Transcripts For BLOOMBERG Bloomberg Surveillance 20150528

They are not governed by fifa. Tom i am learning every step of the way. Lets go to our top headlines. Vonnie everything that is or is to know you will know very soon. We will start with that story to u. S. Prosecutors wanted to know what role soccer played. Money pass through u. S. Banks including citigroup and jpmorgan. The banks have not been accused of wrongdoing. 14 people have been charged in the case. Nine of them officials with fifa. The japanese yen hit as 12 year low against the dollar today. The nikkei has risen for 10 days in a row. Once again, greece is sounding optimistic about a deal on bailout money. A government spokesman said that greece wants an agreement by sunday in a deal will be reached soon. The European Commission and the imf want greece to come up with a list of Economic Reforms before it gets money. They disagree. They say a deal is not close. Larry summers told bloomberg both sides will have to compromise. Sumemmers greece has got to get more serious and determined and clear on what the reforms it is going to take. That is not going to be politically easy for his leadership, but the europeans need to recognize that there are limits to the degree of austerity that can be imposed. Vonnie one greek official told bloomberg the imf is the main obstacle. The imf is not commenting. We may be on the verge of the biggest acquisition in the Semiconductor Industry. Ivago is close to a deal to buy broadcomm. An announcement could come as soon as today. Broadcom has a market value of 34 billion. And its going to be cleveland versus golden state in the nba finals. The warriors beat houston 10490. Harrison barnes scored 13 points in the fourth quarter. It will be golden states first trip to the finals in 40 years. Brendan lebron james back in the final again. Tom this is what the nba wanted. Brendan this is what lebron james wanted when he made that move back. Some economic information coming out this morning. 8 30 lma. M. , we get jobless claims. 9 45 5hthe comfort index. At 10 00, pending home sales. Tom a set of Economic Data sets the tone for the percolation that yellen may act sooner than later. Lets look at the data check. I want to get to this quickly. Futures turning negative to the euro 1. 0940. On to the next screen with oil soggy. Euroyen 1. 3578 shows this is a yen weak story. Oil currencies uighurs as well. Weaker as well. Brent 62. 34. This is claims adjusted for the growing sides of employment america back 50 years. The double recession where paul volcker killed inflation. This is an elegant cyclical move with regression. And there is something new going on now. I would suggest some of this is a shift forom a Manufacturing America to a Service Sector america. But most people do not feel the optimism in this chart. Brendan i think this is also longterm we have these other trends that are beyond this cycle. And even beyond the current recession that have to do with people leaving the workforce permanent link. The changing gender balance. I do not think any of us are very good at teasing those out. Tom i agree. A lot of the social media we get is i dont feel as good as this chart. The economist love to trot this out. Lets continue our discussion. Is it perhaps a second leg of yen devaluation . The japanese are using their currency as a tool to buttress toyota exports at the expense of asian neighbors like koreas hy undia. Our guest lives this with Oppenheimer Funds. A weaker yen changes the International Investment oculus. Why is it all of a sudden exciting in yen . It is a very particular behavior of dollaryen. Since 2012, when we ended this y weaknesse rtrend. We saw this sudden trend, then nothing for six or seven months. We saw that in 2013. Then boom. A big liberal receptor and we had nothing for six months. Now we seem to be breaking higher again. It seems to be very much the japanese lumpy portfolio outlook that we have been talking about and waiting for. Tom lets go to the chart. Abinomics a longterm strengthening of the yen. This is the deflation of japan. What an abrupt shift. It is a hockey stick. Brendan one of the things we have been waiting for with abenomics is for corporations to start paying more to turn those profits into wage gains as stimulus for the economy. Do you see that happening . Alessio you see pockets of Wage Inflation building up especially on the bonus side. That has been going on for a couple years. What we are waiting for is sustained Capital Expenditures. We are waiting for the confirmation that abenomics has gained traction in the economy is when you start seeing corporations spending in the domestic economy. Brendan we did calling abenomic s. It is still monetary policy. Still waiting for any other policies to kick in . Alessio i think it is a combination of abe and koruda. Japan has done q. E. Many times before. Why it is working so well is because there is a combination of fiscal expansion and monetary easing. In the past every time we had sustained quantitative easing from the boj we also had fiscal contraction. Tom we know this effect this has on south korea. What does it mean for the United States . If yellen is Oppenheimer Funds central banker, how does this devolve back to washington . Alessio we saw for the first time in a long time the fed started mentioning the dollar in their statements. I think what we see is a sustained dollar appreciation against key trading Partners Europe euro, yen. Tom do you suggest Dollar Strength . Alessio this dollar bull market is very much in line with what we saw tom this is critical for peoples retirement plans. If i get a ruben dollar, how do i reallocate my for portfolio . Alessio in the meantime being in u. S. Assets or developed assets as equities is probably a more attractive value proposition. Tom i want to be i in gm and not kod a. Not toyota . Alessio it is difficult to say because companies hedge their currency exposures. Tom im trying to make some news here. Brendan vw and toyota and that gm. You have to make sure those equities are hedged. What is your knownunknown and that you are worried about . Alessio um, i think it is really understanding the making sure the sustainability of the u. S. Recovery is really there. As this chart on jobless claims the shows, we are basically previously on the unemployment side cyclical lows. Tom you cannot get better than this chart. Yet we do not feel that way. Alessio most importantly, what we saw in the past is by this point in time we had several fed hikes. So, now this hiking cycle seems to begin very late. Tom lets stop the show. Is that a gorgeous chart . You like this oval action. We went from this ugly oval to a Service Sector. Brendan you have a trend line. And a trend arrow. Tom 30 seconds p. M. Fifa. Italy. Do you feel cheated by fifa . Italy would pave would play better football of these guys were not so corrupt . Alessio at this stage that corruption allegations seem limited to awarding the world cup, marketing sponsors. Tom you do not see them as part of the game . Alessio that is where i am suspicious because the claims are that corruption has been going on for two generations of soccer officials. Its been rampant, pervasive widespread. How can i believe that this has not gone into potential match fixing scandals . Brendan you as italian shocked that there would be match fixing. Alessio i am shocked. Brendan we have now been in 24 hours of what i like to call fifa christmas. Fifas sponsors have a huge problem. We will talk about that coming up next. That is our twitter question of the day. Fifa calls its corporate sponsors is partners. Should its corporate sponsors ask for a divorce . This is bloomberg surveillance. Tom good morning, everyone. The yen, 1. 