Transcripts For BLOOMBERG Bloomberg Surveillance 20150220

By rockets, and the russians have a key hold on the area. Merkel and hollande will hold a joint press conference this morning. Walmart finally caved in under all the pressure agreeing to raise wages for almost half a million workers. They will get nine dollars an hour by april of this year and 10 an hour about a year from now, february of 2016. Labor activists have been pushing walmart to improve its wages. Walmart also says it wants to lower its worker turnover rate. One analyst says this move puts pressure on target and other rivals to follow suit. Brendan the latest trend on wall street is not good for bankers or traders. Workforces are shrinking. They were down 4 last year. The study says the total of key jobs the company at the cover has fallen. This sunday it is the super bowl of speed. More than 100,000 nascar fans are expected at sunday prostate on a 500. This would be the 57th running of stock cars premier race. Jeff gordon says it will be his last and he has pull position at this time. I have been to nascar races. I do not understand how they work. I know you continually turn left. I like to get as close as i can to the track and stand there as they go that is amazing. The noise pushes you back a little bit as you go by. Someday i will understand the strategy. Erik they are spending big money on daytona. Brendan you have the rvs on the midfield. Erik greece plus finance minister is in brussels today. There is no indication he will have anything to do or anything to talk to when he gets there. Berlin said nein again. Hans nichols is back in brussels. Is anything actually happening . Hans nothings happening yet, brendan. We will get here in about two hours. What we have so far is a series of good news, optimistic news, and bad news. There was a talk that went on for about 50 minutes. Also in the good news and mr. Seaburg coming out of that said that he was ultimately positive. The germans seemed willing to compromise. A Government Official says the document that greece submitted yesterday that they reject it will form the basis of compromise on the basis of negotiation. Now the negative and the bad news. It is unclear that either side wants to budge from their positions. Greece wants something to greece wants something close to an extension. Germany wants to have them fulfill and complete the Bailout Program. Basically we are where we were 24 hours ago. There has been some semistrong language. Verifyhe has been tweeting out comments. The leaders of both countries are talking. That is the only reason to be optimistic. Otherwise we are in for a late night. Brendan Erik Schatzker and i have a bet. Eric says that germanys finance ministry is not talking to the finance office print i think Angela Merkel is a good cop. You live in berlin. Which is a . Which is it . Hans you are both wrong. Now i have to come up with the argument why that is true. I think there could be daylight. There had been daylight in 2012 between merkel and troy uggla when you listen to what she set up north two days ago when she was firing up her party rhetorically there is not a lot of daylight between her position and others. It is not just as though this is germany versus greece. This is many of the eu countries wanting to say that rules matter, commitments matter, and Bailout Programs and finalizing the rams matter. I will take it all back. Usually both of you guys are right, but in this case you may have been a little bit off. But you are not here. I will give you a dispensation. Erik since we are talking about Angela Merkel, lets cast our eyes to about an hour and a half from now when she and Francois Hollande will hold a press conference to address the situation in ukraine. Is there anything that is there any expectation they will respond to poroshenko . A plea is possibly the best way to put it but hoping desperately for some kind of europeanled u. S. Peacekeeping force . Hans it is unlikely to get a peacekeeping force there. The most likely concrete action you will get out of the eu is if the ceasefire continues to be evaluated, the next time you have eu leaders here, you could have an additional round of sanctions, but in terms of bringing in the eu or paneuropean forces, there is virtually no talk of that. Frankly, there is not even the capacity. The only vehicle to do that would be nato and that would be a nonstarter for the russians. It would be very difficult to impose a peacekeeping force in the ukraine. They have surprised us in the past. Call us if anything happens. I know you always do. We turn to the desk now. We just heard hans nichols give us a tour of the political mess that european that europe is rit now. Lets talk aut equity. How do you look at that mess and make plans for the portfolio next year. One of one of the themes i have is i think the world must be thinking in terms of 20th century geopolitics, and the new geopolitical world is very fragmented. Since are shifting. If you look at the u. S. European alliance, it is not as strong as it used to be. Clearly russia is moving east. What china is going to do in asia is very important. So a lot of geopolitics and fragmentation that goes along the social fragmentation that we are seeing. What it means is more volatility. Brendan so this comes down to volatility. Peter cook is coming to us from our washington bureau. I asked the chief Investment Officer what she thinks of the world right now, and she starts to sound like henry kissinger. What is the u. S. role in both of these right now . The u. S. Is fine the u. S. Is trying to play a constructive role but they are on the outside looking in. There is not a lot of leverage. In the longer term, there are some implications. If greece were to go, what happens after that . What is the collateral impacts the broader impact. In ukraine, there is intense pressure right now. Members of congress, i cannot even convey to you the statements i get publicans like john mccain urging this president to do more to arm the ukraines, that the ceasefire to arm the ukrainians, that the ceasefire is not happening at the United States needs to do more. So far the administration is doing off. Is holding off. Erik you were talking about fragmentation of the world politically and the breakdown of traditional alliances. That is what peter is talking about, the lack of leverage the u. S. Has over europe during what does that mean . That means that warfare could look very different. It means preparing for warfare could be very different. That means working on alliances that may have been hot in the past and are cooler now. Im thinking about digital warfare. You asked me what was the impact on the portfolios. I want to make sure that we have Internet Security stocks in the growth portfolios. Clearly at pimco, the head of equity, i have different teams to look at different things, but that is one of the trends is the volatility that it creates and the position to potentially benefit. Erik are you looking at whether individual companies have shown that they have hardened their own defenses . Absolutely. If you look at stockpicking and you have what people in environmental and social government are looking for sustainable growth, it is essential to say particularly to Financial Companies hey, what are you doing about Digital Security . Because so much information is online now. And making sure your portfolios are positioned into that. That also means that you should be thinking about the internet how much more intense electronically or world is, that you have good positions. This is fascinating. We asked how to invest in a volatile world, and she comes back with cyber security, which brings us to peter cooks world in washington. That is what we have coming up next. Washington gearing up for a busy week. Jenny yellin will be front and