Transcripts For BLOOMBERG Bloomberg Surveillance 20151125

Will bring you the headlines through our surveillance today. Impressed with how quickly the headlines are moving at a rapid speed. Lets get the bloomberg first word news. Vonnie it is day three of france president s Francois Hollandes push against the Islamic State. Today he talks with german chancellor Angela Merkel who says germany is ready to strengthen its military commitment to relieve a french forces. Belgium is searching for another terror suspect that was seen driving a car with one of the suspected organizers of the paris terror attack two days before the attacks occurred. So far belgium authorities have arrested five people. The unprecedented lockdown of brussels is slowly coming to an end. Nato is ordering deescalation after turkey shut down the russian warplane. They called for further contact between turkey and russia. In new york russian and u. S. Diplomats met. According to a Russian News Agency russia would be willing to accept a new agreement on airspace if nato came up with something. Turkeyss rejected claim that the airplane was in turkish airspace. A suicide bomber killed 12 people on a bus in tunisia carrying president ial guards. They have entered several attacks by islamic extremists this year. Are the only Success Story of the arab spring reveled. Demanding an end to violence by the palestinians in the west banks. Johnmin netanyahu met with kerry. He blamed palestinian leaders for attacks. He said if they want palestinians to build infrastructure, israelis must be able to build more in the west bank settlements. You can get more days 24 hours a day at bloomberg. Com. Tom i guess it is quiet, but it is a wonderful day in america with the green on the screen is coming back. Linking because of the stress of international relations. A weaker euro bears watching. It may bring back the parity talk. Onto oil which had a big yesterday. On the second board, the vix not where it should be. It should be 14ish. A little more angst. I want to point out the two year yield. Isare on the 1 watch, it buttressing up against higher yields. You have a london view this morning . I want to put that on your screen. A lot of movement and some of the travel stocks. A little counterintuitive when you look at all of the intentions. Time, look for sterling. Some change at the moment. Watch out for what the chancellor says, and the 10 year bond yield approaching lowest levels. That the board is beautiful and informative. It is a data check. You dont need anything more. Turkey is within the news flow. I do not want to overstate the weakness. Lets go to what vonnie will do to fill up the hummer h2. This is a weekly chart. All you need to know within the crisis of 4 gasoline. You remember that in new york . Vonnie vaguely. Oio, but whatlike is important is european gas is back in 15 years. 100 to fill up the hummer. Feeling ityre not like last year. Get a gallon of gas to america started as they go over the river and through the woods this morning. Francine is looking at me, like no, i was wondering when to say happy thanksgiving. I know that it is a big deal in the u. S. Tom i am wearing blue for the detroit lions. Be wearingou will blue for the thanksgiving day parade. Tom i will be passed out in the living room floor. Francine now, on to business. Down a russian aircraft. Vladimir putin threatens consequences. The bloomberg managing editor for managing government, and our cohost with , an independent writer of Investment Research and emerging markets. Andrew, you are with us when the news broke about turkey downing the russian airplane. The 24 hours were critical. There was no escalation. There were scrimmages and tough talk, but we dont expect it to become much bigger . Andrew going back to what tom said at the beginning, a of headlines are coming really quickly. So far, we have gone through the first 20 four hours without a major entanglement were another issue. Thebad news is that rhetorical escalation continues. Accused turkey of being accomplices to terror. They are saying that turkey is with the Islamic State on oil cells. That officials were involved in that. They have deployed s 400 Missile Systems in turkey, meaning that nato and coalition airplanes imave to report to sorry, in syria. Meaning they would have to because youssia, would have a risk of areas being covered by this russian system. There are a lot of things that could go wrong, despite the international attempt to diffuse it, it is intensifying. Side really has an advantage in taking this forward, economically or militarily . I dont agree. On the russian side, the strategic goal is to cement a partnership in a coalition with the western part of the Islamic State. I think that president putin tol be quite concerned not let that goal be derailed about what he sees as provocation by turkey. It will be interesting to watch president hollandes visit to moscow which starts tomorrow. For five years you were with the united group of moscow, giving them strategy. The people in moscow look at this effort in syria like another afghanistan. It shape how the people in russia, particularly the elites in moscow, will react to the news of the next few days. Christopher the first question on the people is more relevant. The support for the ruling establishment in russia is the key driver. I am not a great believer in elite intriguing and palace coups. Are great concerns that are showing up in opinion polls and russia about another quagmire like afghanistan. The dominant feeling is slightly the opposite, a question of defense. Defense against terrorist attacks. Remember that the russian public has been up against jihadi terrorism in moscow itself and other russian cities for the past two decades. A series of horrific events. For example, remember the chechnya and wars. The first chechnya in war, the public was against it. The second, the public was in favor of it because it seemed to be a defensive action against jihadis in chechnya planing action. This time it is the second action, the feeling of defensiveness if we dont do something we are not going to get attacked because we are involved in syria, they will attack us anyway. That is the dominant feeling in russia, in my opinion. Tom this is the leadership of turkey speaking in parliament. The headlines will come out very quickly to carry out structural reforms. This is more of a business speech in parliament, but no doubt he will touch on the news at the moment. Tell us about the southern border and a look south from moscow. It is simplistic for americans. Theres turkey and more, but there is an entire islamic set of countries where the core tensions come from . Christopher the tensions go into russian territory itself. Part of the Russian Federation is also part of the theater of the jihads. It is regarded by the International Jihadis as a theater of combat. It goes back to the terrible episodes are mentioned a minute ago, the wars in chechnya, which is inside russia, and that is the reality. Russia has absolutely Strategic Interests in combating International Jihadi activity. Moscow is focused on syria. Strategic interests. Russia should know the feelings of the sphere of influence, ukraine for example. Speech thist had a morning, theyre interesting, a claim to a sphere of influence in north syria, northwestern syria in particular. Tom we will come back. Barden, thank you for your perspective. Russian local currency bonds were just taken down a notch. Coming up in the next halfhour, we will continue the discussion. We will bring you Aaron David Miller of the Wilson Center for his perspective on washingtons response. Good morning. Tom good morning. 