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tv   Bloomberg Surveillance  Bloomberg  January 25, 2016 5:00am-7:01am EST

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francine: from davos, the banks still take center stage from japan and the united states. legally down the decisions you need to know about, and ask -- can they fight the deflation? about a dozen deals are said to be signed between italy and iran. and twitter shakeup. executives leave and get replaced within the social media company as they address concerns about their stock. good morning, this is "surveillance." tom, start here. we will look at the markets.
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tom: a lot going on. oil, sort of a reset after davis. francine: central banks probably have been more interesting. let's get to the first word news with vonnie. vonnie: it will take several days in the u.s. to get back to normal after they got more than two feet of snow. airports are reopening for business over a four-day period. bond and commodity markets will be opening in new york, but the federal government in washington warming closed. released by the islamic state shows extremists carried out the paris attacks and committing other atrocities. all nine militants in the video died in the paris attacks. seven were seen shooting or beheading captives. france, police arrested 35 people after migrants broke through security.
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children are camped out in northern france, hoping to make it to the u.k.. supporters shut down for a while before it was reopened. the discovery of a piece of debris off southern thailand raises speculation about the missing malaysia and air jetliner. they found the chunk of metal last week. authorities in australia are searching for the plane several thousand miles to the south. in sports, denver versus carolina in the super bowl. england,os beat new 20-18. as newton ran for two carolina beat arizona, 49-15. carolina is favored. -- tom, isquinn anyone watching nfl in london? tom: last night, i darkened the door of the barbecue grill by
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the tower of london. americans were there in force to watch. what a lousy game -- i don't care what mike mckee says. it was not championship football . francine: i'm lost. me at half the european population of no idea what you're talking about. tom: francine asked an important question -- not only was it again, but the two quarterbacks lead each team, ancient. tom brady and peyton manning. it was the game everybody missed optically wished for all season before they played a real team. that would be my assessment. i like the nfl coverage on london tv. very informed. francine: let's go to data. tom: equities and commodities -- we have an important chart for you off the bloomberg terminal.
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yield,o down, 10 year 108, nymex crude churning. let's bring it right on to the vix. 22.34, much better than the 32 we saw a week ago. that's the davos cost. francine, i noticed the german two-year stay there, -0.45. francine: this is an important one as we look at a lot of central banks around the year. it will be interesting to see how they treat a lot of these european bonds. the stock 600 is pretty volatile. asia is still gaining at the close. i want to bring at the 10 year yield. gary cohen of goldman sachs is saying that the treasury will probably rise, and morgan stanley predicted the opposite.
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tom: that goes to davos in the heated debate. let's go to the bloomberg terminal right now. this is the most important chart in the world right now, and we will show it in numerous ways. this is west texas intermediate, a chart, a trend based chart. if i were to teach a course in a class, this is a really cool chart with three kisses. those circles are called kisses were a well behaved -- goes right up against the presumed moving average. we are nowhere, fran, near where you can say it is a bicycle. that is an all-time elegant chart. francine: and it goes back to the opec secretary general being here in london, saying he wants evidence to the table and to cut costs. what is saudi arabia going to do, and why would russia play part in it? let's talk a little bit more about oil, as fundamentals drive the market.
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in tumbling this month, the market selloff not fundamentally justified. the chief economist, larry hathaway, joins us now with more of his incredibly exciting insight. thanks for joining us. what we going to call a bottom for oil? larry: the bottom is perhaps a bit away -- we have a lot of new supply coming on in the form of the run -- in the form of iran. the production is not down nearly as much. that said, i do think markets are largely driven by price. if we can find some degree of stability, a lot of people will stop selling and begin to form that bottom. francine: but do we need, as was suggested, a significant cut, and will we see it? larry: we have got, globally,
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1.5 billion barrels of excess. we say that will probably be cut by the middle of this year. we are still looking at for five months down the road before a fundamental supply demand. tom: i read, coming back on the plane from zero, every year -- just what you said -- a delay to clear the market. what is the distinction between your delay of midsummer versus his, at the end of 2016? can the oil industry went for the markets to clear in november, december, january 2017? larry: well, if they wait that long, we will see a lot of delay. tom: and we will jump into oil in the next block. that is front and center. francine: one of the things we were exploring in davos is central banks, but also the
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fourth industrial revolution. simon kennedy writes today, he talks about the fourth that with, says -- the assumption of delegates at the world economic forum, but he goes on to say that this will have a huge impact on wage growth. what is your take? you look at the fourth revolution, talk about it as syntax and opportunities. the one about central banks? larry: for central banks, when those new technologies from products, the internet of things, become a part of this, become diffused in the economy, i'm reminded of computers. into computers for decades or longer before they began to impact the economy, because people didn't understand how to use them optimally to improve productivity. while i'm a big fan of the fourth industrial revolution, that is my word of caution.
