomberg surveillance." with oil continuing to descend under $52 per barrel for american oil moves in yields in europe are stunning. in lockstep with a 119 euro. -- 1.19 euro. it is stunning. >> we are wondering when we will get to parity. >> we have to get to the next ecb meeting. >> mario draghi may go forward with quantitative easing. >> let's go to our morning must-read. we have to wake up judd gregg, who was slumbering. this is the morning must-read. brad delong. writing in "project syndicate." the quotes franklin delano roosevelt. i think the biggest problem for republicans is that if it fails admit it. we don't do that. it just keeps going. >> to some degree. i thiegree. i think this congress has made it clear that they are going to try some things and they are going to make it clear coming out of the box. that is the right approach. if the new congress had come in and said, we want retribution -- but they have said, we are going to do three or four things right up front and we are going to ask the president and his party to participate. >> how do you find common ground in this new washington? >> there are four or five areas where there is natural common ground. i think one of them is keystone. the biggest one is tax reform. you have major bipartisan agreement on tax reform. corporate and individual. i do think they will do individual. widened codes. you even have the president talking about corporate reform. tax reform. trade adjustment. immigration has to be done. i believe there will be some sort of immigration. >> the to do list is certainly long. as history has shown us, gridlock tends to be the end result the matter what. his gridlock good for the market in 2015? >> i think it will be. we were having the debate head of the election. we have had a significant progress on a number of things. i think that might be a surprise for the markets in 2015. instead of gridlock and positioning for 2016, maybe we have a little bit more movement. >> you see george herbert walker bush in his last days. quite ill over the last few weeks. and yet mr. bush of florida is considering a presidential run. you have been a strong supporter of their egos and politics. what is the distinction of jeb bush versus his brother were father? >> jeb bush represents the rational, conservative wing of the republican party. the party has different factions. we will have both factions at the table running for president in the persona of a lot of different people. you just a governor huckabee is talking about getting in. the opportunity is there for an open race. >> coming up ian bremmer, carl weinberg will join us. high frequency economics. good morning. ♪ >> good morning, everyone. "bloomberg surveillance." brendan greeley on assignment in boston. gold like a rock this last week. you think it would be lower off deflation. but it is holding steady as everything else is in flux. let's get to our top headlines. >> the founder of wainscott capital was gunned down in his apartment yesterday. his son was taken into custody, but has not been charged with a crime. gilbert spent decades investing. bmw is helping distributors in china. it will pay $820 million to cover losses after retailers stopped ordering cars. the subsidies are the largest by an automaker to its retailers in china. dealers complained about unrealistic sales projections. americans were logging on for love last night. that is according to match.com. the first sunday after new year's day is online dating's busiest date of the year. >> i was on. [laughter] >> finding a partner requires a little patience. it finds men about 10 weeks. it takes women about eight weeks. >>i thought you were doing silver singles. [laughter] >> yak on the silver singles. it takes about 10 years. [laughter] judd gregg is with us. the senator is familiar with the herding cats by republican leaders. peter cook is in washington where the herding begins today or tomorrow. how ugly is the lining up of republicans going to be in the next coming weeks? >> we see that the cats are already running astray in the house of representatives. tomorrow is the day when john boehner's name comes up for a vote and we know that there are at least nine republicans who either are not going to vote for boehner, vote for somebody else, or say that they will be present, but not supporting him. it will be a distraction, may be an embarrassment, but he will prevail in the end. it is not the show of unity that republicans were hoping for as they kick things off. he had to keep his eye on his right flank. >> what will be the linkage of the senate leadership with the republican house leadership? >> i think it is good between mitch mcconnell and john boehner. these are two men who work well together, have in the past. they respect each other, they come from someone of the same perspective. they want to get some things done. that is the most important relationship in washington arguably for the next two years. >> the passing of edward brooke of massachusetts. one of my grandparents true heroes, full disclosure. an attorney general, a black attorney general. where are the moderates? is mitch mcconnell one of the brooke or snow moderates? >> peter knows more about what is going on in washington. mitch is a doer. you cannot govern from the corners. you have to get in the middle. he understands that. >> i want to bring up some of the republicans on the sunday talk shows yesterday. among them, bob corker. john thune, mitch mcconnell. how do we make the decision of whether this is lip service or willingness to extend an olive branch? >> scarlet, you sound skeptical. [laughter] i'm so surprised. there was always a lot of talk about bipartisanship and compromise when a new congress convenes, especially one where there is expectations. it will be very hard to get a lot done on major issues. i know senator gregg was talking about tax reform and that is going to be an enormous left. it is hard for me sitting here seeing them get anything done really on tax reform in the short term. >> ask a question of senator greg plays. -- please. >> i want a softball. [laughter] >> am going to get right into the policy mumbo-jumbo. the house is going to vote on the rules package where the budget committee might be able to oversee dynamic scoring versus traditional budget. does this make a difference? should americans care? >> definitely. especially on the tax issue. i'm calling irrational. -- it rational. you have the capacity to make tax reform. money does not get repatriated. create an atmosphere where it can be repatriated and you create a huge amount of income. >> then why do they have to go after the congressional budget office? >> i think he is a straight shooter. capital gains is another example. it is always scored as a tax loss. the rules need to be changed to make the more rational. >> what is the democrat pushed back to what we just heard? >> that you are playing for -- with phony numbers and it is not real math. there is been one way to score budget and spending bills and if you change it, you are changing the rules and messing with the math you are not being honest with the american people. >> thank you for the rink side seats at the winter classic. i really liked that. >> that was a nice wink. >> anytime you need those seats, call me. [laughter] >> this is going to be fun in washington. >> this is going to be an interesting one. with president obama's approval rating not heading south anymore. forget the 1%. we look at skyrocketing fortune of the 0.01%. there is a distinction. this is "bloomberg surveillance." we are on bloomberg television. ♪ >> good morning, everyone. "bloomberg surveillance." futures at -5. oil in a dissent -- descent. let's go to single best chart. >> it touches on what has been and will be a big scene. -- theme. the rich getting richer. there it is a -- is a distinction between the 1% and the 0.0% -- 0.01%. they had 8% of total household wealth. the green line tracks the uber rich, the top 0.01%. it has increased to more than 11% in 2011. this shows the wealth gap. brendan greeley you are attending the american economics association conference in washington. the twitter question is, are you more concerned about wealth inequality or income inequality? what with the economists say? >> the concern is about wealth inequality. it is relatively a new concern because we did not have the data. wealth inequality is politically more difficult. i worry about it because truly come of the superrich, the ones you are talking about, they are more likely to skew the political process. the way we see it skewed is that there are a lot of rich donors come a wealthy donors on the right and on the left and none in the middle. none of the superrich money goes to moderates like judd gregg in new hampshire. >> i can think of the phrase coined voodoo economics. >> the people who have generated this huge wealth and tremendous economic expansion mark zuckerberg, for example, the fellow who runs uber they are coming up with ideas that are generating massive expansion of our economy, creating jobs and wealth for a lot of people. sure, they are disproportionately wealthy for everybody else. they have been disproportionately successful in their ideas to everybody else. >> you have seen this in southeastern new hampshire. >> absolutely. we are an entrepreneurial society. >> is he running for office? [laughter] >> it is not just the top 0.01%. but we look at who is most exposed to the financial assets. it tends to be the upper couple quintile in terms of income earners. we are looking at 2015 and trying to look at where the growth is going to come from. are the lower quartiles of growth of income earners, going to see wage growth? are they going to be able to start spending? >> they will start spending it with oil where it is. here is the headline from the bloomberg terminal. this is on european oil. this is brent crude through $55. >> the low is that $55. it has not gone below it yet. >> still, these are stunning numbers. back to inequality, brendan, is this just a political debate? is it just that the long -- delong's against the stanfords? >> i do anybody begrudge his mark zuckerberg his fortune anybody who is not marissa mayer. [laughter] i think that the real issue is whether or not politically citizens approve of inherited wealth. that is really what is going on. the real fight is how much of this super wealth is inherited and how much of it is earned in a lifetime. >> does anybody realize what these economists make in textbook royalties? these guys are minting money. >> that is an important point. greg mankiw was a rich man. he makes a lot of money. he is a professor at harvard. >> economic professors are treated like gold. we have some photos here. >> we do. the season debut of "downton abbey" with last night. >> we are going to start right back from the beginning. judd gregg's great-grandfather worked down the stairs at "downton abbey." >> he was a downstairs guy. [laughter] let's get to the top photos of the morning. this is in brooklyn. mourning the loss of her husband. the officer and her husband -- his partner were shot in the police car on december 20 in their police car. >> for those of you worldwide this is not disappeared in a week. >> tensions have gotten even worse. many of these guys turned their backs on mayor de blasio. a cargo ship carrying luxury cars to liberally grounded to prevent capsizing. it was carrying 1400 luxury cars including rolls-royce is an bentleys. >> mine is on there. [laughter] >> it looks very precarious. all 25 crew members were rescued. one did get a broken leg. during the grounding. the number one photo. the international ice and snow -- >> is that in new hampshire? >> no. china. it is the world's largest ice festival. that is the big green one in the middle. thousands attended the opening ceremony. who are they fooling? it is not anyone fulling anyone. it is a cool thing to attend. it gets bigger and more colorful and more extravagant. >> ok. >> i wonder how long it lasts. >> with the winter we are having. >> it has been raining all winter long. >> cold later this week. >> ian bremmer will join us later. this is an important series this week. dr. bremmer and his colleagues that eurasia group. we say good morning. this is "bloomberg surveillance." ♪ >> good morning, everyone. "bloomberg surveillance." good monday morning to you. let's get to our top headlines. >> 10 sent -- tencnent is launching china's first online privately owned bank. said news from the world of sports. espn personality stuart scott has died. he was 49 years old. the cowboys are moving forward in the nfl playoffs. they rallied to beat the detroit lions 24-20. just their second playoff win in tony romo upon -- tony romo's nine years. the cowboys joined the indianapolis colts, baltimore ravens, the carolina panthers as first-round winners. and there is the awkward hug. >> we awkwardly turned to senator judd greg of new hampshire. this is not a you connect with the people. >> this is the compassionate conservatism. [laughter] i would suggest to go to the new england patriots game rather than the dallas cowboys game if he wants to do well in new england. >> brendan has a boston addition of a morning must-read for us. >> the trial of the boston marathon bomber begins today. my morning must-read is from "the boston globe." anyone accused of what is late loser brother and he are doing they can never get what defense lawyers consider a fair trial. that said, the reality is that jurors take their responsibilities seriously and expects prosecutors to prove their cases beyond a reasonable doubt. the argument the defense lawyers have used to get the trial moved is that it is impossible for anyone in boston to get a fair trial with a boston jury. >> it is impossible for this trial to take place anywhere in the northeast. >> i think it is impossible anywhere in america. they have paneled 1200 jurors in the case. >> jury selection will be very interesting. >> if you live in cambridge or watertown -- you cannot possibly be on the jury because you were under lockdown. it is going to be difficult. >> it will be. brendan greeley joining us from our boston bureau. we will check in with you a little later. >> very good. investors consider how much they have not participated in markets. kate moore assisted jamie dimon with his private account this weekend. she said, what happened? why wasn't i in the markets? >> he was in. >> hopefully, a healthy beginning to 2015. how do you advise people the courage to be here? >> courage is a keyword. most people don't have courage. back in the first quarter of 2014, i was speaking to clients and i would ask them if it could advance a 0% to 10% this year. no one thought the markets could advance more than 10%. if we were dealing with a very skeptical investor base at the start of last year, we are dealing with an even more skeptical investor base. we are not seeing people throw cash. yes, you were citing inflows into mutual funds. but we have not seen a huge amount of participation or enthusiasm for equities yet. people believe there are not a lot of alternatives. but they're not going heavily into single stocks. >> a lot of it will depend on what the fed does and how the fed communicates its intentions. a lot of people say that will determine market activity. one of the former fed governors said that the communication, the lead up to that causes more volatility than the actual change itself. >> i'm not so worried about normalizing policy in 2015. i think the fed has done an excellent job of saying what they are looking at and the timing of normalizing policy. what i am worried about creating more volatility is growth and disruption from growth outside of the u.s., particularly the eurozone. whether or not abenomics is successful and whether or not we see a slowdown in the emerging world as a result. >> jeff gun lock -- gundlach said 1.3% yields. what if we get that market? >> it would be surprising, but perhaps less surprising than at this time last year. i was absolutely in that camp as well. i thought the strong economic growth would lead to higher rates, but it did not show up. there are not a lot of people who are adjusting down there estimations. >> what is your target for this year? [laughter] >> who is your leading gop candidate for 2016? >> i think the economy is going to do well. i think the united states is in a good position because of the energy issue and we are still the entrepreneurial playground. we have people willing to go out and take risks and we have capital to support them. >> judd gregg, thank you so much for helping us to get the year started. kate moore, thank you. how about a forex report? russia considers ever cheaper oil. ian bremmer and coral weinberg, next. ♪ >> oiled defends as your decisions into deflation. it 2015 begins of the fragile geopolitics. washington and its allies consider the weaponization of finance and sanctions. inequality is so 2014 read any quality so 10,014. we live from world headquarters in new york. i'm tom keene joining me is scarlet fu and brendan greeley. we will see brendan it later. it's time for top headlines. >> oil is falling yet again. it is hitting a five and half year low. crude is trading just above $55 a barrel. west texas intermediate is four dollars less than that. prices are likely to head south sooner. look at the euro at its weakest level in nine years. it is weakening before rebounding slightly. there is concern that the greeks will exit the euro. merkel is ready to accept that. investors appear to be saying who needs stock tickers. the vanguard group took in money from investors last year. that is the biggest ever for a mutual fund. they mimic benchmarks and don't use stock tickers. their fees are also a fraction of the average mutual fund. >> to the plane crash near indonesia, bad weather is slowing down the rescue mission. or bodies of and found and sections of the tale at the bottom of the sea. it would contain the flight recorder. there is speculation that ice may have caused the airbus to crash. it's a diversity campaign for pope francis and the catholic church. the pope names 15 new cardinals nine from the emerging world including tonga and miramar. we are checking oil right now. it is breaking down to new weakness. $51.41. we begin 2015 with the continued collapse in oil. europe fails to halt inflation and disinflation. there is no better way to link our geopolitics then with ian bremmer. he is the president and founder of eurasia group and he brings along his top risks for 2015. honored to have you here with us. we are getting through what your smartest people have thought about. what is the number-one thing you argued about as you put together the lists? >> it was how concerned we are about geopolitics this year. i am not a pessimist. we are all feeling a level of significant foreboding this year. >> the foreboding of the glide path of oil, what is the curve mean? >> it means that it's one of the things that causes a dramatic shift in global power. it's one of the reasons why the united states has less interest getting sucked into the middle east. that's why president putin in russia is going to be on the offense in 2015. the near-term is better for him. >> let's ripp up the script on this. will he be more aggressive there or in the south? >> we are going to see direct conflict, this affects his west borders and europe. it does not affect the united states very much. that goes to our top risk. the economics the number two risk is russia itself. they are much more revisionist geopolitical layers in their own backyard. cyberattacks affect the united states wherever the russians are located geographically. >> you would think it would. america's interests in punishing the russians on security is very high. they are ensuring that the europeans are not hurt economically is low. we see the french president coming out and saying we want to remove sanctions on russia as long as there is progress on ukraine. there is no one in the white house saying that. there was no one in the republican congress that will be saying that. this is the year when transatlantic relations on a bunch of issues start to fray. that is one of the reasons i am concerned geopolitically. the transatlantic relations with the bedrock and foundation of what coke eared america as a superpower and go here to the world order after world war ii. we are used to that. now we think about the europeans, they are allies, that they are out there doing their own thing. we are out there doing our own thing. >> is that the definition of a g0 world? it's amazing what the institutional responses will be. >> one of the institutions that will respond? >> it's much more relevant today. it's no coherent -- more coherent. those divisions are on greater display. the organizations that get stronger are the regional and local. >> maybe the catholic church as they announced 15 new cardinals with more global reach. >> with some nominally important catholic led states they can make a difference. i would not look to pope francis to fix it. >> you mentioned the french president, what other leaders could be wildcards in 2015? >> the ones we don't have yet. we have greek elections coming up. are we going to see some reason that in that government? look at what the germans are saying preemptively across the board to respond to that? we can handle a greek exit. the economics look much better right now. the politics look so much worse. >> to take a victory lap here, citigroup got pounded for their essays of two and three and four years ago. >> i pounded them. >> you were out front of this. >> i believed there was no chance of a greek exit. the politics were very coherent. the germans and the europeans were going to do what was necessary and the germans lost the right to have a democratic governor. the answer is no. that is the problem. it's a lot easier to keep the eurozone intact getting -- getting rid is not a political -- >> does europe lead the core or does the court leave the periphery? >> the dynamic is both are escalating. there is very little politically to enforce them to come together. if someone is leaving the periphery, they are choosing that route and the greeks are moving in that direction. you see the announcements made by the leader of cerise up. he is trying to tone it down. the germans are all basically saying don't expect a new deal. a deal is a deal and we are not moving. the germans are becoming more populist. you have this grassroots populism from the bottom up and you also have things that are growing. add to that the geopolitical environment that is great for the united states. it's horrifying for the europeans. bottom-up and inside out, europe is bad this year. >> the euro is falling to 119. the economics are better. does this lead to economic performance? >> oil prices are much better for europe. employment numbers in spain are taking up. this is the greatest level before the financial crisis. those are positive. it is you're going to have a bang up your? no. they're not going to take the politics away. that is going to start to bring them down. >> in 1999 it was at 116 and went down. we are down from the peak. how critical is it for europe to have a currency stability to get through this crisis? does it devolve down through 116 to parity? >> the risk continues to devolve down. i think they think that's a positive for them. >> including germany. >> does it make it less likely, the answer is no. is any of this going to move and trickle-down? you talk about inequality and views on inequality, it's not a global issue. poker gets piece this weekend looks great. the european middle-class is devastated. >> analyst from the eurasia group will be joining us to discuss the top risks of 2015. we already have the number one risk. ♪ >> good morning, everyone. good morning from new york city. brendan greeley is on assignment in boston and he will join us in this hour. scarlet the euro -- is hans nichols paid in euros or dollars or doubloons? >> there's been a steady grind lower. now it's at its weakest level in nine years. this is after mario draghi made a signal that the central bank will move closer to bond purchases. from berlin is hans nichols. i won't ask you what you are paid in. what is this a reaction to? is he reacting to merkel and greece? >> it looks like the big move in the euro happened over the weekend when you had a respected publication report that merkel is preparing for a greek exit and thinks it's manageable. before the line for the last three years has been an agent of any -- exit is and think about. it's the distinction that the germans could live with greece not existing. >> them been predicting this for ages. be careful what you wish for, what is the knock if this process continues? >> aside from this being messy. it's going to be predictable. the actual breakup would be like a celebrity high society divorce times 20. you can't imagine how difficult the breakup would be. after that, you start to have conversations about who the weakest member of the eurozone. you will see pressure from bond markets on we countries that have survived so far. resale is generous. the debt to gdp ratio is higher. they are in a bailout program. >> to the streets of berlin change with a 119 euro? does the domestic economy feel different question mark -- question mark >> we are pro-in law visits and they come to visit me. it will affect exporters. it will be good for air bonds. >> party and hans nichols in a berlin. where are we? futures are negative five. coming up in the loop with betty liu. stay with us. ♪ >> good morning, everyone. good monday morning. we're watching oil south in the euro souther. it's a new word. >> nissans december sales beat expectations. it was the best year since 1996. u.s. dealers sold 170,000 nissan and infiniti models in december. the founder of wainscot capital was gunned down in his apartment yesterday. his son was taken into custody but has not been charged. the elder spent decades in stocks before starting his own fund in 2011. americans were logging on for love last night. the first sunday after new year's day is the online busiest day for dating. matched says it requires patience. it takes men 10 weeks and women about eight weeks. those are your top headlines. people are looking for love online. in europe there could be a high product -- profile divorce between greece and the euro. >> ian bremmer is with us. let's rip up the script. they are an datable. >> it's not like their other organizations out there. >> let's say they were able to piece together a government. >> should that be the guy that we are paying attention to? >> that's the problem. if you could pick as the germans did who the greek leadership was going to be you would wind up with policy orientation that would be in line. you have the greek people speaking and they are saying we support none of the above. we are euro skeptic. we don't trust the germans. they are a big piece of this election in greece and that's a bad thing. >> go over the top tone. in the background is the death of the washington consensus. now we are trying to find a new new for 2015. >> the top risks are the politics of europe. what i found interesting was the effect of the china slowdown is the weaponization of finance. the u.s. government can leverage its strength in unexpected ways to finance. >> underline all of this is the notion that the united states doesn't want to be the world's policeman. boots on the ground sounds quite these days. that's a 20th century term. obama is not the only one, his opponents do as well. the united states has an interest in a lot of things. we are still engaging but doing it our way. we're are not asking our allies permission. we are not looking for a huge coalition. if you look at sanctions and drones and the nsa and the weaponization of finance, the u.s. dollar has been a much stronger leverage of power internationally than our nuclear arsenal or our combat forces have been over the past couple of years. you see this with a response in north korea. the first ever sanctions reacting to a cyber attack. you look at iran and russia. you'd look at the sanctioning of u.s. banks. you want to do business in the united states, you have to pay by our rules. >> we've got sanctions against cuba for my lifetime, have they work best and mark >> if it takes 50 years to open up, it hasn't been effective. sanctions do work in areas where the government wants to engage and wants to be a part of the international community. sanctioned are not working on russia because putin's popularity is helped. his political benefits are coming from crimea and ukraine and demonizing of the united states and the west. that's a very different kind. >> you map out your top three risks for 2015. the politics of europe. it's a number two is russia. the third is the effects of the china slowdown. why is north korea not highlighted? >> it is mentioned, but not as north korea. when you talk about the weaponization of finance and the rise of strategic sanctions, north korea as a country and a market isn't having a lot of effect. north korea as an actor that reflects a bunch of rogue states and bad actors that cause lots of problems for the marketplace and volatility, that's a real issue. >> is that a model for patent what kim jong-un it does? >> how is it batting above its weight internationally? the united states once to punish it to make it behave better. that sounds like north korea. the chinese refused to play along. here is the question, we have said for a long time to the chinese will not want north korea to bet -- behave too badly, how does that work? will they have more success with put in overtime? >> what is the top risk for the united states? >> this year, there aren't top risks for the united states. this volatility does well for the united states. we talked about how we are the cleanest dirty shirt. it's a much cleaner or t-shirt deal politically. >> most people are looking for bonds. we've got a lot coming up on surveillance. the founder of high frequency economics on asia. ♪ >> those reports are true, over my sabbatical i grew a beard. i shaved it. we are back. for those of you on radio. my sabbatical is done. scarlet has our top headlines on a busy monday. >> it was a record-breaking year for the vanguard group. the biggest inflow ever for a mutual phone -- fund firm. they don't use stock tickers. the finance agency accuses rbs of selling faulty mortgage runs to freddie mac and fannie mae. they can be fined as much as $8 billion. espn personality stuart scott died after a battle with cancer. he joined the network in 19 93. he hosted nfl in nba programming . he was 49 years old. those are your top headlines. we have not mentioned brendan greeley yet. he is on assignment nursing out at the american economic association conference in boston. no jet lag. he is checking out what is puzzling academic economists. it's not so much the fed or the normalization of rates, its wealth inequality. it sounds like 2014. >> it's all about thomas the caddy. they are wrapping their heads around this book. i went to one session where he answered three critics. it was jampacked. there were people taking selfies with