center. No idea what her janet yellin will be front and center. This is bloomberg surveillance , on bloomberg television, streaming on your phone and bloomberg. Com. Brendan this is bloomberg surveillance. Im Brendan Greeley with Erik Schatzker. The u. S. Central command Officials Say up to 25,000 iraqi troops will be needed to retake muzzle. U. S. Advisors will train them to retake mostul. Investigators in switzerland are trying to determine why two trains collided. A commuter train and a Long Distance train northwest of zurich. And the trial of strauss kahn is drawing to a close in paris. The former head of the International Monetary fund is facing pimping charges. A prosecutor asked that the pimping charges be dropped earlier this week. Erik it is a big weekend for washington next week. Janet yellen will be testifying before commerce as investors seek more clarity on the timing of the first rate hike 2006 is coming. Peter cook is here with us this morning. Lets talk about what has been known for years. Nobody really calls it this any longer. Peter jenny yellin is facing a Republicancontrolled Congress and Republicancontrolled Senate banking committee. There is a new sheriff in town Richard Shelby of alabama. The tone will be important, and the substance as well. My big question is, how much interest do the lawmakers have on that topic. I think we will your a lot of regulatory issues, a lot about auditing the fed and oversight. That will be the dominant theme, at least the first day of testimony, possibly the second. Brendan is that a real legislative movement on the fed, or is this something you see in iowa . Peter i think it is more of a distraction than anything else. The idea that this president and other lawmakers are going to support the idea of members of congress intervening and Monetary Policy decisionmaking, that is what a lot of people think this legislation would allow lawmakers to do. I do not think that is the reality, but there will be other steps, some middle ground. There will be more oversight of the fed and its balance sheet. I would pay careful attention to the governance changes that are likely to come from congress, whether it is who selects the new york fed president. There will be some changes coming. Erik virginie there it is a there is a discrepancy with the tone the administration taking on the economy and what we heard from the fed last week. Virginie we are still in an environment that is quite fragile. The u. S. Is clearly at the front of the train, but that dependency continues and remains all around the world. So i think it is actually quite logical, and quite reassuring that we have actions that are measured and words that are measured, and it has to be balanced. Erik i am no expert on the fed, but the sense i get is that the fed is in a way abandoning the tendency, saying we are so uncertain, we feel the need to be so cautious that we cannot necessarily go trust the data alone any longer. Virginia but you have to look at the data. Clearly virginie but you have to look at the data. The pulse on the economy and this goes back to what we call at pimco a mutual it is not only about the u. S. , it is about the world. The one thing i think is quite positive that we are not talking about is the fact that europe is improving. If you look at the pmi today, it is a slow and very painful path but there is evidence that at least our assets are rising on qe. That is going to help the normalization process because everything is interlinked. Brendan lets swing all the way out to iowa. Who is selling what is being sold out of iowa . Is it the fed version or the Administration Version . Peter you have a lot of republican candidates making a trip out to iowa, and they are not looking at the data either. They are talking about the economy still in major trouble. Ive never seen so many statements about participation rates as i have seen in the last few weeks from republican members of Congress Talking about the problems with the u. S. Economy when we are seeing things have improved. The reality is they are talking about a country still facing economic troubles american still facing challenges. It still resonates with a lot of people. Polls suggest that as well. But the administration feels it has a strong story to tell in terms of the u. S. Economy. A message they are dealing they are delivering to europe and greece and everyone else. I think the reality is that this administration feels really good about whether the economy is right now. Whether or not that resonates with the republican president ial race, i do not think it will. Brendan coming up in the next hour, we are joined by another guest host. And the ceo of the credit union former director of the streaming on your tablet and phone and bloomberg. Com. Brendan this is bloomberg surveillance. Im Brendan Greeley. Tom keene is in d. C. This very moment. Olivia is out. Erik schatzker is into help us out. It is now time for morning must read. I took a look at comments a writer from the financial times. He watched the jeb bush speech on Foreign Policy. This is his sort of coming out party to show how he will be different from his brother. Bush senior never claimed to be the type with whom the voter would want to have a year. By that measure, jeb is his fathers son. His jeb bush the wonk . He did try to straddle two different worlds. The Comfort Level when he was in the q a versus when he was giving the speech, i was struck by how uncomfortable he was when he delivered it. Better to make a mistake now in february of 2015 than when you get closer to the iowa caucuses. Other candidates are struggling to be seen as realistic. He has clear that hurdle. Erik can a candidate like jeb bush bone up on Foreign Policy to become comfortable with that subject matter . Peter yes, and i think people will give him more of the benefit of the doubt. This is where his last name benefits him. Everyone knows the world he grew up in, with his father as president. Where his family went through war. No one will expect that he is not prepared and does not have the kind of advisors at his side who can tell him what is happening in the world and give him decent advice. Erik it is february of 2015 we are talking about this. It is to be expected at this table, and particularly with peter here. When do you start paying attention to a u. S. President ial race . Virginie it is clearly an ongoing seen but he will become more intense. What matters is what happens to the economy, and clearly the race debate is very important. But the markets will be troubled possibly by preelection debates or questions or rhetoric that we have. If you look at the u. S. Markets, it has done fantastically well. Earnings could be a bit challenged. We have had a strong dollar. Energy earnings etc. From an Equity Perspective depending on how the debate goes, we could have weakness in the market. Europe and japan could do quite well. Brendan it is time for our twitter question of the day. You saw what happened with walmart yesterday. Is there a new Labor Movement in america . Yes or no is not allowed, folks. We will be back in two minutes. Erik good morning, everybody. You are watching bloomberg surveillance. Im Erik Schatzker. Lets start with top headlines. There is speculation apple the speculation of course that apple would by tesla has set a roadblock, one of many. People with knowledge of the venture say apple aims to Start Building electric cars by 2020. Tesla and General Motors hope to have new electric models on the road in two years with price tags under 40,000. The west coast port strike is forcing an automaker to shift gears starting monday. Honda is cutting production by 5000 cars in two north american plants. The parts it needs are not getting through. A Court Decision could take a big bite from the bottom line at american express. A