tv Bloomberg Surveillance Bloomberg November 4, 2015 5:00am-7:01am EST
i am jonathan ferro joining you and london with tom keene london. so much news. what takes your fancy? up we go, we will re -liquefy. navigate that, and at the same time is tweaking communication. we will discuss that. let's get to vonnie quinn with bloomberg first news. ta recall of defective airbags is more costly than the multimillion fine. they will no longer use takata airbags. that was their biggest customer. honda says that they misrepresented and manipulated test results. they say that they'll use a more inflatedemical to
its airbags. the other airbags caused eight deaths. say that the fine could be a record. the russian jet apparently had no warnings of trouble before it crashed in the egyptian desert. includees black boxes no discussion of mechanical or system problems. all 224 people on board were killed when the airbus crashed. most were russians returning home from vacation's in egypt. bodies were burned. most of them will be identifiable. news of a diplomatic salt between china and taiwan is pushing shares higher on the island stock exchange. they get a six-month peak. taiwan had a high level, the highest since july. investors are encouraged by the
historic meeting between the leaders of china and taiwan. it is the first such meeting since the civil war seven decades ago, a milestone with a political twist. the taiwanese president has been relationsr better with china. the changing of the guard in canada. justin to go will be sworn in as the nation's 20 third prime minister, leading the liberal party into power and ending a decade of role by stephen harper and the conservatives. he is the second youngest leader ever. a quick data check. markets on the move. you hire. you can see it. where moments away from a 3% yield in the 30 year futures, they are up nicely. futures are up nicely this morning, of 2. the vix, 14.54. we will talk about this in the next hour.
let's go over to the bloomberg terminal. the 30-year yield, back to paul volcker and the idea that we go down. is 2008, we are on trend, if a little elevated. we have ages to go to a reflation. they say it is the shorter end of the can of that reacts to the federal reserve. tom: this was the benchmark, then we went to the 10-year yield. from volcker to now, the 30-year. you wonder what that does two assumptions you will see with institutional wall street. jon ferro, 4% will become what 6% or 8% was a decade ago. top i want to get to the story this morning, the biggest ipo of 2015, japan delivered a its tokyo debuts.
brian, this is not the royal mail. it is different. the post-ipo pop for the japanese government was critical, wasn't it? it is a big deal. it will kindle a lot of risk appetite. most of the deals when two individuals that they never invested in before. now the bank is hiring people to help it diversified. a $1.7 trillion portfolio of assets. jon: a fascinating company. it cannot lend to households. are the regional banks nervous about what a privatized to pen post looks like and what it means for the banking system in japan? brian: good question. first, i would point out the domestic lending market in japan is not a great place for making money. most of the big banks doing well are benefiting from their acquisitions in recent
years. having said that, the regional banks of share prices, they were mostly down. the bank of yokohama. i think most investors were spooked about the impact it could have on them. jon: let's continue the conversation. nobelg us is the prize-winning professor christopher p cerritos. pissarides.er sir pissarides: the post office was something much more. raelonged to the earlier e of japan. it employed millions of people. it was more like a social institution.
the previous prime minister tried to privatize it and failed because of opposition within his own party. it is a big thing. it will not only bring a kind of -- oria to asset holding been 10 years in the making, that speaks to the slow recovery in japan. for investors watching, it could be critical. $1.7 trillion in assets. we could see a shift for a more aggressive asset allocation? sir pissarides: exactly, where's the money coming from? most from small investors. there must be having their money somewhere. eventually, you take your money out of the banks, they have to cash in big assets. might see big financial transactions and restructuring taking place.
tom: professor, good morning. we welcome you to bloomberg surveillance. it is an academic question, but it is upfront and important. interestt with higher rates in the bank of england and the fed, can we exit with stability within the central banking and stability in the markets? do you have a confidence of our institutions can keep order as they raise rates? prof. pissarides: i think so, yes. it has been a long time since the rates were raised, but they are mature institutions, they know how to handle it. it is important that we have been expecting it for a long time. i do not think it will be a big change, it would be gradual, small changes. at least now, they realize that when the change takes place, it will not reverse. we have been waiting long enough. the economy is ready for it.
i'm not convinced the change would happen. the answer to your question, if financial institutions are ready to take it, i think absolutely, yes. tom: i love that we have a nobel laureate doing market economics. absolutely. amanda know something about the labor market, as well. we can discuss that in a little while. up, an important conversation. in israel, we will speak to elliott. a timely interview in an industry in massive transition. with yields higher, the 30 year bond, 2.99%, bloomberg "surveillance." ♪
tom: and the bank of england tomorrow, a rates higher regime. get your attention. she has been away forever, she is back with our business flash. here is vonnie quinn. sonie: shares of volkswagen more. faulty pollution ratings were found in gasoline powered cars, a first. so far the problem has been limited to diesel engines. vw says the new findings of fact 800 thousand cars. software tricks admission tests. did becomemiller bearish on stocks, the reason is monetary policy between the u.s. and europe that started in may, 2014. the billionaire investor, as one of the best track records over the last three decades. his duquesne capital management
had an annual return of 30% through 2010 from 1986. accidentally, confusion began when the bbc posted comments from its governor saying that a link -- prof. pissarides: a really fascinating thing about that. i spoke to richard frost of bloomberg. we have to send them a fax, the pboc. they replied with a text to clarify. if you didn't know before, it is
not the federal reserve. the pboc is another -- tom: it is bizarre. you have a good morning must-read? jon: it is the financial times and is critical. he writes america's labor market is not working. the relentless decline in prime age u.s. adults in the labor market indicates a significant dysfunction that deserves attention, analysis, and action. luckily i have professor christopher pissarides. i can ask him. the participation rate, long-term unemployed, is it cyclical? has. pissarides: the debate shifted in america. it is the first time we are seeing this in the united states. we saw it in europe starting in the 1980's. through hard work and government departments, we know how to deal with the problem in europe.
