Transcripts For BLOOMBERG Bloomberg Surveillance 20160203

Where does oil go . The earnings that are little below expectations. Tom we have Liz Ann Sonders in the next hour and steven major. Looks absolutely brilliant in 18 months as he lived for low rates. We are thrilled to have Robert Morgan stanley from tokyo with his authoritative view on what the bank of japan has wrought over the last six days. Withine we have that call yields going to 0. 1 with japanese 10year yields going below zero. Lets go to bloomberg first work tears. Vonnie the syrian peace talks are close to collapsing. Opposition groups are threatening to pull out unless russia and syria stop bombing rebel held areas. The United Nations mediators are overseeing the process and hope before nationwide truce. A terrifying moment in the skies over somalia. A whole is ripped in the side of a jetliner. Landed safely in mogadishu. The king of spain has turned to the socialist party to end the political impasse. He asked socialist Party Leaders to form the next government. Six weeks ago the voters elected the most Fragmented Parliament in history. Hillary clinton is trying to reassure democrats who are concerned by her razor thin victory over Bernie Sanders in iowa. She is campaigning in New Hampshire with affairs primary will be on tuesday. Sanders is the senator for vermont and the favorite to win. The first locally transmitted case of the sake of virus in the continental u. S. A patient became infected after having sexual contact with a sick person who had returned from where the virus was present. The zika virus is being called a Global Public health emergency. Global news, 24hours a day, powered by our 2400 journalists around the world. Flow, scottoo galloway will be with us in the next hour. He has been scathing in his witticism of mrs. Mayor. Commodities , a great article that i read yesterday about the ugliness of the afternoon. There is a little green on the screen but the 10year yield on the 86 is not where it was, nine max, west texas intermediate 29. Lets not be too thrilled about that second board. Lots to talk about with the vix 29. 8. I want to point out back to 2. 02. Says it all. En so much can the bank of japan affect. Francine if you look at what done, it has taken back cap of its decline against the dollar triggered by the negative Interest Rate. On my board, losing 1 . They were down a little over an hour ago. A little volatility and uneasiness. I also had the yen. And wp. O show you the lets go to the bloomberg terminal. Vonnie, the shortterm yield to use, spread table with a threemonth twoyear spread. It is volatile and normal here, then here is the dampening of the said. The rollover is ugly news for muni and diamond. The 10 spread, showing something similar. It is fascinating. It is only pricing investments with two hikes. Tom we are back to two . I didnt know that. Francine . Asia continuing to fall. Oil trading near 30. In the head of european equities from Fidelity International for the hour. Harris on nantes. He is joining us for the hour. S a lot of the perspective around the fed is being driven by the environment we are sitting in. That is very low reported growth and inflation. Concerns about the future. Thing to remember is that the picture could look different in a few months time. Example, wage for growth being positive in the u. S. And other signs of Economic Activityproving improving. For the u. S. At u. K. , manufacturing or trade is a modest amount of the overall economy. Actually, youd, see perception around the potential for a rate rise to swing a lot. Francine the market turmoil has been overdone . That we should be more optimistic and when the turmoil flattens Interest Rates can continue . Paras we are in a different world for central bankers are influenced by the environment around us rather than trying to take a longerterm do you. Longerterm view theres the perception that if you dont increase rates, you will stimulate the economy. The idea that increasing rates will choke a fragile economy. I wonder if theres a case to be made were stopping increasing rates takes out the sense of confidence we are on a self sustained recovery. Francine selfperpetuating cycle . Paras exactly that. You have the situation where maybe the link between raising rates and Economic Activity following may not be the same. I look at confidence, i think of Lawrence Summers and his call where we worry about confidence. That comes down to the Broader Market looking at the inflationadjusted down. Liz ann sonders is in our next hour. When i look at equities and how far they have come, do you have a belief in equities, or you under the desk in cash waiting to form a belief later in 2016 . Curious waynk in a it comes down to your longterm view on inflation. Equities are real asset. They represent a hedge against longerterm inflation. In the short term we are seeing in absence of inflation. When i think of the factors driving that picture, it is driven by supply factors as much as demand factors holly Energy Prices dominating the picture falling Energy Prices dominating the picture. The Falling Oil Price will be positive for the economy over the coming years. Tom is the value in european blue chips we ask this in the United States all the time, but it comes down to revenue growth. Look at be the growth of european blue chips if nominal gdp is 2 or 3 . You are getting into an interesting area. There is focus on revenue growth, and rightly so. One thing that you could consider is what is more important . Revenue growth or volume growth . We are in a world where new Technology Enables business consumers toow consume more for less. There is an inherent in theation element economy. Looking at the revenue there is a combination of volume and pricing. If you except there is a disinflationary factor in the economy, which isnt necessarily negative, maybe we should focus on volumes instead of revenues. Tom make sure that he gets the memo on wednesday we dont do partial differentials. It is too much math and complication. Discussion,inue our continuing an important conversation on the chinese acquisition in europe. We will bring you Robert Feldman of Morgan Stanley tokyo. We will speak to Robbie Stanley about the history being made in his japan. Bloomberg surveillance. Francine welcome back, this is bloomberg surveillance. These are live pictures of the millennium bridge. The pound climbs to a threeweek high against the dollar. Lets get to the Bloomberg Business flash. Maker he luxury goods ldh rose in paris for the most in a year. The demand for Louis Vuitton bags and a slowdown in watches and jewelry. Yahoo might be up for sale. Melissa myers is exploring strategical for the unit. More resources for increasing engagement with users. The Company Reported fourthquarter sales that beat estimates. Is offeringd china to buy syngenta for 40 billion. It would be the biggest acquisition ever by Chinese Company. Chairman it will Bring Solutions to chinas farmers. Businesshe bloomberg flash. Hoping it will not only Bring Solutions to chinese farmers, but also farmers in brazil. Tom the drama continues. Comments from mr. Kuroda of the bank of japan. As we have more Monetary Policy options, we will not hesitate to add more stimulus is necessary to achieve the inflation target. In the