tv Bloomberg Surveillance Bloomberg September 18, 2015 6:00am-8:01am EDT
we speak with john linsky and anthony crescenzi this morning. there is no inflation. what does the zero bond mean? in 2016? abby joseph cohen and kit juckes. and in search of humility and newly minted priests. good morning, everyone. this is "bloomberg surveillance ," live from a world headquarters in new york. i'm tom keene joining me, brendan greeley and vonnie quinn. what a week. brendan: a long week. you know where i was when you were on tv? i was in a bar doing a countdown -- 10, nine, 8, 7 -- it was like new year's. that is how excited we were. in the last 16 hours, we found out if you look at not rising the rate as a control, the one country that failed the experiment is brazil. everything else -- brazil
continues to climb. tom: that is the backstory and we touch on that today. let's get to our top friday headlines with vonnie quinn. ,onnie: we start right there how events will affect u.s. economic growth. the fed decided not to raise interest rates for the first time in nine years. janet yellen says most policymakers still expect to raise rates this year, but first they need more convincing on the economy. the committee continues to anticipate that the first increase in the fed funds rate will be appropriate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium-term. vonnie: futures contract imply a 44% chance the fed will raise rates in december. a flood of refugees has led croatia to close almost all its borders to serbia.
in about two days, 30,000 refugees have entered croatia from the serbian side. they turned to croatia after hungary used force to push them away. general motors has agreed to write two big checks over those faulty ignition's. , andll pay $775 million the 1400 civil suits. gm announced it would pay $900 million to settle a government criminal investigation. in japan, shinzo abe is on the winning a legislative battle to expand the role of the military. the move could and seven decades ---- could end seven decades the military would take a bigger role in international peacekeeping. scoredfootball, denver twice in the last minute for a comeback win over kansas city. with 36 seconds left, peyton manning tied the game with his third touchdown pass of the night, a 19-yarder to emmanuel
sanders. and then the recovery of a fumble for a 21 yard run for the win. those are the top headlines. were you watching, tom? brendan? tom: i cannot believe how michael mckee has used the stream over the last 10 days. you were in denver sunday, got back -- michael: it would be great if i could do something like that. tom: has peyton manning lost a step? michael: probably a little bit. but in the second half he came back. brendan: when you and i were out west, we talked about the fan race for the broncos, and they are deeply appreciative of john elway and what he has done. tom: we will get to michael mckee on the fed. he is our arch denver broncos expert.
futures negative seven with a new rate structure, the 10-year i am not paying attention to. i'm looking at the two-year. euro,escenzi, the stronger -- the euro-dollar stronger, weaker. mentioned,greeley dollar brazil gets my attention. at 3.90 on brazilian real is a huge deal and a giant story for reading over the weekend. as we get smarter into october already. i doubt the german two-year with a very negative yield as well. let's go to the monitor redux. here are the fed meetings, here is the trend that we have seen of the two-year yield, and what we actually observed from before 2:00 was to revert to the mean. we have come right back, giving it all up, if you will.
brendan: such a shallow slope of inflation long-term. tom: you are dead on in that. a guy ask a brilliant question at a press conference yesterday on the glide path. it is the morning after. we will give you perspective from those who agree and disagree with what the fed did. we we look forward to the impact -- we will look forward to the impact. we begin this morning with anthony crescenzi of pimco. he is truly one of the world pot experts on short-term paper. , our broncos well expert michael mckee, who sat in the front row yesterday. i thought mr. applebaum of new york times -- of "the new york times" had a terrific question about inflation dynamics. you followed it up with the glide path. how did the glide path of the central bank change yesterday? michael: the fed decision made sense, but the explanations fell
short. janet yellen, as we saw in the sound out -- in the soundbite, said we are waiting for further improvement in the labor market and for signs that inflation is coming back. show theyforecasts expect further improvements in the labor market, and no inflation. so why are they talking about raising rates at all? they are suggesting still, according to the dot plot, a raise increase -- a read increase in december. tom: brendan, we got.-plot into the show. 06:09 -- it is 0 6:06:09. do they even get there with their path of inflation? janet yellen made it clear that they are really concerned about where inflation goes. this inflation is the theme of -- disinflation is the theme of
the day. she also has the markets worried because the fed has now put china front and center. tom: we are going to talk about that. brendan has a great moment on that in the next hour. anthony presents a -- anthony chris enzi is the author of a -- translate this from your mortals. ben bernanke in his meetings with pimm: has told us about some president simply making a statement. this is widely known. brendan: it is a tool. tony: they do it in the meeting itself. something is set in the meeting, it is believed, to get the statements in the minutes.
but the chart behind you on the two-year -- tom: did i do ok? tony crescenzi likes my chart. let's bring it back. drops,ach time the yield the reason is because the bond investors want to play the so-called carry game. it could extend to the high yield bonds or anything with high yield. the two-year yield -- the one-year maturity yielding .4. that means in a year the two-year yield will fall down to the point for and the price will rise. .t is a carry-plus prices rise as yields fall. they are playing the carry game for a short time. me crying onsee the show yesterday echo my former intern with that killer question? it is a very hard question.
