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

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francine: deutsche shares are down amid concerns the lender cannot pay legal penalties. some clients reduced exposure. contagion fears in the sector. the final trading day of the quarter. it has been almost 100 days since the brexit wrote, and britain's economy is still flying blind. i am francine lightweight in london. tom keene is in new york. all about the banks.
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it is all about deutsche bank, the worries out there about what investors can and cannot do. let's focus on the banks. the banks, a story all through "surveillance" this morning. we will bring you the perspective, hopefully, without it sense of hysteria. a solid bid in the last hour. francine: a little bit better. let's get to the first word news. here is taylor riggs. taylor: leaders of dozens of countries are in israel for the funeral of shimon peres. he helped negotiate a historic police agreement with the palestinians. the clinton was president then. israel'started life as brightest student, became its best teacher. in a state ofars
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constant wonder. -- constant wonder over the unbelievable potential of all the rest of us. president obama also spoke. he had a dynamic ideal. the u.s. is weighing its options to stop a bombing campaign by russia in syria. those attacks have left scores of civilians dead in aleppo. russia has ignored threats by secretary of state john kerry to suspend talks on a diplomatic solution in syria. congress having second thoughts about the bill allowing 9/11 victims to sue saudi arabia. paul ryan and mitch mcconnell say the bill could open u.s. soldiers overseas to retaliation by foreign governments, and they are willing to rewrite the measure. compass overrode president obama's veto of the bill. may isinister theresa
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finding a challenge to her leadership coming from her own conservative party. she opened her first party conference since taking office. she is caught between competing factions when it comes to brexit. boris johnson is among those arguing a heartbreak with the european union. others are counseling caution. global news powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: a great set of guests to give us perspective on finance and economics through the morning. let's go to the data. obviously a weight to equity markets. a euro weakness. no surprise there. oil does not know what to do after algiers. 14.5, near 12 a few days ago. a german negative yield.
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deutsche bank debt is a lovely number after what we saw two hours ago, the breaching of 10 euros per share. a bit off the mark, but a -- that is note a primary statistic i am looking at. but i would call it a second order statistic to watch in the tensions within europe. you you are -- francine: are absolutely right. fueling demand for haven assets, fears of what the bank for doing . i want to quickly run through some of the stocks. european stocks. the banking industry down 2%. haderzbank, yesterday we those job losses, 9600. the stock went up today. they want to restructure a little bit further.
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rbs also with some changes with its natwest brand. if you are a bank ceo, you want to go back to your board, probably today or tomorrow, and you want to have a think about how if you are doing well you can communicate that to markets. the vix index is gaining 3%. that itback to the fact was set to be the best quarter of the year for global stocks, but when you look at our boards, it is ending on a sour note. this is because of banks. you can see a move to hedge. yen at a 100 handle, stronger over the last six hours, after william kennedy's report on deutsche bank for bloomberg. i want to be careful with the charts today. we are trying to show you the facts. we do not want to be inflammatory and get in front of a story we do not deserve to get in on of. this is not the five-year cds. it is the one year. it is more sensitive. it is a lot less liquid
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instrument than the benchmark five-year. see the blue banner at the bottom? that is a one-year credit default swap. the leftare over on side. this is the deutsche bank when 11. cds, a spike up at down we go to near normalcy as john cryan effects his plan and was critical as we come up once and twice above the lehman low. is at to make clear this less liquid, less used cds, but you are seeing this out in the finance system as one measurement of tone on deutsche bank. francine: we will be talking feelings next. i like sentiment. tom: really. francine: it is that kind of morning. i am looking at disruption caused by deutsche bank. this is a board that just looks -- it is basically a benchmark. the blue line, deutsche bank. the white line is the and world
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country all financial index. i do not know if it is the catalyst, the focus. deutsche's line is when the doj announced that $14 billion fine. it is probably a number. it is not when they will end up negotiating. at was kind of a turn for deutsche. deutsche bank shares falling to a record low. about the banking sector in europe are weighing on share prices. covers our banks for bloomberg news. by the we are joined head of fx stress. let's can get off with the banks. another day, another downturn. the story has not really changed from yesterday, but there is one fear on deutsche bank.
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michael: whenever you hear about clients pulling back, there are two concerns. there is liquidity concern. a lot of analysts have come out and said that concern is overblown. deutsche bank has liquidity, has the ability to tap further liquidity from the ecb, and it has plenty -- and even the regulatory measures, the measure of liquidity, take into account some pulling back from clients. the other is the business impact. that is what john cryan has warned about. let's not let the negative news impact our day-to-day business. we saw that earlier in the year, where trading clients pulled back and that hurt their trading revenues. i think that is a concern many analysts have, is the impact on the revenue side. francine: there are two things. as you are saying, last night, we understood clients reducing exposure. and that may be share price nervous. overall, the markets are nervous. john cryan today sending a memo this morning.