terms of timing additional easing move will examine the economic condition and risk factors of the time and make a timely decision. Tom he is a singular voice out of Yale University and the Massachusetts Institute of technology. He is at Morgan Stanley after a tenure at the fed and the monetary fund. We are glad to catch up with you. Is there a threat to the policy makers from the economy. Is the abe government and kuroda s tenure at the bank at risk . Robert i think the bank of japan has shown a great deal of , desire, and a determination to do whatever it possibly can to make sure that we beat it inflation. At this point, the boj is the only game in town. We saw the economics minister having to leave office over a minor scandal. His successor has a long learning curve to go before he can put together aggressive reform policies. The bank of japan is taking up some of the slack with the new aggressiveness. Tom dr. Feldman, the trillion thequestion is what will people of japan do if we suggest lower rates, or the unraveling ,f the yen, the stronger yen whatever those dynamics do you think the japanese people will move a lot of their money out of their nation and to the United States . Robert there is an impetus because of negative Interest Rates to take money out of the country. We heard some of the banks will further pursue global m a. There was a newspaper announcement today that some banks may not impose larger Interest Rates on corporate customers, and that would search me push money out of the country. Likelihood of a very major yenweakening is very low. Doneink what the boj has last week and now is more stabilization of operations than an intent to move Interest Rates or other market rates in a sustained fashion with the exception of the yield curve, which they do want to flatten. Tom how do you respond to people who say the arch issue is democratic economics, peopleing of japan. That it will not straighten out because there is not enough population growth . Robert it is not population activity. Even if the labor force did not. 5 a year, we still couldnt get the 2 gdp Growth Without a major acceleration and productivity. The demographics are less important than the productivity growth on the growth side. On the fiscal side, the aging will put an increase burden and we need the government to switch more aggressively to a small government approach. Hold spending down. The japanese people understand that. I do lectures around the country all the time and have people vote on how much spending cuts they want to do, they are on the spending cut side. The people get it. It is just the political incentives that are difficult. No one gets really did for saying they are going to be cutting spending. Francine negative japanese policy rates pushed the yields amoxilnese j. D. Bes lois. How negative will they have to go to move yen . Not clear tois anyone. Theyre trying to figure out what will happen when. It is a Great Success from their point of view that they have flattened the yield curve. The yen has weekend, it came back a touch today, but they have put a floor under the yen at 115 or so, which i would say is a success. Aey have effectively put floor under it, and that is a contribution. It is not what is happening, but what is not happening, that is important. Francine i understand what the next to well markets. Negative rates surprised markets. We interviewed governor kuroda a week before we did not discuss negative rates. It was surprise and shock. What does he do next . Robert i have to give him credit for denying things up to the moment that he dated. Somewhat up to the moment he did it. You have to give him credit for being very straight forward. Next is moving to what we call yieldlationlinked targeting. We are seeing wages accelerate if you look at hourly wage. You are also seeing the prices improve. On friday when they ease policy again, the numbers at the boj improved in inflationary went up. Timenegative Interest Rate is an interim situation applied only to the short end of the curve. They will eventually put through a link, a cap, on the longterm Interest Rate. They will gradually raise that cap as the Interest Rate improves. Interesting economics that is Morgan Stanley, everyone is allowed to disagree. Ellenllen your was way out front. Do you think it will delay into 2016 or next year . Robert i think that ellen is wonderful and a great colleague. She had the fed know perfectly over the last year and a half. She deserves kudos. The global Central Banks are writing with the disorderly markets. They have to fight together. I hope they come up with another type of plaza accord to stop the better than thy Neighbor Exchange rate policy that some are worried about. It would have to include china as well. Were not there yet. It is clear that the Central Banks are trying to fight something. It is difficult to do. Tom Robert Feldman, thank you. We will continue our discussion on economics, finance, and we thank robbie feldman. Stay with us. Francine welcome back. Were watching the yen and japan very closely after governor corrode it gave a speech saying he could do more. Last friday he introduce negative rights. This is the picture for the yen longerterm. We have back with paras anand from fidelity. What is the problem with the yen . Stocks are doing no better. What will it take for something to move permanently . Paras what this reminds us of , overt in the mediumterm time, governments dont move markets, governments do not shape equity markets Companies Shape equity markets. It matters less with the prevailing Interest Rate is or the currency, what matters is how much corporate reform there is, how much change there is in this sector, how much you have the transfer of assets from weak hands to strong hands. If it does not stimulate that destructive process. At what point does this environment actually detract from confidence . Francine thank you. Us. S anand is with the largest ever chinese takeover with the 43 billion deal by chemchina. Lsealso explore what e Chinese Companies could buy in the west. Tom february comes in like a lamb. Morning, from new york city. Rancine lacqua in london lets get to our bloomberg first word news. Germany, chancellor merkel is changing her town on refugees as elections approach. She is turning away from the inviting rhetoric. And is expected to approve a legislative package to restrict the flow of migrants. David cameron is hailing an agreement with the European Union to agree to some concessions to keep the u. K. In the union. It represents a downgrade of what cameron demanded with Foreign Workers and welfare. Willnds Prime Minister poll elections. He asked to dissolve parliament. He said february 20 six as election day. He came during the worst recession in irish history. Is in New Hampshire trying to restore his winning image. He took a beating in iowa. He barely beat marco rubio. Donald trump said passing out that last debate may have made the difference. He is a big favorite in New Hampshire. The busiest time i travel in china is the Lunar New Year holiday and it has been a nightmare in guangzhou. Been00 people have stranded at the railway station. Snow has kept trains from arriving. Global news, 24hours a day, powered by our 2400 journalists around the world. Rancine thank you it is the largest