8 00 a. M. Tomorrow i will be at whole foods because i am cooking. 8 00 a. M. Tomorrow. Q the security. On a serious note, there is more security in new york this thanksgiving. The big parade tomorrow. The fourth wednesday of november. Parade will continue with no interruptions. The british chancellor wants to increase Home Building with a new and centers. George i was born is calling for 3 billion of public money to go to public money. Lack of housing has pushed prices across the you across the u. K. Lufthansa has moved in the direction of workers on pensions. Have augee influx will positive impact on the German Economy according to a Bloomberg Survey of economists. Germany will have a hundred thousand refugees, that should point10 of a percentage of annual growth in 2016, offsetting the negative affects of the volkswagen e mmisions scandal. Francine this mustread comes from the mark champion. The easiest way to find out how they will respond to russian news is to imagine how he would react. The two men have a lot in common. I like that he makes the point that Vladimir Putin probably misjudged turkey and went too far. Granville cofounder of trusted sources. This is the problem weve had to analyze, we have had very strong, powerful, slightly volatile politicians. When you look at the parameters, how difficult is it to secondguess what they would do . Christopher that was a sharp point by marc champion. Theyre both showing clear overlongf incumbency, power going to their heads, taking the situation that much more volatile, potentially. Strong decisionmakers in absolute control. Before we get to the however, another interesting similarity is the sphere of influence. Isis clear that are dan putting down that this is the sphere of influence and resisting rush of being in the driver seat in syria, especially in the parts closer to the turkish border. Kurdish question has caused tensions between russia and the u. S. , the border tension in the future of the assad causing tensions and russia. That is the background. Haser their reaction, putin a very strong reaction to provocations, often quite aggressive. There is also a cautious strand in there. Reaction willhe be not to up the ante, but to continue as before. To take greater steps to protect the integrity of russias air campaign. I think putin wants to put the ball into the nato court. Tom is there any animosities and distress wrapped around a common evil. ,efine for us the common evil and how that will lessen the animosities. Christopher well, the common evil is the breakdown of the state system in the middle east, which if we had time we could get into history lessons. Roman empireto the and the colonial powers there a large amount of responsibility for this as well. In the breakdown, which was invasionggravated iv of iraq by the United States in 2003, there is the fanatical branch or stream of islam. That is the cocktail that we have. A fundamentalg security challenge. I mentioned russia, no one needs to mention france. In the course of it being dealt with, agent geopolitical tectonic plates also start rubbing. It is a toxic cauldron. Granville, thank you. We appreciate your perspective. He predicted this. Coming up on bloomberg the Fletcher School is way out front on how close airplanes are in the eastern mediterranean. Stay with us. Bloomberg surveillance. Excited we are really to give you this exclusive interview. This is with the ecb Vice President. Nichols is wrapping that up after the ecb came out with a report warning of rapid especially when the fed hikes in december. Lets bring in our guest host. To have yous great here. We also have such a great interview with mr. Constancio. How concerned are you about risk . Marvin i think risk is reasonably priced at this stage. A goodk they have done job of telegraphing where they are going, certainly at the ecb. President draghi has been clear about what is going on. Continuing to emphasize that while they do see lebron markets given the downside of inflation that they have experienced, it will be a very slow and gradual process. That is what we should expect. Emerging markets are more concerned on themselves. Emerging markets, not all of them, but they are concerned about outflows. I know we have known about the fed hikes, but it will catch some countries by surprise . Somen it may catch companies by surprise. Most of the foreign debt is corporate debt, unlike in previous episodes of foreign market of emerging market distress. In the case of china, where a lot of the foreign dollar debt was held, they are holding the women in the they are holding the run and be they are holding the stable. Cally you cannot discount there will be an odd corporation that has not prepared well. Tom a rather grim view on 2016. Equity sachs with a flat view as well. Is currency is the only place to play at next year. Is the only place i can make out the next year in Foreign Exchange . Marvin i think it is one of the best places to make alpha. I think there is still room around rates and a variety of different places, but you are absolutely right. Currency, we still see a lot of significant divergence economic across monetary policies. We think this will lead to further Dollar Strength. Some of the issues francine and i were discussing with an emerging market suggest you will see Dollar Strength there as well. Snba big call on what the will do and what that will mean for the swiss franc. Francine we have an exclusive with the ecb Vice President. I just had a horrible nightmare. My companys entire network went down, and i was home in bed, unaware. But that would never happen. Comcast business monitors my Companys Network 24 hours a day and calls and emails me if something, like this scary storm, takes it offline. So i can rest easy. What. You dont have a desk bed . Dont be left in the dark. Get proactive alerts 24 7. Comcast business. Built for business. Tom good morning. Hong kong is looking at commodities, the number of trading out over there. You can watch moment by moment. Meetings are being taken at the matter in oriental in the lower left corner. It is a beautiful bar looking across. On thist started wednesday before thanksgiving with her first news. Theye turkey says that should be careful not to raise tensions over the shooting down of the russian airplane. Of wordsge in a war after turkey shut down the airplane. Turkey says they have a right to protect their borders. Russia is willing to work with nato to avoid more incidents. Angela merkellor is vowing to help france in the fight against the Islamic State. President hollande will speak with merkel to line up an antiterror coalition. America says germany could boost presence to relieve french forces. Authorities are looking for a man driving between brussels and paris with one of the suspected organizers of the paris attack. This was two days before the shootings and bombings. U. S. Travelers will