went past americans. they thought it was a european problem, they don't have to think about it, and they didn't. they are now facing the same problem. you ask if it is cyclical or structural. it starts cyclical and then become structural. that is what is difficult about dealing with it. aey are thinking, am i facing cyclical problem? a structural problem? it is both. jon: does the federal reserve have a role in addressing this problem? prof. pissarides: i would say no. now the problem is structural. the government department has their own -- it is something like the problem of unemployment or acting employment, active labor market policies that would target the long-term unemployed, retrain and give training programs -- give them tutoring
about reentering the labor market. professor, on we look at the american economy, and he goes to the united kingdom as well, should we aggregate and look at it as one economy or do we need to look at a bimodal system of haves and have-nots, something that has the attention of alan krueger at princeton? should we go more aggregated or should we start partitioning our economic experience? prof. pissarides: when you are looking at the federal bank of england's monetary policy you have to look at the aggregate because it affects the entire economy, it does not discriminate. you should always, at the same time, follow targeted economies the most affected by the recessional structural problem that we have. a bit of be doing
each. now we have techniques, we have to deal with that. is not that difficult of a problem. martin'sd not read column. vonnie quinn did, she is here with a question. vonnie: something you would consider a positive turns out to a negative.e is the fact the u.s. has labor market flexibility means younger workers and workers past 65 are getting jobs more so in the middle section. how would you fix that? labor market flexibility is something european economies are striving for. prof. pissarides: matt is a very interesting issue that martin wolf has raised. particularly. the way to deal with it is not to try to have that labor market so this does not happen, but trying to make prime age
workers, men and women, more competitive than they are now. so far, especially in regulated markets, trade unions always put more influence on prime age workers. that gives them an advantage, a competitive advantage -- not a competitive advantage, but for the structural labor market and being favored by unions. that is not right. it is not a good thing for the operation of labor markets. having more flexibility and letting people compete on a level playing field is much better. what they need to do in the states is to bring back the prime age workers into the market. providing them with training .rograms with the whole group of active
om: bloomberg "surveillance." the bank of england tomorrow is a busy time for economics, finance, and investment. i'm waiting for the sun to come out for the first time this november in london. jon ferro is cloudy in london. jon: it is also cloudy for vw. only about diesel engines, it is about gasoline powered engines as well. hans nichols joins us. implications, the the deepening scandal, how significant is the new news? hans: volkswagen estimates this will cost 2 billion euros. they discovered irregularities in carbon dioxide emissions on 800,000 vehicles. a small number, only the 1.4 liter engines, are
petro/gasoline powered engines, the rest are diesel engines. the rest have a problem with emissions.oxide this is a significant stockade, we have seen that take a pounding. we have seen volkswagen trying to get to the bottom of the scandal. to what he had to say. this is the new ceo from porsche . from the beginning, i set out to set out that we mercilessly clear up the situation. it is a painful process, but there is no alternative. the scary thing for volkswagen's they don't know where the end of the scandal is, but they are trying to get to the bottom of it. is scary for investors as well. they are asking, how deep is this whole? also, what is the reputation question are quilted impacts
sales? do we see it in the numbers? hans: we saw their sales stay flat in the u.s. they were up 0.24%. the rest had a banner month. best month the in the last two years. they're staying flat in the states. audi was up by multiple digits. we see huge jumps by general motors, so they are losing market share. the market prices and stock erosion. who else is involved? in your reporting and studying, is this singularly discrete to vw? how you depends on define the scandal? is it that advertised omissions are not the same as road test emissions, then everyone that produces a diesel engine could be affected. if it is simply installing software to trick regulators, it is contained to volkswagen,
their suppliers, and whoever helped them build the software. it could affect the entire european auto industry. japan made a bet on hybrid vehicles, europe went toward diesel, it looks like that was the wrong that. it could affect all of these oh industries. tom: hans nichols nailed this about an extension of the crisis , beyond diesel old. i think hans was on top of this two weeks ago. jon: no and to this. it also implicates portion now, that is the company unit that the ceo came from. tom: discussion on a recession or no recession. ♪
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for china and taiwan is producing financial dividends. their exchange closed at the highest level since late july. mainland china investors hit a six month peak. investors are encouraged by the meeting between the presidents of china and taiwan. they will sit down on saturday in singapore. it is the first such meeting since the civil war seven decades ago. a milestone with political ramifications. the president of taiwan has been pushing to restore relations with china. he has an election two months from now. ta has nowup -- taka lost its biggest customer. i'll do no longer use their airbags. it is a surprising reversal. under owns a small stake in the company. manipulatedt takata and misrepresented test results.
