tv Bloomberg Surveillance Bloomberg February 16, 2016 5:00am-7:01am EST
francine: freezing oil production. saudi arabia and russia strike a deal. markets are disappointed. they were expecting a cut. european stocks on the rebound. central banks willing to support growth, investors say mario draghi will make action in march. anglo-american posts a loss after being cut. in an interview, the ceo says he will sell more mines. i'm francine lacqua in london with tom keene in new york. the most significant news we have had over the last hour is saudi and russia. looks like we may have a floor
for the price of oil. tom: we may have an agreement -- it is pretty sketchy right now. javier blas is working on it with bloomberg news. to me, it's a lot of what if. maybe the story will change up in the hour. francine: yeah. we definitely have a freeze. that is why the saudis are talking about the tar minister. now let's get straight to the bloomberg first word news with vonnie. vonnie: in harris, david cameron -- in paris, david cameron failed to win over francois hollande. france heads a group of european nations, unhappy with his proposals for banks in london. the u.k. has no veto power over euro area legislation. an air raid on a hospital in syria has killed eight people. syrian rebels say russia carried out the attack. the hospital was run by doctors without borders. a warning to the president of
south korea, saying that north korea will gain the capability missiles unless the world forces kim jong-il and tu- new satellite photos show china has expanded its activity in the south china sea. a helicopter base under construction, happening as president obama meets with station leaders in southern california. taiwan., vietnam, and are among the countries have complained about china's actions. and taylor swift won three grammy awards last night, including album of the year for "1989." therick lamar won five, most of any performer. global news, 24 hours a day, powered by 150 news bureaus around the world. who anybody know
is anymore. francine: a very politically motivated -- tom:i love i love drake. francine: drake? vonnie: wonderful. tom: data check. equities, and bonds, currencies, commodities. what we will do today is give you a lot of prospective on where we were from three, four, five days ago. green on the screen. euro churning. oil all over the place. we'll show you some charts on that. onto the second board, if you would. vix indeterminate, improving. market offn in the friday and thursday. news.and renminbi is the a stronger chinese yuan.
francine: this is my data baord. european stocks, equities on the rebound of the year the all is asia. we've had a reversal the last five minutes -- i stand corrected. down in crude. it is all over the place. let's try to understand what this production freez means. david cameron was trying to renegotiate u.k. inflation rising to the highest in the year, of volatility -- you will tility on, tom -- vola the pound is the most since 2011. jumblest a mix and a today. s&p up 22, dow futures going the other way. let's go to the bloomberg terminal. this is one example of a technical damage. down we go in oil, what a perfect kiss. this wasm eie in,
perfectly kissed. this is the qatari gap. vonnie: i love it. it will be interesting to see what happens. will it take more than a freeze for so they do happen? we try to do is look at the technical damage and get some fundamental analysis. francine: th e kiss, i like that. the ministers of saudi arabia and russia agreed to freeze oil production less than an hour ago. for more, let's bring in our guest for the hour. us.k you for joining er, we need to understand how the markets this.reted
we have an agreement to freeze production between saudi arabia and russia into other countries -- what does it mean question mark the markets were disappointed because they want to they cut. javier: they thought it was too little for a first meeting. but if you think about where we were only three months ago, thi. we have an agreement to freeze anduction where we are today, much has changed. three months ago, saudi arabia and russia were fighting for market share, trying to undercut each other. most of us are trying to do the same in china, and over that, both countries were fighting a proxy war in syria. today, the ministers of both countries -- they really reached a preliminary agreement. the freest production, and i think that -- they froze production and i think that a significant. this was freezing and eventually cutting production, and they have a a sense of a floor, $30. javier: what it's indicating is
that they are trying to still the market. if you bring the price below $30 it will come with action. i think this figure negotiation -- we are only beginning to understand what is going on. the countriesat have been talking for several months behind the scenes, and this happened in 1999 -- a big game between opec, mexico, and norway. before those production cuts came, they had to freeze output. it suggests -- it is still too early. javier, i don't want to embarrass ev don't know the answer. , butpower, non-opec power what is not in this discussion is united states. can these two parties adopt or just the price of oil, or can they do this only when the united states is discussing it? javier: i think you are a slowly right. there are tow big missing --
two big missing points. couldrussia, and iran increase the price of oil, but they cannot lose it to be on a certain point without collaboration of the u.s. that is not going to happen, because no one is going to go negative. can they put the price -- they can move it, but above $40, shale production kicks in, and that is driving the market. tom: here's a bloomberg commodity chart. this is blended in with hydrocarbons and everything else. it's an example of the damage that has been done over the last months.r four what are the trends right now? commute is a jumble. do you see an actual trend of
ut there? >> i think there are some underappreciated development on a macro level. we actuallyntly, if agree to the fact that the market is driven by three major drivers, china risk, oil, and the slowdown in the u.s. economy, i think these three drivers are a lot more correlated in the people in the market tend to appreciate. i think this is something that is going to create a turning point in opportunity. what do you mean by that? were to tell me the beginning of 2016 that oil prices would have declined, you would have probably guessed that economic activity would accelerate. however, through the credit channel, oil has had a big htit in the u.s. economy, which has weighed on output and rates. at the same time, the dollar has correlated a lot of oil prices. the dollar strength is moving in tandem with lower oil pricing.
