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tv   Bloomberg Surveillance  Bloomberg  August 30, 2016 5:00am-7:01am EDT

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focus, thehe fed in dollar rallies as u.s. treasury's retreat. , we will speak to him and the next hour. bill running tax into billions of euros as the eu is expected to rule ireland granted it illegal aid. the stock markets jump as dilma impeachmentls her
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-- i'm looking forward to stanley fischer to see if he can give us any clues on what the next move from the federal reserve is, and we have this huge apple news. .om: i think that is a big deal i like how you had morgan stanley in your opening. the tension just moving from jackson hole is palpable. blogught lawrence summers' in the washington post yesterday was almost on the edge of scathing in his criticism of fed officials. we will full all of that into our interview with the vice-chairman. breaking news, this is euro area confidence for the month of august. it is a little bit more forward-looking and some of the things we have had including gdp. confidence is at 103.5. we look at every single piece of data because it is post-brexit. let's get to the bloomberg first
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word news. taylor: dilma rousseff failed to sway senators. she answered questions for 14 hours in her into each meant trial. lawmakers on both sides of the aisle expect to vote against her. to end aajoy will try political impasse today, asking pollack -- parliament to back cam -- back him. rajoy needs a majority when the debate includes -- concludes tomorrow. there would be a second vote on friday if he does not get it. jim orders from angela merkel. -- new marching orders from angela merkel. popular.ecome more they hold elections on sunday. has had-un reportedly
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two government officials executed with an anti-aircraft gun. one of the officials with said to have been charged with corruption after dozing off in a meeting. fbi is investigating hacking attacks on at least two election boards according to an alert from the cyber division. they did not say which states are involved but they say the majority of data stolen from one state took place in july. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities, a quiet august market a lot of anticipation for how the vice chairman could adjust the data. slightly weaker with dollar strength. oil with a bit of a gain. 0.82, thatr yield,
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would be one tea leaf to watch off what adam posen says. well, 102.31.s gold weaker. francine: i want to show you the vix index. .his is on my cross asset check i want to show you a little bit of the european stocks. following through a good rise that we saw in asia. yen,is the picture for 102, and it is all about the dollar move. you were looking at some of the treasuries and that is quite significant. this is my terminal. atis another way of looking the fed ahead of the all-important stanley fischer interview. you will try to quiz the vice-chairman on what he sees or not as reasons not to hike. in white is the topix index out of japan. i am looking at the fed through
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the eyes of japan and blue is the msci index excluding japan. this tells us that the fed will boost interest rates this year, has turned japanese stocks contrary so they are looking at yen weakness which is why you are seeing that divergence between jack and ease -- japanese stocks and their asian peers. tom: too cool for school. francine: we are seeing the dollar strengthened ahead of our interview in a little more than an hour with federal reserve vice chairman stanley fischer. let's get straight to our guests. they are morgan stanley's global head of fx hans redeker and kamal sharma. thank you so much for joining us. what does this tell about market expectation, and what was janet yellen's exercise on friday? to convincetrying
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the market if she does hike in september they will not be taken aback? hans: there is no time on those yellen comments so she was not saying she would like to hike rates this year. there was no specific date mentioned so that is a preparation for higher interest rates to come, which i believe is natural to assume. the question is the pace of rate hikes and stanley fischer made a significant difference. when he came out a few minutes later, he did not put a time stamp on it. that have a significant market impact. we can debate with the fed should do, may do, and what is the market direction. in the vix markets you will see volatility very often picking up when there are policy mistakes being done. we have to consider an early rate hike, preemptive rate hike where is the global economy is
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framed within a lower productivity environment where you have returns of investments as well as united states very low. when that is happening you are hiking rates to early, what you will get on the back of that is deleverage. that will impact the u.s. and will have a global impact. i think the criticism from their on this commentary may be justified. tomcine: actually certainly will have plenty more on that. overall, how much is the fed looking at dollar strength to do the tightening for them? kamal: we are looking at one of the most shallow cycles in history. two rate hikes next year and two by 2018. fed has to look at a broader set of indicators. the market has had to grapple
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with this third mandate about global growth, global volatility and the dollar index has rallied but come off its recent lows. we have our own global financial stress index that has hit its lowest. the market backdrop is very conducive for a rate hike. yellen will be concerned that a potential rate hike triggers further capital outflows from china. tom: absolutely thrilled to have both of you with us today. with two houses and very cautious calls on gdp. on this summer's critique yesterday, i thought it bordered on scathing. with collegiality that you expect from larry summers, he went right after the vice-chairman and said there is no wiggle room to raise rates. hans says the vice-chairman may backdrop -- backtrack.
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what is the distinction between september and december? kamal: i do not think there is a big distinction. i think the market is affected by the timing of the interest rate hike. the fed is trying to signal to the market that it is looking at the trajectory of rate hikes and they should probably go down that route. this is about the game plan. on trying toack insist on a specific time date and go with the flow from what we heard at jackson hole. there is no specific timing but there will be a path of rate hikes, albeit a shallow one. tom: how are negative rates being taken in europe? banking at the european system and you have the luxury of being with an american bank so you can do that differently. what are the constraints to central bankers within negative rate if europe is different from america? it is having a profound effect,
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isn't it? hans: certainly it has. banks, whereal easing of monetary policy can strengthen into currencies. before you were referring to here, theh is shown difference between the performance of the equity and globaljapan perspectives. what this tells you, at that moment when japan was getting into easing monetary politics -- policies and it did not work, leading to underperformance of the japanese equity markets, there is information in here for the fed. namely, if the fed is going to be too aggressive and is going
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to slow down the economy too early, which easily can be done within an environment where you have low productivity and investment growth. you can see over a couple of years the united states ending where japan now is. they are well advised to avoid that so that is what mr. larry summers as referring to. europe,raw the shot for you will see precisely the same shot. what is happening in europe, we have as well exploited the transition mechanism of our yield curves and therefore it is now, the federal reserve will act to early and aggressively, we can within the g 10 collectively into this situation where japan is where europe is. tom: we have two esteemed guests to get us started today. at 6:30 this morning, i
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conversation with the vice chair of the federal reserve, stanley fischer in defense of a fed making policy for the world. worldwide, this is bloomberg. ♪
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francine: this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. tom keene is actually in d.c. taylor riggs is in new york. aylor: apple is bracing for decision that could face a to pay billions in taxes in europe. may leave the final amount of back taxes up to ireland. the irish government said they would fight an adverse ruling.
