But. Initial jobless claims. 9 45, consumer comfort. A lot of home stuff. Here is one for scarlet do you let your voice shop at Abercrombie Fitch . They are too young for that. But now they can go in because the music has been turned down. You have to wear a shirt now . Thesgate they did hunger games franchise. Lets do a data check. Bonds, front and center. The 10 year yield is a recurring theme. Meeting is june 5. Vix, better than good. 11. 68, showing complacency out there. 30 year bond yield is john dropping. But do you do if you are running a longterm portfolio . Gold continues south. From the bloomberg terminal, a lot of lines. Yield, back german 20 years. Here is the trend. The red line is the trend. These are the standard deviations. This is logarithmic june. Here is draghi. We came back, this is the new rollover. Fivetwo, three, four, standard deviations off a longterm trend. This is game changing. When you are five standard deviations away, that is like 99. 9 of the time you should be above that. It is like George Clooney on er 20 years ago. This is all because of the comment, whatever it takes. It is from the data that reconfirmed this inflation if not deflation across europe. We have to move on we scoured the papers this mornings. To deals. Apple is buying beats. The price tag is 3 billion. That is bigger than the number that was floated around. Billion, which is insignificant. Hashe amount of cash apple what is that in percentage terms . 0007 . Drop in the bucket here. It means the cofounders else, they everyone will join apples senior management. These are guys out of the Music Industry. Theyre buying heritage. He was one of the first people to see itunes. They are buying history. Snoop dogg. O this is working with john munden and Bruce Springsteen john lennon and Bruce Springsteen. They made that sparkle in music. Were going to talk more about this and what apple gets out of this deal later on with david kirkpatrick. It is certainly one to watch. The second story president obama spells out his vision for Foreign Policy. He gave a commencement speech at west point yesterday. It was a rebuttal over his policy. Onsays the u. S. Must lead the world stage, but the military should not be the primary compound. Component. There was no passion, no force. It was here, it was there. In the end, it was all about nothing. Haass will be joining us the next hour. He said he walks the midline. He did not say heres what we need to do, or here is a we should not do. Our last frontpage story a new report says iran stopped u. S. Officials in a threeyear hack. Facebook and social networks to strike up friendships with lawmakers, defense contractors, and even a fourstar general. This comes from a company that would send links and videos that would allow hackers access to email. I dont know why any of us would be surprised by this. Everyone is doing this. Why wouldnt you . The important interview is mr. Snowden as well. You wonder what response you will get from washington on this. Those are the frontpage stories. Our guest host is jonathan golub. Much focus on bond markets. Joins us, senior fellow at the asian society. John, lets start with bonds. How unusual are the yields . First, the story is not a new one. One year ago, they were in the same place. Everybody was convinced that yields would go back to 34 . A lot of this debate, people said this was impossible. Massively pushed against the bond market. I think of David Rosenberg saying no, bonds wrong, stocks right. Tell us why they are so disconnected from the bond market. There is a host of things. Most equity guys look at a yield like this and they say growth is dead. Inflation is dead. I think you have to look at what is in the bond market. You rightly pointed out, it is a lack of european inflation. That is probably the most important story. The ecb may be those important thing. Is the equity market priced to perfection . I dont think so. You have had a good valuation for 624. We are at 15, kind of right in the middle. Have you ever seen this dynamic . Know, and i traded for over 20 years. You were on the Trading Floor when you were 12 . Almost. Botox click then. Thank you, mom, for giving me good genes. Golub, you say that Capital Requirements increase, banks have to hold more paper. They turn to government paper. I think there are a halfdozen things. You have pension plans. Last year, Interest Rates rose. That knocked down my abilities. These plans got in the money. Big mutual fund flow. So, everyone was asking who would be the crazy person who would buy bonds . A lot of folks. Lets bring in jamie as well. What did youch, make of president obamas speech . It was a goldilocks speech. You get overexposed in places and that you roads national power. We will not do too little. The words that he used were indispensable nation. It was uninspiring, but imp ortant. Follow this exciting rhetoric of george w. Bush got us in a lot of trouble. We are now facing major challenges in europe, asia, and the middle east. He was very realistic that we cannot do everything. We have a lot to talk about. Our twitter question of the day haass, is al and qaeda the biggest threat to america . We have already gotten some smart responses on that. Witter. Board, get on tiwtte is al qaeda the biggest threat to america . Lets get you some breaking news. Answer is going to buy Heritage Health care. The price tag is 2. 35 billion. 