The u. S. Earnings. Micron. Micron and hertz. Baghdadry arrived in this morning. He was in cairo yesterday. He will be meeting with the iraqi Prime Minister. Walden begins today. Chile today. Ersus cameroon ursus brazil. Croatia versus mexico. Good. Y stocks, bonds, currencies and commodities. First day of summer, the advance continues. A real equity focus this morning. The good news in the equity markets, nearing 17,000. Two year yield elevated. There is brent crude. 115 a fewely above minutes ago. What an interesting weekend. Lets go to the terminal. This sets you up for the week. This is pretty boom in housing, and 800,000 units. Here we go the boom. M bought right here. And i sold right there. Down we go. We recovered a bit, but we have a long way to go. This is june sales. Full disclosure, scarlet fu but right here. We have looked at the papers and websites. What an interesting weekend. Youre going to start with bnp because it is close to the settlement with u. S. Over violations of u. S. Sanctions. Bnp wouldve played a brief lead bnp would agree to plead tilt he and pay a fine. Violations against countries like iran and sudan. It would also be temporarily banned from handling transactions involving u. S. Dollars, at least for a couple of months. That is a big deal. I think that is more than a slap on the wrist. It has got to play out. Some of this has to do with more than just new york and different regulatory bodies. And you wonder how many people will leave. They have already announced more than 30 people walking out the door. The second frontpage story, one were been monitoring, General Electric winning the battle for allsups Energy Assets as 17 billion. This is ges biggest acquisition ever. Biggest shareholder agreed to sell its stake to the french government. France wanted to be a part of it, and intervened, now a stakeholder. What they own of air france right now. I think my memory is, 21 . Maybe 17 . This is more than common in france, the government takes a true minority position. They enacted this shortly, a couple of years ago, i forget which joe prompted this. This. Ch deal prompted and the u. S. Will take ownership in siobhan the yogurt. Ge able to get this deal done even as the u. S. Is really coming down hard. In other words, they were lets move on. We will discuss this further with matt campbell. Our third frontpage story, rebels in iraq are seizing more territory. John kerry arriving in baghdad for talks with the maliki government. Der crossings which order with jordan and terry were captured. The president warns fighting could spread to neighboring countries like jordan and that is what weve been hearing from guests we have been talking to as well. That is the concern. You pointed out earlier, tom, there is talk of some sort of in other words, realigning. Got may be why their turn to after these border crossings in jordan and syria, because they want to get rid of i would really focus on the jordanian borders as far as politics as well. In oil prices elevated as you see as well. New york crude but also brent crude, highest since september. And those are frontpage stories on this monday morning. We need to speak to someone on oil. Oil did not move. That was two weeks ago. Now it is driving higher. Our guest from barclays, dr. Kroft, wonderful to have you here this morning. What is the single thing you look at over the weekend . , aaw wonderful jumble cacophony of information on iraq. What should we focus on . A couple of things you want to watch for. What is going on with the refinery. There has been a weeklong battle with this refinery, that provides iraq with 10 of its power. If you were to fall in the hands of isis, that would be of a for the maliki government. Then theres the question about the southern oil field. This complacency that it will remain fine down there. We are concerned. Lets look at the oil price chart. Inflationadjusted brick crude. You can see we have what is the barclays call . You nailed the seer and a half ago. Do we drive higher due to geopolitics or move down due to the microeconomics . If you look at iraq, there are still offramp for this country right now. We are very concerned. If you did have a supply disruption in iraq, the only country that can make up for it is saudi arabia. I want to rip up the script. John kerry in baghdad. How will be saudis react to sing those border crossings shut down over the weekend . I think it will be terrified. They have their own isis cell wrapped up a couple of months ago. But on the other hand, they dont like Prime Minister maliki, either. They dont like the ice is rebels, but they would like to see maliki gone. The iranians absolutely do not want maliki gone. It will be difficult for john kerry. What is the relationship between isis or isil and al qaeda . We grew out of it in iraq. In 2006,as killed there was a situation where the group dispersed and then they sort of got the band back together because of seer. In 2012, they promised to get rid of the border between iraq and syria. Not a lot of people listen. This group has made their intentions very clear. Great having your suspect great having your aspect. As oil moves up, what does that do for earnings of the u. S. . In a weird way, it provides a bump. Sector is about 50 . The initial phase would be positive earnings. You think about that negative consequences. We have helena croft from barclays on oil, and youre channeling more this morning . A little bit. Gibbet tip point on brent crude . Do you have a tip point on brent crude . I dont know if it is a tipping point, but the longer it stays at a level, the there is a bigger problem. The israeliing, attacks on syria over the weekend, showing this thing broadening out. That is the kind of thing the markets become nervous. To what extent can the u. S. By relying effectively on wti and shell reserves in that gas, the insulated from this . We are impacted by the price, but supply disruption would not be as consequential. But if you see prices go over 120, i think were talking about a strategic stockpile release in the United States. Yes, and coordinate with european countries. That. Lain i think it would do it solely because of the concern about the global