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the derican owners of sold cheating volkswagens have been given a choice, get your car fixed or your money back, and they are lining up for the cash. most are asking for the buyback. andelez is walking from proposed takeaway of hershey. they see no possible way to an agreement. mondelezd have brought into the largest world company. francine: all of that sweet, sticky stuff looks good. we are awaiting comments from vice chair stanley fischer in a little over an hour now. the yen extending losses for a fifth day. with us is kamal sharma. thank you for some -- thank you so much for being with us.
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the markets will be listening to that interview by stanley fischer. what is the currency pair that will most likely move if he backtracks? kamal: certainly the currency the divergent story which was relatively benign. just looking at our broader currency views, we are still looking for a low euro-dollar. we think that will be the strongest and we think we will get down to 105 by the end of the year. we are still looking for a week or cable. the pound is one of the funding currencies. the one thing is that could go wrong? currencies really is the only game in town on the back of central banks. it is true with pound and euro. is there a risk that one central bank disappoints?
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and the fed makes it that much more difficult. kamal: the transition mechanism of monetary policy, the effect it is having on currencies is starting to weigh. now arethe markets challenging the view that further quantitative easing, breaking into negative territory will have an impact. i think the big swerve now will be the fiscal policy angle. the market vigilantes such as you are telling the central bankers what the next step will be. what will dollars signal to vice-chairman fisher or mr. we have a huge? 20% move in trade weighted dollar and we have a little bit of a cause. south?do 1-1 if cable go do you assume a brutal move in the dollar? kamal: i think the problem with
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dollar-yen, we have been of the view that the dollar-yen 100 risk is very much there, even a move below 95. despite the fact that we have stanley fischer on the wire shortly, we also have a bank of japan policy meeting and a lot of the focus among investors is -- the bank of japan will tweak its outlook on monetary policy. we may well get a bit of a bounce. having said that, we have enough event risk in september with the risk of the ecb, the bank of japan. tom: bring up the chart of trade weighted dollar. i think this is very important. larry summers with his criticism yesterday, larry summers lived that dollars surge in the middle. the people that are critical of the fed, including frankly
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stanley fischer, have a collective memory of 1998. that is a fact. into thethat full reticence of the fed to act in september or december? kamal: i think it is very much relevant. the keyword i think is global financial conditions. having very nascent u.s. economic growth. investment spending is basically negligible and it is debatable how far the u.s. consumer can continue to prop up the u.s. economy, particularly if rates start to height and tighten -- hike and tighten precipitously. the main engine for growth is the u.s. consumer against the backdrop of the benign average earnings. tom: kamal sharma with us. before we speak with the vice-chairman we are honored to
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bring you adam posen, a former member of the bank of england, on the advantages of negative rates. worldwide, this is bloomberg. ♪
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francine: i am francine lacqua in london, tom keene is in d.c. getting ready for a stanley fischer interview. that's get on some corporate news, apple running into a tax bill. the eu is expected to roll that a sweet tax apple
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deal and return for jobs. a decision is expected as soon as today. let's get today are at doyle. -- darren doyle. it has implications for the attacks in ireland, for apple, and for the commission which we have seen as more aggressive than in the past. who has the most to lose? >> that is a good question. in one respect it could be well seen as ireland and that might seem strange based on if there is a fine, that money goes to ireland so you would think it is a win for the nation but the fact of concern is that that could damage the attractiveness .f ireland as a center for fdi you have companies like google and facebook who would be concerned that this could damage the attractiveness of ireland.
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francine: is ireland putting pressure on the commissioner to stop that from happening? dara: absolutely. we have seen all throughout this process, ireland has said it would appeal any adverse decisions right to the final court as final -- as far as it can go. we have known for some time that there would be an adverse , and weagainst apple know this will be taken to the next level, it will be appealed and you can see if i'd go on as long as three to five years. -- see a fight no one as long as three to five years. francine: this is a little bigger than we thought, not only because it has to do with apple but it goes back to how much reinvestment tech is doing when it is putting productivity pressures overall. productivity, the
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productivity conundrum is something that central bankers are concerned about, and to lift that productivity slump is going to be a key focus for economies going forward. u.k., the context of the we are starting to hear a lot more commentary around corporate tax cuts and how that may have an in fact does impact on the fdi. -- an impact on the fdi. francine: when you look at the various iterations of brexit there is a school of thought that said maybe we will become a little bit more like dublin. we are talking a lot about dollar, the dollar strengthening ahead of stanley fischer. ♪
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tom: good morning, everyone. i am tom keene in washington, d.c. coming up, my conversation with
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the vice-chairman. francine lacqua in london. the french trade minister wants to end negotiations on a trade deal between the eu and u.s., saying the u.s. has not offered anything substantial. issuesk will focus on such as bands on u.s. agricultural issues. the u.s. is urging turkish and kurdish forces to quit their fighting in northern syria. the pentagon says those battles have hurt efforts to defeat islamic but turkey is vowing to until theush ahead kurdish and islamic state a longer pose a threat. the u.s. will hit its goal of taking in 10,000 syrian refugees early.