within all that, the underappreciated factor has been that the fed tightening has come at a certain point in time that it has created more risk than relief. francine: give me a sense of why we see so much volatility. this is something we are trying to explore. is it because the markets panicked, or is it just because of sovereign wealth managers with so much money that, if the price goes, their finances are impacted? >> a lot of the developers are happening in same time. but you have to dig down deep or to the root cause. well there has been this supply going on, china still looming in the background, the fact that the fed has been tightening at a time of risk has aggravated market sentiment. you can actually locate the turning point in the market since august, to the point where
the fed became more hawkish, and the spike in the rate that has been associated with fed tightening has triggered a stronger dollar, correlated with lower oil prices. i think the fed tightening is underappreciated. tom: thank you for talking with us. coming up in our next hour, we are thrilled to bring you a first look at your february and march wall street. with arhoades spectacular magazine on global gross, or lack thereof. stay with us. ♪
in the market futures, dow futures going the other way. it's a jumble out there. we will try to make sense of it. right now to make sense of our bloomberg news flashes vonnie quinn. vonnie: thank you. anglo american has reported its fourth annual loss in a row. anglo lost three quarters of its market value last year, and plans to make up for it in the next 10 months. losing market share in the wake of the emissions scandal. the company still has one fourth of the market, but it is losing ground. airbus is raising its tally for last year. they added another 44 jets to itsorder bulk and says backlog is valued at $1 trillion. francine: thank you.
mario draghi reassured investors that he will act if financial turmoil threatens price stability. they are pricing in a tent basis point cut. joined -- thank you so much. when you look at central banks and central-bank action around the world, it seems like their third mandate for janet yellen's price stability when you look at markets, and these markets will not give them -- >> absolutely. the systemic risk is one lesson -- inflationary price ability is andenough -- inflation price stability is not enough. the fact that we now have a about how
strong the u.s. dollar is influencing valuations across the world, particularly in emerging markets, with knock on effects to other stock markets shows that we are living in an interconnected world. don'tne: i still understand the correlation that markets overall house with the price of oil. this doesn't understand why we are seeing so much volatility. fundamentally, nothing has changed. why? >> if today's announcement about opec is that it will put a floor under the oil price, the regime change would constitute, in terms of inflation expectations, and there will be pricing of other assets, could in fact mean another major repricing of asset valuations in the weeks ahead. particularly that means the bottom headline cpi inflation. yes, oil prices are a major factor.
the fundamental math that matters is systemic risk and cash flow. place refreshing -- --: help me out here with the fact is i was watching "kung fu panda 3" instead of listening to mario draghi. what did he say? was a more important than "kung fu panda 3?" >> i am so glad you mentioned that. i am presenting in switzerland next week and then using a metaphor from that. mario draghi made an important point yesterday, that we are in a world where regulatory surveillance is no longer enough. capital ratios are not the issue -- the issue is bank profitability. banks can no longer engage in
the riskier activities of the past. they have to find new services of profit -- new sources of profitability. the fact that we have got this deflation from the emerging-market equities to the emerging-market currencies to weaker commodities -- think about it from the last cycle, having been the drivers of the cycle this year. so banks are squeezed in terms of profitability, and that has an impact on their capitalization. that will have an impact on isir willingness -- so mario saying that central banks are willing to act, but the markets are saying we don't how to price it in. tom: we will come back to knit some of this together. lena komileva. in our next hour, he write the
however volatility on sterling-hero climbed the most since 2011. watch out for brexit concerns. is time for my morning must-read. today we talk about something about how you price risks. this is our opinion piece. -- what does it mean for pricing risk? what does that mean for a possible canary in the coal mine going forward? our guests are still with us. how concerned are you that we are not looking at the markets to warn us that we are seeing something sinister, which could be no growth next year, or a recession? >> typically, the most sinister developments are also the hardest to identify.
i think the market has been quite quick to price it. mostly because there are so many different correlated factors keeping us, and to some extent, you can claim that some of the assumptions in the market are while therelook -- are risks -- francine: what metrics? >> the real rates, inflation expectations, are nominal. a what hasry -- so, happened since. we are in a different inflation environment, coming to the realization that rates are lower , but we have to justify low-inflation outcomes to justify those levels. francine: should we be more prudent in the markets? they seem to be rising when they think central banks will do more. >> absolutely. the fact that the markets are so sensitive to liquidity, as
dictated by central banks or by systemic risk, default risk, suggests that the global economy isn't in a state of unstable disequilibrium, although we are into a mature emerging-market slowdown. tokets have generated enough bring down unemployment rates, to keep underlying inflation high enough. yet when you look at financial have currency wars, negative rate wars, an environment that is dictated by systemic risk through a broken emerging market growth model, a stronger dollar, and price wars and commodity markets. means -- these are risks that are not fully priced in, and they have to be. s come back.