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he says it is overblown, it is market sentiment. does he need to address issues head on? he says the doj settlement is not the concern weighing on the prices. it is, isn't it? caroline: it is the ultimate concern, the capital question. the doj settlement is the biggest impetus for that. until they get a number they can go to the market with, there is not much tangible they can do, other than some other moves. we have seen the sale of some other capital boosting measures. big doj question is the one, and that will hang over the stock until they get the settlement done. tom: i want you to help me. the good reporting of our william, noted on the cover of the "financial times" this morning. i want to make the distinction, michael moore, and you need to help me, on trust, liquidity, and solvency. our reporting is
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hedge funds who utilize deutsche bank services are going, maybe we do not want to work there. that is different than the deep liquidity markets of commercial paper and short-term notes, right? michael: yes, certainly. it is -- a client issue versus a funding issue. deutsche bank has plenty of to cover,reserve according to their filings, more than two months of funding stress. so that is certainly a different issue. on the solvency front, certainly, we are talking about capital ratios. potentially, in the case of a large fine, going below 10% -- that is a lot different than we were talking about 2008, where you had banks going below 0%. tom: beautifully explained. we need to be careful. why did the stock moves so much
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off of william's reporting if it is about a set of hedge funds? maybe they do not want to do business with deutsche bank. versus what you explained about good liquidity and solid solvency -- why did the stock move? michael: i think it is a question of confidence and the potential impacts on the business itself. problem for deutsche bank is that it has not produced the profits to internally build up its capital buffers. if you have a further hit to revenue in what is already a week environment, -- weak environment, the question of, can they build capital internally without having to build assets or raise it from other means. that is the big question, is the profitability going forward. tom: coming up for us -- this is important. we will be joined by someone from unicredit. an important conversation with the chief financial officer of
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commerzbank. we will do this on television and radio. look for that in the 7:00 hour. we are live. this is bloomberg. ♪
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francine: i am francine lacqua in london. tom keene is in new york. inghares of deutsche bank moved after reports the company will cut thousands of jobs. reorganization would result in major job losses and may generate billions of dollars in savings. ing is not commenting. as consumers appear to have shaken off initial concerns about leaving the european union. sayst research firm gfk
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the uk confidence index has regained ground lost after the brexit vote. household expectations for personal finances jumped, and so did the outlook for the economy. that is your bloomberg business flash. francine: thank you, taylor riggs. let us bring it back to the markets with the head of global fx strategy at unicredit. looking at banks, i guess the risk premium is driving off the back of it. flags., we had what will be the main driver for currency markets? is it a simple risk on, risk off mood? just: to the extent that we maintain a balance, and do not escalate to something more worrisome than already, i think -- there are going to be a couple of things. valuation is going to keep playing out. gradual realization by
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the market the monetary policy has its limitation. therefore, central banks will not be doing anything more material. francine: if you look at some of the pairings -- we were looking at ftse and yen. how do you compare? given today, a risk off mood. vasileios: as far as the swiss is concerned, it is a separate story in itself. the fact they managed to sever the link between safe haven demand and the swiss franc back in january 2015. as far as the yen is concerned, i think it is going to be a confluence of factors. dollar-yen's overvaluation still playing out. at the same time, you have increasing risk aversion. that is likely to play into yen strength. and of course the fact that the market realizes the bank of japan basically has delivered pretty much all that it had to deliver. tom: give me an update on
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something i do not think i have talked about in 100 days. this is euro-swiss. ferro and i were in davos during this massive drop in swiss franc. going against economic energies flood switzerland with money. as you know, there has been a modest rollover -- i do not want to overplay this -- recently. this idea of recent swiss franc's speaks volumes to me. give me an analysis of the swiss national bank. vasileios: i think they are determined to ensure that they do not see any material strengthening in the swiss franc. key figures in euro-swiss is not going to be something that is going to allow the central bank -- having said that, i think they delivered a very strong message.
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at the same time, we also had going negative into an economy which is a small economy. holding any euro-swiss downside from one year, no downside at all. tom: we have a conversation in the next hour. what would be the action you expect over the weekend and into next week from mr. draghi and the regulators in the ecb? ofileios: you mean in terms the banking? tom: in terms of the european financial system. vasileios: i do not really -- i depend onould largely handing down of this initial panic overnight. i do not think we are going to see anything coming out of the central banks. francine: we are getting
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headlines from mr. abe saying he expects policy intent to be conveyed to the market. there is a psychological level for yen. if that is at 100, does that mean they do not need to intervene directly? it isios: i think difficult for a central bank to set self-imposed limits, in a , something that, if it is above or below 100, we are going to do something. it is clear they definitely would like to avoid further yen strengthening, but at the same time -- and i think this is a general phenomenon. this is not coming from the bank of japan. all major central banks seem to have toned down the risk of session with currency -- risk of - risk obsession with currency weakness. they have stabilized and started moving higher against the dollar. i do not think they are going to
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do more to revert the process. tom: there is a surveillance collection -- correction right now. rinsing in london points out that tom is wrong. the swiss national bank action was slightly before davos a few years ago. francine: you did not have to do it publicly. tom: but i did. i get put in the timeout chair. we will begin the hour with william browder of citigroup, the chief economist. really quite good on the slowdown in global growth. this is bloomberg. ♪
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francine: this is "bloomberg surveillance." the we were looking at swiss -- we are talking brexit. this is a big -- tom: current account deficit. francine: the current account deficit widening for the second quarter. let's get back to the head of global fx strategy at unicredit. overall, what does that mean? articlenot triggered 50. we do not know the u.k. position a month from now. gdp growth revised up. current account deficit widening. vasileios: so, i think the current account by itself does not necessarily have to be a huge, sizable problem, largely because in the case of the current account of the u.k., the
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deficit is largely being driven by the primary income balances. the issue that i have with the u.k. and the confluence of the brexit referendum result is, over 3, 4 years, these current account deficits have largely been financed by portfolio flows, which is hot money. it can reverse quite quickly. problem you are having right now is, nobody knows what the yen story is going to be in five years time. in the interim, there is going to be a lot of uncertainty. there are going to be u-turns potentially from both sides. the bottom line is, all these flows that came into the u.k. -- i see them halting and to a large extent being reverted. francine: what about inflation? we are seeing inflation, and that is a whole other set of things to deal with. to turn from worrying about deflation, turning to be