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republicans in congress question whether the screening process for refugees is tough enough. a new poll highlights some of the problems facing hillary clinton. the survey has clinton and donald trump tied in ohio with 43% each. clinton leads narrowly in pennsylvania and michigan. pennsylvania, trump has had a big lead in independent voters. colombians vote on a proposal in october to guarantee the rebels seats in congress and allows the the yesto be -- campaign is ahead. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. have talked a little bit about the dollar impact on what we
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heard from jackson hole last week. we spoke a little bit about the push back larry summers has been given -- giving. fischer, tom keene will be with him in about an hour. redekeroined by hans and george saravelos. ford hike has implications currencies around the world. talk about the linkage with the yen. george: i would say the fed is the only game in town because if you look at the other central banks, they have pretty much run out of steam and influence. i think the fed is what will determine what the dollar will do by the end of the year. as far as the yen goes, i think the impact is likely to be the least in terms of dollar positive because japan has run , so we are not optimistic
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in what they can achieve. at the marginl be helpful for the dollar versus the yen but not much. francine: i think we were talking last time about the fact that i said meeting is -- the is before theng bank of japan. is, what isestion the toolbox left? in november when we made our bullish call on the yen, we said that we need to look into what is the transition mechanism of yields. if you would have them applying -- these tools they are currently using, negative interest rates, quantitative easing, and quantitative -- that
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failed to have an effect on the exchange rate. that is actually why you have the japanese yen being an outperforming currency. when it comes to the u.s. dollar, here you are in a different environment. here you have a yield curve which is still functional and central-bank policy having a much bigger impact on the exchange rate. francine, laid this discussion off the efficacy of negative interest rates. for example, i am not sure if adam posen agrees with olivier blanchard. i am certain that marvin goodfriend does not agree with a lot of other economists. ar negative interest rates --re negative interest rates
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part of the toolkit going forward or have they failed? george: i think they work to some extent that you cannot take it to the extreme, and that is makingnt ecb has been and i think the bank of japan is realizing that as well. the issue is that we are reaching the limit. i think we have reached limit now. critically do we need to diffuse negative rates across the greater part of society, or can we keep them like in japan, contain just the large deposits and large institutions? you think about, is this going to make a big difference? i think the reason why negative interest rates in japan did not work is a need to understand what is the commercial asked and balance sheet structure. you will find there are differences.
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one part is in sweden where you have very little deposit funding bank liability and on the other extreme you have japan where 59% of all liabilities are in deposit. that implies if you are not able to reduce the cost of your deposits, then 59% of the not possiblere using. profitability is declining and we all know what it means when bank profitability declines and banks do not lend. tom: this is absolutely critical in the debate. so much of what i have seen and of jackson call is what i would jack's -- jackson hole is what i would call bank blind. it is all great economic mumbo-jumbo. the banks are involved in this discussion of the vice-chairman
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or mr. kuroda or olivier blanchard, in too often we forget that. francine: we do not forget it. tom: we do not. francine: we look at the share price and they have been very much under pressure but i do not know if central banks need to think about it, or it is regulators. problems are being compounded by compounded byd all these capital buffers and requirements. if you look around the world and the fact that banks are significantly under pressure, what is the prescription? we talk about this mumbo-jumbo as tom technically talks it, but if we are to get out of this mess, i do not like talking about the boundaries of monetary policy that maybe we need to measure things differently and look at different mandates. the comment comparing monetary to regulatory policy is spot on because if you look at
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what policymakers are trying to do, the monetary policy side is very easy but it is the other side, regulatory policy that keeps tightening. you have this contradiction between two very different sides of the armory and they are going a different way. i think people are rightly focusing on easing some of the rates. that is more tightening and fiscal policy as well. if that fails, i think the next step will be helicopter money. we wrote a piece months ago, that helicopter money is a means of fiscal acting. tom: given the reticence on what the fed will do, are we done with these ad hoc original policies or do you agree with george that we could see more original thinking moving from qe to helicopter money? hans: i think in respect of the
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fed, the fed should be super what theyecause should consider here is that it should allow inflation to leave. -- two lead. globally,king about a highly leveraged environment, globally an environment with very low investment returns. under those circumstances as a central bank pushing rail rates higher, what are the consequences? more deleveraging and lower return of investments and from the supply side of the equation, things going down again and that is not advisable. therefore, the best thing to look for, higher rates in future is to take a very cautious approach because if you are too early in this and it kills the economy off again, the question
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is where are you ending under those circumstances? the u.s. yield curve has not recovered well enough to issue enough emery -- armory to prepare for a next decline of economic activity. i think the best thing would be stable andl rates hike rates in line with inflation expectations. the worry i have over the past few days, u.s. inflation has been coming down again. target.owhere near the you are hitting the labor market target but do not hit on the inflation target. francine: do you change the target or do you put in play helicopter money? george: i think this is pretty much up to the fed said the debate for the fed is how quickly to move forward and helicopter money, fiscal policy
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is much more about japan and europe. goes, i thinkfed it is not really about 2016 pricing. it is about pricing for the next year. whether they will go in september is a big deal. if they do, the market will have much more room to price in rate hikes are next year. remember, we are only pricing two all the way out to next year. i think the debate is interesting in terms of the way the market develops. tom: we thank you both for being part of this debate. we will continue on this linkage of economics, finance, and investment, and this drives us forward to adam posen. my conversation with the vice-chairman of the fed stanley fischer on september and december. ♪
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francine: this is bloomberg "surveillance," francine the clot in london, tom keene in d.c. -- francine lacqua in .ondon, tom keene ndc the eu has concluded that ireland granted a unique tax benefit to apple. we are expecting the the one in charge, to talk about 15 minutes. the eu rules that ireland has granted up to 13 billion euros in tax breaks. we knew it was tens of billions of euros and we estimated it could be up to 19 billion and it could depend on the commissioner , whether it takes it back to 10 years or 20 years.