economy. Senior officials from the department of energy signaling if you have prices go high that massive implication the global economy, i think stockpile release. The headline and just coming out, the Dubai Stock Exchange injuring a bear market, down 20 , of course with the real challenges there. Lets get to the company news. American apparel lawyer demanding he be reinstated. The largest outside investor doesnt plan to support him. Speaking of founders, lululemon founder turning up the pressure of the companys management. He wants the maker to look beyond shortterm results. The wall street journal says he may shake up the board and sell his stake reuven try to take the company private. Shares recently fell to a threeyear low. Does notall that involve general motors. Honda and nissan recalling more than julian vehicles because of faulty airbags. Most are from honda including the fit combat compact. Ive never had a car recall. And about 25 years ive owned four cars. What do you drive . Rubber. Once in 1968, they were going to recall the national ambassador, but i got lucky. We just took the chainsaw. Thend then he switched to pacer. No, i stayed with the nash. We may take it out fourth of july weekend. Is clear the ge last hurdle, sealing a deal. We will give you the details coming up after the break. This is bloomberg surveillance. Good morning, bloomberg surveillance. Coming up this morning, the governor of the commonwealth of puerto rico today at 10 00 a. M. With Stephanie Ruhle. This is a troubled, troubled island with some real fiscal issues. What heated debate on puerto rico. We will advance that this morning on market makers. This is bloomberg surveillance. I am tom keene with scarlet fu and adam johnson. Lets talk about a victory lap for jeffrey and melt. Immelt. He beat out siemens from germany. Lets check in with Matthew Campbell in london with the backstory. I have to ask, israel triumph was to win over a very skeptical french government, in particular the economy minister. What did he have to give up in order to get the blessing . Well, look, this is all over but the gloating. Theres no question this has come a pretty long way from what ge first envisioned. That had to injury to a couple of joint ventures, splitting off parts of alstoms business. Theyre also going to have to make certain commitments to keeping jobs in france. Crucially, theyre going into business basically with alstom. This is being described as more of an alliance or packed that an acquisition. And a french government is taking 20 of alstoms shares. Jeffrey immelt will effectively h in that with france walk ollande. What problems does that create having the french government as a partner . We dont know yet. Costcutting is going to be hard to do, if that is what she had in mind. Theyre not going to be able to reduce the count of jobs, for example. The g would say that is not what they envision in the first place. It means anything they do will have a political caste. The line between business and politics in france has always been pretty blurry, if existing at all. Ge will learn that. And the idea of the financial into the political. The idea here that this is now jeffrey immelts industrial company. Real superior French Technology for ge. Focusing on industrial getting what from ge capital. Matt, i remember several years ago when in ceo was trying to buy honeywell and there were so many disasters that ge was going up to make and he said it was ultimately not worth it. Were there any divestiture here that were close to scuttling the deal . Good question. Sometimes you see in these deals the chief executives get in their minds and want to get something done and they will sign up to almost any concession to get there. Ge does it seem to be doing that here. These are jvs theyre talking about for the power grid bit of alstom, but from just immelts perspective, hell still get the jewel, the natural gas. Ge is making a big bet on the gas revolution going on in the u. S. And in china. That is what matters for jeff immelt. He appeared before the National Assembly of france. That was rare. I wonder if you set a new president for getting european approval for a deal. I think that is also something we will have to watch. French politicians are very happy with this. They see this as a big win. That turn this into something they can take to her supporters and say, look, we stood up for french jobs but we also managed to do that instead of off of big horn investor. See french politicians looking at this as an example of how they should be treating foreign investment, now how they shouldnt. Usthank you for giving perspective. Paidose french lessons lai off. Yes. Oui, oui. We all learned how to say. Coming up in the next hour am owns shares ofnd ge and apple. We will check in with him on where he thinks the market is headed. Also get his take on the world cup. He has a couple of thoughts. Which brings us to our twitter question of the day i am a fan now. Yesterdays match was a little heartbreaking. Good morning, the first working day of summer. New york city, Beautiful Day here. The heat awaits for the summer, but it is absolutely gorgeous. The sun is up when we come to work, kind of. Almost. Which is psychologically were not on medications like we are the other ways of the year. The morning, this is bloomberg surveillance. I am tom keene with the less medicated scarlet fu and adam johnson. Morning must read so his messages, dont blame me. Do you buy it . He got hammered on this over the weekend. If cheney and others are out with comments from that era. There are some real introspection going on. I think is a circular firing squad going on between the bush administration, the blair administration, with a projecting obama saying, you made the decision in 2011 not to keep any troops there, this is on you. I think everybody pointing fingers. Theres is not an easy offramp for what you do with respect to iraq right now. This is a 20, 30, 40 year problem. And it will be a problem for a number of arab states. Look at libya. I think it is a reckoning. To 100 is arguably a 70 your problem. I guess im not as pessimistic longterm. I do think there will be tremendous pains in the next couple of decades