Transcripts For BLOOMBERG Bloomberg Surveillance 20140623

The u. S. Earnings. Micron. Micron and hertz. Baghdadry arrived in this morning. He was in cairo yesterday. He will be meeting with the iraqi Prime Minister. Walden begins today. Chile today. Ersus cameroon ursus brazil. Croatia versus mexico. Good. Y stocks, bonds, currencies and commodities. First day of summer, the advance continues. A real equity focus this morning. The good news in the equity markets, nearing 17,000. Two year yield elevated. There is brent crude. 115 a fewely above minutes ago. What an interesting weekend. Lets go to the terminal. This sets you up for the week. This is pretty boom in housing, and 800,000 units. Here we go the boom. M bought right here. And i sold right there. Down we go. We recovered a bit, but we have a long way to go. This is june sales. Full disclosure, scarlet fu but right here. We have looked at the papers and websites. What an interesting weekend. Youre going to start with bnp because it is close to the settlement with u. S. Over violations of u. S. Sanctions. Bnp wouldve played a brief lead bnp would agree to plead tilt he and pay a fine. Violations against countries like iran and sudan. It would also be temporarily banned from handling transactions involving u. S. Dollars, at least for a couple of months. That is a big deal. I think that is more than a slap on the wrist. It has got to play out. Some of this has to do with more than just new york and different regulatory bodies. And you wonder how many people will leave. They have already announced more than 30 people walking out the door. The second frontpage story, one were been monitoring, General Electric winning the battle for allsups Energy Assets as 17 billion. This is ges biggest acquisition ever. Biggest shareholder agreed to sell its stake to the french government. France wanted to be a part of it, and intervened, now a stakeholder. What they own of air france right now. I think my memory is, 21 . Maybe 17 . This is more than common in france, the government takes a true minority position. They enacted this shortly, a couple of years ago, i forget which joe prompted this. This. Ch deal prompted and the u. S. Will take ownership in siobhan the yogurt. Ge able to get this deal done even as the u. S. Is really coming down hard. In other words, they were lets move on. We will discuss this further with matt campbell. Our third frontpage story, rebels in iraq are seizing more territory. John kerry arriving in baghdad for talks with the maliki government. Der crossings which order with jordan and terry were captured. The president warns fighting could spread to neighboring countries like jordan and that is what weve been hearing from guests we have been talking to as well. That is the concern. You pointed out earlier, tom, there is talk of some sort of in other words, realigning. Got may be why their turn to after these border crossings in jordan and syria, because they want to get rid of i would really focus on the jordanian borders as far as politics as well. In oil prices elevated as you see as well. New york crude but also brent crude, highest since september. And those are frontpage stories on this monday morning. We need to speak to someone on oil. Oil did not move. That was two weeks ago. Now it is driving higher. Our guest from barclays, dr. Kroft, wonderful to have you here this morning. What is the single thing you look at over the weekend . , aaw wonderful jumble cacophony of information on iraq. What should we focus on . A couple of things you want to watch for. What is going on with the refinery. There has been a weeklong battle with this refinery, that provides iraq with 10 of its power. If you were to fall in the hands of isis, that would be of a for the maliki government. Then theres the question about the southern oil field. This complacency that it will remain fine down there. We are concerned. Lets look at the oil price chart. Inflationadjusted brick crude. You can see we have what is the barclays call . You nailed the seer and a half ago. Do we drive higher due to geopolitics or move down due to the microeconomics . If you look at iraq, there are still offramp for this country right now. We are very concerned. If you did have a supply disruption in iraq, the only country that can make up for it is saudi arabia. I want to rip up the script. John kerry in baghdad. How will be saudis react to sing those border crossings shut down over the weekend . I think it will be terrified. They have their own isis cell wrapped up a couple of months ago. But on the other hand, they dont like Prime Minister maliki, either. They dont like the ice is rebels, but they would like to see maliki gone. The iranians absolutely do not want maliki gone. It will be difficult for john kerry. What is the relationship between isis or isil and al qaeda . We grew out of it in iraq. In 2006,as killed there was a situation where the group dispersed and then they sort of got the band back together because of seer. In 2012, they promised to get rid of the border between iraq and syria. Not a lot of people listen. This group has made their intentions very clear. Great having your suspect great having your aspect. As oil moves up, what does that do for earnings of the u. S. . In a weird way, it provides a bump. Sector is about 50 . The initial phase would be positive earnings. You think about that negative consequences. We have helena croft from barclays on oil, and youre channeling more this morning . A little bit. Gibbet tip point on brent crude . Do you have a tip point on brent crude . I dont know if it is a tipping point, but the longer it stays at a level, the there is a bigger problem. The israeliing, attacks on syria over the weekend, showing this thing broadening out. That is the kind of thing the markets become nervous. To what extent can the u. S. By relying effectively on wti and shell reserves in that gas, the insulated from this . We are impacted by the price, but supply disruption would not be as consequential. But if you see prices go over 120, i think were talking about a strategic stockpile release in the United States. Yes, and coordinate with european countries. That. Lain i think it would do it solely because of the concern about the global economy. Senior officials from the department of energy signaling if you have prices go high that massive implication the global economy, i think stockpile release. The headline and just coming out, the Dubai Stock Exchange injuring a bear market, down 20 , of course with the real challenges there. Lets get to the company news. American apparel lawyer demanding he be reinstated. The largest outside investor doesnt plan to support him. Speaking of founders, lululemon founder turning up the pressure of the companys management. He wants the maker to look beyond shortterm results. The wall street journal says he may shake up the board and sell his stake reuven try to take the company private. Shares recently fell to a threeyear low. Does notall that involve general motors. Honda and nissan recalling more than julian vehicles because of faulty airbags. Most are from honda including the fit combat compact. Ive never had a car recall. And about 25 years ive owned four cars. What do you drive . Rubber. Once in 1968, they were going to recall the national ambassador, but i got lucky. We just took the chainsaw. Thend then he switched to pacer. No, i stayed with the nash. We may take it out fourth of july weekend. Is clear the ge last hurdle, sealing a deal. We will give you the details coming up