need to have patience over the holiday. Long lines and armed officers will be the scene starting today. Security has been increased in the wake of the paris attacks. There are no specific threats. In chicago, protesters marched over the killing of a black teenager by a white police officer. Video was released of the officer shooting the teenager 16 times. The officer has been charged with his murder. You can get more news 24 hours a day at the new bloomberg. Com. Or aine it is u. K. Budget the governments spending review. With more on what to expect. When you look at the rake down, you have to look at patterns. At the same time we are in an austerity drive in the u. K. Absolutely. It is still going to be about austerity, even though one of the bigger questions and hanging over the review, is he going to stick to his pledge to achieve a in five years . He has some time to get there, but that has been the pledge or a wild. There have been suggestions that he want, that it is a luxury given the spending they want to around health and defense. Which of the departments is the knife going to fall on in terms of cutting back on the budgets . Francine who is the chancellor trying to woo . Is it the voters or Bond Investors . Interesting one, where he is politically. Who many in the Gaming Community would have as the next leader of the conservative party. Be very mindful of his broader political appeal. He has had a couple of prominent fallings out, he tried to bring through welfare reforms. He was blocked in the house of lords from getting it passed. He had a fallout with the Junior Doctor committee over the health service. All of that, not playing politically all that well. Laying into his hand is the Opposition Party under Jeremy Corbyn is very divided right now. Francine thank you. Anna edwards at westminster. Lets continue our conversation bringing in john mills. A Top Labour Party member. Thank you for coming in. Just to make it clear, globally, you are from the opposing party. What is your main concern about the budget that the chancellor will deliver . That he will be to focus on austerity . There are two major problems. I dont think that adopting the president will get the deficit down. I do not think it is driven by too much spending by the government. I think it is driven by the balance of payments deficit, 100 billion pounds a year, that and lendingarling is out of kilter. Until you do something about the balance of payments, you will not be able to do something about the deficit. Being in a surplus by 2020 is off work. The second is we have an unbalanced economy. Is off whack. The second is that we have an unbalanced economy. That is rising. The growth is coming largely from consumer led booms that cannot last. Prospects overe the next three or four years is worse. Francine are you saying that it will not lead to a sustainable recovery . The majority in this country feel, on the economic side, that maybe they are in a more comfortable place. Think it is important from the point of view of the country to get the economic policies right. Adopt a policy that has very little chance of and all of the austerity and cutbacks which are causing so many difficulties, they are not going to deliver a reduction in deficit at the end of the day. It will put the economy in the flechette and is not a good policy to adopt. You have seen, lifetimes of labour party differentials across 35 years serving. What is your desire for your labor party . How do they regroup . Where is the next marginal leader . John i think it is hard to tell, but there is some prospect that the idealism the hind the idealize and behind the induction of Jeremy Corbyn and the more moderate rightwing in the labour party will come together by 2020 to produce something of a synthesis that we can go ahead with. If my prognostications about the economy are correct, the policies that are being pursued do not work well and the economy is in bad shape of 2020, that does not look so obvious at the moment. Shortterm for many in british politics. In america, that is somewhere between forever and distant. Can you afford to wait until 2020, or does the labour party need action now . John i think that it takes time for the of allusions to take place. 2020 is crucial in the u. K. Because that is when the next general election takes place. Unlesst think that something extraordinary happens they will not be an election between now and then. That leaves the labour party with more time to become a formidable electoral force. Francine how concerned are you about Pound Strength . This is probably the biggest headache for mark carney. And something the government must be looking at. John a lot of the unbalances in the economy stem from the fact too high,ge rate is making it unprofitable for investment to take place. It skews the economy toward Financial Services and away from manufacturing which is now a small portion of the gdp. As a result we cannot pay our way in the world. Theave a deficit that is in 100 billion pounds a year. It is not sustainable. Francine i will level does it hurt exporters . Hurts some exporters now. Ultimately we will take a different task. The reason it is so strong is because Investment Opportunities are so great in the u. K. Francine the optimist and the economy. The thank you, john mills. A pleasure to have you in the studio. Coming up on bloomberg go we talk retail at 7 00 a. M. In new york and 12 00 p. M. In london. This is ahead of thanksgiving. This is bloomberg surveillance. Streaming on your tablet, your phone, and bloomberg. Com. Coming up on the program, we have an exclusive interview with the ecb Vice President , vitor constancio. This on the data ecb put out its Financial Stability review that was published just over an hour ago. They talked about financial conditions, price stability, and warned about emerging markets companies. Joining us is the bloomberg chief economic correspondent and bureau chief. What exactly, thank you for coming on, what did you are in from the ecb . It did not feel different from reports warning that this was two months ago. It means that corporate could still be in trouble . Concern is emerging markets, in general, have souped. P on dollar denomination debt the fed raises rates and creates yields, they will find the increase hard to repay the loans. The cost of the emerging market crisis is what they are mourning the markets of. Francine we have the fed hike coming, 74 . Coming in three weeks. What can happen in three weeks . Under pressure, places like jackson hole, a place to be explicit or transparent to tell the emerging markets or divergent markets. Janet yellen and her colleagues have been that. They have talked about the rate hikes in september. They talked about it a couple of years ago. They have been clear in saying they may raise rates in december, this is how we might do it. Raising rates slowly and gradually. From the fes point of view, their job is to manage the u. S. Economy, but they have gone out of their way to soften the blow for emerging markets. Tom simon kennedy, happy thanksgiving. I know the only one that that watches three cricket matches on a thursday in november in america. The ecb, the green book of the banking. Do we know the nature of shadow banking, or is it manufactured by frankfurt . Big theefense on how shadow Banking Industry is in europe. It is a concern for the ecb how big the as a Straight Days and how it might react when the ecb and the how big the industry is and how it might react when the ecb. Tom the ftp put it on the cover, Deutsche Bank on compensation. The naivetended at over what people are motivated by bennys the staff and Senior Management level. Are you thunderstruck by the change in dialogue at Deutsche Bank about compensation for their employees . Simon potentially. It is something many banks are having to wrestle with. Pay, compensation, and it is almost a pr exercise on how to a line that with the views of their customers. They can look back at the financial crisis to say did the banks learn anything . Tom i think it is amazing how people disagree with Deutsche Bank. Ive never seen such aggressive push back. Francine i think you are right. You make a serious point. Simon and marvin can both weigh in, where you are more sensitive to inequality, people go back to the fact that the fallout from the crisis bankers are paid a little too much. Something in the u. S. You dont think about because you attract top talent. As a European Bank how do you retain top talent . Is this play out in your world . Marvin going back to shadow banking, the argument for the pay hike is still that they talent what they deserve, they will go to other various corners of finance, or if they can earn more without oversight that has been cranks out in recent years. I do not have a strong view on whether compensation is too much or too low. When we go back to the precrisis, you had Financial Services were 16 of gdp. It has shrunk since then. The compensation is going to go thehose whether they are in shadow Banking System or other Banking Systems based on how much service they provide. That is what people are going to be concerned about. The benefits of finance, they are going to be concerned about that. Francine thank you. A reminder of that later. We will bring you the exclusive interview with the ecb Vice President , vitor constancio. This is bloomberg surveillance. Streaming on your tablet, your phone, and bloomberg. Com. The biggest risks for 2016, coming up. Tom good wednesday before thanksgiving. Across america and around the world. We hope you are celebrating our thanksgiving in the best way possible. In washington, they will be all back home trying to get reelected. It is our 24 7 job to bring you our business flash. Vonnie Deutsche Bank will settle a u. S. Investigation into tax evasion. This was unit will pay 31 million in a nonprosecution agreement focusing on swiss things that helped americans of a taxes. In first full year profit five years. More business and the home market. The new fiscal year is off to a good start with encouraging bookings and Winter Travel for thomas cook. A growing arrested in corruption scandal. No word on what he has been charged with. The leader in the Brazilian Senate was also arrested. It is connected to brazils biggest builders. Week, all about central banks. The ecb kicks off Monetary Policy decisionmaking next thursday. The fed is december 16. It argued that december is important, because we have a jobs report from the u. S. Lets continue with our guest host, martin barth. Thank you for sticking around. When you look at central banks, and the actions, we pretty much have a feel for what is going on from now until december. What is your best play for next year . Is there going to be that much of urgents that will impact your dollar . In the expect background you have the economic convergence taking place. That will still take place. Ultimately, the returned in the u. S. Are higher than elsewhere in the world, particularly versus most of the european economies. In terms of the best play, it depends on your horizon. The us and be coming on the 10th, we have an aggressive call on how they will behave. Best play is the to take the dollar versus the swiss franc, because we do think that if the ecb does more negative and deposit rates, which is what we expect, the response will be a nuclear option. Tom your timing is perfect. The german two year yield is down to a record low, three digits. 407 on the twoyear yield. Looking at the swiss, slightly positive, i agree that we should look at the swiss banks. On why a primer americans and continental europeans need to care about what goes on in zurich. Marvin lots of reasons. Is the call on Foreign Exchange. If we are right and the snb removes the exemptions it has given its domestic banks from the negative rates in discharging on the reserve, that will effectively worse too fast that wille effectively force them to pass on negative rates. This will have a dampening effect on the swiss franc. Drum a broader perspective, this is an issue that i think you are concerned about. This will be the first real example of negative rates being passed on in a broadway to actual retail depositors. That is the next big step. Tom have we seen this in switzerland the First Experience of the rail economic outcomes of these negative rates . Economic outcomes of these negative rates . Switzerland, denmark, and sweden. If you are a large deposit holder or a corporate, you may be charged negative rates. This is the first time it would be passed on broadway. This has already happened at a bank. Swiss b that increases our convictions the snb will take this step. Francine what happens in sweden . Marvin sweden, we think that. Hey cut again they are already of applying their negative rates on reserves. Their banks have large net interest margins. Some of their banks are the most profitable out there. This does not naturally go on to depositors there. If you see this effect in switzerland, you can imagine that ultimately swedish banks will say gosh, the swiss did it. Maybe we can pass this on an increase our margins more. Francine what happens if it does not work . Marvin in switzerland . Francine in switzerland. Marvin we tried quantitative easing, we found it does not have much of an effect on inflation. This is a last hope. There are more theoretical underpinnings for why this might work rather than quantitative easing, but we have never tried this empirically. It will be the first test in passing it on to depositors. Tom is exactly right. Youcine does that make feel comfortable . We have never tried this before. We what it means is that will watch at the what her hotel in zurich as we go on to davos, and i do not know what it will mean for the swiss franc translation. Francine im not so sure they will like the negative rates. We are joined by the city bank chief economist. That is coming up next. Editor gone after he says he is on the side of peace and diplomacy. Obama wants to degrade and destroy the Islamic State. Over the river and through the wood, americans will do you will deal with increased security checks this wednesday. Canadians, on rangers, ice hockey as well. We are live from the World Headquarters at the home of the new york rangers. It is wednesday, november 25, one of my daughters birthdays. I am tom keene. Francine lacqua is in london. Within the no news, there are many headlines. When you look at the markets, there are political tensions that we have been talking about for three weeks now. They seem to be fading and people are focusing