we want to talk about the strong dollar. later on "bloomberg ," steven ratner with his work a few years ago with the presidential task force on the auto industry. steven ratner, look for him on "bloomberg ," coming up. from new york come from london. -- from new york, from london. a gorgeous day in london. stay with us. ♪
it is very indeterminate. she has the sort of turn of the first word news. vonnie: saudi arabia and russia, the world's two largest crude oil producers, have agreed to freeze oil production after talks in qatar. the saudi oil minister says freezing at our january levels will be an adequate measure to stabilize the market. after the announcement, they par ed their oil gains. the case of the missing malaysian jetliner is reaching a biggestestone -- the unsolved mystery in 80 years. unless there are new clues, it may end in june. the boeingrt of turned up on the reunion island thousands of miles from the search. the u.s. air force and the pacific warns that china is
closing the technology gap u.s. pilot still have a big edge with training, for china has a modernizing its military. mexico, wheres in yesterday he denounced the exploitation and exclusion of indigenous peoples. today, he has to a city in an area plagued by gang violence. intle lines have been drawn what is shaking up to be an epic political fight in washington. republican senators are vowing not to act on any supreme court nomination by president obama. within weeks, he is expected to name a replacement for antonin scalia, who died over the weekend. and former president george w. bush is campaigning for his brother in south carolina. trump,'t mention donald but said that the loudest person in the room is not always the strongest.
francine? francine: thank you. the past hour, we have had news of saudi price freezes, saudi production freezes, and russia. and -- if wes, lena start looking at facts, do you think this is the beginning of the dollar rally? >> from our perspective, the strength is behind us. there will be some central banks around the world, be that in asia, be that in japan. they will try to pursue weaker currency, and you cannot say that the dollar will not appreciate against those currencies. but when it comes to benchmark currencies like the euro, most of the dollar strength is behind us. francine: is that right, lena?
when you look at what mario draghi is prepared to do, and when you look at what the boj is doing, is it a given that the dollar rally will come to an end? >> there are two questions here. on the one hand, with the fragility of the global financial ecosystem, it has been built on three pillars, china, lending fears, week oil prices, and the strong dollar. the dollar hasn't been strong, it has been strong enough for diminishing 5% unemployment rate. strong int is too terms of exhibiting government balances. the second question is to what exchange rate changed things. this year it is quite clear that it is the exit away from the
fringe that is driving dollar strength. ubs -- give me a picture of her memory. -- give me a picture of renminbi. it appreciated a dramatically over the next couple days. the move down is a stronger renminbi, a stronger yuan. is there a reasoning behind this latest action, themos? >> i think you nailed it. the chinese government does not want to give the impression, to confirm that it has lost control of its currency.
it hasn't, from our perspective. there are a lot of data points that make them misunderstand -- but going on in china they have shown time and time it hasn't, from our perspective. again that they are trying to control their currency. from our perspective, although there is a need for easier financial conditions, rates in china are probably the highest around the world. they do need to pursue weaker currency, but at the same time, they will not give way to market pressures. tom: lena, i want to go from the foreign exchange environment to your global economics. do you presume their only solution is weaker currency? is a weaker renminbi the only way out for china? >> well, i think china is between a hard place and a rock. important to maintain the yuan's current value at the same time as remaining stock market
valuations, which in turn have been linked to shadow banking activities and leveraging of a bubble in the chinese housing market. thit will ultimately have an impact on consumers, whether it is the weaker purchasing power of the yuan or less inflated equity and housing markets. it is uneasy and visual in china, which is ultimately sustainable in the long term, because china will have to itsinue to expand foreign-exchange reserves in order to maintain domestic liquidity conditions is owner to recapitalize its banks. the thing is can china really rebalance its growth levels enough to prevent another crash? francine: the other question is how is japan going to negative rates impacting this? >> well, japan going to negative rates was, in a sense, a
capitulation from quantitive easing. to move toward negative rates, i think the understanding is that it is not about how much money central bank can bring, it is how effective it is. suggests that it's steering toward penalizing banks for holding capital, trying to get them to be more productive, to engage in credit creation and reflation. there are 16term, markets out there, and is a way of managing the yen strength, to stop importing deflation. francine: themos, there is also n linkage of the yuan and ye because of the pboc's basket. yen's rise can spur strengthen the yuan as well. >> and look, there is no part in
that doubt of the world they have used the currency and will continue as a means of fighting disinflation. but i think before we go into this, before we go into structural crises, we have to understand that the world has gone through a period owhere financial conditions have been tightening. central banks are preparing for at thelike the fed while same time we have had lower inflation of citations, slower growth, etc. in 2010, we expected a recovery, and in 2012, the eurozone crisis, always there has been a way out, and always there has been a solution of easing policy. gradually we are moving into policy throughout central banks. lenathemos fiotakis,
francine: we have been talking about the trials and tribulation of banks over the last three weeks. deutsche bank had to come out and say their balance sheet was strong, and or member what happened to credit suisse and they came out with earnings. let's get straight to a man who knows a thing or two about banks, one of our senior raiders, ed robinson.
