Transcripts For BLOOMBERG Bloomberg Surveillance 20151209

This is an emerging discussion, and it like every other combination moves right into the search for nominal gdp. This is directly linked to the world of janet, mario draghi, mark carney, and everyone else in the economics game. When in doubt, merge. Francine investors seem to like this because both stocks are up. Lets get the bloomberg first word with caroline hyde. Caroline thank you. Financial authorities have identified the third attacker from harris. They say is a man who left from syria in 2013. All attackers were killed. Two detonated suicide vest and a third was shot. The u. S. , congress is trying to increase security in the wake of the recent terror attacks. The house overwhelmingly voted to bar people from visiting from iraq and syria in a program that allows visa free entry. Iraqi forces have made a breakthrough in their fight to recapture a key capital of the Islamic State. They say they have regained control of the section of the city of ramadi. Iraqi forces are getting air support and training from the u. S. Beijing raising hopes that china will come up with a fix for pollution. The alarm raised to the highest level. The schools,losed shops, and factories imposed restrictions on driving. They say they will eliminate capacity to try and reduce pollution. Inland, more Severe Weather is in store for cities hit hard last week. The forecast calls for rain and wind with gusts up to 70 miles per hour. Last week, more than 13 inches of rain fell in a 24 hour period. These ande on other breaking stories, go to bloomberg. Com. Tom . Tom . Thank you so much. Much talk today on the dow and dupont mergers. All of that is tied into the data. Lets look at equities bonds and currencies. Onfrancine mentioned, a bid commodities. The euro is dashing the hopes of the parity. Jawdropping, and now a nice rebound after the carnage. Onto the second board. From 15 up to 17, brent crude back about 40, copper i put in there because you go from 240 206. Even copper is getting a bid, and some of the currencies dont react to the commodity rebound. As we is 17. 02, weaker, saw the South African rand breakout to new weakness as well. Francine we also looked at the brazilian. Theres a lot going on. This is my data set. I wanted to show you european stocks, i wanted to show you earlier gaining. Basically commodity producers extending their lowest level in six years. If you look at the various commodities, crude you can see gaining a touch. Tom, i think you bring us to the terminal. Tom we will go to the terminal now. This has to do with dow. Nightmare. We will have a lot of coverage for you today not only on this merger but the why across all of Corporate America and as you bring it over into economics. This is americas animal spirit, our nominal gdp just after world war ii, the volatility of 1947. Heres the deflation of the eisenhower era, and here is the boom in the money illusion of nominal gdp. This is the growth to borrow with. We all grew up and down we go. What dow and dupont and every other company is dealing with is very little growth out there. Did you like how i got Stephen Colbert in their . We do it all here. Francine and you had animal spirit, Stephen Colbert. Colbert is an animal spirit of himself. Francine [laughter] lets bring in our managing editor for more. Aaron, when you look at this, talk us through what we are expecting. Theyre merging and splitting to create value, which is why those stock prices are often pretried. Thats right. We are getting a merger of two giant Companies Worth 60 billion. The Chemical Companies and the crop science. What you create is the worlds secondbiggest Chemical Company and the worlds biggest crop science and feed company, bigger than monsanto. You create a behemoth that would then split up to focus on their strengths, which are what we talked about, and split off the less centralized point, ando toms going back to his nominal gdp chart, this is often because we are awash with cash. Thats right. We have seen multiple megadeals, pharma deals, and now this. What we are seeing is companies can get cheap financing. They also want to be able to cut costs. You can get synergies, cut costs, help on investments. Tom aaron, here is what we are living in in december of 2015. Showsinancial times 85,000 jobs. Nice job coming in with the camera. Twoan stanley, these chemical giants, they have 116,000 bodies. How many will go . Well, that remains to be seen, but there is no doubt there will be a lot of job cuts. It doesnt matter what industry we are looking at. Its all about costcutting and that will hit jobs. It is unavoidable. Tom can i be a cynical as possible . Is it about these guys who cant make their mega bonuses, so they are merging to discover growth . So they can get paid . Its fair to say that both of them know they cannot stick to the status quo, so they need to find a solution. They have been under Major Pressure from activists, and they know they have to act. By doing that, this merger can are investors, look, we going to do a make a deal and create a strong company, and lets be honest, whichever executive leaves, they are going to get a nice paycheck. But at the end of the day it is about reacting to investor pressure, shareholder pressure, showing them they have a plan to get out of this phase. Tom francine, i think its time for surveillance gossip was she shown the door because she couldnt do this deal . You know all the gossip. I think she went out the victor and left. So why did she leave in the end . When ed took over there were a lot of big questions. He hasnt waited long. A lot of people thought he would review the business. A couple months later he is getting close to announcing a megadeal. I think it is there was a lot of pressure. Francine and where does it leave the competitors . That leaves the competitors very nervous, in particular monsanto, which tried to do a big dale. Monsanto approach syngenta multiple times. Management managed to push them away, which cost the ceo his job. But that pressure has not gone away, and with is still being reported, it is only going to increase. As the spring monsanto back to the play, or the white knight out there, the chinese, were looking at the agenda. Guarantee you therell be more to drop. Francine out of the units that will be created, which one will have the most value . Is there a special segment within this industry that demands higher premiums . I think the most value will definitely be in terms of where the scale and cost cuts will be. The crop science, the agricultural products, the pesticides. There is no doubt that there is so much demand, and it is such a cyclical business and it is so global that if you can combine those, that will be the strongest. I think that is why investors are applauding. Tom we have to brush off our textbooks on to wobbly. Howe do have dow dupont, will the germans respond to this merger . Well that is always the milliondollar question. Usually germans take a lot of time to think things through before they pull the trigger, but you dont only have bsf, you have another big player. Everyone is going to crunch the numbers, look at strategies and ask themselves, doing need to do something now . If anything, the competitors will also be looking at if they will be splitting into 2, 3 parts, if they will kick off the smaller parts. Tom thank you so much. We got lucky. In our next hour, William Janeway will join us. This was not planned around dow dupont, but it is the perfect person to speak to today. No nominal gdp. The meeting continues. Francine welcome back. This is bloombergs surveillance. Im in london, tom is in new york. Beautiful pictures of hong kong. Look at that. We have that inflation data out of china, not great but better than expected. Lets get to the Bloomberg Business flash. Caroline it would be the largest deal ever in the chemical industry. Dow chemical is in the final stages of talks to merge with dupont. A deal may be announced this week. The company would break into two or three businesses because of regulatory and other issues. They have both faced pressure from activists. The price of oil has halted its decline. Crude has lost almost 9 in the last three days, at the lowest price of more than six years. Kindergarten is cutting its dividends so it can save cash. And china has cut the yuans reference right to the weakest since 2011. Speculation is that they are trying to release pent up depreciation pressure. Last month, chinas exports shrank, 7 from a year ago. That is the Bloomberg Business flash. Francine thank you. Sticking with china and Chinese Consumer inflation, cpi rising 1. 