on u. S. Data. right now,tom lets get to our first word news. Here is vonnie quinn. Vonnie western leaders are calling for calm after turkey shot down a russian were plain. Moscow will send its newest antiaircraft guns to the base. One of the pilots was rescued by syrian troops. The other was reported to be dead. Syrian rebels have his body. Turkey says russia violated its airspace, but russian eyes that but russia denies that. After yesterdays meeting with an with president obama, president hollande will talk with Angela Merkel today. A state of emergency after a suicide bomber killed 12 people on a bus carrying president ial guard. That is in tunisia. Islamic militants killed 60 people in tunisia this year. Searching for another terror suspect seen driving a car two days before the paris attacks. With one of the suspected organizers. Arrestedes have five people. And the pope is on the road again. A fiveday trip to three african nations. He will visit kenya, uganda, and the Central African republic merit the Central African republic. You can get breaking news 24 hours a day at the new bloomberg. Com. Checkets get to a data now, equities, bonds, currencies, commodities. Not that much going on this morning. Futures up six and we came back nicely. Look at the euro. 1. 0584. Not on a parity watch, but there it is, ever weaker. Francine lets look at euro but we are a lot of these expecting the budget report. You ks yields approaching the lowest this month before George Osborne speaks three hours from now. Tom there is a data look. Let me run over to the terminal. I am going to rip up the script. Gasoline, thisut is a german twoyear, and it shows how screwed up the mathematics of europe is. We have a record low german twoyear. I would say the math does not compute. If you go to zero, you cannot do lots of a negative number. That is a cardinal rule. So you get the bloomberg terminal charts, which is discontinuous. That is a statement of how things are now. There are other challenges of europe as well, not only in finance, and investment, and economics. John is leading our coverage on turkey and syria as well. What will you listen for . What will your team listen for from the immediate leaders from turkey and from russia . First of all, obviously, the reaction, the words of president putin, and president erdoganain president will be important, but there is an exchange between rhetoric and action. Both are tough men of International Politics and they are both ratcheting up the rhetoric in a way you might expect. Thinkportant thing to about is, will they follow through on that rhetoric . Will russia retaliate against a nato country . Right now it seems very unlikely that putin will take that step. You can also show the missile system, as the s400s coming from moscow. What is the significance of these longerrange, more sophisticated missiles . John i think what were seeing is obviously putin moving test pieces moving chess pieces around on the board. He is trying to show presence and trying to show the turks that he means business. But for now, the likelihood of them being used against turkey is relatively low. And i think really to a certain extent this is chess piecing by the russians now. Francine there are huge business ties. One, it is a nato country and russia isnt, so military cooperation was not possible anyway. But with energy, this could have ramifications. John it is also important to look at the 10 billion euros worth of trade between russia and turkey. Turkey is very reliant on the energy that it gets from russia, keep in mind the russian economy is not in great shape. We have to ask the question, is prudent really prepared to risk that business. ,lso, interesting to point out economics is probably a secondary factor for him. We saw that with ukraine last year. We saw his willingness to accept sanctions in return for what he saw as russia upon right to crimea. This makes this a little bit more unpredictable than it otherwise might be. Francine but in the grand scheme of things because of the unpredictability factor that we do not really know how to model, how much is this a huge deal . In the grand scheme of things . We have terror attacks, Vladimir Putin meeting with Francois Hollande. Willis just go away . John it will not. We are seeing the implosion of a major country in syria. There are so many actors on the ground with a lot at stake. This is a very slow, festering crisis that will be with us for a long time to come. If you are putting this in the spectrum of geopolitical events that we have had over the last year and a half, two years, we have seen a lot of major traumatic events happening. That the damning of mh was probably 17 was bigger than this. To a certain extent, it was predicted this would happen. Tom thank you so much. And dont forget, admiral stavridis from Fletcher School will join us this morning. We talk about riskoff, and we do that we do that within the framework of a single digit world. A doubledigit world. We are hearing we will talk about it later, but frame 12 months forward for us. The next six months, well see earnings turn a little more positive or currency become less pronounced. The question is, as we move to the second half of next year, and we have not a perfect storm but certainly a Storm Brewing in the form of, are they going to be third and fourth rate hikes by that time. And theing at president ial elections coming together and taking out some of the steam in the market. Tom a chart we will show this morning, a Standard Poors 500 chart. Its average is low in a single digit year. Tobias this is the kind of environment if we make 7 or 8 , that is pretty good. Tom goldman sachs, i would suggest looking at a diminished return from 7 or 8 . Vonnie exactly. 8 , as tom would say, this is a new environment. Will the fed move, or is it Dollar Strength . Tobias it is about earnings at the end of the day. If you do not have a basing effect, you do not have that showing up again. Then the question is, do people start to take out some of the multiple and risk premiums rising . Francine just on earnings, if the fed is ready to hike, it means it is a stronger economy. How does that not translate into slightly better earnings if they cut the fat . Tobias the question is, do you lose something on the multiple because of the risk premiums starting to climb . Will the fed go too far, will be a fear out there, and cut off the head of the growing economy. Even the stronger dollar hurting some of the other companies activity. Will those things hedge . Vonnie what makes you think that your murder these that set ommodities and tobias theres something really wrong with the world, not just supply. Demand is far more diminished. I am not sure energy will be as big a concern at that time. Amount oftremendous the shale projects becoming unprofitable and coming off line, inherently bringing the price back up. The currency side, the fed has been adamant that when we start to get to this 1. 