judge ruled that the Credit Card Company is breaking antitrust laws. The court said amex must lead must 12 could be cut from amexs revenue. Those are top headlines at the moment. Brendan . Brendan in europe sometimes you get a chance to see what somebody really thinks. Yesterday for the first time the european released its minutes, stagnant growth. Raise the possibility of forces coming in, which would not permit an attitude of benign neglect. Virginie maisonneuve, you have been watching from the outside. Lets talk about it from the inside. I did not know before reading the minutes that benign neglect was an option. Virginie the reality is that we have qe growth that was very slow, and Deflationary Forces clearly have intensified. The one thing i think is important to dissociate is the fact that part of the legislation or a forces part of the Deflationary Forces come from the lower dollar and the lower oil price. The strength of the dollar and the fall of oil prices has had an impact. Brendan it seems to be a big part of the minutes. Virginie i think that is important, now that the euro has weakened and that we have qe, that does not mean that growth will rule out. But we have some growth with the pmi coming out. Clearly very small progress. What does that mean . As a stock and equity person where are the anomalies . The new jewel of low growth Interest Rates, etc. , and quantitative easing and has brought anomalies to the market. You have to decide of those anomalies are structural or that you want to play with. If you look at quality versus value, for example if you look at the search for bond substitutes in a lowyield world , highyield versus equities credit versus equities, you have a lot of relationships that do not seem to follow historical patterns. Erik lets talk about the dollar. As an equities person, to what degree is the current strength of the dollar and the expectation, or not, that it will mean strong that it will remain strong when making your Investment Decisions . Virginie first, from the bottom up. Currencies have an impact. They had well, they do not hedge well, etc. Second is, depending on where clients are based, base currency. We can hedge for you, whatever. But going back to the currency aspect the strength of the dollar has been extraordinary. If you think of the economy as a big train and the u. S. Is clearly at the front but we have had an increase in the dollar versus the euro. It is possible that over that trend as it continues in the longterm, in the short term we get likely more sluggish data. In europe, we could have some green shoes. Everyone is long on the dollar and short again. In that environment, we could have some small reversals in the short term. Erik painful reversals. Virginie it depends. Brendan does the strong dollar up with a sense of pride or a feeling of concern . Peter the message from rand paul and others, the big criticism of the fed, is dollar weakness. The reality is that most members of congress do not track the dollar on a regular basis, do not really understand how currency markets work. The strength of the dollar right now ultimately and the fed has acknowledged it it poses a risk. I do not expect a lot of members of congress to be calling for a weaker dollar but that is the reality right now. The strength of the dollar is more of a risk to the u. S. Economy that perhaps washington totally acknowledges. Brendan the consistent thing this morning has been the politicization around the fed. Reading through the minutes, you can see politics there as well. Virginie i guess those things go in a cycle. They are never completely absent. They have to be there. Clearly people participate with their own dna, and that dna is political. I think maybe we hear more about it. Erik are we entering an era where the independence of Central Banks will be tested perhaps here first . It is not as if the ecb has been a political hot potato, but we have yet to see whether let me leave it at that. Virginity go i think the role of central bank virginie the impact in the crisis, everybody in the world would be on the lips of the central bank. We are in phase three of the crisis. We are not at the beginning. We are moving off and away although it is quite slow and sometimes painful. So they will definitely be there will definitely be an analysis in the heat of the moment that is completely right but given what we see with the new mutual, the need for support, and liquidity, slow normalization, i think the role of the Central Banks will remain very important for us for a very long time. Brendan it is fascinating to hear how we at the finance desk in new york think about the strong dollar and the fed and what happens in peter cooks washington. Peter the one thing that is happening is the threat of if anything blows up, trade deals in washington, it is because democrats want currency language in there about china and other asian countries. If they do not get it, they may not support those deals. Brendan right now strikes on the west coast. There is something shy of a strike in west coast ports. That is todays single best chart. We are streaming on your tablet and phone. It is everywhere. Brendan this is bloomberg surveillance. Tom keene is on capitol hill. Erik schatzker is with us this morning. It is time for the single best chart. A labor dispute on the west coast has created drag for industries in the u. S. Today we have a single best map. This is the difference one year makes on the west coast. You see on the west coast oakland down 40. 1 . Tacoma down 31. 5 . Newark, down a measly. 5 . Peter cook, something is definitely happening on the west coast. Peter that is why the administration is worried about it. That is why tom perez is negotiating. The administration wants to see this resolved. It is a sticky situation. It has entangled other president s in the past, including president bush in 2002. Everything gets worked out in washington, right . Brendan this has happened a couple of times in the last decade, but this is our twitter to question of the day is there a new Labor Movement in america . Is this something that washington is aware of . Heater co. I would not say this peter i would not say there is a wave coming. Richard trumka would like to say that there is. The walmart decision is arguably, in my view more important than what is happening here. This will catch a lot of peoples attention in washington. It already has. The fact that walmart made that decision without the federal government having a new increased minimum wage is significant. Both sides can claim something out of all of this conversation. Brendan is this a sign that labor has more Bargaining Power . Virginie it is interesting because on one hand i do not think it is. On the other hand, if you look at Companies Like gap there were Similar Movement early on. I think part of it is headline, and part of it, from an economic standpoint, is giving more power for spending to the consumers. You cannot have that without having a massive inflationary wage movement. It could be again, in the new mutual, a very slow pace and very measured. I think we have to see if we get more of that. That can be one of the erik can we stay on the point of economics . Walmart wants us to believe that this is being driven effectively by economic theory. That by paying people more, you will get better workers and improve the consumer experience. That, theoretically, should be true only in an environment where there is not a lot of labor market slack. But if you look at the participation rate, it suggests there is tons of labor market slack in the u. S. Economy. Virginie i think it is probably a balance of both. If people have more money, they will feel a little bit happier, but at the same time, i think there is a statement there. If we just extract ourselves from what it is which