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tom: thank you. cartoon, theobot panelists for all robots, the people were robots. that described my panel we did in davos. let's bring up chart one four janet yellen. larry, you will love this chart. this is our original textbook orthodoxy. it goes back, down we go at the great moderation, a little movement. where is the accommodative end? how far are we from where stanley fischer wants to go? larry: we are still a ways away. meaningless to the economy when you consider the balance sheet of the federal reserve. over the next year, they will raise rates. tom: did you see -- bring the chart up again. i feel old.bring this chart up again . i go deflation and ultra
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accommodative, and no one knew that was a rip -- francine: there was no "surveillance" back then. there are some things that struck me in davos, tom, and there seems to be more talk that there was a policy error from the fed. i would like to get your thoughts on it. if you say that rate hikes are still in the cards, they were definitely right to hike in december. larry: i think they were right. the economy is not all that weak. we have a pretty tight labor market, anecdotal evidence that wages are increasing. the u.s. economy is pretty darn close to full employment. the fed has no business with a super accommodative monetary policy. it's appropriate to begin some degree of normalization. tom: great to have you. hour, we in the next are thrilled to bring you
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someone who writes brilliant notes on china and asia. david goldman on deflation. david goldman on george soros. stay with us. ♪
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tom: it's called rochester -- that's what new york got last week. unbelievable. the snow new york got is just another january day. we welcome all of you, seriously, digging out of a serious storm on the east coast. we hope that you are safe today in your travels as you move forward. at some point i
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will explain where men are men and the snow is deep. i've done my research. it is time for our business flash. johnson ends talks to buy tyco, which could have been valued up to $20 billion. it says a deal may be announced today. they make commercial fire in and securities. people expect bigger bonus and they got a year ago. senior executives predict the average bonus will come to 143,000 u.s. dollars. up theirnco may open ipo to international investors. they say all options are being considered, but their oil reserves won't be put up for sale. francine: vonnie, thank you. will continues to trade at $31
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per barrel. let's bring in our chief energy correspondent. javier, there seems to me, when you look at what happened, a lot of nervousness on the market -- there is quite a significant price in oil. is a very nervous market? is, but all the notions we are hearing -- it's we may have reached the bottom toprices around $30, may be $25. but investors have not mistaken a bottom for the green light to go to $50. this is a bottom, but the market is not bullish. it's way -- i think there will be a lot of pain for the oil industry. tom: one thing i have learned is -- years ago, the deutsche bank chairman both said the same thing -- we don't know.
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do you know when you are reporting the dynamics of russian oil? javier: well, the ruble was at a record low, and putin had the russian industry with a number of executives with exposure to russia. -- expecting any bank collapses in russia production is complete nonsense. russia is going to remain very high, and that will be another reason -- tom: when you look at the ruble chart -- francine: right. we hear what we touched on with the opec secretary, saying it is up to opec and not opec producers who must tackle it together. this is what you were saying -- if you are rusher and you look at this, will you take a risk? what is the floor? is it $20, $15? larry: kid is hard to know what exactly it is.
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the real indicator to watch his inventory. everybody is producing, consumption is not keeping up. next the supply is selling the storage tank and increasing -- we will reach capacity before too long, probably in the spring or summer. at that point, the curve will sell off, and that will be the biggest indicator we have reached the bottom. the secretary said that lets opec and not opec talking together. they cannot put opec together -- the saudis and arabians are not talking -- francine: hold on. wasderstand, but saudi at the table -- javier: saudi arabia needs russia and iran at the same table. -- the idea ofnt
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summing up the itty-bitty countries, they equal in iran uctions. prod had to they affect the dynamics going forward? javier: one problem with all these companies reaching the crunch point is that the only way they will extend long-term is if you halt production. we know that it is a low price, $70 -- exactly. they areappening is driving prices. this problem and the short-term -- when these companies go over, it could turn bullish. over the next few months -- i guess we wait and see. tom: quickly, a single point you davos? and thain
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javier: oil may be close to the bottom but any expectation of a rally is completely wrong. we will not see it at $50 and 2016. francine: no one has. tom: we are just over there having fun. francine: great. javier, thank you. coming up on "bloomberg ," we are joined by roger altman. tom: we will talk to him about the boston red sox. also, we will talk to the founder of evercore partners about the state of investment, and particularly competing in the major houses. look for that at 8:30 this morning. francine lacqua, tom keene, in a non-snowy london. . googood morning. ♪
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francine: welcome back. this is bloomberg "surveillance," live from london. let me tell you -- the elephant in the room is the risk of brexit, and it also means that when you look at the various returns, in lot of investors are telling us it is the small intimate cap they want, because they would be risking with exposure than the big companies. now it's time for my morning must listen. i spoke to the italian finance minister, and he said that talks are advancing on help for italy's bad banks. >> we are working on a guarantee
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scheme, which is part of a strategy, and we are in good conversation with the commission to agree on a model. talks will not be sold. in any case, we already have in place measures that will help. francine: larry hathaway, there -- been so much pressure spain is going through a huge political upheaval and italy is not dealing with the bad banks. larry: italy is making up come back. -- making a comeback. gate,re faster out of the and the reforms will push through. italian banks are a cleanup situation, but from my perspective, at least the macro fundamentals look good. tom: ask this question when you are sitting on the desk, a
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manufacturer handing over trust company. he knows about bank takeouts. larry: actually, i am a dinosaur. [laughter] tom: i think it is a serious question -- how in europe do you do bank takeouts at italian banks? somebody buys them. that doesn't happen here. what doesell, happen is that bondholders will get in on the fray. we found out in portugal at the end of december. that overhangs the bond italian isso i think a longer set up. francine: we moved share price and i asked the ceo whether he would be interested in taking over. he said absolutely no way, and even if the government pressured him -- he'd need to get the european bank. is there an appetite for consolidation? larry: i think at this point there still isn't. the currency of the takeover banks is low, given the low
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valuations in the sector. there really isn't a white knight out there. i think the opportunities on that appealing. tom: i would suggest a white knight on the newcomer of bloomberg markets. james daimon. bear stearns -- can you spell it? happening. is not coming up, we continue our conversation with lawrence hathaway, on crude oil. helping us, brandon warren to make you smarter. he will join us on the dynamics of oil equities. today from london, bloomberg "surveillance." ♪
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♪ francine: this is "bloomberg surveillance". a davosa little bit of
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cough. >> prime minister alexis tsipras marked when you're an office with another crisis, a showdown with creditors over social security reform. he wants to raise contributions from taxpayers will not cutting pensions. spain, the idea of the coalition government, sanchez is the leading candidate become prime minister. the current prime minister declined an offer to win a confidence vote. a demonstration in the netherlands underscores the refugee crisis. filled anternational boat with manikins to show the danger of asylum-seekers face. as mentors are discussing the crisis today in amsterdam. and israel, former president shimon peres back in the hospital.