2413 on an ever weaker japanese yen. Vonnie nebraska is shutting down its gas chamber. The first conservative state to abolish capital punishment. It push the change through over the governors veto. Its a court battle of the device makers. Jawbone has suied fi has sued fitbit. The suit accuses some of the workers of taking secrets with them. Fitbit will fight the claims. And Sony Pictures to not have much space in its new movie aloha. The film opens today. Sony is blocking reviews until just hours before the public can see it. Critics usually list it days before the film opens. One critic said aloha makes no sense. Brendan it was so good. She said it makes no sense on any level at any point during the movie. Vonnie i want to see it now. Tom all i know is my kids of lost interest in the movies. The pixie dust is gone. The following is a paid program. They watch you. Tom they do not even know what i do. We dive into fifa with brendan greeleys great european perspective. Decoupling on emissions. This is a bit of a press release from sweden. Shows a really interesting relationship on Climate Change versus gdp growth. Oil. Percolating about too much suppl y and too little demand growth or lets move on to the scandal of the moment. Brendan back to fifa our disappointment and concern is profound. From visa. We have repeatedly expressed our concern. Tom that is from coke. They spoke. Brendan fifas top sponsors have a problem. It is not anyone. Aaron covers adidas. What is the mood right now . Aaron hey, brendan. Thanks. So im based in frankfurt not all that far from adidas headquarters. It has a long history tied up with world cup soccer, which is the premier product of fifa. They go back decades with the world cup. It is tied into their identity. They have a ceo who used to be an amateur Soccer Player involved in professional soccer. They tie their identity with performance and soccer shoes. They need this exposure. At the same time, for years, they have been allegations swirling around fifa. Youve seen the sponsors, led by adidas, look the other way. Now youre seeing some tougher rhetoric. It is a tough quandary for these companies. They cannot afford to have their brand tainted by this. At the same time, there is a lot at stake. Brendan you have done a survey of what fifas partners have said. Where is the toughest rhetoric coming from among those seven partners . Aaron we have seen visa come out pretty strongly overnight. Visa, the Credit Card Company has been a longtime top sponsor of the world cup. They expressed profound disappointment. But i think almost to a company as you run down the list which is in my story, visa, adidas coke and some others like mcdonalds and bud are talking about needs to be held to high ethical standards. Needs to shape up. Brendan there is one company which is missing which is gazprom which seems not concerned at all. Why might that be . Brendan we got that statement from gazprom. I have gone to some of the Marketing Experts and did some checks this morning. There is a long history of the sponsors not saying much are coming out with some pretty tepid statements. Brendan thank you. Taking a look at all of fifas sponsors which will go to a very nasty p. R. Problem. Tom i want to go to you two. You are fifa experts. All of our audiences in america are saying, we do not care. Do you have any idea that games were rigged. I want you to talk a soccer fans. I am not asking for a fact. But in the bars you go to when italy plays. Is it like figure skating where you go the judges are terrible. Is it garigged at the field level . Alessio the one world cup were i felt there was suspicious sequence of games was in 2002 when one of the host countries, south korea, illuminated three big nations such as portugal spain and italy in a row. Tom you are in brazil. Brendan i was in brazil for a nasty decision which i feel was the wrong one when he flopped against mexico. Mexico lost. I think the one thing we know about fifa is they have insistently declined to introduce basic technology in American Sports which is the instant replay. It is so obvious on television when you get a better camera angle that a foul did happen. Strategic flopping is so beloved in the game. Fifa has declined to allow its refs to look at the instant replay and say, i got this wrong. Tom i want to move on. Go ahead. Alessio fifa did use goal line technology. Those are some are the Little Things that you give up control. Tom i want to know what is the next step for the department of justice . In the document they said there will be more. What will the more be . Brendan i think we are waiting to see what the people have been named now. There are four people have cooperated going back to 2013. They named9. Are they going to take these nine names and turn them states evidence and move their way up the chain . Tom we will continue this discussion. Let me do a twitter question on fifa. Should fifas corporate sponsors ask for divorce . This is bloomberg surveillance. Tom good thursday morning. We need the morning must read. Brendan Stephen Roach writing, he calls it the currency manipulation charade. He writes, restricting trade to a few socalled currency manipulators would redistribute the u. S. Trade deficit to its other trading partners. Americas trade balance is like a water balloon applying pressure on one spot would sit the causal order to slosh elsewhere. Does that ring true that it is not a currency problem . Alessio the u. S. Has to have a current account deficit because it is the reserve currency of the world. Has to have a capital account. It has to supply Financial Assets for the rest of the world to buy. I am not so sure that now we are in a currency manipulation situation, because, yes, the chinese trade surplus is searching but exports are very weak. Brendan the imf said it no longer believes the reminbi is overvalued. This is a huge debate within trade in the u. S. This is bloomberg surveillance. [baseball crowd noise] [x1 chime] [crowd cheers] oh i cant believe it [cheering] hi, grandma tom good morning, everyone. Our top headlines. Vonnie some of the worlds bestknown companies are pressuring soccers ruling body to fix the corruption scandal. Coke, visa and other sponsors reacted after officials at fifa were arrested. The Justice Department says officials received millions of dollars in bribes. Fifas controversial president has not been charged. Hes up for reelection tomorrow. The members of the Uefa Executive Committee are convinced there is a strong need for a change to the leadership of this fifa. And strongly believe that the Fifa Congress should be postponed with new fifa president ial elections to be organized within the next six months. Vonnie attorney general Loretta Lynch says the investigation continues. More arrests are expected. Germany and france have a message for greece. It is time to get serious. Foreign minister have lined up in germany to reject have lined up to reject an agreement. Greece needs the money to pay back a loan due next week. Robert shiller warns shiller it could lead to a story that is destabilizing and cause runs on other financial institutions. The original greek story should not of involved italy and spain and portugal and it ultimately did because of assumptions. Vonnie the ecb says the euro area bond yields could rise of there is no agreement soon. When it comes to sales, costco is beating out walmart and target. Samestore sales rose 6 in the latest quarter. The irs believes that thieves who stole Tax Information are from russia. That is according to the associated press. The crooks used the ira website to steal the data in claim 50 million in fraudulent refunds. And it will be a wild weekend in the nhl playoffs. The blackhawks beat the ducks 52. A game 7 in the western conference finals