is a walmart increase and look at the global economy, the key question is, will this be imitated by a lot of people . There is still a lot of slack in the economy, so there will probably be a gradual increase, but i do not see a massive wage increase. Brendan so you are not looking at the walmart moved to ripple out across other retailers . Virginie i think it is possible, but i do not think this is the beginning of a massive wage increase across the country because we have you know, slack still in the market. Peter i would love to know how the fed talked about it and what they think. Erik way may we may hear about that next week in Janet Yellens testimony. Top photos number three in kiev images of the 50 protesters who were killed were honored at a temporary memorial. A year ago the ousting of president yannick over which number two, in australia. More than 48,000 homes lost power as the wind traveled over 155 miles per hour. 20 inches of rain came down, bringing a high risk of severe flooding. One of the cyclones across australia is category 5 and has since been downgraded to a category 1. Temperatures at negra falls dropped to 22 fahrenheit this week. More than 85 of the great lakes froze. 3000 160 tons of water goes over the accra falls pretty over Niagara Falls every minute. Brendan the things Erik Schatzker says. This is our twitter question of the day. We have been talking with Virginie Maisonneuve today. We would like to hear from you. Is there a new Labor Movement in america . Tweet us bsurveillance. We are streaming on your tablet, your phone and available to tom keene in his hotel room in washington d. C. Brendan this is bloomberg surveillance. Im Brendan Greeley. I have been left alone, but Erik Schatzker is here to help out. Pharmaceuticals executive changing teams. Senatesanofis board fired the previous ceo after sales slumps. Sales fell 7. 8 in 2014 for telecom italia. Yes, that is Mark Zuckerberg speaking mandarin. There is only one word for facebook, and that is facebook. He wished everyone a happy chinese new year. No word on whether or not he begs to be allowed back in the country. His social network has been banned in china since 2009. About one billion users, none of them in china. Those are top headlines. Erik John Chambers, the ceo of cisco symptoms of Cisco Systems yesterday i sat down with John Chambers for an exclusive interview, and among the things we talked about, activism. Here is John Chambers talking about the attacks that Companies Like ebay, apple, hewlettpackard, and dell have sustained by activists. Many of the things that companies have been criticized on we have already done ourselves. We will become the number one i. T. Company. We have a very good chance of doing that. Erik have you ever felt pressure from an activist shareholder over anything around the organization of the company to what you referenced cash issues of accession . I will answer this question directly because i did in the Editorial Board today. The answer is no. I am not erik the reason i ask is because as a reference before, companies would never have thought they would end up in conversations with activists, did. What is tim cook doing with carl icahn, by the way . Do you make the tough decisions as well as the decisions that are important to the shareholders, customers, and employees . Erik so if you believe you are one step ahead, questioning shareholders all the time, that is the best strategy . I think you should alreadys that you should always listen to your shareholders, your customers. When we make commitments to the market and to our customers, we deliver. Erik John Chambers always says it with a smile, but make no mistake, brendan, the question of activism is a prickly one. For John Chambers, clearly, he just said, if you did not hear it, i am not going to answer this question every time somebody asks it. I am going to say no now so that you remember. Given what tim cook had to deal with, and carl icahn, it is important for a guy like John Chambers running a company as large as cisco, not to have to worry about the distraction of an activist. Brendan cisco has a bigger problem than apple did. Cisco is facing an existential challenge. It sells boxes that sit at the heart of the internet. Increasingly technology pushed by facebook and google, is at the edge of the network, instead of inboxes that cisco can sell. Erik John Chambers would say, who owns the edge . Cisco owns the edge. He talked plenty about yesterday. Software defined networking will not be the death knell for cisco. Virginie i think things are moving very fast. I think with clouds and internet and things, as we discussed, and the ongoing need for security i think things are moving very fast. I see a company like cisco however, has the resilience and the talent to create innovation. Will they do it . Erik or buy it . 40 million of his cash is trapped outside the United States. He cannot be a player in Silicon Valley if he does not have the money to spend. Is that a problem . Virginie for me it all depends on valuation and growth gap. Is this the best way to look . There is a convergence of technology not only with i. T. But health care and consumer and that is really what the internet has done. And are you an enabler of that or are you left out . Brendan so, Virginie Maisonneuve, you are flying from london to newport beach. The oscars are this week. We have a chart here from stephen follows that shows the cost, what it cost in terms of a campaign. What you have to pay as a studio to get an oscar. This seems really expensive. We are tipping up there around 8 million. Peter cook, that is chump change from washington standards. Peter it is chump change, but it suggests that the politics of hollywood are not all that different from washington. If you will be legitimate as a candidate, you have to spend money to get your name out there. My question is, what do they get in return . If you get an oscar, what is the payoff . Brendan if you are a best actor winner, you can expect a 3. 9 million salary increase. If you are a best actress winner, you can expect a 500,000 salary increase. Erik brendan it is time for the forex report. All of the attention is on the euro today. Why . Because the greeks are still trying to negotiate with the europeans. Really it is with the germans over the future of the Bailout Program. We are back in two minutes on bloomberg surveillance. This is bloomberg surveillance. Brendan the dance returns to brussels. Varoufakis looks for a partner. And we look at the new Labor Movement. Good morning. This is bloomberg surveillance live from our World Headquarters in new york. Im Brendan Greeley. Tom keene and Olivia Sterns are out. Joining me is Erik Schatzker. Erik it is crunch time for greece. Finance ministers are holding an emergency meeting in brussels today. Yanis varoufakis says he would accept existing terms to get an extension of greeces loan program, but for anything beyond that he wants to negotiate new terms. You know how the germans feel about bridge financing. German chancellor Angela Merkel and Francois Hollande are meeting in paris to try to salvage their fragile ceasefire agreement in ukraine they brokered last week. The deal is doing little to stop the fighting. The government says a town near the donetsk is being hit by rockets. Merkel and hollande will hold a joint press conference later this hour. Walmart broke under the pressure and agreed to raise wages for about half a million workers. Hourly workers are going to get nine dollars an hour about 1. 