after the break. This is bloomberg surveillance. Good morning, bloomberg surveillance. Coming up this morning, the governor of the commonwealth of puerto rico today at 10 00 a. M. With Stephanie Ruhle. This is a troubled, troubled island with some real fiscal issues. What heated debate on puerto rico. We will advance that this morning on market makers. This is bloomberg surveillance. I am tom keene with scarlet fu and adam johnson. Lets talk about a victory lap for jeffrey and melt. Immelt. He beat out siemens from germany. Lets check in with Matthew Campbell in london with the backstory. I have to ask, israel triumph was to win over a very skeptical french government, in particular the economy minister. What did he have to give up in order to get the blessing . Well, look, this is all over but the gloating. Theres no question this has come a pretty long way from what ge first envisioned. That had to injury to a couple of joint ventures, splitting off parts of alstoms business. Theyre also going to have to make certain commitments to keeping jobs in france. Crucially, theyre going into business basically with alstom. This is being described as more of an alliance or packed that an acquisition. And a french government is taking 20 of alstoms shares. Jeffrey immelt will effectively h in that with france walk ollande. What problems does that create having the french government as a partner . We dont know yet. Costcutting is going to be hard to do, if that is what she had in mind. Theyre not going to be able to reduce the count of jobs, for example. The g would say that is not what they envision in the first place. It means anything they do will have a political caste. The line between business and politics in france has always been pretty blurry, if existing at all. Ge will learn that. And the idea of the financial into the political. The idea here that this is now jeffrey immelts industrial company. Real superior French Technology for ge. Focusing on industrial getting what from ge capital. Matt, i remember several years ago when in ceo was trying to buy honeywell and there were so many disasters that ge was going up to make and he said it was ultimately not worth it. Were there any divestiture here that were close to scuttling the deal . Good question. Sometimes you see in these deals the chief executives get in their minds and want to get something done and they will sign up to almost any concession to get there. Ge does it seem to be doing that here. These are jvs theyre talking about for the power grid bit of alstom, but from just immelts perspective, hell still get the jewel, the natural gas. Ge is making a big bet on the gas revolution going on in the u. S. And in china. That is what matters for jeff immelt. He appeared before the National Assembly of france. That was rare. I wonder if you set a new president for getting european approval for a deal. I think that is also something we will have to watch. French politicians are very happy with this. They see this as a big win. That turn this into something they can take to her supporters and say, look, we stood up for french jobs but we also managed to do that instead of off of big horn investor. See french politicians looking at this as an example of how they should be treating foreign investment, now how they shouldnt. Usthank you for giving perspective. Paidose french lessons lai off. Yes. Oui, oui. We all learned how to say. Coming up in the next hour am owns shares ofnd ge and apple. We will check in with him on where he thinks the market is headed. Also get his take on the world cup. He has a couple of thoughts. Which brings us to our twitter question of the day i am a fan now. Yesterdays match was a little heartbreaking. Good morning, the first working day of summer. New york city, Beautiful Day here. The heat awaits for the summer, but it is absolutely gorgeous. The sun is up when we come to work, kind of. Almost. Which is psychologically were not on medications like we are the other ways of the year. The morning, this is bloomberg surveillance. I am tom keene with the less medicated scarlet fu and adam johnson. Morning must read so his messages, dont blame me. Do you buy it . He got hammered on this over the weekend. If cheney and others are out with comments from that era. There are some real introspection going on. I think is a circular firing squad going on between the bush administration, the blair administration, with a projecting obama saying, you made the decision in 2011 not to keep any troops there, this is on you. I think everybody pointing fingers. Theres is not an easy offramp for what you do with respect to iraq right now. This is a 20, 30, 40 year problem. And it will be a problem for a number of arab states. Look at libya. I think it is a reckoning. To 100 is arguably a 70 your problem. I guess im not as pessimistic longterm. I do think there will be tremendous pains in the next couple of decades because they dont have effective state institutions. We spent 20 billion on an iraqi army that proves to be a hollow force. A decadelong commitment, i think he can turn around, but i dont think in the near term. A lot of that is on the study of international relations. My morning must read, great loss the death of ad, man who is with john hopkins for several years. Here he is in 2011, skating on president obama, the crippling scathing a president obama. He is one of our great forces in analysis of this iraq war. What can be the Foreign Policy that he advocated that mr. John kerry has to advance this morning in baghdad . Ajami did not believe it was a region where democracy could not flourish, but he believed you had to engage. I saw him speaking on syria early on and he was so troubled but the lack of will to do anything there. She really warned the effects could be catastrophic in terms of a casualty count. Upset wee would be so did not more deeply engage in iraq and did not follow the warning signs. Thank you so much. Despite all the conflict, the stock market continues to move higher, surging to record highs after the fed affirmed its low rates for longer policy. Tobias levkovich ways in next. Good morning, bloomberg surveillance. Futures are mixed on this first working day of summer. There is your data check on a monday morning. Lets get to our next topic, which is the markets. Record highs for the s p and dow. All thanks to the federal reserve. Now a Global Market call, they have to recalculate. Can oneevkovich, how add cash right now . Why should i buy shares this morning . Earnings. Bottom line. It has really been about earnings. Even with the negative gdp numbers in the first quarter, we still had Earnings Growth at almost 5 . It is likely to get better as the year progresses just because the gdp underlying environment the better. You just after forecast for the earnings. That would be like a percent growth versus last year. Where is that coming from . A variety of places. Across the board there is Earnings Growth. Services,ncial despite some of the problems like credit cards, insurance is doing well. You see it in industrials. It is pretty broadbased. We have Earnings Growth but a lot of people of talked about peak argent and how that is been the case for a couple of quarters. Why are you concerned about that . It has been the case for about two years. If you look at the gdp numbers, theyre sitting at 65year highs and Labor Compensation is sitting at 55year low. Some get really excited. If you come with the s p 500 even margins, about 200 basis points below what they were in 2007 below . Yes, and flat