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excessively worried about inflation -- i do not think this is the thing to do. we know inflation is going to pick up, and they are going to look through that. coming up, we discuss more on the european banks. deutsche bank, the main focus. also be talking about the main thing we need to look at, that it is infiltrating the markets with pressures and concerns about the health of the financial system in some of germany's biggest lenders. we do not want to panic anyone, but it is arming story, so tune in. ♪
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tom: in the last two hours, deutsche bank with a bid. for those of you just joining us -- widely predicted. someone inut out to
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the bond world who talk about this quarters ago. deutsche bank breaching 10 euros per share. a nice bounce back in the last hour or two. here is our news with taylor riggs. taylor: in jerusalem, saying goodbye to former prime minister shimon peres. he died this week. he was 93. he won the nobel peace prize for helping negotiate a historic peace treaty with the palestinians. president obama was among the -- dozens of world leaders attending. he said the pursuit of peace was never naive but remains unfulfilled. peres will be buried next to itzhak rabin, who was assassinated in 1995. india is try to reduce tensions after a cross-border raid with pakistan. there was an overnight attack on what it called militant assemblies. will not cut they
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off ties. in hoboken, new jersey, investigators are looking for answers after a fatal commuter train crash. more than 100 were injured when the train snapped through a concrete and steel bunker and into a train station. one question is how fast the train was going when it crashed. +++ powered by journalists and analysts in more than 120 countries. this is bloomberg. francine: deutsche bank shares falling to a record low. they are still falling. concerns intensifying about the
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health of the german lender. we are joined on the phone from london. in new york, we have michael purvis, a chief global strategist. thank you for joining us on the phone. deutsche bank -- it is the same concerns, and it goes back to the fine. there is nothing uglier we should worry about. you can look at the balance sheet and see that deutsche has a lot of liquidity. it has a loan to deposit ratio of 56%, more than funded by deposits. it is all self funding. the balance sheet looks strong. you touched on the whole issue. get hit with $14 billion, they would need more equity. and before they could get that from the government, if that is what was to happen, they could ofe a substantial bail-in debt holders, or it could go out and try to raise money through issues that would be really deleted. francine: talk to me about the immediate concern. deutsche bank has had a difficult week this week. our investors in a panic? fears are not unfounded. what do you make of some clients reducing exploiter -- exposure
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to deutsche? christopher: that occurred with lehman brothers and bear stearns. that may be part of the strategy. a lot of their liquidity was eaten up by clients taking their funds out before they were forced to be bought by jp morgan. i am a little bit skeptical of those moves, i have to say. billion ofve $215 liquidity. what was taken out with a few billion. they still have deposits of $566 billion from the man on the street in frankfurt. tom: we have been in discussion this morning, the distinctions between trust, liquidity, and solvency. why did the shares go down if the liquidity picture is as rosy as you suggest? christopher: i think there is a misunderstanding in the united states, because people are member what happened to lehman and bear. they were not retail banks. they did not have deposit basis.
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was wholesale, because they are trading houses. deutsche is different in terms of liquidity. we have to focus on realities. if we get the big fine, we have a big transaction. tom: deutsche bank has had a few of those over the years. michael, this chart is great. major shout out this morning to zero hedge, which wrote this up last night after william kennedy's bloomberg news article. a white line is the market cap of deutsche bank, and the blue line, in twitter blue, is the market cap of twitter. thanks, zero hedge, for bringing this to my attention. michael purvis, you know perceptions can change. , thee at a moment where facts change, i change? vasileios: -- michael: you had a bit of a lehman echo yesterday
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when deutsche bank started plummeting. it brought the s&p with it from 1230 through the rest of the session. it kind of raised this question. when i look at signals, other the spectrum, i am not seeing that. i thought yesterday's mood was ephemeral and not necessarily justified. tom: i agree. when we can make the statement that the market cap has come so far, the share price is where it is -- that affects fundamentals and price to tangible book. we get this insane idea that deutsche bank is trading at the valuation of something like twitter. everybody sits up and pays attention. michael: without question. once you get below $10 or five dollars, all of a sudden, you are starting to look at the german and global banking establishment. it looks like a penny stock for some.
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on the micro, i am partial to the view that if you look at the rebalance sheet, the potential massive fine from the americans, it is going to be -- it seems the probable path is going to be dilution for the equity shareholders. the german government will ultimately keep the franchise, the enterprise, intact for systemic reasons. you do not want to be a deutsche bank shareholder right now. francine: overall, if you think investors in the u.s. sometimes do not really understand the difference, or there is more of a panic than there used to be, is there something the german government should do now to try to alleviate some of the fears? if you are john cryan -- he sent a message to european investors, saying, do not worry. we are fine. we do not understand the market fears out there. how do you reassure shareholders? christopher: obviously, produce third-quarter numbers where you see your leverage improve and
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you see progress is being made. if the german government stands up and says, do not worry about deutsche bank, people worry about deutsche bank. we know how markets behave. aldridge a can-do is demonstrate -- all deutsche can do is demonstrate its balance sheet. despite reports of a sudden doj settlement before christmas, you and i know and tom knows this will probably take a lot longer, and we will not be worrying about the doj settlement may be until 2018. francine: but does it mean, like we have heard in the last couple of days, that maybe it makes european banks on investable -- uninvestable? christopher: for anyone to feel comfortable picking up the stock , i think people will feel more comfortable picking up the debt, because they will feel a risk of failure is much slimmer,
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suggested when the stock was tumbling. purvis, do you a major strategy and investment based on -- and i say this with great respect -- the comedy of european banking? the you change your plan because of what we are observing? michael: from an american investing in u.s. equities -- two top of the s&p, to focus the question, i do not think -- i actually think this will be a discrete event. i will bet you a couple of bowties that a month from now the s&p is higher and deutsche bank stock is lower. tom: does michael purvis have any idea what these bowties cost? francine: i was going to say area are you sure about your bet? michael: i am sure. i think i am sure. [laughter] tom: michael purvis. back toeeler, let me go you. francine, jump in here please with christopher wheeler. francine: what i am trying to
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understand -- and this is something -- i did a panel on clearday, and it was very that london investors -- i was speaking to someone from blackrock who said, i do not understand the business models of him of the european banks. for the next months, if you are john cryan, if you are surgery the valuet is proposition for your shareholders? do they need to restructure or just make a model that is sellable? christopher: he changed strategy only a little. he would go to his shareholders and say, it is getting there bit by bit. it is a little bit more confusing where the strategy is not quite as clear for someone who was not having to recover from the difficult situation deutsche bank found themselves in.