they will now use a more stable chemical to inflate airbags. u.s. regulators say the exploding airbags caused eight apps and 98 injuries. the fines in the u.s. could reach millions of dollars, a record. tesla motors investors are still excited despite a third-quarter loss. they are writing off expenses and research costs. the tesla ceo is dismissing negative reports, saying that the new system cause some drivers to go off the road. he says that some driving cars are still the way of the future. economy,hat have full any cars that will be made to do not have full of taunting me -- full autonomy will have negative value, it will be like owning a horse. you own one only for sentimental reasons. they're on track for the
model three in late march. this is an important interview. it will be 50 years next year where the world is changed in 1960 six. they did the unthinkable. generic penicillin. from then on, it has been generic. corey outbert of the university of pennsylvania. elliott? elliott: it is great to have you with us. one reason for that, that would encourage investors, you hold 12% of the stock. hear, will that be enough? >> i'm confident we will get over 50%. that i thinkg
about where we are today is that the value has not been disputed. what we are paying for the company, and a substantial accretion, 80% plus. it is not something that i believe investors are going to pass up. in terms of premium, the closing price last night, a 14% , is worth 200 dollars a share of the last 12 months. why should they just sit tight? >> i believe the word premium is fictitious. tradeprices do not differently daily, they trade differently by the second. premiums are moving around by the second. i think what we need to look at is multiples for the company, and 19 or 20 times multiple is
huge in this industry. that is undisputed. if you really want to look at premium, and you really want to talk -- talk about premium, you need to talk about what the potential hypothetical unaffected stock -- telling me repeatedly that this is a bad deal for shareholders, and criticizing your corporate government. why is he wrong? >> if it is such a bad deal, he had six months. i won't say anything bad about joe. he is. had six months to demonstrate what a bad deal this is. is he says the way to do a bad deal is to do a better deal, that is what he told
shareholders. if you really did look at other deals that were bad deals, they had to be worse than mine, therefore my bad deal may not be so bad. in terms of corporate governments, i've offered for him to come to the table. i am wide open. in my release yesterday, we made it crystal clear that upon completion this combined company will have a different profile. this warrants an ongoing dynamic dialog of what is appropriate for the government and country. mainly makesigo over-the-counter medicine, given the overlap how do you propose to get long-term synergies that justify the deal? synergies we said the would come from both sides. it is what makes this so attractive, the fact that perrigo does not do the same thing as mylan. one of my big issues was the
lack of industrial logic. that more of the same was not going to bring value. i understand the financial having a strategy, god blessed them, maybe gives them a two-year extension, which is not my strategy. this is not more of the same. this is a highly complimentary very strong assets coming together to do more for the customer than what we are doing separately. elliott: if mylan fails to win perrigo, what is plan b? on coury: we are not reliant external activity. our balance sheet so billions of dollars in free cash flow, a record in her last earnings call. our balance sheet is so well positioned that i think that we have options all over the place. the greatest value of mylan is the internal organic
capabilities we have incubated over the years. if you look at epipen him and the opportunities, and the fact that we will have the first generic application by the end of the year -- if you look at the bridge and other catalysts that will be launched, we are not relying our growth solely on the m&a. that is all additives. elliott: drug prices is a hot issue in the presidential campaign. are you concerned you may have to reduce your drug prices? i think that will only happen on the brand side. anything that happens on the genericde is on the side. i see that as an opportunity. i think the government should get more involved. i think they need to spend more time understanding the food chain and not do it piecemeal. every time they go after something in a piecemeal way, they are patching a problem and not resolving it. i hope they take this
opportunity to dig deep and understand our system. elliott: we appreciate you taking time out of your busy schedule. i will no hand it back to tom in new york. tom: coming up on bloomberg television and bloomberg radio, roger altman on bloomberg "go." he will grace our presence on "surveillance." and economic finance investment and the lack of metal -- of middle relief of the boston red sox. that is later. ♪
jon ferro in london. jon: thank you. nobel prize-winning economist and london school of economics professor christopher pissarides is next to me. a busy day in the bank of england tomorrow. people compare the u.s. labor market with the u.k. labor market, the headline numbers on most the same, the dynamics are different. we have wage growth in the u.k., that is significant. the microarides: economy has been different, as well. we have wage growth, the united states does not. we do not have the problem of falling participation in the premarket. in the united states they have. we don't have price inflation. there are subtle differences looking at those differences. professor, the federal reserve, i economist and at theors look
rise. at the same time i speak to economists who say the way you speak in the u.k. labor market is stronger than the american one. why are we not talking about a boe rate hike at the end of the year? prof. pissarides: they watch inflation, there is no inflation. you are waiting. there is an issue, they are waiting for unemployment to be at the natural rate, the rate that is noninflationary with no inflationary push. that will be a big issue. that will be an issue that we discuss tomorrow. it does not mean that before the next meeting you will see the price rising. that for me would be on to wage costs in the markets with prices reflecting wage costs. i do not think they should be doing anything before they actually see that. you never know when that will happen.
if it is premature and the fed does not do it then, it will bring us back. tom: your colleague in crime was with us the other day. he emphasized a distrust or hubris about the new economic models. to the new economic models that mark carney and janet yellen ascribed to work at the zero bound? prof. pissarides: they do not. he is right on that issue. then, we know what is the alternative. theas alternative, but management of expectations as to where you are going and what you're doing. although the traditional models were high cannot be applied with an interest rate is zero, there are other models we can use. there should be one model that
would fit all, i wish we were in that kind of nirvana state, but we are not. otherwise we might as well retire. tom: with inflation, if you are teaching this lsc and dealing equations, where is wage inflation, and when do i care? the reasonrides: that you would care is that often prices are fixed on what we call a cost-plus basis, in that employers produce their costs, then they know what they want with prices and they add that on to their cost, and that is the price at which they sell their products. if they did that every time, prices would reflect what was happening to wages. they are not doing that now, and have not done it in the past.