promise the last three years. To bull markets go up or do sectors rotate . Is it like utilities do well for a while, Consumer Discretionary suite, or do you believe in all those rising . Generally when the economy is going well. Analysis because you go back over the past 40, 50 years, you will find different cycles bring on different environments. Youll remember the early 1980s and mid1980s when we recovered, it was in sumer striving the economy. And mid80s, the pc boom. By the night, shifting to the technology boom. Early 2000, the housing boom. Different things drive the economy at different times. Everyone wants a simple model. And now were told effective by apple, twitter, facebook, google, google, google, twitter, facebook. And alibaba were not even there yet. Phase, thee mobility third wave of the digital age. The pc, to the internet, now mobility is big. This intraweb thing is taking off. On the other hand, you have Capital Spending picking up. We look at over 700 companies, not financials, in march of data showed about a 5 increase in cap x and now 17 . Nows that the difference, theyre starting to spin money and invest in themselves . Yes, were seeing the broadening out. There is room for margins to improve. The real story and earnings has been tax breaks. If you look at the most recent tax rate numbers for effective tax rates, not statutory, 800 basis points lower than they were at the peak in 2007. Can that last . Probably not. It is the time frame. For example, we know that politicians are upset where u. S. Companies basically shift their corporate outside the u. S. Right. Politicians are upset about it, but with the lection coming up, this is not on the agenda right now. I want to ask about bond yields. That is been a big surprise for a number of investments. Talk about the relationship to we should be focused on. If you look at bond yields moving up, what are the reactions . Fairly consistent over time, the defense of ones tend to do less excitingly bond yields moving up because it is indicative of the economy strengthening. Things like industrials the materials do well. There is inconsistency. Tech, it depends on the cycle. Energy, depends on the cycle. The stocks will react to the heil higher gas prices. I dont like to make it complex, but if it was really simple, we would all be warren buffett. How long can janet yellen and company keep rates where they are as the economy improves . I have to channel the spirit of janet yellen. I think the fed has taken a fairly dovish stance and willing to risk a little inflation. She has made it clear, watch wage pressures. Theyre starting to grow. No locomotive here, but are growing. The emotion of this summer, which is the dangerous condition which is up we seek changes, do you see an abrupt decline or is it a decline you can manage as a strategist and reallocate . Im going to do it slightly different way. When we look at the markets, we pek at cyclically adjusted that Robert Schiller argues for, and then we compared to the fiveyear forward swap contract. You are killing me. Can we say swap on mondays . Of course. It is a draw, not a tie. What will it look like in five years . If youre going to normalize the numbers for the pe, then also should the bond yield. I dont understand why we dont im not a nobel laureate, but understand normalizing earnings and bond yields. Helena kroft from barclays, in your year of oil, do we get junk condition and how will the markets react to an abrupt move higher in oil . This is why a rack is so important. If you want the immediate 500,000 or one Million Barrels off the market and then tremendous pressure put on a country like saudi arabia, that is why iraq matter so much. The market is tighter in terms of supply outages and many people realize, libya is effectively off the market right now. We cannot afford a disruption you said youre optimistic they would release American Strategic Oil reserves. I am confident. There was a release in 2011. The question is, how effective, how long if you have continuing outages in a place like iraq . Pressure would be put on saudi arabia. We will be right back with our guest host Tobias Levkovich and helena kroft. What is the relationship between the Unemployment Rate and Interest Rates . We will show you in this morning single best chart. This is bloomberg surveillance. Good monday morning, bloomberg surveillance. I am tom keene with scarlet fu off the im taking entire summer johnson. Forces of capture more territory along jordan and syria. President obama is warning the finding could still spillover into other countries. Don carey in iraq this morning to meet with the Prime Minister john kerry in iraq to meet with the Prime Minister. In put more than 65,000 troops on combat alert and says the ceasefire would be realistic and less starting talks with prorussian rebels. More the malaysian about the missing malaysia flight. Investigators found the pilot used homes and later to plot a flight path to Remote Island in the indian ocean. That is where the search is now focusing. Those are the top headlines. It just gets more and more strange. Unknown even know how to respond to that. It is sad. Lets look at the single best chart. It is saidcentric. Just rates and unemployment. Interest rates and unemployment. With this last week as a guest host for the Unemployment Rate has not driven the fed policy lately. The fed funds in white. Unemployment rate, which is yellow. Was the case until the financial crisis. The expense of past three years represents a break in the trend. When unemployment first began to dip, it was so high that it was not think a bowl that you would have thinkable that you would have tightening. But it is falling fast. The white line does not come up. The story is, the fed funds, they have not raised the rates. The last time in employment was this rate and falling was exactly 20 years ago, spring 1994. The fed was tightened quickly. , joining us, Tobias Levkovich who put his head in the punch bowl after the tie last night between u. S. And portugal. The fed just wont raise rates. It is howdy thinks much liquor youre pointing to the punch bowl. What they have done is took the bottle back, by tapering but they are still pouring it in. But at a slower rate so you can keep the party going on. Theres a point in which it will take that bottle fully away and try to just pour in punch. What happens then . Wiki get a little disruption ad markets we could get little disruption in markets. And that is a volatility youre predicting for 2015 . We thought we would get more volatility this year. Most indicators say it will happen and it might happen because of that regional i have to rip up the script. Was that the clearest discussion youve ever bowl had on surveillance . Whitney to put together a video with we need to put together a video with Tobias Levkovich. Pouring drinks. That of camera where it looks like hes talking my wife thinks i already do. Are you ready for top photos . Number three, Roger Federer of switzerland practicing at wimbledon. He will look to try to do better than last year were he effectively dropped out early. Same with nidal. Perhaps we will see them how come were hearing care line height Caroline Hyde . Is it because of her action . Baby george. She may know a thing or two about tennis. What else . Michelle wie celebrating after winning the final round of the 69th u. S. Womens open. Congratulations. Why is this a big deal . She was seen as a big phenom and then she kind of disappeared and she is made a comeback. I think it is a great story. She