takeover by a Chinese Company ever. Chemchina agreed to buy Swiss Company syngenta. By aaron kirchfeld. I was thinking today, what does this affect . China is serious about having access to technology so that it can feed the Biggest Technology on earth. Syngentas share prices didnt go up much, so that tells me there are regulatory concerns. Chemchina we have been asking why syngenta is trading so low. Traders and investors are at thisand are looking with antitrust questions. They have made the offer and it is the biggest chinese acquisition of all time if it goes through, but we have to see if they can pull it off. Francine it is the Chinese Stateowned companies so it would pose security risks . Aaron that is the way to look at it. In the u. S. , does it have facilities . U. S. S to be approved by regulators. The Agriculture Sector has strategic implications. Because it is a Chinese State backed entity, we know that it has been used as a political tool, so that raises questions. Tom ive heard twice in the conversation the phrase state backed. Is this the Chinese Government buying property in europe . A presence inget agrochemicals and maybe become the biggest player in the world. The chairman behind chemchina is a private businessman. He has done deals before, and this is also part of his strategy. Tom whos the regulatory adult in the room that will view this in europe . Eu andyoull get the switzerland looking at it, but it comes down to the u. S. Phillips had a deal to share some of its lighting businesses to a Chinese Private equity firm that was rejected. They had to go back to the table. Everyone is focusing on the u. S. , rather than europe, even though syngenta is based in switzerland. Francine will the merger have any impact on if this goes through or vice versa . Aaron they are the second in line. Syngenta and chemchina, that domination gives them market presence less that of mark sentelle had taught syngenta. Francine it is been a great 2015 m a year. To cut costs, the easiest way is synergy. What will receive . Paras some of those facts still exist. You have corporate Balance Sheets extremely healthy and the Growth Outlook is uncertain. It seems that one of the options that ceos face is consolidating their industry to grow their markets in a certain segment and realizing synergies to grow the earnings of the business that way. Motivation, or the backdrop, is still there. The m a cycle has moved on. What happens as it m a cycle ofures is the probability cycle misallocation grows as the cycle matures. Francine is there anything we should be watching for in terms of industry . We were talking about Media Companies and telecoms. It is difficult as it in esther to pick one that will be bought out. You focus on Certain Industries . Paras it is interesting that in the environment of 2015, many global sectors were impacted, telecoms and think about pharmaceuticals. Hese deals begat other deals they shift the tectonic plates of an industry and create more activity off of the back of it. Seeing a deal and pharmaceuticals now and companies restructuring their business. A vibrantt is still environment for corporate activity. Of fake name has been chinese outbound. A record start to the year. We have been talking about the chinese doing deals for years. It is happening and singin and chemchina is a perfect example. Francine let me ask you about the other holdings of chemchina. Are also part of a german machinery maker. Will they have to do have to divest those . Relatedhey are chemical industries, but it will be unaffected by the deal with syngenta. And did a deal in germany it shows that kim china wants to get the knowhow. They wanted and theyre out to get it. They have the financing and the government behind them. Littlee i am a concerned about doing business in china, ive heard ceos say, because they copy our savoirfaire and companies in the west lose out. Is there fairness and that . Paras were more likely to see a process with a chinese corporate sector is looking to value chain and enhancing oversees technology, owning overseas knowhow as part of that journey. It represents a shift on from that perspective that you talk about. , they looking at syngenta are thinking do i want to sell to the americans or chinese . The fact that chemchina said we board andthe syngenta inp the headquarters switzerland, the soft promises are what you are talking about. Tom does it open pandoras box . Does the Chinese Government start writing bluechip stock . That thismake clear is not yahoo , this is not a failure. This is a success. Francine sends word of the merger has come out does this open a new area of the study of the state run Companies Buying private enterprise . That this shows that Chinese Companys state appetiteve the to do these deals. When they try to do a big deal in the u. S. , theres always push back. Door for open the chineseu. S. Acquisitions . It depends on the sectors are there will always be political pushback in the u. S. Om we appreciate it we will continue on economics. Steven major is in new york talking about lower yields. He looks like a genius with the 10 year 1. 86. Coming up, steven major confirms lower yields globally. Stay with us. Francine welcome back. Here are the top stories trending. Oil surging by the Fourth Quarter and supply eases. We did a great interview yesterday with bob dudley who expects price hikes in the beginning of the year something gradually rising. Number two, wall streets 1 shows markets bredth in the selloff. 24 stock funds actually did better out of the 2000 that we were polling. European stocks fall with near 30. A lot of people are trying to figure out what is going on. Its guitar morning movers. We are speaking to ceo Marissa Mayers. China will loosen limits funds outflows. Well keep an eye on what comes out of that news. Yahoo down one and a half percent in the free market. Of of these reports different parties are interested. Tom, you asked why would a party be interested in this legacy asset . There is some value. Tom there are number of people lined the. Lined up. Get one billion people a month trafficwise. There is sickly, buying customers. Yahoo demand is very valuable. Tom well have that in our next hour. Francine i am watching exxon, my morning mover. I spoke to an analyst about s p over and hour ago and was trying to quit is that if you look at the oil movers, exxon is the only one aaa rated. It is one of the three u. S. Companies with the highest rating. The others are not in oil. It is now facing a downgrade for the first time in 86 years as crude markets collapse and strangles Oil Producers of cash. That is the latest on exxon and the some of the oil majors. Lets get back to our guest. He is paras anand from the down the t. When you look at oil, it is. Ifficult to predict it seems clear that a lot of the oil majors want to hang onto their dividends. Does that make them attractive . Paras there has per a she and is to maintain the dividend. If you look at the levels that dividends are trading in the are discounting a threat to that dividend. When you look at majors and the integrated nature of their Business Models, they have the capacity to be cash generated even a quiet low oil prices. Towill require oil prices form some kind of recovery over the coming years. Like to holdld you any