5 for the month of november. Lets bring in tom orlik, our chief asia economist. Right to speak to you. That news about the yuan what is more significant . So i think on inflation you have to break down monthly data from the bigger trend, the monthly data is better than expected. The bigger trend, china still has a problem with low inflation, deflation in the factory sector. I think the bigger focus of the markets is going to be what happened on the yuan. There was some cynicism before the imf decision , of you on the market that with reserve currency status in the back, china would immediately swing to yuan depreciation to support export competitiveness. I think it is too early to make a definitive judgment on that, but based on the last few days, we have seen progressive weakness of the you want, the central of the youan. It is a cynical view but it has a certain amount of validity. Francine so basically they are guiding it lower, before the fed acts. We still have six days to go. Are we going to get more in the next six days . I think there are two views on this, francine. The first vehicle that which i think you alluded to, is the central bank anticipates significant yuan depreciation pressure if the fed, as expected, lifts off on Interest Rates. They are trying to get a little ahead of the curve on that by allowing the yuan to fall ahead of the meeting, so it there is there is a much pressure after it. The second view is that this is the beginning of a much more significant shift, that because exports are shrinking and growth this week, because high debt is limiting the effectiveness of conventional Monetary Policy, limiting the effectiveness of Interest Rate cuts, this is the beginning of a sustained depreciation of the yuan as they attempt to rip up exports. Tom tom, id like to make a joke. Unfortunately, it is not funny. I have talked to many bloomberg employees who worked in china with kids and i go, how do you do it . Would you please tell our audience worldwide how you and your family are coping with the pollution of beijing . Have now, i think i you bring me bad luck, because ive ever the one time i was on surveillance in new york when it was also extremely bad. I think the answer is that when you look at television, it looks unbearable, but when you are in it, you live through it. People have air filters, people have masks, and life goes on. Its not going to be great for aging to be in it for beijing to be an international city, it is not great for pr, but life and the People Living here go on. Tom tom orlik, be safe. Im not amused to think it is really something to see. I have family members over there as well. You wonder how long the mask will work. Thank you so much. Francine, what an interesting story. The photos in the paper this morning or something. Are something. Francine that is. In this is why it is so important that we do get a climate deal in paris. The chinese that were backpedaling on this just six years ago are now spearheading a movement because they are concerned about social revolt. Lets get back to currencies. With us is Morgan Stanleys global head of affect strategies. Great to have you on the program. We are talking about the yuan and china. If you look at what the pboc is trying to do, is this a stress test . Well, one point is very clear, that the dollar is strong, and with the u. S. Dollar strong we have to focus on the adjustment of the dollarhuman being to the upside. The big question is what is happening to the trade weighted index. Of the remedy, excuse me. Renminbi, excuse me. We have a period before the inclusion where the renminbi was a little stronger. They are going to keep the Exchange Rate and trade rate stable, but because we believe that the u. S. Dollar generally has Something Like 12 , 13 , you write as well allow the dollarrenminbi going to a higher level. We want to see this policy wherech on the agenda on Monetary Policy in china comes in, so if you are keeping the Exchange Rate too strong, if you protect an Exchange Rate level, than it either means you run to tighten monetary conditions or alternatively you are reducing your currency reserves, and that is we have to focus on. Francine they do so much for now. Hans redeker. Our guest host for the hour. Ridge out, the ceo of tim energy will join us. That is at six clock a. M. , this is bloomberg surveillance. Tom there is so much going on this december 9. A busy morning. Yahoo last night really pushed back against Marissa Mayer. More on that through the hour. Bombshell, all of that wrapped around economics. What a privilege for Michael Mckee and i yesterday to speak with Olivier Bouchard out of mit. I caught up with him, formerly with the imf, where he changed world economics, no question. We spoke to professor borchard about his thoughts of a potential fed rate rise. When you start increasing Interest Rates, there are long dynamics. The Interest Rate doesnt affect activity are spending overnight, it takes a year, year and a half for the effect to be large. You have to start before its too late. You have to start early, which is difficult for all these wesons, even when increase the rate we are still very far from the rate we would end up. Lanchardfessor blondb on why fed tightening may be shortlived. Hans redeker has to be in the trenches of this. This if you were to write morning on what happens after december 16, what would it be . Think it is a very specific situation. When you look at u. S. Profitability cycle, it is very unusual that the fed is hiking Interest Rates. Quarter profit abilities are declining. I think that the fed is at the right time to hike but it has come at a significant price, at the cost of the potential slowdown in the economy later. Tom a potential slowdown, and shout out to your colleague who absolutely nailed the dynamic on this fed call. What will this mean for mario draghi . Mark carney and others are already saying it is one and done. I think that we are going to see a prolonged period of interestrate divergence. If that means that the fed is going to hike, remember that after the first rate hike, the market is only price for half rate hikes. What is more important is the messages we are getting elsewhere. Tom hans, we are going to come back. Hans redeker. Coming up, Danielle Juergen out of Bloomberg Radio. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Francine welcome back. This is bloomberg surveillance. A rearview from the millennium bridge. Its sunny, folks. Lets get to the bloomberg first word news. Caroline thank you. Brazil, a Supreme Court justice has halted the creation of the congressional impeachment committee. The panel was to decide whether to open impeachment proceedings against the president. They must beaid chosen by Party Leaders and elected in an open vote. In paris, the third gunman has then identified. Authorities say he was a 23yearold from strasburg who left in 2013 to join the Islamic State. Two of the three attackers kill themselves with suicide vest, the third was shot. 90 people were killed at the music hall. The u. S. , they are tightening visa requirements following recent terror attacks. They are barring people traveling to iraq and syria in the last five years. Plus, all 38 countries in the program will have to issue passports containing biometric information. Russia says it has deployed a new Cruise Missile to attack the Islamic State in syria. The Defense Ministry released a video showing missiles being fired from a submarine in the mediterranean. The video could not be independently verified. Vice President Joe Biden says that if donald trump wins the nomination for president , he would be easily defeated by Hillary Clinton in the general election. In an interview, he said that clinton wins in a wa but his comments are notlk, an endorsement. You can get more on these and other breaking stories at the new bloomberg. Com. Francine . Francine thank you. There is no let up in the flood of oil. So is this the new normal . Still with us is hence redeker, and we will check in with the barclays head of commodities research. Thank you both. Thanks for sticking around. You are look at oil, one of the most bullish forecast is out there. 68 by the Fourth Quarter of next year. Why . If you look at the consensus of analysts forecast, you look where the forward curve is. I think most analysts do believe that this is not a stable equilibrium, and prices have to head of eventually. The question is how quickly, and do we need to go lower before then. Our he was that the market is struggling to interpret the statistics and what is a very Different Oil world than it was a relatively short time ago. We think supply is adjusting more quickly. You think demand a stronger. We also think that a very light hoeffel a very high level of stocks francine this is just fundamentals needing to be sorted out . I think thats right. Look back to earlier this year. The markets were very excited by the big decline in drilling, and prices went up to 60 per barrel. But at that stage, supply wasnt changing very quickly. It is now. If you look at the department of energys forecast, they are expecting u. S. Crude Oil Production in the first month of next year down about half a Million Barrels per day year on year. In january, it was growing by over a million. Thats a very big change on the supply side. Tom kevin, help me with the moment. Mating, they are clearing the market in the financial space. Are you beginning to see a clearing of the market in commodities . When i look at Anglo American, and i look at rio tinto, is this the start of a major of the major Balance Sheet . Yes, it is clear there is a lot of pain at the moment. Producers of just about every commodity are struggling. But the evidence is that the supplyside is starting to adjust. The base metals i think are a little bit behind the energy market, with such a big fall in crude oil this time last year, but you are starting to see that pain transfer into Companies Making big changes, big supply production cuts coming through as well. K things are starting to adjust. Francine is that right or is there something more sinister . Havee first question is we seen recently from the chief economist of British Petroleum that the oil market was in Global Warming, and he is making a very interesting point, saying if you want to keep the temperature increase the needs to degrees, you will find that many things are not burnable. That implies that one sort of Global Reserves are at low prices. You come out of an opec meeting on friday where you do not see any compliance, and the agreement is null. If there is not agreement, its a result of recognition that you cannot use that in the future, therefore you know the last production will be the lowest price, therefore there is a decline on oil. That is moreint about the situation in the United States oil shale energy they areee that producing at a 20 cheaper rate than a year ago. Next year it will not be at 43 but below 40. Isnt that a Structural Development which will stop the oil market . Well, yes, absolutely. Shale has changed the picture enormously. It is much more down to blend it can sell in the gaps in the supply chain, and the meeting that we had last week i think that clear recognition, leverage of the market has gone, with the u. S. Shale oil there you could argue that opec doesnt need to be there anymore. On the Global Warming issue francine leverage because they are looking after market share . The focus seems to be on something else. Or have a lost control completely . Opec are no longer in control of the supplyside of the market i think. That is the problem. Ever since they were set up, they were the ones who could react quickly to price and change output in order to have some impact on the market. I sink once you i think once you got another form of supply that can do that more quickly than opec can, than opec has lost his leverage. I think people were very disappointed at the opec meeting on friday, but lets not forget that most opec producers are producing as much oil as they possibly can, so the likelihood of a big increase in production over the next few weeks even saudi arabia is reducing the rate at which it is increasing. Tom kevin, let me hear from a commodity horse. What is a strong dollar due to your world . Well, its not a positive, thats for sure. I think it is helping to accelerate the downside. Obviously as the dollar strengthens, the local currency producing costs tended to decline. I think that is why we have seen prices falling further than people expected, because you now need a lower dollar price than before when it was weaker in order to persuade nonu. S. Producers to come back. Certainly increasing the pay, though i dont think it is necessarily the case that commodities cant recover. Tom hans, what i know on a semi log chart, the South African rand, the brazilian real, mexican pesos all of that is quadratic. Tell me about the accelerated forces of these very weak commodity currencies. How do we react to that . Which we see is that we are still in a situation of repatriation. People taking money back out of emerging markets. That is what we think should happen within a secular u. S. Dollar bull market, where we think the u. S. Dollar bill bull market has 12, 50 to go. 12 , 15 to go. What all of these have in common is that they are benefiting from cheap u. S. Dollar funding costs. There was a substantial debt creation in local currencies, inspired by hard currency, and then you look into a study which has been recently conducted, but was confirmed that it shows you can explain Global Funding costs by 60 i development in the United States. Globalfollow that idea, funding costs in the United States are going up, so what is the impact on the high debt environment of emerging markets . Its obviously not good. The money is repatriated back into the u. S. Dollar. T,ancine quickly, this is no when we look at commodity weakness and oil weakness, we are not looking at the start of the global recession, or recessionary growth . When i think is that we have to put this into the context of capacity, not only on the commodity sector in many asian sectors, since they do require the creation of savings and futures to get rid of this overcapacity. They cannot stay low because they do not find a local investment opportunity. This money comes back from the peripheral of the u. S. Dollar bloc into the court of the u. S dollar bloc. Francine so you are not overly concerned. You are not more concerned now than you were three months ago . Absolutely. It is not part