him. it the one way to look at all the arguments that are gathering about this book is are you more worried about the .1%? then you are talking about capital gains taxes or are you worried about the 1%? that is income inequality. the solutions are better education and better social mobility. >> there is an age gap. for the younger people, it's a job fair. what are the younger professors thinking about the debate over inequality? >> what you are seeing younger academic success with is new sources of data. the older academics came of age in the 1960's and 70's when there wasn't as much data. they had to work with thierry. younger academics know how they feel about it politically. he gathered data. the younger economists are looking to google and dating services and starbucks for new sources of computer data. they can churn and come up with new theories. >> again as i mentioned, it's a job there. one year i was stunned that there was no mention of four exchange for three days. one of the not talking about in boston? >> it is brutal. the other thing that happens is academic economists do the rounds. they will go through 15 interviews. you move from hotel room to hotel room. that's brutal. they are not talking about the theories that are slowly dying like the single agent model. >> is there a lot of drinking of longer beer? >> sam adams boston ale. >> when did we see you again? are you going to be back tomorrow? >> i am a nerd mardi gras. i'm never coming home. >> brendan greeley, thank you so much. >> for interview who missed it they really get going. they really get going in the sessions. i have had some wonderful experiences. >> let's get a day to check on this second trading day. >> look at the euro. >> the euro 11902. that follows comments from angela merkel. she would not be opposed to a greek exit. this is "bloomberg surveillance." good morning. i'm scarlet fu with tom keene. >> it's a new frontier for europe. draghi is front and center. suddenly, greece is different. carl weinberg has been way out front on the charges -- challenges for europe. ian bremmer is also with us. our, wonderful to have you. i want to take a different tack. we talked a lot about greece so far. is this the culmination of fears you've had for for five years? is this just another inning the ballgame? >> everybody is talking about quantitative easing, credit is contracting in the euro zone. that means depression is on with no press insight. >> cannot come over to the united states? the lower interest rates and the lower currency? does that affect our viewers? >> the u.s. economy is growing solidly. solidly recovering. these are headwinds to u.s. investors. there are substantial risks. the biggest of which is if greece does elect this government and we do default on their foreign desks -- that's, bonds are going to turn to dirt. there are going to be a 180 billion euro problem. that could spill over to us. don't focus just on the banks as a source of instability. but at all the institutions that bought these bonds. >> let's open this up with ian bremmer. i want to go how upfront others were about the restructuring of debt. what do we fear about doing a healthy restructuring of bankruptcy for europe? we can't get there. >> there is no longer popular support. the feeling of crisis in germany domestically is not there. the feeling that all my god our banks are going to implode. >> i have been arguing for restructuring greek debt since 2010. i wrote an article in the wall street journal and talked about it. based on my background, this could have worked wonders for greece. they are past the point now where a restructuring can fix the problem. their debt is 175% of gdp. it's more now than it was in we started. it's getting worse and the economy is not growing well enough to service the debt out there. there is no good way out of this. >> this is true politically. it can end up with a government that is going to be constructive in engaging with the germans and the rest of europe. germany is a political issue. they are going to elect a government that is going to say we oppose the strengthening of these institutions and the stripping away of our sovereignty. that's a very different dynamic. >> just looking on the bloomberg terminal, january 22 is a meeting. tony 28 -- january 28, will policymakers wait to see what happens with mario draghi in the greek elections before they declare their next up? >> i think the fed knows what they are going to do. until it comes around to affect the economy, their focus is on the united states. there is so much expectation in the council meeting that there is nothing but disappointment that can come out of it. i fear that yields being down, they are down as far as they can go. >> i am going to put this out on bloomberg radio plus. do you think there is a tipping point? 116? >> >> i say talk to a technician and not an economist. >> scarlet? >> shouldn't be concerned that income inequality or wealth in a quan ♪ inequality? >> the euro through a 119. we just got a 118 off the terminal. 11896. oil is down. we've got a morning must-read. >> mario draghi's interview. having a wide ranging effect on financial markets across europe. he hammered home the theme of structural reform. this is what he said in particular about which countries need to do more. which governments of ample minute rid -- reforms? >> spain a little bit. you are seeing improvements in growth there. you are seeing more flexibility which allows people to come into the labor market. italy will see benefits from the reforms they have engaged in. there is more competitiveness in a lot of sectors. i think it's going to take a long time. even in france he has the worst approval rating in france since world war ii. they are engaged in reforms for france. is that enough to deal with the unemployment problems? of course not. >> in the research notes, you have been way out in front on this. is there a political solution to france's euro sclerosis? >> i wish we could fix it. i can't. the banks in europe are bust and they need more capital. until they lend, we are in a depression. there is no political solution in sight. politicians don't know how to fix what's broken in it and still get reelected. >> merkel seems how to know -- know how to get reelected. >> even in germany, it is developing the same academy momentum but the party did a few years ago. it is a very conservative and eurosceptic policy. merkel's plain politics over the last few days. the domestic politics are becoming important in europe and that makes washington look harmonious. >> my biggest shock is russia being immune from all of this. we have a weaker wrubel. -- wrubel. >> i don't read reports. >> i have two of them. >> i have in writing for months that vladimir putin's play in this is to reign egg on foreign debts. i call the argentine solution. the more we disenfranchise vladimir putin and russia from the global financial system, the less he has to lose. they have six hunted $70 billion in foreign debt. that is a big ouch and that is high on my list of problems for 2015. >> how do you get that? >> should we be more concerned with income inequality or wealth inequality? ♪ >> good morning. the euro through a 119. weaker euro in weaker oil. let's get our headlines. >> 2014 was a banner year for ipos. that is according to the new york times. the highlight was alibaba's $25 billion offering. that made jack ma one of the richest people in the world. it raised 36% more money. bmw is helping distributors in china. they will pay $820 million to cover losses after retailers stopped ordering cars. the subsidies are the largest by an automaker to its retailers in china. dealers of complained about unrealistic sales expectations. investors are waiting jobs data this week. that will show 2014 was the best year for job growth since 1999. we will show u.s. companies added 225,000 workers in december. right now, the consensus is for 240,000 jobs added in december. >> we will go beneath the headline data on friday. it's a late report. to our international relations europe and the diversions of a better america from global economy. quietly, there is japan. it has been lost for many decades. carl weinberg is with high-frequency economics. you have been way out front on the struggles of japan. why do i care? >> probably not so much. you probably care more if you are in china. or singapore. if you are somewhere else in asia trying to take manufacturing jobs away from to, you care about that. if you own stocks it's a time to keep a careful eye on them. maybe they will fall more. the population is imploding. there is no reason to think the economy will grow. it's kind of a sideshow in the united states. we saw a lot of reduction leave after the earthquake in 2011. that's what we will see over the next several decade as japan's population drinks. >> one thing noticeably absent is asia nationalism. why is it a red herring? >> one reason is they need to work on the economics. they have pulled back on so much of the we hate china rhetoric. he has been more careful. there is a new speech point to happen and apologize for atrocities in world war ii. the chinese also see that japan is not doing well. investment in japan was down 40%. the chinese government does not want to see that. they want more stability in their region. they are trying to restructure the economy. he can still play the long game. there is a huge risk of great power politics in asia. it's not a 20,000 -- 2015 risk. >> there are elections in taiwan. local elections show that the -- >> the lead does have a relationship in taiwan in a way that it doesn't with hong kong. it's a security relationship. hong kong has spooked the chinese. it's one of the reasons why you've seen these elections ago against and toward the nationalists. the chinese not going to be patient with taiwan. >> described that patients. that is an entity relationship. >> for the last 20 years, the policy between taiwan has been we will integrate and make them into china. we will preference them for business. we will integrate them economically. they see that policy of integration has not worked. the economics are not doing well. the population has turned against them. the china dream institution does not work. >> as we have 50 new cardinals of the pope, what is the imf going to do? >> if they don't, china will start its own. they have the framework for a bank organization. they have their own monetary system as a next step. geopolitically, i have a question for ian. who in asia can afford to fight a war right now? i always say nobody fights a war unless somebody gets paid. china is the only economy in asia that can field and army and feel the navy and do damage to other countries. that's why japan has minimalize. if you can't pay for it, you can't fight it. >> were start with people have access. could the germans really pay for the war they started in world war ii? it's hard to make that argument. they were driven into near economic collapse and that forced him to put everything into militarism. ms. doing that now. i am more worried about accidents coming out of europe green --. >> let's get to the agenda were we focus on stories. next oil. we have stat -- set here and people have said this is the bottom. it never is. >> $55 even for crude earlier this morning. it's now below that. on my agenda is congress. they convene tomorrow. we will see if they can do better than the last one which did nothing. everyone is traveling back to washington. we are going to head over to boston where brendan greeley is hanging out. what's on your agenda? >> i am going back today. it's an amazing place to pick up new ideas. i talked about how resilient tele-novella's are helping brazil meet goals. this is how many sessions i could go to. i flipped through it a second ago. consumer choice and welfare through a behavioral lens. why would i not go to that? >> that sounds fascinating. you're hanging out with some economists and doing some dancing in the streets gang them style. >> we're going to look at how the video will affect the market cap of one south korean company through nonmaterial information. >> i can't wait for this. >> we will tweeted out to everyone. stick around. our twitter question of the day has to do with what you are discussing worried should we be more concerned with income inequality or wealth inequality? answers are coming in. what are you hearing over at the conference? >> people seem to know that no matter how we feel about both kinds of inequality, people find wealth inequality less tolerable. we had people going to great lengths to say they were not rich people. that is not true. i think we know socially whether it's legitimate or not, voters are uncomfortable with the idea of the very wealthy. >> safe travels home from boston. >> markets are on the move. futures are negative five. the headline still is oil. >> it's remarkable. thank you so much for joining us. the eurasia group will be featured all week long. ♪ >> good morning. it's a monday and we are live from bloomberg world headquarters. i am betty liu. we are 90 minutes away from the opening bell. welcome back from your holiday. we have a packed show for you on this monday morning. sallie krawcheck is joining us in moments. she led bank of america. she is the former ceo of smith barney. with 2014 the best year ever for automakers? they are dominating the media. we are going to talk about the auto trends. how about a car that tells you where the closest doughnut shop is? these are our top stores sprint the euro is starting with a whimper. it fell to a nine-year low. it rebounded. signals from mero draghi that the banks will start quantitative easing this month.
the germans might have some objection to that. london opened virtually flat. oil is making a comeback. is that being overgenerous? you are seeing just a little bit of a reprieve on these equity markets. we are going to run towards super tuesday. let's have a look at some of the currencies. everything is priced into the euro dollar. you are probably going to see the euro-dollar at 120. the market has fully priced qe by the european central bank and the one-month money suggests you are going to see a little bit of a turnaround on that. have a look at the euro yen. money was coming out of the euro and going into the yen. that is where you see a big move . have a look at the couple of stocks we are keeping an ion. -- keeping an eye on. who day is becoming ceo. they would create the largest mobile operator in the united kingdom with the 41% share of the market. that really surprises me. they are coming together creating 41%. telefonica up 1.38%. would it be 9 million pounds they might receive. -- they might receive? we start the trading day in earnest. >> we will be talking. don't worry. you won't miss me. we are a little higher at the open. the ftse 100 up by nine or 10 points. a very different story in china. the steepest wanted more than six years after regulators cracked down on investors buying stocks with borrowed money. let's get to david tweed in hong kong. 63% higher in just six months. a lot of people calling it a bubble. was it a bubble? was it bursting? >> you said 63% in six months. the chinese authorities are worried about the pace of game they saw take place in the chinese equity markets. i want to give you an eye watering number. this is $63 billion. i am giving it to you six months ago. that was a market of outstanding market loans. that rose by the end of december two $174 billion. you can imagine why the chinese authorities are so worried. it is 80% retail investors. you have all these retail investors out there with a high possibility of getting badly burnt. which is why the chinese authorities have turned to the three biggest rogue ridges in china. they said no new margin trading accounts for three months. they are actually panic for allowing inexperienced retail investors so they are trying to crack down on this. we might see further gains. what is going to happen to all the money in china that is sitting around? there is a lot of money sitting around. when you look at the traditional measure like price-earnings ratio the shanghai composition 15 times projected earnings. s&p, 18 times projected earnings. will it continue or not? you decide. >> i don't have the answers, but thank you for joining us this morning. let's get someone who might have the answer. we are joined by the local head of equity trading strategy at citigroup. the last six months, the chart suddenly looks like bubble behavior. what would you say? >> to drivers. -- two drivers. four months after it would be 35% premium. there was a sentiment to buy them at the time. they did go pretty extensive. the trade couldn't be helped as well. there was a new mechanism allowing flows between shanghai and hong kong, and that contributes as well. there has been an injection of liquidity in china, which leads to accounts opening. therefore, the announcement we saw over the weekend. >> you raised a red flag. i will give you the credit -- on margin loans. if they rein in on this area this is almost the end. do you think this is the beginning of something, or is this typical of chinese policymakers that they dabble a little bit but do not go all in? >> if you look at the last four or five years, if they put too much liquidity in, they don't control it. we actually downgraded the market a week ago based on valuations. the market posted at 10% move this morning. at one point it will become interesting again. for now we find them too expensive. >> how does chinese new year sit in all of this? >> it is going to increase volatility. we do still find value. there are still some a shares. there are some that are interesting to look at. the only problem is how you express it. one has to be creative. >> let's talk about margin lending and leverage. is this about chinese leverage? >> i think one thing that may come up this year is increased volatility, and we have called for that. in the maturing market you expect more volatility. we have been more -- quite comfortable with volatility. we are still bullish. we think it will be higher. switzerland showed us the volatility can come back with a vengeance. >> i want to talk about the fx market. shanghai composition went vertical. how long are they going to tolerate this for in china? >> the one thing they did was they carried trades. they did let the currency dropped to make sure there were no week hands. i think it fits with their views. it fits with the fundamentals. you have a country which is growing. you have yields which are making it interesting. we are seeing an inflow if not from chinese retail by some of the institutions as well. >> will you be paying much attention to the gdp figure? >> especially last year we priced the fact we are going to be around seven and a half, so unless we deflate from that significantly, unlikely you will get a huge impact on the back end of it. >> a big move in china. we will talk europe after the break. up next, qe countdown. 93% of respondents in a bloomberg survey the ecb is expected to deliver its sovereign bond buying program this thursday. what does it mean for markets? here is a look at the markets pretty much doing nothing. the cac is dead flat. a big week ahead for europe. we will start the countdown for the ecb meeting next. >> welcome back. one of our top stories for the week. mario draghi expected to unveil a 550 billion euro qe program this week. paul gordon joins us from frankfurt. is this all but inevitable now? i have seen the polls, and it looks like expectations are high. >> they are stellar according to one economist we spoke to. you can pretty much take it there is going to be some form of qe this week. there will still be discussion between now and thursday but it looks at the moment inevitable because the market expects something like that. one of the characteristics attributed to mario draghi rightly or wrongly is that he is aware that disappointing the markets when the economy is as fragile as it is is very dangerous. we are looking at something like 550 billion euros. >> let's say we get 550 thursday. i guess the bigger one could be the nuance between the headline. i think the major haggling seems to be around risk. what are the potential outcomes and what do they mean for the market? >> that is key. the key issue remains how do you allocate the risk how do you limit the risk. the options come down to how do you buy. it is equivalent to the size of the euro economy. 14% would be french debt. the other aspect is who buys and holds the risk in their own books. the risks are that national central banks will be told to buy a portion of the debt and keep the risk on their books. if spain or portugal want to buy heavily their own country's debt, german taxpayers don't end up bearing the risk of that. that might end up with the german public. this is quite a sticking point. the concern is if you make this too complicated, it makes it too hard to convey the message to investors the governing council is serious and reduces the effectiveness. the simplest way would be the ecb buys a lot, the risk is shared, and there you go. >> nothing is simple in europe. i know you're going to be a busy day -- to have a busy day. is there a risk this thursday becomes too complex to understand what they are really doing? >> the expectations are pretty high. we need to get something on thursday. there should be implications. yes, there are questions about how you can buy the debt. first it is better than nothing. if you start putting liquidity into the system. it's a bit more complicated, but it's better than nothing as well. >> it's less about what a date of easing and more about quality. if you come out with a big number, are people going to forget the other stuff? >> if he came out with less than 100 billion over two years, that would be one thing. he is making the claim there can always be more. >> the big question is going into thursday. what is the positioning like? we talk about the bond market and how this is priced in. what about the bond market? are we holding back a little bit? >> i think a lot of it came from the lack of housing. the human being is not prone to take the lack of housing well. for us it is not being priced from that point of view. what has been priced is the move on thursday. we are pricing about a 7% move on the banks. >> i want to get your take on the swiss national bank. it hit the 52 week high and the low in the same week. >> that is rather unique. we had flagged the fact the peg was at risk because of qe. he was not going to stand there and buy more and more euros. what has been vicious was not the position on swiss stocks. it was more the effect. there was a feeling the snb was going to go negative rates. we know what happened last week. the positioning of swiss equities was high as well. the biggest market was actually switzerland. switzerland is about 21%. france is 20. germany is 19. if you were an american shareholder you make more on the swiss francs then he lost on the swiss stocks. that attributes to the weakness. if you start making money, your reaction will be to go flat. >> a fascinating insight. coming up, we're going to talk about the fallout. details after the break. stay with us for that. >> welcome back. it's time to talk about the fallout after the swiss franc last week. the loss is becoming but it clear over the last couple days. here with more is caroline hyde. they are calling it francoge ddon. a number of companies get into trouble. >> if you were betting basically against the frist -- the swiss franc, you were going to be hurt. if you were thinking it would decline, you were smashed. they are closing the oldest and biggest main fund. we understand it is being closed because they were betting the swiss franc would decline. there is one hedge fund. who has really been hurt? we have the largest u.s. retail one now $300 million. they have been given a lifeline. their clients basically couldn't get the cash for their losses. what happens is you usually use a lot of leverage. suddenly, who sits in the middle? they said, when they have to go into insolvency. a bit of a problem for the sponsor. >> the regulatory problem could be big. we are finding out about the losers. we are finding out about some of the big losses of some of the big financial institutions, the big banks in the city. >> they have set aside some money, but they are not in any great trouble. some of the big losses are in the biggest banks. barclays lost less than $100 million. these hundreds of millions of dollars these companies lost. we spoke to the european banking authority chairperson. he is saying, it's all about how well capitalized they are. >> these shocks are always there. what is important is the european banks have strengthened quite significantly. they are much more resilient. >> people really felt the pain. they say no losses. they continue to analyze the development. they say overall they are doing pretty well. we were not exposed. >> did the snb move because of the european central bank? the qe countdown begins. 93% of respondents polled by bloomberg leave the ecb will announce its bond buying program on thursday -- believe the ecb will announce its bond buying program on thursday. how big will that need to be? we will discuss that after the break. ♪ >> welcome back to "on the move ." this is how things are shaping up this morning, the stoxx 600 up .26%. counting down to thursday when the ecb's vision day -- will we get that qe announcement? >> some calm off of that storm of volatility last week after the swiss franc shot up against the euro. checking on the swiss stocks julius baer up five and a half percent after a beating last week. we experienced no losses after the days following the swiss national bank to and the euro cap. they are saying look we were well protected and they're also saying we managed enormous volatility and the volume. and schindler that escalated as well. and they are saying the prophet has accumulated rather nicely. it is all down to financing. they are saying overall that it is all due to the financing activity why they are having a higher profit. plus pretty much as expected, what is this company even doing that they have suddenly been held to the tune of millions of swiss francs. balfour beatty also climbing today, good news to the united kingdom. a big contract several engineering contracts. could be worth 1.5 billion pounds for civil engineering and infrastructure in the united kingdom. what about infrastructure in the u.k. today jacob -- today? >> here are the top stories at bloomberg. stocks in china got crushed today. the biggest drop in more than six years. the inequities followed a crackdown on regulators on investors who use the arotech money to buy stocks. despite that, the shanghai cobb is still up over six months. the swiss decision to allow the frank to trade freely against the euro has caused a big dip. the $830 million global fund was completely wiped out. that follow several brokerage firms that have gone bust because of the move. the european central bank 93% of respondents expect that ecb to announce a sovereign qe program this week. mario draghi is likely to announce a 750 billion euro bond buying program. let's keep the discussion on the ecb, we are joined by the head of the fx strategy at the bank of montreal. great to have you. we will first indulge in a guessing game, let's peculiar -- let's be clear, that is what is your it what is your base case? >> the 500 billion euro number has been floating around and anything between 500 and 1.5 trillion euros as an announcement is something that we should be looking for. the goal of the ecb is a result of these asset purchases. i would look at that as mainly an effort to keep the euro cap. or to use the dollar strength as it were to the ecb advantage. i think it will support medium-term growth. the credit dynamic and the lending dynamic. it is something that should support the euro over the medium-term. the upside growth potential and possibly even inflows to private asset markets. >> i want to talk about the next rate very quickly, will they have to put that up a little bit? where else am i putting the money? >> that is a fair point and certainly one of the things that i think will protect the ecb from being extremely aggressive. you want to call it boj-like. it is something that could slow the ecb down from a very aggressive announcement. my preferred option would be for the ecb to keep most of the bond buying program under wraps. we could get as much as 11 5 trillion over the next year -- 1.5 trillion over the next year or so. because draghi has credibility he has more credibility on this issue of supporting the eurozone and keeping it together than they did when they were operating the securities market program. overall, it was probably a failure. with mario draghi at the helm if they are intervening at adequately timed clips and sizes the market should view that as potentially unlimited and that should get them what they want in terms of the euro. >> let's talk about the euro last spring pushing 1.1 or -- 1.40 and turn of the year we have come down and the move in the last month has been sizable. how much more down? >> we see the euro going down to 1.10 by the end of the year. we see it in issuing the end of the first half at 1.10. you have to look at the dollar side of the equation. the fed has curtailed the supply of dollars to the global economy at a time when the external position of the u.s. is improving and the deficit has been on an improving trend. it is like pressing a giant reset button on the global economy, all exchange rates have to adjust vis-a-vis the dollar. potentially you could say that growth and mobile growth and inflation are lower in an environment where there is less dollar liquidity. that is the environment where the ecb has started to expand the balance sheet into as the growth rate decreases. month over month terms, this is no accident, the ecb has been purchasing private sector assets. in month over month terms, the growth rate is above that of the fed and that is no accident. >> we talk about that one cross, euro-dollar. euro-swiss, the swiss national bank capitulated on that cap, where does this leave the others? >> they are already gaining pressure and in fact the remaining free-floating currencies without negative rates or official rates or official caps, we expect more volatility over the course of 2015. officially -- effectively, we think the ecb lower interest rate and the threat that things could go lower in switzerland, we think that will be successful. as long as risk aversion stays reasonably wall -- reasonably low, we think it will be effective in deflecting capital away from switzerland. it will put pressure on other european central banks. >> is there a lesson we can learn from last week, or is this a different trade? >> in what sense? >> you have seen the swiss bank strengthen so much, would you make the trade on the danish krone that you should have made on the swiss franc? >> you need to be careful. as far as rates are concerned you have more success in the very short run. most of the yield curves we are talking about in norway and sweden and denmark maybe the u.k. but i am not entirely sure because the growth i now met is still a little bit better -- because the growth right now in the u.k. is still a little bit that are than the euro as a whole. >> why do i care that they share the risk? >> from the euro perspective? you need to look at the sovereign bond buying as a way to keep a euro week and to cap it. the private asset purchases are more about reinvigorating or creating from scratch the asset markets in the eurozone. that is more of an medium-term upside. in terms of the details at the end of the day, the creation of the euro has fostered a huge amount of macro economic interconnectedness in europe, so it makes sense, with decisions that reflect a integrated situation. the biggest printers globally have been the nationstates because they are making one decision, one government, one bank. in the eurozone it is different it makes sense to keep those decisions on an interconnected basis. so you have the banks that will presumably be buying and keeping the credit risk on the national central bank's allen seat but also performing -- balance sheet , but also performing as a whole. you have to consider that the more that the growth improves in those countries and the more the banking system and bond market is protected, the larger the risks for those countries to walk away and leave the euro. as things improve for them, the risk of leaving and having all of that written off is higher. >> let's talk about that question and just to summarize and conclude, three days later how can the details stimulate a greek exit. -- exit? >> it is once again, another game of chicken. what the ecb has the power to do is simulate a greek exit by ordering that the banks by most of the debt -- buy most of the debt, but exclude greece. if they push that can too far, in greece it could look like an exit is a better situation. they have a little power with that. i think as the ecb ventures into sovereign bond buying, it needs to have another way to have a right down on -- write down on greece's debt. >> stephen gallo, european head of ethics tragedy. we have climbed to a session high. the dax also pushing higher, up 79 points. it is decision day for mario draghi at the ecb, will they pull the trigger on quantitative easing? that is the picture in the equity market, here is the picture in the fx market. 