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his doctors say he is doing great. he suffered a mild heart attack this month. he is 92 years old. the mid atlantic coming back to life after a blizzard brought the region to a standstill. the house has canceled all votes for the entire week. in your, financial markets will be open. more than two feet of snow fell in some places. thousands of flights were canceled over a four-day time span. tom, i know you were one of the casualties of canceled flights. back to is getting normal quickly, but washington, d.c. is different. worldwidehose of you washington, washington is a world away. they have one snowplow. the schedulesully
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us not, we have to give a shout out to jfk la guardia for getting it done. these people are out there 24/7 with a few planes landing. he's get a do some work down there for us. tom: some public good. turmoil in the euro market. we spent a lot of time talking with economist at 35,000 feet. equity analyst at bmo capital markets. i love talking to you guys. everybody is humble. confidence and belief level, buy, hold, sell? >> thank you for having me on this morning. lesslad london is a little than the u.s.. i think we will see further
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pain. it's hard to say. we have been saying to investors if you're not in the sector, stay on the sidelines. ,f you need to be invested state relative overweight names that are a little boring, and the underweight companies that need to do something this month. tom: that's where i want to you -- go. do i want to be opportunistic and look at companies i have never heard of, or do i want to find comfort? >> you might be too early with the european exotic names. there are good ones, london petroleum, most of it is production, growth out of norway. we have companies doing turnarounds, questions over balance sheets, but i would be relatively weighted towards the integrateds.
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it's total over shell. francine: are they in a better position? they are looking to gain market share in iran. , he has total in good place. that does not have to transform itself. who tells an oil company to restructure or file for bankruptcy? what is the catalyst for that to happen? >> it is normally a long road before you get to that point. coming into this year, we will see more of it. tom: bankers, the board, the government? what is the process? >>+++
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but this is a decision process that is not immediate. tom: that they played the geography game. tell me about midland, texas in the fields of texas, is a different than the 1980's? >> it's different. i have a question that maybe the best is breaking, but there is always stuff lower. and the bank of montréal? other provinces dying? seen thesestry has times before. that.going to see more of francine: what did you make of saudi aramco, sustaining investment? does it point to the fact that markets are jittery or these oil majors will displa delay invest?
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>> i think we see that with all the big guys. it takes time to slow down your investment profile. cuts.l see further saudi aramco has not changed their tune. it is about market share and pressure on the iranians. >> i was going to come back on this point of investment, doesn't it make sense that the low-cost producers in the gulf actually increased investment. the shakeout in the oil markets we are seeing here is shifting productions to the margins in that part of the world. he would have to inspect -- expect a bit more investment. >> investors have seen the fear the oil to one in price. it is still early. we have not seen any hint of rebalancing. stepping up investment is a
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brave call at this point. tom: where is the terminal value? big oil is responsible for the lower oil price. >> it depends on which company. i don't think the market is looking that far out. your for your timeline is as far as you will go? >> i think it's a 12 month timeline. it's hard to make a call. tom: tell me about spare capacity. >> it's tight. that's the amazing thing about the energy market, such a tight spare capacity. tom: does that go to original condition because it is so tight? it's like this to that. when it goes, it goes, or where we have time to get on board? -- it seems any
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political risk in the price, spare capacity -- the balance seems to be about one million barrels a day. -- what iss leyla venezuela going to do this year. tom: unknown unknowns. thank you so much. bank of montreal. it's oil. that's about canada. thank you so much. coming up tomorrow, chief executive officer of zillow. that is 6:00 a.m. in new york city. stay with us in london. this is "bloomberg surveillance" . ♪ ♪
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francine: this is "bloomberg
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surveillance" live from london. i am francine lacqua with tom keene. german business confidence falls for a second month. great to have you on the program. if you look at the figures today, it is clear confidence is dropping because more and more businesses are worried about global growth. will it get worse from here? the business climate index was a surprise for us. extent to which it has dropped is larger than expected. francine: the main worry is what? the china turmoil? the price of oil? sector which was mainly responsible was the industrial sector. it was mainly those firms that exports -- the
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shock of the stock markets is also reflected in the business climate index. francine: talk us through political ramifications. , and one of the biggest questions was about merkel and her political future. business confidence is increasingly at risk. what does it mean for the german chancellor? >> this is a difficult question. we have this sharp decline in the business climate index driven by business expectations. the current situation with the firms is quite good, and the index on a high level. it does not mean we are getting into an economic crisis in germany or downswing of the
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economy. we have to await further and look at what is going on there. if you want to have the characterization of the german economy, then it is really something where we say this is a weakness of the industry sector, but the domestic economy, drastic households, construction sector, they are currently running very well. francine: thank you so much. ,arry, when you look at germany china --so linked to are you concerned this will unravel? >> germany is facing the problem of global manufacturing is extremely weak. germany is a manufacturing powerhouse. some of the problem areas, russia, china, and the middle east itself, all big buyers of
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german industrial goods and consumer goods. strong,ed out what is which is real household income is growing at a strong rate did the housing market is also supported. the economy is certainly not anything in like a recession, but it is a soft patch. tom: the germans will say they want a weaker euro. there has been a nice change in toward stabilityred' and a stronger euro. which is it? >> they do very well with a strong currency, but what i would say is that a lot of people have also become a strong dollar is not such a big threat. what does it do? prices,s down commodity so i think stability and
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currency markets in general is a big plus. , it was early, but one of our most important conversations. francine: we talked about china. he does not believe we are looking at a crisis like george source told us. he also said china would be bumpy -- like george soros told us. he also said china would be bumpy. german chancellor under merkel is putting all the legacy of her chancellorship on refugees. >> he raised a very good point. the european political climate is capable of dealing with the refugee crisis. it's not capable of dealing with cross-border security issues in a way that is robust. work --le ballpark bulk
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posing big challenges. tom: some of the papers going back to the nostalgia with margaret thatcher, is there risk your that icad and suddenly? ,> i think there have been some but there is in both cases a principal stand after a very long tenure. i do think the tide of public of public opinion germany is turning. tom: coming up on bloomberg markets, an important conversation on a sturdy, pushing back against the urgency to raise rates. ,rancine lacqua and tom keene we are in london. it is "bloomberg surveillance" ♪
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tom: here is what i know, pre-hockey was canceled because of the snow, new york digs itself out.