on saturday. Tomorrow night, the rangers host tampa bay in game 7 of the eastern conference finals. It is going to be amazing. Only the second time in 47 years both conference finals have gone to 7 games. The winners will play for the stanley cup as you well know. Tom phenomenal. I guess he wants chicagonew york in the finals. Two game 7s speaks to the parity. Vonnie we need another 7 series. Tom i do not think it is rigged. I do not think bribes were had. Where we going, to england . Brendan yesterday, the queen spoke. David cameron will visit four eu countries over two days. His party once a referendum about eu membership. David cameron wants a better deal for the u. K. Francine lacqua joins us from london. When i hear the phrase better membership deal i think of the long pain of the lisbon process, and i wonder if there is if its feasible. Francine you think of lisbon and most people in the u. K. Go back to 1975. Which ended up with not that much. Youre absolutely right. You have to convince a lot of eu members, including Angela Merkel who so far has said no she will not renegotiate the treaty. In the u k, people are worried that it is smoke and mirrors. What is negotiated will not be much at all. So he has a very tough task. It is interesting when you look at two days. Europeans. I will focus on the meals. He is having lunch and dinner with different european heads. I think it is significant he will see Angela Merkel. I also think it is significant is going to poland, because there is so immigration in this country from the polish community. That may be a good way to talk about immigration. Brendan youre not just european. You are italian. Maybe we should take this block and talk about match fixing. But we will not do that. I want to talk about a new deal for the u. K. I want to make sure i understand this. Is it possible for the u. K. To get a special deal about every eu country renegotiating the entire tree . Treaty . Francine they could do something on benefits that does not require a treaty change. If you touch on freedom of movement, or anything in the treaty we do not exactly know how much they want to renegotiate. They do not want to cross the red line where Angela Merkel will say no. A treaty change, i think at this point will be very, very difficult. We have heard from the european counterparts that they will not go there. Tom stay with us. Alessio with Oppenheimer Funds with a view to italy. How would you perceive that mr. Cameron would be greeted in these nations . Hes using them as a pawn for domestic politics in the u. K. Is he greeted with open arms . Alessio i think so. It is taken seriously. There is a widespread feeling that the current structure is outdated. And needs reform. I agree that treaty changes are going to be nearly impossible. What we need to focus on is changes that can happen, such as this is not about immigration, rules and free labor mobility. This is about changing the benefits and welfare from immigrants. We want to stop abusive behavior that exploits current status quo. Britain wants to fight to reduce the amount of regulation. There are like 2400 new regulatory enhancements that have taken place in the last two years. It is too much red tape. Brendan you are over there in london. In the day since the queens speech, what has been the tabloid reaction . Francine for the moment, it is wait and see. The queens speech was a because 75 focused on domestic. The conservatives need to talk about the referendum. They want to renegotiate but they also want to be closer to the people, to be seen as a fairer party. That was encapsulated by the queen yesterday. Fair country, focusing on domestic issues. Brendan and there has been some dancing on the laborour side. The miliband brothers are at it again with each other. Francine a lot of people should not say this a lot of people say the problem is that labour v oted may people he possibly for the wrong brother. It has been on everyones mind. David miliband was the chosen one by tony blair to succeed gordon brown. So maybe the vote wouldve been different. Tom let me ask a basic question the queen is 89. How is her health . Francine we see her around. Not around in the streets, but she goes to every function. There is a passing of the guard. We are seeing camillas and her husband a lot more. She seems in good health. Tom you are seeing charles more visible now. Francine the duke and duchess of cambridge are taking a more prominent role. There is a new generation. Tom it is the oddest thing. She has been clean my whole life. That is just amazing she has been queen my whole life. Brendan it was her city fourth queens speech. Francine and shes loved. Brendan we have thrown everything at you, up to and including the queens health. Coming up, a deadly heat wave in india is raising concerns about tom this is worse than normal right . Brendan 120 degrees. No respite. Inadequate infrastructure to take care of it. I think i have this right. 1300 people have died so far. We are going to show you a new report that suggests cutting c02 emissions does not cut growth. This is bloomberg surveillance tom good morning. We advance a developing story. We were speaking with francine lacqua. Prince charles is 66 years old. It is time for a single best chart. Brendan did you just break that news . Tom we did not advance that correctly. Brendan a heat wave in india has killed 1000 people this week. Climate change is likely to blame for the extreme heat around the world are but we want to move on from that to what we do about Climate Change. That is the focus of today single best chart. So right now the issue is growth versus uh addressing Climate Change. These are counterfactuals. We do not know what is going to happen toif. if and when we institute a carbon tax. We are looking at a chart from sweden. This is suggestive. This is not causal. They had a carbon tax since 1991. All sorts of exceptions, but they have seen Carbon Emissions drop over the same period they have seen gdp growth. So, it is not necessarily true to say that we are going to see, we are going to see a drop in growth of we see a drop in co2. There are so many different ways to deal with Climate Change. The thing i like about that chart is that swedens approach has been the one that most economists favor which is a carbon tax. Yes, you need to creative incentives to creative incentives. Scandinavia has been aggressive in using alternate sources of energy such as hydropower, biomass and nuclear. The advantage is that if you create the right incentives in development you actually get to boost growth because you are stimulating capex in new industries. Brendan this is been the push under the Obama Administration which has not worked out as promised, which is to say not only will Climate Control carbon controls not hurt the economy, they will help the economy. Do we know that is true . Alessio i think it depends casebycase. Some countries have easier alternatives. You have easier alternatives to hydropower or solar power depending on geography, on your climate first of all. So for a large country like the United States, it may be that local realities may benefit from Renewable Energy more than the nation. Tom within climate range with this debate over auctions particularly in europe, each nation is different. The idea of conflating sweden with germany is absurd. Brendan germany has moved the farthest on this. They have gotten rid of Nuclear Power which made it very difficult to manage their transition. The wider challenge in europe is moving this electricity from place to place. Tom copenhagen went down in flames. Then theres paris. Brendan coming up this fall. This is the argument. Can you in a time of low Global Growth, low inflation can you is to take new regulations new