it made me proud. when does this -- tony: that is what the chart shows. the most important thing to dot. about is the sixth. likelyth dot is highly janet yellen. it is position for the fed to hike rates at the next meeting where this press conference happens. that means janet yellen, the next meeting with the press conference in december will be a rate hike. tom: let's pause on this chart for a moment. this looks like something out of a jodie foster movie about going interplanetary. brendan: it does. like a videogame from the early 1980's. i remember them well. mike, the dots of course cluster the farther out you get into the future. dots time i see those
cluster, it feels a little lazy to me. sometime in the future everything will be the way it used to be. can we still assume that we can cluster around 3%? tony: 3.5%. halfway through 2016. they adjust them all the time. their level is still above the level that the market sees the rates at, but the exact number, they move around. tom: tony, what does this mean for retirees, what we deserved yesterday at -- what we observed yesterday at 2:00 p.m.? you said the inflation distortion continues forever. do you continue with that statement? for europe, the ecb probably will have a policy rate 1.20%.nd
pimco thinks it will probably be somewhere in the twos or so by 2020. income will not be rising meaningfully overtime. michael: it is just laziness. there is a signaling function that if the fed came down 2% right now, everyone would say what is wrong with the economy, we will not grow at all. it gets to the question yesterday, are you ever going to get out of this zero rate world? it is going to be a very long time. vonnie: the rate did come down from 1.5% -- from 1% to 1.75%. tony: where we do not want to push on the break on the gas -- on the break or on the gas -- pimco says the neutral rate is 2. tom: "bloomberg surveillance a great start to." --
a great start to "bloomberg surveillance." michael mckee, thank you so much. we launch a twitter question today, a very john lipsky-like twitter question. should janet yellen be the central banker to the world? wasn't that a conversation yesterday? stay with us. worldwide, "bloomberg surveillance." ♪
tom: it was 2:00 a.m. yesterday in hong kong. they noted a fed meeting of import this morning. hong kong and the rest of the world recalibrate and adjusts to what we see off of the fed meeting. our theme today at "bloomberg surveillance." here are top headlines with vonnie quinn. vonnie: the vatican is not happy
with the white house guest list for pope francis' welcome ceremony wednesday. the white house has invited a transgender activist, a gay the vatican, and worries that the pope's photos with those guests could be seen as an endorsement. the search for an offshore tax chief -- the federal judge says there is a john doe summons on two u.s. banks. that indicates the suspects made -- americans may be using it to dodge taxes. the first eight months of the year smash global records for heat. forecasters say this year is almost certain to beat 2014 for the hottest on record. tom: we have missed this because the northeast was lovely this summer. brendan: that is part of what el
niño does preview get a wetter, cooler is coast, and a hotter, dryer west coast. tom: we have been remiss on that story. new york city this summer has been spectacular as we go into a perfect september. onnie, what are we doing now? innie: continued volatility the oil market, prices fluctuating by as much as $1.50 repeatedly driving the day. opec says he will graduate to $1.20 by 2020. joining us, peter publican, and still with us, tony chris enzi. peter pulikkan, let me go to you first. to bel market had watching janet yellen yesterday with an impact on the dollar.
peter: any kind of increase would have driven the u.s. dollar higher, which would put pressure on oil prices. vonnie: so opec is saying oil will rise by five dollars a barrel by 2020, and still you have this -- you have strategists saying we need lower oil. how do we solve this conundrum? punchline of a recent report is that their current strategy is actually working. u.s. production is starting to fall, and in addition to that, demand elasticity is kicking in and we are seeing higher demand. on the supply side for 2016, they see supply as being flat and demand growing 1.3 million barrels. the net impact is that the oversupply is actually contracting, which is a positive for oil prices. brendan: every time i hear and opec forecast, i think if wishes were dreams --
tom: that is an important point. how much of this is wishes? peter: a lot of it is unknown. saudi is being the dominant producer. tom: tony chris enzi, you do bonds but you can do -- tony crescenzi, you do bonds but you do oil as well. rate fora new terminal local commodity pricing. are they linked? tony: absolutely. i sit feet from our commodities desk and our tips desk. we have a former nasa scientist on that desk and we analyze. tony:ut are they linked? absolutely. has been in 2015 a shadow rate thatby the federal reserve substantially influence the financial markets globally. there has been the anticipation of a fed rate hike. it has always been a few months out, a few months out. markets think there is a hike
coming, whereas they think the ecb will be providing more accommodation, same for the bank of japan. the diversions is pushing up the dollar. tom: which affects your market. tony: it has affected commodities, the emerging markets, china. -- howw much appears many basis points is filtered into the fed call? tony: it is likely already priced into oil. we believe the price will rise next year because despite demand, the balance will be fixing itself. china's growth is slowing. maybe under 6% growth in the next year, 5.5, 6.5. demand will go up one million barrels a day. you're seeing the rig counts plummeting. rig that shameless plug on go.
there are fewer of them. thank you so much. coming up in our next hour, john lipsky will join us, formerly with the international monetary fund. and torsten slok will join us. yellen,look at janet the central banker to the world. your terminal value is to watch "bloomberg surveillance" this friday morning. ♪
a few days ago. thanks for your comments worldwide on our one hour with ray dalio. we have the morning must read right now. here is vonnie quinn. must-reade morning comes from a home, writing -- -- comes from mohamed el-erian, writing -- that is what i love about mohamed el-erian. how does a guy like that out of oxford know what a cul-de-sac is? he nails it. vonnie: essentially he is calling out the fed on his can -- on its communication strategy. hass saying that the fed been responsible for volatility suppression, and now it might be responsibility -- it might be responsible for being less
honest. aims it is one of the key since the global crisis began in 2008. it's responsibility now -- isn't it the responsibility of national governments to take over, take the ball, and start to take action to help economies? this is what janet yellen wishes would happen, and mario draghi. brendan: this is exactly what he said, which is when we asked him a couple weeks ago what is the source of instability in the future -- he said central banking is exhausted. we have done a lot. everybody else is going to have to start doing it. after mohamed el-erian's point, every time i hear "credibility ," i amfed tom: i a hearing that the fed is not doing what i wanted to do. it has been irresponsible for quite some time. it has had to worry about managing money as it --
vanishing money as it did during the great depression. people go to the bank to repay loans, but if those loans are not replaced with new ones, that money will vanish from the financial system. tom: which is critically a i have had. tony, we have to come back. pimco.escenzi with for a global perspective to get us started, you are particularly on the brazilian real. stay with us, worldwide in brazil. "bloomberg surveillance." ♪ the only way to get better is to challenge yourself,
and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. tom: good morning, everyone. the guests are what matter on "bloomberg surveillance." john lipsky, abby joseph cohen, and on short notice, mr. gross will join us this morning as
well. we are thrilled they are giving us perspective on international markets, on equity markets, and of course, bill gross with a linkage into maybe how we have a retirement plan to retire with in 10 or 20 years on. let's get the top headlines with vonnie quinn. and othernet yellin fed policymakers need more convincing before they raise interest rates for the first time since 2006. they are concerned that global turmoil could hurt growth and keep inflation from reaching their targets. still, she made it clear that policymakers are close to a liftoff. --et yellen: do we cut rates domestic spending appears robust, then an argument can be made at this time. vonnie: on capitol hill, there is more fighting over abortion
in both chambers. senate republicans plan to take up a bill that would outlaw all abortions after 20 weeks. meanwhile, the house has advance legislation that would end government funding for planned parenthood or that could complicate budget talks and lead to a government shutdown. some details have come out about the new contract between fiat chrysler and united auto workers. a $3000are looking at bonus if the deal is ratified in coming days. at the same time, the deal calls for some productions to be moved to mexico. donald trump may have -- he did not challenge an audience member who said president obama is not an american. >> there is a problem in this country caused -- called muslims. is one.a president who brewingtraining camps where they want to kill us.