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central park, central park south, a beautiful shot of new york recovering with grace from the snowstorm. we are cooling. this is a rare item, a bloomberg watch, and us to then you go like this. it is unseasonably hot here. it is 55 degrees or something in london. let's get back to bonnie quinn with a bloomberg business flash. >> that's going to definitely increase productivity. the second largest shareholder three months to come clean, the prime minister once a full account of the diesel emissions scandal by vw. vw insist they was not planned or sanctioned by top management. the lowest in more than 35
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years, toshiba says it is studying whether to take a right on its westinghouse business. toshiba reports earnings next week. a shakeup in the executive ranks a twitter, for top executives leaving, including the product and engineering chief. its byck is often half you the last year. that is the bloomberg is this flash. the stock is down 3% in the premarket. there will be a lot of tweeting about twitter today. the chief technical officer will take over engineering. there will be a retreat for staff apparently. tom: these guys love to play by different rulebook. i thought the release last night was incredibly clumsy. my word is clumsy. francine: jack dorsey tweeted out most of the information.
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you know he has been waiting to get his hands on the company since becoming ceo again. tom: maybe he ought to dial one 800 richard edelman? more on that later. >> disappointed that you got the fan to stop working. francine: when you look, deflationary pressures, currency wars. we don't know what to do it china or how to read oil. mei suppose if you're asking who faces the biggest challenges , you might say it is the fed or the ecb. bothnk the bank of england have challenges because they have had to take back either statements or policy moves in the past. if we focus on the bank of england, you have a fully employed u.k. economy, good
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labor figures. inflation nowhere near hitting its target, had risk again given the fall in oil prices. then you have it over shadowed with brexit and how you respond to that. i put them at the top of the list. francine: morgan stanley rushing back. 2016 seems pretty soon when you look at the brexit risk. we don't know when that referendum takes place. >> indeed. it is a guessing game right now. if you put it there and the third quarter, it is fine, but and theably be distribution is wide. tom: i've never seen anything economist and selective strategists, everyone saying don't look at the markets are they don't know what they are talking about. all my radar goes up. could janet yellen ignore the market vigilantes? .> i think she can
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she can look at these markets and say it is indiscriminate. 's say u.s. health care is down on related to those industries. momentum has been the big move in markets, and there has been indiscriminate selling. fed reserve the will stand back for this. they can't obvously help but to acknowledged these moves, but i think they will look at them with a fairly skeptical eye in terms of their impact on the economy. francine: larry, would you make with boj? they were at pains to explain that they are concerned about pressures, but he's not seeing the price of oil filter through. >> you have to feel a little sorry for the boj. they have tried in a missteps in recent years, and yet but the real data and inflation data has continued to defy their will, mostly because of energy prices
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with respect to inflation, and let's say fiscal tightening last back tohing the economy recession. in reality, they're doing all they can and are sitting there with fingers crossed at this point. on therry hathaway challenges out there. new ways of producing kill off old industries before the jobs before the full benefit of the aremode of production realized. a certain degree of violence and inevitably accompanies human progress. this is a brilliant note. he should've been parachuting leaflets across the valley. he has a real humility about the value and speed of change. >> that's very kind. as we look through the preceding preindustrial revolutions, the
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innovations that we all know about and get excited about come very early, and the human progress in terms of rising output, productivity, comes related. precedes enthusiasm the better times that come later. tom: it sounds like the railroads of the 1880's. thank you so much. hour, up in our next "bloomberg surveillance". goldman --to david talking to david goldman about china and deflation could this is "bloomberg surveillance". stay with us. ♪
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down fromld market
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the 2016 collapse. this morning, a number of reasons. calling a west texas bottom. the hills are alive with the sound of deflation. soros, get over it, he is wrong. david goldman on the resilience of china. good morning, everyone. this is "bloomberg surveillance york, januaryew 25. francine: we are trying to figure out what happens with oil, what happens with china, because we have central banks coming out with their forecast and rate decisions this weekend. it is an important week. the fed, boj. tom: you are a font of wisdom on central banks. i did not know that. in new york with first word news, here is vonnie quinn. vonnie: video released by
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islamic state shows the extremists who carried out the paris attacks, carrying out other atrocities. seven of the nine paris attackers are shown shooting or beheading captives. all of the militants were killed during the attack. the 17 minute video was posted on militant islamic websites. filled anternational boat with manikins to show the dangerous overcrowding asylum-seekers face. the crisis is being discussed today in amsterdam. john kerry says the u.s. might spend more money to help clear up minefields and laos -- to help clear minefields in laos. he is only the third u.s. secretary of state to visit laos.