taxes without hurting growth . Tom where are the incentives constructive incentives . Alessio this could be one of the ideas for the eu is to end austerity by doing that you can plan. The juncker plan. A large public spending initiative. Get job growth if you do targeted public spending towards new infrastructure. That europe needs given the development in russia. Brendan even in germany making the transition to wind and solar. That is a heavy lift. We are going to take a look at photos. In texas, a dam has been fractured after the state received 11 inches of rain earlier this week. Officials fear the dam will flood highway 287. Residents evacuated the area. Traffic has been diverted. These pictures are extraordinary. We watch this all day yesterday. Tom i think i saw one foot of rain in five minutes. We have got a lot of mail. Why waarent you covering this more . Brendan it is an economic issue. In spain, scientist discovered the worlds oldest murder mystery. You can see the hole there in the skull. The skull is 430,000 years ago. Two fractures above the left eye. That is blunt force trauma. Tom i would say so. Brendan was it a hockey stick . Number one. I love this picture. Oxon hill, maryland she makes a fish after having to spell the word obnabulate. Can you spell it . Tom that is how tom feels after that word is requested. Brendan the finals for the Scripps National spelling bee will be tonight. 49 kids left. The winner gets a 35,000 prize. I won my Elementary School spelling bee but i did not advance. Coming up obnob i just saw it. I cant spell it. Coming up, will be oil rebound run its course . We discussed the price of brent next. Good morning. Tom from new york city, shot of lexington avenue. Somewhere in that view is someone who accepted a bribe from fifa. Brendan greeley will report on the bribes from new york city. Vonnie most of america is still a buyers market when it comes to housing. Buyers still have the upper hand in 59 of the countrys local housing markets. A buyers market is where home sold on average last month for less than 100 of value. Its now being called the worst coastal oil spill in california in 25 years. Two federal agencies have ordered a Pipeline Company to finish the cleanup of an oil spill their santa barbara. The spill created a 10 Mile Oil Slick in the pacific. Mcdonalds is going back to the truth. The company is planning cooking changes to make its burgers better. Buns will be toasted five seconds longer. And grilling methods will be changed to make the patties ju icier. Im not going to comment. They did say they will not report monthly samestore sales yesterday. Tom the samestore sales going away. I thought that was a huge deal. You and i have done that for years. It sounds to me like a shakeup a massive shakeup at mcdonalds. Thank you so much. Our next hour hans nichols is interested in at the g7 meetings. Is in dresden. U. S. Stocks are they in a bubble . William janeway has some interesting thoughts on the level of bubbles within our stocks. And china doing some of the things. We will look at the military within china. A former and the with nato joins us as well. On oil the bounce or reversal started january 13. What of oil . The recent rumblings are of marginal supply outdoing demand. Tankers are afloat. Alessio is with Oppenheimer Funds. He has counted cats bouncing cap any number of times. We have not talked about oil in weeks. Yet in the last 48 hours, i see a revisit of there is too much oil out there. Alessio that is our view. One chart that surprised me was to see that despite oil dropping, production is holding up strongly and increasing. The productivity of existing wells keep going up. From what we can see, it seems like the supply glut in north america is here to stay. Tom with Oppenheimer Funds computer 300 people around the table. Everyone is smart. I would suggest that oil is open to debate. There is no certitude, is the re . Alessio it is funny you say that. Yesterday we had a meeting on oil. The room was overbooked and had people from every asset class. It really told you. Fixed income, credit, domestic international, currency you could tell that oil was impacting every market. Everybody had to know a little bit about oil. Tom that is a fabulous anecdote. Lets look at the chart. Oil, that we are at 100 a barrel. This is a killer chart. I think loreana did this one. Down we go. We bounced up 45 . Brendan there is no such person as loreana. This is a name he made up. The problem with predicting the price, you are not just looking at economic trends, there is political trends. Iraq plans to raise exports by 26 . That is another floodgate. You never know when these doors or opening or closing. Alessio the geopolitics is the most difficult part, the most unpredictable, especially for a noncommodity person. Oil is one of the most difficult things to predict. We only thing we can hold on is a reasonable estimate of longterm supply and demand dynamics. Demand is really not growing. India is slowly emerging as the biggest marginal buyer, but it cannot take over china. Tom here is the opec screen. You can see iraq. I think you are dead on. Iraq is a marginal player way less than saudi arabia. 4000 versus 13,000. Brendan on that news, futures are down. We are looking at total opec 12 production. We have to look at game theory. Do you see opec Holding Together . Alessio i think so. Some of the aspects of the game theory of oil markets is difficult to gauge. It looks like saudi arabia no longer was to be the central bank of the world from the point of supply and demand adjustment. Tom is Oppenheimer Funds buying totale or exxon mobil . Alessio i do not know what my colleagues are doing. Tom we have to make news on oil. Brendan you try to make news on the health of the queen. Prince charles is 66 that happened today. Tom it is interesting on oil. Via finally got this bounce we finally got this bounce. Alessio this was a technical correction. Tom thank you so much. Your comments giving us perspective on fifa. Let me do a four x report a forex report. Yen 1. 2403. Euroyen shows that yen weakness versus euro on dollar, 1. 3557. Coming up, we look at bubbles and technology. U. S. Banks as they go after fifa. Visa has profound concern. Fifa must address issues. The yen weakens this morning to a 12year low. It is a different kind of tech bubble. This time it is a very private bubble. This is bloomberg surveillance live from her World Headquarters in new york. I am tom keene. Joining me brendan greeley. We have breaking news on boradcom 0 on broadcom. Avago will take out broadcom. Broadcom has done singledigit returns well under 8 over 10 years. Funny clean has the news. Vonnie it is the largest ever in the chipmaking business. Avago buying broadcom. 