of our framework. What is part of our free work on the currency side is that we are looking at the overcapacity, the debt level in emerging markets, total debt, and we see there that they need to reduce Balance Sheets, and that means savings, and that means capital exports. Tom we are thrilled to bring you hans redeker and kevin noris, olivier blonde shard yesterday. Coming up in our next hour, of perfect time to speak to William Janeway, he is with Warburg Pincus. William janeway on the combinations of our era. Stay with us. Francine welcome back. Im Francine Lacqua in london with tom keene in new york. A huge day for commodities, a huge day for megadeals. We are watching dow chemical and dupont, both up and premarket with talk of a merger. We have been trying to figure out whether this is an industry but also, which it is, this means if you are in a banker you are looking at things differently. This would merge to create better shareholder value. Tom we are going to say this for William Janeway, but francine, i like to go back and look at what they say, not what they do. Ellen kullman was shown the door in october. This is from the 2013 annual report. This is all about happy, happy pr skewed rewrite. Resources, talent, and expertise are deployed to capitalize on the Significant Growth opportunities created by global Population Trends and economic development. To the music it didnt work out. What we are seeing here from good people like Ellen Kullman are all the hopes by this low nominal gdp. Whatever going to have, a beer Company Merge with the Chemical Company . That makes sense. Francine maybe we will. You are dead on. It is absolutely about nominal gdp, but when you talk to analysts and experts, this deal makes sense because first of all the share price is up 8 for both of them, and we will see whether shareholders are happy that at least something had to happen so they could go on. Lets get more. Jason meitner, our Bloomberg Intelligence analyst. Great to have you on the program. This is something that seems to be liked by analysts. Where do they see the value . Well, individually to these companies, as you already discussed, faces significant challenges. Dow remains dollar to buy its commodities exposure, even after the 19 billiondollar acquisition in 2009. Put it together and you have some right overlaps. You have synergy and agriculture. The chemicals businesses of rival the logic that drove monsanto to pursue syngenta earlier this year. The only surprising thing about this deal is how logical it is, other than the size, which is not terribly surprising. You justlook like pulled an all nighter at the university of manchester a few years ago. You look like a mass. A mess. Jason, you and i are old enough to remember all the special chemical roll ups. Chemistry has always been a great place for mergers combination. Can you say that the day of the conglomerate is over . On the surface, you would think it would just be a but theonglomerate, pendulum has swung toward breakups this year. Each of these companies themselves has spun off major commodities this year, and what is likely to arise from this is three more lean and logical offspring. Tom we will play you this video later. Man was adamant that governments are letting this 1930slike amalgamation go on. What will be the pushback from government authorities in the United States to a making of these two Iconic Companies . Its funny. At the surface, it sounds like to huge Chemical Companies, so there must be overlap. You really dont have a major overlap in more than one of the segments for dupont intoand dow. Tom does dupont still make gunpowder . 1 [laughter] no, but they make bulletproof vest. Francine you mentioned monsanto and syngenta. Where does it leave competitors . M a, doook at this and the you want to try and scoffer this deal . So we saw the dark horse appearing for syngenta. The deal activity was superheated. This just turns the burner up more. It does leaves you thinking, if you put these two together, isont is 2 3 chemicals, dow chemicals, you are going to come out of here with a strong competitor that was formerly fragmented. These two already cross license technology. Dupont is primarily selling dow, so it leaves you with a new challenge. Tom get some sleep. Jason minor, working all night on the meaning of these two giant companies. Employees,ustrial and many will be shown the door. A great lineup of guests. Galloway, we will see if we get him. We are certainly going to have alan krueger on Bloomberg Radio. Rip up the script. Alan krueger on americas lack of nominal gdp. Alan krueger on the mergers and combinations, looking much like the 1930s. Bloomberg surveillance. Tom and free like you see in new york city is the office of an m a lawyer. They are working on deals, deals to come, dowdupont and other names. Corporate officers say, what are we going to do . That links and with commodities and foreign exchange. Lets get our business flash in london, caroline hyde. Caroline thank you. Upoo has decided to give the spinoff of its stake in alibaba, according to a person with knowledge of the matter. Instead yahoo is exploring a spinoff of its main Internet Businesses. Investors were concerned about the taxable occasions of an alibaba spinoff. Apple is suspending plans to develop a live internetbased tv service. Being all focus on platform for Media Companies to sell directly to consumers through the app store. They had planned to sell a package of 14 channels for 40 a month, that media coveys wanted more money for their programming. Two of the bestknown names in the u. S. Industry may be combining. Dow chemical is in late stage talks to merge with dupont, which would be the largest deal ever in the chemicals industry. If it does happen, it would split into two or three businesses because of regulatory and other issues. That is the Bloomberg Business flash. Francine thank you so much. Tom is in a great mood. He was talking about m a as bankers involved in m a now have to look at combinations that otherwise a be unthinkable. Lets get in effects perspective and go back to our guests. Hans, is there a crossover between effects and m a . Yes, i think what we have seen when we started so far has been mainly driven by repatriation, but i think that and u. S. Dollar will him being in investment tool, and we saw that when fdr activity was picking up, when equity flows into the United States are picking up. We have seen the fdi flow yet. It was only the last quarter when a significant rebound on a net basis in the United States is happening. Is going to take the repatriation dollar into an investment dollar. Francine more to come . This would be on the back of the fed hike next week. This would be on gradual Interest Rate rises in 2016. That is absolutely right, but you should not forget that we had to slow the rate hikes in the late 1990s, so they started dohike rates, and did not especially anything bad to the fdi flow. What we noticed is that there a and whenn way data people are asked what is your destination, where would you like to invest from a global perspective, the United States is getting more and more positive. I think this fdi influence is going to be another factor, which is going to be positive for the u. S. Dollar going into the next year. Tom where is your euro call . Lets get a framework here. Plenty we get to parity and threough it . The euro is not the main mover. We think that the euro is against the Australian Dollar and could do better. Eurodollar is addressed low to parity. Is a drift lower to parity. Its about canadian dollars. Tom hans medicare, thank you so much. Nspecial thanks to kevin orrish. We will continue the discussion. Stay with us on economics and finance