when can we get rid of them? donald trump: we are going to be looking at a lot of different things. and a lot of people are saying they're a bad things out there. we will be looking at that and plenty of other things. vonnie: "the washington post" asks him about those comments. the obama administration is waging war against christians in this country. tom: i want to give a massive to "the new york post" this morning. "the post" nailed coverage of this moment. .our job is not to opine on it with the remote in my hand, stunned that mr. trump's comments. brendan: those of us in the news business take for granted that people watch us, listen to us. when i hear him talk, what it
tells me is that there is an alternate source of news. people get their news through e-mail, through friends that we are not a part of. that i think is a challenge for us. , onealso the distinction of our producers said today, of mr. mccain's response to a similar question. it was radically different. vonnie: i do not believe the trump campaign has given up his birth certificate yet. tom: do they want my birth certificate? dovish andsays a dithering -- of -- thestrations fed should hike now before helicopter money becomes a conventional policy. is it the policy or the communication going against the fx market? kit: i think the question to some degree is, if not now, then when.
the economy is trundling along, but it is not clear that we will get employment growth. what is going to change -- the sense you get from markets is that each meeting there is another reason to wait a little bit longer. if we wait long enough, we will not get rates up in this cycle. i am not sure that zero rates are really particularly safe for the global economy. we are miss allocating -- we are miss allocating capital badly. think the time to have acted, if not now, was some time ago. we are waiting again and it is the fed that is in charge. make to theo you risk of china? pimco's view is that there could be three scenarios regarding its currency.
to is that it is continuing let it float but slowly, ahead of xi jinping's meeting this weekend. managed flow, where china lets its currency the value slowly, but more than perhaps the final pre-flow, which is the least likely. for a lot of scenarios, and a great deal of uncertainty, and janet yellen would not know with a likely outcome would be as we would not. what is likely to happen? don't you think she should be on guard against the risk? china has based its problem some time on kind of a manage the evaluation, letting currency find its own natural level leading to a much bigger move than is probably geopolitically acceptable. they also know that currency at 10%, you will see currency
adjusted by 12%. most likely it is controlled but by perhapsdepreciate more than 5% but less than 10% here. tom: that is fine, but if i look at u.s. dollar index is as a they for traders, working dollar, do you just presume a further global the evaluation and a breakout of dollar strength up and threw that chart? kit: not immediately, not much to particularly make you want to love the dollar. the problem is more that you have some currency over the last decade or so in real terms have appreciated, by china case -- by china's case, by 50%. we are correcting a proto-of dollar weakness. i do not think the dollar is going to go -- we are correcting a period of dollar weakness.
there is not really a currency out there that i am particularly enamored with. the dollar is the winner at the margin because 2.5 percent real growth in the united states is better than the rest of us are enjoying. brendan: when we see the janet yellen is paying attention to the rest of the world, what is the more likely explanation, that she is worried about the feedback effect into the american economy, or that she is paying attention to the imf pleas of do not do it yet? kit: i think it is part of the fed's reaction function, that the way they look at the world, they think if they go to bank late they can probably solve that by getting inflation expectations back down, whereas going too early is more dangerous. is to wait. the brazilian real
continues to weaken. it was frightening to three it -- to see it at 3.90 yesterday. how do you treat this? is this something that the fed and the bank of england are acutely focused on? what wel tangential to have observed in the last 24 hours? kit: brazil pass continued weakness tells you that this is not just a one-size-fits-all emerging market. story on aheir own day when a bunch of emerging market assets recovered. brazilian -- brazil continued to weaken because it is fundamentally made in brazil. it is appreciating dramatically and it is giving that back. it is relevant because emerging markets are dangerous and inause a wholesale selloff emerging markets is still not impossible. brazil's markets are sufficiently homemade at this
point in time. i am not sure that anyone can do anything else other than them reforming. tom: kit juckes, thank you. that brings us to our twitter question. we mentioned it yesterday as well. now we need to hear from you. should janet yellen be central bank or to the world jacket we got ron paul -- be central banker to the world? opinionon paul's yesterday. stay with us. ♪
tom: good morning, everyone. "bloomberg surveillance." we have been showing you this shot all week. it is gorgeous in september in london. st. paul's cathedral. our new headquarters in london opening in 2018 is off to the left on top of a roman ruin. cathedral, bright and shiny this morning. spectacular photo. thank you to our london team for that shot. right now we need a single best chart. brendan: the pope touches down at andrews next tuesday. i will be screaming like the beatles have arrived he will be visiting a country where the nature of the catholic church has changed. this is a report by the villain of the center for church management and business ethics. -- you have the
people's parish in the east and a growing number of people in the west. this is deeply complicated because, one, fewer priests. there are not enough priests to serve the number of catholics that is growing in the west, and then you have in the east parishes in the wrong places here they are still in the inner cities where there are not as many catholics anymore. an economist would say that is fine. this is incredibly disruptive to communities. tom: you mentioned in the news earlier that the pope will attend the white house. he comes to the east coast, which is uniquely challenged. where he really should be going is l.a., denver. you pick the cities. el paso. it is fascinating. he's going to the old, entrenched coast. brendan: a really points that
,he parish at the diocese level they have a tremendous money out because of the abuse scandal. people are giving less money, so feweris lower tithing and litigation costs. churches do talk about the francis effect. there are more people in pews because of pope francis, but it takes a long time for that to -- a change inl the economic status of the parish. vonnie: exactly. i would be curious to see how this has changed in ireland. the catholic church has much less political power. vonnie: i would say decimated is not too strong a word. tom? tom: i was going to go to tony