commodities . The miners seem to be worse off than the oil majors. They are trying to cut production. Ofas the issue is one supply. When we look at the oil market, what we are seeing is significant cuts and supply withdraw. Bring thel efforts to market back into balance is the old adage that the solution to low oil prices is low oil prices. We are not seeing the same adjustment and other commodities. Francine what is your pick the equity markets for the next 12 months of all sectors . Worldwide . Kind of businesses we would look at, i will stay way from being too specific, but the businesses we look about that we look at that are interesting Business Models longterm. And where they have had short term uncertainties about demand think about consumer stocks in emerging markets where there is concern. The market is a Market Driven by fear instead of greed. Is quality Business Model that you are being marketed down if you are short. How do you have a value trap given the odd economics that we have. It was not the same that we studied in the textbooks. Paras absolutely. What we need to look at, where the value trap risk lies, is not so much in mediumterm demand or thinking about what is happening shortterm. It is thinking about, to what extent is this Business Model going to be intermediated, it, or impacted by competition . We are in an environment of competitive threat. Thaty, the way to address is to really think about things like, do you have a very strong franchise . A franchise that could not be competed away . You have a stronghold over your Customer Base . These come into play. Tom coming up, the equity markets linking it into policy in america. Liz ann sonders will join us on Charles Schwab. Futures are flat with a little green on the screen. It is bloomberg surveillance. Tom it is without question the corporate interview of the day. Marissa mayer of yahoo . Look for that on bloomberg in the 9 30 halfhour. The news flow is grim out of yahoo the board gives mrs. Mayer marching orders. We will look at that in the 6 00 hour with Scott Galloway and paul sweeney. That will get you prepared. Now to our Bloomberg Business flash. Swiss watch a Group Reported 2015 earnings of missed estimates. Sales declined for the first time in six years cents swatch has been hurt by the decline in the swiss franc and demand in hong kong. And maintaining dividend payments. Sending shockwaves through the norwegian economy. The Fourth Quarter income will fall. , will retailers, amazon open between 300 and 400 to the mallccording operator of general growth properties. They opened their first store a few months ago. That is the Bloomberg Business flash. Major banks from hong kong, shanghai banking and corporation steven major is looking for low rates. He looks like a genius until he gets to friday. We will talk about this in a bit. I know that francine wants to go to the european discussion. Reaffirm we are on a trajectory to 1. 5 . Steven yes, and we will get there much quicker than forecasted. Tom did you hear that from Stanley Fischer . Steven he seems to a back tracked. The last time i spoke to you, he was hinting strongly about following the path of 4 hikes. About reaffirming. Now he has backtracked. I guess we will see more of that. Vonnie the market turmoil had not happened since the first time he spoke. Steven it has been there since devalueder when china its currency. The surprises have all been downside. The surprises are clearly going downwards. We will dive into this with Liz Ann Sonders and steven major. Right now, osborne speaking, right . We havei want to ask if 1. 3 79 handle on the 10year, but i also want to ask about the brexit. What do you worry about . U. S. , u. S. Politics, or what is going on in rome where chancellor is saying that we have a good deal with the eu . Theres the suspicion that the u. K. Papers were written, the headlines were written, whatever deal that would of come out it would never have been enough to satisfy that kind of euroskeptic part of the population. White substantial concessions has been earned, theres a hardline body of euro skeptics. Im optimistic not only in the outcome of the referendum, but attractinghat is less focus is how potentially galvanizing a vote to stay within the eu becomes politically and economically. We could see an acceleration beyond that point. That is potentially something that the market is not focusing on enough. Francine re concerned that way went from thinking rates would rise to say now actually a cut. Again, what does it mean for your position in equities . Paras it is true in the u. K. Inually, you can see that three months or six months the narrative, backdrop, and data we have been looking at will be very different. Most of the indicators that we see suggest that a recovery in the economy is consuming and Economic Activity is healthy. Think about the living wage and its impact through the various companies. The point again that services are 80 of the u. K. Economy. Thiswe appreciate it morning. Steven major, to get us started in the next hour, i am interested in the search for aggregate demand. That is the core . People haveink that been overestimating their response on unconventional policies. There is an assumption that because the central bank has done something demand will be there in the future. They are missing the debt overhang, for example, and the way the Global Market is interlinked and policy measures are exhausted. Everyone has been lazy with their mean reversion idea. Thank you so much. Liz ann sonders of Charles Schwab with steven major of hsbc. That is a wonderful combination to link equities into bonds. The at tendons are commodities and currencies as well. Stay with us, another hour of bloomberg surveillance. Tom it is a cross asset and correlated day as Global Markets adjust. To manyning, a bid markets it is attempted. In this hour, Liz Ann Sonders of schwab. The American Economy stands alone. We consider the american job making machine. And Marissa Mayer receives marching orders from her yahoo board. Good morning, everyone. This is bloomberg surveillance , live from our World Headquarters in new york. It is wednesday, february 3. I am tom keene. With me, Francine Lacqua. I do not know where to begin on what we saw yesterday and the complexities of the market this morning. Francine we can boil it down to one word, riskoff. Earnings are disappointing. Andlook at governor kuroda what he said with the foj, he is ready to do more. It is tough being a central bank. Tom data check the yen stronger this morning, speaking to the tensions that are out there. Here is vonnie quinn. Vonnie the syria peace talks are close to breaking down. They have barely even begun. People are threatening to pull out unless russia and syria quit bombing rebelheld areas. U. S. Mediators are overseeing it and are hoping for a nationwide truce. Anifying moment rips open a hole in a commercial airliner and a man hurled out of the jet and fell to the ground. Hillary clinton is trying to. Ase the fears of democrats she is campaigning in New Hampshire where the first primary will be held next tuesday. Ders is in vermont and is sanders is a senator from vermont and is favored to win. Southern california gas is accused of failing to immediately report a gas leak, which uprooted more than 4000 