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that investors are going to be skeptical. they are scratching their heads saying, when are we going to see upside in terms of earnings, capital growth, leverage ratios? it does feel like it is a long way off. unfortunately, your comment about the comedy is true, and it is embarrassing. tom: thank you so much. mr. wheeler goes to the timeline, the idea of linking strategy into tactical business plans. maybe it is a little more short this morning for selected european banks. this for wheeler, thank you so much. esther purvis, we will continue with the blood try -- bow tie arbitrage. the chief financial officer of commerzbank, stefan angles -- talk about poor performance. we will do that at 7:00. ♪
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tom: good morning. francine in london. i am in new york. work it's reacting to news yesterday afternoon on deutsche bank. it is down under 10 euros per share. this morning, doing a little bit better than good in the last two hours. michael purvis -- what a great day to have michael purvis with us. you have done a lot of work on vix, on volatility. how do you dovetail with contagion, the emotion and reality of these movements in banking shares with the all quiet finance front of vix? it seems like two different worlds. you see the deutsche bank price plummet, and then you keep going from there.
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you look at various signals. one thing it is helpful to look stocks picking up relative to the vix. it is really not. it is not moving around in any this -- thattake suggests this will spread outside of europe. we had a bit of a selloff yesterday. around.the s&p jumping the s&p 500 is the large multinationals. i am as guilty as anybody of spending too much time on the big, visible stocks. slice and dice where the value is with a bull market between visible ones and the small caps? is there a difference? in the u.s. equity
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market, the first thing anyone does is bellyache overvaluation. the small caps have the biggest problem with valuation. i think when i look at market leadership from here to year-end, i think you will start seeing a lot of people recognizing that for all the broader overvaluation in the ciscos there are enough out there that are trading at pretty healthy discounts to the s&p. you can find some semblance of value. value gets redefined with the 10 year treasury yield at 1.5%, 1.6%. but that is how the table is set right now. youcine: how much focused have on dividends? i know i am circling back a little bit to what we know about european banks. it is down by so much, because it is going to be difficult for a lot of european banks to go back to dividends. how important is it in your
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world? michael: it is enormously important in the s&p world, but i.e. -- butethics also in other worlds. i look at the dividend yield. ae s&p has effectively become convertible bond over the last few years. so long as the overall credit quality is being maintained -- and believe it or not, it has been in the s&p. it is a bigger question on the 5-e.i you are higher in the s&p than on the 10 year without seeing reduced credit. i think that is going to keep supporting this new normal asset the s&p in this new normal environment. that is a norm is for them. you have to watch the dividend
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yields, and where the 10 year yield is. my perspective is, you see support for it. thank you so much. michael purvis of wieden and company. looking at some valuations, twitter and deutsche bank as of yesterday had similar valuation. bring up the two charts shortly. this is the picture in front. commerzbank, the ceo is talking in a news conference. i think that will come -- this is the ceo. he is saying they will continue to put steps in place to keep the strategy going. they still want to invest in branches. and they will not follow the trend of branch reductions. they still believe the retail banking system -- yesterday, they said it will get rid of 9600 jobs. commerzbank down 5% as we speak. ♪
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francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. here is taylor riggs. taylor: u.s. prosecutors may try to make a big splash with investigations into toxic
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mortgage bonds. roger bank and credit suisse are being probed. the justice department has indicated it wants to combine settlements with three banks into a single announcement, and it wants to do that before the presidential election. shares of qualcomm jumped 6% on reports it may by nxp semiconductors. nxp is the biggest maker of chips used in the auto industry. the action could happen in the next three months. swedish fashion retailer h&m posted third-quarter estimates that missed estimates. they are marking down clothing prices, and the strong dollar lead to higher manufacturing costs. that is your bloomberg's the splash. i am taylor riggs. tom: thank you so much. michael mckee has had an interviewsry week, with people who had courage to act in 2000.
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draghi has been off the radar. at some point, he becomes part of the discussion. does that happen this weekend on the german banks? michael: there is no question he is already part of the discussion behind the scenes. the question is, what is the ecb able to do? nothing and everything. it is a question of time frame. in the short run, there is nothing to help deutsche bank. it is a question of confidence of investors. that is something the german government and john cryan might be able to address. if mario draghi opens his mouth, it will cause more problems, raise questions in investors' minds. isr the longer run, if there a liquidity problem, the ecb can step in and help prop up the bank. problem,is a solvency
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that is something the ecb cannot deal with. that is up to the german government and angela merkel. is the ecb anything equivalent to the federal reserve in washington, when banks are troubled? it is part of the conversation. there is also the single resolution board, which is like the fdic of europe for big banks. they are all putting in regulations. deutsche bank very thinly capitalized. in the next three or four years, there is no way deutsche bank could go to the markets now and say, we need the kind of money investors want. they are not going to get it at the right price in the short run. that is not going to help them. it is a longer run problem the ecb is working on. francine: the problem is, if you are a bank, it is easy to blame the european central bank. say, you are forcing me to raise capital. this regulation is actually going against what i need to do.
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mario draghi, as you were saying, said no. is that a problem of business models? that is what ecb is saying behind closed doors. is a problem of business models and the way they cap operated since the crisis. certainly, negative interest profitability. the level of profits they are making is not significant enough to raise the capital the way most people would like to see. what they need to do is get rid of the bad loans on their books across europe, and do that as expeditiously as possible, and then raise private capital. it is hard to raise private capital when confidence has diminished. the ecb raising interest rates is not going to help that all that much. dublinchael mckee in this morning. michael purvis with us. we have been distracted this morning by european banking. i want to revis it one of your great calls over the last year and a half, the currency war. you said asia would depreciate.