that the jewelay that the pope observed is a -- letely redone tony: it is a beautiful church. it is bright inside. serenity, and of that is what churches are. tom: we will touch upon this through next week. vonnie: you talk about demographics in the general sense in terms of employment. what do demographics mean as the population gets older? does that impact the catholic church? tom: let's go to our photos right now. this photo is not about the pope. it is about brendan greeley. vonnie: it could be a little bit about the pope. doritos released rainbow colored
doritos, inspired by the lgbt flag. purchase rainbow doritos did -- brendan: it just says something about doritos that it is easy to do that. tom: you wonder where this will be in 10 or 15 years. do we become more processed or less? brendan: let's look at the purpose of the bag. i think it is extraordinary that commerce is sitting on top of a cultural shift in america. that is the highest endorsement that american knows how to give. bag? ow much are they a vonnie: $10. pimco sponsors an event
for aids walk through disneyland. who would have thought 20 or 30 years ago that would be allowed? brendan: only 15 years ago there was an ikea commercial that featured a gay couple, and it was a huge source of controversy. i think that would go unnoticed now. tom: next. vonnie: number two top photo, thousands of fishing boats are leaving from the shipping port in china after a 3.5 month fishing ban in the china sea. look at them lined up to get out there. china consumes a third of the world's fish. china has done little to stem the decline of the fish population. on thishave reported for three consecutive years. all it comes down to is overfishing. you can analyze it up, down, and sideways. brendan: china can protect along
its own coast. the u.s. is doing a much better job protecting along its own coast. but out in the ocean, there is no one to stop it and nobody has any interest in stopping it. tom: my take is a massive shout , which has alia farming economics to possibly -- vonnie: jimmy carter was with , last night and the braves game. the former president regularly goes to braves games. he has thrown out several pages as well. tom: the pope will visit havana. a little change. some of that took some pioneering work. here is president carter a few years ago with mr. castro. this was a huge deal -- he was un-american, he was a bad guy,
and there is jimmy carter out in front. brendan: if only we had some pictures of the legendary pitching staff from the 1990's. eye and not eating rainbow doritos. do not bring them home today. important and timely conversation in the next hour with john lipsky of the johns hopkins university. john lipsky on the central banker to the world. on this friday. stay with us. futures, -13. it is "bloomberg surveillance." ♪
tom: good morning, everyone. we have a forex report right now. yesterday's was boring, this one is not. the yen was all over the place yesterday but gives us some strength this morning, well below 1.20. that is a big deal. index.lar we have a substantially weaker dollar as we all reset off the fed meeting. for some reading over the weekend, you had better read up on brazil. 3.9 zero is not 3.80.
talkust heard kit juckes about some calculus for brazil. let's get to top headlines with vonnie quinn. vonnie: remember greece? its second national election in eight months. sunday, greece will decide whether to stay with the syriza party and alexis tsipras. the two parties could end up in a coalition government. air pollutionys is responsible for more than 3 million deaths per year worldwide, and if current trends do not change, that death toll could double by 2050. china, india, and pakistan have the most air pollution fatalities. the u.s. ranks seventh. brothers ceo has sold his home in idaho for $20 million. it is a record for a u.s. house sold out of auction. the estate has a main house and
several other buildings that totals 11 bedrooms and 10.5 baths. he was in charge of lehman at the time of its bankruptcy in 2008. better --itchen is the kitchen is bigger than my first three apartments. brendan: you can play basketball in the kitchen. vonnie: it is in the idaho valley. you pay extra for that, i'm sure. ."m: "bloomberg surveillance theen prewitt said, fireplace. it was the litmus test yesterday. retirees are crushed. it means each one of us, whether we admit it or not, are yield hogs, and it also means a guy from boston university was right, is right, and forever will be right. inflation-adjusted returns are coming down. that is the reality we face. we need perspective on what means foren's work
all of us. anthony crescenzi is with pimco. we all quote nominal rates, we adjust for inflation. there is no inflation. am i supposed to feel better because real rates are ok? tony: probably not, but there are sources of return, ways you can beat the market. tom: where? tony: in capital securities in europe. i caution, these trade by high-yield bonds -- maturity. on the between 6% and 8%. the idea behind them is this. coco -- you do not want your bond to become a stock. draghi you think mario in the ecb will do, keep you
safe? tom: -- tony: banks want to shrink and become more traditional. pay 3% on deposits, we wish, take 6% on loans. traditional safe banking. tom: tony, institutionally what you're saying is great. for retail america, getting crushed, i walked by an international bank on 3rd 0.90%. and the yield was people cannot pay the rent on that. tony: the federal reserve will likely raise interest rates this year. she is positioned for the first time in this cycle for the fed to raise interest rates at the next meeting, whether there is a press conference -- in bank11 trillion deposits in the united states, it is likely those rates will go
is central banker to the world. defends,acher christine lagarde takes a victory lap. we speak in this hour with john lipsky. mean?oes euro inflation we speak with abby joseph cohen. and again, greece votes. mr. tsipras' future is in doubt. this is "bloomberg surveillance ," and it is friday, september 18. i'm tom keene. i love the theater of her at the dais. she looks like the head of state, behind the steel, almost like she's handing down a decision, which she is, in fact. i wonder are we going to have to do this again in december? are we going to have to spend the months of november and december -- vonnie: can we do this again? tom: thanks for the tweets where
i mentioned it, that ms. yellen blackaring keynesian yesterday as she spoke. here is vonnie quinn with top headlines. vonnie: no one is sure how the events will affect u.s. economic growth. policymakers at the federal reserve have decided not to raise interest rates for the first time in nine years. they need more convincing on the economy. has ledof refugees croatia to close all its border crossings to serbia. in the last few days, more than 13,000 refugees have entered croatia from the serbian side. they turned to croatia after hungary was using force to push them away. in japan, prime ministers shinzo abe is about to win a legislative battle to expand the role of the military. the changes would lessen japan's ability to defend an ally under attack.