families. The company vigorously contest the charges. Health officials in dallas are locallyng the transmitted case of the zika virus in the u. S. The World Health Organization says the zika virus is a Global Public health emergency. Global news 24 hours a day powered by 2400 journalists. I am vonnie quinn. Tom breaking news here, lows not buying the toronto maple leafs. This is homeimprovement going up against home depot. Lowe. s to buy rona. Nymex with a 29 trend last liz annthe vix sonders, you would think there would be a 28 with the news flow. There is not. Fearful a better less vix. Yen, yen, yen is the focal point this morning. Francine the currency has taken out over half of its decline triggered against the boj decision to cut Interest Rates. Figuresisappointing from adb. Asian stocks are down. As nomura and others disappointed. I know you would like this, tom. The reserve bank of india by leavinglstered Interest Rates alone. Tom it is extremely hard, and some of those moved abruptly over the last 90 days. Clinic time. Steve major on the set. He is the only one who gets this. Twoyear spread. Heres george can call this debt here is George Goncalves saying an abrupt reversal leading into banking profitability challenges. It is a wonderful way to bring in Liz Ann Sonders of Charles Schwab. Honored to have stephen major of hsbc. Our banks what an interesting time. All the years we have done this, it has never been more interesting. How do you make money as a utility bank with the curve flattening out. Liz ann not very easily. We have seen an incredible reversal in many of the financial stocks which, in advance of and the immediate aftermath of the rate hike in december, you got quite a lift , and now it is fading. Tom what are the flows that youre seeing a Charles Schwab . You have a window into retail america like no one. What are they doing with their money . Liz ann they are weak. If you look at aggregate, the 52week trailing average of flows has gotten to a more extreme in terms of outflows than even what we saw in 2009. The fear factor is extreme. En major,tephev banks are not the priority now, are they . Steven the last thing we need is the fed tipping the Global Economy against recession, and banks of banks are part of this. When the fed is looking at the stress test, for example, they are thinking about different scenarios and what to do with the banking system. But theyre clearly preparing for adverse scenarios. Really gets it. It knows how bad things are out there but it just cannot say it. Vonnie would reverse this rate hike . the first thing to do is to make sure there are not any further mistakes. Francine any chance that we will see an inverted yield curve in the u. S. Anytime soon . Our markets starting to price in the possibility of recession or much weaker growth . Flattening and longer forwards has been indicating a move towards that for some time, francine. It would be a real mistake if the fed let the curve invert, and there are many things they can do to avoid that scenario. They can move back on the reinvestment stocks. If they want to steep and the curve out, that is quite easy, but by pushing back on the rate hikes as previously expected, they will steep and the curve. You were talking about the fed and suggesting they were way out front, but the fed wants to test how banks will handle negative rates. Do we know how they would do under that scenario . Steven i guess not very well under the feds stress test. They are looking at negative rates. One of the interesting insights is that this is saying that the fed would not go to qe4 in the adverse scenario. They would go to negative rates. That is the ultimate vindication. Tom Liz Ann Sonders wrote about qe 62 years ago. A jll most aj curve, curve. Do you have a fear that the equity markets will catch up with subdued slower, nominal gdp and it will become dampened or rollover . Liz ann i would argue that given the corrective phase we have seen and the volatility we have seen tom this is not a corrective market . Liz ann this is what we would call a nonrecession bear. In 2011, a severe correction in an ongoing secular bull market, but a period of severe stress. Ann hates when i bring this up. This goes back a million years to 1950. We have rolled over a little bit, but that slope down there is the fear, the malaise of the 60s and the 1980s. Liz ann if you look back at the onset of this bull market since 2009, it had all the markers of a bull market. If it walks like a duck and quacks like a duck, it is a duck to use that analogy when looking at the beginning of this bull market versus the beginning of the 1982 to 2000 bull market, it had those marketers. It had those markers. Sometimes when you use that terminology, it sends a message that it is a great environment, it is up every year. The crash of 1987 happened within a secular bull, you had the crash of 1998 with a secular bull. That is the best bet at this point, but we are in a tough phase. Francine how do you explain the correlation between the oil markets and stocks . Are they worried that there is something more to it than just supply . It is unclear to me why these are following each other so closely. Like just correlations are up across the board, and that has a lot to do with the mechanics of the market , and momentumdriven investing strategies being paramount among all strategies. I think both the message from china and oil, and the correlation of the markets, has to do with, is it sending a signal not only about weak economic growth, but those oil represent what subprime did back in 2008. Tom interesting. You are the first person i heard say that. Liz ann if you track oil prices x index the big difference between 2008 at now is that the average investor and consumer was significantly long on the problem in 2008. Now effectively they are short the problem and they benefit. Stevenz ann sonders and major with us, two different worlds dovetailing on what you need to know with investment. He does not know anything about investment. Scott galloway is at new york university. He speaks directly about yahoo and miss mayer. Scott galloway on yahoo we will do that next. Francine welcome back. These are live pictures from millennium bridge. The clouds are here. All the bankers in all these banks in london are trying to get a copy of that draft deal because this deal incentive to satisfy camerons greater demands for u. K. Sovereignty also include a banking track for u. S. Currency. Here is vonnie quinn with the Bloomberg Business flash. Vonnie analysts are forecasting a rebound for oil by the end of the year. The price of west texas intermediate will rise by 50 to 46 per barrel. Goldman sachs says the global surplus will become a deficit. Falling demand for computers and smartphones the Worlds Largest pc maker says revenue fell 8 last quarter. Lenovo gets half of its reven ue from computers. Yahoo will cut about 15 of its staff, close offices, and devote more resources to increasing engagement with users. The coveney reported fourthquarter sales and profit that beat estimates. That is our latest Bloomberg Business flash. For more, lets bring in Scott Galloway, who joins us from the phone. Really in the end game, at this point, is that . Scott yes. Put out abasically job for sale sign. Alternativesoring with the execution of the management plan, that means this is a siren call saying everybody should get out their pencils and reach out to their banker. This is fairly explicit, extraordinary behavior for the chairman to say we are essentially for sale. Approach they will tbgwill approach yahoo , or will yahoo shop for suitors . Think because of the size of yahoo , there is a handful of players, maybe two or three, that the bankers could deal with some private equity guys who are traditionally not in the space. I think it is a series of players who the bankers likely know and are in discussion with. You a process like this, want it to be short and violent. You want two or three players who decide they want it and the banks do their job and the shareholders get more than hopefully they would in a depressed market. Market dynamics trump the individual performance of the brand. But as you saw in the earnings call, there is still a lot of value here. This is a 4. 