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a keynote from the biggest snowstorm -- cleanup from the biggest snowstorm is expected to take several days. are slowly reopening after 12,000 flights were canceled. government offices in washington will remain closed. global news 24 hours a day, powered by 2400 journalists and reaus.han 150 bu tom: i have to do a shout out to our modern airline business. we got great service out of davos, out of xeric -- out of thezurich. i don't think you mentioned what is keeping you there. what did he canceled flight? tom: it was not a canceled flight.
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it was going to go but then it didn't. london we doe in not have much snow, and when we do, everything grinds to a halt. it is amazing looking at new york, still a functioning city. you guys are usually prepared. tom: we are. davos cough. i have the usual plague coming back. the basic idea of the 10-year yield, crude oil churning lower by $.76. we looked at that hard in the last hour. we will touch on that again. bottom of the next screen. brent crude, 31.54. let's looktwo-year, at the bloomberg terminal. germany, maybe the idea of deflation and the draghi meter here. this is critical, francine. in the germanr two-year. this is jaw-dropping, what we
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are seeing going into the beginning of the year. francine: let's have a look at it. if you look at a lot of the withean stocks, dropping italian lenders halting the earlier rebound that we saw with european stocks. i had the 10-year in the u.s. to , after treasury yields will probably rise. tom: and we can bring up the oil chart once more, karen, if you could once again, very quickly here. the bloomberg terminal, we showed this chart in the last hour. all this says all you need to know, the basic idea of an elegant short chart on oil. that is good enough to bring in david goldman, of reorient group. he has been hugely valuable to , discussion of the linkage into the markets today. it was really about your state on china. what kind of landing do you
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believe in in china? david: china will have a soft landing, tom. he argued that -- the argument -- ifhina is a source of you discount that for different measurements in gdp, it is the fastest-growing economy in the world. it has significant problems in the manufacturing sector because world trade is shrinking. world trade is down year on year by 12% and has been at that rate of decline since last summer. for certain sectors of china's economy that is a problem, but the consumer, tech, and services sectors are still growing. china is importing oil at an increasing rate. the trend points straight up, where oil imports are stagnating everywhere else in the world. the problem of deflation has come from the central banks, particularly the fed, not from
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china. francine: there is still debate on this. george soros set a hard landing is inevitable. let's have a listen. tooge: the chinese left it long to address the changeover in the growth model that they have to adopt from investment and export-led to domestic-led. so a hard landing is practically unavoidable. francine: this is something that you refute. i also let a panicked -- i also led a panel discussion on china. has a china obviously long transition to make, but the hard landing premise -- i wish i could say it in short soros' accent -- is that china has an almost credit bubble which has to lead to a considerable amount
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of pain. we go over the books of every chinese company in the consumer sector and estimate the nonperforming loan rate among chinese banks. there were rumors it will pop up double digits, which would be not 2008 style crisis, european-style crisis. our estimate is that in peels will peak for chinese banks but only about 4%. what a lot of the estimates miss is that china has vast resources of savings. corporate, household, as well as government. china's default rate for corporations is likely to be considerably lower than the pessimistic estimate. it will be quite manageable. in fact, selling at four times earnings at just around book, we think chinese banks trading in hong kong are quite cheap right now. vonnie: what can be the confidence that nonperforming loans will not rise so much? 4% seems pretty low, and china
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needs its consumer. david: we put the balance sheets ourhinese companies through credit model, we look at sales growth, and we come up with a range of possibilities. a couple standard deviations out overall,4.4% remembering that the consumer sector is very strong with vast amounts of home equity. double digits i think is a fantasy number. this is a soft landing scenario based on our number crunch. soros'sed to george model -- it is fine to wave your arms and say there will be a crisis, but the data do not support it. tom: one of the great talks throughout all of davos, and particularly with michael spence with a weaker renminbi. within aeaker renminbi normal process or within a currency war?
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david: it is not a currency war. the chinese kept the r&b pegged to the dollar for a long time and the dollar appreciated, so when they shifted to a trade-wedded basket, it was bumpy. we saw market upset about that last august, and again. the chinese should have made that transition sometime before, but the problem is not r&b depreciation but appreciation. we're seeing a return to stricter capital controls to give them the cover to expand domestic credit without suffering more capital outflows, like a trillion dollars that they suffered in 2015. francine: you were pointing to regulation concerns. it is still in amateur market, so we need a break in that respect. will the yuan be value this year?