lena and themos. ed, when you look at banks and what we put out today, very clear that banks in europe are retrenching. the pain is not over. >> yes, that is right. they are going to this very painful transition as they mix and match different businesses to comply with new regulatory restrictions. they are coping with a subzero interest rate environment, which is having a direct impact on the income statement. they're struggling with new challenges coming out of financial technology. they have to commit more to r&d. then you have the larger macro environment, a lack of growth in europe as a whole. all these things taken together are going to make for a very painful process of restructuring. francine: and we point to the fact that there is a lack of transparency in certain parts, right? if you look at the commodities, we still don't know exactly the
exposure of banks to commodities and to the price of oil. >> yes. you see that on the banking side, something that has to be unpacked by investors. but you also see on the wealth management side. we've seam credit suisse, ubs both double down on wealth management as a way to restructure, and now there have been large capital outflows as markets go sideways. you see impact as a commodity story there. tom: here's a chart -- this is a fabulous story. a long, fall for peace on the future. this is the carnage in damage done. i would suggest, ed, that this has barely started. tohin your reporting, what the next six months look like for a headcount across all of the eubanks? >> well, the next big event will
be on march 1, when jeff staley announces 2015 results and his own new strategic plan for barclays. that will be a big event to watch. the markets will certainly be gauging what happens with barclays in the restructuring there. over the next year -- john cryan atdeutsche bank, timaet aamat credit suisse. you can expect to see a lot more changes. tom: i know you have a stress-free job, but you are putting this story together as deutsche bank implodes, and hits the bottom, rolling over down 65 euros. ed, i look at deutsche bank and the carnage, what is john cryan's business plan away from financial liquidity and selling bonds? what is his to do list? the can't figure it out. >> one thing that has been
overlooked as part of his plan -- he's going to redesign, or will have his team redesign, his entire i.t. system for the bank. one of the problems deutsche bank's had is a lack of transparency. they can't see all the trades and exposures on their books, and a big reason why is the i.t. it's compartmentalized, systems don't talk to one another, traders don't know what other traders are doing. they have to attack the root of deutsche bank's problems, and it may be that it is information-technology. it is unprecedented. an entirelyg out new system. all technologists are watching that closely. francine: then you could end up in in europe with a banking system that is much weaker than the u.s. how does that translate into your world? is there a danger because european banks took so much longer to get their act in
order? >> there is no doubt that we have been in a constant been since 2009, a, of be increasingly and i in a state where there are higher capital requirements. that means one constant that has emerged. the other thing that has been going on is that, because of all the changes in how trading works, how businesses charge for trading books, we have had similar liquidity, which is leading to all these volatile episodes. althoughin europe, there has been a constant, for the last year and a half, it has been interesting and strong evidence of a strong pickup in demand for loans, out of households. granted, from a low base, but picking up. the real tale -- where is the
demand coming from? look at the bank lending survey. it is telling us that it is coming from low rates. it is making households refinance. tom: ed, i want the inside question on deutsche bank. can john cryan keep his intellectual excellence? can he keep that certain percent of employees that are the brainpower of the bank under his new compensation package until they all walk out the door? >> that is a big question, tom. clearly is speaking to stockholders when he says i am going to whac compensationk. we will change of the culture. but at the same time, he is trying to build up equity underwriting, buildup m&a. are not as
strong as its powerhouse income unit. so how do you build new businesses in super competitive fields when you are telling the marketplace -- tom: yeah. i totally don't get it. ed robinson will have another story out in three days, even better. i just put it out on twitter, a link the treatment of the future of eu banking. in our next hour, speaking of global wall street, carl weinberg will talk to you about the yen. 22, 10 year yield a 1.75%. stay with us. ♪
tom: good morning, everyone. i'm tom keene in new york, francine lacqua in london. futures up 21. let's get you to the bloomberg business flash with vonnie quinn. vonnie: it's the highest level of government criticism yet, with how china regulators have dealt with turmoil. regulators didn't respond actively in markets. he also said that they have management problems. job cuts are on the way at two
daimler truck plants. the parents will lay off more than 500 workers this week at the u.s. factories because of falling demand for commercial trucks. gulfstream says it can't keep up with demand for its most expensive private planes yet. the company told bloomberg that even if you have $65 million, yo u still have to wait two years. tom: i was outraged. e,ancine mentioned it -- vonni we will give her a break. let's go to francine lacqua. francine, i can't decide -- should i go with the corinthian leather? francine: yes. [laughter] francine: people get it to is quicker. here is what we are watching in
the coming days. we have a lot of talk about central banks. the presidents of the feds will be speaking, releasing notes from a january meeting, and the that saw this in brussels, talking about brexit, or at least the renegotiation phase david cameron wants. themos an dldnd lena. themos, if you look at yen, we have negative rates two and half weeks ago, and last week it was a panic, and today yen is gaining on the back of that accord to freeze production. what is going on with yen? was can governor kuroda do? >> in the short-term correlations, they have been intense. we extend the dollar-yen, bouncing in anticipation. we may have had a little bit of
the disappointment risk and sentiment drive. i wouldn't focus so much on the near-term globals. it your picture understanding about the yen. japanese authorities have been communicating that they are very optimistic, creating growth and inflation. now we are shifting into an environment where low growth is setting in. markets are questioning the boj. i think with the boj is doing by cutting rates into negative territory, it is sending a signal consistently, reflate in the economy is their entitlement. in that sense, dollar-and should be engineered higher. tom: i love that word, engineering. let's bring up the japanese yen chart. one of the teams is to recalibrate into an american 40 work week. off we go. abenomics friendly, then we roll over 113.