05 euro level, they were concerned about how far it went. I would not be surprised if they came out and said similar stuff again. I love the word they use. They do not talk about lifting or hiking rates, they talk about normalizing rates. Minds in the Young Frankenstein world, it is abe normal. That is the way economists Willem Buiter talks. How does Tobias Levkovich talking . Tobias bringing it back to a normal level is not that outlandish. On a currency front, history says the first rate hike is later, he does not care about the rangers, he cares about the bruins. James stavridis at fletcher outside boston. Jim stavridis on turkey and russia. Stay with us. Bloomberg surveillance. Francine it may be the word that George Osborne is thinking of. It is london. There are optimists. Vonnie a brazilian billionaire is under arrest. Into the Largest Investment Bank in brazil. Scheme involving builders and a government owned oil company. Nsa ision says lufthaft ton easing its stance on pensions. Itscompany is being hurt by dependence on personal computers. They became separate companies this month. That is our latest Bloomberg Business flash. Tom and it happened. Vonnie we all know that you will probably standing by a computer, if you are not at the montreal game at Madison Square garden. I. Blackot the b friday preview. Amazon its rolling out its onehour prime delivery to more and more areas this year. We thought we would have a non a look at the underlying dynamics. This is the weather heads up tool. And look at the el nino effect. Tom it is very important that we subconsciously on bloomberg surveillance identify the weather pattern here. Rangerscanadiens tickets. Retailers, not just rei, are closing tomorrow. Closed on thanksgiving. Gamestop is closing, barnes noble is closing. It is not just the rei impact. Tom but it is still a big weekend. Vonnie it is silly huge weekend. It is still a huge weekend. The National Association of retailers is saying they will have an increase. Tom are they consumer discretionary, Tobias Levkovich . Terry lundgren is really going to be on later. How are they doing . Tobias it is mixed. There are certain guys dealing better, home improvement, for example. And retailers, for the simple perspective that they walk outside, and if it is cold, i put on my ratty old code and i say i need a new one. On top of that, throw the secular dynamics toward online and brickandmortar. You give candid a jackets . Tobias my kids ask for canada goose jackets. Tom do you know the cost . Francine i feel like i need to weigh in, first of all because black friday is catching on in the u. K. This is bigger than boxing day in the u. K. But if you look at retailers, and if you are looking at it from where i am sitting in london, you have a warning yesterday that tiffanys is saying they will miss estimates because of the higher dollar. Then you have macys, and it doesnt translate. If you look at retail stocks, are the ones exporting the ones that will lose the most . Tobias not necessarily be exporters. The bigger issue is, if you look at the s p retailing index, it is outperforming year today it is up offering yeartoday. Some traditional brickandmortar and mortars are doing poorly. We are not bullish on brickandmortars. We are Firm Believers in the consumers. Fromays say when i moved canada, i did not understand the American Consumer until i married one. I am always amazed by their resilience. I hope my wife is not watching. Vonnie the idea that luxury shopping will suffer with all of these headlines, the attacks, and tourism down tobias i am more viewing the level of expectations going into it that consumers are going to benefit from more jobs, better wages, then savings on the energy side. That was built into the stocks and expectations are high. If you have a high expectation and you miss it even mildly, then low expectations are easier to beat. Tom we have lots to talk about. We will get you set for next year with mr. Left of its in the next four Tobias Levkovich in the next hour. Walmart is watching on retail. Stay with us. Bloomberg surveillance. Francine that is the Russian Foreign minister, sergei lavrov, saying that he suspects turkey down the plane yesterday and that it was preplanned. It has been 24 hours and nothing has escalated. It does not feel like it will escalate. Now it is time for a morning mustlisten. Hans nichols had a rare opportunity to speak exclusively with the ecb Vice President. They talked about the fed and how that is impacting the ecb. The situation of our economies is different. Policies are different, the fundamentals are different and will become even more different after that decision when it comes. The markets understand that. Effectou said it could it could affect emerging markets. Or it is then an indirect effect and not so strong. Element that implies that we see risks to the recovery to the long side. The recovery is ongoing, but the risks are to the long side. That is one of the elements. Hans co what about what the fed might do . How will that influence your goals of achieving price stability . It is a direct effect. We do not expected to be very significant. Tools have our own policy to aim at our objective of ensuring price stability in the euro area, so our tools are determined by domestic objectives regarding price suchlity, so there is not a direct impact. , what a great interview with the Vice President of the ecb, and the point that he was making is that they are not worried about sovereigns, about countries, but they are worried about emergingmarket corporates. Tom and the back off of that is the spread widening. I would worry about the german twoyear,. 410. That is a new record low. Vonnie Steven Englander said that the impact of a 10 or 20 basis point move when yields are negative is so much greater than when they are positive. Tom i would strongly agree with that. And mr. England are, better than good. Coming up on bloomberg markets, Daniel Yergin will join on the resiliency of oil. Over at citibank, ed morse watching for low oil prices as well as Jeff Currie Edelman sex. Daniel yergin later this morning dow futures up 48. The german twoyear is front and center with the yen churning at a 1. 2 271. From london and from new york, a beautiful new york. Getting ready for thanksgiving. Bloomberg surveillance. Francine you are looking at live pictures of the Russian Foreign minister, sergei lavrov, talking to reporters. He again once again said that the russian warplanes that was down yesterday by turkey did not syrian airspace. He said this was something that was preplanned. Does this mean they want to escalate it . Probably not, because it has been 24 hours. Lets get the bloomberg first word news with vonnie quinn. Vonnie as you were saying, the defense minister saying it will send its antiaircraft missiles the jet was shot down yesterday by turkish f16s. One of the pilots was rescued by syrian troops. The other is reportedly dead. Russia denies violating turkish airspace. Helpa merkel is vowing to france in the fight against Islamic State. A day after meeting with president obama, Francois Hollande to speak chancellor merkel, trying to form an antiterror coalition. With tax u. S. Ty travelers during the thanksgiving holiday. Long lines and more armed officers will be at the scene at airports this will be on the scene at airports today. Under the protesters hundreds of protesters march last night in chicago over the killing of a black teenager by a white police officer. Officer shooting the teenager 16 times. The officer is charged with murder. Drawolden state warriors another line in the