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david: that depends on the course of the dollar. all of this has been led by the dollar. , they are the graph the same graph. this is a global monetary phenomenon. if the european central bank does in fact return to greater quantitative easing, if the federal reserve, as the futures market seems to indicate, backs off monetary tightening, the answer is, no, you will not see much change in oil in the r&b. if the federal reserve continues to tighten into a borderline recession economic environment, then you could see some graduation of the r&b dollar. tom: difficult when, thank you. coming up, they reset last night. paul sweeney will join us, a conversation on twitter. what an executive shakeup. a little bit clumsy, but they
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did it out on twitter. and spencer rascoff joining us tomorrow. .pencer rascoff of zillow stay with us. ♪
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"om: "bloomberg surveillance from london. thank you for your many comments. elena's mother's remedy. i denied even know where these came from. this one is from francine lacqua. .t tastes like alka-seltzer is this a hangover from the manhattan's last night? francine: the strength of pharmaceuticals has a direct
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benchmark of reforms in the country. there you go. that is europe right there. we could talk about this and consolidate it. tom: there we go. thank you for the tlc with the cough. right now to our "business flash " in new york with vonnie quinn. a deal could be worth $20 million. the companies plan to merge. johnson is spinning off its auto interiors unit. volkswagen's second-largest shareholder is giving them three months to come clean. the leader of the german state they ownis based -- 1/5 of vw. new name for -- a new low-budget hotel chain called
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tru, open by hilton. that is your latest "bloomberg business flash." and a shakeup in the executive ranks in twitter. it was announced last night on twitter by jack dorsey after rumors swirled. the stock has lost half its value since he retook the helm to rejoin us to -- joining us to discuss is paul sweeney. is this something that dorsey has been waiting to do since he ceoshipto wrest the back? paul: i think so. he is coming back to the company to try to accelerate the pace of innovation in product and avenue -- and advertising revenue solutions. i do not think the team that he had in place he felt was the team that was going to get it done. so with the voluntary departures in the moves orchestrated by
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dorsey -- unfortunately, this is a company that has a revolving , which are cease we think -- in its see sweet -- the question is, can dorsey really put out on the street that he is going to get the right management team in there to turn things around. vonnie: he is hungry down with , and a retreater for employees. does he want to still grow user ship, or his he focused on moments and other innovations? paul: one of the issues for the company, it has been this way for probably the last year or so. they need to reignite user growth. the kind of stuff, slightly over 300 million monthly users, and that is a big number, a far cry from what we see from facebook and other social sites, generating tremendous growth. the assumption is that he really needs to innovate the product to
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make it more easy for users to get on and utilize the service, grow the user ranks, and make that a much more attractive proposition for advertisers, and the company has not been able to do that over the last year or so. the question is come with dorsey coming back, can he put a management team up that can do that? vonnie: in davos there was a lot of talk about it possibly cooling. tom: francine and i would get binoculars out like security and look for unicorns. price to sale linkedin, nine times. priced to sell twitter, way down. when you look at all of those unique is this problem to twitter, or is it about the entire industry? paul: there is a lot of concern
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about valuation in the valley. we have seen that over the last year or so, some down rounds on the private side coming out of the valley. we have seen a lot of volatility in the public spots, so i think what really investors are looking for here is, there are a handful of really clear proven winners, whether it is facebook, amazon, google. those are the names that are very much in fashion with investors, so when you get a a greatlike twitter, performance initially at great valuation initially, and then it shows slowing growth and base,ly no growth in user investors get concerned really quickly and want to turn it around. francine: does that mean the ones that are not doing so good he come takeover targets? with twitter, is there a floor price for people who are thinking about buying it? paul: one thing for twitter,
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there has been speculation around twitter. it is a service that people who do use it, they are very hard support users. there is over 300 million users, base, witht user that be better served within a larger company? the most notable company noted for twitter would be google. for all success -- for all its success, google has not developed a social media business. tom: we will be talking about this through february as well. coming up, evercore's founder, roger altman, on the state of his wall street. from london this morning, luck and tom keene. please stay with us. "bloomberg surveillance." ♪
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tom: good morning, everyone. a monday in london. the notes over the weekend where very smart, not a lot of confidence in oil. let's get to the single best chart. let's get it again for david goldman. down it goes. the moving averages arbitrary. that is the one i use, from george kleiman ages ago. and30-day moving average, it beautifully buttresses up against $34 per barrel, the blue circle, where you need to break out if you are going to break
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out. david goldman, we are nowhere near a testing of resistance, are we? david: a lot of the world prices depends on the politics in the middle east. there has been a race to the bottom of saudi arabia trying to stress financially iran, its rival. is hopeful is that talks between saudi arabia and iran might lead to more cooperation with opec. chill toonks will not fast, will they? that this will end up ok? american banks' problem is not so much their loan book. they have a few sour oil loans. the problem is, since credit is doing badly in the yield curve is flat as a pancake and they do not trade anymore, they have no
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way to make money, so the return on assets, the return on equity is in the 6% range as opposed to in the 18% range in the glory days of the mid-2000's, and they cannot break out of it. so i am not fond of bank stocks simply because they are in a regulatory straitjacket and they cannot do very much. francine: david, you are saying it is difficult to call the bottom on oil. are we going to see russia, saudi, opec sit down at some point when we touch $20, if we touch $20, and get this oversupply solve the echo david: that is the $64 trillion question. you have to ask them. francine: i tried. david: there appears to be some calming of the cold war between saudi arabia and iran. one can be hopeful that at some point there will be an element
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of market rationality introduced, but again, speculative about politics. that is rarely a good way to trade. tom: you have been doing it for years, david goldman, so we like your speculation. we will continue. coming up on bloomberg radio in san francisco -- new york, boston, and it snowed in washington. 99.1 fm. daniel clifton -- it has been way too long since we caught up with him. looking forward to that on bloomberg radio. ♪
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tom: good morning, everyone. "bloomberg surveillance." washington, d.c., the pittsburgh penguins and the capitals
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canceled last night. unfortunately, a winter blizzard is a serious snow. without first word news, here is vonnie quinn. vonnie: at least 30 deaths are being blamed on the monster and stoma storm -- on the monster snowstorm that pummeled the east coast. 12,000 flights were canceled. new york's financial markets will be open today, but federal offices in washington, d.c., are closed. police in southern california are hunting for three escapees from an orange county prison. one neighbor of the lockup says they are long gone. bars and made off with bedsheets to break out. old-style. a japanese rocket maker has an explanation for a large piece of debris that wash up in thailand. the company says the chunk of metal is probably from one of its rockets, not the missing malaysia airliner.
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is emerging from international isolation now that sanctions have been lifted. arrived inouhani rome, the first stop on his european tour. he is expected to sign a -- ract with and who do you like in the super bowl? favored when they california,a clara, february 9. i am vonnie quinn. it is time for my morning must-read. sir gregory of writing in "the financial times."