lena, has abenomics failed? >> tom, i am going to borrow from you -- the yen is the litmus of the global economy. it is this hybrid currency that is both a proxy of global demand and growth in the region, the biggest contributor to global growth in recent years. a proxy of the ability of central banks to influence financial conditions. the fact that we have had a thoughstrength, even tenure japanese yields fell to negative territory for the first indicative ofdicato cyclical expectations as the driver of smart conditions. at the moment, the fact that the yen is weaker is probably a welcome thing. through what we had, if it had
continued, we will be looking at dollar-yeah 100 now, and that -- tom: yeah. a beautiful call. that is percolating out there -- how strong could yen go? lena, thank you so much. themos, thank you. we will continue this discussion on international relations, international economics, and whether beans for your american stock market. carl weinberg will join us. we will bring you gideon rose, of "foreign affairs magazine" on sluggish growth, including america. stay with us. ♪
had adequate january levels. this is the ramification of too much market supply. -- is indeterminate for a third janet yellen consider flood for longer. this is "bloomberg surveillance," we are live from new york. francine, a jumble this morning figuring out which way to go. jumble, followed till it what you want. in europe, we opened higher. and now, investors are trying to figure out what is going on with oil. more unknown been known. that means people are nervous. tom: we are trying to pick it up on a four-day workweek with his u.s. and it is messy out there. crystal clear the bloomberg first word news. warning from the
president of south korea -- she says north korea will gain the capability to deploy nuclear .eapons the united nations may impose new emotions and sanctions on north korea. new satellite photos shows china island building activities in the south sea. this is happening as obama meets with southeast asian leaders in california. taiwan has complained about china's actions. in paris, david cameron failed to win over the french president on an eu reform. nations areu unhappy with his safeguards. the french president says the u.k. has no legal power over other areas. an air raid in has killed
people. they say russia carried out the attack. it was a doctors without borders. and taylor swift 13 grammy awards last night, including album of the year. she is the first solo female that twice.n cantor 15 grammys. he didn't win any top awards but he did perform. global news from 24 hours a day. i am vonnie quinn. i was not up late enough to see it. i have to see some reruns. tom: what i liked about this is that it is really a jumble. it seems a lot more real. vonnie: and the tributes. tom: yes, and it is more real to see the oscars. there we are, with the grammys
last night. let me do our data check. we have an important guest. nymex crude does not know which way to go. green on the screen but you wonder where it'll be in a few hours. the second board now. had a high earlier. francine? francine: european stocks stopped a two-year rally. they are trying to understand the saudi arabia-russia agreement. gaining a touch but it was gaining less than it was before we heard about the agreement and i want to show you the pound because we are seeing volatility. toid cameron is trying renegotiate the terms of the u.k. within the eu. let's go to a bloomberg now
as we get started. quickly, i changed this up. the dollar. i wanted to do this earlier and we will get to it. here is the dollar strength which bonnie is determined. we love to see where oil goes with this. maybe the freeze would be enough to get the oil up. francine? francine: let's try to figure out what we found out. arabia and russia have agreed to freeze oil production. michael hsueh is now with us. it is clear to me that maybe we have found a flaw. these two countries are talking and doing business and they are willing to act? i think it is not
surprising to see that prices have faded away on the final agreement which is underwhelming for the market. it doesn't show any cuts or that iran is explicitly cooperating with the freeze. francine: why did we expect iran to come in? they are just starting. they are unknown but we have venezuela and qatar and the saudi's freezing production. it is not bad. michael: no, but there were no substantive increases expected from those countries. it is quite underwhelming. tom: tell me the relationship of opec to on opec. i know you write about this. what is the balance between opec and non-opec. what do they do, do they hate each other or get along? andael: in terms of opec
non-opec that they will require non-opec corporation. they say that they don't get the cooperation they need. there is a history in russia when an agreement wasn't followed through as opec would have hoped. so it is not great. non-opecmerica a nation? how do you compartmentalize opec and non-opec? how does america fit in? michael: the trouble of their is that you don't have a huge state owned company operating. it is a large number of independents and it is more problematic to organize or coordinate action. ance, the u.s. has never non-opec country cited as talks with saudi or opec.
francine: you say you are underwhelmed. do you think they will cut production at some point? a similar agreement happened in 1999. it is interesting. they haven't said anything about price targets or a floor. point, i think that in the markets mind is that if to $20 or $10, how much does that raise the probability of a coordinated action? and the fact that they are speaking now does present that possibility. what role does iran have to play in this? we saw the cargo ships leave yesterday for the first time. they are just coming back on the market. is it science fiction to expect them to cut production? michael: no. i didn't mean to say that anyone
iran to make a statement but they were not part of these talks as far as i am aware. it makes the statement of bit less strong. certainly, we are still expecting iran to raise production. tom: what is your target? a short-term target like, do we go lower? and what, critically, is your terminal value for oil three years out? michael: we are not expecting that we go a whole lot lower. our terminal value for oil is informed by cost projects that are marginal at this point. which, based on a number of offshore shallow water and even onshore projects, air raising $55-60 four dollars a barrel. so that would inform our targets