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bring up the chart, please. i literally call this the purpose chart. it has rolled over. not down to 1997 crisis, but it is remarkable where we have come. in the months ahead, do we currenciesak asian versus u.s. dollar, and can you reaffirm a strong dollar? michael: i do not think so. a couple of reasons. lot oflar against the currencies, particularly developed market currencies, emerging currencies, has a structural cap in it that has evolved over the last 12 months due to spreads on the 10 years. i think that is in place. the second thing is more qualitative. the fed has really articulated as much as they possibly can that they have sort of a dollar mandate for two reasons. after the tightening
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mechanism from the fed, not interest rates, which have been anchored by overseas qe. but also because of the spacing. with a macroment tailwind does not help the u.s. economy. they are going to be looking at that adxy as well as other key vectors. tom: michael purvis on the currency wars. this has been a great hour. we will continue the discussion of the linkage between economics and finance. we are joined by the citigroup chief economist. it will be a wonderful day to speak to james grundy, former chairman of morgan stanley. old, theience on the recent, and the new finance. ♪
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this morning, deutsche bank brace the 10-euro barrier. hedgeerg news reports
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funds -- they take their business elsewhere. john cryan hours ago rights to employees and blames media speculation. the knock-on effects this morning. yields grind ever lower. the swiss franc modestly strengthens. in this hour, willem buiter on global stagnation. willem buiter on the options for chair yellen. this is "bloomberg surveillance ," live from our world headquarters in new york. i am tom keene. with me, francine lacqua from london. what an end to the month of september. give us your thoughts about william kenny's article from "bloomberg london" yesterday afternoon. francine: with the concerns surrounding deutsche bank, we cannot be inflammatory, we have to be careful. the market is nervous, and that translates into what we are seeing overall for the markets. what was set to be the best quarter this year is ending on a
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sour note because we are concerned about the financial health of german lenders. tom: michael moore will be with us in moments with professor buiter. taylor: in jerusalem, they are saying goodbye to former israeli prime minister shimon peres, who died this week. he was 93. the won the nobel peace prize for helping negotiate a historic peace treaty with the palestinians. president obama was among the dozen world leaders -- the dozens of world leaders attending. pres. obama: i could not be more honored to be in jerusalem to say farewell to my friend shimon peres, who showed us that are at the hope heart of an idea. taylor: shimon peres will be there next to another israeli prime minister, yitzhak rabin,
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who was assassinated in 1999. russia ignored a threat by secretary of state john thing -- john kerry to suspend talks on a diplomatic solution in syria. theresa may is finding the real challenge to her leadership comes from within her own conservative party. sunday, she opened her first party conference since taking office. foreign minister boris johnson is among those urging a heartbreak with the european union. others are counseling caution. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: let's get to a data check quickly. it is calmer then it was 90 minutes ago. through jews were negative for, were negativeres for, now negative three. let's get on to the vix.
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.82.sche bank, 9 to 10.47.up francine: deutsche bank, the 10 year is 48. commerzbank is still down 5%. there is an ongoing news conference. we speak to the chief financial officer in about 17 minutes. the royal bank of scotland, also with reorganization. i also wanted to show you the vix index gaining, i believe, 3%. 2.2%. when i started my day four hours ago, that was at 5%. still at risk-off. tom: why do you and i start our days at the same time? what is that about? let's go to the bloomberg.
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the one year cds on deutsche bank are the i want to do a quick compare and contrast. the fear within the global markets -- you can see how the one-year cds on deutsche bank has broken out higher than lehman lows. i will let the chart speaker itself. francine: i am talking about the deutsche disruption. just to show you that bank stocks overall have been rattled by what is going on with deutsche bank -- this is deutsche bank in blue. overall, is the msci countrywide financial index. low foran all-time these deutsche bank price. tom: what an honor to have michael moore with us, leaving our european banking coverage this morning. and in new york, willem buiter, the chief economist with citigroup, and of course with the london school of economics for years. you have been one of the greatest voices of negative rates. what does john cryan think of negative rates?
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there is a difference between an theory and negative rates, and a financial officer who has to work within that immediate milieux. principle liven off spreads, so the richard not so the rate should not matter. the fact that deutsche bank is not passing on negative rates to some of its funding sources, retail depositors. plus the fact that it actually is zero level, it gets spread compression. so it hurts banks of that. tom: bring of the chart -- bring up the chart, rachel. agrees with you that spread matters whether you are negative or not, but we have not transmitted the effect of negative rates through to the public. as you say, it is a taboo in certain countries.
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willem: it is a cultural taboo. during the next downturn, or in europe during the current one, you are going to move again into negative territory, maybe for the first time in the u.s. and the u.k. at some point people will try to lower the lower bounds by reducing the maximum bounds of currencies. do you predict angela merkel will affect negative rates to the broader part of the german people? willem: it will be up to the german banks. they can already do so. some german banks have already done so. smaller banks. it is simply a question of ofrcoming this social taboo sticking it to grandma and granddad.