in pro football, denver scored twice in the last minute for a comeback win over kansas city. with 36 seconds left, peyton manning tied the game with a 19-yarder to emmanuel sanders. on the next play, roby recovered fumble and ran it in for a win. brendan: michael mckee is with us. on the: we tend to focus most recent people we have seen. you go back to great quarterbacks -- bobby lane, otto graham. i actually saw why a total tittle.- y.a. johnny unitas, as well.
a lot more spirit to it. you really have to believe a set of events would get us under 2% again. we are nowhere near that right now. futures adjust, -14. it is the morning after. we will get you perspective from the international event this hour. we look forward to the impact we have seen of all federal reserve over the last number of days. ms. janet yellen is central banker to the world. torsten slok is from deutsche bank. michael mckee is back from washington. what was the mood yesterday? i would discomfort, say, from janet yellen, trying to explain why the fed has not moved without worrying the markets. you are worried that she will get what futures are doing throughout the world today, and it does not look like she
succeeded. you said goldilocks continues. what do you mean by that? hasten: the environment created a trading regime that if interest rates are zero, it is about the carriage rate and the spread of -- your goldilocks scenario -- does that mean bubble? torsten: it means that valuations are going up not so much because of the p/e ratio going well, but because people do not want to have fixed incomes. it is lifting asset valuations not because so much the cash flow of companies is improving, but because portfolio managers are saying what else should i do? brendan: what do you take it away from negative dot guy? is that a realistic suggestion or just a joke among central bankers?
torsten: that is a very european suggestion. i got a lot of questions from clients about that. how could anyone think we are about to ease been in the -- to ease when the vast majority think that by next year we will get a hike? michael: the point he is tried to make is that inflation is so low, it is not going anywhere. he has argued that the fed needs to be more stimulative to try to bring inflation up. it is probably more a prescription than a forecast. tom: can we bring the show to a complete halt. this is the e-mail i get from the bloomberg terminal. "mike, excellent question to the chair yesterday." weinberg -- when carl gives mike mckee -- i get nothing. what was your question yesterday? michael: the fed's explanations do not hold
together. janet yellen says they want to see progress in the labor market that will bring about higher inflation, but the forecast is that the unemployment rate goes down, but so does inflation. on that basis, how can you argue for any rate move at all? torsten: the fed response will probably be to say that we would do this in time for -- it is quite ironic that for the last four years, the forecast has been that inflation will go to 1.9 and move sideways. vonnie: the idea that there is going to be no wage inflation but that there will be more jobs -- michael: that is what she -- that is what she is saying. we are looking for inflation because the unemployment rate is going down. the two things do not hold together. can i ask about a december rate increase? it is not the ideal time to be increasing rates for traders in the market, is it? was clearly case
that we had more in the pipeline holding inflation down. so in other words, in a month's time, will we know more than we did yesterday? vonnie: do you really want to be implementing a hike in december, of all times, at the year's end? tosten: everyone i talked our incredible he word about this. how can you do this before christmas? it becomes very complicated because there is much less liquidity. but from a macro perspective, with the dollar not appreciating that much more, i do still think they could do it. michael: we do not know the dollar impact. it could continue. china, we have to wait and see what happens. we are seeing the labor markets go down a little bit because unemployment is getting so low. if we do not get the kind of job creation in the next couple of months that we want, it does not suggest we are making a lot of progress. say,ome to december and what has changed in the economy?
then it becomes important what they say, the communications, that they set the table, something that did not happen against -- ahead of the september meeting. torsten: i am somewhat worried about the rest of the world, so why not wait longer despite the domestic indicators? you do not see much of a slowdown in china, the unemployment rate. all these things are just not showing up. show me the slowdown in the u.s. it is just not happening yet. brendan: i would argue that when you are communicating, your plan for a rate hike in december -- holding a rate hike is a little bit like planning a wedding. someone is going to be dissatisfied by the way you do it. you ultimately have to accept that is going to happen. torsten: that is a good analogy. you are 100% sure that this is the right time to do it. vonnie: but you can always get divorced. brendan: and you do not want a shotgun rating.