concerned we are about wage raises, and across the board from what i know, is that demand will increase. when you have more money in your pay consumer spending should be going up. when consumer spending goes up and push prices up as well. tom: jon ferro, that was fabulous, on the edge of olivia borchard. i was in the classroom at m.i.t.. continue. .on: i think it is fascinating you bring up the economic models and ammunition of central banks, are we not at a point where we have to deal with the reality that central banks are good at hinting with inflation targets when they have to deal with it from above. when we are at the zero lower bound and inflation is low, they struggle to deal don't they? they have to deal with that reality, haven't they? prof. pissarides: they don't
seem very confidence. they want to wait. they are saying 2017 you will hear about targets, the bank of japan and the bank of england are saying that. they're saying, don't worry, we will get there eventually. they should be more aggressive with qe, putting more money into circulation -- it is not going to harm the economy. it is going to make people feel better, although they may not actually be better off. it is good for the economy that they are doing it. the bank of japan should be doing more -- jon: professor, i would love to come back, but we have run out of time. you will stay with us. coming up, the former white house budget director under president reagan will join us in
i'm jonathan ferro along with tom keene in new york. good morning from london. here is vonnie quinn. pharmaceuticals said last week they are severing ties from philidor. the drug manufacturer was learned weeks ago that they planned to expand their use of the mail order pharmacy to move beyond her mythology to other medications. those plans were torpedoed in the questions of philidor's business practices. reporting a 14% rise in the third-quarter profits for int for improved margins and provisions for bad loans. they rose $1.2 billion from one point billion dollars. to transform ing from a global financial form to a -- another week for a formal takeover offer for sabmiller. their close to the biggest
merger in the beer industry. a close for the nearest competitor has been extended here and they have made "good progress toward an agreement." tom: very good. markets on the move. we have the bank of england and day. it is time to talk to somebody. jeff, we are starting to see interest rates move. euro/sterling as one proxy for markets on the move. what we break through into new territory? eoffrey: i think the bank of england will be very nervous. this is going to start to mess around with their inflation and expected targets. they would not want to break through. this is a dangerous level for the boe. tom: is the boe under pressure to follow the central banker of the world? is mark carney need to get out
front of chair yellen? ey: he would say that he is independent, but i do not think he wants to get out front. we were expecting the bank of england to push back against the excessive dovishness tilt into the market. too strong of an exchange rate will throw everything into the open. i have to be very careful on how they talk about the currency. tom: jon ferro, what were you listen for from carney? a presso it in conference, a letter to the queen? what is it? jon: it is a press conference. what is critical yet difficult, verging on impossible, how does the bank of england navigate euro sterling and a two-month low and bring in the markets to get rid of the excessive dovishness? is that impossible? geoffrey: the swedes
acknowledged everything was going well, but they would need to match the ecb one-for-one. they can say things are improving in the u.k., but if euro sterling breaks through in a way that would affect the inflation target they would have to react. they would need to commit to maintaining the current balance. jon: wage growth is higher. it is increasing. the unemployment rate is lower. if they spent too much time looking at oil prices, is there a risk the boe will fall behind the curve? : the boe would argue that market is behind the curve. one reason that is so though is because markets expect the boe to wait at to a year after the fed moves, that sounds ridiculous. that is where the narrowing needs to happen. how can you trigger that? is where the deflation comes from, a balancing act. tom: before you go, what is the
trade that you would stress as we go from the bank of england and into american jobs? y: long sterling and short swiss francs. that is a nice proxy for sterling doing well. if you're looking for a payrolls number, long dollar sweden is a good trade to look at. tom: thank you so much. with the union bank of switzerland. i love the immediacy. the immediacy of where we are in thursday and friday is very cool. jon: it is cool and very fascinating. we have talked about to virgins, with the federal reserve and everyone else, and the bank of england and the federal reserve. what they think will and will not happen. look at the market positioning for the u.k., it is way out here. a year down the line. how does a policy maker deal with that? prof. pissarides: what is difficult in the u.k. is that
the expectations, the markets seem to have about the u.k., are not currently what the market wants to have. how do you manage that? should looknk they at the exchange rate very much, it is easy to make mistakes, confuse markets, and get into a situation -- jon: there's the fx channel and the importance of it diminishing? is that something we should think about? prof. pissarides: it is not diminishing from the economy, but what they have realized is that it is not the rates that they can manipulate and manage how they want, letting the market go to where it wants, and then they can affect expectations in the longer-term term. that is what they are trying to do. less important in policy decisions, because it is easier
to know what to do, but not less important in the economy. it is a more important in the economy because trade is important in the international contracts. jon: what a pleasure to have you with us. think you. tom keene, what an hour. coming up, we will hear from komal sri-kumar, the founder of sri-kumar global strategies at 6:00 a.m. in new york. "surveillance" continues. good morning. ♪
16. marconi and the bank of england get out front tomorrow -- mark carney and the bank of england get out front tomorrow. japan privatize its post office. .hares surge it is japan's biggest transaction in 28 years. and the rockstar's exit. valid see i got -- vonnie quinn did not think i could pronounce it. it is a luxurious wednesday, november 4. i am tom keene. jon ferro is in london as well. what a busy fed day. fisher isdley, speaking today. for will mark carney listen from the hat trick of fit speakers? jon: does he take a play from the federal reserve playbook? that is all that matters going into tomorrow. the non-decision we all