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michael moore, the share price is not down so much to a record low only because of a social taboo, right back up there are questions and we have to be careful in our words. what are investors fearing? michael: i think investors are fearing a lack of capital generation, and that translating into a need for more drastic action to get to the goals that the bank had set out on the capital side. because the profit that is generating are not enough -- the profits that is generating are not enough on its own. that is what most analysts see going forward. francine: tom, you put it perfectly about an hour ago. there is a distention between solvency, liquidity, and trust, and we need to remind ourselves what investors are worried about here -- it is not what they were worried about eight years ago. we are not at the same level, in that environment before the
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financial crisis. michael: people have questioned, what does this feel like? does it feel like 2011? 2011 was more concerned about europe and the sovereign debt crisis. this is more specific to the banks and the legal issues they had. but it is different than 2008. in 2008 you were talking about solvency rather than capital. do notel about her, i want to put you in a timeout i do, -- willem buiter, not want to put you in a timeout chair. this is not like the previous crisis, do you agree? willem: absolutely. to the extent that the market fears a funding crunch, you have a proven track record with the european central bank as a lender of last resort. there is no question of self-fulfilling fear driven
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collapses. it is not part of the picture. tom: bring up the "morning must-read" right now. it would be inappropriate for me uiterk professor b about this. tom: michael moore, do you see any indication in bloomberg reporting that merges will occur? michael: not in the near term. i think the tone from regulators is shifting. you are seeing regulars so focused on banks building up capital over the last few years, and now they seem more open to
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consolidation in the banking sector, and some mergers happening. the problem is, banks are catching up to those capital rules, and no one feels so comfortable in their capital positions and their profitability picture that they want to take on a major merger, which is often possibly especially upfront, and can drag on for a long time. every bank is working on getting their own house in order. francine: willem, when you look at consolidation and all this speculation, there is an important flight shift from regulators on whether the cross mergers could happen. is it good for the economy or not? it seems clear by certain measures europe is over banks, but will it translate into a better economy? willem: clearly if you merge two undercapitalized banks, you will have a bigger undercapitalized banks, so by itself it is not a
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solution. -- cross-border mergers and acquisitions means that you can get fewer stronger banks that result in a reduction in competition. that is essential. europe has far too bank many banks. germany and italy have far too many banks. this consolidation picture is separate from the sort of crisis vibrations going once again through the european banking sector, now in germany but before that in italy, portugal, and all that. there are a lot of undercapitalized banks, a lot of failure to recognize past losses, not just loan losses. a long-runy, from perspective, europe needs far fewer banks but more banking. buiter, michael moore wants to jump in with a question. michael: i am curious, going
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back to the taboo on negative interest rates -- part of the factor is that they are viewed , andtemporary situation banks do not want to scare away customers for one year of pain. i am curious -- at what point do changes, that dynamic if negative interest rates are seen as a more permanent measure? willem: negative interest rates are going to be a feature of the world we live in for years, possibly a decade or more to come. zero,utral real rate is negative, and we cannot drive inflation up, despite the best efforts of central banks everywhere. you are going to have to live with that. problem withift in , thatfective lower bounds they will go too negative. the only way around that is to
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take measures to the effective lower bound. to make a $20 bill be the larger denomination. tom: we will continue with professor willem buiter. michael moore, thank you so much. back to the salt mines for further reporting on european banking. we have a lot coming up. the most important conversation of the day, our conversation with the chief financial officer of commerzbank. look for that in the 7:00 hour. good morning. ♪
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tom: to review, and good morning
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on this friday. francine lacqua in london, i am tom keene in new york. william kenney of bloomberg news on selected hedge funds yesterday said let's migrate some of our business away from deutsche bank, and the worldwide reaction to that. which of bank breaking 10 euros per share. we will have much more on deutsche bank in about 12 minutes. right now with willem buiter onset, the chief economist with citigroup, we need an update on what we saw with oecd the other day. catherine mann and oecd, they got 2.9% on global growth. is that a villa look at recession? bauder look atlm recession? willem: it is not quite global recession, but it is stagnating low sub potential. it heading to secular
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stagnation? willem: yes. tom: you are allowed to have a longer answer. willem: the global growth is widening. there is further downward pressure on risk to real rates. you are going to have downward pleasure -- downward pressure on inflation as well. nominal rates are up. savers the world where are extremely unhappy, and the forntive to invest, structural reasons as well, is damaged. it is a world that is crying out for fiscal policy and not getting it. francine: willem buiter, one of the biggest concerns this year is brexit, and we work warns that it was going to be the end of the world, that it would plunge the rest of the world
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into recession. the moment, the u.k. is holding steady if not doing a little bit better. are we being lulled into a false sense of security? willem: yes, absolutely. market access is still the same, labor supply is still the same. but we already have had the weakening of sterling, which boosts demand, and we have a -- onceansionary stand people recognize that hard brexit is more likely than a soft brexit, the weakening we have seen already, a little bit only in capex and sdi will be stronger. so i expect a further significant slowdown in the next year as it becomes clear that britain is going to be up , very much the
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underdogs. on: we will touch back again european finance. coming up on monday, kathleen hays, her conversation with a dissenter. it will be an important conversation. for that at 3:00 p.m. on monday. this is bloomberg. ♪
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tom: good morning, everyone.
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francine lacqua in london. i am tom keene in new york. it is friday and i am missing my kids. i am very good at doing that -- i am missing my cues. i am very good at doing that. cvs, i want to go to viacom, national amusements and what is going on in the boardroom of cbs? what a train wreck. there is les moonves coming in, running into the lehman lows, the collapse in media. it is a moonshot. does he need this headache? does he need this distraction? paul: he does not need it, but the fact that his controlling shareholder is also the controlling shareholder of fire,. that means he has to sit down with his board and top executives and say what do we need to get this done for our shareholders and our management team? tom: if i am a shareholder,
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where is the arm's-length in this non-arm's-length soap opera? good point.s a they will have to recuse themselves from those discussions, and the independent board will have to start talking between these two companies. if you are les moonves, you have to step back and say i need two conditions -- number one, my shareholders to be rewarded for taking on the risk for viacom, and number two, les moonves and his management team need assurances that they will have operating control of the new company, absent the strong ownership by sherry and national amusements. myncine: cbs, viacom -- understanding is that viacom was losing eyeballs, especially younger eyeballs, to netflix, youtube, and snapchat. how does a merger with cbs help them? ifl: one could argue that
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you look across two of viacom's maine businesses, the paramount movie studio, those businesses lack high quality consistent programming. that is the strength of les moonves and cbs. the long-term thinking is that les moonves and cbs can improve the business of fire, overtime. to the shareholders want to take that risk? tom: i am the only guy in this group that has several -- that has seen every episode of "i love lucy." what about the balance sheets? viacom has a lot of debt coming up and a lot of financial issues. the so that goes right into regulations of les moonves and mrs. redstone? paul: absolutely.