because they dont have effective state institutions. We spent 20 billion on an iraqi army that proves to be a hollow force. A decadelong commitment, i think he can turn around, but i dont think in the near term. A lot of that is on the study of international relations. My morning must read, great loss the death of ad, man who is with john hopkins for several years. Here he is in 2011, skating on president obama, the crippling scathing a president obama. He is one of our great forces in analysis of this iraq war. What can be the Foreign Policy that he advocated that mr. John kerry has to advance this morning in baghdad . Ajami did not believe it was a region where democracy could not flourish, but he believed you had to engage. I saw him speaking on syria early on and he was so troubled but the lack of will to do anything there. She really warned the effects could be catastrophic in terms of a casualty count. Upset wee would be so did not more deeply engage in iraq and did not follow the warning signs. Thank you so much. Despite all the conflict, the stock market continues to move higher, surging to record highs after the fed affirmed its low rates for longer policy. Tobias levkovich ways in next. Good morning, bloomberg surveillance. Futures are mixed on this first working day of summer. There is your data check on a monday morning. Lets get to our next topic, which is the markets. Record highs for the s p and dow. All thanks to the federal reserve. Now a Global Market call, they have to recalculate. Can oneevkovich, how add cash right now . Why should i buy shares this morning . Earnings. Bottom line. It has really been about earnings. Even with the negative gdp numbers in the first quarter, we still had Earnings Growth at almost 5 . It is likely to get better as the year progresses just because the gdp underlying environment the better. You just after forecast for the earnings. That would be like a percent growth versus last year. Where is that coming from . A variety of places. Across the board there is Earnings Growth. Services,ncial despite some of the problems like credit cards, insurance is doing well. You see it in industrials. It is pretty broadbased. We have Earnings Growth but a lot of people of talked about peak argent and how that is been the case for a couple of quarters. Why are you concerned about that . It has been the case for about two years. If you look at the gdp numbers, theyre sitting at 65year highs and Labor Compensation is sitting at 55year low. Some get really excited. If you come with the s p 500 even margins, about 200 basis points below what they were in 2007 below . Yes, and flat promise the last three years. To bull markets go up or do sectors rotate . Is it like utilities do well for a while, Consumer Discretionary suite, or do you believe in all those rising . Generally when the economy is going well. Analysis because you go back over the past 40, 50 years, you will find different cycles bring on different environments. Youll remember the early 1980s and mid1980s when we recovered, it was in sumer striving the economy. And mid80s, the pc boom. By the night, shifting to the technology boom. Early 2000, the housing boom. Different things drive the economy at different times. Everyone wants a simple model. And now were told effective by apple, twitter, facebook, google, google, google, twitter, facebook. And alibaba were not even there yet. Phase, thee mobility third wave of the digital age. The pc, to the internet, now mobility is big. This intraweb thing is taking off. On the other hand, you have Capital Spending picking up. We look at over 700 companies, not financials, in march of data showed about a 5 increase in cap x and now 17 . Nows that the difference, theyre starting to spin money and invest in themselves . Yes, were seeing the broadening out. There is room for margins to improve. The real story and earnings has been tax breaks. If you look at the most recent tax rate numbers for effective tax rates, not statutory, 800 basis points lower than they were at the peak in 2007. Can that last . Probably not. It is the time frame. For example, we know that politicians are upset where u. S. Companies basically shift their corporate outside the u. S. Right. Politicians are upset about it, but with the lection coming up, this is not on the agenda right now. I want to ask about bond yields. That is been a big surprise for a number of investments. Talk about the relationship to we should be focused on. If you look at bond yields moving up, what are the reactions . Fairly consistent over time, the defense of ones tend to do less excitingly bond yields moving up because it is indicative of the economy strengthening. Things like industrials the materials do well. There is inconsistency. Tech, it depends on the cycle. Energy, depends on the cycle. The stocks will react to the heil higher gas prices. I dont like to make it complex, but if it was really simple, we would all be warren buffett. How long can janet yellen and company keep rates where they are as the economy improves . I have to channel the spirit of janet yellen. I think the fed has taken a fairly dovish stance and willing to risk a little inflation. She has made it clear, watch wage pressures. Theyre starting to grow. No locomotive here, but are growing. The emotion of this summer, which is the dangerous condition which is up we seek changes, do you see an abrupt decline or is it a decline you can manage as a strategist and reallocate . Im going to do it slightly different way. When we look at the markets, we pek at cyclically adjusted that Robert Schiller argues for, and then we compared to the fiveyear forward swap contract. You are killing me. Can we say swap on mondays . Of course. It is a draw, not a tie. What will it look like in five years . If youre going to normalize the numbers for the pe, then also should the bond yield. I dont understand why we dont im not a nobel laureate, but understand normalizing earnings and bond yields. Helena kroft from barclays, in your year of oil, do we get junk condition and how will the markets react to an abrupt move higher in oil . This is why a rack is so important. If you want the immediate 500,000 or one Million Ba