was the female tiger woods story, then fizzled out. When he went to barclays, did you have to go to golf school . No, but ive a lot of golfers in my family. Im terrible. She is a fantastic story. I would have loved to see the 11yearold up there. She did well . She did. As she is 11, she has plenty of time. How did she finish . Im not sure. Well. It was age are all. How about that it was a draw, how about that . Number one, the tie between u. S. And portugal. The fans are just stunned. Last second. U. S. E second half was all because they came back and hide it then took the lead. Look at the fans. That is our control room staff. This is when we scored and got ahead two to one. This is not at the 22. This would not be the reaction to a draw. People were standing with their mouths gaped. Devastating. For the previous 20 matches, the u. S. Is not one when the other team scores the first goal. I feel like soccer breaks your heart. The u. S. Is due to watching the world cup from a buffer every other country that watches their team play, it is a heartbreaking sport. Have you ever watched red sox baseball . Of course. That is heartbreak. I think the chicago cubs are little more heartbreak. Lets not forget about the new york jets. Or the new york rangers, for that matter. This is like thursday, the entire Surveillance Team cocktails. Stay tuned for that. The u. S. Can still get in, it has to either be germany or draw meaning tie. We dont say tie, we say draw. Very educational. Our twitter question of the day you would be able to tell if we all called it football. Nigeria and iran over the weekend, i was all over that. Coming up, what is escalating crisis in iraq mean for your gas prices . Is bloomberg surveillance. This is bloomberg surveillance. News get you some company from the files of bloomberg west. Googles labs will have more to offer for the connected home. Forng security startup firm 550 5 million. They make inhome cameras that can be checked from a smartphone. Smoke alarms can also be adjusted remotely. Amazon is making an exception in the pricing dispute with book publisher. Agreed to take orders and reduced shipping times by j k rowling. The tech Venture Capital firm is making a bet on computer security. The firm is investing 90 million in the start up company according to the wall street journal. It is the second biggest investment for dreesens. Bloomberg lp is a modest investor. Thank you, tom. Oil rallies to a ninemonth high as insurgents capture more iraqi cities. Vices are still only up 7 since the Deadly Campaign began to ask ago prices are still only up 7 since the Deadly Campaign began two weeks ago. Are we setting over some super spike . What you want to watch for, not a big supply disruption in iraq, some in the northern high plains bombed, but youve not seal gog southern offline or facility attack. I think that is what the market is waiting for. As long as the southern infrastructure is say. I dont necessarily agree with that. But i think there is a little bit of complacency that everything will remain fine in the south. How much confidence you have in iraqs army to actually guard these facilities . Theyre taken some of the units out of the south and sent them up north. You have the shia militias parading around places like basra, but the fact exxon mobil, bp, and some of the trays Oil Companies are starting to take their employees out of southern iraq is a sign they dont believe all is safe down there. Within the sectarian sideshow, the civil war, front and center for secretary kerry, we have the oil dynamics wrapped around it. Saudi arabia is great goal. . Here else is critical what other nations matter . In terms of support for sunni movements in iraq, yet the and is and the emirates would obviously to get her in particular. Yet the jordanians. On the other side of that, you have iran. For has been the big backer maliki. I would argue it is basically a mirror of what has been going on in syria. They have been a cold war battle, for all intents and purposes. This is in some respect the second stage of that. To believe in this concept caliphate . Isis themselves talk about wanting to restore caliphate. In the an Amazing Group sense they put out annual reports for the past two years detailing their attacks, detailing their ambition. And what the entity of study for war said is they have a clear strategy. It is more for military movement. I think with to talk about it because that is their goal. Top to pully, our matt, arrived in baghdad. He wants to play some kind of rolled our top diplomat, arrived in baghdad and was to play some kind of role here. Who is going to take malikis place . I mean, love him or hate him, Prime Minister maliki this time did when the most seats in the election. That was not the case four years ago. But how youre going to get them to leave, how you will cobble together a government that works for everyone will be enormously challenging. The iranians this morning this week said, stop meddling, u. S. There are some challenges here in the u. S. This is from hank paulson, my morning must read talking about, change in the risk helima croft, your comments . Look at the obama ministration. They have put Climate Change front and center. This is where i think they believe you can do the potential biggest bang for buck. Why that pushed gas exports as opposed to pushing oil exports, seen as the most important bridge fuel for limiting Greenhouse Gas emissions. You cannot get china and india to agree to Climate Change in the reductions, but if you can potentially get them to switch to gas, you could get that big emissions cut. Helima croft, with barclays. Tobias levkovich comeback. A pleasure. Foreignexchange report. Sterling was the story for much of june. Printing greeley has given us such perspective that he can afford brazil this morning. Next hour,p in the my call and will explain mike holland will explain why he thinks the bull market will continue. We will be right back. This is bloomberg surveillance. The secretary of state is in baghdad and can this great bull market heat up . Jeerss. Jeers turned to as rinaldo crushes americas hopes. Good morning, this is bloomberg surveillance. It is monday, june 23. Our guess is for the hour is Michael Holland. Lets get started with our morning brief right now and here is adam johnson. Overnight, chinese manufacturing rises to a sevenmonth high. Slightly over the previous month. The activity index comes out at a 30, and the u. S. Purchasing Managers Index is 9. 