140 we were pushing last spring what a move lower over the last nine months. stay with "on the move." ♪ >> welcome back, live in london. the u.k. infrastructure company john lang is returning to the public market ahead of the british election. caroline, what is the number? >> 130 million pounds is what they're looking for and they say we will invest it in ourselves and gross. -- growth. they went to ease potential deficits and are putting 100 million pounds into a fund. they're trying to eat crow about what their growth has been. look at their statements, annual returns of 23% from john lang. henderson has been looking up ways to exit this particular asset, they're looking at selling it to a player in australia and now they are selling shares. before it used to be a big construction player but then it got burned building the millennium stadium in wales. and now they go to sovereign funds that want to invest in infrastructure and then they go to the government in united kingdom and australia and america and say help us do these deals. they have skin in the game, hospitals, wales, roads and criminal justice a 160 million pounds project doing a children's hospital. they help build them and then they help manage them. it is public-private partnerships. >> why have they changed their mind? are they looking at market conditions and thinking, might be better spinning this off? >> i think anderson wants to cash in at the moment. they have been selling certain assets already. they paid about 780 million pounds in 2006 but have managed to make a nice little earning from this company. we understand they're going to sell a portion of their stake and might even hold onto a little bit. they are changing their tactic and now getting new board members at john laing. we understand there are new people at the helm and one of the directors could be jeremy beaton, he was involved in the olympics and knows how to steer a big company. >> those of us who get excited about an ipo, what is on the agenda? >> i am amazed by what the pipeline looks like. pwc says we could see 30 to 40 listings. and the london stock exchange in the first order alone, 5 billion pounds could be raised. we have the train lines -- train line.com could ipo. 25% of the company could be sold. mccarthy and stone could resurrect plans to sell their shares. hss hire is another one on the books. it is going to be a heavy hype line in terms of deals -- hype line in terms of deals. >> a busy 2015i am sure. that is almost it for -- a busy 2015, i am sure. guy, what have you got? >> as weeks go, this is a big week for macro economics. ecb on thursday, everyone will be talking about that. one of them is carl weinberg, he will be joining us and we are looking for to that conversation. a few things to say about this. we will get his take on the s&p and what is happening with the ecb. potentially with the way the qe operates and we will talk about the fed and china. then -- it is not a dual anchor show, it is a three person show because hans nichols is at the dlc conference in munich and he will be conducting a bunch of great interviews in the second hour of the show getting at the heart of what is happening and the bigger picture. thinking about the fact that we have over talking about creating huge numbers of jobs. the impact these tech companies are having at the moment. the first hour of show is just fran and i. macro economics and technology, what a great combination. >> i am much more excited about the macro. ecb, the big event and next to that could beat russia, the world's biggest energy producer and is quickly nearing junk. the russian bond blast in full focus. ♪ >> welcome back to "on the move ." i am jonathan ferro live from the city of london. one of every five corporate bonds worldwide call russia home. ryan chilcott has the story. i am not shocked but the numbers are disturbing. >> if you look at it right now, russia has more than five dozen bonds that are yielding more than 10% more than what you get through the u.s. treasury. that is the definition of distressed. more than 10% of the yield than you're getting in distress. at the beginning of december, it was just five ons. we have seen this dramatic escalation. v ed is a state backed rescue bank, infrastructure bank. almost half of the $44 billion of distressed debt that russia has right now. if you look at those yields, then you say, people are already treating russia as if it was junk but in fact if you look at the credit ratings, they all right now are one notch above junk but we are expecting for s&p to downgrade russia to junk and we are expecting moody's who made that move already to the notch just above junk to do the same very -- same. both dependent on the likelihood of sanctions continuing and the oil prices. >> what we are seeing is dollar-denominated debt and sanctioned spikes and perhaps the ultimate sanction, the collapse on the oil price. we are interested in the feedback loop. things have gone off the boil slightly, how serious is it? >> on the oil front, oil is still below $50 a barrel and that is a huge problem for russia. sanctions-wise, it doesn't look like they will go away. the fact that the eu foreign ministers are meeting today and discussing sanctions. we have a huge uptick in the fighting at an airport in rebel held territory. they are trying to hold onto it in a separatist area. in addition to that, you have the ukrainian president saying that the federal government should take all of these facts. no one is talking about these and we are nowhere in terms of the mints agreement. the eu and the united states have said that until that happens there won't the any rollback. >> not so much talk of that at the moment. almost it for "on the move" the markets are still higher by about .3%. the dax is still higher by .3% as well. check in on the euro, this trading at 1.40, near enough. we are back to a low we have not seen in over a decade. will we get a new stimulus package? will he get qe? then we have elections three days later, i am a twitter @ferr otv, see you all soon. ♪ >> shanghai shaken, chinese stocks fall the most since 2008 as regulators rein in retail investors. >> we will have more on the latest bloomberg survey of what to expect this week. >> 50,000 new jobs to the continent, we are live in munich speaking to top tech execs as they vie to win over europe's investors.
good morning. you are watching "the pulse." i am guy johnson. >> china stocks falling the most since 2008. the shanghai composite was down 7.7%. >> regulators crackdown on investors buying stocks with borrowed funds. david tweed is in hong kong. 63% higher in six months. a little bit of a bang at some point. >> it is a pretty eye watering number. the pace of games really concerning the chinese authorities, which is why they had to crack down on margin trading. 63 billion dollars, we can get an idea of what that means. that was the amount of money on margin loans in june last year. by december $174 billion. you can get some scope of the money that was being put into the equity markets. largely retail investors. this is a market driven by retail investors, 80% is retail. this is what the chinese authorities are concerned about. they have brought in some measures the three largest brokerages have been told they cannot open up new margin trading accounts on behalf of the clients for three months. other brokerages are being punished for opening up accounts for inexperienced investors. we have a very strong message coming from the chinese authority that they do not want to see the piece of gains continued to go up. some people think that this is a halt in the momentum we are seeing in the chinese market given the fact that this -- the question is, will those retail investors heed the message that policymakers are giving a strong way? >> david, thank you so much. let's get more on this story and shift the focus back to europe. the countdown to the biggest monetary policy meeting is thursday. for more, let's welcome the chief economist. we will talk about the ecb in the trouble we are seeing in europe. give us an indication on how you read the china story. >> david tweed had his thumb on the pulse of it. we are looking at a change in credit conditions for investors. that is trading 101. i do not think it is repeatable. fundamentals in china are quite good, we are at the low end of a protracted business cycle slow down. the figure we will get overnight tonight, gdp for the fourth quarter. the big story is the big flow of money out of china to the rest of the world. >> another example of regulators -central banks catching investors unawares. increasingly unpredictable. is that the world we live in? >> that is the world we have always lived in. central bankers -- it is a volatile market. >> it has not been volatile. central bankers have suppressed volatility massively over the last couple of years. >> when mr. jordan at the swiss national bank writes his memoirs, he will tell people that he did not anticipate the market reaction to what he did. >> was it a mistake? >> it is too soon to tell whether it was a mistake or a good idea. clearly, keeping the franc pegged to the euro was an unsustainable proposition. if you did not know that and you were just -- if you were dead wrong about it, it would be the wrong thing to do. >> it is a lesson the central bankers will learn. people are trying to figure out what the ecb is going to do later this week. trying to communicate to the market has been tricky at the best of times. we are in an increasingly difficult world. tensions are rising. how difficult is it going to be to get policy and policy communication right in 2015? >> i like your use of the word tricky. for janet yellen, it is a lot easier. she has control of her committee. mario draghi has a real tricky problem. he has issues related to being able to signal the central bank's intentions. 19 central banks, all of the points of views, all of the political constraints. i think he has no choice but to be little bit less clear. he does not know what he will be able to do. >> it seems mario draghi has been very clear. he has preempted the ecb moves by being strong vocally. the markets have believed him so far. >> read what he says carefully, lots of conditionality. if we review, we may reconsider. one of the things we may reconsider would be sovereign bonds. only a certain amount of ways to get there. whatever it takes. the strongest tool in his arsenal, given the political realities he faces is the ability to be able to scare the market down. what i'm expecting thursday is we will probably not get the huge purchase of bonds the market is looking for. that will remain dangling in the future as a possibility. we might see esf the -- we could see foreign exchange added to the mess. >> we will have plenty more on that. thank you so much. >> let me update you. greece has entered the final week of campaigning. the general election takes place this coming sunday. time is running out for the permit us to. we are speaking to a candidate for the tommy party, who is pulling in third place. >> -- pulling in third place. >> there is a new volatility leader in town. fluctuations in the front -- franc jumped to five times over the ruble. the swiss franc, volatility, two things you do not expect to have hand-in-hand. >> we also talk tech. more details to come from the digital life designer. >> let me talk to about her twitter question. is tech going to save europe? let us know what you think. would we be better off spending that money on technology and infrastructure investment? we would like to get your take. ♪ >> welcome back. you are watching "the pulse." we are on your tablet, we are on your phone. this will be something of a theme that runs through this week. everybody is talking about. the analysis has shifted towards whether the central bank will adopt full-scale qe. i wonder if we have made that migration yet. let's get back to talking about this. carl weinberg is still with us. is everything -- nuance is everything and you have to figure out what is between the lines. nobody knows whether or not this thursday will deliver sovereign buying from the ecb. your sense is that, we are not quite there yet. if i were the president of the ecb i would not go to full-scale sovereign bond purchases right away. i think there will be some qe coming of this meeting, but it means printing money to buy something. they can buy sovereign bonds, corporate bonds, gold bars, foreign exchange they could buy iphones, little yellow bricks. as long as they print money to pay for them. they could buy dirt as long as they pay for it by printing money that is qe. >> are they doing this because they do not have to deal with the tricky greed question? >> it is my opinion, first of all, that the ecb will do something. the market will be disappointed. it is the only thing we can say ahead of the event because we do not know what they are going to do. the market expectations are so high, if anything but that won't do we want to position ourselves for a bit of a retracement, no matter what they say. it is going to be a rough day on thursday. as far as the greek event is concerned my theory -- and it can only be a theory -- the ecb may want to open a facility because if the greeks demand a renegotiation of debt, those bonds will turn to dirt because 144 billion of them are back loans from greece. the ecb have in the facility to buy those bonds back would kill two birds with one stone. it would give them a stabilizing role in the market. >> how does mario draghi [inaudible] greece is a credit risk. how does he manage that credit risk if he has to go to to full-blown buying government bonds. >> it is not his job to do that. the ecb has to fix everything because they are the ecb. it is easy for us to do that because we are the only ones doing anything. mario draghi complains that governments have to get their house in order. some of them are structural, close down the barriers to entrepreneurship. some of them are basic government support for governments like greece. some of them are things like easing physical stamina -- easing fiscal stimulus to move an economy out of a depression. the ecb cannot do this on its own. credit -- uroplasty stand together. >> -- europe has to stand together. >> you cannot slam them down. they have taken the pain and they will get their. >> -- get there. >> we have a problem and we are looking at from a number of different directions. we no longer have the fact. the ecb cannot fix what is wrong in europe. we are in the eighth year of a depression and there will be a ninth year and attempt here and prices will go down -- and 10th year and prices will go down. there is no way the ecb can fix this. >> if i am buying something -- is buying spanish debt risk free? >> buying any debt should not be risk-free. there certainly is risk there. is germany going to bail? germany can't. there is risk. you look at greek government bonds. not because they were safe but because people recognize them. everybody believes that germany and other european countries and suddenly they were safe. the fact is, they are not safe. >> you are intimating that whatever happens are we looking at a japanese-style economy? would you not go heavy on thursday? >> japan's problems are very different. the real problem of james -- japan's problems, a massive debt growing faster than they can never be paid back. japan has to labor under the burden of managing an ever-growing debt with ever shrinking. it is a finite problem and it is solvable in the different institutional setting. it looks like japan topically but in terms of its underlying root problems, it shows a different problem. >> we will wrap up the biggest bank losers following this was central banks decision to end the cap on the franc. ♪ >> welcome back. live from bloomberg tv and radio. >> let's get some company news. john lang has announced plans for an ipo in london selling the business for 130 million pounds. the diverse range of products includes didion's -- stadiums in australia. >> the men's fashion show for ferragamo took place yesterday. the ceo spoke to bloomberg about their strong finish in 2014. >> we closed with a very strong end of the year. net worth in terms of revenue showing growth in all of the markets. >> deutsche telekom plans to increase spending on that works in germany. 27 billion on projects in its home markets. >> 50,000 new jobs in europe this year alone, that is what uber sees as the potential growth in the eurozone. hans nichols joins us. what of you been hearing on the ground? >> there is this traditional debate taking place the between innovators and the regulators. last night, you tried -- you saw uber try to get in front of that debate. >> we want to make 2015 the year where we establish a new partnership with eu cities. we push for progressive regulations and ensure innovation and help build the smart cities of tomorrow. we will promote core city functions. we will provide massive economic benefit to cities and their economies. what is this mean at the end of 2015? if we can make these partnerships happen, we create 50,000 new eu jobs. >> there are conversations taking place on progressive regulations, also talk about potential deals all around me. quite a vibe around here. we have the ventures ceo, and we also have chris moody from twitter. talking tech, talking deals, and maybe talking jobs. >> we have a great guest coming up. the ecb will announce a program this week. will it be enough? >> welcome back to "the pulse/" i am francine lacqua. >> chinese shares have fallen the most in six years, the shanghai composite has dropped 8%. chinese regulators are tightening control over margin investing concerned that the 63% surge in stock prices may lead to instability. >> president obama will lay out proposals for new taxes on the wealthiest americans. he plans to increase the top rate of capital gains tax and taxes on asset transfers. >> mario draghi is likely to announce a qe program this week. this will be his biggest push yet to tear the eurozone away from deflation. >> anticipation growing that we will see a significant announcement from the ecb on thursday. equity markets are trading higher. in asia, it has been a little bit of a bumpy day. particularly, in china. this as the authorities make efforts to reduce the amount of money traded on margins. they have restricted the top three brokerages from opening new accounts. the shanghai composite results in the biggest drop. no u.s. stock markets are closed today. >> a big week. a very big week. uncharted territory, we are already there. you be taking another step into that uncharted territory. let's talk to paul in frankfurt. >> the market is anticipating a lot. >> a lot is a subjective call. earlier, we are looking out proposals -- the markets are saying the ecb needs to go further. speculation that draghi will top the new expectations. and he might to. he is looking at a trillion euros to the ecb balance sheet. he has 200 billion euros to be repaid by the banks of the next few weeks. current programs they really have not added a huge amount so far. he is going to have to go a long way. there will be out there saying, we would rather see more. >> the major haggling seems to be over allocating risks. where the possible outcomes? >> quite a few. there are some governors saying we need -- we do not like qe. for example, german taxpayers would take on the burden of potential losses from buying foreign debt. what he would achieve by doing that, by limiting the risk, would be ability to announce a bigger package. if he goes the simple route central bankers may say, we will limit the amount you can actually buy. what will be the structure of buying? willoughby a monthly amount unlimited -- will it be a monthly amount unlimited? >> what is the risk associated with the balkanization of credit risk around europe? it will make it difficult to see the eurozone as the united front when that credit rate has been subbed out. where will that leave the ecb? >> this is precisely the concern, the selling point. if you could come out which is very complicated. some central banks logic of further -- you do have a balkanized -- therefore, you start to undermine your chances of success. that calls for a more dramatic program. mario draghi will talk a good game he has always done that, but he needs to come up with something big and bold. >> qs so much. -- thank you so much. it is a big week in terms of coverage this week. that will not stop us from taking the ecb press conference live. that is this thursday 1:30 p.m. u.k. time. >> the ecb has now moved to six weeks. on thursday, i sit down with some of the most influential business leaders in the world. >> that is quite a good set up. we will carry on the conversation. stay tuned for that story on "the pulse." >> being a producer, you know, the price differential a luxury goods -- of luxury goods it shows a sign. >> that was the impact of last week's action on his business. the loss has been inflicted on some financial services companies. here is caroline hyde. a number of trading companies have reached out for help. >> it is quite phenomenal, the damage that has been raked. -- wreaked. many out there in the market would. some of these brokerage companies, they have retail investors excited about trading foreign exchange. how do they do that? putting a small amount on the table to be able to take big positions. you could have two cents on a trade that was worth one dollar. you had a very small amount but you have to deposit at the brokerage company. who will fill the gap? they said on friday they would have to look for going into insolvency. they said, no, we will not. they are looking for a buyer. it could be pepper stone from australia. we have the biggest u.s. retail foreign exchange broker, a million-dollar lifeline they have been given. >> banks? >> banks are being hit hard. deutsche bank $150 million they have lost. barclays, slightly less than $100 million. we spoke to the european banking authority, the chairperson, and he tried to make clear that they have the strength in place to supply these. >> these shocks are always -- european banks have capital significantly. they are much more resilient now. >> they can survive a 40% to move. volatile moves. one thing that is interesting, julius baer. we suffered no losses from the swiss national bank move. they could manage to maneuver themselves within the volatility because they are so well capitalized. no losses. >> what about capital global? >> that is the hedged fund, $830 million is how much that hedge fund had under assets. they will have another $2 billion of funds, but they made the bet the wrong way. >> caroline hyde, thank you so much. >> the world economic forum comes back to job those with world leaders -- comes back to that those -- i to davos. we take a look at one of the hotels. it is called the golden egg. like a bond villain slayer built into a mountain, the intercontinental known as the e goldengg richard branson, bono john kerry stayed here last year. it is guarded by swiss soldiers. it may not be enough to protect it from bankruptcy. where did it go wrong? other than the week of the world economic forum 216 hotel struggles to fill it's bad -- fill its beds. hard to believe it could fail. one of just a few -- credits these pumped $152 million into the site -- credit squeeze -- credit suisse pumped $152 million into the site. it is fully booked for the week of the forum, the problems facing credit suisse. >> we are not staying there. >> going public, rumors about an ipo will not go away. we will take you straight to munich. a discussion with one of the company's earliest investors. that is coming up next. ♪ >> good morning, everybody. you are watching "the pulse." aztec titans gathered -- as tech titans gathered in munich, he told her international correspondent about the biggest trends thus far in 2015. >> the number one trend is something that is important to everyone. content creation. content marketing was this big frame of mind. we think content creation is the next big evolution. you are only as good at what you cana great example is nike. i might buy a pair of running shoes once a year but i am tuning into their nike tumblr many times a day. the ability to publish quality content is a huge trend. >> we are talking about micro-content. >> micro-content that you can consume from your phone. that is the thing brands are coming to us time and time again. >>they have many posts and they can choose to highlight one of those posts as a sponsored post. >> your case to potential advertisers, it is more the brand you were talking to not necessarily advertisers. >> they want to build audiences, buying in and into the brand as publisher movement and they're coming to tumblr to build out their site and headquarters, that is to we have conversations with. the cool thing, have our user community has embraced brands because the brands have been so creative. ford ibm, dior pushing out an amazing batch of content. >> talk about international growth. >> we had a huge amount of growth in brazil, germany especially. it is something we are constantly thinking about. one of the main reasons we have come back year after year is because growth internationally is top of mind for us. >> is at the facebooks,. the googles? what is your value proposition? >> to build your home on tumblr and use our platform to syndicate out to the other social channels. we do not view them as competitors. a lot of traffic comes to tumblr from places like interest -- pinterest and twitter. >> the networking bonanza unfolding, some of the biggest names in tech together for discussions on how best to keep up with the changes in an increasingly digitized world. hans nichols is on location at the conference. >> a special guest, a big investor. i am joined by index ventures founding partner. qa for joining us. -- thank you for joining us. 3 billion euros, what is the opportunity for european investment gekko >> -- investment? >> if you think about same time last year we talked about how europe can support and create the foreign companies. laster, we had a few examples. in the last month we would be able to create a lot more additional companies. it is leading the online entertainment, mobile gaming industry. if you look at the service industry. with these european roots, this is all supporting the idea that it is becoming a personal ground for companies to become creative. >> can you get your foot into the door based on the strength and the weakness of the euro? >> we always look at the underlying business. create those billion dollars in value. whether the company is in europe or the u.s. multicurrency, multi-local. companies like -- transforming the industry the a work across job fee. the base they have in europe is only a platform from which they attack the global market. they have to be multinational. >> startups go up against companies already in that space. is there still an us versus them mentality? >> when you talk about disruption and industry people say that destroying and industry that was profitable. in reality, a lot of the companies are innovating and we are convinced the collaboration the tree and large companies and the son of world -- and the start of world is the benefit for both. create a better place for consumers. we are a big proponent of trying to get large companies closer to the platform. so that they can embrace and pick the ones they want to work with. >> is this a chance for you to open your checkbook or make more contacts? >> we will not look for additional but forward thinking and share your thoughts and seeing many of our ceo's present. it is a good networking place to share ideas more than anything else. >> thank you for steering your ideas with us. -- for sharing your ideas with us. we will get back to you in the next hour. >> we have a packed our. -- packed hour. for those listening on bloomberg radio, the first word is up next. >> for our viewers, the second hour of "the pulse" is next. chris moody will be joining us. if you want to join the conversation @guyjohnson. ♪ >> shanghai is shaken, the chinese stock market falls the most since 2008. >> druggie will make the biggest push yet for a bond marking -- selling program. we will have the latest on what to expect from the ecb this week are in >>uber promises to bring jobs to the continent. >> good morning to our viewers in europe. a warm-up come to those waking up in the united states. happy martin luther king day. >> this is "the pulse" from bloomberg headquarters in london. let's bring in hans nichols. you are joining us for the entire hour. >> it's an exciting hour. it is a jampacked morning. it is a question of how you have regulators and animators, how everyone gets along. we have an exciting batch of guests. if i have time i