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when they go into negotiations with viacom, les has to be very creative for cbs shareholders in order to compensate them for assuming all the balance sheet risk and the operational risk at viacom. i am 67. i watched most of them. tom: you watched most of the i love lucys? this is not only a great visit, but what a great day to speak with morgan stanley's vice-chairman. and the idea of the state of finance. coming up. this is bloomberg. ♪
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francine: this is "bloomberg surveillance." let's get straight to the "bloomberg first word news" with taylor riggs. taylor: in jerusalem, they are
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saying goodbye to shimon peres. he died this week. he was 93. he won the nobel peace prize for negotiating a historic peace treaty with the palestinians. president obama was among dozens of world leaders attending. he said that his pursuit of peace was never naive but remains unfulfilled. he will be buried next to yitzhak rabin, who was assassinated in 1995. india is trying to reduce tensions after the raid across the border with pakistan. the india's army operations have ended after an overnight attack .f hoboken, new jersey, investigators are looking for answers after the fatal commuter train crash. one person was killed and more than 100 injured when the train smashed through a concrete and steel bumper and into a train station. thekey question is how fast train was going when it crashed.
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global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom: thanks so much. this is wonderful, 145 pages of brevity. it is right to the point, which is what you would expect from jim run day from morgan's -- from jim runde for morgan stanley. doing the good deeds of transactions and combinations on wall street. he joins us now on his new book. i love what you say about anxiety at the very beginning of the book. mr. cryan of deutsche bank this morning has a little bit of anxiety. if he read this book, what would you learn? jim: thanks, tom. i think if mr. cryan read the book today, he would realize that even at a very senior-level , he needs to make sure he is not just of his eq,
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his iq. when i say that, i mean he needs to give his troops hope and optimism in terms of his ability to lead them through this. secondly, he needs to adapt to the headwinds and crosswinds he is facing. third, he needs to collaborate with his team. tom: he did that this morning in a letter to his shareholders. jim,he distinction now, how many years were you at morgan stanley? jim: 42. information transfer and media transfer was totally different than it is now. how does the ceo or c class officer communicate with this blur of modern information? jim: the key of communicating is to make sure you are dealing with insight, not just information. important not just to do with information, but you have , andve context, analysis
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judgment, and turn information into meaningful, appropriate insight. is, you are looking for what are the key insights, and what are the two or three key variables that will make the difference? francine: first of all, congratulations on the book. i wonder if it is just -- if it is really applicable to general bankers. i do not know whether this is culture, but there has been an inception -- there has been an assumption that if you are emotionally intelligent, you're numbers.ight with the has that perception changed? jim: no question about it, brazen hard workers are still important, data and hard analytics are still very important. your the secret sauce to career success. that is what the book is about. the matter what level you are at, your healing with everybody
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else who has brains and hard work. adaptability, collaboration, and empathy, i found out will make a difference, whether you're are starting out processing other people's transactions, if you are trying to convince clients to give you business, or if you are trying to lead a practice or an organization. hard work and brands and data are necessary, but they are not enough. buiter, i knowm theave -- for example, world economic forum does a ranking of the world's happiest countries. fromemotional intelligence a politician leading to better productivity or better growth? all, bettert of growth and happiness does not necessarily go together. happyn have a lot of people doing absolutely nothing. but politicians can certainly
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create a positive climate of opinion, where people have hope for the future, and where they believe that if they work and try harder there will be a reward for them and their children. politicians can make a difference there. at the moment, they do not. even going to ask jim runde what he thought about the first presidential debate. we do not want to go into that ugliness of discourse. " favorite page, page 75 -- success depends upon previous preparation, and without such preparation, there is sure to be failure." confucius to louis pasteur, the great microbiologist, to fill hert her -- to fill about -- to willem buiter. jim: my high school football coach used to say that the
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desire to win was useless without the desire to prepare. tom: what about when some young buck phd had to do his first lecture and he was totally unprepared. how did you handle that? try to learnld from my students. thego in there, you know technical material, but you have no idea how to get it across. tom: i knew he was going there. stan fischer said that when paul would get so angry, he take the chalk and throw it. how do you get it over to the class? jim: preparation is necessary, but the link would be practice, to become better at presentation and make sure you know your
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material and make sure you understand what parts of it your students are not getting. willem: being socratic helps. francine: it does. lem, emotional intelligence is just a fancy word for people skills. politicians -- and the problem is they often need to deliver the goods, so it is a very fine balance -- what is the one person or group of people in power who need the most emotional intelligence for gdp to grow? at the end of the day, this is what we need. willem: it takes more than emotional intelligence for gdp to grow. -- youst need to get need brain intelligence to get rid of supply-side reforms, to , andid of overregulation
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incentive killing tax system. tom: this is the class active jim runde. you mentioned goldman sachs. thisnd hank paulson -- and is all before the politics of -- get on personify the plane, go out to the midwest and help businesses. there is a humility to your career and to hank paulson's career. what did the wall street crew get wrong today? jim: i think that, as i say in the book, a brazen hard worker is not enough. if you come across to clients as arrogant and with a lot of swagger, you will not click or connect with them. tom: that is not the right answer. the answer is they have to go to o'hare and sit there for an hour, you get there, there is a
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thunderstorm, and you cannot get back to chicago. wisconsin, so in i know the midwest. tom: the romance of investment an expensivet over lunch and you have to go out there and see people. jim: exactly, you have to relate to people. you cannot phone it in. make personal relationships without creating trust. tom: there is no a little bit of an index, there is no padding at the back. 100 45 pages 145 pages on what not to do in your business career. 145 pages on what not to do in your business career. we need to get back to european banking. willem buiter in the next hour. and a conversation with stephan engels, commerzbank chief financial officer, a most
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important conversation in the 7:00 hour. worldwide, this is bloomberg. ♪
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francine: this is "bloomberg surveillance." london.ncine lacqua in tom is in new york. here is taylor riggs with the flash."rg is t business suisse is being probed. the justice department is indicated it wants to combine settlements into a single announcement and do it before the presidential election. shares of qualcomm jumped 6% on a report it made buy mxp semi conductors. the deal is valued at about $30
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billion. mxp is the biggest maker of chips used in the auto industry. the transaction could happen in the next three months. h&m posted third-quarter earnings that this estimates. h&m stores have been marking down clothing prices, and the strong dollar led to high manufacturing costs. that is the "bloomberg business flash." francine: it has been three months since the united kingdom voted to leave the european union, and there is still not much insight from theresa may on what she envisions for the country's future. can she negotiated deal that does not disrupt the u.k. economy? let's go to the longa outer -- let's go to willem buiter. you firmly believe that there will be a downturn in the u.k. even today, things came in better than expected. upwards.h was revised it will be short-lived because i
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guess you are looking at a hard brexit. willem: this is the most likely outcome. -- just caved into the european union, restored cross quarter -- cross-border -- that is really a warning shot over the bow of the good ship that they cannot have anything like a full sing the market access, let alone past thwarting of banks without three movement. -- without free movement. becoming a hard brexit with significant loss of market access. the fear of that, even if it does not materialize in full, would be enough to cause a significant slowdown in capital expenditure and sti in the u.