5. Existing home sales at 10 00 with a lot of data today. Note, john items of kerry arriving in baghdad this morning, wimbledon begins today, and there are many soccer matches in case youre wondering. Soccer, not football. Cameron versus brazil and croatia versus mexico. Those are your news brief items. We have a lot of headlines here. Bnp paribas on the end of settling the case with the u. S. Government. They will pay up to 9 million for violating a deal between iran and the sudan. Fromtemporal event handling transactions in u. S. Dollars. General electric has wrapped up a deal for the biggest acquisition ever. They will buy the Energy Assets of alstom for 17 billion, beating out a deal for mitsubishi heavy. The biggest shareholder agreed to sell a stake to the french government. Asia ised ceo of stern being investigated on a fee misused assets. The government is looking into whether James Holbrook misused assets for his hunting club. His son, the cheese chief operating officer is also being investigated. Tojeff and mount has vacation for the next few summers. It is clear he would have to pay for that out of his own pocket. Lets talk about oil. This is a big story here. Leading city after city across western iraq. Join us as the chief analyst at barclays. The case for u. S. Diplomacy is finally starting to build up. John kerry arrived at baghdad tomorrow this morning. This is a rival change the trajectory of the rise of oil . What can john kerry accomplish at this point . If Prime Minister malik he steps down who will take his place, and will that somehow change the insurgency . I dont think so. We dont have an army capable of stemming this fight right now. Advisors, isly 300 this going to be enough . Why have the saudis been so absent . Difficult choice, they dont like Prime Minister malik you. They believe he has to cleared allout war on sunni politicians and that he is tied to iran. They dont like isis either. Saudi arabia is a difficult place, they want them gone but they dont want isis the flourish either. I dont want you to give away state secrets but what is the quality of our intelligence . Do we really know what is going on there . A very sizable u. S. Embassy there. I dont think this is the case of not knowing. If you look at with the journalists have been writing, it is not as if we did not know what was happening with the rise of isis. They took falluja and ramadi earlier but this was a tragedy foretold. What would you suggest is the mission of john kerry . They are trying to look for the political order but how do you get the man who actually won the election to step down. He does have soldiers loyal to him. That could be a new point of instability if he was pushed out of office. He was elected by the iraqi people. There is no government at this point and this could be a protracted process, but four years ago he actually did win the most seats and the parliament and the United States backed his return to power along with the iranians. It is not an easy situation. That is a problem with american diplomacy, it flipflops. When the facts on the ground change. There is a deal in the energy tor for Wisconsin Energy 441. 37,ter grade which is about a 37 premium to the last close. This creates a midwest nacht natural gas utility company. Release, to the press scale and resources. When you hear a deal like this, the u. S. Energy sector continues to move forward and is not held back by what is going on overseas. I think the north american story is a crucial part of this. The last time we had 3 Million Barrels off of the market with a supply disruption was 2011 and prices were north of 120. Now, libya is off the market. Prices not above 120 . Because of so much spectacular growth. Lets bring in a man who is perfectly qualified. Around when the top components were railroads and utilities. The peoples gas, light and coal company, Wisconsin Public resources, minnesota north shore gas company, and the Upper Peninsula power company, this is a mouthful, called intergrid. This is all one big roller. I think that this is another 17 premium with the private market value. Do i want a bigger utility dividend, with lower Dividend Growth, or do i want bigger Dividend Growth and a smaller dividend . Utilities are over the last five years, for sure the reality is you want a more rapid growth, you dont want to be worried about inflation again for other reasons and the reality is that you want growth with a smaller dividend that can multiply dramatically over time and beat inflation. Utilities, i am blown away by this, the single best group in the s p 500. What is it . Is it the low rates for longer, so dividends become the focus and utilities can support your operations . What is this . Part of it is what we were reading this morning, the industry is buying things and being more efficient and improving operations overall. People are looking for the yield, which is the largest part of the story, the continuing search for yield. We have a closed and Company People have reached for yield for years now. I have to ask about another headline in the news today. Bnp paribas with a nine point 5 billion record on this case. Is is going to be part of the global bank . Moynahan this is just an ongoing saga. Tore is this incredible rush get away from them with the ongoing saga, can you buy shares in these banks . This is ok but part of the reason they are so cheap is exactly why can jpmorgan do business in paris this morning . I dont want to traipse on barclays but can they do business in paris this morning . I dont know. Raked overting the coals. This looks like a oneoff. Just a melt show that withcans can do business the french parliament. I believe that france is ok. The bnp thing is really an incredible story, if you look at what the regulators are continuing to do to Financial Services companies. And the fee is one year of total profits. We are talking huge numbers. Going tomoynihan is meet with eric holder to get these night many billions of dollars of fees reduced. Thank you so much for being with us this morning. Michael holland is our guest host for the hour and he will be back with us. Coming up, not only is this an unloved bull market, why our next guest says that this is a vastly under protected market. About volatility right here on bloomberg surveillance and Bloomberg Television, streaming on your. Ablet and on bloomberg. Com good morning, everyone. Bloomberg surveillance, i am tom keene. This matters now, to our guest host Michael Holland, this is the equity market. There is a job vacancy in cambridge, massachusetts. What is harvards endowment what do they need to do to jumpstart an average return . If anyone had an easy answer to that . It would already be done. Mr. Swenson has done a wonderful job. Meyer, who preceded them he did a spectacular job and this is a tough market for people like that. If this is a tough market you will not take the job. The three ideas in this bull market the three things that have been important our valuations, this is at 11ago, times earnings and they were ridiculously cheap, fast forward to today in the valuation is ok. They have given other things like price out of debt and then you factor on top of that the negative psychology nobody is talking about the market. In january a number of pundits were saying that the market would go up some more because we had a 32 rise last year. A veryrall we still have negative situation. And most important is janet yellen and the fed. Can we rip up the script twice . How do you define a pundit . What is a pundit . Someone who writes for the tabloids. They can write for the tabloids but may i suggest that they never enjoy really losing money . A pundit as opposed to someone who is garden has some sort of humility i have lots of humility. The dumbest mistake you have ever made . Too many to count. 