expected, they did not get it. 2016, 20 17 on the table for the bank of england. do they need to bring that back in? how do they do it? bank adaptingtral to the central bank or of the world, including mark carney. rates are flat. that is out across the bloomberg terminal. there is vonnie quinn with other news. vonnie: it was an off year election day for the u.s., and raises are still hard-fought. two republicans, one an incumbent and other other a newcomer. defeated jack conway. have controlled state government. in mississippi, incumbent phil to twocruised to victory challengers who ran no budget campaign. the mississippi voters sided
with gop leaders who proposed judicial oversight of spending. in ohio, voters decided not to legalize marijuana. neither for medical nor recreational use. a valid question was asked -- farms shoulduana be concentrated in the hands of a few wealthy investors. marijuana only legalization question on this year's statewide ballot. another defeat following eliminations for sergeant city. demonization of the city's lgbt community. andcity mayor, who is gay champions the ordinance, said the fight is not over. with one year and four days to the presidential election, polls
show it is a dead heat. republican and democratic front runners are in a virtual tie, a hypothetical match between ben carson and hillary clinton puts each at 47%. the survey shows clinton would beat any of the other republican candidates, giving her an edge of a percentage points over donald trump, indicating he would also lose to bernie sanders. those are the top headlines. tom: let's get to a data check. futures up two points in the bloomberg terminal. of 3%. we are not quite there yet. 2.99%. there is an elevated risk on feel. bond,look at the 30-year two-year yield. dips down that we have seen in times of crisis -- bonnie, we , wea little ash -- vonnie
are a little elevated. sri-kumar no doubt saying that we are -- we are looking at the biggest ipo since the first "star wars" movie. what is the backstory of what money will do because of the privatization of their public post office system? where will the big-money go? brian: this is a huge question, tom, and what we are looking at is two angles on that. went 80% to, this individuals. many of whom that never -- many of whom had never invested before. account openings last month was double the normal pace as people flocked to this deal. right now 1% of the assets are invested in stocks.
brian fowler, it is jonathan here in london. abe andmportant that the government left some money on the table to encourage investors. we know brokerage accounts have been opened to tap into this. how much will it change the culture in japan and how long will it take? can say think we through tomorrow people will be feeling pretty rich and bullish after today's gains third further out, we will have to see what a few rounds of earnings look like. none of these companies is particularly efficient or even that profitable. post banks are early is 3%. we will have to see what these companies can do now that they answer to shareholders for the first time, and incentive to reform, restructure. we want to see what they can
deliver for the long-term picture. you soian fowler, thank much, from tokyo on this historic day for the japanese people. we have a surprise later in this hour as we look at the luxury goods market. we have camille sri-kumar, who has given us huge value. gdpill get the nominal later. right now you talk about the compelling force holding up this market. is all the good we are seeing in the market simply the babel, the jargon, the blah blah blah of central bankers? >> i think central bankers cannot pull back now from what they have done. there is no exit exit -- there is no easy exit. you can see that with mark carney and the bank delaying the rate hike. tom: what is different from six or eight or 10 weeks ago? sri-kumar: the question
is, tom, how do you eventually, thee in 2017, is out of easing and get back to a tougher monetary policy? tom: jon ferro, he said 2017, to be clear. jon: when you look at a balance sheet of the federal of around $4 trillion, should the exit not be the rates -- should the exit not be the strategy? >> i think they should be talking in terms of reducing the balance sheet, but you can see since quantitative easing stopped, they have not reduced the balance sheet at all. it has gained at $4.5 trillion since qe ended one year ago. just as it is not possible to end and reduce the balance
sheet, i do not think it will be possible to increase interest rates either. said inon is, as you your conversation with professor haverides, you cannot monetary policy help you in the situation. but you can help in reducing inflation. tom: i like the idea of going back to the late 1930's. i would suggest mark carney wants to get out front and be independent. it is a win-win gain for him to act tomorrow versus waiting for january whatever. vonnie: and what is to stop a central bank exiting because other central banks are not. they're worried about their own domestic economy, their own domestic monetary policy. : if the u.s. were to get off at the fed were to hike interest rates in december, at the time at which mario draghi says he will increase qe,
japan is going to into a technical recession and probably sooner or later will have to increase qe. if that happens and the chinese continued to cut interest rates -- they have cut rates six times since last november -- even that situation that prevents the fed from being independent, the united states is no longer an island. it used to be until 20 years ago. jon: let's just take it a step further. let's take the exit strategy and how impossible that may or may not be. let's take limitations. you get to the point where you get to the bank of japan and the balance sheets it has. we are at the point where we had think about limitations of what these central banks can do. three kumar: there is a limitation, you're absolutely right. the balance sheet of the bank of japan is a portion of gdp -- the balance sheet of the bank of japan as a portion of gdp is twice as large as that of the united states.
the question is, how do you exit? it is more like a drug addiction where you know it is very high but you cannot risk drawing yourself -- what you cannot withdraw yourself. -- but you cannot withdraw yourself. will be with us next week from oecd. if we are codependent, how can we'reeak -- dr. komar, codependent here at "bloomberg surveillance." omal: i would try to give you my prescription. the only way you get out of drug addiction is, one, you are willing to wean yourself by taking the adverse impact it is going to cost. so the fed then should have raised interest rates two years
ago, and it would have caused a market correction. that is the only way to get out of the situation. if the fed raises interest rates at some point in time, the dollar will go from 1.09 to the euro today to past it. and then you are going to put the u.s. economy in a recession. that is how we get out of it. tom: we are going to come back with sri-kumar. jon ferro, i need to explain to you dr. phil over a martini on my next trip to london. it is an american thing. it is a we-are-all-going to die. i see the last when i was over there and i did not get it. jon: i do apologize for that.