17 billion in cash and 140 million shares. The equivalent of 140 million shares. The avago ceo will serve as president of the combined company. With that news, we are getting results from avago. Avago technology seeing Third Quarter Capital Expenditures of 160 million. Second quarter net revenue coming in at 106 million. The name of the combined company will be broadcom limited. We did see avago rise 7 yesterday. Broadcom up 22 . It is the latest round of consolidation in the industry. Tom it really shows the history of the challenges of Semi Conductors somewhat like the airline business. There is always capacity and building out of manufacturing too much. With that, brendan greeley, the idea of Technology Getting in the way. Not only is it a tough business in a dirty Manufacturing Business but you have Technological Progress making it that much more difficult. Brendan we have a quote from an analyst. He says Semi Conductors is a game of scale. It is going to continue. It is more and more expensive to design. Then it is becoming even more commoditized than it ever was. The pressures are in both places. Tom the idea that this is hewlettpackard throwing off Semi Conductors. It does not make money. They are dealing in a new business, a combination with low nominal gdp and deflation which is the perfect time to talk with william janeway. You sit there under the cause of pincus each and every date with the idea of low nominal gdp deflation 4 if you are lucky. Lets merge. That is the only solution. William that is what happened to industries from iron and steel all the way through. Its taken 50 years for the Semiconductor Industry to become a thoroughly commoditized industry requiring enormous Capital Requirements in order to make anything. But what is also been going on at the same time is, as the Technology Gets commoditized from the point of user, begins to disappear. Then new applications open up. And it is easier and cheaper to put those technologies to work. Brendan let me jump in. For the companies in the middle of this greece, it is a real problem. Servers are commoditized. Laptops. This has been a huge problem for the m. The companies that used to provide these products are having a hard time this has been a huge problem for ibm. Tom the broader line is agile and. Then it became hewlettpackard. Then it is avago out of singapore they are buying in the monster broadcom. Scott macgregor has been there 10 years. William we will see more and more consolidation in the infrastructure hardware technologies. Mark andreessen has been quoted, software is eating the world. Because the hardware is so cheap. Brendan i hear a note of hope. We talk about whether or not growth is over. The argument hinges on one question have we seen the gains of the internet yet . It sounds like youre saying we have not yet. William no. We are halfway through the digital revolution. It took 50 years from the first railroads to montgomery ward. The killer app of the railroad age. Retail mail order transformed the economy. Back in 1880, every town in america had a shoemaker. By 1920, all the shoes in america were made in massachusetts. People got squeezed. We are going to that now. Brendan why isnt amazon the killer app . William amazon is 130 ecommerce. Amazon is one. Tom we remembered when the stocks was quoted every day. The semiconductor index. You will see a worldwide across radio plus. Here is what bill janeway and i remember. This is like twitter and facebook Semi Conductors to the moon. He would going to meetings and they would have the substrate disk. And they would try to tell you the new technology. It all died in 2001, and never came back. William this is been the history of every great technological revolution of the last 250 years. In the 1920s, do you know what the greatest Growth Stocks in america were . Electric utilities. Then utilities matured went flat, but we got to develop all of the array of electrical appliances once the electricity could be taken tom how do you set this merger . How do you sift this merger . Pharmaceutical consolidation. Telecom consolidation. Nobody is going to get in the way of this transaction . Brendan as we watch the industry gets greece, were looking at Companies Like ibm. They now have to sell services. Were going to move to the cloud. That sounds like hope over reason. William it may be hard for ibm but we are into the fifth generation of computer architectures of the environment for Digital Uprising for digital lives in the world. Now it is mobile cloud. The technology disappears from the point of view of the user, just like electricity. Second the cost of developing new applications, open source, cloud incredibly cheap. You have many more hopeful monster. Some of them. Maybe it is uber air bnb, emerges from this darwinian competition. Tom in the decades you have put into wall street, how do smart people avoid the stagnation we see in Semi Conductors . How does besos avoid it . You mentioned andreessen. How does tim cook avoid it . I was in the apple store. Johnny ive is giving me all of this touchyfeely design. How do they void being broadcom . William some of them may not. There are people really knowledgeable who think that apples becoming a Consumer Products company with brand extension. Steve jobs really is dead. Tom you have got to go to the store to see it. Brendan i would say that is already happened. Apple is not great at software. They make amazing hardware. So they were dominant in music. They are getting their lunch eaten by spotify. Tom are they broadcom in 10 years . William five years is the most i can hope to see. What i do see is the delivery of services this is a big economic issue you have you used to have to pay people to do a hell of a lot of what is coming in over the cloud for consumers, individuals. This transformation is continuing. There are Investment Opportunities all across it. But downstream, not upstream, not midstream. Brendan the investor says, look for unicorns. The macro Economist Says all those people have to find new jobs, new training. Tom a 35 billion merger. I am going to call it 8 times larger than the aol merger. I want to review this much more through the morning. Critically avago, this is the former hp buyer from singapore. They see the deal immediately adding to non gap earnings and cash flow. Money is cheap where things become immediately what the pros call accretive. Itll be interesting to see where the share settle out on the market open. A monster transaction and the born business of Semi Conductors. Broadcom to be taken up. Let me do a data check to get you started on your thursday. We look at equities, bonds, currencies. Yen is front and center. Euro. Futures turning. Oil worth watching. Onto the next screen if you would. The yen really getting my attention. 1. 3562. Stronger euro weaker yen. On the oil story dollar canada 1. 2488. We will have much more on broadcom. Tom we welcome all of you. A mega merger. On broadcom and avago. Vonnie it is the biggest ever deal in the chips making area. Avago is buying broadcom, 17 billion in cash. The 17 billion cash is on hand. 9 billion debt financing. Avago is based in singapore. One of the founders of broadcom will take over as chief isof the combined company. A joint statement from the combined company says the combined company will have a value of 77 billion. Tom the line item 9 billion it of debt is committed. Lets move to a discussion on international relations. The french finance minister. In dreden they are drafting drafts to nudge greece forward to a successful compromise. Hans nichols is drinking drafts when he is not watching paint dry at the meeting. We had ian bremmer on yesterday with his wonderful phrase of g0. How collegial and combined is g7 this morning . Hans they seem very collegial. The idea that the g7, they like a lot of power that the g20 has. It is difficult to have a finance summit when you do not have brazil or china. That is the situation they find themselves. Here they are trying to solve greece on the sidelines, and yet there is no representative from the greek government. Tom i look at this and trying to get things done and i noticed Lawrence Summers showed up to opine. What is the backstory at these meetings . You have been to 47. What is the backstory . Hans the backstory here is how you get greece to start negotiating and except the seriousness of the problem. What is changed in the last 48 hours is the voices that have been critical of greece. Put something on paper. Then this morning an interview with the german broadcaster, madame lagarde says it takes two to tango and she seemed to be criticizing greece for not moving close enough, for not actually putting proposals on the table. Q1 a metaphor for how you want a metaphor . The Brussels Airport were shut down. Technical talk did not start until late wednesday. Times a wasting. You have to take a break. Tom from dresden. He will be in another city in two weeks. Stay with us on broadcom. Good morning. Tom good morning, everyone. Game seven in the nhl. The Chicago Blackhawks and the anaheim dukcs. What a day for the chief Technology Officer at broadcom. Well, he is also got again 7 to worry about in the nhl. He owns the anaheim ducks. Vonnie big day for him. Avago technology has agreed to buy broadcom. 