for medium-term over the next three years and with the midpoint stock being the incentive cost for u.s. oil, around $50-$55. by 2018 we think we need to incentivize investment in oil or, if we get some upside surprises, we would need to see those increases at the balance mark in 2000 18 but it is quite some time off. tom: michael hsueh, thank you so much. you're just waking up to the announcement that saudi arabia-russia are migrating back to january oil production. it is never a disappointment when carl weinberg joins us. we will talk to him about the yen. fewstronger yen in the last
francine: welcome back. these are live pictures from london. davida crucial week for cameron. this country is heading towards referendum. a report dispensing as shows that u.k. inflation rates have climbed to the highest in a year. here is vonnie quinn. a private equity firm is close to a deal to buy adt, according to the wall street journal. of $4.4 market value billion. has reported its
fourth annual loss in a row. that is after the collapse of metal prices. looking at plans to pull out of coal and iron ore. volkswagen keeps losing market share amidst the scandal. the company still has a fourth of the market but it is losing to general motors and fiat. tom: joining us now with a theme of where is the global growth -- and one of the themes is japan, japan is the litmus paper -- gideon rose is joining us from the foreign affairs magazine in a bit. .ut first, carl weinberg he is snowbound. thank you for getting on the phone as you get ready to shovel. is abenomics dead? carl: it has been dead for a
while, sorry for not being able to get in. abenomics is dead. we don't have any arrows left in the quiver. frankly, i don't believe the bank of japan has any option to ease monetary conditions further than it has already. so we are just along for the ride. -- bring is the effect up the japanese yen. it is all over the place. deadis the effect of your abenomics for the rest of asia? of asia is going to have to grow without japan touched japan has not grown that much to begin with. so this is more status quo and a continuation of what we saw before. the engines of growth in asia are not in asia. japan is now the sunset economy. and the sunrise seems to be in china. -- gone: my weekend read
ahead. don't think people are sending money into yen because it looks good. i think what we're seeing is a fall down of the carry trade as hedge funds the lever. on that is a short covering the yen. hedge funds are paying back their short-term loans for currency. it will not last long. weekend, ther the governor broke his six month silence. he says the central bank is either -- is neither god nor a magician. that could be said about central banks in general. are we expecting too much from the governor and janet yellen? there is a tendency in markets in general to look to the central banks for guidance because fiscal policy has been
absent from the global economy in some time. the name of the game for governments has been austerity. and we can argue whether that is a good thing or a bad thing. but the consequence of doing what they have been doing this at the world economy has gone through hard times. as making the hard times any easier, the consequences has been eight attractive time of growth and monetary policy has run out. and more, i'm seeing the idea that japan will go through some debt forgiveness. what does that look like in a country where the debt is self owned? carl: japan borrows too much money and while you say that the debt is self owned, the liabilities are also self committed. so that is to say that the government walks away from a bond, it's true that the end japan suffer. but a whole generation loses
their savings and life insurance value if that happens. so it may be condensed and situated in japan but it is not going to go away. so it would be a tax on the taxpayer for the generations to come? carl: it gets the retirement generation. that is the against slice of the economy and you will see that economic results. you will see them anyway because they are dying off. when they die off they tend to consume less. with fewer consumers, they tend to strike. -- tend to shrink. do you think that the governor has the toughest job on the planet right now but looking at central banks? mario draghi doesn't look far behind. he is expected to do whatever it takes to deliver. carl: there once was a time when
i wanted to be a central bank i do not.nd now i feel sorry for my friends who are. there's a lot being asked of them. over the weekend were that it was not a magician and central banks cannot deliver what people are expecting of them right now. growth has to come from somewhere else. tom: carl, you write great headlines. what do you mean by a depression large? carl: you look at the world and explain to your friends what is going on. commodity crisis of crash and stock prices are crashing. economic growth is coming to a halt. unemployment is at record highs what do you need to see to call it depression? in conjunction with my course at the it looks to me like
things that central bankers of 1920's were looking at as they headed into the great depression. in my view we are in the eighth year of a multiyear economic down cycle. whether we call it a depression or not remains to be determined but the great depression was a nine-year event and we are just eight years into this one and i think we may be looking at a third turn down. tom: carl weinberg, thank you so much. screentures green on the , on bloomberg go this morning we continue the discussion with jack rivkin. as well.e on at 7:00 stay with us. futures are up 22. this is "bloomberg surveillance." ♪
tom: the end of winter and the beginning of spring. that means big temperature swings almost 50 degrees from a frigid weekend to a balmy 30 degrees in london. we have rain and slush. temperature swings is what you see this time of year. speaking of latitude, we just saw vonnie quinn bring up a sharp article. saw something on the revival of american isolationism. intalks about the difference the presidential election campaign versus president obama as beingis criticized
disengaged. i quote, donald trump and bernie sanders have
embraced ideas that are isolationist in all but name. if those ideas prevail, they would make obama look like a super engaged internationalist. it is true. the two front-runners talk about either building a wall or nothing -- >> tom: i think it is fabulous. to know is that we have lived with isolationism two oceansmfort of for 300 years. is there isolationism within the united kingdom? francine: there may be a little bit of that. the u.k. doesn't have the same impact as the u.s.. if you have very little foreign policy then that creates more of a mess in the middle east.