investment. William janeway, next on dupont and dow. There is too little growth, so Companies Combine dupont politicians with a plan to merge and split apart. The days of the conglomerate are over. Janet yellen goes in search of american animal spirit. Will december 16 jumpstart a leaden economy . Good morning, everyone. This is bloomberg surveillance, live from new york. Im tom keene in new york. In london, Francine Lacqua. It borders on historic when you look at corporate meeting, to see these two iconic american names requesting a merger. Francine it does, and we you were and you were dead on. This is where does it leave their rivals . Tom we will have much more on this through the hour. William janeway is scheduled to brillianto we look this morning having William Janeway on. We also have bloomberg first word with caroline hyde. Theline it would be largest deal ever in the chemical industry. Dow chemical is in the final strange the final stage of talks to merge with dupont. If it happens, the cubby would break into those coat or three businesses the company would break into two or three businesses. Iraqi forces are reporting a breakthrough in the attempt to recapture a city from Islamic State. Iraqi forces are getting air support and training from the u. S. Russia says it deployed a new missile in the state in syria. Video was released reportedly showing and being fired from a submarine underwater in the mediterranean. The video could not be independently verified. At least refugees at least 12 refugees drowned today when their boat sank in the aegean. Refugees have entered greece this year, most hoping to reach northern europe. Authorities have identified the third attacker at the bataclan theater in paris. Attackersbataclan were killed. , a detonated suicide vests third was shot by police. Two days after the sit of Union Address and two weeks before the iowa caucus. You can get more on these and other breaking stories 24 hours a day at the new bloomberg. Com. I am caroline hyde. Data check. Et to a not the fireworks of yesterday were the day not the fireworks of yesterday or the day before. It is about it. Lets leave it there and move on. We have so much to talk about. Fran, do you have a data check echo francine european stocks are sliding. Earlier on they were gaining. Commodity produces extending their low in six years. Tom over to the bloomberg terminal. American up animal spirit, back to world war ii heres 1947, the eisenhower deflation. And here is a Stephen Colbert moment. This is what we live, and then it changed. This is gdp plus inflation. Full inflation comes down. This is what every corporate folk inflation comes down. This is what every corporate officer is dealing with. Very quickly, what will mr. Breen do today . They will wake up and open the paper and be a little bit upset that their planned merger is already out there and almost official, even though it is just according to people familiar. Tom who will they call in washington . The government, dont they . Aron they have to pitch how good it is for farmers. Very quickly, did the hedge funds, the activists, the dan , are theythe world the ones that push this forward . There is no question that they were a driving force. Coming to the conclusion that this is the deal that they want to do. Where does it leave the others . They are going to wake up to this, look at the terminal, and think what are we going to do next . There is no question this is just a first shoe to drop. Tom arrington herzfeld, brilliant with a bill janeway was scheduled with us. He is with Warburg Pincus. We will spend the entire hour talking about his cambridge university. Janeway, with Warburg Pincus. But what you do not know is that he knows what methylethyl ketone is. Bill janeway, ages ago, did everything he does with chemical transactions. Gunpowder, dupont dow, methylethyl ketone, and you drive by the refineries and you would smell than in whatever state you were in. It was another time. Bill dupont was research. Tom the miracle of science. Bill it was deep research and advanced materials. One company was founded by a. Reat man in world war ii in the 1930s he created the First Mutual Fund since the crash of 1929 called chemical fun because he was investing in science. 30 years later dupont was not quite doing so great. Companies chemical had come in all the commodities end of the business, and there was a delegation of chemical fun to wilmington who said that dupont should boost the stock by moving around with their great Balance Sheet, and the answer came back, we take our risks in central research, not without Balance Sheet. Tom Ellen Kullman went out the door in october. She said i do not want these activist shareholders to tell me there is no growth, no nominal gdp, we are not going to get this done. She is shown the door. They bring in and green from tyco. They bring in and green from tyco. Bill it is about maximizing stockholder value over a shortterm timeframe. It is what were seeing across the breadth and depth of industry. It has been a sea change, and that chart shows why. It also goes with this triumphant cry that the only thing that marries they only thing that matters a stockholder price in the very short term. Building longterm, the flipside of this is why larry page and Mark Zuckerberg retain control of the business away from stockholders who are constrained by beating the index in the very short term. Google can afford to do science because the people who control the company can have and do have a very longterm perspective. Tom francine . Francine when you look at shareholder activists, they want to streamline, some of these companies to spin off. Is this good enough . I know they are merging, which flies against what shareholder activists wanted their but spinning off in 3 will that keep them happy . Bill i have no idea because they will be as happy as the stock price is over a very short time horizon. Spinoffore of the companies can continue to invest in the kind of longterm science and technology that will go with commercializing nanotechnology, where dupont should be the. Eader, given its deep history i do not know and we will not find out, but i think we have to be skeptical. Tom i want to point this out. Hashe last 10 years, dow returned 5. 5 per year. Francine, there is no board or no shareholder that would accept that as responsible. Francine you are absolutely right. At the same time, what you would argue against that is that they need to do more in terms of these are two huge dinosaurs. My question to bill would be, if you split them in two or three will one beits, more attractive to shareholders . Bill it will be the one that has some innovation that can bring new products to the market, products with a higher margin, and it will not be trapped in the commodity basement where the lowest access to the lawman to the Raw Materials determine the economics of the business. Phd thesis onour the economics of labour in 1929, 1933. The key question for all of global wall street are we returning to the time of andrew mellon, that fear of consolidations and combinations these are words from the 30s that strike fear in the hearts of all. Bill we have to take seriously the secular stagnation argument that Larry Summers was making. We have to look at two different phenomenon. The biggest difference between now and the 1930s is that on the way into the depression, the federal government was a tiny portion of the total economy. It is 2 in 1929. It was 35 going into the Global Financial crisis, and that as much as anything explains why we only had a great recession, not a great depression. But the second thing and this is where larry is so smart. Over the last 20 years we have seen a radical decline, a sustained