would like to introduce our first one for this hour. it's the coo of dropbox. one of the opportunities? >> our business is growing weekly. we have 300 million users. think about your life, you are creating huge amounts of data. all of the video and data, you need to store that someplace. the old hard drive doesn't work. people using dropbox. >> businesses as well? does this get into business accounts? >> we have over 100,000 businesses using dropbox that has doubled in the last year. companies are using it for sales presentations, architectural design. all kinds of data that they can collaborate on much better when they can give it to people who are mobile and people can use a dropbox anywhere. >> two people feel less secure? we talk a lot about data security, do people feel less secure if everything is up in the cloud? >> if consumers and businesses did not trust us, they would not put their most important information with us. we encrypt everything. we take that obligation to protect our users data seriously. the growth of the service seems to indicate people believe in how we approach the problem. >> there is one security breach to keep you up at night. >> we have some the best security experts in the world that are focused on that problem. this is a problem that could affect every business. we have not been breached. >> you are based in the valley. do you think you will cross here or there in terms of new money chasing new opportunities? >> we are in the early stages of something that is going to be very big. 3 billion people are connected to the internet. they are creating a massive information every day. they are recording their lives. that is going something to a cloud service. these markets are huge. if you are talking about music or ridesharing or storage, the markets are enormous. >> evaluations don't concern you? you don't think we are in the middle of a bubble? >> we are focused on building our business. we are building out our teams to serve businesses that are in europe. these are partners like spotify. there are tens of thousands of smaller businesses that rely on a dropbox to run their business. >> what you think of the regulators? >> they are concerned about how we protect user privacy while enabling investigative authority to do their jobs when someone is suspected of a crime? we take trust -- it's very important for us and our users. when we receive an inquiry from government, we disclose that to our users. we think government will evolve in the dialogue and we are part of it. >> story things in the cloud it does it make us dumber? >> it makes us smarter. you have access to all of the information that helps you do your job or live your life. >> how many phone numbers do you have committed to memory? >> probably none. i don't need them. >> with that, i know you still remember all of your phone numbers, francine. we will send it back to london. we will have more throughout the morning. >> i don't even know my own phone number. >> i do. i sometime forget my wife's that is dangerous territory to head into. >> thank you so much, hans nichols. >> we will be back in munich very shortly. another gate crest is going to be joining hans nichols later on the program. he is our international correspondent. what else is on our radar? that is when the next shareholders meeting takes place. the bank will name smoaghi as ceo. >> fluctuations in the franc jumped five times. >> greases entering the final week of campaigning for the general election. time is running out for the prime minister. covenant, we will speak to a candidate from the party that is pulling in third place. people are talking about a second round of elections. that would be a catastrophe for the country. we will have that for you shortly. ♪ >> welcome to "the pulse your e." the put tommy partour next guest joins us from athens and says the second round of elections would be catastrophic. she is a professor of economics. this is a bloomberg exclusive. thank you so much for joining us. give us a sense of how concerned you are about a possiblegrexit? >> we are concerned. we appear to be on the brink again. the previous time was 2012. the reasons were primarily economic. the economy was in a mess. it there was a catastrophic trend in all major economic trends. now we're back on the break. this time, the brink is politically fabricated by the government. they want to show how dangerous the left opposition could be if they have the chance to get into government. although the reasons are mainly political, the danger is no less real. if we fall, we will break our neck as we would have done. the situation is very critical. the economy looks better but politics looks worst. our own contribution of becoming the third party is to make sure that we create stable coalition governments. the problems now are so big that no signal party government could ever dream of addressing it. >> could a coalition be stable in your mind? >> who is going to be the first party is something that is not for us to decide. it seems that he is leading the polls. it seems that it will be the first party in the elections. however, if we keep saying that it is very difficult to find common ground it also means that we say this country is ungovernable. this we do not want to say because we don't think it's true. we think this will open up new avenues of dangers that are very high risk. common ground can be found. the thing is, we need to try harder to find it. >> do you think there will be a significant shift in the policies in order for that reality to become something you could see yourselves working with? people are talking about a big u-turn do you think he will deliver it? >> i definitely hope that they will deliver this u-turn. they are aware of the fact that the majority of great people are in favor of staying within the eurozone and the european union. they have to wake up to the reality that there must be a framework for any policy moderation. i am confident they will see that. i am less confident that they will know which is the absolute -- the point where they should make the turn. this is why we are here, we want to help them realize the deadlines. >> you would consider that a coalition? >> absolute. he's been saying that we believe we should not go to a second round of elections. these will only reinforce the first party. this will be catastrophic in the sense that no signal party government can address the big problems of greece. we are not going to change our line because of that. even more so, we feel that we need to sort of enter the scene in order to be helpful and avoid accidents. >> have you reckoned guys -- reconcile a business friendly liberal party? i understand it goes back to the question guy was asking. what kind of common ground will you find them? >> for us, the priority is not to allow any first party to enter in the dangers of doing unilateral movements that will endanger our participation in the european union and the eurozone. we feel we need to target the very poor families who are completely lost in the nonexistent safety net. social policy in greece is aimed at middle incomes. the people who are clients of the state. the third of priority is a simpler tax system that will allow people to contribute without being suffocated by taxation. we believe we need to stop this hijacking of the state either party. we don't want to allow him to use the government. we need to seek for the people who are best fit for the job, regardless of their party activity. these four things are not irrational. they seem very rational to me. they are not very ambitious. the party that is going to be first in the election would want to discuss this at least. we will not give a white empty check to anybody. we want to be part of it to ensure that there are no greater adventures line ahead. >> can i ask you how you would negotiate greases that's with the rest of the eu? what is your stance on that? what is the best response to dealing with that? are we in a situation where it might not need to be done? >> i need to stress that i think this whole discussion about the debt is misleading. the main problem now increase is a lack of liquidity. the lack of liquidity is what is suffocating both firms and households. it is important to try and make life a lighter burden in order to service the debt. this can be done in a variety of ways. it can be done with lower interest rates and extending the. of repayment. i'm sure technical solutions are available. i'm sure that our creditors are willing to discuss them. in order to put the economy back to work, it will produce more gdp. i'm sure the creditors understand that. i'm sure that unilateral moves endanger our credibility even further. >> thank you so much. >> up next, life in the digitized world. europe's biggest digital conference is underway in munich. ♪ will >> welcome back. you're watching "the pulse." we're also on bloomberg.com. this is the 11th annual conference underway in munich. hans nichols has been joining us all morning. this is the great guests that this event has. over to you. >> the president and ceo is with us. i am joined by robert tarkoff. you were just on a panel. you were talking about the new consumer. what do consumers except -- expect from tech? >> there are extreme expectations. most consumers expect that you are going to engage with them automatically on the channel of their choice and fulfill high levels of service needs that they expect to see day. the google, amazon, facebook that is the standard. >> what do small companies need to bring their game up? >> there are a lot of options for smaller companies. there are cheaper tools available on the internet. the big issue is for the larger brands. they have hundreds of millions of consumers to make decisions every day. if they don't transform faster they will miss an entire generation of customers. >> who is doing it well? >> in europe there are companies in switzerland that put together a platform where people can rate in review different kinds of foods. you have companies like at&t in the united states trying to transform digital over the next several years. you have companies like google that are running their own communities. new tech companies are doing it really well. there are some more traditional companies like at&t that are making initiatives as well. >> put on your german schoolmaster hat, who isn't doing well? >> without naming any specific companies there are some that just aren't seeing the urgency of the transformation. as we talked about on the panel the time is now to understand there is no entire generation of consumers that are coming up digitally. they expect that app experience. they expect immediate response on twitter or facebook. a lot of companies just aren't there. >> isn't there a response to -- risk to responding to every criticism. does it really make sense for a company to engage all their customers that way? >> not necessarily. you don't have to do it. there are best practices that we talk to our customers about. one is to engage the consumer group or your customer base to act on your behalf. you can find that passion for your brand that exist out there and get them working for you through communities. there are ways to do that. >> but we talk about sectors, is there any sector you think does need to do more? what sector? >> the sectors we are focusing on where the need is most urgent , communication service providers and tech companies and consumer electronics deputies but also banks and credit card companies. these are the major life decisions that consumers are facing. those are the key factors. >> there is room for improvement on those key sectors. >> i know you're banking is entirely on the up and up and you don't need any room for improvement. >> there is always room for improvement in general. >> no there isn't. >> we will be right back with hans nichols. ♪ >> welcome back to the pulse. >> i'm guy johnson. these are the top headlines. >> chinese shares have fallen the most in six years. three of the nation's biggest brokerages were stopped from adding margin trading accounts. regular it is our tightening control on investing. this may lead to instability. >> president obama will lay out proposals for new taxes on the wealthiest americans in his state of the union address our night. the plans to increase the top-rated capital gains taxes the new measures are expected to generate $320 billion. >> mario draghi is expected to release a cutie program this week. this will be his biggest push yet to steer the eurozone away from deflation. now let's get back to talking tech and cyber security. our international correspondent hans nichols is on the ground with twitters vice president. >> printing, i am joined by chris moody. he is from twitter. what is your message from twitter to everyone here? >> we are talking about the role of data in businesses in making smarter business decisions. we think twitter has the ability to make every decision smarter. we can help you understand what the world is thinking about any topic at any moment in time. why wouldn't you want to insert that into your view of customers or your partners as you think about the world? >> are you getting real-time data from twitter? >> we deliver stuff with sub one second latency. we have all the tweets from all-time. that becomes for a lot of cases were people need to go back and study the past and what happened around a series of events in order to make better decisions in the future. the historical data is great. >> d you see any geographical differences with adoption of this kind of technology? we have big growth in asia. >> we have data in 42 countries. there are tons of information -- innovation happening in the states and israel. we have very active communities developing on the platform. different areas are working on different types of problems in the united states. there is a big emphasis on customer service right now. there is more public messaging to deliver a better experience. >> what about security concerns? all this data you are gathering it is public. i am putting tweets out there for someone. it's important to remember that the user put it out there because they wanted to share. >> that is truly unique. it's not public in a technical definition. people turned to twitter because they want to deliver a message. the power of it being public means we can deliver it to the system that businesses have invested heavily in. this is not about having another marketing dashboard the gives you a view of how twitter thinks about the world. i have a supply chain system and now i can take twitter data and insert it and make that are supply chain decisions and inventory management decisions. >> you need users to adopt twitter. it give us an update. >> there are 6000 tweets every second of the day. we spike at 40,000 tweets perspective. we do not have a content count. we have too much content. we spend much of our time trying to help people mine the content that is going to help them. that is where we are focused the mining of the mass of content that we have. >> not necessarily finding new users? >> it's about 19 data for valuable insight. >> when you look at the privacy concerns, what is the strategy? have you make sure that people's accounts are secure? we have this big issue back in the states with i still===sil pretending to take over centcom. >> all technology companies that have passwords you to take on the responsibility of hygiene for passwords. >> you put your information out there and then it twitter can scrub that data. >> we need to respect the voice of the user. their data is public. that is an easy thing to do. it is a public platform. >> have you ever regretted anything you've tweeted? >> yes, but we have a delete feature. [laughter] i mostly regret misspellings. >> i think we always regret our misspellings on twitter. especially when we've said something particularly clever. i have only read about it. it is never happened to me. we will send that back to you. >> i'm sure you're quite understanding. i certainly have. that's why it's fun to follow people, when they say something that makes no sense. >> that is when i make most of my mistakes. >> up next, videos next step. we are back at the digital life design conference with hans nichols. we will be there in a couple of minutes. ♪ >> welcome back. we're live from london on bloomberg television. >> we will be back at the conference. we are trying to establish contact with hans nichols. he is our international correspondent we will be back with munich in a few minutes. the irony is technology is letting us down. in the meantime it, some company news. >> it's a shift for the owner who considered selling the company. the diverse range of projects are highways and windfarms. >> europe's largest phone company plans to spend $20 million on a project in its home market. they will unveil the planet at an investor meeting next month. >> and italian suit maker is tearing up their budget. the company is reviewing everything. they make most of its measures which are now more costly. let's have a look at the markets. let's show you what is happening here. last week, some volatility. that is what the markets are delivering it. not very much. we are looking with the ecb has in store for us on thursday. that is the big event of the week. the markets are waiting and marking time, trying to figure what is going to happen next. a real sense among those we have been polling that we will see a significant announcement today from mario draghi. the bond markets are unchanged as you can see. we are barely budging. everything else is unchanged. >> let's have a look at china. china has been one of the big stories today. i do know we can get that up for you. >> chinese equities have plunged the most in six years. it all goes back to a lot of those banks, they try to persuade investors that they are not switzerland. it does not mean lost credibility for certain banks. what does it mean for other governments trying to say we are going to stick to our peg? >> that is what is happening. down at 7.7 overnight. the technology has been fixed. we are now able to take you back to the conference in munich. that is where we find hans nichols. back over to you. >> i am joined by the ceo of videmeo. thanks for joining us. everybody was to get into video. tell us what the big advances of them in the industry goes? >> thanks for having me. video explodes on the internet. one of the major milestones is the 10th year of open video sharing on the internet. vimeo was one of the early services. the thing that distinguishes us is we have a higher quality approach. we have no interruptive advertising on our service and different creators sharing higher quality work. that is one of the major trends we are starting to see emerge. youtube chartered the path for mass sharing of consumable video. what we are seeing is an emergence of a new class of high-end video that is coming from independent creators everywhere in the world. we are allowing them to sell their work. we think one of the major trends we are seeing is just like in television were the first 50 years were just about free content that was advertiser supported, we are seeing this paid layer. this is something we are very excited about. >> give me a percentage of how many are co-gross? >> it is a huge category. it shows you that it has more affordable tools in the hands of enthusiasts. action sports is one of the prime categories. this is a very popular category. those videos where they are skiing or snowboarding or skating, beer is a very passionate global audience that is underserved by traditional outlets. we are seeing themselves very well that would never generate the scale to make a viable business using advertising. >> what is the difference between doing business in the states and doing business in europe? >> it's not that different. that is one of the exciting things about the internet. unlike itunes or netflix that may be coming from the states and two other territories, there are generally parameters they have to it here too. the content licensing is very established. on the internet, we provide a platform that any creator can reach any viewer from anywhere in the world to anywhere in the world. it has been a global service since the beginning. we are excited about that. one of the things we see is creators selling content in over 100 countries in a matter of days. to be able to do that without any traditional distribution relationships through any of the halls of the media capitals of the world, it's incredibly exciting. >> what does the news business look like to you in 15 years? >> is a distinct animal. the level of credibility that is required to really produce high-quality journalism it really does make news a different animal than entertainment products or sports. we are not quite sure yet. we see the news is opened up quite a bit in the way that social media plays a role. it has to be a symbiotic relationship between the open internet and rational news outlets to make sure that people get information that is reliable. >> when you look at the competition for customers and you see some of the valuations attached to some of these companies, does it feel frothy to you? >> i've been working on the web since the late 90's. we have seen some crazy things over the years from a eluate in perspective. i do think we are there right now. i don't think we are there. everything is changing so fundamentally. for a service like ours, we reach 170 million viewers a month. now the quality of video delivery, i worked on the web back of a were trying to deliver video over dial-up. it was not a great experience. we can deliver in hd quality stream to any device and we are getting to the point where even wirelessly that's ubiquitous. i think the power -- >> technology failed us. >> that's the thing about technology conferences. there is a message in there somewhere. >> this is breaking news. this is from the french president. people may not think -- does he know something? is he going by the markets? >> may be draghi had a conversation with merkel and she had a conversation with him. >> interesting. on friday he got things mixed up. this is the french president and he thanked draghi for bringing inflation close to zero. he probably does have the best handle on the economy. >> you can understand politically why he would say that. having zero inflation probably make sense. it makes less sense if you're the head of the central bank. >> is obama leading to lift his legacy? we will look and what he wants to do in the last two years of his presidency coming up. ♪ >> this week, the world economic forum comes back with world leaders in attendance. it's a good week for high-end hotels. >> is one week a year and up sustain business models? we took a look at the biggest hotels in davos. they call it the golden egg. >> like a bond villains layer this is the golden and. john kerry, richard branson, and bono allstate here last year. it is guarded by swiss soldiers. it may not be enough to protect it from bankruptcy. where does it go wrong? other than the week of the world economic forum 216 hotels struggled to fill its beds. even the local authorities diver a planning fee without a guarantee. this is one of a few resorts they pumped money into the site. the hotel has lost 6% in value. bankruptcy proceedings are ongoing. while it is fully booked for the week of the forum, -- >> it's going to be quite a week. we are heading over later this afternoon. we will take it in life. we will have a count to discuss what it means for 2015. larry summers will join us for a packed panel on thursday. >> right. this is what we need to watch for the rest of the day. we are gearing up for the state of the union. >> tomorrow night we are already talking about it or it last year it was watched by 33 million people. nonetheless, 33 million people is an accomplishment. he has taken a different approach to this year's address. they laid out most of what he is going to say. the approach in the past from revis presidents has been to tease it out and put some suspense integrated we know what he is going to do. the democrats are thinking about 2016. republicans of heather opportunities to lay out their agenda. this is going to be about how the democrats intend to support the middle class and how they are going to tax the rich. that is what we are going to get out of the speech tomorrow. >> that has a lot of implications for his legacy. >> absolutely. he is in a difficult space. both houses of the congress are controlled whether republicans. most people are going to look at the speech as an expression of intention than what the democrats can actually accomplish. when he says he wants to raise the cap on capital gains and sick days should get paid in the united states by having a woman in the audience who benefited from the recovery act and runs a small business in colorado and got a lot of loans and raise the minimum wage for her employees to $10 per hour he gets to emphasize the minimum wage. we should look at it as 2016. it sort of will be emphasized tomorrow night. >> they're going to discuss how they can work better to fight terrorism. that has been a huge issue. they are also going to talk about russian sanctions. there has been chatter about how they need to be rolled back. given the fighting we have right now in ukraine it's ready in tents fighting -- intense fighting, that is not looking very likely. >> thank you for the latest on obama and the meeting in brussels. that is it for "the pulse." keep it right here on bloomberg television. programming continues on bloomberg television. we are heading out to davos. manas -- manus cranny will be in the share. it's going to be a fascinating week. >> have a great afternoon. ♪ >> a few good men catapulted an actor to celebrated screenwriter and producer. he went on to bring us the west wing, moneyball, the social network, and most recently, the newsroom. joining me today on studio 1.0 aaron sorkin. thank you for being here.
bailout talks broke down. >> both sides refuse to blink greece is rushing toward the cash crunch that threatens to drive it out of the eurozone. we are joined by hans nichols. and without the bureau chief in joins us from greece. hans, let's start with you. let's talk about the greek finance minister, yanis varoufakis. and his reasoning about what he is doing. >> according to him, it is simple and illogical for yanis varoufakis to excel at a deal, a program his party was elected to repeal, it is simply a nonstarter. he said they went backwards last night and not forwards. he said. the last week's meeting, they had a few setbacks and then they made progress. he held out the prospect for additional talks is that he is willing to negotiate. >> we have been saying steadfastly for the beginning we want an honorable settlement. we want to wedge together these principles, the principles of the program have to be respected and the government that challenges the logical problem and find common ground between the two. that is what we said from the beginning. it is not enough because it's the only option we have. it is plan a and we have no plan b. >> by brussels standards, it was a short meeting and a dramatic one. earlier, yanis varoufakis claiming that he was offered a plan he was prepared to sign on the spot. that plan, that offer was withdrawn was that eurogroup finance ministers saw what was in it. what do they ended up offering something that will keep them in the current program "some flexibility." and those two words are too reckless in yanis varoufakis's review for him to sign off. talking to the ministers, not a lot of optimism. i asked one about what the mood was like. >> there was no progress from last week. -- compared to last week. and no data available and no numbers. it was very difficult to make progress. >> was their frustration with mr. yanis varoufakis? >> and no, i would not call the frustration. there were expectations in a very for -- very short time. >> guy both sides are saying they are looking to the other side to make an offer. otherwise there would not be enough time for the parliament and all of the nations to ratify. >> hans, how did the deal that yanis varoufakis thought he had fall apart. >> it is sort of a fascinating story and could reveals blitz whipped -- between the eu and the commission and the finance groups being led mr. dyson will. here's what we know. we know there's an offer on the table and that was change. the question is how did it get altered? they do looks like he did not think it was appropriate and got yanked back. a report in a greek newspaper citing a greek economy minister in saying the initial offer from ecb has support from 2 very important people, mrs. lagarde and mr. draghi. the question is are these splits , if there is a split between the eu and finance ministers, will this drive negotiations and allow the greeks to sort of play the europeans off each other and find some sort of way to have a bidding war and more favorable terms? >> hans nichols with the very latest from berlin. we are trying to get to the bottom of what was in the document and if it was split. >> it will be interesting to see how it is played out. holland is playing an interesting part. the greek bailout, the company itself faces a credit crunch. it could see him run out of money by the end of march. let's get more of that angle and to our athens bureau chief. walk us through where we are. the timeline is becoming increasingly tight. talk to us about what is happening on liquidity and equity front. >> well after last year, the banks and the state have obviously lost market access. there only such party, the bailout as well as assistants from extended by the bank of greece. and that the central banks. if the bailout funds disbursement cease, the greeks will be -- as early as nest [indiscernible] it would have to default on short-term debt that is in the banks' valults. what do this mean is the brains will be in a solvent immediately. destin softened immediately. >> are we looking at a possible credit crunch? you wrote a nice piece on bloomberg.com and if the stalemate continues, this is what we are looking at, right? credit and crash crunch? >> one have enough to pay salaries and debt. and it would [indiscernible] its own banks vault. thanks would be i -- the banks would be insolvent. no economy can survive without any kind of cash. they will have to stop using some sort of currency. >> yeah maybe we could use the monopoly money that mr. varoufakis was talking about. i am joking of course, sorry. we will leave it there. nikos chrysoloras joining us from athens. >> coming up, it is not holger nor monopoly so what is game theory exactly? stay with us. >> that brings us to the twitter question of the day -- greece versus the worst of the eurogroup. what game are they playing? it is not game theory or monopoly said mr. varoufakis. let us know what game you think they are playing in greece. ♪ >> welcome back to "the pulse." >> bailout talks in brussels collapse and the greek finance minister, yanis varoufakis insisted he was not playing games. hans nichols called his bluff. quick search, if you are not playing game theory and you