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13 billion is something to keep in perspective. this will be a long process for apple and has implications worldwide. tom: the implications for users of apple products in europe are minimal. tim cook is not going to have a tantrum and leave germany. that is not in the cards. francine: but the problem is the taxation may mean future revenues for apple. this could impact google, amazon , and ireland as a whole. it is something i think is significant and we should be watching out for. we will hear more from the commission in about 15 minutes. for 14 hours dilma rousseff withstood her impeachment trial. she said her removal would amount to a "political death is the reality
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impacted -- how is the reality impacted? real,, if you look at the it is unclear to me if it is 20% impacted by the fed or structural reforms. or how much is actually the rally on the back of the impeachment process probably continuing? george: i would say the impeachment is close to fully priced in for so the fx market is more forward-looking. there are two key drivers of the real, one is the structural reforms, fiscal policy in specific. how can that improve sustainability? the second is the global outlook , the fed. the real trades as a global risk currency so it is rallying
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because the market does not believe the fed, at least not yet. there is still some optimism around the fiscal policy reforms that the new president will go through. hans: i feel like the brazilian real, and the impeachment story has a far-reaching impact, leading the company closer to fiscal stability. what is important here to us that we are in an environment with very low interest rates globally. 13 trillion government bonds with negative rates and people are looking for higher returns. of course, if our view is going to be correct that the fed is going to be slow, under those circumstances in emerging markets and here in particular brazil has some potential. if you look at the flow of funds into emerging markets, they have
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slowed down but they are still positive. the flow of funds i think will stay positive in this environment. on emerging markets and developed economies, are they going to move in two different ways against the u.s. dollar or two you meld them all together? hans: the difference between those currencies where you have central banks losing their monetary efficiency in respective currency. japan has been the first example and i am wondering if europe goes into that direction, switzerland goes into that direction. here indeed you can see that those currencies can have their own life. that is not necessarily a positive because under those circumstances you would see the euro going up but maybe the central bank does not like the euro going up because it has ,onsequences on price stability
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it has consequences on the export industry. it is weak so it is looking to me that the euro is getting increasingly driven by -- and insurances feel incapable to export capital. much,ne: thank you so hans redeker and george saravelos. we were bringing you the latest on apple. the eu is saying that the iris deal between apple and the irish authorities slashed their taxes. apple may now have to repay up to 13 billion euros in tax plus .nterest according to the eu we are expecting a press conference from the commissioner best figure in charge of this -- commissioner in charge of this.
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the decision could cost the iphone maker billions of euros. it is significant because it makes their concern about hundreds of other companies. if you think about it from an eagle eye point of view, this could be significant for apple and ireland, because they lose that source of revenue and politically that pits the u.s. against the eu because they say do not touch our companies, and pits ireland against brussel. tom: isn't this why brexit the anglo-saxon axes are going to europe and saying, we are not going to do this and europe says, apple, you are bad. francine: from a simplistic point of view you could argue that is why brexit happened but the eu has been trying to break up mergers with the u.s. that
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have been beneficial for the u.k. we will have plenty more on that as we understand from the eu that apple may have to repay up to 13 billion euros in tax and interest. ♪
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tom: good morning, everyone. tom keene in washington, d.c., francine lacqua in london. , hans redeker and george saravelos. george, let it go to you quickly. with the markets telling central bankers what to do, there is nothing like the five-year forward disinflation chart in the united states. the markets are miles apart from the bankers. disinflation is halfway back to crisis levels. when does the central bank, and in this case the fed, when do they catch up with the market tone? george: to a large extent they already have. remember, they hiked in december and it has been a prolonged
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weight. . the fed thinks they are approaching their target on inflation and unemployment, and i do worry this time the fed will go head and the market might be missing the communication that is being sent in particular by the fed speeches over the last few days. tom: this is critical. hans redeker, you have been critical this morning of a fed getting out in front of reality. why will they delay in september? why will they perhaps delay in december? hans: of course you can find some argument speaking in favor of a rate hike. markets have been be nine, volatility is low -- markets have been be nine, volatile -- benign, market volatility is low. main point, inflation is
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nowhere near where we wanted to have inflation. secondly, that is maybe more important, corporate profitability is behaving very different according to other cycles. corporate profitability is weak in an environment where we have low productivity. we will have to leave it there. hans redeker, thank you so much. george saravelos. hour,osen in our next getting us ready for our conversation with stanley fischer. from london and washington, this is bloomberg "surveillance." ♪
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tom: after the confusion of jackson hole, before this
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friday's critical jobs report, a conversation with the vice-chairman, the optimist, stanley fischer on september, december, and the global pessimism.ervasive negative rates are a scam. in this hour, adam posen. mr. trump adapts to washington and washington adapts to mr. trump. this is bloomberg "surveillance ," live from our washington, d c bureau. d.c., francinein lacqua in london. this is an extraordinary moment with the vice chairman this morning. francine: he was the one the markets were listening to on friday. the dollar moved on the back of it so what would be great to get his perspective on the fed and globally. tom: we are thrilled to have
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adam posen assisting us with the confusion that we saw in jackson hole although i thought michael mckee's interview with esther george was superb. here is taylor riggs. dilma rousseff failed to sway senators who will decide whether she is permanently removed from office. she answered questions for 14 hours in her impeachment trial and lawmakers expect the senate to vote against her. the spanish prime minister will try to end an eight-month askingal impasse, parliament to back him for a second term. majority when debate concludes tomorrow and if he does not get it, a plurality would be enough in a second vote on friday. new marching orders from angela merkel.