decline in the price of capital goods, the stuff that , but particularly in everything that gets touched and eaten by the new digital technologies. Declining capital goods versus consumer goods. What it means is that you save better invested or somebody is going to be unemployed. But if i want to invest that money in new capacity, it costs me a lot less. So there is an imbalance between the intended savings that you have, and my volume of investment. Suggestingt larry is is one of the key factors that is outside conventional economics. We have got to really rethink and understand. I want to give a shout out to carl weinberg. Forget about low Commodity Prices. The benefit to reality is the income effect of declining revenues versus companies to ask. Coming up, we have a very special guest for you. Benjamin gell benjamin dell, next. Francine this is bloomberg surveillance. You are watching a bridge looking over st. Pauls. Tom keene is in new york. Lets get straight to the Bloomberg Business flash. There is caroline. Caroline the price of oil stops giving. Prices still near a sixyear low, showing the trouble in the oil patch. Pipeline company can do morgan is cutting its dividend to save cash. China cut its reference rate to the recent level to the weakest level in four years. The founder of north face dies after a kayaking accident in chile. He suffered hypothermia as his boat capsized. He started the Outdoor Clothing company in the mid1960s. He was 72. That is the Bloomberg Business flash. Tom this is a treat. They are not on speaking terms. Shop ineway is out of a cambridge. Benjamin dell was at sanford and was definitive on asking the question what it costs to get a barrel out of the ground worldwide. His research is definitive and mustread. He is now with that she is now out looking for oil for endowments, for pensions, and we are thrilled to have you on the set with us. The key thing within your presentation is a delusion about hnological process progress, meaning it costs less to get the stuff out of the ground. You do not agree . In reality, what were seeing is the capital employed per barrel in the u. S. Industry what we seeingrell iss in the supply story is a huge amount of bad investment. Chasing marginal reserves. Tom when will that clear . Whatever shop we went to, we learned that markets clear. Chickens arethe coming home to roost. You have a situation with liquidity is draining out of the system. The return on capital is something that investors desire. And also with a credit situation. Askedt is a question i oswald clint. Ben we are at the lowest return on capital in 20 years. This is probably the worst environment for all and Gas Producers since 1928. Since 1998. The number has come down because of the price deflation. Francine we were in paris with tom keene week and we had hans reddick or A Jpmorgan Hans read occurred that may be having an impact on the price of oil as well. What do you think of that . Ben reserves are essentially limitless. The question is, what price can you get them out of the ground . That 150, 110 a barrel, we saw a huge amount of growth in the market. 90 of the u. S. Industry is underwater and cannot generate a return. Janeway, ask a question of bendel. Dell. Ben bill how do we move the economy of the world toward less carbon ,ntensive production of energy given the exposure to the commodity price cycle, which requires that the politicians tell their people, you are going to pay more for energy because of a carbon tax or because of regulation in the market says you should pay. That seems to be the biggest challenge facing the world today. Ben the carbon tax should stimulate all terms of fuel. We are seeing a gradation will change, which is seeing a reduction in oil and gas consumption. We are seeing growth in Renewables Come through the system. That continues 20 years. I personally feel if you look out the next 20 years, the biggest revolution out there is battery technology, and i think that impacts renewables and how you store energy, and your ability to use renewables on a more consistent basis. As it stands today, the power demand is really natural gas. Bill the challenge for bringing renewables into the grid is battery technology, which has been effectively stacking for generations. There are soon new breakthroughs, and one of them is at cambridge. Professor claire gray, remember that name. She just made the cover of Science Magazine three weeks ago with a major breakthrough. Tom you are shameless. That was a shameless plug of the highest samuel peeps would not have done that. Diary, he told the told the world he had done was beyond shameless. Francine you talked about and in 15 or 20 years like you said, how much will come from battery . How much will come from fossil fuel and how much will come from renewables . Renewablesowth in will continue. It is country by country dependent. Certainly i think you can get that to 25 25 or 30 growth renewables in total market share. If you had the availability to store energy cheaply and that is the big question on a semipermanent basis you can see Renewables Grow to that 30 market share year over year. Bill it is complementary to renewables, not up, the qatarng airways ceo. This is bloomberg surveillance , streaming on your tablet, your phone, and bloomberg. Com. The conversation focusing on finance, microeconomics, and m a. Francine it is time for one of our morning must reads, and this new he ish penn talking about the muslim ban, and we are talking about trump. Francine i wonder how that is being played out at home. The proposal of the muslim ban is pushing the Republican Party into chaos. Tom i would suggest it is lost in translation. I quote George Washington from 1790 yesterday, the idea of religious freedom at the truro synagogue at that time was profoundly important for madisons concept of religious freedom. What i would say is it has completely overtaken the american debate. That will be sorted out in the coming weeks. What i was suggesting talking yesterday to tom johnson, who works with Mark Halperin and John Heilemann is it is completely blowing up the republican dialogue. It is all in the republican shsy, including rame response to what mr. Trump said. Francine a lot of people are saying this is the most unamerican thing they have heard on the horizon with accusations of being fascist. Tom i would not underplay the fears that mr. Trump plays to the San Bernardino killings, combined with another number of smaller events not to make them small in any way has galvanized a nation tour the New Discovery of fears that we have. R. Trump played into that it is truly lost in translation to a global audience. Coming up on Bloomberg Radio, a conversation with Governor Terry branstad. We will do that later today. Stay with us. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Tom good morning, everyone. Is true,city it every light you see in new york is and m a lawyer working and working to get to the year end. The board goes against Marissa Mayer, and dowdupont are front and center in the gossip of the morning. Right now, here is caroline hyde. Haveench authorities identified the third attacker in the paris siege. The gunman was a 23yearold from strasburg who left those two years ago to join atomic state. Two of the three attackers kill themselves. The third was shot by police. Congress is tightening u. S. Visa requirements. The house voted to block people from a visa program is from iraq or syria in the last five years. All countries would have to issue passports that include biometric information. Police in australia raided the cindy home the sydney home of a man it is reported that Craig Stephen wright may be the owy figure who unleashed i am caroline hyde. Tom thank you so much per lets go back to the archives of bloomberg surveillance. Catherine mann is definitive on International Economics and our dysfunctions. She talked about the major dysfunction of m a right now. Here is a vocal dr. Caroline man catherine mann. Catherine a lot of Research Shows that urged companies kick on more debt. What happened is happening now what im worried about is the mergers and a positions which are driven by cheap money and the high stock valuations, that is reducing competition in the marketplace. Tom bill janeway is with us with Warburg Pincus. Before we get to this single best chart, what dr. Mann says is the moment why we are seeing this or there is no growth so we have to merge and take on expenses. What bens plays with dell was saying earlier with where we are in the energy economy. If we are going to seize this moment, zero real Interest Rates for government bonds where they are borrowing their own currency, private sector not investing in building out new supply sources, this is when the government should be investing in transforming the industry, in greening the infrastructure for the response to climate change. This is the time for a shout out to Justin Trudeau in canada, who is taking on this challenge right now. Here is our single best chart. This goes to the theme i do not care whether it is fear or it is chemicals or whatever. Here are the glide paths of , w gdp, w d y y. It has been Larry Summers like stagnation, and there is the recent 10year ramp up. The red line is sharply lower, nominal. That is what Larry Summers was talking about. Francine it is what catherine was her causeat for concern. If you have massive, bloated companies that merged to become Better Companies, better run or with lower cost, then it would seem it would make much more sense. Tom this is critical what francine says. Are they going to be Better Companies . Bill they could well be Better Companies, and the overall economy could be worse. What is rational and appropriate at the micro level often does lead to the macro consequence that is not what you want. If these companies are all focused on reducing cost, who is going to be generating the demand that is going to turn that chart around . Earlier,nailed this 85,000 jobs male investment has to be cleared out, right . We have never seen oil rally at the global gdp around 3 . Normally in this kind of environment, you would expect a recovery in oil price to be demandled with the supply dropping off. But the issue you have now is the ultimate demand growth for oil, essentially stagnant. Tom you are the pro at this. Ofre is the terminal value oil . Ben the result is the escalation in Commodity Prices is coming down as well. 80ill return to the 70 to oil price environment, but that will require a change in the market. Tom that is a wow statistic from ben dell. Francine that is the most bullish i have heard. If you look at m a, will we see more m a among the mergers . Is there any other potential of Big Companies coming together . Ben i think the same theory applies here. This echoes 1998, 1999, and that is when we had a record low return on capital employed, and the Industry Response was to consolidate. They started with bp amoco, that arco. Up with with apacheored anadarko transaction, take a labor out of this business and essentially bring down capital spending. This would be on the back of what, just normalizing of the market, or opec at the end of the day at some point cutting down production . Ben i personally do not believe that opec is relevant anymore. Here is really no cartel essentially this market is going to be corrected by supply dropping off. There are two marginal producers here, the u. S. And canada, which are highcost producers, and some of the other opec nations. What you will see through 2016 is liquidity drying out, potentially consolidation. Tom bill janeway, i am getting a ton of mail on your comments earlier about the 1930s. Thank you for wearing a bow tie. You did not get the bowtied memo today . Ben no, but i matched colors. Tom i was told at gunpoint, wear a green bow tie. We know it is not the 1930s , but thebook, google idea here of what we are hearing en is consolidation, amalgamation. That was not a funny word back then. Bill and in fact what happened in the 30s, in country after country, was intense focus on cutting costs, reducing supply as demand fell, until finally the wave of investment began in the u. S. With the new deal. The wave of Public Investment to take the place of the private investment that wasnt happening that is how we got back to growth. Investment we get that employs methylethyl key refinery employees at dupont or doubt . Are not bill the transition is clearly going to be tough. It already has been tough. The 30s, where you have the Public Investment, unfortunately it became all about mobilizing for war. But even before that when you had the Public Investment, when you built the boulder dam and tba, you did put people back to work and unemployment fell and growth surged from 1933 until 1937. To love have got wikipedia. 1910, upon puts out a pamphlet, farming with dynamite. You have got to love it. Francine you are giving them ideas before the next panel. Back to your idea of a be even progrowth with dynamite back to your idea of maybe even progrowth with dynamite. Governments around the world do not even have enough appetite to invest because they are still looking at austerity at the ,oment we are awash with cash and feeling pretty good out there. So why would you invest more . Bill the pressure that is obvious is happening in paris. Invest in transforming the infrastructure to use less carbon and less intensive energy, and prepare the way for greater use of renewables, as ben was saying. How oillained to us filters into whatever dow or dupont become. It is still the core thing in the chemical process, isnt it . Think the petrochemical industry in the u. S. Has had a huge tailwind from lower feed stock costs. Whether it is natural gas, those are big tailwinds come and i would argue that now they have probably bottomed out. Tom can we compete against germans . Ben i still think we can, when you look at cost in terms of the energy side. Labor has become more competitive, and on the international stage, the big benefit the u. S. Have the big benefit the u. S. Has is Raw Materials. Tom ben dell, thank you so much. He disappeared for a bunch of years and is back. Energy chief executive officer. We will continue the discussion on commodities and oil. The prize on comments from daniel yergin. We will do that in the 7 00 hour. In boston, new york, san francisco, Bloomberg Radio plus. Francine welcome back. This is bloomberg surveillance. This is the worst performer this angloamerican shares down 51 . This is after yesterday. It was already down significantly. It has been a gloomy couple of days for commodity markets. Where do we go from here . The ceo of Anglo American going through a tough time. Heres caroline. Teodoro expects to sell 350,000 of its new previous toyota expects to sell 350,000 of its new previous is per year. Within 3. 