75 above the federal minimum. Tens of thousands of walmart employees are believed to be living on near starvation wages. Walmart says it also wants to lower its worker turnover rate. Walmart says it puts pressure on rivals such as target to follow suit. Brendan a London Research Firm Contract the totals for the Worlds Largest bank and found workforces are shrinking. They were down 4 last year. The study included investment bankers, traders, sales staff, and researchers. This sunday it is the super bowl of speed. More than 100,000 nascar fans are expected at sundays daytona 500. This will be the 57th running of stock car racings premier event. Jeff gordon says this will be his last daytona, and he will start in the coveted pole position on this one. Those are your top headlines. We have former commerce and jim nussle on set with us today. You were nodding your head as we talked about daytona. Jim pole position is jeff gordon, but i think Dale Earnhardt jr. Is on a great role right now. You have to look at him maybe to win this. Daytona is fantastic. It is the super bowl of racing. If you have been there, you know it is one of the most exciting things in sports. Brendan it is amazing to stand there and watch them rush by you. We are going to brussels. Greeces finance minister is in brussels. There is no indication he will have anything to do when he gets there. International correspondent hans nichols is back in brussels. What is happening . Hans right now we have to have all the finance ministers come together and see whether or not be greece proposal can be boiled down to the three or four sentences that german and thats it germany and an increasing number of countries are calling for, that they want to see greece stay in a Bailout Program and then they can talk about additional money. Greece wants a loosening of their Bailout Program, but they still want access to funds whether it is ecb funds or more bailout funds. Today looks like it will finally come to a head. We will see whether or not there can be any sort of agreement or fudging of positions. Erik hans, would you agree that what i just characterized as something of a bridge is what verify this is looking is what varoufakis is looking for . Once it is over, i want something new, and you guys have to ease back at least on the 4. 5 primary surplus . Hans the 4. 5 primary surplus people have indicated that they can give on that. When you look at the programs that they are now announcing in athens, they clearly contravene the current Bailout Program, which is why the germans have taken the line that you need to complete the Bailout Program and stay within its terms. For varoufakis, you need to stay within it in philosophical terms. Not only is it a failure intellectually but morally. That is the stand that we are at right now. Greece the current greek government things they have a male they thinks they have a mandate to repeal the bailout and everyone else thinks they need to stay within its bounds. Brendan we are 45 minutes shy of a press conference between Angela Merkel and Francois Hollande. Is there any hope something constructive can come out of that . Hans visalia basically solidifies the nationstates, and with clear and a marketed borders, that was already broken by crimea. We may get some sort of solidarity. The question we will hear from merkel and hollande is, will they call the ceasefire over . You have seen 49 attacks, according to ukrainian authorities, in the last 24 hours. They are parading hostages around. It is hard to see how this is a ceasefire and if merkel and hollande acknowledge that, we may be back to a diplomatic drawing board or back to an additional round of sanctions against russia. Brendan hans nichols, thank you very much. I want to bring in our guest host for the hour, david stubbs of jpmorgan asset management, a global asset strategist. And jim nussle, the former director of the offices management and budget under george w. Bush. You have done your time in washington. Let me turn to david stubbs. Do you watch negotiations in brussels hour by hour, day by day . What is the trigger that you are looking for to make a decision . David my team in london is sending out all these emails about the latest thing that has happened. Ultimately, this thing is going down to the wire and it will be extended well past the socalled deadlines that we have right now. Look at what happens in the standoff in the budget in washington, with the fiscal cliff there. Ultimately there was the first deadline, and if you are delaying payments and giving ious ultimately reason finds a way, and we believe that we will stay in the euro. Ultimately, you just need a little bit of copper mise from the rest of the eu. Greece has come so far. Firstly, they said we are going to reduce the debt level. Now they are not. Now they are asking for an extension of the program that they never would. But it comes back to the the philosophy about how to get the economy to grow. Brendan jim nussle, does this feel familiar to you . It feels like every time we get an agreement in brussels, it is to negotiate six months in the future. Jim this is a bridge to the next bridge to the next bridge. It is all about a bridge and they will never get any kind of final decision until the economy gets rowing. Gets growing. The reforms are probably the most important parts of this. Whether you are talking about your own economy or budget challenges in the United States, growth is always the x factor in whether you can put a plan together that is sustainable. How long will it be before the before it gets growing again . David you have the ecb coming to the table in terms of policy. They are all stimulus is. The greek government argument is that the reform and the reforms are counterproductive and do not let the economy brees. It is hard to argue with that argument. Everything they have been asked to do is potentially the right thing in the shortterm to get the economy growing. Brendan the biggest bargaining point right now is they greece hold a 4. 5 surplus to gdp. Is that specifically what is unreasonable to you . David it is almost unprecedented. You see some economies doing it for a little while. Brazil had to run heavy Budget Services heavy budget surpluses. But a slight reduction, i do not see what the difference is really to go from 4. 5 two 2 for a couple of years and hopefully spot more domestic hopefully spark more domestic demand. Some things are more important, changes to pension ages, etc. It is easier to reform an economy in a demand environment. We have learned this through other places. Reforming an atmosphere of austerity in a recession is difficult. Erik still to come on bloomberg surveillance we will speak with an admiral about the unrest in ukraine and other matters concerning the u. S. And other governments. You are watching bloomberg surveillance. We are streaming on your tablet, your smart phone, and bloomberg. Com. Brendan olivia this is bloomberg surveillance. Tom keene and Olivia Sterns are out. Erik schatzker is with us. Erik why walmart is raising its everyday low wages walmart understands how efficiency wages work. It is treating workers better because it will enable the company to get that are workers. Jim nussle is here. It would stubbs is here. Gentlemen is Megan Mcardle right, that by paying workers more you get better workers and ultimately a better Customer Experience . David i think if you pay existing workers more, retention goes up. That is clear from the microeconomic studies. People will invest more in the actual workplace whether increasing wages by a dollar or so well get that, i am not so sure. Brendan when you look at the move by walmart, they have resisted unionization for decades now. Suddenly to make this move, does this say that walmart has realized something, or is it saying that Economic Conditions have changed . Jim it is a little bit of both. No question walmart has realized something, that the labor market is tightening. As Megan Mcardle has said. It is a supply and demand issue. At entry level, of course that will happen. But we see it at Credit Unions across the country, where