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the anti-immigrant party has been more popular by attacking merkel's anti--- open-door policy. reportedly had two government officials executed with an airtight aircraft gun. one of the officials was said to have been charged with corruption after dozing off in a meeting. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: i really want to race through this this morning to get to dr. posen. markets churn, the euro weaker, dollar stronger. 0.83%.r yield, i noticed gold a little light this morning. francine: i like the fact that you are looking at gold. i decided to put in fixed pound because -- vix pound because
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sometimes we forget there is consequences for all asset classes. the vix index down at 12.88. this is the european story and it goes to the debate at jackson hole about negative interest rates. jpmorgan, theis red line is deutsche bank. this is what the debate is about, linking economic thought into the banking system. that will be our theme throughout the morning. francine: another theme is currency fluctuations or the differential between the markets and central banks that have a tougher time compared to the fed. if you look at the blue, that is the msci excluding japan and the white is the topic index. you can see the diversions have widened since the end of may on
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speculation that the fed will boost interest rates. that has turned jacket these stocks -- japanese stocks contrary. tom: thank you so much. we are thrilled to bring the perspective of adam posen of the peterson into -- peterson institute. n writing a scathing op-ed, basically saying everybody calm down. i was flabbergasted in how confusing the various messages were to markets that had to react to them at jackson hole. adam: it was a very different conference. there was much more academic stuff that just do have it set up for the chair to say we are not going to talk about anything like negative rates. you had vice chair fisher come out after the chairman speech, which was completely against
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precedent. does that come from a theoretical lack of underpinnings of the toolkit that the fed is using? i thought vice chairman fisher -- what islked about the strategy at the moment? adam: what we used to do up to the crisis, if you go back to vice chair fisher's speech a year ago, has position is basically unchanged. you have a phillips curve. you target inflation on a two-year horizon. that is as close to a strategy that we have got is there is no other clear marker. this is summers yesterday turning economics upside down, and there will be more efforts from professor summers out of the washington post as well.
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there is no imminent danger of 1970'sng the hellacious where inflation expectations ratcheted up leading to stagflation. , are we reliving the 1970's or can we move on? adam: i'm not. when i was at bank of england i make the same statement is larry just now. theissue is, how much was 1970's due to lack monetary policy and how much due to structural factors, opec, union strength, lack of faith in fiscal probity and an unexpected move in productivity? downturn in productivity that people expect it so it is not the same damage as in the 1970's. tom: francine lacqua.
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francine: i love the fact that there was linkage when you were on mpc. you keep saying that negative rates work better in the u k because we have more saving options. why is the u.k. different? adam: you mentioned the way japan diverges. u.s.,ent from the u.k. or you have a lot of older people who keep the majority of their savings and a banking product and are reluctant to move those. around that has grown up a political constituency of bankers and politicians. even though the rate returns keep going down, they squawk when they see a negative rate whereas in the u.s. you would still see people squawk but you can move into money market funds and equities. legally you can do that in japan but institutionally it is not set up. in the u.k. you can. one cent hike and
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something in the realm of negative territory for mark something --e saying he will not go into it? adam: they can always do more kiwi. -- qb. they have -- qe. the fed is constrained in ways that the bank of england is not. i do not think they should be afraid to do it. as ifne of the key ideas they raise rates september, december, i am not going to do the parlor game with the vice chairman because he will not answer but can they do one and done or two and done, or do they have to establish a vector like a greenspan measured like future? can they raise rates and say this time is different, we are
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only going to do one and done? that that goes back to quote from larry summers and the 1970's. if you think forward-looking expectations are in danger of getting out of control, you have to provide that certainty. if you think people are terrified of what will happen it validatesomy, their bad feeling and you have to have the upward path. i think both of those are wrong. tom: what is your prescription right now? adam: i would vote for one hike in december assuming we get job growth averaging what we have been getting, and that is it. tom: and just say that is it? adam: say we do not need to go further now. tom: we call that one and done in my world. we have breaking news. francine: this is what we're hearing from the commission when i look at apple, apple has been
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ordered to pay up to 14 and a half billion dollars in this eu tax crackdown. this is the commissioner which we understand instilled fear in hundreds of other companies. the eu has just rolled that apple was provided by ireland with illegal aid through a favorable tax environment. makerecision cost the eye billions of euros -- iphone maker aliens of euros and will stir concerns among hundreds of other countries -- companies. ireland has been quick to react and say they do not agree. it has been a very aggressive commission and they assume the commissioner means business. our decision concludes that splitting the prophet did not have any factual or economic
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justification. as mentioned, the so-called head office had no employees, no premises, no real activities. only the irish branch of apple sales international had any resources and facilities to sell apple's product. under the tax ruling, the so-called head office was attributed almost all of the company's profits. set up, due to apple's it was attributed almost all of the profit made from, profit apple made from selling products throughout europe, the middle east, africa, and india. the second company, apple operations europe, makes certain apple computers in ireland. rulings, same two tax
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the majority of its profit was also artificially attributed to a so-called head office that only existed on paper, and whose profits were not taxed. selective -- ♪
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francine: this is bloomberg "surveillance." francine lacqua in london, tom keene is in d.c. an interview coming up in about 14 minutes with stanley fischer. apple ordered to repay roughly 13 billion euros and we are hearing from the commissioner as we speak. let's get to the bloomberg business flash. taylor: the european commission