37 billion is the deal. 17 billion in cash and 20 billion in stock. One analyst said ive got my misgivings. This feels very frothy for me. The brisket is shelving its gas nebraska is shelving its gas chamber. Executions are now banned in 19 states and the district of colombia. Two makers of wearable devices are squaring off. Saying fitbit stole secrets and workers. Just as fitbit is preparing to go public. Sony pictures might be must be worried about its new film aloha. The movie opens today. That is your news headlines. Tom i cannot wait to see this. They are limiting reviews. Brendan Cameron Crowe has made some extraordinary movies. Tom didnt he do almost famous . Vonnie purple sky . Crimson . I dont know. Tom our movie update. Lets look forward on bloomberg surveillance what will be talking with with william janeway. Peter cook will help us looking at the new f35, the new jet. With janeway we will talk about technology ina a bubble. Can we summarize with the latest on fifa fallout. Brendan washington has been watching china. China is thinking about blue water. All of the worlds oceans. In a white paper chinas military field plans for global naval presence. An admiral joins us now. This is what the navy has said do not take our control of the open seas for granted. If china has a blue water strategy, should we be worried . We should. They are ramping up defense spending. It has gone up 12 . They are the second largest Defense Budget in the world. They are looking at power projection both with Aircraft Carriers and Marine Amphibious carrying ships. This is a real concern. This is why the administration is pivoting to the pacific. Brendan what is the timeline . They only recently acquired an Aircraft Carrier. How long does it take them to do this . That is the good news. As we know in the United States building ships and building a capable global maybe is the work of a generation. But they are moving more rapidly than any other nation i have seen, embarking on a program which is, of course, the chinese modus operandi. Brendan it is possible you might have a bias, but what does that mean for us to mystically . Do we need to be focusing on shipbuilding . I think we do. We need to increase our numbers of ships. Can we are going to need to be smart about what we buy. That means not only the ships that do a power projection but also those that do combat capability. Tom we have got a handful of people in australia. I guess we are showing the flag in the north of queensland. As we go back to Theodore Roosevelt and the idea of showing the flag in the far pacific. Is that what were doing rejecting 1910 . Reducting 1910 . No. I think we have a very capable strategy of moving our big assets into the pacific. We will have 60 of the u. S. Fleet operating out there. Just yesterday, we have a new Pacific Fleet commander. Harry harris. Us. S. Is in the pacific to stay. Brendan help us unpack the distinction between the water and letoral. How do we figure out how to get that balance right . We need to lookat what are the perspective missions we have . I would argue operating in the pacific is crucial to her to do that you need the Aircraft Carriers, you need the longrange, big deck amphibious ships. And the submarine force that will have to do battle under the water. So, that traunche is critical. We need to be able to operate in the persian gulf, very restricted spaces. That is where the combat ships come in. Brendan we are running out of time but there was a p3 overflight this week. Another warning from china. What is the right thing to do . How do we handle the increased presence . We have got to do what we have always done which is to maintain freedom of navigation on the seas and in the air. Kerry concerning is the construction of artificial islands. Very concerning. They have built 2000 acres to buttress their claims to the south china sea. We have got to challenge those and push back on that strategy. Tom we are going to look and a moment at the marine jet, the f35. Is that a Constructive Program . You have been kneedeep in this. Peter cook is in a boat looking at this. Is that been a good spending of our tax dollars . It has been so far behind schedule and underperforming, but i think we are about to truly turn the corner. Some have called this the airplane that ate the pentagon it has been so expensive. But i think it has got a shot. Brendan thank you. Amateurs talk strategy. Pros talk contracting. Coming up we go to the f35. Tom good morning, everyone. It is a busy morning but lets go to the bloomberg terminal. This is a great chart, and optimism chart. Jobless claims and jobless claims adjusted for the number of employed going across 60 years. The recession of the 70s, this is manufacturing with goods being produced in america and the double recession of the 80s and paul volcker steps in and is lovely cyclical, normal move and here is the ugliness of the crisis, not as bad as before and then down we go. Brendan one of the things we have learned over the last two years is that we cannot just look at the straight unemployment rate. We have gotten more sophisticated on how we look at this data. We are no longer in this cyclical period. Tom it is a different world from back then. This is the Service Sector. It is Service Sector on the one hand and more globalized than it used to be and there is Something Else unions in the private sector have been virtually liquidated and jobs are radically more flexible, no commitment you are on or off and you dont know when you will work. Tom is it parttime america . Bill absolutely. You put that chart against the increase in the share of income and wealth and go to the top,. 01 tom the top 7 . Bill its really the. 01 is where the huge increase is. Tom lets go to our top headlines. Bonnie we are breaking news about tech dealer of singapore buying broad come. The deal is estimated to be worth 37 billion. The acquisition is one of the biggest ever in this industry. The deal will immediately boost its cash flow and earnings per share. Broad come shares rose 22 yesterday when word of the talks got out. Soccers ruling body is facing corporate pressure to clean up its act. The arrest of fifa officials is bringing sharp responses from their sponsors. Officials are said to have taken millions of dollars in bribes for media and marketing rights. The president is up for reelection tomorrow so no word from him. The European Organization thanks fifa should take a timeout. The members of the executive committee are convinced there is a strong need for a change to the leadership of this fifa and strongly believe that the Fifa Congress should be postponed with new fifa president ial elections to be organized within the next six months. Vonnie the u. S. Attorney general Loretta Lynch says the investigation is far from over and she expects more arrests. France and germany are warning greece to say its time to get serious about the debt crisis. The group of seven finance ministers are meeting in germany and denying the greek claims that a bailout deal is near. Greek Officials Say they are close to an agreement which means they need to quebec back and i am a loan next week. One Economist Says there will be dire consequences if the greek crisis is not solved. It could lead to a story that