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vonnie: just looking up the ruble exchange rate today, and we have the perfect yes to talk about it. the ruble posting 80 once again. our guest joins us. does the ruble approach 100, and does the central bank managed this? look, it is definitely a possibility. see in exchange rate making another 20%, 25% exchange rate from here shows the volatility and uncertainty around the oil price. now the fixation is oil, and the clarity there it does not make sense for the big further moves in the nominal exchange rate. vonnie: what would he do to the
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economy if we see the number at 100? obviously the weakening of the exchange rate is meant to be the offset to a weaker oil price. is, if the move becomes destabilizing or creates self-fleeting -- self-feeding inflation, that is with the banks have to be mindful of. vonnie: the number we were going to look at coincided with vladimir putin's birthday, remember? this, thei look at volume of the ruble in the movement -- let's bring up the oil chart, and then i want to go to a four-day oil chart as well. this is the intraday oil chart with the jump. now we are back to the ruble chart. up we go. , when i look at the sequence we have and the
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linkages between ruble and oil, what is the prescription for mr. putin? daragh: i think you have to hope that things stabilize. this is the difficulty for policymakers. there is an offset in the exchange rate. repercussions of the volatility we are seeing can be very damaging. he will be hoping for things to settle down, and part of this narrative from opec is they want non-members to contribute to the bad stabilizing supply. so maybe there will be movement on that if the stresses become greater. tom: let's get back to the oil chart. this is a very important chart. i have not seen this anywhere else. six-day chart on oil. down we go. .e go down to $26 a barrel everybody would say you have to fill that gap or at some point at least tested. tom: we -- francine: we heard from the bank
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of russia governor saying that a monetary situation led to that. what concerns you? that we touch $20 a barrel and second?ets at what point does it have a huge impact? at what point is the russian model completely unsustainable? have a magicnot number, and if i did i would not tell you. it is not so much the pace that we get there. if you get there in a grinding fashion, then banks can plan for it and markets can digest. lower, get a big gap that is when -- for me, it is the speed more than the level. vonnie: what about the other commodity currencies? we have the canadian dollar at one point 4190 today. it is insane, right? daragh: we have come a long way
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already. canada, australia, new zealand -- generally, you have seen a natural adjustment to commodity prices being volatile. tom: david goldman, what is our knowledge of the basic reserves of nations? it was one important question at davos. years at bank of america. do you have a confidence in the reserves of nations, their makeup and flow? david: i think you would have a set of losers who are in a extremely dangerous situation, brazil being the most obvious. the bad news is you have a number of countries who may not be economically viable. i am much less worried about russia for a number of reasons. russia has doubled its exports from china, and china is indirectly financing russia by basically preparing -- prepaying oil for political and strategic
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regions -- and strategic reasons. the good news is that these markets do not comprise a sufficient part of the world or world credit exposure to give you a crisis. we have had roughly a doubling of external debt from $2 trillion to $4 trillion globally since the 2008 crisis. a great deal of that has landed on very weak countries, but the debt has held in strong hands. rocks and black pimcos. it is held with cash and not with leverage, and it can get very stressed. all that happens is if mom and pop get poor, you do not have the knock on effect that you have with hedge funds in the past. that is why we see localized great intensity. but the probability of a global crisis is quite low. tom: you heard the money quote
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from david goldman, way out front. last time he was on, they could have written the big short about his work two years before the big short started. with that said, what is the risk of contagion from garbage debt going from 80 or 90 down to 56 over to quality debt going from 92 or 95 down to 80? is there a contagion risk as there was years ago? no, because it is held with cash, not with leverage. people have borrowed money by assets, so they have to sell good assets in order to liquidate bad assets. because of the structure of the debt markets in -- and the lesser dependence on leverage, contagion is much less of a problem. you see that in the u.s., where you have had a blowout in junk bond spreads. inelatively modest widening investment grade spreads.
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by the same token, the u.s. economist, become an large-company economy. virtually all the employment growth in the united states s&pe 2008 has been from the 500 15 companies. i am going to throw you a curve because it is difficult for investors, market participants to try and model geopolitics and the risks associated with it. but what does the situation in russia mean for vladimir putin's antics? will be be more belligerent? or will we be able to find a better solution in ukraine and syria? david: i think vladimir putin and xi jinping are coordinating with a set of clear objectives,
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the most important of which is to suppress sunni terrorism, which is an existential threat to russia, with 1/7 of its population being muslim, and a serious threat to china, which has a considerable terrorist problem, particularly in the west. i think that vladimir putin is a reasonably rational actor. i do not believe he is acting belligerently. he has had very clear objectives, and by and large he has met them. stabilize the assad regime. i see him as an opponent has come out, but he is a rational one. tom: coming up, a conversation with dartmouth's macroeconomists. it is a nice way to get your monday started.
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both nymex and brent down one dollar. stay with us. "bloomberg surveillance." good morning. ♪
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francine: welcome back. this is "bloomberg surveillance , withm francine lacqua tom keene, in london. let's get to the bloomberg business flash with vonnie quinn. learning that ford plans to shut its operations in japan and indonesia. the company says the shutdown will be competed -- completed by the end of this year. shares of toshiba fell to their lowest level in more than 35 years today. japanese electronics company says it might take a right down
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on its westinghouse business. toshiba will report earnings next week. -- the company's chairman says all options are being considered in any public offering, but saudi arabia will not put any shares up for sale. tom: we are privileged to get you started with david goldman of reorient and daragh maher. the basic idea of looking at a broad trade-weighted dollar, including emerging markets and such, we see the advance of a strong dollar. 101, butis is in econ there is one big but -- and that is that it is different now than in the late 1990's with the so-called ruben dollar, and usually different from the accord moment in the 1980's.