12 consecutive times on aol. Long or short, do the opposite. Michael holland, with your Investment Advice this morning. I dont know if he is long or short on alaska. The concorde is taking off, what the airlines have done. Coming up, the secretary is in baghdad, john kerry and we will have all of those developments out of iraq. What those developments all through the morning. Good morning, everyone. Good morning, everyone. Bloomberg surveillance. The twitter question, after we all saw yesterday evening, does the world cup make you a bigger soccer fan . Scarlett fell off of her chair 20 minutes ago and she could not get up, she was holding her ankle for 45 seconds or something. We had extra time for surveillance. We will do 2 minutes of extra time here. This is bloomberg surveillance , on a monday with scarlet fu and adam johnson. Joining us from the Holland Company in the equity markets and alice go to the top headlines with adam johnson. The u. S. Can still advance with a draw or a win against china on thursday night. In a rack, they have captured more territory at the borders along jordan and syria. President obama warns that this could spread onto other countries. John kerry is meeting with nuri al maliki. Backing autin is ceasefire by the leader of the ukraine. He put more than 65,000 troops on alert and says a ceasefire would not be realistic and less talks begin with the prorussian rebels in the southeastern part of the ukraine. And there is new evidence about the missing malaysia missing Malaysia Airline plane putting suspicion on the pilot. A flighttors found plan for a Remote Island in the indian ocean. That is where the search is taking place. It gets more bizarre as time goes on. That story continues on and about what you mentioned the ukraine this is front and center over the weekend. Go ahead alert and help me. All the way. That this strange is was effective on friday, they have been told to stand down and my troops ares, going back on alert. This is a volatile time for russia and iraq. As critical as it is in russia we are not going anywhere at least in the u. S. Markets. Slow volatility becomes a new buzz phrase, appearing three times more often in bloomberg articles this year, but here is what is curious, nobody seems worried. These numbers have fallen 30 since january. These are spikes in quiet. Term,se are spikes, the low volatility. Perception and reality seem totally out of sync, is this cause for concern. If you listen to the press conference the janet yellen press conference, you wonder if she wants for this to go down. There is lots and lots of News Coverage that the fed does not seem to be embracing at all with setting asset prices and setting us up for a volatile event down the road . Chairman yellen and many of her counterparts, the regional president s, fisher of dallas and kansas city, they have all expressed concerns. There is a lot of discussion on low volatility. A lot of press coverage and i think that this differs quite a bit from what we saw in 2006 where the low volatility was seen as an almost permanent conquering of the business cycle. There is more skepticism now and i was disappointed to see yellen not pay a lot of attention to the role the fed is playing and causing folks to reach for yields and just to avoid protective strategies. The last buyer has left the building. Painful, even at a low vix, to be defensive in a market where buying continues to go up. Do you have any protective strategies that you use . Im interested there are people talking about it and their concern im a little bit of an agnostic simply because the world the what the word fear is not necessarily synchronous. I think this is a measure of price volatility, and not necessarily fear. This is the cliche, the fear index. But you really dont agree with that . I think that the fix represents what is happening here and now, it is a decent job of showing what the markets will be like today and the next day, we ask ourselves why the market will be different than today yesterday than today. I want to cut to the chase. Marty walsh is coming in from boston. You have a wicked newsletter. Mortals, what is this quite signal . What does this mean when you have 10. 85 . This is a reflection of supply and demand, because more buyers will drive this up and there are fewer of them around for the reasons i articulated. It is too expensive to risk underperformance in an environment where the market is just going one way, a career risk of underperforming in a world where so many people are bench warming in a place like this this supply and demand is allowing it to go down. Side, there is a heavier side, you can buy this . You can buy futures and they are more costly than the spot as you look at the term structure. Youre supposed to take a good look at your portfolio and see the gains in which most people have participated in they last few years and say, what do i not note six or nine months out, starting later in these kinds of strategies . Thank you. A do not miss conversation coming up. Boston mayor marty walsh will join us. It has been six months since he took office. This is wicked cool, he will talk about the red sox lack of hitting. This is bloomberg surveillance. This is bloomberg surveillance. I am scarlet fu with tom keene and adam johnson our guest this morning is adam holland. Lets start with American Apparel. The ceo says his ouster was illegal. His lawyers demand that he be reinstated. Investor for American Apparel does not plan to support him. Speaking of founders, tripp wilson is turning up the pressure on the companys management, wanting the yoga wear maker to look beyond shortterm and improve their product line. He may shake up the board and some and sell a stake or make the company private. Shares of lulu lemon fell to a threeyear low. Nissan and honda are recalling thousands of vehicles these are made by japanese firm. One of the children had a car accident this weekend. Everyone is fine. They had their seatbelts on. Let me say this clearly, wear your seatbelt. But and then you get the but, i at first i felt foolish but am doing it now, i wear seatbelts in taxis. Adam johnson with your Public Service announcement this morning. Anorak, the top diplomat, john kerry has arrived in baghdad to head off the insurgency by sunni militants. We have the latest on the washed in response to the situation. What is interesting is john kerry will be meeting with malki but the Obama Administration is not happy with how he is governing and they want to oust him. He met with new real madrid he met with norri almalaki earlier and the public line is they just want a government that includes all three of the major parties and religious groups, you are right. Behind the scenes, u. S. Officials have made it clear to me or any other reporter that asks that they dont feel that he is the right answer. Also of note this morning, john kerry not just meeting with him but also the top sunni leaders and the speaker of parliament either right now or in a couple of minutes. Making the rounds to all the major groups and the key point, the u. S. Officials say is they have to find a unified government and do everything 27 that includes everybody. Helpt they will not get from the moderate sunnis. Been speakingrry with iran and saudi arabia . This is the most complex issue. The insurgency sees 2 border crossings that are crucial in both jordan and saudi arabia. From the u. S. Perspective, the sunni dominated allies in that region others in that are very wary about what is going on now, not just based on the sunni insurgency that they are looking at, but any kind of u. S. Relationship with iran right now. They obviously dont support the shiite led government. The iranians do. If the u. S. Makes a move as they attended in the last couple of weeks to tighten up relations in any way, shape or form, saudi arabia and those countries are not very happy with that at all and that is a real balancing act that he has, trying to deal with Major Concerns but also trying to get almaliki to deal with this in a unified manner. The rapprochement sorts sort of built steam between the u. S. And iran. Is part of the distancing in iraq, of john kerry maybe because he is wanting to be closer to iran . People in capitol hill are very concerned that the u. S. Is even entertaining the idea of working with them on