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k. would it be a technical recession or something more sinister with huge investment losses? what will the city of london become, your home for many years? of london isity probably going to be less effective than other parts of the economy. even without the passporting and losing trading and euro derivatives, they can set themselves up for an offshore centerated financial that can undercut the rest of europe through the regulatory arbitrage. it is the rest of the economy, international trade, that is going to suffer -- everything from car manufacturing to other services. tom: we need a clinic from professor willem buiter. this can get a little complex.
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i rarely put the red arrow -- that is the movement today, in a worsening summed current account. you add in the flows of money, and you end up with a big deficit. one school of thought is that the deficit trends for years. another thought is that the doom and gloom is down in the red circle, and never bigger deficit. link in the geometry of these flows of funds to pound sterling. they are locked tight, aren't they? willem: yes and no. i and not worried about the current account deficit in the u.k. it is a reflection of the fact weak, capex,nt is saving is even weaker. britain needs to save more and invest more. but it is not a banana republic. tom: you nailed it.
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the distinction here of banana republic or no banana republic is the idea of confidence as expressed in the currency. steven englander speak, are you talking about a competent pound sterling? willem: i expect and hope that sterling will appreciate more. tom: what will be an appropriate level for prime minister may? willem: it depends on how hard the break is. if it is a moderately hard brexit, 1.20 will be fine. is a hard brexit, 1.15, 1.10 will be good news. proper asset value adjustment that helps exports and sustains demand in the u.k. francine: this is more of a
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political question. is there any doubt in your mind that brexit means brexit? willem: absolutely, but nobody knows what brexit means. in that sense, it is without precedent, and it is even u.k. would that the 50, theinvoke article negotiations. even if it does, it gets halfway notugh and, oops, we did mean it. that is possible. i would not say it is likely, but nobody knows what brexit means. it is completely meaningless. you should just nod and smile. smile.": "nod and thanks so much, willem buiter. banking shares leading losses in
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global stocks. you can see deutsche down four point cents, -- down 4.6. this is an industry under pressure. this is bloomberg. ♪
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tom: "bloomberg surveillance." let's look at foreign exchange right now. real drama three hours ago. we got a better take over the last 2.5 hours. y was churning out. dollar strength was really the story. francine: coming up shortly is "bloomberg ." alix steel, the big story is european banks per u.s. taking to one of the heads of commerzbank. stefan ingves will be joining us, also on bloomberg radio as well. --s to talk about about taking a step back from what is happening in europe, back from deutsche bank, we will speak with david foley, the ceo of blackstone energy partners. the person you call is david
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foley if you need money. he has an inside track to what is happening in the private equity energy market. it will be a fascinating conversation. you know that is my favorite guest of the day. tom: west texas intermediate really indeterminate. alix steel, thank you so much. the news flowom with humility back to janet yellen's press conference. torsten slok of deutsche bank put out a great chart that need some explanation. this is not something from the museum of modern art. willem buiter knows exactly what this is the gray lines, all that noise, is the future markets at a given point on the x axis. what is the guess that interest rates will do? let me count through them. wrong, wrong, wrong. wrong, wrong, wrong. blue, and white -- the recent wrong, wrong, wrong.
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it comes down to confidence in the crystal ball as we stay at the yellow zero bound. when is the charade going to end? willem: when either we get a market fiscal stimulus, or central banks recognize their ability to boost aggregate demand and achieved even a modest 2% deflation target is likely to be severely restricted. even in the u.s., the ability to , should there be a downturn in demand, is limited. tom: is it a misjudgment of conventional phillips curve orthodoxy, or is it that the fiscal people did not come to help janet yellen, corona -- kuroda, draghi? policy,lack of fiscal why that chart is so ugly? because of the highly
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leveraged nature of the u.s. economy, i know there has been private sector deleveraging. minimis, anden de there is very little impact. fiscal policy is not doing anything. that is unlikely to change, unless mr. trump is the next president or he controls both houses, and the house of representatives is not controlled by ryan. tom: i believe we have a newsmaker this morning in willem buiter predicting a trump sweep. themine: i wanted to ask about global monetary policy. is it 50/50, that donald trump gets into the white house? is thatno, our forecast -- is 60% that janet yellen will be -- francine: mrs. clinton. willem: sorry, that hillary
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clinton will be in it if you look at the betting markets and the key states, it is most likely. there is a particular possibility that trump will be the that there is a fuel your possibility that trump will be the next president, but it will most likely be hillary clinton. tom: i hope your badge works when you get back to citigroup. buiter.r willem we will drive forward with conversation and insight on monday, from cleveland, the arch to center, loretto mester. this is bloomberg. ♪
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♪ jonathan: turmoil.
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concerns over the house of the deutsche rattles bankers. david: cryan fights back. there is no basis for speculation. aixa: it is the last day of the quarter -- is now ending on a sour note. jonathan: welcome to bloomberg . david westen, and alix steel. next line the-- color little bit of risk off. -- alix: john cryan saying there is no basis for the speculation. jonathan: it is a small group of 20 million -- falling to john cryan. repressing once again. equity, a new record low. that breaking through the february


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