u.k. have little foreign policy. but there is a point
i want to make. in europe, we have had more extreme parties either to the far right or left. the way our political system works is that they can be on the fringes. whereas i think what is going to happen, because of your political system, there is possibly the chance of these guys being voted in. there is a question over how much international policy will impact the election with the supreme court election. huge change.a i can't convey how things just changed. vonnie: it will definitely be the story that dominates the both then process in republican and democratic primaries. he will have to see. president saying he will push forward to make it
nomination. vonnie: and the republican say no way. tom: we had a couple of e-mails in. him on the streets of god those, it was 47 degrees below zero and the guy says, you have to see become our of the new magazine. freezing to death with gideon rose. he magazine is out now and it is a must read. absolutely superb effort on the challenges of global and american economics. right now, futures are up 22. stay with us. ♪
surveillance." right now, to the first word news with vonnie quinn. vonnie: saudi arabia and russia have agreed to freeze oil production after talks. he saudi arabia minister says freezing at january levels will be an action to save the market. trading at $34 a barrel. the case of the missing malaysia and is approaching a milestone. it is weeks from becoming the biggest unsolved mystery in 80 years. the hunt may end in the indian ocean in june. only one part of the boeing airplane has turned up. the head of u.s. air forces in the pacific warns that china's military is closing the technology gap. experience and training give u.s. pilots a big edge. thea has been moralizing military with an emphasis on the army and navy. pope francis is in mexico where he yesterday he denounced the
exclusion of indigenous people. yesterday he went to an area plagued by gang violence. battle lines have been drawn in an epic political fight in washington. republican senators are vowing not to act on any supreme court nomination by president barack obama. within weeks, he is expected to announce a nomination. the vacancyell says should not be filled until after the election. and george w. bush is campaigning for his brother jeb bush in south carolina. mention donald trump by name but he said the loudest person in the room is not always the strongest. global news, 24 hours a day. i am vonnie quinn. so much.k you i get asked all the time, how do i get smarter? and i tell people the same thing, day in and day out.
if that scripture and magazine is a must-have. month to month, there is a theme. this month is the best ever. congratulations. everyone is talking about this right now. you piece together all these people. what was the biggest surprise for you in putting this issue together? how much agreement there was. we are in a big problem in terms of a lack of demand. and policy and government investment would be a logical way out of the problem. we have a fear but the fear is that there is an economic problem on the demand side that
is not being solved. isn't soft, people do stupid things. american foreign-policy is the least significant asset in all of this. in the sense that economic policy is more important in othercountries and countries will be affected more by a slowdown in the u.s. vonnie: you write in here that the stock market doesn't match and there is more traction in .urope and it doesn't matter if we are flat because as long as we keep growing, the distribution goes to the rich and the poor keep on getting poorer. gideon: a problem with that is that nobody benefits if we are flat. both theat you need is growing pie and a distribution
of that pie to everybody. so it is silly to think that the answer to the rich getting richer is for nobody to get richer. the ideal thing is for everybody to benefit. answer?: what is the we have a lot of guests on who say that the banks are doing the heavy lifting. there is no magic solution to anything. go through and see the things that we need to adjust? gideon: the problem with that view is that we may not just be in a temporary cyclical downturn or access savings. but rather, as larry summers argued, a secular stagnation also shows that it could drop.
going over time will not get you out of the problem. what you need are two things. we need unconventional bank tools. we have used up the conventional tools. and also, we need some kind of fiscal financial security. are there any recipes to get them to move? gideon: the problem is political. i asked larry summers this. he said, this makes sense. if it is so obvious, why are we not doing this. and that is why the central banks have had to do so much with this so far. they are the only ones carrying the load. they have to come up with extraordinarily strange, new radical ways.
helicopter drops and other monetary tools or we will be stuck in the tool -- stuck in this. how do you raise the demand? francine: one side wants them to act and the other side, they don't want qe2 exist in the first place. how do you reconcile that? gideon: inflation is going down and it has stayed low. the problem won't take your of itself. and there isn't as much of a were to do things on the expansionary side. do we want to bequeath the next generation more debt, which they can pay off at low interest rates or a massive deferred maintenance bill? tom: i hate you, i don't have
enough hours to read this. you have google, nancy, and how about through sheer sure most? i love his work. point toercentage client in the population growth rate will eventually reduce growth by roughly 1%. it was already underway before the financial crisis and the trend explains a good chunk of the persistently disappointing recovery. this gets back into the linkage of the demographic economics. gideon: right. what he is saying in this piece is that you have to think of the productivity and also the human productivity. the number of human productivity you are producing. those numbers are diminishing. instead of having a baby boom.
we are not. the united kingdom is the sole and single or distinction. butow this is controversial it is the outlier among the major economies. yes, the outlier. although now they are trying to negotiate benefits. the problems are difficult with the middle ground but it also applies to the u.k. my question is, when we talk about things, we talk about where things come from. where will the next crisis come from? in 2000 eight, you could say it was the u.s. or england but where is the next crisis going to come from? is it china or europe? gideon: europe is slogging along without impressive prospects but it doesn't seem to be a major source of the crisis. i would say you have to ask
have a realse you problem with slowing growth and the only question is, how bad will it get and over what time? there are tools they have to keep things ok but over time, chinese growth rates are going down. and debt will be a problem. the world will whether that is an interesting challenge. gideon rose, i hate you. it is a great, great issue, to say the least. tomorrow on "bloomberg with onence" we speak of the great optimists. what a struggle at has been for so much as european economics. stay with us. ♪
tom: good morning everyone. , and heoklyn wrote in said, i was wrong. i was imploding about deutsche bank. i meant to say that the stock has been imploding. down 80% or so. that is what i meant about the that was a surveillance correction. will put out a note today and deutsche bank is a top pick. tom: yes, and somebody else was moving away from credit suisse. thes catch up with bloomberg business flash with vonnie quinn. vonnie: thank you. ap will be acquired by private equity giant. ands the second major deal it will be done in less than a year. adp is surging in the premarket.