people are coming in still dealing with the recession with their first job an entrylevel job, a couple of parttime jobs, asking for help with simple things like budgets. The demand is going to drive this. I think internally for walmart as one of the biggest employers. It will be felt across the rest of the labor market as well. Erik is the labor market really tightening at the bottom though . We know the struggle that Tech Companies are happening, the struggle that Tech Companies are having. Jim when you say it is tight at the bottom, it is for quality labor and quality people. It is not that there are not enough people, it is people with the right skills to be the entrylevel employee. Brendan is this a message to janet yellen . Jim everyone has been trying to send her messages. Clearly they have all been trying to send her signals. Brendan walmart has inspired our twitter question of the day. Is there a new labor went a Labor Movement afoot in america . You are watching bloomberg surveillance streaming on your tablet, phone, and bloomberg. Com. Erik this is bloomberg surveillance. Im Erik Schatzker, here with Brendan Greeley. Lets bring you top headlines. Investigators in switzerland are trying to determine why two trains collided today. A commuter train and a longdistance train, north of zurich. Five people were injured. The trial of Dominique Strauss cant and is drawing to a close in paris of Dominique Strauss kahn is drawing to a close in paris. A prosecutor has asked that the pending charges be dropped. The u. S. Central command official says as many as 25,000 iraqi troops will be needed to retake mosul. The official says u. S. Advisers will be training them. There may be as many as 2000 rebels hold up there at the moment. Brendan you just heard it yesterday. The pentagon leaked plans to retake mosul the secondlargest city in iraq. At the table today is james staviridis. Admiral, generally you do not leak plans for an invasion several months in advance. James first of all, the pentagon is a notorious sieve. Secondly, you are trying to get quantity over quality level of iraqi forces, trying to give a boost. They would like to see wingmen coming up from the south. Erik the plans involve several iraqi brigades, several kurdish brigades. Is this a constellation that we know will work, or are they floating this idea to see if we like it . You never know in war. Hitler said that war is like kicking the door open to a very dark room. This one has a good chance of success because it puts the Islamic State under three access pressure. Having the peshmerga from the north and Iraqi Security forces from the south is terrific. The icing on the cake would be jordanian Ground Troops coming and, which i do not think is impossible. Brendan so you are not confident that we have the support that we need. Do we have the support we need from our allies in the gulf as well . We are not on our own. We see the uae flying Bombing Missions including female pilots, flying Bombing Missions. We see Financial Support training support. The gulf states are part of this counter Islamic State coalition. Erik admiral, would you try to make the argument, as john mccain does almost every day that the only did way to deal with the Islamic State is to put american boots on the ground . Unfortunately, yes. Good news is that we do not need 150,000 or 200,000 troops, which is what we needed at the height of iraq and afghanistan. We probably need a thousand or 10,000 troops, a smaller number. But they are needed with special forces, training, and special support. Brendan the authorization force sent to capitol hill specifically tried to carve out not reservists on the ground but actual special forces. From your experience in the pentagon, is this a strain, this new kind of war is this a strain that the special Operations Command can take in terms of personnel . Yes, they can take it. Jim nussle Foss Committee in the congress has worked on this for a number of years, to build up the special forces. The new way of war is a new triad. It is special forces, unmanned vehicles, and cyber. Brendan so we can recruit, train, and retain special forces to fight a new kind of war . We can but not completely on our own. We need allies, friends, and coalitions alongside us. But our forces can be the spearhead. Seals, army rangers, and others. Erik s foreign participation the way to fix the problem in ukraine the way it is . I think it is. The effect of sanctions that you see in russia, their markets are falling, falling, with the price of oil going down. That is because of a unified position across the atlantic with the United States and European Partners putting the sanctions in place. We need to help arm the ukrainian military. There has to be more than just a pancake that the russians can drive over. Brendan how do you deal with the problem that if you are the ukrainian military, you feed into exactly the narrative that Vladimir Putin has been pushing . Are we worried about his narrative . I do not think we should at this point because we have already broken the crimean system. This is a remarkable demonstration of wishing troops across borders to change them. I do not think we will stumble backward into a cold war, but we do need to stand and be counted. Not without troops, but you training troops ukrainian troops can fight, but they need weapons to do that. Brendan does the president have the authorization to do what the admiral is suggesting . Jim part of it, do you feel it is still a good position for france and germany to be in the lead dog position . Do we need to take a more activist role . That may answer the question about how much support or authority does the president need to make that kind of a push. That is a great point, jim. A lot of times when you think about plan b if it is just to try harder at plan a, you are making a mistake. Brendan admiral, that is wise advice we will hang onto with tv production as well. I wrote james staviridis. Erik when we come back, we will talk about Credit Unions. Should they be treated more like banks . Brendan this is bloomberg surveillance. Im Brendan Greeley. Tom keene is in washington. Olivia sterns is sick. Erik schatzker is helping us with humans work this morning. Top headlines first the iphone, now the ipad, now the icar. Apple is headed into the auto production business, aiming to build electric cars by 2020. Tesla and General Motors hope to have new electric cars in two years. A federal judge ruled that Federal Express is breaking antitrust laws. The court says amex must less must let merchants steer customers to cheaper cards. That could cut 12 from its annual revenue. Pay attention, coffee drinkers. If you was shortening your life do not overloaded sugar. Three to five cups of coffee a day do not pose longterm health risks. Very important for morning television. The Panel Suggests sugar is so bad for us, sugars filled with it should be taxed. Those are your top headlines. Erik janet yellen will be speaking by some annual testimony. Investors are seeking clarity on the timing of the first rate increase i the fed since 2006. The fed has signaled its willingness to keep Interest Rates near zero for longer. Last week, our guest host for the hour david stubbs is with asset management. It is you have to put it in context. Europeans are just beginning quantitative easing. The japanese are doing quantitative easing on steroids. Divergence is the theme. His divergence fully priced into the market . David i do not think so at the short end of the treasury curve. That is the end which is going to see increases if we get the start of this tightening cycle. I am not sure the long and is going to move as much as some people are expecting. Where rates are in europe and japan. Look at the credibility of Central Banks. The disinflation area impulse throughout the global economy. That will not go away anytime soon. At the short end, you will see repricing and you can argue that part of the dollar move is a repricing in expectation of this fed tightening. When it comes, we will know more about the wider implications. Brendan we have been using there is austerity in the u. K. America is doing better. I read your most recent research. You point out we should be careful at lumping those economies in the same box. David there is a reason why people do it. Economies are showing us the way out of this stimulus era. The way out is you get your low markets tight enough for growth. If you look at the structure of the economies, there are differences. Look at the external accounts. The account deficit in the u. S. Has been contained because of oil. The u. K. One is at a record deficit of about 6 . The u. K. One is over 515 and rising 5. 