two years as chief executive. vw says the new findings affect 800,000 cars. software on the cars tricks the emissions test to comply with air-quality rules. and china's central-bank -- the confusion begin when the pboc set a link between exchanges between shenzhen and hong kong would begin in 2015. the problem is that the remarks were made five months ago. the central bank clarified the comments but not before a surge and a 3.1% gain in the hang seng index. that is a bloomberg business flash. tom: our single best chart. we just made this for's reach kumar -- for sri-kumar.
our nominal gdp plus inflation, the redline is a 10-year moving average, so basically we smoothed out the noise. the yellow circle is when you felt good. it goes to a narrow where you are miserable, and the bottom line is stunning. from the yellow circle to the decline in39% smoothed nominal gdp. i did not believe that when i made the chart. let me say it again. nominal gdp smoothed out is down about a third since before the financial crisis. i did this chart just for you. this is the heart of the matter. umar: this is a great chart. the reason it is is because nominal gdp -- tom: we did not apologize for it. sri-kumar: when you see that, typically the relationship
during normal times, it has failed since 2008, 2009. of: within the two parts nominal gdp, the real economy and the inflation, which should we focus on? >> on the inflation side from money growth. that is where the relationship has fallen apart. even though money growth is not assured by what we call high-powered money. or the balance sheet. tom: it sounds like a larry kudlow interview. keep going. you do not see that in inflation. that is where we are in a new world. vonnie: so that chart expends why federal reserve policy has maybe come to an end that is useful, because it will not make much of a difference anyway. sri-kumar: you are absolutely right. i would have said that three years ago, that the fed policy should have come to an end. but the emergency policy has
stayed on now for seven years. no interest rate hike for almost 10 years. the problem is, yes, they should have exited, but it is so painful to exit. tom: your critics will say it is going to come, we are going to get real wage inflation and we will have to move our rates up. we will get in inflation base effect and all of that. but it does not ask -- but it does not speak to the real economy, the part of nominal gdp that is real economic growth each productivity to get going. do you see that coming? sri-kumar: the improvement is just not happening. it probably have his productivity lagging, and productivity cannot be boosted by monetary growth. it has to come from structural reforms. more people being employed. i like to point to what germany did in 2003 to bring more employment about. it was not money supply. tom: it was real economy effect.
jon ferro, jump in here. for those of you in england, this is the money economy we are talking about. i have no idea why in jon ferro's textbooks it says money gdp or money economy nominal. what is that about? jon: that is a debate for the number -- that is a debate for another day. i have heard people talking about structural reasons for it. it is not cyclical, it is structural. as we go into the december fed admitg, does janet yellin and recognize that the softness, the fragility, if there is any, is structural and they cannot do anything about it? sri-kumar: they are not going to admit it. if they were to say that it is structural and the federal reserve is not able to work because of the problem being structural, that means they should not be continuing the current set of policies, as vonnie just mentioned.
the problem is the federal reserve is also a bureaucracy. they will not be able to admit that they were ineffective, that they should not continue the policies. they have several times mentioned that fiscal policy is necessary. that is one of the best single best chart we have ever done. we should do that again tomorrow. let's do another arrow and a circle again tomorrow. coming up on "bloomberg ," david stockman will be with "bloomberg ," formerly with the reagan administration. stay with us. futures up three. this is "bloomberg surveillance ." ♪
tom: good morning, everyone. a lot of fun on "bloomberg surveillance." komal sri-kumar with us as well. we are going to do luxury as well. right now a morning must-read with vonnie quinn. what do we have? it is basically the idea that china's growth might be much worse than we thought, not a new view, but it puts some spin on it. they have a growth scenario that is far more pessimistic than official or private numbers would have us believe. time will tell, but i would not bet on a quick bounce of chinese growth, at least not a real one. isthis case, noah smith blaming banks and that revenue is not coming in. how bad is china growth?
the growth target was to 6.5 percent officially. but having been to china twice this year, i think the various sectors are running more about 5% or less. vonnie: even that may be optimistic, at least according to this editorial and others. sri-kumar: it would be, and this is the problem. withave a lot of loans major construction to the property sector. the money that is lent, the money that is spent increased gdp five years ago, but it has not taken off gdp when the building is unoccupied. how much will it affect u.s. growth? sri-kumar: quite a bit. it will affect global growth substantially. china has contributed to 30 to .0% of global growth
christine lagarde, the next time she comes out with a global growth forecast, will have to lower it quite significantly. lagarde'sconds -- is new mediocre still here? sri-kumar: i think she is right on. tom: komal sri-kumar pushing against the optimist this morning. is a fabulous treat. we are thrilled to bring you in our next half hour robert burke of robert burke associates. and vanessa friedman will join us from "the new york times," with a spectacular article she did over the weekend. we will do that next. ♪
the top job in 31 states after a decisive it -- after a decisive election result. kentucky has elected the first republican governor in four decades. republicans have dominated federal elections in the bluegrass states, but democrats have controlled -- the state's voters rejected a plan to bolster a public school's funding. this as voters sided with gop leaders to oppose oversight of spending decisions. ohio voters soundly defeated a pair of questions on the legalization of marijuana. one measure would have put control america one of farms in the hands of a few wealthy investors. even some backers of legalizing pot opposed that plan because it
created a monopoly. a measure that would have established nondiscrimination protections for gay and lesbian people in houston was soundly rejected. pits religious groups against the lgbt community. but houston's mayor, who is gay, told -- said that the fight is not over. the latest run -- the latest poll shows that the current front runners are in a dead heat. a hypothetical match between ben carson and hillary clinton put each at 47%. any ofinton would defeat the other republican candidates, according to the poll, with an edge of eight percentage points over donald trump. that indicates he would also lose to bernie sanders. tom: this is a fabulous treat for us. we welcome you on the aspiration of what you do with your money. giving us the assistance over many years is robert burke of
robert burke associates. they had a small shop called bergdorf goodman years ago. and joining me from "the new york times," vanessa friedman joins us as well. the catalyst for this was your important article this weekend that everybody in fashion red worldwide that says the rules had changed. dior,t do your -- at gucci, and on it goes. why is the securing yak up vanessa: as fashion has become an industry, as it has corporatized over the last 20 years, but especially over the last 10, the attitude and relationship between the corporate owner and the creative side of business has changed. some would say it has become much more professionalized. but along with becoming professionalized, you get a change in emotion. the big guys -- robert
burke, you also have the stores getting ready for their most important weeks of the year. the stores need those designers, don't they yak out robert: yes, they do. when there are seismic changes like designers leaving in short periods of time, with three year and five year contracts, it is difficult for retailers and the consumer. vonnie: how much of this is the fault of private equity, as opposed to professional ownership? robert: there are some brands owned by private equity, but some -- i think it is really about more the demands of fashion today. the cycle is so fast, and gone are the days of oscar dealer renter going to sachs. -- going to saks. tom: so it has changed all the rules of the upscale world.