2. Ridan forg 35 billion. Costco missed analyst estimates. A number of u. S. Retailers suffered in the first art of the year. Samestore sales rose. Microsoft and salesforce. Com have their head in the clouds. They are close to a deal that would allow customers to use salesforce management programs. This is according to people familiar with the talks. That report indicates congress is stepping up its probe into the General Motors recall. They spoke to an engineer about his role in faulty ignition switches. That is according to the wall street journal. Lawmakers want to know why gm did not recall cars until almost eight decade after learning about the problem. Adam . When we come back, why is apple spending so much money on beats . We will discuss. You are watching bloomberg tv. We are streaming live on your phone, tablet, and bloomberg. Com. Good morning everyone. Tonight, do not miss inside pepsi co. Exclusive interviews with the companys gatorade developing facilities tonight on bloomberg tv. All of that is also on bloomberg. Com. Good morning everyone. This is bloomberg surveillance. Scarlet looks at apple. Final price tag, 3 billion. This is apples largest acquisition ever. It had been telegraphed. The stock is up 4 10 of 1 . With this purchase, they will gain control of beats head pho nes. Lets check in with david kirk patrick, who joins us with his reaction. This deal was weeks in the making. The price tag is lower than originally reported. It is funny. Even though music is really what got apple on the trajectory it has taken, it has gone to this extraordinary scale and success. They have never done headphones well, which is interesting. They even have a policy that if you go in and have a broken headphone, they replace it for free. They know their headphones are so bad. Ironically, that is not being discussed. They need better headphones. They also need a Broader Market positioning among young people. Many of them perceive apple as an old persons product. A smartit is probably move to broaden their market share and get into an area that is critical for a heavily music oriented company. Bring in some intellectual creativity. Also, it is chump change for them. They are only laying out 2. 6 billion. You mentioned they are buying hardware. What about the fact that this is a talent play . What can that mean for apple in the next six months . I was just thinking about getting on to talk to you and i was reading about jimmy and all of the records he has produced. One of the pretenders great a lbums. A classic by meatloaf. He has an incredible sense of what people want. I dont think he is a steve jobs, but from an intuition point of view, he is somebody who gets how people think. He can make classic products. He is going fulltime to apple. Is a music producer and executive, but i think somebody like that could add a lot to the culture of apple. Dr. Dre is also a great artist. He is not is clearly going fulltime, but im sure he will add a lot as well. I understand what apple is getting. I think about the artists. 1 7 will make 1 5, 1 6, the amount of money that they would have gone from downloads. Is that sustainable longterm . That is a debated qu estion. Now youre getting into the music service. I do think it has to be. Frankly, this is the way we are all getting our music. Were not going back to buying cds. If we cannot figure out a way for the artist to make money, the Music Industry is doomed. I do not think it will be doomed. Music is too big a part of culture for that to happen. Prices might go up. That would be good for apple. I dont think we will keep buying songs. By the song on itunes. The strength of the facebook effect was being able to look forward to where we go. Our member the first time i heard stereo crystal clear. Reach forward where will this transaction be in five years . Is a great way to ask question. I think quality of music is going to be affected by this and a number of other trends. We have gotten used to getting our music with convenience. In the process, we have sacrificed the quality of the audio. For someone like you, i am sure it has been acutely painful. I think the chances are good that this will lead apple to concentrate more on the quality. Thank you so much. Crete. Joining us from what he is talking about is tone. They own tone. Youre going to bring bauers and wilkins to apple. You will say fidelity that these kids today do not even know. Im getting my head around the fact that you were excited about stereo. I remember standing there and hearing it for the first time. Were are going to tell you what is coming up in the next half hour. Richard haass will tell us about the president s Foreign Policy cap. Is it clear, is it unclear . Good morning everyone. Im tom keene. Lets get right to top headlines. Search or say they have been looking in the wrong place for the missing Malaysia Airlines jetliner. Investigators say it is not in the area where they have been searching for almost two months now. They will take a threemonth break and try to figure out where to look next. Edward snowden says he still considers himself to be a patriot. News,interview with nbc he defended leaking thousands of classified documents. He is also frustrated to be struck in russia criticized the government for not protecting his rights. Should have thought of that in advance. And hockey, the playoffs angeles. Eat los they lead the series 32. The rangers tried to defeat montreal. In the garden tonight. I am hopeful. Those are your top headlines. You go from hockey to football. I do. This comes to us from the wall street journal. Creepy effort is underway to shut people up for a broad swath. This is the First Amendment formal protections and a fahrenheit 451 regime. The time for pushback is overdue. Concern about the pushback on the redskins name. N i defer to albert hunt o this. This is cocktail conversation in washington. Yes. We had all of these commencements bakers who were effectively told youre not welcome to speak here, just because the view was different from their own. That is his concern. A new level of political correctness. Coming up, tension in the east china sea. Any body of water that surrounds china. We will discuss next. The smartest thing that happened in 1842 a lot of criticism that open space there in central park. The great lawn, it is a jewel of the city. This is looking east toward long island. That is manhattan, our world headquarters, dead center in the screen. \ off of see the terrace my master bedroom. You can see were different Hedge