[laughter] tom: i will put this out on bloomberg radio plus as well. we have never been here. this is in john lipsky's student -- student textbooks, abby joseph cohen's student textbooks, and torsten slok's student text books. torsten: the main problem with the current regime, if you hold or interest rates for six seven or eight years, it creates a specific environment where the way to make money is current trading. tom: wires jamie dimon saying do not raise rates? torsten: there are other issues around whether this foreign development has become important . is it important? as we look at the data, it is not showing up quite yet, but it could be potentially important. answered one question
yesterday saying it could potentially be important, but we have not seen it yet. new model of banking is not 363. -- 3-6-3. tom: my intern -- did you see her standup? that is a very hard question. yellenella -- chair spoke to my intern. brendan: she did not remind people that she used to be your intern. tom: that is true. she was rocking a yesterday with a smart question. we would do much more. our twitter question -- should janet yellen be central-bank to the world? ♪
tom: good morning, everyone. the most important story of this week was not the central banker of the world. brendan: mark gilbert writes -- vonnie point out that i could not pass this on up. the bloomberg style guide evidently believes that beer lovers is one word, just a noun on its own. that is not a typo. that is the way we feel about beer.
tom: i see your future. brendan: which is my plan for my life, to somehow be appointed as the community bar secretary at the cabinet level. zar?ie: the bar c brendan: he makes a good point, that if the merger goes through, ec of beer.an op does that scare you? torsten: there are some issues at the broad level, that once you think about this from a macro perspective, there is a lot of m&a going on at the moment and that is probably healthy. but generally speaking, from a financial perspective, it reflects that interest rates have been zero and we have had a lot of deals going on for quite some time.
brendan: i throw you a fat pitch like beer, and you return it with a discussion of finances? tom: i will continue with dr. slok here. there are no barriers to entry. brendan: this is different from distilleries. you cannot legally do it in your home. you have to lay out capital and be approved before you can do it. ath beer, you can get good it for a while in your basement before you decide to sell it. it is a competitive market right now. tom: in europe, we all were weaned on making jokes about this beer or that beer. this is gospel in europe. how are budweiser and miller perceived in 2015 in europe? torsten: obviously i am not a beer expert, but -- speaking, there are
tom: yields come in this morning. we continue to see the ramifications of janet yellen's announcement from the press conference yesterday. here is vonnie quinn with top headlines. vonnie: the vatican is not happy with the white house guest list for pope francis' welcome ceremony wednesday. the white house has invited transgender activists, a gay episcopalian bishop, and a group
criticized for silence on abortion. the vatican worries that photos of the pope with these guests could be seen as an endorsement. next up for the irs in the a pack chief, billy's. -- belize. thatrs says -- thinks americans may be using the accounts to dodge taxes. really? and forecasters say this year is almost certain to beat 2014 as the hottest on record. those communities suffering through the drought already know that. carl riccadonna and ray dalio nailed the fed call yesterday. the said the central bank of america is the central bank of the world and that chair yellen would succumb to international
realities. and madame lagarde's new mediocre. joining us is john lynch ski, senior fellow at johns hopkins. , senior fellowky at johns hopkins. john, before we get to the business at hand, i must ask you , over the debate of christine lagarde serving a second term at the imf -- is that a good thing to see madame lagarde go two terms? john: well, if you recall, three ended theircessors one term early. so certainly she has done a wonderful job at that position. if she wishes to stay, i am sure she would be welcome and it would be good for the -- tom: i thought of you literally during the press conference. i look at brazil as just one example. is brazil, china, what we see with a weaker brazilian currency -- when all else is said, is
this a fed that will be forced to delay into 2016? john: not necessarily, but you cannot rule it out. was quiteair yellen clear in her discussion at the press conference that, where international aspects have the importance, that their importance ultimately is engaged -- is gauged by their effect on the u.s. economy and u.s. markets. but considering that their choices are really governed by their assessment by the risk of waiting too long or the risk of going too early, that this international developments have increased the risks that they could be going to bank early. says chair yellen is subscribing to christine lagarde's theory of growth, that the new normal -- when you look at yesterday's move, was that subscribing to the new normal theory of growth, or was it listening to christine lagarde's
"please do not do this to the world now"? john: a little of both, but when we look at the traditional signs regarding inflation on the one hand and maximizing employment on the other, as tom said earlier, there are certainly unusual aspects of the u.s. economy that would tend to make one cautious. i put it this way. if you are going to be making such a big decision as an initial move in a direction -- in this case, tightening -- i would say as a central banker, do not move once if you do not see a clear path to the next move after that. but when you hear a lot of people saying they should move and sit there and wait to see, that did not sound like a convincing view for a central banker. brendan: we keep sitting around -- are the olds. models broken?
john: there is a question about whether the unemployment rate is providing as accurate a signal to the degree of slack in the labor market in the past -- you heard janet yellen talking about involuntary part-time workers, the participation rate remains rages --nemployment unemployment wages do not seem to be moving fast and diffusion rates are low -- certainly the employment sector is not giving all the signals you would think. tom: you own the phrase "macro potential -- macro prudential risk" -- would you suggest that the price would clear the challenges? if we see a commodity implosion, do you assume markets will clear and move on to a better good? john: that is a big question, tom. commodity prices and the size of commodity markets is really
smaller than most people seem to understand. on the other hand, they are giving a signal of caution about the outlook. that is only one part of the international worries. another part associated with a rise in u.s. interest rates and potentially a stronger dollar is the large amount of dollar denominated debt that has been issued by especially emerging-market countries. tom: we need a prediction on the stronger dollar. do we see a late 1990's dollar strength? john: i do not think that much, in part he does the u.s. economy is still moving in a steady way, not in a way that is unexpectedly strong, as was the case in the late 1990's. lipsky, thank you so much, the former managing director of the international monetary fund. vonnie: coming up, tom, back to the ballot box. greek holders -- greek voters head to the poles for the
the fed needs more convincing before they raise interest rates. woulde afraid that it keep interest rates for meeting targets. policymakers toast to a liftoff. the great recession has it been sufficiently far and domestic spending appears sufficiently robust that an argument can be made for a rise in interest rate at this time. onnie: jeffrey accor consented from the other policymakers. fighting on abortion in both chambers. the senate would take a bill that would outlaw all abortions after 20 weeks. the house has legislation that would end to government funding for planned parenthood. that could complicate budget talks and lead to a government
shutdown. donald trump they have explaining to do. he said president obama was not an american. -- we know our current president is a muslim. he is not even american. have training camps for when they want to kill us. that is my question, when do we get rid of them? mr. trump: we will be looking at different things. people are saying bad things are happening. we will look at that and other things. e: in a statement, trump said that a bigger issue is that obama is waging war against christians in this country. cut mr. trump some slack that he try to the nest the question, but there was
silence on senator mccain. trump, he finessed it nicely, then there was silence. asked trumpguardian for his birth certificate. theyan: a woman said that could not trust obama because he was an arab. mccain cut him off. he said he is a decent man and a family man, but they had disagreements with him on policy that is how you handle that question. trump finessed it and then there was silence. there was no response. it was silence. brendan: i do not think he finessed it. i think you let it sit there. vonnie: i think he enjoyed it as it was being asked. tom: the two-year yield.