5 billion a year company that still makes money and still has assets. I think it will go for more than people think. A companybut this is that is in perpetual turnaround. Will Marissa Mayer hold onto her job . Scott i do not think so. I think to a certain extent she has gotten another reprieve from death row because they have decided to sell the company and they will let the new acquirer decide what to do with her, which my guess will be a polite sort of easy exit for her. The thing no one is really talking about this morning that is very interesting is that Charles Schwab resigned from the board midcycle. As someone who has been a long as someone who has been on a lot of boards, that is really unusual. He is resigning from the board effectively pretty much immediately, and typically Board Members resign effectively immediately when there is some unusual thing in their life, or, two, they have a disagreement with the board. Tom Scott Galloway, thank you so much. It is most inappropriate to speak to Liz Ann Sonders this morning about the activities of one Charles Schwab. Paul sweeney joins us to talk about this. I look at yahoo , the train decades, 15h two years flat for 10year performance. What is your to do list for the board without mr. Schwab . Paul they have to focus on what they need to figure out a way to grow the revenue. They are in a revenue where the top line is 10 , 15 here, but they have shown no growth. They have some shoots of Strong Revenue growth, and they need to spruce that up and cut costs and make it more attractive for potential buyers. Ourselves howmind tiny this company is, given the press they get . Paul it is amazing. In a tech world, and internet world when you have so many tremendous success stories, whether it is facebook, linkedin, or google, you have one of the internet 1. 0 brands like aol. Yahoo did not make the transition. Otherst left behind as moved from social into search. The dog over to verizon, that is one persons opinion. Can she generate a transaction of the year for this tiny company that is not even aol . Better think it is a company than aol. It is much bigger, has close to 800 billion in cash flow. A billion got over users coming. So it is a huge audience. But they have simply kind of missed the boat as it relates to mobile, social waves of the internet. Somebody else can do a better job. Tom are would you are you going to be on this five days this week . Paul absolutely. Tom coming up, a conversation with the chief executive officer of yahoo , Marissa Mayer. Look for that this morning. Stay with us. Bloomberg surveillance. Francine welcome back. We want to look at bond yields. U. S. Treasuries falling, with the 10year rising from the lowest level since april. Our guest host for the hour, Liz Ann Sonders, from Charles Schwab, and steven major from hsbc. You forecast the 10year yield at 1. 5 . Howtive rates in japan beneficial are they to u. S. Treasuries . Steven there is a clear link. The lower the yields are in japan and, for example, germany, the two are competing for g3 at the moment. Below those yields, the term premium for the u. S. Has gone down. That is looking at the curve steepness and the long end and the short end. There is clear evidence of flows from europe and japan into treasuries that would not take place otherwise. It is impossible to deny this, but the u. S. Yields can be brought down by those events in japan. I think that kurodas comments today are stressing that maybe the policy has not had the desired effect, because the yen has not moved that much, as you pointed out. Also, short end swap yields have not moved into negative territory yet. The markets are pricing in a kind of paralysis, so maybe the boj does more. And the 10year yield, can it go back to that rate of 1. 379 . Toven first of all, we have get some key numbers in the 160s. There is no reason why we cannot get to those. Tom bring up the 10year u. S. Yield. This was the steven major call, which was huge when he made it six or eight months ago. What does this do to the highyield space . When you take it out to corporate or the beleaguered highyield space, what happens at the 150 . Steve the spreads are getting very wide. The question is, what do you price highyield off of . If you get toward negative rates, do you price them with cash, for example . From an investment point of view, highyield is looking very attractive on any kind of historical chart. But what is actually going on . Are we going to see an increase in defaults . Is highyield the new subprime, for example . We cannot dismiss it in the same way the subprime was only a small market. Tom we will come back. Steven major with us from hsbc. We are dying to hear from Liz Ann Sonders about the fear, the caution that is out there among retail america. Onn collender will join us americas fiscal policy. Stay with us. Francine welcome back. You can see european stocks off the twoday low. That is shown in the japanese yen it really has not had the effect that governor kuroda wanted, putting those Interest Rates negative. We hadwant to mention, an interesting call saying currency will strengthen to 68 by march. Vonnie Angela Merkel is heartening her approach is heartening her approach to Angela Merkel is hardening her approach to the migrant situation. David cameron is in agreement thee European Union deal represents downgrade from what cameron had demanded when it comes to Foreign Workers claiming welfare. A referendum on whether the u. K. Stays in the e. U. May be held this summer. Irish Prime Minister says that every 26 will be election day. He came to power 25 years ago during the worst recession in irelands modern history. It is the busiest time for travel in china right now, and it has been a nightmare in one shoe. Earlier this week in guangxi to. Have been kept from arriving. Donald trump is in New Hampshire, trying to get his campaign back on track after suffering a big setback in iowa, where he finished second to ted cruz in the republican caucuses, just barely beating marco rubio. He is a big favorite in New Hampshire. Global news 24 hours a day, powered by more than 150 news bureaus around the world. I am vonnie quinn. Tom lets have discussion on what no one is talking about, and that would be the fiscal policy of the nation. Liz ann sonders of Charles Schwab is acclaimed for writing a report that no one