5 million have been sold since they debuted 18 years ago. Apple is suspending plans for a live net tv service. Media companies wanted more money for programming. Sources say apple will focus instead on connecting Media Companies to consumers through its app store. Sometter experiment leaves users scratching their heads. Instead of posting the most recent tweets first, twitter is trying to show the most relevant posts at the top in social media world are overwhelmingly negative. That is the Bloomberg Business flash. They are insane. I have been dealing with that personally. They are flat out wrong on this. I will editorialize and say, twitter, you are not facebook and that is an advantage. Give my opinion there . I believe i did. Scott galloway is at New York University and a few months ago made worldwide headlines on bloomberg surveillance, scathing in his criticism of the ceo of yahoo what you need to know, 8 00 last night, the board of yahoo basically said do the Scott Galloway plan. What is the galloway plan for yahoo . Scott good to be with you. You are being generous, tom. I would say the board has been haveted with a when you an asset that is trading at less than zero, the disposition of that asset is creating shareholders. They will sell yahoo it is time for the soap opera to hand it is time for the soap opera to end. It will finally monetize what is a great asset. It will be good for shareholders. It is the right thing to do. Tom i look at this, and the simple question is when does she go. I have never seen a ceo survive such a rebuke from the board. When do you suggest she will gracefully exit . Scott i do not know. What will probably happen is she will probably be a good citizen and a good soldier and decide that she wants to spend more time with her family. She will open a family office, start investing in other companies and giving other ceos a hard time. Francine you think this reversal is an admission of defeat from Marissa Mayer . Think it is recognition from the board that the strategy that she had outlined and that they have bought into is not working. Lets assume that they are in fact going to sell yahoo in the states and japan. If they do that, it is good corporate governments it is good corporate governance. If her strategy was the right strategy, bold acquisition to focus on mobile, the execution did not work. The board recognizes it is time to sell. Of what is the momentum facebook right now . Uc twitter trying to be idiots and do a facebook feed. You can see twitter trying to be idiots and do a facebook feed. Scott the most successful product in the history of mankind, tom. More people have a meaningful relationship with a facebook property, whether it is facebook , instagram, then they have relationships with god, allah, the kardashians. 2. 2 billion people have a meaningful relationship with facebook. Tom Scott Galloway, thank you so much. It is wonderful to go from Scott Galloway to William Janeway. He is a fossil, at cambridge university. He studied with samuel pepys years ago. He is at Warburg Pincus thinking about the new technology. Talk about what mr. Galloway was talking about. Twitter is trying to adapt, but there is really only one facebook. Bill there is only one facebook, and it is kind of a winnertakeall philosophy. What happened with the proliferation of cloud computing, opensource software, and the internet as a frictionfree channel for recruiting and delivering services, is that the friction involved in scaling to global reach is like nothing that has ever happened before. So you have very cheap cost of launching a disruptive new of that you because , oflots and lots of players one of the winners, one of which emerges. How it happens, nobody can predict who would be the winner. Tom francine, one of the things you and i heard in paris is that europe and france is having an incredibly difficult time scaling up in technology to the speed of what is going on in america. Francine you are right. There is a difficulty here of getting things we start them and then we cannot go large enough. But then when you look at yahoo , you think you need to descale the business. Verizon bought aol earlier this year. How do you fix yahoo . Does it need to be broken off . Have a long history of companies that have had their day and that move on into the obsolescent bucket. The time that a company has stayed in the dow has declined radically over the last 30, 40, 50 years. I do think there is an important distinction to be made. Facebook stays in the digital domain. Facebook has its reach and its relationship with its customers all in the digital, virtual world. When a disruptive service reaches the physical social airbnb,ike uber and that is when you start seeing the friction. The technical friction is zero, the social and cultural friction is real. Scale against facebook . I do not see it. Bill who is we . Are we starting a company to compete with facebook . Tom not with you. Bill you got it right. They have a huge challenge trying to do that. Tom bill janeway with Warburg Pincus with us. Coming up later, a conversation iowa, terryernor of branstad. I think that will be a little bit on fire. Can he support mr. Trump of new york . Look for that later today on bloomberg. Good morning. Tom quiet markets away from the m a this morning. Even theport mexican peso is stronger this morning. All of the hydrocarbons stronger, in the end showing strength as well. Stephanie ruhle, what do you have this morning . Stephanie we are following some of the big corporate stories this morning. As you mentioned earlier, dow and dupont, two Big American Companies are possibly merging. Mercer mayer and yahoo continue to be under fire. Marissa down mayer and yahoo continue to be under fire. What does it mean for a big agricultural state like iowa . Tom stephanie ruhle, thank you so much. Looking forward to that on bloomberg. Ncine six days to go actually, seven and counting from when the fed will decide the next Interest Rate decision. Janeway firmware berdych is still here. Do they have to raise rates to not disappoint the markets . Bill it sounds like they are universally acknowledging that there is going to be a rate rise , andw big, how long whether they stall and hold off from going back toward normal rates, as they watch very closely the impact on only on our economy but also on the financial balances internationally, particularly the huge quantity of dollardenominated bonds that have been issued by companies and countries that do not have dollar income. This is going to be a very delicate and sensitive process. I do not think janet yellen is going to go just drive straight back to the oldfashioned 3 , 4 . Tom she ignored international events. Around, mark carney no, we cannot. But this time she cannot ignore international events. Bill the path forward is as important as the first step to read the first step, if it is not in the market and if there are not hedges out there, then we have to tear up everything we thought we knew about financial markets. The real question is not what happens in nine days, it is what happens over the nine months, the next nine months, the next 18 months. It will be slow and sensitive and very responsive to international events. Francine bill, did you know it is toms birthday . Happy birthday, tom keene. Tom i am not celebrating my birthday until we get the twoyear extrapolated back to its normal rate. That is 2026. It is not my birthday today. Sure, tv has evolved over the years. Its gotten squarer. Brighter. Bigger. Its gotten thinner. Even curvier. But whats next . For all binge watchers. Movie geeks. Sports freaks. X1 from xfinity will change the way you experience tv. Tand thats what were doings to chat xfinity. Rself, we are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Stephanie will the chemistry be right in this merger . Dupont and dow are in talks. A roller coaster ride not yet over. Has quit falling for now. New data cadet prices punching yet again. Andssa mayer admits defeat the yahoo ceo is expected to spin off andbaba may sell Internet Business instead. Stephanie welcome, youre watching bloomberg. David we have a very busy newsday today. Yahoo , oil, everything is going on. And the of cory johnson here to help. Thank you for being you. We have to begin with the first word. French authorities identified the third attacker in the bataclan