nba record book. They beat the lakers last night for their 16th straight win to start the season. Othern get these and breaking stories 24 hours a day at the new bloomberg. Com. Tom thank you. This is an important interview, arguably the most important of the week. Speaking,rgei lavrov making kind words about turkey, saying that russia does not intend to fight against turkey. We will see where that goes through the second day after the downing of a russian jet by turkey. Wilsonst is at the center. He is truly authoritative on how america should respond to minor and major incursions. Karen david miller, you started by talking Aaron David Miller, you started out talking about the american civil war. Synthesize . E aron we really are stuck. We cannot transform and we cannot leave. You really do have to find a way to transact. You have to drill down on what your core interests are, and in this case it is projecting security to the continental United States, shoring up your allies. And in this case, understanding that the war against Islamic State and its al qaeda derivatives is going to be a long one. I think you see why. You saw the french president in washington, and all politics are local. The worstiding over terrorist attack in france since the end of the second world war. He is not terribly popular of a socialist president , and yet he has cracked down with Emergency Powers and is trying to build an effective coalition. It is hard, though, because you have a very riskaverse american president , a guide who fashions who, the executor in chief, getting us out of the iraq and afghanistan wars and not into new ones, and now you have Francois Hollande trying to drum up support with the french and the brits, and he is now going to see his not to be good friend mr. Putin. So parents and mali, so paris and mali, trying to tom if we are somewhere in the vicinity of Henry Kissingers new world order, how should our state department respond . Tell us about the bluecollar daytoday diplomacy. What do secretary kerry and his staff need to do . remember, barack obama is the most controlling foreignpolicy president since richard nixon. In iraq andthat way afghanistan, and it was that way with the iran nuclear agreement, even though john kerry did most of the diplomacy. Indefatigable. He has been to think that she has been pushing for a tougher line could militarily, but he he has been pushing for a but he line militarily, understands that there are two or three civil wars within one confrontation. He has launched his vienna process, which seems to get a nature might ceasefire in syria, a new constitution, then a transition that would ease Bashar Alassad out of power. The problem, of course, is we had better know what is going to replace him because the last thing we want or need is the black flag of global jihad in this case, isis flying over its first major capital in damascus. Buckle your seat belt. This is a movie that will play long after this president leaves the white house. Whoever gets elected, he or she is going to face the same set of very difficult challenges. Francine and a challenge which may be easier if russia gets involved in a western friendly way. We are hearing from sergei lavrov, russia in general is ratcheting up criticism of turkey. How do the western allies make sure that russia is an ally in this . Aaron the russians have different interests then we do. They see Bashar Alassad as a bulwark against the Islamic State. They want to use syria to get out from under sanctions in ukraine and essentially change the channel. Vladimir putin wants a hand in this game, and he has grabbed center stage. The thing with the turks, however, is a serious problem because it really points up how fundamental the fun how fundamental the differences are. Turkey is more interested in hammering the kurds in Northern Syria than fighting isis. Lets be clear about the turks. We rarely criticize mr. Erdogan. He has made turkey and open conduit for the flow forget refugees, he has done a good job in spending billions in acquiring the 2 million refugees he now hosts, but he has also allowed his border to be used as the free flow of recruits to the Islamic State and to allow Syrian Opposition along among islamists who are not our friends to come and go freely. The ower metals in tom thank you so much. We greatly appreciate it. This dialogue will continue forward, this conversation with james stavridis, of Fletcher School of the tufts university. Admiral stavridis, the former supreme allied commander at nato. With Tobias Levkovich, it is bloomberg surveillance. Francine this is bloomberg surveillance. That is the city of london. Tom keene is not going to do his shopping on black friday. He is going to be in london next under 150 lips under 1. 50 versus the dollar. Tom you and i then go on to paris for those important climate talks. You really wonder about the news flow as it moves forward from brussels and paris, where we are going to be a week from friday. We wonder how paris is going to deal as many thousands of people to sending. Francine it will be interesting to see how many people support the Climate Change talks, which businessmen have been on board the talks but how much they will support in paris. Vonnie russias government run Energy Company is shutting off the flow of gas to ukraine where temperatures this morning are below freezing. Ukraine has try to find other gas sources since russia annexed crimea last year. The worst commodity selloff in a generation may not end for a. Hile, according to blackrock demands are weakening, especially in commodities for economies such as china. Cheap gas is putting more americans on the road over thanksgiving. Aaa says nearly 47 million americans will travel 50 miles from home this weekend, the most since 2007. The average price of gasoline, 2. 14, . 70 less than a year ago. 15 years on inflationadjusted basis, this chart. Vonnie isnt it amazing that gasoline is right down there again . Tom some people would say we even see a gallon of gas our single best chart identifies a clear and present mystery, and that is large cap versus small cap, normalized back into the spring, the early summer. You see how they are linked, they are related, and then they are not. Tobias levkovich is with us from citigroup. Is it time to load up on the blue chips or the small caps . The s p is pretty sharp. It is one to two standard deviations above average. Like you going with the probability of success. The second thing is, if you do believe there is going to be some global recovery, if you believe qe in europe and japan will generate activity, then you will have exposure to large caps. People have looked at the dollar as a reason to buy the small caps. In other words tom because they are more domestic. Tobias right. And that may be true, but then you shut yourself off from Global Economic expansions. Where would you look, tobias ind growth . Get nervous when you try to define it that way. Are,k at where valuations where the expectations are. We are more focused on technology, on some of the financials, banks, insurance in particular, even energy. We are moving away from growth oriented areas. It is not because fundamentally they are necessarily good businesses, but rather the expectations for them are high. We more we