any ring. The major issue they have a problem with, they believe they start working together in any capacity this will smith greatly undermine the u. S. Negotiation position on Nuclear Negotiations going on and suddenly they say, maybe we will help you a little bit more if you start giving us more leeway in the negotiations. No word on whether or not that has happened but that is the main concern and i think the u. S. Is a very tenuous position. You heard from the leader of iran, this weekend say that they completely disagree with any kind of u. S. Intervention right now so publicly these countries are going to remain pretty far apart and what happens back channel is crucial not only for the relationship earbud on the allies side. Phil mattingly with the for the relationship on the allies side. Phil mattingly with the latest. The highest since september a quick data check, futures are up and existing home sales coming out after the market opens, not until 10 a. M. Good morning, everyone. Onomberg surveillance Bloomberg Television and radio, all of our interviews out on digital media. And with me is scarlet fu and adam johnson. Our guest host this hour is Michael Holland of holland and company as well. This is interesting right now. Was his father was born in galloway. Marty walsh is the newest minted mayor of boston. Do not have that so lets go to Michael Holland. We go to Michael Holland, the guest host for the hour. We want to get a look ahead to earning season. Onorgan reports earnings july 15. You look at that as the benchmark for what will happen to the company overall. To continue tore look at these loans . I think that people are getting more and more prepared for the kind of these kinds of results, i think the numbers over the weekend that came up with Revenue Growth for the 23 , these are not great numbers and i think that the companys overall are looking for a percent on the year for Earnings Growth, and i think that we are set up for maybe a positive surprise, but overall, this is set for the next 2 months. He made the point that margins are still 200 basis points below the alltime highs, and he says that this is a result that they can keep milking the tax rate. The effective tax rate is lower. Companies have been a good job doing what they can, this is peoplefectly legal for affected by that and they have not hired anyone, they have Done Technology things and use technology to make the margins what they are. Have a push too far and can this continue for another numeral two quarters. Every quarter we feel that they have gone as far as they can. That is the eight percent earnings rate. You have been a resounding bowl, and absolutely right for several years bull, and you have absolutely right for several years. Is there anything you dont want to buy or dont want to own anymore . Wilbur ross said that there is a puzzle in a bubble in sovereign debt. The distraction that could occur there, but that is into the future. Right now the stock market is overriding the utilities, and a lot of things have done well with the rising tide, so in the equity markets we will probably set up for the correction. People have been talking about that for five years now. I think as it relates to fixed income, the Value Proposition you invest money knowing that i am the dumbest guy, you know that you are buying at the top and it is how much last loss can you stand . I know that i will lose 25 or 30 at any given point in that is part of the game. We have lost that emotion, havent we . Yes, i think that this is exactly right. One way i approach this is to presume that since i dont know a lot of things, things that go bump in the night, i have cash. Cash in 2008 and 2009 helps me dramatically to sleep that night, this is what people should have their reserves. When things happen the way that they just described critical, with the pungency today, a major loss at eight are sent. A major loss is 12 . This is a lot more than that. You and i know that you have to go in there knowing that you will lose 25 . Isnt that because all of them will pool their money one month at a time . Absolutely. The kind of swings that we can have our jaguar s are gin ormous. Are we allowed to say that . I say that, absolutely. Coming up, we will get view on gm asds well on ge as well. They are clearing the last hurdle for the alstom deal. We will have that, next. Good morning everyone. Ism tom keene and this scarlet fu, with adam johnson. Good morning. In debt, that is the deep hole but puerto rico must climb out of while addressing challenges like 14 unemployment and energy costs that are double the mainland average. Our own Stephanie Ruhle investigated the collapsing economy. What did you find . I met with Business Leaders and americans who moved their businesses, and i also sat down with the governor. He is in a tough spot. They issued highyield debt as a positive, but unless they get themselves out from under this whole, they are in a horrible position. You really are tracking people down to puerto rico . The Virgin Islands changed their laws and states like new york and delaware and california keeping businesses where they are. Of every three middle income people have moved out of puerto rico into the United States. But the governor says that this is a competition and he is there to win and make it happen. I think that this is a competition issue. A company goesn from San Francisco they want to compete and we want to compete. I hate to compete, i just want to win. Of those are big words from a politician, he hates competition and just wants to win. What does this mean for Real Estate Developers who no longer have the money to complete their deal. Guys like paulson are getting an unfair advantage, this is a tough spot. You mentioned this brain drain out of puerto rico, with the professional class leaving in droves. Puerto rico is doing what it can to attract john paulson he has invested a huge amount of money down there, from hotels the plazas to office buildings. They have this law that they changed, and they are trying to attract Hedge Fund Managers to move down there, you dont have to pay income tax. I was on the ground and went to the offices and some of them have moved out. You have not seen one single bigname marquee investor move down there. We have not seen a true success yet. How does puerto rico feel about this . Right now they just need green dollars. You would be exempt from federal income tax. But if youd not, move down there as an american, you would not have to buy an inheritance tax, you are in worse position if you are a puerto rican. A lot of Puerto Ricans dont like this. You have to grow the top line. Michael holland, your thoughts . Puerto rico has always played the tax game. It hasnt worked. It has not worked and at this point, 70 billion worth of debt, there is a big question about how they will get out of this. Stephanie ruhle and market makers. You will have the rest of your questions on market makers. The incoming mayor of boston joins us, right here on surveillance on television and radio. Has this world cup major a bigger soccer fan . Tweet us. This is bloomberg surveillance, i am scarlet fu tom keene and adam johnson and our guest is Michael Holland. Good morning to Bloomberg Radio worldwide and particularly bloomberg boston. He enjoyed a child in the heart of irish boston. Marty walsh is the newly minted mayor of boston. He joins us from dallas and the mayors conference. Mayor walsh, good morning. I had the privilege of standing in the middle of the rose kennedy garden, the southeast