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has ordered apple to pay more than 14 billion plus interest. the eu has concluded that ireland gave it a benefits to apple to help it pays substantially less than other businesses and ireland says it disagrees profoundly. irish authorities are expected to go to court. that is your bloomberg business flash. withright now, adam posen us to give us a good briefing before we speak with the vice chairman. i want to talk about something that larry summers had in his note. bring it up if you would. another quote from lawrence summers. the apparent rigidity of inflation expectations and insensitivities of inflation to what yellen's focus creates extra uncertainties around the conventional idea that unemployment rates in the 4.5% range risk accelerating
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inflation. many say the roles have changed and it is not a risk to higher inflation. adam: i think it is not. it is great to have summers out there saying this. japan, had a new low in unemployment and it keeps going down. they are obviously falling back towards deflation. if you look at western europe, they had a huge pickup and there is more of a question of slack when it comes to spain. germany, you are not seeing accelerating inflation. there is either a flat phillips curve or must less response -- much less response than there used to be. tom: this is not stanley fischer, this is irving fisher. neo-fisherian is
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theory, which was totally counterintuitive to what was forced down our throats in macro economics. do we have to get used to the old theory and just refine it? adam: this neo-stuff is generally a bad idea. i cannot swallow the neo-fisher stuff. we know the movement in inflation and interest rates have a negative effect. look at europe, they could not cut enough and it had bad effects. defense burieds in that essay is his homage to old, simpler models to help you guys with all the phd stuff. adam: it just came out yesterday, he circulated a paper he wrote 10 or 20 years ago that talks about the real economy and
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it is very simple. the essay, that is this fancy -- the-looking rational essay is mostly against bsg's and because he is a conciliator, he throws in this paragraph at the end that says it is a constructive way to go. i do not agree with that. they have been in a terrible sinkhole and have misled policy or 20 years. we should go back to simple empirical regularities. tom: can stand fisher do that? that is the critical question. 2007, do weo august jettison the complexities of dst and go back to what they want which is simpler models? john taylor one simpler models. them i think he wants
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because of the policies they produce rather than the other way around. it is physics of copernicus and galileo, we are not yet ready for einstein. tom: we have just gone to astronomy,social copernicus and galileo with adam posen getting us ready for stand fisher. coming up in moments, stanley fischer. from london and washington, this is bloomberg. ♪
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francine: this is bloomberg
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"surveillance." i am francine keene in london, tom washington, d.c. ahead of the stanley fischer interview. tom: we need to digress to politics, which means speaking to martin shanker. counts and tonight there is a critical vote for senator mccain. bring us up to date on his battle in arizona. martin: he had a tough fight but the polling shows it looks like he is going to come through. we have a primary in florida where marco rubio is running and he's is showing he is pretty far ahead. trunk campaign monitor these -- trump campaign monitor these votes? does he address arizona with his speech on immigration? martin: in a normal political cycle you would guess he does
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that but this is not normal, and he does not seem to be driven by that. it is interesting he is going to try to redefine himself in terms of immigration tomorrow and the world will be watching. francine: what do we know about what he will say on immigration? this is the candidate that was going to build walls between the u.s. and mexico, the one that was very anti-islam. how can he come back from that position to win voters? martin: that is his challenge and his surrogates have been out there saying he has not changed his position even though any rational person who has been listening seems to think he has. to have someo try kind of cohesive message if he wants to move forward on this issue. he has to maintain his standing among his core group while trying to expand his appeal on this issue. francine: give us an update on
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what hillary clinton has been doing. if all of the headlines have been talking on trump, how can she regain momentum? martin: i think the anthony weiner news yesterday sort of sets her back a little bit because it just reminds people of the previous problems she has had with her own husband. she is doing a lot of fundraising. she is trying to reach out to her core and she is doing a good job. tom: i was at the willard hotel last night, where they came up with the lobbyist idea in the days of lincoln. does trump have any linkage to lobbying in washington? what is the trunk linkage to the washington machinery -- trump linkage? not seem toe does
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be a lot but lobbyists are paid to make sure they have influence in d.c. and if donald trump's president, they will have to find those links. tom: it will be extraordinary to see where this stands the wednesday in november after we pick up the pieces. thank you to martin shanker and adam posen. coming up, a conversation with the vice-chairman. from london and from washington, much to talk about and all of this coming off of jackson hole to friday's jobs report. this is bloomberg. ♪
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tom: this is bloomberg. we welcome you. francine lacqua in london, tom
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keene in new york. watching the two-year yield, more than anything. aro 23%, the higher yield and flatter yield curve, not thursday before jackson hole. weaker, 102.34. gold weaker as well. the data check has been a jumble for the last week or two or three, as we stagger through 2016. it's been all in all a real challenge of economic finance investment. and indeed, some international relations as well. it's been most remarkable. welcome bloomberg radio worldwide and all of you on bloomberg television. i'm joined by the vice-chairman of the federal reserve system, stanley fischer. professor fisher, wonderful to see you. way theo get out of the dance, i'm not going to ask you what you're going to do, because you're not going to give me an
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answer. i want to know not the if, but when there's a rate increase, ensure sure -- can you it is a one-off events, or are you forced into a measured higher vector of rate increases? can you do one and done or even done?done -- two and or do you have to go into measured increases like we saw years ago? professor fisher: the work of the central bank ever done. i don't think you can say one and done and that's it. base -- choosehe the pace on the basis of data coming in. i don't know that the time we start it's one and done or several. it depends entirely what's happening in the economy. your aspen speech, you stated i'm an optimist. you were surrounded by pessimists.