5 and rising. The u. S. Is below three and is looking great. There are differences in the structure of the two luggage markets. Two mortgage markets. The Mortgage Rates will rise. We will note that the it is about the longterm rate more so than the shortterm rate. Brendan from your perspective we asked everybody the same question. Why is the American Economy doing so much better . We have to abundance of natural resources. It is our productivity as americans. We have always been at the front of the curve, not necessarily the best always, but certainly at the front of the curve when it comes to productivity. That helps. Erik for our viewers it is time for a data check. S p futures up 2 10 of 1 . It is flatlining. The 10 year yield is down. The eurodollar trade 1. 13. Nymex crude, 51. Brendan im Brendan Greeley with Erik Schatzker. The great thing about tax a form is that it allows industry lobbies to do their best work. American Bankers Association is campaigning to end a Tax Exemption that credit ins get that Credit Unions get. Today would become indistinguishable from the banking industry. Credit unions have leveraged their subsidy to aggressively grow. It does so at the expense of all taxpayers. I have to admit, i just paid off a car loan from the federal credit union. [laughter] brendan i might have a bit of a bias. It is true. You have to admit, from your perch at the head of the Credit Union National association what we have in mind of what credit union is is not accurate anymore. Jim that is not true. Most people do not know what a credit union is. It may look like a bank on the outside. How we do what we do may look like a bank, but how we do it and w is complete we different. We are notforprofit. All the banks are forprofit. It is fascinating to me. They are more worried about their market share than the are about tax reform. How we do it is different because it is not for profit. Who we do it for is also different because we serve underserved banking populations. Often Middle America middleclass. This is the first car loan, the first home loan, the first Checking Account. It typically is not the wall street, money center. Even with navy federal, they are serving that kind of the population in a different way than any bank. Brendan huntsman nuzzled just implied that was my first car loan. Congressman nussle just implied this is my first car loan. The Credit Unions are not going in. How do they solve that problem . Jim i will bet you that if you walk into a credit union today. If youre out there on the street and have not had your first Checking Account or credit card, go in. We do not just open a Checking Account we sit down with you and say, lets talk about our first your first budget. Lets get you out of debt raise your fica will score. How can we get you in a better situation brendan there are places that are being addressed where they are banking deserts where nobody is going in. Not the big banks not the Credit Unions. How to the credit union sticks that . How do the Credit Unions fix that . Jim i will bet you that you will find, in most instances that those underserved populations not only qualified to join a credit union but would be well served. Erik all of those people qualify . Jim of course. Erik a notforprofit institution can afford to invest in the Technology Required to deliver Financial Services at a low enough cost to make it worth the while to serve these people . That is the issue. The reason banks dont serve these people is because as too expensive. Jim that is the reason why, as they talk about this tax reform debate, there is a reason why Credit Unions have the niche they do, because they serve erik even if you dont have to make money, you still have to cover costs. Jim we band together. We have the largest atm network in the entire country. Bigger than bank of america. 3000 atms. If you join one credit union you can likely get free atm services across the country from a 30,000 atm network. Brendan i drove by a used car lot that said get a federal credit union loan. Cap Credit Unions get too big . Jim it is not about how big they are, it is who they serve and how they do it. Size is not the issue because size and scale can help you support underserved populations and go into areas with a branch that you could not go before. Something it is about size. It is not what you do, but how you do it and who you do it for. Erik the disadvantaged figure in. You saw what walmart did. Is there a new Labor Movement in america . This is bloomberg surveillance. Brendan erik im Erik Schatzker. Here this morning with Brendan Greeley. A recent study found the doddfrank act is hurting smaller banks. Betty liu is here. We are talking about bank regulation. There is debate in the United States whether doddfrank, after all these rules more than 47 rules have been imposed, whether they are working and really taking care of too big to fail. This recent harvard study says it has been at least in one aspect, hurting smaller banks. That regional and Small Community banks have been losing market share at twice the pace than before doddfrank was implemented in 2010. We have bill cohan on a former wall street anchor. Also dennis keller. He is going to be joining us. He thinks this report is bogus. He says it is just another thinly veiled attack by big banks on doddfrank. Brendan you know how this game is played. The doddfrank does in fact hurt smaller banks. Is that fact a stalking horse for larger banks to have their regulations . Jim it also affects Credit Unions. It is having a Chilling Effect across the small Financial Institutions across the country. We have had 6000 pages of regulations with 36 different agencies, not just the cfd be issuing them under doddfrank. Says had a Chilling Effect in adding cost to the bottom line making it difficult to issue loans and serve that population. Brendan how do you rewrite doddfrank to fix this problem . Jim it has become political. It is not just a stalking horse down the chain. It is one of the chain at if you change anything, it must be for big banks and must be political. Betty speaking about cost, the American Action Forum Keynote this report. It says the seven rules have cost 12. 