is very destabilizing and cause runs and other financial institutions. The original greek story should not have involved italy and spain and portugal but it ultimately did because of assumptions people were making. Vonnie the European Central bank agrees and says euros on bond yields could rise if there is no agreement soon. The irs thinks russians are to blame for stealing Tax Information from more than 100,000 americans. Cyber crooks took data from the irs website and they used it to file phony forms and still refunds of up to 50 million. Hockey fans are getting a rare treat the nhls east and west finals are going to seven games. Chicago beat anaheim last night to force a showdown on saturday and the new york rangers will host tampa bay tomorrow night. Its only the second time in 47 years that conference finals have gone to seven games. The ducks owner might be a little distracted. Tom to say the least, he is a great philanthropist there will be a great game seven and the rangers will take on tampa bay as well. If deciding time for hockey and for broadcom. Brooke sutherland has terrific valuation reporting. Broad, 22 times earnings yesterday. Its the kind of valuation way above the normal Semi Conductor valuation. We do this with futures. Euro is 1. 08. Brendan this is bloomberg surveillance. I think we are going out to the open ocean again. Tom peter cook is in washington this morning back from a marine corps junket on the uss dramamine. He has been flying horizontally and reports in our tax dollars in our militaryindustrial complex. What did you learn on an Aircraft Carrier . Peter technically, it is not an Aircraft Carrier. I learned that the hard way. It is an Amphibious Assault ship which the marines would take as they storm a coastline somewhere around the world. What i saw firsthand was the f 35 in action. This is the controversial fighter plane. We flew on osprey from the pentagon to the North Carolina coast. Once we got there, we saw the f35 in action. They are trying to simulate real operations on the uss wasp. The f35 is over budget and overdue by several years and is close to getting combat certification. The first squadron will be marine f35s. It can land vertically and take off in a short runway. We taught them we saw them in action on thursday. Brendan the f35 is the culmination of a 40 year dream. It goes back to vietnam. The other services will have to buy this airplane. Are they as enthusiastic as the marine corps . Peter the marine corps are first out of the marine corps our first outofthebox and wanted this plane badly. So do the other services yet we are seeing the air force and navy versions taking more time for development. There has been issues with how the navy version will get on and off an Aircraft Carrier. They are working on those issues. This is a plane that is going to replace the entire fighter fleet that we have now. It is a program that many have said is too big to fail. At this point this is a turning point for this plane. If they can get the first squadron certified for combat stages, the hope status, the hope is that reduction ramps up and the cost comes down. Tom maybe it does. This is not tom cruise in top gun pickup brendan this will fly close air support. This is farther into the line of combat but it is supposed to do these longrange missions for the navy and land on the actual carriers. Am i correct in understanding that the real reason for the cost overruns is that this was supposed to be simple the same plane for every service, but its dramatically different for every service . Peter this is super high technology. Any modification here is a major deal. From talking to people and i have covered this from years four years for years. The fact that they did acquisition and production and development at the same time is at the core of what the problems are for this program. They thought they could do both simultaneously and prove that is challenging. Now they are trying to wrap up testing and move on to full production. Tom its like asking about doctors and medicine to the pilots like this airplane . Peter i spoke to two pilots several pilots on board the wasp and there have been criticisms of the plane. The two guys i talked to are thrilled with the plane and one guy described it on the flight deck as a Kentucky Derby third brett, dish thoroughbred, hoping to lift off the deck. They tell me the situational awareness, the Computer Systems its like a flying censored their ability to see whats going on around them is unprecedented. It is a night and a leap from where they are in current aircraft. Tom i promise we will do more on this. This is something you have been reporting on for years. We are out of time but my question would simply be what does this mean about troops on the ground . Brendan you still need troops on the ground. My father is a marine corps aviator and he said the marine corps has said keep one hand on the rifle man and the other hand on the u. S. Navy. What peters sees is the supply chain for the marine corps goes through the navy and they have to have the same jets. Tom there it is, thats fascinating, one of the great mysteries of america, our pentagon. Brendan coming up, it is the biggest acquisition for the Semiconductor Industry ever and we will have more on the avago broad com deal. Tom good morning, everyone. That fog you see is the new york yankees pitching strategy as it envelops manhattan. They have been doing well against the Kansas City Royals the next couple of the last couple of days. Good morning to all of you worldwide. Speaking of worldwide, we continue with the soap opera known as days of our fifa. Brendan while the rest of the world was busy reporting the news, Erik Schatzker and i spent most of the day gossiping about fifa and what will happen. What happens to the man unnamed in any and i question markerik he is keeping a low profile and theyre supposed to be an election tomorrow. The speculation is of a goes ahead, he will still be reelected so he will have a fifth term as fifa president. Most of the votes are not held by members in the western world where you would presume that there is some support. There are support among the europeans for postponement of the vote because they share the view that if there is corruption at fifa, it seems business cannot go on as usual. Brendan we saw the head of the European Football Association saying we think this boat should be postponed. That theres a boat should be postponed. There are not that many countries worried about this. They have been handing out the cash country by country. Tom he has been there since 1975. Brendan he has been president since 1998. Tom that is forever. How can he not that is a quest that is a stupid question how can he not be associated . Erik we can associate him as tangentially as we want but until he is accused of a crime its not even a question of innocent until proven guilty. Maybe judge in the court of Public Opinion and perhaps that s what we are doing. The only thing we can say is this frankensteins monster that is fifa was created by seth blatter. Brendan the moneymaking machine is his baby. Tom do you have any wisdom on this . You are in anglophile. I think this goes back and its deep and there are all sorts of examples. Albert hirschman did on audit for the world bank 60 years ago. This was going on then. You go into the frontier and this stuff really matters. The impact of the incremental fifa investment in a particular country is huge. The corruption tax for developing countries is enormous. We had them in the 19 century and we got over it. Brendan we are talking about who is the actual victim. Youve got lord Peter Goldsmith on . Erik he is the former attorney general in the u. K. And subsequently was a member of the independent