this need and the way that people have been trained to think they need more and more stuff and new stuff and the reason to go into stores to buy new stuff. so instead of four seasons, we have four official ones, pre-spring, prefall, and christmas, and a new store collection. the woman's section, the , and you are setting an international standard. what are you looking for into the christmas holiday season? at the moment i am looking at the roiling of the fashion industry and how the brands are handling that. tom: is there too much stuff in robert burke's world? i think most people would say they have too much stuff. vonnie: the question is -- it is
a question that has been raised by some designers that have been leading the big houses -- do you need a thread from the 1960's to , or is it ok to have different designers take over the brand and have a change? understandu have to what a brand stands for and what the promise of the product is, which is essentially some kind of transformation. i waved my fairy wand and you something better and more powerful. that comes from a consistent identity over time. of "thee us an update devil wears product." there is that one moment in the movie where meryl streep sits down anne hathaway and says shut up and listen to me. when you go in the casual corner, it comes from vanessa friedman and your world. has that link been broken?
vanessa: actually, he is meryl. meaning ishink that not as clear as it once was. whether it is a runway or is coming from the street or fast fashion, it comes quickly. nevertheless, there is still this pecking order of luxury down, and i believe that still applies very strongly. and luxury is an exclusive business, and it is an aspirational business. so as fashion. creativity comes from the seamstresses who are able to make clothing. physically, machines really cannot make it. so you get garments, a bag, a shoe -- it does not look like anything else, which can be derived in different ways from casual corner. tom: what i find fascinating is that the machines from louis vuitton or chanel -- where is
the next one? where is the next mega brand that somehow has seamstresses to make all this stuff? vanessa: if we had that answer, we would have a lot of money. we started with tom ford leaving gucci back in 2003, and then we had changes constantly at brands. is it just the pressures now of coming up with new collections? will this always be the case? elba is the latest. he had been there for 14 years? that was the first time we had seen someone with a long tenure leave. designers have stayed for long enough to create points of view that are salable, but there is much more churn these
days than when there was a real belief that one designer stayed or left. robert: your comment is really telling that you feel as a consumer they are constantly changing every three years, and that is really the risk. that perception is a scary reality for the consumer. brandet me talk about a that appears to be off the game. --pra -- prada has gotten boring. what did i miss? everybody is changing the guards and changing the designers, and prada does not seem to be where it was five years ago. one of the hardest things to do for any company is to withstand the ebb part of the ad and flow. -- of the ebb and flow.
it is asometimes minimalist moment, sometimes it is a design moment. the designers who do well long-term are the ones who stay with their original vision. vonnie: you saw the news that burberry is combining its brands. tom: three are combining into one. vonnie: what difference does it make? did you even know that they had three? tom: my wallet knows that they have three. can we rip up the script when we come back? robert burke and vanessa friedman with us, on the luxury that you will spend in the next 16 to 18 weeks. on -- up, robert altman roger altman on "bloomberg ." and we promised to speak about the red sox with mr. altman. stay with us on luxury. "bloomberg surveillance." ♪
jon: this is "bloomberg surveillance." good morning from the city of london. .till with us, robert burke robert burke, tom keene, you have a pretty good cohost with you today. tom: vanessa friedman is with us as well, as we look forward to the holiday season. thes remind ourselves profits that can be made. vanessa friedman bought which much shares when she was in grade school, and it has just .een like a movie shot robert, everybody has done well in this gilded age, this plutocracy.
where will it be in five years? you are soove that bullish, and that is great. thery continues to be zenith of the market, and globally it is becoming more strong. i do not know if it will be exactly where it is, but the big brands are in norma's right now. -- but the big brands are in enormous right now. big brands, small brands, and i see smaller is all relative. but smaller brands are coming on very strong. tom: vanessa friedman, valentino's, you go up to madison avenue and 69 -- ken madison avenue -- can valentino go to kansas city? how do they do that? vanessa: i do not know if they want to. one of the big questions is, how big are you supposed to be? if part of the premise is that you are special and exclusive
and something worth investing in overtime, you do not want to be there. you do not want to be png. you may not even want to be j.crew. i am not sure they want to go to kansas city. where they are is online, so that if you are in kansas city you can access them. one of the biggest questions facing a lot of these brands is how to balance brick-and-mortar actual stores and their virtual store and had -- and how that has changed the equation. vonnie: i am fascinated. how is one managing to just put a foot wrong, and the other cannot get it off the well, there are cycles, again, and i keep coming back to this. is at an earlych stage and he has done very well. he has been very focused. with mark, he is a great designer.