are not playing poker and not bluffing, was a game are you playing? what game can you ensure voters you are not playing? >> i've not played monopoly with fake money but genuine money. [laughter] let me answer your question. unfortunately, i've had a pass as an academic of studying game theory. one of the things i have written in a recent article that i have told my students is that game theory is based on unrealistic assumption that players are fixed and are all selfish. i do not believe that anyone's version is fixed and is selfish. i think we are perfectly capable of rising above our narrow perspective and rising above the perspective of your. what does a bluff amine? poker you have a seven and you pretend like you have an ace. what web been saying steadfastly is we want an honorable settlement we want to watch together these principles the principles of the program that have to be respected and principles of a government that challenge the logical problem and let's find common ground between the two. it is not a bluff because it is the only option we have. it is plan a and there's no plan b. therefore, no games. >> eurogroup finance ministers failed to reach a deal yesterday but mr. varoufakis said he remains confident they can meet half way and the next couple of days. eastern ukraine's economy plunge the most. let's talk about volatility. care to talk about what it all means for market volatility is a global allocation strategy. when you look at the greece, it seems that no two sides have been further apart in reaching an agreement. does it mean you're really worry about something that accidentally happens? a big run on the banks? >> the deposit slide in greece will be the key thing to watch. february 26, will see the latest numbers and that will be interesting. we hear they are very large. politicians can talk but what will decide the fate of greece will be -- if the banks for conflict with, the ecb can -- that's contingent upon agreements. then, we are talking about a situation where the government is going to have to issue ious. and affect the alternative currency which will be massively devalued. and so i think it is very unlikely to happen. but i think we'll see volatility on the way to an agreement. what we had two weeks ago was to cut all of the equity exposure to europe to neutral. a very big move for us. we were overweight equity. we showed a great rally in january. at that without it getting too risky. at this point, we are reaching to a level of the stoxx 600 and that's irony year in target. the upside versus downside, not worth it. >> i hear what you are saying. really interesting since i started covering the greek financial crisis and everybody does to the point, it is going to lose badly. everybody was talking about the fact that they greek was insolvent. we are still here x number of years. the instinct, the most investors have is to believe that the euro finds a way of muddling through. why is this time going to be different? >> i think we will muddle through. we will not have a grexit. we have 2 big redemptions coming up. there is no argument. in july and august, 3.6 billion euros in bonds maturing. and 3.2 billion in august. you have to have the cash to pay it. the only way they will have is to a great the program. at some point, there will be a hit in the summer. february 28 a deadline which will probably get fudged and that's a real hard while we will hit. if we do not have an agreement by then, it will be a massive problem. that's will be the key for the kind of crisis that is looming now. >> you are expecting a little bit more volatility. the markets are complacent. is it because it is so low you are not getting returns so you will riskier assets and by question mark are there is a believe they will muddle through and often it does? >> the ecb is providing the backstop and a huge amount of debt every month and they will start doing that. none of them, believe me. every customer has spoken to have set we are keeping our long position. we are not going to sell at this point. it happens in the past. you reach a certain breaking point where greece is record related and we start to see that. what is the -- once the noise starts to build at all of the capital flows and we are seeing. i think a lot of this rally we saw is because of the u.s. of money. we'll track flows and web seen a lot of investors. a it is a story we believe in. the euro is weaker. in lending has finally stopped. and it looks fantastic. we completely by the long-term strategic story. tactically, we think they're too many risks. we look for the entry point later on. and the upside over the next three months to avoid that 50% downside that could happen. >> and the ecb, a buyer of last resort. they are going to buy. if the guy sitting next to you sales, there's a buyer there and inside so that will keep a lid on yields. if someone else panic's then there is an easy transaction in no rush for a narrow exit. >> mario is there and what does he buying, the bronze. there may be a stop to the yields but the backdrop is not there for the equity market. that is the key thing. if the risk appetite disappears, that is what keeps the euro stoxx at a very high level. it might happen very quickly if the japanese investors have a little bit of money that goes into european stocks and that the is going into european stocks. it would take a few bad headlines to reverse that. >> i am still trying to figure out in everybody seems to have a different opinion. if we have a bank run in greece and capital cap stops, what exactly is the impact on banks in europe? are we still connected or can we survive? >> would germans be willing to fund capital flight in greece? that is effectively what happened in cyberspace a lot of people inside first -- what happened in cyprus and a lot of people in cyprus. at some point, you have to draw the line. i think i would not be surprised if there was in greece at this time. >> how nervous should i be -- how nervous would i be about the buildup because it greece were to exit, it will feel the pressure and that effectively it's where the losses are going to come. and the past, people got very excited and the germans started talking about it. do you think this time around that is what the officials are watching? >> a physical loss. they would have to recapitalize. and the ecb took a loss and will have to recapitalize the system. if it means the germans will have to physically put more money into the system and that will be immensely unpopular. that's something we have to consider and target to and a very large inflows into germany and chances are it is coming from greece. that is the money and you put it into a german one. >> if the system breaks down and that has to be recalibrated and the number is huge. >> yes, yes. you see the strings of zeros and really astonishing. in the target to the system. i think it will be a very risky thing politically. and the target 2 balance. >> thank you. >> how did the french luxury giant on the way down. we'll have that story. ♪ >> welcome back to "the pulse." >> the french luxury giant and caroline hyde joins us with more details. >> previously, gucci had been the stand out. now we have a new jewel of the crown. 25% increase in sales in the last quarter. is that it's returning to the forefront of the industry. it was a standout quarter for yves saint laurent. a very strong part of their brand, slowing slightly. almost 7% growth. revenue has doubled since 2010. still a very strong brand. even though the shelf price are reflecting, gucci is doing better. gucci decreased a little bit. many felt it would fall more. this of a noticeable improvement in the final three months of the year. clearly china really did hit gucci quite hard as the fact that cannot have consistent rollouts of what it was doing in terms of bags and looks and a\ esthetics. >> of problem is we are seeing growth elsewhere but gucci is the cash cow, 40% of revenue. if they do not get it right, they will not make money. >> that is why they are imposing so much change for you across all of their friends, they are making big changes. gucci's new ceo, a fresh new transfer this was a they are looking at. we will hear from the chief executive and saying organic growth is the goal and not m&a and buying independent brands both focused on what they own and what did they have in making gucci better. they have promoted from within to take to the helm of crater overall. clearly, they have a new player. they also have a new chief executive who they moved. they rearranged and changed their chess pieces and now they need to start a winning. >> let's hope from them. caroline hyde with the latest. >> we are talking by insulin run -- yves saint laurent and were looking for to that interview. we'll be back in a couple of minutes. ♪ >> welcome back to "the pulse." and we are getting breaking with u.k. inflation slowing. >> the governor of england said it could go further below of where we are now. we are at a 0.3. search trend is moving in a southerly direction. the pound is it. we will get reaction. nevertheless you listen to the language being generated by the governor and the mpc still feel as if they are trying to manage on a more hawkish direction. maybe a little dovish. >> let's bring in our reporter with the latest. the comments we had over the weekend from certain members, did the markets it missed pricing? we should expect interest rates rising quicker than the markets are suggesting? >> always two-way on expectation. one way, a safe bet. some of the comments on what it would be on monetary policy. in the scenarios we see was the inflation and it is not rising. we have had at that for a while and then disinflation. prices starting to come down. you want to avoid deflation. all central banks are worried about this. the bank of england hasn't in the back of his mind. what it wants the markets to think our race and what ever stay where they are now. psychologically, you are a central banker, you are really uncomfortable. a lot of the comments would say for the bank of england and the federal reserve suggests we want to stay there and see how it goes but we want to make the first move. rates can also go up because there's a lot of leverage in the system. but also we want to move down again if we have to. if this backdrop continues and the oil price plummets again, we want to have something. >> talking of the oil price, a policy made for two years further down the road if oil price they where they are now will unwind. as a result of which 9-12 months we will end with the opposite effect is to start with recalculating our numbers. yes it is being generated by one the biggest drops in oil prices we have ever seen. as a result of which policy that on this. >> given the economic backdrop and what is happening in the eurozone and what we have seen and given what we are seeing with the growth outlook globally, if you see members change their minds. it is very hard to raise interest rates given everything that is going on at the moment. yes, you want to look to the oil price and go through a two-year horizon, but it will be hard in this climate. >> and -- in terms of what we are looking at and we had the inflation figures and will talk about wage growth and they u.k. and the benchmark. >> and that is exactly what the mp -- mpc is saying. >> unreliable. >> unreliable. they have mounted it on wage growth. you are going to see some headline wage growth and because inflation is lower you get real wage growth. even that chart, out this morning, people are not getting back their purchasing power yet. and the former mpc member has been adamant that you can raise interest rates when people do not have more money in their pockets and certainly do not feel like there is more money in their pockets and that is a matins. that could be a real risk. you -- that's a very difficult scenario as well. >> your 2 euros since a worth on what is going on. >> i did -- in december, i do not think we would be here. i did not think we would get to this point. i have not read or spoken to him really what is going on. >> this is open really and the danger zone. >> we're in the danger zone. we can carve out and remove that issue from the euro project and make it more solid. but such a scary thing to me. >> let's hope they know what to they are doing. >> bloomberg view columnist mark gilbert. >> right, the top headlines. the ecb program may be in trouble before it begins. a shortage of new supply from governors and a lack of sellers will create a scarcity and hinder the efforts to buy 19 months and the same proportion of the bonds as the federal reserve. >> fairfax holdings of agreement to buy britt four 8 billion and the insurer is looking to expand sales and coverage in the london market. >> a bit of restructuring. pandora beat profit estimates for the fourth quarter. the maker also said sales will rise to 40 billion products this year. the company's strategy is to introduce new charms more frequently. >> finance takes a step forward. investors are seeking higher returns wherever they can find it down. >> the first. 2. lender in the u.k. to offer a secure bond and that is interesting. the first perrer to peer lender. how hard was it to get approval? >> is the entire industry -- the entire industry has been interested. at through the investigations we discovered that by issuing a list of all bonds we complied with isa requirements and were able to be the first to offer this product to the ever-growing and quite straightforward. very straightforward and i am very pleased that we were able to really make a revolutionary step forward in the peer-to-peer industry. >> in terms of returns, what are we looking at? >> on the three-year isa, where offering four percent and on the five-year, 5.25%. the highest cash isa i believe it will .4% -- 1.4 percent or 2.5 percent. a dramatic increase and the types of returns that the investors are seeing. you have got to remember that 54% of u.k. households have an isa. they are not really beating inflation right now. it is one of the largest cash spots and the u.k. economy today. we are really, very please. >> how much demand do you expect? the rates you are talking about, you would expect a man to be fairly strong. you get higher returns with more risk and the 2 tends to go head-to-head. >> in terms of demand, we did not think of it hope demand would calm. we have -- and hope demand would come. in terms of the amount of money in the isa market, there are 950 billion panels available that is earning on average less than 1.5%. we are reacting to demand. in terms of rates we offer rates are indicative of risk. we are one of the lowest rates in the market. where we only do secure lending unlike most of our largest competitors and unlike all of the competitors, the only want to put our own money at risk before our investors. we lose first. our primary concern is preservation and protection of capital. in essence, you back as an investor and wolseley backs you. commission is neither here nor there. we lose before our investors. >> if you can't take a step back for me. the fact there are such a low rate at the moment is driven by very low inflation qe will of seen and the u.k. and elsewhere. your sense is that you are a big beneficiary of that. we were the largest growing peer-to-peer and the united kingdom last and we are one of the newest entrants. and the industry is self is growing as such a dramatic speed. because investor demand and we are not creating contact. and use an incredibly low returns. and you can go to the bank and have a guaranteed return but unfortunately, those returns are less than inflation. a really not that interesting. >> do you think that markets will still be there when official rates start to rise? when interest rates are more to a normal area, i do not know what that is. 2%-4% what will he do in how will they change the business model you operate with? >> firstly, savings rates at these historical lows are not reflected a borrowing rates. the rays we achieve from very high quality borrowers today, and access of debt pot -- amn excess of the dead positive rate. unless a mix of geometric sales forward, our market is here to stay. think of peer-to-peer as the kind of modern day building society. >> what are you expecting interest rates to do? if they rise, do expect them to stay rising or goal of very quickly? >> the popular debate is what happens if interest rates go to zero? i think you will be pressed to see rates exceed 2%. >> graham wellesley ceo and founder of wellesley and col. >> we will check into the whole till sector. ♪ -- we will check into the hotel sector. ♪ >> welcome back to "the pulse" live from london headquarters. >> a good month for car sales area -- car sales. that's according to the european automobile manufacturers association. daimler chrysler makes mercedes-benz and posted the biggest gains. >> french telecom carrier orange , profit metric will fall further due to a price war that his sales. orange forecast it will fall as much as 2.1% from the previous year. they had a cutback on marketing costs and sold assets in markets including switzerland and the dominican republic. >> a south korean firm the electronics company, has been charged with violating high end samsung washing machines. that happened last year. it occurred before a trade show in berlin and the charges one week after the daughter of the korean was jailed after an incident on a flight from new york. >> intercontinental hotels group posted a profit that beat analysts' estimates. the ceo spoke to bloomberg and talked about the changing landscape of the hospitality industry. >> he said he does not see airbnb as a correct. -- threat and as a big opportunity. >> we have opened up more hotels in 2014 than we've done for many years and we are seeing considerable growth. if airbnb and that many other companies like a deal primarily with the business at the lower end and in general 50% of americans are said to stay in a hotel. they're looking for alternatives that staying with their parents or somebody's floor. the airbnb business can be complementary. the important thing is when the new interest to market that they are well regulated for safety. more importantly, zoning or planning. i think they need to be managed properly and subject to the same rules we are. frankly, if that braces growth -- is that business grows to revenue and not just rooms from a revenue perspective, if it grows and consumers want, it is something we shall look that says we are good at running hotels and behind it. certainly, it is certainly in the margin. >> let's bring in caroline hyde. it sounds like the intercontinental ceo is pretty optimistic. a is not afraid of disruptors. >> he doesn't seem to be. speaking to him earlier. you have 700,000 rooms. much cheaper offerings and margin players and their revenue is nowhere near where intercontinental is. what they are having to react is is we want a more alternative unique experience. but, we feel it could be anywhere in the world. the way they are responding is getting into boutique hotels and as while we saw the $340 million splash where they bought up a u.s. boutique company in terms of quirky properties. you can go a long canal leopardprint rooms -- you can go a long and have leopardprint in your rooms. >> i wonder how it interacts. that is neither here nor there are it is interesting what he said yes, the houseboat i can stay on that. i cannot guarantee the safety when i do it. when i them in a hotel, i know the structure is safe and they have a fire escape and watercourses and these sorts of things. and he is pushing the trust line. you can trust what you are getting. all of the little bits of pieces you do not think about are there there is a fires skate and we practice and do those things. airbnb, it is very different. >> trying to keep up with it and you are seeing airbnb and responding and trying to improve. businesses where the traveler -- business travelers are still very much focused on the big hotel groups. intercontinental hotels and crown plaza which a day on. they know what to they are going to be getting. and what did they can expect. and a company that is doing well despite in -- an era of disruption. he said the americans were they get 2/3 of profit is excellent. +++ have not focused a lot in the past. he said we do not own structures, we manage it down. >> a most of their sales are online. -- most of their sales are online. >> thank you. the latest on intercontinental. >> china's billionaire boom. the ipo frenzy. creating billionaires, 2 a week. the new china rich list. ♪ >> china's billionaire boom the 2015 ipo frenzy has minted 24 new billionaires this year. not a bad. >> especially with how many weeks there been such far. let's bring in rob, just a crystallization story. now we know. >> it is a wealth of being created, a lot of private equity money that has flown into the china market. since october 2012, the floodgates have opened and we had 20 ipo's ionn january alone in six weeks. >> it is billionaires. billionaires with a capital 'b. ' >> it should be stressed. >> he is the billionaires editor. >> there is a phenomenal transformation happening in asia and wealth markets. you look at the region even a year ago, it was dominated by hong kong real estate billionaires and there were about eight 10 of them. now, you look at the situation analysis shows how quickly the chinese wealth machine has surpassed the others. it is that people are recognizing the value. >> in tech and finance and everywhere? >> across the board. tech is lady. alibaba is the wealth creating machine with 13 new billionaires. -- tech is leading. we have a drugstore chain and casual wear, a bunch of the. it is a broad spectrum of the chinese market. >> can i extrapolate? we have had this and why carry on through the rest of the year? >> you look at a company like a beijing technology company and arnie four times earnings which is lower than the shanghai stock exchange. some are saying these companies are not overvalued. some have said that good money is gone. the chinese economy is slowing down. less than 1% in europe and 3% in the u.s. some are saying it is over and some saying there is more to go. place your bets where you will. >> place your bets. we have to get you back on. glad to have you. robert franco from our billionaire's team. >> on bloomberg radio, first word is up next. for viewers, the second hour of the "the pulse." the conversation around greece. yanis varoufakis and hans nichols talking about monopoly money. >> it was a chess again. hans nichols versus yanis varoufakis. a pretty funny exchange. and our question of the day -- are they playing poker or chess? >> or something else. ♪ >> bailout breakdown. talks between greece and the euro group collapse. varoufakis wants an honorable settlement and there is no plan b. >> the banks are definitely taking a hit. >> the ukraine conflict continues with the first deaths since the cease-fire went into effect. >> good morning to our viewers in europe, good evening to those in asia good morning to those just waking up in the united states. >> we are just getting some breaking news out of germany. german zew investment expectations are a little bit below expectations. >> it has come through a little on the light side. the number is better than last time. relative to the previous number better. relative to the estimate number, worse. that is euro-dollar. not moving a great deal on the back of this. this is only a survey. this is investor sentiment. it is a survey of investors. >> athens rejected the conditions for further financial assistance. both sides reduced -- refused to blink. >> for more, we're joined by hans and i calls in brussels -- hans nichols in brussels. you have been talking to the greek finance minister varoufakis. what is he saying? >> his logic is that it is illogical for greece to accept and stay in this program in any way because they were elected on a mandate to leave that very program. that is why they call that absurd, illogical. even with that talk, he did seem more confident than his counterparts on the other side of the negotiation. mr. varoufakis made it very clear he is going to continue to negotiate. >> we have been saying steadfastly from the very beginning that we want an honorable settlement. we want to wed together these principles. the principle that we need to be respected and the principle that we has a government want to challenge this program. it is not a bluff. it is the only option you have. it is plan a. there is no plan b. >> what mr. varoufakis said was that he was presented at a document at the beginnings of these meetings and he could have signed that on the spot but then that was withdrawn after the dutch finance minister got wind of it. it was at that point that they changed the document and handed him something else and said you can stay in the current bailout program with some limited flexibility and it is that language that tripped up mr. varoufakis. that is why the meeting ended early. we were really trying to get a sense of what the mood was. that is when i asked the luxembourggian finance minister. >> the mood was that there was no progress compared to last week and there was no data available and no numbers. it was difficult to make progress. i would not call it frustration. there was expectations that have not been met in the short time and for the rest, i think i have said everything. >> all the finance leaders, in addition to some other ones, are in there for a separate meeting. greece is not on the agenda. both sides are saying it is up to the other side to make the initial offer. greece wants clarity on what additional flexibility means. the other countries say that greece needs to apply for a bailout extension and abide by the terms. >> they put the document on the table and they said, it is not the document. do we know why this document is withdrawn or what was in the document? >> it appears that this document was not shared with the dutch finance minister. it appears they did not bring in all the euro finance ministers. we see a split between the finance ministers and eu. if that split widens, you could see a difficult negotiation going forward and you could see the split spilling over into the finance ministers. we don't quite know where all the finance ministers are. we do have a sense that there is a pretty solid block saying that greece has to stay in the current program. we don't know who is going to blink first to get the negotiations started. >> we have more meetings, we have an ecb meeting. >> it is not a leap year. we have a short february. friday is the deadline and that is the cutoff. it has to go back to the national legislatures if they do amend the deal. brussels deadlines tend to be a little bit pliable and a little bit movable. we will see if this one is for real. >> these guys need money. [laughter] that is not immovable deadline. or at least not unless the ecb is behind it. >> hans nichols will be there to cover it all. these fudgeable deadlines. [laughter] another word for deadlines? >> gas stops? it is great to have you on the program. give us a sense of what the markets are looking at right now. there is greece, there is russia they are complacent they are not worried. they should worry more about this, should they not? >> to be fair, it does not seem like the greeks of a very strong hand to play and we should have lots of sympathy for them. they are an elected government and they did receive a mandate but it is hard for them to really play out this to the end. they will eventually have to compromise. probably much more than they promised during the election period. to a certain extent, it does seem like russia is looking at this and is somewhat happy to see the disunion and how that would reflect on negotiations with moscow. to be fair, the european union had it in the beginning to put a lot of pressure on russia in some sort of concern about a feedback loop. the european union is much more comfortable with both scenarios now. we saw a drop in exports from germany to russia. it did not really impact the european union economy to a significant degree. while we saw doomsday scenarios early on when greece was going into this severe crunch, at this point it seems like the worst-case scenario of an exhibit is something that the european union is something -- european union will be able to accept and contain. >> thank you so much. we will talk about russia next. >> we will go into the details of that. what is the right game to play here? if you are to think of a game and think about what is happening with greece and the eurogroup what is it? poker, chess. hans nichols was talking about monopoly. is it jenga? or is it the game patients. or operation. the patient is on the table and you are trying to remove things. >> is that the credit crunch? >> that is the end of the game. >> coming up, we also talk russia. battles around the transport hub threatening to undermine the peace accord signed this weekend. we will take a look at the fragile truce next. ♪ >> we just had some breaking news from the bank of indonesia, unexpectedly cutting rates. economists were expecting a hold. this is significant because we are seeing central-bank easing around the world. >> as an economist, you are thinking, what has happened since the beginning of the year? have any of these central banks actually delivered rate cuts? you have not got enough fingers on your hand. i am pretty surprised. it has been days since we had the last rate cut from a central bank. >> we are surprised that -- i wonder when we spoke to these guys. that is the latest from the central bank. we are on central-bank watch. >> there is definitely a trend emerging. >> here are bloomberg's other top stories. >> new-home prices rising only in one of the 70 cities tracked by the government last month. it is the biggest drop on record. >> chinese stocks jumped ahead of the lunar new year holiday benchmark gauge. it is the best seven-day gain since 2007. one standup company was china eastern airlines, which jumped 10% demand -- on demand for flights during the holidays. >> the cease-fire in ukraine is under strains amidst claims of fighting on both sides. both sides have missed the deadline to put their heavy weapons -- pull the heavy weapons away from the front lines. >> for more on what this means for both russia and europe we're joined by joseph. thank you so much for sticking around. we had questions about the federalization. that is something russia wants for ukraine. we also had questions about the buffer zone and the osce moderators. were these too lax? >> the point of decentralization is really secondary. this was supposed to be done by year-end. this goes much more to the substance of the resolution in the longer term. what we need to see now is the fighting stopping and that is basically it. even that very small accomplishment that we want to see is not playing out on the ground. >> when you look at how this works it looks like it is going to end up being a conflict assuming that the cease-fire comes into force. what i have heard talking to people is that there is an expectation that there will continue to be skirmishes. the critical thing is that you have a withdrawal to either side of the buffer zone of the heavy weapons. what is still in the process of making that happen is what we are seeing at the moment -- is it noise? or is it part and parcel of that withdrawal process that we are going to see? or is this the cease-fire not taking place? >> it is very difficult to decipher decision-making on the kremlin side in particular. in days like this, it is really impossible. investors should not bet on an outcome here. the skirmishes were contained around the donetsk airport around the beginning of the year, but that has spilled very quickly into other areas. now we have moved over to other areas and there seem to be other flashpoints. even if it is contained around the new areas, it spills over very quickly. that is why investors have missed this rally. it was not really a tradable rally. it was more of the reversal, some of the fx forwarding from corporate scum a financial institutions of a retail investors -- corporates financial investors retail investors. >> when you look at russia, they are struggling very significantly. you have a cease-fire that is not being held. that may be broken anytime soon. at the same time, you have 19 extra people being put sanctions on just when they signed the cease-fire. where do we go from here? >> we are not very positive on how we go from here. we do see opportunities in a high-quality, low-cost exporters . what we need to be clear on is the idea that russia can be brought on its knees financially just does not work out. the math does not add up, at least for the next two years. russia has a natural source of hard currency that can support itself even in rough times. current account surplus even in russia -- in russia, even considering the depression, should still be positive for the next two years. we look at rosneft, as an example, they had a debt payment of $7 billion recently. they generate around $12 billion of export revenue. they can service their debt. russia corporate and russia government can survive. >> what about russia citizens? >> true. >> this is the problem. the financials are fine. the people on the street are paying the price. >> absolutely. we are not very optimistic. inflation will hit 17% toward april. it is a crushing position for retail investors. you are seeing opinion poll shifting a bit. but still, putin came out of this mince agreement -- minsk agreement as a tactical genius. we need to put the parameters here. on the consumer side, it is going to be difficult. in terms of the idea that the obama administration or brussels can bring russia to its knees and make them act as they want due to sanctions, that is just out of the question. >> russian assets. break it down for me. are there any opportunities within this? what is mispriced right now? something has to be mispriced. >> i don't want to dump this down too much, but the reality is that we talk about geopolitical situations and sanctions and consumer trends but the external factor of oil price is just the overriding parameter that we need to discuss. 