from deutsche bank. here are the fed meetings. the gentle rise. the enthusiasm with the hope and prayer of normalization with a vengeance. we came back through the mean of that trend. brendan: what is fascinating is the up trending red line that says that the fed knew something, but the slope is very weak. very slow. tom: when we speak to dr. hooper, your senior colleague, .ith terrific experience this has been a deutsche bank all tourism about the american economy. is that challenged? >> yesterday did confirm that the u.s. economy is doing well. have had a lot of issues in greece and asia.
now we have issues in brazil. it is important developments. we did not believe they would put so much weight on it because it has not shown up in the u.s. economic data. brendan: the headline coming up. the ecb says inflation is returning to 2%. how? how? >> that will take some time. if you look at market pricing from the bloomberg market terminal, it shows the ecb is expected to hike in 2018, 3 years away. tom: the word of my childhood is school process -- s choolrosis. there are underlying issues holding down growth. then you have the business side with lower oil and lower euro.
the structural issues are weighing on the european economy. tom: in a moment. we will look at the data check. markets are on the move. futures -20. yields are in. 2.15 on the 10-year yield. i am brendan greeley with tom keene and vonnie quinn. greece with a snap election. no crisis so far. tom mckenzie joins us from athens. markets seem to like alexis tsipras, do voters? a very good question. voters have moved away with support from syriza enlarged euros. the popularity was in january when they had the first election, the golden boy of greek elections and politics. for thisis backing third bailout. his popularity as a politician
has slipped from 70% in march to 30% now. the right-wing opposition, the party that is now and that go with syriza, is ahead of alexis tsipras. alexis tsiprasr and syriza as we go toward sunday. tom: substantial headlines from the ecb. greece in the necessary programs. what is the new flavor of austerity in athens? the ecb comments are very important and substantial because we have a bank review by the ecb. it is meant to finish at the end of the year. we have a recapitalization of the bank that needs to happen. qe good flow, the only if the reforms are implemented. it is expected to contract by
the end of the year, employment is around 25%. there are reforms, but any coalition will be very painful for the greek people. brendan: the other political story of the day, and the political story of the year, is the refugee crisis in europe. we will bring in hans nichols in berlin who has been following this. a new route opened in croatia they are already feeling overwhelmed and shutting down their borders. does the european union's leadership have a handle on this at all? hans: they knew not -- they do not have a handle on the numbers. the numbers are out of date. they do not know how many will be arriving, and how to emigrate them in -- integrate them into society. the private bank in germany is 5.5 billion euros this year will be spent on housing alone, only on the german side of the equation.
brendan: where is the debate between eastern and western europe on who will take how many refugees? it is on hold. the european parliament passed a redistribution plan. that means nothing. it is a technicality until you have all of the heads of state agreeing. get asue is if you qualified majority, 55 percent of the member state populations, you could have something pass the eu. then you would have to jam it down the throats of the eastern european countries that opposed it, and that is a recipe for more dissolution, dissent, and distrust between the east and west. brendan: tom mackenzie in athens, the original route to dealing withrough the refugee flow in greece. how is greece handling this? tom mackenzie: the focus shifts
to eastern europe, serbia, ngary, butnd hu people are arriving here every day. in the last few days, they are flowing through athens. there is a sophisticated setup of travel agents, restaurants, cards.n giving out sim we have seen tougher lines being taken by croatia and serbia, will macedonia wallow suit? they do not have the funds to deal with this adequately. brendan: this is a complex story. thank you for helping us make sense of it. tom: stay with us. bloomberg "surveillance" worldwide. many good tests. .- guests gary stern is the former president of the minneapolis fed and is opinionated. he will give us a perspective on
i am tom keene. what a week and it has been. there is an equity market. can you believe it? shares of adobe are falling. the company's fourth-quarter 3%.s is down they did add more subscribers, but we are seeing the trend. tom: cloud is tough. interestinghas been to watch adobe go through the transition of selling software to encouraging people to rent it online. vonnie: it will be interesting to see what the forecast is. whether they improve as the quarter's move ahead. brendan: i understand why it makes sense for their bottom line. it is a good thing to rent. as a consumer, i'm not sold on what they are offering. tonie: another ramification
the drop in oil and natural gas prices. . 5% drop shareholders have authorized the board for a reverse stock split. newthis is listed on the york stock exchange with lowest level since august 19. down 89%. tom: $51.59. citigroup is trading at $5.17. they did the same start. the american coal industry has been the crushed accept -- the crushed asset. dollar shares of below a in july. not the same, but you know -- non-prosexplain to the , what is a reverse stock? a sevenplit is apple, 41 split and take apple from 700 to 100.