there were a lot of demands on him. when you are doing a louis vuitton ready-to-wear handbag collection, shoe collection, there isbs collection, not a lot of time to reflect right now. they are not having time to do the creative process. tom: let's reflect on a t bracelet are you going to tiffany's and there are 47 t bracelets. vanessa friedman, do the hipsters in brooklyn want to lightbank tiffany's? buy tiffany's? question of how luxury things about itself, how it sells to them and how it speaks to them. another the issue for these brands is how you engage with the new generation. tom: is that going to happen, or are you worried about that? is going tohink it happen. sometimes with convulsions, but it happens. robert: they just announced that
tiffany would do an exclusive collection with dover street market. tom: what is dover street market? vonnie: it is just about the hippest store. luxury company. tom: why is tiffany working with them? robert: because of exactly what you said. they will get that younger customer, and they did an exclusive collection that they launched on december 12 of their vintage pieces. that isthe question opposite, why are they working with tiffany's? robert: iconic brand. vanessa: the thing about hipsters, the new generation -- they have a fascination with heritage, where everything has come from. tom: thrilled to have you with us today.
books keep thick. everything we do gets thinner and thinner. how do you keep the different magazines that i hate in my house -- how do you keep them thick? vanessa: belief in the industry. that simple.st never have her back again. she has short answers. vanessa friedman and robert burke with us today and the luxury -- on the luxury we all face as we head toward the first of the year. sweeneywill have paul on to look at facebook. i believe they report today. we will talk about facebook and how they are changing your cell phone. from london, jon ferro. i am in new york, tom keene. this is "bloomberg surveillance." stay with us. ♪
higher yields. you see it in dollar-yen. abenomics friendly -- we reach 1.20 1.21.o dx why, you see it expressed dxy.a 97 on the that is our forex report. right now with her business flash, here is vonnie quinn. withe: the problem defective airbags is more of a problem. takata'saker was biggest customer. the chief announced today they will use a more stable chemical to inflate its airbags. airbags caused eight deaths and 98 injuries.
the billionaire investor is one of the best -- has one of the best track records in the last three decades. and you can regulators are giving anheuser-busch and other week to make a formal takeover for sab miller. the brewers are moving closer to the biggest merger in beer history. that is the latest booze bloomberg business flash. tom: i would be remiss not to mention iceland. iceland with some news as they try to exit capital controls. that is important, jon, isn't it? john: -- jon: the one that stood out for me was euro-sterling ahead of a pivotal inflation report from the bank of england.
"p next is "bloomberg go with stephanie ruhle and david westin. david: first of all, we have janet yellen testifying before congress, and we have david stockman, the former omb director in the united states, with fairly strong views about the fed these days. he also has some strong views about valley and -- about valley eant. and then we will have roger altman, talking about acquisitions. aboutso we will talk activist shareholders. he has some views on that and we look forward to hearing from him. jon: david westin, thank you very much. that is coming up in the next hour. facebook -- it is the darling of the social media sector. paul sweeney knows about the sector. he is with bloomberg intelligence. does the good news for facebook and the bad news for twitter --
does that continue as a theme today? certainlystors are baking in continued expectations for strong growth. this quarter it is all about the key things -- topline growth, looking for more than 30% revenue growth. is almostle business 80% of their total revenue. i think investors will start saying -- asking management when are you going to start making money off of instagram? i think investors are going to start thinking about the next one to does go to three years and where topline growth will come from. jon: for about 12 months we had a series of acquisitions. do they need to focus on the start they can afford and thinking about things they can buy? paul: when they see holes in their user experience, whether it is anything on the video side
, for example, i think they are going to put money to work. they have an unbelievable balance sheet, and if there is a way they can make anything work, they are very confident in their business. i expect them to be inquisitive, but clearly they have some big acquisitions they have made over the last year that they need to monetize. da margin have an ebitcz of $44. what is the growth rate you put on the whole company? this is a 20% grower terminal value? paul: if you look at how the market is valued google, this is a company that has put up a good 20% topline growth. they can get a major multiple of revenue. that is where a lot of these talks stocks -- these top stocks are trading. tom: jon:, we have wrap up these first two hours of "bloomberg surveillance" on the markets.
i want you to dovetail what we will see from mark carney tomorrow. are the governments getting out in front of action with mark carney? jon: yes, tom. rates are way over there, a year behind, perhaps. will he reengage and reshape market expectations? that is the only question that matters for this market. tom: we have much more to talk about. i cannot get to jon ferro on those negative yields are maybe we will do that on "bloomberg surveillance" as we continue through the morning. "bloomberg tom: coming up on bloomberg television. futures up, too. stay with us. ♪
retail investors are japonica -- are buying into japan's post. the first dayto of trading. what does it tell us about japan's economy? david: welcome to "bloomberg ." i'm david westin. stephanie: i'm stephanie ruhle. we will have a big morning because bill cohan is in the house, a bloomberg intervening editor. he also has quite a few -- he is a bloomberg contributing editor. he also has quite a few books. house,tockman is in the former omb director and a man with a countless amount of opinions. a guy