get more questions from client saying, is it now time to buy health care, then we say should we back off energy. Francine every day commodities are little bit lower, so people are concerned about longterm Growth Investment opportunity. You are actually saying that energy may be a good play. Is there a moment where go that wayn because they have been sold off so much . Tobias at a certain price it does not make sense to bring it out of the ground, and then in the energy area, once you bring it into the 30s, that becomes the environment or it so you take out the supply. That is the critical aspect. One reason commodities have been doing for early have been doing poorly is that china growth would continue, even though the chinese authorities have said for three or four years that they were shifting the economys direction toward consumers and away from export investment. Energy is different. Consolidation is already starting, and you are going to, if the price falls enough, you will see shale prices come off as well. Francine the ecb and the boj are seen as a way to apply u. S. What the ecb is planning to do could translate into tobias it is more of a mastic economy driven phenomenon. If you look at europe and asia, of a export driven economy. Auto coverings are building in europe for european markets, they are not exporting those vehicles from u. S. Shores. Tom where are you underweight right now . Tobias health care is one of the big areas. Tom with the formal care act . Look at which valuations have been predictors of stock performance. Tom which ones are right now . Still looking at stocks that are poised to underperform. Technology, we are looking at stocks that are poised to outperform. Services and integrateds, particularly. Vonnie would you be fully invested in equities . Tobias that is an interesting statement. We would be under invested in bonds and more invested in equities. Tom we always like to have tobias with us. We will look at the questions of equities coming up. The coolest escalators in new york the acclaimed wooden escalators at macys. Stay with us. Tom you know the banks of europe are challenged. He runs Bank Supervision for mario draghi. Hans nichols speaking at length constancio. But it getsarity, your attention. Euro. On that bears close watching, with a real difference of opinion with the euro next year the turkish lira part of the story as well. Over geopolitics this morning. Speaking of german see speaking of currency, it did pretty well. Again, weak revenue missing at 1. 6 billion. It looks like it will be continued difficult in agriculture. Next year in the first quarter, down about 11 . It is a very difficult Equipment Sales environment. Francine we forget, but this is probably one of the best known u. S. Brands abroad. If you think tractors, there is no brand that competes. They own the franchise with small tractors. Tom they do, but you can take your small tractor, and in the backyards of western ontario, you can use the john deere zamboni to do your ice rink in the backyard. It was one considered at the keene house. Trust me. Tobias levkovich is with us from citigroup. I want to talk about the cliche of the last three years, and i think it still holds. It is use of cash in a single digit world. From where i sit, it gets evermore powerful. Tobias there has been a lot of confusion about the use of cash. There is this constant narrative that companies are not investing , they are buying back stock. Tom but they are. Capex we have had record for four years per we see some falling off because of the energy sector, but even then, capex is only off slightly. Going tohe capex American Investment and american jobs, or the question i get constantly in handwritten letters from viewers and listeners, is the capex going to asia . Tobias less and less. You look at the nonresidential business fixed investment as a percent of gdp, it was 10. 5 in 2009. It has held at 13 even as energy has fallen off. Other parts are seeing investment if it is in building, auto production, supporting the housing sector. Are Companies Getting better at managing the currency impact . I think a lot of companies do not try to hedge it. Back in the day when there were big currency movements in the 1980s and 1990s, so Many Companies got caught on the wrong side of those hedges, the ceos said we are not currency speculators and we should not do that. What companys do well is if you have longterm contracts to supply stuff if you have a series of airplanes, you can hedge that out over a period of delivery. That kind of stuff still occurs, but the speculative context is where i think companies try to avoid that. Theirmore about how liabilities are matched overseas. If you have the production overseas and the sales overseas and as a result you can match those up, and then it is just a translation effect. Francine one of the other themes that we have been talking on surveillance a lot is m a, and because of all the cheap money out there, there is a lot of debt issuance. With that changing 2016 if we get a smaller Interest Rate hike from the fed . Or will it be more or less the same . Tobias it is already changing. We have seen a number of deals in the bond market not get through and they have had to pull them. , we have seen a couple of deals in consumer and industrial and health care that have difficulty getting those bonds altidore to finance the deal those bonds out the door to finance the deal. Tom the ice hockey season was ramped up after january 1. Tonight it ramps up in new york. Dquist and the rangers this is the best offensive team against the best defensive team. Tobias levkovich will have an entourage of security as a Montreal Canadiens fan. What was it like to sit with a Montreal Canadiens jersey among all those rangers fans . Tobias it was good. Classicring kind of a jersey. People actually respect it. I do not get a lot of jeering. Goes withvonnie quinn you to tonights game tobias what will she be wearing, an Irish Soccer Team . Tom tobias, thank you so much. We greatly appreciate that. Fran, i want to talk about the the autumnement, statement in new york being should i buy the row, the winter boots . It is important to london, isnt it . A huge deal is because we will find out the measures of austerity and find out how much spending will be on defense links to this unsettling world. What George Osborne, the chancellor, when he delivers the autumn statement, he wants to talk about economy. He will put the British Housing crisis at the heart of his spending review. This is extremely important because there has been a backlash, a lot of people say we cannot afford tom should i serve champagne or percent go . Francine we also need to search constancio. Tom thank you so much. Good morning. Stephanie turkey and russia other. Brace yourself fitting to grannies for thanksgiving. Countdown to black friday, what is at stake for retailers and how shoppers can profit. We talk to the ceo of macys. The king of retail. Welcome to bloomberg excited cannot be more not because the Golden State Warriors when the 16th game in a row. Recordbreaking, but im super pumped about the show we are about to have. Is josh, when you came to bloomberg and mike said he resulted businesses you will run come and do think tv anchor was going to be one of the