Governance Committee seth blatter struck average after he was elected in 2011. Brendan many people have remained unsatisfied and we will talk about that dissatisfaction on bloomberg surveillance. Tom good morning, everyone futures are 4, lets get to our top headlines. Vonnie the death toll from flooding in texas and oklahoma is climbing as Officials Say at least 21 people have died since saturday 11 more are missing. Volunteers in the heart of said areas are organizing search parties. The huge oil leak in california now being called the Worst Oil Spill in 25 years. Federal agencies are ordering the pipeline owner to finish the cleanup. The spill caused a 10 Mile Oil Slick near santa barbara. Mcdonalds is going back to its roots. The company is planning to make its burgers better and they will toast their buns longer. They will make their patties juicier. I am talking about mcdonalds. Tom it sounds like mcdonalds is trying to rip a page out of the success of burger king. I would not know anything about eight number two value meal. Thank you. Lets get back to an Historic Deal and what it means for mergers and acquisitions. Its about cheap money, 9 billion of 37 billion from avago to buy broadcom. Jeff mccracken, when you see a deal of 35 billion, its cheap money . Jeff yes, of course, they are borrowing 9 billion but it is also pressure on the chipmakers to reduce their operating costs and reduce the cost of making their new products. They combine with wroughtcom and they are now the sixth with broadcom and they are now the sixth largest chipmaker. Tom what is the effect on Semi Conductors . Jeff we are looking at 100 billion in deals so far this week with the charter transaction a couple of days ago. It is a frenzy right now in m a and now a frenzy in the chip space. Thank you. Tom bill janeway is with us. One of the questions our listeners and beer it would ask is this a bubble . Do you get a sense of a double like 1999 question markbill public valuations are no more what they are like them. Its going on the private market for it particular category of tech driven companies is a bubble such as we have never seen before. Tom is this about unicorns . Bill yes, more than 100 private companies with valuations above 1 billion, the valuation is based on future revenues higher than the best comparable public companies. Premium to the Public Market by Institutional Investors hedge funds, mutual funds, sovereign wealth funds, buying without liquidity, they cannot sell the stock, buying with no governance rights if something goes wrong. Is it a bubble . There is a signature to a bubble. When the price goes up, demand increases. It does not go down. The demand curve is inverted. 2013 2014around 3 billion for Tech Companies and above 100 million. This last year, 13 billion. Brendan thats amazing. We looked at spotify last week. Tom that is private. Brendan they brought in Goldman Sachs to advise them on an ipo in Goldman Sachs said wait a minute. They told them to hold off on the ipo. They said invest in their own money. Is it fair to say that the tech market is no longer a Public Market . Bill for the time being. Like every bubble, there is a plausible story. The way technology, the it of the internet, the friction in generating a Global Service appears to have disappeared. You do have your Companies Like facebook and amazon and google and apple. And you have the fear of missing out on the next one. There is a plausible story you can create in no time flat and amazing multimillion dollar global business. That is the plausible story but there is a test. Sooner or later, these Companies Either go public or they get bought. And sooner or later valuation is going to get related to operating cash flow. Tom i agree with that. We will go down the income statement and find out if there is any substance but there isnt. There is always a catalyst that makes this rumble and fall apart. What would you guess that would be . Bill there is a signature on the way up which is demand increasing but on the way down, the signal is too much supply. Back in 2000, tom does the janet yellen thing make this stumble . Bill there is a lot of latency in the Institutional Investment business. The big guys, the sovereign wealth funds are assembling money to make these investments. They cannot take those apart overnight. This will run for a while but there will come a test. Most of these hopeful darwinian monsters fail. Brendan that is a great phrase. Bill it may be uber or air bnb that says this really works. Tom uber has cash flow. Im not saying i like it but some of these dreams dont need cash flow. Bill youve got two kinds of disruptive web services the ones that are virtual like google delivered globally, no touch on the ground. The ones that are delivering a physical service locally like transportation and housing and lodging, they run into the local ecosystems that evolve our generations and it slows them down. Some of these growth projections are likely to be disappointed and these are all living off the potential for Global Growth across every smart phone owner in the world. Brendan it sounds like you are saying that when you are not public, the market has a hard time working. They dont know enough information so they are not liquid and they cannot look at valuations so this is based more on hope than valuation. Bill it is based on the fear of missing out. For every ipo for one of these companies that has worked, there has been one where the market price is up to 50 below what the list is pretty brendan its not the a round that will get burned. The sovereign wealth funds. Billl there is always a pigeon in the bubble. Brendan what does that mean . Bill the last guy in. He turns out to be the greater fool. Tom we call that trades the red sox make for middle really. When you look at broadcom is there a there he there because everyone has to go because time is running out . Bill they are a phenomenal business. They delivered broadband over copper wire 20 years ago. That was an amazing dream. Thats what brought the internet to the homes of america and then the world. Then they made the evolution into wireless. It is a phenomenal achievement but, as you say, the economics of the business, huge capital costs even to design the stuff. The stuff is now all made in taiwan. Brendan i can talk for too long about that. This is what is developing today that we are watching. Tom i am watching the yen. Fx has been quiet and it is no longer quiet, the yen is at it 12 year weakness. If you get out to 15 years, it will take a workup. This has huge ramifications in asia. Brendan i am watching David Camerons roadshow today. He is going from capital to capital, every capital, he will fall on his these and ask for a battle a better deal and i dont think he will get one. He has an opponent from jordan of all places. Tom you wonder what announcements there will be today. Vonnie the ua has already made the response. Brendan theyve got a collection of votes. Tom in atlanta, at cocacola, theyve got tough decisions to make. Brendan and they have power, they can make a change. Tom what a great show, thank you so much. How do we book janeway the day broadcom is taking place . Market makers is next, stay with us. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and stephanie ruhle. Erik good morning. Im Erik Schatzker. Olivia i am olivia sterns. Erik another retailer reports tough earnings. We will find out which other ones are doing things right. Not too many. Olivia later today, we will hear from a economist on challenges for the eurozone and greece. Erik first, top stories, the biggest acquisition ever in the semiconductor business. Technologies agreed to by broadcom the latest deal in an industry that has been consolidating. Of all go avago is based in