55% of the government's revenue is from oil prices. the volatility there is huge. i was speaking to our derivative trading desk and the volatility on brent oil prices is around 50% that implies north of 3% daily moving. as an investor, how do you take a view? >> you cannot price russia when applied volatility is doing what it is doing -- implied volatility is doing what it is doing on oil. >> the competing themes within the oil universe are very difficult for us to see. we are seeing rigs being cut very quickly on one hand. we saw spending coming down. -- cap ex spending coming down. on the flipside, production is still increasing. the u.s. is even still seeing production increase. the saudi's and opec are not letting down. they just reduced prices for march in asia to a 14 year low. it is just a very random outlook for investors. >> thank you so much. joseph dayan. >> still to come on "the pulse," french luxury giants beat estimates. we will have that story next. >> let's check on the athens stock exchange after we had that breakdown in communication between the eurozone and the greek cabinet. it is down from 0.9%. markets may be a little bit complacent. >> the bank stocks certainly have come back and little bit. -- come back a little bit. if you want to see volatility, check out assets. follow us on twitter. ♪ >> welcome back. caroline hyde joins us. if you look at the breakdown gucci has been down. some of their brown's -- brands are doing well. >> yves saint laurent is killing it for them. that was a real ray of light. they are still cooling slightly. gucci is not quite as stellar as it has been in the pass. gucci is the cash cow. it is where the bulk of revenue comes from. it has been hurt in china and has been losing the consistency of products, losing its sexiness in terms of what tom ford has brought to the name. the performance has been down. there was a notable improvement in the final three months. we are suddenly seeing freshness being injected. a new chief executive. he is going to be taking the helm and trying to drive gucci forward trying to continue to improve. they have a new creative director as well. they promoted him from within. they need to inject the newness and consistency that analysts want to see. it is interesting to see where they are doing well and where they are trying to distance themselves. they are doing well in the united states doing well in japan. they are trying to shave the risk going forward. >> they want to grow organically. it is a fascinating story. the very latest on kering. >> we have the boss on tomorrow. ♪ >> welcome back to "the pulse." i'm francine lacqua. >> i'm guy johnson. >> the ecb is 1.1 trillion euro qe program may be in trouble. a shortage of new supply from governments and a lack of moving sellers will create a scarcity hindering the ecb efforts to buy up to 1.1 trillion euros in 19 months. >> looking to expand sales, fairfax will pay cash for each share of brit. >> pandora beat profit estimates for the fourth quarter. the charm bracelets maker says that sales will rise more than 14 billion kroner this year. the company's strategy is to introduce new terms more frequently. -- new charms more frequently. that sounds like a good strategy. [laughter] give the people more of what they want. >> speaking of charms, jonathan ferro. [laughter] >> the probability of a grexit has been lifted to 50%. the dax was off by about 150 points by about one point, but is now down by 0.75%. the sentiment was very negative this morning. we are coming off those lows. investors relaxed a little bit about the prospect of greece exiting the eurozone. markets of stayed very resilient. what is even more remarkable is how resilient the greek stock exchange has been. the athens stock exchange has been down, but it did move to positive territory, and at one point it was down by 4%. in the bond market, the expected reaction. bond yields in greece go much higher. we go back through 10%, up by 58 basis points. don't let these moves will you. the point from last night was very clear. euro zone finance ministers are on the hook for 62% of greek debt. they are going to dig valor -- their heels in. as a look beyond greece, i see a much bigger story and it is central-bank easing, easing, easing. the central bank of indonesia is no different. they joined the central easing party. i bring it to the u.k. here is euros sterling. -- euro-sterling. inflation average is -- averages the weakest since the 1930's. while we are seeing a much weaker pound off the back of the number you saw we could see a stronger euro, then we can back. you strip out food, you strip out energy core was 1.4%. the bank of england's line, they will look through this some of the price effects from oil will be transitory. with the rest of the world easing because of low inflation why should the bank of england be any different? that is a note for the rest of the year. >> why should the bank of england be any different? they are certainly in a better position and have gone to pains to pointed out. 25 minutes from now, it is "surveillance" with tom keene. he joins us for a preview. you will be looking at ukraine, greece, the central bank world. >> the united kingdom inflation report was a stunner with that low inflation. we have carl weinberg with us this morning. this is a timely meeting with dr. weinberg with his experience on debt we structuring -- restructuring. for americans, maybe this is not that big of a deal, but it is a big deal for markets. the challenges that are faced going into this tuesday morning. halima croft will join us. gary shilling is out with a report. we will talk her expertise about nigeria. we have not spent a lot of time on that on "surveillance." frank keating will stop by. we will talk to him about the challenges for american banking. >> thank you so much, tom. i'm looking forward to the conversation on nigeria. it seems that we are not focused on it enough. >> absolutely. >> and the currency there has just plunged, plunged, plunged. >> that is something that we definitely need to keep an eye on. china's billionaire boom. 24 new billionaires this year. >> we will talk to the bloomberg billionaires editor. this is about billionaires and exits. >> let's call it 25. >> oh, 25? >> yes. it is an incredible run. it is coming from the second-biggest economy. it is growing by 7.5%. that by far surpasses any of the other economies on the planet. private equity money that has funded these companies are now coming out in a market that is very hot. >> what happens now? is this all compressed into the front end of the year? or does this carry-on at the rate we are seeing? >> the scary thing is that there is the volatility in there. the shanghai index was up 49%. it has been up just a little bit, maybe flat this year. the shenzhen index is up by 12% this year. the markets are on a volatility level with saudi arabia and russia not exactly the most transparent or stable markets to be associated with. some experts are saying this is done. that price to earnings ratios are two great. others are saying that the ratios are still somewhat low or equal and there is still room to go and the economies are still strong. >> the areas the the -- of the economy where we are seeing billionaires created. overall, it is across the board. >> a drugstore chain, a budget airline, a casual wear maker, an led machine maker, a video gamer. once you get down to and led product maker, you are going down into the tech space, but tech is not the only thing that is happening. people are recognizing the value of the chinese consumer now. >> wow. >> it is pretty impressive. >> how much do we know about these guys? are they still flashy? >> not a lot. the owner of one of the airlines is pretty public. the eat instant noodles on the road. he is very tight with his money. most of these guys are very quiet. you have a receptionist who started as a receptionist 12 years ago who is now a billionaire. you have a former police detective who is a french of -- friend of jack ma's. you have people who did not qualify to get into architecture school who are now billionaires. it is a phenomenal story. [laughter] >> i have a picture of a billionaire eating a pot of noodles and sharing a hotel room with executives. the frugal billionaire. that is the money picture. rob lafranco from the "bloomberg billionaires" team. >> it is the lunar new year. that is good news. check out "bloomberg business." thanksgiving celebrations have nothing on chinese new year -- great stats including the $100 billion spent on food and presencts. >> be sure not to miss it on bloomberg.com. "bloomberg business." coming up, we talk about the obstacles to the u.k. bid for the shale gas revolution. ♪ >> welcome back to "the pulse." >> u.k.'s push for a u.s. style shale revolution may be hitting a speed bump before it begins. scotland and wales have temporarily banned fracking until they study environmental safeguards. good morning to you. >> good morning. >> how big of a surprise was that that we have seen this program taking place? we called it a speed bump. what is it? >> we are still going forward where we are. we have had planning applications in the council. there is no moratorium in england. there are a lot of resources in england. we are pretty confident that it will happen. >> what are you doing to overcome these environmental rejections -- objections? is it lobbying? >> if you look at where we are, we have all of the permits we need. lancaster county council have said there are two issues, one is traffic and the other is fairly standard planning issues. all environmental concerns have been satisfied. >> so it is working? >> yes. there is a lot of publicity and scaremongering out there. but the regulators have all given us a positive check. >> do you think the fact that other parts of the united kingdom are taking a more circumspect look for this will make it harder to gain the kind of approvals you are looking for in the future? >> in the medium-term, it may actually help. the fundamentals are that the u.k. is going to need the gas. the supply situation is poor. we are really faced with a choice of making our own or importing it. every house in the country uses gas for heating. the fundamental supply and demand will dictate that it does get developed. >> to guy's point, when you have scotland to is so dependent on oil and gas and you have a moratorium, it does not bode well. you are saying, it is going to be good. it means that scotland, despite the fact that they are losing revenue is against it and this may spill over to the rest of the kingdom. >> you said the right word. moratorium does not mean they are against it. they want to spend more time and it is not disconnected to politics and elections. i would be very surprised that -- if they decide not to explore it at the end of the moratorium. >> gas prices stay lower, how does that change the business case? >> then clearly the economics or worse, but i don't think that anybody believes that for the medium to long term that the oil prices going to stay where it is today. you can already see the impact on production curtailment. capital spending curtailment. supply and demand will come back into balance probably quicker than people think. >> give us a sense of where you think they will prices going to go. people are saying 10 at the moment. [laughter] >> i have worked at this business long enough to know when it was 10 and we thought it would never go up. [laughter] >> you think that is realistic? if you look at the way that the prices moved, it got too high. it swung all the way down to where we are now. closer to 100 means 70, 80, 90? or in the 90's? i'm curious to pin you down a little bit. >> i'm not talking about economics of shale at all. i'm just talking about the oil price and the u.k. gas price is not directly correlated to the oil price. the oil price will depend on the cost of new production and new production is getting more expensive. as they get more costly to develop, than the price will have to respond and it will respond. that is inevitable. >> you are pretty optimistic that you will be able to explore shale gas fracking a lot more. there was a parliament bill passed in january saying that you can't do fracking and national parks and debt collection points. does that help your industry and saying, if you don't touch this at least you can touch the rest? does that have an impact in the way that you are perceived or environmental concerns? >> yes and no. it is always good for any industry to understand what the rules are. once there is clarity around the rules, you can operate through that. i think there has been a little bit of a moving of the goal posts here. in terms of perception from our perspective, drilling and 18 inch hole below a national park nobody is going to cs. there won't be big development and national parks. we have comprehensively shown that the environmental risks can be very well-managed. >> thank you so much. >> coming up, he says it is not poker, nor is it monopoly. what is game theory expert varoufakis playing at? he is also the greek finance minister. what is the next movie is going to make? we are going to talk greece after the brace -- break. ♪ >> will come back. you are watching pulse bank." -- "the pulse." the greek finance minister varoufakis insisted he was not playing games. hans nichols called his bluff. >> if you are not playing game theory or poker, what game are you playing? what can you do to ensure voters that you are not playing monopoly with fake money? >> i have always played monopoly with genuine monopoly money. [laughter] but let me answer your question. unfortunately, i have had a past as an academic of studying game theory. one of the things that i taught my students is that game theory is based on a very unrealistic assumption, that the motives of players are fixed and they are also selfish. i don't believe that anyone's motives and the eurogroup are fixed and i do not believe that anybody is selfish. i believe we are perfectly capable of rising above are narrow perspective and embracing the perspective of europe. on the question of blood, what does a bluff mean? it means that you have a seven and you pretend you have an ace. we don't do that. what we have been saying steadfastly is that we want an honorable settlement. we want to wed together the principles, the principle that there was a problem and has to be respected and the principle that there is a government that challenges the logic of this problem and let's find common ground between them. this is what we have been saying from the beginning. it is not a bluff be cut is is -- because it is the only option we have. it is plan a and there is no plan b. therefore, no games. >> we are not bluffing. do they have real money or monopoly money? >> and is it fake monopoly money or real monopoly money. [laughter] if greece is playing a game, which is it? poker or chess or something else? michael houston give us a fun response. jenga. each side hoping the whole lot does not come crashing down. that game tends to end with things coming crashing down. that is kind of the point of the game. it makes you wonder where it is going to end. >> you pulled a little bit out and then boom. hans nichols joins us. it was a little bit like a battle of the wits. [laughter] >> this is going to be a remarkable 24-48 hours. we are going to have to see who blinks first. there are timing deadlines. the greeks are saying that the europeans need to come forward with more specificity on what they actually are calling for when they talk about additional flexibility inside this program. you call it a game, you call a negotiation, right now, we are not aware of any negotiations. finance ministers are meeting in this building, but greece is not on the agenda, but that can change pretty quickly. >> how critical is this ecb meeting that is about to happen right now? people are concerned about the greek banks and the funding story for them. the liquidity that exists is still open to question or greases use of it -- greece's use of it. is that what we need to watch? >> it seems like the ecb has been very careful not to get ahead of the eu. it seems to me that it is unlikely that you would have a cut off. you would likely see the eoa continue to stay open one negotiations take place year. it was two weeks ago when they cut off the collateral and that forced greece's hand a little bit. we will have to see what we get out of the ecb potentially late tomorrow night. >> think you some a. hans nichols is staying in brussels tomorrow. -- thank you so much. hans nichols is staying in brussels tomorrow. that is it for "the pulse." >> "surveillance" is up next. they will be talking about greece, they will be talking about ukraine, as we monitor the cease-fire or lack of it. >> you can follow us on twitter. we have been talking about this war of words, turning into a game. the eu with greece, are they playing poker, are they playing jango, are they playing chess? >> call my bluff was another one that came through. level nine tetris. trying to build a eurozone block with awkward pieces. that is it for us. we will see you bright and early tomorrow. in the meantime, let me hand you over to tom keene and the team at "surveillance." ♪ . >> time is running out as just say no, backfires. greece to man's ultimatums be withdrawn -- demands m&m's be withdrawn. some 8000 troops are trapped by rebel forces. the u.s. is gravely concerned. drones, they are approved to five -- black six feet off the ground at 89 miles per hour, reddy said ,dock. good morning, this is "bloomberg surveillance." it is tuesday, february 17, i am tom keene. let's get to our top headlines. >> eastern ukraine, he's remains elusive at this hour. a cease-fire is being ignored were up to 5000 ukrainian troops are centrally surrounded fighting between government troops and progression separatists continues. germany says concrete steps have been agreed on but rebels say that plan is not within the parameters of the truce agreement. the violence to end a fragile peace accord seal last week after marathon talks in minsk.
of heavy weaponry beginning today. talks between greece and its creditors have reached an impasse. the 19 nation euro zone has effectively issued an ultimatum. greece must ask for an extension of its current bailout program by friday before further negotiations on its financial future can take place or face debt commitments on its own. the move raised concerns greece would have little choice but to leave the euro. the standoff is making markets nervous. greek shares opening 4% lower. >> record low inflation rate for britain as food and fuel prices plunge. under report shows consumer price growth slowed to 0.5% in december. economists forecasted up 4% rate in january. governor markell he says rates of oil could fall below zero in the coming months. -- mark carney says rates of oil could fall below zero in the coming months. enter hanen in south texas has block the president's orders for now. coalition of 26 states is suing to permanently stop the president's orders. the judges move by some time to pursue that action. the president's orders could allow as many as 5 million people in the u.s. illegally to avoid deportation. >> brace yourself for another blast of winter. it is partly february. the season's first major snowstorm to blast the south and reach washington, d.c. early tuesday. poised to go up the east coast. the storm blanketed several southern states monday when many schools and businesses were closed for presidents' day. it moved into the mid-atlantic states early today, prompting the federal government to close washington offices until easter -- i'm kidding. six to eight inches of snow were expected in washington. metro new york and see three to five inches of snow. where men are men and women go to aspen or wherever olivia win. come on, it is february. >> have you seen the pictures of south boston? >> amazing. >> eight feet of snow. >> individual will warns doug of reach car and fights break out -- warrens dug out for each car and fights break out. >> 1978, it reminds me of, a pilot. futures, negative two. 10 year yield does nothing maybe a little higher off the last couple of days. oil hasn't moved. i think that is an interesting idea. look at the dow. that is a negative yield. keep forgetting to put the minus sign in there, ever lower two-year yield in german. let's go to the economics of the moment. this is u.s. economics. housing back to jfk and lbj. here is housing starts. here is that boom. that is a big hunk of blue forces even over here, the housing boom for the last decade. we're really not back there "bloomberg surveillance." if we extend this chart to around tom's bowtie, if we look back to before the baby boom doesn't look different. housing starts are a function of this to my graphic change that happened right along -- >> i will go with that. >> is this what it is going to look like? >> that is a key structural cyclical issue. >> i am still wondering whether or not millennials are buying homes. >> i totally agree. that is where we are relative down much further we have to go to get back to 2006. this weekend, any number of stories cap just going on a three day weekend. no question greece did not have a three-day weekend. the nation's leaders faced three days of ultimatums from a relatively united european union. cons nichols dissects it -- hot's nichols dissects it. making international headlines. hans tell us about this conversation. >> we are trying to get what mr. bear focus strategy is if you does have a negotiating strategy. i put the question to him and here is his answer. >> if you're not playing games and you're not playing or blessing, what game are you playing? what can you do to assure voters who are not playing monopoly with fake money? >> i have never played monopoly with fake money, always with -- >> will there be a greek exit? we could get into the funny money scenario. commerzbank raised the risk proposition a 50% of a greek exit before it was 25%. there are no talks that we know of taking place on greece, even though all of the finance ministers are gathered here in brussels. both sides are waiting for the other side to make an offer. until we have that negotiations won't start back up. >> it is more like mediterranean or baltic or worse than that. you have to know your monopoly. >> olivia is like, what? we have to play monopoly the next time we see olivia. >> tom has been sitting me hate mail because i was skiing. how did the deal he thought he had fall through? >> well, the initial offer he had came from the eu. they are the eu commission. the finance ministers got wind of it. they pulled it off the table. you have this remarkable scene where mr. varoufakis. he had a deal. it did look pro-greece. that deal was yanked from him. then they gave him a return deal that said, you need to extend and stay in the program with some minor modifications. some flexibility, whistling which. those two words, "some flexibility" were far too nebulous to use, mr. varoufakis terms, for he missed and a program and now we are in a standoff, stare down, whatever you want to call it. >> what are the actual terms of this negotiation? we keep reading they want 30% flexibility 70% flex ability. what is actually at stake? is it possible they could reduce the need to run a primary surplus of 4.5%? >> the primary surplus issue would be for the longer-term negotiation the six months negotiation. they need to figure out what they're going to do for the next two weeks, how they're going to stay in the imf package, in the eu/ecb bailout program. maybe having some reductions on pensions. this is clearly what the germans one. they want them to be more in line with the rest of the european standards. greece is saying, we cannot have pensions that are that low. greece wants a little forbearance on that. the value added tax. that is a big driver for tourism. those are the kind of technical issues we are talking about. >> we have ukraine going on with breaking news in the last five minutes. on the further fighting, no question about that, 12 armored vehicles reportedly crossing in from russia. is brussels even aware the ukraine cease-fire seems to be a little fragile? >> it is being talked about on the sidelines. these are mostly finance ministers and the foreign minister meeting that was earlier in the eu leaders were here last week. that is when we heard the heavy skepticism from german chancellor angela merkel saying we have to see whether or not the cease-fire will hold at all the reports out of eastern ukraine is the cease-fire is not holding. it is a cease-fire in name only. >> thank you so much. we have two wonderful guests with us this morning. rbc capital inquiries can indication's as we look at our fiscal challenges in washington. let me start with you. within all of this, the idea is where is the economic growth? we saw this. is it a global recession that is a backdrop for all we have seen in greece and ukraine? >> certainly, one thing i think is fascinating, there was an argument over the fallen, saying russia is going to be in so much pain, they're going to be more complacent in terms of foreign affairs. they're not going to be rattling the cages. this is a time to punish rustler -- russia with low oil prices. russia may be in a lot of pain but russia is not backing down on the foreign policy side. we hoped lower oil prices would make countries behave better, i think that is up in flames. talks do we have to wait for them to -- >> how far do we want to push this? do we want to go to the level of swift sanctions against russia? that could hurt the european recovery. i think we have no good options in terms of economics and russia, how we punish them for ukraine. you really are going to hurt europe in the process. >> as the cease-fire remains quite fragile and unclear if it is holding, they did expand the list of those are targeted with -- >> did they add more sanctions? >> no. >> stand, helima croft talks about the ogre game saudi arabia place. -- poker game saudi arabia place. we just heard about monopoly and game theory and your. do we need to brush up on our game theory? >> yes, candy crush is the paradigm we need to use. what i hear a lot, the questions i get mostly from clients is, is something new going? when did we get back to normal the weight used to be? this is the new normal. we have to keep that in mind. this breaking news on international affairs, the situation in washington which is so unsettled and unsettling, this is not going away anytime soon. >> you heard it hear from stan collender, the new normal is actually normal "bloomberg surveillance." evan op-ed from yanis varoufakis saying, no time for games. >> when he left, get a phd position at the university of at this -- athens. the first thing he did, he went and worked for online companies trying to develop within a game economies. >> candy crush? >> no. >> still to come, pepperoni pizzas will not be dropping out of the sky just yet. the faa has grounded was on's plans for delivery new drugs -- amazon's plans for delivering new drones. this is "bloomberg surveillance." good morning. ♪ >> good morning, "bloomberg surveillance." i am tom keene with olivia sterns and brendan greeley. time for top headlines from around the world. >> egypt is calling for international military action against islamic state, wanting airstrikes against the extremist group inside libya on monday. the attacks and north africa followed the release of a grisly video showing the mass beheading of 21 egyptian christians. egypt's president is lobbying europe and the u.s. were coordinated international response. supreme leader of iran taking aim at "american sniper." he says the film encourages violence against muslims. that is according to a state newspaper in iran's paper come also quoted saying he had not watch the film, but learned about the plot from others. in denmark, thousands marched in copenhagen late last night in freezing winter to remember a pair we can shooting victims. police say the violence may have been an attempt to copy the massacre