a reverse split goes the other way. i have a stock that is at two dollars a share and i do a 10 to one split and i wake up with a $20 stock. you feel better. vonnie: and you get to stay on the stock exchange. do you want to run a major international bank at a five dollar stock? vonnie: it will take 19 million shares.outstanding looking at deutsche bank, shares are trading lower. russian banking and security businesses with an alleged money-laundering probe. we know that deutsche bank has been trying anyway. brendan: that is an interesting story. is an dodgeory that
in us to the bigger problem. they're trying to figure out. what is the futures look like? what does the bank look like? is it a huge international bank? tom: do any western banks get money in moscow, get business done? brendan: a lot of german banks went into moscow hoping to make it a big market. tom: the twitter question brings us back to the fed, janet yellen. we need to hear from you. good morning. ♪
tom: good morning. i am gasping over the fed meeting yesterday. -- tom keene, brendan greeley, and vonnie quinn. support for the assad government in syria's civil war. they have sent tanks, artillery, and personnel to syria. in pakistan, the taliban launched an attack on an air force base. they killed at least 23 people. it is the deadliest taliban assault in pakistan since last year. pakistani forces killed 14 of the attackers.
in greece, the second national election in eight months. on sunday they will decide if they will stay with the syriza party and prime minister alexis tsipras. he is in a tight race with the conservative new democracy party that he had previously defeated. we are keeping an eye on the outcome of the greece election. chief international a ando must of deutsche bank, quote from janet yellen's presser. he was focused on what she said about china. you pulled one word i thought was interesting. she is looking at the way the chinese government handles the fall in equity prices, and saying that it lacks a certain ddpadpadisparity in policy. do you believe authorities in
china have things under control? that is the critical point in the u.s.. if you believe they have things under control, things should be fine. now they are opening up a door and saying that what if the ability to control things -- what if there are imbalances where we can get into trouble where the chinese economy will have a harder landing than the contingency expects. brendan: do they know how to play this game? >> they have played this for decades and have done well. there is an interpretation in the u.s. that what they are doing is a sign of desperation. that is not what is going on. they're trying to manage, and they are doing well. people are putting too much weight on the issue that this is a risk that must blow up. the question everyone should ask is, why now? why should it be happening now? what is so different that means
they cannot control their economy anymore? vonnie: what about the other commodity countries, australia, what does that mean for their country? >> it is not good news. there is a softer landing in the chinese economy. australia,ting canada, and brazil. those economies will see downward pressure on their economies -- on a currencies. is already in a recession. the risk is that this is hitting brazil, australia, and other commodity markets. growth, ahina emerging market growth, u.s. growth? exports toat u.s. emerging markets, that is 4% of u.s. gdp. from a tradeets channel are not important. more important are the confidence issues we are discussing.
those linkages, and the confidence in corporate america, are fast to come down because people are worried it could have a more profound impact. look at the employment reported and retail spending. .hings are fine in the u.s. there's no sign of a slowdown. she put weight on something potentially having a risk, but we have not seen it in the u.s. economic data. are talking about the finance linkages, should we look at her explanation? i'm worried about the feedback for cover for not wanting to throw emerging markets into a tantrum. >> that is important. outstanding debt in emerging markets is relatively high. emerging markets are broader oval to their depreciation in the dollar. they would like the exchange rate to go down to export more.
if they go down -- if it goes down quickly, you get inflation, and it is difficult to manage. vonnie: you made it clear it is not because of emerging markets are in trouble, that financial conditions were forcing the hike ? -- not forcing the hike? >> if you look at that at the model in the u.s. economy, it is slower by 0.1%. it is not the increasing rate that matters, it is everything else associated with it. they know when they push the green light and say we are ready to go, that signal could have turbulence in the financial markets. that is tightening in conditions we have seen. tom: looking at the drama yesterday, that we have alluded to in interviews, do you assume we will repeat this in december? >> the main thesis is that it was laid out nicely and few people -- we should have read this more carefully -- over the last six or seven years we have .een through repairs
the headwinds are fading. as those headwinds fade, we should see the economy doing better. tom: are we going to go through this thing this week? in december? >> the answer is the domestic economy will be fine. i've checked off that box. the question is how fast the head wind is coming from abroad. vonnie: has housing become a much smaller concern for the federal reserve? >> the housing market has normalized in different fronts. particular household information is more confident. a how are -- higher level. repeat goingust a day by day. there are headwinds that are fading that is lifting the growth rate of the economy. gdp growth has been 2.7 on average.
tom: we got a modest response to her twitter question? torsten slok should janet yellen be banker to the world? that weone answer chose. china looks after number one, so does europe and japan. why doesn't the u.s. do the same? tom: that is interesting. i take it back to the atlantic charter, we are the adult in the room. -- ng on, tom: chairman volcker, good morning. no. immense post german they'll your. answer, thathird
position is currently occupied -- he governor of the that shevery surprised put so much weight on certain issues. think about it from a broader perspective, but if domestic conditions continue say that -- continue to say that we should have hiked rates yesterday. tom: a number of good guests, abby joseph cohen. us, ihodes will join guess you will look for a fed increase. you agree, mike? mike: the question comes up this morning, what will it be? int will they tell us october and december that would lead people to believe a rate increase is coming.
we will talk to bill about what the market is telling us about that. it is interesting. tom: abby joseph cohen will join us. she has been a resilient bu ll, hasn't she michael? mike: they have not taken away the punch bowl. they have added more. it is party time, i would imagine. to finishll continue the week as strong as we can. global correspondent. when he was at tulane university he broke down his senior project. a global macro correspondent. brendan greeley -- brendan: i have to say, that the professor who taught me my grow
"surveillance." it is 8:00. janet yellen and her colleagues go beyond dovish. the reason behind their decision, and what it means. i michael mckee, along with tom keene. we have a market check. if the fed is worried about global growth, so are we. starting in asia, the nikkei 362 points. in europe, the stoxx 600 is awful by 1.8%. six points on the day. in germany, down 2.8%, 290 points. that pressure transfers to the s&p. that is a 1% drop for the dow and amenities, 100 73. the nasdaq is