Fund People live. This is bloomberg surveillance. Let me do a quick data check. It is all about bonds. Grinding lower after yesterdays historic move. We will continue our discussion on this through the morning. In the equity markets, scarlett had some numbers. Some big gainers. Twitter up almost 11 . They have upgraded to a buy. All of that attention and concern over the slowdown is overdone. Can cant tweak tweak its product. Designer shoe warehouse. Dont you buy or she was there . Maybe you should. They actually went into decline. And Abercrombie Fitch sometime today. They have finally taken a step back and acknowledged missteps. To china, it is the asia society. It is called china against anyone else. Desiresship in beijing a more assertive regional policy. America pivots into change. Jamie is a senior fellow at the asia society and one of the most acute voices. What do you hear now . A big shift in their interaction with original members and also the United States and the world. Theyre undergoing a fundamental change. Very firmly in control with china focused on internal reforms, which are destabilizing. Theyre being very aggressive in tehe region. Theyre really trying to push the United States out of the say im acific to what are you going to support your allies . Theyre picking points of contention where they know that we will not rush in militarily. How poor our, intelligence was on russia. Do we really know the Chinese Military might any idea of whtat the military is . We could learn more. We know a lot about with their capabilities are. Theyre building a military designed to counter us. And they are moving aggressively, knowing that we have a lot to lose. We will not rampup our response militarily. We will try all of these other tools. Hard power ising, important. This china want to be a superpower . For now, a regional power. We have all of these global responsibilities and asia, and europe come in the middle east. What china is betting on we will not be able to go all the way in in asia. When they challenge us, we will not be able to counter them. They have all of this military they are building up and preparing to put a lot of pressure on in their neighborhood. In the medium term, they will have no choice but to become a global power. How much is there Foreign Policy a response to what were seeing from our own administration . Well, a little bit. China was pushing aggressively in the south and east china sea. Before, we have the issue of red lines that were announced. China has watched what has happened in the ukraine and crimea very carefully. The u. S. Was not willing to do what many thought it would be. They signed an agreement in budapest in 1984 saying we would respect the borders of ukraine. Now they are saying theyre going to push into the South China Sea and what are you going to do . The answer has been not so much. The best example i can think of is what is happening with vietnam. China put in offshore oil platform in the vietnamese waters. Over night, they ram a fishing vessel. Same issue. China is challenging vietnam. They are not an ally of the United States, but a friend of the united dates. China is asserting its rights in the South China Sea, letting vietnam now and everyone else know, it isnt going to do much to help you. There are enormous Natural Resources underneath the sea. What china is doing is putting everybody in the region on notice. Deal with us. Forget the United States coming to the rescue. Did we see the president speak to a nation . Those cadets know better than everyone the sacrifice. To the chinese leadership see us as an exhaustive military nation . They are making a bet over the medium term that we will not be able to rally our resources. Haass is coming on. Richard haasl and s back to back . His excellent book his argument is that you need domestic strength. Was that a shameless plug for our next hour . It was. Shameless plug for both hours. Talk about the role that the Chinese People play in this as they move aggressively to force the borders. The government took a specific tact to emphasize its humiliation and pushing nationalism. That is exactly right. In 1989, the Chinese Government realize that they have lost the narrative with the public. They shifted ideologically from tousing on class struggle to focusing on national humili ation, as champions of nationalism. In china itself, it is totally fine. You cannot talk about tibet or other things. You can talk about nationalism. The government has created the space were nationalism is wood of the few except in forms of speech. This whole generation has been raised on Chinese National amelioration. Humiliation. It becomesnarrative, very difficult for china to compromise. The more outlandish claims that they make, particularly in the South China Sea. The more that they are saying we cannot compromise because we, the communist party, are champions of this nationalism that can never become revised that would bring back memories. They have backed themselves into a corner. It is very dangerous. Theyre moving very aggressively , with a zerosum mentality. The United States is sup porting. There is a real opportunity for miscalculation. Is there also an economic argument here . China has gone from an infrastructure based economy to a service one. That is tricky. This is a way of increasing gdp. I would not say that is a key driver. It is relatively small compared to the overall size of the economy. The military is an important voice. By making these claims, they also have access to national resources. Were talking about vietnam. Is there a red line . Where the United States would get involved . Visit japan, korea . There are red lines. As i mentioned earlier, there are questions about what the u. S. Is willing to do. Traditionally, the red line is japan. Were seeing repeated violations of japanese air space. The u. S. Is not able to say. It is unclear what this means. The red line is the cost of breakfast in shanghai. T