at charlie hebdo in paris. those are your top headlines. >> the skies are about to get a lot more crowded. the faa finally released its long-awaited proposed rules incorporating commercial drones into civilian airspace. peter cook has braved the snow in d.c. and more on this proposal. peter, i think what everyone once to know, does this give domino's the green light to drop pieces on my doorstep via drones? >> it does not. i did not get here into the bureau in a drone, either. but it does give the green light to whole host businesses -- hollywood, the real estate industry, to be able, to use drones for commercial purposes, which right now is illegal in the united states. this is a big step forward. a lot of folks thinks this was a letter touch approach than expected from the faa. anyone hoping to deliver something physically through a down -- drone, that is off the table for now. the faa is leaving the door open to at least a conversation on that topic in the future. >> lighter than expected touch on regulations. the couple of months ago, amazon threatened to take its drug development offshore if the faa did not change the rules. do we have any sense that the faa is bound to commercial pressure? >> not necessarily, though that has been a factor. there facing pressure in congress as well. they see the opportunity here or the u.s. to be a leader in this business, and they did make it clear over the weekend they want to let that happen, but they have to have safety as their foremost concern. the big issue, the threat all along, you would have to have a pilots license top rated drones. that is not a move the faa has decided to go with. you have to pass a written test and be vetted by the tsa a beef 17 years old, the reality is tom keene could fly a drone if you wanted to. >> terrifying. >> i don't think this is funny. remind me, you can go 70 miles an hour? >> they can go really fast. the real problem for commercial companies, if i understand correctly, with the new regulations, they cannot be automated. they have to be flown by a pilot within a line of sight. checking the pipeline, for example, that activity not be allowed. >> absolutely. you have to be able to see your jerome. that has a big factor for amazon people trying to fly over pipelines and crops and mountains and things like that. that is the one thing or the one aspect the faa has put the line in the same for now, but opening the conversation -- they want to be shown the technology is good enough they can trust a drone to fly away from its operator and still maintain a certain level of safety in terms of its location on a back whether gps tracking system could be enough to control the drone when it is out of line of sight. >> we have stan collender with us who advises private companies on how to talk to washington. how would you advise jeff bezos on hearing these faa rules? >> we have a flash gordon star wars, thing going on. people are fascinated with it the possibilities. the technology has not advanced to the point where the average person is demanding it. >> i am demanding a pizza drone. >> i don't think this is funny, stan. we're talking about putting 80 mile an hour hunks of plastic or metal? up in the air? >> forgive me, you're sounding a little crotchety and old-fashioned. >> one of them looked right at me as central park. >> it was very scary. one flew to the white house. >> the technology is coming, it just isn't there yet. there already problems of drugs interfering with commercial flights. -- drones interfering with commercial flights. the average person is going to have to demand it to members of congress. >> the innovation is happening. either we figure it out or we don't, but we can't stop the innovation. >> and it can do cool things like bridge inspections, aerial photography. >> that is within sight. >> i am holding on to the word "crotchety." can you banner "crotchety" under tom? >> do i get quote of the day? >> peter, thank you for getting up with us in the snow in washington, d.c. carl weinberg joins us as guest host in the next hour. this is "bloomberg surveillance." ♪ >> year is what is going on. tom is mortified. he has to own "crotchety." >> obstacles in his crotchety course. there is the oed. let's get to our morning must-read. someone else that is crotchety gary shilling. on oil. helima croft this gets to the idea, it is not getting to 10 or $20 a barrel, it is the bet the vector is in that direction. >> one of the big things we're seen in the oil markets with the recovery, this sort of tension between falling rig counts but high inventory. just waiting to see at what point this rig count will translate into a meaningful sewing of north american -- that is the gamble in terms of if you're betting on higher oil prices, betting on a recovery trade, and also betting this growth slows materially. x you are an expert in job political risk. >> you have the libya story. libya has fallen off a cliff. one of the reasons why oil started to retreat was the return of libyan barrels. it went away and no one cares. >> quickly, where would oil be right now ex-libya? >> you mean if libya was fully going? we would be lower at this point. i would argue it is not priced in geopolitics. you could have a bit of a shock. >> helima croft on geopolitics and oil. frank keating on banking, on his oklahoma. stay with us. ♪ >> good morning, "bloomberg surveillance." i am tom keene with olivia sterns and earning grilli. >> west virginia, hundreds of families were evacuated after a train caring more than 100 tankers of crude oil derailed in a snowstorm. look at that fire cloud. intense flames burned for nearly nine hours, at least one plunged into a river. the accident occurred near the town of mount carbon. no fidelity's reported. a major panic at lax, about 20 passengers fled through emergency doors and onto the tarmac after incorrect report of an armed man on the loose. the incident your boarding area partly stem from a police pursuit of an unarmed driver that ended outside the terminal. it took about 15 minutes for authorities to get the scene under control. $10 million judgment goes against lance armstrong, an arbitration panel ordered armstrong and tell sports corporation to pay up with a fraud dispute surrounding armstrong's tour de france bonuses. the company accused armstrong of unparalleled pageant of international perjury, fraud and conspiracy. those are your top headlines. >> it has been more than a year since the last time washington shut down a federal agency. this is america, that is way too long. >> you are so cynical. >> in eight business days the homeland security department will officially run out of money. stan collender literally wrote the book on the federal budget, has done time on both the house and senate budget committees. stan -- >> i love the way you say i have done time. >> how do we get here again? >> this is a republican versus republican problem, not republican versus democrat. house republicans are much more and possibly conservative than their senate colleagues. they can't agree on what to do. the house republicans are demanding they do something to stop the president's executive actions on immigration. the senate doesn't have the votes to do that to minorities it clear they want to do that. now you have speaker john boehner over the weekend saying, a shutdown would not be that bad. >> you look at structure, not ideology. the differences, are about redistricting, right? >> absolutely. 2012 republicans basically in control of redistricting and more states the democratic states. they made though states much more reliably conservative and republican. as a result, the primary becomes the most important election. those are militants aggressively conservative voters to make compared to the senate which doesn't have districts, but states. they're much more moderate. different political needs. >> if you have the opposition in control of the house and the senate, doesn't that bode well for the president and the democrats? >> first of all, republicans have a lot of baggage, going back to the newt gingrich days. yes, number one, the president has the authority to keep as much of the government or the department functioning as he once, and republicans get blamed. >> wonderful experience with the joint economic committee, the sausage of all of this, can i ask you where this started? the whole attitude that everybody blames reagan, but that is too easy. if we gum it up, it will go away, attitude, where did it come from? >> the earliest days of the republicans. remember -- >> and you were there. >> don't go there. >> crotchety. i love this screamed. >> this is nothing new. it took on added meaning in 2010 with the tea party and redistricting of 2012. >> is this just baked into american politics until 2020 will we get another redistricting? >> 2022. even then, there's some indication a given the control of the state by the republican party it is not clear it will change even then. at that is the next time it is likely to go on. >> when you go back to the 1890's, it was the same way blame. it was a lot like this. what does it take to get ourselves, republicans and democrats, out of this vicious loop? >> i'm sorry, can we get someone on the monitor again? i hear tom saying, let's go back to the 1890's. i want "crotchety." >> they are exhausted. >> two things historically that have gotten us out of this -- >> war is one. >> then call it three. crises in general. a charismatic leader who can overcome this kind of partisan differences. sometimes you need accommodation of those to make it happen. my question is, what kind of crisis do we need at this point? how bad does it have to be for we are ready have crisis fatigue? >> s&p taking us to the brink to the downgrade in 2011. nancy pelosi likes to say it shows the tea party still holds the gavel for the gop. do you agree? >> no. especially with against the republicans had in the last election. speaker boehner has a little more room to maneuver. what is going to have to do is what he is done in the past, do it at the last minute basically, get permission from the tea party folks to cut a deal, get some democratic votes we're going to vote against you. they clearly have some substantial impact. >> and they're happy to see with that texas judge did overnight, blocking second of actions on immigration. >> which is expected to be overcome by the court of appeals very shortly. >> coming up, we are focusing on the young and the restless and saudi arabia. that is the subject of today's single best chart. how the country's youth unemployment problem compares to other opec nations and the world and the u.s. will stop we will discuss. this is "bloomberg surveillance." ♪ >> good morning, "bloomberg surveillance." i am tom keene with olivia sterns and brendan greeley with me. let's get to the single best chart. >> there are some things that oil money cannot buy. youth employment is one of them. that is today's subject. it comes from our guest helima croft of rbc. pay attention to the yellow. that is saudi arabia. look at the green, that is the world. the measure is youth unemployment rate. helima i feel like we've been reading for decades about saudi arabia attempting to change its economy, to get away from this reliance on oil. it turns out, they can't do it. >> it hasn't worked. king abdullah is focused on the young population. he understood young unemployed restless saudi's were in economic threat. he wanted foreign investment and new opportunities, new jobs, yet remained. oil. 90% of government revenue comes from oil and saudi arabia. you don't have the employment generation. for saudi arabia now, they're facing a security challenge, once again. thousands of saudi's joined isis, having to build a 600 mile wall with a wreck, having to face once again the challenges of, what do you do with the young population that has no jobs? >> what is it so hard to create jobs with oil money? why doesn't it work? >> how do you diversify? how do you attract foreign investment into a system where if you have your choice between opening up in dubai, a little more liberal and friendly for washington companies were even qatar, are you going to set up shop in riyad? >> isn't the problem the saudis don't want the jobs they want? the bulk of the workforce particularly in the middle and low income, is all migrant for an workers in the saudis don't want those jobs. >> the leadership to the credit, or trying to bring a new laws that essentially say, you have to hire saudi nationals before you hire foreign workers. some are horrified by that. they want people willing to work , willing to do the jobs, who don't to be managers. the tension -- the government is aware of the problem with the young population. they just haven't found the silver bullet terms of policy reform. >> they don't want to be chauffeurs or housekeepers or work at mcdonald's. >> the talk about were the foreign and the x-men goes in the expertise goes, goes to more -- foreign investment goes in the expertise goes. atlanta was farther ahead on integration and ended up being a hub of investment were cities like birmingham, which of a more powerful, did not integrate and did not get there. >> arguing in the gulf context, there's a difference in the united arab emirates and being saudi arabia. there's a reason why s&p downgraded saudi but kept all be dobby basically the same because i'll be dobby has done better at diversification. it is an easier place to operate in. even in the gulf context, saudi arabia is lagging its peers. >> they have indoor skiing hotel industry, and natural resources. a very diversified economy. >> it is an investment hub. >> i would suggest away from the stereotypes, the skiing, four busloads of indians living bus -- leaving to see the arab economy. there's a lot of poor people. it is grim. >> i think the foreign workers the is becoming an issue. it will be a challenge for these governments. >> let's get to some photos. >> in damascus, staging a publicity stunt comparing bishara al-assad dices. children reenacting the execution of the ladainian pilot was burned alive in a cage. the protest was held at the side of a recent airstrike in damascus, which killed 55 women and children. >> grim. no other way to put it. wood is the egyptian beheadings. >> number two, in texas, kenyan runner crawling to the finish line of the boston marathon. this is unbelievably corrode. she was leading the race 23 miles and when her body collapsed. the runner crawled the final few miles to the finish line and still came in third place. that is commitment. she was offered the wheelchair several times and offered help with walking, but repeatedly refused help. she came in third place. >> so hard to watch this footage. >> she said she is going to come back and run it again and win. number one photo, if you are in the week -- new york this week this is tommy hilfiger's runway fashion show. models walking in the fall women's collection. football field to celebrate the brand's 30th anniversary. some of the designs have already sold out including a $550 faux fur vest. >> of all of the teams to pick. >> what you think of spring this year? i looked through the "the new york times" sunday and like 95% of it, no one could wear to work. >> you're not supposed to wear the runway work -- looks to work , and the models are actually 14 years old so they are not designed to be worn by anyone going to work. >> where would you wear that? to dinner? >> i would probably not even be able to fit into that so i don't think i'm wearing it anywhere. it is probably to dinner on the weekend. >> today out price the market -- did they out price the market? the different culture markets? >> i would not say so. reporting this morning, gucci not doing well saint laurent doing well. it is very price insensitive. >> robert burke was great last week. >> i'm glad we got to olivia on this. congratulations. that is something apple has learned as well. our twitter question of the day -- we're asking it today. tweet us @bsurveillance. ♪ >> good morning, "bloomberg surveillance." i want to officially say i hate helima croft. first, top headlines. >> eastern pakistan, at least five people are dead following an appearance is that bombing this morning when the bomber attended to enter a police complex. the police chiefs said several others were wounded in the blast and some nearby buildings caught fire. there was no immediate claim of responsibility. japan is waiting further into the global fight against islamic extremists. providing $15.5 million in development for anti-terrorism initiative. the foreign minister says the contribution incentives -- is to bolster. japan's moves follows the recent beheadings of citizens held hostage by islamic state militants. officials in china are drawn complaints for toning down chinese new year events. the muted festivities follow a stampede in shanghai that killed 36 people last month. the city has canceled its lantern festival, which attracts millions and authority's have asked stores to notify police of any sales. seven-day holiday kicks off wednesday. those are your top headlines from around the world. >> 75% is the percentage of revenue derived from oil, so note surprise it is hit nigeria's economy hard and sent the currency into freefall, now don't -- done more than 20% since july. helima croft from rbc capital markets, warns africa's most populous country may be the first sovereign casualty of opec's price war. as tom said, essential reading on nigeria. why do think nigeria could be the first metro state to fall? >> they're going into elections and they're usually very volatile affairs. this time that no money and very deep political and regional divisions and a scary islamist extremist group running around occupying territory south of belgium. we look in the jury and say this is primed to potentially go over the cliff. venezuela could go afterward. election has been postponed. we're very concerned you could have major unrest accompanying this election. >> terminal headlines they're going after cameroon troops as well overnight with the rebels in the eastern part of the country. bring up the chart, if you would olivia. this is the currency chart and it shows the chaos. this is back 20 years. some sense of stability. you have a new junk in addition. >> that is the civil war in the 1990's. >> nigeria is ray much still regionalized. you're talking about voting not clinical parties but regions voting against each other. what did they fail to do during that time of stability to avoid where they are now with the price drop? >> the transition back to elections in 1999. yet a predatory elite and a jury that basically the compact was fueled by oil money, not terms of distribution. lagos has a good governor functioning tax collection system, administration services. lagos remains an island. you have desperate poverty, lots of weapons, and huge the justified. >> and the corruption reaches all the way down to the local police precincts. >> of course. part of the reason we have cut off certain types of military aid is corruption and human rights abuses. we don't have a great partner in terms of putting down boko rom -- haram. >> it was interesting to see "the wall street journal" had an interview with jonathan good luck -- elect jonathan. it is hard to get your head around everything going on in this country. you have lagos a booming luxury market and the fastest growing middle class in the world by some estimates, than 60% of the country in extreme poverty and religious crusades going on. just nigeria make sense as one country? >> it was put together for convenience in 1914. they basically did it because they did not want two foreign office units. they had a civil war in 1967 that defined the country. but now that is fraying. >> to my point, where is the institutional structure in the west or the united states, to assist whomever in nigeria? we talk about helping ukraine or we help greece. there's no dialogue to help in a country like nigeria. >> afrikom. >> generally, the one institution, the western institution during the most in ukraine is the imf trying to figure out what other terms of this bailout. if anyone, the imf seems -- >> would you agree with that? >> that is not what nigeria needs right now. >> they literally need an effective military and policing and massive anticorruption. they've had significant debt forgiveness. >> we talk about the reduction the u.s. becoming more energy independent. west african oil -- >> great story. when i covered the story, we took 10% of our imports from nigeria in 2001. we basically take no imports from nigeria. there isn't a strong asian demand for nigerian barrels. the cargoes are floating, so they're hit by lots of market share and falling prices. >> west african oil has been the big loser. >> the biggest loser. >> in nigeria, they don't have any domestic refining. >> no, they import it. there is massive corruption stop at some accounts cost the country $7 billion. >> an update on iran. >> we have to be watching the end of march. do we get a framework agreement? if we don't, you will be looking at new u.s. sanctions coming out of congress. >> does anyone in washington care about iran? >> no. there are one or two people, but there is not a lot of dialogue. >> what about iraq? lots of scary headlines over the weekend, looking like islamic state is closing in on anbar. what does that mean? >> go back to tom's point about oil market geopolitics. there is a sense right now there is no risk in iraq because violence is up north. physically, well, we're going to get 500,000 barrels out of northern, and there's ice is running around in the backyard but i think those northern barrels are at risk. isis at some point, why don't we go south? we want oil prices back up, our own revenue needs. i don't think we should say there is no chance ever they won't go south. >> it doesn't look like the iraqi military can hold them off. >> no, it is she a malicious. who has influence? iran. providing security in the fight against isis in iraq. >> when you look at iraq and back down at nigeria, are we just discovering it is one more place where regionalism is so much more important than we had thought? >> absolutely. it the kind of question of benign neglect. there's a nightmare in a closet and we pretended is not there. >> stand, we are all baffled by washington, maybe more than nigeria. what is the stan collender scorecard look forward to? what are you focused on for march or april? >> i am watching this republican versus republican thing. if they can't -- if we have a shut down, it is an indication the rest of the year is going to be a disaster. it is the same type of thing we will be repeating over and over. >> i have to get up to speed on this. i'm not up to speed on this. stan collender thank you so much. helima croft thank you so much as well. a forex report on a tuesday morning. ukrainian currency still at 26.40 five. stay with us. another hour of "bloomberg surveillance." ♪ . . >> this is "bloomberg surveillance." tom: time is running out as the just say no backfires upon eu leaders. ultimatum being with drawn. it is a fragile cease-fire this moment in ukraine. some 8000 troops are trapped by rebel forces. the u.s. is greatly concerned. the enemy is within. forget yemen or the islamic state -- think oklahoma city. good morning, everyone. this is "bloomberg surveillance." we are live from our world headquarters in new york. it is tuesday, february 17 full stop i am tom keene. joining me olivia sterns and brendan greeley. we need to get started with top headlines. here is olivia. olivia: cease-fire in ukraine may be over before it even begins. 5000 ukrainian troops are currently surrounded and still fighting with pro-russian rebels. the cease-fire agreement reached last week in minsk called for russian rebels to start withdrawing their weapons from ukraine today but it has not happened so far. germany wants to put international observers in there, but rebels say that was never part of the deal. now to brussels where talks between greece and its creditors --are yet again at an impasse. greece must ask for an extension of its current bailout program by this friday or negotiations are over and greece will have to deal with its deficit on its own. the move raised concerns that greece would have little choice but to leave the euro. the standoff is making markets nervous. brendan: britain has record low inflation as food and fuel prices plunge. a new report this morning shows consumer price growth slowed from 2.3 -- to .3 from .5. projections reflect falling oil prices. governor mark carney said the rates could fall below 0 in the coming months. a federal judge threw a wrench and president obama's executive actions on immigration. u.s. district judge andrew henan in south texas has blocked the president's orders at least for now. a coalition of 26 states is suing to currently stop the president of the orders. the president's orders could allow us many as 5 million people who are in the u.s. illegally to avoid deportation. tom: on the weather, it is february, brace yourself for yet another blast of weather. the season's first major snowstorm in the south hits was no d.c. and is now poised to head up the east coast accompanied by bone chilling cold air. the federal government is cold -- is closed. are you kidding me -- toughen up! imagine new york, three to five inches. brendan, friday, saturday, there is a blizzard coming in all the eggs are gone. it is a blizzard. there is no snow. brendan: we are not prepared for that. i grew up in the washington, d.c. area. snowstorms are an occasion. it is not like we live in boston. it is a big deal. olivia: the new york city weather forecasters are losing a lot of credibility. they appear to be crying blizzard, in boston, though, they have eight inches of snow. governor keating, thank you fort slashing income actually in your -- thank you for sloshing in, actually in your galoshes. frank: i apologize for looking like this. tom: the 1880's, the homesteaders, they ended up with 14 feet of snow and moved the cattle around. olivia: are you asking governor keating because you assume he was around then? [laughter] frank: surely they stop all work and when inside. tom: they turned to the weather channel. frank: for those involved in the cattle business, and i have been in a small way -- i love animals of all sizes and types -- but you have to wonder what the weather is like because you have to water them, if you do not have water coming up to see them, if you do not have feed, you have to give them shots and all this tom:. tom:it sounds like your kids. brendan: it is exactly right, that is how we treat our kids, we put them in a pen and shovel hay and let them fend for themselves. tom: i want to give a shout out to robert carroll who has been fabulous throughout this winter in the northeast will stop a data check for you, right now futures -2, the euro $1.1431. brent crude of $53.26. greece did not have a three-day we can like we did. rather they faced three days of ultimatum. we go to brussels and our hans nichols where he spoke with the greek finance minister. hans? well, we have got a little bit of a technical problem hans not being able to hear us right now. we will get back to hans nichols in a bit. right now we can talk about greece and the challenges over the weekend. this is simply a verbal warfare. brendan: you had a new coalition partner for grace show up, which was the european union itself, the structures, the commissions, so jean-claude juncker actually attempted to intervene between the finance ministers of europe and the caucus. it did not work. the eu wants this to work. tom: hans nichols had become a station and press conference with the finance minister in brussels. hans? tom:hans: tom, sorry about that earlier. lots of distractions. it is incumbent upon the other side to make the next move talks have collapsed they are suspended, however you want to couches, and overhanging the big question is -- what is yanis varoufakis' new strategy? he has the most to lose and it is the question of put him last night. you're not playing games, you're not bluffing, what game are you playing? what can you assure voters that you are not playing monopoly with fake money? minister varoufakis: i have never played monopoly with fake money i have always played monopoly with monopoly money. hans: the euro is not blinking. they have raise their profile to 50% for a greek exit. we've seen the greek indices down, but the euro is not moving a whole lot. perhaps they are more optimistic that there will be some meeting coming together before friday, which everyone says is a deadline because then the deal has to go to the national legislatures and they then have to approve it. olivia: hans, yanis varoufakis the finance minister, said there was a bait and switch. he went into the meeting thinking he had an agreement. what happened? hans: he had an agreement but from the wrong people. he had a piece of paper from people who could not enforce it. they of course are representing the european commission. it is the 18 other finance ministers that have to sign off on that. the minute they got word of that they withdrew the offer. they offer him something else, and then that offer, they said stay in the current bailout package. we will extend it for a little bit and in return we will give you "some flex ability to cope those -- we will give you some "flexibility." tho two wordss were not enough for yanis varoufakis. e talks to star in a moment. there is a separate finance meaning taking place here in brussels. lots of opportunity to start talking if people do indeed want to talk. . brendan: hans, that is the great thing about europe, wait long enough in a new finance meeting will happen on its own. the rodeo, do you get the sense is is all theater on the way to a resolution, or is this actually breakdown in negotiations? hans: well, people that i know who have been here a lot longer than i have been and have been through greece cyprus, 2010 they seem almost -- not thing sanguine, but resigned to the fact that there will be some drama and histrionics but ultimately a deal. it is hard for me -- maybe i'm not that imaginative -- it is hard for me to see a deal emerging right now unless one of the side links. -=--- sides blinks. the warning a 50% chance of a greek exit, guys. tom: hans nichols, thank you so much, greatly appreciate it. olivia, you have a quote. olivia: yanis varoufakis wrote -- one may think of this retreat from game theories as motivated by some radical left agenda. not so. tom: philosophical again. olivia: brandon, what do you make of that? brendan: i don't know. [laughs] the pike is what is possible and who was at fault. the german say it is the greeks who should pay for it. the greeks say it is not matter, we cannot possibly pay it. tom: carl weinberg joins us this morning with high frequency economics. carl let's with a basic economic backdrop. can you use the dreaded "d" word? carl: credits contracting prices going down, industrial production is 12% lower than where they started back in 2008. it is a depression. tom: you saw inflation numbers -2.8%. brendan: even more important these inflation