expressway. And the northeast expressway through boston. I would suggest that you are the living personification of the benefits of infrastructure. How do we jumpstart infrastructure in america . Thank you very much. First of all, boston is a good story to talk about that. We are looking now at the publicrtation system, transportation and roadways around the city of boston. Boston is an old city. Of makingtter chance the rounds. Overe raging debate minimum wage it turns out the income inequality, boston boom of technology you have to confront inequality. How are you doing that . In boston we have a living wage. The Massachusetts Legislature just increased the minimum wage i am going to sign the bill but here at the mayors i am on the Mayors Task Force sio and other bla mayors around the country, we will take a strong look at this and other cities to see what we can do. Ofre has been a lot discussion over the years about inequality and we need to Start Talking about how we are going to deal with this. And how we will deal with secondary education. There are a lot of issues and for the last 20 years there is not a lot of there have not been a lot of concrete steps that have been done. We need to stop talking and act. Boston upping the minimum wage to 11 bucks in seattle is at 15. How do you go about trying to understand the right price and how do you build that consensus . There is a lot of discussion about studies from 1968 until 2014 and how inflation has gone up and the minimum wage really has not. I think that the fact that cities and states are starting to look at the minimum wage, that is a telltale sign that we are also starting to create jobs. , theis one of the things wage is great but if we dont have the people dont have the jobs for people with low skills were very little skills, that is the problem. We put together a bunch of different people and we are talking to the biotech and the hightech sales to see if there is an opportunity here, to create Something Special so people with lesser education have a way to share in the benefits of the boom that is going on. So much of bostons Financial Security is seen with wellington him and putnam and many others. I know that bny mellon is there as well. How do you strengthen the Mutual Fund Business in boston as a Financial Hub . How do you restore that magic of decades ago . One thing we are doing is meeting with these different companies, and i think that what has happened historically in a lot of cities is when a Company Comes in and gets established, we take our eye off of the industry that is actually strengthening and has created the markets. I have said that what most of those companies that you mentioned and we are trying to make sure that they grow and expand within the borders of the city of boston. And we work to bring in new companies. The financials and mutual fund worlds, those were the staple for a long time and the Different Industries have come and gone, but always for me we have to cultivate them and keep them in our city. Mayor walsh, we have something in common, we were not dumb enough to run the Boston Marathon as fossils. Michael holland, you were running the marathon this year . For the city of boston and all the people involved, they were spectacular in how they responded. Menino,decessor, tom presided over a great time in boston and the city spent a lot of money and this is a wonderful place that has never been better. What is one single thing that he did that you would like to perpetuate to keep austin flourishing . One thing that he did boston flourishing . One thing that he did is he have atrong budget, we aaa bond rating in the city of boston, and it is important for us to keep this going strong in the city. When you see cities that go through a difficult budget times, they have a budget that gets them into trouble and i want to keep that strong, because this is very important for the fidelity and the future of boston. You are on the dorchester flightpath, one of the major flight paths. Airports ut the how critical is your infrastructure and the International Airport . How critical is that to the Greater Boston area and what we do about this in the next 10 years . It is so critical and people get upset about logan, but we are increasing International Direct flights, we have flights from beijing coming in, last week and this is going to be a daily flight, flights to the shannon islands and other possible flights, japan. We have to make sure that we continue to build the airports that help people get into the city. Because when we talk about wanting to be a Truly International city, we have to make sure that we have a Truly International infrastructure. This is very important and we are focused on tourism. We are focused on jobs and economic growth. We can do that if we dont bring in International Flights and folks into the city of boston. We are working very closely to make sure that we continue that strong infrastructure. This is one way from the heart of the city to the airport this is no longer one way from the city to the airport. We have 2 tunnels now, and once we get to that, we have to continue to improve our infrastructure for the city of boston. And education and transportation. We have to work on public transportation. What do you what will you do about the red sox . This is a train wreck. I lived to be very difficult years and finally, in 2004, we wanon it. Every time we have a dip in the record, we think about 2004 and the world is falling apart. This is still the regular season and this is the same team from last year. All we need to do is get some bats going. The efficiency is very good. He is very informed. Tom mentioned the financial industry, what does this do overall for boston as a potential Financial Hub . A lot of these institutions have reached out to the Mayors Office to talk about investing in boston and that is having that they are excited by. As a new mayor there is always concern about coming to a city that shows the ability to be strong and in the next x months from what i am hearing, the conversation is a lot of hightech and this is very positive. We have a great team and we actually did something different. We had the Redevelopment Authority and the business development, we separated that and created our own office of economic development. We made cap that level positions and that sent a big message to people that we are taking this very seriously. Walsh, the mayor of boston, massachusetts. A real window into those challenges. I want to get to the twitter question of the day. This comes after yesterdays from a, the soccer match, the football match between the u. S. And portugal. We asked everyone, has this major a bigger soccer fan . Not really. Erting people slowly the world cup sound. O the goal usa, usa. The chanting. Is there a big game today . You will want to watch the netherlands and chile, they have advanced and this is like icing on the cake. And germany and the u. S. On thursday. Michael holland, thank you for joining us. Bloomberg surveillance continues on the radio and in is loop with betty liu next. Have a good morning, everyone. You are in the loop and i am betty liu. Has now wrapped up its biggest acquisition ever. The french government has okayed their 17 billion purchase of alstoms energy asset. John kerry istate now in baghdad. Rebel forces have captured more territory. President obama told cbs but the risks we need to focus on now. The problem with isis is that they are destabilizing the country. That could spill over into some jordan andes like they are engagen