read Stan Collender can top her. He had a 242page report. Good morning, sir. Stan good morning. By the way, mine was a smaller font size. Tom are we going to a surplus . No, stop. We are going to the opposite direction. Congress increased the deficit last year. After years of the deficit declining, it is starting back up. Tom is it all jury rigged because we do not know when the gdp is going to be . Has a never been more uncertain in your world of fiscal analysis . Stan no one is quite sure of what is happening. In a situation where the economy is different than it has been, and we are not able to predict. Were of all the countries are not going to be able to service . Stan given the softness of the economy, the fiscal policy might be going in the right direction for a while. Has aas a linen limited number of tools. The serious Public Service on tax reform that worked out, right . Liz ann we did just celebrate the anniversary of our tax report. Manual went back into the basement of treasury, i believe. I cannot imagine you think there is any traction for tax reform, certainly not preelection. Stan i have said on this year on this show before, i do not think it will be until 2019. I think it will take at least four years. Liz ann full across the board, or everything . Stan everything. The u. S. Budget deficit, youre saying it is widening for the First Time Since 2009. In terms of my morning mustread, i picked martin wolf writing in the financial times. Link u. S. G to politics, this Great Service with the u. S. , and how that links to budget spending this year. Who will be with the outcome the worst outcome for what we can expect . Stan that is almost impossible to say. None of what the candidates are saying makes any difference to how they will be governing. If you have a hardliner by ted cruz, the ability to manipulate the deficit up or down will be much, much less. When you probably want is a candidate who will make a deal and talk to the other side. Lets talk about what happens with congress. You could have four years of basically nothing happening, regardless of who gets elected president. Francine you are saying that no matter who gets elected, they will be more centrist . Stan no. I am saying that if they are not centrist, you may not get the fiscal policy that you need given the economy. Tom anthony, come on over here if you cant. We show this a couple of days ago. This is the glory of the 1970s and the 1980s. It is a long chart. We are still rocking the house, and then things change. This is the date that Liz Ann Sonders joined the tax reform commission. Is congress and are the candidates aware of this chart . Stan they are aware of it, but they are ignoring it. Chart to aare of the certain extent, but some of the anger is due to what you see on the chart. Chart andd this basically what it is showing has decided that one of the reasons that trump is doing so well. Stan until this past tuesday. In other words, everyone was angry until tuesday, and now they are not angry anymore. Vonnie seriously, what will be done under the next president to rectify the situation . The polarity of this process, the labor force, if you ask stan fischer about it, he says Monetary Policy cannot do anything about it. Liz ann i think when you talk about Monetary Policy, there is believes the that monetary divide is because of it. There is a bias in terms of benefit to hiring companies. But data like this does not incorporate a transfer payment. Just looking at simple income or average Hourly Earnings does not capture the whole picture. To the point about soundbites, it takes to bank much time to show this. The with your experience in trenches of budget washington, what is your counsel to mr. Trump to right this campaign . Stan first of all, i do not know if the Trump Campaign is seriously off the rails. You just had iowa. Overreacting to iowa is like cheering the first pitch in the first game of the season. Cheer, but it is irrelevant to what is going to happen. He has to get his people out to vote. That is the ground game. But to your question, you are assuming that after the election policymakers will change policy. I am not sure they will. I think the market should expect another two to four years of this extreme policy from washington unless there is a crisis. Tom stand, thank you so much. Stan collender with a fiscal up a. We would hear from mr. Coll in february as well. Coming up in the 9 00 hour, on radio, on television worldwide, a conversation with Marissa Mayer of yahoo look for that in the 9 30 hour. Futures advance green. Liz ann sonders, lifting the market. It is bloomberg surveillance. Francine welcome back. This is bloomberg surveillance. I am Francine Lacqua in london. Tom keene is in new york. Here is vonnie quinn. Buyie lowes has agreed to canadian competitor rona. It has been looking to expand in canada. The world hostler just online retailer is planning to invest in bricks and mortar. Largest online retailer is planning to invest in bricks and mortar. Amazon opened its first store in seattle several months ago. It is official. If this deal is completed, it will be the biggest acquisition by a chinese coveney. Syngentas is recommending the agreement to shareholders. That is the Bloomberg Business flash. Tom sometimes the world just stops when we hear something from an esteemed economist. Robert feldman is with us from Morgan Stanley this morning on japan, and stopped me in my tracks on his comments on the track to a new plaza accord. Here is dr. Feldman. Robert global Central Banks are fighting with disorderly markets. They have to fight together. My hope is that they come up with another type of plaza accord to stop this Exchange Rate policy that some people are worried about. That said, the Central Plaza will probably have to include china as well. We will have to see. It is clear the Central Banks are trying to find something, but it is very difficult to do. Tom that is a stunning statement at the bloomberg terminal. Here is recent dollar strength. Here is the rubin dollar of the late 1990s, and here is a ginormous move that came with the plaza accord to readjust, to recalibrate in a different and changed world. Lets open this up. I want to go to you first, steve major. This is a totally different Global Economics than we knew in the 1980s. Steve i was quite struck by that comment there is maybe this is one thing that could make me change my mind. If there was a durable solution, maybe we will change our call. But there is something going on because in the last few months there is clear evidence that Central Banks are aligning their policies. Maybe it is not obvious, but think about the Balance Sheets of the fed and the bank of england. They have been very clear about continuing investment. That was a threat that they might stop reinvestments. We know that the central bank has talked several times a week. They meet physically once a month at least. They are aligned in many ways, and clearly if the dollar was to go up, that kind of move would take 1 of the gdp here. If already the dollar move through exports has taken half a percent of gdp, it has had an impact. Tom that leads over to you, liz ann. Transnational and u. S. Leaders have to do with dollar strength. How are they dealing with it now, and what will they do leading into