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we speak to them every day on bloomberg television and bloomberg radio. i want you to redefined the comment from jackson hole of pervasive has him is him. it's out there. -- pervasive pessimism. it's out there. how do you push back against that? professor fischer: the pessimism is not about employment. it's very close to full employment. it's about growth. in that problem is largely about productivity growth. something which is very hard to control by policymakers. on whatds enormously private individuals are doing in their companies. that is very slow at the moment. it changes from time to time. but we do not know when it will change. i expect it will change somewhere down the road. there are remarkable things going on on the technological front. but they are not yet in the
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data. you mention also the unmitigated blessings of the united states. yellenly you and share -- chair yellen are running something different than other banks have. do you feel going into the september or december meeting that you are the seven -- the central bankers to the world, or can you be discreet and only look at united states economics? professor fischer: the world is becoming interconnected, including the capital markets of the world. what we do affects many other countries. what they doe that affects us. we are dealing with interconnectedness, and we are probably the most important of the central banks. but the european central bank is operating in an area of about the same level of gdp. and what it does matters a great deal. and so on.
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economists have a primal scream to go back to simpler economic models. to move from the modern mumbo-jumbo back to simpler models. or hook into the real economy. anddebate at jackson hole the debate you are having at the said -- does it need -- at the fed, does the need to go back to simpler models like you talked years ago at m.i.t.? professor fischer: we do love simplicity. the question is the models which are fundamentally forward-looking in the future matters and expectations matter, or those which are more traditional, but maybe very big. the basic model that the fed modelthe so-called frvus is actually quite large and complicated. but the structure is one that one can explain to economic
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students. tom: i would like you to explain it to bankers. economists of talking to each other in jackson hole. there is a whole other system out there. when we look at negative rates or subpar economic growth and the productivity that you mentioned, i don't see the economists addressing the dysfunction to the financial system within the debate you're having for september and december. are you sensitive and aware to global finance and global banking having to deal with negative interest rates, just as one example? professor fischer: we are sensitive to what is going on. one hears about it and read about it and talks about it. tom: look at their stock price in europe. professor fischer: what is happening in japan, for instance. yes, we take all that into account. the united states is fortunate that we are not in the position where interest rates are negative or have to be negative.
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and we are not planning to do anything in that direction. but we certainly fall the debates and we certainly follow the theory of negative interest rates. with negative rates, i spoke to at the council of foreign relations in new york and much when it started. and we had a conversation with you a number of months ago, maybe half a year ago. i can't remember now. what you learned about negative rates in the crucible of the markets? professor fischer: we've learned that the central banks, which are implementing them -- therefore five of them -- basically think they are quite successful. and they are staying with that approach. possibly with the exception of japan. they are thinking it through and they will come back. to try and make negative rates work what -- better. we are in a world where they
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seem to work. i think one of the most interesting development i have seen in theory is a paper that says yes, they work up to a certain point. and then they become counterproductive. tom: precisely. that is a critical point. aancine lacqua and i have had guest call them an outright scam. there is a raging debate about the efficacy of negative interest rates for central banks, for governments, and again for banking itself. what about the efficacy of negative rates for savers and the people of these different nations? professor fischer: clearly, there are different responses to negative rates. if you are a saver, they are difficult to deal with. although typically they go along with quite decent equity prices. that, and weer all
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have to make trade-offs and economics all the time. the idea is lower the interest rates, the better it is for investors. that is where one of the great disappointments of the reaction to very low interest rates is to be found. tom: i know if i speak currency, everyone at the federal reserve stands up and say you can't speak. tread carefully here. with the belief of going back to simpler models, we are living in currency adjustments right now. president suggest touché would call beautiful moves -- brutal moves. tell me about dollar dynamics in greater economics. withstand any more strong dollar moves? professor fischer: we are in the at around 2%
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problem we face is that of productivity. dollar isink the fundamentally the most important factor affecting the rate of growth of productivity. obviously, a stronger dollar has an impact on the profitability of american companies. and on how much we want to import. but the bottom line on this is we have seen an appreciation of the dollar and the american economy continues at full employment. or moves towards full employment. in a fundamental sense, we have withstood much of that challenge. it has had an impact on inflation. reducing inflation. but we have to deal with the world as it is. princetonssor sims of was quite adamant about a greater fiscal thrust. we are exhausted from nine years alone, central
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bankers alone. how do you link the need for fiscal policy of the actions you take in september and december? the fiscal policy debate to me is 2017 or even 2018. it's really not part of the calculus now, is it? professor fischer: is difficult to take into account something without much uncertainty. i'm sure there will be changes in fiscal policy and 2017 or 2018, as you suggest. but we don't know what they will be. we don't know who will implement them. so we get on with the world that we see, and with the data that come in, and with the data that we expect to come in. tom: i tried to look forward, i need to look back. what was the symbolism in jackson hole? they walk out of the lodge and gaze at the elk in the mountains. yellen it would be chair
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with this for dignitary. this time around she is surrounded by dudley and fischer. what is the symbolism? professor fischer: i don't think we are propping up the chair. it is a pleasure to work with the chair, but propping up is not something that she needs. tom: you have to show that everyone is on the same page. professor fischer: i was asked if i would like to go out and see the scenery. and i certainly enjoyed it. i was in the middle of a cup of coffee, and i was allowed to take it out with me. tom: that's important. professor fischer: it was fine. i think it sends a message that the people within the system are thinking along similar lines. tom: mr. vice chairman, stanley fischer, thank you. we think bloomberg radio for joining us worldwide today as well. coming up, more discussion on
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economic, finance, and the discussion from london in washington. this is bloomberg. ♪
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francine: this is bloomberg "surveillance." that was extra ordinary interview with -- extra ordinary interview with stanley fischer. onen't think you can say and done with interest rates. that seems to say he could have appetite for at least two interest rates. everything is data dependent. this is a victory for our data, the european stocks are gaining, i would watch out for apple
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losing 1.47% after being ordered in premarket, after it was ordered to repay 13 billion euros of interest by the european commission. we are thrilled to have dr. , and there's already a correction. you said no one is propping up chair yellen and we all understand that. , there was thes symbolism of deadly and vice chairman fischer. tell us about that politics. dr. pozen: i think the joking about props aside, it's straightforward. the are trying to give impression there is a broad consensus on the committee and that there is no vice chair dudley, vice chair freelancing.