5 billion,. They say where is the return . Jim that is great question. Erik maybe we have to live in a world of lower returns. [laughter] jim it is a sad question. Betty what does that mean for the economy . Erik what is a bigger problem for small banks . The cost imposed by doddfrank or the cost they have to meet to deliver worldclass Data Security . Jim it is both. Both the small banks and are Credit Unions have been under the regulation to protect data already. Almost let hospitals. We have had to do that. The merchants have not. They are not under that kind of restriction. Brendan betty liu will be talking to Denis Kelleher and bill . Cohan. Dont forget to tweet us. Brendan this is bloomberg surveillance. Left it to our top headlines around the world. Breaking news from libya. At least 25 people were reported dead after three bombs exploded in an eastern town. According to out to zero, home of a political leader was targeted for simultaneous attacks. Snow. A widespread storm is causing headaches from jerusalem to jordan. Istanbul was hit with a record snowfall, more than two feet. Roads and schools are closed in lebanon. Brendan that is Mark Zuckerberg speak in mandarin. He has posted a greeting to wish everyone a chinese new year. He his social network has banned has been banned in china. Those are your top headlines. Erik a lively debate was breaking out about the Financial Services industry. David stubbs is here. Jim nussle, also still with us. David, what is it you wanted to say . David we can talk about tweaking doddfrank, but lets not forget the strength of the American Financial system and how it got the country to where it is. The problem in europe in the u. K. Is that they did not clean up their Banking Sector after the Great Recession as effectively as they should have. Here, the fdic has closed hundreds of banks. That is a key reason the economy bounced back. Structurally, america has this strength of a disaggregated system. You have the Credit Unions and you have these liquid credit markets. The banks here are only 85 of u. S. Gdp. There is a reliance in europe. Brendan i will go out now and by you and American Flag lapel pin. There has been diverted in the way the stress test was received. David in previous years the exercise that happened last year was the asset quality, the stress test and then in october they took over single supervision of the banks. The banks seem to be ok now. If you look at credit standards, they are the easiest terms since 2006. If you look at credit demand, the service is strong there as well. There is a new credit cycle this year. Brendan i realize im asking the fox about the henhouse. We have this disaggregated regulatory approach in the u. S. We have the treasury, is that a feature or a bug . Jim i would agree with david that it is the diversification of the industry. The fact that you have competition. That raises all boats. I understand why the banks do not like the Credit Unions, but we like erik regulators competing with each other helps everybody . Jim the Credit Union Industry and banks competing with each other. The financial industry Financial Services industry competing helps everybody. Theres competition with regulators as well. Brendan lets roll back to earlier in your career at omb. Are we ever going to get a regular budget again . Jim what i will tell you is i think you will see a budget from the house and senate this year. From there erik as opposed to a continuing resolution. Jim at the end of the process, you may still get to a continuing resolution but that will still be a change of pace we have seen in the last 10 years. David this is going to start hurting america. We were talking before. If you do not like the instability in america invest in america because there is gridlock which means they cannot do anything to screw things up. Over the long term Corporate Tax reform, immigration reform, over a five to 10 your period it is a negative. Brendan peter print was worried about neglect and what i would do to europe. Your same neglect has been good for america . David if you distrust what the federal government is going to do the fact that they cannot do much is a positive. Brendan a search for stability. Jim there is certainty that there is gridlock. Brendan in the house, are the republicans going to get this worked out . You have a flank of republicans in the house were not interested in getting to a budget deal. Will they solve that . Jim they do not want a budget deal that obama wants. That is really what this is. Brendan how do you fix that . Jim probably the biggest speedbump coming up at the end of the month when homeland securitys continuing resolution runs out and at least right now from what i hear it could easily have a mini shutdown of that department for a period of time, which is not the right way to run the government. Erik its time to answer our twitter question of the day. We asked, is there a new Labor Movement in america . Labor movements have transformed into apple and google style labor unions that are paradise for workers. That is one answer. No new Labor Movement but possibly the beginnings of wage pressure. Brendan that is interesting. Erik you know the fed is looking for that. Obviously, since you guys cannot get tom keene and Olivia Sterns to come to work, there must be a new Labor Movement. [laughter] brendan i will take that. Tom keene, get back to work. Well take a look at our agenda. Mine is greece. We will look at the stories that shape the day. Im always talking about greece. Eric, is anything going to happen in the next week that will allow us to close the story . Erik the question is the greeks have been willing to move , giving up more and more of the demands that they felt they had a popular mandate to put forth to the germans and other europeans. If it continues, they will end up meeting the germans at no. Brendan i have someone whispering into my ear from the control room that the eu has said a deal today is not likely. Should we abandon hope . David im not sure you should abandon all hope. It is the end of next week which is the end of the official bailout. After that, all these payments that have to be made of different debt obligations. I do not think the world is going to just blow up. Brendan why is it hope . Why do we want the greeks and germans to come to an agreement . David everybody wants to stop talking about this. Also, i think it goes to the heart of what the eu is morphing into. Is it a place where we will play by german rules or is it a place where there is room for more than one economic model . It is a systemic question for this block and it has implications for the stability of that area. Brendan lets talk about whats happening this morning. Angela merkel and Francois Hollande are meeting in paris. It is happening about 20 minutes from now. This is important because we may hear something about the future of the ukraine. Brendan we sit like birds in the wilderness, wondering what it is we can do. I know you are a finance guy, do we have any leverage . Is there anything washington can do as we wait for Angela Merkel and Francois Hollande . Jim passively, we are sitting back and trying to encourage from the sidelines. Im not sure it is a good strategy for the United States. Im not sure it is going to work. David this is crucial for european markets. This event we saw huge dropoff in consumer confidence, even growth, you could argue was weaker partly because of what was going on in the ukraine. Those indications are just come back. Blasting uroplasty economy needs a last thing yours economy needs europes economy needs. Brendan we are looking at the oscars. Im treating it as a political race, not an arts race. Erik bloomberg surveillance on the radio continues. In the loop is next. It has been nothing short of a pleasure to be here with you. Brendan i appreciate it. Erik in the loop is next. Stay tuned. Betty good morning. Were live from bloomberg World Headquarters. We are 90 minutes away from the opening bell. Coming up, how many times have you zillowed your house to see what it is worth . Will talk about their acquisition with spencer rascoff. A new study says doddfrank is hurting smaller banks. Hot new debate over the legislation. With us will be Dennis Kelleher and bill cohan. It will not be long before we hear play ball. We will sit down with cc sabathia who gives me a few tips in case i am on the field one day. First, a look at our top stories. Apple appears to be ramping up plans to build an electric car. People familiar with the matter say apple is pushing its team to begin production as early as 2020. By