feldman dollar access . Liz ann the strengthened dollar and everything related to that, what is happening in volatility, the equity market, credit spreads, the yield curve all acts as a way to tighten financial conditions, which is why the fed is going to have to pull back. We have been in this loop where you get tighter financial conditions with currency at the base. Theoes the tightening for fed and allows them to become more dovish. We saw this last year and we are seeing it this year as it relates to if and when we get a second move by the fed or if they have to backtrack. Ostensibly when they become more dovish, that loosens financial conditions, and you get a steeper yield curve. We are clearly still in the tightening financial conditions. Francine you say that Central Banks speak to each other on the phone. We understand that Thomas Jordan lost the surprising markets by removing that do they speak to the pboc . Steve yes, and any kind of credit will solution or accord, as tom mentioned, will have to include china. That is the big difference between now and the 1980s. I am not sure how much historical differences can be made. I want to go back to your comment and link it into this discussion where you said the Retail Experience at schwab is due to fear. What is the fear that we have right now that you observe in your context every day . Liz ann i would say fill in the blank. This is not a recent phenomenon. What is remarkable to me since the bull market began is how quickly we go from mild enthusiasm to panic. We have had a skeptical investor really through this entire bull market. I cannot remember getting a question that had a positive shoe to drop. Memory of is muscle the financial crisis, the fact that it came within 10 years of the tech bubble bursting. So we had two huge bear markets in a 10year period. Much like the great depression, i think we have changed the psyche of a generation of investors, and i am not sure theres much that can be done in this cycle to turn that around. Shock thats there a needs to happen . Do we need to find a price for lower oil for that psyche to change . Liz ann up until recently we have had a tremendous run in the market. Price action itself has always been there to get investors positive about the market. We need to see some stability in the oil markets for the stock market to have some stability. We need to see a return to positive earnings growth, which also relates to oil. Whether those fundamental factors turning are sufficient enough to see it changing investor psychology, i am not sure that is the case. We could eventually finish this bull market without getting to that massive phase of you forwarded that tends to mark major bull market peaks. Vonnie we see sales barely missed 10. 2 billion versus the estimate. Merck was giving sales worldwide were down 3 . Tom you mentioned 14 other journalists. One just came to me. Bob burgess, who run so much of our fixed income, and alan ruskin of Deutsche Bank also harkening to a positive accord just a few days ago. We will continue this conversation on economics. Tomorrow on bloomberg surveillance, David Rosenberg will join us. We may even pull into some discussion on what the hell happened to the montreal canadiens. Stay with us. Bloomberg surveillance. Tom we will do next or a data checks on radio for the next three hours. Michael mckee and myself. It starts and ends with the yen. Forget about the hopes and prayers of mr. Kuroda. He spoke earlier today. 118 trend on yen would be stunning. The korean won, watching out for weakness today. Not like the crisis of 1998 or 2009, but nevertheless, we have not shown dollarwon in ages. We are thrilled to bring in Liz Ann Sonders. Thank you for your comments on twitter in discussion with ms. Sonders. Stephen, let me start with you to wrap up yen dynamics. We had abenomics and weaker yen. Has is the goal that hsbc for the japanese government . Steve the dirty secret is that the cheaper yen and the inflation target what they recently measured is that they cannot hit 2 . You go for 1 , but you have 1 Interest Rates. It is the same thing, isnt it . Moving that policy is toward rates are putting toward positive money. We keep coming up with these ideas, but they are sort of a quick solution. The idea that moving the yen weaker fixes things i do not get that either. What it does is give them a quick, shortterm burst. Bearing in mind that the yen is already 50 or so weaker than it was three years ago, that is some move right there, isnt it act go i think the question has got to be, how much more do they really expect . Tom francine, we are doing bloomberg surveillance math. Francine let me ask a question. My question on that would be, are Central Banks around the world when you look at the boj saying they could do more with the yen, not believing it or looking at the boe and looking at the fed . Steve we are not quite there yet. Picture, with the oldfashioned way you have done it on the screen tom did i do it ok . Steve you did it just right. The 2 target is to help dissolve the debt over the longer term. Think about this. The idea of 2 inflation over a year period is all debt there is an accumulation effect. You cannot hit 2 . Youabout just missing that are going to hit 1 and take policy rates to european levels. You already have the swiss, danes, and swedes at 1 . So japan has opened the floodgates. Francine where do you see the yuan going, when you look at trading and the market today macro it seems that bets are increasing. The market for words pointing toward the weaker currency the question is whether we get there sooner rather than later. But the question of the direction of travel is very clear. Tom we have got some news here, vonnie . Vonnie china has set a growth target, a range. It is a first time that china has set a range since 1995, a target, and this on top of the news earlier out of china that it is loosening rules in terms of capital flows. Tom ok. When i look at this map, is this morning in america . I dont think so. Is notrry, this map morning in america. It is a real struggle. Liz ann deflation is toxic. It is a tougher battle for central bankers than inflation, arguably, and i think we are seeing the waning belief in the omnipotence of the central bank policy. Tom can you two come back together . Can we get your guys can we get you guys to sequence your schedules . Liz ann sonders, and steven major visiting from london. We have lined up a terrific set of perspectives. George magnus, and Ellen Zentner of Morgan Stanley. With a little bit of green on the screen, stay with us. Bloomberg surveillance. Stephanie stocks are down around the world again. Oil is rebounding after its worst twoday drop in almost seven years. Is this Marissa Mayers final flipflop . The yahoo ceo has unveiled another turnaround plan, this one involving the possible sale of the company. And the zero option. Jim grant says Interest Rates may have to go down again because we may be on the verge of a recession. We will speak with him and davids are most in just a moment. Zervos inid just a moment. Stephanie it is wednesday morning. We are in new york city at bloomberg World Headquarters. You are watching bloomberg. David westin is off this week. Matt i am excited to be here on hump day. To ring in jim grant and david servo