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that chairs the fact speech was moderately hawkish. it was a wonderful interview, but i don't understand why they felt it so urgent to keep saying to market, you have to hear us right now. occasionally they get it wrong, it's not the end of the world. francine: is it not the end of the world? you could argue that the fed in general have been taken aback by market reaction. the last thing they want to do is for that to happen again. you tart the market up so you keep more options open. dr. posen: i think that is not right, actually. have a taperng to a from, you're doing fundamental shift in the direction of policy. it's different when you are
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talking about the timing of one more rate hike -- is it september or december? for decades -- there is no point in trying to surprise the market. you are not trying to do that. but any game theory would tell you, the biggest way to demonstrate conviction or credibility is to do something. if the markets are off on the probability of september and they decide to move in september, the markets will learn. i don't think it's right. you worry about the markets that much, then it's a crisis when thumping is fragile. this is supposed to be a normal rate hike, as vice jeff fisher said. -- as vice chair fischer said. what if they are trying to talk up market expectations so the dollar strengthens and that tightens everything for them without doing a hike? dr. posen: economically, you are right. they are substitutes to some degree. if you tighten the dollar, is not exactly equivalent to tightening rates. it basically has the same effect.
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was raising to medications wise, i think that would be seen as very strange. they are not going to want to do that. -- communications wise, i don't think it would be seen as her strange. there are going to want to do that. francine: the market doesn't believe that. our central banks in a bubble of their own? market is going to completely other direction. dr. posen: i think you are right to raise the issue. sometimes central banks, like markets, do get off in their own bubble. , theyegative rates actually are working pretty much as you would expect in the countries for which it makes sense. the vice chair mentioned in jackson hole, we had the dana's central bank down there. we have number two from the swiss national bank. smallwere all examples of economies, with a negative rates are behaving and functioning the
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way they would expect. and for the bank of japan, they did indicate -- and it was backed to buy politicians today, that negative rates are still on the table. for the be better markets to listen to the central bank. en, thank adam pos you. coming up on television, we update you on the latest with apple. this is bloomberg. ♪
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francine: this is bloomberg "surveillance." i'm francine lacqua. , tomoke to stanley fischer keene brought us that interview. saying we are not planning on doing anything in terms of negative rates. euro-dollar,t the 1.1168. from the eu side, the economic conference in the euro area -- confidence in the euro area worsening. that's having an effect on the
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pound, 1.3090. caroline hyde, i know you have a packed show. of a brilliantck interview, it's fantastic to have stanley fischer. we will speak to one of the biggest bond managers. u.s.manda says get out of treasuries, they are behind the curve when it comes to fed tightening. this is the cio of franklin templeton. delving into that dollar move that much more. dependency,e of that is what we heard front and center from stanley fischer. and we are cheering more data for you, the housing data coming out. that is s&p case schiller. francine: and apple. carolyn: it's all about apple. -- caroline: it's all about apple. we're going to be speaking with brian right at drexel hamilton, he says apple shares are going to double. francine: why when you have such
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adversity? thank you, caroline hyde. looking forward to "bloomberg ." repairas been ordered to $13.5 billion plus interest after the european commission says ireland illegally slashed the tax bill. it's a multifaceted story. it is certainly a negative story for apple and a negative story for ireland. it is a negative story for relations between the eu and the u.s. what is the most mitigating we learned in the last hour? >> the eu has said with the apple case in ireland, it's focusing on 2003 through 2014. it says apple's effective tax 2003in ireland was 1% in and then went down, up to 2014. itsway apple has structured
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businesses here in europe, it channels all of its profits into a virus unit. the competition commissioner says that unit, the head office that has over there in cork, ireland exist only on paper. it's not a physical entity, and they have been channeling the profits through that. and therefore with the tax structure they have gotten in ireland, they have been able to severely reduced their tax impact. francine: who has the most to lose out of this, ireland or apple if they end up paying $14.5 billion? 13 billion euros plus interest. it's hard to tell who would be the worst out of this. ireland could use 13 billion euros to help pay down the budget deficit. it's a bigger problem for them. they are thinking about their
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ability to set their own tax policy, and their ability to continue to do attract multinational companies like apple and other u.s. companies, who based themselves they are -- based themselves there specifically for the corporate tax rate. apple has a special deal on top of that, which is what the commission is going after here. it's not the 12.5% corporate tax rate, is the special deal they say gave apple special benefit. francine: jones hayden, the brussels bureau chief. these are your markets. the dollar strengthening a little bit, treasuries falling on the back of the stanley fischer interview, suggesting that the economy was close to full employment. this is bloomberg. ♪
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alix: the fed in focus. the dollar hold its games and yields fall across the treasury curve. traders repositioning ahead of friday's payroll. economic competence declines in a sign that brings that shock are getting european companies. alix: apple is ordered to cough up at a record 13 billion euros after the european commission says ireland illegally slashed the iphone maker's tax bill. welcome to "bloomberg ," i'm alix steel. along with caroline hyde joining in london. david westin and jonathan ferro are off today. the last half-hour, we can a lot of talk come out of that fischer interview with tom keene. not one and done is the big take away from that interview.


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