-- is pushing customers to sign up with satellite providers. the has stopped building boxes which were part of a plan to compete with cable tv. -- andf spring gulfstream says it can't keep up with the rich for its supply for the rich. 650million to pay for the g or the extended range version, you still have to wait two years. and that is the bloomberg business flash. new zealand can use. -- news that you can use. in the last couple of minutes we have had some extra comments from the saudi arabian oil minister. there is no one better to talk about this with then gideon rose.
and we have will kennedy here in london. saudi arabia is signaling that they may take more action to improve the oil market. this may just be the first degree. thehat you have seen for first time in 15 years is an opec producer and a non-opec reducer for them to sit down and make a deal. the deal is on the market but they are clearly signaling that there may be more to come. they want to stabilize oil markets. some investors are asking, where is iran? were we ever thinking that iran would be a part of it? they will not start cutting production right away. >> iran has already signaled that they will continue the policy of getting the market
share back. they want to get production back levels. so in the short-term, they will not be part of this picture. later, more deals will coalesce. and then maybe they could be part of something. tom: gideon rose is with us and oil is in the new issue. west texas intermediate comes up here. opec andd is an non-opec trend. what does this say about the cartel? they don't say anything because they don't have an official position. tom: what is the future of cartel? gideon: you have both a secular thatth a cyclical trend will get even up over time so it will drive prices back up
eventually but on the other hand you have secular changes in the technology of the oil industry. they are bringing on new technology and it will keep things lower than they used to be. we are in an era of volatility. you are seeing more volatility. tom: this goes back to the case against pessimism. maybe we could ask will kennedy in london, what happens now? we see show production jumping in. they have cut back and they will be first to the trough on this news? >> there will be a long-term trend to the oil market here. , as prices bounced back to $60 a barrel, how quickly will those wells that have been shut come back into the market? and will he affect be to put a long-term cap on oil prices? prevent us getting
anywhere close to $100 a barrel. francine: are we over correlated? russia didn'tnd live up to market expectations. what is going on in these markets? if i knew that, i would be buying one of the jets. the better the way to think about the correlation is that nobody is doing particularly well or has particularly great prospects. what we need is for some people to take the lead and step up. at this point, is becoming a sofa filling prophecy. if everyone thinks this is bad, it does become a problem. tom: that was gideon rose. look for the cover, we just put it on twitter. thank you so much. we will be following this throughout the day across all of the bloomberg media. on bloomberg radio today,
tom: a forex report is in order. the yen strength is kicking off. while you are having president's day, a stronger yuan was a shock as it cleared out speculators. the mexican dollar is what i am watching. some mexican strength in the next few days. but it has been quite week through january and february. right now, to david westin. there is a lot of news to cover. we are talking about the oil agreement. and we are also talking about the chinese data that you just referred to. and also the aftermath of supreme court justice antonin scalia. what that will mean for some cases. we will be joined by steve
rattner and by douglas aiken. that is all coming up on bloomberg . how about a single best chart which takes the global growth over? sometimes i bring up charts and i don't know what it will look like. the green is 20 years ago. this is a long chart. slope matters and there is a broad 10-15 years. these two recent bouts of secular stagnation shows that it goes really to the raging debate between summers and the optimist. >> and it is not a question of optimist in terms of what can be done, his point is that we have to recognize it is not just a
liquidity trap or a savings glut or a debt overhang. it is a long-term trend that will stay with us because of a lower natural or neutral interest rate. tom: one of the great things i optimist,ongenital particularly in markets clearing. is innovation helping a small part of america? is that a valid statement? gideon: tyler is reviewing this wonderful new book that'll be a big economic book of the year. and what he says in the review is at cordon is better on the past and the future. there is no question that there was extraordinary innovation in the past. the question is, will that cash will that continue in the future? gordon says no. but -- says that you cannot know that.
it is really still an open question as to whether we will be able to get more innovation down the road. just because we can't figure out what it is going to be doesn't mean it won't happen. it could play into that. what is the u.s. economy going to look like three or four years from now? tom showed a great report. surging more and making more things. we are going to see a lot of services pick up? i know we are seeing u.s. service sectors grow. are we not going to skew towards services as opposed to manufacturing? one would hope that. things inanufacture the u.s. overtime. not had aave recession in many years and beer coming to -- if we haven't had a
recession by then, we would be breaking records in modern history. i think we will be doing better than others. to thinkee any reason that the u.s. is in a long-term decline. tom: how do you go on from here? how does this folding to america's international relations? gideon: one of the things is that it will hit other countries even more than the united states. so we had a piece in the package of slow growth and what it means. of hiskaplan, one arguments in the piece is that china and russia will be hit by this more than the u.s. and their weakness may well be dangerous, even more dangerous than their strength. we have heard about an aggressive russia or china and they are getting stronger but in fact, the real volatility makes for weakness that threatens the regime.
so what it means is that the united states has to play a calm, richer and adult hand, not reacting unnecessarily and in stupid ways to provocative and's . rose with a terrific new issue of foreign affairs magazine. bloomberg continues with david westin and stephanie ruhle. i will wander over to the radio with some important guests. tomorrow, eric nielsen will join us. us onan curnutt will join the new volatility. stay with us. ♪
highest level in a decade. and uncharted territory. what antonin scalia's death may mean to cases involving big business. welcome to bloomberg . i am david westin. stephanie ruhle is off but here is erik schatzker. it is a good thing that i am not an olympics sprint or because i would not be able to do that. it is good to be back. and we have helping hands today. we have jack rivkin. and we have christine harper. always a pleasure having you this morning. we have a lot to get to. let's bring