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go to the bloomberg terminal show we can show -- so we can we explained. up we go with the ruben dollar. the curve, and then up again. where are we in our concern about dollar strength? this is a huge the med. of -- this is a huge theme at davos. was a: there coordination. i suspect the pressure now is for a physical response and fiscal coordination, the recognition that monetary delivered asaps much as they can, that currency wars, the race to the bottom to offer solutions, and the solutions for growth is a coordinated fiscal response when global interest rates are the slip -- are this low. of thevid goldman, one most important insights was ken
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rogoff showing how lonely china is now with a fairly fixed or managed currency. everybody now floating versus crises ago. what will china do within a floating world? china wants to stabilize the rmb against a basket of currencies, which is a sensible thing to do, abandoning the dollar, which cost a great deal because the dollar rose so half. the federal funds futures market, the federal reserve decided to normalize interest rates prematurely, leading to a spike in the dollar and an overall inflationary -- with the united states in the midst of one of the strangest residential elections in history, it is at least a year before we can talk about that. mainly in the united states. really, we have a monetary
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environment. my feel with the federal reserve is that it will realize it made imistake and talking -- and think the dollar has probably peaked against the euro and yen. tom: francine, that was a key point from madame lagarde, the idea of a best and attitude. francine: and ben bernanke theessed asia, saying that rally was running out of steam in less we see what? daragh: i think you would knew to say cash i think you would need to see spontaneous changes in the american number. i definitely think we have seen the peak there about in the dollar. i do not see where this spontaneous liftoff is priced in. i do not see it coming.
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if it does not come, the markets have further to adjust. tom: daragh maher with us and david goldman. futures negative six, dow futures -61, oil weakening to say the least. tomorrow on the program, we have been remiss in looking at real estate across the nation. we will do that tomorrow with spencer rascoff, the chief executive officer at zillow. from london and new york, bloomberg surveillance. stay with us. ♪
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tom: they took the "surveillance" gulfstream back to new york. i did not. we look forward to "bloomberg " with david westin and stephanie ruhle. good morning. david: we are picking up where you left off with markets. oil and stocks moving downward together. we will also be talking about iran, because they are in italy today, taking a look at getting back into business and spending some cash that we have been freeing up. we are going to talk about halliburton earnings, as well as
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breaking news about mcdonald's earnings. and we will talk about the revolution in twitter as four senior executives are leaving as jack dorsey tries to shake things up. that is coming up on "bloomberg ." tom: the ruble coming across, getting your attention. 80.03. that shows a turnaround in oil this morning. not a big deal, i do not want to make it hysterical. withis certainly elevated the dollar index, a little bit elevated as well. joining us this hour, david goldman and daragh maher, making us smarter. the linkages of international economics into our equity markets -- david, let us review china and japan. where is the next leg of abenomics coming from, or is it done? david: i think the japanese had very little maneuvering at this point.
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they are suffering probably more than anyone else from the decline in world trade. exports are sharply down. with their manufacturing sector and their strongest companies, so i do not think a monetary response is going to do very much. i think we have see china begin to pickup and the wrist of -- and the rest of asia pickup and get off the ground. vonnie: i am going to break you in here and give you the halliburton earnings. in premarket, it missed slightly on revenue but of course analysts had lowered their expectations. in terms of earnings per share from continuing operations, $.31 versus $.24 because of construction and the engineering company saying it is committed to the deal, which is pending. tom: thank you so much. we appreciate that right now. come over to the bloomberg terminal. david, this is an important point. this is asia dx wide.
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the fear idea here is of another 1997, the collapse of 1994 through 1997 was profound. this was the asian basket of currencies, ask japan. what is the probability of , 98?g another 97 david: it is extremely low. there was a massive bubble in asia led by thailand, a completely unviable financial system. the financial and speculative conditions in asia are nothing at all like asia in 1997. i was on the scene then. it is not really comparable. asia is suffering from a collapse of world trade, which is hurting manufacturing companies above all. that is why you have weak growth. but you do not have the massive -- i am not worried about that
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kind of collapse at all. it is a radically different environment. francine: in an interview with bloomberg news, governor kuroda showed little appetite for stimulus straightaway as the bank prepares for the debt policy on friday. does he have one shot, only one shot to get this right? daragh: i do not think so and i do not think he is going to move this week. we have had a very volatile start to this year. we've seen the nikkei down a lot. what governor corona is trying to extrapolate is that policy -- would governor kuroda is trying to extrapolate is that -- he is trying to be clear that he remains optimistic. the inflation expectations are gradually rising. i am not sure it would bring much benefit at this point. the impact of another qe expansion in japan where they are running out of bonds to buy
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anyway -- tom: thank you so much. david goldman, thank you so much for plowing through the snow this morning. hsbc, and dr.ith goldman is with reorient. tomorrow, spencer rascoff will join us. we have not spent enough time on housing and we will do that tomorrow with spencer rascoff of zillow. francine lacqua, tom keene in london. vonnie quinn in new york. we will continue on bloomberg radio. stay with us. futures negative five, dow futures to -15. get out the shovel. it is "bloomberg surveillance." ♪
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david: breaking news on the energy industry. news from one of the biggest properties, halliburton. meanwhile, rallies did not last. how long the turmoil is likely to go on.
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an emerging from isolation -- iran's president is in italy, where he has post session jobbing lists -- post sanction shopping lists that includes airliners and cars. welcome to "bloomberg ." i am david westin. stephanie: i am stephanie ruhle. welcome home. we spent last weekend davos. this man, planes, trains, automobiles. what time do you get in your house last night? david: 8:30, 9:00. p.m., and where is he now? right here. the former managing director at black rock and now a finance professor

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