numbers out of the u.k. the u.k. was supposed to be one of those economies levitating above the rest of them. carl: you look at my chart in high-frequency economics today cpi has been slowing in the u.k. since 2010. this is not a surprise to anybody. if you are looking at the numbers, you saw this coming. the bank of england is not hiking rates anytime soon. tom: that was a shameless plug. weinberg 1, keating 0. carl: the chart is right here for stop i do not see what the problem is. [laughter] olivia: that brings us for twitter question today -- what is the likelihood that greece exits the euro? ♪ tom: good morning, everyone. "bloomberg surveillance." futures negative tubing. let's get to morning must reads. olivia: minus from paul krugman. he writes about the greek debt crisis saying so that is incredible. the attempts to levy tributes from a ruined nation incredibly what the french and british were doing to germany, is now actually not quite as bad as the current great depression. we have with us on set carl weinberg of high-frequency economics. carl, you think greece needs a 25-your grace period? carl: it could not hurt. when i give them a quarter-century? it is what we did with the latin american the early 1980's. what europeans are either not grasping about publicly acknowledging as this is not about extracting money from greece. the whole endgame from europe is to preserve the stability of the banking and financial system, and that means nobody takes a hard-hit now or anytime soon. there is $300 billion worth of debt that someone will have to suffer if this gets written off right now. keep the banks going, they get them 100-year bonds, 25-your grace period on interest and principal, a 2.5% yield to maturity. nobody takes a haircut, note has a right off the banks are safe, the greece has -- the greeks have .5 years. -- have 25 years. brendan: when i hear this extending the duration of the bond is a haircut by another name. how you get germany to accept that? carl: this is a fault, and germany does not have to accept it. greece is not need germany's permission to default. all caps do is pick up the phone and say "we cannot pay, now it is your problem." when you're financial businesses are risk, that is what they're doing, they have a planet cannot be finance with the current resources they have. their easiest resources to default on their debt. they are defaulting. this is not a game, this is real, and your past to accept the fact that there is no way out on their terms. they have to find the best way to manage it. it is not a problem -- it is a fact. a problem can be solved. a fact has to be dealt with. greece has to be dealt with as a default. that is what it is. that is what the finance minister has said. this is not a liquidity problem. do not lend us more liquidity. this is a default and insolvency. olivia: it certainly looks like it is coming down to the brink. carl weinberg of high-frequency economics, you are staying with us will stop any meantime answer on twitter question today -- we want to know -- what is the likelihood that greece exits the euro? tweet us @bsurveillance. ♪ tom: good morning, everyone. "bloomberg surveillance." pretty good take this morning -- the euro $1.1428. when you top headlines from around the world. here is brendan greeley. brendan: egypt is calling for international military action against islamic state. it launched airstrikes inside libya on monday. attacks in north africa fall the release of a grisly video that showed the mass beheadings of 21 egyptian christians. egypt's president is now lobbying europe and the u.s. for coordinated international response. the supreme leader of iran is taking aim at the hits gnome "american cyber." he says the hit film encourages violence against muslims according to a state newspaper in iran. it also quoted that he did not watch the film but learned about its plot from others. in denmark, thousands of people marched in copenhagen to remember paris weekend shooting victim. the violence may have been an attempt to copy the massacre at "charlie hebdo." the suspected gunman was killed in a shootout with police. those are your top the list from around the world, olivia. olivia: a new study suggests that dodd-frank may be helping wall street more than main street. according to a harvard school of government report, community banks account for 20% of u.s. banking assets and lending markets down from 40% just 20 years ago. the report concludes that dodd-frank is excel or emit a client. our guest host this hour is frank keating, pressing and ceo of the american bankers association, a leading lobby of the financial industry. he is also former governor of oklahoma. governor since dodd-frank passed in 2010, the share of u.s. assets have been doubled at a rate through the deficit crisis, do you agree with the conclusion of this report that dodd-frank is killing community banks? governor keating: well, at the time there was a feeling now i am a part of the american bankers association, that if you had a $10 billion cut off, anything less than that is a community bank, anything more than that is not. less than that, dodd-frank would not impact the cfbpb consumer financial protection bureau, well, the impact all of it because the prudential regulators and the cfpb basically every thing is put on the banks equally, so we have lost 2000 banks since the fall of 2008, 2000 community banks. i've got to say from sea to shining sea in small-town america, the community banks provide the small business loans, they provide the agricultural loans, they provide the loans for, if you will start up capitalists far more so than the larger institutions on a per capita basis, so that means those 2000 community banks are not in a position to help small people get their first flip on the first rung of the capitalists latter. that is very bad, and clearly you can aim your sights at dodd-frank and its excesses in the community banks basis. brendan: those banks are being acquired by other smaller banks normally. i talked to some small banks in louisiana about this a couple of years ago, and they said something very similar to what you are saying, that they had to hire new back-office staff which is very hard when you are a $100 million bank, but the fdic said that is not the way they see the problem. the real problem they think is one slow growth in new loans. two -- low interest rates that makes it hard for low banks to prosper, so this is not just a regulatory story, right? governor keating: the reality is the economy at large ought to move at the same speed. large middle sized banks, small banks, the fact is the qualified mortgage rule says there has to be a 43% debt to income ratio. it is a fence line lending product. when i bought my first house at 27, and by the way, it is 37 today because of student loan debt and also the rigidity of mortgage finance, when i bought that home i was offered various options for stop have your dad cosign the note. have the owner/seller, which he did do collateralized the first $500,000. today that is not a loan therefore the load is not made. that is not good. tom: i'm fascinated how you represent jamie dimon or mr. moynahan over at bank of america and you also represent the bank of oklahoma. have you ever seen banks as far apart as they are right now? or is this just andrew jackson as usual? governor keating: of the top banks in the world, we have four, maybe three. the of -- the rest are all easily other countries. my big view is let the big guys compete overseas, that is great, kick ass take names overseas. oklahoma, a $26 billion bank lot bigger than the $10 billion threshold, let them make the ag loans and a small business loans will step i think, vision as healthy as good, but some of the community banks tell me this 2% to 20% of their operating income is used for the purpose of responding to compliance. think about here in new york, if you want into a restaurant and 50% of the uprooting revenue of that restaurant was to satisfy the new york health department. there would be people in gloves with some thermometers. the small banks are merging and being acquired because they are frustrated. brendan: i know senators brown and vitter were completely on top of this two years in three years ago. they tended to draw the attention of the small banks and bigger bank that it failed in congress. how do you turn this distinction into legislation? governor keating: if they can get it done, there is a lot a bipartisan support. if you make a mortgage loan, you as a community bank or any bank and you keep it in house, it is a portfolio loan, it is automatically a qualified mortgage loan. that would be good. that would have a lot more mortgage activity. in the dodd-frank space, there are arcane rules, for example, my twin brother, a utility maker, was chairman of the utility board in tulsa, and under the dodd-frank rule, if you had any relationship of any sort, you as a bank or municipality you cannot do that without taking a course with the fcc. i mean, it is very complex, very detailed, and simply -- olivia: trickle-down regulation. governor keating, you are staying with us. coming up, the ceo of costar is staying with us. this is "bloomberg surveillance." on bloomberg television, streaming on your tablet, your phone, and bloomberg.com. ♪ olivia: good morning. this is "bloomberg surveillance." i am olivia sterns. cap headlines -- we begin in west virginia where hundreds of families were evacuated after a train carrying more than 100 tankers of crude oil derailed in a snowstorm. intense flames from the explosion burned for nearly nine hours and at least one taker lunch into the river. the accident occurred during the town of mount carbon no fatalities were reported. a major panic at lax. about 20 passengers fled through emergency doors and onto the tarmac after an incorrect report of an armed man on the loose. the incident near a boarding area apparently stemmed from a police pursuit of an unarmed driver that ended outside a terminal. it took about 15 minutes for authorities to get the scene under control. and a 10 nine dollars judgment goes against disgraced cyclist -- and a $10 million judgment goes against disgraced cyclist lance armstrong. is surrounded his tour de france bonuses. a company accused him of an unparalleled hatch and of "perjury, fraud, and conspiracy." tom: this matters not for a guest host carl weinberg of high frequency economics. a true expert on debt restructure. we talked about that earlier. now what does the battle of greece in the eu -- what does it mean for the united states? the first idea is that you parsed between financial chaos and economic chaos. it really depends some of the decisions made, what it means for the united states. carl: the risk to the u.s. coming from europe -- i think the economic risk has been contained already. bank's have already positioned for contraction or slow growth. the grease thing is a new overlay. we are looking at the risk of a disorderly default by greece. i think the risk of high enough to think about as more than a tail risk right now. depending on how this default is handled, if the europeans come to the table and say you're defaulting, let's fix it in an orderly way, then risk for u.s. institutions is my demised. if they say no, -- is minimized. if they say no, we are going to restructure in an orderly way, that is a shock to europe that could in pinch the u.s. tom: based on your knowledge, what is the exposure -- i'm afraid to say the names of some of the major banks because i do not want to associate it with it, but given the nature of european banks, how exposed are they to athens? carl: well we do not know where the debt is. we know they have a 300 billion euro problem. that is the sum of all -- tom: that is not in greece. carl: that is money greece owes to the world. some of those are indeed in greek banks, but we do not know where it went to. it used to be prior to 2010 largely banks around europe, high yield bonds. since then, it has been repositioned in hedge funds, pension funds, insurance companies will stop we do not know where it went to come and we do not know how prepared those holders are for a credit event, which might evolve. just to remind her self here, ltcm was not a bank, was not on anybody's radar scope as a risk until everything went terribly wrong. tom: are the greek leaders aware of the financial response abilities that these parties have come a order they have blinders on back and forth with brussels? carl: i think they are acutely aware. this is the card they are playing that they can cause harm to the european financial system. they can cause a $300 billion hit and they do not have to negotiation tom: let me flip it, is merkel and hollande and european leaders aware that they could have exposure? carl: i think they are aware but i think they are incapable of admitting that the greeks have the upper hand in this negotiation. the grief can cause pain to europe, and the europeans cannot prevent that from happening. the europeans -- it is hard for to imagine them causing more pain for greece. i think most of the money in europe has to stay in europe. most of the money that is left there. institutions cannot go fleeing into dollars and take on the currency risk that is associated with that, so i think most of the money that can can g have gone already. tom: carl weinberg, thank you so much. we need a data check. here's olivia. olivia: equity futures are little changed for stop the s&p close of an all-time record high friday afternoon, s&p futures down more than 2 points. treasuries rising following a two-week selloff. the euro stronger against the dollar clearly marcus not panicking against the talks with greece and its creditors. nymex little changed at $50.79 per barrel. tom: good morning, everyone. "bloomberg surveillance." i'm tom keene this tuesday morning, olivia sterns and brendan greeley. brendan gets us started with real estate. brendan: a joint study by google and the national association of realtors, 52% of first-time homebuyers headed to the web to start their search. he studied a not going to say when exactly the buyers had to give up and call a broker. andrew florance is the founding ceo of costar. andrew, you said the goal is for your group to become the amazon of real estate. i have one question. i will continue to ask it. how you plan to do this without brokers? andrews: actually the apartment industry, the group we are focusing on, generally does not use brokers for stop consumers interact directly with property owners. the thing is -- the internet is perfect for doing that, and right before the launch of this product, we felt the solutions on the internet were pretty much broken. brendan: what is wrong, what is broken? andrews: the industry has been served by that little print direct you see at the supermarket that lists the handful of markets in a particular neighborhood, and the internet is ideally suited to show all the options out there. olivia: how can you say it is broken? i do not know anybody who is using a print magazine to look for an apartment for some of point is -- what is wrong with zillow? andrews: zillow's print only hitting the resale marketplace and that is basically working off the content from the multiple listing services. on the multifamily sites and area we specialized in for about 20 years, 30 years, and we are presenting now about half a millionn rental options up from 18,000 when we bought apartments.com a year ago. brendan: are you really competing with craigslist? how do you compete with a company that has such low margins because it is money to make a profit? andrews: craigslist is definitely a goto source for apartment hunting but there are a lot of frustrations with craigslist. it does not have a good structured search experience. it is very fragmented, it is hard to post up there, and it is not cover his this. what we have done is put 1000 researchers around the country visiting half a million apartment buildings and collecting high quality, safe predictable content that folks can search on the internet. olivia: are there searches for buildings, maybe commercial office space of that will always need a broker? andrews: sure, commercial, if you move over to the retail space, brokers will always be involved because those are much more collocated than renting an apartment. brendan: you have a very famous man sitting right next you, the governor former governor of oklahoma, frank keating. in his tulsa, you know, stay away from the commercial robbery market here in d.c., how do you go to tulsa and release the death grip of brokers on private property for rent that they have got all over the country? andrews: again, the private brokers are not really big players in the apartment industry across the united states. if you going to tulsa, we have got people in tolls or who have visited every single building in tulsa, every single apartment billing, industrial, retail property, and the brokers on the industrial side want to put the content on our site because they want to move it, sell it is like listing a stop. -- a stock. on the apartments i come of those owners are motivated to get out on a rightist exposure possible out on a website like ours. tom: what i see here off of apartments.com is deerfield estates tulsa, oklahoma, this is like something frank keating could slip into. two bedrooms for $669 a month. are we moving to tulsa? governor keating: my wife has a lot of clothing. we need for bedrooms. andrews: we can find you four. 1[laughter] tom: to your point andrew, this is critical, you are going away from the romance of san francisco and new york and seattle -- forget about locations -- there is a whole other america out there. andrews: there are 100 million americans renting out there right now and it is growing. the shine has come off of homeownership, so homeownership is at the lowest rate it has been. tom: in yearstom: yeah but a -- lowest rate has been in years. tom: but in new york -- olivia do you have clothes racks in the hallway? [laughter] olivia: i did find on apartments.com $7,300 for a one bedroom. in chelsea. thanks. brendan: all right, andrew florance, apartments.com, thank you so much. coming up, our twitter question of the day -- what is the likelihood that greece exits the euro? tweet us @bsurveillance. ♪ tom: this is "bloomberg surveillance." we are focused on the boston red sox will stop pitchers and catchers in a matter of days as all hadead south to see the red sox get out of last place. [laughter] brendan: i will let you struggle. olivia: i am a yankees fan. brendan: i am a mets fan. you know we have on that with us? we have betty liu. the great challenge in any athlete's life is what you do when you turn 38 and you cannot hit fastballs anymore. derek jeter has that problem. bett:y: he is 40 now. he hit the big 4-0. brendan: don't call it that. i am 4-0. betty: derek jeter, the guy that every woman wants to be with the guy that every man wants to be, and also the person that every person wants to grow up to become. he is on his, as you say, brendan, his second act. he goes from being mr. captain to now mr. ceo, and he has launch this company called the players tribune, which is a platform, a multimedia platform that allows athletes to pen basically first-person columns on any kind of issue that they want to talk about. aside from that, this is kind of -- it is not about the players tribune but about -- what does eric jeter do next -- what does derek jeter do next? might he own a sports team? derek jeter: i do not know enough about it. my biggest fear in life is being unprepared, so i make sure i am fully prepared before i would do something like that, so no i do not think i have time for that. betty: 12 months from now we will not see a team owned by derek jeter? derek jeter: do you have some money from me? [laughter] betty: i think anything from you. he is one of the athletes who saved much of his own earnings and has this 200 million dollars. he cannot buy one on his own, he has got to obviously hook up with a few people, but i'm sure there would be many who would want to be on his team. brendan: who out of hockey has transitioned management the best? you leave the sport and you go to a life you have been unprepared for because you spent your entire life doing the same thing? tom: it is a huge deal in pro sports, not only the money part but also the psychological part. i would say emanuel rivera has done as well as anybody with the new york yankees, but it really varies sport is for. in hockey, i would say ray with the bruins did a great job with the transition. brendan: you have got to do more than open a bar. that is what these guys do. they take their money and open a bar with her name on the top. betty: i think of athletes who has transitioned well, michael jordan, magic johnson those are in basketball, so we will see. brendan: shaquille o'neal makes more and sponsorships than he ever did. he has figured out how to hone his post basketball in the a guy with a big smile. olivia: betty looking forward to it. be sure to catch betty liu's interview with derek jeter coming up on "in the loop" starting 8:00 a.m. eastern time for some in time, please answer our twitter question of the day --we want to know -- what is the likelihood that greece exits the euro? tweet us @bsurveillance. ♪ tom: good morning, everyone. "bloomberg surveillance." i am tom keene, with the olivia sterns and brendan greeley with our top headlines. brendan: in pakistan, at least five people are data following a apparent suicide bombing. the attack occurred in the city of lahore. no immediate claim of responsibly. afghanistan, this morning television suicide bombers dressed as police officers attacked a police station in kabul.at least 20 people died in that assault. japan is waiting further into the local assault against islamic extremists. foreign minister says it is intended to bolster efforts in the middle east and africa. japan's move follows the recent beheadings of two of its citizens held hostage by islamic state militants. officials in china are drawing complaints for toning down chinese new year's events. the muted festivities follow a stampede at shanghai that killed 36 people last month. the city has canceled its lantern festival, which attracts millions. authorities have asked tourists to notify authorities. those are your latest top headlines from around the world. olivia: it has been nearly two years since 20 flows and went off at the finish line of boston marathon, yet the trial of accused bomber dzhokhar tsarnaev continues to be held up. testimony was supposed to begin three weeks ago. today there is still no start date insightful step frank keating had just been sworn in as governor of oklahoma three month before timothy mcveigh blew up the federal building in oklahoma. two years later, a court in colorado had already sentenced timothy mcveigh to death. governor keating, why is this taking so long? governor keating: maybe they are having a very difficult time finding a fair jury, and open-minded jury to listen to the facts will stop in oklahoma city, for example, everybody assumed that oklahoma city could not give mcveigh a fair trial. analysis suggested oklahoma city could have given mcveigh a fair trial. they moved it to denver anyway. that is probably what is occurring. it is technical. it is nothing to do with the speed of the courts. they are probably concerned but having a jury pool that is open-minded and fair. olivia: that is indeed what the lawyers are trying to do get the k-smoove, and there has been a whole that because of the weather. there is an interesting question as to whether or not we can governor keating: get a fair trial in the internet age. governor keating:i think most people want to do the right thing, and they think that guy probably did it, but maybe there are a sunni waiting circumstances, maybe there is a reason, maybe the -- maybe there are extenuating circumstances, maybe there is a reason, most people want to do the right thing and juries are usually pretty fair. brendan: governor, how important is the trial itself in allowing the city to move on>? do you need the verdict to close the chapter? governor keating: yeah i think so. the reality is you still have a ticking time bomb, which is the memory and the agony caused by those people. in the case of oklahoma city obama city thunder, all of the things that came after, the complete revitalization, renewal of downtown occurred as a result of the pride of the city putting all of that stuff behind it. brendan: you really draw a line from that awful day to the revival of the city? governor keating: i do. out of evil good comes. that is what a lot of people do i do is welcome, and that occurred in oklahoma city's case. olivia: how do you think the threat of domestic terrorism has changed? governor keating: it is a hell of a mark lot more intense. olivia: is that threat purely domestic or is it a threat of lone wolf attacks like we've seen across europe? governor keating: who knows why all of this occurred, but when i was growing up, you never heard of a columbine, you never heard of the horrors that occurred in schools. i think there is a lot more family breakup, a lot more indifference toward the feeling of individuals but i think clearly the likelihood, the reality of those kinds of events are greater now than they were-. . tom: governor, i want to rip up the script the homeland security debate, your oklahoma is a place you would look for immigration debate yet research says it is front and center in oklahoma. tell us about the immigration dynamic and how it fits into republicans in washington. where will the republicans be? governor keating: wel little thel story perspective,, in a 1986, i supervise the u.s. customs service, secret service, atf -- most of the federal law enforcement agencies including the secret service and the border patrol -- our view was we will secure the border and regularize all these people. we have a constitutional issue if you aren't illegal, you on your white, and you have a child born in the united states, because duchenne says that child is -- the constitution says that child is an american citizen. it is a difficult situation. in oklahoma, it is rule of law -- tom: the border is not arizona anymore. the border is outside tulsa. brendan: talking by the debate between citizenship of the soil and citizenship of the blood. in europe they have citizenship of the blood. we had helima croft of rbc capital markets on in the last hour and she has a deep understanding of the middle east, and she says america does -- forget the border for second -- does a better job integrating its immigrants over the longer term than europe. governor keating: absolutely. olivia questioned about the boston trial, it stunned us to see two young men raised in the united states, active in their high schools, who would be radicalized. that is stunning to us. whether it is irish extraction, jewish instruction, whatever it may become a cuban's in florida haitians we do a very good job of innovating, but we have to work on metal the time. tom: the backdrop to that is is of course economic might. to go back to where we were an hour ago on europe in depression, what is the key policy to get europe jumpstarted? carl: they have to fix the banks. tom: they have to go back to where we were in 2008. carl: that is right. the banks cannot lend -- right now nobody is recapitalizing them, and that is the problem. in the u.s., whatever you think about the bridge capital events that allows them to restore the capital by themselves, european banks to not have the margin for capital adequacy they are required to have to lend comfortably. tom: when you are done at the aba, you can go in the head of the european bankers association. [laughter] governor keating: i wonder how much an apartment would cost over that. the doctor is absolutely right. in the united states, the result of the resilience of the american economy, our banks are highly capitalized. the issue is -- can they lend? are all these regulations and restrictions retarded? carl: what they need in europe is a king to tell all of the government to do that the politicians cannot. maybe you would consider that job. brendan: oh, they do, and her name is angela merkel. carl: they need someone who is not a politically elected person to tell them -- this is what you need to do for europe, and they can go back and say we did not once do this, but thinking told us we had to -- or a queen. it could be a queen. olivia: isn't the eu president supposed to be the ceremonial head of state? carl: but he is not come he is a politician. like mark carney, for example, he would be a good king or summary from outside of europe to come in and tell them all with a need to do. brendan: it should be tom keene! governor keating: i vote free markets, limited government, it works very well. tom: the man from obama has the last word frank keating, thank you so much, and carl weinberg. olivia: carl weinberg things europeans are kings. we ask you -- what is the likelihood that greece exits the euro? the first answer -- unless germany case, the greek exit is 100% certain. second answer -- highly unlikely. eu is a political, not an economic union. state markets always repeat. brendan: amen. politics are more important than the economics over there. olivia: that dovetails nicely with the third answer -- zero. greece is a spoiled kid. get back in line. tom: what is the ramification, carl, if there are "cut off"? carl: if they are cut off, they have to live within their means, which is what they have to do anyhow. tom: are they still going to pay their cell phone bill? [laughter] olivia: i think that is a lousy metaphor, but greece needs to go on a dais, and they are running a primary surplus. tom: there it is. carl weinberg and frank keating. we have an interesting week here on "surveillance." there is a lot going on. brendan: and we are watching the constant theater of the greek negotiations. as olivia pointed out, they are at 3% primary surplus. they are expected to get to 4.5% and hold it there under the current agreement. almost no but he has ever done that before. tom: economic data -2.8% inflation takes you back. olivia: an inflation and england's lowest level in record, only going back to the 1990's, so this meeting in brussels yesterday between greek and its creditors on incisively breaking down, but they will be meeting again. tom: that is a good day to get our four-day workweek started here on "surveillance." stay tuned betty liu speaking with -- what was his name again? brendan: derek jeter. tom: radio and television, "surveillance" continues. good morning. ♪ >> good morning. we are in the loop. with us, greek-american billionaire john catsimatidis the red apple group chairman. he weighs in on the european standoff with greece. derek jeter. i talked to the former yankees legend about his bid to become a media mogul and business titan. here is a look at our top stories. germany's commerzbank says there is a 50% chance that greece will leave the eurozone. here is greece's finance minister. >> in the history of the european union, nothing good has ever come out of ultimatums.